The Business Dimension

Based on the works of a number of business life cycle theorists (Greiner, 1972;

Kimberly, 1979; Kimberly et al, 1980; Jossey-Bass et al, 1983; Flamholtz, 1986), the business dimension can be divided into three stages: start-up, expansion/formalization and maturity.

3.3.1. Start-Up

The formation of this stage is based on the founder’s high aspirations and is characterized by little organizational structure. As a start-up company, it will commonly focus on one product which will most likely be a market niche in order to survive the intense competition (Srisomburananont, 1999; Andrews, 2010).

Gersick et al (1997) identify two key challenges at the start-up stage: survival (market entry, business planning and financing) and rational analysis versus the dream. In order to survive the competitive arena, the firm must gather adequate liquidity to set up basic operations, purchase materials, manufacture the product and actually sell it to the market. Having a clear understanding of the product, price and operations, the firm must quickly form a competitive advantage and have adequate

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internal planning and funding (Srisomburananont, 1999; Andrews, 2010). At this stage, although the business began to fulfill a dream of the founder, he/she must balance between rationality and passion. An honest assessment of the likelihood of success must be done while still maintaining the dream alive (Srisomburananont, 1999; Andrews, 2010).

3.3.2. Expansion/Formalization

The expansion/formalization stage may take many forms and may sometimes go unnoticed. At this point, the family firm has established a presence in the market, whether through expansion or organizational complexity. This stage also involves the period of growth and when organizational changes slow down significantly.

Small changes such as establishment of new manufacturing facilities, service offices, hiring professional management or introducing new products or services are all part of the expansion/formalization stage. Therefore, this stage is characterized by increasingly functional structure and the existence of multiple products or business lines (Srisomburananont, 1999).

Gersick et al (1997) identify four key challenges at this stage: evolving the owner-manager role and professionalizing the business, strategic planning, organizational systems and policies and cash management. As the organizational structure develops into a more formal hierarchy with various business units and functions, the owner-manager must begin to delegate responsibilities and authorities to non-family members. As the number of non-family professionals increases, decision procedures must be formalized and family members must be hired based on skill and not relation (Srisomburananont, 1999; Andrews, 2010). The challenge

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of establishing a strategic plan lies not on whether to select a mass o niche market focus, or whether to adopt a differentiation or low-cost strategy; rather, the key concern is how challenges are addressed. The owner-manager must learn to gather information for decision making processes and learn to take different insights from other members in the firm. If the owner-manager were to restrict information gathering and analysis, or resist critical reflection on personal vision, it may lead to a mismatch of resource investment with strategic opportunity or fail to see new emerging opportunities (Srisomburananont, 1999; Andrews, 2010).

Another issue is the ability to maintain organizational systems and policies. These organizational policies include issues such as the design and structure of the reporting relationship between headquarter and the subsidiaries overseas and effective implementation of an incentive scheme that encourages both quality improvement and cost reduction. With adequate organizational policies and procedures, the firm’s capability will be improved (Srisomburananont, 1999;

Andrews, 2010). Lastly, the allocation of capital and funds between lifestyle and business is very crucial at this stage (Andrews, 2010). The family has become profitable through the success of the business and must learn to allocate between the adequate amount of funds in order to finance its operation and investment for future growth and cash for family use (Srisomburananont, 1999).

3.3.3. Maturity

At the final stage of the business dimension, the firms’ everyday operations have become a routine. Expectations about the firm’s future growth have become moderate, the product has stopped evolving and the competitive dynamics shift to

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increasingly unprofitable battles over market shares. The firm still operates efficiently, controls significant market share but the stability will not last. Therefore, the maturity stage is characterized by having a stable organizational structure, a stable or declining customer base with modest growth, a divisional structure ran by a senior management team and well-established organizational routines. The end of the maturity cycle may take two forms: either the firm takes the step towards renewal and recycling or it leaves the market and the firm dies (Srisomburananont, 1999).

Gersick et al (1997) identify three key challenges in the maturity stage: strategic refocus, management and ownership commitment and reinvestment. With products becoming commoditized, margins decreasing and competition growing, the firm will need a strategic refocus in order to reinvent and reposition itself in the competitive market. At this stage, non-family employees become increasingly important. They provide an outsiders’ perspective and can enhance the chances of continual growth of the firm. Therefore, it is important for the family firm to devise a clear career advancement strategy that takes into account incentive and recruitment tactics that will locate and retain the best non-family management. Both family and non-family employees must work to inspire a shared vision for the family as well as for the organization (Srisomburananont, 1999; Andrews, 2010).

The challenge of reinvestment involves that of new products, people and equipment. If this challenge coincides with the passing the baton stage in the family dimension, it can become difficult to overcome. It may be more difficult for a senior generation to embrace a new reinvestment policy; therefore, the family firm may be

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left in the maturity stage for longer than necessary. External factors such as the industry condition, technology development and economic cycle can also greatly affect the speed at which the family firm exits this cycle (Srisomburananont, 1999).

To facilitate transition between the stages in the business dimension, Gersick et al (1997) suggest the implementation of a management development team. This team should be composed of the owner and top managers with the purpose of acquiring new talent. The goal of the management development team should be to determine what is best for the business’ welfare and must also consider developing family members as valuable human resources. It should develop a procedure of how to hire, when to do it and how to train the employees. This team should also consider what areas of business will grow, be aware of what stage the business dimension is facing and be in sync with the changes in the environment and the career management process (Gersick et al, 1997).

The three-dimensional developmental model provides a comprehensive view of the vital dimensions that are characteristic of family businesses. One of the major differences between a family business and a non-family business is the significant overlapping role that the founder plays, being owner and manager of the business at the same time. The founder simultaneously plays several roles, usually as head of the family and as head and manager of the organization. Thus, the decisions made concerning the survival and continuity of the family and the business are mutually affected by each other. Another factor that makes a family business unique is the involvement of family members in the decision making process of the business.

Like the founder, family members have dual stake concerns, they must be conscious

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of the identity and role they play in the family as well as in the business. The three-dimensional developmental model captures these dimensions: ownership, family and business and further breaks down each dimension into different stages. It clearly states the characteristics that each stage has and the challenges that the family firm may face. This model is the most widely accepted framework for the study of family firm behavior. It serves as an analytical tool which allows the understanding of the circumstances in which the family firm is in and the possible challenges it may encounter. Gersick et al (1997) also provide suggestions as to how the family firm may ease the transitions between stages within each dimension.

Therefore, the structure of the three-dimensional developmental model is followed in the analysis of the case study firm in this research.

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