Many businesses in the world are family-owned. A family-owned business differs from other types of businesses in several ways, because it is composed of both a family and a business. For instance, families and businesses exist for different reasons. The family’s primary concern is the care and raising of family members, while the business’ main concern is the production and marketing of goods and services. A recurring question has been: which type of business performs better, the family-owned or the non-family owned? In public opinion family business are better performers than non-family businesses. This opinion might be shaped because family businesses are often seen as pop-and-mom stores, as sympathetic organizations because they belong to a neighborhood and produce locally. Even when they grow into immense multinationals they still have an edge in the public’s eye.
However, in academic research there is no consensus. Many scientific studies have been performed in which the performance of family firms was compared with firms that have no family ties, but these studies gave mixed results and conflicting opinions. It seems evident to me that a new research approach was needed to try to solve the issue. Obviously I thought about using the HPO Framework and I decided to set out to answer this research question: Are there differences in performance between family and non-family businesses, and if so, can these be traced back to differences between the way these businesses deal with the factors of high performance? Or, to put it in different words, which type of business is more likely to become and stay high performing, the family-owned or the non-family owned?
One of the nice ‘perks’ of academia is that it gives you the chance to work with many different people. In this case, I worked together with Suhail Sultan with whom I had written an article before. Suhail had access to Palestine family and non-family owned businesses in the Bethlehem area, so we set out to distribute the HPO Questionnaire amongst them. In addition, Suhail conducted several interviews with these businesses. We asked managers/owners of the Bethlehem enterprises to rate their business on the HPO characteristics. In addition, the questionnaire asked the respondents about the type of their business (family/non-family), economic sector they were working in (i.e. trade, industry etc.), and the competitive performance of their business during the last five years in comparison to their main competitors (answering options: better, the same, worse). In total we collected 150 questionnaires from family businesses and 50 from non-family businesses.
After conducting several statistical analyses, our study results showed that Palestine non-family businesses significantly outperform family-owned businesses. In fact, the analysis revealed that family businesses in the Bethlehem area are basically poor performers with low HPO scores. Delving deeper in the results, we concluded that family businesses seem ‘a living paradox’. Balancing family interest and business interest often requires compromising between family and business goals. It seemed that Palestinian family businesses focus more on family interest by putting the goal of survival and ‘keeping the business in the family’ above (short-term) financial goals. Family businesses might also feel more that the company’s money is the family money, and a result their investment and expenses strategies are more conservative thus missing possible economic investment opportunities. In addition, family businesses have a strong centralization of the decision process. With decisional control resting largely in the hands of fathers or eldest brothers, decision-making hardly shows a participatory approach. There is a strong belief among Palestinian family businesses that the inherent privacy of centralized family decision-making gives family businesses a strategic advantage because competitors do not have access to information about their operations or financial condition. However, the downside of this is that people working in Palestinian family businesses are largely kept in the dark about the status of the organization and about internal and external developments which can affect the business. As their people lack this information, family businesses might be slow in reacting on threats and opportunities.
There is however some good news. Fortunately our study results also revealed that increasing the HPO scores will have more effect in family businesses than in non-family businesses. This shows the way forward for family business: start working on an HPO transformation as quickly as possible!
More information:
Analyzing organizational performance of family and non0-family businesses using the HPO Framework