Advantages and disadvantages of family-run business
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When a family decides to run a business in this fast-growing global economy, various generations of family members connected through blood ties, adoption, or marriage influence the decisions made. These family members are willing to use their influence to pursue uncommon goals and can mould the business’ vision. Even though it has drawbacks of its own, this kind of business can occasionally be lucrative and fulfilling. This paper will explore the advantages and drawbacks of operating a family business.
The ability to make decisions with flexibility is one advantage of being a family-owned business. Diverse factors, including a flexible decision-maker profile, the utilization of dynamic capabilities like networking and resource combinations, and the maintenance of organizational flexibility in cooperation networks and market decisions, can enable family-run businesses to make flexible decisions. In terms of payouts, capital structuring, capital investment, and general operation, family-owned businesses are flexible, according to Agrawal (2020).
Additionally, in this kind of business, dedication and loyalty have been realized. The people who work for this business are deeply committed to building a culture of loyalty and hard work. They feel more responsible, which makes them more aware of the market and builds stronger bonds with their customers. Family commitment, according to Razzak and Jassem (2019), partially mediates the relationship between firm performance in privately held family firms and family control, influence, identification, emotional attachment, and renewal of bonds through dynastic succession.
Furthermore, a family-run business has a long-term outlook. It emphasizes the long-term view, in which the company is passed down from one generation to the next. Family businesses, according to Daiteng (2021), prioritize long-term objectives, give family members employment opportunities, and concentrate on sustainable development. The business guarantees the family members a steady income from the company in the long run. Members put in a great deal of effort to ensure that the company is viable and strong for upcoming generations. Here, decisions are made with the future in mind. The long-term initiatives are carried out to guarantee that the company will continue to be prosperous and bright in the future.
Conversely, one drawback of family-run businesses is the possibility of nepotism. Because family is the primary criterion for choosing business members, family members are chosen over qualified professionals. Consequently, this damages the company. Regardless of the relative’s competence, Burhan, Leeuwen, and Scheepers (2020) assert that participants view the hiring of relatives within the organization as nepotism. As a result, the company will produce lower-quality goods and services and generate less profit. Sometimes, you discover that family members lack knowledge in a particular field. The organization will compel a member to hold that role, which will lead to subpar outcomes.
In addition, there may be an issue with the succession plan. Leadership transitions can be difficult and can result in internal conflict. For many family business owners, choosing a successor to take over the company in the event of their retirement can be difficult. The leader may find it challenging to select the person most suited to advance the organization while simultaneously trying to reduce the possibility of future conflict. Family governance concerns and the absence of a suitable successor are major barriers to management and succession planning for family businesses, which can present special opportunities and challenges from time to time (Takwi, Bate, and Akosso, 2020).
Furthermore, this business has been dominated by family strife. Any business can experience conflict, but family businesses should be especially mindful of the possibility of personal conflicts among staff members who work closely with their loved ones. Anger and bitterness have the potential to ruin the company’s operations and jeopardize your family’s relationships. Qiu and Freel (2020) posit that family businesses encounter family-related conflicts such as work-family conflicts, conflicts of interest, and relationship conflicts. These conflicts are typically resolved through a combination of indecision, domination, separation, and third-party intervention. The management of these conflicts is often influenced by distinctive features within the family, such as high emotional attachment among members.
In conclusion, family-run businesses have shown advantages like decision-making flexibility, participant dedication and loyalty, and a long-term view of the company. On the other hand, they have also shown disadvantages like the possibility of nepotism, challenges with succession planning, and conflicts of interest. These facts allow one to weigh the benefits and drawbacks of starting a family business before deciding whether to do so.
Reference
Agrawal, A. (2020). Modified Total Interpretive, Structural Model of Corporate Financial Flexibility. Global Journal of Flexible Systems Management, 21, 369 – 388. https://doi.org/10.1007/s40171-020-00253-7.
Burhan, O., Publications – Esther van Leeuwen. https://eacvanleeuwen.wordpress.com/publications/organization. Omar K. Burhan – Google Scholar. https://scholar.google.nl/citations?user=S84J3iEAAAAJ&hl=en https://doi.org/10.1016/j.obhdp.2020.03.012.
Daiteng, R. (2021). Understanding the Value Logics of Family Business–A Structured Literature Review. Tobacco Regulatory Science. https://doi.org/10.18001/trs.7.6.33.
Razzak, M., & Jassem, S. (2019). Socioemotional wealth and performance in private family firms. Journal of Family Business Management. https://doi.org/10.1108/JFBM-05-2019-0035.
Takwi, F., Bate, B., & Akosso, V. (2020). Family Businesses Management and Succession: A Meta-Analysis. , 5, 56. https://doi.org/10.11648/j.ajomis.20200503.14.
Qiu, H., & Freel, M. (2020). Managing Family-Related Conflicts in Family Businesses: A Review and Research Agenda. Family Business Review, 33, 113 – 90. https://doi.org/10.1177/0894486519893223.