EBE Part 4

  1. Family firms
    Family firms make notable contributions to wealth creation, job generation and competitiveness. They also have profound impact on local economic development and social cohesion. Often, family firms do not only focus on business but also on a broader social agenda.
  2. They can be linked to a relationship based system.

    Family firms have the following assets:
    • – experience and knowledge
    • – family resources
    • – stability and longevity
    • – familial ties provide loyalty.
  3. Family firms have the following liabilities:
    – reluctance to sell equity to outsiders

    – an aversion to  debt that may constrain firm growth

    – reluctance to adopt a performance-­related system

    – key managerial positions held by family in stead of most talented individuals

    – reluctance to use external professional expertise

    – bad decisions because of family agenda above business objectives.
  4. Agency theory
    examines links between ownership and management structures. In family firms these two are often not aligned.

    For example: Family member does not want to take risks while an manager (outsider) thinks it is best to do so.
  5. Stewardship theory
    family firm managers may act as stewards over the business assets. They want to protect assets rather than pursue interest.
  6. Elements of family business definition:
    - whether the CEO regards is a family business

    – whether the majority of voting shares is owned by family members

    – whether the management team consist primarily of family members

    • – whether the company has an intergenerational ownership
    •  transition.

    • Different view on definition is:
    • – perception
    • – share ownership by family members
    • – management by family member
  7. Family businesses are usually:
    • - 13% survive two generations,
    • - smaller than non-­family firms,
    • - less likely to be in manufacturing and more likely to be in agriculture, hotel, restaurant sector, 
    • -are more often in a rural location.
  8. Their objectives differ usually (Family firms):
    • - ensuring survival,
    • - continued independent ownership,
    • - work for family members and
    • - management positions for family members.

    Usually: The owners have a long term view, target long term investments, have a strong relationship with their employees, directors own more shares.

    • This shows that family firms retain familiness even after substantial ownership is transferred
    • to outsiders.
  9. Family firms and strategies
    • Family and non-­‐family companies adopt very similar competitive
    • strategies. There are more similarities
    • in the strategy than there are differences.

    The performance might be better because the focus is not only on short term gain, an ethos of trust between workers and bigger investments in management training. It might be less because there is a lack of commitment to maximize profit, family issues have priority over short-­‐term financial objectives, growth by other resources then family can be stopped, the management may be of less quality and they are harder to manage due to the business and family agenda.

    A research by Westhead and Cowling shows both types perform similar.
  10. Relatively few family fims are transferred to the next generation of family members that own the majority of shares. The family, the management and the ownership influence the succession. Lansberg states there are three types of succession:
    1. Succession transitions that recycle the business form(fundamental form of business stays the same)

    2. Evolutionary succession (involves fundamental changes)

    3. Devolutionary succession (make a simpler form)
  11. There are different types of family firms. Sharma says:
    1. Warm hearts-­>deep pockets

    2. Pained hearts-­>deep pockets

    3. Warm hearts-­>empty pockets

    4. Pained hearts-­>empty pockets.
  12. Westhead comes up with 6 conceptualised types of Family firms:
    1. Average family firms(close bonds with family)

    2. Professional family firms (mix of family and non-­family objectives but emphasize family)

    3. Cousin consortium family firms (mix of family and non-­‐family objectives)

    4. Professional cousin consortium family firms (diluted ownership within the family and more emphasis on finance)

    5. Transitional  family firms(family and non-­family objectives but more about making profit)

    6. Open family firms (focus on financial objectives)
  13. There is no conclusive evidence to suggest that family firms report consistently significantly superior or weaker performance than non-­family firms.
    The outcome of studies differs a lot because of the different manners to define a family firm. Great difference for example between the number of firms run only by family members and firms where the management is in family hands.

    The chapter ends stating that more studies should be done before we can be conclusive.
  14. There are numerous definitions of corporate entrepreneurship. The following terms have been used to describe entrepreneurial efforts within an existing organization:
    • - Corporate entrepreneurship,
    • - Corporate venturing,
    • - Intrapreneurship,
    • - Internal corporate entrepreneurship,
    • - Internal entrepreneurship,
    • - Strategic renewal and corporate venturing.
  15. Independent entrepreneurship
    is the process where someone creates a new organization acting independently. Corporate entrepreneurship is the process whereby someone creates a new organization, instigates renewal or innovation within or in association with an existing organization.
  16. Corporate entrepreneurship is associated with the following three distinct but related dimensions:
    1.    Strategic renewal: involves exploitation of opportunities while simultaneously creating and sustaining a competitive advantage. Changing the strategy of an existing company.

    2.   Innovation: innovations that exploit new  markets or new products etc.

    3.    Corporate venturing: provides corporations with a financial return and the opportunity to asses new technologies and markets at a relatively early stage in their development.
  17. Corporate venturing has to different facets:
    a.  External corporate venturing: activities that result in the creation of semi-­ or autonomous organizational entities that reside outside the existing firms  domain.

    b.  Internal corporate venturing:  creation of new business that generally reside within the corporate structure (although they may be located outside the firm)
  18. Internal corporate ventures vary in terms of at least four different dimensions that may influence their development and performance:
    • 1. Structural autonomy
    • 2. Relatedness to the existing businesses
    • 3. Extent of innovation
    • 4. Nature of sponsorship


    I recommend you look at figure 8.1 on page 427.
  19. Four distinct forms of corporate entrepreneurship can be adopted to achieve competitive advantage:
    1. Sustained regeneration (regularly introduce new products and new markets)

    2. Organizational regeneration (internal processes and structures)

    3. Strategic renewal (fundamentally altering how the firm competes)

    4. Domain redefinition (proactively create new product-­market)

    I recommend you look at figure 8.1 on page 427.
  20. The characteristics of the environment can play an important role in executives’ pursuit of corporate entrepreneurship.
  21. Social  entrepreneurship
     Recently some new ventures are founded by teams of entrepreneurs rather than solo entrepreneurs. Interest has grown in the social embeddedness of entrepreneurship, that is, the ways in which entrepreneurship relates to the social context in which it figures. In contrast to traditional commercial entrepreneurship which is associated with the creation of personal and shareholder wealth, the underlying drive for social entrepreneurship is to create social value.
  22. social embeddedness of entrepreneurship vs commercial entrepreneurship
    - The social embeddedness of entrepreneurship: the ways in which entrepreneurship relates to the social context in which it figures. In contrast to traditional

    - Commercial entrepreneurship: which is associated with the creation of personal and shareholder wealth, the underlying drive for social entrepreneurship is to create social value.
  23. A naïve way of understanding social entrepreneurship is to think of it as the form of entrepreneurship that occurs in social enterprises.
    As if they are a different sector than private or public enterprises. It is hard to specify the nature of social enterprise as a social form so we try to improve the understanding of entrepreneurship. It is now widely accepted that entrepreneurship can be found in all sectors.
  24. Social entrepreneurship differs from commercial entrepreneurship not only in social purpose and social value creation. The main differences are:
    -­ Purpose or mission: Commercial entrepreneurship aims to create profitable operations resulting in private gain, whereas social entrepreneurship is more concerned with creating social value for the public good. This social purpose is the integrating driver of social entrepreneurship.

    • - Type of opportunities indentified: a problem for a commercial entrepreneur is often an opportunity for the social entrepreneur. Opportunitis arise in a different way because its purpose is different. They focus more on serving basic, long-­standing needs more effectively through innovative
    • approaches.

    -­ Resource mobilization: the purpose is often shared by a number of organizations and the demand usually far exceeds the capacity of the social enterprises to serve these needs.

    -­ Performance measurement: is done differently because value is made up by the social impact and not by the number of the profit
  25. Three types of social entrepreneurs are
    - The social bricoleurs (aim to change small-­scale local social needs)

    - Social constructionists (aim to change social needs that are inadequately addressed by existing organizations or the government)

    - Social engineers (identify systemic problems which they address through revolutionary change).

    Social bricoleurs create a different kind of value than constructionists or engineers.
  26. Social value itself is undefined and debatable.
    Social value itself is undefined and debatable.
  27. Commercial an social entrepreneurship are not fundamentally different, but are situated along a continuum.
    Social entrepreneurship will often involve a substantial degree of commercial entrepreneurship.
Card Set
EBE Part 4
EBE Part 4