Organizational culture is the set of beliefs, expectations and basic principles shared by the members of an organization (Schein,1995). Organizational culture refers to a system of shared meaning held by members that distinguishes the organization from other organizations. Seven primary characteristics capture the essence of an organization’s culture, they are Innovation and risk taking, Attention to detail, Outcome orientation, People orientation, Team orientation, Aggressiveness, Stability. Organizational culture is greater importance in the sphere of the family firm, where a set of values, beliefs and interests, highly influenced by the family relations, may produce significant differences from any other nonfamily organizations (Dyer, 1986, Barontini and Caprio, 2006). Culture in familyowned firms is difficult to replicate and so may be a source of strategic advantage.
ORGANIZATIONAL BEHAVIOR ORGANIZATIONAL CULTURE IN FAMILY FIRMS Instructor: Dr Anna Lin Presenters: Joey Danny Eden Jason Agenda 01 Organizational Culture in Family Firms 02 Characteristics of Organizational culture in Family Firms 03 Definition of organizational culture and family company How organizational culture affects performance 04 Creating and sustaining culture, how employees learn culture 05 Applying in real life ORGANIZATIONAL CULTURE IN FAMILY COMPANY Definition of the Family Company The majority of decision-making rights are in the possession of the natural person(s) who established the firm 01 02 The majority of decisionmaking rights are indirect or direct https://www.familienunternehmen.de/en/definition-family-businesses 03 At least one representative of the family or kin is formally involved in the governance of the firm Definition of organizational culture Organizational culture is the set of beliefs, expectations and basic principles shared by the members of an organization (Schein,1995). Organizational culture refers to a system of shared meaning held by members that distinguishes the organization from other organizations Seven primary characteristics capture the essence of an organization’s culture, they are Innovation and risk taking, Attention to detail, Outcome orientation, People orientation, Team orientation, Aggressiveness, Stability Organizational culture is greater importance in the sphere of the family firm, where a set of values, beliefs and interests, highly influenced by the family relations, may produce significant differences from any other non-family organizations (Dyer, 1986, Barontini and Caprio, 2006) CHARACTERISTICS Characterized by low investments in innovation, limited productivity, and reduced international orientation (Monreal-Pérez & Sánchez-Marín, 2017) Family firms create value through product, process, and service innovations that fuel growth and lead to prosperity The long-term nature of family firms’ ownership allows them to dedicate the resources required for innovation and risk taking, thereby fostering entrepreneurship Conservative, unwilling or unable to take the risks associated with Conservative strategies as a result of their organizational cultures (Dertouzos et al., 1989) 16-7 The Change Masters: Innovations for productivity in the American corporation Kanter, R.M (1983) The trend toward decentralized organizations makes culture more important than ever, but also makes establishing a strong culture more difficult Centralization places power in the hands of a few select people and may stifle entrepreneurship by inducing rigidity within the family firm’s structure, make it difficult for employees to gain the support needed for their ventures In contrast, organizational cultures that accept and encourage legitimate, decentralized authority and coordination of effort will enhance flexibility and promote the independent contributions of their members (e.g., Kanter, 1983) Long term perspective Stable leadership Strong identity The Strength of Culture in a Family Business Care more about the longer term value of the brand and creating a sustainable legacy Foster closer contact with management within the organization Display a greater aversion for risk Culture in family-owned firms is difficult to replicate and so may be a source of strategic advantage http://www.whelansecurity.com/wp-content/uploads/2014/01/The-Strength-of-Culture-in-a-Family-Business.pdf The Founders of Organization [1] Sharma, P.: An Overview of the Field of Family Business Studies: Current Status and Directions for the Future Family Business Review, Vol 17, No 1, str 1-36, 2004 [2] Denison, D., Lief, C., Ward, J L.: Culture in Family-Owned Enterprises, Recognizing and Leveraging Unique Strengths Family Business Review, Vol 17, No 1, 61-70, 2004 The distinct background and character of entrepreneurs led them to establish cultures that were not only rich in core values and performance-enhancing behaviors, but also commercial environments conducive to learning and encouraging flexibility Sharma [1] expose the influential role of family businesses' founders; due to their long tenures and the centrality of their position in their family and firm, founders exert considerable influence of the culture, values and performance of their firms during and beyond their tenure Denison, Lief and Ward [2] believe that the continuity of the founder's values in the company's culture could explain that family businesses have a distinct, performance-enhancing culture Creating and sustaining culture - THP core values Put customer satisfaction first Adhere to international quality standards Behave responsibly toward your community and society Believe that nothing is impossible Dare to think differently in conquering challenging goals Keep the spirit of entrepreneurship alive Maintain a forward-looking mindset Act with integrity Overall essence of Organizational culture: Aggressive main types of culture in family business (W Gibb Dyer, Jr of The Family Firm Institute) • Decision an be made quickly by family leader • Employees are expected to as they are told • Bring in outside employees • Emphasis on efficiency, employees make changes to improve efficiency • Employees are trusted with more decisionmaking responsibilities Paternalistic Laissez-Faire Professional Participative • Family members and employees collaborate on solutions and make decisions • Employees’ innovation, morale and creativity are high How employees learn culture How employees learn culture Stories Rituals Symbols • Anchoring the present in the past and legitimating current practices • Include narratives about the organization’s founders, rule breaking, rags-to-riches successes, workforce reductions, relocations of employees, reactions to past mistakes, and organizational coping • Repetitive sequences of activities that express and reinforce the key values of the organization • Layout of corporate headquarter, the size of offices, the elegance of furnishings, perks, and attire How employees learn culture in THP Stories Rituals Symbols • Founder’s daughter write and publish a book about family members and share insights of the business • No year-end party but the biggest party will be the annual anniversary of the establishment 15th Oct Real Life Application – Suggestion for Vietnam From the aspect of Founders From the aspect of employees • Clearly define your business characteristics to form the appropriate organizational culture • Keep the talented stay: Clearly define everyone's roles, ensure that non-family staff have the same chances for advancement as your family members • Socialization is an important part: Performance appraisal should include the complying with the culture • Be observant about organizational culture to adapt to the environment as soon as possible • When working for a family business you may encounter an issue with having more than one boss Before taking on any family business job, make sure to have the company draw clear management lines • If you work for a family firm, start at the bottom of the pyramid and work your way to the top Mongolian Example – NEXT Electronics LLC Director HUSBAND WIFE Head of Purchasing/Sales Department CEO Chief Operating Officer Chief Marketing Officer TV/AV product manager Logistics Manager Social Media Manager IT/ICT product manager Operation Planning Manager Advertising Manager Head of Finance Department Chief Human Resource Officer Real Life Application–Suggestion for Mongolia From the Founder’s perspective From the aspect of employees - Meaning creation and having inspiring vision, mission is very important to build the organizational culture - Implement non-biased hiring system that gives equal chances to both family related and nonfamily related candidates - Decentralize the control in order to respond changing external competitive environment - Training of the new recruits should be not only about mechanic skills but also about company culture - Balances continuity and fresh ideas ‒ Refuse to take sides in family disputes ‒ Be highly discreet Don’t lose trust of family members ‒ Be and competent To avoid being left out of critical conversations is to demonstrate your competence ‒ Finally, to be successful in a family business, you must have a realistic sense of the destinations on your career path Critical Thinking • Will the wealth gained in one generation will be lost by the third? • In most cases, it is true Sometimes even company’s stock price falls when the new generation takes over • The simple explanation would be 1st Gen 2nd Gen 3rd Gen The first person to become rich in the family wasn’t born into wealth The person worked and struggled to become rich For that reason, he/she knows the value of money His/her child was also probably not born into wealth and saw how the previous generation struggled to make money while growing up Thus, the child knows the value of money The third generation was most likely born into wealth and they didn’t work for their wealth, they wouldn't know the value of money, and start spending more than they earn • How to break the third However, there are some cases that third generation continued the family generation curse? business successfully Let’s see what they did right Communication • Successful families proactively engage with the next generation, rather than reactively They talk about what the previous generation has done and pass on 1st generation’s spirit Real job • They also give the next generation a real job opportunities in the firm rather than menial tasks Let them earn what they make Financial literacy Professional mentors • Without any knowledge about managing personal finance, money and investing, it is very easy to lose a fortune It happens quite often to the lottery winners • Some companies assign an experienced non family mentor to each younger family member, to provide the objective performance evaluation and critical advice an employee in a nonfamily business typically gets Critical Thinking • The answer will be depend on how the first generation transfer his philosophy to next generations (The succession is very important) • IKEA, Toyota and many family firms already been successful through many generations although they all experienced some difficult times • Understand the essence of family business and the environment change -> make the right decision to protect the business, sometimes it is essential to invite outside experts to be the C.E.O Reference Sharma, P.: An Overview of the Field of Family Business Studies: Current Status and Directions for the Future Family Business Review, Vol 17, No 1, str 1-36, 2004 Denison, D., Lief, C., Ward, J L.: Culture in Family-Owned Enterprises, Recognizing and Leveraging Unique Strengths Family Business Review, Vol 17, No 1, 61-70, 2004 Monreal-Pérez and Sánchez-Marín, 2017,J. Monreal-Pérez, G. Sánchez-MarínDoes transitioning from family to non-family controlled firm infuence internationalization?, Journal of Small Business and Enterprise Development (2017), 10.1108/JSBED-02-2017-0029 European Journal of Family Business, Volume 6, Issue 2, July–December 2016, Pages 99-107 E.H. ScheinThe role of the founders in creating organizational culture, Family Business Review, 8 (3) (1995), pp 221-238 Kanter, R.M (1983) The change masters: Innovations for productivity in the American corporation New York: Simon & Schuster Performance of family firms: A literature review and guidance for future research, By Joseph H Astrachan, Kennesaw* and Thomas Zellweger, St Gallen Culture in Family-Owned Enterprises: Recognizing and Leveraging Unique Strengths, Daniel Denison - Colleen Lief - John L Ward (2004) Entrepreneurship in Family vs Non-Family Firms: A Resource Based Analysis of the Effect of Organizational Culture, Shaker A Zahra - James C Hayton - Carlo Salvato/ Baylor University – USA (2003) 10 The infuence of Family Culture on performance of Family Business: An empirical study, Mohd Abass Bhat – Javeed Ahmad Shah – India 11 Innovative culture, management control systems and performance in small and medium-sized Spanish family firms, Antonio Duréndez*, Antonia Madrid-Guijarro** & Domingo García-Pérez-de-Lema – Technical University of Cartagena – Spain 12 https://www.thefbcg.com/competitive-advantage-of-culture-in-family-business/ 13 https://sustainablebrands.com/read/organizational-change/these-8-core-values-helped-my-business-achieve-long-term-growth ...Agenda 01 Organizational Culture in Family Firms 02 Characteristics of Organizational culture in Family Firms 03 Definition of organizational culture and family company How organizational culture. .. Definition of organizational culture Organizational culture is the set of beliefs, expectations and basic principles shared by the members of an organization (Schein,1995). Organizational culture. .. organizational culture affects performance 04 Creating and sustaining culture, how employees learn culture 05 Applying in real life ORGANIZATIONAL CULTURE IN FAMILY COMPANY Definition of the Family Company