ARE FAMILY BUSINESSES DIFFERENT?

A COMPARISON OF MANAGERIAL TRANSITIONS

Mr Max Smith

Lecturer, School of Commerce,

The Flinders University of South Australia,

GPO Box 2100,

Adelaide South Australia 5001.

Telephone: +61 8 82013897

Facsimile: +61 8 82012644

Email: Max.Smith@flinders.edu.au

SCHOOL OF COMMERCE

RESEARCH PAPER SERIES: 03-9

ISSN: 1441-3906

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INTRODUCTION

The transition from entrepreneurial to professional management among family

businesses has received little attention from researchers in Australia, despite the fact

that deficiencies in the managerial abilities of such firms is reportedly one of the

primary causes of their premature failure (Boeker & Karichalil, 2002; Flamholtz,

1986; Moores & Mula, 2000). This is surprising given the relative importance of

family business to the Australian economy. For example, the Australian Bureau of

Statistics (ABS), in its Business Longitudinal Survey (BLS), determined that

approximately half of all Australian businesses are family businesses (ABS, 1997). In

other countries, the percentage may be higher, depending on the definitions used. For

instance, in the US nearly 80% of businesses are considered family firms and these

‘businesses produce half of the U.S. gross national product and employ half of the

nation’s workforce’ (Moores & Mula, 2000, p. 92).

To help address the identified gap in the literature, this study attempts to determine

the differences, if any, between the management transition processes of family

businesses compared to non-family businesses. This is achieved by building on a

study previously undertaken by Smith (2003) that empirically examined the transition

of Australian manufacturing Small to Medium Enterprises (SMEs) from

entrepreneurial to professional management.

PAST RESEARCH

The Management Transition of SMEs

According to Mintzberg and Waters (1990), all companies will professionalise their

management with increasing size; and a significant body of literature related to SMEs

outlines the managerial implications of the development of the small firm from start-

up to growth and beyond (Adizes, 1999; Hofer & Charan, 1984; Loan-Clarke et al.,

2000; Olson & Terpstra, 1992; Smith & Whittaker, 1998; Thomson & Gray, 1999).

As Boeker and Karichalil (2002, p.818) put it, ‘theorists studying the life cycle of

start-up firms have maintained that management styles and capabilities must change

as a firm evolves from an entrepreneurial focus on creating a market opportunity to

operation as an established business’. Accordingly, two key determinants of the most

appropriate management system for any given firm is its size and the stage of the

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organizational life cycle it has attained. For the vast majority of firms, these two

determinants will be closely related to each other.

The essence of life cycle theory is that firms progress through a number of distinct

phases or stages as they grow and develop, and a relatively large number of theories

and models have been proposed to explain the process (Adizes 1999; Churchill &

Lewis 1983; Dodge & Robbins 1992). The number of stages of development that

firms are said to progress through range from a minimum of three to the ten proposed

by Adizes (1989). Hanks et al (1993) provide an excellent comparison of the

important Life-Cycle Stage Models. An associated theme for much of this material is

that the period where a firm moves from one stage to another is often associated with

organisational instability (Moores & Mula, 2000; Mount et al, 1993). Additionally,

studies of the organisational life cycle suggest that ‘as organizations progress through

growth stages, they become progressively more specialized’ (Hanks & Chandler,

1994, p.24).

A common theme for much of this material then, is the eventual need for a transition

from entrepreneurial management to professional management. In this context,

entrepreneurial management is characterised by the centrality of the founder, ad hoc

planning and control, an informal structure, very basic budgeting practices and a

‘loosely defined, “family” – oriented culture’ (Flamholtz, 1986, p.42), among other

things. In contrast to this, professional management is said to be more profit oriented,

to have less focus on an individual as leader, to have in place formal planning,

organization and control programs and to utilise more sophisticated budgeting

techniques. In addition, this type of management is characterised by a well-defined

culture and consultative or participative leadership styles (Flamholtz, 1986).

The point in an SME’s life cycle when transition is appropriate is a contentious issue

(Olson & Terpstra, 1992), but a term used by some scholars (Clifford, 1973; Whisler,

1988) to describe a company that has reached this point is the ‘threshold firm’.

According to Daily and Dalton (1992, p.25) the ‘threshold firm is characterized by a

firm that is at (or near) the point of transition from entrepreneurial to professional

management’. Based on his experience as a consultant to small growing businesses,

Flamholtz (1986) proposed that the transition point of the threshold firm occurs when

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the SME’s sales reach approximately 10 million US dollars. Beyond this level of

sales, it is very difficult for the founding entrepreneur ‘to control all that is happening’

(Flamholtz 1986, p.25) in the company.

Another relevant proposition, put forward by Montoya et al (1993), is their ‘brick

wall’ contention. Ostensibly related solely to the marketing manager, but in fact

dealing with the full functional areas of professional management, they take an

essentially psychological approach, outlining the internal resistance many founders

may have to the transition to professional management. As they put it, ‘getting over

the ‘brick wall’ requires significant shifts in the entrepreneur’s basic orientation’

(Montoya et al, 1993 p. 209). After ‘shadowing’ fifty nine relevant entrepreneurs for

1-2 weeks and utilising discussion sessions, they concluded the ‘most likely cause of

failure, after start-up difficulty has been overcome, are problems encountered in the

transition from one-person, entrepreneurial, organic style of management to a

functionally organised, professional management team’ (Montoya et al, 1993, p.219).

However, in contrast to Flamholtz (1986), they also concluded that the threshold or

transition point occurs when sales range between 1.5 and 2 million US dollars. The

literature on the transition point of growing SMEs from entrepreneurial to

professional management is therefore subject to ambiguity.

An apparent weakness in the literature relates to how transitions between clearly

identified stages of growth are managed by the SME (Ennis, 1999). That is, although

much work has been carried out on identifying the various stages and even suggesting

when a transition between stages is necessary, very little has been written on how the

owner manager/CEO should implement these changes or indeed what the nature of

the transition process itself is.

Mount et al (1993) attempt to redress this situation by classifying transitions between

stages as a life-cycle phase in their own right. According to their five-stage model of

small business development, there are three relatively stable stages of growth

interspersed with two relatively unstable transition phases. The initial stable state has

the business ‘owner-operated’, which after the first transition becomes ‘owner-

managed’, which after the second transition heads toward full functional management.

According to Mount et al (1993) the transition to an owner-managed organization

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requires the small business owner to share his/her decision-making authority and

‘resistance to doing so can result in a long stressful transition’ (Mount et al, 1993,

p.114). Similarly, the transition to emergent functional management, with the

‘addition of specialists and/or middle managers will demand substantially more

delegation of decision-making, which can pose difficult problems’ (Mount et al.,

1993, p.114) for small business owners. According to Mount et al (1993), transitions

are explicitly designated as separate phases that are inherently unstable, primarily

because of the owner/entrepreneur’s perceived difficulty adapting to the professional

management environment while at the same time remaining focussed on ‘the practices

necessary to permit growth and survival’ (Dodge & Robbins, 1992, p.27).

Smith’s (2003) Transition Model of Australian Manufacturing SMEs

Smith’s (2003) research applied a number of management related variables available

from Australia’s Business Longitudinal survey (BLS) to the development taxonomy

of Australian manufacturing SMEs created by McMahon (2001). This taxonomy was

developed by applying cluster analysis to a longitudinal panel of 871 manufacturing

SMEs, each of whom had provided four consecutive years of data via Australia’s

BLS. This survey was undertaken by the Australian Bureau of Statistics (ABS) for

the years 1994-95 to 1997-98 on behalf of the federal government and copies of the

questionnaires can be obtained from the ABS. The resultant development pathways

of Australian manufacturing SMEs determined by McMahon (2001) fell into three

categories – low, moderate and high growth, and appear to be consistent with the life

cycle stages of SME growth literature generated in the past.

By dividing the 871 cases used in McMahon’s (2001) study into the three

development pathways identified and then empirically examining the data derived

from applying management related variables to the cases in each of these groups,

Smith (2003) proposed the professional management transition model shown in figure

1.

The model shows that typically, as Australian manufacturing SMEs progress through

development pathways, they also embark on the path to professional management.

The beginning of this process occurs at point A where, on average, a significant

increase in the number of outside managerial staff employed by moderate growth

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SMEs compared to low growth SMEs is apparent. This phenomenon is consistent

with the psychological ‘brick wall’ and threshold point proposed by Montoya et al

(1993). Although there is a quantum leap in the number of managerial staff employed

at this point, these SMEs generally do not yet have management professionals

covering all functional areas such as, for example, marketing. In addition, the vast

majority of founders are still working within the SME at this point (Smith, 2003).

At point C, however, although the percentage of SMEs utilizing other managerial staff

has barely changed (i.e. the percentage is essentially the same for both moderate and

high growth SMEs), the average number of these staff employed per SME has almost

doubled. In addition, it is at this point where a relatively large number of founders

decide to exit from the direct management of the business and there is evidence of a

jump in marketing professionals’ involvement in these companies (represented by the

line BC). Combined, the findings tend to signify that SMEs at this point have

achieved a relatively complete functional management system that has evolved and

progressively grown from its initial beginnings at point A (Smith, 2003).

Figure 1

Professional Management Transition Model

10

9 C

8

7 B

6

5 A

l

Number of other

managerial staff

4

3

2

1

Low

Brick Wal

6

Moderate High

SME GROWTH PATHS

Smith (2003) further proposed that point C was demographically consistent with the

threshold point outlined by Flamholtz (1986) and that this apparent contradiction with

Montoya et al (1993) could be resolved if the full functional management point (C)

was distinguished from the threshold point (A). Smith (2003) also demonstrated that

this model is consistent with, and could be applied to, Mount et al’s (1993) Stages of

Development Model.

The Management Transition of Family Businesses

The study of the transition of family business management systems as they grow has

many similarities with the SME literature outlined earlier. This is understandable

given that family businesses, particularly in their early stages of development,

generally form a subset of the SMEs under examination (Chromie et al 1995).

Accordingly, organizational life cycle theory has been applied to family businesses

(Holland & Oliver 1992; Hollander & Elman 1988; Moores & Barrett 2002; Moores

& Mula 2000; Ward 1987), as has the study of organizational growth and the

consequent need for the specialization of management (Gersick et al 1999; McGivern

1989; Reid & Adams 2001; Van den Berghe & Carchon 2002; Ward 1987). The

process of professionalisation in family businesses has also been the subject of

attention (Craig & Moores 2002; Dyer 1989; King et al 2001; Moores & Barrett

2002; Moores & Mula 2000), as well as the management of the resulting transition

(Gersick et al 1999; Greiner 1997; Moores & Mula 2000; Whisler 1988).

In general, many of the findings from these studies are similar to those generated by

the SME literature. However, family businesses, in some areas, have also been

observed to have significant managerial differences from non-family businesses. For

example, the governance of family businesses is considered more complex when

compared to non-family businesses (King et al 2001; Reid & Adams 2001; Sharma et

al 1997; Westhead et al 2001), essentially because, unlike non-family firms, ‘the

family firm consists of two social systems – the family and the firm – which, although

interwoven, frequently have conflicting aims and ideals (Barry 1989, p.302). In

addition, the tenure of family CEOs has been determined to generally be significantly

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longer than the tenure of CEOs in non-family businesses (Barry 1989; Cromie et al

1995; Reid & Adams 2001). For example, Van den Berghe & Carchon (2002) found

that on average, general managers remain appointed 6.3 years longer in Belgian

family firms than in Belgian non-family firms. Similarly, Westhead et al (2001)

found that CEOs of English family businesses were on average, appointed for 7.6

years longer than CEOs of English non-family businesses. These findings are

important particularly given that Schulze et al’s (2001) study of American family

businesses found a negative relationship between CEO tenure and firm performance.

In addition, family firms are said to be characterized by smaller management teams

than non-family businesses (Cromie et al 1995), although Westhead et al’s (2001)

study found no significant difference between the two groups. Furthermore, Reid and

Adams’ (2001) comparative study of Northern Ireland family businesses found that in

comparison to non-family businesses, family firms are less likely to have

owner/directors who hold a university degree, among other things.

Reid and Adams’ (2001) study also found that a smaller percentage of family

businesses had a business plan compared to non-family businesses, but the difference

(65% versus 77%) was apparently not significant. Similarly, Westhead’s (1997)

study provided weak support for the ‘proposition that planning-related issues would

be emphasized by non-family rather than family companies’ (p. 145). Both these

studies, although providing limited support for Chaganti and Schneer’s (1994) finding

that planning is less prevalent in family firms, are perhaps not enough to override the

findings of Cromie et al’s (1995) study that ‘found that planning was particularly

prevalent in family firms with a long-term focus on securing family wealth’

(Westhead 1997, p. 153). The literature on planning within family businesses is

therefore another area of ambiguity.

HYPOTHESES

Given the preceding material, the overall hypothesis for this study is as follows:

H0: There is no difference between the managerial development processes of

family businesses and non-family businesses

H1: There is a difference between the managerial development processes of

family businesses and non-family businesses

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However, a number of sub-hypotheses can be proposed for investigation. Namely:

H2: The average tenure of family business CEOs is longer than the average

tenure of non-family business CEOs;

H3: On average, family businesses have smaller management teams than non-

family businesses;

H4: On average, directors of family businesses are less likely to have

university degrees than directors of non-family businesses;

H5: On average, family businesses will utilize a business plan less often than

non-family businesses.

RESEARCH METHOD

To test these hypotheses, the study divided the sample of 871 Australian

manufacturing SMEs used in Smith’s (2003) study into family businesses and non-

family businesses and then applied the same management related variables of the

original study to the two groups in order to compare and contrast the results. The use

of this approach is considered justified given the relative paucity of comparative

studies between family and non-family businesses, as well as between high growth

and low growth companies (Mertz et al 1994; Sharma et al 1997; Westhead 1997).

The definition of a family business used in this study is in accord with that put

forward by Gasson et al (1988) and Ram and Holliday (1993). Namely, ‘whether

members of an “emotional kinship group” perceive their firm as being a family

business’ (Westhead et al 2001, p. 370). This definition is adopted as a matter of

convenience rather than design as this is a specific question contained within the BLS,

the data source for this study. The use of other definitions, such as, the family group

owning more than 50% of the business’ shares or whether a firm is managed by

members from the family group (Westhead et al, 2001) is prevented by the absence of

appropriate screening questions in the BLS.

As mentioned earlier, the cases used in this and Smith’s (2003) study were derived

from McMahon’s (2001) study that extracted a development taxonomy from

manufacturing SMEs in Australia’s BLS. The manufacturing sector was chosen

because of its importance to the Australian economy and because dealing with one

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sector reduces cross industry differences. Furthermore, these cases were all legally

organized as proprietary companies. McMahon (2001) considered this appropriate

because these companies are generally of more interest to SME researchers and

because his primary concern was ‘with SME growth and development, and it is more

likely that these will be evident in businesses legally organized as proprietary

companies’ (McMahon 2001, p. 200).

The cases used in this study were all firms employing fewer than 200 persons and

were ‘alive’ for the four financial years 1994-95 to 1997-98. However, only the data

generated in the last three years of this period was utilized because the question

identifying the firm as a family business or not, was not introduced until the second

year of the longitudinal survey. In addition, not all of the variables used in this study

were available for all three years. This is because the questionnaire itself was subject

to minor modification each year in response to the informational needs and concerns

of interested stakeholders and the compact the Australian Bureau of Statistics put

forward that it would not increase the number of variables being collected over the

period of the survey. This meant that any new questions could only be added at the

expense of existing questions.

Variables used in this research are either categorical in nature or, if metric, have

irregular distributional properties (that is, they are non-normally distributed).

Transformation of metric variables to produce normal distributions is avoided because

of difficulties of interpretation often created by such procedures. Thus, non-

parametric/distribution free techniques of statistical analysis, such as Chi Square and

Kruskial-Wallis tests, are employed exclusively.

RESEARCH FINDINGS

In examining the results, it should be kept in mind that the BLS was not specifically

designed to be a marketing research instrument and, as such, the results presented

here relate to items that were available for analysis rather than those that would

ideally be obtained. Table 1 shows that, for family businesses, there is no significant

difference between the percentage of SMEs with working proprietors, working

partners or working directors over the three growth paths for each of the three years

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covered. This is in stark contrast to the non-family businesses where significant

negative differences between growth paths are evident. Unlike family firms then, as

non-family firms’ growth increases the number of working founders decreases.

However, the biggest difference occurs between the moderate and high growth paths

implying that this process is accelerated in the upper growth paths.

Table 1

Percentage (number) of SMEs who had working proprietors, working partners or working directors

Low Growth

Moderate Growth

High Growth

Chi Square stat

1996 Fam. Bus.

Non Fam

96.3% (336)

82.6% (228)

92.8% (90)

66.0% (70)

87.5% (7)

45.2% (14)

3.242 2 .198

28.131 2 <.0005

1997 Fam. Bus.

Non Fam

92.9% (325)

81.3% (226)

90.7% (88)

64.8% (68)

87.5% (7)

41.9% (13)

.753 2 .686

29.019 2 <.0005

1998 Fam. Bus.

Non Fam

91.7% (321)

81.0% (226)

89.7% (87)

57.1% (60)

87.5% (7)

48.4% (15)

.528 2 .768

31.601 2 <.0005

Mean Fam. Bus. Non Fam Difference

93.6% 81.6% 12.0%

91.1% 62.6% 28.5%

87.5% 45.2% 42.3%

Table 2 shows very little difference between family and non-family businesses’

utilization of other full-time managerial employees over growth paths. Both groups

display significant negative differences over growth paths with the biggest difference

evident between the low growth and moderate growth stages. This is similar to

Smith’s (2003) findings for SMEs in general indicating a very strong tendency to

utilise other managerial staff once moderate growth levels are reached relative to low

growth levels and is consistent with Montoya et al’s (1993) ‘brick wall’ proposition.

The closeness of the moderate and high growth path figures in table 2 should not be

interpreted as meaning moderate and high growth SMEs have the same level of ‘other

managerial employees’. As shown in table 3, the average median number of other

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Table 2

Percentage (number) of SMEs utilising other full-time managerial employees

Low Growth

Moderate Growth

High Growth

Chi Square stat.

1996 Fam. Bus.

Non Fam

46.9% (164)

56.3% (157)

93.8% (91)

95.3% (101)

87.5% (7)

93.5% (29)

71.549 2 <.0005

64.085 2 <.0005

1997 Fam. Bus.

Non Fam

51.4% (180)

60.9% (170)

93.8% (91)

97.2% (103)

100% (8)

100% (31)

62.665 2 <.0005

63.612 2 <.0005

1998 Fam. Bus.

Non Fam

54.9% (192)

60.9% (170)

94.8% (92)

95.3% (101)

100% (8)

96.8% (30)

57.372 2 <.0005

55.301 2 <.0005

Mean Fam. Bus. Non Fam Difference

51.1% 59.4% (8.3%)

93.8% 95.9% (2.1%)

95.8% 96.8% (1.0)

managerial staff for high growth SMEs is significantly higher than the average

median number of these staff for moderate growth SMEs, particularly for family

businesses. So although there is a huge jump between low and moderate/high SMEs

Table 3

Median (mean) number of other full-time managerial employees

Low

Growth Moderate Growth

High Growth

Kruskial-Wallis stat.

1996 Fam. Bus.

Non Fam

0 (1.2)

1 (1.5)

4 (4.4)

5 (5.5)

9 (9.5)

7 (8.1)

117.861 2 <.0005

163.318 2 <.0005

1997 Fam. Bus.

Non Fam

1 (1.3)

1 (1.7)

4 (4.8)

5 (5.7)

8.5 (10.3)

8 (8.8)

125.06 2 <.0005

169.037 2 <.0005

1998 Fam. Bus.

Non Fam

1 (1.4)

1 (1.7)

4 (4.6)

5 (5.5)

9.5 (11.3)

8 (9.8)

118.243 2 <.0005

153.822 2 <.0005

Mean Fam. Bus. Non Fam Difference

0.7 1.0

(0.3)

4.0 5.0

(1.0)

9.0 7.7 1.3

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in the number who employ other managerial staff (from roughly half to nearly all

SMEs), on average, the actual number of staff employed increases with growth.

There is also a difference between family and non-family businesses evident in table

3, in that, on average, the use of additional other full-time managerial employees

across growth paths appears more linear than is the case for non-family businesses.

That is, although there is a significant jump in numbers (3.3) between low growth and

moderate growth family businesses, unlike non-family firms there is an even bigger

jump (5) between moderate and high growth family businesses who, on average, hire

an additional 2.3 other full-time managerial employees than high growth non-family

firms.

Table 4, showing the percentage of managerial staff with tertiary qualifications of a

business nature for 1994-95 displays significant positive differences between growth

paths for both groups, as does table 5, showing the percentage of newly employed

full-time managers for the same year. Both of these results are consistent with the

‘brick wall’ concept mentioned earlier.

Table 4

Percentage (number) of SMEs having managerial staff with tertiary

qualifications in business management, commerce or administration (1994-95)

Low Growth

Moderate Growth

High Growth

Chi Square stat.

Fam. Bus.

Non Fam

Difference

32.6% (114)

38.7% (108)

(6.1%)

63.9% (62)

75.5% (80)

(11.6%)

100% (8)

90.3% (28)

9.7%

42.977 2 <.0005

61.372 2 <.0005

However, although table 5 shows very similar results between family and non-family

firms, in relation to the number of firms having staff with tertiary business

qualifications, the data in table 4 once again shows a more linear progression across

growth paths for family businesses relative to non-family firms. In particular, the

jump between moderate growth and high growth family firms is more than double

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that of non-family businesses and is more than the jump between low growth and

moderate growth family firms.

Table 5

Percentage (number) of SMEs with a full-time manager, newly employed in 1994-95

Low

Growth Moderate Growth

High Growth

Chi Square stat.

Fam. Bus.

Non Fam

Difference

10.6% (37)

16.1% (45)

(5.5%)

29.9% (29)

32.1% (34)

(2.2)

50% (4)

51.6% (16)

(1.6%)

29.285 2 <.0005

26.826 2 <.0005

Table 6 shows that for non-family firms, the percentage of SMEs using formal

strategic or business plans is significantly positively related to growth paths, with

moderate and high growth firms, on average, nearly twice as likely than low growth

firms to make use of them. The big difference between the low growth and

moderate/high growth non-family businesses is once again similar to Smith’s (2003)

findings for SMEs in general and adds further support to the ‘brick wall’ contention.

Table 6

Percentage (number) of SMEs that used a formal strategic or business plan

Low Growth

Moderate Growth

High Growth

Chi Square stat.

1995/96 Fam. Bus.

Non Fam

28.9% (101)

30.8% (86)

47.4% (46)

63.2% (67)

37.5% (3)

51.6% (16)

11.922 2 .003

35.072 2 <.0005

1996/97 Fam. Bus.

Non Fam

26.9% (94)

29.7% (83)

41.2% (40)

53.8% (57)

25% (2)

64.5% (20)

7.587 2 .023

28.339 2 <.0005

1997/98 Fam. Bus.

Non Fam

28.3% (99)

34.4% (96)

35.1% (34)

56.6% (60)

50% (4)

64.5% (20)

3.183 2 .204

22.272 2 <.0005

Mean Fam. Bus.

Non Fam Difference

28.0%

31.6% (3.6%)

41.2%

57.9% (16.7%)

37.5%

60.2% (22.7%)

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The results for family firms are very different however. Although there is evidence of

a jump between the low growth and moderate growth firms, the level of the jump is,

on average, only approximately half that of non-family businesses. In addition,

although the percentage of moderate and high growth family firms using formal

business plans are relatively close, as is the case for non-family firms; the percentage

of non-family firms in these upper paths using formal business plans is about 50 per

cent higher than the corresponding family businesses. In fact, for all three growth

paths, family firms are, on average, less likely to use formal business plans than non-

family businesses and the gap between the two groups increases with each stage.

Table 7 shows positive differences across growth paths for the percentage of non-

family firms comparing performance with other businesses. However, in this case ,

the biggest difference is between the high and moderate growth firms. Given that the

use of performance comparisons is the hallmark of a marketing professional, this

finding is consistent with the contention that high growth non-family businesses are

Table 7

Percentage (number) of SMEs that compared performance with other businesses

Low Growth

Moderate Growth

High Growth

Chi Square

1995/96 Fam. Bus.

Non Fam

18.9% (60)

16.8% (45)

24.2% (22)

29.1% (30)

50.0% (4)

42.9% (12)

5.517 2 .063 14.468 2 .001

1996/97 Fam. Bus

Non Fam

15.1% (53)

15.4% (43)

26.8% (26)

18.9% (20)

25% (2)

41.9% (13)

7.346 2 .025 13.179 2 .001

1997/98 Fam. Bus.

Non Fam

16.6% (58)

15.8% (44)

22.7% (22)

22.6% (24)

12.5% (1)

29% (9)

2.93 2 .351 4.863 2 .088

Mean Fam. Bus.

Non Fam Difference

16.9%

16.0% 0.9%

24.6%

23.5% 1.1%

29.2%

37.9% (8.7%)

15

more likely to have marketing specialists in place than low or moderate growth non-

family firms (Smith, 2003). Once again, this is consistent with Smith’s (2003)

findings for SME’s in general.

However, in this regard, family businesses show a marked contrast to non-family

businesses. As table 7 shows, the figures for low and moderate growth firms are very

similar between the two groups, but the percentage jump between moderate growth

and high growth firms is over three times larger for non-family businesses (i.e. 14.4%

as compared to 4.6%). That is, on average, high growth family firms are less likely to

compare performance with other businesses relative to high growth non-family

businesses.

DISCUSSION

Although this study is unable to directly measure the tenure of CEOs in the firms

sampled, the results outlined in table 1, showing that family businesses are different to

non-family businesses in that they maintain a relatively stable percentage of working

proprietors, partners or directors across growth paths appears to be consistent with H2.

These findings are very much what would be expected if H2 was the case and

certainly indicate significant differences between the two groups in this area.

Both family and non-family firms show a jump in the use of other full-time

managerial staff between the low and moderate growth firms. While only half of the

low growth firms use other managerial staff, nearly all moderate and high growth

firms from both groups use them. So while no differences between family and non-

family firms is evident here, the results are similar to Smith’s (2003) study showing

that both family and non-family businesses may be subject to Montoya et al’s (1993)

‘brick wall’.

The findings in relation to H3 are that while, on average, family businesses have

smaller management teams than non-family businesses, this only applies to low and

moderate growth firms. For high growth firms the opposite is the case with family

firms on average having a larger management team than non-family firms. This

finding is interesting not only for its inherent worth, but also because it validates

Mertz et al’s (1994) call for more comparative studies between high growth and low

16

growth firms and may provide some clue for the discrepancy in results between

Cromie et al’s (1995) and Westhead et al’s (2001) studies in this regard. For

instance, if this study had not applied McMahon’s (2001) taxonomy to the two groups

of firms (i.e. family and non-family businesses) and instead had simply averaged the

results of the two non-segmented groupings, then the result would certainly have been

that, on average, family businesses have smaller management teams than non-family

businesses.

The study’s findings that more non-family businesses in 1994-95 on average had

managerial staff with university degrees than family businesses for low and moderate

growth firms, but not for high growth firms, is valuable for the same reasons. That is,

the different behaviour of high growth family businesses would not have been

apparent without the application of McMahon’s (2001) taxonomy. In addition,

although this study has no way of determining whether it is the director or other

managerial staff who hold the degree/s, the results for low and moderate growth firms

are consistent with H4, while the results for high growth firms are not.

The findings relating to business plans are much less ambiguous with H5 finding

strong support across all growth paths. The increase in the difference between the

two groups’ use of formal business plans across growth paths is consistent with

resistance to, or at least a slower adoption of, professional management practices by

family businesses in the face of growth related imperatives. Such a proposition is

supported by the results shown in table 7 where once again a marked difference

between family and non-family firms is apparent in relation to comparing

performance with other businesses, but only for those in the high growth stage of

development.

Having said this, slower adoption of professional management practices is unexpected

given the results in tables 3 and 4, showing high growth family businesses have, on

average, more other full-time managerial staff and that for 1994-95, more of these

firms had managerial staff with tertiary qualifications in business management,

commerce or administration than for non-family businesses. That is, although high

growth family firms are, on average, employing more managerial staff and more of

17

these have business related tertiary qualifications, they are still not carrying out some

of the practices indicative of full functional professional management as often as non-

family firms at the same growth stage. In fact, the majority of family firms are not

carrying out these practices at all. For family firms at the high growth stage then,

there appears to be a difference between employing qualified management personnel

and adopting professional management practices.

CONCLUSION

Table 8 provides a summary of the study’s findings in relation to each of the sub-

hypotheses proposed. As indicated, each of the hypotheses is supported, although

some have qualifications as outlined previously, which indicates the issues may be

more complex than that outlined in the literature. Even where these qualifications

exist, for example H3 and H4, the issues show strong differences between family and

non-family businesses even if the direction of these differences is not as predicted.

Overall then, it would appear safe to reject the null hypothesis (H0) that there is no

difference between the managerial development processes of family businesses and

non-family businesses.

Table 8

Summary of sub-hypotheses and related findings

Hypotheses Supported/Not supported Findings

H2: Tenure of family business CEOs longer

Supported Strong difference between FB & NFB in relation to working proprietors over growth paths (Table 1)

H3: Smaller management teams of family businesses

Supported for low & moderate growth FB only. High growth FB still different to high growth NFB (opposite direction)

High growth FBs found to have larger management teams than NFBs (Table 3)

H4: Directors of family businesses less likely to have University degrees

Supported for low & moderate growth FB only. High growth FB still different to high growth NFB (opposite direction)

More high growth FBs had managerial staff with tertiary qualifications in business than NFBs (Table 4)

H5: Business plans used less by family businesses

Strongly supported across all growth paths

Difference between FB & NFBs increases with growth (Table 6)

18

Beyond the sub-hypotheses, even though it is apparent that both family and non-

family businesses fit within Smith’s (2003) model, there are still differences between

them. For instance, although there is evidence of a ‘brick wall’ and full functional

management point for both groups, an incidental finding of this study is that high

growth family firms are less likely to utilise professional management practices

despite generally having higher numbers of other managerial employees who have

tertiary qualifications in business. Why this is the case is beyond the scope of this

study but should hopefully be addressed by future research. For instance, it would be

interesting to determine whether this behaviour is associated with the long tenure of

family business CEOs.

Another incidental finding is that in some areas, high growth family firms are

different from high growth non-family firms even though there is little difference

between the two groups for low and moderate growth firms. That is, family and non-

family businesses may behave in a similar way on some issue at low and moderate

levels of growth, but not once high growth levels are reached. This is important

because it may indicate that the two groups progress in a similar manner as they grow

until the reach the high growth stage where they diverge with each other. It may also

be important from a methodological perspective because even after controlling for

industry sector and the legal form of organization, if the cases used in this study had

not been segmented into McMahon’s (2001) taxonomy, this information would not

have been apparent.

The findings presented in this paper then are valuable in a number of ways. Firstly,

they provide strong empirical support for much of the literature in this area that, in

some cases hitherto, was only conceptually based. Secondly, beyond empirically

confirming past research, this paper also adds to the scholarly understanding of family

firms by outlining a level of complexity in some areas perhaps not apparent in earlier

studies. The study also presents findings from an Australian perspective. Given that

these findings support literature predominantly based on research carried out

overseas, this study gives further credence to the universality of the literature.

Finally, the study provides directions for further research and gives support for the use

of methodologies that utilise comparisons between high growth and low/moderate

growth family firms.

19

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