FAMILY BUSINESS ENTERPRISE

TEAM OF LECTURERS
UNIVERSITAS PELITA HARAPAN
Family Business Enterprise | Universitas Pelita Harapan 2016
 INTRODUCTION
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Family Business Enterprise | Universitas Pelita Harapan

 RULES AND REGULATIONS
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Family Business Enterprise | Universitas Pelita Harapan

 GRADING SYSTEM
Mid Exam: 30%
Final Exam: 30%
KAT: 40%

Family Business Enterprise | Universitas Pelita Harapan

 TEXT BOOK(S)
Poza, Ernesto J. (2010). Family Business (3rd Edition). USA:
Thomson South-Western.
Susanto, A.B, et al. (2008). Family Business. Jakarta: The Jakarta
Consulting Group.

Family Business Enterprise | Universitas Pelita Harapan

 SYLLABUS
Refer to syllabus in the Microsoft Office file

Family Business Enterprise | Universitas Pelita Harapan

 MEETING 1:
UNDERSTANDING FAMILY BUSINESS
Family Business Enterprise | Universitas Pelita Harapan
 TOPICS TO COVER

1. Definition of family business (Poza 2010, 5-6 and Susanto 2008, 4).
2. Differences of family business compare to professional-run business
(Poza 2010,6).
3. Strengths and Weaknesses of Family Business (Susanto 2008, 19-
23).
4. Family Business Theory (Poza 2010, 7-21):
5. Indonesias Family Businesses Landscape (Susanto 2008, 27-34).

Family Business Enterprise | Universitas Pelita Harapan

1 Definition of Family Business

A family business is a synthesis of (Poza 2010, 5-6):

Ownership control (15%+) by two or more members of a family
or a partnership of families
Strategic influence by family members on the management of
the firm
Concern for family relationships
The dream (possibility) of continuity across generations

Family Business Enterprise | Universitas Pelita Harapan

1 Definition of Family Business

A family business is a business which owned and run by members

of founder(s) family (Susanto 2008, 4).

Family Business Enterprise | Universitas Pelita Harapan

2 Differences of family business compare to
professional-run business
What makes family business different:
The presence of the family
The owners dream to keep the business in the family
The overlap of family, ownership, and management
The competitive advantage derived from the interaction of family,
management, and ownership

Family Business Enterprise | Universitas Pelita Harapan

3 Strengths and Weaknesses of Family Business
DIMENSION STRENGTH
Infrastructure Informal, flexible, enterpreneurial,
innovative
Role Often play various roles, flexible, dual
relationship, right decision making
Leadership Creative, ambitious, informal
authority, entrepreneurial
Family Business Enterprise | Universitas Pelita Harapan
WEAKNESS
Unclear, confusing, problems are in
boxes, uncertain, resistant to change,
lack of management improvement, no
organizational structure
Unclear role for members, unfinished
work, nepotism, various roles in play,
intervention during learning process and
objectivity, can have unqualified family
member working in the company
Autocracy, resistant to structure and
system
3 Strengths and Weaknesses of Family Business
DIMENSION STRENGTH WEAKNESS

Family Involvement Good employee commitment, loyal, similar
values, family spirit, family name
involvement, family dream, strong sense of
vision and mission
Time Long-term perspective, committed, loyal,
closer relationships, trust develops over
time
Hard to separate between family and
business issues, inability to create balance
between business liquidity and family, less
objective, internal orientation, decision
making driven by emotional reasons, rivalry
between family members
Resistant to change, bound by tradition,
family history often decides business
decision, trust between members highly
influenced by disappointment in the
beginning

Succession Training for successor can start earlier, There are various family issues influencing
mentoring is a long process, can decide succession, unwillingness to leave the
when to
Family Business Enterprise | Universitas leave
Pelita the company
Harapan business, inability to choose successor
3 Strengths and Weaknesses of Family Business
DIMENSION STRENGTH WEAKNESS

Ownership/ Owned by family, control by family, income Can sacrifice growth in order to maintain
Management as source of motivation control, less responsibility to stockholders,
often there is no directors who are not family
members, high privacy in running business

Culture Innovative, informal, flexible, creative, Not efficient in running business, emotional,
adaptable, same language, efficient resistant to change, reactive, conflict can
communication easily happen

Complexity Can trigger development of creativity, role Must be managed to avoid confusion, can
and objective in business influenced one experience shortage of energy and power
another
Family Business Enterprise | Universitas Pelita Harapan
Hilburt-Davis, Jane and W.Gibb Dyer Jr. (2003) as quoted by Susanto 2008, 19-20.
4 Family Business Theories

There are four theories in running and managing family business:

Systems theory
Agency theory
Resource-based theory
Stewardship theory

Family Business Enterprise | Universitas Pelita Harapan

4 Family Business Theories > Systems Theory

The firm is a dynamic system in which integration is achieved by

adjustments between family, management, and ownership
subsystems
Individual perspectives of family and firm may differ, leading to
overemphasis on one sub-system at the expense of others

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4 Family Business Theories > Systems Theory

Ownership

Family Management

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4 Family Business Theories > Systems Theory Ownership

Family-First Business: Family Management

Employment in the business is a birthright

Members of the same generation are paid equally
Perks that transfer from the business to family members are often
extensive
Financial systems may be obtuse by design, and secrecy is often
paramount
Commitment to continuity depends on the agendas of individual
family members

Family Business Enterprise | Universitas Pelita Harapan

4 Family Business Theories > Systems Theory Ownership

Management-First Business: Family Management

Employment is on the basis of qualificationsfamily is discouraged

from working in the business
Performance of employed family members is reviewed in the same
manner as the performance of nonfamily managers
Compensation is based on responsibility and performance
Conversation between family members is usually all business

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4 Family Business Theories > Systems Theory Ownership

Ownership-First Business: Family Management

Investment time horizons and perceived risk are the most

significant issues
Have shorter time frames within which financial results are
evaluated

Family Business Enterprise | Universitas Pelita Harapan

4 Family Business Theories > Systems Theory Ownership

Blurred System Boundaries: Family Management

Boundaries among family, ownership, and management systems

may become blurred
Problems determining if decisions relate to family, ownership, or
management issues
Family rules may overtake the business
Problem-solving ability diminished by blurred boundaries

Family Business Enterprise | Universitas Pelita Harapan

4 Family Business Theories > Agency Theory
Traditional theory: the natural alignment of owners and managers
decreases agency costs of ownership in family firms
Recent research: the altruism of owner-managers leads to
increased agency costs
Agency costs can be controlled or avoided through the use of
certain managerial and governance practices
The board of directors is important in monitoring managerial
behavior and controlling costs

Family Business Enterprise | Universitas Pelita Harapan

4 Family Business Theories > Resource-based Theory
Resource-based theory highlights unique capabilities or resources
that family firms convert into competitive advantage
These resources are often referred to as organizational
competencies
The ability of a particular family business to capitalize on its unique
advantages depends on the quality of the interaction between
business and family

Family Business Enterprise | Universitas Pelita Harapan

4 Family Business Theories > Stewardship Theory
This perspective claims that founding family members view the firm as
an extension of themselves and therefore view the continuing health of
the enterprise as connected with their own well-being
Owners inherit a responsibility to others, to stewardship, so that the
enterprise they received from the earlier generation may successfully
pass on to the next
As stewards of the firm, family owners often place individuals on the
board that can provide objective advice and advocate for a going
concern

Family Business Enterprise | Universitas Pelita Harapan

4 Family Business Theories > Stewardship Theory
This perspective claims that founding family members view the firm as
an extension of themselves and therefore view the continuing health of
the enterprise as connected with their own well-being
Owners inherit a responsibility to others, to stewardship, so that the
enterprise they received from the earlier generation may successfully
pass on to the next
As stewards of the firm, family owners often place individuals on the
board that can provide objective advice and advocate for a going
concern

Family Business Enterprise | Universitas Pelita Harapan

 Read this report from PWC about
Indonesia Family Business based
on their 2014 survey.

Family Business Enterprise | Universitas Pelita Harapan

 THANK YOU
FAMILY BUSINESS ENTERPRISE | UNIVERSITAS PELITA HARAPAN 2016

Family Business Enterprise | Universitas Pelita Harapan