Adjustment Strategies in the Family Firm

9

REVISED September 18, 2007

Adjustment Strategies in the Family Firm:

A Concept Paper Prepared for the NC 1030 Project

Prepared by: Margaret A. Fitzgerald and Linda S. Niehm

Basic Definitions

Adjustment strategies are instrumental behaviors through which external objects are manipulated to obtain the goods and services needed maintain satisfactory levels of living under normal or unusual conditions (Winter & Morris, 1998). In the family business literature, adjustment strategies are defined as a means of restoring or maintaining an acceptable level of well-being for the family or the business during time periods when increased and/or competing demands are made on time and/or human resources in either area (Miller, Fitzgerald, Winter & Paul, 1999). The National Family Business Survey (NFBS) is the first large-scale attempt at capturing the overlap of business and family resources in family-owned businesses (Haynes, Walker, Rowe & Hong, 1999; Heck, Jasper, Stafford, Winter & Owen, 2000; Winter, Fitzgerald, Heck, Haynes, & Danes, 1998). More recently the management of work role overlap, managerial role, and family business success were addressed in a longitudinal study by Niehm and Miller (2006) using both 1997 and 2000 waves of the NFBS.

Questions and Indices

In the NFBS - 1997 panel, the following questions were asked to ascertain the frequency with which household and business manages used the following strategies:

Asked of Household Managers (H7a-g):

a. Family members, other relatives, or friends who usually do not work in the business help out in the business without pay.

b. Family members put off or skip routine household tasks to do business work.

c. Family members get less sleep because they spend more time in the business.

d. Family work usually completed at home is done at the business (pay bills, make appointments, etc.)

e. Family members working in the business do more business tasks at home.

f. Some household responsibilities are temporarily shifted among family members so more time can be spent in the business.

g. The family hires (paid) temporary help for either business or home.

Response options: 1=Never, 2=Seldom, 3=Sometimes, 4=Often, 5=Always

Asked of Business Managers (B44 a-g):

a. Family members, other relatives, or friends help with the business without pay so you can spend more time with family.

b. You defer or skip routine business demands (for example, record keeping or file management) to spend more time with family.

c. You get less sleep to spend more time with family.

d. You do more business tasks at home.

e. You take care of family responsibilities at work more often.

f. You temporarily shift some of your business work to others so you can spend more time with your family.

g. You hire (paid) temporary help for either home or business.

Response options: 1=Never, 2=Seldom, 3=Sometimes, 4=Often, 5=Always

Adjustment indices related to reallocating family resources, intertwining tasks, reallocating business resources, using volunteer help and hiring outside help were developed using the variables listed above (see Appendix A and Fitzgerald, Winter, Miller & Paul, 2001 for more detail on the development of the indices). Reallocating resources includes items that assess ways in which the time and energy of family members are reallocated to meet business needs. Intertwining tasks assesses the degree to which business tasks are done at home and family tasks are done at the business. Reallocating business resources is the companion to the first factor, assessing the reallocation of business resources to meet family needs. Obtaining volunteer help involved recruiting family and friends to help in hectic times. Hiring help involves paying others to help.

Brief Review of Literature

During demanding times, when individuals are under pressure to meet a business deadline or deal with a family crisis, the usual way of doing things may not be sufficient to meet the needs of both the family and the business (Paul, Winter, Miller, & Fitzgerald, 2003). Paul et al (2003) reviewed the five main types of adjustment strategies that have been identified in the literature: 1) personal time reallocation (Miller, Winter, Fitzgerald & Paul, 2000; Winter, Miller, Fitzgerald, & Paul, 1999; Winter, Puspitawati, Heck, & Stafford, 1993), 2) obtaining additional help (Fitzgerald et al., 2001; Miller et al., 2000; Winter et al., 1993; Winter et al., 1999), 3) adjusting family resources (Fitzgerald et al., 2001; Miller, Fitzgerald, Winter, & Paul, 1999; Miller et al., 2000), 4) adjusting business resources (Fitzgerald et al., 2001; Miller et al., 1999; Miller et al., 2000; Winter et al., 1999) and intertwining tasks (Fitzgerald et al., 2001; Winter et al, 1999). With the exception of Winter et al., (1993), all of the research on the use of adjustment strategies in family owned businesses has been based on data collected in the 1997 National Family Business Survey (NFBS) (Fitzgerald et al., 2001; Miller et al., 1999; Miller et al., 2000; Olson, Zuiker, Danes, Stafford, Heck, & Duncan, 2003; Winter et al., 1999).

The family characteristics of family size (Fitzgerald et al., 2001; Winter et al., 1993; Winter et al., 1999), family income (Winter et al., 1993; Winter et al., 1999) age and educational level (Fitzgerald et al., 2001; Winter et al., 1999; Winter et al., 1993) and family and business roles (Fitzgerald et al., 2001; Miller et al., 1999; Miller et al., 2000; Winter et al., 1993) have been shown to influence the types of adjustment strategies used in family-owned firms. Business size as a characteristic of the business is also a predictor of the use of adjustment strategies (Fitzgerald et al., 2001; Miller et al., 2000).

Paul et al. (2003) in a study on stage of the family business lifecycle and the sequencing of family and business events, found that starting the family prior to starting the business was a significant predictor for reallocating business resources, indicating that those who started the family before they started the business were more likely to draw on business resources to meet family needs than those whose businesses were started prior to family formation. In general, families in stage two of the business lifecycle were more flexible in exchanging resources (reallocating family resources, intertwining tasks, and using volunteer help) more readily than businesses in stage 1 or 3. Managers in businesses with employees were more likely to reallocate business resources, reallocate family resources and hire outside help as adjustment strategies than those without employees, consistent with other literature. Family variables were more significant in predicting adjustments in the business realm than in the family realm. Moreover, the timing of the business life cycle stage has a significant influence on the adjustment in the family realm but not in the business realm, illustrating the importance of including variables from both the business and the family in understanding family firms.

Certain adjustment strategies have also been linked to business outcomes. Reallocating time from sleep to the business and hiring temporary help during hectic periods increase business revenue, an objective measure of business success (Olson, Zuiker, Danes, Stafford, Heck & Duncan, 2003). Similarly, the owner’s perception of business success, a subjective outcome, was higher if they slept less and hired temporary help during hectic times. Hiring temporary help was positively associated with increased gross business revenue and family business income. Olson et al. (2003) found that responses to disruptions explained more of the variance than did family resources, constraints and processes in their study of family and business success in family firms.

Niehm, Miller and Fitzgerald (2005; 2007) have addressed the impact of adjustment strategies on family business success over time using data from the 1997 and 2000 versions of the NFBS.

Niehm and Miller (2006) found significant differences between single and dual role family business managers in terms of level of perceived business success and a number of demographic variables (age, household size, business and household income, community size, number of employees, and NAIC code). While both dual and single-role managed family businesses did significantly better over time in terms of financial success, a very different picture emerged regarding perceived business success. Dual role managers showed no significant longitudinal differences in success while single role family business managers reported significantly different and lower feelings about their success over time.

The Sustainable Family Business Model and Adjustment Strategies

The SFB model gives equal recognition to the family and the business and the interplay between the two in achieving sustainability for both; it implies that the sustainability of a family business is a function of both the success of the business and family functionality (Stafford, Duncan, Danes & Winter, 1999). Resources and interpersonal transactions from either the business or the family system can facilitate or hinder the sustainability of either system at various points in time. A unique feature of the SFB model is the recognition family and business systems respond to disruptions in regular patterns by exchanging resources across systems (Winter & Morris, 1998; Olson et al., 2003). The model illustrates how resources can be drawn from either the family or the business to function at a higher level when the demands from either side are unusually taxing. Systematic responses create a capacity of resilience in the face of disruptions. The model also recognizes that different processes occur in each system during times of stability and change (Danes, Rueter, Kwon & Doherty, 2002; Stewart & Danes, 2001). These modified patterns help family firms remain “healthy” in response to disruptions (Danes, 1999; Danes et al., 2002).

Use of adjustment strategies creates a resilience capacity in the face of disruption. According to the Sustainable Family Business Model, these responses to disruption are changes made in one system (business or family) to accommodate the other when unusually hectic times exist. Emphasis of the NSF/NC-1030 project will focus on whether or not businesses receiving disaster assistance employ different adjustment strategies than businesses not receiving disaster assistance and how adjustment strategies are altered by the receipt of disaster assistance.

References

Danes, S. M.., Reuter, M. A., Kwon, H. K., & Doherty, W. (2002). Family FIRO model: An application to family business. Family Business Review, 15(1), 31-43.

Fitzgerald, M. A., Winter, M., Miller, N. J., & Paul, J. (2001). Adjustment strategies in the family business: Implications of gender and management role. Journal of Family and Economic Issues, 22(3), 265-291.

Haynes, G. W., Walker, R., Rowe, B. S., & Hong, G. S. (1999). The intermingling of business and family finances in family-owned businesses. Family Business Review, XII, 225-229.

Heck, R. Z. K., Jasper, C. R., Stafford, K., Winter, M., & Owen, A. J. (2000). Using a household sampling frame to study family businesses: The 1997 national family business survey. In J. A. Katz (Ed.), Databases for the Study of Entrepreneurship (pp. 229-287). New York, NY: Elsevier Science, Inc.

Miller, N. J., Fitzgerald, M. A., Winter, M., & Paul, J. (1999). Exploring the overlap of family and business demands: Household and family business managers’ adjustment strategies. Family Business Review, XII, 253-268.

Miller, N. J., Winter, M., Fitzgerald, M. A., & Paul, J. (2000). Family micro-enterprises: Strategies for coping with overlapping family and business demands. Journal of Developmental Entrepreneurship, 5(2), 87-113.

Niehm, L.S., & Miller, N.J. (2006). Entrepreneurship and the Impact of Managerial Role of Family Business Success. Journal of Research in Marketing and Entrepreneurship, 8(1), 75-94.

Niehm, L.S., Miller, N.J., & Fitzgerald, M. (2007-in review) Assessing the impact of managerial adjustment strategies on family business success over time. Journal of Developmental Entrepreneurship.

Niehm, L.S., Miller, N.J., & Fitzgerald, M. (2005). Assessing the impact of managerial adjustment strategies on family business success over time. Invited Panel Presentation, NE 167 Family Business Research Group. In Proceedings of the USASBE (Unites States Association for Small Business and Entrepreneurship) Annual Meeting, p. 202, Indian Wells, CA.

Paul, J. J., Winter, M., Miller, N. J., & Fitzgerald, M. A. (2003). Cross-institutional norms for timing and sequencing and the use of adjustment strategies in families affiliated with family-owned businesses. Marriage and Family Review, 35(1/2), 167-191.

Olson, P. D., Zuiker, V. S., Danes, S. M., Stafford, K., Heck, R. K. Z., & Duncan, K. A. (2003). The impact of the family and the business on famly business sustainability. Journal of Business Venturing, 18, 639-666.

Stafford, K., Duncan, K. A., Danes, S., & Winter, M. (1999). A research model of sustainable family businesses. Family Business Review, XII, 197-208.

Stewart, C. C., & Danes, S. M. (2001). Inclusion and control in resort family businesses: A developmental approach to conflict. Journal of Family and Economic Issues, 22(3), 293-320.

Winter, M., Fitzgerald, M.A., Heck., R. K. Z., Haynes, G. W., & Danes, S. M. (1998). Revisiting the study of family businesses: Methodological challenges, dilemmas, and alternative approaches. Family Business Review, 11, 239-252.

Winter, M., Miller, N. J., Fitzgerald, M. A., & Paul, J. (1999). Time and human resource transfers by entrepreneurial families in hectic times. Unpublished manuscript.

Winter, M., & Morris, E. (1998) Family resource management and family business: Coming together in theory and research. In: Heck, R. K. Z. (Ed.), The Entrepreneurial Family. Family Business Resources. Needham, MA. 30-47.

Winter, M., Puspitawati, H., Heck, R. K. Z., & Stafford, K. (1993). Time-management strategies used by households with home-based work. Journal of Family and Economic Issues, 14, 67-92.

Appendix A: Indicators of Adjustment Strategies

Household managers were asked to indicate “when things are particularly busy in the business, does this happen always, often, sometimes, seldom, or never?” Business managers were asked similar questions on the demands from family. Variables were then factored or correlated as follows (for more detailed information on the creation of the indices, see Fitzgerald et al., 2001):

Reallocating Family Resources:

H7b Family members put off or skip routine household task to do business work.

H7c Family members get less sleep because they spend more time in the business.

H7f Some household responsibilities are temporarily shifted among family members so more time can be spent in the business.

Intertwining Tasks:

H7d Family work usually completed at home is done at the business (pay bills, make appointments, etc.).

H7e Family members working in the business do more business tasks at home.

B44d You do more business tasks at home.

B44e You take care of family responsibilities at work more often.

Reallocating Business Resources:

B44b You defer or skip routine business demands (for example, record keeping or file management) to spend more time with family.