What the advantages and disadvantages are when using the 3-Circle model to make sense of your family’s business?
This discussion mill mainly target my personal specific situation, but will still hopefully provide valid contribution to the discussion. The three circle model, from an external perspective, provides extremely valid points and positions within a family business, displaying the common grounds and differences between the vaious roles. What I will contribute and add to the discussion is the fact that my personal experience is that of still being in a highly developmental phase, and as well as this, do not plan, at least initially, to involve extended family members. Operations would be entirely limited to the close sections of my family, including specifically those with which I have an exclusively positive relationship with.
2. How the idea of family and business agency contributes to either lower costs, higher sales or other business benefits for your family’s business? And how does the idea of agency contribute or erode the family dimension of your business?
As mentioned above, the business plan and idea that I possess is not yet developed enough to be able to appropriately determine the roles that would have to be assigned for there to be the effective creation of an agency within the business, either would there be the need to rely upon external factors.
3. What disadvantages can the idea of agency bring to family business?
I believe that the concept of agency would effectively rid the majority of the advantages that a family business presents, at least in my case specifically. The major facto coming into play, at least initially, is that of dependability. The emotional implication that comes into play when initiating a family business, especially a small one in scale, allows for there to be an extremely high level of trust amongst its members. By integrating an anomaly such as that of the concept of agency within this picture, it could effectively disrupt the positive effects that were present up to that moment.
4. How are you an agent of your family business and how might you use the learning in this module to increase or decrease the effects of your agency in your family’s business?
My current role is, in effect, entirely that of the agent, as I am not the main owner of the firm itself. Given my limited professional career compared to that of my parents, I do not have the facilities or capabilities to effectively be able to position myself as an owner of the firm. However, the advantages that we have are those of these roles truly being blended, due to the fact that there is no true definition in regards to what the extents of the authority each family member possesses reaches to.
Prompt: What I may mention is that I am glad that the size and reach of my own family business is as restricted as it is. At least in the developmental phase, it is essential to not have any sort of external or biased input that may derail the creation and growth of the firm. What are some views, though, in regards to the concept of agency within a very small family business? While for organisation and hierarchical purposes this may be essential, is it truly needed given the smaller context? Is a hierarchy truly needed?
The idea of agency can reduce informal communication within the family business. It might reduce the overall effectiveness of the employees by increasing professionalism in the work environment. In a family business, employees are usually communicating informally, and this helps the smooth operations of the company. However, the idea of agency can have a negative impact on that. There can be conflicts among the employees and as a result, the overall operations of the company are affected.
The model suggests that the necessities of each community of interests in the three circles develop over time. Families should resolve not only their key problems but must also brace themselves for potential future difficulties. The 3-Circle model’s overlapping components show that the other ones are influenced by what happens in one circle. If one out of three circles has a disagreement or is trapped, the success of the other circles will be reduced and the whole company’s development stops. So, family businesses might just add close family members to the businesses with whom they have aligned objectives.
Wonderful reflections and insights @Alessandro Martini . Thank you so much. You may want to consider your role as an agent of the family business at times when you may have represented the business, or supported the current owners. In any way that you could have saved time or expense (formal and informal)- or generated opportunity or enhanced values (which could be as much reputational as sales )?
An fascinating paper on weighing up the effects of agency of family v non-family businesses:
Hello Alessandro ! I totally agree with your point of view regarding the option of excluding extended family members. Though my siblings and I do not necessarily want to be involved in the family business, I have noticed that my father has chosen to exclude his extended family members and rely only upon my mother, my siblings and I. I have not had any clear reasons behind his decisions. Yet, I assume it has to do with their level of commitment to the business. Personally, I would rather build a business with my siblings with whom I have positive relations because I can be confident that our long-term goals align and I can trust that they will always put the business first as our interests are mutual.
Regarding the concept of agency in very small family business, I would not particularly recommend it. In a very small family business, establishing an agency may contribute to the death of the family atmosphere of the business. It might make it more professional, as everyone starts seeing one another as a business partner rather than a family partner. It may create tension which can lead to the decline of the company as a whole. On the other hand, I would strongly argue for the existence of a hierarchy because it is needed within every context. Whether it is a small or large family, a sport team or an organization, the existence of a hierarchy allows one to ensure that everyone works towards a common goal.
I would end with this question : Would it be more beneficial for us within the family business to find a balance between the concept of agency and stewardship to apply them to increase our performance as a whole? The following link gives a detailed definition on the concept behind both terms.
https://ffipractitioner.org/viewing-family-firm-behavior-and-governance-through-the-lens-of-agency-and-stewardship-theories/#:~:text=The%20agency%20theory%20perspective%20advises,costs%2C%20thereby%20improving%20firm%20performance.