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Balanced Scorecards to Drive the StrategicPlanning of Family FirmsJustin Craig, Ken Moores

The focus of this research is the measurement and management tool known as the Bal-

anced Scorecard (BSC) and how it can be applied in the family business context. In this

article we add familiness to the four BSC perspectives (financial, innovation and learn-

ing, customer, internal process) and illustrate how this can assist business development,

management, and succession planning in family-owned businesses. We use an action

research project to highlight how family businesses can professionalize their manage-ment by the adoption of a BSC strategy map that includes a family business focus and

links the core essence of the family business with the values and the vision of the founder

to the strategic initiatives of the family business. The F-PEC Scale constructs ofpower,

experience, andculture are used to introduce a PEC statement that identifies and artic-

ulates the core essence of the family business. Finally, we discuss potential contributions

that this project has for family businesses and those who work with and for them.

Introduction

The ultimate role of organizational theorists is to

translate their posturing into management tools.

Often, however, so-called management tools are

not rigorously developed and suffer the eventual

fate of being labeled management fads. Regard-

less, any initiative that makes claims to increase

performance, either financial or nonfinancial,

needs to be accompanied by an objective

measurement tool. Ideally, this tool not only

tracks performance but ensures adherence to

strategic goals. Many organizations use mea-

surement systems or scorecards that measure

financial and nonfinancial indicators, but the

assumptions and philosophies underlying these

scorecards are quite different from strategy score-

cards (Kaplan & Norton, 2001). The focus of this

research is the measurement and management

tool known as the Balanced Scorecard (BSC)

developed by Kaplan and Norton (1992), which

emphasizes the linkage of measurement to

strategy, and how it can be applied in the context

of a family business. Thus, the goal of this research

is twofold: (1) to interpret the BSC from a family

business viewpoint and (2) to illustrate how

an adapted BSC that includes afamiliness dimen-

sion can assist business development, manage-

ment, and succession planning in family-owned

businesses.

FAMILY BUSINESS REVIEW, vol. XVIII, no. 2, June 2005 Family Firm Institute, Inc. 105


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Motivation

Two dominant themes permeate the family busi-

ness literature. The first has established that

family businesses largely practice values-based

management and, often, these are the values of the

founder (Klein, 1991). The second theme suggests

that in order to grow and develop, family busi-

nesses need to professionalize their management.

However, adoption of professional approaches

need not necessarily conflict with the values of the

founder. Professionally managing a family busi-

ness within the context of these values can help

ensure their strategic differentiation (Carlock &Ward, 2001).

Increasingly, and perhaps ironically, public

company managers are looking to values-based

initiatives to improve organizational efficiency.

This devolution has eventuated in part due to the

changing nature of technology and competitive

advantage. Previously, companies achieved com-

petitive advantage from their investment in, and

management of, tangible assets (Chandler, 1990).

As intangible knowledge-based assets have

assumed greater relevance than tangible assets,

the way that strategies are developed and moni-

tored has also shifted. In a tangible-asset para-

digm, financial measures may suffice.The BSC was

developed as a result of the changing organiza-

tional landscape that includes emphasis on often

difficult-to-measure intangibles.

The degree of family influence, both observed

and tacit (herewith referred to as familiness), is

one of the factors that makes the family business

different from their public company equivalents

and can be a point of difference that contributes

to competitive advantage. Conversely, it can have a

stifling effect and inhibit growth (Craig & Lindsay,

2002). In the family business context, the family

influence often falls into the intangible category

and although attempts have been made to define

its contribution (or otherwise) to the business,like

many intangibles it is difficult to define, let alone

measure.As such, family businesses often function

in confusing and clandestine ways that are not

evident in nonfamily businesses (Litz, 1997).

Sharma, Chrisma, and Chua (1997) pointed out

that it is important to recognize that family goals

and business goals (and the strategies needed to

achieve these goals) are not always compatible.

Many studies have supported the notion that

strategic-planning processes and the resultingstrategies of family businesses significantly differ

conceptually from the processes and strategies of

nonfamily firms (see, e.g., Harris, Martinez, &

Ward, 1994; Ward, 1988).

In the current business environment, account-

ability, transparency, and individual honesty are

increasingly under the spotlight and many public

company leaders are striving to somehow ensure

ethical values are at the foundation of their oper-

ations. Paradoxically, as many family businesses

strive to be more professional in their operations

and mimic the public company model, they are

realizing the need to achieve this professionalism

without sacrificing their family influence and

values (Moores & Barrett, 2003). Our principle

motivation in this research therefore lies in the

need to adapt proven measurement and manage-

ment procedures to ensure that family values are

included in family business strategy development.

Theoretical Justification

To theoretically ground this project, we employed

the evolutionary approach to the theory of the

Craig, Moores

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firm (Nelson & Winter, 1982). The evolutionary

theory of the firm is a hybrid theory that resulted

from the integration of two theoretical

approaches (Cohendet,Llerena, & Marengo,2000).

The first theoretical foundation is based on evolu-

tionary principles and sees the firm evolving as it

(1) develops routines or repetitive activities that

ensure the coherence between individual and col-

lective behavior and (2) mutates and is involved in

continually searching behaviors that consist of

exploring and testing new routines and therefore

introducing new characteristics into the firm.

The second theoretical premise relies on the exis-

tence of cognitive mechanisms of individuals andthe development of a collective knowledge

base that encompasses the establishment of

rules, habits, norms and codes (Cohendet et al.,

2000, p. 96).

This approach offers the advantage of provid-

ing an explanation of three key issues that are

crucial to a theoretical understanding of the firm:

(1) how the firm can be defined (i.e., in terms of

the set of competences that it controls); (2) why

the firm differs from other firms (i.e., because of

the reliance on different routines and compe-

tences that are specific and that cannot be trans-

ferred); and (3) the dynamics of the firm (i.e.,

through the combined mechanisms of selection

and variation that work on the body of existing

routines) (Coriat & Weinstein, 1995; Cohendet et

al., 2000). In family businesses, as the firm evolves

and subsequent generations are introduced into

the firm, complex transitions need to be negoti-

ated. The founding generation plays a dominant

role in both the firm and family systems and

influences the routine development and mutation

process as well as the establishment of the collec-

tive knowledge base of the firm. The transfer of

this role to subsequent generations whose interest

and involvement in the firm varies (e.g., employed

vs. not employed by the firm; owners of stock vs.

nonstock owners) is considered vital for the sus-

tainability of the family firm. This approach has

had limited application in previous family busi-

ness research (Craig, 2004). However, as will be

shown, the framework introduced in the theory

justifies theoretically the need to include a distinct

family business focus when setting strategic direc-

tion in family-owned firms.

Strategic planning is critical for family busi-

nesses as a way of providing a framework for rec-

onciling family and business issues and forpromoting open and shared decision making

(Ward, 1988). The empirical research examining

the strategies pursued by or the strategic orienta-

tions of family-owned and managed firms is

limited and has provided conflicting results

(Gudmonson et al., 1999). In some studies (e.g.,

Feigener et al., 1996), family business CEOs have

been found to rate strategic planning less

significant in successor preparation than do non-

family business CEOs. Harris et al. reviewed the

strategy literature pertaining to family business

and came up with a list of characteristics that may

influence strategy, including inward orientation

(Cohen & Lindberg, 1974), slower growth and less

participation in global markets (Gallo, 1993),

long-term commitment (Danco, 1975), less capital

intensive (Friedman & Friedman, 1994), impor-

tance of family harmony (Trostel & Nichols, 1982),

employee care and loyalty (Ward, 1988), lower

costs (McGonaughy, Walker, & Henderson, 1993),

generations of leadership (Ward, 1988), and board

influence on implementation (Ward & Handy,

1988). Their conclusion that the assessment of

these family business characteristics and their

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Balanced Scorecards to Drive the Strategic Planning of Family Firms


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influence on strategy leaves more questions than

answers (1994, p.171) is at the core of this current

work.

From a strategic-management perspective,

families are both a resource and a constraint.

Sharma et al. (1997) considered family business

research in the areas of (1) goals and objectives;

(2) strategy formulation and content; (3) strategy

implementation; and (4) strategy evaluation and

control. They subsequently concluded that (1)

family business is more likely to have multiple,

complex, and changing goals rather than a singu-

lar, simple, and constant goal; (2) although more

attention has been paid to the process of strategyformulation and the content of strategy in family

businesses,relatively little is still known; (3) while

the family-business literature describes the

influences of family on strategy implementation,

unfortunately, however, it stops short of showing

how a particular family influence helps or hinders

the firms achievement of its goals and objectives;

and (4) the literature tells us very little about

whether strategic decisions and performance are

evaluated and controlled differently in the family

firm, or if such differences are justified (1997, p.

17).

Moores and Mula (2000) found that family

firms use a mixture of strategies to cope with busi-

ness uncertainties. Their goals, however, emanate

from product differentiation type strategies more

so than from cost leadership ones. Product and

service quality is the dominant form of differen-

tiation. However, relatively few family business

CEOs use formal strategic-planning processes.

Less than 50% of CEOs in a 1991 study reported

heavy to extensive use of long-term planning

while 16% indicated no use of long-term planning

(Moores & Mula, 2000). This observation was sub-

sequently found to be consistent across time

(Craig, Cassar, & Moores, 2003).

Some (e.g., Post, 1993) have suggested that for

family businesses to remain successful, they must

generate a new strategy for every generation that

joins the business. Strategies recommended

include starting a new venture or division of the

business (Barach, 1984), internationalizing the

business (Gallo & Sveen, 1991), and helping suc-

cessors acquire skills that other family members

do not possess (Wong, 1993). As a firm morphs

into afamily firm, strategies must be put in place

and these strategies need to be communicated to

an increasingly diverse group. Then as thefamilyfirm evolves,the strategy and the priorities change

and a framework is needed to deal with this evo-

lution. The Balanced Scorecard (BSC) can be seen

as a way to address the constantly evolving gener-

ational family business. The BSC provides a

framework to address the strategic complexities

in family business highlighted in the literature by

Sharma et al. (1997) and others.

The Balanced Scorecard

The BSC was originally developed as a perfor-

mance measurement tool (Kaplan & Norton,1992)

but as organizations have developed their mea-

surement strategies, the BSC has evolved into the

organizing framework, the operating system, for a

new strategic-management system (Kaplan &

Norton, 1996).

The BSC was developed because exclusive

reliance on financial measures in a management

system is insufficient. To understand the BSC it is

necessary to understand the difference between

lag indicators verses lead indicators. Financial

measures are lag indicators that report on the

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outcomes from past actions (Kaplan & Norton,

2001, p. 18). Lag indicators include return on

investment, revenue growth, customer retention

costs, new product revenue, revenue per

employee, and the like. These lagging outcome

indicators need to be complemented (supple-

mented) by measures of the drivers of future

financial performance, the so-called lead indica-

tors. Lead indicators include things like revenue

mix, depth of relationships with key stakeholders,

customer satisfaction, new product development,

diversification preparedness, and contractual

arrangements.

Directly related to this is the measurement andmanagement of tangible versus intangible assets.

Tangible assets include items such as inventory,

property, plant, and equipment (Chandler, 1990)

and the management of these has preoccupied

managers up until the last decade of the 20th

century. Intangible assets encompass customer

relationships, innovative products and services,

high-quality and responsive operating processes,

skills and knowledge of the workforce, the infor-

mation technology that supports the workforce

and links the firm to its customers and suppliers,

and the organizational climate that encourages

innovative problem-solving, and improvement

(Kaplan & Norton, 2001, p. 88) and increasingly

occupy the main challenges facing contemporary

managers.

In the BSC, four perspectives (financial, cus-

tomer, internal process, innovation and learning)

are individualized by the organization around the

vision and the mission, and objectives, measures,

and targets are established accordingly (Figure 1).

We proceeded to develop an adapted BSC thatincorporates a family business focus with a

second-generation family business.

Introducing the Smith FamilyBusiness

Throughout the discussion that follows we will

introduce our findings from the action research

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Customer Perspective

Object ives Measures Targets

Internal Business Innovation and LearningObjectives Measures Targets Objectives Measures Targets

Financial PerspectiveObject ives Measures Targets

How do our

customers see

us?

How do we look

to

stakeholders?

What must

we excel at?

How can we

continue to

improve and

createvalue?

MissionVision

Figure 1 The Balanced Scorecard (Kaplan & Norton, 1992).


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project in which we worked with family members

from first and second generations to apply the

BSC and develop a strategy map. This project con-

tinues to evolve as we include feedback we

received from various sources, including from

reviewers of earlier versions of this article.

The Smith family business was established in

1976. The operation is based in Brisbane with 15

shops located throughout Queensland, Australia.

They currently employ 100 full-time staff. The

core focus of the business is kitchenware retailing.

The shops are located in major shopping centers.

Annual turnover is in the vicinity of $AUS10

million. The business has developed a strongreputation as a leader in quality kitchenware

and is the recipient of numerous retailing awards.

There are two siblings in the second genera-

tion, only one of whom is working in the business.

The founder is also the chairman. There is no

board of directors although an advisory commit-

tee has been established with the thought that this

three-member group will constitute an executive

board.

Framing Foundation Statementsfor Family Businesses: CoreEssence/Vision/Mission

At the core of the BSC, and an integral step before

attempting to build what Kaplan and Norton

(2001) refer to as strategy maps using the BSC, it

is necessary to review mission statements: why the

company exists, the core values, and what the

company believes in. A strategic vision can then

be developed. The vision creates a clear picture

of the companys overall goal . . . the strategy

identifies the path intended to reach that destina-

tion (Kaplan & Norton, 2001, p. 19).

Whereas vision and mission statements at the

center of the BSC are effectively management

tools, in family businesses, there is a need to iden-

tify the core essence of the family and therefore

the family business. Various versions of this tool

have been developed by families and are framed

as values or codes of conduct statements and

the like.Although this is a crucial starting point to

strategic development and professionalization in

family business, to our knowledge, no guidelines

that are driven by existing literature have been

employed to develop core essence statements.

Many families who start out formalizing their

strategy and professionalizing their business ask:Where do we start? The Smith family was no

exception and given the way that this fit in with

the BSC we subsequently formalized the develop-

ment of their core essence using the constructs of

the F-PEC scale (Astrachan, Klein, & Smyrnios,

2002).

The F-PEC Scale was designed as a valid

method for assessing the extent of family

influence that enables the measurement of the

impact of family on outcomes such as success,

failure, strategy, and operations and has received

broad acceptance from the family business

research community in recent times.We employed

the power, experience, and culture dimensions of

the F-PEC to drive the development of the core

essence of the family business (i.e., a PEC state-

ment) because these constructs were built on

sound theoretical foundations. The PEC statement

therefore is intended to describe the soul (and

underlie the strategic direction) of the family

business. Each family business is different and the

development of a PEC statement is specific and

will vary depending on founder influence, gener-

ational standing, stakeholder involvement, the

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division of management, control and ownership,

and the like.

The power construct of family business deals

with the extent of ownership, governance, and

management involvement and establishes the

influence that the family has on the business.

Many family business problems are rooted in

confusion about ownership, governance, and

management and this becomes particularly

problematic during generational transfer. There-

fore,a core essence statement that includes power-

related issues helps address this confusion, or at

least tables the topic. To that end, a PEC statement

may lead with the commitment of the family toinclude these subconstructs.

The experience dimension of the family busi-

ness concerns the involvement of family members

in the business and a PEC statement would ideally

flag the importance of not only involving family

members but also ensuring that their involvement

and contribution are valued. As well, the impor-

tance of passing on family traditions could be

potentially highlighted.

The culture dimension of family business con-

cerns values, specifically how the values of busi-

ness and family overlap. This is deemed a

differentiating factor for family business, but has

been found to be both necessary and difficult to

define because it is often linked to the founder or

founding generation and embedding and identi-

fying these values takes time to form a part of the

family business culture (Klein, 1991).

The Smith family business PEC statement

(which addressed power, experience, and culture)

was drafted as follows.

The Smith family is committed to remaining afamily-ownedcompany (where family ownership isidentified as holding at least 51% of the sharehold-

ing), and will be governed by a board of directorsthat will be made up of family and non-familymembers who are appointed for their ability toprovide strategic direction to the company andensure its sustainability, and will be managedwhere

appropriate by family members who are appointedon their suitability and whose performance will be

assessed objectively as would non-family manage-ment. We value the involvement and contribution offamily members in our business and are committedto upholding the family traditions established by thefounding generation. It is the responsibility of theincumbent generation to ensure that following gen-erations are versed in what it means to be a memberof our family business and are suitably prepared to

join the business if they choose. We are committedto the strong ethical values of the founding genera-tion and believe that it is these values that will con-

tribute to the long term sustainability of our familybusiness.

The PEC statement encapsulates the core values

that serve as the foundation of the vision and

mission.

Vision Statement

Collins and Porras (1996) claimed that a well-

conceived vision statement consists of core

ideology (i.e., the enduring character of the orga-

nizationa consistent identity that transcends

product or market life cycles, technological break-

throughs, management fads, and individual

leaders) and envisioned future (which is made up

of a 1030 year audacious goal plus vivid descrip-

tions of what it will take to achieve that goal)

(1996). Collins and Porrass (1991) study showed

that visionary firms significantly outperformed

other companies. A companys vision is arguably

at its strongest in the founder generation and is at

risk of being diluted over time (Gallo, 2000). As

the business grows, the entrepreneur becomes

increasingly removed and distant from employees

(Churchill & Lewis, 1983; Hambrick & Crozer,

1985) and discovers that their strong entrepre-

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neurial vision is no longer shared by new staff,

new professional managers, and new investors

(OGorman & Doran, 1999, p. 59).

Members of the Smith family developed their

vision statement (which addressed their core ide-

ology and envisioned future) as follows.

By continuing the strong ethical business practicesof the founder, the Smith Family Group of Compa-nies vision is to become the most successful pri-vately-owned kitchenware retailer in Australia.

Mission Statement

One of the tools that accompanies the introduc-tion of more complex financial and strategic plan-

ning and control systems during early growth

stages (equivalent to the founder generation in

family business) and during the process of pro-

fessionalization is the framing of a formal mission

statement. The literature suggests that a mission

statement allows the firm to articulate a strong

vision for the organization and to communicate it

to its growing workforce and stakeholders (see,

e.g., Pearce & David, 1987). Rarick and Vitton

(1995) concluded that having a mission state-

ment significantly increases shareholder equity.

However, there is another line of thinking that has

suggested that mission statements are empty

public relations initiatives (Piercy & Morgan,

1994; Simpson, 1994) consisting of largely pious

platitudes (Ackoff, 1987, p. 30) that are often

disconnected from the true capabilities and

strengths of the firm (Simpson, 1994). Regardless,

Pearce and David (1987) suggested that corporate

philosophy, self-concept, and public image are

especially important components to include in

mission statements.

Members of the Smith family developed their

mission statement (which addressed their corpo-

rate philosophy, self-concept, andpublic image) as

follows.

Our resolve to consistently provide the best cus-tomer service and product selection will result in

exciting growth opportunities and exceptionalfinancial results for the family and its employees.

We will accomplish this by:1. Understanding our customers needs.2. Providing high quality products with the highestlevel of customer service.3. Development of innovative marketing andgrowth strategies to maintain our competitive

advantage.4. Recognising and rewarding the performance ofstaff at all levels.5. Commitment to ongoing learning throughout theorganisation.6. Maintaining a family business focus.7. Preparing for generational transition.

After the foundation statements (PEC/

vision/mission) are formulated, the BSC then

provides a framework for organizing strategic

objectives into the four perspectives (financial,

customer, internal processes, innovation and

learning). The overarching role of this framework,

therefore,is to assist families in business to outline

what they need to continue to do to adhere to the

core essence of their family business as outlined

in their PEC statement in order to remain finan-

cially sound, customer focused, and innovative.

To demonstrate this, a familiness dimension was

added to each of the four perspectives in the Smith

family case, as follows.

The Financial Perspective

Economic growth strategies are usually

approached from a revenue growth or productiv-

ity perspective. Revenue growth involves either

Craig, Moores

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increasing revenue from new markets, new prod-

ucts, and new customers; or increasing sales to

existing customers.Productivity strategies involve

either improving cost structures by expense

reduction or the more effective utilization of

assets (Kaplan & Norton, 2001).

From a financial perspective, family businesses

have been found to have long-term rather than

short-term financial goals (Anderson, Mansi, &

Reeb, 2003) and this influences strategic decisions.

Usually, the founding generation was focused on

the survival of the business and profits therefore

flow back into the business rather than to the

founders in order to internally fund growth. Assuch, family business founders are often more

averse to debt burdens than their nonfamily con-

temporaries and, although they have been found

to be innovative, they have a perception of avoid-

ing risk, particularly after their business is estab-

lished. Family business success has typically not

been tied to, or established from, the same perfor-

mance measures as other business types. Often,

ownership transition and efficiency of the family

business system rather than wealth creation and

financial performance are used to monitor suc-

cessful performance (Habbershon & Pistrui, 2002;

Sharma et al.,1997; Sorensen, 2000). Furthermore,

family business strategy formulation and deci-

sion making, which includes attitude to risk,

diversification, technology, and the like, is often

dependent on or at least strongly linked to the life

stage of the controlling generation (Moores &

Barrett, 2003; Ward, 1988). Thus, from a financial

viewpoint, family businesses have some unique

challenges that will have the potential to influence

business operation and strategy formulation, and

these need to be included in a family business BSC.

The Smith family developed the financial per-

spective objectives, measures, and targets illus-

trated by Figure 2.

Customer Perspective

The unique mix of product, price, service, rela-

tionship, and image that the company offers is at

the core of any business strategy. This customer-

value proposition defines how the company dif-

ferentiates itself from competitors and is crucial

because it helps an organization connect its inter-

nal processes to improved outcomes with its cus-

tomers (Kaplan & Norton, 2001, p. 19). Valuepropositions include operational excellence, cus-

tomer intimacy, and product leadership and sus-

tainable strategies are based on excelling at one of

the three while maintaining threshold standards

with the other two.Identification of a value propo-

sition allows the company to know which class

and type of customer to target. In addition, the

customer perspective identifies the intended out-

comes from delivering a differentiated value

proposition, for example, market share in targeted

customer segments, account share with targeted

customers,acquisition and retention of customers

in the targeted segments, and customer profitabil-

ity (Kaplan & Norton, 2001).

Although there are few empirical studies that

have established the way that customers perceive

family businesses (for an exception, see Post,

1993), one significant global family business, S. C.

Johnson & Son, has spent considerable time and

effort in studying its market and has positioned

its global marketing strategy around the fact that

it is a family company. This phenomenon has

been explored in several studies, including those

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by Habbershon, Williams, and McMillan (2003)

and Down et al. (2003). Others have investigated

how the role of values shapes the competitive fates

of family firms (see, e.g., Dyer, 1986; Gersick,

Davis, McCollom Hampton, & Lansberg, 1997;

Koiranen, 2002). Thus, as family businesses are

values based, and they have been known to value

their names and standing within the communities

they serve and the networks that they develop,

it would be reasonable to suggest that promoting

the family aspect in a strategy map would be

advantageous.

Figure 3 illustrates the customer perspective

objectives, measures, and targets that were estab-

lished by the Smith family.

Internal Process Perspective

The internal process perspective captures the crit-

ical organizational activities that will determine

the means by which the company will achieve the

differentiated value proposition and the produc-

tivity improvements for the financial objectives

(Kaplan & Norton, 2001). These are captured by

(1) spurring innovation to develop new products

Craig, Moores

114

* All years changed from 2004 to 200X etc.

FINANCIAL PERSPECTIVE

OBJECTIVES MEASURES TARGETS

MANAGE GROWTH

To sustain manageablegrowth Growth in turnover.

Increase gross profitmargin.

Increase the average saleper customer.

Maintain current fixed costlevel.

10% increase in turnoverannually

Increase to 47% (up from 45%)in the 200X*/200Y financialyear

An average sale of $26.50(currently $24)

WagesLeasingFit-outAdministration

TO ENABLEFINANCIALSUCCESS HOWSHOULD WEAPPEAR TO OURSTAKEHOLDERS?

FAMILINESS

To secure the financialsecurity of the foundinggeneration.

To ensure the familybusiness interests will

remain viable.

Develop criteria forassessing businessopportunities for thefamily.

Appoint professionaladvisers to establish needsof the founders.

Future budgets (200Xonwards for five years) toinclude funding foundersretirement.

Business plan to

accompany any proposedbusiness venture.

Have report tabled at Februaryfamily meeting.

To be established onceconsultants report received inFebruary.

At least two proposals to be

presented by G2 members perannum.

Figure 2 Financial Perspective Including Familiness.


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and services and to penetrate new markets and

customer segments; (2) increasing customer value

by expanding and deepening customer relation-

ships with existing customers; (3) achieving oper-

ational excellence by improving supply-chain

management, internal processes, asset utilization,

resource-capacity management, and so forth;

and (4) becoming a good corporate citizen by

establishing effective relationships with external

stakeholders. Related financial benefits typically

occur in short-term, intermediate, and long-term

stages.

It has been suggested that the familyas a family

develops internal processes that facilitate the con-

tainment, confrontation, and resolution of family

problems (Davis & Stern,1988).Internal processes

have been further explored in the family business

literature under the guise of the contingency

approach, which relates systems, structures, and

strategy to the evolving firm. Moores and Barrett

(2003) suggest that (1) managers of family firms

should adopt management systems that are ade-

quate for the demands of their external and inter-

nal environments, as well as their firms stage of

development, (2) management approaches should

form an internally consistent package of strate-

gies, structures, and systems, (3) management

systems must dynamically evolve as the business

grows and matures, (4) professionalism in man-

agement is vital for systems development, and (5)

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CUSTOMER PERSPECTIVE


WHO

To know who our

customers are.

Market surveys to be

introduced

100 customers randomly

surveyed per shopping centrequarterly.

WHAT

To know and understand

what our customerswant.

Customer surveys to be

introduced

100 customers surveyed per

shop quarterly.

HOW

To provide an unequalled

level of service and

product knowledge.

Staff training both in-

house and by suppliers.

All staff to attend customer

service training (conducted by

Group Training Australia) by

June 30, 200X. Work with

suppliers and negotiate a

comprehensive product training

program for 200X.

HOW SHOULD WE

APPEAR TO OUR

CUSTOMERS?

FAMILINESS

To instile inall staff the

values of the Smith

family

To be perceived by our

customers as a family

business

Review all collateral to

ensure that at every

appropriate opportunity we

acknowledge that we are a

proud family business

Produce and distribute a family

business history discussion

document by June 200X

Collect best practice examples

of other family businesses.

Figure 3 Customer Perspective Including Familiness.


12/18

that without succession plans, professionalization

of the firm is seriously inhibited (2003, p. 148).

Thus, internal processes for family businesses

(like all businesses) are necessary to include in

strategy development. Arguably, what makes

internal processes, particularly changing these

processes, more problematic in family businesses

is the influence of the founder and the preparation

for succession.

Internal process perspective objectives, mea-

sures, and targets were established by the Smith

family as illustrated in Figure 4.

Innovation and Learning Perspective

The foundation of any strategy is the innovation

and learning perspective. Employee capabilities

and skills, technology, and corporate climate are

needed to support the strategy. These objectives

enable the company to align its human resources

and information technology with the strategic

requirements from its critical internal business

processes, differentiated value proposition, and

customer relationships (Kaplan & Norton, 2001,

p. 20).

Innovation is vital for any business to survive

and is therefore necessary to include in the family

business strategy development. Although those

within the management of the family business are

aware that time, resources, and planning are

needed to be spent on innovation, individuals

from other stakeholder groups (e.g., those not

working in the business) need to value this role.

All need to be aware that entrepreneurial firms are

characterized by their commitment to innovation

(Covin & Slein, 1991; Miller, 1983) and, as such,

innovation stimulates firm growth and, impor-

tantly, this growth occurs almost regardless of the

condition of the larger economy (Trott, 1998).

Family firms have been shown to place substantial

importance on innovation practices and strategy

and successful family firms have been found to

manage and adjust their innovative strategy. Like

innovation, continual learning in the family busi-

ness is crucial to survival, as highlighted by

Moores and Barrett (2003).

Just as the element of familyin family owned busi-nesses influences how they are managed, that is, howthe manager deals with the contextual factors suchas life cycle stage,context and control, the element offamily can be expected to influence how people infamily owned businesses learn to manage them. Infact, having to deal with the additional layer of com-

plexity created by the family means that the tasks

and priorities involved in learning to manage afamily business lead to specific and enduring para-doxes. The family will turn out to be just as impor-tant a contingency factor as any of the others in thebusiness contextand often more so. And just asunderstanding the stage of the business life cyclehelps illuminate management priorities in general, it

can help in understanding the paradoxes that comewith each stage of learning the family business.(2003, p. 32)

The Smith family established innovation and

learning perspective objectives, measures, and

targets as illustrated in Figure 5.

A diagram that adds the PEC statement and the

familiness dimension to the BSC appears in Fig-

ure 6.

Conclusion, Implications, andFurther Research

This is an exciting development for family busi-

ness, from a theoretical and applied perspective,

and we are confident that there is benefit in this

work for a variety of audiences. Family businesses

evolve differently and have different foci than

those that are not family owned (Figure 7). By

underpinning this project with the evolutionary

Craig, Moores

116


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theory of the firm, we grounded our justification

for the inclusion of the familiness dimension to

the Balanced Scorecard. In this project we adapted

the broad principles of the theory and along with

employing the F-PEC constructs to frame the core

essence of family business, we were able to

demonstrate how it is important to extend theory

and also to give back to established theory, as

called for by Sharma (2004) and others. We

unashamedly borrowed from the existing BSC

framework, but are confident that by extending

the theory to include the familiness dimension,we

117


INTERNAL PROCESS PERSPECTIVE


SYSTEMS and STRUCTURES

Establish the right systems and

operational structure.

Review and appraise

all business systems

Have proposed new

structures ready fordiscussion March

200X.

EMPLOYEE FRIENDLINESS

Improve employee entitlements

and incentives

Analyze current

situation and design

alternatives in

collaboration with

employees

Results to be

collected by

February 200X and

introduced in July

200X.

SHARE KNOWLEDGE

To encourage and promote

knowledge sharing.

Review staff meeting

structure and include as

a budget item

Plan 200X Meeting

Schedule (to have set

shop meetings,

Manager meetingsand company

meetings)

OPENNESS

Encourage greater transparency. Bring all company

members to a high

level of understanding

on the direction of the

company and its

strength

Internal newsletter to

be launched in

association with

company catalogue

(twice a year)

WHAT MUST WE DO TO

PROFESSIONALIZE OUR

BUSINESS?

FAMILINESS

To encourage all family members

to be involved with the internal

running of the business.

Encourage total family

involvement in decision making.

Create work teams to

be involved with

different areas of theoperation.

Establish a Family

Council

To have each family

member assigned to

a specific area of thebusiness.

Have the Council

established and

Family Constitution

drafted by 31st

December 200X.

Figure 4 Internal Processes Including Familiness.


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Craig, Moores

118

INNOVATION AND LEARNING PERSPECTIVE


OPEN CULTURE

To establish an open and

collaborative culture inorder to retain and attract

employees.

Employee satisfaction and

turnover.

Evidence of an

increase in staffmorale and

enthusiasm measured

through surveys and

feedback.

DIVERSITY

Look to achieve greaterdiversity among our

employees.

A variety of skills andinterests represented.

Attract and employstaff that have

diverse abilities and

experience

OPPORTUNITY

Offer greater education to

willing and suitable

employees.

Provide avenues for

employees looking to

further their knowledge

with the ultimate goal of

establishing an in-house

Certificate in RetailManagement qualification

To have at least 3 key

staff members

looking for further

education through the

company.

INNOVATION

Encourage innovation at all

levels of the company.

Staff involvement in new

ideas and business

development.

Implementation of a

company Idea Bank

by 31st

of November200X

HOW WILL WE SUSTAIN

OUR ABILITY TO CHANGE

AND IMPROVE?

FAMILINESS

Learn Business

Learn OUR Family

Business

Learn to Lead

Learn to Let Go

University study and work

for an outside firm

Full family involvement

through family based

work teams.

Review the performance

of family members and

their contribution to the

business.

Planned transitions

At least one family

member pursues an

MBA by the end of

200X

A matrix system of

family work teams

that covers the entire

business introduced

by the end of 200X

Create family

institutions such as

family meetings,

assemblies and

councils by the closeof 200X.

Discuss timelines

Figure 5 Innovation and Learning Perspective Including Familiness.


15/18

119


INNOVATION &

LEARNINGPerspective

includingFamiliness

Corporatephilosophy,

self-concept

and

public

image

Core ideology

and

envisioned

future

Vision

&

Mission

Vision&

Mission

CUSTOMER

PerspectiveincludingFamiliness

INTERNAL

BUSINESS


FINANCIAL


PEC StatementCore Essence of the

Family Business

Figure 6 Adapted Balanced Scorecard Framework for Family Business.

BSC Perspective Business Familiness

Financial Revenue Growth

Productivity Improvements

Prepare for retiring generation

Constant reinvention to keep future

generations interested in joining the

business

Customer Operational excellence

Customer intimacy

Product leadership

Awareness of the family name

Use of family in marketing

initiatives

Quality that reflects family brand

image

Internal Processes Spurring innovation

Increasing customer value

Achieving operational

excellence

Promoting corporate

citizenship

Investment in technology that will

benefit future generations

Professional work practices that will

attract best family and non-family

employees

Philanthropic activities

Learning and

Growth

Employee capabilities and

skills

Technology

Corporate climate

Creating career paths for family

members

Making involvement in the business

a privilegeEncouraging and providing seed

funding for new ventures presented

by family members

Figure 7 BSC Perspectives Incorporating Family Influence.


16/18

have contributed to its use and application in what

is a very vast, complex, but valuable business

genre.

The concepts introduced in this research are

comparatively easy to digest, as was evidenced in

the Smith family application (but having said that,

we commend and thank the family members for

their time, patience, and willingness to help us

develop this project). We are hopeful that this will

ensure that from an applied perspective family

businesses (and those who work with and for

them) will be able to apply the concepts to their

own unique situations.

Kaplan and Norton (1996) have also suggestedthat the BSC not be considered narrowly pre-

scriptive and that some users may decide to add

another dimension. In future research we intend

to work with family businesses that are more

established in order to investigate an alternative

approach to including family issues under the four

perspectives of the BSC (as was the approach in

the current research).This development would see

the addition of a separate stand-alonefamily busi-

ness perspective.We speculate that there is poten-

tial for this fifth perspective in family businesses

where stakeholder groups are more diverse, for

example, when there are nonfamily executives

and where there is a considerable percentage of

owners of the business who do not work in the

business.

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balanced score card..., craig, 2005

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