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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

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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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    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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    Balanced Scorecards to Drive the Strategic Planning of Family Firms

    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

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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)

    115

    Balanced Scorecards to Drive the Strategic Planning of Family Firms

    CUSTOMER PERSPECTIVE

    OBJECTIVES MEASURES TARGETS

    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.

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    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

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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

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    Balanced Scorecards to Drive the Strategic Planning of Family Firms

    INTERNAL PROCESS PERSPECTIVE

    OBJECTIVES MEASURES TARGETS

    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

    OBJECTIVES MEASURES TARGETS

    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.

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    Balanced Scorecards to Drive the Strategic Planning of Family Firms

    INNOVATION &

    LEARNINGPerspective

    includingFamiliness

    Corporatephilosophy,

    self-concept

    and

    public

    image

    Core ideology

    and

    envisioned

    future

    Vision

    &

    Mission

    Vision&

    Mission

    CUSTOMER

    PerspectiveincludingFamiliness

    INTERNAL

    BUSINESS

    PerspectiveincludingFamiliness

    FINANCIAL

    PerspectiveincludingFamiliness

    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.

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    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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