Exam consist of 8 questions - pick 6. Maximum 2 pages per question.

Agency Theory: To minimize agency related costs you need to use monitoring systems such as family governance + balance score card + communication and education schools.

Issues: -Entrenchment (One of the Agency dimensions): An entrenched leader would have a negative effect on the business because there is a potential of not being competitive. -Adverse Selection: -Information asymmetry: internal managers have superior information that outsiders do not know. (Solution: family governance + balance score card + communication and education schools) -Causes loss of competitive edge --> due to less efficiency -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Stewardship: -Is an ethic that embodies responsible planning and management of resources. Its the careful and responsible management of something entrusted to one's care. " -"The owner sees the business as an extension of themselves. " -Managers are not motivated by individual goals but rather with the goals of their principals. -Intrinsic vs extrinsic motivation. A steward is intrinsically motivated with a collectivist culture, not an individual culture. Working for the benefit of the business. -When there is a stewardship orientation, there is lower agency costs because there is a lower need for monitoring because there is a less intention of agency like behavior. -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Resource Based View: (Habershon & Williams) (Linked to chapter 1 Poza + Agency theory and

transaction cost eco- nomics, in particular, are linked to RBV)

The resource based view suggests that you have resources that are idiosyncratic (distinctive) to your organization. The internal resources in your organization are the ones that you uniquely have and the way you combine and bundle those idiosyncratic resources lead to your capabilities which contribute to your sustainable competitive advantage.

The bundle of resources that are distinctive to a firm as a result of family involvement are identified as the familiness of the firm. In short, the RBV provides an established theoretical model to analyze the relationships among firm-level processes, assets, strategy, performance, and sustainable competitive advantage for the family firm. A firm can only be said to have a competitive advantage when implementing a value-creating strategy not simultaneously being implemented by current or potential competitors. This strategy becomes a sustainable competitive advantage when other firms are not able to duplicate the benefits of the strategy

Most of the recent work on strategic advantage, led by Michael Porter and his colleagues has focused primarily on the firms position in relation to the external en- vironment, rather than the firms internal pro- cesses leading to strategic development. Currently in the field of strategic manage- ment a counteremphasis, focusing on a firms in- ternal attributes as a source of advantage, has evolved. A firms internal idiosyncrasies are iden- tified as a critical component of its potential ad- vantage. The umbrella term used to describe this approach is the Resource-Based View of the Firm (RBV). The RBV has been successfully used to explain long-run differences in firm performance that cannot be attributed to industry or economic conditions. Causal ambiguity exists when the link between the resources controlled by a firm and a firms sustained competitive advantage is not fully understood.
The key points of the theory are: 1. Identify the firms potential key resources. 2. Evaluate whether these resources fulfill the following criteria (referred to as VRIN) V.R.I.N: Valuable, Rare, In-Imitatable, Non-Subsitiutable 3. Care for and protect resources that possess these evaluations, because doing so can improve organizational performance

family inputs --> Familiness --> capabilities --> sustainable competitive advantage --> performance (Habershon and Williams) The unique resources that family businesses can call on to create competitive advantages: -Overlapping responsibilities of owners and managers -Concentrated ownership structure leading to higher productivity and long term commitment -Focus on customers and market niches resulting on higher return on investment -The desire to protect family reputation translating into high product/service quality -Family unity and ownership commitment which support patient capital -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Organizational Life Cycle: (Linked to the 4Ls framework by Moores & Barrett) Complexity as the family grows. 4Ls (Moores and Barrett): "A learning and life cycle framework." Learn business Learn family business

Learn to lead Learn to let go 3Ps: -Paradoxes: It has been argued that a paradox occurs because of two agency problems within family

businesses that is, entrenched ownership and asymmetric altruism.

-Pathways -Priorities -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Socio-emotional wealth (SEW): Links to stewardship Socio-emotional wealth vs pure economic wealth Family vs Business system Long term vs short term wealth -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------4Cs (Miller and Miller): Characteristics of long lived family businesses Continuity Community Command Connection What is important about Millers work? (You can train your cat to say these 4Cs) Its the configuration of these four Cs which is important. They're configured differently. The way they're differently configured and tailored give rise to strategic archetypes which leads to you either being a brand builder, a craftsman, a deal maker, an innovator or a superior operator. -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Balance Score-Card (BSC): (Kaplan & Norton) - Built to notify of the current condition of the business is a strategic performance management tool that can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the consequences arising from these actions. It looks at lag and lead indicators, tangible and intangible assets, it has 4 perspectives (below) built around the vision and the mission. Financial measures are lag indicators that report on the outcomes from past actions (Kaplan & Norton, 2001, p. 18). Examples of lag indicators are 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 perfor- mance, that is, lead indicators. Examples of lead indicators are revenue mix, depth of relationships with key stakeholders, customer satisfaction, new product development, diversification preparedness and contractual arrangements.

The BSC also addresses the measurement and management of tangible versus intangible assets. Examples of tangible assets include items such as inventory, property, plant and equipment (Chandler, 1990) while examples of intangible assets are customer relationships, innovative products and services, high-quality and responsive operating processes, skills and knowledge of the workforce, the information 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

4 perspectives: (These 4 perspectives are linked to the vision and the mission) Financial, customer, internal processes, innovation and learning. (+ family)
Additive approach - used for 1st and 2nd generation business. Integrative approach - used for 3rd and 4th generation business. Lag indicator (e.g. financial happened in the past) vs Lead indicator Tangible vs Intangible assets. -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------AGES framework: its a framework that helps us understand the difference between family and non-family business. Architecture Governance Entrepreneurship Stewardship -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Systems Theory/Perspective:

This systems theoryinspired model was the theoretical approach first used in the scholarly study of family business (see Heck et al., 2008). The essence of the approach is that the family firm can be modeled as comprising three overlapping, interacting, and interdependent subsystems of family, managers, and owners. In systems theory approach, the family firm is modeled as compromising the three overlapping, interacting, and interdependent subsystem of family, management and ownership. In order for the business to function optimally, the subsystems must be integrated and unified.
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Ch 1 Ineffective succession: Conservative: even though the parent has exited the business their shadow remains and the firm and its strategies are locked in the past. Rebellious: the next generation launch a clean-slate approach to the business where the traditions, legacies and the business model are destroyed or discarded. Wavering: the next generation is paralyzed by indecisiveness, unable to adapt the business to current competitive conditions and fails to make its mark and assume leadership effectively.

Patient capital: one of the significant sources of competitive advantages in family businesses. 1-Family-First Business: Employment in the business is a birthright. 2-Management-First Business: The performance of employed family members is reviewd in the same manner as the performance of non-family managers. Compensation is based on responsibility and performance. 3-Ownership-First Business: investment time horizons and perceived risk are the most significant issues. 4-Joint Optimization: balancing the goals and needs of each of the subsystems. These firms have a commitment to continuity. -Blurred-System boundaries: family business are vulnerable to the consequences of blurred boundaries among the family, ownership and management subsystems. Emotion can lead to behavior and actions that rational though would seldom support which can override the logic of business management. -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Ch 2 Zero-sum dynamics: exchanges in which one part's perceived gain is to the other party's perceived loss. For example, if one branch of the family uses educational assistance for next generation members, another branch assumes that less will be available for its children.This results in family conflict. Family systems theory: a theory of human behavior that considers the family to be a building block of emotional life and uses systems thinking to understand the complex interaction between individual members of the family unit. While families often look to blame individual member whenever there is trouble in tensions Mount, family systems theory argues that sharing responsibility for the difficulty is more effective than pursuing individual solutions. The concept of emotional intelligence refers to the capacity for recognizing our own feelings and those of others and the ability to manage our emotions and our relationships with others. Family emotional intelligence aims to improve the ability of individual members to know their feelings in order to use them appropriately to make decisions. Beating the odds of having to deal with zero-sum dynamics the family environment is perhaps the most compelling reason for holding frequent family meetings and creating a family council. They represents a reliable forum the education of family members particularly those not active in management of business about the state of the business, its financial performance, strategy and competitive dynamics. Family meetings should be about education and communication. -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Ch 3 If a family business is going to preservice one of its intangible competitive advantages, investments in the ownership subsystem are essential: 1. the design and execution of an appropriate ownership and control structure 2. the education, access to information, and engagement of shareholders 3.The creation of institutions that govern the interaction between the owners and the firm Familiness: is a competitive advantage which is about the systemic overlap between the family, ownership, and management subsystems that make up the family enterprise as the potential source of invisible crossovers that endow a family company with the ability to enjoy a unique, idiosyncratic, and hard to replicate competitive advantages. ----------------------------------------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------Ch 4 Responsible leadership family service requires skills and talents that would enable building a profitable firm while simultaneously ensuring the family relationships. Integrity and commitment are business for the two considered most important by the senior generation of leaders of family firms. Respect of employees is ranked a close third. A commitment where he wants to pursue such a career and is excited by related possibilities is referred to as "affective commitment". A commitment where he feels he out to join the business is referred to as "normative commitment". A commitment where he feels he has to join the business is referred to as "calculative commitment". Effective performance in the family firm requires management of relationships with family members who are actively involved in the business as well as those who are not. The best way to minimize the difficulties that may arise between next generation members, is to design an organizational structure that establishes very different roles for the different members of the nextgeneration. Succession is not about nepotism and privilege but rather about demonstrated capabilities and accountable execution of managerial and ownership responsibilities by the next generation. -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Ch 5 CEOs have to lead the timely transfer of power to the next-generation while in full command and in full control of the corporation. CEO Exit Styles: -The Monarch: (-ve) Years after generally retirement age of 65 they still show up daily at work to read mail, to make or receive calls and second-guess decisions made by next generation or key nonfamily managers over the past 24 hours. Effectively they will rule the company during a 3 to 4 hour workday. They do not talk about succession, nor do they set a date for departure or a deadline for changing responsibility. They generally seem to believe that illness and death are things that happen only to others. If a monarch rules the family business, chaos will likely follow his or her death. -The General: (-ve) Unlike monarchs, Generals partly retire in the display of self-discipline, per the rules of the military. But these chief executives leave office reluctantly and plot a return. Generals wait patiently, hoping that the younger officer or popularly elected leader will demonstrate his or her sheer inadequacy. When that happens, they return happily to right the wrongs and rescue the unit that lesser people could not save. The Ambassador: (+ve) Ambassadors exit the business by delegating most of the operating responsibilities to next-generation members but hold on to their diplomatic or representational duties on behalf of the corporation. They make room for top-notch nonfamily managers and next-generation members. They allow others to learn the business first hand and to eventually take full responsibility for running the enterprise. The Governor: (+ve) Governors set a departure date and announce it publicly, thus committing themselves to the goal of transferring power within an established timeframe. By making the date public,

they lend a sense of urgency to plan for the inevitable transition and enlist other key management personnel, employees, suppliers, and customers in the process. The Inventor: (+ve) Inventors are creative people. Once they have built systems and institutions that will help the next generation successfully, they are usually ready to pursue their next dream. The Transition Czar: (+ve) CEOs may choose the role of transition czar out of a desire to consult during managerial and political processes it a complicated transition requires. They often carry out the succession and continue the responsibility with significant assistance from the CEO spouse.` -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Ch 6 Porters Model: -Threat of new entrants -Bargaining power of buyers -Bargaining power of suppliers -Threat of substitute products -Rivalry among existing firms SWOT Strengths Weaknesses Opportunities Threats A zero-sum dynamics exists within the family business when there is no business growth. Seven primary sources of value on which family companies can build competitive advantages: Financial resource Physical assets The product and its price and performance Brand equity Organizational capabilities Customer-supplier integration A positive family business relationship General systems theory suggests that as environments become more turbulent or fast-changing, the challenge for businesses is to build the right requisite ability to deal with variety.