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Balanced Scorecards to Drive the Strategic Planning of Family Firms

Justin Craig, Ken Moores

The focus of this research is the measurement and management tool known as the Balanced Scorecard (BSC) and how it can be applied in the family business context. In this article we add familiness to the four BSC perspectives (nancial, innovation and learning, 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 management 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 of power, experience, and culture are used to introduce a PEC statement that identies and articulates 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.

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. Regardless, any initiative that makes claims to increase performance, either nancial or nonnancial, 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 measurement systems or scorecards that measure nancial and nonnancial indicators, but the

assumptions and philosophies underlying these scorecards are quite different from strategy scorecards (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 a familiness dimension can assist business development, management, and succession planning in family-owned businesses.

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

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Two dominant themes permeate the family business literature. The rst 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 businesses need to professionalize their management. However, adoption of professional approaches need not necessarily conict with the values of the founder. Professionally managing a family business 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 efciency. This devolution has eventuated in part due to the changing nature of technology and competitive advantage. Previously, companies achieved competitive 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 monitored has also shifted. In a tangible-asset paradigm, nancial measures may sufce. The BSC was developed as a result of the changing organizational landscape that includes emphasis on often difcult-to-measure intangibles. The degree of family inuence, 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 stiing effect and inhibit growth (Craig & Lindsay,

2002). In the family business context, the family inuence often falls into the intangible category and although attempts have been made to dene its contribution (or otherwise) to the business, like many intangibles it is difcult to dene, 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 resulting strategies of family businesses signicantly differ conceptually from the processes and strategies of nonfamily rms (see, e.g., Harris, Martinez, & Ward, 1994; Ward, 1988). In the current business environment, accountability, 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 operations. 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 sacricing their family inuence and values (Moores & Barrett, 2003). Our principle motivation in this research therefore lies in the need to adapt proven measurement and management procedures to ensure that family values are included in family business strategy development.

Theoretical Justication
To theoretically ground this project, we employed the evolutionary approach to the theory of the

Balanced Scorecards to Drive the Strategic Planning of Family Firms

rm (Nelson & Winter, 1982). The evolutionary theory of the rm is a hybrid theory that resulted from the integration of two theoretical approaches (Cohendet, Llerena, & Marengo, 2000). The rst theoretical foundation is based on evolutionary principles and sees the rm evolving as it (1) develops routines or repetitive activities that ensure the coherence between individual and collective 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 rm. The second theoretical premise relies on the existence of cognitive mechanisms of individuals and the 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 providing an explanation of three key issues that are crucial to a theoretical understanding of the rm: (1) how the rm can be dened (i.e., in terms of the set of competences that it controls); (2) why the rm differs from other rms (i.e., because of the reliance on different routines and competences that are specic and that cannot be transferred); and (3) the dynamics of the rm (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 rm evolves and subsequent generations are introduced into the rm, complex transitions need to be negotiated. The founding generation plays a dominant role in both the rm and family systems and inuences the routine development and mutation process as well as the establishment of the collective knowledge base of the rm. The transfer of

this role to subsequent generations whose interest and involvement in the rm varies (e.g., employed vs. not employed by the rm; owners of stock vs. nonstock owners) is considered vital for the sustainability of the family rm. This approach has had limited application in previous family business research (Craig, 2004). However, as will be shown, the framework introduced in the theory justies theoretically the need to include a distinct family business focus when setting strategic direction in family-owned rms. Strategic planning is critical for family businesses as a way of providing a framework for reconciling family and business issues and for promoting open and shared decision making (Ward, 1988). The empirical research examining the strategies pursued by or the strategic orientations of family-owned and managed rms is limited and has provided conicting 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 signicant in successor preparation than do nonfamily business CEOs. Harris et al. reviewed the strategy literature pertaining to family business and came up with a list of characteristics that may inuence 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), importance 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 inuence on implementation (Ward & Handy, 1988). Their conclusion that the assessment of these family business characteristics and their

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inuence 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 singular, simple, and constant goal; (2) although more attention has been paid to the process of strategy formulation and the content of strategy in family businesses, relatively little is still known; (3) while the family-business literature describes the inuences of family on strategy implementation, unfortunately, however, it stops short of showing how a particular family inuence helps or hinders the rms 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 rm, or if such differences are justied (1997, p. 17). Moores and Mula (2000) found that family rms use a mixture of strategies to cope with business 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 differentiation. 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 sub108

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 successors acquire skills that other family members do not possess (Wong, 1993). As a rm morphs into a family rm, strategies must be put in place and these strategies need to be communicated to an increasingly diverse group. Then as the family rm evolves, the strategy and the priorities change and a framework is needed to deal with this evolution. The Balanced Scorecard (BSC) can be seen as a way to address the constantly evolving generational 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 performance measurement tool (Kaplan & Norton, 1992) but as organizations have developed their measurement 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 nancial measures in a management system is insufcient. 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

Balanced Scorecards to Drive the Strategic Planning of Family Firms

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 (supplemented) by measures of the drivers of future nancial performance, the so-called lead indicators. Lead indicators include things like revenue mix, depth of relationships with key stakeholders, customer satisfaction, new product development, diversication preparedness, and contractual arrangements. Directly related to this is the measurement and management 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 information technology that supports the workforce and links the rm 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 (nancial, customer, 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 that incorporates a family business focus with a second-generation family business.

Introducing the Smith Family Business

Throughout the discussion that follows we will introduce our ndings from the action research

Customer Perspective
Objectives How do our customers see us? Measures Targets

Internal Business
Objectives What must we excel at? Measures Targets

Innovation and Learning

Mission Vision

Objectives How can we continue to improve and create value?



Financial Perspective
Objectives How do we look to stakeholders? Measures Targets

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


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project in which we worked with family members from rst and second generations to apply the BSC and develop a strategy map. This project continues 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 strong reputation as a leader in quality kitchenware and is the recipient of numerous retailing awards. There are two siblings in the second generation, only one of whom is working in the business. The founder is also the chairman. There is no board of directors although an advisory committee has been established with the thought that this three-member group will constitute an executive board.

Framing Foundation Statements for Family Businesses: Core Essence/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 identies the path intended to reach that destination (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 identify 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 t in with the BSC we subsequently formalized the development 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 inuence 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 statement) 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 specic and will vary depending on founder inuence, generational standing, stakeholder involvement, the

Balanced Scorecards to Drive the Strategic Planning of Family Firms

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 inuence 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. Therefore, a core essence statement that includes powerrelated 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 to include these subconstructs. The experience dimension of the family business concerns the involvement of family members in the business and a PEC statement would ideally ag the importance of not only involving family members but also ensuring that their involvement and contribution are valued. As well, the importance of passing on family traditions could be potentially highlighted. The culture dimension of family business concerns values, specically how the values of business and family overlap. This is deemed a differentiating factor for family business, but has been found to be both necessary and difcult to dene because it is often linked to the founder or founding generation and embedding and identifying 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 a family-owned company (where family ownership is identied as holding at least 51% of the sharehold-

ing), and will be governed by a board of directors that will be made up of family and non-family members who are appointed for their ability to provide strategic direction to the company and ensure its sustainability, and will be managed where appropriate by family members who are appointed on their suitability and whose performance will be assessed objectively as would non-family management. We value the involvement and contribution of family members in our business and are committed to upholding the family traditions established by the founding generation. It is the responsibility of the incumbent generation to ensure that following generations are versed in what it means to be a member of our family business and are suitably prepared to join the business if they choose. We are committed to the strong ethical values of the founding generation and believe that it is these values that will contribute to the long term sustainability of our family business.

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 wellconceived vision statement consists of core ideology (i.e., the enduring character of the organizationa consistent identity that transcends product or market life cycles, technological breakthroughs, management fads, and individual leaders) and envisioned future (which is made up of a 1030 year audacious goal plus vivid descriptions of what it will take to achieve that goal) (1996). Collins and Porrass (1991) study showed that visionary rms signicantly 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 entrepre111

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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 ideology and envisioned future) as follows.
By continuing the strong ethical business practices of the founder, the Smith Family Group of Companies vision is to become the most successful privately-owned kitchenware retailer in Australia.

Members of the Smith family developed their mission statement (which addressed their corporate philosophy, self-concept, and public image) as follows.
Our resolve to consistently provide the best customer service and product selection will result in exciting growth opportunities and exceptional nancial results for the family and its employees. We will accomplish this by: 1. Understanding our customers needs. 2. Providing high quality products with the highest level of customer service. 3. Development of innovative marketing and growth strategies to maintain our competitive advantage. 4. Recognising and rewarding the performance of staff at all levels. 5. Commitment to ongoing learning throughout the organisation. 6. Maintaining a family business focus. 7. Preparing for generational transition.

Mission Statement
One of the tools that accompanies the introduction of more complex nancial and strategic planning and control systems during early growth stages (equivalent to the founder generation in family business) and during the process of professionalization is the framing of a formal mission statement. The literature suggests that a mission statement allows the rm 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 statement signicantly 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 rm (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.

After the foundation statements (PEC/ vision/mission) are formulated, the BSC then provides a framework for organizing strategic objectives into the four perspectives (nancial, 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 nancially 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 productivity perspective. Revenue growth involves either


Balanced Scorecards to Drive the Strategic Planning of Family Firms

increasing revenue from new markets, new products, 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 nancial perspective, family businesses have been found to have long-term rather than short-term nancial goals (Anderson, Mansi, & Reeb, 2003) and this inuences strategic decisions. Usually, the founding generation was focused on the survival of the business and prots therefore ow back into the business rather than to the founders in order to internally fund growth. As such, family business founders are often more averse to debt burdens than their nonfamily contemporaries and, although they have been found to be innovative, they have a perception of avoiding risk, particularly after their business is established. Family business success has typically not been tied to, or established from, the same performance measures as other business types. Often, ownership transition and efciency of the family business system rather than wealth creation and nancial performance are used to monitor successful performance (Habbershon & Pistrui, 2002; Sharma et al., 1997; Sorensen, 2000). Furthermore, family business strategy formulation and decision making, which includes attitude to risk, diversication, 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 nancial viewpoint, family businesses have some unique challenges that will have the potential to inuence business operation and strategy formulation, and these need to be included in a family business BSC.

The Smith family developed the nancial perspective objectives, measures, and targets illustrated by Figure 2.

Customer Perspective
The unique mix of product, price, service, relationship, and image that the company offers is at the core of any business strategy. This customervalue proposition denes how the company differentiates itself from competitors and is crucial because it helps an organization connect its internal processes to improved outcomes with its customers (Kaplan & Norton, 2001, p. 19). Value propositions include operational excellence, customer intimacy, and product leadership and sustainable strategies are based on excelling at one of the three while maintaining threshold standards with the other two. Identication of a value proposition allows the company to know which class and type of customer to target. In addition, the customer perspective identies the intended outcomes 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 protability (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 signicant 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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FINANCIAL PERSPECTIVE OBJECTIVES MANAGE GROWTH To sustain manageable growth Growth in turnover. 10% increase in turnover annually Increase to 47% (up from 45%) in the 200X*/200Y financial year An average sale of $26.50 (currently $24) Wages Leasing Fit-out Administration Have report tabled at February family meeting. MEASURES TARGETS

Increase gross profit margin. Increase the average sale per customer.

TO ENABLE FINANCIAL SUCCESS HOW SHOULD WE APPEAR TO OUR STAKEHOLDERS? FAMILINESS To secure the financial security of the founding generation. To ensure the family business interests will remain viable.

Maintain current fixed cost level.

Appoint professional advisers to establish needs of the founders. Future budgets (200X onwards for five years) to include funding founders retirement. Business plan to accompany any proposed business venture.

To be established once consultants report received in February.

Develop criteria for assessing business opportunities for the family. * All years changed from 2004 to 200X etc.
Figure 2 Financial Perspective Including Familiness.

At least two proposals to be presented by G2 members per annum.

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 rms (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 established by the Smith family.

Internal Process Perspective

The internal process perspective captures the critical organizational activities that will determine the means by which the company will achieve the differentiated value proposition and the productivity improvements for the nancial objectives (Kaplan & Norton, 2001). These are captured by (1) spurring innovation to develop new products

Balanced Scorecards to Drive the Strategic Planning of Family Firms

CUSTOMER PERSPECTIVE OBJECTIVES WHO To know who our customers are. MEASURES Market surveys to be introduced TARGETS 100 customers randomly surveyed per shopping centre quarterly.

WHAT To know and understand what our customers want. HOW SHOULD WE APPEAR TO OUR CUSTOMERS? HOW To provide an unequalled level of service and product knowledge.

Customer surveys to be introduced

100 customers surveyed per shop quarterly.

Staff training both inhouse 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.

FAMILINESS To instile inall staff the values of the Smith family To be perceived by our customers as a family business
Figure 3 Customer Perspective Including Familiness.

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.

and services and to penetrate new markets and customer segments; (2) increasing customer value by expanding and deepening customer relationships with existing customers; (3) achieving operational 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 nancial benets typically occur in short-term, intermediate, and long-term stages. It has been suggested that the family as a family develops internal processes that facilitate the containment, 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 rm. Moores and Barrett (2003) suggest that (1) managers of family rms should adopt management systems that are adequate for the demands of their external and internal environments, as well as their rms stage of development, (2) management approaches should form an internally consistent package of strategies, structures, and systems, (3) management systems must dynamically evolve as the business grows and matures, (4) professionalism in management is vital for systems development, and (5)

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that without succession plans, professionalization of the rm 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 inuence of the founder and the preparation for succession. Internal process perspective objectives, measures, and targets were established by the Smith family as illustrated in Figure 4.

Family rms have been shown to place substantial importance on innovation practices and strategy and successful family rms have been found to manage and adjust their innovative strategy. Like innovation, continual learning in the family business is crucial to survival, as highlighted by Moores and Barrett (2003).
Just as the element of family in family owned businesses inuences how they are managed, that is, how the manager deals with the contextual factors such as life cycle stage, context and control, the element of family can be expected to inuence how people in family owned businesses learn to manage them. In fact, having to deal with the additional layer of complexity created by the family means that the tasks and priorities involved in learning to manage a family business lead to specic and enduring paradoxes. The family will turn out to be just as important a contingency factor as any of the others in the business contextand often more so. And just as understanding the stage of the business life cycle helps illuminate management priorities in general, it can help in understanding the paradoxes that come with each stage of learning the family business. (2003, p. 32)

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 rms are characterized by their commitment to innovation (Covin & Slein, 1991; Miller, 1983) and, as such, innovation stimulates rm growth and, importantly, this growth occurs almost regardless of the condition of the larger economy (Trott, 1998).

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 Figure 6.

Conclusion, Implications, and Further Research

This is an exciting development for family business, from a theoretical and applied perspective, and we are condent that there is benet 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

Balanced Scorecards to Drive the Strategic Planning of Family Firms

INTERNAL PROCESS PERSPECTIVE OBJECTIVES SYSTEMS and STRUCTURES Establish the right systems and operational structure. MEASURES Review and appraise all business systems TARGETS Have proposed new structures ready for discussion 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 meetings and 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)

FAMILINESS To encourage all family members to be involved with the internal running of the business.

Create work teams to be involved with different areas of the operation. Establish a Family Council

To have each family member assigned to a specific area of the business. Have the Council established and Family Constitution drafted by 31st December 200X.

Encourage total family involvement in decision making.

Figure 4 Internal Processes Including Familiness.

theory of the rm, we grounded our justication 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 condent that by extending the theory to include the familiness dimension, we

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INNOVATION AND LEARNING PERSPECTIVE OBJECTIVES OPEN CULTURE To establish an open and collaborative culture in order to retain and attract employees. MEASURES Employee satisfaction and turnover. TARGETS Evidence of an increase in staff morale and enthusiasm measured through surveys and feedback.

DIVERSITY Look to achieve greater diversity among our employees. HOW WILL WE SUSTAIN OUR ABILITY TO CHANGE AND IMPROVE?

A variety of skills and interests represented.

Attract and employ staff 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 Retail Management 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 November 200X 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 close of 200X. Discuss timelines

FAMILINESS Learn Business

University study and work for an outside firm

Learn OUR Family Business

Full family involvement through family based work teams.

Learn to Lead

Review the performance of family members and their contribution to the business.

Learn to Let Go

Planned transitions

Figure 5 Innovation and Learning Perspective Including Familiness.


Balanced Scorecards to Drive the Strategic Planning of Family Firms

FINANCIAL Perspective
including Familiness

Vision & Mission


including Familiness

Core ideology and envisioned future

PEC Statement
Core Essence of the Family Business

Corporate philosophy, self-concept and public image

CUSTOMER Perspective
including Familiness

Vision & Mission


including Familiness

Figure 6 Adapted Balanced Scorecard Framework for Family Business.

BSC Perspective Financial

Business Revenue Growth Productivity Improvements

Familiness Prepare for retiring generation Constant reinvention to keep future generations interested in joining the business Awareness of the family name Use of family in marketing initiatives Quality that reflects family brand image Investment in technology that will benefit future generations Professional work practices that will attract best family and non-family employees Philanthropic activities Creating career paths for family members Making involvement in the business a privilege Encouraging and providing seed funding for new ventures presented by family members


Operational excellence Customer intimacy Product leadership

Internal Processes

Spurring innovation Increasing customer value Achieving operational excellence Promoting corporate citizenship Employee capabilities and skills Technology Corporate climate

Learning and Growth

Figure 7 BSC Perspectives Incorporating Family Inuence.


Craig, Moores

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 suggested that the BSC not be considered narrowly prescriptive 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-alone family business perspective. We speculate that there is potential for this fth 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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Justin B. L. Craig, Ph.D., College of Business, Oregon State University, Corvallis, OR 97331-2603;

phone: 541-737-6061; fax: 541-737-5388; email: justincraig@bus.oregonstate.edu. Ken Moores, Ph.D., Australian Centre for Family Business, Bond University, Queensland, Australia, 4229; phone: 61-7-55951161; fax: 61-7-55951160; email: kmoores@staff.bond.edu.au.