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 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 of power,
experience, and culture 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 assumptions and philosophies underlying these

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
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 a familiness 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
Craig, Moores
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,
106
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 resulting
strategies 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
 Balanced Scorecards to Drive the Strategic Planning of Family Firms
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 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 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 for
promoting 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
107
Craig, Moores
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 strategy
formulation 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 firm’s 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-
108
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 a family firm, strategies must be put in place
and these strategies need to be communicated to
an increasingly diverse group. Then as the family
firm 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
 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 (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 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 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 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 findings from the action research

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

Internal Business Innovation and Learning

Objectives Measures Targets Objectives Measures Targets
Mission How can we
What must continue to
we excel at? Vision improve and
create value?

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

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

109
Craig, Moores
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 strong
reputation 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 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 company’s overall goal . . . the strategy
identifies the path intended to reach that destina-
tion” (Kaplan & Norton, 2001, p. 19).
110
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
 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
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 to
include 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 a
family-owned company (where family ownership is
identified 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 manage-
ment. 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 gen-
erations 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 genera-
tion and believe that it is these values that will con-
tribute 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 well-
conceived vision statement consists of core
ideology (i.e., the enduring character of the orga-
nization—a 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 10–30 year audacious goal plus vivid descrip-
tions of what it will take to achieve that goal)
(1996). Collins and Porras’s (1991) study showed
that visionary firms significantly outperformed
other companies. A company’s 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-
111
Craig, Moores
neurial vision is no longer shared by new staff,
new professional managers, and new investors”
(O’Gorman & 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 practices
of 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.
112
Members of the Smith family developed their
mission statement (which addressed their corpo-
rate philosophy, self-concept, and public image) as
follows.
Our resolve to consistently provide the best cus-
tomer service and product selection will result in
exciting growth opportunities and exceptional
financial 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.
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
 Balanced Scorecards to Drive the Strategic Planning of Family Firms
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. As
such, 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). Value
propositions 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
113
Craig, Moores

FINANCIAL PERSPECTIVE

OBJECTIVES MEASURES TARGETS

MANAGE GROWTH

To sustain manageable Growth in turnover. 10% increase in turnover

growth annually

Increase gross profit Increase to 47% (up from 45%)

margin. in the 200X*/200Y financial
year
Increase the average sale
TO ENABLE per customer. An average sale of $26.50
FINANCIAL (currently $24)
SUCCESS HOW
SHOULD WE Maintain current fixed cost Wages
APPEAR TO OUR level. Leasing
STAKEHOLDERS? Fit-out
Administration
FAMILINESS
To secure the financial Appoint professional Have report tabled at February
security of the founding advisers to establish needs family meeting.
generation. of the founders.

To ensure the family Future budgets (200X To be established once

business interests will onwards for five years) to consultants’ report received in
remain viable. include funding founders’ February.
retirement.

Develop criteria for Business plan to At least two proposals to be

assessing business accompany any proposed presented by G2 members per
opportunities for the business venture. annum.
family.

* All years changed from 2004 to 200X etc.

Figure 2 Financial Perspective Including Familiness.

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

114
 Balanced Scorecards to Drive the Strategic Planning of Family Firms

CUSTOMER PERSPECTIVE

OBJECTIVES MEASURES TARGETS

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

WHAT
To know and understand Customer surveys to be 100 customers surveyed per
what our customers introduced shop quarterly.
want.
HOW SHOULD WE
APPEAR TO OUR HOW
CUSTOMERS? To provide an unequalled Staff training both in- All staff to attend customer
level of service and house and by suppliers. service training (conducted by
product knowledge. 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 Review all collateral to Produce and distribute a family
values of the Smith ensure that at every business history discussion
family appropriate opportunity we document by June 200X
acknowledge that we are a Collect best practice examples
To be perceived by our proud family business of other family businesses.
customers as a family
business

Figure 3 Customer Perspective Including Familiness.

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 family as 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 firm’s 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
Craig, Moores
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).
116
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 “family” in family owned busi-
nesses influences 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 influence how people in
family owned businesses learn to manage them. In
fact, 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 a
family 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 the
business context—and 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)
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, and
Further 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
 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 Have proposed new
all business systems structures ready for
discussion March
200X.

EMPLOYEE FRIENDLINESS
Improve employee entitlements Analyze current Results to be
and incentives situation and design collected by
alternatives in February 200X and
collaboration with introduced in July
employees 200X.

WHAT MUST WE DO TO SHARE KNOWLEDGE

PROFESSIONALIZE OUR To encourage and promote Review staff meeting Plan 200X Meeting
BUSINESS? knowledge sharing. structure and include as Schedule (to have set
a budget item shop meetings,
Manager meetings
and company
meetings)

OPENNESS
Encourage greater transparency. Bring all company Internal newsletter to
members to a high be launched in
level of understanding association with
on the direction of the company catalogue
company and its (twice a year)
strength

FAMILINESS
To encourage all family members
to be involved with the internal
running of the business.
Create work teams to To have each family
be involved with member assigned to
different areas of the a specific area of the
operation. business.

Encourage total family Establish a Family Have the Council

involvement in decision making. Council established and
Family Constitution
drafted by 31st
December 200X.

Figure 4 Internal Processes Including Familiness.

theory of the firm, we grounded our justification
for the inclusion of the familiness dimension to
the Balanced Scorecard. In this project we adapted
the broad principles of the theory and along with
employing the F-PEC constructs to frame the core
essence of family business, we were able to
demonstrate how it is important to extend theory
and also to “give back” to established theory, as
called for by Sharma (2004) and others. We
unashamedly borrowed from the existing BSC
framework, but are confident that by extending
the theory to include the familiness dimension, we

117
Craig, Moores

INNOVATION AND LEARNING PERSPECTIVE

OBJECTIVES MEASURES TARGETS

OPEN CULTURE
To establish an open and
collaborative culture in
order to retain and attract
employees.
Employee satisfaction and Evidence of an
turnover. 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 OPPORTUNITY
AND IMPROVE? Offer greater education to
willing and suitable
employees.
A variety of skills and Attract and employ
interests represented. staff that have
diverse abilities and
experience
Provide avenues for To have at least 3 key
employees looking to staff members
further their knowledge looking for further
with the ultimate goal of education through the
establishing an in-house company.
Certificate in Retail
Management qualification

INNOVATION
Encourage innovation at all Staff involvement in new Implementation of a
levels of the company. ideas and business company Idea Bank
development. by 31st of November
200X
FAMILINESS
Learn Business University study and work At least one family
for an outside firm member pursues an
MBA by the end of
200X

Learn OUR Family Full family involvement A matrix system of

Business through family based family work teams
work teams. that covers the entire
business introduced
by the end of 200X

Learn to Lead Review the performance Create family

of family members and institutions such as
their contribution to the family meetings,
business. assemblies and
councils by the close
of 200X.

Learn to Let Go Planned transitions Discuss timelines

Figure 5 Innovation and Learning Perspective Including Familiness.

118
 Balanced Scorecards to Drive the Strategic Planning of Family Firms

FINANCIAL
Perspective
including Familiness

Vision
&
Mission
INTERNAL Corporate
CUSTOMER
BUSINESS Core ideology PEC Statement philosophy, Perspective
Perspective and Core Essence of the self-concept including Familiness
including Familiness envisioned Family Business and
future public
image
Vision
&
Mission

INNOVATION &
LEARNING
Perspective
including Familiness

Figure 6 Adapted Balanced Scorecard Framework for Family Business.

BSC Perspective Business Familiness

Financial Revenue Growth Prepare for retiring generation
Productivity Improvements Constant reinvention to keep future
generations interested in joining the
business

Customer Operational excellence Awareness of the family name

Customer intimacy Use of family in marketing
Product leadership initiatives
Quality that reflects family brand
image

Internal Processes Spurring innovation Investment in technology that will

Increasing customer value
Achieving operational
excellence
Promoting corporate
citizenship
benefit future generations
Professional work practices that will
attract best family and non-family
employees
Philanthropic activities

Learning and Employee capabilities and Creating career paths for family
Growth skills members
Technology Making involvement in the business
Corporate climate a privilege
Encouraging and providing seed
funding for new ventures presented
by family members

Figure 7 BSC Perspectives Incorporating Family Influence.

119
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 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-alone family 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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