{"id":1333,"date":"2024-06-12T08:05:19","date_gmt":"2024-06-12T06:05:19","guid":{"rendered":"https:\/\/blog.iese.edu\/family-business\/?p=1333"},"modified":"2024-09-16T15:46:33","modified_gmt":"2024-09-16T13:46:33","slug":"4-decision-making-models-in-family-firms-which-is-best","status":"publish","type":"post","link":"https:\/\/blog.iese.edu\/family-business\/2024\/4-decision-making-models-in-family-firms-which-is-best\/","title":{"rendered":"4 decision-making models in family firms: which is best?"},"content":{"rendered":"<p>Among their unique characteristics, <strong>family businesses pursue both financial goals and non-economic aims<\/strong> such as preserving the family legacy and promoting community development.<\/p>\n<p>This dual perspective can lead to <strong>misalignment among family members r<\/strong>egarding organizational priorities, while raising important questions:<\/p>\n<blockquote><p><em>How should family firms integrate divergent perspectives in their <a href=\"https:\/\/www.thefbcg.com\/resource\/decision-making-on-family-business-matters\/\" target=\"_blank\" rel=\"noopener\">decision-making processes<\/a>? <\/em><\/p>\n<p><em>What\u2019s the best structure to simultaneously uphold family values and advance business objectives?<\/em><\/p><\/blockquote>\n<p>These issues and more were the focus of <strong>my recent study on the influence of decision-making structures<\/strong> on the family&#8217;s ability to balance these competing company goals.<\/p>\n<h2><span style=\"color: #ff0000\"><strong>Four common decision-making structures<\/strong><\/span><\/h2>\n<p>If <strong>the quality of our lives depends on the quality of our decisions<\/strong>, the same can be said of the long-term sustainability of organizations.<\/p>\n<p>By understanding and implementing the right decision-making structure, family businesses can <strong>harness the collective strengths of their team members<\/strong> and bolster their performance in both stable and dynamic environments<\/p>\n<p>In this regard, our study analyzed <strong>four archetypical yet highly relevant decision-making structures<\/strong>: unanimous approval, individual autonomy, majority voting and lead decision-maker:<\/p>\n<ul>\n<li><strong>Unanimous approval<\/strong>: All team members must concur in order for a decision to proceed.<\/li>\n<li><strong>Individual autonomy<\/strong>: A single team member can approve a decision.<\/li>\n<li><strong>Majority voting<\/strong>: A simple majority is required for a decision to proceed.<\/li>\n<li><strong>Lead decision-maker<\/strong>: In case of disagreement, a designated individual makes the final decision (this often falls to a senior family member).<\/li>\n<\/ul>\n<p>Since empirical data on decision-making structures is difficult to observe in practice, our research used a computational model to <strong>simulate the effect of these models on the economic and non-economic performance<\/strong> of family businesses operating in diverse environments.<\/p>\n<p>At the same time, the study assessed the role of <strong>goal alignment among decision-makers<\/strong>.<\/p>\n<h2><strong><span style=\"color: #ff0000\">Why decision-making structures matter<\/span><\/strong><\/h2>\n<p>Our models revealed some compelling results, including the <strong>significant impact of decision-making structure on organizational outcomes<\/strong>, as well as the importance of the <strong>broader environment and degree of goal alignment among decision-makers<\/strong> in determining the optimal decision-making structure.<\/p>\n<p>In times of stability, <strong>majority voting<\/strong> was found to generate the highest economic performance, allows firms to strike an ideal balance between <strong><em>decisiveness<\/em><\/strong> (avoiding stalemates and promoting proactivity) and <strong><em>selectivity<\/em><\/strong> (making sure time, money and investments are directed toward the most valuable initiatives).<\/p>\n<p>Conversely, in dynamic, rapidly changing environments, <strong>unanimous approval led to the best performance<\/strong>. In times of rapid change or crisis, unanimous approvals enable family firms to <strong>channel their scarce resources and attention<\/strong> toward the most critical issues at hand, while leveraging the team\u2019s diverse perspectives.<\/p>\n<p>Interestingly, in fast-paced settings, having a <strong>diversity of goals was found to boost economic performance<\/strong> as it compels companies to raise the bar when deciding which initiatives merit their limited time and economic resources.<\/p>\n<p>The same was true of <strong>misalignment among decision-makers:<\/strong> while generally detrimental to economic performance, it<strong> can be valuable in high-speed contexts<\/strong> when coupled with unanimous approval decision-making.<\/p>\n<h2><strong><span style=\"color: #ff0000\">Practical tips for implementation<\/span><\/strong><\/h2>\n<p>What to these insights mean for family businesses? For leaders of family-controlled firms, <strong>the first step is to assess the broader environment<\/strong> and adapt their decision-making structures accordingly.<\/p>\n<ul>\n<li>Is your business environment stable or rapidly changing?<\/li>\n<li>Does your team have the necessary agility to adapt its decision-making process in times of flux?<\/li>\n<\/ul>\n<p>These questions should be <strong>posed continuously<\/strong> and gain even greater relevance in fast-paced situations.<\/p>\n<p>Also key are <strong>fluid lines of communications<\/strong>, as highlighted in a <a href=\"https:\/\/blog.iese.edu\/family-business\/author\/melvira\/\" target=\"_blank\" rel=\"noopener\">previous article<\/a> given the overlapping personal and professional spheres in family business. To this end, <strong>strategic decisions should involve both family and non-family members<\/strong>, who should understand the chosen structure and the rationale behind it.<\/p>\n<p><strong>\u00a0<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Among their unique characteristics, family businesses pursue both financial goals and non-economic aims such as preserving the family legacy and promoting community development. This dual perspective can lead to misalignment among family members regarding organizational priorities, while raising important questions: How should family firms integrate divergent perspectives in their decision-making processes? What\u2019s the best structure [&hellip;]<\/p>\n","protected":false},"author":2305,"featured_media":1334,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[981],"tags":[117523,483],"class_list":["post-1333","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-leadership","tag-corporate-governance","tag-decision-making","megacategoria-mc-family-business"],"acf":[],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/blog.iese.edu\/family-business\/wp-json\/wp\/v2\/posts\/1333","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blog.iese.edu\/family-business\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.iese.edu\/family-business\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.iese.edu\/family-business\/wp-json\/wp\/v2\/users\/2305"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.iese.edu\/family-business\/wp-json\/wp\/v2\/comments?post=1333"}],"version-history":[{"count":4,"href":"https:\/\/blog.iese.edu\/family-business\/wp-json\/wp\/v2\/posts\/1333\/revisions"}],"predecessor-version":[{"id":1338,"href":"https:\/\/blog.iese.edu\/family-business\/wp-json\/wp\/v2\/posts\/1333\/revisions\/1338"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/blog.iese.edu\/family-business\/wp-json\/wp\/v2\/media\/1334"}],"wp:attachment":[{"href":"https:\/\/blog.iese.edu\/family-business\/wp-json\/wp\/v2\/media?parent=1333"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.iese.edu\/family-business\/wp-json\/wp\/v2\/categories?post=1333"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.iese.edu\/family-business\/wp-json\/wp\/v2\/tags?post=1333"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}