1 - Family business: nature and structure

Summary

Despite its relevance, a useful definition of the family firm is elusive. By contrast, the large, managerial enterprise shows very well-defined features. It first appeared in manufacturing in the United States between the 1870s and the 1890s and was stimulated by pervasive waves of technological innovation in transportation and production, which are usually labelled ‘the second industrial revolution’. It spread into capital-intensive industries – mostly chemicals, electrical products, transportation systems, petroleum refining, primary metals, some branches of the food and beverages industry, cigarette making, and several others (Chandler and Hikino 1997). The dimensional growth and the complex activity linking production and distribution triggered an organisational revolution as well; the relatively simple structures employed during the first industrial revolution evolved into the much more sophisticated U- and M-forms of organisation. These management structures were crowded by salaried low, middle, and top managers, more and more autonomous from the property and from the founder's family, according to the growing specialisation of their roles. Alfred Chandler put it best:

Salaried managers' specialised knowledge and their firms' ability to generate the funds necessary for continued expansion meant that they soon controlled the destiny of the enterprises by which they were employed … In the large, multiunit enterprise … salaried middle managers, who have little or no share in its ownership, have come to be responsible for co-ordinating the flow of goods and supervising the operating units.

(Chandler 1980: 12–13)