Attractiveness of family
business
The challenge of attracting highly educated nonfamily
employees
Master Thesis
State university of Groningen
January 2009
Author: G.A. Roordink
LIST OF CONTENTS
SUMMARY...3 1. INTRODUCTION ...5 2. RESEARCH METHOD ...7 2.1 Introduction ...7 2.2 Literature study...7 2.3 Case study...7 2.4 Research questions ...83. DEFINITION OF FAMILY BUSINESS ...10
3.1 The three-circle model Tagiuri and Davis:...12
4. DISTINGUISHING CHARACTERISTICS OF FAMILY BUSINESS ...13
4.1 Introduction ...13
4.2 Uniqueness of family business from theoretical perspective ...13
4.2.1 Resource-based view theory...13
4.2.2 Agency theory...16
4.3 Uniqueness of family business from a practical perspective...19
4.3.1 Culture ...19
4.3.2 Structure...20
4.3.3 Financial ...20
4.3.4 Human Resource Management...21
4.3.5 Professionals in family business...21
4.3.6 Strengths ...22
4.3.7 Weaknesses...24
4.3.8 Differences between Family business and nonfamily business...26
4.4 Conclusions ...28
5. RECRUITING AND RETAINING HIGHLY EDUCATED EMPLOYEES ...30
5.1 Introduction ...30
5.2 Organizational capability of people...30
5.3 Professionalism...31
5.4 Justice perceptions ...32
6. IMPORTANT CHARACTERISTICS OF EMPLOYER...34
6.1 Introduction ...34
6.2 Theories organizational attractiveness...34
6.2.1 Person-Fit theory ...35
6.2.2 Job-choice decisions ...35
6.3 Characteristics of organization ...36
6.4 Corporate Social Performance...36
6.5 Conclusions ...37
7. WHAT HIGHLY EDUCATED EMPLOYEES WANT...38
7.1 Introduction ...38 7.2 Surveys ...38 7.3 Differences of generations...39 7.4 Trends ...39 7.5 Conclusions ...39 8. EMPERICAL CASES ...41 8.1 Introduction ...41 8.2 CASE: CROP ...42 8.3 CASE: FRESHNESS...46 8.4 CASE: CHEESE...50 8.5 CASE: ENGINEERING...54
9. DISCUSSION AND RECOMMENDATIONS ...58
9.1 Introduction ...58
9.2 Discussion...58
9.3 Recommendations ...60
9.4 Future research ...62
SUMMARY
This thesis is about the attractiveness of family business for highly educated employees. The unique characteristics, strengths and weaknesses are outlined in relationship with highly educated nonfamily employees. With the use of literature, survey and case studies the research questions are answered. The following research questions came forward in this study; what are the distinguishing characteristics of a family business, how do family business recruit and keep highly educated nonfamily employees, which methods are used to recruit highly educated nonfamily employees, what makes an organization attractive for highly educated employees.
According to the resource-based theory family businesses have an unique competitive advantage because of the duality of economics and family relationships. Human capital and social capital are unique in the family business because of the long term thinking of family businesses and long lasting relationships with the stakeholders. The agency theory explains also that family business have great a competitive advantage because of the strong ties with the family. This theory also mentioned that this advantage is not the result of family ties but because of owner management. Commitment, knowledge, flexibility in work, time and money, stable culture, speedy decision making, reliability and pride are strengths of a family business. Rigidity, business challenges (modernized outdated skills, managing transitions, raising capital), succession, emotional issues, leadership and legitimacy are weaknesses of a family business.
Family businesses spend less money and time on HRM activities, but gives employees an important place in the organization. Perceptions of justice of nonfamily employees are important to keep the commitment and cooperation of nonfamily employees high.
An applicant uses its expectations of reaching its goals and its own personal values to look for an organization. Organizations must communicate which goals can be reached and the values of the company to create a fit with the applicant. Organizational policies and practices, corporate image and reputation, and corporate social performance are considered by potential employees in their job-choice decisions. Organizations must communicate on these subjects. Decentralization of an organization is considered by final year student.
Large multinationals are attractive for many highly educated employees. They have a great amount of money spend on marketing so their image and reputation is well known. There is a trend that more and more small to midsized organizations are attractive to highly educated employees because they want influence on the organization. Salary and secondary terms of employment must meet the basic criteria, then are personal development and attention more important.
From the cases it came forward that reasons to work for a family business are: content of the work, culture and atmosphere, terms of employment, growing possibilities and attention.
highly educated employees, cooperation with recruiting bureaus specialized in small to midsized organizations. Write down criteria for family members who wants to join the family business. Communicate the values and possibilities to grow of the family business. Keep in touch with former highly educated employees with an alumni program. Create a management trainee program.
1. INTRODUCTION
The last thirty years the world around family businesses is more and more explored. There is more information and knowledge gathered about the unique characteristics of family businesses. Around the world family businesses have a great impact on the world’s economy. About sixty to seventy percent of all companies in the world are family businesses. So it is important to explore the world of family businesses and help the people who are dealing with the unique characteristics of family businesses. This is a great time to be studying family firms. There is a growing awareness among public policymakers of family firms’ role in creating new jobs, incubating new businesses, and promoting economic development of local communities (e.g., Astrachan, Zahra, & Sharma, 2003; Heck & Stafford, 2001; Zahra, 2004).
In a survey of the International Family Enterprise Research Academy (IFERA) in 2003 a comparison is made about family businesses around the world. In the United States 95 percent of the companies are family businesses. In Australia this is 75 percent. In Europe and the Netherlands the percentage of family companies differs. In the UK 75 percent of the companies are family businesses. In Spain70 to 80 percent of the companies are family businesses. In another survey of Flören (2002) about family businesses in the Netherlands 55 percentage of the companies are family businesses. It is not easy to have good figures about the share of family business because it is a more closed sort of organization and the different definitions used in the different surveys, more about these definitions in the next paragraph. But everyone sees the importance of family business in the economy and its impact on many people who are dealing with family businesses.
Uniqueness
Researchers believe that the family component shapes the business in a way that the family members of executives in nonfamily firms do not and cannot shape (Lansberg, 1983). Family businesses are connected to a family, and that connection is what makes them a special kind of business. A family business draws special strength from the shared history, identity, and common language of families (Gersick et al, 1997). The relationship of the company with the family (of this company) is very important. It influences the way of working in or with the company.
Nonfamily employees, managers and executives, are central to the ability of family businesses to grow and endure in their competitive market spaces (Blumentritt et al, 2007). This thesis is about the unique strengths and characteristics of a family business in relationship with nonfamily employees who are highly educated. The aim of this research is to collect information and to create knowledge for family business who wants to attain and to keep highly educated nonfamily employees.
FBNed (Family Business Netherlands) indicated that there are signs of mid-sized to large family businesses which have problems attaining and keeping highly educated employees. It is important for every company to have employees who have certain highly developed skills and knowledge. These employees are needed to keep the organization competitive on the market. In this research, mid-sized-to large family businesses as well as middle to large nonfamily businesses will be investigated.
This results in the main question of this paper; which characteristics of the family business
make it as an organization, attractive for highly educated nonfamily employees?
Structure
The main question of this paper will be answered in sub-questions. Firstly, the unique strengths and weaknesses of family businesses will be considered from theoretical perspective and a more practical perspective. From known literature about family businesses I develop a map of the characteristics of the family business in the first chapter. Secondly, there will be a chapter about the way family businesses and nonfamily businesses recruit and keep highly educated employees. Thirdly there will be a literature research and a small survey about the things highly educate employees want to know about their new job/employer. With interviews and case-studies I will answer these questions.
2. RESEARCH METHOD
2.1 Introduction
In this study there has been a literature study about the characteristics of a family business, after that there has been some research by the use of interviews. In this study I used interviews to do case study about the way family business recruit and keep highly educated nonfamily employees. So I used a case study within a literature survey.
On the one hand, it gives direct access to the people concerned and their nonverbal language, but on the other hand, the subjects, like the interviewer, have their own ways of interpreting events and only tell the interviewer what they want him or her to know. Narrative inquiry is set in human stories of experience. It provides researchers with a rich framework through which they can investigate the way humans experience the world depicted through their stories (Webster and Mertova, 2007). Powerful insights offered by stories have often been ignored, perhaps because of the traditional predominance in research of the modernist-empiricist view (Webster and Mertova, 2007, p. 14).
2.2 Literature study
Different articles and books about family business are investigated. With the use of Family Business Review and Entrepreneur, Theory & Practice, a large amount of knowledge about the family business is gathered. Also books of important researchers in the family business scene are used to get a good look at the family business as an organization.
With the use of literature about attractiveness and recruiting highly educated employees is tried to get a clear picture about the ways businesses can recruit highly educated employees.
Surveys are then used to investigate the present world highly educated employees or graduates. This gives insides in strategies to be attractive for this target group.
2.3 Case study
Robert K. Yin defines the case study research method as an empirical inquiry that investigates a contemporary phenomenon within its real-life context, especially when the boundaries between phenomenon and context are not clearly evident; and in which multiple sources of evidence are used (Yin, 2003, p.13). Case studies rely on analytical generalization. In analytical generalization, the investigator is striving to generalize a particular set of results to some broader theory (Yin, 2003, p.37). Multiple-case designs have distinct advantages and disadvantages in comparison to single-case designs (Yin, 2003, p.46). The evidence from multiple cases is often considered more compelling, and the overall study is therefore regarded as being more robust (Herriot and Firestone, 1983).
interview (Merton, Fiske, and Kendall, 1990), in which a respondent is interviewed for a short period of time –an hour, for example. The interviews may still remain open-ended and assume a conversational manner, but you are more likely to be following a certain set of questions derived from the case study protocol (Yin, 2003, p.90).
The use of multiple sources of evidence in case studies allows an investigator to address a broader range of historical, attitudinal, and behavioral issues (Yin, 2003, p.98). The most important advantage presented by using multiple sources of evidence is the development of converging lines of inquiry (Yin, 2003, p.98).
2.4 Research questions
There are signals from mid-sized to large family businesses which have problems to attain and to keep highly educated employees. It is important for every company to have employees who have certain highly developed skills and knowledge. They need these employees to keep the organization competitive on the market. In this research mid-sized-to-large family businesses will be investigated. It is important and interesting to search for the way family business recruit and attain their employees, which is why the following research questions are formulated:
- How do family businesses recruit and keep highly educated nonfamily employees?
- Which methods are used to recruit highly educated nonfamily employees? How effective are these methods?
Unit of analysis
The units of analysis are family businesses which are member of FBNed. This is because of the criteria of the definition. The members of FBNed are at least second generation family businesses and the family has a distinctive influence on the organization.
In these family businesses are family members employees and nonfamily employees, both can give information about the company, so this gives a natural and reliable picture of the case.
The selection of cases is therefore biased, because of the fact that members of FBNed are aware of the fact that they are a family business, and know it is useful to share and retrieve knowledge about being a family business.
Data collection
Data is collected with the use of interviews and written reports. The following sources are used (Swanborn, 1996):
- Written reports ( financial and HRM related) - Interviews
- Protocols (HRM related) (the extend of professionalism, Astrachan, 1994) - History books about the company (when it is possible)
These data is then used to fill in the cases and made into a story about the company. The case consistent of the following subjects:
- Role of the family - Structure
- Culture
- Human Resource Management - Leadership
The four cases are ‘coded’, so the companies’ name is not in public with this research. The companies which are discussed are:
- Crop - Freshness - Cheese - Engineering
3. DEFINITION OF FAMILY BUSINESS
There are some differences between definitions of family business used in the research on family business. The lack of a universal definition makes it difficult to compare different countries (Handler, 1989) and researches. There is still no widely accepted definition of family business (Astrachan et al., 2002). A definition of family business should measure what it purports to measure and should assist in providing reliable (replicable) research results. A family business definition should be clear about which dimensions it refers to. Moreover, a definition should be transparent and unambiguous (Klein, 2005). Donnelly (1964) already used a definition; a company is considered a family business when it
has been closely identified with at least two generations of a family and when this link has had a mutual influence on company policy and on the interests and objectives of the family. This is a more restricted definition.
Family involvement (Miller & Rice, 1967), involvement is more than ownership and management (Handler, 1989). Davis (1983) gives another definition which has a more important role in the research of family business; it is the interaction between two sets of organization, family and business that
establishes the basic character of the family business and defines its uniqueness. In his three-circle model developed with Tagiuri another dimension has been added; ownership. In the next paragraph this will be explained more thoroughly.
Chua, Chrisman en Sharma (1999) did a research on many different definitions, they find three differences:
- Family owned and family managed - Family owned but not family managed - Family managed but not family owned
The first is the most restricted definition and also used by the most of the researchers. The other two are sometimes used, but there is a disagreement about the use of these definitions. Chua et. al. (1999) gives a broad definition about what they think is a family business; ‘The family business is a business
Flören (2002) used a form of the London Business School definition of family business. According to Flören (2002) a company is a family business if it at least fit with two of the three criteria:
- More than 50% of the ownership is in the hands of one family
- One family has a decisive influence on the company’s strategy or decisions on succession - A majority or at least two members of the management belongs to one family
The LBS definition has some benefits; it is easy to use and to measure, it is easier to classify bigger companies as a family business with the last criteria. Bigger companies can have a great influence from one family, but the family doesn’t have 50% of the ownership.
The F-PEC scale (Family-Power, Experience, Culture scale) developed by Astrachan, Klein and Smyrnios (2002), based on the work of Astrachan and Shanker (1996), and is a more sophisticated definition of family business.
The purpose of the F-PEC scale is to define the influence of the family on a continue scale, with the use of three dimensions: power, experience and culture. Power is based to what extend the family has ownership of the company, has influence on the board and the participation of the family in management of the company. The dimension of experience is about the generation of ownership, board and management. This dimension is based on the idea to pass on the knowledge within a generation to the next generation (Donckels, 1998). The culture dimension is about the extent in which values of the family are the same as in the organization and the commitment of the family to the company. This culture dimension has been derived from a ‘subscale’ developed by Carlock and Ward (2001).
In this study about the attractiveness of family business the definition of Flören (2002) is the one I take to consider business to be a family business. This definition gives clean figures about family businesses so it is simple to verify the family business. I think this definition is not complete when the intentions of the family are not considered. As Chua, Chrisman en Sharma (1999) already mentioned that the family business is about the intentions of the family to pursue and shape the business to survive across generations of the family.
So, the following company is a family business if it at least fit with two of the three criteria Flören (2002):
- More than 50% of the ownership is in the hands of one family
- One family has a decisive influence on the company’s strategy or decisions on succession
- A majority or at least two members of the management belongs to one family
3.1 The three-circle model Tagiuri and Davis:
The model of Tagiuri and Davis (1982) explains the three dimensions of a family business.
Any individual in a family business can be placed in one of the eight segments in the model which can help to explain (and even predict) their motivations, fears and expectations. No other type of business enterprise has this structural form (Murray & McCracken, 2005). Their "three circle model" helps to identify the range of self-interests inherent in family business systems by describing the family business as comprising three independent but overlapping subsystems; ownership, management and family (Murray & McCracken, 2005).
Ownership is about the owners and shareholders which are presented in the left above circle. Business is all the people who are aligned with the company. Family is the one, who are part of the family or families which have strong ties with the organization. All these people could be placed in one of the circles presented in figure 1.
4.
DISTINGUISHING CHARACTERISTICS OF FAMILY BUSINESS
What are the distinguishing characteristics of family businesses versus nonfamily businesses? 4.1 IntroductionAmong the various theories applied, the resource-based view and agency theory have emerged as the leading theoretical perspectives on family businesses (Chrisman, Chua, & Sharma, 2005 in: Blanco, 2007). In the line of research of family business the uniqueness of these businesses will be outlined in this chapter. First the Resource-based view, next the agency theory and a practical view of the uniqueness of family business.
4.2 Uniqueness of family business from theoretical perspective 4.2.1 Resource-based view theory
According to the resource-based view, the firm’s sustainable competitive advantage is grounded in the availability of strategic resources that enjoy imperfect mobility (Barney, 1991). Family businesses have been described as rich in intangible resources because the duality of economic and family relationships and the will to continuity create an atmosphere, favorable to generating some strategic resources (e.g., social capital, tacit knowledge) (Cabrera-Suárez, De Saá-Pérez, & García-Almeida, 2001; Habbershon &Williams, 1999; Sirmon & Hitt, 2003). These organizations are reluctant to open up capital to nonfamily members (Sirmon & Hitt, 2003) because this would imply sharing family control; they prefer family and firm internal equity financing (Romano et al., 2000).Family business owners usually reinvest their funds (Ward, 1987).
The will to keep family control constrains the financial resources of the firm and its capacity to obtain resources in general (Blanco, 2007). From this family business view, the firm’s capacity to create value depends not only on the quantity and quality of its resources, but also on the quality of the ties that link the resources within the firm (Blanco, 2007).These ties are about the agency theory, what is discussed in the next paragraph. These ties create a trade-off. Lack of financial resources is one of the chief causes affecting the development, growth opportunities, and long-term survival of private family businesses (Romano, Tanewski, & Smyrnios, 2000). It is true that value creation depends not only on the resources held but also on the way resources are managed by the firm (Hoskisson, Hitt, & Ireland, 2004).
advantages (Tokarczyk, 2007). For superior performance to persist over time, these valuable and rare resources must in some way be isolated from use or imitation by other firms (Rumelt, 1987). Tacit knowledge cannot be easily imitated or, conversely, separated out for sale through the medium of market mechanisms (Tokarczyk, 2007). Put differently; when tacit knowledge leads to high performance, resource based scholars propose that such differential/ superior performance may be sustained for some time. In this fashion, Cabrera-Suarez et al. (2001) argues that family firms have distinct capabilities that can bring competitive advantage based on the “tacitness” embedded in their resources. From the “familiness” of a firm have highlighted similar examples, including enhanced consumer trust in the family firm, increased employee dedication and commitment, long-term decision-making horizons, patient capital, and more because as different as the resources are of these family business (Sirmon & Hitt, 2003).
Three types of capital (or assets) have been associated with the performance of family firms: (1) human capital, (2) social capital, and (3) physical/financial capital (Dyer, 2006). There have been several ideas posited concerning why family firms may have unique human capital. Because the family name is “on the building,” family members will naturally be more motivated and committed to the business (Ward, 1988). Family members have often been socialized at a very early age to understand the nature of the business, its customers, and its competitors, and have received hands-on training from family leaders who are knowledgeable and highly skilled. On the other hand, family firms have a limited pool of potential recruits (Dyer, 2006). The family may not be able to supply the firm with enough talented employees to manage the key operations. This is particularly true in firms that require highly specialized knowledge of technology and markets (e.g., bio-engineering firms) or firms that are sufficiently large and complex enough to require sophisticated knowledge of management systems and processes (Dyer, 2006).
is the extension of goodwill beyond the family to nonfamily employees. Despite the advantages derived from social capital, the presence of strong familial bonds also has disadvantages. Nonfamily employees are treated as “second-class citizens” and are exploited by the family (Dyer, 2006). Such an adversarial relationship between an owning family and nonfamily employees often results in low employee morale and low productivity. “Families may bring with them significant physical and financial assets that can be used by the firm. This safety net is less likely to occur in nonfamily firms due to the lack of loyalty, strong ties, or long-term commitments on the part of employees” (Sirmon & Hitt, 2003, p. 343). Family members can use their personal assets to strengthen the firm; however, families are also known for taking assets out of the businesses they own, thereby undermining the firm’s stability (Dyer, 2006).
Lee (2006) examined the influences of family relationships on attitudes on the second generation working in their parents’ family business. He found that although family cohesion (family cohesion refers to the degree of closeness and emotional bonding experienced by the members in the family (Olson et al., 1988) is positively related to organizational commitment, the relationship is not a significant one (Lee, 2006). On the other hand, family adaptability (the ability of a martial or family system to change its power structure, role relationships, and relationship rules in response to situational and development stress) has a positive and significant relationship with organizational commitment. The results of this study showed that family cohesion was a positive but insignificant predictor of organizational commitment, work satisfaction, and life satisfaction (Lee, 2006). Further, it was a negative but, again, insignificant predictor of propensity to leave. On the other hand, family adaptability was a positive and significant predictor of organizational commitment, work satisfaction, and life satisfaction. Propensity to leave was not predicted significantly by family adaptability (Lee, 2006). It highlights that family relationships do have a substantial influence on the attitudes and behaviors of the second generation working in family businesses. More specifically, it shows that family adaptability is a valuable asset to have in family businesses as it significantly affects the second generation’s work satisfaction and organizational commitment (Lee, 2006). Nevertheless, it was found that good family relationships were one criterion for a successful family business in a study of Scottish family enterprises (Dunn, 1995).
A more recent study by Anderson and Reeb (2003) investigated the relation between family ownership and firm performance among S&P 500 companies. It found that family-controlled firms, which account for 35% of the S&P 500 universe of companies, enjoyed higher profitability and created greater shareholder value in the past decade than management-controlled firms. These resources, often referred to as organizational competencies, include internal processes, human resources, and other intangible assets, such as reputation (Poza, 2004). The unique resources can provide the firm with a competitive advantage in certain circumstances. One of these resources in a family firm would be the overlapping owner and agent relationship that could lead to advantages from powerful monitoring mechanisms. The advantages could include reduced financial reporting, reduced regulatory compliance and administrative costs, faster decision making, and longer time horizons for increased efficiency in investment activity. Family unity may also be a resource that can be converted into an ownership commitment and patient capital advantage. From this perspective, shareholders might rather fight, provide oversight, and allow a longer-term investment return horizon than engage in portfolio diversification and capital flight.
The article of Zahra (2004) empirically examines the relationship between family firms’ cultures and entrepreneurship. It proposes that family firms’ cultures are an important strategic resource (Barney, 1986) that can give these firms a distinct advantage over their rivals by promoting and sustaining entrepreneurial activities. Family firm cultures are also difficult for rivals to imitate (Dierickx & Cool, 1989) because of the ambiguity about their origins and their embeddedness in family history and dynamics (Gersick et al., 1997). Reduced reliance on formal controls and coordination increases the importance of a firm’s culture as a key determinant of its behaviors (Zahra et al, 2004).
Barney (1986) looked to the founder as the imperfect embodiment of company culture. As founders are individuals and hold sometimes contradictory opinions and values, so these are reflected in the companies they establish. This cultural uniqueness, if understood and nurtured, can be one of a corporation’s greatest advantages (Denison, Lief, Ward, 2004).
Organizational culture is an important strategic resource that family firms can use to achieve a competitive advantage by promoting entrepreneurship and enhance the distinctiveness of these firms’ products, goods, and services (Zahra et al, 2004). The focused, purposeful cultures found in many family businesses often go unrecognised as a source of competitive advantage. The results of the research of Zahra et al. (2004) not only show that there are no clear cultural advantages associated with non family firms, they show that there are several cultural advantages associated with the family-owned firms.
4.2.2 Agency theory
the case in most of the business settings, two problems arise: moral hazard and adverse selection. This means that moral hazard is that the principal is not able to be sure that the agent maximizes his work effort. Adverse selection means that the principal is not able to fully know if the agent is capable for his work. Family businesses have their unique characteristics with this agency theory. A family business can be seen as a nexus of contracts (Hill & Jones, 1992; Jensen & Meckling, 1976) between co-specialized resource owners (Rajan & Zingales, 2000) who are linked through a special contractual structure that combines economic relations and family ones (Blanco,2007).
Blanco (2007) applies the agency theory from the family business perspective. He thinks that the distinctiveness of family business comes from the particular contractual structure that mixes economic and family ties and from the family management’s desire to retain firm control across generations (Blanco, 2007). These characteristics generate a trade-off between resource structure and contractual structure as sources of value creation, a trade-off that changes across generations (Blanco, 2007). During the first generation, this competitive disadvantage is compensated by the establishment of efficient relationships between the resource owners that lower agency costs. Across generations, the progressive disappearance of the agency costs advantage will force the firm to increase its capital investment in order to compete in the same resource structure conditions as nonfamily businesses (Blanco, 2007). As the branches of the family continue to fan out, the affective bonds with the original family will be less intense, and family interests will be centered on the new family unit that each member is forming (Blanco, 2007). Blanco (2007) thinks it is true that private family businesses characterized by good governance practices will be less affected by the gradual increase in agency costs (Mustakallio, Autio, & Zahra, 2002), but as new generations come into the firm, it will be harder for the family business to balance the disadvantage of operating on a small scale with the agency costs advantage of efficient management of resources (Blanco, 2007).
Kaye, 1991; Lansberg, 1999; Ward, 1987). A reason for family firms not realizing reduced agency costs is the idea that altruism makes it difficult, if not impossible, for families to effectively monitor family members who work in the firm (Dyer, 2006). Altruism, treating people for who they are rather than what they do, is often seen as the cornerstone value in family firms. Nonfamily firms, on the other hand, monitor their CEOs more carefully and are not hamstrung by altruism; hence they are more willing and able to replace a CEO when the CEO’s performance is deemed unacceptable (Dyer, 2006).
The principal must monitor or reward the agents to make sure that they all work, and that no agency problems exist (Carrasco, 2007). High ownership concentration makes it easier to align the interests of the owners in family businesses (family owned and managed or professionally managed) than in nonfamily ones (Vilaseca, 2004). Among the members of the family, owners of professionalized family businesses will bear the highest risk, since their investment is relatively undiversified, they have a high share of the ownership, and they have less control because the firm is under professional management (Anderson, Mansi, & Reeb, 2002). In contrast, in nonfamily businesses, the total risk borne by each owner is lower because there is more possibility for diversification of the investment (Carrasco, 2007). When CEOs hold significant ownership, they will assume high risks. A mistake will not lead to them being fired, but the value of their assets in the company will fall. Agency problems are also considered to be fewer in this type of firm.
In situations where there is a risk of moral hazard, the compensation design becomes a necessary tool to correct such behaviors and align interests. Showing that manager’ pay level decreases as the CEO’s level of ownership increases (Carrasco, 2007). In the family owned and managed firm, here are two fundamental reasons to justify this position. (1) The CEO is simultaneously one of the main shareholders and, due to this position of power and to the fact that the CEO forms part of the organization, it is easier to control the employees. The expectation is for a lower pay level among employees (Carrasco, 2007). In the professionally managed family firm, the CEO is not the owner and ownership is concentrated among a few owners. Thus, in this case, an intermediate pay level for employees may be expected, lower than in nonfamily business but higher than in firms that are family owned and managed (Carrasco, 2007).
commitment, less bureaucratic, less impersonal) and disadvantage (confusing organization, nepotism, family disputes, autocracy leading to secrecy and resistance to change, succession dramas).
A new stream of research goes as far as suggesting that the agency cost advantages that privately held family-owned firms reportedly enjoy (Daily & Dollinger, 1992) are fiction, and that agency costs are significant for these companies (Gomez-Mejia, Nunez-Nickel, & Gutierrez, 2001). However, family businesses are considered by other scholars to be at the cutting edge of profitability, job creation, wealth creation, return on investment, quality of product and service, flexibility, customization capability, and speed to market (Anderson & Reeb, 2003; Shanker & Astrachan, 1996). Family firms export less, are less engaged in formal short-term planning and variable reward systems, and obtain lower profitability levels (Jorissen, 2005).
4.3 Uniqueness of family business from a practical perspective 4.3.1 Culture
Family culture is defined as the enduring values that shape the firms’ characters and how they adapt to the external environment (Dertouzos et al., 1989).These cultures embody the beliefs, aspirations, histories, and self-concepts that are likely to influence firms’ disposition to support and undertake entrepreneurial activities (Zahra et al, 2004). A society’s regional cultures and historical experiences also shape these cultures (Davis, Pitts, & Cormier, 2000; Ward, 2000).
The link between the founders and the family firm is evident. Family firms are in a unique and enviable position in that their link with strong beliefs and core values is real and alive. The role of the founder is crucial to establishing an organization’s identity, core beliefs, and purpose (Denison et al., 2004).
Jaffe (1988) saw great power in the shared history and identity of family members when remarking: “The personal history of a family business is very special, because it is the story of a family and its way of making its mark in the world.” Jaffe felt that neither family nor business could be viewed in isolation, even suggesting that problems in the business should be approached within the spectre of the family. Denison (2004) finds it that, although many corporations are now uttering allegiance to better governance and broader constituencies, the differentiating factor lies in the fact that the behaviour of family companies emanates not from external pressure but from a deeply ingrained, learned at-the-dinner-table sense of history and morality.
Dyer (1986) did research on different cultures in family businesses. He found four different family business cultures:
there is no problem. Employees are very motivated by such a charismatic leader. Often there is a problem to find a good follower for the leader.
Laissez-faire culture; is very similar to the paternalistic culture but differs on certain points. Employees of family businesses with a laissez-faire culture have more responsibility and more power for decision-making. It is easier for the organisation to grow because responsibility is more divided among the organization.
Participative culture; relations are based on equality. Employees are fully trusted and get opportunities to develop themselves. They are more valued and motivated. There is a vision for the future. There are no long lines in decision-making, but a lot of people must say something about it, so this slows the decision-making process.
Professional culture; this culture becomes clear in organisations in which professional managers are working. They brought their own culture with them and so it becomes more individualistic and less personal. Efficiency is very important. Commitment of the family is decreased.
The kinship-ties that are unique to family firms are believed to have a positive effect upon entrepreneurial opportunity recognition (Barney, Clark, & Alvarez, 2003). Owner managers also understand that their family firms’ survival depends on their ability to enter new markets and revitalize existing operations in order to create new businesses (Ward, 1987). Entrepreneurial activities increase the distinctiveness of the family firms’ products and therefore enhance their profitability and growth (Zahra, 2003). Thus, it is important that family firms are able to innovate and aggressively pursue entrepreneurial activities (Zahra et al, 2004).
An inward culture can place the family firm at a disadvantage because it does not develop the capabilities necessary to promote entrepreneurship. In contrast, an externally focused organizational culture is expected to dedicate greater resources to develop the capabilities that allow family firms to acquire knowledge from a variety of external sources and thus increase their entrepreneurial activities (Kanter, 1983). The results of the study of Zahra et al. (2004) provide support for the view that the influence of culture on entrepreneurship will be greater in family than in nonfamily firms.
4.3.2 Structure
Verbal and nonverbal communication can be greatly speeded up in families (Gersick et al, 1997). A group cultural orientation stresses cooperation and collaboration in the firm’s decision-making processes. Group-oriented family business cultures explicitly reward individuals when they share knowledge, cooperate and collaborate (DeLong & Fahey, 2000).
4.3.3 Financial
Pont, 1989), while on the other hand, family businesses are more “employee intensive” than nonfamily businesses and so have lower sales per employee (Gallo & Estapé, 1992).
The differences Galle et al. (2004) found in their analysis of the various dimensions indicate that personal preferences concerning growth, risk, and ownership control are the driving forces behind the “peculiar financial logic” of family businesses. Family businesses are on average older than nonfamily businesses yet have lower sales figures. In other words, some of them grow more slowly or do not want to grow as much as they could if they used all the available resources. Also, it seems that family businesses devote a smaller proportion of sales revenue to their own mid- and long-term development. In relation to risk, family businesses showed a certain amount of resistance. This is apparent in their more restricted use of permanent full-time personnel and in their considerably lower level of debt compared to nonfamily businesses (Gallo et al., 2004).
4.3.4 Human Resource Management
Family businesses tend to use a larger proportion of less risky types of contracts in terms of labour rigidity, such as “permanent part time”, “internships,” and “temporary”.
In the smaller FBs, there are proportionately more “permanent part-time” contracts than in the nonfamily businesses (Gallo et al., 2004). One reason could be the fact that family businesses are more often involved in seasonal industries, such as tourism, agriculture, and textiles. This would help explain the greater use of “permanent part-time” contracts by smaller family businesses (Gallo et al., 2004). Most of all, they last longer than nonfamily firms, which is good news for the employees and their dependents, for the shareholders, for the economy and for society in general (Murray & McCracken, 2005).
4.3.5 Professionals in family business
Professionals are not always prepared to deal with the special nature of family companies. The influence of families on the business they own and manage is often invisible to management theorists and business schools (Gersick et al, 1997). Sometimes the response to the problem of recruiting and retaining key nonfamily employees is to give them shares or equity linked rewards (Murray & McCracken, 2005).
Strengths: • Commitment • Knowledge
• Flexibility in work, time and money • Long-range thinking
• A stable culture
• Speedy decision making • Reliability and pride
(Leach & Bogod, 1999) Blumentritt et al. (2007) argued that successful nonfamily CEOs will be both good at their professions and at managing relationships with the families for which they work. In their research interview participants noted the important roles played by both boards of directors and family councils. Boards that include contributing family members along with strong external experts provide nonfamily CEOs with credible forums for examining alternatives in a way that focuses on the business side of family business. Family councils, on the other hand, allow family members to voice their opinions and feelings about the business, but in a way that does not directly involve a nonfamily CEO in the family side of family business. As such, both groups are mechanisms that generate clear direction for NFCs, allowing them to concentrate on their jobs (Blumentritt et al, 2007).
4.3.6 Strengths
When family business are working well, families can bring a level of commitment, long-range investment, rapid action, and love for the company that nonfamily business yearn for but seldom achieve (Gersick et al, 1997).
First there is commitment of the family to the business. Second the flexibility in time and money devoted to the business. Third, clients and suppliers see family businesses as reliable. The fourth strength is pride. A family business has also care, care for clients but also for employees.
Leach and Bogod (1999) give some strengths about the family businesses; commitment, knowledge, flexibility in time, work and money, long-range thinking, a stable culture, speedy decision making, reliability and pride.
Commitment
Commitment is then the passion of the founder which connects family members with the business and gives them dedication and commitment for the development of the company. Family enthusiasm develops added commitment and loyalty from their work-forces-people care more and feel they are part of a team, all contributing to the common purpose.
Knowledge
Flexibility in work, time and money
The family invests work and time that is necessary and take out money when they can afford to. If there is more work to be done to develop the business, then the family invest the time and does the work.
Concerning money there is also more flexibility than in nonfamily businesses. In nonfamily businesses the income for the employer is fixed, and the only thing that concerns them, is about the way it is spent. Families must decide how much money they can safely take from the company for their own needs while at the same time preserving the firm’s financial flexibility.
Flexibility in work, time and money leads to a competitive advantage. They can adapt quickly and easily to change when circumstances are changing.
Long-term thinking
Family business tends to be better in long-term thinking. The fact that family businesses have a quit clear view of the commercial objectives over the next ten or fifteen years, can represent a considerable advantage. But although family businesses are good in long-term thinking, they are not so good in formalising their plans, this is a weakness.
A stable culture
For a variety of reasons family business have a stable culture. The chairman and/ or management are for a long period committed to the business. Relations within the company are stabilised. This has been a valuable asset. But if this stable culture is a more introvert culture this could become a weakness of the company. This could be an obstacle for changes to adapt to its environment.
Speedy decision making
In family controlled business, responsibilities are usually clearly defined and the decision making process is deliberately allocated to one or two key individuals. This means that someone goes to the boss and asks for his permission. In nonfamily business this works differently. The board wants to explore a new market: the company’s banking, accounting and legal advisors will all become involved in this process. Shareholders all wants to give their permission. Not saying that advisors can be helpful. Speed is in this case has a commercial value.
Reliability and pride
Weaknesses: • Rigidity
• Business challenges:
- modernize outdated skills - managing transitions - raising capital • Succession • Emotional issues
• Leadership and legitimacy (Leach & Bogod , 1999)
The people who run the family business are extremely proud of the business; this can be used as a powerful marketing tool.
4.3.7 Weaknesses
Roles in the family and in the business can become confused. Families can create levels of tension, anger, confusion, and despair that can destroy good businesses and healthy families amazingly quick (Gersick et al, 1997).
The major weakness is that there are few changes in the top management. Another weakness is the uncertain position of nonfamily managers. The absence of a succession planning is another weakness. Successors are often chosen not because of their capacities but because they are a member of the family.
Leach and Bogod (1999) give some weaknesses about the family businesses; rigidity, business challenges (modernize outdated skills, managing transitions, raising capital), succession, emotional issues, leadership and legitimacy.
Rigidity
The notion; ‘things are done this way because dad did them this way’ is heard in many family business. The way things were done in the past, creates unwillingness to change. It is important for a company to adapt to its environment, but in a family business change also means overturning philosophies and upsetting practices established by relatives.
Business challenges
Changes in market-place and/or technology can put a family business behind. Certain skills possessed by the family can be outdated in no time. Families must modernize these skills to adapt to its environment.
Managing transitions is a major challenge for family business. When father and son has different views how to change or not to change the company, creates uncertainty among customers, supplier and employees. Because of the added dimension of possible intra-family upset and conflict is a much bigger challenge for a family business than it is for other kinds.
also more reluctant to raise money from external resources. Loss of control is the main reason why family businesses are reluctant to raise money from external resources.
Succession
The how through of a family business from one generation to the next and the change of leadership it involves is a process that is usually fraught with difficulty. The selection of a successor means choosing between sons and/or daughters. The culture of a family business can be reconstructed with new ideas of young people about the way the business should be run.
Emotional issues
The hazards of succession lead on to the emotional issues that limit the firm’s scope for commercial action. The family domain is emotion-based, emphasizing care and loyalty, while the business domain is task-based, with emphasis on performance and results. The family business is a fusion of these two powerful institutions and although it provides the potential for superior performance, it is not surprising that it also can lead to serious difficulties.
Leadership
4.3.8 Differences between Family business and nonfamily business
A difference between a family business and a nonfamily business is that the former has norms, principles, and obligations of the family overlapping with those in the business.
John L. Ward (2005) stated the differences of family and nonfamily businesses as follows:
For the Family Firm For the Nonfamily Firm
The purpose is continuity The purpose is maximizing near-term share price The goal is to preserve the assets and reputation
of the firm
The goal is to meet institutional investor expectations
The fundamental belief is that the first priority is to protect downside risk
The fundamental beliefs is that more risk promises more return
The strategic orientation is adaptation The strategic orientation is constant growth The management focus is continuous incremental
improvement
The management focus is innovation
The most important stakeholders are customers and employees
The most important stakeholders are shareholders and management
The business is seen as a social institution The business is seen as a disposable asset Leadership is stewardship Leadership is personal charisma
Table 1:‘The Family Business Paradigm’, John l. Ward (2005)
Relations
Relations in organizations are determined by professionalism, task-based and contracts. Autonomy is very important. Emotions are in a family more important. The emotional dependency is stronger. Loyalty is very important. The commitment is very strong and relations last a life time. Too much of this can turn into a disadvantage. To be loyal to your employees in bad times, gives the employees a safe feeling and stimulates commitment (Compernolle, 2002).
Objectives
Authority/ Hierarchy
In a company the hierarchical relation are based on power, and if it goes well the power is based on knowledge and skills. This is based on the idea that the best man is in charge. Inside families, this is different. Here, hierarchy is based on age and if possible belongs to an elder generation. This leads to a situation where, not always, the best man is in charge or that the best man leaves the family business (Compernolle, 2002).
Behavior
In family businesses there is more room for emotions. This leads often to more spontaneity. In a nonfamily business there is a more quasi-rational behavior. Important decisions are made with rational arguments, but also emotions play a role in decision making. In family business this is more known (Compernolle, 2002).
Reward
In a company everyone gets a status, salary and education to the extent in which the person contributes to the success and profitability of the company, also in relation to its knowledge and skills. In a family everyone gets care, affection, breeding and education in relationship to its need. A tension can be created when there is no balance between the relationship of the shareholder and the personal investment into the company (Compernolle, 2002).
Perspective of time
Sometimes the management of nonfamily businesses loses its perspective of time. Family businesses have a longer time perspective and this has an effect on the way the business is being managed. This is strength, especially when it is combined with great flexibility and persistence (Compernolle, 2002).
Orientation toward the company
4.4 Conclusions
Family businesses can be seen from different perspectives. These different perspectives give different conclusions of family businesses. Family businesses are different than nonfamily businesses because of their relationship with the family. Every family is different and so is every family business different, but there are some general characteristics among this type of business.
Resource-based theory
A strategic and competitive advantage is built up from a number or combination of competencies, capabilities, and intangible resources; family businesses are well posited to create such an advantage. As the resource-based theory already mentioned; family businesses are rich in intangible resources, which is the result of the duality of economics and family relationships. This gives the family business a unique strength to create a sustainable competitive advantage. These resources must be isolated from other resources so other companies cannot imitate this resource. If the (family) business is capable of doing so, it could retain its competitive resource. Many family businesses are a more closed organization than nonfamily businesses, so for competitors it is difficult to imitate valuable strategic resources.
Dyer (2006) mentioned three types of capital (or assets) about family business. Especially human capital is unique for family business, family members who are working in the business. They have some positive things like family name, knowledge of the company and market, but when a company grows, more nonfamily employees are necessary to do the work. Different people are needed, more specifically jobs need to be fulfilled, which requires specific skills or knowledge, for a family business it is important that there are rules about the way family- and nonfamily employees work. Treating the employees differently than family members is devastating for employees’ satisfaction and commitment. Social capital is a great strength of family business, the long lasting relationships with stakeholders gives the company a great sustainable advantage. Financial capital is on the one hand a safety net for the family business but also a threat to its positive position when the family takes out some financial resources for their own sake.
Family cohesion is important for commitment and satisfaction of the employees, but more important is the family adaptability. The culture of a family business is as different as families are; this gives a unique strength to the company. If this culture is about adaptability and entrepreneurship, the company has large strategic and sustainable competitive advantages.
Agency theory
costs, because communication is better and trust is higher. But this efficiency is not because of the family but on the fact that owner and agent are the same. As generations continue the agency costs rise, as to keep a sustainable competitive advantage, family businesses needs to expand their financial capital. This could be easy, but the family wants to retain its firm control. Good governance is important to deal with these issues.
Owner management reduces agency costs, not family control. If altruism is the case it is difficult for family businesses to reduce agency costs. This is where family business must take a look to nonfamily businesses, because they handle their CEO’s more carefully and take action when things go wrong.
Other views
Family businesses have some great strengths and weaknesses. Family businesses which can deal the best with its uniqueness of ties with the family, business and ownership, could develop a competitive advantage. Businesses which cannot deal with the specialness of family create tension between business goals and family goals, which results in turning the strengths of the family business into weaknesses. It is important to understand and be aware of the uniqueness of a family business to capture and retain the strengths of a family business.
Commitment and long-term strategic thinking are very important items for the long-term development of organizations; this unique strength of family business is the source of the success of much family business. What also is important in organizations is the speed of decision making, to be able to change the strategy fast, so the strategy fits with the latest developments on the market, gives the company a competitive advantage. Family businesses in general make speedy decisions, because less people are involved with the company’s strategy and the structure is less bureaucratic. For customers and suppliers of a business it is important that the organizations ,they deal with, are reliable; family business are reliable because they are proud of the company and want to sustain the company’s position on the market, for generations to come.
5. RECRUITING AND RETAINING HIGHLY EDUCATED
EMPLOYEES
How do family business and nonfamily business recruit and attain highly educated nonfamily employees?
5.1 Introduction
This chapter will be about the way family businesses and nonfamily businesses recruit and keep highly educated (nonfamily) employees. This chapter will handle this issue with scientific research; the empirical chapter will handle this subject more in detail.
5.2 Organizational capability of people
Competitive advantage can be established through financial, strategic, and technological means, but the most enduring, and the most difficult to achieve, source of competitive advantage comes from the improved organizational capability of people (Ulrich and Lake, 1990). Organizational capability is ‘a business’s ability to establish internal structures and processes that influence its members to create organizational-specific competencies and thus enable the business to adapt to changing customer and strategic needs.’ (Ulrich and Lake, pag. 40).
Because of the pervasiveness of strong family values (Aronoff and Ward, 1994) and family commitment to the firm (Astrachan and Lansberg, 1989) family firms would appear uniquely capable of harnessing the components elements that Ulrich and Lake (1990) define as essential to the establishment of organizational capability: shared mindset, capacity for change, leadership, and human resource practices.
In many cases, the connections between nonfamily employees and the families with and for which they work become so tight that they feel “like part of the family” (Klein & Bell, 2007). Nonfamily Chief Executive Officers (CEOs) are responsible for generating superior business performance like their peers at other businesses but in an environment that daily resembles a large family reunion (Blumentritt et al, 2007). Professional nonfamily managers should be brought in to provide “objectivity” and “rationality” to the family firm (Gersick et al., 1997), even if it is also recognized that integrating external nonfamily management is challenging (Aronoff & Ward, 2000).
This research supports the important role that human resource management practices, along with professional governance practices, play in the success and survival of family firms.
Storey (1989) identified that HRM models, whether British or American, commonly assert that employees should be regarded as valued assets and that there should be an emphasis on commitment, adaptability and consideration of employees as a source of competitive advantage. Family business should be regarded as a special case regardless of size, as the long-term commitment of the CEO and family members involved in management require the balance of not only management but ownership (Reid & Adams, 2001).
Less than 50 percent of both family and nonfamily businesses reported that the head of HRM did not have a place on the board (Reid & Adams, 2001). These findings support those of Edwards (1987) and Storey (1989) who pointed out that HRM/personnel managers are generally not involved in matters of strategic importance (Reid & Adams, 2001). Significantly higher numbers of nonfamily businesses negotiated with trade unions on pay and conditions, it may underline the view that family firms tend to be introverted and ‘family centered’. Significantly higher numbers of nonfamily businesses than family businesses reported using references as a selection method (Reid & Adams, 2001). Similarly, significantly higher numbers of nonfamily businesses had used appraisal systems for managers and clerical staff than family businesses. The findings of Reid & Adams (2001) suggest that many of the nonfamily firms have put in place HRM structures and policies ahead of their ‘family firm’ counterparts. Family businesses reported spending less of their annual salaries and wages bill on training than their nonfamily counterparts. Because hiring and promotion are not subject to either external market mechanisms or internal evaluation processes, family businesses are deprived of the best managerial talent possible (Burkart, Panunzi, & Shleifer, 2003).
5.3 Professionalism
Definition Professional Management: Professional management in family businesses means
an in-depth enough understanding of the owner family’s dominant goals and meanings of being in business (i.e., cultural competence) to be able to make effective use of relevant education and experience (i.e., formal competence) in a particular family business(Hall & Nordqvist, 2008).
Nonfamily manager perceptions of performance feedback, succession planning, career opportunity, and the advisory board were significantly different than the perceptions of family members in the business (Hall & Nordqvist, 2008). However, consistent with earlier results, nonfamily managers were significantly less positive about career opportunities in the family firm as measured by the career opportunities scale (Poza, 2004). One of the biggest challenges that these businesses face is the effective management of nonfamily employees, which has been recognized as keenly important to family firms (Chua, Chrisman, & Sharma, 2003).
5.4 Justice perceptions
Although family members often hold key executive positions in family businesses, many family firms employ nonfamily managers, and most employ a larger number of nonfamily employees than family members. Attracting qualified nonfamily employees and fostering value-creating attitudes and behaviors among these employees can be major factors in the success or failure of family firms (Chrisman, Chua, & Litz, 2003; Chua et al., 2003).
Securing the commitment and cooperation of nonfamily employees is likely to be more difficult if they do not perceive that decision outcomes, decision processes, and decision makers are fair or just (Barnett, 2006). Although family firms’ Human Resources (HR) practices affect both family and nonfamily employees, nonfamily employees may often face a particularly complex and uncertain situation since they are part of the business but not of the family system (Mitchell, Morse, & Sharma, 2003). When making judgments about a firm’s HR practices, nonfamily employees are likely to form at least three distinct justice perceptions. Distributive justice concerns one’s perceptions of the fairness of the outcomes of a decision process relative to referent others (Barnett, 2006). Procedural justice, conversely, is the perceived fairness of the decision-making processes by which outcomes are determined (Thibaut & Walker, 1975). A third type of justice perception, interactional justice, is defined as the quality of interpersonal treatment received as decision processes are carried out (Barnett, 2006).
5.5 Conclusions
Businesses must have the ability to establish internal structures and processes that influence its members to create organizational-specific competencies and thus enable the business to adapt to changing customer and strategic needs. Family businesses tend to have more specific characteristics to create such an organizational capability for people. The strong culture and short decision lines gives a family business an advantage to create such an important capability.
The relationship of the family business with nonfamily employees is very important, for nonfamily CEOs it is important to know much about the way they should handle the uniqueness of a family business.
For a family business it is important to know that HRM practices are vital for the success or survival of the organization. Especially because family business tend to be known about their nepotism etc. Family business is also known for their long term commitment to their employees, this strength gives a family business a competitive advantage in attracting potential employees.
At last, family business tend to spend less money on HRM activities, they have less structures and give HRM a less important place in their policies. This indicates that despite of spending less money and time on HRM activities, family business do give employees a very important place in the organization.
Professionalism is important for the family business; both family employees and nonfamily employees can be professional managers. Managers in the family business must understand the unique relationships in the organization, because of its relationship with a family. The point that nonfamily managers are less positive about their career opportunities is an important issue for family businesses. Nonfamily managers who want to develop their careers will go to another organization, so the family business lose a good manager and get more problems with attracting new nonfamily managers.
6. IMPORTANT CHARACTERISTICS OF EMPLOYER
Which characteristics of the employer are important for highly educated (nonfamily) employees?
6.1 Introduction
Due to the current quantitative and qualitative shortages on some labor markets the attractiveness of organizations has become increasingly important (Lievens, Decaesteker, Coetsier & Geirnaert, 2001). In part due to the shortage of qualified workers, organizations are facing difficulties in attracting qualified applicants (Adams, 1998; Highhouse, Zickar, Thorsteinson, Stierwalt, & Slaughter, 1999; Rynes, 1991). Such difficulties are expected to continue in the 21st century because of the low unemployment rate and the lack of qualified applicants for many positions (Judy, 1999), and organizations have started devoting considerably more resources to attract and retain qualified individuals (Leonard, 1999).
Despite economic upturns and downturns, recruitment remains a crucial human resources function for at least three reasons (Van Hoye & Lievens, 2007). First, there will always be certain hard-to-fill vacancies for which organizations must compete fiercely to attract potential applicants, even in an otherwise loose labor market (Van Hoye & Lievens, 2007). Second, the most talented job seekers continue to have enough options to critically investigate and compare potential employers. Therefore, organizations that wish to attract these highly desired applicants have no choice but to participate in the “war for talent” (Van Hoye & Lievens, 2007). Third, demographic trends (e.g., smaller supply of younger workers, retirement of baby boomers) indicate that recruitment will be even more important in the future (Collins & Stevens, 2002).
6.2 Theories organizational attractiveness
6.2.1 Person-Fit theory
More recent studies framed the attractiveness of organizations for prospective applicants in the context of the fit between the person and the organization (Kristof, 1996). Schneiders’s (1987) attraction-selection-attrition (ASA) model conceptually grounds this research stream. A premise underlying the ASA model is that ‘people in any organization are unique in that they are the ones attracted to, chosen by, and who choose to remain with an organization’ (Schneider, Smith, Taylor, & Fleenor, 1998, p. 463). This attraction results from the fact that both the individual and the organization are making decisions about one another: on the one side, recruitment and selection processes enable organizations to attract and select individuals who fit best to their needs and expectations. On the other hand, on the basis of their previous experiences, interests, needs, preferences, and personality individuals make a selection among different organizations.
Several studies used the interactionist approach to person-organization fit (Edwards & Cooper, 1990) to put these assumptions to the test and to examine whether people are attracted to organizations that fit their own personality (Lievens et al., 2001). The fit between an individual's values, beliefs and personal characteristics and those of the organization can shed light on the process in which job applicants find organizations attractive and make job-choice decisions (Lievens et al., 2001). Cable and Judge (1996) found that applicants' perceived value congruence with their chosen organization was related to their Person-Organization fit perceptions, and the perceived Person-Organization fit perceptions predicted actual job choice decisions. In other words, applicants’ perceived fit results from their appraisal of the interaction between their personal characteristics and needs and job– organizational characteristics and supplies (Kristof, 1996).
Both Burke and Descza (1982) and Schein and Diamante (1988) reported that individuals were attracted to an organization whose culture reflected their own personality characteristics. Bretz Ash, and Dreher (1989) found that individual high on need for achievement were more attracted to organizations which encouraged and rewarded individual performances. Bretz and Judge (1994) concluded that the fit between characteristics was an important determinant of job acceptance. Turban and Keon (1993) demonstrated that upper-level students high on self-esteem were more attracted to decentralized and larger organizations. Students high on need for achievement chose to work in organizations with a merit-based pay system instead of a tenure based pay system.
6.2.2 Job-choice decisions
