From entrepreneurial to professional management:
the search for obstructing and promoting factors in an agricultural
family business
Master of Leadership & Management University of Amsterdam
Supervisor: Maarten de Haas Student: Desiree van der Kaaij Student number: 10871314
Statement of originality
This document is written by, Desiree van der Kaaij, who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Acknowledgments
I made it! It was an amazing year in which I grew personally and professionally. From the start to the end my thesis interested me, this due to the personal touch. My father owns a family business and I would really like to work within this business. This thesis contributed to the advancement of my knowledge about family businesses and the professionalization
process that they face. It was a great experience. However, without the great help, support and feedback of my supervisor Maarten de Haas I was not able to make this thesis a success. So that is why I want to give a special thanks to him. Furthermore, I want to thank my
interviewees who really inspired me. I learned a lot of their perspectives and their input made it possible to write my thesis. I enjoyed the process very much and I hope that you will enjoy reading.
I Table of Contents
II Table and figures III Abstract
1. Introduction 6
2. Literature overview 8
2.1 The family firm
2.2 Family and the business
2.3 Resource-based view of the firm and agency theory 2.4 Research gap and research question
3. Research design 15
3.1 Case study
3.2 Case description
3.3 Strengths and limitations research design
4. Data analysis 18 5. Findings 19 5.1 Leadership 5.1.1 Founders 5.2 Family values 5.3 People 5.4 Sector challenges
5.5 Approach of change process
6. Discussion 32
6.1 Discussion of the findings 6.2 Research question
6.3 Theoretical implications 6.4 Practical implications
6.5 Limitations and future research
7. Conclusion 39
II Tables and figures
Tables
Table 1: Interviewees
Figures
Figure 1: The family business at an ideological intersection (Johannisson & Huse, 2000) Figure 2: Data analysis process (Saldana, 2009)
III Abstract
Purpose – The agricultural industry accounts for almost ninety percent of family businesses. The sector will change tremendously in the upcoming years with fewer but bigger firms. The need for professionalization in these growing organizations becomes therefore crucial. While professionalization has received little research attention, neither has the agricultural industry concerning this issue. This thesis therefore searched for promoting and obstructing factors that are important for a successful professionalization within an agricultural family business. Design / methods / approach – A multiple case study approach with ten semi-structured interviews was chosen as the most appropriate design.
Findings – Five factors emerged from the data analysis: leadership in the board of the directors, family values, people, sector challenges and approach to the change process. A successful professionalization will occur if the leaders in the board of directors do exhibit a leadership style with both professional and family features. They also need to retain the important family values that are a unique resource for the family business. The founders have to understand the importance of delegation and thus the need to let go of the organization to let it survive. When implementing professional management the employees are important influencers. A sophisticated selection process is crucial. The horticulture sector faces
challenges in which the business strategy will change. Benchmarking with other industries is vital, because professionalization is a new concept for horticulture businesses. The last factor concerns a gradual, continuous approach to change that influence a successful
professionalization.
Originality/value – Professionalization in the agricultural sector has never been examined before. The success factors generate new insights for both theory and practice.
KEY WORDS: family business, professionalization, professional management, agricultural industry, and success factors
1. Introduction
Family businesses play a dominant role in the Dutch and world economy (Cromie,
Stephenson, & Montieth, 1995; Donckels & Frölich, 1991; Westhead & Cowling, 1998). In the Netherlands 69 percent of all firms is seen as a family business; the agricultural sector is the sector most dominated by family business with 87 percent of all businesses (Flören, Uhlaner & Berent-Braun, 2010). The added value of this industry on the Dutch economy is increasing steadily and accounted for 10 percent of GNP in 2010 (Centraal Bureau voor de Statistiek [CBS], 2014). Besides the fact that the Dutch agricultural industry is family oriented, the structure of the sector is also changing into fewer but bigger firms. The “big” firms become with more (7,700 big companies in 2000 up to 10,400 in 2013) and fewer players survive (97,500 companies in 2000 to 67,500 in 2013). It is expected that in the upcoming 25 years the number of businesses will be halved (CBS, 2014). Research as well shows that family firms have a low survival rate (Birley, 1986; Kets de Vries, 1993; Chu & MacMurray, 1993; Morris, Williams, Allen & Avila, 1997). This, therefore, makes it an interesting industry to study the performance of family businesses.
The changes in the sector will have an impact on the family businesses in which the agrarians will be confronted more and more with the business aspects of the organization. To survive as a family firm, agrarians need to understand how they can cope with their growing organization. Barnes and Hershon (1976) suggest that a transition of the business occurs as a company grows and develops. According to these researchers, organizational growth is a nonlinear process. An organization will face periods of growth, in which organizational development or change occurs, related to changes in the company structure (Barnes & Hershon, 1976). This structure change is most commonly described as a transition from entrepreneurial management to professional management. Flamholtz characterizes entrepreneurial management by the centrality of a founder, ad hoc planning and control, informal structures, very basic budgeting and a “loosely defined family-oriented culture” (Flamholtz, 1986, p. 42). Professional management on the other hand is associated with putting management systems and structures in place and reducing the dependence on the entrepreneur (Flamholtz, 1986). Levinson (1971) also indicates that professionalization is associated with eliminating family members and hiring nonfamily managers.
It is important for the agricultural family business sector to understand which decisions agrarians have to make concerning professionalization in order to survive as a family firm. Only 30 percent of family firms survive the transition to the second generation and only 10 percent make it to the third generation (Beckhard & Dyer, 1983a and 1983b).
Studies on professionalization have suggested that for the firm to grow, it must move away from a management structure dominated by the entrepreneur (Howorth, Wright & Westhead, 2007). However, entrepreneurial management and professional management should not be placed on a continuum. A balance needs to be found between both styles in order to keep the positive aspects of the family, but as well adopting the advantages of professional
management. This thesis, therefore, addresses the following research question: “What factors promote and obstruct a successful professionalization of family firms in the agricultural industry?”
2. Literature review
This section presents an overview of the literature. The overview starts with a definition of the constructs that will be used throughout the thesis. The literature also includes the theoretical perspectives in the field of family businesses including an overview of studies about
professionalization. A research gap and the research question are formulated at the end of this literature review.
2.1 The family firm
Family firms are seen as a distinct business form that differs from non-family firms. However, a clear and consistent definition of a family firm is still missing. Many scholars have defined the family business, but each used different concepts and indicators. Some researchers define a family business as owned and managed by a family. Ward (1987) even includes the
condition that the business must be passed to a family’s next generation. However, this means that a company managed by a professional non-family member, but owned by the family is not seen as a family business. This definition might therefore be too narrow. Dyer (1986, p. xiv) defines the family business in broader terms: “a family firm is an organization in which decisions regarding its ownership or management are influenced by a relationship to a family (or families).” This definition is better suited for the context of professionalization within family businesses, which implies the possible combination of non-family members in a top-management and a family character of the business. Therefore, in this thesis a broader
definition of a family business will be more appropriate, such as suggested by Davis (1986, p. 47): “it is the interaction between two sets of organizational systems, family and business, that establishes the basic character of the family business and defines its uniqueness.” Sharma (2004) also concludes in her review that the overlapping relationship between the family and the business systems is the key feature that differentiates family firms from non-family firms. 2.2 Family and the business
Many family business owners find themselves simultaneously confronted with decisions about the future of the business and of the family (Handler, 1992). Ibrahim and Ellis (1994) suggest that the family and the business are two separate systems. The family is emotion oriented and irrational, while the business is result oriented and objective. Businesses are motivated by the pursuit of profit, whereas families are motivated by biological imperatives and social norms (Ibrahim & Ellis, 1994). The sustainability, or success, of family firms depends on the effective management of the family and the business. The Sustainable Family Businesses (SFB) model of Stafford, Duncan, Danes & Winter (1999) gives an overview of
the family and the business aspects and the interaction between the two in achieving sustainability for both (Heck, Jasper, Stafford, Winter & Owen, 2000). This model is a dynamic theory that includes change as a major premise, which is situated at the intersection of the two systems. Both systems are affected by environmental and structural change but each system responds differently to changes (Heck et al., 2000). Olson, Zuiker, Danes, Stafford, Heck ad Duncan (2003) used the SFB model to identify strategies for family
businesses to increase the success of both the business and the family. The effect of the family on the business can be either helpful or hamper business success. The outcome depends on how the family manages the overlap between family and business and on its responses to disruptions. The two systems cannot be separated; there is always an overlapping domain (Olson et al., 2003). Businesses with a well-managed overlap may experience profitable business as well as family harmony (Sharma, 2004).
Johannisson and Huse (2000) however indicate that it is unclear how much the two systems, family and business, interact. They reason that Stafford et al. (1999) rely too much on their own beliefs, in which the subsystems are assumed to “fit.” Johannisson and Huse (2000) propose that the family and business perspective need to be extended with another dimension: entrepreneurship. Johannisson (2000) suggests that family firm sustainability calls for continued entrepreneurship, professional management and family involvement. These three phenomena are based on an ideology. According to Johannisson and Huse (2000) an ideology is “a consistent and permanent way of perceiving and appreciating the world that, accompanied by emotional commitment, generates a specific mode of conduct” (p. 356). The three ideologies are: entrepreneurialism, managerialism and paternalism (see figure 1). Most family firms, small- and medium-size, appear where these three ideologies intersect
(Koiranen, 2003).
Figure 1: The family business at an ideological intersection (Johannisson & Huse, 2000)
Entrepreneurialism is associated with finding and realizing opportunities for business ventures. It concerns elements such as innovativeness, risk taking and growth (Johannisson & Huse, 2000; Bygrave & Minniti, 2000). The structuring of activities develops organically and mostly informally (Johannisson & Huse, 2000). Normally, within a family firm, the first generation expresses this entrepreneurial ideology (Koiranen, 2003). Managerialism is seen as the “normal” way of organizing economic activity, in which objectives are related to
measurable units. It concerns elements such as administrative procedures, control, planning, and written policies (Koiranen, 2003). This ideology is based on mechanistic and functional structures (Johannisson & Huse, 2000). In many family firms, this managing function is exerted by non-family members (Koiranen, 2003); also in many firms this ideology is put into place if the firm grows (Johannisson & Huse, 2000). Paternalism is related to the caring of others (Pellegrini & Scandura, 2008). It concerns factors such as protection, family institution, domineering and ownership (Koiranen, 2003). In general this ideology is based on the belief of “controlling other people in a fatherly way by providing them what they need, but giving them little or no responsibility or freedom of choice” (Koiranen, 2003, p. 243). As for family firms, paternalism is a common cultural feature (Chirico & Nordqvist, 2010; Dyer, 1986, 1988; Johannisson & Huse, 2000).
The three ideologies each have a different function; also, they change in importance when a family firm grows through different stages (Johannisson & Huse, 2000). The first generation runs the family firm with an entrepreneurialistic ideology (Koiranen, 2003) in which the paternalistic culture is common as well (Dyer, 1988). For the second generation these ideologies are still of importance, but also the process of managing growth and
professionalization (Jongkind, 2013). Therefore managerialism is becoming a more important ideology. However, a family firm does not want to become a completely professionalized firm, with the focus solely on managerialism. A family firm is averse to that type of
organization (Eijssen, 2014). The challenge is to combine the advantages of the ideologies, to retain the core family competencies of entrepreneurialism and paternalism, but also adopting the advantages of managerialsm. Too much focus on managerialism will destroy the core competencies of the family firm (Eijssen, 2014). The family therefore locates itself between the three ideologies.
Professionalization is associated with the adoption of managerialsm. Barnes and Hershon (1976) suggested that professionalization is related to a change in the company structure. This structure change is related to the different management styles that are the extreme opposites in a continuum between entrepreneurial management and professional
management. Howorth et al. (2007), however, suggest in their case study that contrasting entrepreneurial and professional management is simplifying the issue. “A more useful conceptualization would consider how firms reconcile or balance both dimensions” (p. 8). In other words, professionalization in family firms does not imply a shift from
entrepreneurialism to managerialism, but finding a balance between both ideologies.
2.4 Resource-based view of the firm and Agency theory
There are different theories that are applied on the performance of family businesses, with contradicting outcomes for the family and the business aspects. The agency theory and the resource-based theory of the firm are the dominant theoretical perspectives in the literature for family businesses (Chrisman, Chua & Sharma, 2005). Debicki, Matherne, Kellermanns and Chrisman (2009) stated in their review of family business research that: “the application of agency theory and the resource-based view should also be applied to other topics of
importance to family firms such as professionalization.” This paragraphs focuses therefore on the two theoretical perspectives.
A family firm tries to attain sustainable competitive advantage. This advantage can be achieved when competitors are not able to duplicate the benefits of the strategy (Barney, 1991). Most research on strategic advantage focuses on the firm’s position in relation to the external environment (e.g. Michael Porter), but a firm’s internal resources can also lead to strategic development. According to the resource-based view (RBV) internal resources can lead to a sustainable competitive advantage if the resources are valuable, rare, inimitable and non-substitutable (Barney, 1991). Researchers argue that the relationship between the family system and the business system can be a potential resource. The historical condition and social complexity of these two systems are unique for an individual family firm and can therefore lead to sustainable competitive advantages (Habbershon & Williams, 1999; Habbershon, Williams & MacMillan, 2003). It can create resources, such as the family’s organizational culture (Habbershon & Williams, 1999). The founder of the family firm plays a significant role on this culture and as well influences the values of the organization (Collins & Porras, 1996; Schein, 1983).
Habbershon and Williams (1999) studied why and how family firms have this
advantage. With the use of the RBV they introduced the concept of “familiness”, which they defined as: “the unique bundle of resources a particular firm has because of the systems interaction between the family, its individual members, and the business” (p. 11). Those unique resources that differentiate family from non-family firms are: human capital, social
capital, patient financial capital, survivability capital, and governance structures and costs (Sirmon & Hitt, 2003). Human capital is related to the knowledge, skills and abilities of individuals (Coleman, 1988) in which family firms are characterized with extraordinary commitment, warm relationships and the potential for deep firm-specific tacit knowledge. Social capital exists in the relationships between individuals or between organizations (Burt, 1997). The patient financial capital is a valuable asset for family firms because the invested financial capital has no threat of liquidation (Dobrzynski, 1993). Contrary to non-family firms, family firms are not accountable for strict short-term results (Dreux, 1990). Survivability capital can help the family business to sustain during economic downturns, because employees are loyal and have a strong commitment toward the organization (Sirmon & Hitt, 2003). The last resource is related to governance structure and costs associated to control the family firm. In the case of family owned businesses, the governance costs are low. Agency theory can explain this particular resource.
Agency theory explains the relationship between ownership and management within a firm and the costs associated with this relationship. The principal (owner) and the agent (managers, employees) might have different objectives and the principal is not always able to perfectly observe the actions of the agent that are relevant to the firm (Jensen & Meckling, 1976). Agency costs arise because of conflicts of interest and asymmetric information
between ownership and management (Jensen & Meckling, 1976; Morck, Shleifer, & Vishny, 1988; Myers, 1977). Costs have to be made for systems (e.g. reward, monitoring and
information) to align these interests. However, in family firms agency costs may be low, if not absent, because of the overlap between ownership/principal and management/agent (Aronoff & Ward, 1995; McConaughy, Walker, Henderson & Mishra, 1995). The reduced agency costs explain the advantage of family firms over non-family firms (Daily & Dollinger, 1992;
McConaughy et al., 1995) and the importance of family in the business. The special features of family firms make it less necessary to manage the firm with formal managerial
mechanisms and to involve non-family members (Songini, 2006).
However, some researchers see agency as an advantage for non-family firms. They suggest that agency costs are high within family firms due to the different goals of the family and the business (Schulze, Lubatkin, Dino & Buchholtz, 2001). In this view there is no overlap between the family system and the business system. Songini (2006) also sees the agency theory as an argument for a professional organization and a non-family member. He argues that the peculiar features of a family firm increase the agency costs. As Schulze et al. (2001) infer conflicts of interest may also exist within and among family firm owners, which
may threat the performance of the family firm.
Linking the theories with the three ideologies, it might be assumed that the advantage of a family firm is achieved due to entrepreneurialism and paternalism, and therefore are related to the RBV. Both ideologies are characteristics of the family business culture (Chirco & Nordqvist, 2010). However, there are studies that show positive results if organizations focus on managerialism. There is evidence that family firms might be effective if they “professionalize” the organization and behave more like non-family businesses (Martínez, Stöhr, & Quiroga, 2007; Rondøy, Dibrell, & Craig, 2009; Schulze, Lubatkin, Dino, & Buchholtz, 2001; Sciascia & Mazzola, 2008; Westhead & Howorth, 2006). In these studies family firms are mostly perceived as less “professional” due to the interaction of the family and the business objectives and values (Howorth et al., 2007). The involvement of a non-family professional in the governance and management structures and boards can therefore bring objectivity within the family firm. The objectivity can be related to the decision-making processes, strategic and succession planning and management (Ibrahim, Soufani & Lam,
2001). As suggested by Ward (1987) the use of strategic planning is of significant value for family firms to ensure a higher performance. Also formal mechanisms are important within the family firm to cope with the interests and problems of both the business and the family systems (Rue & Ibrahim, 1996; Schulze et al., 2003; Ward, 1987). The study of Anderson and Reeb (2003), however, show that family businesses outperform non-family businesses. Firms were more profitable when the CEO was a family member. The researchers argued that family members understand the business better as non-family members who may be unfamiliar with the business. However, this study is based on the S&P 500, so the generalizability toward smaller, private family firms is doubtful.
Gedajlovic, Lubatkin and Schulze (2004) argue that the change to professional management is not the only issue: “changing the artifacts engendered by founder-managed governance is quite another” (p. 908). The transition will present a change in values and culture, which might conflict with the founding values and culture of the family firm. An effective transition will therefore not be easy. Hofer and Charan (1984) argue as well that the most difficult transition and perhaps also the most important for organizational development is that of moving from a one-person entrepreneurially managed firm to a firm run by a functionally organized, “professional” management team. According to Dyer (1989) the way this professionalization is managed can have a significant impact on the performance and survival of the family firm in the long term.
view and the agency theory, and can have both negative and positive effects on the family firm. In order to understand the situation in the agricultural sector, further research is required. This thesis will therefore focus on the professionalization aspects in this particular industry. The last section of this literature review presents the research gap and research question.
2.4 Research gap and research question
In a review on family business research Debicki, Matherne, Kellermanns and Chrisman (2009) presented a research gap concerning professionalization, because this area has received relatively little research attention. In order for a family business to survive, and thus being able to give the organization toward a second or third generation, it must practice
professionalization into the organization as it grows. The agricultural industry has many family businesses, which will change profoundly in the future as the organizations grow bigger. No research has attempted to examine the factors that can contribute toward a good professionalization process. Besides, the agricultural industry might face different challenges, due to the changing environment. The research question in this thesis is therefore formulated as follow:
“What factors promote and obstruct a successful professionalization of family firms in the agricultural industry?”
3. Research design
A suitable research method aligns with the research question. Considering the research question of this thesis, a qualitative research approach is the most appropriate. In qualitative research phenomena are studied within its real-life context and people’s opinions and
perceptions are used to understand the phenomena (Denzin & Lincoln, 1994). The phenomena of a successful professionalization can therefore be explored and explained, while promoting and obstructing factors will rise to the surface. Therefore the philosophy of this thesis is interpretivism. As stated by Gephart (2004, p. 457): “the goal of interpretive research is to understand the actual production of meanings and concepts used by social actors in real settings.”
3.1 Case study
The research strategy in this study is the case study approach. A case study “tries to illuminate a decision or set of decisions: why they were taken, how they were implemented, and with what result” (Yin, 1994, p. 78). A case study is therefore appropriate to understand the event of professionalization in the context of an agricultural family firm. To be able to explore differences between cases, I chose a multiple case study (Yin, 2009). The agricultural family firm faces challenges in the process of professionalization and thus shows obstructing factors. The other two cases, on the other hand, are important to see how the process can be improved and thus show promoting factors.
Due to anonymity the company names are changed. Yellowfruit, the main case in this thesis, is a family firm operating in the agricultural industry and is currently transforming into a more professional organization. This family firm is purposively chosen, because it
encounters the actual problem that is the subject of this study. Yellowfruit can be seen as a critical case in which the topic of interest, professionalization, occurs (Saunders & Lewis, 2012). FBNed is the Dutch association of family firms of which Yellowfruit is a member. This association has 145 family firm members. The other two cases are selected purposively as well. Total Group and Sommer were approached; both are well advanced in a successful process of professionalization. Total Group is chosen because it operates in the same industry and therefore offers a direct comparison. In order to improve the analytical possibilities of this study, Sommer is chosen as a third case which is not operating in the agricultural industry. It is assumed that the industry context is an important factor in the professionalization process compared to other industries. Therefore the second and third cases allow me to analyze which factors appear specific for the agricultural sector.
Within the case study strategy different data collection sources are available. In this thesis, interviews would be the most appropriate data collection method, because of the exploratory character. A semi-structured interview was the most suitable form of interviews, because it was not clear in advance which answers participants will give on promoting or obstructing factors. The units of analysis are the cases that are involved with the
professionalization process. The table below lists the people who have been interviewed, as well due to anonymity no names are listed.
Table 1: Interviewees
Company Function
1 Yellowfruit Director and Shareholder 2 Yellowfruit Shareholder
3 Yellowfruit Former Assistant Director 4 Yellowfruit Former CEO
5 Yellowfruit HR Manager
6 Sommer Managing Director and Shareholder 7 Sommer Director Corporate Development and
Shareholder 8 Sommer Financial Director
9 Total Group Managing Director and Shareholder 10 Total Group Group Manager Human Resources
3.2 Case description
Yellowfruit: the shareholders founded Yellowfruit in 1996. The origins of the company go back to the 50’s. The father of the current shareholders was the originator of the company and therefore they have over more than 60 years of expertise. Nowadays the company employs 100 people and has reached to a 90 million-turnover level. The family business, however, is still in the hands of the first generation.
Total Group: the company is founded in 1924. In the 50’s the son of the founder, became an employee within the organization who had the same passion like his father. In the late 70’s the son took over the position of his father. Therefore a new board of directors was formed including an external director, who was responsible for the commercial and financial part of
the organization. At that moment the company had 100 employees and a sales volume of 12 million euros. Because there was no family successor and the company would possibly be too small to survive in the competitive battle, the son sold his shares in the 1980’s to a big oil company. A new board of directors was formed with a family member and two professional directors. One of these professionals already worked within the organization and the other director was a newly hired external professional. When the oil company took over Total Group, the son withdraws from the board of directors. His cousin replaced him. In 1989 a management buy-out took place. The three directors of Total Group bought the shares of the oil company with the focus to make the company a family business again run by these three families. Nowadays the organization employs 2500 employees, of which approximately 1000 in the Netherlands and a sales volume of more than 300 million euros. The board of directors now consists of still one family member and two internally hired professionals.
Sommer: the company is established in 1956 and is specialized in solutions that contribute to a healthy living and working environment. In the 80’s the current shareholder bought Sommer from the founders and this was the foundation for a family firm to occur. Since 2012 the daughter of the shareholder, took over his place as managing director. As well the son of the shareholder, is a director in the board. This designates that the second generation is at hand. Nowadays the organization employs 180 people and has a turnover of 35 million euros.
3.3 Strengths and limitations research design
A qualitative case study approach has many strengths, especially in this research. First of all the natural setting is very important (Gephart, 2004). Professionalization is a difficult continuous process that only occurs within the context of organizations. Therefore it cannot be seen apart from its natural setting. Second, in depth and rich information is needed from the participants. A key weakness of case studies is the possible lack of rigor (Siggelkow, 2007). Assessing qualitative data is much less standardized as compared to quantitative research. In order to tackle the weakness of rigor, attention is paid to validity and reliability. Validity is strengthened by interviewing multiple persons with different positions and (family vs. non family) backgrounds, as well as by the use of multiple cases. This can be seen as a form of triangulation, because the phenomenon is explored from multiple perspectives (Knafl & Breitmayer, 1989). The reliability is ensured by explicitly reporting how the research is set up and how the interviews are conducted.
4. Data analysis
Each interview has been recorded and transcribed. I did not make use of analysis software, but preferred doing the analysis by hand, because this led to a more thorough analysis. A computer software do not have the background knowledge that I have, this led to the decision of analysis it by hand. The case of Yellowfruit is analyzed first and separate from the other two cases. Therefore the first approach is to find patterns within the cases. This within-case analysis is desirable because the focus lays on a description of the professionalization process experienced by Yellowfruit. No specific propositions were made beforehand. Open coding (Berg, 1989) was used in an inductive approach. However, before the encoding the researcher already wrote down general themes after each interview, which gave some direction about the ways of categorizing the data. A list of categories emerged, a category system, from all interviews conducted within Yellowfruit. In this stage I tried to reduce the number of categories and collapsed some into one bigger category. A final list of categories with sub-categories followed. After this analysis the other two cases were analyzed in the same way with each case as a separate entity.
The second stage is to find patterns across cases. This cross-case analysis focuses on similarities and differences in the professionalization process. The focus rested on finding similar themes and concepts across the multiple cases. The three cases are therefore compared in order to generate theory. The picture below visualizes the process of the data analysis.
Figure 2: Data analysis process (Saldana, 2009)
Yellowfruit Total Group Sommer
5. Findings
The within-case analysis of Yellowfruit made the challenges visible that occurred in the process of professionalization. Some obstructing factors were also found in the within-case analysis of Total Group and Sommer. The within-case analysis of Total Group and Sommer also made the success factors visible. The cross-case analysis linked the success factors and failures of the different cases. In this result section I will present the factors that were found to have an important influence on a successful professionalization.
5.1 Leadership
An important factor that was observed in the interviews to obstruct or promote the
professionalization is the leadership in the organization. The man at the top has a significant impact on decision-making but also acts as a role model for the entire organization.
Yellowfruit
The board of directors of Yellowfruit changed profoundly during the years. The shareholders had always guided the family business themselves. In 2005 the first external professional was hired as an assistant director. In the beginning of 2011 the second external professional within the board was hired and employed the function of CFO. In June 2013 this second external professional became CEO of the family business. In the end of November, the assistant director and one of the shareholders left the board, resulting in a board of the CEO and a shareholder. The leadership style of the CEO was different, because he empowered people, while the shareholders had a more paternalistic style. Another aspect of the new management style of the CEO, however, led to difficulties for the professionalization process: several respondents remarked and criticized his detached style and his strong business economics focus. This in contrast with the personal, involved style of the former directors who were not solely focused on making profits.
“I warned the CEO: you need to keep connected with the organization, because I hear from people around me that they had difficulties with your way of communication. […] Be connected with your employees and be someone who they can talk to. […] Later on I understood that this was my greatest strength and quality. […] He let go of this. […] A leadership style emerged, in which actually no guidance is given, because he did not communicate with the people anymore. His ego became important. […] He managed the organization with power” – Former assistant director
This resulted in a friction between the family members and the external professional that prohibited a successful cooperation.
“Me and my brother were most of the times people managers and we positioned ourselves between the people, not above like the CEO did” – Director and shareholder
“He [the CEO] thought he stood between the people, but he stood above them” - Shareholder
Sommer
Sommer has two family members in the board and a non-family financial director. The shareholder always headed the company, but in 2012 his daughter took over this place. She started with the professionalization when she became managing director. She therefore empowered the employees and thus the leadership style in the organization became as well more professionalized, but in small steps. She indicated that within Sommer the family members are very much on the same side, so no big change occurred of the vision, style and behavior within the board.
“My father constantly spread his vision about how things had to happen and in doing so he dominated the firm. He did this with the knowledge and experiences he possesses, but I do not have these knowledge and experiences. I am also pretty dominant, but because I do not have the knowledge and experience, I am better able to give the responsibility to other people. […] So, my father already took the step to relinquish responsibilities and I further build on this” – Managing director
With the financial director in the board of directors a good cooperation has been achieved, because as the financial director and the managing director mentioned: it is good to have someone in the board who is not family, because otherwise you have too much of the same people. Together they found a balance between emotion/feeling and ratio/objectivity which was part of the professionalization. The financial director achieved this by showing the family members that recording data is very important in order to generate information.
“The board of directors is influenced by their emotions and feelings, while I act more rational and objective. I want them to learn looking ahead and let them understand which factors determine the success of the organization. […] So, from traditional entrepreneurship toward
making decisions on recorded data. […] It is important that the feeling walks in line with what has been planned and predicted” – Financial director
Total Group
Total group has three managing directors with one family member, and two non-family employees who grew up in the organization. They were both hired internally as new members of the board. They took over the positions of the two other family members.
“I see an organization as a group of people who together have a shared goal, like developing products who have an added value for its customers. […] I do not think that maximizing profits should be the main focus. […] When I joined Total Group I told my vision to Maarten and Anton and they were also keen on this approach” – Managing director and shareholder
This leadership vision is over the years still very important and did not change. They are very keen and consistent in this approach and everyone’s leadership style and behavior is in line with it.
“As leading principle we are keen on the fact that the leaders need to convince people, so giving orders is not the right way to do it, because than you will never be able to intrinsically motivate your people” – Managing director and shareholder
Because of the fact that the leaders follow the same line, no friction emerges between and therefore they cooperate effectively. The professionalization went therefore more smoothly.
5.1.1 Founders
Another factor that is important are the founders of the family business. However, this problem was only visible in the case of Yellowfruit, but can definitely be described as an obstructing factor for the professionalization.
Yellowfruit
The CEO worried very much about the positions of the shareholders. It is very hard for them to delegate and let other people take responsibility. They decided and controlled everything, but with a growing organization this is not an effective approach. For them it is a difficult process to “let go” of the organization, to create some distance from operations and
concentrate on the strategic aspects. As the CEO mentioned: for them Yellowfruit is very much central to their life making it is difficult to leave the business to others. The
shareholders know that it is not possible to control everything that they have to employ and empower others to do the job but this is psychologically very difficult for them.
“I find it very difficult […] I rather do it myself than delegate and give others the responsibility” – Director and shareholder
“We found it difficult to let go” – Shareholder
The shareholders are entrepreneurs and therefore have to take responsibility of the opportunities they see in the market and have to delegate the operational aspects.
“If your organization grows from a total sales of 8 million to 80 million, as a board of directors, you will be busy with other things than before. You cannot do both, so you have to delegate and empower your management” – Former CEO
“One of the shareholder is the real initiator/innovator, he has to keep doing this […] but they [the shareholders] think that it [being a manager] is something that they can learn” –
Former CEO
According to the former CEO, if they do not make this change, they become a threat for the organization.
“An organization grows as fast as the owners grow and if they do not grow, if they cannot let go, than the growth of the organization stagnates […] and the organization will stick to the ceiling” – Former CEO
“It [transition to a next generation] only goes right in 20 percent of the cases and that has everything to do with the fact that the founder, at a certain moment, cannot let go of the organization and cannot hand it over to the next generation. I really worry about Yellowfruit, because of this. The entire world and industry is changing and their reaction is to go back to the past and that is not how it works. They were very progressive and pioneering, but
Sommer
The respondents did not show any problems with the founder of the organization. The family business is already in hand of the second generation, with the daughter of the shareholder on top. The shareholder now only is involved in the supervisory board. As shown from the interviews it seems that the shareholder had less difficulties with letting go of the organization.
“My father already conveyed many responsibilities to others in his time of control. This because of the fact that the organization has to deal with R&D and thus the organization was too complex to be solely responsible. Constantly new techniques emerge, so you need other people in order to move onwards” – Director corporate development
Total Group
The respondents did not remark any problems with the founder. The family business has, however, a long history with many people that had been at the top. However, if we look at this issue from 1986 onwards, when the three families became the owner of the organization, it is shown that Maarten Zwaan and Anton van Doornmalen already let go of the business. They are now placed in the advisory board.
“In 1986, the shareholders already discussed about who they are and how they want to organize it in the future. I think that this has been very important for the professionalization, that as a family business that you already think about how do we want to organize this, before you position yourself in the difficult situation of letting go. Because then you are able to look at it with less emotion and thus more rational” – Group Manager Human Resources
5.2 Family values
Professionalization often brings about new values and norms within an organization, which may cause a conflict with the values of a family firm, that often are an essential characteristic of the firm. It is therefore challenging to find the right balance between the new values, which fit with the more professional organization, and the family values. To maintain the family values when possible, but change them when necessary. The respondents show that the family values are an important factor and have a great influence on a professionalization process.
maintaining the positive aspects of the family: the commitment, the familial, and the love for the product and customer” – Financial director
“It [professionalization] makes HR very complex since it asks of a mix of people (and thus competencies), who matches the family culture (who suits us) and on the other hand who are innovative and who try to win trust for new working practices to be implemented (that is what we believe in)” – HR manager Yellowfruit
Yellowfruit
The respondents remarked that the organization is currently searching for the right balance between old and the new values and norms that fit the more professional family business. In this transition phase, the firm risks losing its old binding values before new values and norms can fill this gap.
“The people within your organization, who always been your success factor, who made your business as it is today, letting go of this, is unacceptable. […] He [the former CEO] was loosing its employees […] the culture as it was before, of bonding and of the family, that is gone. […] The passion and love is diluted […] and if you are not able to preserve your own identity than it [professionalization] is doomed to fail” – Former assistant director
“Without having a real CEO, the desired culture is still not clear” – HR manager
Sommer
Sommer was aware of the challenge and therefore tried to make the values more explicit so that it became apparent that they are important for the organization. They were able to develop values and norms that fit with the more professional family firm. This is considered an important contribution to a successful professionalization.
“The organization still needs something that is linked to the family values. […] Together with the family we examined our family values that we think are important and where our
employees need to comply with. […] These ambitions and values have been transmitted to the managers and together they convert them to business values. I expressed this in a booklet which will be published soon” – Managing Director
Total Group
Total Group acknowledged that the family values, which they describe as the commitment that employees have toward the family business, are very important and that they could contribute to a successful professionalization.
“I just think that family businesses can also be very professional, because they take care of their employees. They want people to have a good time and that is why they can operate so well as an organization, because they have these values that fit very well with
professionalization” – Group Manager Human Resources
5.3 People
In each interview it is mentioned that the people are a very important factor for both obstructing and promoting a successful professionalization. However, there are different perspectives on this topic, which I will discuss respectively.
5.3.1 People that bring you to the next level Yellowfruit
The respondents of Yellowfruit remarked that they did not always succeed to select the right people for the right jobs. They were not able to help the organization toward a higher level of professionalization and growth. This therefore led to some difficulties in the process of professionalization.
“Before you are able to really make a step, you have to look carefully which managers are able to bring you to the next level. We are now situated in this process and that is a major task” – Director and shareholder
One of the shareholders explained that he and the former CEO significantly paid attention when hiring someone, but that somehow they were still not able to find the right people. For some management positions it took even more than half a year before the position was filled in. As well with the former CEO no good match was found. While in the function of CFO he seemed a good fit, but turning CEO made him a different person according to the respondents.
“If you try and hire people that need to perform and you make the wrong decisions in this, than you are back at square” – Director and shareholder
Sommer
The respondents remarked that the right people are very important and they did find managers who could help them professionalize.
“We now are keen to our vision in which we only hire people if we are very sure about them but than it still is trying. We really need to be convinced and so that is why for some
managers I have looked over for more than a year” – Managing director
Total Group
Total Group did not report many problems in hiring the right people in the organization. The group manager human resources explained that 60 percent of the managers are recruited internally, this because of their lifetime employment policy. The managing director remarked that it all starts with the selection process. He selected the people himself so that they would fit with the organization and especially with the culture of the family business.
“You can tell many great things about your culture, but if you do not have the right people it will fail. […] If we search for new employees then we start a selection process, which takes very long, many conversations being held and much attention is given to the fit of the candidate. […] Thus, you select the people who fit the culture and therefore you can retain your business culture” – Managing director and shareholder
5.3.2 The “older” employees
The people within the organization can also obstruct the professionalization, especially the “older” employees who work for many years in the family business. They do not keep pace with the organization and some were not capable to perform at a satisfactory level anymore.
Yellowfruit
Within Yellowfruit the employees had been accustomed to a paternalistic style in which they were more dependent and not very self-assertive. The former CEO explained that you will get the people you deserve and people who prefer taking responsibility and who like having autonomy will not want to work for you. Due to the professionalization a change occurred in
which employees were given more responsibility and autonomy, but not everyone was able to change his or her behavior accordingly. Therefore, some employees were not able to stay with the organization, which added to the normal employee turnover. Also, due to the
professionalization, employees are held more accountable for their jobs, so some employees were not qualified anymore for their position. This therefore led to some difficulties in the process.
“Between 2003 and 2012 we had too much turnover of our employees. For growing you already needed more people. If you also loose your older employees at this moment it is twice as hard to lead and guide your organization” – Director and shareholder
Sommer
The respondents of Sommer also remarked that the older people were not always able to grow along with the organization.
“You notice that the older employees do not grow fast enough or even cannot keep up with the professionalization of the organization. Specifically the people who are longer employed. […] The bar has been raised and more things are asked of them. […] Now the employees have more autonomy, and thus have also more responsibilities. They thus are being assessed and evaluated differently. Due to the new assessment, with the help of performance
measures, we are better able to assess if someone is doing a good job. This resulted that some employees were fired who worked for many years in the organization” – Financial director
The respondents remarked that they would have done things differently with these older employees.
“Afterwards we should have invested more in the people, at all levels, who went through the professionalization” – Financial director
“What I wanted to do better myself, was to coach the people who were not yet ready for the changes that occurred” – Director corporate development
Total Group
The respondents of Total Group did not mention anything about the problems of the older employees who were not able to keep up with the organization.
“Sometimes people have to get used to things, but I do not think we have lost many people due to the professionalization. […] The people are very much involved and we always make sure that in times of change the people get along with it” – Group Manager Human
Resources
5.3.3 The “old” and the “new” employees
Another factor that could hinder the process is the difference between the “old” and the “new” employees. The new employees were recruited having more knowledge and experience, being better suited for a position of manager. These new employees however, differed from the old employees and therefore a discrepancy emerged between the norms and values of these employees. People with a long tenure in the organization had grown up with old norms and values while the new professional managers have other norms and values.
Yellowfruit
“We grew up with a mindset in which we felt the love and passion for the shareholders […] we could work from the early mornings till the late night, it did not matter, because you did it with love and heart for the business […] they [“new” employees] were not grown up as we did […] there are not one of us” – Former assistant director
Sommer
“A severe friction arose between the people from within, who were longer employed, and the people who were recruited from outside” – Financial director
Total Group
The respondents indicated that this problem did not arise with Total Group, due to their selection process. The older people within the organization and the newly hired people have the same norms and values that fit with the organization.
“We select on moral norms and values […] like honesty and kindness” – Managing director and shareholder
5.4 Sector challenges
Besides the internal challenges, many other challenges and crises in the external environment made the professionalization process more difficult. Yellowfruit had to deal with two major crises: the EHEC crisis (2011) and the Russia crisis (2014). Both led to major losses of sales. Another important aspect of the horticulture industry is the fact that supply and demand is out of balance. There still needs to occur a consolidation phase in which only a few agro food companies will survive. These challenges therefore had a major impact on the strategy of Yellowfruit.
“Supply and demand is completely out of balance and it is therefore extremely difficult, in this current structure, to make a profitable business. Each industry started with family businesses that go through a developmental phase. At a certain moment a consolidation phase will occur, which means that companies merge. For example, now only twenty retailers exist worldwide. This phase still has to take place in the horticulture industry, so a massive shakeout will follow, because the business model as it stands today is not viable anymore. Market demand only exists of twenty retailers, while the supply side exist of over more than one hundred fruit and vegetable providers. The twenty retailers can therefore rule out the providers, because there will always be a producer who says I will do it for less. This
therefore has to rebalance. Only a few agro food producers need to stay in business, and than you will have a good match again between supply and demand” – Former CEO
This indicates the difficulties that Yellowfruit faced when they hired new people for the top of the organization. They came from another industry and therefore missed any sector
knowledge. At the time they were hired, the external challenges arose and therefore made them unable to perform in the organization.
“First we were appreciated for the fact that we hired people who came from another sector, but now the horticulture sector has got into a difficult situation, is it very hard for those people to understand the business. […] I think that we expected more from the people than they could give, thus the level for the job they had in another company was not enough to operate this job in the fruit and vegetables business. But, also it was not the right time for those people to actually perform, so it had two sides” – Director and shareholder
Another important point that was remarked by the respondents concerned the survival of the horticulture businesses.
“Within the sector we belong to one of the biggest organizations, but there are no examples yet of family businesses that made it to a second generation. My father knew all the big growers, but when he turned fifty, none of these existed anymore. That is why you do not see many organizations in this sector that survive the second or third generation” – Director and shareholder
These challenges occur, however, in the horticulture sector, which is a part of the agricultural sector. Total Group therefore does not face the same challenges as Yellowfruit does and therefore these challenges are only specific for Yellowfruit and the horticulture sector.
5.5 Approach of change process
Professionalization is a change process. The management view of this process appeared to differ substantially between the cases. Yellowfruit handled it more as a radical change, while Sommer and Total Group approached it as a gradual, continuous change. The cases make evident that the latter approach led to a more successful professionalization.
Yellowfruit
The respondents made visible that Yellowfruit preferred a pattern of bold, entrepreneurial actions and rapid changes. This pattern can be linked to the entrepreneurial mindset of the shareholders, in which they seek for opportunities in the market, constantly make investments and show an ambition for growth.
“Actually we were always executing big change management processes and we never came into a stable situation. We kept growing so our organization has always been subject to change” – Former assistant director
A moment of stabilization or continuity was very rare for the family business. When external challenges arose and the internal organization faced some difficulties, a moment of realization occurred that the rapid changes were too much for the organization and the people. This led to the conclusion that there was no room for a phase of integration in which changes could be truly embedded in the organization. The continuous vision of growth, therefore, can be
interpreted as a radical change approach.
“Growth has always been our ambition, but maybe we had to say no one time” – Director and shareholder
“At a certain moment, if things would proceed normally, you would come into a phase of integration in which you collaborate with one another and become an organized team. Because of the explosive growth, however, […] we did not realize this phase” – Former assistant director
“The bonding with the employees is not yet sufficiently present at all departments. That culture shift still has to occur. Together we need to work to become one big new team” – Director and shareholder
Sommer
The respondents remarked that professionalization is an ongoing event of changes in which they try to involve the people so that they go along with the changes.
“We go step by step and do not drastically improve or change things. It is a continuous process to search for improvements. […] I see professionalization as a continuous process to search for improvements within the organization in both the processes and the people” – Managing director
“We will be changing and improving in order to continue to exist” – Director corporate development
Total Group
The respondents of Total Group commend that they approach change in a more gradual way, as well to bond the people toward the change. Some changes even come from the bottom of the organization.
You constantly have to professionalize otherwise you will stay behind. […] So, you have to ask yourself the question how can I do something better?” – Group Manager Human Resources
6. Discussion
The aim of this study is to explore the important factors that can obstruct or promote a successful professionalization in an agricultural family business. This section presents a discussion of the findings. Some findings expand on existing literature, while other findings result in new insights that contribute to the existing literature. This section concludes with the theoretical and practical implications, limitations of the study and recommendations for future research.
6.1 Discussion of the findings Leadership
The results demonstrate that leadership by the board of directors is an important factor for the success of professionalization. The case of Yellowfruit showed that an external professional as CEO complicated the process, because the family members and this external professional differed too much in their style and vision how to lead the family business. This is in line with the literature in which Schein (1983) expresses that founders are different from professional, external managers. Especially the manager tends to be more impersonal, while the founder exhibits a more personal style. This is seen in the case of Yellowfruit in which the former CEO had a detached style when he was implementing professional management, while the founders showed a more paternalistic and involved style of leadership. In the case of Sommer, the financial director also showed a different style, which Dyer (1989) characterizes as: “professional managers tend to make decisions based more on logic and rational analysis than on intuition” (p. 223). However, within the board of Sommer a good cooperation was
achieved. This may be explained by the fact that the position of the two people differed. Within Yellowfruit the person was positioned in a CEO function, while within Sommer the person occupied the function of financial director. The data showed that the CEO of
Yellowfruit led the family business by exerting positional power. According to Dyer (1989) external managers get power because of their position of authority. The position of CEO could have been an advantage for his ability to bring about change. However, simultaneously the risks of clashes with family members and family values increase. These risks have
materialized at Yellowfruit. The difference between the positions may therefore explain why the cooperation within Yellowfruit failed and within Sommer succeeded.
Another factor that impacts the professionalization are the founders of the family business. They have to be aware that they, at some point, need to let go of the family business and need to find someone else who could replace them. If they do not abandon their position
of direct responsibility and influence it may hinder the professionalization process and even the survival of the family firm. The founders thus need to be aware of this succession issue. The literature indicates that family businesses have a low survival rate with only a thirty percent chance of reaching the second generation (Beckhard & Dyer, 1983a and 1983b). According to Eijssen (2014) this relates to the psychological aversion that family directors have to delegating their responsibilities. He mentions four aspects that relate to this: (1) It feels like letting go of your child, (2) it may be difficult for them to give external managers their space in which they give their own meaning within their responsibilities, (3) the feeling of loosing control and (4) to face up certain decisions from the past that may not be the right ones. This may explain why Yellowfruit faced difficulties with the professionalization due to the fact that the family members found it hard to delegate. The cases of Total Group and Sommer do not show these problems of delegation and therefore faced a smoother professionalization.
Family values
The results show that the maintenance of family values can contribute to a successful professionalization. It is evident that professionalization brings about the challenge of maintaining the positive aspects of the family, while at the same time inserting the positive aspects of professional management. The cases of Total Group and Sommer demonstrated that these family values have to be retained to promote a successful professionalization, because these values keep the employees involved and committed. Yellowfruit, however, had some difficulties in maintaining these values, because the external CEO did not intend to honor these values. This is in line with the literature in which Schein (1983) argues that a founder has great influence on the culture and its values, but a professional manager is not always loyal to these founding assumptions (Schein, 1983). Within Total Group the board of directors consisted of a family member and two internally hired members, so-called non-family employees. Dyer (1989) showed when a non-family member or non-non-family employees adapted a more professional management style this loss of the family values would be less likely to occur. According to Dyer (1989) a family member is best able to ensure the continuity of the cultural values established by the family. Non-family employees often understand the family business and they appreciate the values of the family. This is applicable to the case of Sommer, were a family member, the daughter of the shareholder, was
responsible for the introduction of professional management.
profitable when the CEO was a family member, because they understand the business better than a non-family member. Hall and Nordqvist (2008) argued that, besides the formal competencies, the cultural competence is an important factor. Their study indicated that if a new external CEO does not possess or is unable to develop this competence would lead to difficulties for the future of the organization. This thesis contributes to the solidity of these findings. As discussed in the literature section, external management in a family business may increase agency costs. The Yellowfruit case clearly illustrates these increased agency costs, caused by the need of controlling and correcting a CEO who does not intend to follow the family way. However, the other two cases do not show evidence for this, so it is not always applicable in each situation. The importance of the family values can be related to the resource-based view. This theory indicates that the interaction between the family and the business can result in a potential resource. In family businesses this unique resource is
described as the “familiness” concept (Habbershon & Williams, 1999). Loosing this resource negatively influences the professionalization. This challenge, that emerges when introducing professional management, is in line with the literature that predicts that because professional management in a family business will lead to a challenge of balancing three ideologies: entrepreneurialism, paternalism and managerialism (Johannisson & Huse, 2000). For a family business, it is therefore important to find a right balance between the three ideologies, without discarding one of them.
People
The results show that people can be an important promoting as well as obstructing factor in the professionalization process. A big challenge, as seen from the interviews, is finding the right people who are able to bring you toward a next level of professionalization and growth. Another important people issue concerns the older employees, who work for a longer period in the organization, because they may not be able to grow along with the professionalized organization. Because of the professionalization new employees are hired with better knowledge and skills in order to bring the organization toward a next level. However, these new employees have different values and norms than the older employees have, which may lead to a severe friction between those people. This was seen in the cases of Yellowfruit and Sommer. Total Group shows that a sophisticated selection process may help managing the problem of the hiring of new employees and the conflict between old and new. They think it is important that the norms and values of the people are aligned with those of the
