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King’s Business School, King’s College London
Cover sheet for Coursework Assessment
Candidate ID:
Module Code: 6SSMN310
Module Name: Entrepreneurial Family Firms
Word Count: 2,497
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Introduction
This essay presents a report of the family firm ‘European Flavours & Fragrances’ (EFF),
which was founded in the United Kingdom in 1981 by Mr Clive Kersey (Gyaanipedia,2021).
Since its conception, EFF has operated as a flavour and fragrance manufacturer in the
speciality chemicals industry, with global offices and factories in five other locations
including Barcelona, Dubai, Singapore, Chennai, and Poland. EFF and its founder pride their
history and success as being rooted in their family firm nature, whereby Mr Kersey has
remained committed to EFF since 1981, as a first-generation firm.
The family’s influence on the business can be visually illustrated through the three-circle
model (Tagiuri&Davis,1996). Mr Kersey sits within all three of the circles as the sole owner,
manager and family member, additionally, there are several other family members including
his children: Mr Spencer and Miss Mia Kersey and brother Mr Gary Kersey who also occupy
roles within the model. Therefore, despite the global presence of non-family members
occupying lower level and management roles it is possible to confirm that EFF is heavily
influenced and governed by the family, which simultaneously provides a competitive
advantage from high levels of commitment, whilst also causing tensions and conflicts
between stakeholders inside and outside of each group (Schuman et.,al,2010).
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This report will use the foundations of the three-circle-model to further analyse the
entrepreneurial orientation, governance systems and succession plans of EFF as a family
firm, through evaluating the opportunities, threats and influence of familiness whilst
suggesting how EFF could maintain its competitive position and adapt to the evolving firm
and industry within the early succession stage.
The EO Profile
The entrepreneurial orientation profile of EFF will be analysed through how the business
ranks on the dimensions of innovativeness, competitive aggressiveness, proactiveness and
autonomy to examine its transgenerational potential. These dimensions were chosen, as their
presence is clear at EFF and they are the most relevant dimensions for family firms
(Zellweger&Sieger,2012)
Innovativeness
Innovation was essential for EFF at its conception, due to the established competitors in its
market, such as IFF. Despite their competitive positioning today, innovation remains at the
heart of EFF’s business strategy, which explains their continued success across forty years of
business. Lumpkin & Dess (1996) define innovativeness as a business’s inclination toward
experimentation and being creative, through the development and implementation of new
products and processes. Therefore, EFF demonstrates a very high rating on the dimension of
external innovation. Firstly, the company only uses state of the art technologies and
equipment in their manufacturing processes, which they constantly monitor and assess to
ensure they are providing the best service for their clients. EFF is committed to technological
development, continuous improvement and achieving accreditations, including being ISO
certified to demonstrate their desire to reinvest profits to ensure organisational development
occurs (EFF,20211
). This long-term perspective the business embodies is due to the strong
family influence on the business (Craig&Dibrell,2006). Furthermore, EFF also has intangible
innovations due to their fine-tuned flavours and fragrances, which have been trademarked
and are therefore unique to EFF, for example, their bespoke encapsulate product range.
When analysing EFF’s transgenerational value potential it is prudent to analyse their business
innovation posture (Rondi, De Massis, &Kotlar,2019). Firstly, their business system sits as a
‘Digger’, through the external innovations examined previously. EFF innovates by
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combining their traditional capabilities, such as their reputation with their modern capabilities
towards technological development. However, their family system is a ‘Re-enactor, whereby
despite their high family cohesion they have low family goal diversity, as the traditional
founders’ views often differ to the younger successors exemplifying the tradition-innovation
paradox (Erdogan, Rondi, &De Massis,2020).
Therefore, as the postures of both systems do not match the innovation potential of EFF is
locked, which exemplifies the ability-willingness paradox, as the incumbent approaches
innovation with caution, negatively limiting the exploitation of financial and non-financial
goals. Therefore. to align EFF’s systems and create transgenerational value through
transgenerational entrepreneurship, it is time for the successors to lead (Habbershon
et.al.,2010).
However, their innovative EO profile positively contributes to EFF’s transgenerational
potential, as their resources and capabilities, including their physical capital (equipment and
factories), are leveraged to maximise performance through meeting financial goals, such as
sales targets and new client acquisitions. Additionally, they have a positive familiness
underpinning their EO, whereby EFF’s positive familiness transforms their unique human
capital of inimitable firm knowledge from the founders established experience, as a method
of meeting non-financial goals, for example, enhancing employee engagement to maximise
performance and add value across generations (Sirmon&Hitt,2003).
Competitive Aggressiveness & Proactiveness
The second dimension of competitive aggressiveness demonstrates the level of intensity in a
firm’s approach to compete with its rivals (Gorostiaga et.al.,2019). EFF exemplifies high
competitive aggressiveness in many ways, however, a notable example is the hiring of the
best industry experts, such as Mark Buxton, a globally famous Perfumer (EFF,20211
). The
hiring of an iconic and successful Perfumer truly sets EFF apart from their competitors, as his
expert status provides unique high-quality associations that spill over to the brand and allows
them to compete on a global scale.
In certain instances, the second dimension of competitive aggressiveness automatically
subsumes the additional dimension of proactiveness. Proactiveness refers to a forward-
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thinking approach to seek opportunities and fulfil market needs (Lumpkin&Dess,2001). An
example of EFF adopting a proactive strategy to be aggressively competitive is their
investment into their complete rebrand in 2008. A rebrand was essential for EFF, after nearly
thirty years of operating to signal a fresh start for the company with a strong focus on their
vision of committing to technological developments, quality and year on year growth through
new client acquisition. The rebrand of EFF enabled them to compete on a level playing field
with other established competitors, as well as signalling a clear vision and method of doing
business to provide alignment for all stakeholders in a new modern perspective. The rebrand
was so successful that EFF was awarded by Transform Magazine as the best re-brand in
Europe (EFF,20211
), a prestigious award providing EFF with a competitive advantage over
their rivals.
Furthermore, EFF also implements its proactiveness and market insight to compete
aggressively in global markets via an aggressive expansion strategy. EFF’s commitment to
market intelligence and maximising their ability to fulfil global demand has led their multi_xfffe_continental expansion strategy into new markets. For example, in 2013 EFF expanded to
Turkey, Spain and Dubai further to their existing operations in Singapore (1991), Poland
(2000), India (2008) and Paris (Gyaanipedia,2021). All of EFF’s expansions are driven by
forecasting client demand to fulfil orders as effectively and efficiently as possible and
maximise potential client reach.
The VRIO criteria is a resource-based view tool (Habbershon&Williams,1999) assessing a
firm’s strengths and weaknesses. EFF’S transgenerational value creation and ability to
survive can be supported through the analysis of their competitive aggressiveness and
proactivity against the VRIO criteria (Barney,1995). As previously mentioned, EFF’s
competitive aggressiveness and proactivity are exemplified through hiring the best talent,
rebranding and globally expanding. These resources and strengths were selected, as they are
crucial to EFF’s success in financial profitability and non-financial goals, such as aligning
their vision and creating a collectivist corporate culture. This promotes transgenerational
value creation, as the entrepreneurial legacy (Jaskiewicz, Combs, & Rau, 2015) of the
founder and the firm are translating into EFF’s future vision. Appendix 1, demonstrates that
positively the chosen strengths are valuable, rare and inimitable, however, as previously
mentioned their organisation must be improved, through adapting the management system to
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ensure that their above industry average performance can be sustained as a long-term
competitive advantage, ensuring future survival and value creation.
Autonomy (Internal)
The final dimension related to EFF is autonomy, which refers to the level of independent
thinking and decision making in an organisation (Lumpkin et.al.,2009). EFF has high internal
autonomy, which is demonstrated in ‘Behind the Scenes at EFF’ (EFF,20212
). EFF involves
staff across each team in the decision-making process and encourages employees to
contribute and share ideas, as they explain that through conversations in meetings the firm
creates plans of action. Furthermore, the lack of micromanagement is apparent, whereby EFF
hires the most expert staff to further the firm’s vision.
Therefore, transgenerational value creation from autonomy can be explained through the
stewardship perspective (Le Breton-Miller&Miller,2009), which is prevalent at EFF. The
stewardship culture fostered at EFF due to the collectivist attitudes and collaborative
approach to doing business enhances the corporate entrepreneurship of the family firm
(Eddleston et.al.,2012). Through effective business management of leveraging their staff as
an asset and investment management by investing large sums into the salaries of non-family
experts such as Mark Buxton, EFF uses autonomy as a mechanism for competitive advantage
to enable growth and survival (Zellweger,2017).
Governance
The governance structure below visually displays the high level of family influence on EFF.
The founder sits in all logics of the three-circle framework, as the sole shareholder, investor
and decision-maker. Although this allows for quick decision making, the current board
development is halfway between informal and formal (Craig&Moores,2017), therefore there
is room for improvement. The board should become more partially independent towards the
formal side of the spectrum to ensure that decisions made at EFF will promote survival and
create transgenerational value.
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EFF still sits at the owner/manager constellation and therefore faces some governance
problems impacting their EO profile (Zellweger,2017). Firstly, EFF encounters the altruism
induced governance problem, whereby conflict is created between the family owner and
family managers, specifically his children. This altruism conflict makes it difficult for the
founder to punish his family, due to their high emotional attachment, which ultimately
increases the likelihood of freeriding. Secondly, the owner holdup governance problem is
also prevalent, whereby the family owner is confronted with conflict from non-family
managers. This is because there is an evident blood ceiling cast over the family firm, which
reduces non-family member’s perception of progression. Overall, both the altruism and
owner holdup governance problems negatively impact the EO profile regarding autonomy
and risk-taking, as they foster an atmosphere of distrust and due to the individualistic
decision-making process of the cautious founder the risk-taking propensity of the firm is
minimised.
Therefore, to overcome these problems and maximise the potential of EFF’s EO profile,
further to the creation of an impartial board a family charter (Appendix,3) should be drafted
to make the visions and values of EFF clear to all stakeholders, family and non-family, which
will underpin all three systems in the integrated governance framework (Zellweger,2017).
This will also address the autonomy weakness of the organisation of EFF’s strengths, as
previously mentioned in the VRIO criteria, whereby involving impartial stakeholders in
business and investment management processes will adjust the founder’s traditional approach
to maximise long-term competitive advantages.
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However, the long-term perspective (Lumpkin, et.al.,2010) of EFF, generated from the
founder’s governance position as sole shareholder and decision-maker also positively impacts
the innovativeness dimension of EFF. EFF’s positive familiness
(Habbershon&Williams,1999) creates efficient resource management and unique advantages,
such as their strong reputational capital from 40 successful years in business and positive
human capital from committed family members who are embodied in the legacy of the firm.
Therefore, their lower innovation inputs (Zellweger,2017) are transformed into higher
innovation outputs, such as their state-of-the-art technologies, processes, accreditations and
trademarks, thanks to the positive familiness efficiencies.
Succession
Despite the positive intrafamily succession option that EFF will follow, the highly social
aspect of this succession complicates the process, due to the high level of interdependence
between incumbents and successors and the combination of emotional and financial concerns
(Zellweger,2017).
The most prevalent form of social complexity at EFF is ‘Role Complexity’ (Zellweger,2017).
As previously mentioned, the incumbent and successors (son and daughter) hold multiple
roles in the three-circle model, which complicates their decision-making process due to the
ambidexterity of adopting a business or family logic (Lumpkin et.al.,2008). Tensions often
emerge between the differing treatment of inner and outer three-circle employees, such as the
family managers making decisions or allowances in favour of other lower-level family
employees.
EFF faces the challenge of the incumbent’s readiness to let go (Leonetti,2008), who is
positioned as ‘Well off but chooses to work’. The founder is struggling to leave the business
as he has dedicated over forty years to EFF and therefore has high socioemotional wealth,
due to the strong attachment (Gómez-Mejía, et.al.,2011). Therefore, he is restricting the
successors’ ability to lead.
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Further succession challenges also surround the successors’ ability. Despite their strong
willingness from a high degree of affective commitment (Sharma&Irving,2005), due to their
intrinsic motivations and submergence in the legacy of EFF. Succession problems exist due
to the daughter’s limited ability, as she only joined the firm two years ago and has limited
educational qualifications. This exacerbates the incumbent’s negative position of not being
mentally ready to let go (Leonetti,2008). On the other hand, the son has been working at EFF
for over twenty years and therefore is extremely able and willing, which increases the
attractiveness of the succession process.
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Conclusion
In conclusion, in comparison to the ‘Transgenerational Entrepreneurship Framework’
(Habbershon et.al.,2010), EFF sits at a hybrid point of reinventing the business (the
successors) and stewarding the business (the incumbent), which ultimately creates value for
different stakeholders. Positively, the strong EO profile and positive familiness of EFF that
has been analysed allows for EFF’s resources and capabilities to drive their financial,
entrepreneurial and social performance and contribute to its transgenerational potential,
especially when external influences such as the industry context are controlled.
However, EFF is at a crucial point, in which without proper organisation and exploitation of
their resources and capabilities the forty-year success of the firm may halter. This is
supported by the agency theory, whereby the longer the founder stays at EFF the fewer risk taking behaviours and entrepreneurial activities he will undertake, as he promotes longevity
at the expense of true transgenerational value creation (Zahra,2005). Therefore, it could be
concluded that the intrafamily succession at EFF is required to progress the company into a
forward-thinking, futuristic outlook with the younger successors taking control.
Although the daughter lacks ability, her willingness certainly overrides this, as she has an
intrinsic motivation to work for her father’s company and continue the legacy. Additionally,
her ability can be improved over time with the implementation of stewardship and agency
mechanisms (Meier&Schier,2016). As EFF is at the early succession stage, adopting a
permanent, collaborative process will prepare all stakeholders for the succession concerning
fulfilling the founder’s legacy and also innovating a new future for the firm. Mechanisms
could include receiving mentorship from both the incumbent and her experienced brother, as
well as undertaking additional training courses to gain professional qualifications.
Furthermore, through the incumbent mentoring the successors, there is potential for a
reduction in the leadership vacuum (Stalk&Foley,2012), by reinventing this competitive
advantage and reducing the negative impact of the founder’s exit. Overall, these mechanisms
will also increase the incumbent’s mental readiness to let go, as he is situated in the fourth
stewardship stage of the 4Ls Framework in preparation to exit (Craig&Moores,2017) and
with higher financial and mental readiness comes a more successful succession.
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Appendix 1: VRIO Criteria
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Appendix 2: Family Tree
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Appendix 3: The Integrated Governance Framework for Family Firms
