Family Business Characteristics and Performance of Small and Medium Size Family Owned Manufacturing Enterprises In Nairobi County, Kenya

Abstract

The purpose of this study was to explore the relationship between family business characteristics and firm performance. The specific objectives guiding the study were to investigate family involvement in the business, family business governance practices, entrepreneurial orientation, family business decision making and family business succession practices and their influence on firm performance. The study used descriptive survey design. The target population was 146 businesses registered by Kenya Association of Manufacturers operating businesses in food and beverages. Sample size included 84 businesses which were confirmed as family owned. Respondents were sampled using non-probability convenient sampling procedure. Data was collected using a questionnaire which had both open ended and closed ended items. The study generated both qualitative and quantitative data. The collected data from the sample was analyzed using inferential and descriptive statistics. The component factor analysis and regression analysis showed that the family involvement, family decision making and family business governance were found to have the highest level of significance influencing the overall family business performance with family succession planning and entrepreneurial orientation having the lowest level of significance. The principal component analysis confirmed that the three of the components related to the variables accounted to 81.46 percent of total variability with each of the successive components accounting for smaller and smaller of the total variance. The findings revealed that family involvement is critical to family business performance and that family members are greatly involved in the family business in various ways both directly and indirectly; majority of family businesses had a formal board which met regularly and others having family business councils which also met regularly; the, owner! managers is supportive and encourages new ways of doing business; business decisions are made using formal structures; family businesses have a succession criterion in place or developed for identifying the successor. On basis of these findings the following recommendations were made; family businesses to limit family member involvement in businesses and source for competent outside talent; family businesses should strengthen the business governance practices; entrepreneurial orientation family business should 'embrace entrepreneurial culture and CEO and founders to create necessary environment that would encourage and reward those working in the family business to be more innovative, creative and risk takers; decision making mechanisms in the family business should be more structured and succession plan should be seen as inevitable and practiced by family businesses if they are to continue existing beyond the life span of the founder.