Intellectual Capital Management in Long-Lasting Family Firms

62 International Journal of Productivity Management and Assessment Technologies, 1(4), 62-74, October-December 2012 Intellectual Capital Management in Long-Lasting Family Firms: The DuPont Case Rosa Nelly Trevinyo-Rodríguez, Instituto Tecnológico y de Estudios Superiores de Monterrey – EGADE Campus Monterrey, Monterrey, México ABSTRACT How to acknowledge, manage and measure intangible strategic resources embedded in organizational settings—such as intellectual capital—has been a widely discussed topic during the last two decades. However, when referring to unique organizational forms such as family-owned or controlled firms, the topic is understudied. Considering that approximately one third of S&P 500 are family-controlled firms—i.e. DuPont—, which have survived beyond a lifetime, the author asks herself how these long-lasting family businesses managed to balance the strategic and parallel creation, development and use of their intellectual capital both at the family and business levels in order to support growth and regeneration. She introduces the ICFB-Family Wealth matrix in order to describe their findings. Keywords: DuPont, Family Firms, Family Wealth, Intellectual Capital, Intellectual Capital in Family Businesses (ICFB), Strategy INTRODUCTION Intellectual Capital is one of the key-success factors a multinational company has to care about in the new economy. And, although much has been said about how to value, measure and analyze intangible assets, not many authors have focused their efforts in determining how the strategic use of intellectual resources could leverage not only the firm productivity and owners’ reports, but also its people’s creativity, innovation and well-being. This chapter discusses how the strategic administration of these intangible resources could become a sustainable competitive ad- vantage over time, making a company achieve market dominance and a leading position in the industry. We analyze the DuPont Case, a family-controlled business, and examine how the family background provided a set of qualitative resources that impacted (and interacted with) other assets in the organization, creating a unique way of doing and viewing things (e.g. initiatives, values and conduct policies). How long-lasting family firms such as DuPont managed to balance the strategic and parallel creation, development and use of their intellectual capital both at the family and business levels in order to support growth and regeneration is our main question. Three DOI: 10.4018/ijpmat.2012100104 Copyright © 2012, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited. International Journal of Productivity Management and Assessment Technologies, 1(4), 62-74, October-December 2012 63 propositions were generated and summarized in the ICFB-Family Wealth Matrix we introduce here. We put forward the idea that family firms tend to move along the different quadrants, depending on their “family first” or “business first” focus, intending to find an equilibrium and stability that could help them outlive and outperform beyond a lifetime. Intellectual Capital and its Strategic Use The field of intellectual capital (IC), as well as the tools and models in order to manage, transfer and develop knowledge, has experienced a break through during the last twenty eight years—since Itami’s first publication (1980)--, increasing the current level of interest in measuring and accounting IC. The latter, has been basically due to the implications IC has on the strategic attainment of core business objectives, as well as by the role it plays when referring to valuation of the firm’s market value. Measuring and accounting for IC has become a main objective for researchers and practitioners due to the heavy flows of information firms receive from internal and external sources. Environmental changes, global trends, internationalization of firms (which push further the compatibility/comparability of accounting standards), and the creation of new business models have made IC a valued resource not only in the knowledge-information businesses (hi-tech firms), but also in the brick and mortar ones. Knowledge is power, and when referring to intellectual resources, IC means “competitive advantage”. The reason is simple: it translates into financial performance and impacts the firm’s market value. In fact, differences between firms, including variations in performance, may represent differences in their ability to create and exploit their internal resources and capabilities (Penrose, 1959; Andrews, 1971), including intangible assets such as IC. Special capabilities of organizations for creating and transferring knowledge are being identified as a central element for organizational advantage. Indeed, from a perspective of the value-added, intellectual capital brings value to the corporation in two ways: strategic position and financial/ economic value (Sullivan, 2000). According to the resource-based view of the firm (RBV), a firm’s endowment of resources is what makes its competitive advantage sustainable in time, stressing the importance of intangible resources as a key to sustainability (Wernerfelt, 1984; Rumelt, 1984; Barney, 1996; Itami, 1987). Going further, the intellectual capital-based view (ICV) of the firm (K.K. Reed et. al. 2006), being an elaboration of Leonard-Barton’s (1992) knowledge-based view, and grounded on RBV, seeks to explain the hidden knowledge based dynamics that underlie a firm’s value focusing on the stocks and flows of knowledge capital embedded in an organization. To acknowledge and measure IC and its direct associations with financial performance (Youndt et. al., 2004) –based on ICV--, we have to be clear on its structure/design. In order to do so, next section analyzes the different forms of IC and its components when referring to the business arena. Forms of Intellectual Capital A firm’s intellectual capital consists of the unique collection of intangible resources, and their transformations and interrelationships (Bontis, 1999; 2001; Bueno et. al, 2004). Edvinsson and Malone (1997) define IC as a twolevel construct: human capital and structural capital. According to them, human capital is the knowledge created by, and stored in, a firm’s employees, while structural capital is defined as the embodiment, empowerment and supportive infrastructure of human capital. They then divide structural capital into organizational capital and customer capital, being them defined as: 1. Organizational Capital: Knowledge created by, and stored in, a firm’s information technology systems and processes, that speeds the flow of knowledge through organizations; Copyright © 2012, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited. 64 International Journal of Productivity Management and Assessment Technologies, 1(4), 62-74, October-December 2012 2. Customer Capital: The relationships that a firm has with its customers—called by Bontis (1996) relational capital (and encompassing all external relationships). In addition, other management authors such as Nahapiet and Ghoshal (1998) have also referred to another component: Internal Social Capital or the capital associated with internal relationships i.e. among employees, between employees and supervisors, etc. To make it simple, in this text we consider that IC consists of three basic components: human, organizational, and social capital-both internal and external dimensions—(in line with K.K. Reed et. al., 2006). These three basic components incorporate all the abovementioned constructs, being therefore an integrative umbrella that allows us to manage one general arrangement and definition. Viewed statically and on their own, these components do not create value. However, when combined, they do--they interact with each other, creating resource synergies--. As a matter of fact, intellectual capital is created through a combination and exchange of existing intellectual resources, which may exist in the form of explicit or tacit knowledge and knowing capacity (Nahapiet & Ghoshal, 1998). The latter suggest that IC exists as a set of interrelationships intertwined in the organizational system of the enterprise; being therefore, socially embedded and representing a capability of a social collectivity. If that’s the case, IC is primary concerned with social relationships (Nahapiet & Ghoshal, 1998), being predisposed by the social context individuals and/or teams work in, develop, and grow. From the many different types of existing businesses, there is one-of-a-kind where social relationships and context matter the most: Family firms. This is so, due to the reciprocal relationships between the “family” and the “business”. Recognizing that the family and the business systems are intertwined and that the family firm continuity depends on the reciprocal impact of family on business and business on family, as well as on the resources, especially intangible ones, of both systems is an essential when dealing with the firm long-term competitive advantage and survival. Family Firms and Intellectual Capital Family firms are the most common type of organization worldwide, representing more than 60% of the current worldwide enterprises, and generating from 40 to 60% of the world’s GNP (Trevinyo-Rodríguez & Bontis, 2007). And, although there is no unifying paradigm for research and practice in the field of family business studies (Wortman, 1994), there is agreement on the fact that family firms are complex, dynamic and rich in intangible resources (Habbershon & Williams, 1999). Family firms are enterprises with specific cultures and ways of doing things, being them unique in nature and behavior. The latter is understood, because behind every family business is a unique “family”. Indeed, what distinguishes a family business from a nonfamily business is precisely the “family”, since it imprints its set of family values, know-how, social capital, reputation, meaning and culture to the enterprise. Indeed, many of the potential advantages–and disadvantages—family firms are said to possess are found in their family and business processes/dynamics. Over the last quarter of a century, the field of family firms has evolved significantly in understanding how family enterprises are different from non-family businesses, not only in composition, capabilities, resources, character, and perspectives/goals, but also in performance (included economic costs –monitoring, control, etc.). Important contributions have been made in identifying the holistic nature of family and business behavior--systems theory (Davis & Stern, 1980; Lansberg, 1983; Davis & Tagiuri,1989), in pointing out the interrelationships of family and business as a source of both benefit and disadvantages (Kets de Vries, 1993; Trevinyo-Rodríguez, 2008), in establishing that family firms have certain Copyright © 2012, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited. International Journal of Productivity Management and Assessment Technologies, 1(4), 62-74, October-December 2012 65 competitive advantages related to their values and tradition (Brokaw, 1992; Aronoff, Astrachan & Ward; 1996; Habbershon & Williams, 1999; Trevinyo-Rodríguez & Bontis, 2007), as well as in emphasizing family relationships as a tool to enhance motivation, loyalty and trust not only among family members, but also among employees (Tagiuri & Davis, 1996; TrevinyoRodríguez, 2007). It’s precisely on this last point that we want to build on, since when referring to family firms, family relationships translate into family ties and values (Trevinyo-Rodríguez & Bontis, 2007). These family ties and values are important not only at the family level, but also at the business organization, since it can reduce transaction costs, facilitate information flows, knowledge creation, accumulation (Burt, 2000; Arregle et.al., 2007) and dissemination, improving creativity, innovation and people’s well being (Trevinyo-Rodríguez, 2007). Family ties and values provide a basis for action for family members and employees— creating a family culture, which may impact the development of intangible resources. In fact, much of the knowledge of the company is tacitly embedded in the experiences of workers and/ or family members. These experiences, actions and interactions within the family cultural patterns and traditions may act –when positive-- as a source of competitive advantage since they cannot be imitated. When a resource is valuable, rare, costly to imitate and without substitutes, it provides the basis for a competitive advantage (Barney, 1991), providing superior performance. Family firms have been shown to over-perform when compared with non family firms, reporting superior profit margins, faster growth rates, more stable earnings and lower dividend rates (McConaughy et. al., 1995). In addition, a study by Anderson and Reeb (2003) depicts how even among the S&P 500, firms that are under the influence of founding families outperform those that are not—in USA, Business Week (2003) reports that approximately one third of the S&P 500 firms have founding family members active in their management and/or board--. Thus, when examining the links between the firm’s internal characteristics (capabilities), processes and performance outcomes in order to see if family businesses have a sustainable competitive advantage, we conclude that they do –when resources are managed strategically (in absence of opposite negative characteristics; i.e. conflict among family members)--; this competitive advantage is based on the bundle of the intangible resources they possess (e.g. IC), as well as in their “family and business” interactions. In order for family firms to sustain their competitive advantage over time, they must be able to administer and measure their intangible resources competitively, taking into account that the development and sustainability of social relationships in the family business must be aligned with the enhancement of the intangible resources of the family (as a social nucleus). Given that IC encompasses all the human, organizational and social assets of the organization, which in turn include individual and team/organizational competences, attitudes, intellectual agility, relationships, processes, as well as renewal and development areas (Roos et. al., 1997), we establish a division between the intellectual capital assets of the family business and the resources of the family (social context). We base our separation on the fact that when referring to the family firm, intellectual capital contributes to creating shareholder’s and stakeholder’s value (market value), while when referring to the intellectual capital of the family, it contributes to the development of the family wealth (collectivity of kin). ICFB and the Family Wealth Trevinyo-Rodríguez and Bontis (2007) developed the ICFB (Intellectual Capital of Family Businesses) notion, which consists of the sum of qualitative and quantitative intangible assets family firms possess. Those intangibles include the people, processes, culture, traditions, brands, patents, trademarks, etc. affecting the firm performance and market value. Copyright © 2012, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited. 66 International Journal of Productivity Management and Assessment Technologies, 1(4), 62-74, October-December 2012 It’s interesting to say that the ICFB can be either positive or negative. That means, it can add or detract value to the family enterprise. It will add value when the family intangible and tangible resources –from now on called family wealth--, are aligned with the firm’s soul, brain and heart –human capital, structural capital, and relational capital respectively--. That is, when a parallel planning process between family wealth and family business resources is achieved. The wealth of the family is composed by three kinds of capital: human, intellectual and financial. However, the genuine “wealth” of a family consists basically of the human and intellectual capital of its family members, while the family financial capital is a tool to support the growth of the former resources (Hughes, 2004). The human capital of a family consists of the individuals who make up the family. When referring to individuals (family members) we have to take into account their physical, mental and emotional well-being. On the other hand, the family intellectual capital is comprised by the knowledge gained through the life experiences of each family member, or what the family members know tacitly and explicitly regarding the business, its relationships, its customers, etc., plus the family shared values –traditions--, and wisdom transmitted from generation to generation (craftsmanship). “The strength of a family rests on what it knows” (Hughes, 2004, p. 17). Is precisely this kind of corresponding “firm & family-specific resources” which can either become a competitive advantage or disadvantage when dealing with the new economy. If they are aligned, they can help the company to develop. If not, they can sow the seed of conflict, disunion, and failure. When family firms develop exponentially over the years and generations, ownership structures change and the family-owned business becomes a familycontrolled business. It’s precisely at this point in time when dealing with strategic planning of intangible resources, both in the family and the business, becomes crucial. “Renewal and development” (one of the 6 areas composing IC, included in the ICFB), which Roos et.al. (2007) describe as “the in- tangible side of anything and everything that can generate value in the future… but has not manifested that impact yet” (p. 51) becomes key. The latter, due to the business reinvention and survival necessities (growth): major problem in family firms (Trevinyo-Rodríguez & Bontis, 2007). In addition, environmental complexities, uncertainty, globalization trends, and continuous change in customers’ needs, push family firms to overcome organizational rigidities that may develop due to conservativeness, tradition and/or established processes and values, since these rigidities undermine their ability to function effectively, and as a consequence, to survive. Therefore, both external plus organizational factors and family issues (“family wealth”) must be administered simultaneously and strategically to facilitate survival and growth, letting next generation members innovate and reinvent the business (intrapreneurship). Entrepreneurial orientation on the part of next generation members reflects the extent to which the family engages in business innovation and new ventures. “Characteristics of risk-taking, innovativeness, and proactiveness, which constitute entrepreneurial orientation (Miller, 1983) are key to fully implementing intellectual capital in order to create higher levels of innovation” (Wu et. al., 2008, p. 272). As a matter of fact, reinventing the family business is not only a next generation member’s duty, but also, a right. Applying this insight to the ideal strategic balance between ICFB and Family Wealth, we can formulate a set of propositions regarding the strategic focus families and family firms must have regarding the “business” and the “family” development, as well as about the consequences on long-term sustainability of the enterprise and/or business family: 1. Families that manage their family-business dynamics with the “business first maxim”, will focus on developing the ICFB (at the business level), putting in second term the family wealth preservation/development (human, intellectual and financial capital Copyright © 2012, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited. International Journal of Productivity Management and Assessment Technologies, 1(4), 62-74, October-December 2012 67 2. 3. of family members). The latter, will put the business and the family units at stake, since the strategic competitive advantage the firm may get in the short-term is not sustainable over time--the family next generation members won’t be prepared to run the enterprise; Families that manage their family-business dynamics with the “family first maxim”, will focus on developing their Family Wealth (at the family level), considering the ICFB sustainability/development as a counterpart. The latter, will put the business unit in a difficult position, since its survival will depend entirely on the family members’ abilities and relationships; Families that find an ideal balance between their ICFB-Family Wealth Strategic administration, will outlast and outperform (long-lasting family firms), sustaining their unique “family-business” resource base over time. These enterprises will tend to innovate constantly, reinventing themselves as they pass on from one generation to the other. We summarize our arguments in the ICFBFamily Wealth Matrix below (Figure 1). A case of a multinational family-company which has been reinventing itself during the last 206 years—long-lasting firm--, and which has invested a lot in strategically developing its intangible assets, especially, its people’s intellectual capital--both at the business and family level--, is DuPont (nowadays located in the positive/high right-upper corner quadrant of the ICFB-Family Wealth Matrix). A world leader in science and technology in a range of disciplines–including biotechnology, electronics, materials science, safety and security, and Figure 1. ICFB-Family Wealth Matrix (Source: Trevinyo-Rodríguez, 2008) Copyright © 2012, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited. 68 International Journal of Productivity Management and Assessment Technologies, 1(4), 62-74, October-December 2012 synthetic fibers, it operates globally and manufactures a diverse range of products, employing 59,000 people worldwide. When analyzing its history, we can see how each generation not only invested in acknowledging, developing and measuring their employees’ and family members’ human and intellectual capitals, but also successfully preserved its financial capital by establishing governance mechanisms that promoted joint decision making over long-term planning periods. By forming a social set of shared values and relationships that each successive generation reaffirms and readopts, plus adapting it to the environmental demands, the family increases the chances of passing to the next generation not only a family heritage, but also a long-lasting family-owned or controlled firm. Below, we analyze how the DuPont family developed different actions over time –e.g. strategic exploration, organizational change and development, financial restructuring, etc.—encouraging the strategic use of ICFB, the wise preservation and development of the family wealth, as well as the family business growth (performance), reinvention and endurance. The DuPont Company Family and Business History1 The DuPont Company, the most important chemical company in the United States, was founded in July 19th, 1802; with French capital by Eleuthère Irénée (E. I.) du Pont (chemist and industrialist). E.I. du Pont de Nemours & Company, originally a gunpowder manufacturer on the banks of the Brandywine River, has become nowadays one of the world’s most innovative firms. “It managed to do this because a succession of talented sons, nephews, and grandsons of E. I. du Pont were able to keep the business going” (Blair, 2003, p. 449). After his death in 1834, the company changed its structure from a controlling owner stage to a sibling partnership. DuPont siblings, Alfred, Alexis and Henry took charge of the family firm, buying the French stockholders (those who financed their father) in order to assure full-control of the enterprise. In 1889 however, Henry du Pont, “who had ruled over the gunpowder empire with an iron fist” (Blair, 2003, p. 449) died, leaving control to his nephew Eugene du Pont (son of Alexis) who also believed in tight control of the firm, sharing little power with the next generation. In 1899, the firm was incorporated in the State of Delaware; however, the act of incorporation appears to have been just a technicality, with all the stock held by those family members who had been partners (Blair, 2003; Frazier Wall, 1990). Henry A. du Pont (a cousin of Eugene’s) had pushed for incorporation as a mechanism to weaken the control Eugene had as president and sole executive officer of the partnership. And, although Henry A. never led DuPont, he was an important figure within the family company as a senior partner. In fact, his idea of reorganizing the partnership as a corporation in 1899 was intent to distribute control rights (Blair, 2003; Frazier Wall, 1990). According to the Delaware law at the time, the newly formed corporation would need a set of officers. Nonetheless, Eugene du Pont set as his main prerequisite for the incorporation the fact that he would still be president. There’s no need to say that he continued unwilling to delegate authority. When Eugene died in 1902, three young cousins Pierre, Alfred and Coleman took over control of the one-century-old family business. The process they followed was indeed interesting. The fact is that when Eugene died, the elder members of the du Pont family feared that none of the next generation members had the qualifications to run the company; they feared that they might dissipate the wealth if they took over the management (Colby, 1984; Blair, 2003). After analyzing it a lot, the du Pont elder members reached a decision: They will sell their interests in the firm to their major competitor (at that time, Laflin & Rand). Yet, during a shareholders’ meeting where the sell Copyright © 2012, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited. International Journal of Productivity Management and Assessment Technologies, 1(4), 62-74, October-December 2012 69 of the company should be approved, the three cousins Pierre, Alfred and Coleman stepped forward to ask if they could buy the company from their older relatives (surviving partners). They did, transforming it from an explosives manufacturer into a science-based chemical company. “The junior members of the clan bought out the position of the senior members for notes worth $12 million and 28% of the common stock in the newly reorganized firm” (Blair, 2003, p.450; Colby; 1984). Although a widely respected company but also weighted down by tradition, the young cousins modernized company management, built research labs, and marketed new products like paints, plastics and dyes. Pierre and Coleman possessed financial expertise and led the family company to unprecedented success; Coleman was president, Pierre treasurer, and Alfred vice-president of E.I. du Pont de Nemours & Company. The company was reincorporated in 1903 in New Jersey (whose corporate law by then permitted corporations to own the stock of other corporations), consolidating all the various firms of the DuPont Company into a single firm. In addition, Pierre, Alfred and Coleman reorganized the company: they established an executive committee and a fifteen member board of directors (consisting of the three cousins plus four other members of the executive committee, three members of the elder generation and five directors who were minority shareholders). In 1915, a group headed by Pierre, which included outsiders, bought Coleman’s stock. Alfred was offended and sued Pierre for breach of trust. The case was settled in Pierre’s favor but his relationship with Alfred suffered greatly and they did not speak after that. Pierre served as DuPont president until 1919, giving the company a modern management structure, modern accounting policies and made the concept of return on investment primary. During World War I, the company grew a lot due to advance payments on Allied munitions contracts. The Du Pont’s made over $250 million in profits from World War I (Colby, 1984). As chief supplier to the Allies, DuPont shipped an astonishing 1.5 billion pounds of explosives. By the war years, there was an active market for DuPont shares, and the stock soared to $775 from $182 (Lowenstein, 1999). Du Pont supplied the Allies with about 40% of needed explosives which transformed the company into a giant in just 4 years. It was during this time that members of the du Pont family created a holding company named Christiana Securities (Christiana) as a means of liquidating some of their substantial holdings in E.I du Pont de Nemours & Company without diminishing their control of the corporation. They wanted to preserve family control of the company. The three brothers, Pierre, Irénée and Lammot, owned more than two-thirds of Christiana. Pierre was President; Irénée was treasurer and Lammot vice-president. Nephew Belin du Pont was secretary and there were but three other directors: A. Felix du Pont, R. R. M. Carpenter and John J. Raskob. Named after a tributary in Delaware, Christiana Securities held 3,049,000 shares of DuPont common stock, constituting 27.56% of the 11,000,000 odd shares outstanding. On July 1st, 1935, the Christiana holdings had a value on the New York Stock Exchange of $307,949,000 (Winkler, 1948). Christiana Securities, the family holding company for DuPont, was later (under antitrust pressure from the Justice Department,) merged into DuPont during 1977. Today, it is certain that fewer than twenty individuals, most of them du Pont’s and inlaws, own more DuPont stock than do all of its 51,865 stockholders. Reinvention, Growth and Endurance DuPont, since its beginnings has been a science company and science plays a prominent role for the company’s business growth. There are over 5,000 scientists and engineers working for DuPont’s 75 research and development facilities across the world (over 40 in the US and more than 35 located in 11 other nations). As a matter of fact, DuPont is the home of one of the world’s first and largest industrial research and Copyright © 2012, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited. 70 International Journal of Productivity Management and Assessment Technologies, 1(4), 62-74, October-December 2012 development facilities: the Experimental Station (Wilmington, Delaware)—which celebrated its 100th anniversary in 2003. The Experimental Station research and development facility has been the home to some of the world’s most important scientific discoveries developed by DuPont since 1903, including: Neoprene - the world’s first synthetic rubber; Tyvek® nonwovens; Kevlar® fiber; Mylar® polyester film; Corian® solid surfaces; Butacite® polyvinyl butyral; Suva® refrigerants; and Nomex® fiber. DuPont R&D covers both basic and long range research aiming at creating new business and new products, as well as mid and short range research aiming at improving existing products and inventing new products. Electronics, biotechnology, safety and security, as well as material science are the company’s future growth drivers. Research and development now under way includes nanotechnology, emerging displays technologies, fuel cells energy sources and biomaterials produced from renewable resources such as corn. In addition, being a company interested in having the best possible research staff–which translates into a competitive advantage for the enterprise--, DuPont not only invests in training its employees, but also offer a huge variety of internships for PhD and/or MBA students with high potential. Actually, to translate more of its ideas into value – both on Wall Street and on the bottom line – DuPont is marketing its knowledge base by establishing a five-year, $35 million research and development alliance with the Massachusetts Institute of Technology (MIT). The partnership will help the company lay out a path to long-term materials and biotechnology goals. Relationships such as these are expected to grow in number and scope and will be strategic to future growth for DuPont. DISCUSSION As could be seen, intellectual capital management is important in all kind of businesses, but crucial when referring to family firms. Family- owned or controlled businesses are unique due to their family background, and strategically administering both the business and the family is vital when coping with continued existence. The case of DuPont, a long-lasting family firm, shows how the growth of the ICFB must be aligned with the development of the family human, intellectual and financial capital. The best form to do this is a challenge, since each family has its own way of dealing with it. However, in order to support intrapreneurship (renewal and reinvention –important part of IC) and continued growth in the family business, the family must strive to: 1. 2. 3. Promote emotional, physical and mental well-being among its members –let them choose their individual career and personal goals (pursuit of individual happiness); Clarify the next generation members’ roles within the family and the business, establishing rules in order to participate in the governance mechanisms of the firm (and/ or of the family –e.g. family council); Encourage the knowledge-sharing of family values, traditions, behaviors from one generation to the other, since this provides a cultural wisdom that will guide the family business strategic exploration, development and adaptation. Additionally, family members must also increase their intellectual capital baggage by transmitting from one generation to the other the “family & business” acumen they have, establishing governance mechanisms that promote cooperation, joint-decision making and cohesion among family members. Training of next generation members (promoting entrepreneurial spirit over time–innovation--), as well as the clarification of their roles within the family and the business units will help family members to acknowledge their human and intellectual capital. Family wealth preservation is a dynamic process. A family whose wealth—human, intellectual and financial capitals—is simply Copyright © 2012, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited. International Journal of Productivity Management and Assessment Technologies, 1(4), 62-74, October-December 2012 71 maintaining value, but not increasing it is in danger of entering a state of decay, entropy, or to call it in simple terms: organizational inertia. Next generation members must be trained and prepared to innovate (family wealth bet). In this sense, investing in their exposure to other cultures and languages and in their education may help them get ideas that could be applied in the business to overcome competition. Investments in the family wealth should be translated in advances in the ICFB. If the latter is not achieved, then the “family first” maxim may put in danger the sustainability of the business. The DuPont Company passed through the proposed stages (matrix) when dealing with ICFB-Family Wealth strategic management: “family first”, “business first” and “balance”. More specifically: 1. Family First - Origin until 1889: E. I. du Pont was a French immigrant who started the chemical company in order to get the means to survive in the US, two years after he and his family left France to escape the French Revolution. Like his father, he was initially a supporter of the French Revolution. After his father narrowly escaped the guillotine and the family house was sacked by a mob in 1797 during the events of 18 Fructidor, the entire family left for the United States in 1799. They hoped to create a model community of French émigrés. Starting the DuPont Company was their first attempt: It would not only help the entire DuPont family to make a living, but also would provide other French émigrés (original non-family stockholders) the commercial opportunities they needed to succeed in the new country. It’s important to note the fact that in 1834 the DuPont siblings bought back the French stockholders who financed their father—assuring full control of the enterprise. The latter may be evidence of the “family first maxim”, since the eight siblings of E.I. du Pont—Victorine Elizabeth du Pont, Lucille du Pont, Evelina Gabrielle du Pont, Alfred V. du Pont, Eleuthera du Pont, Sophie Madeleine du Pont, Henry du Pont and Alexis Irénée du Pont—might have wanted to “feed their family” based on the earnings they got from the family enterprise: 2. 3. Business First - 1889-1902: Incorporation and expansion. The incorporation of the DuPont Company meant the beginning of a corporation; in other words: Professionalization of the family firm. It’s precisely at this stage where the “business first maxim” seems to be valid. Although, it has to be said, professionalization did not occur right away after the incorporation. The main problem was that it had been a forced process, not a “family” and “business” agreement. Strategic parallel planning was not accomplished, causing power struggles at the family level. Nonetheless, expansion of the company was achieved: DuPont moved into the production of dynamite and smokeless powder; Balance – From 1902-Nowadays: When Pierre, Alfred and Coleman took control of the 100-year old company, they transformed the business from an explosives manufacturer into a science-based chemical company. They had clear ideas of their family background—E.I. du Pont was a chemist—plus their own initiatives (adapted future vision). At this point, governance mechanisms where family and non family members participated were established—e.g. Board of Directors--, the modernization of the company was achieved, financial restructuring and consolidation of the various firms the DuPont Company owned was accomplished, and strategic exploration of new products and services carried out. Research labs were undertaken as major projects and innovation was promoted. A balance between the “family” and the “business” was evident. As could be expected, this “balance” was just temporal. In family firms, dynamic relationships and emotionality is a must. Conflicts arise from time to time breaking the hard-to-find Copyright © 2012, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited. 72 International Journal of Productivity Management and Assessment Technologies, 1(4), 62-74, October-December 2012 “family & business” balance—ICFB & Family Wealth strategic balance--, however, after a while, calm returns and stability brings over again a sense of equilibrium. Today, DuPont invests more than $1 billion a year on research and development (R&D) in multiple disciplines and is home to one of the world’s largest industrial R&D facilities (Experimental Station). The result of such sustained R&D efforts is discontinuous innovation, the sudden appearance of a major breakthrough in technology that can yield entirely new products, processes, or services. As the Chief Science and Technology Officer—Tom Connelly states: When the Experimental Station opened 100 years ago, our focus was to turn from explosives to become a global chemicals and materials company…Today, as part of our next transformation, we are putting our science to work by making real differences in everyday life. Our ability to change in response to the changing external environment has established DuPont as one of the world’s most innovative companies. The Experimental Station and all of its people over the years have truly provided advances that have helped make the world a safer and better place. Therefore, broadly speaking, our interpretations of the DuPont case study seem to confirm our propositions. The 2x2 matrix summarizes our conclusions regarding the firm analyzed, its ways of dealing with strategic management of its intellectual capital at the family and business levels, and how that impacted in their preservation of family wealth and ICFB. CONCLUSION When analyzing the DuPont family history we see how family members’ continuous training, knowledge, and ability to overcome competition by expanding their horizons and probing new strategic orientations based on innovation–one of the shared-family values—helped them to build up and keep going a long-lasting enterprise (206 year-old company). How did this company make its vision of growth and regeneration happen? One possible answer is by supporting entrepreneurial activity across generations. In order to do so, they had to invest in both the family and the business intangible assets, specifically in intellectual capital. Finding an ideal balance between the Family Wealth and the ICFB is relevant when dealing with sustainable competitive advantages. It’s in particular this continuous practice –finding the “family & business” balance-- across generations which is the brick and mortar with which families build organizations that will last beyond a lifetime. In the age of intellect, DuPont has proved itself that reinvention of its business based on its people’s acquisition, accumulation-development, and transformation of knowledge pays off. In addition, it also highlighted that commitment to its family heritage and management not only influences up to now its core values and strategic actions, but also its own perspective of the future. This Enlightened Organization invests in creating value through people, challenging them intellectually and supporting disruptive and adaptive learning. In order to help practitioners, we introduce the ICFB-Family Wealth matrix, describing “family & business” relationships and dynamics that affect intellectual capital creation, development and sustainability over time at the business and family levels. The latter, has important implications when referring to the firm’s growth and survival—e.g. personnel and human resource management--, as well as in the family unit dynamics—i.e. next generation members’ training. Our ICFB-Family Wealth Matrix describes several configurations family firms tend to pass through as they grow. None of the quadrants is better or worse, but the core idea is that in order for a family business to become a long-lasting enterprise, the family and the business need to move strategically Copyright © 2012, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited. International Journal of Productivity Management and Assessment Technologies, 1(4), 62-74, October-December 2012 73 from one quadrant to another, until they find a stable state (balance) between the intellectual resources generated, sustained and enhanced in the business, and the ones nurtured within the family. 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O’Sullivan, pp. 207-220, copyright 2010 by Business Science Reference (an imprint of IGI Global). Copyright © 2012, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.