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Centralization and delegation practices in family versus non-family SMEs: a Rasch analysis

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Abstract

In this paper, we examine differences in centralization and delegation practices of family and non-family firms. Using Aston studies measures, we examine specific types of decisions and the level of authority involved in decision making by owner-managers. We use Rasch analysis to examine the concentration of authority in a sample of 124 small- and medium-sized firms. We find that family firms maintain more centralized decision making and delegate differently than their non-family counterparts. Whereas family firms prioritize centralizing operational issues, non-family firms centralize employment issues more. Our findings have implications for understanding the distinctiveness and professionalization of family firms.

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Authors and Affiliations

  1. Department of Business, Trinity International University, 2065 Half Day Road, Deerfield, IL, 60015, USA

    Wendy L. Martin

  2. Department of Entrepreneurship and Emerging Enterprises, Whitman School of Management, Syracuse University, 721 University Ave., Syracuse, NY, 13244, USA

    Alexander McKelvie

  3. Price College of Business, University of Oklahoma, 307 W. Brooks St., Norman, OK, 73019-4007, USA

    G. T. Lumpkin

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  1. Wendy L. Martin
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  3. G. T. Lumpkin
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Correspondence to Alexander McKelvie.

Appendix: Using Rasch analysis to assess centralization and delegation practices

Appendix: Using Rasch analysis to assess centralization and delegation practices

Rasch analysis has a strong history of practical applications, such as self-assessment in education (i.e., SAT exams) and evaluating the task difficulties faced as a doctor. While the scale presented in this article can be used to compare the centralization practices of different types of business structures, it also may prove useful for use by SME managers to assess their personal delegation practices versus those of their peer owner-managers. This appendix describes how an individual SME owner-manager could use this study’s findings to assess his or her firm’s delegation practices. Of note, because we excluded firms with fewer than four employees from this analysis, the following discussion relates to firms with four or more employees.

To use the scale as an evaluation tool, an individual manager would complete an assessment of the amended Aston scale (see Appendix Table 2). For an overall comparison of the firm’s practices to those of the respondent peer group, the manager would first sum his or her scores and compare the total to this study’s results, as seen in Appendix Table 3. Firms with scores of 30 or more are significantly more centralized than those of this study’s respondents. A manager of such a firm would be well advised to relinquish control and delegate more activities. Conversely, firms scoring below 10 are significantly more decentralized than found in this study, and management may need to be more involved in firm operations. To note is that this assessment is not necessarily related to performance outcomes of these decisions; as such, this is more used for peer group comparison than a prescriptive approach to optimal decision making.

Table 2 Organizational decision making scale: Which level in your firm has the authority to make the following decisions?
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Table 3 Comparison tool for managerial assessment
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If an individual manager wishes to identify those specific areas where her centralization practices differ from those of her peers, she can transcribe his results from Appendix Table 2 to the self-assessment tool in Appendix Fig. 3. For any individual task score that falls within the unshaded area, that manager’s practices are similar to those of this study’s peer group. Any results falling into the lightly shaded areas are between one and two standard deviations of the mean, and therefore are either more centralized (for scores to the left) or more decentralized (for scores to the right) than peer group practices. Scores falling in the darkest area are over two standard deviations from mean results. Any practices falling in this area are significantly more centralized than those of the study group. By evaluating the firm’s individual practice areas, a manager can specifically pinpoint those areas where he may be too controlling or where he may be to uninvolved. Of note, the current scale does not include enough items to identify overly laissez-faire management practices.

Fig. 3
figure 3

Centralization/decentralization self-assessment tool

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Analysis of the ten question items shows promise for the development of a larger scale to measure the degree of centralization/delegation in SMEs. When comparing practices between firms, the prescriptive centralization measures will vary based upon a number of factors including the education level of the employees and task requirements. There may be differences across industries; cross-industry validation of this instrument could be used to develop scores for different industries. Once industry benchmarks are developed, struggling firms could evaluate their scores based on those prescribed for the industry. If firm scores are significantly higher or lower than are those of competitive firms, management would be well advised to re-evaluate the level of centralization and control being utilized in the firm.

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Martin, W.L., McKelvie, A. & Lumpkin, G.T. Centralization and delegation practices in family versus non-family SMEs: a Rasch analysis. Small Bus Econ 47, 755–769 (2016). https://doi.org/10.1007/s11187-016-9762-5

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