Professors Renato Tagiuri and John Davis developed the Three Circle Model in the 1970s at the Harvard Business School.
The Three Circle Model represents the family business system with three distinct roles (Family Members, Owners, and Employees in Business). In addition, there are four overlapping roles (Family Owners, Non-Family Owners employed in Business, Family members employed in Business and the Family Owner employed in the Business). The seven zones present complexities and unique needs that need to be addressed appropriately.
Ownership
Family
Business
FAMILY MEMBERS
FAMILY OWNERS
NON-FAMILY, NON-EMPLOYEE OWNERS
NON-FAMILY, EMPLOYEE OWNERS
NON-FAMILY EMPLOYEES
FAMILY EMPLOYEES
FAMILY OWNER EMPLOYEES
In each circle and overlapping zone, the individual’s perspectives and needs tend to vary. For instance, consider a situation when some family members are active shareholders (owners involved in running of the business) while few others are only passive shareholders. Those who are active in the business tend to understand the business challenges. However, the passive shareholders might not be privy to such insights. This divergence in perspectives can give rise to differences in decisions pertaining to profitability, funding requirements, liquidity, dividend income etc.
Due to the diversity in perspectives and needs of members in different zones of the 3-circle, differences are likely to emerge.
These could revolve around decisions like:
With the help of this model, we can identify the diverse needs of the various sub-groups within a family business and address potential sources of differences. This understanding allows for effective communication, problem solving, and decision-making within the family business.
The Four Circle Model, recently introduced as an extension of the well-known Three Circle Model by Mr. John Davis, serves as a transformative framework addressing the intricate dynamics within family-owned businesses. It was developed to foster family unity across generations while steering the system towards social and environmental sustainability. Unlike its predecessor, the Four Circle Model incorporates an "individual circle," emphasizing the importance of healthy adult individuation within the family context. This model underscores competencies essential for success at the intersections of family, business, ownership, and individual realms. This approach emphasizes inclusivity, competency mastery, and strategic planning, offering a roadmap for navigating complex familial and business landscapes.
Individual
Source: The Four-Circle Model - FFI Practitioner
Competencies of Intersection 1:
Between adult individuals and their family of origin
Competencies of Intersection 2:
Between the family and the business
Competencies of Intersection 3:
Between the business and ownership
Competencies of Intersection 4:
Between ownership and adult individuals
Contrasting the Four-Circle Model with the Three-Circle Model
Incorporation of the "individual circle" is crucial. In family-owned enterprises, advisors often engage with a cohort of independent adults. Typically, these adults have differentiated themselves from their original family unit, making this circle vital for understanding dynamics.
The model emphasizes competencies, particularly those essential at the crossroads depicted in the diagram's four intersection areas.
Individuals or individual beneficiaries, rather than families, possess ownership of family businesses.
Non-family members, such as board members and advisors, are positioned within Sector 8 of the model.