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.