The Use of the Guttman Scale in Development of a Family Business Index

The purpose of this paper is to introduce a new approach for operationalising family-business variables. It is consistent with multidimensional definitions of family business such as the F-PEC scale. This paper demonstrates the use of the Guttman-scaling procedure, on a random sample of 885 Dutch SMEs. More specifically, the research question is as follows: Can various indicators of family business be validly combined using a Guttman scale? After reviewing the different definitions dealt with in the family business research literature, the paper presents the results of an analysis of various items available for this particular dataset. In particular, the index assigns a value of family-relatedness to a company depending upon the criteria that it meets. The study uses a series of statistical procedures, including factor analysis and cross-tabulations, to identify a potential ordering of criteria varying in difficulty. The least difficult criterion, that one or more of the management team is drawn from the family that owns the business, is met by 77.6% of the responding firms. The most difficult of the criteria, met by only 26% of the firms, is that current management plans to transfer the enterprise to the next generation. 85% of the sample can be classified properly according to this Guttman scale: If a company meets one of the more difficult criteria, it also meets all the easier criteria. In the second part of the paper, the proposed Guttman Scale is compared with the individual criteria making up the scale as well as other family business variables to predict self-perceptions of family business. In particular, the scale is positively correlated with the outcome of the question, 'Would you consider your firm a family business?' In addition, a multiple regression of the individual criteria on the dependent variable is compared with the use of the index. The paper sums up with further discussion of the possible advantages and disadvantages of the Guttman scale technique, both for theoretical and empirical development in family business research.