Chapter 8: Make Or Buy?: The Invisible Hand Behind Hiring Decisions of Family Firms

This chapter speculates on the nature of the relationship between family member employment and the trajectory of family business growth. To survive and grow, family firms need to effectively address the exigencies of environmental uncertainty with sound hiring decisions. In this conceptual paper, we investigate various paths of family firm growth by focusing on the impact of environmental uncertainty and family cohesion on the hiring decision of family firms. Building on resource dependence and transaction cost theory, we conclude that family firms tend to hire externally when environmental uncertainty is low; to hire internally when family cohesion is high. We propose a 4-cell model in which various firm growth-hiring situations are illustrated. The model suggests 2 situations that make the internal and external hiring options equally attractive and viable to family entrepreneurs. The impact of these situations on growth and hiring decisions are also explored.