FFI | Practitioner – June 6, 2018
This article, first published on June 6, 2018 in the Family Firm Institute online journal
FFI Practitioner is reprinted with permission. ©Family Firm Institute.
To celebrate the 40th anniversary of the legendary Three-Circle Model, FFI Practitioner is excited to share two editions about the model during the month of June. For the first edition, we’d like to thank Pramodita Sharma for her interview about the inception and impact of the model on the field with one of its two creators, John Davis.
Pramodita Sharma (PS): What was the original idea behind the model? Has it been misused?
John Davis (JD): Well, remember that this framework came out very early in our interviewing of people who worked in family businesses. Most of them were family business leaders, many were founders, a few were later generation family member-employees. We needed a conceptual “place to put people” we were interviewing. We wanted to understand individuals’ viewpoints, their roles, their confusion about some topics, why certain decisions were difficult for them, and why they were dwelling on certain issues. Ultimately, we were trying to understand why individuals in these businesses (we didn’t call it a system yet) saw the world the way they did and what issues were important to them. The need to organize the information we were gathering and what we were learning led us to the three circles: the business, obviously; the family, naturally; but then, eventually, also the ownership group. Without accounting for the ownership group and perspective, we couldn’t bucket all the comments and data adequately. But with three circles, we could organize the information we were gathering and we thought, wow, the three-circle framework seems to be enough.
And it started as a framework. Frameworks are largely for bucketing information. Later, we saw that the three circles and the interaction of the three circles had great explanatory power, and we called it a model. A comprehensive, predictive theory of action and reaction in the family business system hasn’t been accomplished, and maybe won’t be developed given the many intervening variables that can affect the outcomes of certain changes in any circle.
The original intent of the three-circle model was to locate individuals in the system, identify their various interests, and observe how individual and group interests and behaviors interacted. The three circles can also indicate thematically, for example, that the goals of the three groups can overlap and still be distinct. The clarity and simplicity of the model allowed people in the field to explore many topics. It has guided our thinking in this field in fundamental ways. That’s all we needed in the beginning, and it has held up well, I would say.
When you build a framework or a model, you hope it helps you understand a lot, but soon enough you see that it doesn’t do everything. Advisers don’t have a clear place in the model. Governance structures, for example, with their adviser members, don’t fit perfectly in the geometry of the three circles. That said, non-purists can still add a board of director’s symbol in the overlap of business and ownership groups, and readers can see where it belongs in terms of its responsibilities.
As for examples of misuse, I can’t go that far. Some people thought highly enough of the three-circle model that in the early days they claimed it as their invention. But that’s different than misuse. Some have found the original three-circle model frustrating because it doesn’t do what they want it to do—like have clear categories for advisers or governance groups. I would add that the three-circle model doesn’t adequately diagram the situation of a multi-family business. But attempts to build a substitute model, with the necessary complexity to account for other memberships, haven’t been received well because they are either conceptually flawed or very complex and hard to use. I haven’t seen a workable (clear and relatively uncomplicated) four-circle model although it’s been tried.
I wouldn’t call these a misuse of the model, but it’s not how we initially thought of it. Sometimes to make a point, people will move the circles around, separate a couple of the circles, make circles of different size, etc. That’s a different use of three circles and it’s fine if it gets you someplace in your thinking and explanations. In general, I think people have used the model in ways that have been useful.
PS: Can you share the spirit of the conversations and thought processes you went through when this model was created? What was it like working with Ron Taguiri?