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Three-Circle Model of the Family Business System

Tagiuri and Davis, 1982
A Venn diagram of the Three-Circle Model of the Family Business System

The Three-Circle Model of the Family Business System was developed at Harvard Business School by Professors Renato Tagiuri and John A. Davis in the 1970s. It describes and explains the family business system at a single point in time, helping us to understand the important characteristics of the business, family and ownership group and how these groups interact to influence the performance of the business and the family. It is the dominant paradigm for understanding family business systems worldwide.

This framework clarifies, in simple, graphic terms, the three interdependent and overlapping groups (family, business and owners) that comprise the family business system. As a result of the overlap of these groups, there are seven interest groups, each with its own legitimate viewpoints, goals and dynamics. The Model reminds us that the views of each sector must be respected and integrated in order to set direction for the family business system. The long-term success of family business systems depends on the functioning and mutual support of each of these groups.

Its durability is because it is simple, has immediate face validity and captures enough complexity in family business systems to help researchers, academics, managers and families think more clearly about the strengths and challenges of these systems.

Before the Three-Circle Model, when the family business field first started, the few thinkers about family businesses were focused almost entirely on the business itself. Before too long, there was an understanding that family dynamics were influential in the business and vice versa, so researchers thought about two circles: family and business. People were already starting to think about a system where what happens in the family influences the business and vice versa.

However, they ignored the importance of ownership factors. The addition of the third circle (Ownership) allowed much more attention to other issues that couldn't be explained by the first two circles. Linking the family, business and ownership circles fully defined what a family business system is, which is the interaction of all three of these subsystems.