Business Succession model for Family Own Businesses

Business Succession model for Family Own BusinessesA.Chamaru De Alwis B.Sc (B.Ad.) Special, M.Sc (Mgt.)

PhD Student

Faculty of Management and Economics

Tomas Bata University in Zlin

Mostn 5139,760 01 Zln,Czech Republic

dealwisac@gmail.comAbstract

The survival rate of family own business beyond the founders generation is extremely low successions have become main reason for it. Because of that succession failure, there are number of researchers brought their attention to give solution for it. Here this article has been developed new model named Model for succesful succession by considering main factors behind the succession. Those are incumbent, successor family and mutual relationship with each other.

Key Wards : Incumbent, Successor , FamilyIntroduction

Family own business (FOB) represents the oldest and most prevalent type of business organizations worldwide and it can be seen in different type of business entities. FOB is a unique business with many elements different from other non-family business, such as continuity purpose, business and family relationship, business value, family culture, quick decision making, flexibility, and succession. Family own business (FOB) and Business Succession FOBs play a significant role in both, the stability and health of the new global economy (Klein, 2000). As per the Chrisman at al, (2003) a family firm is operated by the components of a familys involvement in the business: ownership, management, or business succession. Some definitions reach from one hundred percent ownership over the majority of shares until the majority of control (Chua et al., 1999), or they deal with the question whether governance by the family is enough or management of the firm would be necessary. Family business succession is defined as the handing over of management control to one or more family members (Gasson et al, 1992). The survival rate of family firms beyond the founders generation is extremely low. It is estimated that less than one-third of family firms survive into the second generation and only 13 percent survive through the third generation. Poor successions have become main reason for it (Miller, et al. 2003).Methodology

This article is concern about top management successions within family own businesses. This paper has developed a model based on literature collected the study for further empirical investigation. To conduct a thorough review of the literature on succession in family-owned businesses, it has been searched the exhaustive database of articles (ABSCO, Interscience and Jester), using the keywords family-owned-business and succession. I used the bibliographies of each article identified as a bridge to other potentially relevant literature on the topic. Literature Review

Success of the Business Succession

There is no agreement among the researches what contribute to the successful or effective succession in family own companies. Handler (1989) suggests that satisfaction of the predecessor and other family members with the succession process can be used as an indication of the perceived success of the succession process. Some other researchers has been used Successors ability to maintain the family business healthy as a criterion to measure the effectiveness. Venter and Mass (2005) and Sharma and Irving (2005), the perceived success of the succession process is determined by the extent of satisfaction with the process and continued profitability of the business. Here author has combine both arguments and define success of the succession as The subsequent positive performance of the firm, ultimate viability of the business and the satisfaction of stakeholders with the succession process Incumbent Most studies of succession planning have focused on the founders/CEOs role in the process (Handler, 1990), because owner is the most important factor in the success of succession (Ward, 1987). There is three major should be taken into account with the incumbent.

Attachment with the business

Brown and Coverley (1999) recognized most of the succession processes are failed due to the incumbent unwillingness to pass ownership to the next, because the incumbent faced emotional struggle in passing ownership and control. If the incumbent too attached to the company it can be happen. The poor side of that, he will not give an opportunity to successor for enhancing the skills and for enriching with experience that required for the takeover. In some circumstance it badly cause to the successors respect. Several studies have attributed the founders reluctance to plan for succession to a number of factors including: the founders strong sense of attachment to the business, fear of retirement and death and lack of other interests (Levinson, 1971). According to Lansberg (1991), retirement reminds entrepreneurs of their own mortality. Thus it is not surprising that most founders do not retire from their family business; they die while still at the helm according to Navin (1991). This is congruent with a study by Lansberg et al. (1988) which revealed that founders often make themselves indispensable in order to maintain control of the business and remain at the helm

Attachment to the family

Remaining or divorce of the incumbent during the succession process may impede succession (Massis et al., 2008), because this reduce the tightness with the family members. Successor

Successor is one of the critical individual of the secession process in any type of business organization. In other words without successor, there is no succession can be implemented, But his active and appropriate involvement of the succession program will be minimized due to a number of reasons. Now author is going to explain those one by one.

Ability of potential successor

According to the past researches, successors ability to lead the business is linked with positive succession outcome (Barach & Gantisky, 1995). If the new successor did not equipped with essential skills to take over the business to his hand, the probability of the failure of the business succession process is very high. Not only that, most of time, there is an opportunity to refuse the placement by himself. Sometime that refusal can be raised from the family or from incumbent. The successor's proven skills, performance, and experience in leading the organization were clearly linked to positive succession, and found to help to garner credibility and legitimacy for the new leader (Barach et al., 1988). The training successors go through to acquire knowledge, develop capabilities, and achieve credibility and legitimacy is vitals factor in effective succession (Morris et al., 1997). Ward (1987) discovered that the successor's development and preparation for a leadership role was one of the most important factors among the successful FOBs that survived a succession.

Early exposure to the business allows the successor to become increasingly familiar with a company, its culture and values, and its employees. It also provides the opportunity to develop capabilities needed by the firm (Ward, 1987). It helps too for successors to build relationships and credibility by successfully moving up the organizational ladder (Dyer, 1986). Barach & Gantisky (1995) emphasized that many thriving successors had rich experiences at other companies and jobs. These could help the successor develop a knowledge base, sense of identity, self-confidence, and credibility (Barach et al., 1988). Morris et al. (1997) found that the education of a successor was positively correlated with a smooth transition and post-succession performance. Similarly, Goldberg (1996) discovered that the most effective successors held college degrees while the less effective ones had only a high school diploma. For Dyer (1986)"the college or technical degree is the first hurdle that potential successor must overcome." He reported that FOBs like DuPont and Levi Strauss encouraged their young family members to attend one of the top U.S. universities because they believed that would signal intelligence and leadership, and provide both skills and credibility. FOBs are said to benefit from a formal leadership training plan with clear goals, time frames, and outside review. Plans may include stages in functional training, decision-making experience, general management skills and profit center responsibility (Ward, 1987). A variety of experiences and tasks are deemed essential to any well-designed program (Dyer, 1986).

Motivation of the successor

A successors true commitment and willingness is directly influence to the success of the succession process (Chrisman et al., 1998). If successor refuse to takeover new position, it is automaticity stopped the whole process. It can be happen, Because of the other opportunities that he has. In addition to that poor relationship with incumbent or with the family might be reason or lack of self confidence might be the reason. Dyer (1986), Handler (1990), Lansberg (1988), McGivern (1978), and Ward (1987) all suggest the importance of the predecessor's overcoming anxiety about succession, moving beyond the denial stage, and being willing to confront succession and let go. The incumbent must face normal fears such as losing control, power, and even part of his or her identity and stature in the community (Potts, 2001). There is also the challenge of facing one's mortality.

Family

Commitment of the family members

If family member are not committed to the succession, it is blocking the opportunity to demonstrate the requisite management abilities of the successor( De Massis et. al, 2008).some occasions, family members who are holding important roles in the company may threaten to leave the company because the dissatisfaction about the selection. In such situation, sometime, incumbent might cancel the new appointment. Then it automatically wipes out the succession process. Relationships with each other

The relationship between different groups of the family plays vital role during the succession (Davis, 1983; Lansbury, 1983). Bad interpersonal relationships cause of potential conflicts and that obstruct the succession (Kepner,1983;Lansberg,1983). Relationship between the incumbent and the potential successor

The quality relationship between incumbent and the potential successor is vital for the succession (Lansberg, 1988). Cabrera-Suarez et al. (2001) emphasized the importance of the relationship between the predecessor and the successor, arguing that an effective transfer of knowledge between the generations is vital. If there is a conflict, the succession process might be put at risk because the potential successor may decide to leave the business or incumbent might block the appointment (De Massis et al, 2008). Dyer (1986), Ward (1987) found a positive link between the quality of the relationship and the success of the succession process. A relationship based on mutual respect and understanding is said to make individuals feel supported and recognized, and to create a virtuous circle of trust and feedback. Learning can then emerge through an evolutionary process that begins in early life at home and continues in the work relationship. Davis & Taguiri (1989) noted that the quality of this work relationship between fathers and sons varies as a function of their life-cycle stages.Family Harmony (Relationship between Family and incumbent and relationship between family and potential successor)

Family harmony is assumed to help the succession process (Churchill and Hatten, 1987). Conflicts between family members might prevent the appointment of a successor or discourage applications for the position (Kets de veies, 1989).

Lack of trust among each other (Family & Successor and Family & Incumbent)

Successor must be trusted by family as the potential successor is the ideal most appropriate selection for takeover the leadership of the family company (Barach et al 1988). That trust will support to develop relationship between family and successor as well as family and incumbent.

Lack of commitment to the potential successor

If family members are not committed to the potential successor, he may not be not give the opportunity to demonstrate the requisite management abilities nor will be likely to gain the dominant coalition confidence (De massis et al., 2008). Not only that sometime, the family members who hold responsible top position of the company may refuses to give support to new successor. Not only that some occasions they may threaten to leave the firm, due to the dissatisfaction abut succession. Mutual relationship with each other (Family Harmony)

Family harmony is said to help the succession process as it ensures greater trust, mutual understanding, and knowledge among the participants (Churchill & Hatten, 1987). Such harmony also aids in the development of a shared vision (Sharma et al., 2001). Morris et al.'s (1997) empirical findings confirm that the quality of the family relationship is a more dominant predictor of a successful transition than either succession planning or the preparation of heirs.Proposed model for FOB Succession Based on the in deep lecturer review , author has come in into the conclusion that that Successor, Incumbent and Family is the most critical three parities who involve to the succession process. If one party do not commit to the succession, it is destroyed the whole succession. Thus those are vital and their mutual relationship has become prime requirement of the succession process. Under following framework successor, incumbent, family, relationship between successor and incumbent, relationship between successor and family and relationship between family and incumbent and mutual relationship between three parties have identified as a major requirements. By using those literature author has developed new conceptual framework for evaluate each factors impact to the successful family business. Because, according to Miller et al (2004), different researchers have studies different parts of the problem without taking whole together.

Figure 1: Business Succession Model for Family Own BusinessesConclusion

Past studies has identified numbers of factors influenced to the family business succession within their papers. According to that literature the incumbent, successor, and family are the main influential factors. I also believe Successor, Incumbent and Family and their interrelationship is vital for the successful succession. Because without those, there is no succession been happening. The relationship between two among those three is not enough, because one party objects to the process, it cannot be implemented successfully. Therefore Mutual relationship between three parties is also essential for the successful succession. This proposed model has iincluded that all identified veraibles in difffent research papers, and further auther belive that it will be helpfill family business researchers to study all veriables together, with out toughing small piece of the problum sepratly. Then it will bring a bricke to fill the research gap that has idenfified by the past researchers. References [1] Barach, J.A., Gantisky, J., Carson, J.A., Doochin, B.A.1988, Entry of the next generation: Strategic challenge for family business. J. of Small Business Management, vol. 26 no 2, p.49 56. [2] Cabrera-suarez, K., De saa-perez, E, Garcia-almeida, D.2001, The succession process from a resource and knowledge-based view of the family firm. Family Business Review, vol 14 no.1, p37-47.

[3] Chrisman J. J., Chua J. H., Steier L.P.2003, An introduction to theories of family business J.of Business Venturing . Vol.18, p.441448

[4] Chrisman, J. J., Chua, J. H., Sharma, P., 1988 Important attributes of successors in family businesses: An exploratory study. J.of Family Business Review, vol.11, p.1934

[5] Chua, J.H., Chrisman, J.J., Sharma, P., 1999. Defining the family business by behavior, J. of Entrepreneurship Theory and Practice, vol.23 p.4, p. 19-39.[6] Churchill, N.C., Hatten, K.J. 1987. Non-met-based transfers of wealth and power: A research framework for family businesses. American J. of Small Business, vol. 11 no. 3, p.51-64.

[7] Gasson, R., Errington, 1993, A. The farm family business., Wallingford, UK:CAB International. ,p304 [8] Goldberg,S.D.,1996 Effective successors in family-owned business. J. of Family Business Review, vol.9, no.2, p185 197. [9] Handler, W.C.,1990, Succession in family firms: A mutual role adjustment between entrepreneur and next-generation family members. J. of Entrepreneurship Theory & Practice, vol. 15.,vol 1, p. 37-51

[10] Kepner, E.,1983, The family and the firm: A co evolutionary perspective. J. of Organizational Dynamics, vol.12, p.57-70.

[11] Kets de vries, M. F. R. 1993. The dynamics of family controlled firms: The good and the bad news. J. of Organizational Dynamics, 21: 59-68.

[12] Klein S., 2000 Family Businesses in Germany: Significance and Structure. Family Business Review., vol. 13, no. 3, p 157-181

[13] Lansberg, I., 1988, The succession conspiracy., J. of Family Business Review, vol.1, no. 2, p.119 143. [14] Lansberg, I. 1991,The succession conspiracy. In C. Aronoff & J. Ward (Eds.), Family Business Sourcebook, Detroit, Mich.: Omnigraphics, Inc,. p98-119.

[15] Lansberg, S.,1983, Managing human resources in family firms: the problem of institutional overlap, J. of Organizational Dynamics, summer, p.71-80.

[16] Mcgivern, C.,1978, The dynamics of management succession. Management Decision, vol. 16 no I, p 32.

[17] Miller I,L.B, Miller D, . Steier L (2004) Toward an Integrative Model of Effective FOB Succession, Entrepreneurship theory and practice, 305-328[18] Miller, D., Steier, L., Le Breton-MineR, I.2003, Lost in time: Intergenerational succession, change and failure in family. J. of Business Venturing, vol.18 no 4, p.513 531.

[19] Morris, M. H., Wiuiams, R. O., Allen, J. A., & Avila, R. A.,1997, Correlations of success in family business transitions. J.of Business Venturing, vol.12., no5. P.385- 401.

[20] Potts, T.L., Schoen, J.E., Engel Loeb, M., Hulme, F.S., 2001, Effective retirement for family business owner-managers: Perspectives of financial planners--Part 2. Journal of Financial Planning, vol.14 , no.7, p86-96.

[21] Sharma, P., Irving, P.G. 2005, Four Bases of Family Business Successor Commitment: Antecedents and Consequences. Entrepreneurship: J. of Theory and Practice, vol.29, no. 1, p 13- 33.

[22] Sharma, P., Chrisman, J.J., Chua, J. H.,2001, Predictors of Satisfaction with the Succession Process in Family Firms: A Conceptual Model. J. of Business Venturing, vol. 18, no 5, p.667-687

[23] Venter, E., Boshoff, C., Maas, G.2005, An Examination of the Challenges Daughters Face in Family Business Succession. Family Business Review, vol.18, no4, p. 321-345.

[24] Ward, J.L,1987, Keeping the family business healthy: How to plan for continuing growth, profitability, and family leadership, San Francisco: Jossey-Bass. A, E

Mutual Relationship among Three

Relationship with each other

Family Members Satisfaction

Positive Business Performance

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