Evaluation of the role succession planning on the Survival of family businesses in Zimbabwe By Komborerai Masango Submitted in part fulfillment of the requirements of the EMBA degree in the Graduate School of Business, National University of Science and Technology Supervisor ……………………………………. July, 2014
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Evaluation of the role succession planning on
the Survival of family businesses in
Zimbabwe
By
Komborerai Masango
Submitted in part fulfillment of the
requirements of the EMBA degree in the
Graduate School of Business, National
University of Science and Technology
Supervisor …………………………………….
July, 2014
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Abstract
The purpose of this study was to evaluate the role of succession planning on the survival of family
businesses in Zimbabwe. The study was guided by the following research objectives; examining
how succession planning was conducted in a family business set up, examining the relationship
between the components of succession planning on survival of family businesses, investigating
why a formally written and structured succession plan was not conducted in family businesses
and assessing the risk involved of not undertaking a formally written succession plan.
To achieve these objectives, literature review in the area of study was done to give a wider
perspective on the issue. According to Walsh (2011) the major issue in a family business setup is
how the family component is managed when conducting family business succession. Thus managing
this component determines the success rate of the succession planning process. It is the failure of
managing the family component that leads to the succession paradox of the ―do nothing approach‖ by
family business owners. Hence forth 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 (Beckhard &
Dyer, 1983; Heck and Trent, 1999; Ward, 1987).
A survey study was also done using a sample population of 144 registered family businesses in
Zimbabwe. The sample was purposively selected from each family business. The research design
involved descriptive, correlation, factor analysis and regression approaches. Findings revealed
that there was a significant positive relationship between the study variables; succession and
survival of family businesses. Results showed that succession planning predicted 54% of the
variance in survival of family businesses (Adjusted R Square = .54). The remaining 46% was
predicted by other factors outside the study (Sharma et al, 1997).
It was recommended that family businesses should ensure that there is proper succession
planning processes if the survival of such firms is to be achieved. Family firms should carry out
appropriate mentoring of successors and knowledge sharing among the family members as well
as employees of the firm. Thus all parties involved must communicate rationally and objectively,
the communication must be consistent with implemented strategies to obtain buy-in from the all
parties involved especially the family (managing the family component).
Acknowledgement
―If I have been able to see further than others, it is because I have stood on the shoulders of
giants‖ - Isaac Newton. This dissertation report would not have been possible without the effort
and contribution made by my supervisor ,I wish to extend my sincere and gratitude to Rev J.P
Ndlovu, for his time, advice, guidance and for correcting my short falls and showing me the
right path needed to complete the dissertation. I will always be inclined to work with him, thank
you very much may God bless you abundantly. I also want to express my appreciation to the
National University of Science and Technology (N.U.S.T) Graduate Business School which
enabled me to pursue my Masters in Business Administration.
I would like to thank the research respondents for the time they took filling in the questionnaires
and their willingness to be interviewed to give me the vital information that was necessary for
the research study. I wish to thank the almighty God for giving me health; wisdom and
knowledge that enabled me do this research work and my family for their continuous support.
Contents Evaluation of the role succession planning on the Survival of family businesses in Zimbabwe ................. 1
Dissertation Release Form ....................................................................................................................... 2
Copyright Declaration ............................................................................................................................. 3
Declaration on plagiarism ........................................................................................................................ 4
Abstract ................................................................................................................................................... 5
Acknowledgement ................................................................................................................................... 6
Contents .................................................................................................................................................. 7
List of Tables ........................................................................................................................................ 11
List of figures ........................................................................................................................................ 12
Chapter One: Introduction ..................................................................................................................... 13
1.0 Background of study ........................................................................................................................ 13
1.1 Statement Problem ........................................................................................................................... 14
1.2 Research Objectives......................................................................................................................... 15
1.2.1The main objective ..................................................................................................................... 15
1.2.2 Specific Objectives ................................................................................................................... 15
1.3 Research Questions .......................................................................................................................... 15
1.3.1The main research question ........................................................................................................ 15
1.3.2 Specific research questions........................................................................................................ 15
1.4 Significance of Study ....................................................................................................................... 16
1.5 Delimitations (Scope of study) ......................................................................................................... 16
1.5.1 Subject Scope ........................................................................................................................... 16
1.5.2 Geographical Scope .................................................................................................................. 16
1.6 Summary ......................................................................................................................................... 17
Chapter 2: Literature Review ................................................................................................................. 18
2.0 Introduction ..................................................................................................................................... 18
2.1 Succession Planning ........................................................................................................................ 18
2.1.1 What is succession planning ...................................................................................................... 18
2.1.2 Trends influencing succession planning..................................................................................... 20
2.1.3 Factors Influencing Succession planning ................................................................................... 21
2.1.4 Importance of Succession planning ........................................................................................... 23
2.1.5 Success planning process .......................................................................................................... 26
2.1.6 Succession Strategic methods and tools ..................................................................................... 40
2.1.7 Mistakes to be avoided in succession planning .......................................................................... 43
2.2 Family Business Succession Planning .............................................................................................. 45
2.2.1 Family Business Overview ........................................................................................................ 47
2.2.1.1 Family Business Definition ................................................................................................ 47
2.2.1.2 The Benefits and Challenges of family Business ................................................................. 49
2.2.1.3 Impact of the Family component in Family Business .......................................................... 53
2.2.1.4 Managing the family component ........................................................................................ 57
2.2.1.5 The succession paradox ...................................................................................................... 59
2.2.2 Why family business resist succession planning (Do nothing Approach) ................................... 60
2.2.2.1 Business owner‘s perspective ............................................................................................. 62
2.2.2.2 The family‘s perspective .................................................................................................... 63
2.2.2.3 Employee and environmental factors .................................................................................. 64
2.2.2.4 Other Obstacles for family business Succession planning ................................................... 65
2.2.3 Determinants of Succession Processes in Family Businesses ..................................................... 67
2.2.4 Family Business succession process .......................................................................................... 72
2.2.4.1 Determining whether business succession within the family is a viable alternative .............. 72
2.2.4.2 Developing the succession plan .......................................................................................... 79
2.2.4.3 Monitoring the implementation of the plan ......................................................................... 88
2.2.4.4 Coordinating the succession plan with other business strategies .......................................... 90
2.3 Family Business Survival................................................................................................................. 91
2.4 Family Business Succession Planning and Family Business Survival ............................................... 92
2.5 Summary ......................................................................................................................................... 93
Chapter 3 Methodology ......................................................................................................................... 95
3.1 Introduction ..................................................................................................................................... 95
3.2 Research Approach .......................................................................................................................... 95
3.2.1 Exploratory research ................................................................................................................. 95
3.2.2 Descriptive research .................................................................................................................. 95
3.3 Research Design .............................................................................................................................. 96
3.3.1 Study Population ....................................................................................................................... 97
3.3.2 Sampling, Sampling Techniques and Procedures ....................................................................... 97
3.3.2.1 Sampling Size .................................................................................................................... 98
3.3.2.2 Sampling frame .................................................................................................................. 98
3.3.2.3 Sampling Technique ........................................................................................................... 99
3.3.2.4 Stratified Random Sampling ............................................................................................. 102
3.3.2.5 Cluster Sampling .............................................................................................................. 102
3.3.2.6 Purposive Sampling.......................................................................................................... 103
3.3.3 Research Instruments .............................................................................................................. 103
3.3.3.1 Questionnaires.................................................................................................................. 103
3.3.3.2 Interviews ........................................................................................................................ 104
3.3.4 Data Collection Procedures ..................................................................................................... 104
3.3.4.1 Primary data ..................................................................................................................... 104
3.3.4.2 Secondary data ................................................................................................................. 105
3.3.5 Measurement of Variables ....................................................................................................... 106
3.3.6 Data Presentation and Analysis Procedures ............................................................................. 106
3.3.7 Limitations.............................................................................................................................. 106
3.4 Summary ....................................................................................................................................... 107
Chapter 4: Data Analysis ..................................................................................................................... 108
4.0 Introduction ................................................................................................................................... 108
4.1 The response Rate .......................................................................................................................... 108
4.1.1 Age Group .............................................................................................................................. 109
4.1.2 Gender .................................................................................................................................... 109
4.1.3 Marital status .......................................................................................................................... 110
4.1.4 Number of years worked in the Organization ........................................................................... 110
4.1.5 Highest Level of education attained ......................................................................................... 111
4.1.6 Characteristics of family businesses ........................................................................................ 111
4.2 Analysis of Succession Planning .................................................................................................... 113
4.2.1 Factor Analysis of succession planning in family businesses ................................................... 114
4.2.2 The correlation analysis of the study variables ......................................................................... 116
4.2.3 Magnitude of the regression Coefficients. ................................................................................ 117
4.2.4 Regression analysis on the components of Succession Planning .............................................. 118
4.3 Analysis of Survival of family Businesses ...................................................................................... 119
4.4 Summary ....................................................................................................................................... 121
Chapter 5: Conclusions and Recommendations .................................................................................... 122
5.0 Introduction ................................................................................................................................... 122
5.1 Objective Revisited ........................................................................................................................ 122
5.2 Major findings ............................................................................................................................... 123
5.2.1 Components of succession planning in family businesses ........................................................ 123
5.2.2 Succession planning and survival of family businesses ............................................................ 124
5.2.3 Lack of a formally of written succession plan (Do nothing approach) ...................................... 124
5.3 Conclusion .................................................................................................................................... 125
5.4 Recommendations ......................................................................................................................... 126
5.5 Areas for Further Research ............................................................................................................ 127
References........................................................................................................................................... 128
Appendix A: Questionnaire .................................................................................................................. 137
Appendix B: Structured Interview Questions ....................................................................................... 145
List of Tables
Table 3.1: Sampling frame ........................................................................................................ 99
Table 3.2: Sampling Frame ....................................................................................................... 99
Table 3.3: Sampling techniques - Advantages and disadvantages ............................................ 100
Table 4.1: Age Group .............................................................................................................. 109
Table 4.2: Gender .................................................................................................................... 109
Table 4.3: Marital Status ......................................................................................................... 110
Table 4.4: Number of years worked in the Organization .......................................................... 110
Table 4.5: Level of education .................................................................................................. 111
Table 4.6: Characteristics of family businesses ........................................................................ 112
Table 4.7: The frequency for a formally written succession plan ............................................. 113
Table 4.8 the reason frequency for a non-formally written succession plan .............................. 113
Table 4.9: Factor analysis of succession planning .................................................................... 114
Table 4.10: The correlation analysis of study variables ............................................................ 116
Table 4.11: Magnitude of the regression coefficients ............................................................... 117
Table 4.12: Regression analysis of components of succession planning ................................... 118
Table 4.13: Number generations running or that runs the firm ................................................. 119
Table 4.14: Reasons for survival past first and/or second generation ....................................... 120
Table 4.15: Reasons why firms did not survive second or third generation .............................. 120
List of figures
Figure 1: Seven step succession plan process ............................................................................ 27
Figure 2: 6 step succession process............................................................................................ 29
Figure 3: Five step succession process ....................................................................................... 37
Figure 4: The ownership-management matrix ............................................................................ 54
Figure 5: The 3 circle model...................................................................................................... 56
Figure 6: The three Circle model (family component influence) ................................................ 57
Figure 7: Model for managing the family component in succession planning ............................ 58
Chapter One: Introduction
1.0 Background of study
Family businesses are owner operated and managed ventures with family members
predominantly involved in the administration; operations and strategic determination of
corporate destiny (Poutziouris, 2000).Family businesses are increasingly becoming the dominant
form of business enterprise in Zimbabwe where they play a pivotal role in the economic and
social spheres (Mbetu 2012). This is because of the recent stagnation and harsh economic
environment affecting Zimbabwe‘s formal sector in the creation of new jobs, thus forcing people
to be enterprising. These enterprises are mostly family businesses and can offer great
opportunities for economic growth.
Family businesses offer great opportunities for economic growth. Family businesses play an
important role to economies employing the majority of the workforce, creating the most new
jobs and generating a significant proportion of the gross domestic product (Astrachan & Shanker,
1996). However like any other type of business, family businesses encountered difficulties such
as rising global competition, high taxes and harsh economic and financial problems.
Adding to these challenges are the complexities of family business dynamics which include
ownership, family harmony, solidarity and succession which contribute to their survival. Even
though family businesses are as important as they are driving force behind economic
development, their survival rate is very low compared to non-family firms (Ellis & Ibrahim,
2006). This is attributed to poor technical skills, financial management and poor succession
planning practices though little has been said about it (Trent, 1999).
It is estimated that over two-thirds of all businesses worldwide like Linden and co limited,
Robert Dickson and Lesley Antiques are owned or managed by families (Gersick, 1997). More
than 80% of businesses in Europe and United States are believed to be family owned and these
include Walmart.com, Mars limited, Saarland (Flintoff, 2002).
The survival and longevity of the Zimbabwean family businesses is a cause of concern if they are
to be a major contributor to the social and economic well-being of Zimbabweans. The running of
an enterprise is usually closely aligned to the personality and style of the founding entrepreneur.
A number of research studies (Beckhard and Dyer 1983, Lansberg 1988, Maynard 1999) found
that when owners or managers retire, less than one-third of family-owned businesses are
continued by the next generation.
There is lack of continuity within the family business setups and the cost of business failure in
Zimbabwe has adversely affected the social and economic growth. The high failure rate among
first and second generation family businesses are attributable to the inability to manage
ownership and succession (Mbetu, Mhonde, Mapetere, Mavhiki and Sikomwe 2012). Failure to
plan for succession is a recipe of failure to business continuity.
According to an article in local Zimbabwean newspaper ―The Standard‖ of February 2010;
states that a ―myth has been residential among the black business people in Zimbabwe that black
business persons do not plan for the continuity of their enterprises after they die. It is further
believed that the black entrepreneurial family background is most unfavorable for the business
sustenance because members of an entrepreneurial family have negative experiences of endless
economically precarious entrepreneurial work.
Generally succession planning entails a long term and more extensive approach towards the
training, mentorship and replacement of key individuals (Rothwell, 2001; Wolfe, 1996).
Succession in family firms looks at transference of leadership from one family member to
another (Ibrahim, 2003). Planning for succession helps family firms to survive for generations
(Ibrahim, 2003).When plans for succession are carried out well, it increases the likelihood of co-
operation among stakeholders in businesses, therefore enhancing the chance of a smooth and
effective succession, (Morris, 1997; Sharma, 2001)
1.1 Statement Problem
Zimbabwe does not have much prior research on family business dynamics. Approximately 80%
of the businesses in Zimbabwe are classified as family businesses and are mainly small to
medium sized (Mbetu 2014). Therefore it seemed to be a lack of sufficient study research with
regards to the role of succession planning in the family business set up of Zimbabwe. The Herald
of April 17 2012 states that in Zimbabwe succession planning is treated as a peripheral activity
and business continuity is never considered as a serious issue, thus there is no formal written
succession plan in place. But most family businesses in Zimbabwe struggle to survive through to
the second generation. The Standard of 14 February 2010 shows that only 15 percent of the
Zimbabwean family businesses survive to the second generation. Generally 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 (Beckhard & Dyer, 1983; Heck and Trent, 1999; Ward,
1987). This is usually attributed to poor succession planning, organizational learning, (The
Monitor, 1998), and inappropriate entrepreneurial orientation, (Walter, 2004).
1.2 Research Objectives
1.2.1The main objective
Evaluate the role of succession planning on the survival of family businesses in Zimbabwe.
1.2.2 Specific Objectives
Examine how succession planning is conducted in a family business set up.
To examine the relationship between the components of succession planning and survival
of family businesses.
Investigate why a formally written and structured succession plan is not conducted in
family businesses.
Assess the risk involved of not undertaking a formally written succession plan on the
survival of the family business.
1.3 Research Questions
1.3.1The main research question
What is the role of succession planning on the survival of family business in Zimbabwe?
1.3.2 Specific research questions
How is succession planning conducted in the family businesses step up?
What is the relationship between the components of succession planning and survival of
family businesses?
Why is a formally written and structured succession plan not conducted in family
businesses?
What are the potential risks of not conducting a formally structured succession plan?
1.4 Significance of Study
The study was undertaken to increase the level of understanding of the role played by succession
planning in existing family businesses for the survival of these businesses. The study would
therefore benefit family business owners in an attempt to promote their businesses across
generations. The study would add value to the family businesses and this would close the gap of
discontinuity or reduction of operation as effective succession planning would result in the
smooth flow of business from one generation to the other. It would also thus help in the
importance of succession planning; the process of succession planning; and how to overcome
barriers to effective succession planning.
The study was done also to help improve the microeconomic environment of family business
spheres by providing guidance to spouses and other relatives in maintaining good relationships
both as a family unit as well as business colleagues/ subordinates (manage the family
component).
The study was also done to generate information for the government, policy makers and
institutes of higher learning on one of dynamics of family businesses (succession planning). As
this study would be able them to use this information as a platform on how to improve the
survival of family business and increase their overall contribution to the Zimbabwean economy.
1.5 Delimitations (Scope of study)
1.5.1 Subject Scope
The study focused on selected family businesses in registered in Zimbabwe. It was confined in
the major cities of Zimbabwe (Harare and Bulawayo). The population consisted of a combination
of family businesses still surviving and those that have not survived beyond the first generation
1.5.2 Geographical Scope
The study was carried out in Zimbabwe because this provided a reasonably large and
representative population for the study.
1.6 Summary
Though there is an increasing dominance of family business and their importance to the overall
economy of Zimbabwe, they seemingly has been a lack of research study on the role of
succession planning on family businesses survival. To create a theoretical framework that would
guide the whole study, literature review in chapter 2 was done. Chapter 3 confined the
delimitations of study as a research methodology was used to conduct the study within the
geographical scope. Thus in order to have a more accurate analysis in this master dissertation,
the researcher had to limit population size to a representative sample size. This is because of the
reach ability of some of the firms; the researcher could only conduct the interviews in the major
cities of Zimbabwe. As a result possible areas of research that would add magnitude and weight
to the study will be skipped to meet the deadline. Analysis of data findings was done in chapter
4, which was used to conclude the study in chapter 5 as to see if objectives were truly met and
satisfied.
Chapter 2: Literature Review 2.0 Introduction
The previous chapter highlighted the background of the study, the statement of the problem,
research objectives as well as the delimitations of the study. This chapter represented a review of
literature on the role of succession planning on the survival of family business. It examined
strategies, concepts, researches, paradigms and perspectives by other researchers on the study
surrounding succession planning, family business succession planning and family business
survival. This chapter outlined the theoretical framework that was created to serve as a guideline
for executing this research and enabled the researcher to obtain the research objectives and
answer the main research question and sub research questions.
2.1 Succession Planning
The researcher analyzed succession planning in its context as an entity, to get a clear
understanding of what succession planning is before confining it to the context of family
business. Thus the elements involved, key factors, pros and cons were explored and created the
following sub headings.
2.1.1 What is succession planning
According to Rothwell (2010), succession planning has been defined as a means of identifying
critical management positions, starting at the levels of project manager and supervisor and
extending up to the highest position in the organization. It describes management positions to
provide maximum flexibility in lateral management moves and to ensure that as individuals
achieve greater seniority, their management skills will broaden and become more generalized in
relation to total organizational objectives rather than to purely departmental objectives.
Mathur (2011), succession planning is a process which identifies and develops the people within
the organization. These are people who have the potential to fill key leadership positions in the
company. Succession planning increases the availability of experienced and capable employees
that are prepared to assume these roles as they become available. Thus this is a process whereby
an organization ensures that employees are recruited and developed to fill each key role within
the company.
This process leads management to define and address talent management strategies as they
prepare the organization, and people, for the future (McCauley & Wakefield (2006). It helps to
ensure the stability and tenure of personnel. It is designed to ensure the continued effective
performance of an organization, division, department of work group by making provision for the
development, replacement and strategic application of key people over time.
Thus it is generally a people process that organizations implement to ensure their people are
properly valued, nurtured, and developed. Succession planning and management should support
strategic planning and strategic thinking and should provide an essential starting point for
management and employee development programs (Rothwell, 2001). This is done by identifying
and preparing the right people for the right jobs. Though applicable at all levels, it is at the
highest level that the most formidable challenge exists (Vedpuriswar 2001).
But as continuous process succession planning will help the firms to assure continuity by
preparing the leaders for key executive positions; engaging the senior management team in a
disciplined process of reviewing the corporation‘s leadership talent; putting the diversity issue on
the corporate agenda; guiding the development activities of key executives; re-examining
corporate and business unit structure, processes, and systems; aligning with other Human
Resource activities that support the leadership renewal process (Bruer, Leibman & Maki, 1996).
In a nutshell succession is best described as the transfer of both management and control within a
business. It does not necessarily mean a complete exit from ownership – but it does mean an exit
from management.
In addition to succession planning being a process it can be best summarized into three distinct
aspects – ownership succession, management succession, and internal succession – and this can
be quite daunting for business owners.
Ownership succession focuses on who will own the business, and when and how that will
happen. This is a platform for an owner‘s eventual transition from both management and, in
many instances, from ownership. The ownership succession plan enables the business to be
‗groomed‘ attractively to ensure it is seen in the best possible light and gets the best price, if the
plan is to sell.
Management succession focuses on who will run the business; what changes will occur; when
the new management will be accountable for results and how results will be realised.
Management succession planning in the family company requires focus on the four key
departments present in any business of any size: administration and finance, operations and
customer fulfillment, sales, and marketing. When we think of management succession planning,
we're not talking about who will own shares or assets in the future; we're talking about who's
going to do the dirty, thankless, and countless tasks which make the family business an asset
worth preserving in the first place.
Internal succession is a disciplined means of nurturing, developing, and retaining talent as a
platform for an owner‘s eventual transition from management and, in many instances, from
ownership. A well-executed internal succession planning process creates an environment that
ensures that the best people have been chosen wisely and groomed appropriately to lead the
business into the future.
The definitions cited above focus on different aspects of succession, from ensuring there is a
potential successor available, to transferring ownership to another individual. For the purposes of
this project, the definition of succession planning will focus on the identification of a successor
and the transfer of ownership and management from one individual to another. This definition
was selected as it represents the overall themes of the definitions described above.
2.1.2 Trends influencing succession planning
According Rothwell (2005) Succession planning must be carried out against the backdrop of
increasingly dynamic organizations. Those organizations are responding, either proactively or
reactively, to changes occurring in their external environments. As Leibman explains, ‗‗today‘s
dynamic environment filled with global competition and business discontinuities defines the
arena in which succession planning must flourish.
To do so, a much more active orientation is required, one that is better characterized by
succession management and its emphasis on ongoing and integrated processes. For Leibman,
succession management is more active than succession planning and must be carried out in a
way that is tied to organizational strategy and is responsive enough to deal with rapidly changing
organizational settings. That is an accurate view, to be effective, succession planning programs
must anticipate and not just react to the changes brought by an increasingly dynamic business
environment.
Many trends drive the future workplace and workforce. Among them are the following:
Changing Technology
Increasing Globalization
Continuing Cost Containment
Increasing Speed in Market Change
The Growing Importance of Knowledge Capital
An Increasing Rate and Magnitude of Change
These trends demand a new role for managers. They also call for a new, more strategic role for
HR practitioners. Trends such as this frame the future of succession planning efforts, and
effective succession planning programs are built to help organizations manage and even
capitalize on the effects of these trends.
2.1.3 Factors Influencing Succession planning
There are many factors which affects the process of succession planning. These factors affect the
overall organization as they affect the productivity, reputation, brand image and morale of
employees. These factors include succession plan, size of company, kind of company etc. The
factors affecting succession planning are as follows:
Succession plan: Succession planning provides a blueprint for the growth of your
organization. Succession planning is crucial to the longevity of any organization.
Implementing a succession strategy can be confusing, though, because it depends so
much on the type of organization. Effective succession planning is tailored to your
particular company, and what worked well for another organization might not help you.
However, there are a few key factors that help guide organization in undertaking
succession planning. Any organization which is strong on HR will have its own
succession plan seriously practiced in their Organization. Main purpose of succession
plan is to ensure that right kinds of people are available to the Organization in right
numbers at a given time. This helps to maintain continuity of strength and vitality of an
Organization. Succession planning therefore is part of Recruitment Plan, Training Plan
and Career Growth Management Plan. Performance Appraisal Tool is one of the
important tools helping all these plans. Another important tool would be strong HRMS.
Many leading Corporate in India have their own In-house Training Centers, also Officer
Cadre to cater to these needs.
Family Owned businesses: If the company is owned and operated largely by family
members that strongly influence the best way to plan for succession. In a non-family-
operated business, managers often start by identifying employees who seem best suited to
take on leadership roles. In a family business, however, many people decide to pass the
business on to family members, and start training them early to take over. In a family
owned businesses, it is often hard to tell the difference between succession management
and distribution of ownership. The succession also decides how the assets of the company
are split up operationally and in shareholding; because founders find it hard to break up
their enterprise.
Size of company: If company has large size then organization must have a larger pool of
potential successors to choose from. Organization may identify several early on, and then
monitor their performance and make a decision when it is closer to time for them to take
over. With smaller companies, however, designating a successor may be more difficult.
Organization may not have employees prepared to take over, and may need to recruit
someone specifically for the position, or hire employees based not only on how qualified
they are for the job, but on how qualified they are to move up to higher-level positions.
Kind of Company (Privately v/s Publically held Company): The succession planning
may include not only choosing and training a successor, but possibly alternative options
such as selling of company to another in the same industry or to a private investor. A
CEO must think not only of how his company will fare without him, but how he will
manage his retirement. In article "Succession Planning for Privately Held Companies,"
investor Bruce R. Evans recommends that CEOs of privately held companies link their
succession planning strategies with liquidation strategies. By selling his interest in the
company to his successor he retires, for example, the entrepreneur can be assured of
funding for retirement.
Leadership development: Successful succession planning relies on not just choosing
people to take over, but grooming potential successors to ensure they're prepared. The
"Workforce" article "10 Ways to Take the Success Out of Succession Planning" says one
of the biggest mistakes is simply replacing key executives, rather than evaluating all
employees and identifying and training any who have the potential to move up. If
organizations have a leadership development program in place, they will have a much
larger pool of successors from which to choose, and who will be better trained to take on
a greater variety of roles.
2.1.4 Importance of Succession planning
Succession planning is an essential part of doing business, no matter how certain the future of the
company appears. According to Suh, Yun-Hee and Park (2008), succession planning prepares
the company and the employee for future needs. Thus, matching that employee‘s talents to
current needs and training them for future responsibilities creates a cycle of anticipated growth
and goals. A good succession plan maps out which employees are ready for new leadership roles
as they become available, and when one employee leaves or is promoted to the next level,
another employee is already trained and ready to step in where they are needed.
Managing the transition of a business from one generation to the next is a difficult process to
navigate. Succession planning has been identified in the literature as one of the most important
topics requiring the attention of business owners, and the single most important lasting gift one
generation can provide to the next (Motwani, Levenburg, Schwarz, & Blankson, 2006; Pardo-
del-Val, 2009). Succession planning can help businesses avoid risk (Garman & Glawe, 2004),
transfer knowledge that can be a source of competitive advantage (Cabrera-Suarez, Saa-Perez, &
Garcia-Almeida, 2001), ensure successors are prepared for their new position (Barach &
Ganitsky, 1995; Stavrou, 1998), transfer relationships and strategic direction (Kesner & Sebora,
1994), provide family businesses with the processes, knowledge, and structure for identifying
internal capacity, and provide an opportunity for change (Barnett & Davis, 2008; Berman &
Coverly, 1999)
Many offices accomplish this on a small scale by job sharing and cross training for every
position. To them, a succession plan goes beyond planning for the training of employees to
assume more responsible roles, providing that training and assessing each employee‘s ability to
step in when a position becomes available.
Succession planning is not just important for the company and its current employees, but also for
investors, customers, the community the employees and their families. Succession planning
aims at answering some of these questions, who is going to manage the business when the owner
no longer working for the business? How will ownership be transferred? Will the business even
carry on or will it be sold? Succession planning seeks to manage these issues, setting up a
smooth transition between the owner and the future owners of the business. Thus generally the
two main reasons for succession planning are;
Continuity with prosperity; entrepreneurs give their lives to building their businesses, it
is one of the crowning achievements of their lives, so they often have a deep-seated
desire to see their businesses continue and prosper after they retire. Thus they feel a
commitment to their customers, or clients, to their community and even their suppliers.
Without a clear succession plan many businesses fail after the original owner retires, sells
the business, or passes away.
Avoiding the a shortage of skilled and knowledgeable staff; for larger companies
firms it is critical to implement a succession plan across a broad segment of the company,
from lower supervisory roles to high level managerial positions. This approach is more
conducive to identifying, developing, and keeping key leadership personnel. Other
reasons also include the following;
Inability to plan for a disaster; No matter how good the firm‘s revenue projections or
economic predictions are no one can truly plan for disaster. Whether it is an unforeseen
illness, a natural disaster, or a CEO's decision to suddenly retire, the reasons for having a
succession plan in place before it is needed are endless. So while one cannot plan for
disaster, one can put into place a series of contingencies that will help the company stay
afloat if, in fact, catastrophe occurs.
Company Review; business practices have evolved over the years; succession planning
has also grown and changed. It is no longer a plan that can only be accessed when
leadership is going to change; a succession plan can be used before its "real" intent is
necessary. It can be used to build strong leadership, help a business survive the daily
changes in the marketplace, and force executives to review and examine the company's
current goals.
Succession planning gives other colleagues a voice. If one is running a family business,
the process of succession planning will give family members an opportunity to express
their needs and concerns. Giving them that voice will also help create a sense of
responsibility throughout the organization, which is critical for successful succession
planning. Resist the temptation to solely carry the entire weight of creating and then
sustaining a plan.
A succession plan can help sustain income and support expenses. Talking about
money should be a priority. People generally do not want to work for free and things
don't pay for themselves. A succession plan can provide answers as to what the company
will need for future income, as well as what kinds of expenses that may incur once the
owner step out of the main leadership role. Succession planning helps answer questions
about the owner‘s annual income and other benefits including health and dental insurance
for the owner and his/her dependents, life insurance premiums paid for by the company,
professional memberships, and other business-related expenses.
Succession planning gives the owner a holistic picture. Some companies mistakenly
focus solely on replacing high-level executives. A good succession plan can go further,
however, and force you to examine all levels of employees. The people who do the day-
to-day work are the ones keeping the business going. Neglecting to add them to the
succession planning mix could have dire consequences. As the firm develops the plan, it
should incorporate all layers of management and their direct reports.
Succession planning strengthens departmental relationships. When regular
communication occurs between departments the company is more likely to experience
synergy, which breeds a culture of strength. Therefore should be a link between the
succession planning activities with human resources management. By including human
resource management in succession planning, the firm can incorporate elements like the
employee evaluation process, which can help when deciding whether to fill vacancies
with internal candidates.
Succession planning keeps the mood buoyant. Change — a major component of a
succession plan — is exciting and can bring a company unforeseen rewards. Still, change
can be a source of tremendous stress, especially when people's livelihoods are at stake.
As one puts a succession plan together, one must consider its positive effects on the
business. Planning for the future is exciting and, if done correctly, can inspire the workers
to stay involved and maintain company loyalty. It is true that a plan is often put into place
to avert catastrophe, but it is also a company's way of embracing the future — a business
strategy that is essential for survival.
2.1.5 Success planning process
As previously suggested by the definition of the succession planning; succession planning is a
process which identifies and develops the people within the organization, this process leads
management to define and address talent management strategies as they prepare the organization,
and people, for the future (McCauley & Wakefield (2006). In an early study research by
Christensen (1953) proposed some of the elements that would most typically be included in such
a plan:
identifying the pool of potential successors;
designating of the successor;
the successor designate and other management leaders.
The elements described by Christensen provide a framework for understanding the tasks required
for a suitably comprehensive succession-planning process. For example, giving consideration to
several possible successors might indicate that a more comprehensive succession process is
undertaken than when only one successor is considered (Vancil, 1987).
As research study on this concept preceded the elements or stages of effective succession
planning have become more refined and more articulated. Any exceptional succession planning
program will be organized around a roadmap that integrates all its components and emphasizes
the internal development of existing employees in the organization (Rothwell, 2005).
Figure 1 below illustrates an example of a succession planning roadmap. What follows is a step-
by-step description of this roadmap.
Figure 1: Seven step succession plan process
Step 1: Get Commitment
No succession planning program can work without managers and employees at all levels clearly
understanding why a succession program is needed. A compelling case must be made for it. At
the same time, executives, managers, supervisors and employees must clearly understand their
role in the program.
Step 2: Analyze the Work and the People Now
To prepare successors, managers must know what work is done, how it is done, and what kinds
of people do it best. This step requires the creation of up-to-date job descriptions, clear work
outputs and work accountabilities, and job competency models to describe the characteristics of
the people who do the work best.
Step 3: Evaluate Performance
Step 3 refers to performance management, the process of planning, managing and appraising
worker performance over time. This step is important in a good succession planning program
because individuals must be held accountable for the work they do, the responsibilities they
shoulder, and the competencies they demonstrate. It is worth emphasizing that it is not enough
to have any performance management system; rather, the performance management system must
measure people against what they are expected to do, what results they are expected to achieve,
and what competencies and behaviors they are expected to demonstrate.
Step 4: Analyze the Work and People Needed in the Future
The future will not necessarily be like the past. In this step, decision makers align the
organization‘s strategic objectives with the work and competencies needed to realize those
objectives. The organization‘s future requirements should be driven down to each level, job and
function. The result should be expected future job descriptions and future competency models.
Step 5: Evaluate Potential
The potential for promotion to higher-level responsibilities should be considered against the
backdrop of the future. In other words, every individual who seeks promotion is really working
to be developed on an escalator because the competitive environment within which the
organization performs is not static. Things are changing as individuals are being developed. It is
not enough to assume that successful performance in the past will guarantee successful
performance in the future. Instead, organizational leaders must find objective ways to determine
how well individuals will function at a future time and at a higher level of responsibility.
Step 6: Develop People
Step 6 focuses on closing developmental gaps, found by comparing the results of steps 4 and 5.
To carry out this step successfully, organizational leaders should establish an individual
development plan (IDP) for each employee to narrow gaps between what the individual does
now and what he or she must do successfully in the future to function at higher levels of
responsibility. An IDP is like a learning contract. It is usually negotiated between individual
and his or her supervisor on an annual basis. Individuals are encouraged to identify, and plan for
using, resources to help them build the competencies they need at higher levels of responsibility.
Resources may include training courses inside the organization, seminars or conferences outside
the organization, internal job rotation experiences, and many other competency-building efforts.
Step 7: Evaluate Program Results
How can the results of a succession planning program be evaluated? The answer to this question
must be obtained by measuring program success against the objectives established for the
program in Step 1.
Other researches like the one done by the United States office of personal management in
September 2005, came up a systematic approach to succession planning process; a six-step
process as shown in the figure 2 below,
Figure 2: 6 step succession process
Step 1: Link Strategic and Workforce Planning Decisions
This step involves:
Identifying the long-term vision and direction
Analyzing future requirements for products and services
Using data already collected
Connecting succession planning to the values of the organization
Connecting succession planning to the needs and interests of senior leaders.
Step 2: Analyze Gaps
This step involves:
Identifying core competencies and technical competency requirements
Determining current supply and anticipated demand
Determining talents needed for the long term
Identifying ―real‖ continuity issues
Developing a business plan based on long-term talent needs, not on position replacement.
Step 3: Identify Talent Pools
This step involves:
Using pools of candidates vs. development of positions
Identifying talent with critical competencies from multiple levels—early in careers and
often
Assessing competency and skill levels of current workforce, using assessment
instrument(s)
Using 360° feedback for development purposes
Analyzing external sources of talent.
Step 4: Develop Succession Strategies
This step involves:
Identifying recruitment strategies:
Recruitment and relocation bonuses
Special programs
Identifying retention strategies:
Retention bonuses
Quality of work life programs
Identifying development/learning strategies:
Planned job assignments
Formal development
Coaching and mentoring
Assessment and feedback
Action learning projects
Communities of practice
Shadowing.
Step 5: Implement Succession Strategies
This step involves:
Implementing recruitment strategies (e.g., recruitment and relocation bonuses)
Implementing retention strategies (e.g., retention bonuses, quality of work life programs)
Implementing development/learning strategies (e.g., planned job assignments, formal
development, Communities of Practice)
Communication planning
Determining and applying measures of success
Linking succession planning to HR processes
Performance management
Compensation
Recognition
Recruitment and retention
Workforce planning
Implementing strategies for maintaining senior level commitment.
Step 6: Monitor and Evaluate
This step involves:
Tracking selections from talent pools
Listening to leader feedback on success of internal talent and internal hires
Analyzing satisfaction surveys from customers, employees, and stakeholders
Assessing response to changing requirements and needs
Another study by Government of Newfoundland and Labrador in April 2008 came up with
succession planning process guide where there defined the key elements being;
Step 1 – Identifying Key Positions or Key Groups
A key position or occupational group can be defined in many different ways, but two important
criteria that should be considered are criticality and retention risk. A critical position is one that,
if it were vacant, would have a significant impact on the organization‘s ability to conduct normal
business. The significance of the impact could be considered in terms of safety, operation of
equipment, financial operation, efficiency, public opinion, and so on. Retention risk refers to
positions where the departure of an employee is expected (e.g. retirement) or likely (e.g. history
of turnover). By examining these criteria on a low-to-high scale, an organization can determine
what positions require short- or long-term planning. A gap analysis, as a part of workforce
planning, can also be an invaluable tool to identify key areas or occupational groups. Information
that may help identify key positions can include:
Current and future strategic goals and objectives
Retirement forecasts
Turnover rates
Current and expected vacancies
Changes to existing programs and services
Highly specialized function
In addition to the analysis of criticality, retention risk, and other workforce data, it might be
beneficial to consider the following types of questions:
What jobs, if vacant, have the potential to prevent the organization from achieving goals
and objectives?
What jobs have a direct impact on the public?
What jobs would be difficult to fill because of required expertise or because the exiting
incumbent possesses a wealth of unique and/or corporate knowledge?
Is there a projected labour market shortage for relevant job skills?
Is there a need to plan for anticipated positions that do not currently exist?
Step 2 – Identifying Competencies
All positions have a requisite set of knowledge, skills and abilities that are expected of
employees who are filling that function. Thus, knowing the competencies of a job is a mandatory
component of recruitment, serving as a general baseline to measure against interested potential
candidates. However, succession planning provides an opportunity to review the competencies
traditionally associated with jobs, particularly with respect to current goals and objectives.
Several ways to determine and develop required competencies include:
Reviewing job descriptions, advertisements, and relevant merit criteria
Interviewing current and former job incumbents
Interviewing supervisors, clients, and other stakeholders
Conducting focus groups or surveys
Reviewing any existing development programs (i.e. leadership competencies)
Reviewing organizational values
Although job descriptions offer a good starting point for the identification of competencies, it is
important to consider some of the other sources of information listed above. Current incumbents,
for example, would have a good understanding of which competencies are the most important to
their job. Interviewing these people may reveal knowledge, skills and abilities that are necessary
for the job, but are not currently identified in the job description. Given the practical scope of
any job, valid identification of competencies is necessary for:
Establishing minimum requirements for job success;
Creating a baseline for assessing interested potential candidates; and
Identifying appropriate learning and development opportunities.
Some questions to consider might include:
What are the specific functional competencies that apply to a key job or group?
What competencies apply to all employees and groups?
Are these competencies aligned with the organization‘s vision, mission and values?
Step 3 – Identifying and Assessing Potential Candidates
The key purpose of identifying and assessing employees against core job competencies is to help
focus their learning and development opportunities in order to prepare them for future roles in
the organization. Traditional approaches to succession planning have the potential to result in a
one-sided selection process – the organization identifies a key position, and then executives
select a high-potential individual for preparation or training. Given the potential sensitivity
around the decision-making process in these situations, an employee might be advised about
their prospective opportunity for advancement in private. This process is not transparent and can
negatively impact the morale of other employees (including the person chosen for succession)
and their relationship with the organization. Modern approaches to succession planning suggest
that transparency and accountability are the best practices for an organization. Recruitment in
the public service is based on merit, fairness and respect, and these concepts are maintained and
supported by the succession planning process.
Modern approaches to succession planning suggest that transparency and accountability are the
best practices for an organization. Recruitment in the public service is based on merit, fairness
and respect, and these concepts are maintained and supported by the succession planning
process. To demonstrate these values, succession planning must be:
Objective and independent of personal bias; Merit-based;
Communicated to and understood by all employees; and
Transparent at all stages of the process.
Under these circumstances, self-identification is a useful starting point to see which employees
are interested in leadership roles, career advancement or lateral moves that might not be easily
attained without focused training or other learning and development opportunities. Several ways
to solicit for self-identification include:
Circulating an expression of interest
Employees discussing career goals and objectives with their supervisor
Developing an inventory of employee skills/competencies and careers interests
There are a number of other supporting methods to identify potential candidates once a pool of
interested candidates has been established. Some of these methods can include:
Written exams
Candidate interviews
Review of résumés/CVs
Simulated work exercises
Performance reviews
Reference checks
Talent review meetings
This step of the succession planning process is closely related to regular recruitment practices,
but succession planning goes one step further by helping interested candidates develop the
requisite skills prior to the formal recruitment process that begins once a position becomes
vacant. Public service organizations should consider consulting with the Public Service
Commission to ensure that the steps used for identifying potential candidates support decisions
that are based on merit, fairness and respect. Some critical questions that may help departments
prepare for this step include:
Has there been one-on-one discussion with employees regarding their career goals and
interests?
Have all employees been made aware of available succession opportunities?
Do employees understand the purpose and process of succession planning?
Specifically, do they understand that they are not guaranteed a promotion as a result of
this process?
Do employees who were not considered for a current opportunity understand that they
can be considered in the future with further development of their knowledge, skills, and
abilities?
How will the organization communicate the outcome of a succession-based appointment?
Have alternative career paths (i.e., relevant lateral moves) been identified for employees
who were not considered for a current opportunity?
Will the organization use multiple sources of information when assessing a candidate?
How will the organization develop an inventory of employee skills and interests?
Are an appropriate number of candidates being developed for a key job?
How will the candidate pool demonstrate the organization‘s value for employment equity
and diversity?
Step 4 – Learning and Development Plans
Once the relevant candidates have been identified, based on their interest and potential for
success in a key position, the organization must ensure that these employees have access to
focused learning and development opportunities. Some key points to remember when developing
learning and development plans are:
Plans should focus on decreasing or removing the gap between expected competencies and the
current knowledge, skills and abilities of candidates.
Manage expectations – modern succession planning is based on learning and
development to fulfill employee potential, rather than merely filling a vacancy.
There are a wide range of learning and development opportunities to consider, which
can include:
Job assignments that develop and/or improve a candidate‘s competencies;
Job rotations; and
Formal training.
Ensure appropriate strategies are in place to support the transfer of corporate knowledge
to candidates for key jobs, which can include:
Mentoring, coaching or job-shadowing;
Documenting critical knowledge;
Exit interviews; and
Establishing communities of practice
Step 5 – Implementation and Evaluation
Evaluating succession planning efforts will help to ensure the effectiveness of the process by
providing information regarding:
How the process operates – the relationship between inputs, activities, outputs, and
outcomes
Impact of the process relative to stated goals and objectives
Functional strengths and weaknesses
Potential gaps in planning and assumptions
Cost-effectiveness and cost-benefit
Planning to collect and assess these types of information will ensure that the organization
monitors its succession planning activities, appropriately measures success, and adjusts the
process accordingly given sufficient evidence. Some evaluative questions for departments to
consider might include:
Have all key jobs been identified and do they have succession plans?
What is the impact of succession plans on business continuity in key positions?
Are successful candidates performing well in their new roles?
What is the impact of learning and development efforts? Are employees ready to compete
for a vacant key position?
Is the candidate pool diverse and reflective of employment equity values?
What are the areas for improvement in the succession planning process?
Once a succession plan has been established, monitoring its efficiency and effectiveness will be
essential. Thus, each succession plan should be developed within an evaluation framework in
order to measure progress and success, as well as provide any evidence to support changes to the
succession planning process.
In 2010 a succession planning guide done by the New Nouveau Brunswick (GNB) in Canada, a
succession planning framework is built on the following four objectives:
to align resources with business lines and priorities;
to manage resources corporately and horizontally as one department;
to think strategically about the implementation of human resource initiatives across
functional communities (FC); and
To ensure that GNB becomes a sought after employer in the labour market.
The Strategies of succession planning, recruitment & selection, employee development and
talent management, Retention and Engagement, and Knowledge Transfer, are reflected in the
three key goals of the corporate HR Plan: Build capacity, recruit for tomorrow and retain and
engage. They also came up with a five step plan process for succession planning, as shown in the
figure 3 below;
Figure 3: Five step succession process
The steps include;
Step 1: Identify critical positions
Critical positions are the focus of succession planning efforts. Without these roles, the
department or agency would be unable to effectively meet its business objectives. Workforce
projection data or demographic analysis is essential in identifying risk areas. A risk assessment
may also be conducted and compared to current and future vacancies to identify critical positions
within your organization.
Step 2: Identify competencies
A clear understanding of capabilities needed for successful performance in key areas and critical
positions is essential for guiding learning and development plans, setting clear performance
expectations, and for assessing performance. By completing the process of competency or
position profiling within your organization, current and future employees gain an understanding
of the key responsibilities of the position including the qualifications and behavioral and
technical competencies required to perform them successfully.
Step 3: Identify succession management strategies
Now that critical positions have been identified and have been profiled for competencies, the
next step is to choose from a menu of several human resource strategies, including developing
internal talent pools, on boarding and recruitment to address succession planning.
Step 4: Document and implement succession plans
Once strategies have been identified, the next step is to document the strategies in an action plan.
The Succession Planning: Action Plan provides a mechanism for clearly defining timelines and
roles and responsibilities.
Step 5: Evaluate Effectiveness
To ensure that the department or agency‘s succession planning efforts are successful, it is
important to systematically monitor workforce data, evaluate activities and make necessary
adjustments.
The researcher recognized that the above steps from the various researches conducted are
generally related to the general aspect of succession planning. The researcher further realized
that there is no one size that fits all. According to Rothwell (2005) the similarities and the
differences that exist in succession planning and management efforts are across spectrum of
different types of organizations (general business, small business enterprise, public sector, non-
profit organization and family business). There are different approaches which may be used,
depending on the situation in each company. In some cases, a company may have to move some
people along quickly, in order to expose them to a broad range of experiences, and possibly to
fill vacancies.
In others, a deeper involvement in selected departments or disciplines may be indicated. Some of
this will depend on the culture and processes of the company. In yet other cases, decisions about
the process will depend on the individual‘s capabilities and competencies, and the structure and
operations of the company. In virtually all situations, the ability to educate and promote will
depend on the capabilities and strengths of the people who currently occupy the key positions
and where they will be going in the future - what are they being groomed for?
It may not be vital to have a succession plan for every position in the company, but certainly
there are some key areas of responsibility which must be considered. These will vary by
company and industry, but as a part of a Simplified Strategic Planning process, one important
strategic issue should be the need for succession planning for certain, defined key positions. This
issue should be revisited at least once a year and more often if circumstances dictate.
There are key success factors to ensure a successful succession plan, the commitment to pre-
planning, and the awareness of potential issues, and knowledge from informed advisors and
communication of the plan to all interested stakeholders. There are other several factors typically
found in successful succession planning initiatives. For example:
Senior leaders are personally involved.
Senior leaders hold themselves accountable for growing leaders.
Employees are committed to their own self-development.
Success is based on a business case for long-term needs.
Succession is linked to strategic planning and investment in the future.
Workforce data and analysis inform the process.
Leadership competencies are identified and used for selection and development.
A pool of talent is identified and developed early for long-term needs.
Development is based on challenging and varied job-based experiences.
Senior leaders form a partnership with human resources.
Succession planning addresses challenges such as diversity, recruitment, and retention
2.1.6 Succession Strategic methods and tools
From a human resources perspective, the researcher recognized the following breakdown
provides the methods and tools to consider as one move forward with the identification of the
specific succession planning strategies needed to hire for critical positions and prepare for future
vacancies.
Succession Planning Strategy: Employee Development & Talent Management
Methods:
Position Profiles
Talent Management Committee
Talent Pools
Interest Surveys
Applications/Nominations
Assessment Processes
Talent review meetings
Learning & Development Plans
Developmental Opportunities
Rotational Assignments
Acting Assignments
Job exchanges
Executive Talent Management Program
Leader/Manager Development
Coaching/Mentoring
Professional Development
Technical Training
On-The-Job/Action Learning
Performance Management
Coaching/Mentoring
Knowledge Transfer
Team meetings
Communities of practice
Cross training
Job shadowing
Tools:
Competencies (Middle Manager & Executive)
BEI Interviews
360° Feedback
Position/Competency Profile template
Career Management Module
Learning Calendar
Talent Management Programs (Corporate and Departmental)
Learning & Development Plans (Executive, Middle Manager and Employee)
Learning Policies/Guidelines
Executive Development Strategy
Senior Leaders Study Tour
Knowledge Transfer Guide and Plan
Career Development Portal
Succession Planning Strategy: Recruitment and Selection
Methods:
Employee Value Proposition
Total Rewards Package
Competitive Compensation
Outreach & Relationship-Building
Recruitment Process Improvements
Recruitment Strategies/Methods
Internships
Co-op Programs
Apprenticeship Programs
Summer Employment Programs
Immigrants
Casual Hires
Personal Service Contracts.
Orientation
Tools:
Competencies (Middle Manager & Executive)
BEI Interviews
HRIS Reports
Competition System Reports
Applicant Tracking
Staffing Policy
Employment website
Succession Planning Strategy: Retention & Engagement
Methods:
Pension & Benefits
Vacation & Leaves
Flexible Work Arrangements
Job-Sharing
Telecommuting
Employee Health & Safety
Wellness Initiatives
Retirement Planning & Pre-Retirement Options
Reduced work hours or duties
Phased retirement
Job Enrichment
Special project assignments
Committees/task teams.
Mentoring opportunities
Respectful Workplace
Leader/Manager Quality
Recognition & Rewards
Community Involvement Initiatives
Tools:
Exit interviews/surveys
Employee Engagement Survey
Career Development Portal
Succession Planning Action Plan template
Knowledge Transfer Guide and Plan
Succession Planning Strategy: Monitoring & Communication
Methods:
Reporting and monitoring
Tools:
Communication Plan
Performance Indicators
Competencies
Performance Feedback
2.1.7 Mistakes to be avoided in succession planning
Many mistakes are commonly made in establishing succession planning programs. They are
worth enumerating. It is also worthwhile to describe some ways to avoid these common
mistakes.
1. Assuming that Success at One Level Will Guarantee Success at Higher Levels.
An individual‘s success at one level is no guarantee of success at higher levels of
responsibility. The reason is simple: the competencies required for success at each level
are different. Hence, it is important to separate thinking about how well someone does his
or her current job and how well he or she might do a job at a higher responsibility level.
2. Assuming that Bosses Are Always the Best Judges of Who Is Promotable.
A second mistake is to assume that, for purposes of succession planning, bosses are
always the best judges of who is promotable. That is not always true. Bosses are self-
interested players in the succession game. They have a stake in what happens to people.
Indeed, some bosses do not want to see their best people promoted for fear of an inability
to replace them. Some bosses grade people by their own standards - with the result that
some individuals who are quite unlike the boss are not considered for promotion. While
the support of a boss is useful in developing individuals, more objective assessments,
such as multi-rater assessment are excellent in aiding the manager‘s assessment.
3. Assuming that Promotions Are Rewards.
Some employees have an entitlement mentality in which they feel that long service with
an organization should always be rewarded with promotions. But business decisions must
be based on who will do the best job, not who is ―owed‖ a promotion because of greatest
seniority. Workers must continually be reminded that doing jobs at each level requires
different competencies, and the best way for them to compete is to prepare for future
challenges rather than expect promotions for past performance at a different level of
responsibility.
4. Trying to Do Too Much Too Fast.
The strong results-orientation of many organizations today emphasizes quick results.
Senior leaders expect to see all the components of a comprehensive succession system in
place immediately. That is not always realistic. It is advisable to think of implementing
systematic succession in a phased way - either from the top down or else starting in
specific divisions or locations with greatest need.
5. Giving No Thought to What to Call It.
A fifth mistake is to devote no time to considering what to call the succession program.
As any marketer knows, product names do matter. It is not necessary to call a spade a
spade. Many organizations choose alternative names–such as ―leadership development
program,‖ ―human capital management program,‖ or even ―talent program.‖
6. Assuming that Everyone Wants a Promotion.
A sixth mistake is to assume that everyone wants a promotion. That is not always true
today. In many downsized organizations, workers have seen what pressures their bosses
have to deal with. Some say ―leave me out of that.‖ Hence, it is unwise to assume that
everyone wants a promotion–or even to assume that money will convince everyone. It
will not. Check first. Find out what people want to do. For that reason, many
organizations launch both a top-down succession planning program and a bottom-up
career planning program to galvanize development
Lack of understanding how it works and how it benefits the organization.
Lack of a formal written plan for the person or position(s).
Lack of availability of human and financial resources; lack of budgetary commitment.
Superficial approach; lack of real understanding of the procedures, processes and
requirements of each area the individual is exposed to during the process.
The requirements of the Managers/Executives are not fulfilled in providing dedicated
instructions, guidance regarding skills, knowledge and abilities needed for the candidates
to be successful.
Failure to identify key employees who may have concerns with your succession plan.
Failure to plan for disability.
A rigid, inflexible plan NOT tailored to the needs and abilities of the personnel involved.
Too long a wait for real movement/promotion, disillusionment, may result in some
people leaving due to apparent inertia in the system.
Selection of unqualified or unmotivated people for inclusion in the Succession Plan
Quality of the individuals selected is paramount to the success of the process.
Complex program, requiring considerable paper work, follow-up, reporting.
2.2 Family Business Succession Planning
The researcher analyzed and evaluated the succession planning from a family business
perspective. Succession in family business includes the dynamics that proceed and lead up to the
actual succession, as well as the aftermath of the succession and its implications for the various
involved parties. These parties can include family members both in and out of the firm, non-
family employees, the founder owner, customers, suppliers and so forth. (Handler, 1991)
identifies three specific stages in the succession itself: personal development of the heir apparent
prior to working in the firm, business involvement of the heir, and leadership succession.
Individual successions can be characterized not only by the length of each stage, but also by how
well-planned the stages are, conflicts that occur between the current head and the heir apparent
over time, conflicts experienced within the family and by nonfamily employees, changes that
arise in managerial roles, and the ultimate ease with which the succession occurs (Handler,
1991).
In evaluating a given succession, it has also been suggested that one should distinguish between
the ―quality‖ of the experience and the ―effectiveness‖ of the succession (Handler, 1991, Kets de
Vries, 1993). Quality is a reflection of how the involved family members personally experience
the process. It is concerned with such issues as conflict, distrust, rivalry, resentment and stress.
Effectiveness is more related to how others judge the outcome of the succession. Examples of
issues here include organizational performance indicators and satisfaction levels experienced by
next generation managers. Further, it would seem logical that quality and effectiveness are
related, although it is not clear in what way. For instance, there is some anecdotal evidence to
suggest that some degree of conflict and rivalry may contribute to a more effective succession in
terms of outcomes (Kenny, D.A., 1979; Kets de Vries, 1993)
Thus succession is one of the most frequent topics in family business research. It is depicted as a
difficult process requiring careful preparations. However research also shows that most owners
of family businesses are not at all well prepared for what to do with their companies when they
retire (Lansberg, 1988; Handler, 1994; Gersick, Davis, Hampton & Lansberg, 1997). It turns out
to be question that is easily forgotten in the hectic day-to-day activities of running a business or a
sensitive issue that seems better left untouched.
The character of family businesses means not only a rich variety of business but also a rich
variety in succession processes. In owner-led companies the owner-manager becomes highly
influential and plays a very important role in succession. Brockhaus (2004) found that it is in the
very nature of founders to be reluctant to give up on their own creations. There might be several
owners; they can furthermore be involved in the daily running of the business to various degrees.
A succession can have been carefully planned for several years or be suddenly imposed.
Successors can be recruited both internally and externally and managerial roles can be given to
both family and non-family members.
Basically, rather than close down a business when ready to retire, many business owners prefer
to exit their business by selling to a new external owner or transferring ownership to a family
member or internal employee (Martin et al., 2002). In the family business literature, this is
commonly referred to as succession or the transfer of leadership and ownership from a
predecessor to a successor (Sharma, Chrisman, & Chua, 2003).
After transitions there will still be strong influences from previous leaders, founders and owner
managers in particular, regardless of how the succession process unfolded. Furthermore there
might be several members from the new generation present in the business among whom one
was appointed CEO. The financial and legal aspects of owner- and leadership transition belongs
to the formal side of succession and is found to be easier for practitioners to deal with once the
first hurdle of raising the question is overcome.
Emotions, relations, values and knowledge are examples of areas more indirectly linked to
succession and belong more to its informal side. These areas cannot be planned in the same
manner as, for example, tax issues that are regulated by law and where a consultant can be hired
to estimate different alternatives (Melin, Brundin, Haag, Hall, Nordqvist & Wigren, 2007).
Steps have been taken to understand better some of the factors influencing the transfer from one
generation to the next but further research on the matter is needed (Le BretonMiller, Miller &
Steier, 2004; Sharma, 2004).
2.2.1 Family Business Overview
2.2.1.1 Family Business Definition
One of the challenges in conducting family business research is defining what exactly family
business is. Unfortunately there is no one commonly accepted definition, there have been various
effects to consolidate a working definition and hence many different definitions are available
Venter and Farrington (2009). This is because many of the definitions proposed by literature are
broad and incorporate all aspects of management, ownership, family involvement and
generational succession paradigms. The various definitions from literature include;
Family business as a type of companies, an ancient type; however, it is still a very popular and
important type of company in the worldwide. Family business comes in many forms: sole
proprietorships, partnerships, limited liability companies, regular corporations, holding
companies and even publicly traded, albeit family-controlled companies. (Hisrich 2008, 375)
However, different scholars have different definitions; the family business has a variety of
definitions. And the main difference is the degree of ownership and management that family
controls. Previously, Chandler said, the founder of the company and his/her family should hold
the main ownership, and they keep a very close and personal relationship with the managers,
have high voting rights. Especially the family should control the financial matters, resource
allocation and human resource management. (Chandler, 1977) We can find in the past decades
that scholars think family business should hold the ownership and control the management
highly.
In the family business succession literature, little consensus exists on the definition of a family
business. According to Ward, a family enterprise is a company ownership in which the majority
of decision making rights is in the possession of a family and will be passed from one generation
to another (as cited in Brockhaus, 2004, p. 165; Handler, 1994). Cabrera-Suarez (2005) has
stated that at the heart of many family business definitions is the idea that there is family
influence or control over both the ownership and the management of operations.
Casrud (1994) defines a family business as ―one in which both ownership and policy making are
dominated by members of an ‗emotion kinship group‘‖ (as cited in Morris, Williams, & Nel,
1996, p. 68). For Fox, Nilakant, and Hamilton (1996), the definition has to fulfill two
components: the first is that it has to be family owned, and the second is that there is ―either the
occurrence or anticipation that a younger family member has or will assume control of the
business from an elder‖ (p. 15)
Family business constitutes the whole gamut of enterprises in which an entrepreneur or next-
generation CEO and one or more family members have a significant influence on the enterprises
via their participation, their ownership control, their strategic management, and so on.
Participation refers to the nature of the involvement of family members in the firms, whether as
part of management team, board of directors, or shareholders. Control means the rights and
responsibilities family members derive from significant voting ownership and the governance of
agency relationship. (Hisrich, 2008, 375).
As the development of the modern family business, scholars give a more boarder definition.
Chakrabarty said a family business is a business in which one or more members of one or more
families have a significant ownership interest and significant commitments toward the business‘
overall well-being. A firm is said to be family-owned if a person is the controlling shareholder;
that is, a person (rather than a state, corporation, management trust, or mutual fund) can garner
enough shares to assure at least 20% of the voting rights and the highest percentage of voting
rights in comparison to other shareholders. (Chakrabarty, 2009) It means one family controls the
ownership totally or mainly, but the family does not need to deal with the management issue
directly.
All these definitions focus on the role of the family in terms of controlling the business‘s
resources, having decision making control, transferring the business to a family member in the
next generation, and belonging to an emotion kinship group. As there is little consensus on a
definition of family business, the researcher will use aspects of each of the definitions above. A
family business will be defined as a business in which family members collectively determine
the direction and vision of the company and have controlling interests over both the business
ownership and the management.
According to Leach (2011), it has only been in the past 30 years that we have begun to study and
understand two fundamental ideas: that family business differs in a variety of critically important
ways from non-family businesses and that business families function quite differently from
nonbusiness families. As the title itself indicates, the term family business combines family and
business.
This linkage is not all that simple despite it being quite easy to identify the terms. Carlock and
Ward (2001) state that, those families which equalize family and business systems create a
positive environment where the family thrives and business performs. Hollerbach (2011b) states
that a family business does not merely consist of a family and business since ownership actually
has an extremely important role here. For this reason, family businesses are labelled as family-
owned businesses.
Family business, as with other kinds of companies, face an entire range of difficulties in
connection with doing business, as well as having to come to terms with specific problems
involving, for example, succession. Family businesses also, however, have certain benefits and
positives. Family businesses generally make the entrepreneurial community healthier. The
positive image of the company which has been built need to be maintained and therefore caring
about the high quality of products and services is paramount. Family businesses are also reliable
business partners. The positive effect of family businesses on the labour market is that they
provide jobs for family members belonging to risk groups on the labour market such as fresh
graduates, single mothers, people without working experience (Hollerbach, 2011b).
2.2.1.2 The Benefits and Challenges of family Business
The Benefits of Family Business
According the family business succession guide by The KPMG Enterprise Centre for Family
Business (2011), there are many benefits to being a family in business. Unfortunately, far too
often, family business is portrayed (especially in the media) as being plagued by
intergenerational and sibling conflicts, fiscal irresponsibility, incestuous hiring and promotional
practices, and ongoing legal battles among shareholders. Of course, family business can provide
numerous benefits to family members, non-family employees, and the communities in which
these family businesses operate. These benefits often serve to differentiate these family
businesses and elevate them to a level of preferred status and competitive advantage.
The benefits derived from being a family in business will vary depending on the makeup and size
of the family as well as its stage of evolution (i.e., first, second, or third generation). Walsh
(2011) characterized the following as some of the benefits that differentiate family businesses
and can provide a significant competitive advantage.
Loyalty – Family members in business tend to demonstrate a greater sense of loyalty to each
other and to the business. They also tend to be more committed to its success and are more
passionate about what the business stands for.
Legacy – Families in business have an opportunity to create a lasting legacy that brings with it a
sense of accomplishment and a strong sense of pride. Building on the efforts of their forefathers
is a strong motivator for subsequent generations to become stewards of the family business and
carry it to new heights in the name of the family.
Labour pool – Multigenerational family businesses have access to a labour pool of family
members who, as previously mentioned, tend to be more loyal and more committed to the
business. Family members also tend to be more flexible in taking on different job functions and
filling in for others.
Key employees – Key employees (non-family) appreciate and enjoy the unique work
environment created by a family in business. The workplace tends to be less formal, more hands
on, and more personable. Many key employees are treated like extended family and develop a
strong bond with the family and the family business.
Patience – Family businesses tend to be less driven by short-term financial results and are
prepared to sacrifice short-term gains for the achievement of longer-term goals. This allows the
businesses to align the deployment of resources with their strategic objectives. This long-term
approach to investing is often referred to as ―patient capital.‖
Values – Family business owners have the opportunity to teach and pass along their business and
personal values to the next generation of family managers/owners. Family members take pride in
upholding these family values and build them into their day-to-day work and personal activities.
The work culture is often a reflection of these family values.
Career opportunities – Family business owners pride themselves on being able to provide
family members with career opportunities in the business. The family business can be a great
training ground for family members who aspire to pursue business careers elsewhere or within
the family business. Family members are also provided with the opportunity to become managers
and owners of the family business.
Relationships – The opportunity to work with family members to pursue common business
goals can be a very rewarding experience. Years of bonding among family members can create a
strong sense of belonging and interdependency. Effectively managing these family relationships
will go a long way in ensuring long-term family and business harmony.
Financial rewards – Successful family businesses are able to provide financial rewards to both
active and non-active family members. It is not uncommon for family businesses to reward
family members more than they could obtain elsewhere. This is often viewed as one of the
privileges of being family.
Succession – As well as providing career opportunities, family businesses also favor passing the
business along to the next generation of family members. The opportunity to be an owner of the
family business or of any business for that matter can be both motivating and rewarding.
Community and philanthropy – Most family businesses are active in their communities. The
communities benefit from both the family members as volunteers/supporters and from the family
business through financial support and employment opportunities. This commitment to the
community tends to permeate the generations and provide family members with the opportunity
and rewards that stem from this ongoing community support.
The Challenges of Family Business
Walsh (20110 also considered that family business benefits can quickly be turned into liabilities
or roadblocks to the business and can create irreversible damage/conflict within the family if not
effectively managed. Typically, as the family business moves along its generational timeline,
more family members are actively involved in the business and more family members have an
interest in the activities of the business. Access to the broader family provides many potential
benefits, as identified above, but also brings with it many potential challenges. Some of the more
common challenges include
Conflicting goals/values – Family members, especially between generations, can have different
personal and business goals/values. These goals/values need to be clearly expressed and
understood by all, to avoid unnecessary stress and potential conflict among family members.
Conflicting personalities – Everyone is different. Different personalities can often lead to
sibling rivalries and intergenerational conflicts. Left unattended or unmanaged, they can destroy
family and business harmony, and in some cases, destroy the business.
Expectations – Family members have different expectations from the family and from the
business. Expectations with respect to employment, management, ownership, compensation,
work assignments, training, use of business assets, etc. will vary among family members. These
expectations need to be addressed and managed in order for the family and the business to
operate smoothly. Left unattended or unmanaged, they will negatively impact family and
business harmony, and challenge the long-term survival of the business
Work ethic – The work ethic tends to differ significantly as the family business moves through
its generations. The newer generations tend to be less prepared to invest the kind of time their
parents invested in the business. This can cause considerable stress and disaccord between the
generations and can also unnecessarily delay the transition of both management and ownership.
Employment of family members – Who gets to work in the family business, who gets what
jobs? Can spouses and in-laws work in the business? Will employment be based on what the
families want (bloodline) or what the business needs (competencies)? How are these
employment decisions made? If not effectively addressed, all of these issues can turn into
liabilities for both the family and the business.
Compensation – Compensation and the inappropriate use of compensation to achieve family or
personal goals instead of business goals continues to be one of the most challenging issues facing
family businesses. The expectations to be fair are often in conflict with the desire to treat family
members equally. Emotions can run high when this topic is addressed.
Reluctance to plan – Generally, family business owners (especially the founders) are not very
good at articulating and sharing their vision for the family business or their long-term business
goals. Business planning, succession planning, and financial planning are often viewed as an
ineffective use of time instead of a necessary business process. As the business moves through
the generations, the owners‘ vision tends to get lost or blurred and the next generation of owners
often find themselves without direction as they plan for the future. The dining room table often
replaces the boardroom table, and whatever planning is done tends to be informal and irregular.
The element of time – In general, the family component gets more difficult to manage as the
business moves from one generation to the next. Therefore, learning how to manage the family
component early on in the evolution of the family business will pay dividends down the road.
2.2.1.3 Impact of the Family component in Family Business
The researcher recognized that family business is different, according to survey done by the
Mass Mutual Financial Group, Raymond Institute (2011); Overall, family businesses were doing
better than their non-family business counterparts. They were healthier, growing both in terms of
revenues and profits, they were hiring and their owners are optimistic about the future. So the
question is why were family businesses outperforming their non-family counterparts? It would
appear that the unique characteristic of family business (i.e. the family component) and the
potential benefits derived from this unique characteristic can provide a significant competitive
advantage.
But according to the Family Firm Institute (2009) the majority of family business owners would
like to see their business transferred to the next generation, it is estimated that 70% will not
survive into the 2nd generation and 90% will not make it to the 3rd generation. In Zimbabwe,
The Standard of 14 February 2010 shows that only 15 percent of the Zimbabwean family
businesses survive to the second generation. So why are these same family businesses struggling
with the transition process? Once again, the unique characteristic of family business (the family
component) and the challenges it can create, if left unmanaged, are often responsible for these
business failures.
To effectively manage a family business one needs to make a commitment to manage the all-
important family component. On the surface, this may seem obvious. However, the potential
impact that the family component can have on the management and ownership of the family
business is too often underestimated, ignored, and/or mismanaged. The family component brings
with it a number of unique management challenges as well as opportunities. The ability of a
multigenerational family business to effectively deal with these unique management challenges
and opportunities will play a pivotal role in its short and long-term success. The idea of family
influence or control is generally of two kinds: ownership and management. And the model figure
below just shows this relationship between the management and ownership in family businesses.
Figure 4: The ownership-management matrix
The ownership- matrix is simple model used to characterize the nature of the family business in
terms of ownership and control, thus enabling a better understanding of the influence of the
family component in family business. Thus as illustrated in position X, all owners and all top
management are family. It always happens in the early stage of a first- generation family
business, and it can be called total ownership and management control. In Zimbabwe, many
small or medium size family businesses are this kind of highly centralized control. In the position
Y, no employees of management level are families, but family control 100 present of the
ownership. For example, family members are the members of the board of directors; they are the
shareholders of the whole company. The position Z is an unusual kind. It only happens when the
family sold the company; however, the receivers still remain the management team. And the
family member in management team is still running the day-to-day work. Position O signifies
that the business is no longer family. So, when judging if a company is family business, we
should find this family‘s position.
Another model is the three circle model outlined below which is often used to illustrate the
interaction/impact of the family on the management and ownership of family businesses. The
three circle model is represented by the ownership circle, the management circle, and the family
circle. The ownership circle represents the interaction/impact that the owners have on the family
and on the management of the business. The management circle represents the interaction/impact
that management has on the family and on the ownership of the business. The family circle
represents the interaction/impact that the family has on the management and ownership of the
business. (Walsh G., 2011).
The family, with its own dynamics, is an important and fundamental entity for creating and
sustaining behaviors described in the literature as entrepreneurial behavior or experience
(Cramton, 1993; Danes et al., 2008, 2010; Rogoff and Heck, 2003; Sharma, 2004; Stafford et al.,
1999). Family capital, the total resources of owning family members, enables and fosters short-
term family business success and long-term sustainability (Danes et al., 2009).
Figure 5: the 3 circle model
The ownership circle and the management circle are common to all businesses. The family circle
is unique to family business and is what differentiates it from its nonfamily business
counterparts. In many family businesses, the family permeates the management and the
ownership of the business, making it a significant, if not the major component in the overall
running of the family business. It is easy to see how the interaction between these three
components can create family, management, and ownership challenges, as well as provide
unique opportunities. The Three Circle Model illustrates how each of the components interacts
with each other and how all three circles meet in the middle, indicating that at some stage of the
family business, ownership, management, and family are mixed together
Below is a variation of the conventional Three Circle Model that illustrates the significance or
degree of influence that the family component can have. Thus the researcher believes this to be a
more accurate illustration of a typical multigenerational family business. The family circle tends
to be much more prominent and has a much greater impact on the management and ownership of
the business. In effect, in many family businesses, the ownership is all family and the
management is all or primarily family. In these situations, learning how to effectively manage
the family component is even more important.
Figure 6: The three Circle model (family component influence
The ability of family businesses to outperform their non-family counterparts and successfully
transfer the business to the next generations is very much dependent on their ability to manage
their ‗family component
2.2.1.4 Managing the family component
According Walsh (2011), the following model is intended to illustrate how to effectively manage
the all-important family component or family circle during the succession process
Figure 7: Model for managing the family component in succession planning
According to this model, the family component affects two family business succession plan
processes, the ‗management‘ succession process and the ‗ownership‘ succession process. Thus
numerous succession activities are outlined for each of the two processes to achieve the desired
succession outcomes. Though management and ownership succession processes can be
undertaken simultaneously or one at a time. In order to effectively management the family
business component, it is highly recommended that the management succession process be
carried out first so that the ownership succession plan reflects and supports the management
succession (Walsh 2011).
The model shows a number of family business succession activities intended to integrate family
members into the management and ownership succession processes. The activities are also
intended to make family members feel comfortable with both the succession process and its
outcomes. The ultimate goal is to allow family members to make informed decisions about their
individual and collective futures in the management and ownership of the family business.
Establishing family communication activities, such as family business meetings for the active
family members, family council meetings for the broader family, and family business rules, will
serve to guide the overall succession process. These communication activities will pave the way
for the effective management of the all-important family component. The management
succession activities also include the grooming of successors and integrating the active family
members into a number of key management activities.
The model also shows the ownership succession process including a list of succession activities
involving family members. These activities comprise the same channels of communication as
indicated in the management succession process. The ownership succession activities also
include family governance and shareholder agreement issues.
The succession activities outlined in the above model are intended to achieve the desired
succession outcomes. By integrating family members into the process and by providing
sufficient comfort to the current and future owners of the family business, informed decisions
can be made. It is these informed decisions that will ensure a smooth and effective family
business transition.
2.2.1.5 The succession paradox
According to Leah (2008) Succession in terms of business leadership confronts the founder of a
family business with a complex set of options. In broad terms these are:
Appoint a family member.
Appoint a caretaker manager.
Appoint a professional manager.
Exit via sale of the business, in whole or in part.
Exit via liquidating the business.
Do nothing.
Each option is distinctive and carries its own set of advantages, disadvantages, opportunities and
threats. Also, the scope and impact of these will vary from one family business to another
depending on, for example:
the ability to attract family and non-family successors who are willing and have the skills
to carry on the business
the financial needs of the family (for example, whether cash needs to be extracted from
the business to provide for the retirement of the senior generation)
the personal and corporate taxation consequences of the different options
the health and size of the business
the external commercial and business environment at the time of succession.
If there is a commitment to retain direct control over the business, the first option of appointing a
family member to succeed is seen as particularly attractive by many founders. Research by IMD
has found that, if there‘s a suitable candidate, owners will choose a ‗family solution‘ for several
reasons:
It gives their personal ideas and values a greater chance of survival
They can feel their life‘s work is in good hands
They don‘t lose contact with the business, and may even retain some influence over it
They feel their sacrifices building up the business will have been worthwhile.
The appointment of a non-family successor, either to a permanent position or as a caretaker
(options two and three), may become the strategy by default if no family successors are
available, motivated or have the necessary skills for the task. Genetics do not guarantee that
families can produce entrepreneurial business leaders generation after generation.
In terms of exit routes, some form of sale as a going concern (option four) is likely to recover
most value from the business. Alternative within this option include a trade sale (i.e. an outright
sale of the whole business for cash), which may be particularly appealing where no suitable
successors can be found, or a stock market flotation can be the best answer if external capital to
finance growth is a priority. Similarly, a management buy-out financed by private equity funding
(a sale by the founder to the existing management team, which may include family members) can
offer a compromise between transferring the shares to the family and an outright trade sale.
Liquidation (option five) entails selling off all the company‘s assets, paying its outstanding debts
and dismissing the workforce. It also involves substantial expenses and is unlikely to result in the
best price being obtained.
Finally, the founder may simply avoid planning for succession by adopting the ‗do nothing‘
approach (option six), and here lies the central paradox. Despite founders professing that a
‗family solution‘ is their preferred course, in practice the dynastic dream is rarely achieved.
Doing nothing is the least logical, the most costly, the most destructive of all the options, but it is
by far the most popular.
2.2.2 Why family business resist succession planning (Do nothing Approach)
As noted earlier, a surprisingly small number of families owned businesses survive transition to
the second generation. There are two common reasons why families do not retain their
businesses. The first reason is straight forward: there is no qualified successor. However, even if
your business will not be passed down to the next generation, making sure one take steps to
ensure the value of the business survives is just as important and is really just another form of
succession planning.
The second major reason for unsuccessful business transitions is more unfortunate. In many
cases, family businesses fail or are sold off because of a lack of planning. Though most of people
are careful to safeguard their personal assets, for example, insuring their homes, many business
people do not plan ahead to safeguard the value of their business (BDO Dunwoody LLP (2009)).
At first glance, this lack of planning seems incomprehensible. But, when you look at the personal
and family issues involved, it is easy to understand why many people just do not want to deal
with the issue of business succession. The article in the Zimbabwean newspaper the Standard of
2010 states that, ―A myth has been residential among the black business people in Zimbabwe
that black business persons do not plan for the continuity of their enterprises after they die. It is
further believed that the blacks‘ entrepreneurial family background is most unfavorable for the
business sustenance because members of an entrepreneurial family have negative experiences of
endless economically precarious entrepreneurial work‖. Complex forces are at work in family
companies, favoring the doing nothing approach about succession. These forces operate within
the founder, the family and the business, and understanding them is the vital first step in
successfully managing the transition process.
We are all mortal, so, in order to safeguard the continuity and vitality of the business, owners
should regard planning for succession and making sure that it takes place as smoothly and
efficiently as possible, as one of their key responsibilities. It‘s particularly strange, therefore, that
despite the logic of this apparently natural transition (plus the compelling business and family
reasons for planning succession) the ‗do nothing‘ option is the one that founders most frequently
adopt. In general terms, the alternatives are quite stark.
Succession may be an organized and gradual process, in which case a trained successor grows
into the role under the owner‘s supervision and guidance; or, instead, it takes place abruptly and
unexpectedly when the owner becomes ill or dies, in which case an unprepared family member
can suddenly find the job forced upon them. Failure to address succession can be put down to a
combination of the entrepreneur‘s instinctive desire to keep control of his creation, as well as a
natural aversion to planning. But the reasons are normally much more subtle and complex.
Objections to the long-term planning of succession (‗We don‘t have enough time to
plan‘,‗Planning limits flexibility‘ and so on) are in many cases rationalizations employed to
avoid deep-rooted anxieties and fears.
So, a great many factors conspire to reduce the likelihood of planning for succession, and an
expert on organizational behavior, Professor Ivan Lansberg (1988), has categorized the range of
deterrents into those connected with the founder, the family, the employees and the general
environment in which the firm operates.
2.2.2.1 Business owner’s perspective
Family business research suggests that the person most responsible for the continuity of the
family business is the founder; this is because the founder is the only stakeholder that is part of
all three contingencies central to a family firm (Lansberg, 1988). For this reason, much of the
family business succession literature focuses on the founder. When it comes to succession, many
founders frequently develop a complex set of rationalizations and compromises that prevent
them from engaging in succession planning, have ambivalent feelings towards succession, or
inadvertently sabotage potential successors (De Massis et al., 2008; Handler, 1994; Lansberg,
1988).
Fear of death
Few people find it easy to come to terms with their own mortality. This is often a particular
problem for entrepreneurs, whose success is usually driven by a powerful ego and the conviction
that they control their own destinies.
Reluctance to let go of control and power
Many owners become entrepreneurs precisely because of a strong need to acquire and exercise
power over others. It‘s not surprising; therefore, that surrendering authority can be seen as a huge
sacrifice.
Loss of identity
Owners often identify very strongly with the business, seeing it as a personal achievement that
defines their place in the world. Letting go can therefore feel like a loss of personal effectiveness
and can reawaken old identity issues that may be hard to cope with at this late stage in the
owner‘s life.
Bias against planning
Successful management transitions are gene Successful management transitions are generally the
result of a major planning exercise that begins many years before succession takes place. But
owners tend to be ‗doers‘ rather than planners, and they often perceive formal planning as
bureaucratic and restrictive. Inability to choose among children under business principles, the
choice of a successor should be based on competence, while family values dictate that children
should not be the subject of a selection process, but should be loved and treated equally. Family
values tend to prevail in this conflict, with founders unwilling even to contemplate what they see
as preferential treatment of one child at the expense of the others.
Fear of retirement
Owners of family firms are often, for all intents and purposes, in love with their businesses, and
the thought of moving out of day-to-day work into ‗the vacuum of retirement‘ can be seen as
little short of a life-threatening event. The founder will probably have few outside interests that
could be developed in retirement, and will therefore tend to focus on negative considerations like
the expected loss of self-esteem and the risks of entrusting the business to an unproven
successor.
Jealousy and rivalry
‗Nobody can run this business as well as me‘ is symptomatic of the view many owners
struggling with succession develop about their own importance. It also encapsulates the
inevitable feelings of rivalry and jealousy that founders experience towards potential successors
waiting to take over control of their beloved organization. When founder and potential successor
are father and son, this factor can become even more serious, introducing an extra psychological
dimension of fear and hostility.
2.2.2.2 The family’s perspective
Forces operating against succession planning are not confined to those involving the founder.
The family provides another source of pressure that favors avoiding the issue.
The spouse’s resistance to change
The founder‘s spouse is frequently reluctant to welcome and encourage a partner‘s move into
retirement. He or she, too, may not relish the prospect of giving up many key roles played in and
around the family firm. As well as direct involvement in the business, the company will probably
have become a centre of activity and a significant component of the spouse‘s social identity.
Family taboos
The cultural norms that govern family behavior discourage discussion between parents and
children about the family‘s future after the parents die. This is particularly so in relation to
financial matters. Succession planning, of course, involves open discussion of precisely these
topics and is thus usually avoided, even in the most well-adjusted
2.2.2.3 Employee and environmental factors
Job insecurity
Employees can present obstacles to succession, even though the prosperity and continuity of the
business are in their best interests. For many employees (especially senior managers) their close
personal relationship with the founder constitutes the most important advantage of working for
the family firm. Replacement of the founder with a newcomer, viewed as inexperienced and
likely to make sweeping changes, is seen by employees as a threat to their job satisfaction and
security.
External worries about change
Outside the firm, important customers are also likely to prove resistant to change, reluctant to
trust a new face. Similarly, the unwillingness of other entrepreneurs – the owner‘s peer group –
to deal with their own succession, acts to reinforce the founder‘s bias against planned
management transition.
Owners have to face up to a range of complex and interrelated processes – psychological,
emotional, individual, organizational and external – that are all operating against any kind of
planned effort to manage succession. It‘s hardly surprising, therefore, that so few family business
founders are willing and able to organize effective succession planning, concentrating instead on
coming up with one delaying tactic after another designed to put off the day when they‘ll
eventually have to grapple with the issue.
Fear of parental death
Children typically have deep-rooted psychological worries about abandonment and separation,
and such feelings can be too painful to permit participation in discussions about succession.
2.2.2.4 Other Obstacles for family business Succession planning
According to Hubler (2005), there are ten most prevalent obstacles that prevent succession
planning to move through a smoothing the ten obstacles are outlined below;
Lack of Appreciation and Recognition
The number one obstacle is lack of appreciation, recognition and love, lack of appreciation is
often at the root. The senior generation desperately wants this from their adult children, but they
will deny to their dying day the fact that they want it and need it.
Lack of Forgiveness
During a breakdown in family relationships, lack of forgiveness is right at the top of the list of
those things that get in the way. It is impossible to go through life and be involved in a family
business without inadvertently stepping on each other‘s toes. Those families that don not have
the capacity to forgive each other for their transgressions clearly have a hard time being in
business together. In order to bridge this gap successfully, religious background plays an
important role, since most religions have a philosophy of forgiveness that is often helpful
Control
Control is a major issue in the context of succession planning in family owned businesses. The
issue of control, which is the very thing that makes owner entrepreneurs successful, is also their
Achilles‘ heel. The reality is that it is not only the entrepreneurs but also the family as a whole
who have to deal with the issue. It is about change. Change is difficult even when it is positive. It
is a major issue for entrepreneurs who have spent the majority of their life closely involved with
the family business. Entrepreneurs are driven by their dreams. Since it is not possible to change
or control entrepreneurs, it does not make sense to continue to fight that battle. On the other
hand, it is possible and realistic to assist entrepreneurs and their families in developing new
dreams in relation to their family, their business, their communities, their leisure time and
philanthropy as a way to effectively deal with the issue of control
Other-Oriented Regarding Change
As mentioned earlier change is one of the most difficult aspects of life for every human being
even when it is positive, it is difficult. In the context of family-owned businesses, it is not
unusual when people expect others to change in order for something good to occur. But this
expectation is a formula for disaster. The solution is self-responsibility—taking responsibility for
what we successfully contribute to the family business and also taking full responsibility for our
contribution to the problem. One of the major challenges in succession planning and family-
owned businesses is for all stakeholders to take full responsibility.
History
History is a big factor in all families, and it is certainly true in the context of family-owned
businesses. According to Coontz, (1993) family history generally includes difficulties, there need
that instinctively done especially by parents to go out of our way to talk only about the good
things and mistakenly try to protect their children from their experiences in their own families of
origin. Overlooking history is a major factor in family-owned businesses that are having a hard
time creating their future. Soren Kierkegaard, the Danish philosopher, has been quoted as saying,
―Life can only be understood backwards, but it must be lived forwards.‖ Therefore, the full
celebration of history is essential for continued family business success.
Scarcity
One of the most difficult issues in the context of family business succession planning is the issue
of scarcity. What makes it so insidious is the fact that it is invisible because of the underlying
assumption of the family that ―there isn‘t enough to go around.‖ It often manifests itself in the
discussion of money, roles and power. This a more prominent aspect in Zimbabwe family
business, due to economic problem the country is facing in last 15 to 20 years. In a family-owned
business, there are two bottom lines. The first is the standard financial one, and the second is the
more invisible, emotional one. It is the lack of expression of appreciation, recognition and love
that is the underlying problem with emotional scarcity. There are two things that can help with
the issue of scarcity. The first is having family members talk directly about what they expect
from each other. The second has to do with family stakeholders empowering themselves to
achieve their fullest potential—whether it is inside or outside the family business. In doing so,
they begin to understand the sense of abundance that exists in the world.
Entitlement
Often entitlement is seen as a younger generation issue. Certainly that is true when younger
generation people use their name as a wedge or variance to achieve advantage over other people
in the organization. When this occurs, it has a negative effect on morale. Senior generation
members of family-owned businesses often have this same issue of entitlement. Being the
founder of the company and/or being in the senior generation, gives some a sense of entitlement
that allows them to think they should continue to take on the primary responsibility of leadership.
This is often at the expense of their younger generation adult children, who sometimes are in
their 40s and 50s, still waiting for an opportunity to lead the company. Clearly, the solution here
is to work together to talk about the best interests of the, when family business constituents have
a common family vision, it alleviates this issue of entitlement and makes it much easier to create
succession strategies and solutions that are win- win.
Indirect Communication
One of the most insidious problems in family-owned businesses is the use of indirect
communication. When differences occur, as they often do in succession planning, it is almost
always a problem if people do not talk with each other directly. Family members involved in the
business often talk indirectly with other family members who are not involved. This creates a
triangle that destroys the quality of family relationships.
When differences are seen as a liability rather than an asset, it is always a problem in family-
owned business succession planning. Differences are really the key to an exciting and active life.
Often in family-owned businesses, differences are interpreted as ―you don‘t love me‖ and ―you
don‘t care.‖ In other instances, differences are personalized with the same kind of result
Poor expression of feelings and wants
In most family-owned business situations, the lack of expression of feelings and wants exists.
This omission is one of the major predictors of poor and ineffective communication. In order to
communicate effectively, people need to be vulnerable, and that is the issue. In many family
businesses, the family does not have the capability, experience, and confidence to be able to
express their feelings and wants around the other daunting obstacles that follow.
2.2.3 Determinants of Succession Processes in Family Businesses
An extensive review of the literature reveals many variables to have been conjecturally or
empirically related to succession. Given the intent of the present study, the focus is on three
classes of variables that determine succession in family business.
individual attributes (e.g., demographics);
organizational characteristics (e.g., structure, size); and
environmental factors (e.g., the availability of financial resources).
Individual characteristics (e.g., owner‘s age and education) is consistent with the broader theory
of organizational demographics (Pfeffer, 1983) and the upper echelons perspective articulated by
Hambrick and Mason (1984), both of which support managerial background and characteristics
as important predictors of organizational behaviors and outcomes. Pfeffer provides further
support for their inclusion, arguing that managerial succession is influenced by the demographic
composition of organizational leaders. The following six variables that lie in the class of
variables discussed are discussed and detail below to illustrate a broader perspective of
determinants of succession processes in family business.
Age
In the succession process, one of the more important characteristics of the family-business
owner/manager is his or her age. As Lansberg (1988) notes, the family‘s approach to succession
planning is often highly related to the founder‘s age. Research indicates that older executives
tend to have a stronger commitment to the organization (Becker, 1973) and to be more risk
averse (Carlsson and Karlsson, 1970). Preparations for succession may be a means by which the
owner can demonstrate commitment to the organization and its future, while controlling risk. As
the owner ages, his or her awareness of the need to prepare for the inevitable transition of
ownership and control increases, and along with it, the need for succession planning. Kets de
Vries (1985) and Lansberg (1988) give reasons why succession planning is a topic that family-
business owners approach with some ambivalence.
Owners may resist succession planning because they feel threatened, perhaps, by their fear of
losing control, their desire to avoid preferential treatment of children, or because a loss of
identity and power in the firm may also result in loss of stature within the community.
Nevertheless, with advancing age, the inevitability of death, and the threat of debilitating illness
tends to compel the owner to make preparation for the continuity of the family business.
Education
Relatively little research has examined education and training as they directly relate to planning
for the succession process. However, there are some studies of family businesses which show a
positive relationship between education and innovation (Kimberly and Evanisko, 1981), while
others (e.g., Datta and Guthrie, 1994) have linked the owner‘s level of formal education with the
willingness to implement change. While these studies provide no clear confirmation of a positive
relation between owner education and succession planning, nevertheless, they do provide a basis,
however tentative, for conjecturing that there is one. To the extent that planning for
organizational succession is innovative and represents the current owner‘s willingness to reduce
his/her commitment to controlling the organization, then the relationship between the owner‘s
level of education and the extent of succession planning should be positive.
Financial Stake
Resource dependency (Pfeffer and Salancik, 1977; Yuchtman and Seashore, 1967) theory
structures our expectations about an owner‘s financial stake in the organization and the
extensiveness of the succession process. Resource dependency theory suggests that as
dependency on a critical resource (or provider) increases, so too will the efforts of recipients to
control those interdependencies and that as the current owner‘s financial interests increase, so too
will the comprehensiveness of the succession planning process. Research shows that financial
indices, such as personal wealth, are tied to entrepreneurial intentions and behaviors (Krueger
and Carsrud, 1993). In addition, formalizing the succession planning process could provide the
individual with a way to ensure the survival of the firm (the resource) on which he or she
depends. Cyert and March (1963) support this rationale with behavioral arguments for a positive
relation between a manager‘s ownership in and consequent commitment to the organization.
More pertinent for this discussion is Marino‘s and Dollinger‘s (1987) finding that a manager‘s
financial stake in the organization has an important influence in succession decisions. Logically,
we would expect that as an owner‘s income and financial stake increase, so too will his or her
willingness to engage in succession planning.
Organizational Characteristics; Size
Although family business is often thought to be synonymous with small business, this is not
necessarily true. In fact, some of the world‘s largest companies (e.g., Cargill, M&M Mars) are
family-controlled (Litz, 1995). Although there is ample evidence in the literature linking
organizational size to succession, most of these studies have focused on the relationship between
size and the frequency of succession or the effect of succession on stockholders while largely
ignoring the effects of size on succession planning (Davidson, Worrell, and Cheng, 1990).
For several reasons, increasing size may make family-owned businesses more sensitive to the
need for extensive succession planning. As organizations become larger, they have greater
opportunities to train and develop top management and more complex succession plans
(Helmich, 1977). Trow (1961) argued that large companies tend to have more elaborate training
programs and complex succession plans than do small firms. Thus, we would expect a positive
relation between the size of the organization and its preparations for succession.
Furthermore, larger organizations have the resources to engage the outside counsel that might
encourage planning for succession. They also have access to external consultants whose
professional advice may facilitate the succession planning process (Chaganti, Chaganti, and
Malone, 1991). These factors alone might ensure that larger family businesses would have more
qualified, experienced candidates in place for possible succession.
Formality
Organizational structure has been described as a multidimensional construct. Several reviews
(e.g., Fredrickson, 1986; Hall, 1977) indicate that formalization, integration, and centralization
are the most consistent dimensions; this is supported by empirical research. The relevance of
formality for this research is provided by Miller‘s (1987) finding that rational decisionmaking in
organizations may require organizations to be formalized and integrated, but not centralized.
Further support for the importance of formalization comes from Fredrickson (1986), who argued
that rationality in organizational processes is associated with three aspects of formalization.
Specifically, by the use of controls, specialization, and the implementation of formal policies and
procedures. Miller also finds that formalizing the use of devices, such as task forces and
committees, provides a forum for discussion among managers and executives (e.g., boards of
directors), and that this promotes a thorough and multifaceted assessment of problems,
proposals, and plans. Research inks formality in organizations to their planning behaviors (Rue,
1973; Robinson and Pearce, 1983). In the context of family businesses, Kets de Vries (1977)
provides support for the importance of formality in raising the level of succession planning. He
finds that one of the key factors that most adversely affect success among family business is the
owner‘s refusal to formalize the organization. One way to provide additional structure and
formalization within a family business is to include external influencers, such as a board of
directors (Barach, 1984). Rock (1987) shows that outsiders influence the strategic decisions
made by CEOs. Miller, Droge, and Toulouse (1988) studied 77 small firms that were closely
held, either by an owner, a family, a group of partners, or a holding company, and found
evidence to support a positive relation between structural formalization and rationality in
decision-making processes within family businesses. Although we lack direct evidence linking
formality to succession planning, prior findings suggest that increased formality has a positive
effect on the comprehensiveness of the succession-planning process in family businesses.
Capital
Many researchers argue that one skill necessary to survival is the judicious acquisition of
resources. The ability to gain access to resources (e.g., capital) provides a cushion of actual or
potential slack in resources that gives managers discretion and flexibility in preparing the
organization for change, whether change is external (e.g., changes in markets) or internal (i.e.,
succession). As Davis and Stern (1980) observe, ―Organizational slac provides a buffer with
which to absorb the variances raised by family issues.‖ Obviously, the most discretionary slack
comes from the most discretionary resources including cash, cash equivalents, and credit lines
(Sharfman, Wolf, Chase, and Tansik, 1988). As access to capital becomes easier, managers can
use spare or slack resources to prepare the organization for future succession while insuring
internal stability, perhaps by minimizing political behavior and discord within the top
management group via bargaining or coalition forming activities (Bourgeois and Singh, 1983).
Consequently, slack resources, in the form of accessible capital, can facilitate succession
planning by allowing the firm to focus attention on external opportunities rather than on internal
conflict.
Some researchers argue that family businesses may be at a disadvantage in obtaining access to
external capital (Kets de Vries, 1993). Therefore, they may be forced to rely heavily on internal
sources of capital, such as that provided by family members. Of course, family businesses that
have both family investors and employees are more likely to be concerned with the long-term
survival of the firm (Gundry and Welsch, 1994). Having a clear succession process is one way to
ensure consistency in achieving the goals of the family as well as those of the resource providers.
Consequently, as the family assumes a greater role as a provider of capital, the organization
should exhibit an increased tendency to implement succession-planning processes as part of a
broader effort to ensure the business‘s survival.
In summary, the review of the literature suggests that each of the three factors investigated here
(i.e., individuals, organizations, and resources) should exert a positive effect on succession
preparation in family businesses. That is, as individuals rise in age, education, income, and the
percentage of worth they have invested in the business, the more extensive the firm‘s succession
planning should be. Similarly, as organizations become larger and more formal, the more
extensive the firm‘s succession planning. Finally, the more accessible capital becomes and the
greater the reliance on internal sources of capital (i.e., family), then the more extensive the firm‘s
succession planning.
2.2.4 Family Business succession process
While family business scholars generally agree that succession is a process, many have proposed
different variations of the process (Barach & Ganitsky, 1995; Churchill & Hatten, 1987; Handler,
1990). The researchers that have contributed to developing models of the succession process
generally break succession into four stages. Churchill and Hatten‘s (1987) four-stage life cycle
approaches family business succession by focusing in on the founder and successor. Handler‘s
(1990) four-stage model examines the adjustment of roles between the incumbents and
successors. While some researchers have adopted some of these models, there are still many
differing views and models on the succession process.
Nonetheless, in some way or another, each of the four stage models examines the role
adjustments of successors and founders. Yet, there are other factors to consider in the succession
process, such as timing. Other study finds that different life-stage combinations of a father and
son can either smooth the progress of family business succession or complicate it. The research
indicates that relationship factors and timing can have a dramatic effect on succession. An article
publication by BDO Dunwoody LLP in October 2009 shows that in broad terms, the business
succession process involves the following stages:
Determining whether business succession within the family is a viable alternative
Developing the succession plan
Monitoring the implementation of the plan, and making changes as necessary, and
Coordinating the succession plan with other business strategies; planning for retirement
and the distribution of owner‘s estate.
The researcher chose this four stage process to develop a relevant conceptual framework for
family business succession; this four stage process helped the researcher to achieve a more
concessive way of looking at family business succession planning.
2.2.4.1 Determining whether business succession within the family is a viable alternative
Determining whether succession to a family member is a viable alternative seems an obvious
first step but doing so is not always straightforward. Many business owners do not carefully
consider all the issues when deciding whether succession to a family member is a viable
alternative. Business owners often have a plan in their own mind – take the case where one of the
children has been active and effective in the business. In such a situation it may seem obvious to
the owner on what is going to happen – that child will succeed them. But the goals and
objectives of the child may not be in harmony with this plan.
Alternatively, some children may be overlooked as a successor because their views and general
outlook on business issues differs greatly from that of the founder (due to human nature, we
often relate better to people who share the same style and values). In many cases, problems can
arise right at the beginning if they are not dealt with appropriately with two key questions:
1. Are the children (is next generation ready) interested in succeeding me?
2. Are the children capable of running the business when the owner retires?
To deal with these questions fully, both communication and objectivity are important. When it
comes to communication, have one has actually ask the child whether he or she wants to succeed
the owner? And if so, the owner has to be sure the child was truthful in his or her response
(knowing how strongly the owner feels about the business). Objectivity in terms of assessing the
child‘s ability to run the business is also important
2.2.4.1.1 Assessing a child’s interest in the business
When assessing a child's interest in the business, it‘s important to keep in mind that it is often
difficult to be objective during this process. One has devoted a great deal of time and resources
to developing the business and, quite naturally, one should be proud of what they have achieved.
Chances are the feelings toward the business are obvious to other members of the family, which
creates potential problems for some business owners:
Business owners may find it difficult to accept that a child does not share his or her
interest in the business, and
A child of a business owner may find it difficult to communicate to the parent that they
really are not interested in succeeding them in the business.
For many families, one of the best ways of working through these potential problems is with the
help of an outside family business advisor. Family members, especially children of the business
owner, may be more willing to share their feelings about the business, both pro and con, with an
independent advisor. The role of an advisor at this stage is to help facilitate information
gathering within the family, usually by interviewing family members individually and by then
facilitating open discussions between the family members.
2.2.4.1.2 Assessing a child’s ability
Succession will only work if the business is passed on to a child who has the skill to run it.
Where there is one obvious interested candidate, the process is more straightforward – one can
focus on evaluating that family member's abilities. Even if one believes the process will be
straightforward, it's worth keeping in mind that a family business advisor can be helpful with this
task, as the advisor has more experience in assessing strengths and weaknesses of prospective
successors and such advisors bring objectivity to the process. Even if the advisor simply
confirms that you have made a wise choice regarding a prospective successor, the advisor may
be helpful in pointing out areas where the successor's skills can be improved. Another valuable
benefit to involving an advisor is that, depending on the owner‘s relationship with the child,
recommendations made by a third-party often can be more effective or are more warmly received
because they do not have emotional strings attached.
2.2.4.1.3 Choosing between interested and capable children
The process gets far more complicated and difficult to deal with when more than one child is
interested in, and capable of, taking over. In fact, having to choose among possible successors is
often one of the main reasons many business owners do not deal effectively with the issue of
succession. As parents, they try to treat all children fairly, which usually means treating them as
equals. However, when it comes to succession, the reality is one will likely have to pick one
child to be his/her successor.
It is possible to pass on control of the business to various children as partners, but the success
rate for this sort of arrangement is generally not good, and to pull it off, the children will need a
strong sense of trust and harmony as a group.
Because many parents cannot bear the idea of rating the strengths and weaknesses of their
children, this is again a good time to bring in outside help. An advisor can help one make sure
the business is passed on to the child best equipped to handle it. Also, an outside business
advisor will bring objectivity to the process as discussed earlier, if one of the children uses a
management style similar to the owner, it may be difficult for one to be objective when
comparing that child to another child with a different management style.
Building objectivity into the process may also help the children deal with the succession process.
Though the children who are not chosen may still find the decision difficult to accept, the fact
that objectivity was brought to the process should help make the choice easier for all to deal
with.
2.2.4.1.4 Going with a group
Earlier, the researcher mentioned why choosing a single leader is usually recommended. There
are, however, some structures involving the sharing of control that have been successful for some
families. There are two basic approaches that have been known to work:
Family partnerships – Family partnerships can work if each child is a full partner and the
partnership agreement specifies that complete this alternative works in situations where
the children see each other as equals and there is a strong desire among the children for
succession of the business within the family. If a single leader is chosen and other
children in key positions with the business do not accept the choice, the conflict created
could destroy both the family and the business.
First among equals – In an alternative we call ―first among equals‖, one child has more
control over most day-to-day decisions, but important, fundamental changes are decided
on by the group. In this situation, the boundaries of the leader's responsibilities should be
clearly defined and disclosed to all. The success of both arrangements will depend on
shared vision and a strong enough bond among the that will allow for successful
teamwork. The children will need to adopt a balanced approach to building consensus, as
very few business partners will agree on everything. As one would expect, the family
partnership arrangement is the more difficult of the two to successfully implement.
It should also be noted that the skills required to make these arrangements work don't come
naturally to most people. To help smooth the process, the use of a family business advisor as a
facilitator can be valuable, particularly in the early stages. Another approach that some families
consider is the idea of rotating control among the children. Though this approach appears to deal
with the issue of fairness, it is often a poor business decision. Becoming a leader of a business is
a learning process and rotating leadership among a group will more than likely mean the
business constantly has a leader in training. In addition, from a customer's point of view, the
business can appear to lack clear direction if each successive leader takes the business in new
areas.
2.2.4.1.5 What happens if you can’t identify a successor?
After working through the process of determining whether any of the children have both the
desire and capability of succeeding the owner, one may decide succession within the family just
would work. He/She could reach this conclusion for a number of reasons, including, for
example:
None of the children are either interested or capable.
A child has the potential to succeed them, but is not yet ready.
The owner has children, who are equally interested and capable, but feels selecting one
child over others is not worth the risk of disharmony within family (or the potential
successor may not want to take on the job, given the feelings of the other family
members).
Alternatives to passing the business on to a family member
If one concludes that passing the business on to a family member would not work. There are
many other options to ensure the value of the business is not lost or squandered:
Selling the business – After all the issues are considered, the best option may be to
simply sell the business, either to third parties, or perhaps even to the employees. One can
establish an estate plan around the proceeds they will receive from the sale of the
business. In context passing on the business to new owners is really just another form of
business succession
Splitting the business – If one owns a business that is involved in several different
activities, splitting the business into autonomous divisions may allow one to deal with the
issue of selecting among equally qualified children. Also, doing so allows the owner to
assign each division to the child best suited to deal with that specific part of the business.
Using an interim chief executive – If the owner feels a child will eventually become a
qualified successor, an interim leader can help keep the business going until the child is
ready. The leader can also act as a mentor to the child as he or she prepares to take over.
There are a number of points needed to bear in mind, however:
While an interim chief executive is at the helm, the family will not be involved in
the day-to-day activities. Therefore, the owner should establish a management
structure within the family to monitor the business and to oversee important
business decisions.
It will take a unique individual to assume this role – they will need a wide
variety of skills including strong leadership ability and a willingness to step aside
when the time comes.
One will obviously need to have complete trust in this individual, as they are
giving them a significant amount of control over a major family asset.
As it is unlikely the interim leader will have a stake in the business, the
individual will expect to be well paid for his or her services, perhaps with the use
of performance bonuses and other incentives designed to compensate for lack of
ownership.
Taking the company public – Another option that may be available for larger businesses
is a public share offering. Taking a company public provides three main advantages.
First, the potential market for shares of the company will be greatly increased. Second,
the shares of many companies are worth more immediately following a public offering
than they were when the company was private. And finally, a public offering allows a
much higher degree of flexibility for estate and tax planning, as one can sell their shares
in smaller blocks over time (which is difficult for shareholders of a private company).
There is hope in determining the viability of family business succession. According to Poza
(2010) an expert on family business, stipulates that before engaging or developing the
succession plan, the founder has to access the viability of keeping the family business within
the family. Thus access whether the next generation is ready for succession. Poza (2010)
further states that empirical deduction from a systematic review of succession experiences
has led to the following conclusions:
Many next-generation members of business-owning families want to lead and are ready
to work hard and make the sacrifices necessary to be responsible leaders. Determining
whether this is true of the next generation in family is key. Evidence can be found in
work hours, flexibility, adaptability, willingness to serve, commitment to a mission larger
than themselves, education, respect for what has made the business successful so far, and
overall discipline in both thought and action.
The multiyear succession process of many next-generation executives has included a
number of challenging assignments, particularly those for which outcomes are measured
in profit or loss and are clearly attributable to the successor. Early in their development,
these next-generation executives usually worked outside the family business, where
results are more objectively and exclusively attributable to performance, unbiased by
family influences. After they joined the family enterprise, assignments generally included
profit-center and general-management responsibilities that replicate the often-conflicting
demands on the chief executive, who is ultimately responsible for profit or loss and the
creation of shareholder value.
Through solid performance and interpersonal skills, next-generation members have
earned the respect of nonfamily employees, suppliers, customers, and other family
members, often shareholders, whom they will serve and lead.
In most cases, the successor-development process included much education— college,
industry-sponsored programs, and business schools. MBAs helped many successors gain
both the skills and the confidence they needed to steer a responsible professional or
middle-management career into top management echelons. Unfortunately, MBA
programs do not usually address ownership and the unique role that it plays in the
leadership of family-led companies. Programs acknowledge trading and perhaps
investment, but seldom patient long-term ownership. However, ownership education is
increasingly becoming available at leading business schools through entrepreneurial and
family-business curricula.
Coaches and mentors, both inside and outside the family, are important feature of the
developmental journey
The process of deciding whether the potential successor was right for the job, for the
company, and for the company‘s strategic needs take many years. Sometimes, it included
an assessment by an outside professional, such as a psychologist, who coached the
successor through evaluations by peers, supervisors, subordinates, customers, suppliers at
work, and relatives at home.
A board of directors—or a committee of that board made up primarily of independent
outsiders—performs the final review of successor performance and the fit between the
candidate and company strategy. These directors also offer advice on the timing of the
succession. In companies that created advisory (non statutory) boards composed of
independent outsiders, in lieu of having independent outsiders on their board of directors,
these boards provided a forum for many discussions about selecting and anointing the
CEO successor. Throughout the several years over which the succession process
occurred, board members, individually and collectively, are very active in the assessment,
the facilitation of difficult conversations, the review of pertinent information, and the
ultimate appointment of the successor.
2.2.4.2 Developing the succession plan
After determining whether it is viable to conduct succession planning within the family, it will
time to develop the actual. In context because the succession plan should be tailored around the
unique characteristics of both the family and the business, every succession plan will be
different. Consequently, rather than outlining a specific plan one should use, w several elements
that are common to most successful plans need to
clearly identifying the successor and his or her role,
transition the successor aboard,
accept the necessity of a succession plan,
keep the succession plan as open as possible,
establish a clear timetable for the process,
develop a clear business plan that extends beyond the owner‘s retirement,
seek outside advice,
retain key non-family employees, and
realised that fairness is not synonymous with equality
Thus developing this succession plan, in its simplest form has five stages:
Goal Setting
Management Succession
Ownership Succession
Managing transition
Developing an effective successor.
2.2.4.2.1 Goal Setting
Goal setting involving identify the goals of the business owner. Business owners should identify
their personal goals for their future annual income, their level of involvement in the business,
their investments both inside and outside of their business, their legacy for the future, and their
values. Goal setting also involves identifying the needs and goals of the other stakeholders, what
are the needs, goals and expectations of family members, other owners, and key employees?
Consideration of their expectations insures that the plan will meet the goals outlined.
Goal setting is to determine the owner‘s goals and objectives, i.e., the ―what,‖ ―when‖ and ―how‖
the owner wants his goals and objectives to be accomplished. Ascertaining the business owner‘s
goals and objectives determine the appropriate financial planning, retirement planning, business
planning, business succession-transition planning, tax planning and estate planning strategies.
Understanding the owner‘s goals and objectives helps the owner‘s advisors establish an
appropriate blueprint for transitioning the business. In developing the blueprint and
recommendations, the owner‘s advisors must juxtapose the owner‘s goals and objectives against
the advisors‘ observations concerning the reality of the business and the owner‘s family
situation, the present situation (based on the advisors‘ observations) against the owner‘s goals
and objectives will help determine if the goals and objectives are in alignment with reality (or
have a high probability of becoming realistic).
Thus, the blueprint must, among other things, take into consideration the owner‘s goals and
objectives; the present situation concerning the business; the present situation concerning the
owner‘s family dynamics; the constraints under which the business and the family currently (and
most likely will) ―operate‖; and the value of the business, its cash flow, its competition and its
role and standing in the marketplace.
A common mistake made in succession planning is for the business owner to research or
implement succession planning tools prior to identifying his or her personal goals. Often the
chosen tools are inefficient or, worse, inappropriate. Identifying the goals first frequently makes
the choice of tools much easier and the tools chosen are more appropriate and effective.
Unfortunately, the complexity of relationships in many family businesses can make it difficult to
set goals. Setting goals for the succession plan can be difficult. One reason is that the business
owner wears many different hats:
Shareholder: As the main shareholder, the business owner looks to increase the liquidity of his
or her main asset: stock in the business. Generally the business owner wants to turn his or her
concentrated, illiquid asset into diversified liquid assets. This follows the generally accepted
principal that wealth is created through concentration—and maintained by diversification.
Employee: As an employee of the business, the owner wants to do productive work and to
contribute to business success.
Chief Executive Officer: As CEO, the business owner wants continued growth in the company,
increased competitiveness and business success. This means a constant focus on business
operations.
Aging person: As an aging person, the business owner wants to enjoy the fruits of his or her
labor. He or she wants to enjoy life after the years of hard work in the business. Since the goals
of each ―role‖ may conflict, it will be beneficial to look at five primary concerns of the owner.
Income: What are the business owner‘s needs and expectations for future income? The financial
needs of the owner and his or her spouse. Many family business owners are ―cash poor‖ but ―rich
on paper,‖ and are dependent on the business to provide for their retirement in a lifestyle to
which they have become accustomed
Involvement: What are his or her goals for future involvement in the business? Would the
business owner like to remain actively involved, withdraw over a number of years, or walk away
tomorrow?
Investment: What are the owner‘s goals for future investments? Does the business owner want
to cash out immediately, maintain an equity investment in the business, or cash out in stages over
a number of years?
Legacy: What are the owner‘s goals for a personal legacy? Does he or she want to establish a
charitable trust or trusts for family members, children or grandchildren as legacies to his or her
accomplishments?
Values: What are the values of the business owner? What is important to the owner apart from
his or her personal interests? Does the business owner value the continuation of the business and
continued employment for colleagues, family and employees? What about community
involvement?
The income needs, involvement expectations, investment, legacy desired, and personal values
combine to create a set of the owner‘s personal goals for the succession plan. If the owner‘s
goals and financial needs are out of synch, they will need to be brought into harmony. In many
instances, the owner mistakenly believes that the business is worth more than it actually is, and a
business valuation may be necessary to convince the owner of the business‘ true worth. Once the
owner knows the true going concern value of his business, the owner will be better informed and
can make informed decisions concerning personal goals and finances, especially concerning
retirement while all of these goals may not be met, the business owner must consider and
recognize these expectations to achieve a satisfying outcome.
2.2.4.2.2 Management Succession
In many family businesses, the succession process starts with the need to plan for the
management succession first followed by the ownership succession plan. Management
determines the future management of the business. Whether management of the business will
rest in the hands of the next generation, in the hands of key employees or a combination of both,
the business owner must learn to delegate and work ―on the business,‖ not just ―for the
business.‖ It can take many years to train the successor management team so that the business
owner can transition from running the day to-day operations of the business. For many business
owners, giving up control can be difficult. All too often, business owners focus more on the
ownership and transfer tax issues involved in a business succession plan and ignore the people
issues.
In the typical family business, the future leader is likely to be one of the business owner‘s
children. If so, steps must be taken to ensure that the future leader is qualified and has the
support of the key employees and other family member owners. Generally, a gradual transfer of
roles and responsibilities gives the successor time to grow into his or her new position and allows
the business owner time to adjust to his diminishing role.
Thus, lead-time (typically three to five years) to select and mentor a successor is important for a
smooth transition. Management succession planning is necessary when the owner wants the
business to continue as an independent company. It is the process that determines who will do
the owner‘s job when he or she is gone. The skills, interests and future plans for top managers at
the company must play a key role in management succession planning. Sometimes management
succession and ownership succession planning go hand in hand as top managers expect ―a piece
of the pie‖ if they stick around through the instability of business succession and take on new
responsibilities at the company.
Ensuring that the family business is well managed now and in the future is the key contributor to
its long-term success. In effect, the case can be made that management succession should be a
prerequisite for ownership succession. Implementing the management succession plan and
observing it in action over a period of years can provide the current owners with the degree of
comfort required to allow the ownership transfer to occur. It is the need to provide the current
owners with ‗comfort‘ that makes the management succession process such an important piece
of the overall succession process.
The management succession process/plan will also provide the next-generation managers with
real-life experiences in working together and managing the all-important family component.
Even if you feel that your management succession plan is well established, you should review
this section on ‗management‘ succession to ensure that you have addressed all the salient points.
This situation is fairly common in family businesses.
Everyone knows there are business and family issues that need to be dealt with. However,
nobody knows how, or is comfortable with, managing the communication necessary to address
the issues. While many of these issues tend to slowly percolate over time, they tend to rise to the
surface during the succession process since important decisions about the future are being
contemplated. Addressing these management issues that involve family members is essential to
the overall family business succession process.
2.2.4.2.3 Ownership Succession
In family business the ownership succession, is about transferring ownership the business.
Transferring the ownership of any company can create a variety of emotions ranging from guilt
to freedom and happiness. Letting go of what you have dedicated the better part of your life to
build is no easy task and is often referred to as the greatest test of greatness for the founders of
businesses. Family businesses have the additional challenge of having to deal with the emotions
generated by their family component. Fortunately, there are now generally accepted family
business best practices to help family business owners effectively manage their family
component as they work through the succession process.
The current owners need to feel comfortable that the next-generation family members have the
skills and commitment to effectively take over the family business. They need to know that the
business and personal values they have instilled in the family business will be respected. They
need to feel comfortable with their role during and after the ownership transfer. The same is true
for the next-generation owners. They too need to be comfortable with the ownership succession
process and plan. Therefore, the succession process needs to move at a pace that will provide this
necessary level of comfort.
Often there is a major concern for family business owners with children who are active in the
business (the ―active children‖) is how to treat all of the children equally in the business
succession process. Other concerns for the business owner include when to give up control of the
business and how to be guaranteed sufficient retirement income. Following are three techniques
of transferring ownership commonly used to resolve these concerns.
Selling (as opposed to gifting) the business to the active children results in all children
being treated equally. The sale price would be the fair market value of the business
determined by an independent appraisal
Gift or sell the business to all of the children, but transfer voting shares to the active
children and non-voting shares to the inactive children
Gift or sell the business to the active children, and leave the non-business assets to the
inactive children. If the inactive children will not receive an equal (or fair) portion of the
business owner‘s estate, the business owner can make up the difference by establishing
an irrevocable life insurance trust for the inactive children‘s benefit
2.2.4.2.4 Managing the transition
Succession planning, done well, takes a long time, and the most successful transitions result from
establishing a partnership process between the generations. Once it‘s decided that the long-term
objective is to keep the business in the family, a succession plan must be put in place. Managing
the succession process in family businesses tends to be successful when it results from
establishing a well-planned partnership with the next generation. Both founder and next
generation should view succession not as an event, but rather as a process to be planned.
Family communication is the foundation for successful succession in family business. The
likelihood of a smooth and effective transition will be significantly enhanced if the active family
members have been holding family business meetings and family council meetings to address the
succession issues.
Managing family member expectations, enabling them to make informed decisions about their
future in the business and providing sufficient comfort to implement the succession plan is the
role of these family meetings. If your family has not held family business meetings or family
council meetings, it is strongly recommended that you start your succession process by setting
them up.
2.2.4.2.5 Developing an effective Successor
A successor is the family member who assumes managerial control and eventual ownership
control of the family business after the founder steps down or leaves the family firm. The term
―potential successor‖ describes a family member that has the necessary traits and willingness to
potentially take over the family business but has not or did not assume leadership of the business.
Though much of the succession research focuses on the role of the founder in the process, or the
succession process itself, little attention has been paid to the role of successors.
Past research has examined successor attributes that are good for succession (Chrisman, Chua, &
Sharma, 1997). Family business scholars generally agree that successors need to be willing,
capable, and committed to taking over the family business (Barach & Ganitsky, 1995; Barach,
Ganitsky, 1995; Chrisman et al., 1998; Handler, 1994; Sharma, Chrisman, & Chua, 1997).
Handler's (1994) research shows that the more a next-generation successor has achieved
fulfillment of career interests, psychosocial needs, and life stage needs in the family firm, the
more likely the individual will experience a positive succession experience.
Successor Commitment
Throughout the history of family business research, scholars have focused on successor
commitment and willingness to take over the business. Chrisman, Chua, and Sharma's (1998)
research indicates that integrity and commitment to the business are the most desirable traits for
family business successors. Throughout the literature, it is evident that some scholars use
willingness and commitment in the same context or assign the same meaning to both terms.
However, in order to further the advancement of the succession literature and create a more rich
research agenda for future successor related succession research, the difference between
willingness and commitment should become more distinct. The word commitment seems to hold
a stronger connotation than willingness. In some cases, a successor can be willing to take over
the family business but not fully committed, thus jeopardizing the continuity of the family firm
and all who depend on it. Sharma and Irving's (2005) research that pulls from the organizational
behavior literature on commitment offers a 40 solution for this problem; different levels of
willingness are accounted for in the four shades of successor commitment. Even though
successors can share a common focal behavior of pursuing a career in the family firm, the
motivation or willingness can vary significantly (Dumas, Dupuis, Richer, & Cyr, 1995).
Therefore, researcher use Sharma and Irving's (2005) research to define successor commitment:
Successor commitment is characterized by the successor's frame of mind or psychological state
that compels the individual toward the focal behavior of continuing to profitably operate the
family firm.
Furthermore, the level of commitment that a successor has to the continuation of the business can
determine how he approaches problems that arise in the family business. Sharma and Irving's
(2005) four types of successor commitment include affective, normative, calculative, and
imperative commitments. Affective commitment is characterized by the successor's genuine
desire to be in the family firm. Normative commitment occurs when family members join the
firm out of obligation, Calculative is based on opportunity costs, and Imperative commitment
occurs when successors feel that they need to join the firm, often because they doubt their ability
outside the firm. When family business researcher s talks about commitment, they are typically
referring to affective commitment (Sharma & Irving, 2005). Research suggests that affective and
normative commitments are the two strongest types of commitment (Miller, 2001). Sharma and
Irving (2005) further propose that each form of commitment leads to a different levels of binding
strength of a successor with the organization.
However, commitment often develops because of multiple motives, so different forms of
commitment can be found to exist simultaneously (Miller, 2001). In this study, even though
successors may have entered the business with different commitment types, by the time of
succession successor commitment types were largely affective and normative; thus lending
evidence that stronger commitment levels from successors lead to the successful continuation of
the family business. Furthermore, the sense of obligation or desire to be in the family business
pushed the successors to make tough personal decisions that ultimately helped the business
persevere, even when faced with obstacles like a resistant incumbent, forced succession, or
family problems. The succession process was different at each business; some businesses had a
single successor, some had co-successors, while another firm focused more on shared leadership
rather than naming one single successor (Sharma & Irving, 2005).
Successor Capabilities
When examining successors in the succession process, family business scholars have often
studied the important qualities or attributes that a successor needs for succession. In their
research, Chrisman, Chua, and Sharma (1998) found decision-making abilities and experience,
interpersonal skills, intelligence, self-confidence, creativity, experience in the business, and past
performance were all in the top ten most desirable attributes of family business successors. Much
of the early literature prescribes the need for a capable successor but does not fully define the
concept. Therefore, Capability, within the scope of this paper is defined as:
Successor capability is characterized as the successor's mix of intelligence, experience, relevant
skills, and interpersonal skills that allows the individual to profitably continue operation of the
family business.
Most of the researcher follows a linear process where the successor enters the firm and gradually
takes on more responsibility while further developing his capabilities until the time of leadership
succession. However, capabilities can develop within or outside the family firm. Much less
attention has focused on quick and forced succession events where a successor with experience
in the family business may not exist. Therefore, it is important to note that capable family
successors can exist outside the family firm. The definition of successor capability used in this
article takes both explicit and tacit knowledge and potential capability into consideration. By
looking at the successor's mix of intelligence, experience, relevant skills, and interpersonal skills,
the definition does not limit itself to a specific circumstance or skill set. Chrisman, Chua, and
Sharma (1998)
Intelligence refers to the person's understanding of the business that helps successfully run the
business and his capacity to further learn, reason, or understands critical business information,
circumstances, and events; it can come from formal education or natural mental capacity.
Experience involves any activity, observation, or exposure a successor has in a work
environment; it does not have to be work experience that is specific to the family firm as long as
the knowledge the experience gained can be generalized within the context of the family firm.
Relevant skills are the successor's acquired work related abilities that can be used to run the
business. Interpersonal skills describe the successor's ability to interact well with critical actors
in the family business environment; it is the relationship skills that allow him to gain acceptance
from family and non-family employees in the family firm. (Chrisman, J.J., Chua, J.H., &
Sharma, P.1998).
Chrisman, Chua, and Sharma's (1998) find that successor's capabilities develop throughout his
lifetime, within and outside the firm, and come from different experiences and sources. The
sources of successor capabilities can often overlap and intermingle, the important point is that
the mix of capabilities needs to be sufficient enough to continue running the firm profitably
when the founder steps down or suddenly exits the firm. The sources of successor capability
came from the person's intelligence, education, work experience within and outside of the family
business, ability to work well with family business employees, and in cases where the succession
process was planned and followed through with, the successor's relationship with the founder
was also an important factor. Much of the literature that views succession as a linear process has
not addressed the fact that a capable family successor can come from outside the firm, yet
various cases suggest that it is a very possible scenario.
2.2.4.3 Monitoring the implementation of the plan
Implementing the plan is the tough stage in succession planning. The financial and legal process
for each succession plan will be different. Consequently, the advisors and professionals who
helped arrive at the final plan will help draw up the legal documents and contracts necessary to
implement it. The first steps of this process help business owners come up with plans that fit well
for them and their businesses. Therefore, each step had a clear objective and end point.
Implementation does not have a clear end point. Succession plans often need revision and
modification. Tax laws change, the condition of the business changes and personnel changes. All
these will impact the succession plan. A good succession plan designed a few years ago may no
longer be adequate for the current needs of a business or its owner. Therefore it is important to
revisit and revise the succession plan regularly. With that in mind, some important steps should
be taken after the plan has been designed.
By following the direction of the attorneys and service providers to insure that all of the
documents are drawn up, signed and filed appropriately. It is critical that the plan is
legally and financially sound and written and filed appropriately. These legal documents
establish the plan and make it legally binding. This may mean filing documents with the
various courts, the state and federal governments, and, perhaps, the Revenue Service. The
most important concern at this stage is to insure that the documents combine to provide
the desired plan, and that they are beyond legal reproach. It would be unfortunate to put
forth the time and effort to design an excellent plan, only to find that technical mistakes
caused it to lack legal standing.
By designing a summary of what the succession plan will accomplish and what the
business will look like after the transition. This document should be drawn up in
consultation with the professionals who helped design the plan. It will serve three
important purposes. First, it will force the business owner to summarize what has been
accomplished in a clear and concise format. Since the document should be reviewed by
the professionals involved, it will help the business owner insure that the plan is what he
or she wants; Second, the summary will help explain the final plan to other stakeholders;
Finally, the summary can also reassure customers, suppliers and lenders that an
appropriate succession plan is in place and that the business will remain stable. Thus,
they can continue to have confidence in the business.
By informing the important stakeholders of the particulars of the plan. It is especially
important to explain the plan to the other stakeholders in the business. Since family
members, managers and other owners helped design the plan, it is important to return to
them and explain the outcome and how it addresses their goals. It is useful to meet and
discuss the plan with key management, family members and other owners. This will help
the business owner explain how and why he or she designed the plan. While the
management, family members or other owners may not get all that they wanted, if it is
explained in a personal and logical way, the disappointment will be easier to digest.
Further, it will show, above all else, that the business owner is concerned about their
future.
Revisiting the plan regularly. It may make sense to set a date every year to meet with the
professionals who helped design the plan to insure that changes in the business, tax law
and family situations do not require changes in the plan. Sometimes when the business
owner sets up the plan, he or she assumes it is complete and forgets about it. The problem
with this approach is that circumstances and laws change. Such changes may mean that
the original plan is no longer legal, or does not offer the originally desired tax
advantages. It is therefore important to give the succession plan a regular ―check up‖ to
make sure that it is still what the owner wants.
2.2.4.4 Coordinating the succession plan with other business strategies
2.2.4.4.1 Retirement Planning and Estate planning
Retirement planning and estate planning go hand-in-hand with succession planning – and should
be considered at the same time – because all three relate to planning for the owner‘s future and
the family‘s future. Retirement planning is especially important for business owners because
they often pour money earned through the business back into the business rather than taking out
enough (in salary, bonuses or dividends) to save for their own retirement.
Indeed, as previously noted the founder‘s financial needs in retirement are often a critical factor
driving other succession plan issues, such as timing of the founder‘s exit from the business and
the structuring of business ownership. Succession will likely fail if funding the founder‘s
retirement puts too great a strain on the business, so retirement planning should start as early as
possible.
Estate planning, on the other hand, is usually aimed at maximizing the value of the owner‘s
assets (including the preservation and protection of property during the owner‘s lifetime) and
minimizing and/or deferring tax and other costs arising on the death of the owner. As well, estate
planning is meant to provide for an orderly transition of assets to the beneficiaries and usually
includes providing for the dependents. Once one has set a vibrant succession plan, one should
ensure their estate planning goals are coordinated with this plan.
2.2.4.4.2 Shareholder agreements
When one is transferring ownership of their business, either directly to family members as part of
their will or as part of an estate freeze, (which is discussed below), a shareholder agreement is an
important tool one should consider. A shareholder agreement is an agreement that governs the
conduct of the shareholders and it should address all areas of possible concern. With such a
broad mandate, the possible contents of a shareholder agreement are endless.
Each business will have different concerns, and the importance of the issues will vary. But, in
general, a shareholder agreement for a family business usually deals with the following key
issues in addition to more general business concerns
2.2.4.4.3 Asset preservation
Asset preservation is critical for family business owners because most forms of business involve
risk. As an owner-manager, there are a number of steps one can take to protect their business
assets. For example:
If one owns the real estate used in the business, one may want to consider holding this
real estate in a separate holding company. If business risks arise in the operating
company, the real estate may be sheltered from these risks.
A holding company can also be useful if your business generates cash flow in excess of
amounts required for business investments and cash paid to the owner as a salary or
dividend. If a holding company holds the shares of the operating company, the excess
cash can be paid to the holding company as a dividend on a regular basis, and again this
cash may be protected from risk in the operating company. The inter-company dividends
generally are tax free.
If one needs to borrow money for the business, it is paramount to investigate all
alternatives before borrowing personally or giving personal guarantees. Though arranging
for financing using personal resources is often the fastest way to raise cash for a new
venture, there is risk associated with committing personal funds.
2.3 Family Business Survival
The survival of an organization in this vibrant and competitive business environment depends on
how effectively the organization learns to adapt itself to the environment and capitalize on its
resources fully (Lee, 2006). Successful entrepreneurial firms move from start-up, through
expansion and growth, to maturity (Poza, 1988).
A family business can have a life beyond its founding generation (Rosa, Balunywa & Iacobucci,
2006). Long term survival of a firm not financial performance should be utilized to ultimately
judge the success of an organization (de Gues, 1997; Brenneman, Keys & Fulmer, 1998) Firm
survival depends on the ability to adapt successfully to a changing environment. To ensure
survival, organizations formulate appropriate strategies, and devise ways and achieve these
strategies (Eisenhardt & Zbaracki, 1992).
Therefore, renewing family capital through starting new ventures and closing down those that are
less successful enhances survival of a family business (Rosa, Balunywa & Iacobucci, 2006).
Successful ‗living companies‘ tend to be tolerant of new and innovative ideas. Instead of fearing
the unknown, these companies thrive on uncertainty and realize that opportunity is often the twin
sister of change (De Gues et al 1997). Even though the environment is constantly changing
around them, these firms maintain flexible strategies and an open minded posture that allows
them to change with the environment. A living company recognizes that it cannot control its
environment, rather it must learn to continuously adapt to it (Kelly 1997)
Research on family business survival has been undertaken across a number of countries (Bruderl
et al. (1992) and Strotmann (2007) for studies outside of the UK and US). Despite using a range
of analytical bases several common elements in business survival have emerged fairly
consistently. Survival appears positively related to firm size (whether defined by turnover, assets
or employee numbers) and the length of time that a business has been operating. Some studies
have also indicated that conditional closure rates take an inverted U-shape, rising up to a peak in
the first few years before declining thereafter (Ganguly (1985), Cressy (1996)).
Aside from size and age, studies have differed with regards to the factors influencing survival (or
at least their relative importance). Some have indicated that industry-level factors, in the form of
minimum efficient scale or the developmental stage of that sector, are relatively important
(Audretsch (1991), Audretsch and Mahmood (1995), Agarwal and Audretsch (2001)).
Others have found the scale of financial resources available to the firm to be a key element
(Evans and Jovanovic, 1989). A third set have put forward individual and collective human
capital (measured in a variety of ways) as the most important determining factors (Cressy, 1996;
Taylor, 1999). Audretsch & Mahmood, (1995) any family firm that wishes to continue its
existence as a family enterprise relies on the next generation.
Yet, the paths that connect next generation members with their family business are not easy to
tread – they are fraught with choices and challenges, largely unexplored. In this context, choices
about what kind of business the family wants to build, the role of the family in a changing
enterprise, and the next generation‘s roles and careers in relation to the family and its business
has to be established for the firm‘s survival.
2.4 Family Business Succession Planning and Family Business Survival
As noted in last section several scholars have investigated the concepts of succession planning
and survival of family businesses (Ellis & Ibrahim, 2006; Lane, 2006; Miller & Le Breton,
2005). Where succession planning is said to be the transference of business that results from the
owner's wish to retire or leave the business for some reasons, (Martin., 2002), yet family
business survival is the continuity of business in future from one generation to another,(Ibrahim
& Ellis, 2004).
Over three decades ago Levinson (1971) noted that succession planning is important to an
effective succession in family firms. Research has since examined the impact of succession
planning on the survival of family firms (Handler, 1992 & 1990; Ibrahim & Ellis, 2006; Kets De
Vries, 1993; Lee, Lim & Lim, 2003; Poutziouris, 1995). The practice of succession planning
includes the quality of the successor, the gradual transfer of power and leadership to the next
generation as well as the participation of family and non-family members in the succession
process are critical to an effective succession process and to the continuity and survival of the
family firm from generation to generation (Ellis & Ibrahim, 2006).
However, Handler, (1989) cited lack of succession planning as a major cause of the high
mortality rate in family businesses and noted that succession planning does not take place in
most family firms. Therefore for family business survival to be achieved, family businesses
should start thinking about training successors, transferring ownership and managerial
responsibility in advance, (Dyck, 2002; Davis, 1992; Shulman, 1991).
2.5 Summary
This chapter highlighted at what research sources say about the concept of succession planning.
Succession planning focuses on the identification of a successor and the transfer of ownership
and management from one individual to another. Generally it is process best summarized into
three distinct aspects – ownership succession, management succession, and internal succession.
In each aspect several steps are followed which may include, identification of key positions to be
filled, the competences needed, strategies, documentation and evaluation of the plan.
Succession planning in the context of family business, has the similar aspects of ownership
succession and management succession. The overall process involved the determination of
whether business succession within the family was a viable alternative, developing the
succession plan, monitoring of the implementation of the plan, making changes as necessary, and
coordinating the succession plan with other business strategies; planning for retirement and the
distribution of owner‘s estate.
Once the succession planning was conducted effectively, this was vital to the continuity and
survival of the family firm from generation to generation (Ellis & Ibrahim, 2006). However,
Handler, (1989) cited lack of succession planning as a major cause of the high mortality rate in
family businesses and noted that succession planning does not take place in most family firms (
do nothing approach). Therefore for family business survival to be achieved, family businesses
should start thinking about training successors, transferring ownership and managerial
responsibility in advance, (Dyck, 2002; Davis, 1992; Shulman, 1991).The next chapter discussed
the research methodology and techniques that were used to collect data for the study.
Chapter 3 Methodology 3.1 Introduction
The previous chapter outlined the theoretical framework that was created to serve as a guideline
for executing the research and enable the researcher to obtain the research objectives and answer
the main research questions. This chapter aimed to describe how the research study would be
conducted in the context of the research problem and the population to be studied. Therefore the
researcher looked at the research approach appropriate for the study. From the research
approach, the researcher then developed a research design, the research instruments to be used
and justified the use of the selected instruments and the use of the selected data collection
procedures, their reliability and validity.
3.2 Research Approach
The general research approach which was employed by the researcher was a mixed method
approach (The researcher used exploratory and descriptive type of research) this allowed for the
collection of qualitative and quantitative data. The main reason for choosing these methods was
its ability to gain information from a large sample.
3.2.1 Exploratory research
According to Shao (1999), exploratory research is that research that identifies problems
generates hypothesis and gain insights about particular subjects. Exploratory focuses on the why
questions, the collection of secondary or primary data and use informal procedures to interpret
them, it also ensures that the right questions are asked, in the right way and to the right people.
This approach was used because it is explanatory in nature and it seeks to understand the
background information on the succession planning strategies being pursued by family
businesses.
3.2.2 Descriptive research
According to the Office of Human Research Protections (OHRP) they defined a descriptive
study as ―Any study that is not truly experimental.‖ In human research, a descriptive study can
provide information about the naturally occurring health status, behavior, attitudes or other
characteristics of a particular group. Descriptive studies are also conducted to
demonstrate associations or relationships between things in the world around us.
According to Cohen (1989), descriptive research attempts to describe, explain and interpret
conditions of the present i.e. ―what is‘. The purpose of a descriptive research is to examine a
phenomenon that is occurring at a specific place(s) and time. A descriptive research is concerned
with conditions, practices, structures, differences or relationships that exist, opinions held,
processes that are going on or trends that are evident, there are four types of descriptive research;
Observation Studies
Correlational Research
Developmental Designs
Survey Research
Descriptive research design was chosen because it also allowed the researcher to obtain the
relevant information that the research project focused on. Descriptive research uses scientific
methods and procedures to collect and interpret raw data. Therefore it as used as to counter the
limitations of exploratory research as it describes and measures variable at a point in time.
The research was descriptive in the sense that it focuses on how family business approached the
concept of succession planning strategies and aimed at establishing the role of succession
planning during the period under study. Within the four types of descriptive research involves a
one-time interaction with groups of people (cross-sectional study) or a study might follow
individuals over time (longitudinal study). Descriptive studies, in which the researcher interacts
with the participant, may involve surveys or interviews to collect the necessary information.
3.3 Research Design
According to Hair J et al (2003), the research design serves as a master plan of the methods and
procedures that should be used to collect and analyze the data needed by the decision maker.
Thus the research design served as the blue print for collection, measurement and analysis of
data. The research design procedure that followed reduced ambiguity and facilitated post project
evaluation as to whether study objectives were met or not.
Since the research method is descriptive, the study will adopted a cross sectional survey, this is
the least expensive and yields results within a short period of time. It will all allow the researcher
to obtain the relevant information that the study will adopt a cross sectional survey, this is the
least expensive and yields results within a short period of time. It will all allow the researcher to
obtain the relevant information that the research project focuses on.
The sample size was determined using the principle of sample framing. This table gave out the
sample size basing on the population to be studied. After determining the sample size, the next
step was to determine the members of the sample to be interviewed in different firms. This was
done by stratified sampling technique. This procedure divides the total target population into
subgroups that are known as stratas. Sample elements (members of the sample) were drawn by
random sampling from each stratum. For each stratum characteristics of interest were calculated
and properly weighted, variances of the estimates are also calculated.
General linear model techniques were also used by the researcher to investigate the relationships
between the variables of the study (succession planning and survival of family businesses) and
the extent to which the independent variable (succession planning) affects the Survival of family
businesses. In addition the researcher will use qualitative analysis through non – parametric test
to test the hypothesis generated from the research questions
3.3.1 Study Population
According to Bush (1998) population is defined as the entire group under study as specified by
the objectives of the research project. The study population was made up of commercially
registered family businesses operating in major cities of Zimbabwe. The population consisted of
a combination of family businesses still surviving and those that have not survived beyond the
first generation.
3.3.2 Sampling, Sampling Techniques and Procedures
Sampling in its own context is a technique for selecting a subset of units from a population to
produce an estimate of some attribute or characteristic of the population at a reasonable cost. A
sample should be representative of population,―representative‖ – the sample matches the
various demographic, behavioral and attitudinal characteristics of the population of interest.
According to Hair (2006), sampling involves selection of a small number of elements from a
larger defined group of elements target group of elements and expecting that the information
gathered from the small group will allow judgments to be made about the lagers group.
The sampling process comprised of the following stages:
Defining the population of concern
Specifying a sampling frame, a set of items or events possible to measure
Specifying a sampling method for selecting items or events from the frame
Determining the sample size
Implementing the sampling plan
Sampling and data collecting
Reviewing the sampling process
The researcher chose sampling because it is prohibitively expensive, if not impossible, for a
research survey to be conducted were every member in the target population is contacted. It is
for this reason that samples were selected, which represented the target population thus forming
a solid basis for conclusive research results.
3.3.2.1 Sampling Size
Determination of a sample size is based on the use of industry standard, which according to
Dillon W, (1993) refers to the rule of thumb developed from experience. Crouch and Housden
(1996) defined sample size as a limited number taken from a large group for testing and analysis
of the assumption that the sample can be taken as representative of the whole group. Large
samples give more reliable results than small samples Kotler P (1998).
The major respondents were the owner/founder of the business to show how they are preparing
for succession planning and the challenges encountered in preparing the plan. The research is
directed at family businesses in Zimbabwe. However the sample will consider family business in
Harare and Bulawayo.
3.3.2.2 Sampling frame
Since it is possible to identify and measure every single item in the population and to include any
one of them in a sample, a sampling frame was used by the researcher as remedy. Generally a
sampling frame is a list or other device used to define a researcher's population of interest as was
shown by the researcher in the table below. The sampling frame defines a set of elements from
which a researcher can select a sample of the target population. Because a researcher rarely has
direct access to the entire population of interest, a researcher must rely upon a sampling frame to
represent all of the elements of the population of interest.
According to Turner (2003), a simple definition of a sampling frame is the set of source
materials from which the sample is selected. Sampling frames used by researcher included
wholesale and retail, manufacturing and Farming and food services. The table 1 below shows the
list of all eligible sampling units for questionnaires.
Table 3.1: sampling frame
Sampling unit Sample size Data collection method
Wholesale and retail 58 Questionnaires
Manufacturing 44 Questionnaires
Farming and food services 42 Questionnaires
Total 144 Respondents
Another sampling frame (subset) of the sampling frame in table one was used by the researcher
to conduct structured interviews, for further data collection, thus was to suffice the exploratory
research of the study and give a more qualitative research. The table 2 below shows the frame list
of all eligible sampling units for interviews.
Table 3.2: Sampling Frame
Sampling unit Sample size Data collection method
Wholesale and retail 10 Structured Interview
Manufacturing 10 Structured Interview
Farming and food services 10 Structured Interview
Total 30 Respondents
3.3.2.3 Sampling Technique
There are two types of sampling techniques, probability and nonprobability sampling. A
probability sampling scheme is one in which every unit in the population has a chance (greater
than zero) of being selected in the sample, and this probability can be accurately determined. The
different types of probability sampling include:
Simple Random Sampling,
Systematic Sampling,
Stratified Random Sampling,
Cluster Sampling
Multistage Sampling and multiphase sampling
A nonprobability sampling scheme is one were any sampling method where some elements of
population have no chance of selection (these are sometimes referred to as 'out of
coverage'/'undercovered'), or where the probability of selection can't be accurately determined. It
involves the selection of elements based on assumptions regarding the population of interest,
which forms the criteria for selection. Hence, because the selection of elements is nonrandom,
nonprobability sampling does not allow for the estimation of sampling errors. The types of non-
probability sampling include:
Accidental Sampling,
Quota Sampling and
Purposive Sampling
These are techniques used in selecting the respondents who provided the required data. The
researcher used both probability sampling designs and non-probability sampling designs.
Probability sampling was used mainly because sample selection is objective, sampling error can
be estimated. The researcher used stratified random sampling and cluster sampling under
probability sampling. Non- probability sampling was also used because of the convenience it
offers to the researcher and therefore purposive sampling was therefore used.
Table 3.3: Sampling techniques - Advantages and disadvantages
Technique Descriptions Advantages Disadvantages
Simple
random
Random sample from
whole population
Highly representative if
all subjects participate;
the ideal
Not possible without
complete list of population
members; potentially
uneconomical to achieve;
can be disruptive to isolate
members from a group;
time-scale may be too long,
data/sample could change
Stratified Random sample from Can ensure that specific More complex, requires
random identifiable groups
(strata), subgroups,
etc.
groups are represented,
even proportionally, in
the sample(s) (e.g., by
gender), by selecting
individuals from strata
list
greater effort than simple
random; strata must be
carefully defined
Cluster Random samples of
successive clusters of
subjects (e.g., by
institution) until small
groups are chosen as
units
Possible to select
randomly when no single
list of population
members exists, but local
lists do; data collected on
groups may avoid
introduction of
confounding by isolating
members
Clusters in a level must be
equivalent and some natural
ones are not for essential
characteristics (e.g.,
geographic: numbers equal,
but unemployment rates
differ)
Stage Combination of
cluster (randomly
selecting clusters) and
random or stratified
random sampling of
individuals
Can make up probability
sample by random at
stages and within groups;
possible to select random
sample when population
lists are very localized
Complex, combines
limitations of cluster and
stratified random sampling
Purposive Hand-pick subjects on
the basis of specific
characteristics
Ensures balance of group
sizes when multiple
groups are to be selected
Samples are not easily
defensible as being
representative of
populations due to potential
subjectivity of researcher
Quota Select individuals as
they come to fill a
quota by
characteristics
proportional to
Ensures selection of
adequate numbers of
subjects with appropriate
characteristics
Not possible to prove that
the sample is representative
of designated population
populations
Snowball Subjects with desired
traits or characteristics
give names of further
appropriate subjects
Possible to include
members of groups
where no lists or
identifiable clusters even
exist (e.g., drug abusers,
criminals)
No way of knowing
whether the sample is
representative of the
population
Volunteer,
accidental,
convenience
Either asking for
volunteers, or the
consequence of not all
those selected finally
participating, or a set
of subjects who just
happen to be available
Inexpensive way of
ensuring sufficient
numbers of a study
Can be highly
unrepresentative
Source: Black, T. R. (1999). Doing quantitative research in the social sciences: An integrated
approach to research design, measurement, and statistics. Thousand Oaks, CA: SAGE
Publications, Inc. (p. 118)
3.3.2.4 Stratified Random Sampling
Stratified random sampling is probability method in which the defined target population is
subdivided into groups, called strata and samples are selected from each stratum and maximized
the differences between strata so as to get homogeneous strata that are distinct from each other.
Family businesses were divided into three strata namely wholesale and retail, manufacturing
and farming and food services. Twenty (20 wholesale and retail, manufacturing and farming
and food services were randomly picked from each stratum and questionnaires were
administered to them. This technique gave an assurance of representativeness in the sample and
the opportunity to study each stratum and make comparison between strata.
3.3.2.5 Cluster Sampling
Cluster sampling refers to where the population is divided into geographic areas or clusters each
of which must be considered to be very similar to others (Burns and Bush, 1998). Each cluster
was assumed to be a representative of the heterogeneity of the target population. The researcher
used cluster sampling method in selecting wholesale and retail, manufacturing and farming
and food services. Two cities with major where all industry players have presence were
identified as Bulawayo and Harare. This technique proved to be cost effective and easy to
implement.
3.3.2.6 Purposive Sampling
A non-probability sampling method in which participants are selected basing on, experience and
individual‘s belief that they will meet the requirements of the study. Hair (2006) the purposive
sampling was employed to in selecting Founder/owners of family business of each industry
player to interview. The technique was the most appropriate as the researcher had an experience
with the organizations and knows the individuals who are in a capacity to give the required
information.
3.3.3 Research Instruments
3.3.3.1 Questionnaires
The researcher used questionnaires to collect primary data concerning the role succession
planning on survival of family businesses. A list of questions were carefully formulated,
constructed and sequenced so as to obtain the most useful data in the most cost effective manner.
In the construction of questionnaires ambiguous, difficult and personal questions were avoided
so that everyone would understand what was required. These structured questions related to
each study variable in the question. The questions relating to succession planning, and survival
of family businesses constructed on an interval scale. The respondents answered on how they
agree or disagree with the statements in the Questionnaire.
The questionnaires had both open- minded and closed – ended questions. The open- minded
questions were good in exploratory research because the researcher was looking for insights into
industry competition structures. On the other hand, closed- ended questions were good in
collecting data which need one word answers and they were not time consuming during field
work and analyzing.
The major advantages presented to the researcher through the use of questionnaires were that
they helped in collecting primary data and in so doing; data relating to the specific area under
study was obtained. This method proved to be cost effective and convenient in collecting data.
The researcher made use of questionnaires because the respondents are free form interview bias
and there is uniform question presentation and no verbal or visual clues to influence the
respondent. Questionnaires were also easy in analyzing data as entry and tabulation can be easily
done with many computer software packages.
3.3.3.2 Interviews
Hair (2006), defined interviews as a formalized process in which as an interviewer asks a subject
a set of semi-structured questions in a face to face setting. Dillon et al (1990) mentions that in-
depth interviews are appropriate when the target population is professionals who cannot be
grouped together for discussions given their job schedules and this was applicable to this study‘s
target population.
During the interviews the respondents were asked to express freely their conceptualization of
succession planning and its role on the survival of their businesses. The interviews were chosen
mainly because of their higher response rate, data collection was immediate, they ensured
accuracy and that non- verbal responses were being observed and noted. The interviews
presented an opportunity to clarify questions and also enabled the researcher to make sure
respondents understood what was required. However, interviews present shortcomings of being
costly in terms of money and time.
3.3.4 Data Collection Procedures
3.3.4.1 Primary data
Primary data is defined as data expressly collected for the purpose at hand. The information
collected consists of the findings obtained by the researcher during the course of investigation
that is interviews and through questionnaires.
Primary sources possess attributes of good information, (that is relevance, accuracy, sufficiency
and timeliness) which assisted the researcher in making vital, congruent and up to date decisions.
The main disadvantage of primary data is that it is expensive to carry out and it is time
consuming to collect
The primary data was collected by administering questionnaires .The questionnaires contained
structured questions relating to each study variable in the question. The questions relating to
succession planning and survival of family businesses constructed on an interval scale.
3.3.4.2 Secondary data
The researcher also employed secondary data in the compilation of this study. Secondary data is
an already existing body of information that was prepared by other researchers for a specific
purpose other than the one at hand and is already assembled or published. The researcher hence
had to sift the relevant information needed for the study being undertaken and disregard
irrelevant facts.
The researcher made use of various sources of secondary sources; The secondary data was
collected from the firms‘ financial reports (Annual reports provided company performance in
terms of profits, sales and market share like cash flow statements, balance sheets and income
statements) so as to establish the firms‘ survival rate relative to other business microeconomic
factors (grow rate, market share, profit margins).
The researcher prepared a data collection plan, which was guided by the following questions;
what type of data will help the investigations? How will the data be collected? Which data
collection instruments will be used? When will data be collected? Who will be the focus of the
research?
On delivery, the respondents were given explanation of the nature of the researcher. A covering
letter was given as a safeguard against the giving of wrong information and also to guard against
bias. Questionnaires directed to all respondents an assurance of confidentiality guaranteed by the
researcher. Follow up interviews were conducted to solicit for missing data from some of the
questionnaires.
The researcher also collected secondary data from the organization in case from internal sources
such as company journals accounting reports and management annual reports. It is necessary to
conduct both primary (empirical) and secondary (theoretical) research in order to shed some light
on the research problem presented in this study. The researcher got research data from both
primary and secondary sources.
3.3.5 Measurement of Variables
The independent variable was succession planning and the dependent variable was survival of
family businesses. A structured standard questionnaire was used and all variables measured on
interval scales.
Succession planning. This was measured using dimensions of Training, Business
continuity planning ,family involvement and succession management, (Sharma, 2001;
Ibrahim, 2003)
Survival of family business. This was measured based on longevity as a proxy for
success (Fahed-Sreih, Djourdourrian, 2006) and the number of generations that had
owned the business (Kellermans & Eddleston, 2006).
3.3.6 Data Presentation and Analysis Procedures
The data collected was edited for incompleteness and inconsistence to ensure correctness of the
information given by the respondents by use of a computer. Through the use of a statistical
package (SPSS 18) the edited data was coded and was used for data entry and analysis.
Thus the Cronbach‘s Alpha coefficient was used to measure the reliability of the measurement
instrument (questionnaire). Significance test of the hypothesis will be done by the use of
parametric test (Chi-Test). Correlation and General linear Model techniques (Regression and
Survival Analysis) were used to analysis the relationship of the variables (Independent and
dependent).
3.3.7 Limitations
The study focused on Family businesses. This limited the generalization of the findings
from the study. However, given the limited time period, this study was given a clear
picture of the situation in Zimbabwe which other studies would build on.
There was limited availability of local literature with respect succession planning in
Zimbabwe, more so, on survival of family businesses. However, this was solved by
consultation of foreign literature and reference to other relevant locally published
material.
Respondents were not seemly willing to give all the required information, may be
because of the assumption that they feared exposure to their competitors. This likely
could cause a biased response. However, the researcher solved this by spending time with
the respondents to explain to them that the study was basically for academic purposes.
3.4 Summary
This chapter highlighted the research methodology used, their pros and cons. The chapter
explained the research design, identified the target population and explained the sampling
techniques that were used. The researcher made use of two sources of data, which are primary
and secondary data. These complement each other to give a true, reliable and credible
conclusion. Primary data was collected in order to qualify observed trends in literature,
secondary data that was extracted from published texts. The following chapter presents data
analysis and findings.
Chapter 4: Data Analysis 4.0 Introduction
The previous chapter highlighted the research methodology used, the research design, identified
the target population and explained the sampling techniques that were used. This chapter
presented the analysis of data and presentation of the research findings. The researcher did this
through the use of various data presentation techniques in order to present in a manner that
would make interpretation of results easy. The data was presented included descriptive statistics,
factor analysis, correlation analysis and regression analysis. These showed the results as tested
by the objective of the study which were;
Examine how succession planning is conducted in a family business set up.
To examine the relationship between the components of succession planning and survival
of family businesses.
Investigate why a formally written and structured succession plan is not conducted in
family businesses.
Assess the risk involved of not undertaking a formally written succession plan on the
survival of the family business.
4.1 The response Rate
This section presented the general characteristics of respondents. Cross tabulations were used to
indicate variations in the respondents' characteristics. The demographic features of the
respondents in the study included the age group, gender, the level of education, marital status,
number of years worked in an organization and how long their businesses had been in existence.
This information was critical to the study since such education levels, registration of the
businesses, number of employees in the business and the business survival are related to family
business enterprising.
4.1.1 Age Group
Table 4.1: Age Group
Age Group Frequency
Valid
Percent
Cumulative
Percent
below 25
years 12 8.3 8.3
25 - 35 years 40 27.8 36.1
Valid 36 - 45 years 50 34.7 70.8
Above 45
years 42 29.2 100
Total 144 100
The findings as reflected in table 4.1 showed that majority of the respondents were dominantly of
the 36– 45 age group (34.7%), followed by those above 45 years (29.2%), followed by those
between 25-35 years (27.8%) and lastly those below 25 years and category constituted 8.3% of
the sample. This implies that there was a greater positive response respondent between the ages
of 36-45 years as compared to other age brackets. Generally the from above 25 years there was
positive response, as this shows that the working class of Zimbabwe is engaged in family
business and at least two generations are represented.
According to Zacher & Schmitl (2012) age is positively related to generativity, and that
generativity, in turn, positively influenced an objective measure of family succession.
Generativity fully mediated the positive relationship between age and family succession.
4.1.2 Gender
Table 4.2: Gender
Gender Frequency
Valid
Percent
Cumulative
Percent
Male 79 54.9 54.9
Valid Female 65 45.1 100
Total 144 100
The results as reflected in table 4.2 showed that most of the respondents were male (54.9%) and
the female (45.1%). This implies that there was a greater positive male response rate
representation of respondents in terms of gender compared to the female. This entrepreneurial
culture is still relative skewed to the male side. Traditionally, there are particular and
extraordinary challenges for daughters aspiring to the top leadership role in their own family‘s
enterprise in Zimbabwe. According to Allen & Langowitz, 2003; Miller et al. 2003 there is a sex
based preference that favors sons over daughters as managerial heirs regardless of experience or
temperament to lead, but 45.1% representing the females in the table above is a positive step in
the right direction.
4.1.3 Marital status
Table 4.3: Marital Status
Marital
Status Frequency
Valid
Percent
Cumulative
Percent
Single 24 16.7 16.7
Valid Married 74 51.4 68.1
Divorced 46 31.9 100
Total 144 100
The findings as reflected in table 4.3 showed that most of the respondents were married (51.4%),
followed by Divorced (32%) and singles (17%). This implies that there were a greater number of
people in family business who are married compared to those who are single and that divorced.
According to the Family Firm Institute (2009) the majority of family business owners would like
to see their business transferred to the next generation, thus try and maintain the constituent of
marriage. It would appear that the unique characteristic of family business (i.e. the family
component) has potential benefits derived from this unique characteristic of being married and
this can provide a significant competitive advantage.
4.1.4 Number of years worked in the Organization
Table 4.4: Number of years worked in the Organization
Number of years
worked Frequency
Valid
Percent
Cumulative
Percent
less than 3 years 37 25.7 25.7
3-6 years 44 30.6 56.3
7-10 years 56 38.9 95.2
More than 10 years 7 4.9 100.1
Total 144 100
The results in table 4.4 showed that most respondents in the businesses have worked between 7-
10 years (38.9%), followed by those who have worked between 3-6 years (30.6%), those who
have been in an organization less than 3 years (25.7%) and lastly those who have been in an
organization for more than 10 years (4.9%).
4.1.5 Highest Level of education attained
Table 4.5: Level of education
Level of
education Frequency
Valid
Percent
Cumulative
Percent
Diploma 44 30.6 30.6
Degree 52 36.1 66.7
Professional 32 22.2 88.9
Valid Masters 8 5.6 94.4
Doctorate 7 4.9 99.3
Other 1 0.7 100
Total 144 100
Table 4.5 shows that as regards the Education level, most of the respondents were Degree
holders representing 36.1%, Diploma holders 30.6%, Professionals 22.2%,PhD holders 5.6%,
masters 4.9% and others 0.7%. This implies that, most people who are in family businesses at
least they attained a certain level of formal education. Therefore coupled with work experience
as the majority of them had 7- 10 years (shown in table 4.4), the researcher noted that they are
fully literate in the context of their business and are capable of understanding the needs of their
business.
As stated earlier in literature review; though relatively little research has examined education and
training as they directly relate to planning for the succession process. However, there are some
studies of family businesses which show a positive relationship between education and
innovation (Kimberly and Evanisko, 1981), while others (e.g., Datta and Guthrie, 1994) have
linked the owner‘s level of formal education with the willingness to implement change.
4.1.6 Characteristics of family businesses
The results in the table below show that the majority of the businesses were private limited firms
(50.0%) while Sole proprietorship (40%) and partnerships comprised 10.0% respectively.
Table 4.6: Characteristics of family businesses
Count
Valid
Percent Mean
St
Deviation
Partnership 2 10
Private Limited 10 50 2.1 0.968
Sole Proprietorship 8 40
Total 20 100
less than 3 2 10
3-6 years 3 15 1.65 1.137
7- 10 years 10 50
more than 10 years 5 25
Total 20 100
less than 5 employees 4 20
5- 10 employees 5 25 2.15 1.137
10 - 20 employees 8 40
more than 20 employees 3 15
Total 20 100
Wholesale and retail 8 40
Manufacturing 6 30 1.9 0.852
Farming and food
services 6 30
Total 20 100
It was also established that family businesses which have been in existence between 7 – 10 years
had the highest score (50%) followed by those more than 10 years which have (25%) , 3- 6 years
(15%) and lastly those less than 3 years scoring (15%). Family businesses which have between
10– 20 employees have the highest score percentage ( 40%) followed by those between 5 – 10
number of employees which score (25%), followed by businesses which had less than 20 number
of employees scoring (20%) and lastly those which had Over 20 employees scoring (15%).
Also results showed that majority of the family businesses were in the wholesale and retail sector
(40%). Both the Manufacturing sector and Farming and food services sector scored the same
percentage each (30%).
4.2 Analysis of Succession Planning
Before factor analysis, analysis was done on how many family business owners actually conduct
succession process and write a formal succession plan. The main reasons adopted from literature
review were factor in for analysis as to the most influential reason behind not parting in a
formally written succession plan. The tables below illustrated this analysis
Table 4.7: The frequency for a formally written succession plan
Frequency Valid % Cumulative %
Those with a formally written succession plan 38 26.4 26.4
Those without a formally written succession
plan 106 73.6 100
Total 144 100
The results findings indicated that they were more family business without a formally written
succession plan (73.6%).This implied for further investigation to why this phenomena was so,
thus the table 4.8 below indicated the frequency analysis of the reason factor that could have
caused the family business owners not to adopt or conduct a formally written succession plan.
Table 4.8 the reason frequency for a non-formally written succession plan.
Frequency Valid % Cumulative %
Reluctance to let go of control and power 56 21.6 21.6
Loss of identity 13 5.0 26.6
Fear of retirement 25 9.7 36.3
Fear of death 23 8.9 45.2
Fear of job insecurity and unexpected change 45 17.4 62.5
Succession planning is a waste of time and
resources 34 13.1 75.7
Your spouse or family's resistance to change 12 4.6 80.3
Succession planning is family taboo topic 34 13.1 93.4
Lack of knowledge on how to conduct a
succession plan 17 6.6 100
Total 259 100
As indicate from the above table, 21.6% where more reluctant to let go of control and power to
their successor. This was followed up by the fear of job insecurity and fear of unexpected change
(17.4%). Some family business owners felt succession planning was a waste of time and
resources (13.1%) and was also a taboo family topic (13.1) hence forth did no formally take part
in it. The fear of retirement (9.7%) and death (8.9%) were the next factors to contribute as loss of
identity (5%) and spouse or family resistance to change (4.6%) were both less influential
4.2.1 Factor Analysis of succession planning in family businesses
Factor analysis was employed to examine the relative nature of the Succession planning in
family businesses. The components of succession planning were subjected to factor analysis to
find out which of the components could prove more significant and how all the components
would contribute to the survival of family businesses basing on their percentage variance.
Table 4.9: Factor analysis of succession planning
Factor analysis results: succession
planning
Family
Involvement
Succession
Management Training
The family’s values drive family and business actions 0.609
Family members always decide on who to take control
of the firm 0.707
The family meets regularly to discuss family and
business concerns 0.674
The founder is regularly involved in deciding who to
take over control of the business 0.736
Family members always identify new business
opportunities 0.622
The family usually address conflicts to protect family
relationships and business continuity 0.573
There are clear family agreements on careers 0.603
We always have succession plan for the business 0.670
We adequately manage fears of differentiating among
key managers in the takeover process 0.661
We are prepared for change in the management of the
business 0.623
We are prepared to let go of power and control at an old
age 0.644
We are prepared to lose work activity after handover 0.600
People always assume positions basing on merit 0.590
We impart skills to siblings who are meant to take over
the business 0.602
We train successors how to make key decisions in the
organization 0.636
We gradually prepare children to enter the business 0.660
We always have a transition period of training for each
role before actual succession take place 0.684
We train someone to take over for all vital roles in the
business 0.708
The firm always trains successors on how to resolve
conflicts among employees 0.631
Eigen Values 4.725 1.225 1.135
Variance % 47.248 6.125 5.673
Cumulative % 47.248 53.373 59.046
Family Involvement, Succession Management and Training were identified as critical elements
of Succession planning, and explaining about 59% of the variance in Succession Planning. With
Family involvement, the researcher observed that it is very essential to take into consideration
the opinions and views of the business founders when deciding who should take over control of
the business venture (74%), ensuring that family members are always involved in deciding who
to take over control of the firm (71%), family meeting always to discuss family and business
concern (67%), members to always identify new business opportunities (62%), the family‘s
values drive family and business action (61%),also relevant was ensuring that there are clear
family agreements on careers (60%) and the family to usually address conflicts to protect family
relationships and business continuity (57%).
Succession management specific issues that should be emphasized if survival of family
businesses is to be improved had to do with ensuring that succession plans for the business are
always in place (67%), adequately managing fears of differentiating among key managers in the
takeover process (66%), to let go of power and control at an old age (64%), prepare for change in
the management of the business (62%), preparing to lose work activity after handover (60%) and
always people assume positions basing on merit (59%).
Training issues that should be emphasized if survival of family businesses is to be improved had
to do with ensuring training of successors how to make key decisions in the organization (71%),
always to have a transition period of training for each role before actual succession take place
(68%), gradually to prepare children to enter the business (66%), train successors on how to
resolve conflicts among employees (64%), impart skills to siblings who are meant to take the
business (63%) and train someone to take over for all vital roles in the business (60%).
.
4.2.2 The correlation analysis of the study variables
A Pearson correlation Analysis was carried out on the study variables to establish how these
variables relate to each other and how these variables can each predict survival of the family
businesses. The results in the table below show the details about the relationships between the
study variables.
Table 4.10: The correlation analysis of study variables
1 2 3 4 5
Training -1 1.000
Succession management - 2 .286** 1.000
Family Involvement -3 .444** .403** 1.000
Succession planning -4 .745** .739** .813** 1.000
Survival of family
businesses-5 .601** .623** .702** .760** 1
** Correlation is significant at the 0.01 level (2-tailed).
From the results in the correlation analysis there significant positive relationship was noted
between succession planning and following factors; family involvement (r = .813**, p < .01),
Succession management (r = .739**, p<.01) and Training (r = .745**, p<.01). This implies that
during succession planning family involvement is critical before managing the process and
training the successor.
Thus when family member are regularly involved in deciding who to take over control of the
business, Meetings will be periodically held to inform all the stakeholders about the succession
planning process in the firm thus increasing the level of organizational learning in family
businesses. Furthermore results indicated that succession management a component of
succession planning was also positively and significantly thus when succession plans are in
place, employees of family firms will join formal and informal meetings of the firm as
succession transition occurs.
Finding further showed a significantly positive relationship between training illustrated that
when someone is trained to take over all the vital roles in the business, business systems and
procedures to support innovation will be created.
Finding indicated that survival of family businesses is positively related to succession planning (r
= .760**, p < .01). This demonstrates that if family businesses should give special attention to
succession planning. Also this implies that firm should act assertively in order to achieve firm
objectives and spends substantially large amount of time always take unrelated opportunities, a
rise in profit level and market share would be achieved. Verdicts also specify that if family firms
employees are free to make decision, encouraged to implement newness, sell new
products/services in new market, Firm‘s growth rates would be attained leading to an increase in
the market share hence survival of family business hence this will translate to the firm survival.
There also positive relationship between the survival of family businesses and others factor
influencing succession planning ( r = .702**, p<.01 r = .623** , p<.01 and r = .601**, p<.01
).This implies that if Organizations can easily acquire knowledge from either internal or external
sources, interpret that knowledge, distribute share that information among themselves and
maintain a data bank in the organization, this may make employees to be creative, increase
firm‘s operation expansion, rise in capital investment hence leading to continued survival of
family business.
4.2.3 Magnitude of the regression Coefficients.
Regression analysis was employed to assess the degree to which the role of succession planning,
can predict the survival of family businesses.
Table 4.11: Magnitude of the regression coefficients
Unstandardized
Coefficients Standardized Coefficients t Sig
Model B Std.Error
Beta
(Constant) 1.423 0.162
Succession
Planning 0.265 0.084
0.522
3.142 0.002
Dependent Variable : Survival of family
Business
R Square 0.559
F
Statistic 20.577
Adjusted R
Square 0.540 Sig. 0.000
Results showed that Succession planning predicted 54% of the variance in survival of family
businesses (Adjusted R Square = .54). The remaining 46% was predicted by other factors outside
the study (Sharma et al, 1997).
It was also noted that succession planning (Beta = .522, sig. <.01). This implies that Family
business owners should ensure that succession planning is carried very well in order to improve
survival of family businesses. The regression model was also valid (sig. <.01).
4.2.4 Regression analysis on the components of Succession Planning
Regression analysis was employed to assess the degree to which the components of succession
planning like training, succession management and family involvement together with other study
variables of can predict the survival of family businesses
Table 4.12: Regression analysis of components of succession planning
Unstandardized
Coefficients
Standardized
Coefficients t Sig
Model
B Std.Error
Beta
(Constant) 1.389 0.165
8.426 0.000
Training
0.138 0.055
0.400
2.521 0.013
Succession
Management 0.092 0.05
0.427
1.84 0.068
Family Involvement 0.044 0.052
0.631
0.843 0.400
Dependent Variable: Survival of Family
Businesses
R
Square
0.526
F
Statistic 12.557
Adjusted R Square 0.501 Sig. 0.000
The components of succession planning predicted 50.1% of the variance in survival of family
businesses (Adjusted R Square = .501). The remaining 49.9% was predicted by other factors
outside the study (Zellweger, 2008). It was also established that family involvement (Beta =
.631, sig. < .01) is a better predictor of family business survival than succession management
(Beta = .427, sig. <.01) and the components of Succession planning predict survival of family
firms in different ways, thus this implies that, for family businesses to survive from generation to
generation, the owners of such firms should put much emphasis on this components as well. The
regression model was also valid (sig. <.01).
4.3 Analysis of Survival of family Businesses
Survival of family business was measured based on longevity as a proxy for success (Fahed-
Sreih, Djourdourrian, 2006) and the number of generations that had owned the business
(Kellermans & Eddleston, 2006). An analysis was done on the sample frame to figure out how
many firms were being owned and managed by either first, second or third generation ( including
those that only survived the first generation). The frequency table below was used for the
analysis.
Table 4.13: Number generations running or that runs the firm
Number of generations of the
operating firm Frequency Valid % Cumulative %
1 102 70.8 70.8
2 34 23.6 94.4
3 8 5.6 100
Total 144 100
From the findings more than 50% (70.8%) of the firms were still being management and
owned by first generation, a substantial 23.6 % was now being owned and managed by the
second generation with only 8% being owned and managed by the third generation. Given that
most respondents were between the ages of 25 – 45 and above , implies that most of firms were
yet to survival through second generation as the first generation (in context of the owner of the
business) was still running (owning and managing) the business hence forth not conclusive.
For the firms that did survive past the first generation, 29.2% (23.6% second generation + 5.6%
third generation) further analysis was conducted on firms that did move past the second and third
generation. The table below showed reasons why those firms that did survive past second and
third generation.
Table 4.14: Reasons for survival past first and/or second generation
Frequency
Valid
%
Cumulative
%
Presents of an informal succession plan 7 16.7 16.7
Presents of formally written succession
plan 30 71.4 88.1
Other 5 11.9 100
Total 42 100
The findings showed that 71.4% of the respondents had a formal written succession plan, 16.7%
had an informal succession plan, and thus overall, succession planning constituted 88.1% while
only 11.9% attributed to other reasons. This implies that succession planning has positive
influence on the survival of these firms, its role was critical in assuring that the firms survive past
the first generation.
As cited by Handler, (1989) ―lack of succession planning as a major cause of the high mortality
rate in family businesses and noted that succession planning does not take place in most family
firms‖.
Of the 102 respondents in their first generation of ownership and management, 70% of them had
failed to move past the first generation, also of 38 respondents in their second generation, 45% of
them failed to move to third generation. Further analysis was conducted on to establish the
reasons why the firms did not survive the second or third generation, thus table below show the
frequency analysis of the firms.
Table 4.15: Reasons why firms did not survive second or third generation
Frequency Valid % Cumulative %
Lack of formally written succession plan 47 28.5 28.5
Lack of implementation of the formally written
succession plan 53 32.1 60.6
Other 65 39.4 100
Total 165 100
Findings showed that at almost 60% (32.1% plus 28.5%) was due to lack of a formally written
and implemented succession plan hence forth almost 40% (39.4) constituted other reasons. Again
as seen by the analysis above, a positive relationship between succession plan and the survival of
family exist; in which succession planning is influential s to the survival of family business.
Thus family business owners should therefore take heed and make assertive plans for the
survival of their firm or they risk discontinuity of their business after they retire or die.
4.4 Summary
The purpose of the study was to evaluate the role of succession planning on the survival of
family businesses. In this chapter, the results and findings were evaluated using various
presentation methods. The major factors influencing succession planning‘s role on survival of
family business being followed were highlighted and evaluated. The end results upon which
conclusions and recommendations were drawn are discussed in the next chapter.
Chapter 5: Conclusions and
Recommendations
5.0 Introduction
The study focused on the role of succession planning and how it contributed to the survival of
family businesses. The study was carried out to find out how correlated the survival of family
businesses is to succession planning as to establish how important the role of succession
planning influence the survival of family businesses. The following conclusions were drawn
based on the major objectives, thus researcher revisited research objectives in order to establish
if they were met and satisfied by the study. Conclusions were also based on the data collected
and interpreted in the previous chapter four. This chapter was therefore divided into sections of
conclusions guided by the study objectives, major findings recommendations and areas for
further research
5.1 Objective Revisited
The study objectives of the research study were as follows;
Examine how succession planning is conducted in a family business set up.
To examine the relationship between the components of succession planning and survival
of family businesses.
Investigate why a formally written and structured succession plan is not conducted in
family businesses.
Assess the risk involved of not undertaking a formally written succession plan on the
survival of the family business.
5.2 Major findings
5.2.1 Components of succession planning in family businesses
Results from factor analysis revealed that succession planning have different variables which
however have differently significance in the firm. Findings show that family involvement takes
the biggest percentage (47.248%) compared to succession management (6.125%) and Training
(5.673%).
This is in line with Henry (1998) who argued that succession planning in family firms is
composed of different components and they contribute to the continuity of a firm in different
proportions. This also validates the need dire to manage the family component, as according to
Walsh (2011) the family component affects two family business succession plan processes, the
‗management‘ succession process and the ‗ownership‘ succession process. Thus business owners
should take heed of the activities stated in the Walsh model that are needed to be done to manage
this component in order for successful succession planning process.
Accordingly the training should also be regard as Martin & Lumpkin (2003) argued that
succession planning entails the training of family members in to different aspects of running the
firm and this works as a catalyst in necessitating the development of knowledge capacity among
family members who may be ready to take risks, innovate new ideas and make the firm
competitive in future, Eddleston (2008).
Succession management according to the study by Miller (2006), results showed that, family
firms world over which 47 carry out proper succession planning, get the best candidates to take
over managerial positions in such firms. Thus, lead-time (typically three to five years) to select
and mentor a successor is important for a smooth transition. Management succession planning is
necessary when the owner wants the business to continue as an independent company. It is the
process that determines who will do the owner‘s job when he or she is gone. The skills, interests
and future plans for top managers at the company must play a key role in management
succession planning. The management succession process plan will also provide the next-
generation managers with real-life experiences in working together and managing the all-
important family component. Thus all components of succession planning must be thoroughly
considered in order for a succession planning process to succeed.
5.2.2 Succession planning and survival of family businesses
It was established from the study that, there was a significant positive relationship between
succession planning and survival of family businesses. The study findings revealed that a
significant positive relationship between succession planning and survival of family businesses
implies that if family business owners should properly prepare for succession, find well suited
candidates who would fill managerial and ownership positions as this would necessitate long
term survival of their family firms.
As shown in the previous chapter Pearson correlation coefficients indicated that there is a
significant positive relationship between succession planning and survival of family businesses,
lack of succession planning and implementation has a 60% contribution to lack survival of
family business into the next generation as 40% is attributed by other micro economic and
macro-economic factors the family business may face. Thus it is vitally important for family
business owners to carry out proper succession procedures and preparations, the survival of
family businesses from one generation to another would improve despite other challenges. This
is in agreement with Levinson (1971) who noted that succession planning is important if a family
firm is to survive across generations. The study findings also agree with Handler, (1989) who
said that lack of succession planning is a major cause of the high mortality rate in family
businesses and noted that succession planning does not take place in most family firms.
Therefore for family business survival to be achieved, family businesses should start thinking
about training successors, transferring ownership and managerial responsibility in advance,
(Dyck, 2002; Davis, 1992; Shulman, 1991).
5.2.3 Lack of a formally of written succession plan (Do nothing approach)
It was established from the previous chapter, the reasons why there is a lack of a formally
structured succession plan in family business setups, As previously indicated from chapter 4,
21.6% where more reluctant to let go of control and power to their successor. This was followed
up by the fear of job insecurity and fear of unexpected change (17.4%). Some family business
owners felt succession planning was a waste of time and resources (13.1%) and was also a taboo
family topic (13.1) hence forth did no formally take part in it. The fear of retirement (9.7%) and
death (8.9%) were the next factors to contribute as loss of identity (5%) and spouse or family
resistance to change (4.6%) were both less influential.
All of these factors in their various contributions pave way to procrastination henceforth a total
lack of planning is the result until it is too late. This confer the study conclusion done by the
BDO Dunwoody LLP (2009), that though most of people are careful to safeguard their personal
assets, for example, insuring their homes, many business people do not plan ahead to safeguard
the value of their business.
In the family business setup in Zimbabwe (the younger generation category mostly) family
business owner are aware of the need of a formally written succession plan is high, therefore are
making great effort at succession planning, but as results from findings indicate there is still a
gap between awareness and actual planning.
The successful continuation of a business requires objective decision-making by all family
members and a commitment to develop both personal goals and business goals within the family
business structure. Old generation business persons fear to disclose information about the
business operations though have the adequate knowledge on the process of preparing the
successor of the business.
The family business owners acknowledge that there is a positive relationship between succession
planning and the survival of their firms in the second generation but do not want to have the
succession plans. The results show most family business owners in Zimbabwe are afraid of the
negative consequences of succession planning. Thus they lack knowledge on how to overcome
the negative effects of succession planning.
The younger generation however highlighted that succession planning allows the successor to
have the knowhow of the operations of the business and they have spurned the cultural belief that
―once you disclose information about your riches then you are dead‖. Lack of past experience in
business management and ownership is fast being overcome. Despite all these family business
owners are making a conscious effort to ensure that they plan for succession in their businesses.
Failure to plan succession is a recipe of failure to business continuity this is the major risk for not
undertaking a formally written succession plan.
5.3 Conclusion
There is significant link between succession planning and the survival of family business. Thus a
positive relationship between succession planning and survival of family businesses exist.
Therefore succession planning plays a very important role on the survival of family businesses.
This is because in order for a family business to survive or continue to the next generation the
owner has to formally implement a well-structured written succession plan. As Handler, (1989)
cited that lack of succession planning was a major cause of the high mortality rate. Therefore for
family business survival to be achieved, family businesses should start thinking about training
successors, transferring ownership and managerial responsibility in advance, (Dyck, 2002;
Davis, 1992; Shulman, 1991). If the owner implements a formally written succession plan, the
survival of the firm is increased by 60 percent.
5.4 Recommendations
From the above conclusion the following recommendations were made;
Firstly family business owner should help the children gain appreciation and understanding of
the business while they are still young. The owner of the business should make sure that they get
the most possible education and experience in the business. Thus family business owners should
orient their members and employees of the firm on how to be entrepreneurial in nature.
Generally, organizational learning should also be put on the forefront if a family business is to
survive across generation. This could be done through encouraging the firm‘s employees to join
formal and informal networks from other organizations, always putting up formal mechanisms to
guarantee the sharing of the best practices among the different fields of the activity and always to
keep a data base to stock its experience and knowledge so as to be able to use them later on
Secondly family business owners and managers should pay much attention on how they prepare
their family members and employees of the firm on how to address conflicts to protect family
relationships and business continuity (managing the family component). This is key as this helps
in the preparation for change in the management and ownership of the business and in the
preparation for retirement (to let go of power and control at an old age).
Thirdly since there is a possibility the owner might fail to retire when he/she is due. The owner
owes it to the family to create a realistic and workable succession plan. Strengths and
weaknesses of the successor must be identified, provision and development of skills is necessary.
Ownership and management transfers are conscious acts of intentions. A tough and pragmatic
decision as to which family member if any, can continue to run the business successfully has to
be made.
Finally in order for the succession plan to be successful, all parties involved must communicate
rationally and objectively. There should be constant dialogue between the advisor and the
business. Following up of strategies to obtain buy-in for family objectives must be made.
Accountability goals and task timeliness for all parties in the succession process must be
developed. Failure to utilize family council may lead to delayed decision of who takes over. That
is devastating to the business-especially in the event of death, where the business can end up in
limbo due to probate. The founder should meet and discuss with the family to determine who has
the desire, skills and vision warranting taking over the business. Ways to share wealth and ensure
ramification of extended family such as spouses should be examined.
5.5 Areas for Further Research The field of family business research has advance I recent times but the literature is still
fragmented as debates over definitions, methodologies and the desired outcomes fuel the need to
continue research in the field (Wright and Kellemaus 2011). The study conduct by the researcher
concentrated on the role of succession planning on the survival of Family Businesses.
Nevertheless this dissertation can help scholars and organizations to understand or raise
questions to how to better understand the role of succession planning .There still remain ample
opportunities to further research, explore and investigate especially in the role or/and influence
of succession planning on the following concepts.
Entrepreneurial traits,
Entrepreneurial Orientation,
Knowledge management
Uncertainty avoidance and
Firm performance
Culture and values of the firm and its owners.
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Appendix A: Questionnaire
NATIONAL UNIVERSITY OF SCIENCE AND TECHNOLOGY
BUSINESS SCHOOL
Questionnaire for a research study on the role of succession planning on the survival of
family businesses in Zimbabwe.
Dear Respondent;
Thank you for volunteering to complete this questionnaire. Your responses are important and
your thoughtful considerations are highly appreciated. The purpose of this questionnaire is to
facilitate a research on the role of succession planning on the survival of family businesses, by
Mr. Komborerai Masango who is undertaking a Master‘s Degree in Business Administration.
The study is purely academic; therefore all your responses received will be treated with strict
confidentiality and will in no way be linked to you. The findings and recommendations are likely
to benefit among others Family Business Owners and their managers. Kindly answer these
questions personally so that we can be able to analyze the data accurately. Thank you very much
for your co-operation.
SECTION A:
BACKGROUND INFORMATION (Please tick appropriately)
AGE
25years and below
25 -35
36-45
Above 45
GENDER
Male
Female
GENDER
Male
Female
MARITAL STATUS
Single
Married
Divorced
Other( Specify)
HIGHEST EDUCATION ATTAINED
Diploma
Degree
Professional
Masters
Doctrait
Other (specify)
HIGHEST EDUCATION ATTAINED
Diploma
Degree
Professional
Masters
Doctorate
Other (specify)
NUMBER OF YEARS WITH ORGANISATION
Less than 3 years
3- 6 years
7-10 years
More than 10 years
LEGAL STATUS OF ENTERPRISE
Sole Proprietorship
Partnership
Limited Liability
Other
NUMBER OF EMPLOYEES
Less than 5 employees
5 - 10 employees
10 - 20 employees
More than 20 employees
NUMBER OF YEARS OF THE ENTERPRISE
EXISTENCES
Less than 3 years
3- 6 years
7- 10 years
More than 10 years
LEGAL STATUS OF ENTERPRISE
Sole Proprietorship
Partenership
Limited Liability
Other
SECTOR OF THE ENTERPRISE
Wholesale and retail
Manufacturing
Farming and food service
SECTION: B
SUCCESSION PLANNING (please tick appropriately)
Yes No
Do you have formally written succession plan?
If No, please select by a tick any of the following reasons
below
Reluctance to let go of control and power
Loss of identity
Fear of retirement
Fear of death
Fear of job insecurity and unexpected change
Succession planning is a waste of time and resources
Your spouse or family's resistance to change
Succession planning is family taboo topic
Lack of knowledge on how to conduct a succession plan
The table below shows the alternative responses and the number assigned to each response.
Please evaluate the statement by ticking in the box with the number that best suits your response
Strongly
disagree Disagree Not Sure Agree Strongly Agree
1 2 3 4 5
FAMILY INVOLVEMENT
1 2 3 4 5
1 The family’s values drive family and business
actions
2 Family members always decide on who to take
control of the firm
3 The family meets regularly to discuss family
and business concerns
4 The founder is regularly involved in deciding
who to take over control of the business
5 Family members always identify new business
opportunities
6 The family usually address conflicts to protect
family relationships and business continuity
SUCCESSION MANAGEMENT
1 We always have succession plan for the
business
2 We have a possibility of naming non family
members as successors of the business
3 We adequately manage fears of differentiating
among key managers in the takeover process
4 We are prepared for change in the management
of the business
5 We are prepared to let go of power and control
at an old age
6 We are prepared to lose work activity after
handover
7 People always assume positions basing on
merit
TRAINING
1 We impart skills to siblings who are meant to
take over the business
2 We train successors how to make key decisions
in the organization
3 We gradually prepare children to enter the
business
4 We always have a transition period of training
for each role before actual succession take
place
5 We train someone to take over for all vital roles
in the business
6 The firm always trains successors on how to
resolve conflicts among employees
SECTION: C
SURVIVAL OF FAMILY BUSINESS (please tick appropriately)
1 2 3
How many generations have owned the business so
far
If the family business is still surviving, please rate the survival of the firm by ticking the
following reasons
Presents of an informal succession plan
Presents of formally written succession plan
Other (specify below)
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
If the family business did not continue/survive after the first generation tick on the following
reasons
Lack of formally written succession plan
Lack of implementation of the formally written succession plan
Other (specify below)
………………………………………………………………………………………………………………………………
………………………………………………………………………………………………………………………………
………………………………………………………………………………………………………………………………
………………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………….
*Thank You for your response*
Appendix B: Structured Interview
Questions
A. Succession Planning
1. What is overall view on succession planning in your business? Do you feel it is
necessary?
2. When do you think it is necessary to begin planning for succession?
3. Do know how to conduct a succession planning process? Have you conducted one
before?
4. What challenges or obstacles do you think you are likely to face when conducting the
succession planning process?
5. Do you feel that family involvement a major contributing factor when conducting this
process? How do you resolve family conflict triggered by issues of succession?
6. Describe your criterion of choosing a successor? How well is the successor involved in
the family business in terms of ownership and management?
7. Do you solely prefer a successor to be family member?
8. Do think training and/or mentorship would be required for your successor? If so, how
long do think a successor should trained and/or mentored
9. How long do you think a succession planning process should be?
10. How well and often do you communicate your intentions with every one involved?
B. Family business Survival
1. How do you feel about your business‘s continuity into the next generation? Do you feel
the next generation is ready and interested in succeeding you?
2. Do you feel succession planning contributes a lot on the continuity of your business?
3. How much attribution would you give succession planning to the survival of your
business
4. What are other critical issues to do you think attribute to the survival of business? How
much of importance are these issues?
5. How confident are you of the continuity of your business, given adequate preparation for
succession?
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