Understanding Small Family Business Succession in a Knowledge Management Perspective

Business succession in family firms has been one of the most investigated topics through theoretical, empirical and anecdotal studies (Brockhaus, 2004; Sharma, 2004; and Ward, 2004). However, we argue that this bulk of literature seems to neglect the role of the most intangible source of competitive advantage of firms: knowledge. At the same time, small family firms, although representing most part of the firms and facing higher risks of failure due to succession, did not receive much interest (Venter et al., 2005). The present study attempts to contribute to the literature shedding some lights on the business succession in small family firms informed by an Intellectual Capital (IC) perspective. The paper develops a theoretical model drawing from Intellectual Capital (IC) literature (Rastogi, 2003; and Mouritsen, 2004) and knowledge management concepts of knowledge repository (McGrath and Argote, 2000) and knowledge transfer (Szulansky, 2000). We assume that business succession is a process during which the intellectual capital evolves, with the risk of a slump loss due to the incumbent retirement, and so the knowledge flow needs to be managed. In particular, knowledge transfers through the interaction among the incumbent, the successor and the organization. This theoretical result illuminates how small family firms can maintain and increase their competitive advantage during the succession process, reducing the risk of failure.