Management Succession in Family-owned SMEs: Learning from Failure

Succession is acknowledged to be especially critical in small organizations, as it is estimated that in the EU alone there is a risk of losing 150,000 firms due to transfer problems and only one third of family businesses “survive” their founder. As the vast majority of firms are in fact family businesses and SMEs, the economic impact of these unsuccessful successions is great. There exists a substantial body of literature on executive succession and CEO succession, but nearly all these studies have focused on large public companies and are thus not very well applicable at the SME level. As succession is acknowledged especially problematic in such a context, this study seeks to bring new insight to earlier discussions by exploring the specifics of the succession to a non-family member in the small family business. The central aim is thus to understand how to successfully manage the process of management succession from the owner-founder to a professional manager in family-owned SMEs To better understand the process of succession, the common theoretical approaches as well as the key factors of the process present in literature are discussed. Drawing from the existing models, a framework for analysing the succession process in family-owned SMEs is proposed. The research was carried out as a qualitative single case study. The empirical data was mainly collected by means of four in-depth face-to-face interviews. The business owner, two successors and a company manager were interviewed in order to understand the process from different angles. Drawing from the theoretical framework, the interviews followed a rather loose semistructured pattern around predetermined themes. The interviews were grouped into to two distinctive chronological phases and then analysed according to the proposed framework. The analysis of the interviews revealed some interesting contradictions. In contrary to the predetermined assumptions formed based on the framework, the successfulness of the majority of the framework factors did not aid in avoiding failure. Even though the transitions process itself was seemingly successful, the entire succession was not. Thus it is concluded that the successfulness of the process of succession does not directly result in superior organizational performance. Furthermore as the findings suggest that the poor management of the SME context contributed to the successfulness of the succession, it is suggested that special attention should be paid to the context in which the company operates when planning and managing successions. Keywords Management succession, executive succession, family business, SMEs ! Table of contents: 1. Introduction ............................................................................. 1 1.1 Research Gap and Background of the study ........................................................... 1 1.2 Objective and research problem ................................................................................ 2 1.3 Outline of the study ........................................................................................................ 3 2 Family-­‐owned SMEs: context of the study ..................... 4 3 Executive Succession in Family Owned SMEs ............... 6 3.1 Executive Succession ...................................................................................................... 6 3.1.1 Definition of Succession ........................................................................................................ 6 3.1.2 Succession literature –an overview ................................................................................. 6 3.1.3 Professionalization of Management ................................................................................ 7 3.2 Theoretical approaches to succession and its factors ........................................ 9 3.2.1 Succession as a process: Approaches and theoretical frameworks ................... 9 3.2.2 Factors influencing succession performance ............................................................ 15 3.3 Enhanced Relay Race –framework .......................................................................... 21 4 Methodology .......................................................................... 24 4.1 Qualitative single case study ..................................................................................... 24 4.2 Case Selection ................................................................................................................. 24 4.3 Data collection and analysis ...................................................................................... 25 4.4 Limitations ....................................................................................................................... 27 5 Succession Process in Family-­‐owned SMEs: Empirical Findings ......................................................................................... 28 5.1 Case description ............................................................................................................. 28 5.1.1 Case company introduction ............................................................................................... 28 5.1.2 Overview of Succession Process ...................................................................................... 28 5.2 Results ............................................................................................................................... 29 5.2.1 The first succession phase ................................................................................................. 30 5.2.1.1 Sequencing and internal organizational context ............................................................. 30 5.2.1.2 Impact of the environment on the timing of executive succession ......................... 32 5.2.1.3 Baton Passing and Leadership Style ..................................................................................... 32 5.2.1.4 Communication .............................................................................................................................. 35 5.2.2 The second succession phase ........................................................................................... 36 5.2.2.1 Sequencing and internal organizational context ............................................................. 36 5.2.2.2 Impact of the environment on the timing of executive succession ......................... 36 5.2.2.3 Baton Passing and Leadership Style ..................................................................................... 37 5.2.2.4 Communication .............................................................................................................................. 40 5.2.3 Family Influence ..................................................................................................................... 40 5.2.4 The existence of an advisory board ............................................................................... 41 5.3 Summary of the results ............................................................................................... 42 6 Conclusions, implications and suggestions for future research ........................................................................................ 44 6.1 Conclusions ..................................................................................................................... 44 6.2 Implications .................................................................................................................... 46 6.3 Suggestions for future research ............................................................................... 46 References .................................................................................... 48