The European statistics of the 2000s
shows that only 5-15% of family businesses reached the third generation, and
30% of closures were considered transfer failures (FEE, 2000; Le Breton-Miller
et al., 2004; SBS, 2004). At the same time, established companies in the US
faced shortfalls of experienced managerial talent for leadership positions due
to a rapidly ageing workforce as the baby boomer generation began to retire
(Groves, 2006; Williams, 2010). In other developed economies both SMEs and
large firms suffered from shifts in workplace demographics and lack of
structured efforts in planning for succession, for example, in Australia, UK,
Canada (Taylor and McGraw, 2004; Ip and Jacobs, 2006). Russia’s new economy is
currently entering the period of business transfers across all industries and
all sizes of companies. There was the wave of start-ups in the 1990s, as
entrepreneurs were launching their ventures. They have led them until recently
and now they start to exit from management and/or ownership positions. That
raises the wave of business successions in Russia. Similar situations are
observed in China, India and South Africa. The problem of business succession is
becoming a major strategic challenge for a significantly larger proportion of
companies than usual. Therefore, studying business succession from different
perspectives and in different contexts is an appropriate modern research
agenda. Providing practitioners with generalizable models, practical approaches
and reliable tools may help reduce the number of business transfer failures in
this global top-management turbulence.
In the current discourse business
succession issues fall in three broad categories: family and organizational; legal,
finance, tax; practical approaches to business succession. The debate focuses
primarily on SME of developed countries. However, there is a discussion with
the emphasis on implementation aspects of business succession management in established
corporations. In the last decade emerging economies have contributed to the
business succession discourse. Concerns related to planning for succession are
spread across diverse industries (Ip and Jacobs, 2006; Stadler, 2011).
Organizational behavior and human
resources management researchers seem to have been investigating the problem of
business succession mainly from a company internal perspective (Ip and Jacobs,
2006). That fails to explain the degree and nature of influence a company environment
and strategy have on business succession. Strategic management researchers have
done a number of studies on the linkage between founding conditions, strategy
and growth of young companies (Eisenhardt and Schoonhoven, 1990). However, their
approach does not distinguish business succession as a separate problem of
organizational development, therefore it fails to provide advice on how
companies should approach it to minimize damage to performance.
Additionally, the measures, which the
majority of researchers currently use for evaluating the process and outcomes
of business succession, are mainly financial. Clearly, financial measures
cannot be considered ultimate and/or satisfactory for all cases for business
successions have multiple internal and external stakeholders with different
goals and motives. The human perspective in measuring success of business
succession has just started to emerge in resent research. It is bringing in new
measures reflecting stakeholders' satisfaction with the process of succession
and its outcomes (Serra and Borzillo, 2013).
The purpose of this work is to link a
company’s environment and strategy to stakeholder satisfaction with the process
and outcomes of business succession. The conceptual model (see Figure 1) underlying
this work combines four variables:
V1. Environmental situation.
V2. Company strategy.
V3. Business succession pattern.
V4. Stakeholder satisfaction.
Figure 1 also depicts three
propositions on how and why the variables interact:
P1. Environmental situation determines
the business succession pattern, which more likely leads to stakeholder
satisfaction.
P2. Growth strategy determines the
business succession pattern, which more likely leads to stakeholder
satisfaction.
P3. Coherence of the prescribed and
actual business succession patterns more likely results in stakeholder
satisfaction.
Figure 1. The conceptual model.
Environmental turbulence and velocity define resource intensity of business succession as a task,
which a company should manage. In stable environments business succession is independent
from external factors. High-velocity/turbulent environments require significant
planning, organization, managerial skills and time for business succession to become
a success.
To match environment
and internal resources, companies pursue two generic types of growth strategies:
explorative and exploitative. While explorative strategies achieve growth by
expanding customer base at a fixed efficiency, exploitative strategies generate
growth through a higher efficiency on a fixed customer base. Explorative
strategies require diversified organizational structures, which substantially
increase the demand for business planning, organization and management.
Exploitative strategies allow companies to grow with the nearly unchanging organization.
The former bring additional internal challenges to business succession, which
leads to its high resource intensity. The latter, in turn, take fewer resources
to achieve success in business transfers.
With regard to the
resource claim, patterns of business succession fall in three categories (i) ad
hoc reactions, (ii) heir development and (iii) talent pool development. The
first two are person-focused and have a lower resource claim in comparison with
the third, which is merit-focused, functioning as part of an established
strategic management process and, therefore, highly resource-intensive.
In this work
stakeholder satisfaction with the process and outcomes of business succession is
used as an ultimate measure of success. Five types of succession stakeholders are
identified as subjects with the strongest interest and influence: (i) the
exiting owner-CEO, (ii) the incoming CEO, (iii) the top-management team, (iv)
the external investors and (v) the external experts/consultants.
This work focuses on the cases of founder exits from managing
positions. Among all varieties of business successions those have the highest
potential impact on company. That has been proven by the previous research,
which indicates that personal ability plays a significant role in small firm
growth (Sexton and Bowman-Upton, 1991; Jennings and Beaver, 1997; Covin and
Slevin, 1997; Wiklund and Shepherd, 2003), and that founding teams
produce a strong path dependence[1], which
increases over time and which is more significant that the influence of
later CEOs (Eisenhardt and Schoonhoven, 1990).
A cross-sectional sample survey is planned for 2014-2015. It will
supposedly engage about 200 companies from a range of industries in Russia’s
mining, manufacturing, transportation, construction and service sectors. All of
the companies will have to have passed through founder successions at least one
year before the study. Five stakeholders of different types from each company
will be asked to fill out questionnaires on a specially created website. The
questions will address (i) environmental situations before and at the time of
founder successions, (ii) types of strategy the companies pursued, (iii) actual
succession patterns the companies implemented and (iv) the stakeholders’
evaluation of the process and outcomes of the successions. The research is
supposed to test propositions P1, P2, P3 and to yield the findings that
- Environment and strategy
pre-determine the business succession patterns, that will likely lead to
stakeholder satisfaction.
- Coherence of the prescribed and
actual succession patterns will likely result in stakeholder satisfaction.
The research will
conceptualize and attempt to explain the linkage between environment, strategy
and business succession. It is expected to provide insights on how companies
should approach the problem of founder and other types of business successions
to ensure the satisfaction of internal and external stakeholders. The variables
of the conceptual model are universal across countries and independent from the
degree of economic maturity. That ensures the findings will have a strong
potential for generalization. They may be particularly useful for practitioners
in the emerging economies where the waves of founder exits are expected, as
well as for those developed economies that are currently passing through the
decline in workforce demographics.
References
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[1] Path
dependence means that both the starting point and
accidental events can have significant effects on the outcome. In other
words, history matters.
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