Succession Planning in Family-Owned Business Evidence From an Emerging Economy

Succession Planning in Family-Owned Business Evidence From an Emerging Economy

Muhammad Arslan (KIMEP University, Kazakhstan)
DOI: 10.4018/978-1-7998-4852-3.ch011
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Abstract

Family-owned businesses (FOBs) play an important role in the economy of a country through the creation of jobs. However, most FOBs lack strategies regarding succession planning in both developed and developing economies. This study explores the strategies that are used by FOBs to prepare future leaders. Drawing on qualitative research design, this study employed a multiple case study approach and selected 13 cases by employing a purposive sampling technique from the FOBs of Pakistan. Semi-structured interviews were conducted with the successors of FOBs. The findings reveal that succession planning is pivotal for the development of business and the successful transition of FOB from one generation to another. Most of the respondents fully understand the importance of succession planning for the sustainability of the business. However, in some cases, socioemotional aspects of generational succession planning require strategies that concurrently focus on successor suitability, the consensus of the family, mode of transition, leadership, and challenges faced by the FOBs.
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Introduction

In the last decade, the phenomenon of the family owned businesses (FOBs) have received growing attention from academics and consultants. These FOBs are acknowledged as a fundamental and discrete organizational form. In many countries, FOBs are important for the creation of jobs and represent majority of companies (Aamir & Sohail, 2006). On the other side, the human resource management in any organization is struggling to maintain the workforce within the organization (Pandey & Sharma, 2014) . In addition, researchers also found that many FOBs fail due to lack of succession planning (Mehrabani & Mohamad, 2011) and human capital development. In similar vein, Pasban and Nojedeh (2016) argued that human resources are pivotal in gaining sustainable competitive advantage and efficiency for any organization due to communication and knowledge with customers. Therefore, labor force is considered as productive asset rather costly assets (Hendricks, 2002). Succession planning has been acknowledged as one of most pivotal processes to increase the survival of FOBs from one generation to next generation. Griffeth, Allen, and Barrett (2006) documented that small FOBs play an intensifying part for the economic stability of any country. Williams, Zorn, Russell Crook and Combs (2013) argued that family businesses contribute 57% towards GDP and generates 75% of all new jobs in US. Therefore, the continuation of FOBs, generation after generation, is pivotal for businesses and economy as a whole and succession planning is the most important decision (Molly, Laveren, & Deloof, 2010). In contrast, the succession failures can cause conflicts among family relationships that lead to the destruction of businesses (Experts, 2012). Hall and Hagen (2014) argued that FOBs have an increased chance of failing without proper succession planning. Statistics reveal that 41% Canadian SMEs owners plan to exist their business within five years while only 35% of Canadian SMEs have informal and unwritten plan for their future succession (Checkley, 2010; Wang, Watkins, Harris, & Spicer, 2004). Lyon and Hollcroft (2012) and Hoch (2013) argued that many FOBs are vulnerable and in danger of failing due to lack of appropriate succession planning both in developed and developing countries.

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