The Generational Succession in Family Firms: The Role of Organizational Knowledge

The Generational Succession in Family Firms: The Role of Organizational Knowledge

Concetta Lucia Cristofaro (University Magna Græcia of Catanzaro, Italy), Anna Maria Melina (University Magna Græcia of Catanzaro, Italy) and Rocco Reina (University Magna Græcia of Catanzaro, Italy)
DOI: 10.4018/978-1-7998-2269-1.ch002
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Abstract

Knowledge transfer is essential to managing a family firm's succession. Given the importance of knowledge in family firms, this chapter identifies, through an empirical approach, which are the main organizational strategies used for sharing, disseminating, and using the knowledge available as fundamental elements for survival and the development of companies in the phase of generational succession. The authors investigate the phenomenon and verify the evidence in some private health organizations interested in the generational change located in South Italy, given the lack of previous case studies. This chapter deepens the phenomenon and its recognizability by examining with a qualitative analysis of the problems existing in those who are currently living or have experienced this particular moment of business life.
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Introduction

Family firms are the dominant form of business organizations with an estimated range from 60 to 98 percent of firms all over the world (e.g., Miller & Le-Breton Miller, 2005; Daspit et al., 2017). Calder’s studies (1953) on management problems in family firms represent the first scientifically documented study in this field. Although the strategic approach for family firms was present in classic management books, the studies until the 80s remained for decades underestimated. However, in recent years, interest in this topic has been growing from different points of view. The most widespread business model in family firms has two main characteristics: the small size and the role of the family in management (Corbetta, 1995; Montemerlo & Preti, 2006). These are characteristics that represent, at the same time, elements of strength and competitive advantage for the company, but also situations to which attention must be paid, especially at the time of generational succession.

The generational succession represents a critical phase in the life cycle of family-run businesses, where, in most cases, the entrepreneur-founder is the pivot around which the company’s success was built. It is widely recognized that generational succession is one of the main problems to be faced by family firms (Ward, 2004) with important implications for their long-term survival. Empirical studies show that this phase is the most delicate, with a large percentage of companies facing serious difficulties in this process of change so that they compromise the same “state of health” of the firm. Several aspects contribute to this process, the disparity of vision and the objectives (Chua et al., 2003, 2018), professionalization (Gnan & Songini, 2003), size and financial structure (Romano et al., 2001), corporate governance (Gnan et al., 2013, 2015) or resources and capabilities (Chua et al., 2003) more intangible aspects linked to the wealth of knowledge and skills of the entrepreneur, on which perhaps during the time the family firm has built its competitive advantage (Wong & Aspinwall, 2004). One of the major obstacles to be faced in the generational succession is inherent with the difficulty of preserving, developing, and transferring knowledge from the entrepreneur to the successor.

Entrepreneurs play a decisive role in the creation of corporate culture (Schein, 1983), given their prolonged stay in the company, so that the centrality of the entrepreneur is considered one of the major causes of conclusion in generational change (Feltham, Feltham, & Barnett, 2005). The close link between the company and the entrepreneur makes the maximum commitment. It guarantees the total availability of the latter, ready for great sacrifice in order to achieve success since the company is not only a source of economic wellbeing and social prestige but also an instrument of self-realization. Thus, in many cases, the name of the entrepreneur is equal to the company’s name. However, the exclusive dependence of the firm by the propulsive force of the founder risks to affect the survival of the company; so that over time it can happen that the entrepreneur - having exhausted his initial intuition - can enter in a phase of immobilism by replicating the solutions used for the past (Nazzaro & Ugolini, 2003). It may also happen that the subject restricts his field of activity to a purely operational viewpoint, without a broad vision and is limited to dealing with emergencies when they have already appeared. Even if these scenarios should not occur, in any case this situation could create a dangerous “power vacuum” behind the one of the few subjects that constitute the entrepreneurial nucleus, so that any absence of the entrepreneur, inexorable with the passage of time, tends to provoke a management paralysis, with considerable damage to the company's balance in the long run (Nazzaro & Ugolini, 2003).

Key Terms in this Chapter

Organizational Strategies: During the generational succession, the leakage of knowledge results in one of the problems to be faced to ensure the survival of the firm itself, then its maintenance could be considered a useful solution, through the use of organizational strategies capable of recognizing fundamental and critical knowledge for the firm itself.

Generational Succession: One of the most delicate and critical moments in the life of family business because it involves the transfer from one generation to another of a real heritage of know-how and skills acquired over years of experience.

Family Firm (FF): A firm governed and managed and controlled by members of the same family.

Home Care: Hospitals are often overcrowded, and those who need immediate care cannot afford to wait for places to free up. The request is much broader than the actual availability, and weeks or months may pass to get a visit or a bed. This is not the case in private home care, where the patients can request tailor-made treatments and dedicated therapies that are not usually carried out in public facilities. Private home care is subject to a fee. This means that, despite having significant advantages compared to public facilities, they must still be evaluated based on their economic availability.

Accredited Private Organizations: They indicate the dedication and commitment of a healthcare organization to meeting well-defined regulatory standards demonstrating a higher level of patient performance and care.

South Italy: From the geographical point of view, it is the part of the Italian peninsula located to the south.

Health Organizations: They are social entities with specific objectives, involved in the process through which health care services are produced and delivered to healthy and sick individuals.

Knowledge: The main distinguishing factor of economic success in a family firm. It can be seen as information combined with experience, interpretation, and reflection. It is often incorporated into the entrepreneur figure, and during the succession process, the very survival of the firm may appear threatening.

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