Academic journal article International Journal of Business and Management Science

Knowledge Creation Aiding Family Business Succession Plan

Academic journal article International Journal of Business and Management Science

Knowledge Creation Aiding Family Business Succession Plan

Article excerpt

Abstract: Family business is the main contributor for most economy. Their survival rate and continuity are very critical toward growing economy. Currently, one of the biggest problem faces in family business is how to cope with succession process. This paper aims to use knowledge creation process to help improve family business succession process. A qualitative method using semi-structured interviews with predecessors and successors was conducted. The result highlights the importance of Socialization during first phase in succession plan process.

Keywords: Family Business, Succession Plan, Knowledge Creation Process


Family business is one of the oldest and most widely used forms of business. The perceptions of many people are that small businesses generate limited value to the society. In reality, several of the largest businesses in the world started as a family business and many still remain as it is to date (i.e. Walmart and Samsung). According to Sharma, Chrisman and Chua (1997) and Tan and Fock (2001), family businesses are one of the biggest contributors to both wealth and employment for all countries around the world. Similarly, Heck and Stafford (2001) reclaim the facts with figures, in year 1997; 60% of US revenue was generated from family business. Failures of family businesses will not only impact the GDP of the country directly, but also impact employment and poverty rate of the country which will then further amplify the negative impact on the country's GDP.

Knowing that family businesses are the main contributor for most economy, their survival rate and continuity is becoming very critical toward the growing economy. One of the biggest problems faced by family run businesses is how to cope with the succession process (Ibrahim, Soufani and Lam 2001). Succession is a process of changing ownership or management of a company or in most cases both activities simultaneously (Meijaard et al., 2005). Transferring of ownership and management is considered to be very difficult as there are many uncertainties and time consuming. With many first generation family businesses only going through the transferring of management for the first time, most are not familiar with the process (Barach and Ganitsky, 1995). Matthews, Moore and Fialko's (1999) research suggests that only 30% of family businesses make a successful transition to the second generation and less than 15% will survive a transition to the third. Perricone, Earle and Taplin (2001) have found that smaller family businesses are even less sustainable and have an average lifetime of only five to ten years. There are many debates toward the causality of the above issue, but no consensus on the issue to date (Sharma, Chrisman and Chua, 1997).

Sharma, Chrisman and Chua (2003) stated that despite much emphasis from consultants and scholars throughout the field upon the importance of family business succession, many firms still neglect this issue and leave it to chance and luck. Past studies suggest that preparation and development of successor is one of the most critical factor in determining if the succession process will be successful or not (Le Breton-Miller, Miller and Steier, 2004). Other researchers also highlight the importance of work experiences, training scheme, and process of handover to be the root cause (Chirico and Laurier, 2008). Feltham, Feltham and Barnett (2005) claim that one of the main causes of failure is due to difficulty in transferring knowledge from predecessor to successor efficiently. The failures of family business succession plan have been such a common event that a term "corporeuthanasia" was invented by Handler and Kram in 1988. The term is used to describe an owner's mercy killing methods of the destroying organization willingly.

Despite succession plans dominating over one third of the literature related to family business (Sharma, Chrisman and Chua, 2003), Lansberg (1988) still argues that the topic of succession plan is at a very early stage and require more attention and development. …

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