EUROPEAN BUSINESS SCHOOL
International University Schloss Reichartshausen
Paper: On the Course Fit for Succession
WS 2006/ 2007

Application of a unique model to build up succession of family business in practice

by

Niklas Kürten

Table of Contents

1 Introduction  - 1 -

1.1 Research Objective - 1 -
1.2 Procedure of Analysis  - 2 -

2 A Definition of Successful Succession  - 2 -

3 Influences Taking Place in the Succession Process - 4 -

3.1 The Personal Influences  - 4 -

3.1.1 Successor Related Factors - 4 -
3.1.2 Family Related Factors  - 7 -

3.2 The External Influences  - 9 -

3.2.1 Connection in the Process  - 9 -
3.2.2 Regional Related Influences  - 11 -
3.2.3 Unexpected Influences  - 13 -

4 The Importance of Several Influences  - 14 -

5 Conclusion - 15 -

1 Introduction

1.1 Research Objective

Literature generally cites the low survival rate which family businesses face. Only 30 % of the companies further survive into the second generation, even only 15 % to 16 % into the third generation.¹
Although many researchers see the most potential reason for this within the lack of adequate planning when company-owner hand over their businesses to offsprings or external managers², there exist various further reasons. In general, academics offer within their works a wide range of reasons, internal as well as external caused factors, which strongly influence the success of the succession within family businesses. Further, they developed several models and academic approaches to build up the process of succession and the mentioned different influences within holistic approaches of succession in family businesses to enable companies a successful handing over. Still, the situation in practice has not changed significantly since the current survival rate is steadily on a further low level. This could consequently reveal the hint of too little interaction between theory and practice respectively between academics and practitioners. Other branches showed the potential and the possible win-situations for both sides.
Therefore, the research objective of this paper is to work out, to what extent a unique theoretical model is able to build up all relevant factors influencing the succession as an integrated process in theory to project this onto family businesses in practice and to provide solutions for succession within these companies.

1.2 Procedure of Analysis

To reach this goal, within the second chapter, the authors of this paper provide several definitions of a successful succession and the connected goals depending on different circumstances.
Further, the third chapter considers two major groups of influences taking place within the process of succession. On the one hand, personal factors, namely successor-related and family-related infuences, are discussed. On the other hand external factors, namely specific regional, process-related and unexpected factors, are considered. Onward, the fourth chapter stresses the importance of several certain influences, which definetly have to be regarded to succeed successfully before the paper is finally ended up with a conclusion.

2 A Definition of Successful Succession

In order to discuss how a theoretical model can fit in a successful succession in practice, we should first try to focus in what we consider that a successful succession is, and try to set the basis on which, once defined, we could say that the succession reached its goals in a successful path.
However, finding a specific definition is not as simple as it may look: “Attempts have been made to identify various dimensions and phases of the succession process, differentiating between successful and unsuccessful succession, (...) However, there is still little consensus on what constitutes a successful or effective succession.”³ The main problem lies on the individual opinion of what success means, and taking this into the business field, a successful succession should be reached when the objectives and the goals of the succession where fulfilled. However, we face again the dilemma of what objectives should a successful succession have and again, this will lead us to specific ideas and different individual opinions for success. When talking about family businesses, the succession issue is quite broader. We have not only the objectives for the business, but also the expectation for the family when the succession moment arrives. To illustrate this, let us imagine a family in which the management on the family’s hands is not that important, but the survival of the business itself, situation that may appear a totally unsuccessful for another family which gives high importance to the fact that the business is run by them.

[...]

1 Cf. Khai/ Guan/ Wei (2003): Family Business Succession: Appropriation Risk and Choice of Successor, in: Academy of Management Review, Vol. 23, Iss. 4, p. 657.

2 Cf. Bareither (2006): Keeping it in the family, in: Bank Investment Consultant, Jan 2006, Vol. 14, Iss. 1, p. 36; n.a. (2006): Family businesses fail to plan for succession, in: Accountary Ireland, Vol. 38, Iss. 3, p 92.

3 Cf. Neubauer (2003): The Dynamics of Succession in Family Businesses in Western European Countries, in: Family Business Review, Vol. 16, Iss. 4, pp. 275f.