One of the major problems family businesses face in their lifecycle is the transfer of ownership rights and leadership to the next family generation. Some authors, such as 1, even define a family business in terms of a succession. Estimations indicate that only around 30% of family businesses survive to the second generation because of unsolved or badly solved succession 2, 3 and even less succeed to the third generation 4. A widely accepted differentiation of succession 5, 6, 7 is between succession in management (or so-called leadership succession) and succession in ownership, although in most family SMEs both processes occur simultaneously and go hand-in-hand.
Although succession within a particular family is only one of many possibilities, a majority of family enterprises’ leaders desire to retain family control past their tenure 8, 9. A family member as a successor is especially preferable when so-called idiosyncratic, family business-specific experiential knowledge is considered highly relevant for gaining a competitive advantage and ensuring the successful functioning of the enterprise 10, 11.
Research findings indicate that family business succession should be seen as a process of transferring ownership and management control to a successor 12, characterized by increasing involvement of the successor in the family business 13. Taking the perspective of a succession as a process, various authors have proposed different models and concepts 14, 15, 16. As many family businesses fail during or after the realization of transfer to the family’s next generation, considerable research attention has been devoted to defining successful succession and identifying predictors of a successful succession process 17, 18, 19. For example, 20 and 21 defined two dimensions of a successful succession: (1) stakeholders’ satisfaction with the succession process and (2) the firm’s positive performance and ultimate viability after the realization of the succession. Similarly, authors such as 22, 23 suggest that, when evaluating a family business succession, we should distinguish between the “quality” of the experience and the “effectiveness” of the succession; quality reflects how involved family members experience the succession process whereas effectiveness reflects how others judge the outcome of the succession process.
Several research studies have demonstrated that success of a transition considerably depends on how well the next family generation is prepared to take over a business. According to research findings, members of the next family generation have to develop some critical characteristics 24, 25, 26, such as business and industry knowledge, decision-making abilities, networks and social capital, passion, innovative spirit, and legitimacy and credibility from both family and non-family stakeholders. For this reason, many research studies have dealt with the nurturing, preparation, and development of successor(s) 27, 28, 29 as an important predictor of successful transition. In their research, 30 found that business transitions occur more smoothly when the heirs are better prepared, and post-transition performance is positively affected by the heirs’ education level. The preparation of a competent leader is also seen as an important part of succession planning, which is expected to improve the probability of the success of the transition process 31, 32, 33, 34 and refers to the deliberate and formal process that facilitates the transfer of ownership and management control. The process of preparing a competent leader should also include knowledge transfer between family generations 35 as the transfer of tacit knowledge from a founder to a successor has been identified as one of the key processes in developing and protecting knowledge and guaranteeing the continuity of a family business 36. Specific family knowledge has to be transferred to the next family generation, since customers believe that products are of high quality 37. 38 points to the strategic importance of transferring tacit knowledge to the next generation in order to maintain and develop a family business after the transfer to the next generation. For this reason, different research studies address the role of career development, outside work experiences, apprenticeship, on-the-job training, formal education, and the role of training programs in the process of preparing and developing a competent leader (for references, see 39).The role of mentoring and the selection of mentoring techniques in family firms were explored by 40. 41 addressed the issue of training of the next-generation family members after they joined the management team; their findings indicated that involving next-generation family members in the strategic planning process brings benefits to their development. The implications of nepotism for knowledge management were explored by 42, who suggested that generalized social exchange relationships among family members are valuable for firms because they facilitate tacit knowledge management. 43developed a model that outlines factors responsible for knowledge accumulation in family firms; the model, which is based on findings from four case studies, provides a platform for empirical research as well as suggestions for managers of family firms dealing with issues of knowledge accumulation in order to be successful across generations.
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