Introduction TO Succession Planning/Business Transfer By Assoc. Dr. Susanne

State University – 19 December 2016
University of skövde – www.his.se/EN

of a firm from one individual to another (Ip and

Jacobs, 2006) regardless of whether this individual has family connections to the firm, already works for the firm or is an outsider (Olbrich, 2005)

By 2040, $10.4 trillion in wealth will be transferred from one generation to the next, much of it funneled through family businesses (estimates from the US)

According to estimations a large number of all EU entrepreneurs will leave their firms within the next ten years (Commission of the European Communities, 2006). In absolute terms: some 690,000 SMEs and 2.8 million jobs will be affected every year

Relevance of succession

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generation.
Of those that do survive to the second generation, only

12% make it to the third generation.
Only 3% make it to the fourth generation and beyond.

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so practical experience is relatively low
Smaller pool of talent on

which to draw
The knowledge of the incumbent as well as some key employees may be a source of competitive advantage
 lack of key knowledge after transfer is executed

Challenges arising from succession planning I

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the company is made of
 loss of valuable time needed

for more important activities
Dealing with emotional factors between potential successors and the incumbent

Challenges arising from succession planning II

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Business
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to outsiders
Sell to insiders
Leveraged buyout (LBO)
Employee Stock Ownership Plan (ESOP)



Exit

Strategies (in the US)

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higher than that for new venture creations (Austrian Institute for

SME Research, 2004; OSEO, 2005; Entrepreneurship Foundation, 2010)
More jobs are created by already established rather than new firms (Pasanen and Laukkanen, 2006)
The changing demographic trends and decreasing interest of family members will lead to a lack of successors in family firms (Entrepreneurship foundation, 2010)
The majority of business transfers are non-family meaning external transfers (Van Teeffelen et al., 2011)

Economic reality speaks In Support of external takeovers/business transfers (Europe)

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of the company (not given with buy-ins)
Because of inferior

access to information a higher amount of time needs to be spent on analysing the company  information asymmetry problem
External successors will be provided with no or only little time to grow into the owner-manager’s role.
The (longer term) relationship assists in the establishment of trust between incumbent and prospective successor which in turn facilitates the flow of information and knowledge.

Differences between internal and external succession I

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internal successions. Likely situation: prospective successor sticks with existing, but

not optimal, structures or processes.
External succession is expected to be more promising because it offers access to new ideas and point of views from outside the firm, also less commitment to the status quo can be assumed.
In case of external succession, it might be more difficult to find out whether the phase the company is in suits the successors’ abilities.
External persons are interested in companies that call for restructuring.

Differences between internal and external succession II

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succession plan
Although 95% of small business owners acknowledge the need

for a succession plan, only one in eight actually has a written plan in place for leadership continuity

Management Succession

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the “attempt to plan for the right number and quality

of managers and key-skilled employees to cover retirements, death, serious illness or promotion, and any new positions which may be created in future organisation plans”.
Succession planning is believed to help affected organizations to address this challenge (Pynes, 2004), as it can provide relevant information about needed knowledge and capabilities.

Succession Planning

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p. 442)
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and some key employees
Existing know-how is undervalued
The smaller the company

the less it has an overview of the firm’s knowledge
Only modest measures are introduced to foster knowledge management
Limited internal resources complicate the issue of knowledge retention / knowledge management
(Often) centrality of owner-manager. He/she possesses most of the firm‘s human and relational capital

Problem of sustaining enterprise knowledge

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process
Stronger focus on the strategic dimension of intangible assets/knowledge assets

Increased activities on findings ways to transfer (tacit) knowledge (and also using them)
Implementation of appropriate means to store and disseminate knowledge
 Increased meaning of succession planning

Role of KM in adressing the challenges

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critical knowledge represents a critical aspect in view of a

company’s continuity, as the knowledge of the incumbent and some key employees may be the source of the firm’s competitive advantage (Barney, 1991).

There is a strong relationship between human capital dependency and firm size (Huggins & Weir, 2012).

Link between succession and KM

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package
Step 2. Evaluate potential candidates
Step 3. Inform successor
Step 4. Inform

company environment
Step 5. Transfer of management (and ownership). (Includes coping with the financial realities of estate and gift taxes as well as non-financial realities.)

Developing a Management Succession Plan (Part 1)

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2. Transfer of knowledge
Step 3. Determine responsibilities to be transferred
Step

4. Transfer responsibilities

Developing a Management Succession Plan (Part 2)

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employees
Step 3. Determine responsibilities to be transferred
Step 4. Transfer responsibilities



Developing

a Management Succession Plan (Part 3)

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management and succession planning










Research AIM
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October – December 2011
Level of analysis
10 owner-managers of small

firms from Austria and Liechtenstein
Data analysis
Pattern matching

Research Approach

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Succession is not a matter of concern before a certain

age
No preferences concerning succession solutions
Substitutes address short-term drop outs!

Presentations of Findings I

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concentration with some organization members. Challenge to tackle skills shortage
Solutions

used: in-firm training, knowledge sharing, developing and training internal replacements
Emphasis on continuous training
Sources of new knowledge: external formal and informal contacts  considerable individual tacit knowledge is at hand
 in day-to-day business
 in the context of succession

Presentations of Findings II

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members
 they know their risk!
Demographic changes imply a need

for action
Retaining and utilizing critical older staff beyond retirement age
Design of (new) employment contracts
Change of mind-set
Replacement solution (including the owner’s own mortality)

Discussion and Conclusion I

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to tackle the danger of knowledge attrition
For policy makers: Provision

of specialist support to help managers to initiate action within the firm, e.g. support in recruiting process, more events underlining the attractiveness of working in SMEs

Discussion and conclusion II

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