Intergenerational succession and the transfer of a family business from one generation to the next does not always happen smoothly and successfully. Influential research on this subject has found that approximately 30% of family business firms make it through the second generation, just 13% make it through the third generation, and a mere 3% make it beyond that point. Such findings serve as a wake-up call for any family business owner who, having created a thriving and financially rewarding firm, wants to create a personal and business legacy by successfully transferring the enterprise from one generation to the next.
A successful family business owner dedicates years of hard work to leading and managing the family firm. Over time, an owner builds unique and intimate institutional knowledge of his or her firm, including its strengths, weaknesses, operational policies, and external network among various stakeholders as well as other idiosyncratic nuances unique to the firm. The transfer of control of a firm from one family member to another often includes some difficulties on the part of a departing leader as well as of the successor. That said, the leader of a firm can access many best practices that can help ensure a smooth transition of control from one family member to another, which can help to assure the sustainability and prosperity of the firm.
Knowledge transfer (KT) is the process of transferring information about a family business from one person, the leader, to another person, the successor or a member of the next generation, for the express purpose of gaining an understanding of the business. KT is crucial to helping one ensure the continued success and effectiveness of a family business. KT can be distilled to (a) physical documents and (b) competencies, skills, and abilities. The transfer of these two factors takes place in several ways over time.
KNOWLEDGE TRANSFER FOR INTERGENERATION SUCCESSION
Family business owners should consider various ways to transfer knowledge about the firm to the next generation. Knowledge transfer includes not only gaining an understanding of the operational aspects of the firm, but also about how the succession process works and the ways intergenerational transfer can flourish. The four areas below serve as possible methods for successful intergenerational knowledge transfer.
1\. Preliminary Steps of Knowledge Transfer: Succession Planning
* Plan intergenerational succession early. Leaders of family businesses need to think carefully about succession. Who are the possible successors? Are they fit to lead? How do they learn best and under what conditions? These and other questions are useful in the succession planning process.
* Pre-establish criteria to identify a successor. For example, a family business leader should assess the prospective successor’s strengths, weaknesses, skills, and other capabilities, all of which should be discussed with other members of the family business. While a first-born son or daughter may seem the natural order for a successor, it may not necessarily be the best way to select a successor.
2\. Personal Relationships as Knowledge Transfer
* Develop and strengthen the personal relationship between the incumbent and the successor to enhance knowledge transfer over time. This socialization process helps ready the successor to “want” to lead the family firm by following in the footsteps of the family business leader.
* Cast the family business in the best light possible by avoiding any negative comments about the business (at the dinner table or elsewhere) and accentuate the positive features of the business.
* Serve as a role model. Actions speak louder than words, so create an environment of cooperation instead of conflict by minimizing strife and maximizing collaboration within the family business.
3\. Learning as Knowledge Transfer
* Get the future successor involved with family business as early as possible (after school, weekends, and summers) by having the successor spend time learning about the business from within as well as externally.
* Encourage active engagement in the family business and allow for mistakes by giving the prospective successor decision-making opportunities as a rite of passage.
* Persuade the successor to gain work-related experiences in another family business or another relevant organization for alternate learning opportunities, thereby complementing any previous work experiences the successor may have had.
* Expose and involve the successor in the external networks of the family business, particularly with key stakeholders to create relationships that establish the credibility of the successor with these actors.
4\. Leading as Knowledge Transfer
* Slowly surrender the reins to the successor by serving as a mentor, and then take on the role of coach by giving the successor additional responsibility under the guidance and direction of the leader.
* Step aside gracefully. Once the succession is securely in place, the leader emeritus of the family business should not overshadow the successor. This does more harm than good for all.
Succession is a very dynamic process in a family business. Much is at stake for a family business during a succession process, so the transfer of intergenerational knowledge is critical to ensuring the successful passing of the baton from one leader to the next. Although KT may be difficult at times, such difficulties may be minimized by following the suggestions in this article to ensure that knowledge transfer takes place smoothly, in such a way that intergenerational succession becomes less disruptive to the firm and its principals. The outcome: your family business legacy will continue and the firm will prosper and grow in many ways over time.
**Discussion questions from the Lorange Network team:**
1. What do you consider to be the most important ways knowledge transfer happens among the owners of your family firm?
2. Would you like to share with the community how succession is planned and knowledge is transferred between the generations in your family firm?
3. What factors can lead to industry knowledge not being transferred effectively between the generations?
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