post succession performance of medium size family owned business in sri lanka

8/18/2019 Post Succession Performance of Medium Size Family Owned Business in Sri Lanka

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POST SUCCESSION PERFORMANCE OF MEDIUM SIZE FAMILY OWNED

BUSINESS IN SRI LANKA

A.C. DE ALWIS

Department of !man Re"o!r#e Mana$ement% Un&'er"&t( of Ke)an&(a% Sr& Lan*a

[email protected], [email protected]

Ba#*$ro!n+ of t,e St!+(

According to O’Hare (2003) “e!ore multinational cor"orations, there was !amil# $usiness% $e!ore the &ndustrial 'eolution, there was !amil# $usiness% $e!ore the enlightenment o! reeceand *m"ire o! the 'ome, there was !amil# $usiness+. his statement accuratel# outlines thehistor# o! this e-ce"tional t#"e o! worldwide $usiness unit. amil#/ Owned usinesses (Os)dominate the current world econom# in "articular eras in the "ast $ut also at "resent (orck and

1eung, 200). he current degree o! $usiness "er!ormance, though, is somewhat di!!erent.urrent Os hae "ro$lems sustaining their $usiness. he realit# is o! course that Os arecurrentl# struggling in the worldwide crisis, with their "ro$lem o! inheriting their $usiness. &nother words, they are struggling for long-term survival after a new Chief Executive Officer (CEO) succeeded the business (hung and 4iu, 2005).

&n recent histor#, Os hae increasingl# $een considered concerning "olic# decisions(andl, 2006), $ecause the# greatl# contri$ute to economic and social deelo"ment (andl,2006). Os are actuall# the "redominant !orm o! $usiness organi7ation, and "la# a ital role intoda#8s a"italistic econom# and social well/$eing. eckhard and 9#er (:;63) estimated thenum$er o! Os worldwide, and con!irm that a$out to ;0> o! all $usinesses in ariousnations continue to deelo" this sector. According to alhotra (20:0), 60> o! all $usinesses

worldwide are !amil# $usinesses. &n *uro"e, more than 5=> o! all $usinesses are !amil# owned.he# contri$ute greatl# to ross ?ational roduction (9) in most nations and are uite "roudl# the main em"lo#ment "roider.

ecause o! these conditions, Os hae $ecome the dominant sector in the a"italisticeconom#. &n other words, i! FOBs perform well they stimulate the economy increase !"# and decrease the level of unemployment (Bharma, :;;5% Center, oshoo! and ass, 200=). 4ikewise,i! Os "er!orm "oorl#, the# $adl# a!!ect the national econom#, decrease 9 and increase theleel o! unem"lo#ment. he social cost o! this "ossi$le !ailure would contri$ute negatiel# tosocial and economic growth in an# ca"italist econom# (ommission, 200


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exposed to higher non-monetary rewards associated with the firms$ success that other successorsdo not share%+ he# !urther argue “to get solid specific &nowledge and high levels of trust from&ey sta&eholders is very difficult to outsiders.+

Howeer, Os !ace one e-tremel# ital issue with their generational $usiness succession.According to Dard (:;65)% 9ais and Hareston (:;;6)% and Fets de Cries (:;;3) “onl# 30> o! Os surie into the second generation, and :=> surie into the third generation.+ iller,Bteier and reton/iner (2003) e-"lain that "oor usiness Buccession rocess (B) is thecentral reason !or this. his scenario has not onl# a!!ected "articular organi7ations, $ut has alsodirectl# a!!ected the national econom# due to lack o! contri$ution.

'egarding the American amil# usiness Bure# (:;;5) (citied in Bharma, et al., 2003a)Bs de!ine as “the transfer of leadership ownership or control from one family member toanother - a goal shared by a ma'ority of family firms and as a transfer the leadership one family member to another .+

onducting the $usiness as a O , “each generation takes oer the $usiness !rom the

"reious generation, and this is the ital managerial challenge !or the incum$ent, owners,successors and !amil# mem$ers+ (iller et al., 2003), $ut the# hae !ailed to do this in asuccess!ul manner. B*#s have gone beyond that stage by considering alternative successionmodes not for family control but for the survival of the organi+ation as a FOB . ?elton (:;;5)e-"ressed that G families are now starting to recogni+e that it is not the end of the familyenterprise if you bring in a non-family executive to lead the firm G. &n other words, at "resentthere is a trend to $e a O as a “ family owned - non-family managed + model, not as a “ familyowned -family managed G model. here!ore, the $usiness succession "rocess o! Os is $etter de!ined as ,the passing of the leadership baton from the founderowner or incumbent owner to acompetent successor who will be either a family member successor or a non-family unrelated manager successor ("e .lwis /011)%

urther, 4auter$ach, Cu and Deis$erg (:;;;), and also Bmith and Amoako/Adu (:;;;), and4in and Hu (2005), all conducted research in com"aring the !inancial "er!ormances o! !amil#mem$er successors and non/!amil# unrelated manager successors in "u$lic com"anies toidenti!# the most a""ro"riate successor. hittoor and 9as (2005) discussed making managementmore "ro!essional with three &ndian com"anies using case stud# methods. oeker and oodstein(:;;3) discussed the im"act o! organi7ational "er!ormances and the com"osition o! the $oard o! directors !or the selection o! a !uture successor. 2hose studies have contributed to the &nowledgebase of the field but there is still an enormous &nowledge gap to fill . 3o empirical research hasbeen done on post succession performances of medium-si+e FOBs by comparing family member

successors and unrelated manager successors.Pro-)em" of t,e "t!+(

As e-"lained "reiousl#, Bs o! Os hae $ecome a serious issue !or the longeit# o! this $usiness entit#. here!ore, there is a high tendenc# among researchers and "ractitioners to !ind!easi$le solutions to this succession issue, howeer in O literature, there are er# !ew studiescom"aring di!!erent succession alternaties to Bs (hittoor and 9as, 2005% 4in and Hu, 2005).his research aims to deelo" an understanding o! this "henomenon, identi!ied in the "reioussection. Hence, the "ro$lem statements can $e stated as !ollows


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,4ho is the best performer from the family member and the unrelated managers to ta&eover the top management position and successfully continue the business under the significant

level of family involvement5

Re"ear#, o-e#t&'e"

he aim o! this research is to identi!# the most a""ro"riate succession mode withoutdamaging the O identit#.

here!ore, the o$Eecties arei. o com"are !amil# mem$er successors with unrelated manager successors $ased on the

successors’ initial satis!action with the $usiness succession "rocess and also "ostsuccession $usiness "er!ormance.

ii. o ealuate the relationshi" $etween initial satis!action with the $usiness succession "rocesses and "ost succession $usiness "er!ormance.

S&$n&fan#e of t,e re"ear#,here is a $ulk o! literature on arious issues releant to Os, $ut the maEorit# o! this is

!ocused on inter/generational succession (Handler, :;; and Dortman, :;;). his is due to "oor "er!ormance the B $rings short/term li!e to the entire unit (Handler, :;;). his "oor result a!!ects the $usiness entit# and eentuall# also the national econom#. here!ore, $usinesssuccession "rocesses hae $ecome a !undamental to"ic o! O research (Bharma, et al., :;; o! the literature on O succession deals with inter/generational succession, ander# !ew researchers hae gien their attention to alternatie succession modes (4auter$ach etal., :;;;% Bmith and Amoako/Adu, :;;;% oeker and oodstein, :;;3% hittoor and 9as, 2005%4in and Hu, 2005). Howeer no one has analy+ed business performance after succession withthe aim of comparing different succession models especially in medium-si+ed FOBs%

E/PLORATORY STUDY

his stud# onl# discusses management succession, and it does not discuss ownershi"succession, though o!ten $oth ha""en simultaneousl#. o" management succession is a "articularl# challenging eent !or an# t#"e o! $usiness organi7ation $ecause the successor’sa""roach, com"etencies and "erce"tion directl# a!!ect all as"ects o! the $usiness, and alsostakeholder’s e-"ectations. he American amil# usiness Bure# (:;;5) de!ines Bs o! Osas Gthe trans!er o! leadershi", ownershi" or control !rom one !amil# mem$er to another / a goalshared $# a maEorit# o! !amil# !irms.G eiEaard, Ihlaner, lJren, 9ie"huis and Banders (200=)goes $e#ond this to de!ine Bs o! Os as GKa trans!er to someone within the !amil#, to athird "art#, or to another com"an#+. anagement $u#/ins (&) and management $u#/outs(O) can $e considered e-am"les o! $usiness trans!ers as well, as long as the e-istingeconomic entit# suries.G According to eckhard and urke (:;63) (cited in Handler, :;;)Bs are Gthe "assing o! the leadershi" $aton !rom the !ounder/owner to a successor who willeither $e a !amil# mem$er or a non/!amil# mem$er% a 8"ro!essional manager.G

or Os, !amil# mem$ers are interested in trans!erring management into another !amil#mem$er’s hand, mostl# trans!erring to the ne-t generation’s hand. his is $ecause their intent is


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to "resere com"an# ownershi" and management within the !amil#. he# trans!er managementand control into the hands o! the ne-t generation (orris et al., :;;5) without considering thecom"etence leel o! the successor. he leading Eusti!ication !or this inter/generational succession

is the $elie! that !amil# mem$ers are a$le to accumulate social ca"ital, resources and learns"eci!ic knowledge on running the !irm in a more e!!icient and "ro!ita$le manner (Euggren andBund, 200:).

According to 9ais et al. (:;;5), !amil# successors might "er!orm $etter than unrelatedmanagers, $ecause the# hae deelo"ed $etter non/monetar# rewards which hel"s guarantee the!irms’ success. Additionall#, 9onnelle# (:;


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indiidual a$out the "rocess and decision regarding the selection o! a new to" manager, $ased on "erce"tions rather than o$Eectie criteria.+

Handler (:;6;a) and orris et al (:;;5) discuss the di!!erences o! the B e-"erience !rom

two "ers"ecties. hat is, how !amil# mem$ers "ersonall# e-"erience the succession "rocess(su$Eectie assessment), and the e!!ectieness o! the B (more o$Eectie assessments o! theoutcome o! the transition). Hare# and *ans (:;;=) and Handler (:;6;$) along with old$erg(:;;


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directl# and indirectl#. his !inall# $rings dissatis!action to the whole $usiness "rocess. ostsuccession "er!ormance has a direct a!!ect on the O and directl# in!luences the leel o! satis!action and hunger !or the $usiness unit to surie (a$rera/Buare7 et al., 200:% 9#er, :;6


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eent had occurred within the "receding !ie #ears. Inder this research !ramework howeer, thisstud# has collected data !rom Os who had their B within the "eriod !rom 2000 to 2005.here!ore, it has !ailed to collect data !rom incum$ents and their !amil# mem$ers. here!ore, this

stud# has come to the decision to measure initial satis!action with the $usiness succession "rocess o! the successors o! arious $usiness units. his stud# de!ines initial satis!action with the $usiness succession "rocess as ,perceived satisfaction of succession before post succession FOB performance is accurately &nown%

Post succession business performance

his stud# used $usiness "er!ormance as the second de"endent aria$le. usiness "er!ormance has seeral related terms such as $usiness deelo"ment, and $usiness im"roement.'iding (200=) illustrates that $usiness "er!ormance can $e diided into !our categories !inancial "er!ormance, customer $ase "er!ormance, em"lo#ee $ase "er!ormance and enironmental $ase "er!ormance. Maris, Fitching, urran and 4ight!oot (:;;


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"er!ormance and inter"ret the results $ased on one indicator in conEunction with other indicators.2his study used business performance as a second dependent variable%

here are a num$er o! "er!ormance ealuation tools aaila$le !or "ro!it/oriented

organi7ations. ost o! these techniues directl# relate to the !inancial "er!ormance o! theorgani7ation. “ro!ita$ilit#+ and “management e!!icienc#+ are the indicators commonl# used.'eturn on *uit# ('O*), 'eturn on Bales ('OB), 'eturn on Assets ('OA) and *arnings "er Bhare (*B) are some common e-am"les o! "ro!ita$ilit# indicators. A!ter considering theresearch "o"ulation, this stud# e-"ected to use .verage 9eturns on .ssets (9O.) and .verage 9eturns on *ales (9O*)%

&n order to $e su$Eectie, !urther, this stud# considered to use a scale to measure successor’s "erce"tion a$out $usiness "er!ormance. or that, this stud# used scale named “the perceived success of the succession process+ deelo"ed $# Center, osho!!, and aas in 200=.

Family member successors

his research de!ined !amil# mem$er successor as ,individuals who have a relationship withthe incumbent and family by blood or by law% &n general, the transition will come !romgeneration to generation, $ut sometimes, due to the unaaila$ilit# o! $lood relations% there isconsideration gien to whether the $usiness should $e handed oer to more distant, legall# $inding relations. hus, this stud# considers $oth t#"es o! successors as !amil# mem$er successors.

Unrelated manager successor

ro!essionali7ation re!ers to the ado"tion o! unrelated managers to !ill management "ositions,es"eciall# the *O’s "osition (Nhang and a, 200;). he ado"tion o! unrelated managerssigni!ies the se"aration o! ownershi" and control, or at least it dilutes the !amil# control in the

actual management o! the $usiness. Inder these circumstances, the unrelated manager successor is de!ined in this research as “an individual who ta&es full charge of the day-to-day operationswhile retreating to the board of directors to assume advisory and supervising duties.+

(pot,e"&" of t,e St!+(

(pot,e"&" 23 S!##e""or an+ po"t "!##e""&on performan#e"

his research ealuated the "ost succession "er!ormance o! alternatie succession modes. oreach this "ros"ect, this stud# com"ared alternatie succession modes with their "ost succession "er!ormance !rom two di!!erent "ers"ecties initial satis!action and e!!ectieness.

(:) &nitial satis!action with the $usiness succession "rocess


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Alternatie h#"othesis (H:.a) 7nitial satisfaction with the business succession process is

significantly different with family member successors ( ) to unrelated

manager successors ( )

% :

(:) usiness "er!ormance a!ter BAlternatie h#"othesis (H:.$) #ost succession business performance of the two succession

modes is significantly different% #erformance of the family business successor (

) is significantly different to the performance of the unrelated manager (

)%

:

SAMPLE DESI0N AND DATA COLLECTION DESI0N

Pop!)at&on of t,e "t!+(

According to 9#ck et al. (2002)% Handler (:;6;a)% and Cancil (:;65) (cited in Bharma et al.,2003a), “rich ualitatie studies conducted on succession hae all o$sered that the "rocess islength#, and it ma# take :=P20 #ears.+ here!ore, identi!#ing the e-act time "eriod o! the B isa er# hard task (Bharma et al., 2003a). o oercome this howeer, Bharma et al. (2003a) suggest selecting a sample from a period when involved parties can perfectly remember incidents of the

B*# .here!ore, this stud# screened the "o"ulation o! “ FOBs that have done their B*# within the

period from /000 to /00: +. he stud# cannot include Os which hae done their B a!ter 2005 $ecause three #ears o! "ost succession $usiness "er!ormance is reuired to identi!# andealuate the most suita$le succession mode !or O succession (o$Eectie :). Inder thesecircumstances, the !irst screening criterion assumes that the B was com"leted within the time "eriod 2000 to 2005, and secondl# it assumes that memories o! the B are relatiel# !resh in theminds o! the successors and that their res"onses will $e accurate. A!ter considering the a$oe/

mentioned situations, the research "o"ulations are shown $elow.,Family owned business has done their business succession process within the

period of /000-/00: with family member successor or unrelated manager in *ri

;an&a%


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9ue to a national data$ase !or screening $eing unaaila$le, B* data$ase was used $ecauseaccording to the literature, the maEorit# o! B*s are Os (ommission, 200 o! all enter"rises. B*s account !or a""ro-imatel#;5> o! all industries in Bri 4anka (oora# and 9e Bila, 2005.). B*s are a ital sector to an#ca"italist econom# whether it is deelo"ed or still deelo"ing. B*s "la# an essential role in theBri 4ankan econom# as the main 9 contri$utor and em"lo#ment "roider. heir main market

is domestic $ut there is a nota$le, growing trend !or B*s to e-"ort their "roducts.

Samp)e an+ "amp)e "e)e#t&on met,o+

9i!!erent organi7ations, authors and other interested "arties use dierse de!initions $ased on "ur"ose and there!ore a uniersall# acce"ted de!inition cannot $e decided. # considering theresearch !ramework, this stud# used the de!inition gien $# ?eu$auer and 4ank (:;;6), (cited inustakallio, 2002) to identi!# the research "o"ulation. According to them, a O is ,any formof business association where the voting control is in the hands of a given family%

he de!inition o! an B* has changed !rom countr# to countr# and een within countries.9i!!erent regions and di!!erent institutions ado"t ar#ing de!initions !or B*s and somede!initions include the work!orce o! the organi7ation, the ca"ital inestment, turnoer, or nature

o! the $usiness. Bri 4anka does not hae a nationall# acce"ted de!inition !or B*s and di!!erentinstitutions ado"t di!!erent de!initions according to the "ur"ose o! arious studies. Howeer, themost widel# acce"ted criteria !or de!ining B*s are that the# hae a num$er o! em"lo#ees, !i-edinestment, and hae a certain nature o! $usiness (ooar#, 2003). &n Bri 4anka, he ?ational9eelo"ment ank (?9), the *-"ort 9eelo"ment oard (*9), and the &ndustrial9eelo"ment oard (&9) all use the !inancial alue o! !i-ed assets as the criterion to de!ineB*s. he 9e"artment o! ensus and Btatistics (9B), the Bmall and edium *nter"rise9eelo"ment (B*9), and the ederation o! ham$ers o! ommerce and &ndustr# (9&) usethe num$er o! em"lo#ees as the criterion (Fa"uru$andara and 4awson, 200


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Howeer those de!initions are $ased on mainl# three indicators as num$er o! em"lo#ees,ca"ital em"lo#edQtotal assets and turnoer. Bome di!!iculties can $e identi!ied with thesede!initions, when author a""lies the criterion o! ca"ital em"lo#ed Q total assets, and turnoer.

his ma# well con!use !igures due to in!lation and technological im"roement. 9es"ite this,most researchers and releant institutions use the !ollowing criteria to classi!# B*s the “alueo! the !i-ed assets+ (e-cluding land and $uilding), and the “num$er o! em"lo#ees in theenter"rise+ (oora#, 2003). 9ue to the in!lation !actor, the author "re!erred to use onl# the“num$er o! em"lo#ees+ !or identi!#ing O units !or their stud#. According to Bumanasena (n.d)

,2he most common categori+ation based on employees in *ri ;an&a is = to => employees

for small-scale enterprises ?0 to 1=> for medium scale enterprises and more than 1=>employees for the large scale%

hus, !or this stud#, the "o"ulation is de!ined $ased on the !ollowing criteria:) he sam"le unit must !it into the a!orementioned de!inition.2) he B* has had a succession within the "eriod 2000 to 2005.

3) A !amil# mem$er successor or an unrelated manager successor has $een a""ointed to theto" e-ecutie senior "osition (*OQ hairman).he data$ase managed $# the ?ational ham$er o! ommerce in Bri 4anka used to

distinguish Os !rom B*s. or selecting sam"le units, the !ollowing "rocedure has $eena""lied.Samp)e "e)e#t&on pro#e+!re

o reach this sam"le !ramework, the research has im"lemented the !ollowing "rocedure:. Bend the uestionnaire to the entire data$ase $# "ost Q email and ask the sam"le grou" to

com"lete and return the attached uestionnaire.2. 'euest the sam"le grou" to answer section one, es"eciall# designed to recognise whether

an B* is within the sam"le !ramework or not. Inder section : o! the uestionnaire, the

successor must answer uestions to eri!# !eatures o! the $usiness units that match thesam"le !ramework• Ownershi" o! the entit#• ?um$er o! em"lo#ees• Dhether the# hae had a B• he time "eriod when the B was com"leted• Buccessor mode

3. &! the# hae selected the answers ($elow), then that B* is identi!ied as a sam"le unit andasked to answer the remainder o! the uestionnaire.

• aEorit# o! ownershi" $elongs to owner/!amil#• *m"lo#ees are in $etween =0/:;• De hae done B within the "eriod 2000 / 2005• Our successor mode is !amil# mem$er successor (B) Q unrelated manager successor

(IB)igure : shows the a$oe mentioned sam"le selection "rocedure.


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------------------------------

Insert Figure 1 about here

------------------------------Inder these circumstances, the research used a sim"le random sam"ling method $#

considering constraints !aced during data collection.

Samp)e e)ement"

argeted res"ondents included O successors !amil# mem$er successors and unrelatedmanager successors that had $een a""ointed within the "eriod 2000 to 2005 in medium/si7edOs.

In"tr!ment an+ 4!e"t&on"

A structured research uestionnaire that has deelo"ed $# com$ining with uniersal acce"ted

scales and author deelo"ed scales.his uestionnaire was $asicall# diided into three sections $# considering the !ollowing

o$Eecties Bection :was s"eciall# designed to eri!# which elements o! the "o"ulation should $esu$Eects o! the sam"le. Bection 2 designed to collect demogra"hic in!ormation a$out Os andthe sam"le element% the successor. his section also hel"ed collect data on "re and "ost $usiness "er!ormance (o$Eectie :). his section included the !ollowing demogra"hic in!ormation relatedto the successor and O. &n addition to the !inancial data, the stud# used Center et al. (200=)“the "erceied success o! the succession "rocess+ scales !or collecting $usiness "er!ormancein!ormation su$Eectiel# (section 3). he original al"ha alues !or this scale was 0.6. &nitialsatis!action with the succession "rocess was measured through the scale deelo"ed $# Bharma etal. (2003a). his instrument was constructed $# :2 statements which were euall# weighted.

*er# inde"endent aria$le was also a construct calculated as an euall# weighted aerage o! thereleant indicators. he original al"ha alues !or this scale was 0.;3. he uestionnaire wasoriginall# deelo"ed in the *nglish language, and then translated into Binhala and the amillanguage. &t was distri$uted in two !ormats Binhala and *nglish !ormat, or amil and *nglish!ormat, to increase the res"onse ratio !rom the res"ondents.

Data #o))e#t&on met,o+"

his stud# utili7ed "ostal and electronic mail sure#s simultaneousl# as the data collationmethod due to the !ollowing reasons:) o o$tain a higher leel o! res"onse within a short "eriod o! time.2) he "o"ulation was scattered oer the entire countr#.

3) here were di!!iculties identi!#ing elements o! the "o"ulation) &t gae a $igger o""ortunit# to re!use without res"onse (his research did not address

e-act sam"le units due to the unaaila$ilit# o! data$ase who did their B within the "eriod 2000 to 2005. hus, it addressed the anaging 9irectors o! B*s in Bri 4anka andreuested res"onses i! the# were suita$le to !ul!il the reuirements o! the sam"le


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!ramework. his a""roach can $e used !or the sam"le grou" to re!use without res"ondingto the uestionnaire).

he uestionnaire was sent with a coering letter and return/"aid enelo"e to ensure it was

conenient !or the res"ondents to su$mit their in!ormation. he !irst reminder was sent threeweeks a!ter the initial mailing and the second reminder was sent a!ter si- weeks. &n addition,selected Os were "ersonall# isited to some selected Os in order to get a dee"er understanding a$out their Bs.

Data ana)("&" an+ &nterpretat&on

his data anal#sis and inter"retation stage consisted $# !owling ste"sCompare business performance after succession and initial satisfaction of two succession

modes (objective I)

In&t&a) "at&"fa#t&on a-o!t t,e BSP

o com"are initial satis!action with the B, two inde"endent sam"le t/tests were a""lied.

−−=

@ F


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Dhere1: R the di!!erence in "er!ormance around B

R time dumm#suces R an indicator aria$le eual to one i! the incoming successor is !amil# mem$er and7ero i! unrelated manager.(Tsuces) R is the interaction o! the time dumm# and the successor dumm#

Re)&a-&)&t( an+ 'a)&+&t(

o increase alidit# and relia$ilit#, the author used a "ilot sure# to "re/test the uestionnaire.According to oo"er and Bchinder (2006), this t#"e o! "re/testing reduces the risk o! e-haustingthe su""l# o! res"ondents and increases the sensitiit# o! res"ondents to the "ur"ose o! the stud#.or the "ilot sure#, :0 successors were selected !rom the "o"ulation, and the sure# instrumentwas a structured uestionnaire. *ach successor took a$out 20 to 2= minutes to com"lete the

uestionnaire a!ter the research o$Eecties were e-"lained. he author directl# assisted theres"ondents to !ill in the uestionnaire $# clari!#ing instructions and e-"lanations. As a result o! the "ilot sure#, a num$er o! changes were made to im"roe the clarit# o! the uestionnaire andto im"roe the construct alidit# o! the uestionnaire. his hel"ed to increase the e!!icienc# o! the uestionnaire and sure# data.

oreoer, to test the internal consistenc# and relia$ilit# o! the stud#, it used ron$ach’sal"ha. rior to "er!orming statistical anal#sis on the h#"othesis, relia$ilit# and alidit# tests wereconducted using BBB :5.0 to con!irm internal consistenc#. a$le 2 re"orts that ron$ach’sal"ha alues o! the aria$les e-ceed the 0.5. he research em"lo#ed the scales deelo"ed $#Bharma et al. (2003a) and Center et al. (200=) !or the "resent stud#. Bharma (2003) and Center etal (200=) hae con!irmed that the scales were relia$le (ron$ach’s al"ha alues were within the

acce"ta$le range). Howeer, these scales were translated to Binhala and amil languages.here!ore, again a relia$ilit# anal#sis was done and all inde"endent and de"endent aria$leswere within the acce"ta$le range.

------------------------------

Insert Table 2 about here

------------------------------

Re"pon"e rate

&n total, :=< res"onses were receied during the data collection "eriod. he num$er o! usea$le

returns is :26 (62>) and the num$er o! non/usea$le returns is 26 (:6>). he 26 res"onses had to $e reEected "articularl# !rom h#"othesis testing, since the# did not hae seeral ke# uestionsentirel# com"leted. he oerall res"onse rate (usea$le returns :26% total "o"ulation 3,=6)suita$le !or h#"othesis testing is 3.5>. he res"onse rate on the we$/$ased sure# was less thanthat o! the "ostal uestionnaire. &t is likel# that com"anies a""l# a s"am !ilter to e/mails !romunknown sources, and secretaries usuall# check and !ilter incoming e/mails !or the e-ecutie.


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his res"onse was still a more than adeuate res"onse rate, gien the num$er o! "arameters inthe structural model to $e estimated (Hair, Anderson, atham and lack, :;;=). he :26 usa$leuestionnaires were eenl# s"lit $etween two res"ondent grou"s 6< uestionnaires receied

!rom !amil# mem$er successors, and 2 receied !rom unrelated manager successors. &n additionto the statistical reuirements o! sam"le selection, this sam"le o! the stud# can $e matched withthe stud# sam"les that hae $een used to ealuate "ost succession "er!ormance o! Os andnon/Os, there!ore this sam"le si7e o! the stud# is considered acce"ta$le !or this stud#(ucculelli and icucci, 2006).

DATA ANALYSIS AND DISCUSSION

Compar&"on of po"t "!##e""&on performan#e

In&t&a) "at&"fa#t&on 5&t, t,e "!##e""&on pro#e""

(:) &nitial satis!action o! the $usiness succession "rocessA)ternat&'e ,(pot,e"&" 62.a73 7nitial satisfaction with the business succession process is

significantly different with family member successors ( ) to unrelated

manager successors ( )

:

A stud# com"ared the leel o! initial satis!action o! !amil# mem$er successors and unrelatedmanager successors. amil# mem$er successors leels o! initial satis!action ( R 2.


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should consider the B $ecause i! the# highl# satis!ied with the $usiness succession, it will "ositiel# a!!ect the "er!ormance o! the $usiness.

Compar&"on of po"t "!##e""&on -!"&ne"" performan#e"A)ternat&'e ,(pot,e"&" 62.-73 #ost succession business performance of the two succession

modes is significantly different% (#erformance of the family member successor (

) is significantly different to the performance of the unrelated manager

μ

(¿¿UMSBP) )%

:

a$le "resents the descri"tie statistics o! "ro!ita$ilit# measured $# the 'OA and 'OB. hecom"arison o! "ost succession "er!ormance $etween the two succession modes has $ecome ane-tremel# di!!icult issue to deal with. his $ecame een worse in situations where social ha$itsand inheritance norms strongl# a!!ect the successor selection in the trans!er o! $usiness (ertrandand Bchoar, 200


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0.


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mem$ers do not hae an# e-"erience with $usiness succession "rocesses. On some occasions, Eust the incum$ent has some understanding o! what is going to take "lace, due to the !act that hewas the successor in the last transition.

A success!ul changeoer is e-tremel# de"endant on two !oremost decisions. he !irst one ischoosing the a""ro"riate successor, and the second one is managing in!luential !actors so as toma-imise successor satis!action $ecause this directl# a!!ects "ost succession "er!ormance o! the $usiness unit, not onl# that, howeer the successor’s willingness to work under the e-istingethical climate and culture o! the O is a crucial in!luence, $ecause it has great in!luence on "er!ormance.

Inder these circumstances, the author was in a conce"tual "u77le are successors satis!iedwith the $usiness succession "rocessU 9o !amil# mem$er successor diminish organi7ational "er!ormanceU an unrelated manager successors "er!orm $etter than the !amil# mem$er successorsU Dhat are the !actors in!luencing success!ul $usiness succession "rocess, and so on.inall#, this motiated the author to conduct em"irical stud# to inestigate those uestions.

&n the !irst stage, the author conducted an e-"lorator# stud# to recognise "er!ormancemeasurement indicators.. ased on these !indings, the author deelo"ed h#"othesis !or the!ormal stud#. edium/si7ed Os who hae gone through a $usiness succession "rocess within2000 P 2005 are the identi!ied "o"ulation !or this stud#. A mail sure# was conducted, some in/de"th discussions were held with successors to collect data, and !inall# statistical anal#sis wasused to test h#"othesis and !ind answers. ased on these anal#ses, the stud# soles theconce"tual "u77le. .ccording to aforesaid findings successors are not satisfied with the business succession

process. his is true o! all the succession modes. Anrelated manager successors have higher satisfaction than the family member successors $ut no successors achiee more than themoderate leel o! satis!action. his leel achieed indicates “no dissatis!action and no

satis!action+ and this is dissatis!actor# !or the !uture o! the O. 7f CEOs do not satisfy the wayof appointing them, it badly affects the performance%According to em"irical !indings !rom this stud#, successors have had a damaging influence

on business performances true for family member successors as well as unrelated manager

successors% All successors recorded lower "er!ormances than the incum$ent, which is adiscouraging sign !or the !uture e-istence o! the O. he incum$ent is the one who took themost risks to start the $usiness, $uilt the $usiness oer an e-tended "eriod o! time and thus hehas greater e-"erience and ca"acit# than the successor. here are though, man# o""ortunities togroom "otential successors to the reuired $usiness a$ilit# leels $e!ore the succession "rocess.

his stud# com"ares "er!ormances o! !amil# mem$er successors with that o! unrelatedmanager successors, $ased on $oth su$Eectie and o$Eectie indicators in order to recognise the

most success!ul successor under the highest leel o! !amil# inolement. Anrelated manager successors recorded better performance than the family member successors in both perspectives%2hey have higher levels of satisfaction with the business succession process and better business

performance% .ccording to performance unrelated manager successors are most suitable to ta&e over

management from the incumbent , howeer it is not the most a""ro"riate a""ointment when


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!amil# mem$ers demand to $e the successor. On one side, it will create a num$er o! inter/!amil#con!licts and it $adl# a!!ects the da# to da# $usiness actiities. rom another "ers"ectie, Os $elong to the !amil# and i! the# do not hae an o""ortunit# take the lead in their own com"an#,

the# are unlikel# to get this o""ortunit# outside the com"an#. &t is !ar $etter to encourage thatcommitted mem$er to acuire the reuired com"etence and gie them the chance to manage thecom"an#. Howeer, when a O does not hae an aaila$le !amil# mem$er, an unrelatedmanager successor is the $est alternatie to consider. ?ot onl# that, i! owners reuire running theO under "ro!essional management, then this is a good alternatie.

.ccording to study findings the successor$s satisfaction with the $usiness succession "rocessdirectly influences business performance% Bimultaneousl#, the leel o! commitment, !amil#harmon#, and the relationshi" $etween incum$ent and successor all directl# in!luence $oth initialsatis!action with the $usiness succession "rocess and $usiness "er!ormance.

L&m&tat&on" of t,e re"ear#,

his is the !irst stud# that em"iricall# ealuates an integrated model o! stakeholder related!actors im"acting on the $usiness succession "rocess in medium/si7ed Os. Ising uite a largesam"le, this addresses issues to o$tain a $etter understanding o! the succession "rocess. hisa""roach deiates !rom the current a""roach in this !ield anecdotal eidence, case studies, andsmall/scale descri"tie studies. his stud# attem"ts to signi!icantl# contri$ute to the $od# o! knowledge o! $usiness succession "rocesses in medium/si7ed Os howeer there are still!urther areas needed to inestigate. 9ue to the lack o! a data$ase !or Bri 4anka, the num$er o! sam"le units is limited to :2


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V20WII4*44&, ., &I&, . amil# succession and !irm "er!ormance eidence!rom &talian !amil# !irms. 2emi di discussion G4or&ing papersH, VonlineW, 2006 Mune, Vuot.22 Manuar# 20::W Aaila$le on Dorld Dide De$

htt"QQwww.$ancaditalia.itQ"u$$lica7ioni QeconoQtemidiQtd06Qtd


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V3=W HA?94*', D. . anaging the !amil# !irm succession "rocess he ne-t generation!amil# mem$er8s e-"edience. "octoral dissertation Bchool o! anagement, ostonIniersit# VonlineW. :;6;$, Vuot. :2 arch 20::W Aaila$le on Dorld Dide

De$,htt"QQwww.uk.sage" u$.comQchastonQ20cha"ters>20:/:2Qha"ter>20::>20/>20:.V3


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V;WA?94, &. Oeriew o! amil# usiness 'eleant &ssues ontract ?o. 30/*/0:


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V


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V5WDA'9, M. 4. Keeping the family business healthy ow to plan for continuing growth profitability and family leadership, Ban rancisco Mosse#/ass. A, *, :;65, ". 2==, &B?:/===2/02


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selected, and inestigate the "er!ormance o! *Os !romdi!!erent $ackgrounds.

"er!ormance.

on7Lle7 (200:) *-amine the im"act o!!amil# control on the !irms8 "er!ormance

Dhen the successor is a !amil#mem$er, it $rings $etter "er!ormance than unrelatedsuccessors.

Bmith andAmoako/Adu(:;;;)

anagement successionsimmediate and long/terma!!ects in !inancial "er!ormance within theanadian !amil# controlled!irms

here is no signi!icant di!!erence $etween non/!amil# insidersuccessors and non/!amil# outsidersuccessors.

Bource ast researches shown a$oe

Ta-)e 83 Re)&a-&)&t( ana)("&"

Con"tr!#t 9ar&a-)e Cron-a#,:"

a)p,a

usiness "er!ormances .62:&nitial satis!action with the $usiness succession "rocess .52:

Bource ilot sure#, 20::

Ta-)e ;3 In&t&a) "at&"fa#t&on 5&t, t,e -!"&ne"" "!##e""&on pro#e""

T(pe of -!"&ne"" "!##e""&on

A)) Fam&)(

mem-er

"!##e""or

Unre)ate+

mana$er

"!##e""or

D&fferen#e

&nitialBatis!action

2.55 2.


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Ta-)e leel.9. 9e"endent aria$les Ag. 'OA and Ag. 'OBBource Bure# data


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Ta-)e =3 Re)at&on",&p -et5een "!##e""or:" &n&t&a) "at&"fa#t&on 5&t, t,e -!"&ne"" "!##e""&on

pro#e"" an+ po"t "!##e""&on performan#e"

Samp)e t(pe

&nitial satis!action All successors amil#mem$er successor

Inrelatedmanager successor

earson orrelation .=

post succession performance of medium size family owned business in sri lanka

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