1 Overcoming the Barriers to Business Model Revision in Family Firms to Increase Firm
Survivability
By
Willem Bleeker
Rijksuniversiteit van Groningen Faculty of Economics and Business
S.R. White & A.J. Groen
Msc Small Business & Entrepreneurship
January 2020
Smederij 49 8253LR Dronten
(06) 40255904
willembleeker11@gmail.com Student number 2944839
Word count: 9389
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Abstract
The failure of family firms has mostly been blamed on the failure of the second generation to manage the business, instead of looking at the strategy that the firm follows. In this paper, we take a deeper look into business model revision and how to overcome the barriers of business model revision during a succession. We compare the results of ten interviews of which five are held at a non-family business and five are held at a family business. The study confirms previous literature that there is a big difference between family firms and non-family firms in the decision-making process and the willingness to invest and taking risks. The main finding of this paper is that delegating control to members outside of the family is beneficial for the family firm for different reasons.
Keywords – Business Model Revision, Family Firms, Non-family Firms, Succession, Innovation, Resistance to Change, Survivability
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Introduction
In fast changing environments like todays, business model innovation is considered as a critical source of continuous value creation and sustainable performance (Mangematin, Ravarini & Sharkey Scott, 2017; Laszcuk & Mayer, 2020). Business model innovation could provide a business with a competitive advantage, because it cannot be easily copied by competitors (Barney, 1991; Giesen, Berman, Bell &
Blitz, 2017). Creating a competitive advantage that cannot be copied is necessary for the survival of a business (Barney, 1991). In this study a distinction between family firms and non-family business is made to see the success factors of business model innovation and how this success factors can help family businesses to survive a succession. Business model innovation is particularly interesting to understand family firms, because owners of family firms want their company to be sustainable across generation and business model innovation could provide such sustainability (Miller, Breton-Miller &
Lester, 2010; Broccardo, Truant & Zicari, 2018). However, family firms make decisions that favor family members at the expense of other stakeholders, which eventually comes at the expense of the survivability of the family firm (Campopiano & De Massis, 2015; Broccardo et al., 2018).
Family businesses performance
Family firms are a common organizational form in most countries around the world (Tsao, Chang &
Koh, 2017), they are even dominant in most countries around the world (La Porta, Lopez-de-Silanes &
Schleifer, 1999; Faccio & Lang, 2002). In Europe more than 60 per cent of the companies are family firms (Fendri & Nguyen, 2019). Also, many studies have shown that family firms perform differently from nonfamily firms. (Bennedsen, Huang, Wagner & Zeume, 2019). Where nonfamily firms have more focus on the financial wealth of the company, family firms do make more financial irrational decisions (Poh, Dayan & Di Benedetto, 2019) at the expense of the financial wealth (Cruz, Gómez-Mejía &
Becerra, 2010). Another difference between family and nonfamily firms is the succession of the firm, because in most family firms the second generations takes over the firm (Cruz et al., 2010; Fendri &
Nguyen, 2019). However, this succession is not always successful, only one-third of family businesses survive and reach the second generation (Fendri & Nguyen, 2019).
Family business decision making and structure
The differences in performance between family and nonfamily firms is explainable by the structure of family firms (Tsao et al., 2017; Bennedsen et al., 2019). The structure is very different from that of nonfamily firms, because of the involvement of family members (Tsao et al., 2017). Business-owning families have unique “psychological, behavioral, social and cognitive” characteristics that drive unique strategic decisions in the businesses they own and operate (Gómez, Cruz, Berrone & Castro, 2011;
Nason, Mazzelli & Carney, 2019). The socioemotional wealth reference point has shown that family firms base their decision making around maintaining focal firm control and also explains “economically
4 irrational” decisions made by family businesses owners in comparison with nonfamily firms (Cruz et al., 2010), for example suboptimal human resource practices, governance and R&D investment (Nason et al., 2019).
Family businesses failure
Due to their different structure and decision making family businesses also respond differently to disruptions that threaten their survival than nonfamily businesses (Acquaah, Amoako-Gyampah &
Jayaram, 2011) There are many disruptions that could threaten the survival of a family business, for example the effectiveness of the current business model (Sosna, Trevinyo-Rodriguez & Velamuri, 2010), existing competitors that develop new processes that threaten the current market share or new entrants that introduced new ways of meeting the existing demand (Cavalcante, Kesting & Ulhøi, 2011).
However, the focus of previous research on family businesses problems are those that come with succession, for example unclear succession plans, incompetent or unprepared successors and family rivalries (Miller, Steier & Le Breton-Miller, 2003).
Relevance of the study
However, there could also be a problem with resistance to changing the business model during a succession, because of the difficulty of the parent to actually leave the business and not willing to make any changes in the business (Gagné, Wrosch & Brun de Pontet, 2011; De Massis, Sieger, Chua &
Vismara, 2016; Marler, Botero & De Massis, 2017). There is almost no literature in the family business literature on business model innovation during successions. Also, there is not much research done on family businesses in the business model innovation literature, despite the fact that business model innovation has proven itself to increase firm survivability (Velu & Stiles, 2013). Previous research has the main focus on the next generation during succession as the failure of family firms (Morris, Williams
& Avila, 1997) instead of taking a deeper look into the strategy of the family firms. Family businesses struggle to innovate their business model during a succession (Duran, Kammerlander, van Essen &
Zellweger, 2016), but need a source of innovation to guarantee firm survivability (Ballal & Bapat, 2019).
Business model revision could provide the needed innovation (Cavalcante et al., 2011). Therefore, this study helps owners and managers of family businesses during and after the succession to survive. This study tries to find the barriers in business model revision and how to deal with these barriers to guarantee family firm survivability. Therefore, the following research question has been composed:
How to overcome the barriers to business model innovation during succession in small and medium family firms to enhance firm survivability?
The rest of this paper is designed in the following way. In the second section, the theoretical framework, of this paper the research question will be explained according to prior theories. Then in the third section the method of this research will be written down. The fourth sections consist of the analysis of the results
5 that come from the interviews that were conducted. In the fifth section of this paper the limitations of this study will be given, and this can be used for later research. The sixth and last section will consist of a conclusion and will contain an answer to the provided research question.
Theoretical framework
Succession
Succession is a vital process to family businesses, without the right preparation the performance, character, existence and the survival of the family firm is threatened (Barach & Ganitsky, 1995; Morris, Williams & Nel, 1996; Williams & Mullane, 2019; Fendri & Nguyen, 2019). When a founder of a family firm goes into retirement, he needs to appoint an heir or an outside manager to run the business (He &
Yu, 2019). Founders often prefer an heir as the successor to preserve control of the business within the family (Demsetz & Lehn, 1985; Ehrhardt & Nowak, 2001; He &Yu, 2019). So, succession is the transition of the leadership of the family firm from one family member to another across generations (Sharma et al., 2001). Although the business stays within the family, the successor often has a different view on how to run the business, this can lead to a clash with the previous owner and eventually to failure of the business (Sharma et al., 2001). The failure of the business is often due to the founder of the business who has “officially” retired, but tries to maintain strategic or operational control within the family business (Sonnenfeld & Spence, 1989; Sharma et al., 2001).
Family firms
For many years there has been no clear definition on what a family firm actually is (Desmand & Brush, 1991). There can be made a distinction between family owned and family managed or a combination of both (Chua, Chrisman & Sharma, 1999). For the sake of this research we use the definition of Chua et al. (1999), which is; “The family business is a business governed and/or managed with the intention to shape and pursue the vision of the business held by a dominant coalition controlled by members of the same family or a small number of families in a manner that is potentially sustainable across generations of the family or families.” This definition is used, because it excludes those situations where the powerful chief executive of a publicly held company manages during his or her lifetime to pursue his or her own vision, as long as the leadership does not have the potential to pass to that executive’s relatives (Chua et al., 1999). Besides this definition includes those firms wherein family involvement takes the form of successive generations of management and typically these types of firms have difficulties innovating during a succession (Chua et al., 1999; Sharma, Chrisman, Pablo & Chua, 2001). Where small enterprises have up to 10 persons engaged in their organization and medium sized enterprises have between 10 and 100 persons engaged (Nooteboom, 1994). The strength of family firms comes from the commitment of the family to the business and its ability to leverage the resources of its environment
6 (Fendri & Nguyen, 2019). However, this can also be their main weakness as families try to keep the control of the business within the family (Fendri & Nguyen, 2019).
Business model revision
A business model is the conceptualization of how a firm does business; how it creates, delivers and captures value (Zott & Amit, 2007; Clauss, 2016; Abrahamsson, Maga & Nicol, 2019). Revision of the business model means removing something that modifies an existing business model and replacing it with a new process, thereby changing their practices of value creation towards customers and partners (Cavalcante et al., 2011; Bouwman, Nikou, Molina-Castillo & de Reuver, 2018). Revision of the business model of a family firm can be due to several reasons. First of all, new opportunities require new ways of doing business (Cavalcante et al., 2011). Second the company’s business model is not effective anymore, the product or services do not fit the needs of the customers anymore (Sosna et al., 2010). Third the competitors of the company are developing new processes that threatens their market share. And lastly new entrants introduced new ways of competing to fulfill the demand of the customers (Cavalcante et al., 2011). Business model revision is likely to involve challenges, because it requires fundamental changes, for example organizational inertia, path dependency or resistance to change by employees or managers (Hannan & Freeman, 1984; Isabella, 1990; Driel & Dolfsma, 2009).
Resistance to change
Resistance to change means that organization members, employees or managers, react in a way that slows down or impedes the change process, these costs and delays that come with the resistance are difficult to anticipate (Pardo del Val & Fuentes, 2003). Although managers are thought to be the change agents that come up with strategies, implement them and monitor the change of processes (Kanter, Stein
& Jick, 1992; Ford & Ford, 2012), they also can be the reason there is resistance to change in an organization (Moutousi & May, 2018). Resistance to change can threaten successful succession and ultimately firm survivability, because a new manager or owner does not have the legitimacy among stakeholders and therefore cause resistance (Querbach & Bird, 2017).
In particular for family firms, change is often difficult to accept and implement, because of the overlap of emotional attachment to the firm and rational judgment as managers of a profit-based organization (Chirico, Salvato, Byrne, Akhter & Múzquiz, 2018). Family firms often behave according to a certain path, where routines that have worked well in the past are used again and again (Zahra, 2005). Even though there is strong evidence in support of change to deal with the changing environment and strategic challenges a family firm faces (Zahra, 2005; Salvato, Chirico & Sharma, 2010). This persistence to stay the course ultimately leads to commitment escalation that prevents any form of change in strategy, the product or any other business activities (Salvato et al., 2010).
7 Firm survivability
For this paper we use five firm survivability factors that are proposed by Sallatu & Indarti (2018). Firstly, business orientation which is the strategic orientation that represents the main characteristics of the firm, like risk taking, proactive and innovative actions (Miller, 1983; Covin & Slevin, 1989). The next one is human resource reputation, a good reputation allows a firm to survive (Nicolò, 2015). The third factor is product innovation, with innovation firms are able to increase their survival changes by providing a successful niche strategy (Cefis & Marsili, 2006). Next up is business planning, it is related to the development orientation of firms (Indarti & Langenberg, 2004). The fifth factor is business model innovation, which involves more systematic changes, like changes in value propositions, value creation and consumer value (Velu & Stiles, 2013).
The key aspect in the survivability of family firms is the involvement of the next generation (Kellermanns, Eddleston, Barnett & Pearson, 2008). New generations may seek new ways to revitalize and expand the business and may also trigger new international opportunities (Cruz & Nordqvist, 2012;
Mitter, Duller, Feldbauer-Durstmüller & Kraus, 2014). Typically, managers from the next generation are better prepared and have a better educational background than the first generation (Cruz &
Nordqvist, 2012; Alayo, Maseda, Iturralde & Arzubiaga, 2019). This superior education improves their ability to analyze markets and competitors and thus they are better able to handle the complexity of expanding and the internationalization of the business than the first generation (Mitter et al., 2014; Alayo et al., 2019).
Conceptual model
In figure 1 the conceptual model is illustrated. Where resistance to change negatively influences the relation between business model innovation in family firms and survivability of the firm (Cavalcante et al., 2011; Querbach & Bird, 2017; Moutousi & May, 2018). Succession can positively or negatively influence the relation between Business model innovation in family firms and survivability of the firm, depending on the fact that the succession was successful or not (Sharma et al., 2001). And lastly business model innovation in family firms can either positively or negatively influence family firm survivability, also depending on successful or unsuccessful business model revision (Cavalcante et al., 2011).
8 Figure 1: Conceptual model
Research methodology
Research design
To measure the resistance of small and medium enterprises to business model revision a multiple case study will be done (Eisenhardt & Graebner, 2007). A multiple case study is done for this research, because this method is suited very well to support or discover a theory (Yin, 2009). Also, the “how” and
“why” of a realistic phenomenon can be discovered by using multiple case studies (Yin, 2009). Because of the complexity of the research and we want to know the “how” and “why” a multiple case study is the most suited research method (Yin, 2009). The unit of analyses is the business model of small and medium enterprises.
In this study research has been done by two different companies. Both companies under research are located in the Netherlands. Each company has between the 1 and 100 employees to classify as small and medium enterprises (Nooteboom, 1994). Both cases are interesting, because the first case is a family business that is successful within its industry and that did revise their business model during a succession. We want to know what the barriers to business model revision were and want to know how they overcame those barriers. The next company is a non-family business with the same characteristics, except for family ownership, that also underwent business model revision. We then want to compare the results of both businesses and see whether there is a difference. To increase the reliability of this research all the interviews held at the companies are being analyzed. Besides the information about the industries table 1 gives information about the role of the interviewee in the company, how long the interview took,
and on which date the specific interview took place.
9 Table 1: Functions of interviewees (Company A= Family Firm, Company B= Non-family business)
Data collection
The data in this research is gathered based on semi structured interviews at two different companies.
The interviews are held with the directors of the companies or managers that are responsible for the business model, because they probably have the best insight into the business model of the company.
All interviews are held in Dutch, because this is the native language of the participants. By doing the interviews in Dutch the participants can make themselves more easily clear, this will increase the reliability of the research. All interviews are recorded, but only with permission from the participants.
To guarantee the validity of the interviews every interview will be transcribed word by word. After the transcription of the interviews they will be send back to the participants, so that they can remove quotes that they do not want in the research (Yin, 2009). Also, participants can stop with the research whenever they want and their answers will be removed from the research.
To be able to compare the answers given in the interviews and to increase the reliability of the research an interview protocol has been made (Yin, 2009). The interview protocol consists of open-ended questions and give the opportunity to the interviewer to ask probing questions, this will provide the research with very detailed on-target information to give a precise answer to the research question (Ten Have, 2004). First there will be some general questions about the company and about the participants themselves to give a good overview of the different industries. After the general question the main part of the interview will take part where the answers to the different sub-questions will be gathered and eventually to give an answer to the research question. To conclude the interview there are some concluding questions and the participants will be thanked for their participation.
This method of research has been used in the family business literature as well as in the business model innovation. Regarding family business literature Niedermeyer, Jaskiewicz & Klein (2010) Tsao, Chang
& Koh (2019), Poeschl & Freiling (2019) either used a cross-case comparison between family and non- family firms, conducted a multiple case study through semi structured interviews or used both methods.
In the business model innovation literature semi-structured interviewing is a common way of practice,
10 for example it has been used in the following studies; Müller (2019), Rask & Günzel-Jensen (2019) and Bosbach, Brillinger & Schäfer (2020). Therefore, this type of research is suitable for this study.
Data analysis
The interviews are analyzed according to steps introduced by Miles and Huberman (1994). They provided a three-step process of coding; descriptive codes, interpreted codes and pattern codes. First of all, the data will be reduced to quotes from the interview transcript that are relevant for the research.
Then the reduced data will be coupled to a descriptive code. The descriptive code will summarize what is said in the quote. After that the descriptive codes will be linked to interpreted codes. Finally, the interpreted codes will need to be more specific and this will happen based on the pattern codes. Table 2 gives a full overview of the data analysis.
Table 2: Data analysis
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Results
Some interesting results were found during the analyses of the data about the influence of business model revision on the succession in family firms. This paper also takes a look at the influence of innovativeness of a firm on the succession in family firms and takes resistance to change into account.
Decision making process
First of all, in the family firm under research the first generation still plays a significant role in the decision-making process after the succession. The first generation still visited the family firm on a weekly basis despite the fact that he was not working in the organization anymore. The current owner of Company A was not able to fire some of his employees, because the first generation would not allow this to happen. The family firm does not look at the qualities of their employees, but keeps them inside the company because they have an emotional connection with them. As the following quote of the director of Company A indicates:
“My dad is still coming to the firm on a regular basis to make a quick chat to some of the employees that have been working for us for over 40 years. That is why it is hard for me to sometimes fire employees, because my dad has known them for more than 40 years.” (A1)
When looking at the non-family business in this study firing employees is a lot easier, because the director of the firm is not emotionally attached to his employees as much as in a family firm. Also, the family firm under study has a lot of employees that have been working at the company for at least 30 years or more. The director of the non-family business mentioned that since he was hired, which is 25 years ago, only one employee has been working there longer than him. Showing that the non-family business makes more economically rational decisions regarding the skills of their employees, because if an employee is not capable enough to do their job properly they will not extend the contract of the employee and will eventually hire an employee that does fit the requirements for the job. This can be explained based on the following quote from the director of Company B:
“Our recruitment process is focused on the skills of the candidate and the fit in the organization. I am not involved in the recruitment process myself. If someone does not meet the requirements for the job anymore it is a lot easier for me to fire them than for someone who was involved. So we see a lot of new faces, because we want the best employees possible.” (B1)
The first barrier to business model revision during a succession is the role that the first generation still plays in the decision-making process. Decision making in the non-family business is a lot more efficient and financially rational than for family businesses.
12 Willingness to invest and taking risk
What also stood out in the interviews is the difference between the family firm and the non-family business in the willingness to invest and taking risk. There is a huge difference in the willingness to invest between the family firm and the non-family business. The current owner of the family firm took over in 2002, but he still was financially dependent on the money of the previous owner. Despite delivering an investment plan for expanding from the local selling of cars to selling cars nationally, the initial owner of the company was still really skeptical about the plans, because he was worried about losing his money and did not want to lose the feeling of a family firm. Being a family firm is what made them successful, because it provided them with a lot of local loyal customers and he was afraid that the costs of expanding would not be recouped. As is explained by the following quote of the founder of Company A:
“After the succession took place I was still really anxious about the expanding plans of my son. The reason being first of all a huge initial investment was needed and second I was really unsure about returns off the investment.” (A2)
For the non-family business under research it is a lot easier to make investments, be it investments for expanding or investing in machinery. The factory manager of the non-family business told that they are always looking for opportunities to invest in. The company has invested a lot of money in the new fulfillment process, which is the process of filling the boxes that they make with the products of the customers. The company invested in new machines and human capital to make it possible and this has given them a competitive advantage over their competitors. Customers do not have to go to two or three different suppliers, but can order the finished product at Company B. This investment plan had been developed and the management of Company B could go to the bank to get the money needed for this investment. They are not fully dependent on shareholders or previous owners as is the case in the family firm. According to the director of Company B:
“We have a meeting with our management team at least once a week and then we also talk about opportunities to invest in. After we all agree that it could benefit the organization, the ones involved make an investment plan. As long as we can support our plan with good reasoning, we can go to our bank and borrow the money.” (B2)
The second barrier to business model revision is the willingness to invest and take risk, because the founder of the family firm was afraid to invest his own money. Also, the process of investing is different for family firms and non-family firms, which explains the reserved attitude from family firms towards investing.
13 Enlargement of the product portfolio
The next big difference that stood out in the interviews between the family firm and the non-family business is the enlargement of the product portfolio. The family firm initially only sold cars of the brand Volvo and was really skeptical about enlarging their product portfolio to more brands, like Jaguar, Land Rover, Toyota and Suzuki. The family firm was originally named with Volvo in front of their company name and they were scared to lose their image of being a specialist in selling and repairing Volvo cars.
The first owner of the family firm saw the proposal of enlarging their product portfolio as a threat rather than an opportunity. According to the second generation enlarging the product portfolio was necessary for the survival of the business, especially with the upcoming of selling cars via the internet. Both expanding from locally to nationally and enlarging the product portfolio were necessary to keep up with their competitors. The following quote by the founder of the family firm supports this section:
“We were specialized in selling and repairing Volvo cars and many customers knew us for that. I thought we could lose our image by selling more than just Volvo, but in hindsight it were good choices to enlarge our product portfolio and to expand our selling radius.” (A2)
Whereas the non-family business saw enlarging their product portfolio more as gaining a competitive advantage. Company B eventually started by delivering standard packaging for their customers, but decided to enlarge their product portfolio to gain more revenue. They are able to deliver five different products and are able to combine those product groups. In this way the customers do not have to go to three or four different suppliers for their packaging, but they can order their whole packaging at Company B. The competitors of Company B are not able to deliver all those product groups and thus Company B can ask a premium price for their products. Also, it is not easy for competitors to copy Company B, since it takes a huge initial investment and the knowledge and skills are within the company. Said by the production manager of company B:
“Besides the combination of our five product disciplines is unique. Where possible we combine two or more disciplines which provides our customers with solutions that our competitors cannot provide”
(B5)
In addition to the second barrier the enlargement of the product portfolio showed that the family firm was afraid to leave the path that had made them successful in the past and that the first generation of the family had a different view on investing than the second generation and the non-family business.
Director selection
The way the director of the firm is selected is also very different between a family firm and a non-family business. The interviews showed that both scenarios have their pros and cons. First of all, the second generation in the family firm was on beforehand chosen to be the next director of the firm. Which led to doubt in the minds of the employees at company A. They were unsure if the second generation had
14 the requirements that were needed to lead the firm into the good direction. Although that they did not doubt him in terms of having enough knowledge about the car selling industry, because he had worked at the firm for several years before taking over. They actually did doubt his leading skills, because he had no experience in leading a firm. So shortly after the succession the second generation did also have trouble convincing his employees about his investment plans. Eventually they did trust the second generation, because they had known him for years and after his plans did turn out successful. As was indicated by the sales employee of company A:
“I have known A1 for quite a few years now. I have been working at this company for round and about 30 years. But right after he took over I was not sure if he was capable of leading this company, because he had almost to none experience.” (A3)
The director of Company B told us that the process of being appointed as the new director is a lot different for a non-family business. After working for several years as a director at another company in the same industry, he chose to leave that company and apply for the job as director at Company B. In this case the employees working at Company B at that time had to get used to the fact that a new face was now their boss. They did not doubt about his skills, because they knew that he was selected for the job because he had the needed skills for it. Especially after a few months they full on trusted him, because he had shown them that he was indeed the right person for the job and after 25 years he is still the director of Company B. As has been explained by the director of company B:
“In the beginning after I got the function of director at Company B people did not know me at all and I think it is hard to put your trust in someone you do not know. So, I think what you have to do is try to build up a relation with your employees and be as open as possible to win their trust.” (B1)
The selection of a new director showed in both cases resistance to change and slowed down the innovation process.
Delegating in family firms
The last important finding standing out in the interviews is the fact that the family firm started to give responsibilities to people outside of the family. After the succession the first generation was still heavily involved in the decision-making process of the family firm, for example about the expanding plans. But years after the succession the founder decided to give full control to the second generation and so the expanding plans did go through and now the company has twelve establishments. Each establishment has its own manager and they are allowed to make their own decisions, as long as they can justify the choices that they made. Delegating those different establishments to people outside the family has helped out the current owner of Company A out in many ways. First of all, it helped the organization to gain knowledge about how to cope with the growth they have undergone in the recent years. Each establishment has its own difficulties, but another establishment may have a solution for such difficulty.
15 By having online meetings on a weekly basis with the managers of each establishment, the owner of Company A tries to keep control over the company as a whole, while also delegating some of that control to people outside of his family. As the following quote from the director of Company A indicates:
“With freedom also comes responsibility. If people are allowed to make decisions for themselves, in general they will also think more and better about those decisions and that is exactly what is needed to grow as a company. Together we know more than one person.” (A1)
Secondly delegating responsibilities actually helped the organization massively in maintaining the image of a family firm. The owner of Company A took over other car selling companies and kept most of the people that already worked at that specific establishment within the company. Also, the managers in each establishment either lived in that region or worked at that place for some years. Employees who are familiar with the region or the former company know better what the customers want than people who are not used to that specific region. The only difference was the name of the company, because it changed to Company A. The employees working in a specific establishment know the loyal customers, are able to provide those customers with the service they want and thus can actually maintain the image of a family firm. If the owner of Company A decided to replace the previous manager with a family member as the new manager he could not provide those loyal customers with the same service, because he is not familiar with the new environment. As the following quote from the director of Company A suggests:
“After a takeover I kept everything the same as much as possible. So most of the time the managers and employees who already worked there are still active in that company. In this way we can provide the best service possible to the wishes of the customers.” (A1)
Thirdly employees that do get more responsibilities are more motivated to perform well, can develop themselves more and are more loyal to the company. It could come across as unfair if a family member is given a function they did not work for. Someone who strived for that function over the years will be demotivated, especially if that family member was not active in the organization at all. However, it makes an employee feel appreciated if that function is given to him, it will motivate him to do well and it will make him more loyal to the company. This is especially the case with takeovers where the family members of the owner have not set a single step in the company that is taken over. Employees already working at the company are scared to lose their job, but when they do get to keep it, they feel appreciated and are motivated to do the best they can. According to location manager Y of Company A:
“I was really scared that some family member of the new owner would take over my job, but when that did not happen I was motivated to the bone to make a success out of it.” (A5)
After the first generation let the second generation make his own decisions within the family firm big changes happened in the family firm. He was able to expand the business nationally and invest in the
16 enlargement of the product portfolio. Eventually he decided to delegate responsibilities to employees outside of the family. These factors contributed to the success of the family firm under research.
Discussion and conclusion
The purpose of this study is to give an answer to the following research question: How to overcome the barriers to business model innovation during succession in small and medium family firms to enhance firm survivability?
The results show that the first barrier to business model revision is that the first generation still plays a significant role in the decision-making process after the succession. Also, there is a big difference in the willingness to invest and taking risks between family firms and non-family business, this can be seen as the second barrier to business model revision. Where non-family businesses are more willing to invest and saw taking risks more as an opportunity rather than a threat. Furthermore, the process of becoming director at both firms is way different and slowed down the innovation process in both cases. The most interesting finding was the fact that the family firm under research started to delegate responsibilities to people outside of his family. Which helped the organization in its growth, maintaining the image of a family firm and motivated the people involved in the delegating process to perform well.
Business model revision leading to firm survivability
As has been shown by other researchers, new opportunities require new ways of doing business to stay ahead or keep up with your competitors (Cavalcante et al., 2011). This study showed the same where the nonfamily firm as well as the family firm had to revise their business model to guarantee business survival, in both cases it provided them with a huge organizational growth. However, what slowed down the process of business model revision in both cases was the appointment of a new director. The difference between the two is that in the non-family business there were trust issues, because the director was new to the firm and in the family firm there were trust issues regarding the leading skills of the new director.
Resistance to change threatening family firm survivability
Other studies already found that resistance to change slows down or impedes the change process (Pardo del Val & Fuentes, 2003). This was also the case in this research where the founder of the family firm showed resistance and so the innovation process was massively slowed down. What is particular about resistance to change within family firms is that they tend to stay on a path where routines that have worked well in the past are used again and again (Zahra, 2005). This was also found in this study where the founder of the family firm did not want to enlarge the product portfolio, because selling one particular brand is what made them successful in the past.
17 Succession increasing firm survivability
Firm survivability is characterized by the following five factors; business orientation, human resource reputation, product innovation, business planning and business model innovation (Sallatu & Indarti, 2018). Results of this study showed that the family firm under research did much better on these factors after the succession. This can be explained by the fact that the second generation has a better educational background and is better able to handle and seize opportunities than the first generation (Cruz &
Nordqvist, 2012; Mitter et al., 2014; Alavo et al., 2019). After the succession the family firm was more willing to invest and taking risks, did innovate their product by enlarging their product portfolio and did revise their business model by expanding their business from selling cars locally to nationally. What was also found is that the family firm did much better on human resource reputation before and after the succession than the non-family business. Where the non-family business based their human resource decisions purely on what is financial rational. The family firm on the other hand is more emotional attached to its employees and by doing so they increased the motivation and the loyalty of their employees. So, although previous literature labeled these human resource decisions as “economically irrational” (Cruz et al., 2010; Gómez et al., 2011; Nason et al., 2019), family firms actually benefit from these human resource decisions. There were no sufficient results found on business planning during this study.
Limitations
This study tried to be as realistic and reliable as possible, however there are some limitations to this study. First of all, the two companies under investigation are located in different industries. Although we think that the results are related to the management of firms and not to the industry the firm is located in. There is a possibility that different outcomes came true if the two companies under research were located within the same industry. Secondly, because there was limited time, this research was done with only two companies. There could have been different outcomes if interviews had taken place at more than two companies. Thirdly the interviews were taken by one interviewer only and thereby may be limiting the insights to this study. Two or more interviewers could have provided this research with extra insights and thus different results could have come true.
Implications for theory
Although family firms often try to maintain control within the family (Fendri and Nguyen, 2019), this study shows that giving up a certain amount of control to employees outside of your family is beneficial for a family firm to survive. Trying to keep control within the family is not beneficial for your firm as it demotivates and decreases the loyalty of the employees that have specific knowledge that is needed to maintain the image of a family firm. The family firm under research showed that loyalty to employees
18 outside of the family comes with loyalty and motivation from those employees and helps a family firm to survive. These superior human resource practices of family firms are the key to overcoming the barriers to business model innovation for family firms, because it enables them to survive and grow without losing actual control over the business as a whole.
Implications for managers
To overcome these barriers managers of family firms should not be afraid to give up a certain amount of control. First of all, the founder of a firm should not be afraid to let their successor take over, provided that the second generation is familiar with the family business. Also delegating some of your control to members outside of the family will help the organization, as it provides the organization with knowledge to solve problems and to help them grow. Furthermore, delegating control actually helps to maintain the image of a family firm, while other people have more knowledge about the customers and can provide those customers with the best possible service. Lastly delegating helps a family firm to keep that knowledge within the firm, because the people involved feel more appreciated and thus are more loyal to the family firm.
19
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23
Questionnaire
General questions
- Could you please give a brief overview of your organization?
o What are the core activities?
o When was the organization established?
o What are the main goals of the organization?
o What are the key aspects of the organization?
§ Size?
§ Number of turnover?
§ Number of employees?
- Could you please introduce yourself and your role in the organization?
o What is your function within the organization?
o What is your background, considering education, experience/previous jobs?
o Are you related to the owner of the business?
Main part Business model
- How does your current business model look?
- Have there been any changes to the business model over the years?
o If yes, how has the business model changed?
o Who were involved in the change of the business model?
- How satisfied are you with the current business model?
o Do you think there could be some improvements to the business model?
§ What could be improved?
Succession
- How many succession have taken place during the existence of the organization?
- How do you think the company survived these successions?
- When did the last succession happen?
- Was the previous owner still actively engaged in the organization after the last succession?
o If yes, in what way did he still have influence?
§ Can you give some examples?
Innovation
- Do you consider the organization as innovative?
- What kind of innovations has the organization?
o Could you recall any recent innovations?
o Do you think this innovation benefitted to the performance the organization?
§ If yes, in what way?
- Do you think there is room for own suggestions regarding innovation?
o In what way does the organization stimulate innovative behavior?
o If not, do you think it could benefit the organization?
§ How could it benefit the organization?
Resistance to change
- When an innovation got introduced was there any resistance from your colleagues/managers/yourself?
o How did they/you react towards the innovation?
24 o What caused the resistance towards the innovation?
- Can you recall a situation where an innovation was not implemented good enough?
o What went wrong?
o Despite the resistance, why did they/you choose to try to implement the innovation anyway?
Survivability
- How would you describe the business orientation of the firm? Could you please elaborate on each characteristic?
o Risk aversion vs risk taking o Reactive vs proactive o Conservative vs innovative
- How do you think the customer perceives your organization?
o What would be the three main characteristics they would come up with?
- Are you operating in more than one markets?
o Or do you have a specific niche market that you are operating in?
§ If yes, do you have a specific strategy? And what is that strategy?
§ Do you consider this strategy as superior to the strategy of competitors?
• Is it easily copiable for competitors? (why/why not?) Closing questions
- Are there any other topics about business model revision, succession and innovation that have not been covered in the interview but you had expected or that you would like to share your thoughts about?
- Can I contact you in case I might have additional questions after I transcribed the interview?
