Entry of the Next Generation: Strategic Challenge for Family Business

ENTRY OF THE NEXT GENERATION: STRATEGIC CHALLENGE FOR FAMILY BUSINESS Planning for the integration of the younger generation into the family firm is an issue of strategic importance, although offering challenges and finding a place for younger family members, or adjusting the organization to the new generation's inputs and demands are issues not usually included as goals for sound business planning. (1) In fact, business theorists generally point out the drawbacks of constraining business decisions by any criteria other than profit. While arguments can be made both for and against nepotism,(2) Harry Levinson, who has written thoughtfully about family businesses, notes: It is obvious common sense that when managerial decisions are influenced by feelings about and responsibilities toward relatives in the business, when nepotism exerts a negative influence, and when a company is run (1)D. M. Ambrose, "Transfer of the Family-Owned Business," Journal of Small Business Management, (January 1983), pp. 49-56. (2)D. W. Erwing, "Is Nepotism So Bad? " Harvard Business Review, (January/February, 1965), pp. 22-40 and 156-160. more to honor a family tradition than for its own needs and purposes, there is likely to be trouble. (3) (3)H. Levison, "Conflicts That Plague Family Business," Harvard Business Review (March/April, 1971), pp.90-98. For owner-manager firms, successful integration of offspring into the firm is almost always an issue. As one family business owner said: I started this firm to gain freedom and security not available elsewhere. The success I have had is something I would like to pass on to my children. I hope they come into the firm, but they must have the patience to learn the business before they take over. Patience is a two-way street. To succeed in transferring the business to their offspring, family business CEOs must be ready to adjust the organization to the skills, perspectives, and values of the next generation as part of the implementation of strategy. The successful integration of new family members is a goal for many family firms as important as profit targets, business niches, and other determinants of the firm's business policy. Incorporating new family members into the firm, however, is complicated by the blurring of the boundaries between the family and the family business. (4) Strategy for the owner-managed firm requires that economic success be achieved in a context that includes presently and prospectively employed family members. Owner/managers have often changed their organization's structure to reflect the needs of children entering the business. For example, entrepreneurial firms have been structured to provide territories for siblings (3)H. Levinson, "Conflicts That Plague Family Businesses," Harvard Business Review (March/April, 1971), pp. 90-98. (4)For a more thorough discussion of familial factors in business, see the following: P. Davis and D. Stern, "Adaptation, Survival, and Growth of the Family Business: An Integrated Systems Perspective," Human Relations, vol. 34, no. 4 (1980), pp. 207-224; W. G. Dyer, Jr., Cultural Change in Family Firms: Anticipating and Managing Business and Family Transitions (San Francisco: Jossey Bass, 1986); P. G. Holland and W. R. Boulton, "Balancing the `Family' and `Business' in Family Business," Business Horizons, vol. 27, no. 2 (1984), pp. 16-21; and E. Kepner, "The Family and the Firm: A Coevolutionary Perspective," Organizational Dynamics, vol. 49, no. 2 (1983), pp. 57-70. in the firm; and separate divisions have been started in some firms to give offspring a place to thrive under the family banner. (5) It can sometimes be beneficial to split the original firm into a family of enterprises in order to achieve the twin goals of family continuity and financial success. Owner/managers of family businesses face the dual challenges of rearing children who want to join the family business and to shape a work environment where the young person can "earn legitimacy": the confidence and ability to make significant contributions and the trust of others. …