Identifying and Defining Crucial Leadership Competencies ... · businesses survive to the third...

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Identifying and Defining Crucial Leadership Competencies for Leaders of Family-Owned Businesses during Succession by Maureen Cochran A Research Paper Submitted in Paliial Fulfillment of the Requirements for the Master of Science Degree In Training and Development The Graduate School University of Wisconsin-Stout May, 2010

Transcript of Identifying and Defining Crucial Leadership Competencies ... · businesses survive to the third...

Identifying and Defining Crucial Leadership Competencies for

Leaders of Family-Owned Businesses during Succession

by

Maureen Cochran

A Research Paper Submitted in Paliial Fulfillment of the

Requirements for the Master of Science Degree

In

Training and Development

The Graduate School

University of Wisconsin-Stout

May, 2010

Author:

The Graduate School University of Wisconsin-Stout

Menomonie, WI

Cochran, Maureen F.

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Title: Identifying and Defining Crucial Leadership Competencies for Leaders of Family-

Owned Businesses during Family Business Succession

Graduate Degree/ Major: MS Training and Development

Research Adviser: Renee Surdick, Ph.D.

MonthrYear: May, 2010

Number of Pages: 43

Style Manual Used: American Psychological Association, 6th edition

Abstract

A contextual analysis was conducted in order to identify leadership competencies which

are essential to successfully complete the succession process in family-owned businesses. Three

approaches were utilized to collect input from family business owners in order to create a

collection of more field-based competencies; focus groups and two review requests (mailed and

e-mailed).This information was synthesized into a collection of 22 field-based competencies.

To expand upon these findings, a survey will be used to identify the importance level of each

competency during the succession process.

The Graduate School University of Wisconsin Stout

Menomonie, WI

Acknowledgments

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I'd like to give a special thanks to Dr. Renee Surdick who guided me through this long

research project. Dr. Surdick provided advice, guidance and support throughout the process for

which I am so grateful.

In addition, I would like to thank the people who have been there for me throughout

graduate school; professionally and personally. Throughout graduate school until now I have

had the pleasure of working under the supervision of Donna Weber who was a source of constant

encouragement. Finally, thank you to the most important people in my life; my husband and my

parents. They have encouraged and suppOited me so much even though I had to spend less time

with them. I am so appreciative of their respect for my pursuit of my professional goals.

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Table of Contents

Abstract ..................... ................................. .... ............................ ....................... ............................... 2

Chapter I: Introduction .................................................................................................. ...... ....... ... .. 6

Statement of the Problem ................................................................ ........... ..... ............ ......... 6

Purpose of the Study ... .. ................ ... ....................... .. ........................... .. .............. ..... ... .... .... 6

Assumptions of the Study ... ....... .......... .... ..... ......... ............. ... .... .......................................... 7

Definition of Terms ..................................... .. ................ .......... .. ................ ... ........... ..... ........ 7

Limitations of the Study ............. ... .......... ... ......... .... ........................ .. .. ..... .......... .. ....... ... ..... . 7

Methodology ................... .............................................. .. ............................ ......................... 7

Chapter II: Literature Review ....................... ... ..... ... ................ .. ............ ............. ..... ............ .. ....... ... 9

Competency development ......... .. ....................... ... ................. ............ ................................ 11

Structure of this research .... .......... ............. .. ................ .. .. ... ... .. ....................... ............ ... .... 13

Chapter III: Methodology ..................................................... .. ............. ........... .... ............... ... ....... .. 15

Subject Selection and Description ........ ..... .............................. ... .. ....... .............. ..... ... .. ..... . 15

Instrumentation .............. ..................... ..... .. ..................... ............................ .... ................... 15

Data Collection Procedures ...................................... .. ........................................................ 16

Limitations .... ...................................................................................................... .. ............. 16

Chapter IV: Results ....... .............................. .................. .. .............. .. ......... ............. ... .............. ........ 17

Item Analysis ......................................................... ... .. .............. ..... .... .. .... .......... ....... .. ...... 17

Leadership Competencies .. ... ............................ .................. .............. ................................ 18

Chapter V: Discussion ..... ...................... .. .. .... ..... ..................... .... ............ .. ......... ... .......... .... .......... 30

Limitations ................ ............... .. ........................... ...................... ..... ................. ... ............. 30

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Conclusions .. ....... .. ...... ............................................................. ........ ... .. ... .. ... .......... ........... 30

Recommendations ..................................................... ........ .......... ... ..... .... ....... .. .................. 31

References .................................................................................................................. .. .... .............. 32

Appendix A: Business Succession Planning Process for Family-Owned Businesses .................. 37

Appendix B: Leader Competencies from Literature for Family Business Successors and

Proprietors during Succession ....... .. ...... ....... .... .. ..... ....... ............. ...... ........... ... ..... .. ... ... ... 38

Appendix C : Focus Group Questions ... .. .. .. ... .. ........ ...... ..... .... .. .. .. .. ...... .. .. ... ... .... ......... ....... .... ..... . .40

Appendix 0: Leader Competencies from Literature and Focus Groups for Family Business

Successors and Proprietors during Succession ................... .. ... .. ...... .. ...... .......... .. ... ....... .41

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Chapter I: Introduction

Research suggests that one-third of first generation family-owned businesses survive to

the second generation. Of those who do make it to the second generation, one-third of the

businesses survive to the third generation ("Succession planning," 201 Ob). According to Bork,

Jaffe, Lane, Dashew & Heisler (1996), 85% of the crises in family-owned businesses come from

issues that are related to succession. It is evident that leaders of family-owned organizations

need more guidance as they approach this fragile time in their life. Succession planning in

family-owned businesses involves different dynamics than those found in other types of

organizations because of the uniqueness of the relationship between the proprietor and successor.

Statement of the Problem

This research is being conducted for the Stout Technology Transfer Institute (STTI).

STTI consultants often coach family business owners throughout the succession process. As

they have seen organizations struggle through this process, they sought a more formal

assessment process for determining what skills are essential for a family business leader in order

to successfully carry the business through succession. With a formal assessment, the coaches

will have the ability to assess clients and recommend professional development activities to

broaden their skill set. The present study is an early stage of this assessment development.

Purpose of the Study

The goal of the present study was to identify and define the leadership competencies

which are conducive to successful family business succession. This information forms the

foundation for future leadership assessment development so it was important for the

competencies to be supported by research on best practices and by incorporating input from

experienced family business owners.

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Assumptions of the Study

Family-owned businesses are unique in nature; this study assumes that there are

commonalities between family-owned organizations from which generalizations can be drawn.

A second assumption is that the family business owners who were asked to participate are

knowledgeable about what leadership competencies lead to a successful succession based on

expenence.

Definition of Terms

Proprietor. The proprietor is the owner of the organization.

Succession planning. Succession planning is the " identification and development of

potential successors for key positions in an organization, through a systematic evaluation process

and training" ("Succession Planning," 20 lOa) .

Successor. The successor takes over the proprietor' s responsibilities in the organization

when the proprietor leaves.

Limitations of the Study

More input would have strengthened the results of the present study. Since family

businesses are personal in nature it is sometimes difficult to get them to participate in a study

where they are asked to share or reflect upon personal experiences. According to Brockhaus

(1994), family business owners are typically not interested participate in research; especially in

studies which require participants to participate more than once. Finally, since only qualitative

data was collected, the researcher was limited to conducting a simple thematic analysis.

Methodology

In order to explore which leadership competencies are necessary during the succession

process, a qualitative study was conducted through a review of literature, focus groups and

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expert content validation. The results from each step of this process were analyzed and grouped

into themes with end the result of22 leadership-based competencies.

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Chapter II: Literature Review

Succession planning is an important part of strategic planning in organizations; it

involves creating a business strategy for how the transition of leadership occurs when an

organization is passed from proprietor to successor. The process is unique to each organization

as it should align with the organizational goals and plans for the future (Sambrook, 2005; Wang,

Watkins, Harris & Spicer, 2004). The succession process is one that requires a great deal of

planning and preparation. According to Sambrook (2005), an effective succession process can

take up to ten years to carry out. This speaks to the importance of setting goals early in the

process in order to anticipate the impending change in the organization.

The overarching goal of succession planning is for a good transition to take place so that

the organization can continue to grow and remain competitive in their market. In order to

achieve this goal, organizations need to be proactive about selecting and developing talented

individuals who make positive contributions to the organizational goals. Not only does

succession planning involve analyzing the current goals of the organization, but also their

projected goals for the future of the organization (Hammett, 2008).

The present study focuses on succession planning in family-owned businesses. In a

family-owned business the relationship between the proprietor and successor tends to be unique

because they are often related. Succession of a family business typically involves passing the

organization from one family member to another, often from a parent to their son or daughter.

As one might suspect, this can create different workplace dynamics which should be recognized.

According to Fiegener, Brown, Prince & File (1996), there are several factors which

influence differences between family and non-family firms . Proprietors of non-family-owned

organizations tend to place more importance on the successor's education and training which

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they bring from outside the organization, whereas, proprietors in family-owned organizations

tend to rely on personally mentoring, coaching and supervising the successor. Proprietors of

non-family-owned businesses are more likely to expose their successor to activities with

stakeholders, giving them more visibility in the organization. Finally, unlike in a non-family

firm, proprietors of family-owned organizations tend to involve their successors in the strategic

planning process very little prior to taking over the organization. The authors did not know

whether this was because of the proprietor's desire to maintain control over the direction of the

organization or because family-owned organizations place less value on strategic planning.

Given these differences between family and non-family owned organizations, one might assume

that their succession planning process may also differ.

According to Wang, et al. (2004) and Sambrook (2003) small family-owned

organizations are not likely to put very much planning into planning the succession of their

organization. They often lack the human resources infrastructure which is also means less time,

funding for and access to training opportunities. These small organizations are often reliant upon

on-the-job training (consistent with Fiegener, et ai. , 1996, discussed above) informal transfers of

skills or call upon the expertise of consultants to get through this process. Large organizations,

on the other hand, often have a board of directors who pay close attention to the succession

planning process; this typically offers a more objective view of the process.

In order to emerge from the succession planning process successfully, it is important for

organizations to identify whether or not the proprietor and successor have the leadership skills

necessary to carry the plan out. Hammett (2008) found that 90% of executives from around the

world said that leadership was the most important global growth factor. A leader ' s focus is to be

adaptive to changes and to develop their employees.

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While the focus of this research is on how the leader behaves, there is one important

thing to understand about followers. Followers develop expectations for future leaders based on

their past experiences. In other words, if someone had a kind leader with whom they worked

well in the past, they will expect the same of the new leader. Conversely, if one's former leader

was difficult to deal with, one would expect their new leader to treat them in the same way. This

sometimes creates a self fulfilling prophecy as the follower treats the new leader in the same way

that they treated the former leader (Ritter & Lord, 2007). This follower expectation is important

for successors to recognize as they step into a leadership role in their organization. The

proprietor's legacy may leave behind some feelings that will be impressed upon the successor

whether or not they understand the reasoning. In order to be prepared, it is important for the

successor to understand and recognize the proprietor's professional reputation.

Competency Development

Family-owned organizations often lack access to the tools that corporate and government

organizations have access to through networking and financial resources. The goal of this

research is to provide a tool for family-owned organizations to use in their transition of

leadership. Cantor (2005) recommends that leaders involved in the succession planning process

compare their organization' s culture and goals to a standard set of competencies in order to guide

strategic planning for the organization. The present strives to provide a base for the leadership

competencies against which family business owners can compare themselves and each other to

target areas for growth. Organizations with targeted growth areas can determine the best way to

proceed with training plans (Metz, 1998). According to Cantor (2005), without defining the

leadership competencies which are desired in a successor, selection decisions are often based on

industry-related skills. This may be effective at lower levels of the organization but leaders

require skills beyond those which have shown to be effective in a specific industry.

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In addition to identifying training needs, organizations can use the inventory of

competencies as a way to define their organization . Often, new leaders rely upon past

experiences to help themselves through new situations; this can be beneficial because it brings in

an outside perspective, however, this tendency can also lead to actions that are not appropriate

for their new role. Having a set of competencies for organizational leaders to stand by provides a

set of expectations that are clearly defined for the purposes of both employee development and

the retention of skills (Fulmer & Conger, 2004). This type of competency development is a tool

for both on-boarding with new employees and for a periodic gap analysis performed by the

employer. An alternative use for the gap analysis tool would be that employees could use it to

check their leadership performance against organizational expectations for self development

(Bernthal, et aI., 2004).

Wang, et al. (2004) identified successor development as one of the predictors of

organizational performance. Successor development is one of the areas in which family-owned

organizations typically fall short (Fiegener, et aI., 1996), which is why it is important to develop

tools for family-owned organizations to use in order to help facilitate successful successor

development and business succession. Wang, et al. (2004) recommends that organizations create

a "training charter" which would include a strengths, weaknesses, opportunities and threats

analysis of the successor and the organization. The training charter should address specific

training needs, plan of action and a plan for evaluation of training and retention of knowledge.

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Structure of this Research

The present study builds upon research that was conducted by a former graduate student,

Naveed Kabir (2007), from the University of Wisconsin-Stout who conducted research on

succession planning for the Stout Technology Transfer Institute (SIT!). Kabir's study closely

examined the process for business succession planning for family-owned businesses. The

authors of the present study took this research a step further by creating a visual representation of

the process that Kabir outlined in his research (Appendix A). This visual representation was

used throughout the study to refer to the stages in the succession planning process. The purpose

of this research was to provide a better understanding of the succession planning process to the

STTI consultants who work with succession planning clients.

Kabir's (2007) research showed a need for consultants to focus on coaching the

proprietor during the early stages of succession planning: business preparation, assessment and

strategic planning. During the second half of the process throughout the continued strategic

planning, development of a leadership plan, leadership development and finally evaluation, the

consultant' s attention needs to shift to focus on coaching the successor. A key portion of this

research focused on the development and follow-through of a strong leadership plan. This left

the authors with the question: what leadership competencies lead to successful business

succession in family-owned businesses?

There is little research which specifically focuses on leadership during the succession

planning process in family-owned organizations. In order to explore this research question the

authors used a process similar to the process used for the American Society of Training and

Development's (ASTD) 2004 competency mapping study (Bernthal, Colteryahn, Davis,

Naughton, Rothwell & Well ins, 2004). The authors of this competency study reviewed literature

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and conducted expert interviews seeking to define specific competencies for training and

development professionals. This formed their initial list of competencies which went through a

validation process to refine the list.

Other researchers have also utilized some of the methods outlined above for competency

identification. Kets de Vries, Vrignaud & Florent-Treacy (2004) and Barbuto & Wheeler (2006)

interviewed expelis to develop a list of competencies and had the expelis review the final list for

face validity. In addition, Ip & Jacobs (2006) performed a thorough review of literature to

identify competencies. Still, the methods used by Bernthal, et al. (2004) seem to be a more

comprehensive approach for competency identification.

The present study focuses on the first portion of leadership competency identification

through a review of literature on succession planning and family owned businesses with the

focus of leadership. An initial list of competencies was developed and used to help facilitate

focus groups with local family business owners. This process furthered the researcher's

understanding of leadership needs during the family business succession process.

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Chapter III: Methodology

This research is being conducted for the Stout Technology Transfer Institute (STTI).

STTI consultants often coach family business owners throughout the succession process. As

they have seen organizations struggle through this process, it was decided to develop a more

formal assessment process for determining what skills are essential for a family business leader

in order to successfully carry the business through succession. With a formal assessment, the

coaches will have the ability to assess clients and recommend professional development

activities to broaden their skill set. The present study is an early stage of this assessment

development.

In order to explore which leadership competencies are necessary during the succession

process, a qualitative study was conducted through a review of literature, focus groups and

expert content validation. These methods are discussed in this chapter along with a discussion of

qualitative data analysis methods used and the limitations of the study.

Subject Selection and Description

The total sample for this study consisted of twelve participants. The sample for the focus

group portion of the present study was a convenience sample of six family business owners from

the Chippewa Valley area in north-western Wisconsin; 37 family business owners were asked to

participate. Six people participated in the competency validation portion of the study; five

family business owners and one training and development professional.

Instrumentation

An initial list of 62 competencies (Appendix B) was developed through a review of

literature on succession planning in family owned businesses with the focus of leadership. These

competencies were used as discussion points at the focus groups. The family business owners

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were asked to review the competencies and then were asked six discussion questions (Appendix

C). The validation portion of the study did not require instrumentation other than the integrated

list of leadership competencies.

Data Collection Procedures

Thil1y-five sources of information were reviewed to develop the initial list of leadership

competencies. Two focus groups were held with family business owners at the University of

Wisconsin-Stout campus which lasted approximately an hour and a half each. After the

information from the literature and focus groups was integrated, the competencies were sent to

family business owners and one training and development professional for content validation.

Data analysis. Content analysis of relevant literature was utilized to develop the initial

list of leadership competencies. During the focus group, notes were taken. The comments from

the focus group were examined and themes were developed based on reoccurring ideas. These

themes were integrated into the literature-based list of competencies.

Limitations

The methods for this study could have been strengthened if the researchers had access to

a larger pool of willing paI1icipants; more input would have strengthened the results of the study.

Since family businesses are personal in nature it is sometimes difficult to get them to participate

in a study where they are asked to personal experiences. In addition, since only qualitative data

was collected, the researcher was limited to conducting a simple thematic analysis.

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Chapter IV: Results

The purpose of the present study was to identify and define a set of core leadership

competencies which are important integral to the successful succession of family businesses. To

begin, the researchers reviewed literature on leadership as it relates to succession planning and

family-owned businesses. From there, an initial list of leadership competencies was developed;

this was used as a starting point when the researchers held focus groups with family business

owners to make the research based competencies more field-based. Finally, the 22 competencies

that emerged from literature and focus groups were reviewed for content validation, yielding a

literature and field-based set of competencies.

Item Analysis

Sixty-two leadership competencies were identified through a review of literature

(Appendix B). The most frequently mentioned competencies were business knowledge and

acumen and strategic planning. This list of competencies was grouped into seven categories in

order to manage this large list: general leadership qualities and skills, relationships, business

knowledge, workforce and talent development, management skills, ethics and personal attributes.

Through the focus groups, the competencies were examined by family business owners for

accuracy and input. Six local family business owners participated in two focus groups which

were held at the University of Wisconsin-Stout. Participants were asked to review the research­

suppOlied competencies and give feedback on their relevance. In addition, participants were

encouraged to add competencies which they felt were missing. The qualitative data from the

focus groups was coded and grouped into themes. These themes were integrated into the

existing list of competencies. The result of this process refined some of the existing

competencies and added 28 more competencies to the list, making a total of 90 leadership-related

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actions and behaviors which are thought to be important during succession of a family-owned

business (Appendix D).

After compiling the results from the literature and focus groups, the researchers went

through the process of grouping the actions and behaviors together to create a more meaningful,

field-relevant and complete set of competencies. The information was refined down to a set of

twenty-two solid leadership competencies which are important for a successful succession in

family-owned businesses. The list of competencies was reviewed by six individuals (five family

business owners and one training and development professional) for content validity. The few

suggestions that were received from the validation process were incorporated into the final list of

22 leadership competencies.

Leadership Competencies

Twenty-two leadership competencies were identified through literature, focus groups and

content validation. These competencies capture the skills, actions and behaviors that promote a

successful succession in family-owned businesses (Bernthal, et aI., 2004; Boyatzis, 2008).

Establishes vision and strategic plan. The leader of a family-owned organization

should be one that leads with inspiration, is proactive and provides direction to followers.

Collaborating with key personnel, the leader works to establish and follow a vision for the

organization and a strategic plan (Hagen & Hassan, 1998; Kets de Vries, et al. 2004; Roddy,

2004; Sugrue & Lynch, 2006). In conjunction with the vision and plan, the leader needs to build

commitment and guide stakeholders and employees towards achieving organizational growth

goals (Kaplan-Leiserson, 2005). The establishment of this vision and plan creates a roadmap for

the organization, shows personal responsibility on the part of the leader and clarifies

organizational guidelines for allocating awards, recognition, hiring and promotion (George,

Sleeth & Siders, 1999; Gibson, 2003).

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Establishing a vision and strategic plan for family organizations is especially important as

the leader of the organization approaches succession. Not only does the successor need to learn

how the organization currently operates; they should be actively involved and have a good grasp

on where the organization is heading in the future. According to Hagen & Hassan (1998),

planning a strategic direction for the organization is the number one leadership component which

affects all others and it is the key to long term growth and survival. In addition to establish a

plan, the leader needs to have the ability to drive change efforts and innovation in the

organization.

Drives change efforts and innovation. As technologies continue to improve and doing

business across the globe becomes more accessible, organizations can expect to continue to

change to keep up (Sugrue & Lynch, 2006). Leaders of family-owned organizations need to take

risks to promote business growth and to sustain the business long-term. According to Gibson

(2003), organizations need to "routinely consider the unthinkable" (p. 32). Gibson isn't

necessarily arguing that organizations need to have a plan for every situation one could think of

but to be receptive to and ready for change.

Leaders need to facilitate teamwork and motivation as they coordinate, delegate power

and empower employees to accomplish work goals (Ibrahim, Soufani, Poutziouris & Lam, 2004;

Kaplan-Leiserson, 2005; Kets de Vries, et aI., 2004; Sambrook, 2005). This trusting and

collaborative relationship is crucial in order to have the foundation to face organizational change

as a team (Furst & Cable, 2008). During times of change, the leader should maintain and

evaluate the organization's strategic plan to ensure that it remains realistic and timely for the

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future of the organization even during changing times (Kets de Vries, et aI., 2004). During the

succession planning process there are a lot of changes; the proprietor needs to involve the

successor in discussions about these changes and about future directions.

Executes personal leadership. In order to embrace and lead change, the family business

leader needs to embrace their personal leadership. The leader should demonstrate self

awareness, honesty, confidence and fosters trust and commitment through authentic character.

A successful leader expresses and reads emotions accurately (Kets de Vries, et aI., 2004) and

seeks feedback on how they are perceived so that their behavior can be modified as necessary.

This type of leader serves as a role model, sets high standards for themselves and others and

takes responsibility for action and inaction. Finally, it is important for leaders to take personal

leadership when it comes to their education by pursuing opportunities continuously in order to

stay current in one's field of expertise (Sambrook, 2005).

Fosters open communication. The ability to communicate is an extremely important

competency for leaders to have and practice (Hartman, Conklin & Smith, 2007; Sugrue &

Lynch, 2006). Leaders in family owned organizations should demonstrate open and honest

communication by sharing with and listening to others and create an atmosphere where others

feel comfortable being open. Leaders should communicate concisely and effectively in verbal

and written communications (Kaplan-Leiserson, 2005).

Throughout the succession process, open communication between the proprietor and

successor is essential. The time during which the proprietor and successor are working together

is a very impoliant time for transfening knowledge about the organization. Not only does the

successor need to learn about the inner workings of the organization and how to drive overall

success; they also need to transfer "tacit knowledge" (Sambrook, 2005). Tacit knowledge is

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basically the type of knowledge that one calIDot learn in the classroom; tacit knowledge is the

"procedural knowledge" about the day-to-day activities in the organization (Sternberg, 2007).

Analyze and resolves issues. As a pa11 of being ready for and accepting of change, the

leader of a family-owned business needs to have the ability to analyze and resolve issues;

sometimes with only a moment's notice. The leader should consider ilIDovative strategies and

use sound logic to make decisions in a timely manner (Kaplan-Leiserson, 2005; Roddy, 2004;

Sternberg, 2007). In addition, the leader needs to have the ability to deal effectively with

complex challenges by bringing others into the discussion, seeking input and examining issues

(Hartman, et a!., 2007; Ibrahim, et a!., 2004). As the proprietor and successor work together,

they should discuss the proprietor's methods for analyzing various issues that tend to arise in the

organization and what has or has not worked in the past. In addition, the proprietor should

introduce the successor to key contacts who can help them out if they ever have an issue for

which they need to seek help from within or outside the organization.

Builds relationships and networks. Building relationships and networks with people

throughout the organization, stakeholders, and key contacts from other organizations is very

important, especially for new leaders. An engaged and successful family business owner shows

genuine interest, respect and compassion for others, valuing individual differences. In addition

to developing positive relationships with employees and customers (Gibson, 2003 ; Groves, 2007;

Hartman, et a!., 2007; Kaplan-Leiserson, 2005; Roddy, 2004; Sugrue & Lynch, 2006), this leader

should have a strong network of resources and involvement in community and professional

organizations (Cantor, 2005). Establishing these types of networks opens up opportunities for

collaboration, sources for opinions or new ideas and provides recognition for the organization.

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Exhibits organizational savvy. The leader of a family-owned organization is one that

develops relationships with others and strives to understand people's varying agendas and

viewpoints. This ability to understand others broadens one's perspective, provides additional

insight on potential options, and expands their ability to make informed decisions about the

organization. The leader needs to understand the perceptions and needs of the group in order to

draw connections between other's needs and those associated with the broader goals for the

industry.

Leads family business courageously. The proprietor of a family-owned business needs

to step forward as a leader to build and sustain an inherent confidence and working relationship

with the successor; this is essential for a successful succession. By developing open and frequent ·

dialogue, sharing information and ideas, and building towards the resolution of differences, the

successor and proprietor will have an open and productive relationship. This type of relationship

should be extended to the employees of the organization in order to bring them in as a part of the

team. This capacity to lead is important for the successor to emulate as well as they learn to

work as a team with people at various levels of the organization (Ibrahim, et ai., 2004).

The leader of a family-owned organization needs to effectively deal with family

dynamics while focusing on the needs of other employees and the organization as a whole,

maintaining integrity, infusing knowledge in others and seeking to resolve complex issues. This

level of dedication can sometimes require the leader to put the business, customer and employee

needs before their own needs. Keeping this in mind, it is still very important for the leader to

maintain a healthy life balance; this is something which the proprietor and successor need to

discuss (Kets de Vries, et ai. , 2004)

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Exemplifies investment in the family business. Even though the family business leader

needs to maintain a healthy life balance, they also need to exemplify and investment in the

family business. They should display their passion for and devotion to the mission and vision of

the business and a willingness to invest time and energy into their position to drive

organizational success (Hariman, et aI., 2007; Sambrook, 2005). Family business leaders should

bring education and experience from industry to the position and demonstrate significant depth

of interactions in various areas of the organization (Hartman, et aI., 2007; Kaplan-Leiserson,

2005). Finally, the leader should empower non-family management in order to ensure long term

success of the organization regardless of ownershi p potential. If the employees are competent

and knowledgeable about their duties, during times of turbulence and uncertainty the leader can

trust that their followers will carry their part.

Foster shareholder relations. As discussed above, frequent and open communication is

very important in organizational relationships; this concept extends to include relationships with

stakeholders. Positive working relationships with key stakeholders are impOliant for success in

family business succession in order to keep them abreast of business growth and challenges that

have been faced. In order for employees to understand the need for good customer service,

family business leaders should align their thoughts about and desires for the organization with

those of the shareholders. This collaboration also enables organizations to work with

stakeholders to reach a common goal (Kets de Vries, et aI., 2004). As the successor learns more

about shareholder relations, it is important for them to recognize and appreciate the work that the

proprietor has done to grow the organization through the help of these networks. This

recognition will help the successor strengthen their relationship with the proprietor and will help

them appreciate how the organization arrived at its current state.

24

Global mind-set. As discussed above, today's organizations have to adjust to a more

global environment where business is often conducted from across the world. Family-owned

organizations may find themselves in a vulnerable situation as they have less financial resources

with which they can keep up with technological advances that enable global business. While

global operations may seem like something that only larger organizations need to be concerned

about, in order to remain competitive, family business leaders need to have a good understanding

of global politics. Having an accurate understanding of what is happening in the world and how

that influences the operation of the business is key to long term success (Kets de Vries, et aI.,

2004; Sugrue & Lynch, 2006). Organizational leaders have an obligation to make the best

decision for the organization while taking into consideration any global implications (Roddy,

2004).

Manages ambiguity in succession relationship. There tends to be a great amount of

ambiguity and uncertainty when it comes to the relationship between the proprietor and

successor. Certain issues could be sensitive to one or both parties since there is a great deal of

personal investment in family businesses. For example, the proprietor might not be very

receptive to new ideas that the successor comes up with regarding future directions for the

organization if they are different from the intended future direction of the organization.

This speaks to the importance of building an effective "give and take" relationship

between the proprietor and successor. Both the successor and proprietor need to demonstrate

their desire for success which means sharing the burdens and goals of the organization and

facing times of uncertainty and adversity. Both the proprietor and successor need to display their

ability to be flexible to adjust their frame of mind to fit present, future and perceived situations

so that times of stress and change do not cause chaos or hurt feelings.

25

Fosters healthy organizational culture. A healthy organizational culture is key to

employee satisfaction and ultimately, organizational success. According to Hagen, et ai. (1998),

culture can have various affects on the organization in the areas of talent development and

management, employee attitude, an employee's pride in their product and/or service and trust in

upper-level leaders. A family business leader needs to foster a healthy climate with regard to

how employees interact with one another and outsiders both within and outside of their normal

environment (Groves, 2007). Additionally, leaders need to build a corporate culture complete

with stated and unstated values, customs, rituals, symbols and expectations for member behavior

(George, et ai., 1999); these are attributes of a successful organizational culture. It is the leader's

responsibility to familiarize others in the organization with the intended organizational culture in

order for others to follow it (George, et ai., 1999) and to build and lead a management team who

will carry it out.

Builds and leads management team. The leader of a family-owned organization needs

to build and lead a management team who will work effectively with the successor and other

employees to help them grow (Ibrahim, et ai., 2004; Kaplan-Leiserson, 2005 ; Sugrue & Lynch,

2006). As discussed earlier, it is important for the proprietor to empower their management team

in order to ensure the long term success of the organization. In addition, the both the successor

and proprietor should take a hands-on approach at work and in management meetings in order to

stay in tune with what is happening at various levels of the organization. Having the leaders and

management team involved at various levels of the organization will help them continue to strive

for immediate and long term success.

Asserts results driven environment. Being a leader takes more than coming up with a

good idea and running with it. Leaders need to work with their management team, employees

26

and stakeholders, using research methodology, statistics and empirical evidence to support

decision making (Sugrue & Lynch, 2006); especially during the succession planning and the

implementation of the process. In order to drive the organization to success, the leader should

effectively analyze and resolve issues, embrace new creative ideas and weigh risks against

opportunities when faced with important decisions (Ibrahim, et aI., 2004). All of these qualities

foster a results driven environment with an emphasis on pleasing the customer and achieving

organizational goals.

Exhibits time management skills. An essential skill for any leader is the ability manage

one ' s time effectively. During family business succession it is especially important for the

people who are involved in the process to set up a timeline. Having a timeline will help the

succession planning team to stay on track and it will put them in a position where they need to

think about each step of the process and how it will be carried out.

It is important for the leader of a family-owned business to be reliable and both mentally

and physically accessible when needed. Managing one's time effectively will help the leader to

be consistently reliable because they have thought about what is happening next. While it is

important to anticipate what will happen next, the leader needs to remain accepting of changes as

they are likely to occur. Finally, the family business leader should feel comfOitable delegating

tasks and directing work activities appropriately, without wasting other' s time (Kaplan-Lierson,

2005). The proprietor should gradually delegate more tasks to the successor as they learn more

about their role in the organization as this will aid their professional development. The

proprietor should also teach the successor how and when to delegate tasks so that they can

continue this practice.

27

Builds organizational stewardship. Naturally, the leader of a family-owned

organization needs to keep the future sustainability of the organization in mind as they consider

strategic planning. The leader should be responsible for utilizing employee's skills and invest in

their development by providing opportunities for stretch assignments (Bernthal, et ai., 2004;

Fulmer & Conger, 2004; Groves, 2007; Roddy, 2004) and other educational or professional

development opportunities. In addition, the family business owner is responsible for the

development and monitoring of property planning and financial resources. Property and

financial planning become very important assets for the proprietor and successor to discuss when

planning for succession.

Demonstrates technical knowledge. In today's fast paced environment, it is essential

for family business owners to keep up with technology in order to compete with the competitors

in their field of work (Sam brook, 2005). In addition, leaders need to keep an open mind when it

comes to considering different strategic approaches to running the organization and they must be

willing to make improvements to processes as necessary. Using strategic indicators and

competitive analysis to benchmark, the organization should strive to align the organization with

the market.

Displays financial and legal accountability. One key piece to organizational

sustainability and improvement is the leader's insight into the business (i.e. "business acumen")

and the financial state of the organization (Kaplan-Leiserson, 2005). The leader of a family­

owned organization should understand and align the business model to the strategic plan for the

organization. The leader should serve as an expert on processes within the organization and on

budget-related decisions. During the succession process it is important that the proprietor

demonstrates open communication with the successor about organizational finances and

28

expresses the importance of leaming about and remaining updated on legal and regulatory

standards. In addition, the proprietor and successor should discuss strategies for financial

accountability and legal scenarios or situations that could potentially arise. Based on experience,

the proprietor should coach the successor on how to be a legally accountable leader.

Fosters coaching to develop others. During the succession process, the proprietor needs

to build and maintain a coaching relationship with the successor in order to ensure the transfer of

knowledge and to prepare for the proprietor to let go. Coaching is essential throughout the entire

organization at all times for employee development, not just during succession planning (Groves,

2007; Roddy, 2004). This provides opportunities for successor and employee growth while

building positive relationships in the organization.

The leader of a family-owned organization needs to be able to assess the strengths and

identify developmental needs in others and provide feedback (Hartman, et aI. , 2007; Kets de

Vries ,et aI. , 2004). Along with the feedback, the leader should offer development opportunities

through professional development activities and stretch assignments (Bernthal , et aI. , 2004 ;

Fulmer & Conger, 2004 ; Groves, 2007; Roddy, 2004). Stretch assignments are job assignments

where the employee takes on a different and possibly more challenging role in order to "stretch"

their abilities, experience different parts of the organization, meet new people and develop skills.

In addition, stretch assignments can be used to determine whether or not an employee would be a

good fit in a different area of the organization (Cantor, 2005; Sam brook, 2005).

Cultivates performance development. Coaching is one way that leaders can cultivate

performance development; it is important for the leader of a family-owned organization to have

skills in the area of training and organizational development (Hagen, et aI., 1998). As discussed

earlier in this chapter, small family-owned organizations often lack the human resources

29

infrastructure; this is an area in which many family-owned organizations need guidance

(Sambrook, 2003). Performance development is especially important during succession planning

as the successor learns as much as they can about the organization.

The leader of a family-owned organization needs to establish sound and effective hiring

practices and carry that through to performance development using instructional design. The

leader should demonstrate knowledge of strategies for improving human performance which take

different learning styles into consideration and strategies for aligning performance development

with organizational goals (Kaplan-Leiserson, 2005; Sugrue & Lynch, 2006). Finally, the

outcomes of human performance strategies should be evaluated for continuous improvement to

ensure the employees are effectively learning.

Drives ethical integrity. The ethical integrity of the leader of any organization

ultimately drives the goals and decision making within the organization (Hartman, et ai., 2007).

It is crucial for the leader of a family-owned organization to be an ethical, virtuous role model

(Hagen, et ai., 1998); adhering to standards for professional, personal, moral and ethical

principles. The ethical leader strives to positively impact the organization by incorporating

ethical principles and practices into everyday decision making and aligning their values with the

mission of the organization (Hagen, et ai., 1998; Roddy, 2004). The proprietor and successor

need to discuss different ethical situations that have arisen or could potentially present

themselves in the future in order to prepare the successor for those uneasy situations that may

arIse.

30

Chapter V: Discussion

Through literature, focus groups and content validation, twenty-two leader competencies

were identified as being important during the family business succession process. The proposed

competencies provide a basis for dialogue, planning, and guide family owned business through

an effective succession planning process. This study incorporated the feedback and insight of

leaders offamily owned businesses along with literature to formulate competencies that

hopefully, reflect their roles and responsibilities of leaders.

Limitations

The methods for this study could have been strengthened if the researchers had access to

a larger pool of willing participants; more input would have strengthened the results of the study.

Since family businesses are personal in nature it is sometimes difficult to get them to paliicipate

in a study where they are asked to share or reflect upon personal experiences. According to

Brockhaus (1994), family business owners are typically not interested participate in research;

especially in studies which require participants to participate more than once. Finally, since only

qualitative data was collected, the researcher was limited to conducting a simple thematic

analysis.

Conclusions

The final group of twenty-two competencies is reflective of the competencies that family

business leaders need to exhibit throughout the business succession. The initial list of

competencies was quite large and the researchers expected that the focus group participants

might tell us that some of them are not very relevant for them. On the contrary, the experienced

professionals confirmed that all of the research-suppOlied competencies were important and

added even more essential actions and behaviors.

31

The focus groups were an essential part of this process as it allowed for the literature­

based research to be grounded in field practices. These competencies will inform then next stage

of the study as the researchers continue to narrow down which leadership competencies really

contribute to a successful family business succession.

Recommendations

If one were to re-do the current study, the researchers would recommend making more

efforts to expand the participant pool in order to involve more family business owners.

Involvement with organizations which bring together and/or support family businesses will

likely increase their willingness to participate. In addition, if the researchers had access to

incentives, this would have been another potential way to involve more participants.

To build upon the present study, the researchers plan to further the understanding of these

leader competencies by exploring their importance. Using an online survey, family business

owners will be asked to rate the imp0l1ance of each competency during the succession process.

In addition, participants will be asked to identify which competencies are impo11ant during each

of the five stages of succession. Knowing that family businesses are unlikely to participate in a

study multiple times (Brockhaus, 1994), a new population will need to be explored.

Beyond identifying the importance of competencies and the stages during which they

become the most important, the Stout Technology Transfer Institute would like to have a 360-

degree leadership assessment developed out of this research. Using this assessment, they will be

able to help their succession planning clients in more effective and directed ways.

32

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Appendix A: Business Succession Planning Process for Family-Owned Businesses.

proposed Leadership Succession Steps

Check in between each step before moving on to the next in order to determine whether or not you're ready to move on

Business

Preparation

-Obta in buy-in from

propri etor on t roe

process

-Bus iness description

& ar.alysis

- Famil~' & business

cor.s i 6erati ons

--axation

corsi oerations

-Back up ir.rorr:;ation

-Leaders hip support

-Soccession goa ls

~ Assessment r-.

-Whoa rethe

successor choices

-I den"ify hig h

potential success ors

-Interviews

-3&0 feedba ck

-Com m inee

-Survey

-Leadersr.ip

assessment

-What are training

needs?

-m,eMN -areas for

improvem ent

Strategic

Planning

-SWOT Analysis

-S-lOyear vision

~how to

execute the plan

\.. .J "' i

Development H Leadership ~I of Leadership Development ~

Plan

-Devel opr,; erlt of a

Leadership Plan

-Successor

development goals

-Stakeholder

involvement

-career planning

-J ob rotations

-Coa chi r.g &

m entoring

-Leadership

com petency

developm ent

-Other necessary

training (based on

needs assessment)

-'Increase high

potential people' s

vis ibilityin the

organization

-Check in with

proprietor

Focus on coaching proprietor Focus on coaching successor

Evaluation

-Performance review s

& evaluations

-Readiness to lead!let

goscale

-Succession analysis

(w ere goals met)

-Are there ar.y [l",ore

training needs'

-Refine plan

37

38

Appendix B: Leader Competencies from Literature for Family Business Successors and

Proprietors during Succession

Competency

Ad8:ptability Adheres to the law Articulating the value of learning in business terms Bias for action Building relations in the organization

Bl:Is~ness knowl~_d_ge. §l (l~~men_

Change management ---

Commitment to the organization

Competitive Ana~y'sis Creative problem solving Customer orientation Developing human capital/leaders

Driving for results Effective communication Emotional competence Emphasizing ethical practices Evidence-based practice Exploiting & maintaining core competencies Facilitator

- - -Flexible, forward looking leadership Fostering innovation & creativity Global perspective

Good understanding of family & business interaction Healthy organizational climate Hiring talent Human performance improvement Improving work systems & processes

~structlonal design Integrity Interpersonal effectiveness & versatility

Is a role model for values & ethical practices

Knowledge ~X busines_s ethics Leadership Learning technology}nfrastructure

Frequency in literature I

2

8 3

1

2 2

2

3 3 2

2 2

4

2

Competency '-----

Listener

Management

Measurement & evaluation - - -- - - _._-_ Monit.s>ring employee & organizationaly erformance

_ Organizational character

Organizational development

Org~!1iza.!i 0!1a~stewardshi2

Outsour~.ing relationsJ1ip management

Personal character

_~ersuasion, influence & negotiation

Political savvy

Positive attitude toward employee~ & stakeholders

Public speaking - --"'----

Relationship management

Researchlanalytica.!.2.kills

Science of learnin.K_

Seek external feedback/evaluation ---

Self development ---

Frequency in literature

I

2

3

1

I

1

2 1

2 1

3

Setting employee goals ~~---------~----------------

Social character

~ategic pla!!l1ing

~ustaining effec~ve corporate culture

Tactic knowledge -----------Team leader

Time management ___ _

Trust

Values aligned with the business

Visiona!)'_

7

3

39

40

Appendix C: Focus Group Questions

Focus group participants were asked three questions about the competencies which were

identified through literature.

1. Would you add anything to these definitions?

2. Do you have suggestions for a more effective way to organize the competencies?

3. Are there any competencies which you don't believe belong in the category under which

it is listed?

4. Are there any competencies which you don't believe to be important?

5. Would you add any other competencies?

6. Can we logically combine any of these competencies?

41

Appendix D: Leader Competencies from Literature and Focus Groups for Family Business

Successors and Proprietors during Succession

This table depicts the competencies from literature and focus groups in raw form before

they were re-grouped and validated.

Competency

Ethics Adheres to the law

Emphasi~ing ethical practices

Is a role model for values & ethical practices

Knowledge of business ethics

Understand shareholder expectations

General leadership skil/~ Flexible, forward looking leadership

Visionary

Accepting change~

Adaptability

Attend management meetings

Bias for action

Competition between successor & proprietor

Customer orientation

Effective communication

Experience outside the or~anization

Facilitator

Healthy organizational climate

Integrity

_ !<~eping up with legal issues

Leadership

Letting go

Passion

Persuasion, influence _& negotiation

Political savvy

Projecting self confidence

Recognize own weaknesses

_Reputation managemen~ __

~isk-taking

Frequency in literature

o

1 3 o

o 1 o 2

3

o 2

o 1

o o 3

1 o o o o

Frequency in focus groups

o o 2

o 1

o 3

o 1

o

o 4

o 2

o

o 2

2

o

3

Competency

Generalleadel's!!...~p skills, continued Strategic planning_

Team leader

Ti~e management

Understanding yo_ur r~

Knowledg!

Articulating the '01ue of le_arning in busine~ terms Business knowledge & acumen

Competitive Analysis

Education

Experience within the o~g~~ization Global perspective __ _ _

Involvement in local organizations/Family business resource centers

Management skills

Chang~ managemen_t _

Cre~tive problem solving Driving for results

Evidence-based practice

Glass ceiling management _

Lmproving work systems & processes

Instructional desig£l

Learning technology infrastructure

Manag~ment

Measurement & evaluation - ---

Open with finances

Organizational development

Organizational stewards hi p

Recognize & appr~_cia~e acc0!!1plishments Research/analytical skills

Personal Attributes . Commitment to the organization

~ood understanding o[ family & ~~siness interaction

Sel~ development

Values aligned with the business

Developing a professional identity

Listener

Frequency in literature

Frequency in focus groups

--

7

1 0

1 8 -1 0 0

0

3

2 3

1 0

2

1 o

o

1 -3

1 0

---4 -0 0

--

0 1 0 8

10 0

3

1 0 --- ----0 0 --- -I

0 0 0 0

1 --I 0 2 0

0 2

0 0 1 0 ---

42

43

Frequency Frequency in in focus

Competency literature groups

Personal Attributes, continued Organizational character 2

- --

Personal character 1

~ub~speaking 0 Seek external feedback/evaluation 0 Social character 1 Tactic knowledge 0 Relationships Positive attitude toward employees §G stakeholders 1

Building relations in the organization 2 0

~hemistry 0 Emotional competence 2

Establishing a network of resources 0 Honesty 0 Internal and external mentoring 0 1

Interpersonal effectiveness & versatility 2 0 Observation 0 1

--

Outsourcing relationship management 0 Relationship management 2

Successor needs to earn their position 0 Teamwork 0 Trust

Workforce and talent development Build your own management team 0 1

--Developing human ca~ital/!eagers 2 0 ~xploiting & maintaining core competencies 2 0 Fostering innovation & creativity 4 0 Hiring talent 3

Human performance improvement 0 Monit~ring employee & organizational performance 0 Science of learning 2 0 Setti~g employee goals 0 Sustaining effective corporate culture 0