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KNOWLEDGE MANAGEMENT PRACTICES AND SUCCESSION PLANNING OF FAMILY BUSINESS CONTINUITY IN LAGOS STATE, NIGERIA

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CHAPTER ONE

INTRODUCTION

 

1.1       Background to the Study

Context observations have indicated that family businesses are common in Nigeria and their continuity has generated academic debate and public discourse. Nevertheless, the factors orchestrating their continuity are divergent and geographically diverse. In addition, the structure and size of family owned firms varies depending on resource unitization and industry, even though they are often perceived as small businesses. Empirical studies (Hisrich & Peter, 2006; Collins, 2006; Storey, 2008) have attributed their continuity/survival to managerial depth or ineptness while contextual factors and competition were identified and amplified by Porter (1980, 1985) as well as Frederick (2008) who made references to internal capabilities and external environment factors.

 

Family-owned businesses are the majority of all businesses in the world (Heck & Trent, 1999). The standard form of business as it is known can be divided into two broad categories, namely family-owned and non-family-owned businesses (Villalonga & Amit, 2006). The active and strong presence of family businesses is perceived in different nations as catalyst for family welfare and socio-economic transformation (Hisrich, Peter & Dean, 2012). Abouzaid (2008) added credence to the discourse that they constitute the world’s oldest and most dominant form of business organization. The academic research and policy-makers’ interest in SMEs has grown due to their role in the economy worldwide which an Ireland report asserted that 75% of SMEs are family-owned businesses, while over 60% of all firms in most nations are classified as family businesses (Timmons & Spinelli, 2009). Small businesses are expected to contribute in three areas: creating jobs, promoting economic growth, and reducing poverty level in poor countries (Lint, 2012).

Family business research has been gaining impetus in recent years (Chrisman, Kellermanns, Chan, & Liano, 2010; De-Massis, Sharma, Chua, & Chrisman, 2012; Kellermanns & Eddleston, 2010; Sharma, Chrisman, & Gersick, 2012) since they possess great potentials for employment generation, improvement of local technology and development of indigenous entrepreneurship within large scale industries as demonstrated by the Central Bank of Nigeria (CBN). CBN, (2011) further articulated that SMEs or family businesses have the capacity to reduce poverty, inequality disparity and social vices and are catalysts of innovations, inventions and creativity; stimulate indigenous entrepreneurship. Although family businesses have the capacity to sustain the economy, yet their survival and continuity has been of great interest to researchers. One of the key research areas in the family business that has been discussed and still to be investigated further is intergenerational transferability which Sharma (2004) alluded to and can be addressed through knowledge management and succession planning as a cushion for family business continuity.

Knowledge management is the achievement of the organization is good by making the economic factors of production to be productive. This is done primarily by facilitating the motivation of people to tap into and develop their capacities (their core competencies) and to stimulate their attitude to intrapreneurship (Beijerse, 2000). Besides this, knowledge management includes the entirety of systems with which the accumulated information within an organization can be managed and opened up (Beijerse, 2000). It is a sine que non for family business success in today’s global economy for example, the more intangible resources the business offers, the more possibility there is for creating competitive advantage and core competence in family businesses (Seeley, 2000; Lev 2002; Francis, 2014) and that is why a focus on knowledge management consider people’s skills as the most important assets in ensuring continuity of the small businesses most especially in advanced world.

Research on the important role of tacit knowledge and technical expertise, which are intangible source of competitive advantage to family businesses, has only been sparingly dealt with in developing country like Nigeria. Therefore, the inability of family business-owners to leverage on knowledge management practice and succession planning frequently lead to disruptions and business discontinuity. Some identified reasons for poor know-how sharing, transfer of competitive intelligence, and knowledge to carry on the business are due to sudden death of major leader, incapacitation, unplanned resignation or retirement (Morris, Williams, Allen, & Avila, 1997; Beckhard & Dyer, 1983).  In addition, family disputes with reference to inheritance could be disruptive if there is no legally empowered successor within the family business.

 

Despite known tremendous contributions, family-owned enterprises are facing the challenge of continuity, as 95% of family-owned businesses do not survive the third generation of ownership (Abouzaid, 2008). Related studies have also shown that less than one-third of family businesses continue to the second generation and less than half of second-generation family enterprises make it to the third generation when the founder/manager retires or dies (Ogbechie & Anetor, 2015).  This problem is because of lack of succession planning because, without effective succession planning there cannot be generational enterprises (Onuoha, 2013). Succession planning is perceived as a systemic, long-term process of determining goals, needs, and roles within an organization and preparing individuals or employee groups for responsibilities relative to work needed within an organization in the near future (Luna, 2012).

The lack of succession planning in Nigeria is a serious issue militating against the survival of family-owned businesses, as 94.2% of entrepreneurs do not have a succession plan (Onuoha, 2013). Despite the challenge, posed by a lack of succession planning, most studies failed to examine succession planning and its effects on the continuity of family-owned enterprises in Nigeria. Few of the research conducted on succession planning tend to focus more on the small and medium scale enterprises, paying less attention to family-owned businesses. This situation is appalling considering the fact that a large majority of SMEs are family-owned enterprises (European Commission, 2009).

The purpose of succession planning therefore is to minimize the gap and risk in the operations of the organization, when key leader suddenly leaves the business. According to Roberts (2002), the ultimate aim of succession planning is to promote the best and brightest across the corporation by having the right person in the right place at the right time for the right job. Another challenge in the family business is the inability of the successor to acquire the past leader has accumulated experiences, business intelligence, tacit knowledge, acumen and technical skills to carry on the business. Little attention is given to possible reasons why family businesses discontinue as against the situation in developed nations like the U.S and Canada.

In Lagos State, some well-known family businesses sprang up in the 1960s and the late 70s, however these businesses are no longer in existence with examples: Bashorun M.K.O Abiola (Concord Group);  Irawo Group of companies founded by the late Chief Patrick Ayodele Irawo; Sunrise Group of companies founded by the late Chief Ajibade Falodu, Balogun Group of companies founded by the late Alhaji Lai Balogun; Sanusi Brothers Group of companies owned by the late Ayodele Sanusi, and late Chief Augustine Ilodibe, group of Companies as documented by Newswatch Time (2014). These businesses thrived while their founders were alive, but folded up few years after their demise.

Therefore, one of the greatest challenges facing family businesses in Lagos is post owner’ death business continuity; uncertainty of the firm’s future beyond the founder. Lagos State as the commercial hub of Nigeria economy from historical observations houses major SMEs that are seen as family businesses with success and failure especially in central part of Lagos city. The location is apposite judging from the aspect of geography, demography, communication system, transportation, cultural diversity and integration, and social system as compared to other locations. This work therefore intends to address the paucity through a hybrid of succession planning and knowledge management as they relate to family business continuity in Lagos State.

 

1.2       Statement of the Problem

Cases of family business failures are evident in Nigeria and particularly Lagos state, despite the array of studies attributable to such area.  In addition, ownership dilution; transfer of both leadership and ownership tend to be seen as a phase in the company’s life cycle, which form a part of managing continuity but less practiced by SMEs’ owner/managers. This stems out from owners’ emotional attachment or connection with the business and thus transfers are often very problematic, challenging or not considered at all as evidences suggest only 30per cent of family businesses survive their founder (Kaunda & Nkhoma, 2013).  Family businesses in Lagos State are seen to have large failure rate, or struggle to survive after a long time.  One of the major issue to which this can be attributed to is the rarity in proper knowledge management practice and heritage struggle due to lack of or poor succession planning.

With emphasis, a lack of proper knowledge management (KM) deters the creation, accumulation, organization, reuse, retrieval, sharing, and transfer of knowledge in organizations (Alavi & Leidner, 2001) for the competitive advantage. Knowledge is valuable and remains a competitive force that foster business survival and the uncaptured tacit knowledge process, the knowledge management and knowledge transfer poses a major challenge for the family businesses continuity.  Although, Nigerian family business firms are acquainted with the concept of KM practices (Suraj & Ajiferuke, 2013; Suraj & Bontis, 2012), not many efforts have been made to examine the relationship between KM and their continuity. Consequently, this lack of attention tends to undermine the prospects of continuity of family business firms in Nigeria (Suraj & Bontis, 2012). Similarly, Ajaikaiye and Olusola (2003) reported that the attention given to Nigeria’s KM system has been weak and unstable, and has consequently affected its effectiveness and utilization. The lack of attention to knowledge management capabilities by small family businesses can be evident in areas of poor record keeping and information management; this pose a significant challenge as owners of family businesses do not prioritize record keeping and even where they keep records, they do not do it professionally (Adisa, Abdulraheem & Mordi, 2014). This leads to inability to produce information on past activities and procedures as at when needed.

Handler (1990) wrote that succession in family businesses is not a one-off process but is a continuous, multi-staged and reciprocal interaction between the predecessor and successor. There ought to be concerted effort between the incumbent and the likely successor in a bid to develop the successor. Literature on family business succession emphasizes the importance of the relationship between the successor and the incumbent in determining the process, timing, and effectiveness of the succession (Brockhaus, 2004). Succession planning has been essentially underplayed by small and family businesses and this therefore affects the prospects of their continuity. Many family businesses die because their leaders and even eventual successors refuse to take risks, lack entrepreneurial skills have low experience, lack the needed training and education (Ekeh, 2016). It is worthy to note at this point that some problems of succession planning among family businesses are internal which include lack of succession planning itself where they never gave a thought to the need to prepare an acceptable successor in the event of their exit, succession crisis, polygamy depending on the family structure, management misfit, while others are external which are legal requirements, and government provisions (Ogundele, Idris & Ahmed, 2014).

The cost of failure to take risks in family businesses is often underestimated coupled with the cost in terms of time required to achieve and objectives. Lack of risk taking reduces the potentials of the business thereby making to lack the capacity to be managed properly by the owner let alone his successor hence succession planning becomes an impossibility (Johnson & Johnson, 2013). Also, the absence of technical, human, conceptual and design skills shown by successors of family business owners result in inability to efficiently demonstrate and communicate with empathy, honesty and integrity thereby defeating the aim of succession planning as evidenced with the family of Late MKO Abiola (Adisa, Abdulraheem & Mordi, 2014). Another challenge is poor leadership experience among owners as well as their successors. They lack the ability to build skills, increase self-awareness and are unable to identify actions and methods for improvement This culminates into lapses in leadership exhibited in the leaders’ inability to build trust among followers, operate with questionable integrity, and failure to consult others during the periods of decision making (Dyke, 2013).

The issues as identified above makes it a challenge as well as threat to the continuity of family businesses as the failure to take risks and poor leadership experience makes it difficult for knowledge management and succession planning to be properly carried out. It is against these issues that this study will be projected in order to demystify the issues involved in knowledge management, succession planning and family businesses continuity as well as proffering solutions to the threats identified eventually.

1.3   Objective of the Study

The main objective of this study is to assess and determine influence of knowledge management practice and succession planning on family business continuity. The specific objectives are to:

 

  1. determine the influence of knowledge management practices of the family business owners on business continuity in Lagos State Nigeria;
  2. examine the effect of succession planning on family business continuity in Lagos state Nigeria;
  3. ascertain the effect of knowledge management practices on profitability of family businesses in Lagos state Nigeria;
  4. evaluate the influence of knowledge management practices on growth of family business in Lagos state Nigeria;
  5. determine the joint effect of knowledge management practices and succession planning on family business continuity in Lagos State Nigeria;
  6. assess the perceptual differences among the respondents on family business continuity when grouped by the type of industry and
  7. evaluate the moderating effect of length of time in existence on the relationship between knowledge management practices and family business continuity

1.4   Research Questions

The research questions are based on the variables to be considered in this study. Therefore, research questions to investigate are:

  1. Does the dimensions of knowledge management practices have influence on family business continuity in Lagos State, Nigeria?
  2. To what extent is the effect of succession planning on family business continuity in Lagos State, Nigeria?
  3. What is the effect of knowledge management practices on profitability of family businesses in Lagos state?
  4. Does knowledge management practices have influence on growth of family businesses in Lagos state?
  5. What is the joint effect of knowledge management practices and succession planning on family business continuity in Lagos State, Nigeria?
  6. What level of perceptual differences exist among the respondents on family business continuity when grouped by the type of industry?
  7. Does years in existence (length of time in existence) have moderating effect on the relationship between knowledge management and family business continuity?

1.5   Hypotheses

Considering the objectives of the study and the research questions, the following null hypotheses were postulated and tested at α = 0.05 level of significance:

Ho1:        Knowledge management practices have no significant influence on family business continuity in Lagos State, Nigeria

Ho2:      There is no significant effect of succession planning on business continuity in Lagos State, Nigeria.

Ho3:      There is no significant effect of knowledge management practices profitability of family business owners in Lagos State, Nigeria.

Ho4:   There is no significant influence of knowledge management practices on the growth of family businesses in Lagos State Nigeria.

Ho5:      Knowledge management practices and succession planning do not jointly have significant effect on family business continuity in Lagos State, Nigeria.

Ho6:   There are no significant perceptual differences among the respondents on family business continuity when grouped by the type of industry

Ho7:  There is no significant moderating effect of length of time in existence on the relationship between knowledge management and family business continuity

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