Strategic Succession Planning and Family Business Sustainability

A Project Report Submitted to the Chandaria School of Business in Partial Fulfillment of the Requirement for the Degree of Masters in Business Administration (MBA)The purpose of this study was to assess the effects strategic succession planning and family business sustainability. The research was guided by three objectives: to determine the best strategy for an effective succession plan; to study the practice of strategic succession planning in family owned businesses and to examine the succession planning experience in family businesses. The scope of the study was three large family owned businesses (those with 500 or more employees) in Nairobi, Kenya (Nakumatt, Sarit Center and Chandaria Industries) which had survived to second, third and fourth generation. Descriptive research design was used and the target population comprised of large family owned businesses (those with 500 or more employees) in Nairobi. Stratified and convenient sampling techniques were further used to select 84 respondents as the sample size. Questionnaires collected data with data analysis being both qualitative and quantitative. The overall return rate of instruments was (84%). The results on the best strategy for an effective succession plan for the current generation running the company’s business established that majority (63%) of the family owned business period of current succession planning strategy covers between 4-5 years, (33%) covers between 2-3 years and (5%) covers one year. It was also revealed that (69%) of the family owned business had a plan on how to succeed the current leadership with (74%) of the respondents stating that the survival of the company was attributed to a succession planning strategy. Majority (61%) of the family owned business have a succession plan strategy in place while (39%) of the business did not have a succession plan strategy. The study found out that (46%) of the family owned business had never updated the company’s succession plan strategy while (27%) of the family owned business had updated the company’s succession plan strategy within the past three years. In addition, (27%) of the businesses had updated the company’s succession plan strategy within the past year. On the practice of strategic succession planning in family owned businesses it was revealed that majority of the respondents (49%) rated the frequency of leadership change in family owned business as not often while (28%) of the family owned business does not change the leadership. In addition, (17%) of the respondents rated the frequency of leadership change as medium, 3% rated the change as often and 4% rated it as very often. The study found that majority (63%) of the family owned business period of current succession planning strategy covers between 4-5 years, (33%) covers between 2-3 years and (5%) covers one year. The results show that (53%) of the respondents strongly agreed with the opinion that strategic succession plan help smooth running of family business with (37%) strongly disagreeing with the opinion that succession plan does not help in family owned business. Finally, 41% of the respondents agreed to the opinion that education and personal traits are key determinants during succession. To examine the succession planning experience in family businesses it was found out that (61%) of the respondents were in agreement that there existed a team of professionals to guide the company through the twist and turns of a succession plan while 74% were in agreement that the existing succession plan was being maintained both throughout and after transition in the event of family transition. The study also established that (71%) of company’s succession plan strategy in place is clearly communicated to all stakeholders, and (91%) of the respondents had positive experience in organizations with strategic succession planning on business survival. Majority (69%) of the respondents indicated that family owned business used formal strategies to remain relevant and (87%) of the respondents indicated that the family owned businesses had a provision of a future road map for the business. The study concluded that best strategy for an effective succession plan, practice of strategic succession planning and succession planning experience positively influence family owned businesses in Kenya. The practice of strategic succession planning is the most important factor in influencing succession planning experience of family business. Majority of the successful family businesses in Kenya were being run by the second generation who had a plan on how to succeed the current leadership. The study recommendations were that family owned businesses in Kenya should have a succession plan to ensure a smooth transition in the future. The succession plan should be time-bound and updated to be realistic with the current situations in the business life. An area for further research was a study on succession planning and family business sustainability should be generalized to other family businesses in Kenya in addition to the three studied for comparative purposes