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    Succession Planning FYP Succession Planning FYP Document Transcript

    • Final Year Project SUCCESSION PLANNING IN FAMILY OWNED BUSINESSES MEHREEN YOUSUF BB-03-06-3479 SUPERVISED BY: MR. COL.RAZA KAMAL SUBMITTED ON: MAY 07, 2010In the Partial fulfillment of the requirement for the Degree of Bachelors of Business Administration (BBA) Department of Management Science PAKISTAN AIR FORCEKARACHI INSTITUTE OF ECONOMICS AND TECHNOLOGY 1
    • LETTER OF APPROVALThesis Title: SUCCESSION PLANNING IN FAMILY OWNED BUSINESSESBy: MEHREEN YOUSUF BB-03-06-3479Thesis Supervisor: Mr. COL RAZA KAMALAcademic Year: 2010The Board of Advanced Studies at PAF KIET has approved this Thesis, submitted inpartial fulfillment of the requirements for the degree of Master of BusinessAdministration.Approval Committee:Mr. COL. RAZA KAMAL (Supervisor) (Director Academics) 2
    • LETTER OF TRANSMITTALApril 7, 2010Mr. COL RAZA KAMALProject SupervisorPAF KIETDear Sir,I am submitting the final project report on “Succession Planning in Family ownedbusinesses”. The report includes brief literature survey, methodology, data analysisand conclusion.I am grateful for your guidance and supervision without which this assignmentcould have not been completed. I have tried my utmost to do justice to the topic.However any suggestion or query relating to the topic is always welcome. If anymatter pertaining further clarification, I would be glad to help.Yours Sincerely,_____________MEHREEN YOUSUF 3
    • LETTER OF AUTHORIZATIONAPRIL 7, 2010MEHREEN YOUSUFBB-03-06-3479Please refer to your initial proposal for undertaking the study on “SuccessionPlanning in Family owned businesses”. In the view of subsequent meetings,discussions, chances of availability of data, and scope and interest of this study, theinitial proposal was finalized. Kindly initiate the study on the finalized Terms ofReference. (TOR)Mr. COL RAZA KAMALSupervisor 4
    • ACKNOWLEDEMENTFirst of all I would like to thank Almighty Allah who has guided me theway for a bright future. I would like to acknowledge the help providedby my supervisor to make this project a success.My supervisor Mr. COL RAZA KAMAL has helped in the preparation of aproject. He was always full of energy and willing to teach the conceptsabout human resource with his working and practical experiences.I am also thankful to my parents who accommodated me during thoselong hours of work in my project development and all the friends whoequally encouraged me.I would like to appreciate the co-operation I got from my class mates atPAF KIET, which boosted my moral and encouraged me to strive forbetter results. 5
    • ABSTRACTThe aim of this study is to explore and gain an insight into successionplanning in family firms in impacting business performance. There weremain two variables that include 1) Succession planning and 2) Familybusiness. There were five sub variables for each main variable. A set ofquestionnaire was pilot-tested and personally distributed to 30executives. There were some limitation in the study the main limitationwas shortage of time and the main population were business man whodo not have time to fill the questionnaire. There were two sources ofdata. One is primary data that is through questionnaire and other wassecondary data that is from books, articles, news papers. The literaturereview was made which help me make my hypothesis. There were twomain hypotheses in the study 1. Ho 1: there is no relationship between family ownership and successful succession planning. Ha -1: there is a strong relationship between family ownership and successful succession planning. 2. Ha 2: there will be eventual smooth transition in family businesses if the successor is relevantly educated. Ho 2: there will not be an eventual smooth transition in family businesses if the successor is relevantly educated.The method which I have is a new method for statistical test which islisrel. It is software that determines the relationship. This equation wasselected since the sub variable of independent and dependent variablesvary in intensity therefore the other test were weak for the data.After analyzing the literature review and research methodology it wasconcluded that my first hypothesis was accepted because business manbelieve that there is a very strong relationship between familyownership and successful succession planning and my secondhypothesis was rejected because in Pakistan people believe thatexperience is more important than education. 6
    • INTRODUCTIONFamily businesses are growing and turning into complex businessgroups,Transforming from family controlled and managed to family owned andprofessionally managed public listed businesses. Hence, successfulsuccession of a business and development of future successors arebecoming the key success factors for family businesses. The questionhere arise is that what is successful succession for that we need tounderstand what is succession planning is a process whereby anorganization ensures that employees are recruited and developed to filleach key role within the company. Through your succession planningprocess, you recruit superior employees, develop their knowledge,skills, and abilities, and prepare them for advancement or promotioninto ever more challenging roles. If succession plan work properly thanthe firm will reach towards successful succession which could reach tosuccess.In western the owner of the family owned business transfer theownership according to the managerial skill through proper use ofsuccession planning whereas, in developing countries like Pakistan theownership is transfer to the next generation. . Family-owned businessesface a unique obstacle: continuation of the business throughintergenerational transfer. Most family-owned businesses cease whenthe next generation does not enter the business. This is the reason thatsuccession planning is important in family owned businesses.Family business is the key to region’s economic growth and therefore,their sustainability and success are critical to the region especially thedeveloping country like Pakistan. But in Pakistan there are many familybusinesses that fail and the main reason for their failure is poor or nosuccession planning.The family succession plan must recognize and accommodate the needs,goals and objectives of each family member. "The familys goals andobjectives then become the basic building blocks for the development ofthe succession plan for the familys business," Many family businessesalso have trouble determining guidelines and qualifications for familymembers hoping to participate in the business. Some companies try to 7
    • limit the participation of people with certain relationships to the family,such as in-laws, in order to minimize the potential for conflicts. Familybusinesses often face pressure to hire relatives or close friends whomay lack the talent or skill to make a useful contribution to the business.Once hired, such people can be difficult to fire, even if they cost thecompany money or reduce the motivation of other employees byexhibiting a poor attitude. A strict policy of only hiring people withlegitimate qualifications to fill existing openings can help a companyavoid such problems, but only if the policy is applied without exception. AIM OF THE STUDYSeveral objectives were set for this exploratory research. The first was to compare the successor development activities and succession dynamics of locally managed family businesses, grounded in local cultural and religious environment. The second objective was to investigate successor development And succession dynamics of the family businesses in Pakistan, since the majority of them are facing succession challenges from founder generation to second and third generation of successors.LIMITATION OF THE STUDY:There is always a limitation that comes in our way while we conduct aresearch. My research limitation include As my research was questionnaire based and the population who fill the questionnaire was business man and as we know that all business man don’t have time to fill the questionnaire. I had sent the questionnaire through email so many business men didn’t reply to my mail. I used incorrect numeric in questionnaire where 1 was high and 5 was low which I reversed data collating stage.THE RESEARCH INCLUDES: Literature review Methodology 8
    • Findings/Analysis ConclusionPRELIMINARY DETAILS:Source of data: there are two source of my data: primary data i.e.observation from questionnaire and secondary data from books,journals and news papers. 1. LITERATURE REVIEW:DEFINING THE TERMS.There are many researches that define family businesses. Earlyresearcher Wendy Handler, (1989) identifies that family business isownership, management, control structures and intergenerationaltransfer. Recently research has shifted Jess Chua, James Chrisman andPramodia Sharma, (1999) to focus intention and vision of a particularfirm as mean of determining whether it can be defined as familybusiness. In other article Nazir Afghan, (2007) cited the definition offamily businesses as business owned, control and managed by families.Ivan Lansberg (1999) defines Succession as the transfer of managementand the control of a business. He also describe that there are two typeson which the succession focuses. First is ownership succession and other is management succession. Ownership succession focuses on who will own the business, when and how will that happen. On the other hand the management succession focuses on who will run the business, what changes will occur, when will they be accountable for results and how will results be realized. If these two are coordinated well then succession will be successful.Barbara Murray, (2003) cited that for the concept of relationship abusiness enjoys with itself takes form of different business journey. Ifthe journey undertaken is one of the balance between the forces forchange and forces of resistance to change so that the issue can be easilysolved and leads to success that can be done if the psychology ofincumbent is ready to control the process. Nazir afghan et al, cited thatthere are three stages for development Stavrou’s (1998) pre-entry, 9
    • entry and succession phase for focus of change. The research hasseveral new areas, such as succession processes in kinship culture andsuccessor development practices within the local cultural and socialcontext.SUCCESSFUL SUCCESSIONCaspar, Ana Karina Dias, and Heinz-Peter Elstrodt (2010), elaborate thatfor successful succession a family business must meet two intertwinedchallenges: Achieving strong business performance Keeping the family committed to and capable of carrying on as the owner.They further assert that the five dimensions of activity must work welland in synchrony: harmonious relation within the family and anunderstanding of how it should be involved with the business, anownership structure that provides sufficient capital for the growthwhile allowing the family a to control key parts of the business, stronggovernance of the company and a dynamic business portfolio,professional management of the family’s wealth, and charitablefoundation to promote family values across generation. Nazir Afghan,(2007) cited that successful succession is the most important factor forsurvival and growth of family businesses. He further says that scholarsare searching for answers within family businesses. Lums is carryingout a study in this respect. (Afghan. 2007). Successful succession issubsequent positive performance of the business and ultimate viabilityof the business. (Miller, 2004). Jeffery Barach, Joseph Gantisky, JamesCarson, and Benjamin Doochin, (1998) cited that successors need timeand the opportunity to gain the credibility to be considered as aneffective successor.IMPORTANCES OF STRONG RELATIONSHIP BETWEEN FAMILYMEMERBERSFox, Nilakant, and Hamilton, (1996) stresses the significance of therelationship between the business itself and the principal individualsinvolved. They offer six point which talks about the relationship withthe individual and business itself that involves The business itself and its stakeholders. The incumbent and the business itself. 10
    • The successor and the business itself. The successor and the incumbent. The successor and key stakeholders. The incumbent and the key stakeholders.These could affect the whole business as family business encounterswith relationship more than other types of business. Nazir Afghan et alalso pointed out that satisfaction of the stakeholder with the successionprocess (Cabrea-Suarez et al, 2001; dyer, 1986, handler, 1990) in thefamily is important to consider for successful succession.TRUSTAMONG THE MEMBERS AND BUILD HEALTHYCOMMUNICATIONMarshall Paisner, (1999) encourages a healthy practice ofcommunication and dialogue within the family business should beprime task of anyone involved with succession planning because it is away to maintain strong relationship between individual. ShaheenaJanjuha-Jivraj and Adrian Woods, (2002) cited that open honestdialogue, where respect for others is maintained, can help foster arational focus on what are the most important consideration forachieving a smooth succession. In another Nazir et al. cited thataccording to the one of the CEO, kinship culture provides a trustednetwork which helps in making decision about succession without anyhelp from outside. According to another CEO, the kinship culture helpedthe family during the succession phase in housing complex and enjoysfamily dinners and gatherings. Another family business CEO said thatdue to an atmosphere of high level trust it is easier to settle the differentmatters. Benjamin Becker and Fred A Tillman, (1987) assert that a trustenables the family business owner to view his plans in operation andmake desirable changes.SOCIAL NETWORK AMONG MEMBERS Nazir Afghan et al, cited that a collectivist (kinship) culture is onewhere there is a preference for a tightly knit social framework (norms)in which individuals can expect their relatives, clan, or other in group tolook after them in exchange for unquestioning loyalty’( Hofstede, 1984). 11
    • Sue Birley, Dennis Ng, and Andrew Godfrey, (1999) describe that thereare three types of groups Family in group, where family is intended to be involved Family out group where the family member are not virtually besides principal which is influenced by culture And family jugglers group which falls somewhere between then other two groups.Nazir Afghan et al, further describe that the benefit of kinship include Sources of capital Pooled resources lower employee turnover, Cohesion Social support (Peredo, 2003)The kinship based family businesses are those kinships where membersof kinship predominate the family business. The strong social networkwill leads to good relationship pattern. Danny Miller, Lloyd Steier, andIsabelle Le Breton-Miller, (2003) define that relationship pattern isusually business tendencies for taking any action, it consist of threepatterns that is Conservative pattern is rooted which is how the things happened previously. Rebellious is against prevailing status And wavering which is wavering which is between both past and present.In another Nazir Afghan cited that to enhance the family bonding, thepractice of inter-family marriages is encouraged. It was also observedthat in kinship based family businesses when a partner expires or sellshis shares, the next kin, or relationship wise closer members get thefirst preference in the purchase share, at a mutually agreed price. JimGrote, (2003) discusses the possibility that fundamental psychologicalprocesses are at the heart of the conflict between individuals, especiallythe incumbent and successor, during the succession process. Without anunderstanding of how human nature compels individual to behave incertain ways an advisor may experience difficulty discerning how toresolve matters. Ercilia Garcia-Alvarez, Jordi Lopez-Sintas, and PilarSaldana Gonzalvo, (2002) cited that there are two broad categories offamily business socialization. 12
    • The first is the founder homo-social reproduction model. Here successors are brought in to the firm early, experience it practically from ground up, and thus usually share the business perspectives of the incumbent to a large degree. The second is the new leader development model which suggests that successor are encouraged to purse education as well as external business and life experience and consequently they may largely hold differing business perspectives from those of the incumbent.LEADERSHIP ROLERoger Allred and Russell Allred, (1997) describe that there are manyways successors can gain appropriate skills and experience needed toassume the leadership role. The first for them to work in the businessfrom an early age and gain direct experience of the business. Furtherexplain that successor to acquire experience through working inanother business and this is seen as a useful means of broadening of asuccessor’s abilities and skills. Isabelle Le Breton-Miller, Danny Miller,and Lloyd Steiner, (2004) assets that nurturing and development ofpotential successors through training, education and work experienceshould be undertaken with monitoring the process of succession.SUCCESSOR’S CAN CHANGE BUSINESS ORIENTATION:Januha-Jivraj and Woods, (2002) cited that regardless of the many otherfactors involved, generational difference mean that incumbent andsuccessors will automatically bring divergent attitudes, experience , andexpectations to the succession process. Lansberg, (1999), emphasizesthe need to inculcate a sense of responsibility towards business and itscontinuity, within family members if the business is to prosper acrossgeneration. This requires adequate time and preparation as well as thecapacity to foster and promote a family business culture whichaccommodates these concerns. Both the generation should createcombined vision for business which adequate time and preparednessthrough this the business can move towards success, as well as promotea family business culture which accommodates the concerns. RobGoffee, (1996) define culture that an appropriate successor value but isalso open and sensitive to future needs of successor and business id 13
    • desirable. Lansberg et al, elaborate that culture is also indicated by theway status is determined, through the systems and proceduresemployed in the business and the overall organizational structure. GitaPiramal, (1987) highlighted that if the young successor provethemselves and energetic, and able to continue to manage growth, thentheir family business continues to flourish through the high-tech 21stcentury.TRAINING PROVIDEDThe firm should be provided appropriate training programs and familymember’s position that will give them the required skill and experienceto assume future roles in firm. In training sessions the familyrequirement should be identified that could groom the next generation,tend to experience better succession outcomes. Afghans asserts thatthere is a strong emphasis on grooming the successor duringincubations. Youngsters are invited in summers internship, CE0 dinnersand family discussions. There is a strong emphasis on schooling anduniversity education. Ha 2 :there is strong relationship between good education of family successor and eventual smooth transactionEXPERIENCE AND SKILLS OF SUCCESSORJanjua, Jivraj and wood (2002) elaborates that the history of a familybusiness provides valuable insights for sequencing the process ofsuccession planning. However he asserts that the succession will besmoother if the successor has managerial skills for the said businessalthough the idiosyncrasies can cause problems for succession. In casethe successor lacks these abilities the owners usually find it difficult topass on succession to non family members. In another study carried outby Nazir et al cited that it is expected from the young/new generation ofsuccessor will join the family business or establish their own businessesonce they reached adulthood. Young successors get good exposure todifferent role models in biradari and family businesses. Nazir suggeststhat there are four phases for implementation of succession planning.Firstly establishing the performances criteria of individual, second arepossible career paths, thirdly plans for succession in ownership, andfourthly power needed to be handed over to the next generation. This 14
    • approach will provide smooth succession. Transaction problem arebeing handled in a number of ways by successful family concerns inAsia. Honda and Samsung have introduced a (regency period duringwhich heirs will be guided by qualified elders in India shop floorexperience and western management education is encouraged. (lin.j1987)In kinship culture and succession development practices withinthe local cultural and social context, grounding theory approach throughcase study adopted. (Afghan’s. 2007)Nazir afghan highlighted thatcompany’s reputation, turnover and succession process Friedman(1984, 1984) as being relevant depend upon past or history of thebusiness. Caspar, Ana Karina and Heinz-Peter Elstrodt, (2010) assertthat as the number of family shareholders increases exponentiallygeneration by generation, with few actually working in the business, thecommitment to carry on as owners cannot be taken for granted.TRANFER OF OWERNERSHIPBeckar and Tillman, (1987) assert that the business owner shouldchoose a transfer of ownership option that will minimize conflict andcost. They also cited that the ownership transfer during owner’s lifetimemight reduce the overall death tax burden on his estate and helpprovide liquidity to pay death costs. Furthermore, the family businessowner can test the plan while he is alive. Caspar, Karina Dias andElstrodt (2010) cited that maintaining family control or influence whileraising fresh capital for the business and satisfying the family’s cashneeds is an equation that must be addressed, since it’s a major source ofpotential conflict, particularly in the transition of power from onegeneration to the next. Becker and Tillman et al, highlighted that thetransfer of ownership should be planned they asserted that a carefullyplanned recapitalization of the family business could be designedwhereby ownership is transferred, but security is retained for the familybusiness and his family. They highlighted stock option to key employeesthat most family businesses depend upon certain key employees forcontinuity of management. Generally, most family businesses cannotafford many such key persons, however; and the loss of a keyemployee’s services could involve a considerable loss in sales,production etc. the cost is extremely difficult to measure but it isdecidedly substantial. In another Caspar, Karina Dias and Elstrodt et al,cited that financial policies often aim to keep the family in control. Many 15
    • family businesses pay relatively low dividends because reinvestingprofits is a good way to expand without diluting ownership by issuingnew stock or assuming big debts. They also cited that familyshareholders who want to sell must offer their siblings and then theircousins the right of first refusal. Allred and Allred, (1997) cited that thefinancial arrangements for the survival is necessary in family businessfor the events of a major family upheaval such as divorce or suddendeath. An obvious step here is to make appropriate arrangements forthe orderly transition of financial control and ownership to the nextgeneration in a manner suitable to all concerned. Where externalshareholders are involved there is a range of other necessaryconsideration. Maintaining adequate dividends, regular share valuedeterminations and good financial reporting are crucial components inensuring a business runs well and is ready for succession. Ha-1: there is a strong relationship between family ownership and successful succession planning. 16
    • 2. METHODOLOGY OF THE STUDY2.1. HYPOTHESIS:1. Ho-1: there is no relationship between family ownership and successful succession planning.2. Ha-1: there is a strong relationship between family ownership and successful succession planning. Ha-2: there will be eventual smooth transition in family businesses if the successor is relevantly educated. Ho-2: there will not be an eventual smooth transition in family businesses if the successor is relevantly educated. Table 1: hypothesis testing Independent Dependent variable VariableHo 1 Main variable Succession planning Family Ownership Education Partnership Sub variable Early entry Financial Stability of family structure stability Merger External ownership/management environment Family cohesion Internal Interpersonal style environment expansion of business Independent Dependent Moderating variable variable variable Main Smooth Succession Family business variable transition Education 17
    • Sub variables Succession of Partnership Relevant Ho 2 policies Financial interest Stability of business stability Education No diversification External experience environment Internal environmentThe above table is for hypothesis that represents all the variables andshows which variable is independent and which variable is independentand also introduces the main variable and their sub variables. 2.2. SAMPLING: TYPE OF BUSINESS SECTORS LIFE SPAN 14% 1% 2% 8% 1% 11% M 3A Sole S 3B Partner 64% CnG 89% 3C 21% 89% CoG 3D SUCESSION EDUCATION 6% PLANNING 7% UG YES 39% G 54% NO M 94%Analysis:In Type of business 89% of the population have business type inpartnership the reason for this is because as in family business usuallyfollow kinship culture. Their partnership is usually within the familylike two brother’s sons owned the business as partners. The life spanpie chart shows that most of the population life span is 5 years thereason is poor or lack of succession planning as the succession planningpie chart also shows that there is only 9% of the population who make 18
    • use succession planning. The educational level pie chart shows thatmore than half population is under-graduate. The reason is many likeuncertain death of owner, lack of interest in studies etc. 2.3. METHOD OF SURVEY:The method used for the research is questionnaire.JUSTIFICATION OF QUESTIONAIRE:Data were collected either from CEO of an organization or from thepartners of the particular organization. There were basically two mainvariables that are family business and succession planning. These twovariables are main variable because these two are the pillars of myresearch. These variables have sub-variables as shown on the abovechart. All variable help and support my research a lot. In family businessthe sub variable includes partnership, financial stability, internal andexternal environment, expansion of business. All these individual subvariables highlighted the impact of partnership, expansion, environmentand financial stability on family business. The other main variable issuccession planning and it includes education, early entry, stability offamily structure, family cohesion as sub variables. These help myresearch to anchor the real position of organization. 2.4. STATISTICAL TESTINGLISREL structural equation modeling method was used to test therelationship between SP and FB. The advantage of this model is that itallows the testing of several variables simultaneously which is notpossible within regression analysis. Several statistics are used to assessthe model fit. The evaluation of the model fit derives from a variety ofsources and is based on several criterions assessing the model fit.(Byrne 1998).Each statistic must fall within a minimum range to qualifyfor a reasonable good fit.1. Statistical testing determines the goodness of fit between a hypothesized model and the sample data. It is sometime unlikely that there will be a perfect fit of the model to the data. This differential is called RESIDUAL. Mean Square Residual (RMSR) and Root mean Square Error of Approximation (RMSEA). It incorporates no penalty 19
    • for model complexity and tends to favor models with many parameters. Values less than 0.05 indicate good fit while values ranging from 0.08 to 0.10 indicate mediocre fit.2. Goodness of Fit (GFI) is analogous to the squared correlation and it indicates the proportion of the observed co-variances. Adjusted Goodness of Fit (AGFI) differs from the GFI only in the fact that it adjusts for the number of degrees of freedom in the specified model (Byrne, 1998). Both indices range from zero to 1.00, with value close to 1.00 being indicative of good fit.3. The Chi-square is the likelihood ratio test that has been the traditional measure used to test the closeness of fit between the unrestricted sample covariance matrix S, and the restricted covariance matrix Σ(θ) (Byme, 1998). The ratio of chi-square to the degrees of freedom provides information on the relative efficiency of alternative models in accounting for the data. Researchers have recommended using ratios lower than 5.0 to suggest a reasonable fit. 20
    • 3. FINDINGS OF THE STUDY The table below shows the averages of all the independent and dependent variables which is the result obtained from questionnaire which was filled by family business owners or partners. The respondent pointed out that stability of family structure and degree of family cohesion plays a major role in succession planning which actually gives more importance to family structure rather than education of the successor. Education has been given least importance in the family succession. Similarly financial stability and partnership are more prominent sub variables in the prosperity of family business. Table 2: findings of the studyINDEPENDENT EDUACTION STABILITY FAMILY MERGER/OWNERSHIP INTERPERNALVARAIBLES OF FAMILY COHESION MANAGEMENT STYLE STRUCTUREAVERAGE 3.74 4.06 3.96 3.90 3.68DEPENDENT PARTNERSHIP FINANCIAL EXTERNAL INTERNAL BUSINESSVARIABLES STABILITY ENVIRONMENT ENVIRONMENT EXPANSIONAVERAGE 3.66 3.60 3.58 3.52 3.54 3.1. STATISTICAL TESTING: As pointed out that lisrel education was used for statistical testing. This equation was selected since the sub variable of independent and dependent variables vary in intensity therefore the other test were weak for the data. Although this equation was not fully applied due to hiccups of understanding and application, however two test result were projected by the said software which are reproduced as under 21
    • Table 3: lisrel testing My findings DECISIONName of the Indices Recommended ValueTest 0.00 GOOD FITRoot Mean RMSR Maximum 0.10SquareResidualGoodness of GFI Minimum 0.90 for goodFit fitAdjusted AGFI Minimum 0.90 for goodGoodness of fitFit Minimum 0.90 for good 0.81T Chi square CFI GOOD FIT fit The result shows a moderately high good fit between succession training and growth of family owned business. The traditional approach of merging management and ownership cannot be challenged due to other constraints like control, trust and business confidentiality. However, the importance of good succession training cannot be lowered. CONCLUSION: The family enterprise continues to be an important element of the world economy and a location for understanding conflict in family relationships internationally. Managing conflict effectively in the process of succession is crucial to preserving the impact family enterprise has on our economy and families themselves. After analyzing the literature review and the methodology of hypothesis. It may be concluded that in developing countries like Pakistan there is a need of succession which is missing in most of the family businesses in Pakistan. In my study the hypothesis 1 was that there is strong relationship between family ownership and successful succession planning. This hypothesis was accepted because business succession planning seeks to 22
    • manage the issues, setting up a smooth transition between you and thefuture owners of your business. With family businesses, successionplanning can be especially complicated because of the relationships andemotions involved - and because most people are not that comfortablediscussing topics such as aging, death, and their financial affairs.The second hypothesis were rejected which was there will be eventualsmooth transition in family businesses if the successor is relevantlyeducated. In Pakistan the family business is prove to be anintergenerational business so they believe that their experience isenough to teach their children as owner of their business. Most of thepopulation answered that the upcoming owner of their business areunder-graduate. This concludes that experience is more important thaneducation.RECOMMENDATION:Succession planning is an important part for family owned businessespecially in the developing country like Pakistan because familybusiness is the key to region’s economic growth and therefore, theirsustainability and success are critical to the region. As my secondhypothesis was rejected which I believe that there is strong need ofeducation in family businesses because education can help Increase the understanding between the owner and the successor through mutual trust and interest in the similar business. Through proper education the successor can understand the meaning and need of succession in family owned business which can remove conflict and help in improvement in internal business environment. 23
    • APPENDIX ABIBLIOGRAPHY: 1. Ana karina Dias and Heinz-peter Elstrodt. (2010):’ The five attributes of enduring family business’ Christen Caspar: organization practice. 2. Alred, Roger C, Russel S. Allred. (1997) the family Business: power Tools for Survival, Success, and Succession. Berkley Trade Paperback Edition. New York: Berkley Books. 3. Bahadur, Desmet and Bommel “Smart IT spending combines IT management with a tight focus on using IT to help improve business performance” McKinsey Quarterly Jan 2006. 4. Fox, Nilakant, and Hamilton, (1996) ‘Managing succession in family-owned businesses.’ International Small Business Journal Vol. 15, No. 1, p. 15. 5. Feigner, Brown, Prince and File (1996) ‘Passing on strategic vision.’ P.24 6. Goffee, Rob. (1996) ‘understanding family businesses: Issues for further research’, International journal of Entrepreneurial Behavior and Research Vol. 2, No. 1, pp.36-48 7. Gracia-Alvarez, Ercilia, Jrdi Lopez-Sintas, and Pilar Saldana Gonzalvo. (2002) ‘Socialization patterns of successors in first-to second-generation family business’, Family Business Review Vol. 15, No. 3, pp. 189-203 8. Ivan Lansberg (1999) Succeeding generations: Realizing the Dream of families in business: Boston: Harvard Business School Press 9. Isabelle Le Breton-Miller, Danny Miller, and Lloyd Steier, (2004) ’Toward an Integrative Model of Effective FOB Succession,’Entrepreneurship Theory and Practice Vol 28, No. 4, pp. 318-19. 10. Jim Grote, (2003) ‘Conflicting generations: A new theory of family business rivalry, ‘Family Business Review Vol. 16, No 2, p. 113. 11. Janjuha-Jivraj and woods, (2002) ‘Successional issues within Asian family firms, ‘p. 79. 12. Darshan bachkaniwala, Mike Wright, and Monder Ram, (2001) 13. Jess Chua, James Chrisman, and Pramodita Sharma, (1999) ‘Defining the family business by behavior,’ Entrepreneur Theory and Practice Vol. 23, No. 4, p.1 14. Janjuha-Jivraj and Woods, (2002)’ Sucessional issues within Asian family firms,’ p. 79. 15. Longenecker and Schoen, (1978)’ Management succession in family business,’ p. 6. 24
    • 16. Marshall Paisner, (1999) Sustaining the family Business: An Insider’s Guide to Managing across Generations. Reading, Mass: Perseus Books. p.2817. Miller,danny, Lloyd Steier, and Isabelle Le Breton-Miller. (2003) ‘lost in time: Intergenerational succession, change, and failure in family business’, Journal of Business Venturing Vol. 18, no. 4,pp. 513-31.18. Nazir Afghan. (2007) Managing succession in family business. Dawn news paper. Pakistan.19. Roger Allred and Russell Allred, (1997) the Family Business: Power Toolers for Survival, Success, and Succession. New York: Berley Books, p. 17.20. Sue Birley, Dennis Ng, and Andrew Godfrey, (1999) ‘The Family and the Business’, Long Range Planning Vol 32, No 6, p.598.21. Wendy Handler, (1989) ‘Methodological issues and considerations in studying family businesses,’ Family Business Review Vol. 2, No. 3, p 26022. Wendy Handler, (1989) ‘Methodological issues and considerations in studying family businesses,’ Family Business Review Vol. 2, No. 3, p 260 25
    • APPENDIX B:QUESTIONNAIREMy name is Mehreen Yousuf a student of BBA at PAF-KIET doing my final yearproject under Raza Kamal.This questionnaire is basically a way to expandknowledge on succession planning in Pakistani owned businesses. I understand thatyou operate a business enterprise; your responses to this questionnaire will be mosthelpful.My email contact is mehvi_math@hotmail.comEXAMPLEThe rating scale used for this questionnaire is from 1-5 where 1) high 2) medium 3) Neutral 4) low 5) Very lowThe respondent only has to write the number in front of the questionFor example:I enjoy while doing job. 4 QUESTIONNAIREPlease type/encircle your choice 1) Sectors o Manufacturing o Services o Consumer goods o Commodity goods o Others , please specify 2) The business you are in o Sole proprietorship o Partnership 3) Life span of your organization o 5 years o 7 years o 10 years o More than 10 years 4) How many successions have taken place in your organization 26
    • o Yes o No 5) What is your specific level of education in your organization. Under graduate Graduate Masters OtherQUESTIONAIRE 1) How much impact does professional education have in your type of business. 2) For career development, furtherance of hand-on experience is more important than Education 3) How important it is to transfer the ownership during owner’s lifetime in family owned Business. 4) How much does the joint family system living effect in improvement of the family business. 5) How significant do the large number of potential successors help in succession. ______ 6) Does marriages outside family, effect cohesion in succession planning. 7) Rate the effect of mutual trust among siblings in your organization. 8) Similarity of social network between family members has a positive impact on cohesion of the family. 9) How much effectively does the similarity of interest among family members improve succession planning. 27
    • 10)How closer is your managerial style to your predecessor11)How much effect does poor communication between members of the family have on succession planning12)How important is training in improvement of managerial style in your organization13)How important is to work in family business from an early age and gain direct experience.14)How effective will the coach/mentor other than family member impact family succession.15)How much does the untimely death of owner effect business stability16)How much does conflict effect family business environment17)How much is the effect of mergers and partnerships effect family businesses18)What is the impact of external factors like political, economical instability having on the business.19)How much do the changes in the government regulation affect your business.20)So changes in the social environment affect your business.21)How much does the partnership outsider affect the stability of the business.22)How often has there been partnership conflict in your organization.23)How much are you in favor of external partnership to acquire capital.24)Rate the firm stability of you organization.25)Financial stability improves if your companies go public.26)Raising capital during recession has been a problem for your organization.27)How does the external environment affect the expansion of the business. 28
    • 28)I am fully satisfied with the expansion of my fixes assets during the last decade. 29)How much of expansion being affected after the change of succession.APPENDIX CRESUMEKnowledge Mehreen YousufC-3 block-7, Gulshan-e-IqbalTel# 4977329, Cell# 0331-2369989E-Mail mehvi_math@hotmail.comOBJECTIVE: 29
    • To seek a position with progressive organization that offers career growth to workIn a competitive and challenging environment to fully utilize my professional andAcademic skills.PERSONAL PROFILE:Father’s Name: Mohammad YousufDate & Place of Birth: 4th august 1989Nationality: PakistaniC.N.I.C. # 42201-6253477-4ACADEMIC EDUCATION: Present Bachelor in business administration-from Pakistan Air Force Karachi institute of information and economics technology- with CGPA-3.09 2006 - Intermediate (Pre-Medical) Dewa college 2004 – Matriculation, Shaheen Public schoolPROJECTS/RESEARCH REPORTS:Research on topic ‘succession planning in family owned businesses in Pakistan’The topic was actually about those families owned businesses that went through atragedy like certain death of owner then what happen to those businesses and whoowned the business after the founder.SKILLS AND EXPERIENCE: o Achieved command on Microsoft office. o Create different things in daily life. o Ability to organize things and honest with all people. o Power to arrange people as a team. o Take opinion from customer about the particular product and tested the communication skill. o Gained information through attending guest speaker session and different subject related workshopSPOKEN LANGUAGES:  Urdu  English EXTRACURRICULAR ACTIVITIES:  Playing basketball.  Watching television  Search on internet the information that could increase my technological 30
    •  Making different things that could show my creativityAPPENDIX DLETTER FOR PERMISIONDear Sir,I wish you well. This note is an effort to renew our relationship. Mehreen Yousuf a student of BBA is doing a research project on“succession planning in family owned businesses in Pakistan “under mysupervision. Before I give her your reference to participate in thisresearch I thought it appropriate to obtain your concurrence. 31
    • Your participation will only be limited to finalizing a questionnaire,participate in survey and also give your ideas on this subject. There ispaucity of data/material as far as Pak businesses are concernedtherefore your inputs will be able to refine management practicesrelated to this topic. She is an enterprising student and needs your support. Her emailaddress is mehvi_math@hotmail.comWith best of regards and expecting a favorable reply as soon as possible.You may concur directly to the student.Raza kamalAssociate ProfessorPAF- Karachi Institute of Economics and TechnologyTABLE OF CONTENTLETTER OF APPROVAL ................................................................................................ 2LETTER OF TRANSMITTAL ........................................................................................ 3LETTER OF AUTHORIZATION ................................................................................... 4ACKNOWLEDEMENT .................................................................................................... 5ABSTRACT ....................................................................................................................... 6INTRODUCTION ............................................................................................................. 7 32
    • AIM OF THE STUDY....................................................................................................... 81. LITERATURE REVIEW: ............................................................................................ 92. METHODOLOGY OF THE STUDY ................................................................. 172.1. HYPOTHESIS: ................................................................................................. 172.2. SAMPLING: ...................................................................................................... 182.3. METHOD OF SURVEY: .................................................................................. 192.4. STATISTICAL TESTING................................................................................ 193. FINDINGS OF THE STUDY .............................................................................. 213.1. STATISTICAL TESTING: .............................................................................. 21CONCLUSION: ............................................................................................................... 22RECOMMENDATION: ................................................................................................. 23APPENDIX A ................................................................................................................. 24BIBLIOGRAPHY:.......................................................................................................... 24APPENDIX B: ................................................................................................................ 26QUESTIONNAIRE ........................................................................................................ 26RESUME ......................................................................................................................... 29APPENDIX D ................................................................................................................. 31LETTER FOR PERMISION ......................................................................................... 31 33