CHAPTERONE

INTRODUCTION

1.1       Background to the Study

Context observations have indicated that familybusinesses are common in Nigeria and their continuity has generated academicdebate and public discourse. Nevertheless, the factors orchestrating theircontinuity are divergent and geographically diverse. In addition, the structureand size of family owned firms varies depending on resource unitization andindustry, even though they are often perceived as small businesses. Empiricalstudies (Hisrich & Peter, 2006; Collins, 2006; Storey, 2008) haveattributed their continuity/survival to managerial depth or ineptness whilecontextual factors and competition were identified and amplified by Porter(1980, 1985) as well as Frederick (2008) who made references to internalcapabilities and external environment factors.  

Family-owned businesses are the majority of allbusinesses in the world (Heck & Trent, 1999). The standard form of businessas it is known can be divided into two broad categories, namely family-ownedand non-family-owned businesses (Villalonga & Amit, 2006). The active andstrong presence of family businesses is perceived in different nations ascatalyst for family welfare and socio-economic transformation (Hisrich, Peter& Dean, 2012). Abouzaid (2008) added credence to the discourse that theyconstitute the world’s oldest and most dominant form of business organization.The academic research and policy-makers’ interest in SMEs has grown due totheir 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 mostnations 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 inrecent years (Chrisman, Kellermanns, Chan, & Liano, 2010; De-Massis,Sharma, Chua, & Chrisman, 2012; Kellermanns & Eddleston, 2010; Sharma,Chrisman, & Gersick, 2012) since they possess great potentials foremployment generation, improvement of local technology and development ofindigenous entrepreneurship within large scale industries as demonstrated bythe Central Bank of Nigeria (CBN). CBN, (2011) further articulated that SMEs orfamily businesses have the capacity to reduce poverty, inequality disparity andsocial vices and are catalysts of innovations, inventions and creativity;stimulate indigenous entrepreneurship. Althoughfamily businesses have the capacity to sustain the economy, yet their survivaland continuity has been of great interest to researchers. One of the keyresearch areas in the family business that has been discussed and still to beinvestigated further is intergenerational transferability which Sharma (2004)alluded to and can be addressed through knowledge management and successionplanning as a cushion for family business continuity.

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

Research on the important role of tacitknowledge and technical expertise, which are intangible source of competitiveadvantage to family businesses, has only been sparingly dealt with indeveloping country like Nigeria. Therefore, the inability of familybusiness-owners to leverage on knowledge management practice and successionplanning frequently lead to disruptions and business discontinuity. Someidentified reasons for poor know-how sharing, transfer of competitiveintelligence, and knowledge to carry on the business are due to sudden death ofmajor leader, incapacitation, unplanned resignation or retirement (Morris,Williams, Allen, & Avila, 1997; Beckhard &Dyer, 1983).  In addition, familydisputes with reference to inheritance could be disruptive if there is nolegally empowered successor within the family business.

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

The lack of succession planning in Nigeriais a serious issue militating against the survival of family-owned businesses,as 94.2% of entrepreneurs do not have a succession plan (Onuoha, 2013). Despitethe challenge, posed by a lack of succession planning, most studies failed toexamine succession planning and its effects on the continuity of family-ownedenterprises in Nigeria. Few of the research conducted on succession planning tendto focus more on the small and medium scale enterprises, paying less attentionto family-owned businesses. This situation is appalling considering the factthat a large majority of SMEs are family-owned enterprises (EuropeanCommission, 2009).

The purpose of succession planningtherefore is to minimize the gap and risk in the operations of theorganization, when key leader suddenly leaves the business. According toRoberts (2002), the ultimate aim of succession planning is to promote the bestand brightest across the corporation by having the right person in the rightplace at the right time for the right job. Another challenge in the familybusiness is the inability of the successor to acquire the past leader hasaccumulated experiences, business intelligence, tacit knowledge, acumen andtechnical skills to carry on the business. Little attention is given topossible reasons why family businesses discontinue as against the situation indeveloped nations like the U.S and Canada. 

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

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