Making decision on the best successor to family business enterprises by assessing the internal networks

Introduction and definition of Family Business

We as a business school student have dealt with a great deal of business cases that describe non-family businesses and gained deep insights of them by applying the framework of business disciplines. However, a large proportion of business in the world is actually established in the form of family business. It is reported by Family Firm Business Inc that family enterprises are amounted to 2/3 of all of the businesses all over the world, which have created over 50% of job opportunities in the vast of countries. 

For the sake of building a clear understanding of family business, I will define the concept of family business firms as following:

Family Firms are those in which multiple members of the same family are involved as major owners or managers, either contemporaneously or over time (Miller, Le-Breton Miller, Lester, Canella, "Are Family Firms Really Superior Performers,” Journal of Corporate Finance, Vol. 13, Issue 5, 2007)

The key to sustainably prosper family business is believed to be an effective handover process of management to the next generations leader. However, a number of the current family business owners do not have a clear guideline of how to identify the next leader who is much likely to contribute to the sustainable prosperity of the firm. This issue is complicated since the family business owners have to consider the relationship between each of the successor candidate and other employees as well as the successor's managerial prowess. Furthermore, this successor is supposed to be selected within a member of the owner's family. In order to match the candidates to the criteria above, I personally believe that SNA is an effective way to choose the appropriate successor since it visualize the internal organizational connections with each candidate's managerial ability. In this essay, I will take an example of family business and identify the problem within the firm, and then explain how SNA should address that problem. 

Hypothetical Situation

Let's suppose that there is a family business owner who runs a nursing homes in a super-aging country of Japan and currently ponder how to take over his ownership and managerial position to one of his family members. The brief description of the firm is as following:

• The nursing home is a facility where elderly citizens with senile dementia live together in support of licensed nurses.

• The firm is enjoying a financial success due to a rapid pace of aging society in Japan and its great dedication to building a good relationship with the adjacent communities.

• While the business outlook for the firm seems to be robust, it is faced by new competitors with low cost and needs to differentiate from them by enhancing the quality of its hospitality through training nurses.

• The firm comprises of 5 major departments: Finance division, Marketing devision, Sales division, Human Resource division, and nursing service devision.

• The owner has 3 candidates for the successor from his family, each of who has different business set skills and built different relationship with other employees in the firm.

Challenge Identification

The challenge here is to identify the best successor to the family firms who has an ability to enhance the quality of hospitality confirmed by the successor candidates' expertise and to gain a support from other employees easily by leveraging SNA. The SNA methodology will help the owner in the decision making process in the following ways:

• Get an understanding of the interpersonal connections of the firm.

• Provide the extent to which each employee has a reliance on the candidates by observing the degree connections

• Offer the owner information about which candidate has the required business skill sets to achieve the current business objective mentioned above.

• Identify who will help the new successor to be stabilized in the firm and how much influential power that supporter has.

Required Data

In order for the owner to select the best successor, I have to provide him with some data which are beneficial to increasing the accuracy of the selection process as following:

1. What is your age group? (Choose one group from: 20-30, 31-40,41-50 and over 50)
2. What is your gender?(Male or Female)
3. Are you a family member of the owner's or an outsider?
3. In which division are you currently working?
4. Which division is your previous division?
5. In which division do you have the longest working experience?
6. Who do you ask business advice for?
7. Who do you go for lunch with on a daily basis?

In my understanding,  the data above is relatively easy to gain since the questions just ask the respondents about their patterns of behaviors and therefore they can answer the given questions without having a sense of threat of promotion.

Crucial Measurement 

In order to help the owner select the best successor, I personally think that the most critical measurements are as followings:

• Eigenvector
-  This attribute measures the extent to which a person has connections with the others who have a plenty of connections. In order for the new successor to be able to communicate with employees to convey his direction, it is crucial for the successor to have a high eigenvector points so that his intention is carried to entire organization efficiently.

• Degrees
- This attributes measures how many nodes a person has in the firm. Given the intimate relations within the family business, the successor should have a number of degrees in order for the employees to familiarize with the new leader. The high degree points will help the successor to gain support in both personal and professional situations.

• Ego networks
- Ego network is an effective way to look at individual's relationship by focusing on a specific node. This helps the owner to grasp the extent to which each of the successor candidate has helpful supporters and credibility from others. More specifically, the ego networks clarifies whether the individual relationship is mutual or not.  Much attention to ego networks also provide the owner whether each of the successor candidate has more outsider-employees oriented or owner's family oriented. If the candidate shows a strong connection to either outsider-employees or owner's family oriented, he will have difficulty in harmonizing the firm. The ideal successor should be a person who has a balanced connections with these 2 groups.

• Cliques
- Cliques measures where a node(employee) belongs to a specific group. The measurement is beneficial as for identifying each of the successor candidates' ability to communicate with employees within a specific division. If the candidate have a closely tied relationship, that means he excels at communication skills confirmed by his business expertise.

Conclusion

With the help of SNA in decision-making process of the successor to the family business, the owner will be able to place the best successor who can exert significant influence on the critical employees or division to attain the current business objectives. In this case, the objective would be enhancing the quality of the hospitality by concentrating on the nursing training program. In order to attain that goal, the successor would be required to have a profound insight of the real situation of the nursing home, which is a solid knowledge foundation of nursing confirmed by working experience in that division. Based on this, I personally suggest to the owner that the successor should satisfy the following criteria:

• High degrees to the nursing service division to identify the problem in the hospitality and launch a effective implementation plan to enhance that. In order to ensure the successful business plan, the successor will be required to have a good relationship with the nursing service division, which is represented by the high number of degrees in the context of ego networks.

• The successor needs to have a high eigenvector so that the information flow of his idea gets lubricated. If the successor has a high eigenvector, the person will be able to gain valuable information from his subordinates and to give a direction to them in a timely manner.

• The successor should belong to the clique where the density is relatively high compared to the others.

Yuki Sakaguchi, MIB

References
• PWC, family business survey, "key findings", obtained from URL: http://www.pwc.com/gx/en/pwc-family-business-survey/key-findings.jhtml

• Family Firm Institute, Inc. "Family Business Statistics from Around the world", obtained from URL: http://www.ffi.org/?page=globaldatapoints