Challenge “Generation Change”

Around 60,000 family-owned businesses in Germany are challenged by business successions every year.

A change in leadership brings about several existential questions:

  • Who is the appropriate successor?
  • With which attractive vision would the successors like to operate the business?
  • How must the company position itself to face internal as well as external challenges?

Small and medium-sized businesses (SMEs) are confronted with the task of structuring their generation change in a manner that ensures the company’s continuance and at the same time secures those assets that have been duly earned over many years. The generation to follow must be capable of yielding new energy, e.g. by disengaging those patterns set by the previous generation.

Excellent preparations are the nuts & bolts of a generation change

To make the handover to the following generation successful, business succession and change in leadership should always be planned and prepared long-term. In many families, there is a strong desire to keep the business in the family. To ensure the company’s success in the future, the successor/family member’s entrepreneurial qualities and expertise should be objectively observed. In far too many cases, the company’s current proprietor not only expects seeing his or her mirror image in the successor, but also the successor should be free of any of the current proprietor’s existing faults or weakness.

A potential successor will never be capable of accommodating a demand of that nature. Although the business successor topic is forever present within a family-owned business in one way or another, specific measures concerning an active successor search are often neglected. Particularly in reference to the respective planning process, in light of conscious, long-term preparations of company handovers appear in need of improvement.

The succession process during generation change

According to our understanding of a successful generation change, the following questions, amongst others, should be answered during the succession process: Should the business be transferred to family members or should it be sold? Does the family have a suitable successor? How should the aptitude be determined? Who makes the decisions? How should the qualification program be structured to adequately prepare the successor for the impending responsibility? How should the company be positioned in order to be capable of dealing with future challenges? How is the previous generation’s retreat and the introduction of the following generation planned?

Orderly handover process in family-owned businesses

To answer those questions relevant to a family-owned business, suitable interventions should be determined, settings should be created, structures and platforms for communication should be built and integrated into an appropriate architecture to ensure an orderly handover process, during which, particularly the typical paradoxes (company, family, ownership) should be taken into consideration.

Securing the company’s successful continuance

To sustainably warrant the family-owned company’s continuance, various factors play a decisive role. Owners must be in agreement and stand together, a mutualized family charter and corporate governance must exist, company objectives and strategies must be clearly defined and supported by the owners as well as by all the important managerial leaders involved.

Effective controlling through internal or external resources, defined and competitive economic general conditions and a well-regulated communication process between the previous and following generations including periodic evaluation and eventual corrections, these are all important prerequisites for a triumphant generation change.

Taking advantage of the opportunity for reorientation and safeguarding the future

Even if the business succession is connected with risks for the business’ family members, company and responsible persons, our diverse practical examples prove that it is possible to plan a business succession long-term and implement it successfully. This plan ensures the family and stakeholders solid asset growth.

With a well-planned handover process, the probability of failing is significantly reduced. If a generation change is well-managed, prepared and implemented, it will build up the stakeholders’ trust, through which personal and economic advantages are created, resulting in a higher quality of life for the business’ family as well as for the following generation.

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