The challenge of generational change

Each year some 60,000 German family-owned businesses face the challenge of a generational change.

A change of leadership raises several existential questions:

  • Who is a suitable successor? 
  • With which attractive vision do the successors want to continue to operate the business?
  • How should the company be positioned to respond to the challenges it confronts – both within and outside the organization?

Thus, small and medium-sized enterprises have the task to design the generational change in such a way as to safeguard the existence resp. the property acquired over the years for the family. The successor generation has to release new energies, e.g. through letting go of the patterns from the parent generation.

Good preparation of the generational change is essential

The generation and leadership change needs long-term planning and preparation in order to successfully organize the transitions to the successor generation. In many family-owned businesses the desire exists to find a successor within the own family. In this case, it is important to consider that the entrepreneurial and professional qualifications of the successor/family member are objectively relevant for a successful future of the company. Far too often the entrepreneur expects a reflection of himself, possibly adjusted for own shortcomings and weaknesses.

However, no potential successor can fulfill this demand. Although the topic of generational change is present in all entrepreneurial families in one way or another, concrete measures for an active successor search are often neglected. Particularly the respective planning process regarding the deliberate long-term preparation of the transfer of ownership leaves room for improvement.

The successor process of the generational change

According to our understanding of a successful generational change inter alia the following questions has to be answered during the successor process: Should the company be handed over to family members or should it be sold? Does the family has suitable successors? How should the competence be determined, who makes the decision, how should the qualification program look like to adequately prepare the successor for the responsibilities? How should the company be positioned to meet the future challenges? How should the withdrawal of the parental generation take place and how to introduce the successor generation?

Orderly handover process in family-owned businesses

In order to address questions that are relevant for the family-owned business appropriate interventions are necessary, settings have to be designed, communication structures and platforms have to be developed and processed in an architecture suitable for an orderly handover process. In the context of the design and processing of the handover architecture, the paradoxes that are typical for family-owned businesses (company, family, ownership) have to be considered.

Ensure a successful existence of the company

In order to ensure a sustainably successful existence of the family-owned business various factors play a crucial role. For example, the owners should be in agreement and present a united front, there should be a mutually supported family constitution and corporate governance. Corporate goals and strategy need a clear description and need to be supported by the owners and all important managers.

Further essential prerequisites for a successful generational change are effective controlling with own or external resources, clarified and competitive economic frameworks and an orderly communication process between the parent and successor generation with a regular evaluation and possible corrections.

Seizing opportunities for realignment and securing the future

Although the generational change is associated with risks for the entrepreneurial family, the company and the involved persons, our various practical examples show that it is possible to plan generational changes long-term and to implement them successfully. This ensures a solid wealth development for the family and the shareholders.

With a well-planned handover process the probability of failure is significantly reduced. Successful planning and implementation of the generational change lead to an increased trust from stakeholders. Consequently, for the entrepreneurial family and the successor generation human and economic advantages arise resulting in a higher quality of life.

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Should you have any questions, please do not hesitate to contact our competent consulting team. Arrange an appointment for a free personal online dialog. For further information about the online dialog, please click here.

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