KNOWLEDGE MANAGEMENT PRACTICES AND SUCCESSION PLANNING OF FAMILY BUSINESS CONTINUITY IN LAGOS STATE, NIGERIA

CHAPTER
ONE

INTRODUCTION

1.1       Background to the Study

Context observations have indicated that family
businesses are common in Nigeria and their continuity has generated academic
debate and public discourse. Nevertheless, the factors orchestrating their
continuity are divergent and geographically diverse. In addition, the structure
and size of family owned firms varies depending on resource unitization and
industry, even though they are often perceived as small businesses. Empirical
studies (Hisrich & Peter, 2006; Collins, 2006; Storey, 2008) have
attributed their continuity/survival to managerial depth or ineptness while
contextual factors and competition were identified and amplified by Porter
(1980, 1985) as well as Frederick (2008) who made references to internal
capabilities and external environment factors.  

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

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

Research on the important role of tacit
knowledge and technical expertise, which are intangible source of competitive
advantage to family businesses, has only been sparingly dealt with in
developing country like Nigeria. Therefore, the inability of family
business-owners to leverage on knowledge management practice and succession
planning frequently lead to disruptions and business discontinuity. Some
identified reasons for poor know-how sharing, transfer of competitive
intelligence, and knowledge to carry on the business are due to sudden death of
major leader, incapacitation, unplanned resignation or retirement (Morris,
Williams, Allen, & Avila, 1997; Beckhard &
Dyer, 1983).  In addition, family
disputes with reference to inheritance could be disruptive if there is no
legally empowered successor within the family business.

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

The lack of succession planning in Nigeria
is a serious issue militating against the survival of family-owned businesses,
as 94.2% of entrepreneurs do not have a succession plan (Onuoha, 2013). Despite
the challenge, posed by a lack of succession planning, most studies failed to
examine succession planning and its effects on the continuity of family-owned
enterprises in Nigeria. Few of the research conducted on succession planning tend
to focus more on the small and medium scale enterprises, paying less attention
to family-owned businesses. This situation is appalling considering the fact
that a large majority of SMEs are family-owned enterprises (European
Commission, 2009).

The purpose of succession planning
therefore is to minimize the gap and risk in the operations of the
organization, when key leader suddenly leaves the business. According to
Roberts (2002), the ultimate aim of succession planning is to promote the best
and brightest across the corporation by having the right person in the right
place at the right time for the right job. Another challenge in the family
business is the inability of the successor to acquire the past leader has
accumulated experiences, business intelligence, tacit knowledge, acumen and
technical skills to carry on the business. Little attention is given to
possible reasons why family businesses discontinue as against the situation in
developed nations like the U.S and Canada. 

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

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

1.2       Statement
of the Problem

Cases of
family business failures are evident in Nigeria and particularly Lagos state,
despite the array of studies attributable to such area.  In addition, ownership dilution; transfer of
both leadership and ownership tend to be seen as a phase in the company’s life
cycle, which form a part of managing continuity but less practiced by SMEs’
owner/managers. This stems out from owners’ emotional attachment or connection
with the business and thus transfers are often very problematic, challenging or
not considered at all as evidences suggest only 30per cent of family businesses
survive their founder (Kaunda & Nkhoma, 2013).  Family businesses in Lagos State are seen to
have large failure rate, or struggle to survive after a long time.  One of the major issue to which this can be
attributed to is the rarity in proper knowledge management practice and
heritage struggle due to lack of or poor succession planning.

With
emphasis, a lack of proper knowledge management (KM) deters the creation,
accumulation, organization, reuse, retrieval, sharing, and transfer of
knowledge in organizations (Alavi & Leidner, 2001) for the competitive
advantage. Knowledge is valuable and remains a competitive force that foster
business survival and the uncaptured tacit knowledge process, the knowledge
management and knowledge transfer poses a major challenge for the family
businesses continuity.  Although,
Nigerian family business firms are acquainted with the concept of KM practices
(Suraj & Ajiferuke, 2013; Suraj & Bontis, 2012), not many efforts have
been made to examine the relationship between KM and their continuity.
Consequently, this lack of attention tends to undermine the prospects of
continuity of family business firms in Nigeria (Suraj & Bontis, 2012).
Similarly, Ajaikaiye and Olusola (2003) reported that the attention given to
Nigeria’s KM system has been weak and unstable, and has consequently affected
its effectiveness and utilization. The lack of attention to knowledge
management capabilities by small family businesses can be evident in areas of
poor record keeping and information management; this pose a significant
challenge as owners of family businesses do not prioritize record keeping and
even where they keep records, they do not do it professionally (Adisa,
Abdulraheem & Mordi, 2014). This leads to inability to produce information
on past activities and procedures as at when needed. 

Handler (1990) wrote that succession in family businesses is
not a one-off process but is a continuous, multi-staged and reciprocal
interaction between the predecessor and successor. There ought to be concerted
effort between the incumbent and the likely successor in a bid to develop the
successor. Literature on family business succession emphasizes the importance
of the relationship between the successor and the incumbent in determining the
process, timing, and effectiveness of the succession (Brockhaus, 2004).
Succession planning has been essentially underplayed by small and family
businesses and this therefore affects the prospects of their
continuity. Many family businesses die because their leaders and even eventual
successors refuse to take risks, lack entrepreneurial skills have low
experience, lack the needed training and education (Ekeh, 2016). It is worthy
to note at this point that some problems of succession planning among family
businesses are internal which include lack of succession planning itself where they
never gave a thought to the need to prepare an acceptable successor in the
event of their exit, succession crisis, polygamy depending on the family structure,
management misfit, while others are external which are legal requirements, and
government provisions (Ogundele, Idris & Ahmed, 2014).

The cost of failure to
take risks in family businesses is often underestimated coupled with the cost
in terms of time required to achieve and objectives. Lack of risk taking
reduces the potentials of the business thereby making to lack the capacity to
be managed properly by the owner let alone his successor hence succession
planning becomes an impossibility (Johnson & Johnson, 2013). Also, the
absence of technical, human, conceptual and design skills shown by successors
of family business owners result in inability to efficiently demonstrate and
communicate with empathy, honesty and integrity thereby defeating the aim of
succession planning as evidenced with the family of Late MKO Abiola (Adisa, Abdulraheem & Mordi,
2014). Another challenge is poor leadership experience among owners as well as
their successors. They lack the ability to build skills, increase self-awareness
and are unable to identify actions and methods for improvement This culminates
into lapses in leadership exhibited in the leaders’ inability to build trust
among followers, operate with questionable integrity, and failure to consult
others during the periods of decision making (Dyke, 2013).

The issues as identified above makes it a
challenge as well as threat to the continuity of family businesses as the
failure to take risks and poor leadership experience makes it difficult for
knowledge management and succession planning to be properly carried out. It is
against these issues that this study will be projected in order to demystify
the issues involved in knowledge management, succession planning and family
businesses continuity as well as proffering solutions to the threats identified
eventually.

1.3  
Objective of the Study

The
main objective of this study is to assess and determine influence of knowledge
management practice and succession planning on family business continuity. The
specific objectives are to:

1.     
determine
the influence of knowledge management practices of the family business owners on
business continuity in Lagos State Nigeria;

2.     
examine
the effect of succession planning on family business continuity in Lagos state
Nigeria;

3.     
ascertain
the effect of knowledge management practices on profitability of family businesses
in Lagos state Nigeria;

4.     
evaluate
the influence of knowledge management practices on growth of family business in
Lagos state Nigeria;

5.      determine the joint effect of
knowledge management practices and succession planning on family business continuity
in Lagos State Nigeria;

6.      assess the perceptual differences
among the respondents on family business continuity when grouped by the type of
industry and

7.      evaluate the moderating effect of
length of time in existence on the relationship between knowledge management
practices and family business continuity 

1.4  
Research Questions

The
research questions are based on the variables to be considered in this study.
Therefore, research questions to investigate are:

1.      Does the dimensions of knowledge
management practices have influence on family business continuity in Lagos
State, Nigeria?

2.      To what extent is the effect of
succession planning on family business continuity in Lagos State, Nigeria?

3.      What is the effect of knowledge
management practices on profitability of family businesses in Lagos state?

4.      Does knowledge management practices have
influence on growth of family businesses in Lagos state?

5.      What is the joint effect of
knowledge management practices and succession planning on family business
continuity in Lagos State, Nigeria?

6.      What level of perceptual differences
exist among the respondents on family business continuity when grouped by the
type of industry?

7.      Does years in existence (length of
time in existence) have moderating effect on the relationship between knowledge
management and family business continuity?

1.5  
Hypotheses

Considering
the objectives of the study and the research questions, the following null
hypotheses were postulated and tested at α = 0.05 level of significance:

Ho1:       Knowledge management practices have
no significant influence on family business continuity in Lagos State, Nigeria

Ho2:     There is no significant effect of
succession planning on business continuity in Lagos State, Nigeria.

Ho3:     There is no significant effect of knowledge management
practices profitability of family business owners in Lagos State, Nigeria.

Ho4:There is no significant influence of
knowledge management practices on the growth of family businesses in Lagos
State Nigeria.

Ho5:     Knowledge management practices and
succession planning do not jointly have significant effect on family business
continuity in Lagos State, Nigeria.

Ho6:  
There are no significant perceptual differences among the respondents on
family business continuity when grouped by the type of industry

Ho7: 
There is no significant moderating effect of length of time in existence
on the relationship between knowledge management and family business continuity

1.6      
Scope of the Study

The research work
is designed to provide a discernment of the knowledge management practice and
succession planning of family businesses owners in Lagos state Nigeria.  A survey design was adopted for this study.
The population of the study is given as 11,663 Small and medium enterprises
which are categorized as family businesses.  The selected local governments are Apapa,
Ibeju-Lekki, Ikeja, Lagos-Island and Lagos Mainland. The choice of Lagos as the
location for the study is informed by the economic and strategic importance of
the state to Nigeria. Lagos state was chosen as the geographic scope of the
study because it has the largest number of companies in Nigeria and it is the
hub of the nation’s economic, commercial and industrial activities. Small and
Medium Enterprises(SMEs) have been considered as the backbone of the economy of
many countries including Nigeria and they play significant roles in development
and achieving sustainable economy (Aganga, 2014).

1.7       Significance of the Study

The
significance of the research study was drawn from its objectives, research
questions, and hypotheses such that when tested, they assist in Government
policies, society, and in the industry. This study is of benefit to the study
of management in the areas of entrepreneurship and family businesses. Great
insights were developed with respect to the different variables, constructs
under study and this should richly enhance students, and teachers approach towards
the discussion of family businesses with respect to knowledge management and
succession planning. The practitioners as well as managers of the family
businesses as emphasized would be able to understand how well they can manage
their businesses in order to ensure that they continue even after they have
handed over to their successors. It is very critical to note that the need for
continuity of family businesses is what prompted this study and therefore the
owners of such businesses ought to understand how best to ensure the longevity
of their businesses. Federal of Nigeria and Lagos State government would be
guided on the appropriate policy formulations that will help family business to
survive even into the near future. Policies on areas such as finance,
marketing, human resources and others. This will help to ensure that the owners
of family business gain the desired support in other to handle their business
properly for the sake of profit and continuity.

The
society is where these family businesses are located and if they function well
then, the society in turn will partake in their success in terms of quality
products, job creations, efficient services and other benefits that are accrued
to the society. It would also contribute to the body of knowledge and it is
anticipated to serve as groundwork for future research in the area of family
business continuity. In order to research on the constructs of this study, it
is necessary to operationalize the variables in this study. The variables in
this study are family business continuity (FBC) as dependent variable and
knowledge management practice (KMP) and succession planning (SP) as independent
variables:

Y  = Dependent variable (family business
continuity)

X1
= independent variable one (knowledge management)

X2
= independent variable two (Succession planning)

Z
= Moderator Variable (Length of time of existence).

Y
= (y1, y2, y3, y4, y5, y6)
where y1 = profitability, and y2 = business growth

y3
= family culture y4 = communication y5 = employee satisfaction
y6 = family harmony

X1
= (x1a, x1b, x1c, x1d, x1e,
x1f) where x1a = knowledge creation, x1b =
knowledge capture, x1c = knowledge sharing, x1d =
knowledge transfer, x1e = knowledge application and x1f =
knowledge training.

X2
= (x2a, x2b, x2c, x2d, x2e,
x2f) where x2a = succession plan, x2b =
founders influence, x2c = competent of successor, x2d =
family values, x2e = family business stakeholders and x2 =
mentoring x2g = governance. Based on hypotheses we have the
following equations:

Y=
f (X1) or Y = f (x1a, x1b, x1c, x1d,
x1e, x1f) ……………. ………………….…………………H01

Y
= f (x2) or Y = f (x2a, x2b, x2c, x2d,
x2e, x2f)

Y
= β0 + β1x2a + β2x2b + β3x2c
+ β4x2d + β5x2e + β6x2f
+ e ………………………………..……. H02

y1
= f (X1) or y1 = f (x1a, x1b, x1c,
x1d, x1e, x1f)

y1
= β0 + β1x1a + β2x1b + β3x1c
+ β4x1d + β5x1e + β6x1f
+ e…………………………..………….. H03

y2
= f (X1) or y2 = f (x1a + x1b + x1c
+ x1d + x1e + x1f) …………………………………………. H04

Y
= f (X1, X2)

Y
= β0 + β6X1 + β7X2 + e
……………………………………………………………………….H05

YINDY1
= YIND2 = YINDi ……………………………………………………………………. H06

Y
= f(X1Z)

Y
= β0 + β8X1 + β9X1Z + e …………………………………………………………………….
H07

Where β0 = the
constant of the model

e
= error term

β1- β9 =
Parameters to be estimated

1.9 Operational
Definition of Terms

Family owed Business: This
are established businesses in which members of a family have predominant
control, showing family succession and culture.

Management: In business and organizations, the
function coordinates the effort of people to accomplish goal and objectives
using available resources efficiently and effectively. In this case, management
is used to mean senior management except otherwise stated.

Succession: In this
study, Succession
is broadly defined as the replacement of the
leader of a family business by a successor, who must be a member of the same
family. Succession in this context will include both ownership
and management succession.

Succession Planning: is a
process for identifying and developing internal personnel with the potential to
fill key organizational positions. Succession planning ensures the availability
of experienced and capable employees that are prepared to assume these roles as
they become available.

Knowledge management (KM): is the
systematic process of finding, selecting, organizing, distilling and presenting
information, lessons learnt, and insights.

Business Growth: The process of improving some measure of an enterprise’s success.
Business growth can be achieved either by boosting the top line or revenue of
the business with greater product sales or service income, or by increasing the
bottom line or profitability of the operation.

Profitability: This is the return on assets of a company or
the capital employed in the business