Relational Competence-Based Knowledge Transfer Within Intrafamily Succession

Abstract

This article discusses the challenges of knowledge management within intrafamily succession against the background of the knowledge-based view. As a knowledge transfer is crucial for a successful business continuation, factors that promote the interpersonal knowledge transfer are identified. Since the quality of the relationship between successor and predecessor is considered a key determinant of knowledge transfer, the role of relational competence in the knowledge transfer process is analyzed. A laboratory experiment (N = 107) was conducted to test the derived hypotheses. In its conclusion, the article presents the empirically confirmed strong relationship between relational competence and knowledge transfer within intrafamily succession.

Keywords

intrafamily succession knowledge transfer relational competence trust

Introduction

A firm’s specific knowledge, as well as the ability and willingness to transfer it, is considered a key strategic asset in the course of generating competitive advantages (Spender & Grant, 1996). Knowledge is viewed as the sum of expertise, skills, and abilities applied by individuals in the form of theoretical knowledge and actions taken to solve problems (Davenport & Prusak, 1998). It can include facts and information as well as understanding gained through experience, education, or reason.

Especially in the course of succession, which is an extremely challenging process for all types of firms (Miller, 1993), knowledge proves to be of great significance. Transferring knowledge successfully to handpicked insiders in the case of insider succession (Miller, Steier, & Le Breton-Miller, 2003) or to outsiders in the course of outsider succession (Helmich & Brown, 1972) can provide the foundation for innovating and improving efficiency, thus taking advantage of the potential value of the predecessor’s knowledge (Davenport & Prusak, 1998). Given 4.5 million business successions per year within the European Union (European Union, 2009), a successful knowledge transfer is therefore not only important for the continuation of the single firm but also highly relevant for economic prosperity.

Especially in family firms, which represent 80% to 95% of all businesses in most capitalist countries (Nordqvist & Melin, 2010), preserving the predecessor’s knowledge can determine the success of the multistage succession process (Mazzola, Marchisio, & Astrachan, 2008), which is defined as the subsequent positive performance of the family firm and the satisfaction of the stakeholders with the succession process (Le Breton-Miller, Miller, & Steier, 2004).

However, in the course of intrafamily succession, the knowledge transfer is most often not managed at all or poorly managed at best and in many cases does not work out the way participants wish it would (Cabrera-Suárez, De Saá-Pérez, & García-Almeida, 2001). The typical characteristics of family firms, just as their small size, informal organization structures, and a restrictive information policy (Gallo, 1995), imply lower pressure and a lower propensity to make contextual information and framed experiences, which are embedded in the main entrepreneur in the majority of cases (Cabrera-Suárez et al., 2001), explicit. Against the background of the dictum “everybody does not need to know everything” (Lansberg, 1988), the transfer of exclusive knowledge from predecessor to successor induces a shift of power having extensive consequences on the overlapping systems of family, its members, and firm (Miller et al., 2003). Therefore, first and foremost, a successful knowledge transfer takes place if the predecessor is willing to supply the knowledge and to forgo his or her influence within the firm and his or her “patriarchal position” within the family (Szulanski, 1996).

Drawing on theoretical arguments developed by Becker (1981) and Schulze, Lubatkin, Dino, and Buchholtz (2001), we argue that the liaison between predecessor and successor constitutes an agency relationship, which arises when a principal delegates some decision making power to another (the agent). This delegation of authority leads to information asymmetries that make it possible for agents to pursue hidden agendas and engage in hidden actions that can threaten the firm’s performance (agency problems; Jensen & Meckling, 1976). Therefore, as intentions are seen as direct antecedents to behaviors (Ajzen & Fishbein, 1980; Krueger & Carsrud, 1993) also in family firms (Chrisman, Chua, Pearson, & Barnett, 2012), the predecessor can be confronted with the elementary question whether the successor has the intention to keep the firm in the family and the family in the firm.

In fact, with regard to “myopic altruism” leading to adverse selection or nepotism in family firms (Schulze et al., 2001), the predecessor’s uncertainties as to the successor’s intentions stem from the former’s weaknesses in monitoring and disciplining the latter’s conduct so that it cannot be ruled out that the successor has an incentive to exploit his or her latitude of opportunism (Gomez-Meija, Nuñez-Nickel, & Gutierrez, 2002).Against this background and also in view of conflicts associated with the overlap of firm and family spheres, the predecessor’s intention-related uncertainties are primarily the result of an untrusting relationship between predecessor and successor (Miller et al., 2003). An example is an ambivalent father–son relationship that is characterized by envy, rivalry, and mistrust. Or alternatively, in the case of father–daughter relationships, traditional sexual stereotypes can lead to uncertainties regarding the female successor’s (and son-in-law’s) intentions (Kets de Vries, 1993). Given the fact that the family as a monolithic entity begins to lose its grip over the firm in later stages, and financial considerations of multiple stakeholders move to the forefront, the predecessor’s intention-related uncertainties are even higher if only a distant relative is in line for taking over the family firm (Schulze, Lubatkin, & Dino, 2003). Thus, there are many reasons why predecessor and successor do not necessarily work together in a harmonious way over a long-lasting period before the succession takes place, so that intention-related uncertainties are not mitigated or abolished.

In line with the successor’s hidden intentions regarding the continuation of the family firm (Stavrou, 1999), the predecessor is confronted with uncertainties concerning the successor’s handling of transferred knowledge in the future (Cabrera-Suárez et al., 2001).

In this regard, we assume that the perceived relational competence of the successor can absorb the succession-immanent behavioral risks via the dimension “trust” so that the predecessor can accept the uncertainties concerning the other party’s goodwill, which results in an effective knowledge transfer. Whereas the importance of the successor’s technical skills and capabilities as to the continuation of the firm, for example, has been extensively discussed within family firm succession (see, e.g., Barach & Ganitsky, 1995; Chrisman, Chua, & Sharma, 1998), the study of relational competence as a determinant of an effective knowledge transfer within intrafamily succession has largely been ignored.

This study will therefore analyze the relationship between relational competence and knowledge transfer. The article is structured as follows: First, the challenges of knowledge management within intrafamily succession are discussed against the background of the resource and the knowledge-based view. In this connection, Nonaka’s (1991) concept of knowledge creation and knowledge-creating space is applied to the succession process in the family firm context. Second, as a bilateral active knowledge transfer is crucial for a successful business continuation, factors that promote the interpersonal knowledge transfer are discussed. Third, since the quality of the relationship between successor and predecessor is an important determinant of the knowledge transfer, the role of relational competence in the knowledge transfer process is analyzed. Fourth, as importance is attached to the inferences’ internal validity, laboratory-based true-experimental research has been conducted to test the derived hypotheses. Fifth, correlation analysis suggests that there is a strong positive relationship between perceived relational competence and knowledge transfer. Sixth, the article closes with implications for further research and for knowledge management within the intrafamily succession process.

Challenges of Knowledge Management Within Succession in the Family Firm Context

In this article, a family firm is defined as a firm (a) in which several family members—not necessarily the core family—hold capital shares (Westhead & Cowling, 1998) or work in the firm as contributory staff members, (b) whose capital majority is held by one or more family members that make strategic decisions (Barnes & Hershon, 1976), (c) on whose economic development the family depends existentially (Sharma & Manikutty, 2005), and (d) which has an important influence on the mind-set of the family members involved (Habbershon & Williams, 1999).

To assess the unique characteristics of a family firm and link them to an advantage in the marketplace, reference to a firm’s specific strategies, resources, and skills is required (Habbershon & Williams, 1999). In this regard, the resource-based view, which examines the links between a firm’s characteristics and its performance, provides the opportunity to approach family dimensions and problems from a strategic management view (Cabrera-Suárez et al., 2001). According to resource-based theorists (e.g., Penrose, 1959; Wernerfelt, 1984), a unique bundle of complex, intangible, and dynamic resources lays the foundation of a firm’s competitive advantage. As the resources of family firms have been characterized as unusually complex, rich, and dynamic, the resource-based view constitutes an appropriate framework for analyzing them (Habbershon & Williams, 1999). Therefore, in order to attain a competitive advantage and enjoy an improved performance in the short run, firms need to possess valuable and rare resources (Barney, 1991). Furthermore, these resources must also be inimitable and nonsubstitutable so that the firm can sustain this advantage in the long run (Barney, 1991). Referring to family firms, it is the “familiness” as a result of the family involvement that enables family firms to develop, choose, and implement strategies that firms without this bundle of distinctive resources and capabilities are unable to do (Habbershon, Williams, & MacMillan, 2003).

However, to achieve and ensure success, a firm requires not only a unique bundle of resources, but also the knowledge embedded in the firm’s routines to mobilize, integrate, and coordinate resources efficiently (Grant, 1991). According to the knowledge-based view of the firm (Bierly & Chakrabarti, 1996), performance levels can be improved by creating and transferring a firm’s specific knowledge (McGrath, Tsai, Venkataraman, & MacMillan, 1996) as knowledge is inherently difficult to imitate, thus facilitating sustainable differentiation (Wiklund & Shepherd, 2003). According to Polanyi (1967), two types of knowledge can be transferred within succession in the family firm context; explicit knowledge is knowledge that is articulated in the form of documents or databases. It has a universal character, enabling to act across contexts (Nonaka & von Krogh, 2009). Tacit knowledge is knowledge anchored in action, procedures, routines, commitment, ideals, values and emotions. It contains not only unarticulated mental models, beliefs, and insights, which are essential for perceiving and defining the environment, but also the abilities, know-how, and skills to perform tasks (Nonaka & Takeuchi, 1995).

Because of its specific characteristics, knowledge does not always flow easily within the firm (Cabrera-Suárez et al., 2001). Especially in a generation change, where the entrepreneur as the central information source leaves the firm, the management of knowledge is associated with challenges relating to the identification and the transfer of relevant knowledge.

Identification Problem: Identifying the Relevant Knowledge

Many family firms are centralized in power and ownership (Miller et al., 2003). Because of the fact that there is hardly any change in the person of the main decision maker for decades (McConaughy, 2000), a large amount of knowledge is generated over time without the necessity to distribute this knowledge within the firm. In fact, the predecessor often has established strong personal relationships not only with the family firm’s internal stakeholders, such as employees, shareholders, and/or family members, but also with its external stakeholders, such as customers, suppliers, and the relevant public (Sharma, 2001). Aside from the fact that deciphering the structure of existing networks is extremely difficult, the transactional content of each relationship is not easily communicated. Relationships are not always what they appear to be, that is, they often provide other resources than officially stated or initially intended (Granovetter, 1985). As a result, in many cases, the predecessor is the only repository for knowledge of how the business functions (Steier, 2001) so that the existence of the firm depends on his or her knowledge (Sirmon & Hitt, 2003). Beyond that, the parsimony that is typical for small and medium-sized family enterprises (Roessl, 2005) leads to an avoidance of a resource-intensive storage of knowledge. Therefore, knowledge and skills are not multiexistent in the family firm.

However, not all knowledge that has been accumulated by the predecessor over time is relevant for future operations because environmental changes may have devalued formerly important knowledge (Chirico & Salvato, 2008; Sirmon & Hitt, 2003). Hence, to get the process of managing knowledge up and running, as a first step it has to be identified what relevant knowledge the entrepreneur possesses and what additional knowledge is needed for future operations (Makadok, 2001). In this connection, the fact that the predecessor is not directly aware of his or her knowledge poses a significant challenge (Brown & Duguid, 1998). In order to solve this identification problem, the predecessor has to reflect on his or her actions and decisions so that he or she can envision the knowledge that is of importance for the successor as a precondition for its articulation and thus its explicit circulation (Kransdorff & Williams, 2000). To avoid incommensurability of the successor’s knowledge with the predecessor’s transferred knowledge and to disclose the successor’s knowledge deficits, the successor also has to make himself or herself aware of his or her knowledge. Dysfunctional knowledge assets that make future businesses difficult (Leonard-Barton, 1992) need to undergo a process of organized “unlearning” in order to ensure the firm’s flexibility (Rebernik & Sirek, 2007).

However, these problems associated with the identification of relevant knowledge can be attenuated by an early exposure of the successor to the family firm (Chirico & Salvato, 2008; Le Breton-Miller et al., 2004). Living within the family and working within the business from an early age can make the successor aware of the predecessor’s mental processes, ideas, and experiences, thus enabling a gradual exposure to the predecessor’s relevant knowledge.

Transfer Problem: Transferring the Relevant Knowledge

Against the background that knowledge is seen as the main resource supporting a competitive advantage (Bierly & Chakrabarti, 1996; Grant, 1991; Osterloh & Frey, 2000), its transferability “determines the period over which its possessor can earn rents from it” (Spender & Grant, 1996, p. 7). With regard to the family firm context, preserving the knowledge embedded in the firm’s routines to integrate, coordinate, and mobilize the familiness bundle successfully is essential for developing and maintaining the competitive distinctiveness of the family firm (Steier, 2001).

According to the knowledge spiral of Nonaka and Takeuchi (1995; see also Nonaka, 1991), knowledge can be transferred via four processes: socialization, externalization, combination, and internalization (often referred to as the SECI model). Whereas socialization and externalization relate to the transfer of tacit knowledge, combination and internalization are associated with the conversion of explicit knowledge.

In the course of socialization, the predecessor’s tacit knowledge is immediately converted into the successor’s tacit knowledge through shared experience (Nonaka, 1991), that is, the successor learns through observance, imitation, as well as trial and error. However, as the knowledge remains tacit not only on the part of the predecessor, but also on the part of the successor, the effectiveness of the knowledge transfer can only be evaluated on the basis of the successor’s subsequent actions (Swap, Leonard, Shields, & Abrams, 2001). Moreover, as it never becomes explicit, the tacit knowledge transferred within time-consuming socialization cannot easily be leveraged by the firm as a whole (Nonaka, 1991).

By contrast, in the course of externalization, the predecessor’s tacit knowledge is made explicit and, thus, becomes transferable through direct communication. A prerequisite for a successful externalization is that the predecessor is able to translate his or her tacit knowledge into a suitable coding such as narratives, metaphors, analogies, or visuals (Osterloh & Frey, 2000). However, there is a research stream arguing that tacit knowledge can never be externalized and written down in an explicit form as it is inexpressible (see e.g., Gourlay, 2006; Ribeiro & Collins, 2007). Nevertheless, according to Maturana and Varela (1987), tacit knowledge can be partially externalized because not all of it is embodied and tied to senses, thus escaping formal analysis through self-introspection. In line with this reasoning, Nonaka and von Krogh (2009) show that externalization can be upheld as a mode of transferring tacit knowledge.

However, with regard to small family firms, externalization is associated with challenges as the high proportion of tacit knowledge and the inadequate technical infrastructure in small family firms hinder the application of complex knowledge management tools and hence make the conversion of tacit knowledge into explicit knowledge and the latter’s storage difficult (Cabrera-Suárez et al., 2001). Furthermore, as the central managerial tasks are assigned to the same family members in small family firms for decades, no routines regarding the knowledge transfer will be established (Miller et al., 2003), thus hampering the externalization of knowledge (North, 2001).

Notwithstanding the firm size, the problems associated with the transfer of knowledge in family firms result primarily from the interlocking of the systems “family” and “firm” because the predecessor’s knowledge of not only the system “firm” but also of the system “family” has a specific importance that originates from the intrinsic logic of the systems. The transfer of exclusive knowledge induces a shift of power and can have extensive consequences for the overlapping systems of family and firm; if the predecessor refuses to transfer his or her knowledge, he or she can ensure influence within the firm and the “patriarchal position” within the family (Sharma, Chrisman, & Chua, 2003; Szulanski, 1996). Moreover, as the continuation of the firm and its continuation by members of the family organization constitute the main goals of the family firm, role conflicts can occur (Kets de Vries, 1993). As an entrepreneur, the predecessor can evaluate a family member as being unqualified to become a successor; but in his or her position as a member of the family, he or she can still prefer this family member as the successor (Handler, 1990). Normally, the predecessor has to transfer his or her knowledge to the family member in his or her role as successor but facing the successor’s lack of technical and motivational competencies, the predecessor fears for the firm’s future and conceals his or her knowledge in order to delay the succession (Zellweger, Kellermanns, Chrisman, & Chua, 2012).

Factors Promoting the Transfer of Knowledge Within Succession in the Family Firm Context

As an active transfer of knowledge is crucial for a successful continuation of the family firm, factors that promote the interpersonal knowledge transfer from predecessor to successor need to be identified. These factors include (a) internal social capital, which encourages the ability of knowledge identification and transfer, (b) the predecessor’s commitment to change, which in turn promotes the willingness to transfer knowledge, and (c) the quality of the relationship between successor and predecessor, which can promote or hinder the knowledge transfer considerably (Chirico & Salvato, 2008).

As a bilateral knowledge transfer emerges from repeated interactions and is intensified through “close-knit groups” whose members identify themselves with a larger collective (Kogut & Zander, 1992), knowledge transfer is favored in family firms. If the family’s internal relations are backed with social capital, stable relations can be built in the long run, thus promoting the transfer of knowledge (Sirmon & Hitt, 2003). On the one hand, interdependence and repeated interaction foster social capital (Chirico & Salvato, 2008). On the other hand, social capital can be generated through delineation: As strong communities, family firms distinguish insiders from outsiders on the basis of kinship and thus enhance closure through the emergence of shared norms (Arregle, Hitt, Sirmon, & Very, 2007), which in turn promotes an active knowledge transfer.

The willingness to transfer knowledge is determined by commitment to change (Chirico & Salvato, 2008). This commitment results from the satisfaction that the individuals derive from the feeling that they are contributing to the success of their own business and to its continuity over time. However, as “feelings and emotions related to change are likely to be deeper and more intense” in family firms (Dyer, 1994, p. 125), resistance to change, which influences the predecessor’s willingness to transfer knowledge negatively, can also arise in the family firm context (Roessl, 2005).

Basically, succession imposes great demands on predecessors. In fact, transferring management control of the family firm to another family member creates a principal–agent relationship between predecessor and successor (Sharma et al., 2003). As a consequence of the delegation of authority, the predecessor is exposed to information asymmetries that make it possible for the successor to exploit his or her latitude of opportunism, thus harming the welfare of both predecessor and the firm (Schulze et al., 2001). The predecessor therefore can try to implement formal control and sanction mechanisms to reduce the successor’s latitude of opportunistic behavior and, with that, the agency threats regarding the successor while at the same time accepting the associated agency costs (Jensen & Meckling, 1995). However, because of the time gap between the knowledge transfer by the predecessor and the application of the transferred knowledge by the successor, the particular problem of the knowledge transfer within intrafamily succession consists in the reduced applicability of formal control and sanction mechanisms to ensure specific future actions by the successor.

In this context, Jensen and Meckling (1976) argue that the nonapplicability of formal governance mechanisms does not pose a problem, as such coordination mechanisms can deter the family firm’s financial performance, thus constituting an unnecessary expense in family firms. This view and the subsequent conclusion that family firms need not incur significant agency costs (Daily & Dollinger, 1992) can be attributed to a model of humankind, wherein an individual sees himself or herself as a “steward whose behavior is ordered such that pro-organizational collectivist behaviors have higher utility than individualistic, self-serving behaviors” (Davis, Schoorman, & Donaldson, 1997, p. 24). Therefore, according to stewardship theorists (Argyris, 1960; McGregor, 1960), it can be argued that individual family members engage in altruistic behavior as opposed to egoistic behavior because they see greater utility in subjugating their self-interests for the collective good of the family (Sharma, 2004). However, drawing on an economist perspective that “altruism is [ . . . ] motivated by self-interest” (Schulze et al., 2001), family members can be seen as utility maximizers being rooted in economic rationality (Sharma, 2004). From this viewpoint, agency threats are likely to be pronounced in family firms (Becker, 1981). In fact, even though family firms may experience reduced agency costs because of the reduced applicability of formal governance mechanisms, they are prone to a dark side of altruism (Schulze et al., 2001). Problems of “myopic altruism”, where family-firm leaders find it difficult to ignore the impulse of complying with the family’s every wish (Kets de Vries, 1993; Sharma, 2004), can lead to adverse selection or nepotism in family firms (Schulze et al., 2001). In this connection, it cannot be ruled out that family agents have an incentive to exploit their latitude of opportunism because of the principal’s weaknesses in monitoring and disciplining their conduct, thus engaging in shirking or free-riding behavior (Gomez-Meija, Nuñez-Nickel, & Gutierrez, 2002). Referring to the succession process, it is therefore possible that future family firm leaders misappropriate the knowledge transferred by the predecessor (Kets de Vries, 1993).

One way to curb the negative effects of altruism consists in reducing the successor’s inclination to behave opportunistically and accepting the correlating risk costs as the latitude of opportunistic behavior still exists. This decision of the predecessor to accept behavioral uncertainties can only be made against the background of a trust-based relationship, as trust, which is understood as the trustor’s expectation that the trustee will voluntarily refrain from behaving opportunistically, can absorb the succession-immanent behavioral risks (Rousseau, Sitkin, Burt, & Camerer, 1998). Therefore, to initiate an active knowledge transfer within intrafamily succession, the relationship between predecessor and successor can be coordinated on the basis of trust and must be so if other coordination mechanisms are not available at all, or if they are relatively costly compared with the reduction in risks (Chirico & Salvato, 2008; Le Breton-Miller et al., 2004; Sharma et al., 2003; Sirmon & Hitt, 2003).

Referring to trust as a coordinative basis for the relationship between predecessor and successor, and thus for an effective knowledge transfer, the predecessor has to decide whether the successor is trustworthy; yet this characteristic is to a large extent concealed before entering into a trust-based relationship (Levin & Cross, 2004). Therefore, in the course of developing trust, the predecessor will strive for reducing his or her subjective uncertainties concerning the successor’s real preferences with the help of additional information. However, as information gaps cannot be completely closed, trust requires the extrapolation of existent information from the past into the future (Luhmann, 2000).

Relational Competence Relating to the Transfer of Knowledge Within Succession in the Family Firm Context

In the context of reducing subjective uncertainties, the relevance of relational competence becomes apparent—knowledge will only be transferred if the predecessor gets information from which he or she can infer it to be more likely that the successor will refrain from behaving opportunistically (Deutsch, 1990). Relational competence refers to the ability of a party to initiate and maintain relationships. As relational competence forms an abstract entity, we have derived the following indicators by analyzing approaches for measuring relational competence (Edwards & Ewen, 1996; Erpenbeck & Heyse, 2007; Kauffeld, Grote, & Frieling, 2007):

Empathy and solidarity refer to the successor’s ability to consider the needs, reactions, and behavioral patterns of the predecessor

Self-disclosure refers to the successor’s ability to communicate personal information the predecessor would normally not discover

Persuasive power (charisma) refers to the successor’s ability to depict the goals of the relationship convincingly so that they are based on mutual agreement

Social mindedness refers to the successor’s benevolent orientation toward the predecessor and to not expecting something in return for each service provided

Ability to communicate refers to the successor’s verbal skills to shape the communication with the predecessor

Ability to cooperate refers to the successor’s disposition to refrain from unfair behavior even if such behavior would go undetected

Ability to handle conflicts refers to the successor’s ability to uncover and solve conflicts in a consensus-oriented manner

Because of the information asymmetries between predecessor and successor, the predecessor is not only unsure whether the successor is able to honor the trust decision but also whether he or she is willing to behave accordingly (Sharma et al., 2003). The successor’s relational competence can now reduce the predecessor’s subjective uncertainties concerning the willingness of the successor (Mishra, 1996). Based on his or her relational competence, the successor behaves in a trustworthy manner, that is, he or she does not misappropriate the information disclosed by the predecessor. Because of this behavior, the predecessor expects the successor to refrain from behaving opportunistically also in the future. Therefore, we assume that there is a positive relationship between relational competence—via the dimension “trust”—and the knowledge transfer, which becomes manifest in the amount and correctness of information disclosed by the predecessor.

Hypothesis 1: There is a positive relationship between the perceived relational competence of the successor and the knowledge (= amount and correctness of information) transferred from predecessor to successor.

Apart from the perceived relational competence as a personal characteristic of the successor, we assume that certain characteristic traits of the predecessor and also situational factors are related to the knowledge transfer. As the predecessor is confronted with limited information in the course of assessing the potential successor’s trustworthiness in a specific situation, he or she will refer to generalized expectations developed on the basis of past interactions with others (Rotter, 1967). As substitute information, these generalized expectations, that is the propensity to trust, can then influence the trust and therefore also the amount and correctness of information disclosed by the predecessor (= knowledge transfer) in a specific situation (Mayer, Davis, & Schoorman, 1995).

Hypothesis 2: There is a positive relationship between the predecessor’s trust propensity and the knowledge (= amount and correctness of information) transferred from predecessor to successor.

Basically, knowledge transfer is risky—the successor has the possibility to misappropriate the shared knowledge and, thus, he or she can cause losses on the part of the predecessor. Therefore, the risk associated with the knowledge transfer is rooted in the electoral freedom of the successor between honoring and betraying the predecessor’s decision to disclose information (Coleman, 1990). As risk is inherent in transferring knowledge, we hypothesize that the risk propensity relates positively to the likelihood the predecessor will transfer knowledge.

Hypothesis 3: There is a positive relationship between the predecessor’s risk propensity and the knowledge (= amount and correctness of information) transferred from predecessor to successor.

Moreover, we hypothesize that the situational risk perception is negatively related to the likelihood the predecessor will transfer knowledge because disclosing information in such situations goes along with higher risks. The risk perception involves the predecessor’s beliefs about situation-specific likelihoods of gains and losses, neglecting the influence of the particular successor (see e.g., Coleman, 1990; Mayer et al., 1995).

Hypothesis 4: There is a negative relationship between the predecessor’s situational risk perception and the knowledge (= amount and correctness of information) transferred from predecessor to successor.

To sum up, as shown in Figure 1, we assume that not only the successor’s relational competence but also the trust and risk propensity as personality traits of the predecessor and the situational risk perception relate to the knowledge transferred within the succession process.

Figure 1.

Relational competence’s impact on knowledge transfer.

Research Design

Against the background that limitations of some of the previous family business research have included inadequate research designs (Brockhaus, 1994), this study follows suggestions by Sharma, Chrisman, and Gersick (2012) according to which a diversity of research settings and research strategies is needed to “understand the forces that drive the empirical observations” (Zahra & Sharma, 2004, p. 336).

With regard to the research setting, the validity of the conclusions can serve as a criterion for deciding between laboratory and field research with laboratory settings having greater internal validity and field settings being associated with greater external validity (Scandura & Williams, 2000). Whereas internal validity is the ability to attribute the effect that was observed to the variance in another, external validity is the extent to which this effect can be generalized (Fiske, Gilbert, & Lindzey, 2010). While both criteria are of high importance for research excellence (Campbell & Stanley, 1963), there tends to be a tradeoff between internal and external validity: Attempts to increase the approximate validity with which it can be inferred that a relationship between two variables is causal can reduce the generalizability of conclusions derived from idiosyncratic settings, procedures, and participants to other populations and conditions (Guala, 2005). However, Campbell and Stanley (1963, p. 175) argue that internal validity is the “sine qua non,” or as Thye (2000) puts it, “if there are doubts or questions about whether a relationship is real or spurious, then whether or not the finding applies to other settings is irrelevant” (p. 1303). Against the background that our study aims at examining processes underlying causal relationships, importance is attached to internal validity, which entailed the concomitant conceptual decision for a laboratory setting.

With the objective of capitalizing on a key advantage of the laboratory setting in mind, that is its ability to control for confounding variables (Kane, 2010), we chose a randomized or true experiment as research strategy. According to Fisher (1935), such experiments are “experience carefully planned in advance, and designed to form a secure basis of knowledge” (p. 8). They allow not only for probabilistic equivalence by randomly assigning participants or experimental units to one or more independent variables but also for the manipulation of independent variables and the careful measurement of one or more dependent variables (Kirk, 2009), thus leading to the conclusion that “randomized experiments are the natural approach to establishing cause-and-effect relationships” (Bennedsen, Perez-Gonzalez, & Wolfenzon, 2010, p. 382).

Within the field of knowledge management, laboratory-based true-experimental research is quite common (see, e.g., the studies conducted by Galinsky & Kray, 2004; Hollingshead, 1998; Phillips, Mannix, Neale, & Gruenfeld, 2004). Yet developing and implementing such an experimental design is rarely an option in family firm research (Bennedsen, Perez-Gonzalez, & Wolfenzon, 2010). To close this gap and test our family firm–related hypotheses, a laboratory experiment was designed and conducted in two waves.

The subjects were 107 Austrian undergraduate students (53 males, 54 females), all from small business management and entrepreneurship courses, who received extra-credit points in their courses for participation and submission of short essays about their experiences with the study. Their mean age was 24.76 years (SD = 3.06). One third of the participants came from family firms, most of whom represented future successors.

The experimental procedure had three components: (a) First, subjects were presented a small family-run winery business. (b) Two weeks later, they participated in the experiments that were integrated with (c) psychometric tests to measure individual-level variation in traditionally hard-to-measure characteristics, such as trust and risk propensity (for the advantages regarding the combination of experiments with survey studies see, e.g., Glaeser, Laibson, Scheinkman, & Soutter, 2000; Scandura & Williams, 2000).

As a first step, the experimenter introduced the study’s goal to the participants by outlining that they would make strategic decisions regarding a small family-run winery. To gain an understanding for the firm’s contextual embeddedness, the participants received inside information from the experimenter as to the small family firm (e.g., products, vineyard, sales and profit figures, etc.), the wine market, the competitors, and future potentials. Soft facts as to the family history, linkages between the family members and the personalities of predecessor and successor were left aside.

Two weeks later, the subjects came to a classroom on campus, signed in and filled out a consent form and completed a questionnaire that measured their levels of trust and risk propensity. The validity and reliability of the trust propensity scale of Costa (2000), which is based on Wrightsman’s Revised Philosophies of Human Nature scale (Wrightsman, 1991), has been demonstrated in previous research (see, e.g., Späth, 2008). It consists of seven items with a 5-point Likert-type scale ranging from strongly agree to strongly disagree. The widely used and reliable scale of Sitkin and Weingart (1995) for measuring risk propensity consists of five items with a 5-point Likert-type scale ranging from strongly agree to strongly disagree.

After having filled out the survey, the participants were randomly assigned to experimental and control groups, and groups were randomly assigned to conditions. Each participant was presented a written scenario, describing a situation in which he or she was a predecessor who was confronted with intrafamily succession. In order to promote the success of this process, each predecessor was able to transfer his or her knowledge to a potential successor. More precisely, the participants’ task was to prepare themselves for a personal meeting with the potential successor—on the one hand, by reflecting on the inside information as to their firm, the market, the competitors, and future potentials; and, on the other, by taking the information about their potential successor into account that was given in the written scenario. Referring to the options measured within the setting, the participants were able to disclose the inside information with the successor, that is, they had the possibility to transfer correct or wrong information to the potential successor. So, after having studied the scenario, participants had to make decisions concerning (a) the amount (open information) and (a) the quality of the information (honest information) shared with the successor. Each subject wrote the (correct or wrong) information as to their firm, the market, the competitors, and future potentials it wanted to pass on a separate sheet. This sheet was then placed in an envelope to be sent to the potential successor.

Following the collection of the envelopes by the experimenter, the participants’ perception of the risk inherent in the situation was measured by means of Sitkin and Weingart’s (1995) risk perception scale, which consists of four items with a 5-point Likert-type scale ranging from strongly agree to strongly disagree.

After having completed this questionnaire, the subjects were debriefed and engaged in discussion about the degree to which the experiment captured reality and they behaved as they would have in a real succession process. Participants reported they did become involved in the situation and a great many of them were disappointed that the experiment ended with having prepared the ground for the interaction with the potential successor. As Weber and Cook (1972) and also O’Reilly and Roberts (1974) show, role-playing seems to be a viable technique in experimental simulations. In sum, the experiment, including the questionnaire as to the personal characteristics and perceptions, lasted approximately 1 hour per participant.

With regard to the manipulation of the independent variable, the control group and the experimental group were presented the same written scenario apart from the successor’s description. In the experimental group, the successor was described as a highly relationally competent person (using the derived indicators of relational competence), whereas the control group was confronted with a successor that possessed average relational competencies.

The intensity of “knowledge transfer” was measured by summing up the amount of open information (16 data items could be shared at most) and the amount of honest information (i.e., the share of correct information in open information; a maximum of 16 data items could be transferred honestly). In order for all variables to contribute in equal measure to “knowledge transfer”, the preliminary value of “honest information” was weighted. The variable “relational competence” was treated as a dummy variable in the analysis.

Results

Data analysis involved several steps. In the first step, Cronbach’s alpha values were calculated to assess the internal consistency of items in the scales. As shown in Table 1, scale reliabilities of between .69 and .92 were obtained for the variables used. Whereas the internal consistency measures of the trust propensity scale and the risk propensity scale met the statistical threshold in empirical research, the reliability of “situational risk perception” was lower than desirable. However, the results of a factor analysis indicated that each of the items used for measuring a variable loaded on a single factor, which contributed to a degree of confidence that our indicators were tapping the same construct. Nevertheless, the results related to “situational risk perception” should be interpreted with caution, and, given the fact that the designers of the scale, Sitkin and Weingart (1995), achieved a Cronbach’s alpha of .75 within their original study, research should try to improve on this scale.

Table 1.

Means, Standard Deviations, Reliabilities, and Pearson Correlations.

Variable	Mean	SD	Reliability coefficient	Correlations
Variable	Mean	SD	Reliability coefficient	1	2	3	4	5
1. Knowledge transfer	22.14	5.79	—	—
2. Relational competence	0.50	0.50	—	.61**	—
3. Trust propensity	17.58	4.81	0.919	.20*	.06	—
4. Risk propensity	15.07	3.25	0.850	.22*	.01	.23*	—
5. Situational risk perception	8.38	1.71	0.688	.09	.16	−.03	.08	—

Note. Relational competence was treated as a dummy variable in the analysis (0 = control group, 1 = experimental group).

p < .05. **p < .01.

In the second step, data were graphed leading to the assumption that the variables “knowledge transfer,” “relational competence,” “trust propensity,” “risk propensity,” and “situational risk perception” are distributed normally and that linear relationships exist between them. Moreover, variance inflation factors were calculated to test independence requirements. The highest variance inflation factor observed was 1.06, which is far below the critical cutoff of 10, indicating that there is little redundancy between the variables so that multicollinearity does not appear to be a problem for the quality of the analysis of the modeled relationships.

In a third step, Pearson’s correlation coefficients (r) were calculated to test the hypotheses as to whether and how strong pairs of variables are related. As shown in Table 1, we found that relational competence and knowledge transfer are highly correlated (r = .61, p < .01). Moreover, both risk propensity and trust propensity are positively correlated with knowledge transfer (r = .22, p < .05 and r = .20, p < .05, respectively). By contrast, situational risk perception is not related to knowledge transfer. There are two possible reasons for this result: First, it can be a consequence of the low reliability of the risk perception scale. Second, in view of the fact that decisions about the timing and mode of succession in family firms are largely made because of the availability of a willing and trusted successor (Sharma et al., 2003), the role of the situational risk perception in the course of transferring knowledge in the succession process may have been displaced by the strong effect of the successor’s relational competence. Subsequent analysis revealed that trust propensity and risk propensity are positively correlated (r = .23, p < .05). Against the background that the decision to trust is seen as a risky advance performance (Luhmann, 2000), it is comprehensible that a pronounced willingness to trust others goes along with a higher propensity to take risks.

Summing up, the hypothesis concerning the strong positive relationship between relational competence and knowledge transfer can be corroborated (Hypothesis 1). Whereas correlation analysis also revealed that the hypotheses as to the relationship between trust propensity (Hypothesis 2) and risk propensity (Hypothesis 3) on one hand and knowledge transfer on the other can be accepted, the relationship between situational risk perception and knowledge transfer cannot be confirmed (Hypothesis 4).

Conclusions

The primary role of our research was to determine what role, if any, relational competence plays in the process of transferring knowledge within intrafamily succession. Therefore, we defined indicators of the perceptions of the successor’s relational competence that are consistent with the definitions provided. Knowledge transfer was measured in terms of actual behavior, that is, the amount and correctness of information disclosed by the predecessor. The transfer behavior subject to relational competence was measured within an experimental study. Results showed that relational competence and knowledge transfer are highly correlated and that this relationship is highly significant. The extent of trust propensity and risk propensity and also the situational risk perception were assessed through survey items. Results indicated that the predecessor’s beliefs about situation-specific likelihoods of gains and losses, neglecting the influence of the particular successor, are not related to the knowledge transfer. By contrast, the predecessor’s propensity to take risks and his or her generalized willingness to trust others correlate with the amount and correctness of information disclosed (= knowledge transfer) within succession in the family firm context.

However, there are also limitations to the study; first, the mode of action of relational competence could not be observed the way it has been modeled (via the dimension “trust”). To resolve this limitation, a methodology that taps into the predecessor’s expectation that the successor will voluntarily refrain from behaving opportunistically is needed. Second, the knowledge transfer was modeled and tested unidirectionally—from a given predecessor to a given successor. However, the successor can also hinder the knowledge transfer if he or she does not perceive the predecessor as a relevant information source because of his or her education and socialization, the lack of transparency in the firm (Le Breton-Miller et al., 2004), or family conflicts (Frank, Kessler, Nosé, & Suchy, 2011). Third, given that succession is a multistage process (Sharma et al., 2003), one-time data collection could capture the process of transferring knowledge within intrafamily succession only to a limited extent. To illustrate the richness of the process of transferring explicit and particularly tacit knowledge, longitudinal studies are needed. Nevertheless, as most knowledge transfer occurs early in a relationship’s life cycle or after an interruption (Zellmer-Bruhn, 2003), we believe that our study captures critical features of the knowledge transfer process within intrafamily succession.

Apart from these specific boundaries, there are basic limitations associated with laboratory-based true-experimental research. As our research aimed at drawing precise conclusions regarding the relationship between relational competence and knowledge transfer within succession in the family firm context, we attached importance to the inferences’ internal validity by experimentally manipulating the independent variable in a laboratory setting. Thus, we need to point out that the generalizability of our findings is constrained by the nature of the sample and the nature of the setting. However, our decision for running the laboratory experiment with students as subjects was not only guided by experimental requirements (isolated variation of the independent variable) and research-pragmatic reasons (lack of access to a substantial number of predecessors and successors being currently involved in intergenerational succession), but primarily by the advantages associated with the homogeneity of the sample. Nevertheless, students’ behavior may differ from the behavior of other groups so that the exclusive analysis of students’ behavior may exacerbate the transferability of results to other groups. Yet, in view of the subjects’ fields of study and the family firm backgrounds of the students, we believe that the sampling was adequate.

Referring to the criticism that laboratory settings are artificial (see, e.g., Harré & Secord, 1972; Levitt & List, 2007), Fehr, Fischbacher, Schupp, von Rosenbladt, and Wagner (2003) are of the opinion that this attacking of simplicity is misplaced as “[ . . . ] in general, it is necessary to understand the simple cases first before one is able to understand the more complex cases” (p. 1). In this connection, with regard to the external validity of laboratory experiments, Fehr et al. (2003, p. 2; see also Campbell & Stanley, 1963) argue that “[E]xperimental results are externally valid if there is good reason to believe that the experimental environment, under which the results have been generated, captures essential elements of naturally occurring environments.” In due consideration of these arguments, our study’s findings seem to be most applicable to small family firms (in terms of employees and turnover) operating in rather stable environments, where the knowledge that needs to be transferred is manageable.

Summing up, “the commingling of business and family roles” (Harvey & Evans, 1994, p. 345) increases the need for relational competence within intrafamily succession to create an environment that encourages open and collaborative exchanges of information at all levels. Therefore, and because Eddleston and Kellermanns (2007) found that relationship conflicts resulting from interpersonal-relational incompatibilities among actors within a group (Jehn, 1995) are the main obstacle to the knowledge transfer in family firms, particular attention should be paid to methods (workshops, coaching, training sessions) that strengthen the relational competence of the successor. As a trust-based relationship between generations is needed, the successor should demonstrate his or her relational competence by appreciating the predecessor’s knowledge and his or her contribution to the firm, not rejecting tried and tested work methods and practices without having considered their value to the firm. If the knowledge transfer process is completed, the successor has to integrate the predecessor’s knowledge in family and professional contacts with his or her own knowledge to assess and manage the firm’s familiness and to invest in replenishing, increasing, and upgrading these knowledge bases as valuable resources (Cabrera-Suárez et al., 2001; Habbershon & Williams, 1999).

To conclude, by identifying and analyzing the key role of relational competence in the knowledge transfer process, we tried to meet the requirements stated by Cabrera-Suárez et al. (2001) and Sharma (2004), where the process through which knowledge is transferred within intrafamily succession should be further explored, especially by focusing on the characteristics and attitudes of predecessor and successor and the relationship between them (Chirico & Salvato, 2008; Mazzola et al., 2008). In doing so, the article directs attention to a construct whose relevance the literature has so far underestimated: Relational competence plays a central role as a determinant of trust and knowledge transfer; thus, the development of relational competence must receive appropriate attention in research and entrepreneurial training schemes. After all, it can be assumed that relational competence has a significant influence on facilitating trust and knowledge transfer also in other setting (e.g., relation between family firm owner and bank, between family firm owner and his or her customers).

Footnotes

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The authors received no financial support for the research, authorship, and/or publication of this article.

Author Biographies

Isabella R. Hatak, MA, MSc, PhD, is assistant professor at the Institute for SME Management and Entrepreneurship at the WU Vienna University of Economics and Business. She has published contributions to international conferences and peer-reviewed journals and has received several awards for her research on trust, relational competence, and knowledge transfer within family firms.

Dietmar Roessl, PhD, is professor and Head of the Institute for SME Management and Entrepreneurship at the WU Vienna University of Economics and Business.

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