Business Succession Planning in Indian MSM-FOBEs: A Study Based on Managerial-Role Employees

Abstract

Family owned business enterprises (FOBEs) are prolific contributors to the Indian economy. Micro, small and medium family owned business enterprises (MSM-FOBEs) form a substantial portion of Indian FOBEs. MSM-FOBEs are highly vulnerable to intergenerational business succession. The extent of succession planning, an important factor for the success of business succession, varies with the size of the MSM-FOBE. The number of managerial-role employees is one of the indicators of the size of the MSM-FOBE. The importance of business succession planning to the owner–manager is one of the determinants of the extent of succession planning in any MSM-FOBE. The importance of six succession planning issues to owner–managers is compared on the number of the managerial-role employees in their MSM-FOBEs. The study reveals higher importance of five succession issues to owner–managers of larger MSM-FOBEs that is, those with higher number of managerial-role employees. The lower importance of most succession planning issues among owner–managers of small Indian MSM-FOBEs (with no managerial-role employees) could be one of the reasons for their higher vulnerability to business succession.

Keywords

Business succession planning Succession planning issues MSM-FOBEs (Micro,Small and Medium Family Owned Business Enterprises)Managerial-Role employees

Introduction

The world’s most common form of economic organization around the world is the family owned business enterprises (FOBE). LaPorta et al. (1999), find that 45 per cent of the publically listed international firms are family owned or controlled. FOBEs are also the world’s most significant generators of economic wealth (IFERA, 2003; Sharma, 1997; Tan and Fock, 2001; Ward, 2004). According to Astrachan and Shankar (2009), North American FOBEs constitute 80–90 per cent of all enterprises and 57 per cent of the continent’s GDP comes from these firms alone. The Department of Business, Innovation and Skills estimates (2013) show that the number of private sector businesses operating in the UK have increased by 102,000 since start of 2012, and there are now an estimated 4.9 million private sector businesses in the UK. Family firms represent around two thirds of these (IFB Research Foundation, 2011). One of the reasons for the prominence of FOBEs is the diversity in their size. FOBEs can be micro, small or medium FOBEs (MSM-FOBEs) or large FOBEs. Globally, the overwhelming majority of FOBEs are micro, small or medium sized (Gersick et al., 1997; Hume, 1999).

In India too, large FOBEs have been significant for financial reasons and MSM-FOBEs for their wide spread prevalence. Aiyar (2000) observes that among the top 10 Indian companies (by market capitalization), five are family owned. About 50 per cent of the Indian Nifty 50 firms (top 50 in the National Stock Exchange) are family-controlled and managed (Marisetty et al., 2008). Indian MSM-FOBEs are important contributors to economic value and employment generation due to their large numbers and geographical pervasiveness. They make up almost all of the micro, small and medium-size enterprises (MSMEs). There were 31 million (projected) registered MSMEs in India in financial year 2011–2012, 90.08 per cent of which were estimated to be proprietary, 4.01 per cent partnership and 2.78 per cent private limited in their ownership structure (Ministry of MSMEs, Annual Report, 2011–2012). Consequentially, almost all of these 96.87 per cent MSMEs are owned and controlled either by a single person or partners and members of their families, and are therefore FOBEs.

Unlike large FOBEs with sufficient external employees as part of the managerial resource, most MSM-FOBEs are dependent on their owner–manager(s) for management and many of them may not be able to run even for a few days in their absence or unavailability. This dependence on owner– manager for management is of a critical nature where there is a sole owner–manager as in proprietary structure and micro FOBEs, which form a substantial part of all MSM-FOBEs. The dependence has a serious impact on the longevity of the MSM-FOBE once the owner–manager is permanently unavailable due to retirement or death and there is no successor to take over the management of the MSM-FOBE effectively. Some owner-managers plan and prepare for their retirement and business succession and pass on the leadership of the MSM-FOBE to their successor timely. Others remain unaware of the eventuality of this event and do not plan or prepare while some owner–managers even though aware of the seriousness of intergenerational business succession do not select or train any successors to take their place.

This failure of many owner–manager(s) to carry out business succession timely, is the most important reason why the life span of the MSM-FOBE in many cases is limited by the life span of the owner–manager(s). Successful business succession is an issue in any firm (Miller, 1993; Reingenum, 1985), but it is far more complex and important in FOBEs (Dyer, 1986; Lansberg, 1999; Miller et al., 2003) where effective leadership succession is critical to the family business’s continuity (Le Breton-Miller et al., 2004).

Business Succession in FOBEs

In many countries, only 30 per cent of the FOBEs survive to the second generation and less than 17 per cent to the third generation of the founding entrepreneur (Bjuggren and Sund, 2001; Ward, 1987). One of the most important reasons for this is ineffective business succession. According to Perricone et al. (2001), MSM-FOBEs are more vulnerable to business succession than large FOBEs.

In any FOBE, business succession is the process of aiming at ensuring competent family business leadership across generations of the family. It comprises of the succession of leadership of the top management or CEO (Le Breton-Miller et al., 2004) and succession of the ownership of the FOBE (Barry, 1975). In many cases, both happen simultaneously (Barach and Ganitsky, 1995). There are many more studies on leadership or management succession in FOBEs than on ownership succession. Among the studies on leadership or management succession in FOBEs, planning for business succession is focused on more than any other succession issue.

Numerous studies have found business succession planning as one of the most important determinants for the success of business succession in FOBEs (Morris et al., 1997; Sharma et al., 2001). However, many FOBE owner–managers unaware of business succession or its critical importance either leave succession to chance without planning for it or do not give succession planning the importance it deserves (Ibrahim et al., 2001; Sharma et al., 2000).

Though there are a few focused studies on succession planning in large Indian FOBEs, the study of business succession in Indian MSM-FOBEs seems to have been neglected. Critical succession planning issues in Indian MSM-FOBEs such as the awareness of business succession and its procedure, succession plans and their importance to owner–managers have by far been ignored by researchers.

Business succession planning is crucial for all MSM-FOBEs irrespective of their size. Large MSM-FOBEs have a significant financial risk associated with business succession. On the other hand, small MSM-FOBEs (mainly micro enterprises) face a great threat to their survival if leadership succession over generations is not successful. Many studies have found the extent of business succession planning to vary with the size of the MSM-FOBE (Davis and Harveston, 1998; Motwani et al., 2006). The capital employed, annual revenue/sales turnover and employee strength are the important direct indicators of the size of an MSM-FOBE which have been used in defining and discriminating among micro, small and medium enterprises across the world and in almost all studies on succession planning.

A significant variation is observed in employee strength across different sized MSMEs. According to ACCA (2010), most of the world’s micro enterprises do not have any external (nonfamily member) employee. In India too, most of the micro enterprises which accounted for 94.94 per cent of the 31 million (projected) registered MSMEs in financial year 2011–2012 (Ministry of MSMEs, Annual Report, 2011–2012), are expected to have only family members as employees. In contrast, larger MSMEs in some countries like the USA can have a maximum of 500 employees. In India, this could be much higher, as unlike many other countries, statutorily, Indian MSMEs have been defined and categorized only on the basis of investment in plant and machinery without any limit on the employee strength. There is also an observed variation in number of managerial-role employees employed in MSM-FOBEs.

Managerial-Role Employees in MSM-FOBEs

There are a smaller number of employees involved in supervisory and managerial roles (managerial-role employees) in MSM-FOBEs as compared to large MSM-FOBEs. They supplement the owner–manager in managing the business. The managerial-role employees together with the owner–manager(s) are the management resource required to run the MSM-FOBE successfully. The number of employees in managerial-role reflects the need and extent of dependence of the MSM-FOBE on external management resource. At the same time the number of managerial-role employees is also an indicator of the available managerial resource and of the extent of reduced dependency of the MSM-FOBE on the owner–manager, at least for routine management.

Influence of Managerial-Role Employees on Business Succession in MSM-FOBEs

The number of managerial-role employees is also an indicator of the scale of operations of the MSM-FOBE and therefore of its size. The managerial-role employees are more important to the operation of the business than other employees. It is likely that almost all of the managerial-role employees in an MSM-FOBE would report to the owner–manager or to the business successor directly. The acceptance of the business successor by managerial-role employees and the capability to lead them is likely to influence successor choice. The number of managerial-role employees determines the employee liability as managerial-role employees are significantly costlier as compared to other employees in an MSM-FOBE. Seemingly, due to the above reasons the number of managerial-role employees is likely to influence the business succession process and extent of business succession planning in the MSM-FOBE.

The aim of this study is to determine the importance of six business succession planning issues among owner–managers and compare it across small, medium and large MSM-FOBEs on the basis of the number of managerial-role employees employed by them.

Literature Review

Sharma (1997) defines business succession planning in FOBEs as the deliberate and formal process that facilitates the transfer of management control from one family member to another. The components of succession planning identified in numerous studies and summarized by Sharma et al. (2003) are:

Choice of business successor from an identified pool.

Development of the successor by a grooming and training process.

Developing a post succession strategic plan for the business.

Defining the role of the outgoing incumbent.

Disclosing the successor choice to the stakeholders of business.

The extent of business succession planning, its influencers and components has been focused on by many studies around the world for large FOBEs but there are only a few similar studies on MSM-FOBEs.

A study of 368 family SMEs (small and medium enterprises) in the US, by Motwani et al. (2006), found significant differences in the extent of succession planning between the large and small family firms. The revenue and employee strength of the SMEs were used to categorize the firms on size. Succession planning was found to have higher prevalence and importance in larger MSMEs. The study was conducted only among the US family firms and does not discuss or explore the influence of number of managerial-role employees on extent of succession planning.

A multilevel model relating the extent of succession planning in FOBEs to individual characteristics of owner–managers, family influence, organizational characteristics, business resource level and generation of owner–manager was proposed by Davis and Harveston (1998). One of the organizational characteristics used in the study was the size of the organization. However, neither the employee-strength nor the managerial-role employee strength has been chosen as an indicator of the organizational size in the study.

A study on impact of national variations on level of succession planning by Lussier and Sonfield (2012) compared the extent of succession planning in 673 family businesses across seven countries (including India). The study found significant differences in the extent of succession planning between six countries excluding India. The family firms in the USA, France, Kosvo, India, Kuwait, Egypt and Croatia were found to have ascending extent of succession planning respectively. The study included only large Indian family businesses and had the smallest sample (40) from India.

Succession planning practice in four large Indian family businesses which had been successfully in business for more than three or four generations was studied by Nandagopal and Thilakam (2008). The continuity and successful business succession of these businesses over generations was attributed to the founder having a vision both for the business and for each member of the family. Chittoor and Das (2007) proposed an integrative framework for business succession and used cases of business succession in three Indian business groups to link professionalization of management and succession planning prevalence to succession performance. The above two studies on succession planning in Indian family business have small sample sizes and confine their scope to large Indian FOBEs.

A thorough search could not yield any studies on awareness of business succession, extent of succession planning and importance of business succession planning or the influence of organizational characteristics on succession planning in Indian MSM-FOBEs.

The owner–manager(s) of the FOBE has the primary responsibility for business succession. Therefore, the importance given to succession planning issues is a direct indicator of the owner–manager’s inclination to plan for business succession and an assessment of the extent of succession planning in the MSM-FOBE. This study compares the importance of six succession planning issues to owner–managers on the basis of number of managerial-role employees in their MSM-FOBE. The comparison is used to establish the variation in extent of succession planning in small, medium and large Indian MSM-FOBEs. The study is designed as a two stage study.

Methodology

In the first stage, a schedule-based exploratory interview with Indian MSM-FOBE owner–managers has been used for identifying relevant business succession planning issues as well as for screening them on relative importance. In the second stage, a questionnaire based survey has been carried out among Indian MSM-FOBE owner–managers of age 40 and above. The survey has sought their response on the importance of the six selected succession issues on a 1–5 scale (1-least important, 2-less important, 3-moderately important, 4-quite important and 5-most important). The snowball method based personal visits in the NCR and other North Indian cities have yielded 406 responses, of which 364 questionnaires have been found usable.

The 364 respondent owner–managers have been further divided into four MSM-FOBE groups M1–M4, based on the number of managerial-role employees in their enterprise; M1—no managerial-role employee, M2—one managerial-role employee, M3—2–4 managerial-role employees and M4—5 or more managerial-role employees. The mean of the respondent scores on importance of a specific awareness or succession planning issue is determined for the complete sample as well as for a group and is compared with the corresponding mean of other groups using the Duncan’s mean test (one way ANOVA). The statistically significant differences among groups are used to establish variation in importance of succession planning issues to owner–managers with the number of managerial-role employees in their MSM-FOBEs.

Findings and Analysis

The findings on importance of the six succession awareness and planning issues to the MSM-FOBE owner–managers are discussed issue wise. Each of the Tables 1–6 presents the mean of the respondents’ scores on importance of an issue on the 1–5 scale for the sample and for the groups M1–M4 as well as the standard deviation (SD) of the scores. The table also lists the pair of groups for which the difference in the mean scores is found to be statistically significant and the F-value for the Duncan’s mean test used for the comparison.

Business Succession Awareness

The awareness of the inevitability of business succession by the incumbent owner–managers is primordial to their implementing the succession planning process and its importance in succession planning cannot be over emphasized. Table 1 lists the mean and SD of group scores, the pair of groups that differ significantly on the importance to business succession awareness and the F-value between groups obtained from the Duncan’s test.

Table 1.

Importance of Awareness of Business Succession: Comparison between Respondent Groups M1, M2, M3 and M4; Groups Formed on the Basis of Number of Managerial-Role Employees in the Respondent’s MSM-FOBE (M1 = 0; M2 = 1; M3 = 2–4; M4 = $5)—Duncan’s Mean Test

Importance of Succession Planning Issue	Sample (N = 364)	MSM-FOBE Groups (Based on Number of Managerial-Role Employees)								Significant Pairs (*)	F Value between Groups
	Sample (N = 364)	M1 (N = 88)	M2 (N = 121)	M3 (N = 88)	M4 (N = 67)
	Mean	SD	Mean	SD	Mean	SD	Mean	SD	Mean			SD
Awareness of business succession	4.20	0.919	3.92	0.97	4.45	0.83	4.10	0.92	4.25	0.89	M2 vs. M1, M2 vs. M3, M4 vs. M1	6.29*

Source: Authors’ findings.

Note: *Significant at 0.05 level.

The mean score on the importance of awareness of business succession for the sample is 4.20. The mean of the respondent scores on importance of awareness of business succession among owner–managers of the four groups M1, M2, M3 and M4 are 3.92, 4.45, 4.10 and 4.25 respectively. The mean score for group M2 (4.45) is found to be significantly higher than mean score for groups M1 (3.92) and M3 (4.10), (F = 6.29). The mean score for group M4 (4.25) is significantly higher than the mean score for group M1 (3.92).

Indian MSM-FOBE owner–managers treat awareness of business succession between quite important to most important. The importance of awareness about business succession is more among owner–managers of MSM-FOBEs with only one managerial-role employee than among owner–managers with no managerial-role employee and 2–4 managerial-role employees. Seemingly, business succession is more important for owner–managers who are dependent on a single managerial-role employee than owner–managers whose small business does not need any managerial-resource supplement or those MSM-FOBE owner–managers who perceive to have sufficient managerial-resource back up for their business in 2–4 managerial-role employees. Similarly, owner–managers of large MSM-FOBEs (with 5 or more managerial-role employees) give more importance to awareness about business succession than owner–managers of small MSM-FOBEs (with no managerial-role employees) as they have a higher perceived risk in business succession due to the large size of the business. The reasons for this could be the greater dependence on managerial resource to run the business and higher managerial-role employee liability in larger MSM-FOBEs.

Table 2.

Importance of Awareness of Consequences of Unplanned Succession: Comparison between Respondent Groups Based on Number of Managerial-Role Employees in the Respondent’s MSM-FOBE (M1 = 0; M2 = 1; M3 = 2–4; M4 = $5)—Duncan’s Mean Test

Succession Planning Issue	Sample (N = 364)	MSM-FOBE Groups (Based on Number of Managerial-Role Employees)								Significant Pairs (*)	F Value between Groups
	Sample (N = 364)	M1 (N = 88)	M2 (N = 121)	M3 (N = 88)	M4 (N = 67)
	Mean	SD	Mean	SD	Mean	SD	Mean	SD	Mean			SD
Awareness of consequences of unplanned succession	2.67	1.403	3.20	1.19	2.10	1.21	2.43	1.38	3.33	1.51	M1 vs. M2, M1 vs. M3 M4 vs. M2, M4 vs. M3	19.22*

Source: Authors’ findings.

Note: *Significant at 0.05 level.

Awareness of Consequences of Unplanned Succession

Business succession without succession planning can have a disastrous effect on the MSM-FOBE and the family. The awareness of consequences of unplanned succession can be an important driver for the MSM-FOBE owner–manager to plan for succession. Table 2 presents the findings on importance of awareness of consequences of unplanned succession among the MSM-FOBE owner–managers. The mean score for all the respondents is 2.67. MSM-FOBE owner–managers consider awareness of consequences of unplanned succession between less important and moderately important. The mean scores on importance of awareness of consequences of unplanned succession for groups M1 (3.20) and M4 (3.33) are significantly higher than mean scores for groups M2 (2.10) and M3 (2.43), (F = 19.22). Owner–managers of small Indian MSM-FOBEs (with no managerial-role employee) and large MSM-FOBEs (with 5 or more managerial-role employees) give higher importance to awareness of consequences of unplanned succession than owner–managers of midsized MSM-FOBEs (with 1–4 managerial-role employees). In case of small MSM-FOBEs, unplanned succession could pose a serious threat to the existence of the family which is financially dependent solely on the business. For large MSM-FOBEs unplanned succession may mean large financial risks which may be difficult to salvage in case of succession failures.

Awareness of Correct Procedure of Succession

In India, in the absence of easily available professional guidance on business succession, the MSM-FOBE owner–manager is often not aware of the procedure and process to be followed for successful business succession. The awareness of the correct procedure of succession by the owner–manager is important for the business succession planning exercise to be effective. An examination of Table 3 shows the mean of the respondent scores for the sample on importance of awareness of correct procedure of succession as 4.04.

Table 3.

Importance of Awareness of Correct Procedure of Succession: Comparison between Respondent Groups M1, M2, M3 and M4; Groups Formed on the Basis of Number of Managerial-Role Employees in the Respondent’s MSM-FOBE (M1 = 0; M2 = 1; M3 = 2–4; M4 = $5)—Duncan’s Mean Test

Succession Planning Issue	Sample (N = 364)	MSM-FOBE Groups (Based on Number of Managerial-Role Employees)								Significant Pairs (*)	F Value between Groups
	Sample (N = 364)	M1 (N = 88)	M2 (N = 121)	M3 (N = 88)	M4 (N = 67)
	Mean	SD	Mean	SD	Mean	SD	Mean	SD	Mean			SD
Awareness of correct procedure of succession	4.04	1.016	3.61	0.94	4.36	0.89	3.95	1.10	4.10	1.00	M2 vs. M1, M2 vs. M3, M4 vs. M1, M3 vs. M1	10.29*

Source: Authors’ findings.

Note: *Significant at 0.05 level.

Indian MSM-FOBE owner–managers find awareness of correct procedure of succession at least as quite important. The mean of the scores on the importance of awareness of correct procedure of succession for the group of owner–managers of small MSM-FOBEs (with no managerial-role employee), M1, is 3.61, significantly lower than the corresponding mean of scores of all other groups M2 (mean = 4.36), M3 (mean = 3.95) and M4 (mean = 4.10); (F = 10.29). Therefore, the importance of awareness of correct procedure of succession is less among owner–managers of small MSM-FOBEs than among owner–managers of medium-sized or large MSM-FOBEs. Owner–managers of small MSM-FOBEs have either lesser importance for succession procedure than medium-sized and large MSM-FOBE owner–managers. Similarly, the mean of scores for M2, 4.36, is significantly higher than the mean of scores for M3, 3.95. Owner–managers of MSM-FOBEs with just one managerial-role employee give more importance to awareness of correct procedure of succession than owner–managers of MSM-FOBEs with 2–4 managerial-role employees.

Understanding of Correct Procedure of Succession

Apart from awareness, the understanding of the correct procedure of succession by the owner– manager is important for planning and adopting the succession process to the specific situation and circumstances of the family and the MSM-FOBE. The mean of the scores for the respondent sample on this succession planning issue is 4.12 (Table 4), indicating that the importance of understanding the correct procedure of succession is between quite important to most important to owner–managers of Indian MSM-FOBEs. The mean score of 4.48, on importance of understanding of correct procedure of succession for group of respondents that have only one managerial-role employee (M2), is significantly higher than corresponding mean scores of groups M1 (no managerial-role employee, mean = 3.78), M3 (2–4 managerial-role employees, mean = 4.01) and M4 (5 or more managerial-role employees, mean = 4.04). The F value between groups for the test is 9.96. Thus the one managerial-role employee MSM-FOBE owner–managers consider understanding the correct procedure of succession more important than all other MSM-FOBE owner–managers.

Succession Plans

Business succession plans should be reasonably detailed and documented so as to serve as a map for guiding the succession process. Table 5 shows that the mean score of the importance given to detailed and documented succession plans by the respondents is 4.06, indicating that detailed and documented succession plans are quite important to most important to MSM-FOBE owner managers.

Table 4.

Importance of Understanding of Correct Procedure of Succession: Comparison between Respondent Groups M1, M2, M3 and M4; Groups Formed on the Basis of Number of Managerial-Role Employees in the Respondent’s MSM-FOBE (M1 = 0; M2 = 1; M3 = 2–4; M4 = $5)—Duncan’s Mean Test

Succession Planning Issue	Sample (N = 364)	MSM-FOBE Groups (Based on Number of Managerial-Role Employees)								Significant Pairs (*)	F Value between Groups
	Sample (N = 364)	M1 (N = 88)	M2 (N = 121)	M3 (N = 88)	M4 (N = 67)
	Mean	SD	Mean	SD	Mean	SD	Mean	SD	Mean			SD
Understanding of correct procedure of succession	4.12	0.985	3.78	0.96	4.48	0.75	4.01	1.10	4.04	1.04	M2 vs. M1, M2 vs. M3, M2 vs. M4	9.96*

Source: Authors’ findings.

Note: *Significant at 0.05 level.

The mean of the respondent scores on the importance given to succession plans in case of group M1 (no managerial-role employee; mean = 3.75) is significantly lower than groups M2 (only one managerial-role employee; mean = 4.22) and M4 (5 or more managerial-role employees; mean = 4.22), (F = 5.15). The importance of succession plans is significantly lower among those MSM-FOBE owner–managers who have no managerial-role employee in their MSM-FOBE than among owner–managers who have only one managerial-role employee or 5 or more managerial-role employees in their MSM-FOBE. Seemingly, there is higher perceived importance of going through succession in a planned manner by using documented succession plans by owner–managers, who have dependence on single managerial-role employee and those who have greater requirement of management resources (5 or more managerial-role employees) than by the owner–managers who are not dependent on external managerial-resource or those that perceive sufficient managerial-resource back up in 2–4 managerial-role employees.

Table 5.

Importance of Succession Plans: Comparison between Respondent Groups M1, M2, M3 and M4; Groups formed on the basis of Number of Managerial-Role Employees in the Respondent’s MSM-FOBE (M1 = 0; M2 = 1; M3 = 2–4; M4 = $5)—Duncan’s Mean Test

Succession Planning Issue	Sample (N = 364)	MSM-FOBE Groups (Based on Number of Managerial-Role Employees)								Significant Pairs (*)	F Value between Groups
	Sample (N = 364)	M1 (N = 88)	M2 (N = 121)	M3 (N = 88)	M4 (N = 67)
	Mean	SD	Mean	SD	Mean	SD	Mean	SD	Mean			SD
Succession plans	4.06	0.954	3.75	0.94	4.22	0.94	4.02	1.02	4.22	0.83	M4 vs. M1, M2 vs. M1	5.15*

Source: Authors’ findings.

Note: *Significant at 0.05 level.

Process of Choosing Business Successor(s)

There are many skills and capabilities that a successor must possess to be the appropriate one for successfully managing the MSM-FOBE. He or she must also have the acceptability of the family, employees and other stakeholders of the business. In many cases, there is a pool of eligible successors from the family making the successor choice difficult. The successor selection is best done through a pre-designed process with advice/involvement of all stakeholders of the MSM-FOBE rather than unilaterally by the owner–manager. It has been observed that the latter is more likely in Indian MSM-FOBEs. The design and use of an effective and appropriate process of successor selection assumes significant importance for successful succession.

From Table 6, the mean of respondent scores on importance of process of business successor selection for the complete sample is 3.74. Owner–managers of MSM-FOBEs treat the process of choosing business successor between important and quite important. The mean of respondent scores on importance of process followed for the choice of successor for groups M2 (mean = 4.04), M3 (mean = 3.82) and M4 (mean = 3.70) are all significantly higher than the mean of respondent scores for group M1 (mean = 3.33), (F value = 7.91). Owner–managers of small MSM-FOBEs (with no managerial-role employees) give lesser importance to process of choosing the business successor as compared to owner–managers of medium-sized and large MSM-FOBEs (with managerial-role employees).

Table 6.

Importance of Process of Choosing Business Successor: Comparison between Respondent Groups M1, M2, M3 and M4; Groups Formed on the Basis of Number of Managerial-Role Employees in the Respondent’s MSM-FOBE (M1 = 0; M2 = 1; M3 = 2–4; M4 = $5)—Duncan’s Mean Test

Succession Planning Issue	Sample (N = 364)	MSM-FOBE Groups (Based on Number of Managerial-Role Employees)								Significant Pairs (*)	F Value between Groups
	Sample (N = 364)	M1 (N = 88)	M2 (N = 121)	M3 (N = 88)	M4 (N = 67)
	Mean	SD	Mean	SD	Mean	SD	Mean	SD	Mean			SD
Process of choosing business successor	3.74	1.026	3.33	1.04	4.04	0.89	3.82	1.02	3.70	1.09	M2 vs. M1, M3 vs. M1, M4 vs. M1	7.91*

Source: Authors’ findings.

Note: *Significant at 0.05 level.

Conclusions

The owner–managers of Indian MSM-FOBEs treat four of the six business succession planning issues between quite important to most important and one issue between moderately important and quite important. Business succession planning is of significant importance to Indian MSM-FOBE owner–managers.

The importance that owner–managers give to the six succession planning issues varies with the number of managerial-role employees in their MSM-FOBE. The number of managerial-role employees may be one of the influencers of the importance and extent of the succession planning in Indian MSM-FOBE.

The importance of five of the six succession planning issues studied is higher among owner–managers with one managerial-role employee in their MSM-FOBE than among owner–managers with no managerial-role employee in their MSM-FOBE. The extent of succession planning in one managerial-role employee MSM-FOBEs is likely to be more than that in MSM-FOBEs with no managerial-role employees.

The importance of awareness of business succession is higher in MSM-FOBEs where there is dependence on a single external managerial-role employee as compared to where there is no requirement of a managerial-role employee or where there are 2–4 managerial-role employees to fall back on for the operation of the business during succession. The importance of business succession awareness is also higher in MSM-FOBEs with 5 or more employees in managerial-role than in MSM-FOBEs with no managerial-role employee. Apparently, this is because managerial-resource requirement to run the business and the liability of managerial-role employees is much higher in the MSM-FOBEs with 5 or more managerial-role employee.

The awareness of consequences of unplanned succession is of higher importance to owner–managers of small MSM-FOBEs (with no managerial-role employee) and large MSM-FOBEs (5 and more than 5 managerial-role employees) as compared to owner–managers of medium size MSM-FOBEs (with 1–4 managerial-role employees). The risk of unplanned succession is perceived more by large and small MSM-FOBE owner–managers than by medium size MSM-FOBE owner–managers.

The awareness of correct procedure of business succession is of lesser importance to owner–managers of small MSM-FOBEs (with no managerial-role employee) than to owner–managers of medium and large MSM-FOBEs (with at least one managerial-role employee).

The understanding of correct procedure of succession is of higher importance to owner– managers of MSM-FOBEs with one managerial-role employee than to owner–managers of other MSM-FOBEs.

Owner–managers of large MSM-FOBEs (with 5 or more managerial-role employees) and owner–managers of medium size MSM-FOBEs with only one managerial-role employee consider written and documented succession plans more important than owner–managers of small MSM-FOBEs (with no managerial-role employee).

The importance of the process of choosing business successor is lower among owner–managers of small MSM-FOBEs (with no managerial-role employee) than among owner–managers of other MSM-FOBEs (with at least one managerial-role employee).

The findings of the present study about six succession planning issues in Indian FOBEs are similar to the findings of the studies by Davis and Harveston (1998) and Motwani et al. (2006) about non-Indian FOBEs/SMEs.

The study establishes that the importance of most succession issues to the owner–manager increase (at least partially) with the number of managerial-role employees in their MSM-FOBE. The findings imply that the extent of succession planning increases with size in Indian MSM-FOBEs.

Contribution and Implications

Owner–managers of small MSM-FOBEs (with no managerial-role employee) need to be sensitized on five of the six issues of succession planning on which they have lower importance than owner–managers of other MSM-FOBEs. The comparatively lesser importance of most succession planning issues to the small MSM-FOBE owner–manager is indicative of lesser extent of succession planning in small MSM-FOBEs. This could be one of the reasons for small MSM-FOBEs being more vulnerable to business succession than medium and large MSM-FOBEs. Studies on variation of the importance of other succession planning issues with number of managerial-role employees are needed to supplement the present study. Follow-up studies are also needed to determine the relationship of other MSM-FOBE size indicators (type of FOBE, annual revenue/output) as well as other organizational and owner–manager variables to extent of succession planning.

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