Exploring the role of
Ba
in family
business context
Malin Bra¨nnback and Alan Carsrud
A
˚ bo Akademi University, A˚bo, Finland, and
William D. Schulte
Shenandoah University, Winchester, Virginia, USA
AbstractPurpose– The purpose of this paper is to analyze the family business succession process using Nonaka’s theory of knowledge creation and conceptualisation of a knowledge-creating place,Bato enhance one’s understanding of critical managerial challenges in family business succession.
Design/methodology/approach– Based on literature review, Nonaka’s theory of knowledge creation and knowledge-creating space is applied to the family business succession process.
Findings– Through literature review and synthesis thereof the paper concludes that Nonaka’s theory of knowledge creation is a highly valid framework for analyzing and supporting the family business succession process. The paper proposes thatBais a perception of a place – the family firm – and a shared purpose among family members in that firm. It is posited that the absence ofBacan be a significant barrier to a family firm adopting a successful succession process. Creating aBais essential for family firms to survive.
Research limitations/implications– Only propositions are presented, but they serve as valid research questions for future research.
Originality/value– Previous research of knowledge management processes and applications in family business context is scarce. Moreover, research on succession in family firms has not been considered as a knowledge creating and sharing process. This paper applies a valid and widely used model to the context of family firms and adopts the view that a succession process in essence is a knowledge creating and sharing process.
KeywordsKnowledge management, Family firms
Paper typeResearch paper
Introduction
Penrose (1959), in her bookThe Theory of the Growth of the Firmstates a firm’s ability to grow and sustain its existence is based on its ability to continuously create and renew its knowledge-base. In the 1980s this resource-based view (RBV) of the firm grew into a separate school of thought in strategic management (Wernerfelt, 1984; Barney, 1991) offering a valid complement to Porter’s (1980) framework for competitive strategy. Originating from RBV other permutations like the knowledge-based view of the firm and competence-based competition were spun-out with slightly different emphases (Hamel and Heene, 1994; Spender and Grant, 1996). The principal thesis for these latter perspectives is that knowledge is the most important source of competitive advantage of any firm. Consequently, the issue of how to create knowledge and renew a firm’s knowledge-base has become a target of academic research interest as well business practice. Subsequent research grew rapidly in scholarly and practitioner journals and books, moving knowledge management toward an academic discipline (Stankosky, 2005). When Nonaka (1991) presented a framework for knowledge creation that offered a systematic way to synthesize the often hard to grasp and rather abstract knowledge
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dichotomy of explicit and tacit knowledge proposed by Polanyi (1958, 1967), it became widely popular. Not only did the model make sense to business managers but it appeared to offer an explanation to the unique business successes of Japanese firms in the 1970s and 1980s (Li and Gao, 2004) that potentially could work as a short hand for building business success in other countries as well. The Knowledge-Creating Company (Nonaka and Takeuchi, 1995) became both a managerial and academic bestseller. Key to understanding the knowledge-creating firm is the spiral-like knowledge-creating framework. As presented by Nonaka the conversion between explicit and tacit knowledge continuously takes place. According to Nonaka (1991) during the knowledge conversion process new knowledge is created through a knowledge spiral where key activities are socialization, externalization, combination, and internalization (SECI). Through SECI tacit knowledge is made explicit in an iterative, spiral-like process (Nonaka et al., 2000). This spiral model was later supplemented with a knowledge creating place or spaceBa(Nonaka and Konno, 1998; Nonakaet al., 2000; Nonaka and Toyama, 2003).
Bahas been shown to provide a framework for knowledge creation in converging markets where even industry boundaries were blurred (Bra¨nnback, 2003). Thus the concept ofBaoffers an appealing framework for dealing with knowledge creation in organizations existing within diverse networks or where traditional organizational boundaries (such as family and business) are blurred, as is the case in family firms
The concept ofBaassumes the context-specific nature of knowledge (Hayek, 1945) and that the existence of knowledge is not just cognition (Nonaka and Toyama, 2003) but is created in situated action. Knowledge is defined by Zeleny (1989) as the purposeful coordination of action.Bais defined as: “. . .a shared context in motion, in which knowledge is shared, created, and utilized” (Nonaka and Toyama, 2003, p. 6).Ba is therefore not only a physical space but an “. . .existential place where participants share their contexts and create new meaning through interactions” (Nonaka and Toyama, 2003, p. 7).
Nonaka’s SECI model and later conceptualization of Ba have been studied in numerous business contexts and organizational settings. As in most of the knowledge management research over the last decade, much has been done within the context of governments and large enterprises (Stankosky, 2005). There is a lack of research on privately held and smaller firms. In particular, family business is a context that appears both fruitful and appealing. The concept ofBaseems particularly suitable for families within a family business (FB). This absence is somewhat surprising due to the importance of family business to the economic systems of most countries. It is also surprising as it is the family unit in many families that is where knowledge about survival and firm governance resides. Although many FBs are small, some are very big, accounting for one-third of theFortune 500 in the USA and half the US GDP, employing more than 80 percent of the work force (Sharmaet al., 1996; Neuberg and Lank, 1998; Shepherd and Zacharakis, 2000; Milleret al., 2003). In the European Union an estimated 85 percent of businesses are family firms (Pistruiet al., 2000).
Obviously, therefore, family firms cannot be an exception to the statement that knowledge is the primary source of competitive advantage. FBs differ from other organizations in that CEO succession in many cases is determined by kinship, not necessary by competence or suitability. Succession is a major issue in FBs as it is for any kind of firm (Rogerset al., 1996; Milleret al., 2003). In FBs, however, succession is
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most often not managed, or at best poorly managed and often does not work out the way participants wish it would (Handler, 1990, 1992; Milleret al., 2003).
This research argues that the succession process in FBs becomes a fundamental knowledge sharing, creation and renewal process taking place in multiple spaces, or Ba, and not just in the head of the current CEO. By applying Nonaka’s SECI model and concept ofBato family business we propose a framework for succession planning that places knowledge, and the sharing of that knowledge, as the primary source of sustained competitive advantage. It explains, along with social and family norms, which succession and inheritance strategies actually occur regardless of planning (Rogerset al., 1996). This paper first discusses the Nonaka frameworks of SECI andBa and then applies those constructs to a model of family businesses based on previous research on succession (Rogerset al., 1996).
The Nonaka framework – SECI andBa
Nonaka’s framework describes the way knowledge is converted from tacit to explicit and again to tacit through a SECI process. With the inclusion of a knowledge-creating space Ba, the framework acknowledges that knowledge is contextual and that knowledge transcends over multiple spaces depending on time and the actors involved (see Figure 1). In addition to the SECI spiral andBa, the firm needs knowledge assets (Nonakaet al., 2000; Nonaka and Toyama, 2003).
Accordingly, the SECI process starts with tacit knowledge being converted into new tacit knowledge through shared experience typically found in, e.g. an apprenticeship in a firm or within a family. Once socialized, the knowledge is explicated, made explicit, allowing it to be shared with others. The explicit knowledge is then externalized creating new knowledge. Finally, explicit knowledge is embodied or internalized once
Figure 1. Conceptual representation of SECI and Ba
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again becoming tacit knowledge by individuals, thus becoming shared mental models, technical know-how, or in the case of succession in a family firm, the who and how this transition will occur.
SECI is the basic process by which a firm creates its competences or knowledge assets. The process is continuous knowledge-creating spiral. Hence knowledge created through the SECI process can trigger a new spiral of knowledge creation expanding both horizontally and vertically across organizations. It is the process that transcends ontologically, across individuals, sections, departments, divisions and even organizational boundaries (see Figure 1). Knowledge is transferred beyond organizational boundaries and knowledge from different organizations interacts to create new knowledge. New knowledge creation thus transcends the boundary between self and other, inside and outside, present and even past.
Ba.Most knowledge is context-specific. The context defines the participants and the nature of the participation.Bais a place offering a shared context. This context is social, cultural, and even historical providing a basis for one to interpret information, thus creating meaning, thus becoming knowledge.Bais not necessarily just a physical space or even a geographical location – like a room or a house or a city – but a time-space nexus as much as a shared mental space an existential space where individuals are bonded through shared emotions, mutual recognition, shared values and actions, e.g. a family firm in itsnth generation. Knowledge is created through the interactions amongst individuals or between individuals and their environments.Bais the context shared by those who interact with each other, and through such interactions, those who participate inBaand the context itself evolve through self-transcendence in creating knowledge. Participants are thus not spectators, they are actors.
As illustrated in Figure 2, Bra¨nnback (2003) posits that whileBasets a boundary for interactions by creating contexts of different ontological levels,Bais at the same time boundary-free allowing for a fluid flow of knowledge through these levels. According to this perspective any form of new knowledge can be created regardless of the business structure asBatranscends beyond formal business structures. Changes inBa take place at both micro and macro levels. Membership in a community should not be confused withBawhere membership inBa, according to Nonakaet al.(2000), is not fixed but permits more flexible structures.Baallows for individuals to share time and space at the same time.Batranscends time and space just like a family firm transcends multiple generations. In effect, the firm’s deceased founders and previous members of the family business can contribute insight from the past to the present knowledge community. This occurs as knowledge is passed along to family members before the knowledge or succession traditions are lost.
Knowledge assetsform the basis for the knowledge creating process. Nonakaet al. (2000), p. 20) define knowledge assets as “. . . firm-specific resources that are indispensable to create value for the firm.” Knowledge assets are continuously evolving, are deeply rooted, and are path dependent. Knowledge assets form the knowledge base of a firm. Four kinds of knowledge assets exist: experiential, conceptual, routine, and systemic. Experiential knowledge assets are tacit knowledge shared through common experiences. For example, they include individual skills, know-how, security, passion, and tension. These are the kinds of knowledge often present in a family firm. Conceptual knowledge use images, symbols, and language in explicating knowledge including design and product concepts. These are further made
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Figure 2. Knowledge conversion through context knowledge
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explicit, systemized, and packaged using specification, manuals, databases, patents, and legal documents, and become systemic knowledge assets. Finally, once explicit knowledge has been internalized it also becomes routine knowledge assets, embedded and path dependent, such as organizational culture, traditions and routines. All of these knowledge assets exist in a family firm and impact, in particular, the management succession process.
Family business
Family owned and managed firms represent a substantial portion of national economies. It is a myth that all family firms are small businesses. Many become large multinational companies. Regardless of size, a common goal of family firms is their pursuit of transgenerational wealth creation where the choice of a successor is often predetermined by bloodline (Pistruiet al., 2000; Milleret al., 2003; Habbershonet al., 2003). Transgenerational wealth creation is a function of a family-based advantage which is founded on family-specific resources and capabilities enabling the generation of “rents” (Habbershonet al., 2003).
However, transgenerational wealth creation is considered highly problematic as tensions and contradictions occur between the family and management. These are two of the three highly complex social systems which in family firms are involved. The third system is ownership. These tensions occur in strategy, planning, growth, performance of the family firm, and succession. Researchers argue that the family and the business are separate social systems (Habbershon and Williams, 1999; Cabrera-Sua´rezet al., 2001; Habbershonet al., 2003; Sonfield and Lussier, 2004; Sharma, 2004).
To integrate these systems Habbershon and Williams (1999) introduced the concept of familiness, which is defined, following the RBV perspective, as: unique resources and capabilities of the family firm based on the interaction among the family, its members, and the business (Cabrera-Sua´rezet al., 2001). The concept of familiness clearly has its merits, but still suffers from the attempt to turn a potentially loosely defined demographic variable (family) into a causal factor (Carsrud, 2006).
Inherent in every definition of family business is both a definition of family as well as the firm. Is family really a unitary concept or is it in fact a multi-faceted term that serves as a quick reference for a variety of factors such as generations, values, ethnicity, culture, etc.? In other words, when one uses the term family one is subsuming a number of factors within that term. Is the impact of family or family influence due to values, cultural background, organizational structure, the number of family members in the firm, or number of generations involved (Carsrud, 2006)?
Consequently, any discussion concerning family firms has to start with explicating what is meant by family in that particular study and then defining family firms. Most researchers assume any reader has the same implicit understanding of the concept as the author. Families are made up of people who have a shared history, experience, some degree of emotional bonding, sets of common goals for the future, and whose activities involve group issues as well as individual concerns. Families can take many different forms.
The intact nuclear family is the most familiar, although not the most common anymore in the developed world. Today dual families have become the norm and what is family is not as simple as it seems (White and Klein, 2002; Bosset al., 1993; Bengtson et al., 2005). Many are reconstituted families with one of the parents widowed or more likely divorced. Such families consist of a new spouse, and children from one or both prior unions. The family social system now includes the relatives of current and
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ex-spouses as well as parents, in-laws, children’s spouses and children, aunts, uncles, and cousins. This may be far more complex than the traditional “cousin consortium.” The complexity is mediated by degrees of cohesion, adaptability, flexibility, boundaries, shared values, and goals. These may be more useful concepts and more easily tested than simply using family (Carsrudet al., 1996).
From the above discussion, the following propositions can be concluded: P1. Family is a dynamic concept that evolves over time; and,
P2. Family business is context specific and dependent on a particular time and space.
As previously stated, many researchers have accepted the construct that family firms operate in three different dimensions including the social systems of management, family, and ownership. Some scholars have posited that the family firm is a conceptualization of two dimensions including family and business social systems. Increasingly, markets, industries, and technologies are converging. Accepted business boundaries are blurred giving rise to formation of new parameters resulting in a business system that is far more complex than in the past. This complexity is captured in an onion-like model presented by Astrachan and Shanker (2003).
This model (Astrachan and Shanker, 2003) incorporates three definitions of the family firm; a narrow, middle and broad. The narrow definition restricts the family business to a firm with multiple generations in which more than one member of the family has major management responsibilities. The middle definition requires that the firm is managed by the founder or a descendant and the goal is that the firm remains in the family. The broadest definition includes any business where a family controls the strategic direction and participates in the business. As noted, these definitions require multiple generations.
However, we would argue that a family firm can also be one where siblings manage the firm with the intention of keeping the firm in the family (Chrismanet al., 2003). This would be the case of a first generation family firm. This study uses the definition “a family firm is one in which ownership and policy making are dominated by members of an emotional kinship group” (Carsrudet al.1996). This study argues that this definition is better suited to reflect the current nature of afamilyin many societies. However, for the sake of simplicity this study limits the discussion to two social systems – family and business. However, it is important to remember that both of the systems – the business and the family – are problematic in terms of definition and measurement.
Succession
Succession and related processes have been extensively studied as they are important and challenging for any firm (Goody, 1966; Davis, 1983; Dyer, 1988; Kets de Vries, 1993; Rogers et al., 1996; Miller et al., 2003). Succession has been found to have considerable impact on stock price fluctuations and therefore is a carefully planned process in most organizations. In businesses a well-planned succession process (the search, appointment, period of familiarization, and actual take-over) for a retiring CEO may be a few years and the new CEO may be a hand-picked insider or an externally recruited person who is slightly younger than the previous one. In family businesses the succession process is often intergenerational and may create a large age and experience gap between the past and the new CEO.
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Researchers have found that the founders who often see the business as an extension of themselves have considerable problems with handing over control (Milleret al., 2003). In fact, few FBs appear to plan for succession before it is far too late. Even when it is planned, leadership successions do not work due to an insufficient link between the firm’s past and present. One possible reason for this is the impact of personality and emotional connectedness to the current leadership. This connection is absent or much weaker in non-family firms resulting in ineffective strategies, governance, and organizational culture (Sonnenfeld, 1988; Handler, 1990; 1992; Milleret al., 2003). However, some family firms have succession crises despite plans for transition in leadership.
Rogers et al.(1996) argued that succession processes in FB are less idiosyncratic than once thought. They base this assertion on research on chiefdoms (Goody, 1958) that every scheme to accommodate multiple successors falls into two categories: personnel strategies or asset strategies.
In personnel strategies various contenders can be eliminated through tests of competence, legitimacy, combat, or ostracism. In addition, shared appointment strategies can be used including the appointment of a successor during the reign of the original leader, rotation of the office, and a division of labor in which potential successors are given other jobs.
In asset strategies, firms are restructured or contenders are given wealth payments. Alternatives to restructure the existing organization include start-ups, acquisitions, and mergers. The firm may also distribute revenue sources or use assets to pay off one or more contenders. Finally, the family firm may choose to handle succession with a combination of more than one strategy. The default succession strategy, if none of the above works, is typically combat between contenders. If this occurs, resources are often wasted or destroyed.
Recent research on first-, second-, and third-generation FBs found that there was a significant difference in the formulation of succession plans. That is, first-generation family firms (which by some definitions would not qualify as family firms) did significantly less succession planning than firms who have survived to subsequent generations. On the other hand there was no difference in how the subsequent generations planned succession (Sonfield and Lussier, 2004). Successful succession can result from the creation of traditions in how the process is managed. Knowledge transfer across generations is an important factor in this process. To develop effective succession strategies families develop or create the kinds of historical knowledge and the management of that knowledge that helps avoid conflicts and assures the survival of the family firm. This research leads to the following proposition:
P3. Succession in family firms is a knowledge-creating and knowledge-sharing process that occurs over generations.
Our argument is based on the assumption that knowledge is a vital element in the growth and survival of the family firms, as posited by Penrose (1959) and is the case for any firm. The following section explores the knowledge creating place orBain the family firm.
The knowledge creating place (Ba) in a family firm
As shown in the previous section, family firms are distinct in many ways, but there are a myriad perspectives on the definition of the family firm. Therefore the definition of
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family becomes essential. Our definition does not require multiple generations, i.e. a strict biological connection but it does require an emotional kinship that is an emotional affiliation similar to those in a family. This view also acknowledges the harsh reality in some families where some family members are emotionally disconnected or estranged. In such cases, the only connection is that of bloodline. This leads to the following proposition.
P4. Bloodline alone is not a sufficient foundation for creating aBain the firm that enables succession knowledge creation.
As illustrated in Figure 3, when applying the Nonaka frameworks in a family business context it is the particularBaand knowledge assets that become essential. These assets center on leadership choice, concepts of fairness versus equity, ownership, and career choice. The SECI process, in which there is conversion of tacit and explicit knowledge, is fairly straightforward. The challenge within a family firm is to ensure that the process is continuous and can be repeated in the future. Knowledge is shared and created across generations and involves both the individual and family involvement contexts.
From research on the intentions to enter an entrepreneurial career (Carsrud et al., 2007) it can be stated that family norms, which are a reflection of the process ofBa,are critical factors in making these decisions. These norms can vary from tacit to explicit depending on the family context and may shift over time from tacit to explicit. Social norms within a specific family concerning succession are an ongoing result of theBaand knowledge creation process. These norms will change as new knowledge and experience is added to the knowledge creation process when new members enter the community.
This process is not static. The exact circumstances within the family and the firm, such as the addition of new members and the creation of new traditions within the family, will evolve over time. For example, if the social norm assumes that firstborn males are to be the successors to firm ownership and leadership and no males are available, then some form of adaptation will have to occur. Using both the tacit and explicit knowledge available, the family must develop an alternative strategy to handle succession. Such a shift might include finding the best-qualified candidate either inside or outside the bloodline. Also, the firm might develop a succession strategy where
Figure 3.
The family businessBa
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leadership or ownership shifts to the firstborn child regardless of gender. As depicted in Figure 4, both tacit and explicit knowledge are created and transferred from the founder to the family of the founder to the second generation to third generation and so on. Knowledge from the past is captured and stored within theBafor use by future generations of the family firm.
For example, if the Ba of the family values education and intelligence then the solution of succession will be one that creates strategies focused on competence. It may also include certain education and degrees. If the focus of the familyBais more on legitimacy, then the family may create a tradition, or knowledge, in whichBais more focused on the first born or bloodline rather than on competence. On the other hand, if the family has created aBain which there is a tradition of sharing and equality, then the adoption of shared appointment strategies would be most effective. This could include appointments of a successor during the reign of the CEO or owner, rotation of the leadership office or a division of labor in which potential successors are given other jobs. Also, if theBawithin the family is focused on segregating the family business from the family’s wealth, succession may include a restructuring of the ownership so that contenders are given wealth payments rather than the leadership of the firm. Other succession options may include financing start-up companies, acquisitions of firms or even breaking the firm apart into new separate businesses. This depends on how the cultural knowledge or traditions within the importance of the firm to the identity of the family. The more the firm is central to the identity of the family itself, the more likely they will use wealth payments to manage conflicts of successors. The firm may also choose to pay off one or more contenders. Finally, the firm may use a combination of the above-proposed strategies based on the succession knowledge of the family firm over time.
Suggestions for research onBaand succession strategies
The previous discussion led to a series of propositions about how family firm knowledge creation and transfer impacts the success of succession strategies. Moreover, it can be posited that family firms with an effectiveBa, should have more successful succession or survival strategies that those firms that do not have aBa.
The analysis in this study has led to numerous research questions that scholars could explore to provide insight for family firm leaders who are searching for the most appropriate succession strategy given the nature, philosophies and traditions of their firm. How do family firms create succession strategy knowledge? How is it transferred? Is there a significant difference in successful succession strategies based on the type of knowledge within the family firm? How do family firms go about modifying that knowledge over time to create a continually viable succession process? What tacit and explicit knowledge must exist to make this process work? Which succession strategy is most effective for the specific knowledge assets in the family firm? Finally, do family firms with an effectiveBa, have more successful succession or survival strategies than those firms that do not have a Ba? These are empirical questions worthy of exploration. Future research should provide insights into how a family firm’s knowledge-creating culture could affect the success of their succession strategy or the survival of the family firm.
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Figure 4. Knowledge conversion in family business knowledge context
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Further reading
Aronoff, C.E., Astrachan, J.H. and Ward, J.L. (1996),Family Business Sourcebook II, Business Owner Resources, Marietta, GA.
About the authors
Malin Bra¨nnback DSc (Econ and Bus. Adm.), BSc (Pharm.) is Professor of International Business at A˚ bo Akademi School of Business, Finland. She has held a variety of teaching and research positions in such fields as information systems, management science, international marketing, and pharmacy. She is a frequent speaker and has published widely in entrepreneurship, knowledge management, decision making and strategic management as well as life science business management. Malin Bra¨nnback is the corresponding author and can be contacted at: malin.brannback@abo.fi
Alan Carsrud is Clinical Professor of Management, Professor of Industrial and Systems Engineering, and Founding Executive Director of the Eugenio Pino and Family Global Entrepreneurship Center at Florida International University in Miami. He directed graduate entrepreneurship programs at UCLA, the University of Texas at Austin and the University of Southern California, and has taught at Pepperdine University, Nangang Technological University, Anahuac University, Bond University, and Australian Graduate School of Management. He is Docent in Entrepreneurship at Abo Akademi University in Finland. He has published over 120 articles and book chapters on entrepreneurship, family business, clinical psychology, and social psychology.
William D. Schulte is Associate Professor and Sam Walton Free Enterprise Fellow in the Harry F. Byrd Jr School of Business of Shenandoah University. He was a founding research associate of the Institute for Knowledge and Innovation of The George Washington University where he advises doctoral students in the Knowledge Management program in the School of Engineering and Applies Sciences. Schulte has previously taught at The George Washington University, the Tobin College of Business of St John’s University in New York and the School of Management at George Mason University. He has been recognized as an outstanding entrepreneurship educator by his peers and students. As Director of the Small Business Institute at GMU from 1990 to 1994, his team won two national awards including the Showcase Award and Case of the Year award. He also received an elevator pitch presentation grant from the Coleman/Hughes Foundation. His research interests include: social entrepreneurship, innovation, cross-cultural strategies and KM.
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