Do the descriptive questions seek to describe responses to major variables? 2) Do the inferential questions seek to compare groups or relate variables?

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Citation Information: Habash, N. (2024). How to win the succession race: empirical analysis of palestinian family businesses.

Academy of Strategic Management Journal, 23(3), 1-15.

HOW TO WIN THE SUCCESSION RACE:

EMPIRICAL ANALYSIS OF PALESTINIAN FAMILY

BUSINESSES

Nojoud Habash, University of Patras

ABSTRACT

Family businesses are the backbone of the Palestinian economy where the 'family

factor,' which distinguishes family firms from their non-family counterparts, can be exploited

to a business's competitive advantage if properly utilized. However, due to the high extinction

rate through generations, it is vital to consider succession as a priority by their owners.

Relying on the relay race model, the study sheds light on the critical factors of successful

succession among Palestinian family businesses to go beyond the analysis performed on

family businesses in the Arab countries and specifically in Palestine and to make an essential

contribution in explaining family business succession. The study surveyed 282 family

businesses, of which 42% are run by 2nd & 3rd generations. Data was collected via a self-

administrated questionnaire and analyzed through principal components factor analysis and

multiple regression model. Findings reveal that family bonding and family trust in the

successor, qualifications and capabilities of the successor are the key drivers to successful

succession.

Keywords: Family Business, Succession, Success Factors, Principal Components Factor

Analysis, Palestine.

INTRODUCTION

Whether you consider succession as maintaining legacy, extending the longevity,

continuity, without it, there is nothing called family business (FB). Succession is among the

toughest and most critical challenges faced by FBs (Alayo et al., 2016), therefore, careful

orchestrating the multiyear process represented by succession across generations of owner-

managers is a priority; otherwise, FB could fail (Liu, 2021). However, despite the importance

of succession and its impact on business sustainability and continuity, it is still

underestimated by FBs' owners and, in many cases, ends up with the wrong successors (Poza

& Daugherty 2018; Strike et al., 2018). Recently, the KPMG FB survey (2019) revealed that

70% of FBs worldwide do not have succession plans in place, making 47% of them report an

emergency plan for succession in case of facing sudden by the founder. Thus, despite the

ability of Palestinian family businesses (PFBs) to survive during the crucial economic

conditions over the past 70 years of Israeli occupation (Assaf, 2017) and recently during the

COVID 19 pandemic (World Bank, 2021); still, they suffer from the succession challenge

that speeds their mortality. To best of our knowledge there is a dearth of research effort

exploring the success factors in Palestine, where only Kumar, (2011) and Abuznail (2014)

studied succession issue in Palestine.

Hence, this study drives its motivation from the need to help family business owners

to answer the following question: what are the dominant factors that control succession

process from the incumbent successor, and family sides. In order to establish the scales' sub-

dimensions consisting of the succession model constructs (factors) and to determine the

factor structure, principal components factor analysis was applied to the scores obtained from

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Citation Information: Habash, N. (2024). How to win the succession race: empirical analysis of palestinian family businesses.

Academy of Strategic Management Journal, 23(3), 1-15.

the responses given by the 282 participants. In addition, the Kaiser-Meyer-Olkin (KMO)

measure of sampling adequacy and Bartlett's test of sphericity were used to evaluate data

appropriateness for factor analysis

The findings of this study are significant, as they draw the attention of current and

future founders and incumbents of FBs that reaching to a succession process within the

Palestinian context successfully, it is crucial to stress mainly (among other factors) on family

bonding and trust placed in the next generation, qualifications and capabilities of the next

generation, financial and operational performance of the FB, desire of the next generation to

join FB, and job satisfaction and financial returns for the next generation. Hence, our analysis

provides a better understanding of the dominant familial succession factors. The finding also

agrees with Esuh et al. (2011) and Dyke et al. (2002) in supporting the use of relay race

model (RCM) in family business succession as it stresses on the need for an agreement

among family members to continue the business while underscoring the need for acceptance

among family members of their relative roles. Additionally, our findings based on analyzing

data gathered via questionnaire, we call future researchers to study FB succession in Palestine

by interviewing focus groups to clarify better succession successful factors that couldn’t be

explored in this and other researches.

Family Business in Palestinian

The Palestinian economy is characterized by micro and small-scale enterprises

(MSMEs) owned by families, of which they represent the pillars of the Palestinian economy

and the engine of its private sector (Kumar, 2011, Baidoun et al., 2018); as they found in all

of the economic sectors, and contribute to about 50% of the Palestinian national income

(Mesleh, 2012). A survey conducted by PCBS (2017) found that 97% of private businesses in

Palestine are classified as small businesses, which employ 68% of a total of 1,006,000

employees in Palestine. Thus, the total number of private businesses in Palestine has reached

108,970 firms, of which 80,637.8 (73%) are FBs; where 51,345 FBs are located in West

Bank, 29,292.8 are located in Gaza Strip, and 3,008 are located in Jerusalem. Of those

located in West Bank, 63% employ more than 50 employees, 23% employ 50-99 employees,

while 14% employ 100 employees and above.

LITERATURE REVIEW

Family businesses conceived succession as the continuance of a social legacy,

whereby those who were best-placed to carry on the social legacy were selected as successors

(Burton et al., 2022). Succession in FB is a process of transferring knowledge and

transitioning roles as well as transferring management control and, most importantly,

transferring business and family led to a new generation (Schickingor et al., 2018; Yuan,

2019). In this context, succession encompasses top management and other factors, including

the procedures for transfer, legal and financial considerations, psychological factors,

leadership development, and exit strategies (Strike et al., 2018). This emotional and essential

step in the life cycle of FB is itself a critical challenge; some FBs overcome such challenge

and witness successful succession stories; others cannot face such challenges, and hence,

witness stressful succession stories (Darwish et al., 2020; James et al., 2021)

Scholars, therefore, stress the importance of a proper succession planning process of

transferring leadership, management, and wealth to ensure continuity and prosperity of FBs

(Oudah et al., 2018; Volta et al., 2021, among others). However, many FBs tend to avoid

formal planning of succession because they consider it a source of conflicts (Dias & Junior,

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Citation Information: Habash, N. (2024). How to win the succession race: empirical analysis of palestinian family businesses.

Academy of Strategic Management Journal, 23(3), 1-15.

2018). Nyamwanza et al. (2018) found that succession planning is chaotic and a source of

dispute. Same results were reported by Gabriel & Bitsch (2018) and Jabeen & Dixon (2018).

Accordingly, many FBs leave succession planning to chance or simply ignore it in their early

years, then pay more attention to it as they mature and as the founders get older (Oudah et al.,

2018).

Some researchers (Susminingsih et al., 2019; Sanchise et al., 2020; Laufen & Rauch,

2020) emphasized that the size and age of FB, family relations and type of FB industry

significantly influence FB succession. In contrast, others highlighted the influence of regional

and cultural differences on FB continuity (Weng & Chi, 2019; Bąkiewicz, 2020; Schlömer-

Laufe & Rauch, 2020). In addition, Porfirio et al. (2020) consider the interaction between the

personal characteristics of the successor and the organizational characteristics of the FB a

vital issue in the succession processes. Furthermore, Matser et al. (2020) and Lévesque et al.

(2022) referred to communication as an additional crucial element that can help to establish

and retain a fair succession.

Theoretical Framework and Hypothesis Development

The core of this study is to shed the light on the key determinants behind successful

family business succession that go around the incumbent, successor, and family, where the

relay race model (RCM) of Handler (1992) is the best model to be used, as it gives a better

understanding of applicable succession. According to the RCM, a sophisticated and careful

passage could guarantee a successful baton; otherwise, the move can lead the firm into

reduced performance or a complete failure. Besides, the sequence and timing are also crucial

in determining the success of the team; the thing that made Handler to reflect this model in

the management paradigm, stating that new leadership is most likely to succeed if managers

take care and time needed to effect the transfer of roles and communicate this movement to

the related stakeholders. In respect to the passage or continuity process in FB, the RCM

demands team attributes of fast runners as well as good communicators and trust to ensure

timely verbal prompting at the point of exchange. Hence, it is very crucial to exercise caution

to successfully pass the baton because dropping the baton leads to performance decrements or

to complete performance failure and spells doom for the family and business stakeholders

(Sharma et al., 2000).

In this contest, Dyke et al. (2002) reveal four main factors need to be active together

in order to win the race: sequence, timing, baton-passing technique and communication.

Since succession is determined by sequence, this apparently means a successor will be chosen

in a view of the adequate skills and qualifications in order to be able to overtake the control

of firm from the current incumbent. Second, it is also essential to choose the right timing for

the power transfer to the next generation. Third, it is necessary to choose appropriate

techniques for the baton passing, and here comes good communication between family

members. Finally, to ensure a successful result, the last critical factor needs to place;

motivation of the potential successor to continue the work in family-owned enterprise.

Later on, Esuh et al. (2011) proposed a conceptual framework on FB succession based

on relay racing. They concluded that the founder, successor and environment together affect

FB continuity and that valid succession will mediate the relationship between founder,

successor and environment on the one hand and FB continuity on the other hand, as shown by

the model in Figure 1.

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Citation Information: Habash, N. (2024). How to win the succession race: empirical analysis of palestinian family businesses.

Academy of Strategic Management Journal, 23(3), 1-15.

FIGURE 1

A CONCEPTUAL MODEL ON SUCCESSION

This study aims to investigate the effect of incumbent, successor, family and business

roles on continuity, therefore, our framework compatible with the model of Esuh et al.

(2011), we view the willingness of the founder to step aside to be determined not only by the

successor's willingness, competence and satisfaction (Gagné et al., 2019; Saan et al., 2018)

but also by the family bonded relation as well as by good business performance, as shown in

Figure 2.

FIGURE 2

RESEARCH FRAMEWORK

The suggested framework begins with a willing incumbent for leaving the business by

choosing a trusty (Porfirio et al., 2019; Gimenez & Novo, 2020) under the recognition and

trust of the family (Saan et al., 2018; Kandade et al., 2021), noting that a successful and well

performed business can play in important role in the succession (Poza & Daugherty, 2018).

Hypotheses Development

The Willingness of The Founder To Step Down: The RCM deliberates how the

incumbent is the most influential actor in succession, suggesting that if the incumbent resists

transferring leadership, succession will most likely not occur. Hence, the incumbent –the key

player- willingness to step down and leave the field is considered the starting basic point for

successful succession (Richrds et al., 2019). Noting that, leaders’ (founders’) willingness to

delegate their power to the successor is a strong motivator for successors’ willingness to step

in (Wang et al., 2019). Hence, the more the incumbent (leader) is ready and willing to

delegate leadership – the baton- to the proper successor, the more supporting the family

members are, the faster the successor will fit in, the guarantee they will win the race (Lee et

al., 2019).

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Citation Information: Habash, N. (2024). How to win the succession race: empirical analysis of palestinian family businesses.

Academy of Strategic Management Journal, 23(3), 1-15.

Desire of the Next Generation to Join FB

The next holder of the baton is not just a simpler player, without desire and

motivation to continue the race, the whole team will lose. Hence, successors’ desire and

motivation to lead FB and succeed are key determinants for successful succession (Wang et

al., 2019; Porfirio et al., 2019; Caredio et al., 2020). According to STEP (2019) global FB

survey, 48% of FB leaders in the world state that the successor’s willingness and interest in

FB are key factors in succession planning and implementation. By studying succession in

Arab FBs, Samara (2021) found that selection of successors is not necessarily dependent on

their managerial skills but rather on their perceived capacity and willingness to sustain the

vision of the patriarch as well as on their perceived ability to fulfill the family's affective and

financial needs. Based on that, we hypothesize the following.

H1: There is a positive relationship between the incumbent willingness to step down and

the successor's desire to join FB

Qualifications and Capabilities of The Next Generation

Interest of the next player is not enough if he/she lacks the right capabilities to

continue effectively the race. According to the KPMG FB survey (2019), 23% of FB leaders

worldwide state that successor’s qualification is a key factor in having successful succession.

Kammerlander & Zellweger (2019) reveal that most families need the next generation to

"earn" the right to work for the business rather than see employment as an entitlement or

genetic right. Many scholars (Ferrando-Latorre & Velilla, 2019; Porfirio et al., 2019;

Gimenez & Novo, 2020) highlight the importance of providing training to the successor

during the preparation phase to achieve a successful succession process, especially when

training is coupled with the right type of educational background that suits the position and

the business needs, especially if the needed skills and knowledge are passed from the

incumbent to the successor directly (Bell & Pham, 2020). Noting that Xavier & Gan (2022)

subjected the Black Swan theory on the Malaysian Chinese family business and show that a

successful unexpected succession without any long-term preparation before a transition is

possible. Based on that, our second hypothesis is:

H2: There is a positive relationship between the incumbent willingness to step down and

the qualifications and capabilities of the next generation

Job Satisfaction and Financial Returns For The Next Generation

Enjoying with job satisfaction and financial security associated with FB make it more

attractive to potential successors (Gagné et al., 2019), especially if successor feeling of job

satisfaction is based on the opportunities given to him to make changes and explore his

opportunities (Lauto et al., 2019). From the RCM perspective, good player should be a

veteran player, not an amateur one who can do his role with passion, and that requires

noticeable recognition from his team. From the other hand, financial recognition is also a big

issue to be considered by team players, otherwise players will be the reason for losing the

race. Therefore, the financial returns planned for the successor should be worthy ones. Based

on that, the third hypothesis is. H3: There is a positive relationship between the incumbent willingness to step down and

the job satisfaction and financial returns for the next generation

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Citation Information: Habash, N. (2024). How to win the succession race: empirical analysis of palestinian family businesses.

Academy of Strategic Management Journal, 23(3), 1-15.

The Extent Of Family Bonding And Trust That The Family Places In The Next

Generation

Team-members’ role is also imperative in this life-time race, without their support to

young players they will lose the match and leave the field. In tandem with that, Gagne et al.

(2019) found that for succession to be successful, the potential successor must gain trust and

confidence from the incumbent and the other family members. Noting that, family bonding

underlines the importance of healthy family relations and good communication during

launching the transition process (Samara, 2021; Kandade et al., 2021; Umans et al., 2021;

Lévesque et al., 2022) Based on that, we hypothesize.

H4: There is a positive relationship between the incumbent willingness to step down and the extent of

family boning and trust that the family places in the next generation

FB financial and operational performance: According the RCM, the game level is

also crucial in motivating those who will hold the baton, and succession in a well performed

business is not as succession in a poor performed one. The financial attractiveness of family

businesses is important to increase successors’ willingness to run the business. Alves &

Gama (2020) found a positive influence of succession on FB financial performance, mainly

when a family successor works as an agent to improve FB performance. Accordingly,

financial problems within the FB might become a burden for succession and drives

successors to seek job opportunities outside the family business (Porfirio et al., 2019; Schell

et al., 2020). Hence, this study is going to investigate this relationship by testing the

following fifth hypothesis.

H5: There is a positive relationship between the willingness of the incumbent to let down and FB

financial and operational performance.

METHODOLOGY

Data collection, population and sample: For this study, a self-administrated

questionnaire was utilized for collecting data. The questionnaire consists of seven parts; the

first part includes general information about the FB, while the other parts reflect dependent

and independent variables. Each variable is measured by the relevant items as identified in

the literature. Those items were measured on 5-point Likert scales. To assess the robustness

of the questionnaire items, the questionnaire was reviewed by 3 academics and 5

practitioners, of them 3 from Palestine and 2 from Arab countries. The questionnaire was

electronically built and then distributed to the sample respondents representing either FB

founder or family member managers. Where, a letter explaining the nature of the study, along

with its goals and objectives was mailed to all prospective participants.

Since there is no unified formal source of FB database in Palestine, the researchers

relied on Union of Chambers of Commerce directory to sort out the family businesses that

will be eligible for the study by depending on Handler (1992) definition of family business “a

business run by at least one family member and a family business operated by the founder

where there is anticipation that the business will be passed to the next generation”.

Accordingly, a population of 2,187 FBs was defined. By using the confidence level of 95

percent a random sample of 327 was calculated and received the study questionnaire. In total,

282 usable responses (70% response rate) were received and analyzed.

Regarding the sample main characteristics, 59% of the responding FB exist between

1930 – 1984, while 41% after 1985. Furthermore, 50% of responded FBs are managed by the

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Citation Information: Habash, N. (2024). How to win the succession race: empirical analysis of palestinian family businesses.

Academy of Strategic Management Journal, 23(3), 1-15.

1st and 2nd generations, whereas 43.5% are managed by the 2nd and 3rd generations, and

only 6.5% managed by the 3rd and 4th generations. Regarding succession plan, 80% of the

sample have an oral succession plan, 8% have a written one, and the rest left succession to

chance or to the last moment.

In reference to the sectoral distribution: 37.5% of the surveyed FBs are in the

commercial sector, 35.3% in the manufacturing sector, 23% and 4.2% service and agriculture

sectors, respectively. In terms of legal status, 77% of the surveyed FBs are registered as

private corporates. In respect to firm size (based on the number of employees), about 50% of

surveyed businesses employ less than 30 employees, 12% employ 31-40 employees, and

37.5% of surveyed businesses employ more than 41 employees.

Validity and reliability: Content validity for this study was conducted by comparing

between the measurement items of each variable with an extensive review of the literature

related to the factors influencing the planning, transferring ownership, and managing the FB

to the next generation.

Factor analysis was performed to establish the scales' sub-dimensions consisting of

the succession model constructs (factors). In order to determine the factor structure, principal

components factor analysis was applied to the scores obtained from the responses given by

the 282 participants. In addition, the Kaiser-Meyer-Olkin (KMO) measure of sampling

adequacy and Bartlett's test of sphericity were used to evaluate data appropriateness for factor

analysis.

The KMO test checks if the original variables can be factorized efficiently. The KMO

index compares the values of correlations between variables and those of the partial

correlations. The Bartlett's test checks if there is a certain redundancy between the variables

that can be summarized with a number of factors. Thus, the KMO value should be higher

than 0.50, and the chi-square value of Bartlett's test must be significant at the 0.05 level. The

KMO value is 0.738 (higher than the recommended KMO value of 0.50), and Bartlett's test is

statistically significant at the p < 0.00 level. These results show that the sample can be

subjected to the principal components analysis to uncover the independent variables' </

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