Stop N Shop Supermarket - Management Succession - Case Study Example

Stop n' Shop Supermarket - Management Succession Review [Institute's Introduction The issue of management succession in small and medium sized businesses is of paramount importance to the founding entrepreneurs if the business is to survive and grow into a larger organisation. For instance, in the UK, the DIY wholesale company - B&Q started off as a small business which eventually grew into the main and/or leading retailer of home and trade improvement products. However, this growth also experienced similar management succession problems that are still being experienced by businesses in this category (BBC TV 2004). Planning for management succession involves identifying one or more employees for key posts, and this also includes career moves and development activities (Hirsh 2000). Whilst this may seem like a relatively simple task to orchestrate, it is actually a difficult task considering that most SMEs are family owned businesses (Bowman-Upton 1991). Lassini (2005) found that family businesses are unlikely to survive after the third generation with only 30% of these businesses successfully handing over leadership to the second generation and 12% handing over to the third generation. Lassini (2005) also found that nearly 2-3% of family businesses progress to permanent development, compared with approximately 97% that either close down or are sold. There are a variety of reasons for these statistics, some of which include the fact that some of these businesses are started by immigrant populations. As their children get older, they can lose interest in the family business and develop a preference for integrating with other members of society by attending university, or moving into mainstream employment. Some of the businesses may not be owned by immigrant populations but the younger generation are constantly under pressure to take on employment offers in the more seemingly attractive areas of technology, media and other more glamorous occupations which offer bigger pay packets and benefits. This demonstrates the importance of management succession in SMEs, as failure to plan for this could be a real threat to the survival of the organisation. However, SMEs also present their challenges in terms of management succession. These organisations tend to have personalised management which results in the identification of the business with the owner/founder; they have a small market share which means they cannot dictate the price and have to rely on the numbers of goods sold; they occupy a niche market with heavy reliance on customer loyalty; and they also find it difficult to raise the finance to grow (Bartol and Martin 1998). Whilst SMEs have favourable characteristics which include having a dependable culture and strong commitment, their nature leaves them vulnerable to succession issues and dilemmas, and is often the main reason why they find it difficult to survive throughout generations. For example, the Hilton hotel chain was founded during the Great Depression in the US and it is currently in its second generation; however, the succession into the third generation does not seem clear as there is no apparent heir to the hotel chain. Traditional management succession models cannot be easily applied to SMEs because they are more relevant to larger corporations. For instance, traditional methods include employee motivation and rewards through promotions, higher salaries and incentives (Mullins 1999). However this can only work in an organisation a tall hierarchy and more layers of management which are lacking in SMEs. This paper shall analyse the issue of succession in a SME and consider future options for the business. The Business Case Study Stop N' Shop Supermarket has been chosen as the SME for analysis for this paper. This business has been selected based on the definition of an SME which stipulates that it has at least one employee and no more than 50 employees in order for it to be included in this paper. This business is family owned and it currently a first generation business owned by a Mr Bennett who employs two people to work for him. Mr Bennett has three children: a son called Sam who helps at the store after school; a daughter, Marsha who helps out during the weekends and another son, Brian who is at university and displays no interest in the business at all. This makes this business ideal for this analysis as it has the potential to present with major problems and issues in terms of management succession. This business is a first generation business, which also means that Mr Bennett will be faced with major decisions when he retires. This business is located on the borders of South West London and North Surrey, England. It is situated at the Ace of Spades roundabout, on the junction of A3 and A243 and can be reached from either the junction 9 or 10 from the M25 ring road. The K1 bus also services the store and the nearest main line train station is Surbiton. It is therefore located in a convenient location for customers which gives the business plenty of scope for growth and development. This supermarket is located in a good position in terms of transport links and population. This has led to numerous offers by major supermarkets which Mr Bennett has so far refused because of his desire for the store to remain in family control. Mr Bennett's supermarket has become established in that particular community, and serves as a one stop shop where members of the community can buy everything from house goods to grocery items. Another major advantage is that Mr Bennett does not have any major competitors in the immediate vicinity. A general lack of competition can lead to complacency and a static environment as there are no direct comparisons for the purposes of quality and creativity. However, only Sam seems interested in running the store as a second-generation owner, as his other children would prefer that he sells the business to the larger businesses and use the money for investment elsewhere. Sam also presents as being subordinate but would require training and grooming as he does not have the business acumen to cope with the daily activities involved in running the store. In this case, Mr. Bennett does not have a sound academic background therefore; he is quite apprehensive about an outsider taking charge of the business. This supermarket case therefore is facing a management succession dilemma. The owner, Mr Bennett needs to consider the future of the business and decide on the direction he would like to take his business. Discussion Mr Bennett's single biggest problem in terms of management succession is the lack of interest on the part of his children. His preferred method for succession would have been selecting one of his children to take over and run the supermarket when he retired, however, with only one child showing interest, Mr Bennett has been forced to consider his position. His other option would be to sell his business or shut it down. However, Mr Bennett is reluctant to sell his business for various reasons which may include retirement investment. Selling the business could be interpreted as a failure on his part, especially for a business he created from nothing. He has also spent a lot of time on the business to ensure it stays operational, and selling all this could also be perceived as being a waste of the initial time and resources utilised in the beginning. The business serves as a source of livelihood to Mr Bennett, especially in terms of the community spirit, and the relationships he has built over the years with suppliers and his loyal customers. Selling the business could therefore take away this social aspect of Mr Bennett's life, which could also be responsible for the motivation and commitment. But no clear successors have emerged because two of his children basically have no interest in the business, and the one child that does have an interest does not have sufficient training and knowledge to be able to takeover the business and keep it in the family. Mr Bennett is also aware that it will take considerable time to train his son, who is still of school going age to be a part of the business. Whilst the business itself is viable, it does need a change of leadership or new input into the business to take it forward; however this is still forthcoming, probably because resources are not being allocated as efficiently as they should. The business has the potential to increase its sites and employees, but this would need an individual with the motivation and drive to take it forward. This individual would need to be more in touch with the current operating climate in terms of technology and resources. Failure to find a successor would leave Mr Bennett with the option of relinquishing either total or partial control of his business. For instance, the worst case scenario would mean Mr Bennett would have to shut down the business. However, this would also involve time and effort in making sure all creditors have been paid, his two employees would require sufficient notice and he may also have to think about an unemployment package for them, as there are financial implications for making people redundant in the UK. Appendices A, B, and C, contain assessment proformas that Mr Bennett could use to decide his management succession through assessing his current business strategy, resources and feasibility of going alone or delegating responsibility. Mr Bennett could also sell the store to the larger supermarket chains, which are more likely to give him the best price, as they are looking for the location more than the business interest. If his son did take over the business, the assets would also belong to his other brother and sister, and this can sometimes be a bone of contention in successions. His brother and/or sister could then sell their stake in the business which would mean that the business would shift towards greater independence from the family. Without the strong motivation and desire to make the business succeed, this situation would soon lead to the sale of the business due to the increased pressure to perform with the family support. Derossi (1977) suggested that owners with low levels of education and very small businesses have a tendency to keep the succession processes within the family. However, those that own medium sized businesses and have sufficient academic knowledge are more tolerant towards outsiders entering their business. They are also more likely to appoint an outsider at upper management level within their organization. This is true of Mr Bennett, as his reluctance to consider or seek outside help could actually lead the business into demise a whole lot quicker. Ideally Mr Bennett has three options left to him at this stage of the business. First of all, it will take years to train his interested son to take on the reigns of the businesses, as he has to complete his basic education first. Even then this is not a guarantee that the succession will be smooth and permanent. Mr Bennett needs to decide how he is going to take the business forward. If Mr Bennett is content with just running the business for his self satisfaction, then business growth will not be considered. However, if Mr Bennett is looking to increasing profits and becoming established in his home county or nationwide, then the succession issue will take a different turn. At this time, he has not discussed or seriously thought about succession even though he is aware that it is an important issue. He also does realise that he is short of prospective candidates from within the family, and he does want the business to continue but the reality is that it is likely to continue with the involvement of external parties. There are various models for planning management succession but most are only applicable to larger organisations as they often have the resources to undertake any tasks required. One model that could be introduced to Mr Bennett is the "Heir Apparent Model" (McWilliams 2005) which involves grooming a successor over a number of years through education, mentoring and job shadowing. If Mr Bennett chose this model, it is highly likely that he would choose his son for grooming; however the main disadvantage to using this method is that his successor may develop different aspirations either in the middle or at the end of the grooming period, which would represent a huge waste of resources. There is no doubt that Mr Bennett is passionate about his business, but his successor has got to share the same level of passion as well. Whilst his son does help out after school, it would be nave to think that this was an indication of interest and business passion. The current business climate and the world in general, are constantly changing, which removes the element of stability from the succession planning process. If the business were a large organisation, Mr Bennett could have searched among the management, but with only two employees, there is little scope for choice in terms of family succession. Little choice or fewer options also reduce the probability of success. Even in grooming his son, Mr Bennett would have to be prepared for different views and ideas, as there is nothing that would stop his son from selling the business were it passed onto him. Whilst the Heir Apparent Model would ideally be the quickest way of solving the succession dilemma, there is no guarantee that the successor will maintain the status quo or even stay with the SME. Larger supermarkets will tempt to lure the successor from this business with larger pay packets and benefits, and there is also the added bonus of reduced risk that comes with making the major strategic decisions. The other alternative model is the "Star Model" (Rothwell 2001) which would require a lot of discussion and consideration as the potential for success would rest with the level of planning and research undertaken. This model seeks to provide the answers for three organisational questions which are: what do we have, what do we want and what are we going to do about it This model seeks to find a solution from within the organisation, as Mr Bennett ultimately knows the business better than any external party. Mr Bennett is in possession of a superstore in a favourable location, and two loyal employees. His most valuable resource is the land he occupies and the potential does exist for growth and expansion. However, Mr Bennett wants a successor from the family, as he does not want any of his children to feel that they have been left out of their share of profits. At the same time he also does realise that he cannot enforce the supermarket onto his children. His most realistic option would be to reconsider what he wants from the supermarket and where he sees it in the next 10 years. Mr Bennett would have to reconsider the future of the business, especially if he does not want to sell it or shut it down. This would leave him with two options: he can either retain ownership of the business but subcontract the management to look after the operational side of the store, or he can retain both the family ownership of the supermarket and the control. The first option would introduce new ideas into the business, which could translate into increased profits and growth opportunities; however, Mr Bennett would have to be prepared to accept these ideas. Mr Bennett would also have to select the appropriate individuals, which would introduce risk, as any wrong decisions will affect the viability of the business. This option would still allow Mr Bennett to retain overall control without totally selling his business. This option has been demonstrated by Ken Morrison of Morrison's Supermarkets in the UK, who agreed to take a back seat in managing his supermarket chain in favour of new ideas and thinking (BBC 2005). Sir Richard Branson also adopted this approach when he floated his Virgin Group, but soon bought back the rights and shares to his organisation as he preferred to have total control, and felt his vision was more appropriate for the viability and prosperity of the organisation. The other option of retaining the business and control is more likely to keep the business stagnant, and not exploit the opportunities available to Mr Bennett in terms of alliances, potential new sites, new services and products. Mr Bennett would also need to ensure that he was flexible and adaptable enough to keep up with the fluctuating and unpredictable customer demands. For example, most of the larger supermarkets now have online shops and offer delivery. Whilst Mr Bennett may have a loyal following, his customers will be developing in their homes, and the increase in ownership of home computers and availability of broadband internet increases the possibility of a gradual decline in customers. This might entail enlisting the help of his son to predict market and customer trends, but this still requires a significant level of education and acumen to carry this through. Conclusions This paper has introduced the nature of small and medium enterprises which contribute to the issues and dilemmas experienced when the time comes for management succession. Small and medium enterprises are often family owned, however when it comes to succession they often struggle to maintain business continuity and fall victim to business closures. Our case study involved a brief analysis of the business run by Mr Bennett. Mr Bennett has started thinking about management succession as only one of his children is showing an interest in the business. Whilst he might be able to successfully pass this onto his son, there are other factors that are reducing the chances of success in terms of a third generation succession. Most of the options available to Mr Bennett require huge amounts of resources that are more akin to larger organisations. Two options were therefore available for Mr Bennett: he could either maintain the status quo; or enlist the help of external parties. If Mr Bennett would like to maintain some degree of control in the family and expand the business, it is recommended that he retain ownership of the business but give his two employees more control and responsibility of the operational and management aspects of the business. His employees have been loyal and are probably more in tune with new developments and changes with the customers as they deal with them on the shop floor. This will utilise his current resources effectively, and he will be able to test the waters of delegation and owning the business from a strategic point. With this option, he would still maintain overall control, and the business would remain in the family. All decisions and strategies would be discussed with him in advance, but he would need to maintain an open mind and be more receptive to other people's ideas and suggestions. References Bartol, K M & Martin, D C (1998) Management. 3rd Edition, Irwin McGraw-Hill, New York. BBC Website (2005) Business Section, http://www.bbc.co.uk - page last accessed 29 August 2006. Bowman-Upton, N (1991) Transferring Management in the Family Owned Businesses. U.S. Small Business Administration Churchill, N C and Lewis, V L (1983) The Five Stages of Small Business Growth. Harvard Business Review - May-June. Derossi, F (1977) El empresario mexicano. Mxico, Universidad Nacional Autnoma de Mxico. (Original: The Mexican Entrepreneur, Paris, Desc, 1998. Desc, 25 aos de historia, Mxico, Desc. Gersick, K E., Davis, J A., McCollom Hampton, M. and Lansberg, I (1997) Generation to Generation, Life Cycles of the Family Business, Boston, Mass, and Harvard Business School Press. Hirsh, W (2000) Succession Planning Demystified. Brighton: Institute for Employment Studies. Lomnitz, L A and Lizaur, M P (1987) A Mexican Elite Family 1820-1980. Princeton, N.J.Princeton University Press. McWilliams, A (2005) Mentoring for Succession: Countering Aging Work Force Issues, http://www.mentoring-association.org/membersonly/FocusOfM/AMcWms.html Page last accessed on 22 August 2006. Morikawa, H (1996) Top Management no Keieishi Business History of TopManagement, Tokyo, Yuuhikaku. Mullins, L J (1999) Management and Organisational Behaviour. 5th Edition, Financial Times-Pitman Publishing, London. Rothwell, W J (2001) Effective Succession Planning, 2nd Edition. AMACOM, New York. Siropolis, N C (1994) Small Business Management. 5th Edition, Houghton Mifflin, Boston. Appendix NOTE: The following portion has been taken from Professor Nancy Bowman-Upton's article "Transferring Management in the Family Owned Business". In order to prevent plagiarism complete reference and citation of the article has been provided in the bibliography. APPENDIX A: FAMILY BUSINESS ASSESSMENT INVENTORY Section I YES NO Business issues 1. Have goals for sales and profits been set _____ _____ 2. Do we have a business plan _____ _____ 3. Do we have a strategic plan _____ _____ 4. Is the business in good financial standing _____ _____ 5. Do we have a compensation system _____ _____ 6. Do we have a performance appraisal system _____ _____ 7. Do we have a board of directors _____ _____ 8. Can we attract and retain non-family managers _____ _____ 9. Is the business in a highly competitive industry _____ _____ 10. Are we experiencing an increase in sales _____ _____ Family business issues 1. Do family members know they are welcome to join the firm _____ _____ 2. Do we have policies for entry into and exit from the firm _____ _____ 3. Is a system in place to train and develop the successor _____ _____ 4. Do we have a succession plan _____ _____ 5. Can family members in the firm effectively communicate _____ _____ 6. Do we have a system to resolve conflict among family members _____ _____ 7. Are women welcomed in the business _____ _____ 8. Is there a minimum amount of sibling rivalry in the firm _____ _____ 9. Is there a system in place for choosing a successor _____ _____ 10. Does the family agree on goals for the business _____ _____ If you answered no to any item action should be outlined and implemented to address and set policies for that item. Section II The following items need to be discussed in the family business: Leadership succession. Ownership transfer. Communication policies. Compensation policies. Rights and responsibilities of non-family employees. Rights and responsibilities of in-laws. Creating change. Development of a management team. Long-term planning for the business. Obtaining financing. Financial equity among children. Resolving conflict. Hiring and firing practices. Sibling rivalry. Organizational relationships. Working with advisers. This list should be distributed to every family member. Responses should be compared and issues of concern to family members identified. Unresolved issues should be discussed and polices established to resolve them. ________________________________________________________________________ APPENDIX B: STRATEGIC PLAN CHECKLIST YES NO 1. Have I listed the emerging opportunities in my industry _____ _____ 2. Have I listed the environmental threats to my firm _____ _____ 3. Have I listed the internal strengths of my firm _____ _____ 4. Have I listed the internal weaknesses of my firm _____ _____ 5. Have my family and I listed our personal goals and objectives _____ _____ 6. Do I have a mission statement _____ _____ 7. Have I listed goals (objectives) for the firm _____ _____ 8. Are the objectives for my firm in line with my family's personal goals _____ _____ 9. Are the objectives for my firm in line with the analysis of my firm's strengths and weaknesses _____ _____ 10. Have I written a strategy to meet my objectives _____ _____ 11. Are my actions -- manageable (one year or less) _____ _____ -- accountable (someone is responsible) _____ _____ -- reasonable _____ _____ APPENDIX C: PRE-RETREAT PLANNING Determine which questions would be most beneficial to address at your retreat. Have everyone answer these. Personal Questions 1. Do you have a desire to be the successor in the family business 2. What are your reasons for wanting to be the successor 3. Have you signed a letter of commitment 4. Do you intend to work outside the family business 5. Do you have the necessary education to handle the job 6. Are your values comparable to the founder's values 7. What strengths do you have that can benefit the organization 8. Do you have a vision for the company 9. Are you willing to make sacrifices (such as your family time) for the business 10. Is your choice to become successor your own, or is it expected by the family Questions Dealing with the Family 1. What are the reasons for perpetuating the family business 2. Are you aware that the odds are not in favour of the survival of the business 3. What is the history of the family business 4. How does the family get along 5. Is anyone qualified to be the successor 6. Who will choose the successor 7. How will the successor be chosen 8. At what age will potential successors be allowed to work in the family business 9. Is there a minimum education level required to become the successor 10. Will there be a position in the family business for all interested relatives 11. Are there any special conditions for entering the family business 12. Who will determine salaries 13. Will salaries be paid evenly across the board or by performance 14. Will a mentor be assigned 15. Will the successor be accepted by the family 16. Is anyone in the family eligible to become the successor 17. How will conflict among relatives be resolved 18. Will the successor start in an entry-level or management position 19. At approximately what age will the successor take control 20. Will a spouse be allowed to work in the family business 21. How long will the potential successor remain in control 22. Is there a procedure for filing grievances in the business 23. Is there a code of conduct 24. Will all potential successors work at the headquarters or at different divisions 25. Are the successor's suggestions taken seriously Questions Relating to the Business 1. In what stage of the industry life cycle is the family business 2. What is the company's mission statement 3. Can the business support another executive 4. What are the company's strengths and weaknesses 5. Who are the firm's competitors 6. Are there any barriers to entry 7. What are the competitors' strengths and weaknesses 8. What is the business's current market share 9. Has the founder told employees the business will stay in the family 10. Do employees hear news directly or through the grapevine 11. How does the family business compare with other companies in the same industry 12. Is there a manager in place capable of running the business if something should happen to the founder and the successor is not ready 13. Will current employees stay when the power changes hands 14. Are the company's goals shared by the employees 15. Is the family business ahead or behind technologically 16. Does the interest of the family or at the business come first 17. Is the family willing to sacrifice today to prosper later 18. Will the employees accept the successor 19. Is the timing right to announce the successor 20. Is there fresh talent in senior level positions 21. Is there an established budget 22. Is reinvesting in the family business a priority ________________________________________________________________________ APPENDIX D: ASSESSMENT OF CANDIDATES Instructions: List below all of the potential successors to you as principal owner. For each quality rate the candidate on a scale of one to five with five very high and one very low. The Columns should be labeled Name Related education Relevant experience Commitment to family and firm Management style Read More