At the end of this module you will be able to:

01 Understand the criticalities of generational changeover at strategical, managerial and relationship level

02 Be aware of the different subjects involved and their characteristics

03 Recognize different types of generational changeover, determined by the characteristics of the subject involved

04 Be aware of the 5 steps for the generational changeover

05 Be aware of the 7 'conditions' for a successful generation changeover

Company turnover is a situation occurring when a person in a top position no longer has sufficient skills and profile to adequately guide the company, or no more support from the ownership and the internal stakeholders (shareholders, employees), or no more trust from the external stakeholders (suppliers, customers, banks, etc.). This person is no longer able to assure the survival or development of the company.

Clearly, this process happens in any company, whatever the type of corporate ownership structure.

A Generational Changeover is a special case of entrepreneurial succession that occurs in family businesses.

Generational changeover has a number of specific strategic, managerial and relational complexities.

At Strategic Level, a succession at the top is always going to have an impact on the strategy of the company:
• succession is an opportunity for genuine repositioning in the marketplace;
• it is often a basis for exploiting new business opportunities

Even when the firm is moving in a quiet competitive arena, the person who has assumed leadership often introduces some "innovation in continuity," to mark the difference from his or her predecessor.

Operational management is heavily impacted by the change in leadership. In small firms in particular, behaviors, decisions and actions are often based on practices and customs that revolve around the top management figure.

When this person steps down, the effectiveness of these unwritten rules lose some or all of their impact, to be replaced by operational procedures.

In this way, the firm can become more autonomous, and its management can become more orderly and regular. The prerequisites are created for the development of a top management team to work alongside the new leadership, made up of both family members and external people.

The generational transition, irreversibly alters the complex system of professional and family relationships within the firm.

If the outgoing leader was recognized as having an innate charisma, which made it possible to obtain commitment and participation on a fiduciary basis, the new leader is likely to need more than a formal investiture to obtain the same attitudes from the team, but he/she must earn trust by demonstrating that he or she has the skills to lead the company successfully.

By analogy, the way of relating to family members, whether or not they are involved in management, also changes.

The outgoing generation is the one that led the company and bears the responsibility for the competitive position, the results achieved and the development potential.

The incoming generation is the generation that is applying or being applied to take over the leadership of the company.

Internal and external stakeholders are all the other parties involved in the company's relationships with well-defined roles that may change as a result of succession dynamics: from internal employees with their respective organizational positions, to key customers and suppliers; from financial institutions to other companies in the competitive environment

Outgoing generation. The characteristics of this generation, with reference to the generational transition, can be summarized as follows:

Willingness to collaborate and delegate. It distinguishes leadership figures who act with managerial or charismatic styles from those who are more inclined to sharing and delegation;

Temporal orientation. It distinguishes those who can look far ahead (long-term logic, attention to processes), from those who are immersed in daily operations (short-term logic, attention to results).

Incoming generation. The descriptive dimensions in this case are:

Willingness to wait. It distinguishes those who, recognizing the priority of the adult generation, know how to bide their time, from those who are not able to wait for the normal course of events;

Nature of skills. It distinguishes those who bring traditional know-how from those who instead provide innovative skills.

From the perspective of the outgoing generation, we get 4 transition profiles:

Eluded generational transition, when those with leadership roles do not know how to detach themselves from operational tasks to devote instead to strategic ones and, above all, to plan for the generational transition;

Generational handover with abdication, when the outgoing generation adopts management styles and hands over the reins of the company en bloc to the new generation, without any attention to inclusion;

Deferred generational changeover, when the leadership figure knows how to involve the new generation in decisions and how to delegate, but believes that the time is not yet ready or that the particular moment experienced by the company does not make it appropriate;

Deferred generational handover without abdication, when the process is diluted over time and the turnover is reduced almost to a formality that has already been legitimized in practice.

From the perspective of the incoming generation, there are 4 transition profiles:

Claimed generational transition, when the incoming generation, although not bringing relevant management skills, pushes to take over the leadership of the company and implement the moment of transition. This situation can generate conflict within the family;

Traumatic generational transition, when the would-be leader claims to take over leadership because he or she knows that he or she has innovative skills, if not indispensable, to the success of the business, so much so that he or she acts with strength and determination, which in some cases can also lead to conflict with the previous generation;

Generational transition in continuity, when the new generation is willing to wait for its moment and, not bringing innovative skills, guarantees continuity from every point of view;

Involved generational transition, when the two generations collaborate in redefining the field of activity by "listening to each other".

With regards to skills, it is possible to identify two borderline situations:

Constancy of skills, if the characteristics of the business and the competitive environment are stable and it is assumed that this may continue in the future. In this idyllic situation, the training path of the new generation will be able to follow that followed by the outgoing generation and those who give up leadership will be able to:

1. still contribute to the activity, occupying a secluded and "supportive" role;
2. manage the succession process through a long-term coaching, which acts as training on the job.

Radical renewal of skills. If the business and/or the competitive environment present characteristics different from those faced by the generation at the top and if there is an expectation that the situation may evolve in a way that is not easily predictable, the new generation will have to be granted the power to conduct, rethink and redesign the business.

In this case we speak of "strategic delegation" and the new leader will be asked to make an innovative contribution in terms of skills and vision. Consistently:

1. the margins are reduced for a still active presence of the outgoing leadership, which will be able to continue to play a "representative" role;
2. cohabitation at the top between outgoing and incoming leaders is not necessary: on the contrary, this can be counterproductive

It is always necessary to share the business values among all parties involved in the process, as the generational transition does not represent a moment of break with the past, neither in organizational terms, nor in relation to the business.

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The set of events or phenomena that lead the generation in charge to become aware of the fact that there are conditions to think about transferring the entrepreneurial function; of course, the case of unexpected, unplannable and traumatic events is a different matter; this phase has psychological, personal and identity implications;

The set of decisions that indicate how to proceed on a family, legal, patrimonial and financial level in order to identify the new leadership, choose the tools and organize the actions to make the transition a reality, also considering the expectations of internal and external stakeholders;

The set of actions in application of the defined plan, including the management of relationships with family members and stakeholders;

It identifies the decisions that formalize the transfer of the entrepreneurial function, both from the legal and patrimonial point of view (with its impact on the family's equilibrium), from the organizational point of view (with consequences on managerial structures and roles), and from the business point of view (with the more or less favourable "reactions" of clients, suppliers and other stakeholders);

The set of decisions, behaviour, and actions that the new leadership (the successor and its top team) puts in place to run the business.

In order to increase the likelihood that generational change is an opportunity, many studies on family business suggest that seniors follow certain steps according to the different ages of the young people:

At age 10: Take them on a tour of the business to get to know it.

Between the ages of 10 and 18: Start by making them love the company and the work of the entrepreneur, emphasizing all the positive aspects while not hiding the negative ones.

Between the ages of 10 and 18: ask your children to do their best work (study) and to do some activity to develop their personal qualities: sport, volunteer activity and/or hobby pursued with constancy. Spend time with your wife (or husband) observing your children's development and trying to reach a common judgment.

At the age of 18: dedicate time to help them choose a faculty on the basis of a medium-term plan. And if they don't want to study anymore, don't worry: make sure they find a serious job, not a lot of " little jobs".

Between 19 and 23 years old: if they have chosen to go the university, or even if they didn’t, stimulate them in every way possible to spend some time abroad. At the same time: have them participate in opportunities to learn about the company, its business model, results, key staff, and outcomes; and have them get to know other sons and daughters of entrepreneurs to recognize the similarities and differences between themselves and others.

At 23 years old: When they have finished university, discuss with them the possible opportunities they have found and, if the company does not have an urgent need, explain to them the advantages of a good work experience in a competitive company, perhaps abroad. And if they want to develop their own start-up, help them evaluate it with balance.

At 28-30 years old: if the experience outside the family business has worked, start to evaluate the possibility of joining the company, clearly defining the role and career prospects. If it didn't work out, spend some time to understand why and if the reason is that your son or daughter is not suitable to be an entrepreneur, consider other options for the future of the company: they can be (good) owners or you can consider selling the business.

When joining the company: spend some time answering their questions, listen to their proposals. At the same time start looking for a hobby, if you don't already have one: it will be very useful when you have to loosen your grip on the company to make room for young people.

Before the age of 35: give them a clear responsibility to measure the results. If there are more children and cousins in the company, get across the idea that companies are hierarchical structures where not too many people can be in charge.

Before the age of 40: give them overall responsibility for the company and evolve your role from one of entrepreneur who makes all the important decisions to one of advisor to the decisions your children make.

Before the age 50: If everything went well, start celebrating the successes of your daughters and sons. In a journey that lasts 30 years, it is obvious that anything can happen. That's why you need to be flexible and evaluate each step with balance to try to find the best way to have a successful company and satisfied children. In the case of multiple children and cousins, writing down some rules can be very helpful.

Theory and practice point to several "conditions for success" that can allow us to look forward to a successful transition plan with greater confidence.

1. Separate business from family. Develop a concept of "responsible ownership," which translates, for example, into:
• availability to the contribution of non-family capital;
• Openness to contributions from outside managers;
• In general, privileging the interests of the firm over those of the family.

2. Apply a modern governance system. Some common traits of effective governance systems are:
• some degree of separation between "family" and "management" tables (e.g., through a Holding Company);
• clear accountability with relative separation of roles;
• clear definition of the role of the Chairman;
• care in the composition of the Board of Directors, if possible with some external members independent from the family.

3. Evaluate "competence" more than "belonging". Affirm a meritocracy model by conducting evaluations of family members that meet certain criteria:
• performance;
• on the basis on an analysis of skills and their correspondence with company needs;
• conducted by the oldest member of the family or by a "third party".

4. Define shared rules for change. Plan for changes and associated "rules" in a timely manner, e.g., by:
• Evaluating all options, discarding those that are impossible;
• Prioritize the competitiveness of the firm over family balances;
• When planning the distribution of shares, consider family, ownership and business together, also in view of the concurrent choices in the assignment of business leadership.

5. Preparing for the unexpected: asset conditions. Prepare the family's assets for generational change, for example, by ensuring that:
• Part of the family patrimony is always available for unforeseen contingencies (e.g. tax liabilities in the event of death);
• There should be an extra-family patrimony that allows for the "liquidation" of unwelcome or uninterested partners;
• There should be a division of assets between family members to reduce the burden in the event of the sudden death of one of them.

6. Plan the goal and the process. Avoid "rigid" planning in the stages of generational change (which can last decades), and rather formulate plans that gradually "adapt" to the evolution of the process.

7. Involve "third parties". Involve third parties (professionals, business managers, other trusted individuals) who make three contributions:
• fill a knowledge gap in the entrepreneur;
• Undermine the entrepreneur's belief that their case is unique;
• Reducing the area of emotions, expanding the technical-economic evaluations.

Remember (now you know):

01 Understand the criticalities of generational changeover at strategical, managerial and relationship level

02 Be aware of the different subjects involved and their characteristics

03 Recognize different types of generational changeover, determined by the characteristics of the subject involved

04 Be aware of the 5 steps for the generational changeover

05 Be aware of the 7 'conditions' for a successful generation changeover

Keep going!