Content uploaded by Lex Van Teeffelen
Author content
All content in this area was uploaded by Lex Van Teeffelen on Sep 09, 2016
Content may be subject to copyright.
0
Strategic renewal after ownership transfers in SMEs:
Do successors’ actions pay off?
Lex van Teeffelen*
Associate Professor
Faculty of Economics and Management
University of Applied Sciences Utrecht
P.O. Box 85029, 3508 AA Utrecht
The Netherlands
lex.vanteeffelen@hu.nl
Lorraine Uhlaner
Professor
Entrepreneurship Studies
Nyenrode Business Universiteit,
P.O. Box 130, 3620 AC Breukelen
The Netherlands
l.uhlaner@nyenrode.nl
About the authors:
Lex van Teeffelen, PhD (as of June 2010), is research manager on SME Transfers at the University of
Applied Science Utrecht. As associate professor and senior consultant he develops programs on change
management, innovation and SME transfers. He recently published his dissertation on small firm
business transfers.
Lorraine Uhlaner, PhD, is professor in Entrepreneurship at the Nyenrode Business University, director of
the international MBA Program and senior research fellow at the Max Planck Institute. Her current
research includes family firms, corporate governance and business transfers.
* For information on this study, please contact the first author
1
Strategic renewal after ownership transfers in SMEs:
Do successors’ actions pay off?
Abstract
Different types of strategic renewal by the successor are identified: organizational change,
innovation, combined actions and no action. The main assumption is that renewal after
succession improves SME post-transfer performance compared to no actions taken. Also
successor’s timing of the takeover is observed, looking at the economic conditions in the year of
ownership transfer: decline, average or growing conditions. The hypotheses are tested on a
random stratified sample of 333 Dutch firms. Univariate analysis of variance (ANOVA) and
complementary T-tests show that organizational change, product/market innovation and
combined actions all increase post-transfer performance compared to no renewal. Strategic
renewal pays off in any economic period, but mostly so in periods of economic decline. The
control variable firm size is a significant predictor: the smaller the firm the better the post-
transfer performance.
Key words:
strategic renewal, successor, performance, innovation, organizational change, business
transfer, SME, small business, ownership, succession.
1. Introduction
Ownership change is a natural moment for renewing and revitalizing a firm (Dyck et al.,
2002). There are many studies that look at small firm performance of start-ups and established
firms, but there are only a few studies on ownership transfer. The available studies focus on the
exit strategy (Ryan and Power, 2009; Wennberg et al., 2009) or the transfer process transfer
(Meijaard et al., 2005; Morris et al., 1997; Venter, Boshoff and Maas, 2003, Uhlaner, Meijaard
and Flören, 2007). Geerts et al. (2004) observe there are no studies available on the
perspective of the successor, their problems and their renewing actions.
There is a need for a better understanding of success in SME ownership change.
Academically the question is pending if change or continuity predicts improved post-transfer
results (Uhlaner, Meijaard and Flören, 2007). Empirically we know most (family) firms do not
survive the first generation (Morris et al., 1997) and that liquidation is far more likely to happen
than a successful ownerships transfer (Van Teeffelen, 2008). The need for understanding is
increased by the aging population of the entrepreneurs in developed economies. In the EU
about a third of all SMEs will have to be transferred or liquidated in the next decade (EU, 2002).
2
The purpose of this paper is to focus on successors’ actions. Most transfer models rely on
the resource based view looking at (passive) resources available like financial, physical,
organizational and human resources (Hall, 1992) to predict transfer performance. However in
transfer situations SME entrepreneurs seem particularly action oriented (Lansberg, 1988; Flören
and Karssing, 2000). We believe the available resources and capabilities are only part of the
story. Successors with limited resources and capabilities but the right action may increase firm
performance. Also the opposite holds: all the resources may be available for the successor, but
if not acted upon firm performance will not improve. For that reason we like to look at strategic
renewal, a concept that evolved from the resource based view, underlining the importance to
(pro)act and react on the market. The aim of this study is to test the main premise of this
concept: change and actions - as opposed to no actions taken - will improve post-transfer
performance. In doing so we extend the domain of the concept of strategic renewal to SMEs,
since it is mainly used in the context of large and multinational enterprises (Child, 1997; Teece,
2007). This study indentifies several types of actions – organizational change, innovations and
combined action – and compares the performance of firms that changed by actions of the
successor and the firm that did not change after business transfers. We will consider all types of
ownership transfers - family transfers, management buy ins, management buy outs and
acquisitions – and also look at the different economic conditions during the ownerships transfer.
Before testing the effects of the actions and economical conditions during the transfer we will
control for firm size, sector and family transfers vs. non-family transfers.
The paper consists of four remaining sections. First we will look into two existing models
for business transfer and apply the strategic renewal concept to the situation of ownership
change in SMEs. Next we examine different types of strategic renewal: organizational changes,
innovations and transfer timing. Then will test whether organizational changes, innovations and
transfer timing improve post-transfer performance on a random stratified sample of 333 Dutch
SMEs. Finally we discuss the results and ways to improve our understanding of successors’
action and post-transfer performance on future research.
2. Theory
2.1 Existing succession models
To introduce the main concepts of ownership transfer we briefly discuss the models of Le
Breton-Miller et al. (2004) and Meijaard et al. (2005). The succession model of Le Breton-Miller
et al. (2004) is designed to look at the transfer process and the determinants of family
succession. Their model is based on an extensive study of theoretical, empirical and
practitioner’s publications. The model shows the separate steps of the succession, the way to
3
organize it and mentions human capital variables (Becker, 1975) like education, entrepreneurial
experience and managerial capabilities. It also mentions some timing factors like the sector
context at the time of the transfer and the timing of the succession and the way capital is
transferred. The model does not relate to actions of the successor in the post-transfer period.
Please insert Figure 1
The model of Meijaard et al. (2005), see Figure 1, is an extended version of the model of
Morris et al. (1997). The model is both applicable in family and non-family transfers. It
represents variables from the pre-transfer phase, for instance the predecessors and firm
characteristics, variables during the transfer like the successor and transfer characteristics and
post-transfer actions and performance. The actions mentioned in the post-transfer phase are
strategy changes, structural changes, internal changes and innovations. The post performance
measures are growth of employment, sales, profit and productivity. Testing part of the model -
not including actions - the best predictor is firm size (Meijaard et al., 2005), that is the smaller
the firm the better the post-transfer performance.
The discussed models of Le Breton-Miller et al. (2004) and Meijaard et al. (2005)
incorporate a multitude of variables. If we look to the nature of the variables we can see that
they are mainly dominated by the resourced-based and the human capital view. The resource
based view looks at static and passive resources available like financial, physical,
organizational and human resources (Priem and Butlerl, 2001) to predict transfer performance.
Human capital variables (Becker, 1975), which are similar to capabilities in the resource based
view (Barney, 2001), in both succession models are education, entrepreneurial experience and
managerial capabilities. However in transfer situations SME entrepreneurs seem particularly
action oriented (Lansberg, 1988; Flören and Karssing, 2000). We believe the available
resources and human capital only part of the story. Successors with limited resources and
human capital but the right action may increase firm performance. Also the opposite holds: all
the resources may be available for the successor, but if not acted upon firm performance will not
improve. For that reason we like to focus on actions by themselves and with Meijaard et al.
(2005) we assume that the actions of the successor do relate directly to post-transfer
performance. We will expand on the original change categories in the model of Meijaard et al.
(2005) by introducing the concept of strategic renewal.
4
2.2 Strategic renewal
Strategic renewal is defined as “strategic actions to align organizational competences with
the environment to increase competitive advantage” (Flier, Van den Bosch and Volberda,
2003, p. 2168). Strategic renewal is rooted in the dynamic capability approach and the strategic
choice approach. Both the dynamic capability and the strategic choice approach evolve from the
resource base view and cope with firm’s adaptation to industry and market conditions. Industry
and market conditions have been underdeveloped in the resource based view (Priem and
Butler, 2001). We will discuss both the dynamic capability and strategic choice approach in
order to position SMEs.
Basically the premises of the dynamic capability and strategic choice approach is that
action is necessary to improve firm performance. They both state that action overcomes
routines that reduce firm capabilities to renew, augment and adapt in order to maintain
competitiveness (Child, 1972; 1997; Teece, 1984; Teece et al., 1997). Teece’s (2007)
framework for enterprise performance looks into the organizational processes and systems to
stay ahead of competitors. It focuses on multinationals acting in an open, very competitive and
dynamic global market. Few SMEs are global players and their markets are mostly local,
regional or national. The nature of the systems and processes to ensure dynamic capabilities in
SMEs are very different from global players. From previous research we know that
owner/managers of small firms play a key role in innovations (Hadjimanolis, 2000; Hoffman et
al., 1998). Davenport and Bibby (1999) point out that owner/managers have a larger direct
influence on their staff compared to managers of larger organizations. The processes are
largely intangible and concentrated in the person of the SME business owner(s) (De Jong and
Vermeulen, 2006; Ghobadian and O’Regan, 2006).
The strategic choice approach brings in another focus: the intentional actions of the
decision maker (Child, 1997). The strategic choice approach seems more fit and scalable to
look at SMEs than the dynamic capability theory. It looks at the decisions of the owner/manager
– i.e. the successor – and disregards the highly formalized and complex processes and systems
which are not existent in most SMEs. Instead it focuses on the context of the decisions made
within the setting of the firm and the environment in which the firm acts (Child, 1997). This may
be a local or regional environment or can be national, international or global. It also focuses
more on adaptation to the immediate environment and not necessarily on global competitors
and (radical) renewal of services and products like Teece (2007) does.
5
What actions do both approaches prescribe? In the next sections we look at
organizational change, innovation and timing. We also present our hypotheses.
2.3 Type of actions
Organizational change
Organizational change is a key concept in the strategic choice approach. Changing the
organizational structure is considered a way to remove slack (Child, 1997), since few
organizations function to the limits of their efficiency (Cyert and March, 1963). In the model of
Meijaard et al. (2005) both internal and structural change are ways of organizational change.
We define organizational change as structural changes, including general (process)
improvement of the total firm mentioned by Wolff and Pett (2006), not specifically attached to a
product or service. General improvements may concern staff flexibility, firm relocations and
changes in the organizational (communications) structure.
The assumption that organizational changes improve post-transfer performance have not
been tested yet in transfer situations. There is evidence that SMEs suffer from slack. Meijaard,
Brand and Mosselman (2005) develop and test a taxonomy based on Mintzberg’s (1979) model
of organizational structures on more than 1411 SMEs. They found that certain organizational
structures show higher sales growth, profitability and innovativeness, while others do not. This
leads us to assume that the action of the successor to change the organization may improve
SME post-transfer performance.
Hypothesis 1a:
Organizational change by a successor will improve SME post-transfer performance as
compared to no actions taken.
Product, service and market innovation
Innovations are considered vital to stay ahead of competitors (Teece, 2007) or imperative
to survival (Freeman and Soete, 1997) for both large firms and SMEs (Vermeulen et al., 2006).
Meijaard’s et al. (2005) succession model mentions innovation as a specific successor’s action.
Johannessen et al. (2001) present us with a wide range of definitions and that the most
essential characteristic of all definitions is newness, whether to the firm, the sector of the world.
Since we look at the successors’ actions we confine innovations to newness to the firm. We
define innovation as actions new to the firm directly related to new products/services (De Jong
and Vermeulen, 2006), improvements of products/service (Wolff and Pett; 2006) or
improvements on marketing or new market entry (Verhees, Matthew and Meulenberg, 2004).
6
Small sector studies show that new product introductions are positively linked with a better
performance on sales growth (Hall and Bagchi-Sen, 2002; Bhaskaran, 2006; Soni, Lolien and
Wilson, 1993; Calantone, Vickery and Dröge, 1995). Studies based on larger random samples
are still inconclusive in relating innovation to a better performance. Wolff and Pett (2006) find
that only product improvement does relate to growth and profit. Freel (2000) finds that
innovating SMEs only exceed non-innovators in the ‘super growth’ category. Freel and Robson
(2004) show that new products are related with growth in employment. But for the
manufacturing firms product innovation is negatively related to growth of sales and productivity,
whereas for service firms incremental product innovations relate positively to growth of sales
and productivity. In exploring their results Freel & Robson (2004) suggest that returns on
innovations may have lagged effects. We think the notion of lagged effects also applies to any
successor’s action. Therefore we consider post performance two to five years after the
successor takes over. Furthermore De Jong and Vermeulen (2006) find large differences
among innovative practises across sectors. More importantly they show that managerial focus
on innovation – i.e. continuously seeking for and providing support to innovative opportunities -
is the most important predictor for product and service innovations new to the firm. So the focus
and actions of the owner/manager and in our case the successor are likely to be key predictor
for post-transfer performance.
Regarding innovations we also consider improving marketing and new markets entry as
innovation actions, since market orientation literature (e.g. Narver and Slater, 1999) link (new)
market orientation directly to product/service innovation. Relatively few published studies have
looked at SMEs (Verhees, Matthew and Meulenberg, 2004), but Pelham (2000) finds a positive
relation between SME’s new market orientation (i.e. market innovation) and performance.
Reviewing research we can say that studies on product, service and market innovations
show mixed results. We expect lagged effects of these innovations on firm performance (Freel
and Robson, 2004). We propose that innovative actions of the successor, be it in new
product/services or improving products/services or adjusting his market orientation, will increase
SME post-transfer performance.
Hypothesis 1b
Product, service or market innovations by a successor will improve SME post-transfer
performance compared to no action taken.
7
Addressing organizational versus innovative actions give us a good framework for testing
the assumption of the dynamic capability and the concepts of the strategic choice approach. In
reality we see the (new) business owner take several actions at the same time. Most
researchers confine the specific innovation to reduce the complexities of day-to-day realities for
owners/managers. How should we deal with combined actions, for example organizational
change and innovation? In this study we choose to consider these combined actions too. In line
with our previous hypotheses we assume this will be beneficial to a firm’s post-transfer
performance, more beneficial than no actions taken.
Hypothesis 1c
A combined action of organizational change and innovation of a successor will improve
SME post-transfer performance compared to no action taken.
Timing of the succession
The timing of a transfer is important. The availability of capital – which largely depends on
macro economic conditions – is an important requisite for a successful transfer (Geerts et al.,
2004, Langman and Lugt, 2005; Le Breton-Miller et al., 2004; Kommers and Van Engelenburg,
2003). Most SMEs in The Netherlands are purchased in periods of economic growth (Meijaard,
2006). In normal and economic growth conditions the capital conditions are generally good but
at the same time the prices to acquire SMEs will be (much) higher. We expect (average)
economic growth conditions to be less favourable for post-transfer performance. In economical
decline, though the capital conditions are worse, the prices of SME acquisitions are much lower.
For that reason we expect SMEs acquired during a period of economic decline to have a better
post-transfer performance. More specifically we like to look at the macro economic conditions at
the moment of transfer and consider timing as an action on the part of the successor.
Hypothesis 2
The timing of the firm purchase the successor affects on the post-transfer performance.
Purchases during periods of economical decline will show a better SME post-transfer
performance than purchases during periods of average or high economic growth.
3. Method
3.1 Sample
The sample consists of a stratified random sample of 1500 Dutch firms which transferred
ownership between 1993 and 2002. The sample is stratified on firm size (0-9fte, 10-49fte, 50-
250fte) and sector (industry and services). The survey was conducted by phone and 500
8
successors responded (33%). The main reasons for non-response were lack of time or refusing
to give confidential information by phone. Our purpose was to look at the performance of
individual firms transferred. So we excluded 115 mergers from the dataset, since in mergers
results of the two firms are consolidated. Due to missing values our dataset for testing was
further reduced to 333 firms. Figure 2 displays the main characteristics of these firms.
Please insert Figure 2 here with SME characteristics
The average number of employees is 46, with a lower median of 15 employees.
Ownership transfers to another company (acquisitions) were about as frequent as ownership
transfers to private persons (mbo, mbi and family transfers). Most transfers (68%) took place
during economic growth conditions. Although this is a bias in our dataset, it is in line with
findings that most firms in the Netherlands are purchased under economic growth conditions
(Meijaard, 2006). The distributions of actions are organizational change (32%), innovation
(27%), combined actions (16%) and no actions taken (25%) after ownerships change. 78% of
the successors have been interviewed in 2-5 years after the transfer of ownership.
3.2 Variables
Dependent variable: performance
For post-transfer performance we constructed a four item scale containing items on
growth of turnover, growth of profits, growth of customers and the extent in which the successor
achieved his goals with this specific acquisition. The items are listed in Figure 3. Regarding the
wide definition taken this performance scale has an acceptable reliability coefficient of 0.73.
Please insert Figure 3 here with performance measurement
Independent variable: type of action
To measure the type of actions that were taken by the successor we asked them: “What
actions did you take in the first two years after the ownership transfer?”. Respondents could
choose from 14 options, including no actions taken. Although we defined organizational change
and product/market innovations from literature, we did a second check on assigning the
successors’ answers to organizational changes and product/market innovations. Giving them
our definition, we asked four lecturers on business administration, unrelated to this study, to rate
all 13 actions on a Likert scale on the dimension or innovation from 1 (definitely not innovation)
to 7 (definitely innovations). Figure 3 shows that they made a clear distinction in organizational
change and product/market innovation items. We found a high reliability on organizational
9
change items (0.90). The reliability according the raters on product/market innovation items
(0.72) is but still acceptable, probably due to the several different aspects involved.
We also assigned 30% of the respondents that mentioned two actions to either innovation,
organizational actions or combined actions. If the two actions are from the same category (i.e.
innovation or the organizational change) they are coded accordingly as either innovation or
organizational change (14%). If the two actions are different in nature, one an innovation and
the other an organizational change, we coded them as a combined action (16%).
Independent variable: timing of succession
To operationalize timing we used the deviation from the 20 year Dutch GDP average (Van
Ruth et al., 2005) in the year of ownership transfer. A deviation of -0,5% or less of the average
GDP in the year of transfer is coded as economical decline (transfers in 1993-1997). A deviation
of +0,5% or more from the average GDP is coded as economical growth (transfers in 2000-
2002). The deviations between -0,5% and +0,5% of the average GDP is coded as normal
market conditions (transfers in 1998-1999).
Control variables
We control for company size since Meijaard et al. (2005) find that the number of
employees is by far the best predictor of post-transfer performance. We also control for the
sector (industry or services), since there are differences reported in past research on the effect
of innovations on firm performance (Freel and Robson, 2004; De Jong and Vermeulen, 2006).
Finally we control for family transfers vs. non-family transfers since research shows that family
firms are less inclined to change (Geerts et al., 2004) or less capable to innovate (Short et al.,
2009).
3.3 Performance measurement
We adopt Child’s (1997) notion that both objective and subjective performance measures
are necessary to measure firm performance. Also several scholars like Kaplan and Norton
(1996), Hillman and Keim (2001) and Laitinen (2002) advise taking a multi dimensional
perspective of firm performance. In order to measure post-transfer performance we thus focus
rather on several dimensions of perceived performance: turnover, profit, number of customers
and the extent in which the successor did realize his goals. We take a medium horizon of two to
five years after ownership transfer to prevent distortions on the post sales period because Freel
and Robson (2004) point out that innovation actions have lagged effects. We do not consider
10
long term measurement since Child (1997) points out that actions of decision makers will fade
away in time, due to the firm’s interaction with its environment.
Like Ghobadian and O’Regan (2006) we find that privately owned small firms are reluctant
to provide detailed data on performance. Ghobadian and O’Regan (2006) argue it is acceptable
to use perceived performance measure since these responses have been found to be reliable
(Nayyar, 1992; Tan and Litschert, 1994) or highly correlated to objective measures of firm
performance (Dess and Robinson, 1984; Robinson and Pearce, 1988; Venkatraman and
Ramanujam, 1987).
We also question whether objective performance measures in business transfers -
reflected in balance and profit sheets - correctly reflect the firm performance. Balance and profit
sheets before and after transfers are hard to compare (Van Teeffelen et al., 2005). In the years
before and after transfer there are many legal ways to increase or decrease cash flow and
profits by depreciations, amortizations, investments or disinvestments. The selling party’s
interest is to increase cash flow, turnover and profits to maximize the price asked. The
successors’ interest is to invest and/or to generate (fiscal) losses the first years in order to
reduce immediate or future taxation on profits.
3.4 Analyses
The hypotheses are tested using analysis of variance (ANOVA) looking at successor’s
action (innovation, organizational change, combined actions, no actions) and timing (economic
decline, normal economic conditions and economic growth in the year of transfer). The control
variables are used as covariates in the ANOVA (Type III). Additionally we test any defined
action (organizational, innovation and combined action) against no action taken and test
economic decline conditions against the other economical conditions by separate T-tests.
Common method bias
Both the dependent and most of the independent variables come from the same source in
our study, which makes this study vulnerable to common method bias (Podsakoff and Organ,
1986). Harman's single-factor test, a principal component analysis on all our dependent and
independents is used to test for common method bias. The objective of this test is to show there
is no dominant single factor. The principal component analysis shows 5 factors with an eigen
value of 1, explaining 78% of the variance. The first and largest factor accounts for only 18% of
the total variance. These results indicate a reduced risk of common method bias.
11
4. Results
The table of correlations (see Figure 4) show that the post-transfer performance is
significantly positively related to combined and significantly negatively related to no actions
taken. Economic conditions in the year of transfer is unrelated to post-transfer performance if
we look at the percentage of growth. We also see that family transfer are significantly positively
correlated to no action taken and negatively related to organizational changes.
Please insert Figure 4 here
In Figure 5 the covariates are entered first, showing that firm size proves to be significant
F(1, 332) = 5.90, p= 0.01. Smaller firms do realize a better post-transfer performance than
larger firms. This confirms Meijaard et al. (2005) findings. Sector is not significant, neither is
family transfer vs. non-family transfers.
Figure 5 (graphically represented by Figure 6) further shows that all actions - and
particularly innovations and combined actions - show a better post-transfer performance than no
action taken. Our total model is significant (F(13, 332 ) = 3,03, p < 0.000) with a R squared of
0.11. The main effect type of action (F(3, 332) = 4.70, p < .01) and the main effect economic
conditions are significant (F(2, 332) = 3.60, p<.05). This shows that the type of action and the
economic conditions - if economic conditions are categorized by decline, average or growth
conditions – are of importance for post-transfer performance.
Please insert Figure 5 and Figure 6 here
To confirm Hypotheses 1a, 1b and 1c, stating that respectively organizational change,
product/ market innovation and combined actions will improve SME post-transfer performance
compared to no action taken, we compared the defined action “a” (i.e. organizational, innovation
and combined action) separately against no action taken as “b” by T-tests. We did the same by
comparing economic growth and normal conditions separately as “a” against economic decline
as “b” to confirm Hypothesis 2 that purchases during periods of economical decline will show a
better post-transfer performance than purchases during periods of average or high economic
growth.. All superscripted a’s in Figure 5 show a significant difference at the level of p < .05
compared to b.
The significant main effects of action in the ANOVA combined with the significant better T-
test results on post-transfer performance of any defined action compared to no action taken
12
confirms the Hypotheses 1a, 1b and 1c. Likewise the significant main effect of economic
conditions in the ANOVA combined with significant better T-test results on post-transfer
performance during periods of economic decline compared to conditions of average and
economic growth conditions confirm hypothesis 2.
We find no interaction effects between the kind of action and the economic conditions.
This implies that all actions show the same pattern in the different economic conditions and it
does not matter if the action is taken in economic decline, average economic or in economic
growth conditions. There seems to be a U-shaped pattern in Figure 6. For innovations we see a
slightly deviating pattern. We should be aware of the risks of connecting only three points to
figure out the underlying function. Still we can see in average economic conditions the post-
transfer performance is lowest, except for innovations.
Although not vital for our hypotheses, we also tested two-tailed both the difference
between organizational change and innovations (t= -1.44, df=217, ns) and organizational
change and combined actions ((t= -2.06, df= 217, p < 0.05). Only combined actions provide a
significant better performance than organizational change.
5. Discussion, practical implications and future research
In this study we adapt the concept of strategic renewal to a transfer situation in SMEs by
looking at the actions of the successor. We predict that strategic renewal by the successor will
lead to a better post-transfer performance. This follows the main assumption of the dynamic
capability and the strategic choice approach that action is necessary to maintain
competitiveness (Child, 1997; Teece et al., 1997). Our results supports the view that change
and not continuity improves post-transfer performance.
Our primary set of hypotheses that organizational change, product/market innovation and
combined actions will improve post-transfer firm performance, are all confirmed. This shows that
the concept of strategic renewal - mostly used in the context of large or global firms – can be
extended to SMEs in transfer situations.
Also the timing by the successor pays off, since firms purchased in declining economic
conditions demonstrate better post-transfer firm performance than firms purchased during
average economic conditions. Uncategorized economic growth as percentage of GDP growth is
unrelated to post-transfer performance, due to a non-linear relationship between economic
13
growth and post-transfer performance. We do not find an interaction between economic
conditions in the year of transfer and successors’ actions suggesting strategic renewal pays off
in any economic condition.
Although timing of the purchase seems vital and firm prices generally drop during periods
of economic decline, we have to consider an alternative explanation: entrepreneurs buying
during periods of economical decline may be more experienced and skilled than entrepreneurs
who buy in average of economic growth conditions. Not timing but specific entrepreneurial
experiences or serial entrepreneurship maybe the critical factors. However we did not have
data on entrepreneurial experiences and serial entrepreneurship.
The outcomes of product/market innovation deviate from the general pattern. We think
that discriminating between succeeded and failed organizational and innovation actions – in line
with Freel and Robson (2004) – could be helpful to explain these deviations. Failed innovations
may have larger implications on post-transfer performance than no innovations made. We didn’t
ask the successors how successful their actions were. Adding this question in the future could
explain these inconsistencies and may improve the explained variance of our tested model.
Our study has some limitations. Theoretically we may assume a causal relation between
actions and post-transfer performance. Empirically we don’t know whether product/market
innovations and organizational change cause better performance or that better performance
leads to more innovations and organizational change. We need longitudinal or repeated
measurements to establish causality.
We think the explained variance of our model is moderate. By discriminating between
succeeded and failed actions (Freel and Robson, 2004) it might improve in future. Failed
actions by the successor mask the effect of the succeeded actions.
This study relies on perceived performance measures. Ghobadian and O’Regan (2006)
argue this is acceptable. Cross validation by also interviewing suppliers and or staff could
strengthen outcomes in future search. However we feel that objective performance
measurements in the transfer situation are of limited use. Privately owned firms refuse to give
this information. And even if objective firm results are available in the years before and after
ownerships transfer they are hard to compare. Sellers like to maximize turnover and profit in the
years before selling, whereas the buyer likes to invest and/or reduce profits to save on
14
immediate or future taxation.
Finally our dataset is confined to Dutch SMEs and is biased for periods of economic
growth. It would be interesting to test our assumptions in other counties.
Our findings have practical implications for potential buyers, SME owner/managers and
financial advisers. First of all buying smaller firms predict a better post-transfer performance.
This is consistent with earlier findings (Meijaard et al., 2005) and probably indicates that it is
easier to realize change in smaller firms than in bigger firms. Secondly it seems rewarding to
buy during periods of economic decline. Post-transfer performance is much better in economical
declining conditions than in average or economic growth conditions. Thirdly our findings show
that change after succession pays off regardless of the economic condition in the year of
succession. This means action by successors in general seems to benefit and revitalize small
firms.
We find no difference in post-transfer performance between family transfer vs. non family
transfers, although family transfers tend favor “no action” after ownership transfer and seem to
resent organizational changes.
Combined actions of product/market innovation and organizational change are related to
the best post-transfer performance. This indicates that organizational changes - often used as a
strategy in economic decline to cut costs quickly - are not a panacea. Reorganizing and
innovating at the same time seems to be a more appropriate answer in insecure economic
periods. This is consistent with recent findings (Bain & Company, 2009) of 83 publicly held large
firms. Companies which cut costs and lower their investments clearly underperform compared
to companies that cut costs and keep on investing.
For future research we recommend including resources as predictors, especially human
capital. Both the models of Le Breton-Miller et al. (2004) and Meijaard et al. (2005) highlight
these variables. Recently researchers emphasize the specific human capital like entrepreneurial
skills (Markman and Baron, 2003, Driessen, 2005) or specific education and experience
(Colombo and Grilli, 2005; Dimov and Shepperd, 2005). These studies indicate that specific
skills and experiences give much a better or more precise predictions on small firm performance
than more general indicators.
15
References
Bain & Company (2009), http://www.bain.nl/bainweb/Publications/printer_ready.asp?id=26953,
March 27, 2009.
Barney, J.B. (2001), Is the Resource-Based Theory a Useful Perspective for Strategic Management
Research? Yes, Academy of Management Review, 26 (1), 41–56.
Bhaskaran, S. (2006), Incremental Innovation and Business Performance: Small and Medium-size
Food Enterprises in a Concentrated Industry Environment, Journal of Small Business
Management 44 (1), 64-80.
Becker, G.S. (1975), Human Capital, National Bureau of Research, New York.
Calantone, R. J., Vickery, S. K. and Dröge, C. (1995), Business Performance and Strategic New
Product Development Activities: An Empirical Investigation, Journal of Product Innovation
Management 12 (3), 214-223.
Child, J. (1972), Organizational Structure, Environment and Performance: The Role of Strategic
Choice, Sociology, 6 (1), 1-22.
Child, J. (1997), Strategic Choice in the Analysis of Action, Structure, Organizations and
Environment: Retrospect and Prospect, Organization Studies, 18 (1), 43-76.
Colombo, M. and Grilli, L. (2005), Founders’ Human Capital and the Growth of New Technology-
based Firms: A Compentence-based View, Research Policy, 34 (6), 795-816.
Cyert, R. and March, J. (1963), A Behavioral Theory of the Firm, Englewood Cliff, NJ, Prentice Hall.
Davenport, S. and Bibby, D. (1999), Rethinking a national innovation system: the small country as
“SME”, Technology Analysis and Strategic Management, 11 ( ), 431-462.
De Jong, J. and Vermeulen, P. (2006), Determinants of Product Innovation in Small Firms,
International Small Business Journal , 24 (6), 587-607.
Dess, G. and Robinson, R. (1984), Measuring Organizational Performance in the Absence of
Objective Measures: The Case of the Privately-Held Firm and Conglomerate Business Unit,
Strategic Management Journal, 5 (3), 265-273.
Dimov, D. and Sheperd, D. (2005), Human Capital Theory and Venture Capital Firms: Exploring
“Home Runs” and “Strike Outs”, Journal of Business Venturing, 20 (1), 1-21.
Dyck, B., M. Mauws, F.A. Starke and G.A. Mischke, (2002), Passing the Baton: The Importance of
Sequence, Timing, Technique and Communication in Executive Succession, Journal of
Business Venturing, vol. 17 (2 ), 143-162.
16
Driessen, M. (2005), E-Scan Ondernemerstest: Beoordeling en Ontwikkeling van
Ondernemerscompetenties [E-scan Entrepreneurship Test: Evaluation and Development of
Entrepreneurial Competences], PhD thesis, Entrepreneur Consultancy, ’s-Gravenland.
European Commission (2002), Final Report of the Expert Group on the Transfer of Small and
Medium Sized Enterprises, Brussels.
Flier, B., Van den Bosch F. and Volberda, H., Co-evolution in Strategic Renewal Behavior of British,
Dutch, and French Financial Incumbents; Interaction of Environmental Selection, Institutional
Effects and Managerial Intentionality, Journal of Management Studies, 40 (8), 2163-2187.
Flören, R.H., Karssing, E.D. (2000).Goed-versus-Goed Dilemma’s en de Opvolgingsparadox in
Familiebedrijven, M&O, 1, p. 45-62.
Freel, M. S. (2000), Do Small Innovating Firms Outperform Non-innovators, Small Business
Economics, 14 (3), 195–210.
Freel, M. S. and Robson, P. J. A. (2004), Small Firm Innovation, Growth and Performance: Evidence
from Scotland and Northern England, International Small Business Journal , 22 (6), 561-575.
Freeman, C. and Soete, L. (1997), The Economics of Industrial Innovations, 3rd edn. London, Pinter.
Geerts, A., Herrings W. and Peek M. (2004), Change of ownership creates new prospects in SME
sector, SME Special 2004, ING Economics Department, Amsterdam.
Ghobadian, A. and O’Regan, N. (2006), The Impact of Ownership on Small Firm Behavior and
Performance, International Small Business Journal, 24 (6), 555-584.
Hadjimanolis, A. (2000), An Investigation of Innovation Antecedents in Small Firms in the Context of
a Small Developing Country, R&D Management, 30 (4), 235-245.
Hall, R. (1992), The strategic analysis of intangible Resources, Strategic Management Journal, 13,
135-154.
Hall, L. A. and Bagchi-Sen, S. (2002), A Study of R&D, Innovation, and Business Performance in the
Canadian Biotechnology Industry, Technovation, 22 (4), 231-244.
Hillman, A. and Keim, G. (2001), Shareholder Value, Stakeholders Management and Social Issues:
What’s the Bottom Line?, Strategic Management Journal, 32 (1), 125-140.
Hoffman, K., Parejo, M., Bessant, J. and Perren, L.(1998), Small firms, R&D, Technology and
Innovation in the UK: a Literature Review, Technovation, 18 (1), 39-55.
Johannessen, J., Olsen, B. and Lumpkin, G. T. (2001), Innovation as Newness: What is New, How
New, and New to Whom?, European Journal of Innovation Management, 4 (1), 20-31.
Kaplan, R. and Norton, D. (1996), The Balanced Scorecard: Translating Strategy into Action,
Boston, M.A.; Harvard Business School Press.
17
Laitinen, E. (2002), A Dynamic Performance Measurement System: Evidence from Small Finnish
Technology Companies, Scandinavian Journal of Management, 18 (1), 65-99.
Langman, M.A. and M.G.H. Lugt, (2005), Bedrijfsoverdrachten in het MKB, moeilijk of
makkelijk? [SME-transfers, difficult or easy?], ING Bank, Amsterdam.
Lansberg, I. (1988), The succession conspiracy, Family Business Review, 1 (2), 119-143.
Kommers, J. and Van Engelenburg, R. (2003), Ruimte in Bedrijfsoverdrachten in Nederland
[Space for Business Transfer in The Netherlands], RZO, Den Haag.
Le Breton-Miller, I., Miller, D. and Steier, L.P. (2004), Toward an Integrative Model of Effective FOB
Succession, Entrepreneurship Theory and Practice, 28 (2), 305-309.
Markman, G. and Baron, R. (2003), Person-Entrepreneurship Fit: Why Some People are More
Successful as Entrepreneur than Others, Human Resource Management Review, 13 (2), 281-
301.
Meijaard, J. (2005), Business Transfers in The Netherlands, In Haane, Y. and Snijders, J. (ed.)
Entrepreneurship in the Netherlands, Business Transfer: a new start, EIM, Zoetermeer.
Meijaard, J. (2006), Meer bedrijfsoverdrachten in hoogconjunctuur, EIM, Zoetermeer.
Meijaard, J., Brand, M. and Mosselman, M. (2005), Organizational Structure and Performance in
Dutch Small Firms, Small Business Economics, 25 (1), 83-96.
Meijaard, J., Uhlaner, L., Flören, R., Diephuis, B. and Sanders, B. (2005), The Relationship
between Successor and Planning Characteristics and the Success of Business Transfer in
Dutch SMEs, EIM, Zoetermeer.
Mintzberg , H. (1979), The Structuring of Organizations: A Synthesis of the Research, Englewood
Cliffs, NJ, Prentice Hall
Morris, M.R., Williams, R.O., Allen, J.A. and Avila, R.A. (1997), Correlates of Success in Family
Business Transitions, Journal of Business Venturing, 12, 385-401.
Narver, J. and Slater, S. (1999), The Effect on Market Orientations on Business Profitability, In:
Developing a Market Orientation, Ed. R. Deshpandé, Thousand Oaks, Ca, Sage Publications,
45-77.
Nayyar, P. (1992), Performance Effects in Three Foci in Service Firms, Academy of Management
Journal, 35 (5), 985-1009.
Nooteboom, B. (1994), Innovation and Diffusion in Small firms: Theory and Evidence, Small
Business Economics, 6 (4), 327-347.
Pelham, A. (2000), Market Orientation and other Potential Influences on Performance and Medium
Sized Manufacturing Firms, Journal of Small Business Management, 38 (1), 48-67.
18
Podsakoff, P.M. and Organ, D.W. (1986), Self-reports in Organizational Research: Problems
and Prospects, Journal of Management, 12 (4), 531–544.
Priem, R., Butler, J. (2001), Is the Resource-Based Theory a Useful Perspective for Strategic
Management Research?, Academy of Management Review, 26(1), 22-40.
Robinson, R. Jr. and and Pearce, J. II (1988), Planned Patterns of Strategic Behavior and their
Relationship to Business-unit Performance, Strategic Management Journal, 9 (1), 43-60.
Ryan, G. and Power, B. (2009), Exit Routes, What are the Options?, In: Koçak, A., Abimbola, T.,
Özer, A. and Watkins-Mathys, L., Marketing and Entrepreneurship, AUMEC 2009, Ankara
University.
Short, J. C., Payne, G. T., Brigham, K. H., Lumpkin, G. T., & Broberg, J. C. (2009), Family Firms and
Entrepreneurial Orientation in Publicly Traded Firms - A Comparative Analysis of the S&P 500,
Family Business Review, 22 (1), 9-24.
Soni, P. K., Lilien, G. L. and Wilson, D. T. (1993), Industrial Innovation and Firm Performance: A Re-
conceptualization and Exploratory Structural Equation Analysis, International Journal of
Research in Marketing, 10 (4), 365-380.
Tan, J. and Litschert, R. (1994), Environment-strategy Relationship and its Performance
Implications: An Empirical Study of the Chinese Electronics Industry, Strategic Management
Journal, 15 (1), 1-20.
Teece, D.J. (1984), Economic Analysis and Strategic Management, California Management Review,
Spring, 87-110.
Teece, D.J., Pisano. G. and Shuen, A. (1997), Dynamic Capabilities and Strategic Management,
Strategic Management Journal, 18 (7) , 509-533.
Teece, D. J. (2007), Explicating Dynamic Capabilities: The Nature and Micro Foundations of
(Sustainable) Enterprise Performance, Strategic Management Journal, 28 (13),1319-1350.
Uhlaner, L., J. Meijaard and R. Flören (2007), The Relationship between Successor, Planning
Characteristic and the Transfer Process on Post-transfer Profitability in SMEs, Conference
Paper RENT XXI, November 2007, Cardiff.
Van Ruth, F., Schouten, B. and Wekker, R. (2005), The Statistics of the Netherlands Business Cycle
Tracer. Methodological Aspects; Concept, Cycle Computation and Indicator Selection, second
draft, CBS/National Bureau for Statistics of The Netherlands
Van Teeffelen, A.L.M., Meijaard, J. and Geerts, A., (2005), Business Succession: Economic Disaster
or Blessing in Disguise?, Paper presented at the International Council of Small Business
Conference, June 2005, Washington DC, USA
19
Van Teeffelen, A.L.M. (2008), Dutch Small Business Exits: Missed Chances or Inevitable?,
Hogeschool Utrecht/Dutch Chamber of Commerce.
Venkatraman, N. and Ramanujam, V. (1987), Measurement of Business Economic Performance: An
Examination of Method Convergence, Journal of Management, 13 (1), 109-122.
Venter, E., Boshoff, C. and Maas, G. (2003), The Influence of Relational Factors on the Successful
Succession in Family Businesses, South African Journal of Business Management, 34 (1),
1-13.
Vermeulen, P., De Jong, J., O’Shaughnessy, K. (2005), Identifying Key Determinants for new
Product Introductions and Firm performance in Service SMEs, The Service Industrial Journal,
16 (3), 88-94.
Verhees, F., Matthew, T. and Meulenberg, T. (2004), Market Orientations, Innovativeness, Product
Innovation and Performance in Small Firms, Journal of Small Business Management, 42 (2),
134-154.
Wennberg, K., Wiklund, J., DeTienne, D. and Cardon, S. (2009), Reconceptualizing Entrepreneurial
Exit: Divergent Exit Routes and their Drivers, Journal of Business Venturing, in press
Wolff, J., and Pett, T. (2006), Small-firm performance: Modeling the Role of Product and Process
Improvements, Journal of Small Business Management, 44 (2), 268-284.
20
Figure 1: Model of Meijaard et al. (2005)
With the label “Sex” in box II and V Meijaard’s model means “Gender”.
21
Figure 2: Sample characteristics
%mean sd n
Firm size 46* 62 333
micro (0-9) 37
small (10-49) 34
medium (50-250) 29 *median 15
Sector 333
industrial 44
service 56
Transfer type 333
family 14
mbo 22
mbi 15
acquisition 49
Actions taken
organizational change 32 333
innovation 27
combined action 16
no action 25
Transfer year/ 2000 2,03 333
% deviation from average GDP 0,57 0,83 333
1993 - 0,65 1
1994 - 1,20 1
1995 - 0,85 2
1996 - 0,90 3
1997 - 0,75 6
1998 - 0,20 9
1999 - 0,40 10
2000 +1,35 20
2001 +1,50 19
2002 +0,65 29
22
Figure 3: Dependent and independent variables
Dependent variable range mean SD N stand.
Cronbach's α
Post transfer performance 4-16 12,66 2,66 333 0,73
Did the turnover since the change of ownership 3,82 1,18
1. strongly decrease (-7,5% of more) to 5. strongly increase (7,5% or more)
Did the the profits increase after the change of ownership? 2,51 0,69
Did the number of cutomers increase after the change of ownership? 2,65 0,62
1. No, they decreased 2. No, they didn't change 3. Yes, they increased
Did you achieve the goals you had in mind with transfer/acquisition? 3,68 1,04
1. Goals are not at all achieved to 5.Goals are achieved, more than expected
Independent variables as scored by four independent raters
Innovation items 1-7 5,41 0,46 4 0.72
New products 6,25 0,96
Improving products/services 5,50 0,58
Entering new markets/exports 6,25 0,50
New consumers 4,75 1,26
Improving marketing 4,50 1,00
Investment in machines/ICT 5.00 1,15
Export 4,75 0,96
Innovations 6,25 1,50
Organizational change items 1-7 3,70 1,09 4 0.90
Restructuring 4,25 1,50
Change of staff 3,00 1,83
Improving staff flexibility 4,00 1,63
Improving communications 4,25 0,50
Relocation 3,00 0,82
1= definitely not innovation 7 = definitely innovation
23
Figure 4: Pearson correlations of independent and dependent variables
Variables Coding 1 2 3 4 5 6 7 8 9
1. Firm size in employees
2. Sector (d) 1= service -0.09
3. Family transfer (d) 1= family transfer -0.18 ** 0.01
4. Economic growth in % yoy of GDP 0.05 0.13 ** -0.10 *
5. Orginizational change (d) 1= org. change 0.08 -0.07 -0.16 ** 0.12 **
6. Innovation (d) 1= innovation -0.06 0.01 -0.06 -0.01 -0.37 **
7. Combined action (d) 1= combined -0.02 -0.03 0.01 -0.02 -0.26 ** -0.24 **
8. No action 1= no action -0.04 0.04 0.24 ** -0.08 -0.34 ** -0.31 ** -0.22 **
9. Post-transfer performance range 4 -16 -0.14 ** 0.00 -0.01 0.00 0.01 0.08 0.15 ** -0.16 **
(d) = dummy * p < .05 ** p < .01
Figure 5: Tested averages on post-transfer performance scores in ANOVA (Type III)
MSD N M SD N M SD N M SD N M SD N
Total
13,10a2,08 95 12,70a2,68 107 13,63a2,17 50 11,83b2,50 81 12,71 2,46 333
Timing Decline 13,93 1,69 14 12,73 3,66 11 14,,00 1,79 6 12,98 2,24 15
13,33b2,45 46
Stable 12,95 1,84 17 12,25 3,11 13 12,58 2,97 12 10,67 2,79 15
12,13a2,76 57
Growth 12,97 2,19 64 12,78 2,49 83 13,96 1,79 32 11,84 2,36 51
12,73a2,36 230
Standardized R2 = 0,11
Controlled by firm size and sector Mean scores with a different superscript differ significantly (p<.05)
All a's have been tested individually and one-tailed against b by T-Test
Total
Org. change
No action
Combined action
Innovation
Type of Action
24
Figure 6: Post-transfer performance scores as function of renewal action and timing
10,00
11,00
12,00
13,00
14,00
15,00
Econ. Decline
Normal Conditions
Econ. Growth
Org. Change
Innovation
Combined action
No action
