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SUCCESS KEYS TO CREATING
THIRD-GENERATION ACHIEVEMENT: A CASE STUDY
IN FAMILY BUSINESS IN INDONESIA
Istiatin and Luhgiatno
Universitas Islam Batik Surakarta, Surakarta, Indonesia
ABSTRACT
This research aims at finding the characteristics of third-generation successors which can create some achievement by applying transformations, be it stucture, technology or people transformation. This research uses qualitative research design: Such a type of research produces and processes descriptive data. The data in this research are collected using in-depth interview with informants. The research results indicate that currently PT Danliris has performed succession by determining the characteristics of good successors, family transformation and harmonization. For this time being, PT Danliris is led by their third-generation leader, who successfully attain some achievement.
Key words: Family company, characteristics of successor, transformation, successor achievement.
Cite this Article: Istiatin and Luhgiatno, Success Keys to Creating Third-Generation Achievement: A Case Study in Family Business in Indonesia. International Journal of Civil Engineering and Technology, 8(11), 2017, pp. 803–810.
http://www.iaeme.com/IJCIET/issues.asp?JType=IJCIET&VType=8&IType=11
1. INTRODUCTION
Family businesses contribute significantly to a country’s economic development and growth
Indonesia
The greatest problem of family businesses is the transfer of leadership from one generation to the next one. This problem is not specific to Indonesia only [5], rather it also happens in many countries throughout the world, such as England [6], Greece [7, 8], China [9], Poland [10], the Philippines [11], and other countries. Earlier generations want the family business to have longer age [12]. Previous generations try their best to maintain, develop and support their children and other members of the family to be able to succeed the leadership [13]. The family also desires to maintain, develop, and support their children and other members of them as well as their career goals. However, the process of transfer from the older to the newer generations has never been an easy process. Many cases show how the newer generation fails to run the family business well, leading the family businesses to their end in
the newer generation’s hands. Ward [14] explains that only 30% of family companies survive in the second generation’s administrations and only 10-15% in the third generation’s hands.
This research aims at finding the characteristics of third-generation successors which can create some achievement by applying transformation, be it stucture, technology and people transformation.
2. LITERATURE REVIEW
2.1. Family Business
Many literatures explain what family company is. Cano-Rubio, Fuentes-Lombardo [15] suggest that many approaches are available to explain what family business is. Chua, Chrisman [16] defines family business as the one controlled by a family. Family company is a company where a family becomes the holders of most of its shares and assumes some of the management positions and the offsprings of this family are expected to follow their step [17]. Lee-Chua [18] and Piva, Rossi-Lamastra [19] explain that the family’s portion in controlling the business is 50%. Family company can cosist of large, family-controlled public companies, where the ownership focus and/or management control lie in the hands of a certain family or a group of families [20]. Another definition says that a family company is an organization the operating decision and the plan for main leadership succession of which are influenced by members of a family [21].
The recent challenge of family company is how to make to keep their business growing and developing. According to Huang, Lo [22] when a company gets bigger or increases in size, the next challenge is how to transform a family business into a professional business. An
organization’s environment keeps changing, thus it should be able to adapt with these changes
to survive. One of the most important duties of a leader is to discover the factors in his/her
organization’s environment which can have some impacts on the organization’s survival, as well as identifying these factors’ nature. This is because when a leader is slow at following it
up, the organization would be left behind its competitors and it can pose danger to the organization’s effectiveness and survival.
2.2. Succession in Family Business
The key to family business’s success and longevity lie in the effective succession [1]. Succession can be defined as an action and activity which assign leadership from one member of a family to another member of that family [23]. Founders expect their children to successfully succeed their family businesses [7]. Poza [24] explains that to be a successful successor in a family company, the successor needs to be competent, understand well the
The success in doing succession can have different meanings. The succession process should be followed by many parties, such as founders, successors, big families, non-family employees, even customers and suppliers [5]. The succession process should be supported by all parties in order for it to generate a successor with excellent performance who performs all of his/her duties in the company fully responsibly and focuses on the future of the family business which results in the company’s longevity. Lansberg [25] emphasizes the importance of succession process in whether or not a leadership succession in a family business would be successful. In the Philippines, the success of a succession in a family business does not lie in the succession planning, rather it lies in the owner’s consistency to keep sharing business values to the successor [11]. Lambercht and Donckels [26] explain that a succession process is a lengthy one, where succession planning becomes a part of this process. Hutcheson [27] suggest that a whether a succession would be successful or not depends on three things, namely shared power, balance between job and game, and succession planning process.
Poza [24] suggests that a successful successor has several characteristics. These characteristics. The first characteristic is they understand the business well. Ideally, they should like or even love the business nature itself. Secondly, they understand about themselves, both their own weaknesses and strengths, thanks to the adequate education and experience they have from the outside. Thirdly, they want to lead and to serve at the same time. Fourthly, they are directed responsibly by the previous generations, by advisors, and by the board of directors from the outside. Fifthly, they have a good relationship with the family, and the ability to accommodate others, particularly with the heir team (siblings or cousins). Sixthly, they can use non-family, competent managers in the top management team to complement the abilities they already own. Seventhly, they have ownership or can lead through partners. Eightly, they are respected by non-family employees, supplier, customer and other members of the family. Ninthly, their ability and expertise match the strategic needs of the business. Finally, they respect the past and they focus their energy on the family
business’s future.
3. RESEARCH METHODOLOGY
3.1. Research Design
Case study is used in this research. This study uses qualitative research design. Among qualitative methods, case study plays a very important role, because it is one of the most-used qualitative methods to study an organization [28]. Using a case study, this research can investigate a little bit deeper into real phenomena [29, 30]. The case study in this research is an explanatory case study, in which this study tries to understand how a phenomenon occurs [31]. This study tries to understand how a family business can give some achievements up to the third generation.
The data are collected using observation and in-depth interview. The participants in this research are mentors who have worked for at least 30 years in the family company PT. Danliris. In the qualitative data analysis technique, what the researchers do are: selecting data, reducing data and drawing conclusion(s). The data validity test in this research uses triangulation. From some kinds of triangulation, this research uses source triangulation where the data obtained from interview with several research informants are cross-checked against the data obtained from other informants.
4. RESULT AND DISCUSSION
A family business’s longevity is what is particularly desired by every family business and
Indonesia
life cycle as determined by dynamic between generations [33]. A family company’s life cycle according to Adizes (1989) consists of several phases. Firstly, the start up of a family company begins with close-circle family or immediate family of the founders. Then, when the company begins to grow and develop (growth), they will involve or introduce the second generation (extended family) into the business and this is called the the dynasty of family era. When the family company successfully survive, it will experience the professional influx phase, i.e. the introduction of professional resources. Furthermore, when a family business will reach its maturity and has been established, professionals will help manage the company.
When this phase is successfully attained, the company’s competitiveness will have been
proven and the myth that a family company can only last for three generations will be broken. Every family business is surely expected to last for so long and to have a long-term business continuance (longevity) [32]. The current challenge of a family company is how to make its business growing and developing. According to Huang, Lo [22] when a company gets bigger or increases in size, the next challenge is how to transform a family business into a
professional business. An organization’s environment keeps changing, thus it should be able
to adapt with these changes to survive. One of the most important duties of a leader is to
discover the factors in his/her organization’s environment which can have some impacts on the organization’s survival, as well as identifying these factors’ nature. This is because when a
leader is slow at following it up, the organization would be left behind its competitors and it
can pose danger to the organization’s effectiveness and survival.
PT. Danliris, is a family company located in Banaran Sub-district, Grogol District, Sukoharjo Regency. This company was established in 1920. The first generation (Mr. Kosam Tjokrosaputro) began the business as a home-based business selling batik products. The business developed rapidly and innovative. Innovation is important part in busineness [34-36], especially in Batik Industri. In 1971, Mr. Kosam Tjokrosaputro merged all of his businesses and name the merged enterprise PT. Batik Keris. After Mr. Kosam Tjokrosaputro transfer the leadership to his children (Handoko and Handiman Tjokrosaputro). The family business then developed even more rapidly. The family business developed into a textile industry. Finally, the family agreed to establish a new company named PT Danliris.
Right now, the leadership has been transferred to their 3rd generation, they are Handoko and Handiman Tjokrosaputro. PT. Danliris is a family company producing printed batik products which has been managed by their third generation, established for 42 years with its own dynamics which it has been successfully overcoming until recently, something which shows a great development from the perspectives of both its performance and information from the media, as well as the fluctuation it experiences, making it look more robust now (SWA, 2015). Their human resources development indicates some improvement both quantitatively and qualitatively, as can be seen from the time PT Danliris was managed by Mister Tjokro Saputro, then succeeded by Mister Handiman Tjokrosaputro and now assigned to Mister Tjokro granddaughter named Michelle Tjokrosaputro (SWA, 2015). From the first generation, follpwed by the second and third generations, PT Danliris shows a highly significant change, leading to its increasing popularity in the society at both local, regional and national levels.
In this research, two things have been identified as the key to the third generation’s
4.1.Successor Characteristics
Informants 1 and 2 say that Michelle Tjokrosaputro has the successor characteristics as suggested by Alcorn who proposes 3 indicators to determine the criteria of a good successor ( Alcorn, 1982), namely:
4.1.1. Having Interest and Participation
At the beginning, Michelle Tjokrosaputro (3rd generation) did not want to succeed the leadership in PT. Danliris. However, since her father frequently suffered from illness, she had no choice but to take the leadership in the family business. To help her father, Michelle Tjokrosaputro worked hard to improve the family business. In her way of developing the family business, Michelle Tjokrosaputro experienced a time when the family business almost collapsed. In 2005, the company encountered great problem and it was almost declared insolvent. Michelle Tjokrosaputro did her best to develop the business until PT Danliris could develop rapidly until recently.
From the interview with 2 respondents (Marinos) it is found that Michelle as its third generation has great interest in running the company’s business, as can be seen in her creativity in developing the family company by opening garment industry, varying her printed batik method and motif. Additionally, this successor gives ideas about the company development and participates extensively in creating achievements for the family company.
4.1.2. Good at Adapting
Through an interview with respondents 1 (Horison) and 2 (Marino), it is found that Mister
Tjokro (PT. Danliris founder) has introduced the company’s environment to his children,
including Mister Handiman (Mister Tjokro’s son), Michel’s father who was a habit of
bringing his children to the factory when they were off from school to see how their father works and to introduce them with the employees who were still working, hence Michelle (the
third generation) was not someone new to the company’s environment. It means that her
character in business realm has been shapped early. Mister Handiman also implanted the family values in the company to prevent them from disappearing in the next generation. After
Mister Handiman passed away, it was then Michelle’s turn to take over from her father the
control over the company and she did not feel awkward and could adapt herself to the company's environment. Thanks to this PT. Danliris could exist until now. In addition, both respondents 1 and 2 say that Michelle is someone who is understanding to her subordinates. She never says she is the boss, rather she says that her bosses are those employees who work responsibly because they are the reason behind the achievements reached by the company.
4.1.3. Having Vision in the Company’s Longevity
Based on the interview with respondents 1 and 2, it is found that the successor has a strong vision to keep the family company last for long as embodied in the activities held to create achievements, both the business achievement and family harmony. Visi to an organization is highly important since it reflects how the company is directed towards some continuance.
4.2. Transformation
Indonesia
also been made by PT Danliris, they have transformed both their structure, technology and human resources.
4.2.1. Structure
The interview with respondent 2 (Marino) indicates that Michelle, who is the third successor, has made many changes, particularly in regard to the company strategy which has to be implemented in the effort of creating the company’s achievement. The structure change is intended merely to let the fresh air blow to human resources, with some adjustment to the competence they have based on the jobs they are responsible for, hence the company will receive some benefits.
4.2.3. Technology
PT. Danliris, according to the respondents, has made changes in technology. She replaces the old printing machines used during her father’s reign with the far more sophisticated ones. All equipment has prioritized computerization. All employees are sent to attend the computerization training program.
4.2.4. Human resources (People)
Both respondents 1 and 2 suggest that ever since it is held by their 3rd generation, PT. Danliris has made changes. Those who used to have little or no competence should now have some competence. The human resources they have are professional people, not being dependent on family, hence the third generation’s performance of PT. Danliris gets better and achieve better in both business and family harmony. They also revise their salary and bonus system. It has been Michelle’s commitment to give a good reward to any employee who performs well. She even acknowledges that PT Danliris’ssuccess is the fruit of all of the TEAM’s hard work.
4.3. Family Harmony
The interview with respondents 1 and 2 shows that Michelle (Third generation) craves for harmony. To everyone, either family or non-family, involved to work for PT. Danliris she prioritize the harmony and transparency aspect. She does so in order to prevent any conflict from occuring and to create comfortable atmosphere to work in order to enable the company to reach some achievements.
4.4. Business Achievement
The informants say that since Michelle Tjokro Saputro (3rd generation) takes over PT Danliris, the trust from many parties gets even more visible. Every employee gives good response since the successor has proven that she can operate the company by referring to the expansion made this 3rd generation, opening boutique and also garment manufacturers named Bateeq under the flag of PT Efrata Retailindo. In 2014 PT Danliris’s turnover amounted to IDR 1 trillion and was classified as category 1 (current liabilities). She also develops business branches and is flexible in capturing the chances in the market. She delegates the authorities to many parties in order to accelerate the business process.
5. CONCLUSIONS
harmonization. Recently, PT Danliris is led by their third generation leader, who successfully reaches some achievement.
The managerial implications in this research are: firstly, it is suggested that PT. Danliris in the future keep transferring the leadership between generations by maintaining the good characteristics of successor; Secondly, PT. Danliris ought to maintain or even improve the achievement they have reached; Thirdly, It is expected that the third-generation successor could keep the family togetherness and harmony in PT. Danliris and keep it managed by professionals, as they have been doing now.
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