Strategic renewal after ownership transfers in SMEs: do successors' actions pay off?

Int. J. Entrepreneurial Venturing, Vol. 2, Nos. 3/4, 2010 347

Copyright © 2010 Inderscience Enterprises Ltd.

Strategic renewal after ownership transfers in SMEs: do successors’ actions pay off?

Lex van Teeffelen* Faculty of Economics and Management, University of Applied Sciences Utrecht, P.O. Box 85029, 3508 AA Utrecht, The Netherlands E-mail: [email protected] *Corresponding author

Lorraine Uhlaner EDHEC Business School, France, 24 Avenue Gustave Delory, 59047 Roubaix Cedex 1, France E-mail: [email protected]

Abstract: Different types of strategic renewal by the successor are identified: organisational 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 organisational 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.

Keywords: performance; innovation; organisational change; business transfer; SME; small business; ownership; succession; strategic renewal; successor.

Reference to this paper should be made as follows: van Teeffelen, L. and Uhlaner, L. (2010) ‘Strategic renewal after ownership transfers in SMEs: do successors’ actions pay off?’, Int. J. Entrepreneurial Venturing, Vol. 2, Nos. 3/4, pp.347–365.

Biographical notes: Lex van Teeffelen, PhD, is a Research Manager on SME Transfers at the University of Applied Science Utrecht. As an Associate Professor and a Senior Consultant, he develops programmes on change management, innovation and SME transfers. He recently published his dissertation on small firm business transfers.

Lorraine Uhlaner, PhD, is a Professor of Entrepreneurship at the EDHEC Business School, France, the Director of the International MBA Programme and a Senior Research Fellow at the Max Planck Institute. Her current research includes family firms, corporate governance and business transfers.

348 L. van Teeffelen and L. Uhlaner

1 Introduction

Ownership change is a natural moment for renewing and revitalising 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 et al., 2003; Uhlaner et al., 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 et al., 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 (European Commission, 2002).

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, organisational 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 that 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 identifies several types of actions – organisational 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: organisational changes, innovations and transfer timing. Then we will test whether organisational 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.

Strategic renewal after ownership transfers in SMEs 349

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 organise 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.

Figure 1 Model of Meijaard et al. (2005) (see online version for colours)

Note: With the label ‘Sex’ in box II and V Meijaard’s model means ‘gender’.


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 at 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, organisational and human resources (Priem and Butler, 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 that the available resources and human capital are 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.

2.2 Strategic renewal

Strategic renewal is defined as “strategic actions to align organisational competences with the environment to increase competitive advantage” [Flier et al., (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-based 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 are 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 organisational 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 organisations. 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 formalised 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.

What actions do both approaches prescribe? In the next sections we look at organisational change, innovation and timing. We also present our hypotheses.

2.3 Type of actions

2.3.1 Organisational change

Organisational change is a key concept in the strategic choice approach. Changing the organisational structure is considered a way to remove slack (Child, 1997), since few organisations function to the limits of their efficiency (Cyert and March, 1963). In the model of Meijaard et al. (2005), both internal and structural changes are ways of organisational change. We define organisational 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 organisational (communications) structure.

The assumption that organisational changes improve post-transfer performance has not been tested yet in transfer situations. There is evidence that SMEs suffer from slack. Meijaard et al. (2005a) develop and test a taxonomy based on Mintzberg’s (1979) model of organisational structures on more than 1,411 SMEs. They found that certain organisational 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 organisation may improve SME post-transfer performance.

Hypothesis 1a Organisational change by a successor will improve SME post-transfer performance as compared to no actions taken.

2.3.2 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., 2005). Meijaard et al.’s (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 et al., 2004).

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 et al., 1993; Calantone et al., 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 and 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 practices 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 et al., 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.

Addressing organisational versus innovative actions gave 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 organisational 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 organisational change and innovation of a successor will improve SME post-transfer performance compared to no action taken.

2.3.3 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 1,500 Dutch firms which transferred ownership between 1993 and 2002. The sample is stratified on firm size (0–9 fte, 10–49 fte, 50–250 fte) and sector (industry and services). The survey was conducted by phone and 500 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. Table 1 displays the main characteristics of these firms.

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 organisational change (32%), innovation (27%), combined actions (16%) and no actions taken (25%) after ownerships change. 78% of the successors have been interviewed in two to five years after the transfer of ownership.


Table 1 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 Organisational change 32 333 Innovation 27 Combined action 16 No action 25 Transfer year/ 2,000 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

3.2 Variables

3.2.1 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 Table 2. Regarding the wide definition taken this performance scale has an acceptable reliability coefficient of 0.73.


Table 2 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 (–705% of more) to 5. Strongly increase (7.5% or more)

Did the profits increase after the change of ownership?

2.51 0.69

Did the number of customers increase after the change of ownership?

2.65 0.62

1 No, they decreased 2 No, they did not change 3 Yes, they increase 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 Organisational 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

Notes: 1 = definitely not innovation and 7 = definitely innovation

3.2.2 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


organisational change and product/market innovations from literature, we did a second check on assigning the successors’ answers to organisational 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 one (definitely not innovation) to seven (definitely innovations). Table 2 shows that they made a clear distinction in organisational change and product/market innovation items. We found a high reliability on organisational 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, organisational actions or combined actions. If the two actions are from the same category (i.e., innovation or the organisational change) they are coded accordingly as either innovation or organisational change (14%). If the two actions are different in nature, one an innovation and the other an organisational change, we coded them as a combined action (16%).

3.2.3 Independent variable: timing of succession

To operationalise 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).

3.2.4 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 multidimensional 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 realise 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 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 that 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, amortisations, investments or disinvestments. The selling party’s interest is to increase cash flow, turnover and profits to maximise 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, organisational 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 (organisational, innovation and combined action) against no action taken and test economic decline conditions against the other economical conditions by separate T-tests.

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 five factors with an eigenvalue of one, 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.

4 Results

The table of correlations (see Table 3) 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 are unrelated to post-transfer performance if we look at the percentage of growth. We also see that family transfers are significantly positively correlated to no action taken and negatively related to organisational changes.


Table 3 Pearson correlations of independent and dependent variables


Table 4 Tested averages on post-transfer performance scores in ANOVA (Type III)


In Table 4, the covariates are entered first, showing that firm size proves to be significant F(1, 332) = 5.90, p = 0.01. Smaller firms do realise a better post-transfer performance than larger firms. This confirms Meijaard et al.’s (2005) findings. Sector is not significant, neither is family transfer vs. non-family transfers.

Table 4 (graphically represented by Figure 2) 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 categorised by decline, average or growth conditions – are of importance for post-transfer performance.

Figure 2 Post-transfer performance scores as function of renewal action and timing (see online version for colours)

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

To confirm Hypotheses 1a, 1b and 1c, stating that respectively organisational 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., organisational, 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 Table 4 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 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 2. 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 organisational change and innovations (t = –1.44, df = 217, ns) and organisational change and combined actions (t = –2.06, df = 217, p < 0.05). Only combined actions provide a significant better performance than organisational 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 organisational 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. Uncategorised economic growth as percentage of GDP growth is unrelated to post-transfer performance, due to a non-linear relationship between economic 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 organisational 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 did not 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 do not know whether product/market innovations and organisational change cause better performance or that better performance leads to more innovations and organisational 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 maximise turnover and profit in the years before selling, whereas the buyer likes to invest and/or reduce profits to save on 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 realise 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 revitalise small firms.

We find no difference in post-transfer performance between family transfer vs. non-family transfers, although family transfers tend favour ‘no action’ after ownership transfer and seem to resent organisational changes.

Combined actions of product/market innovation and organisational change are related to the best post-transfer performance. This indicates that organisational changes – often used as a strategy in economic decline to cut costs quickly – are not a panacea. Reorganising 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 emphasise the specific human capital like entrepreneurial skills (Markman and Baron, 2003; Driessen, 2005) or specific education and experience (Colombo and Grilli, 2005; Dimov and Shepherd, 2005). These studies indicate that specific skills and experiences give much better or more precise predictions on small firm performance than more general indicators.


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Strategic renewal after ownership transfers in SMEs: do successors' actions pay off?