Securing necessary human capital in family businesses after generation changes: The buy or breed dilemma

Abstract

After the transference of business leadership from one generation to the next, high failure rates or poor performance has been recorded all over the world. This study seeks to focus attention on this under-researched area of family businesses. It does so in the context of concerns about human capital in the family business. The purpose of this paper is to reveal the strategies family firms undertake in order to secure necessary levels of human capital in their management positions. Family firms go to length in order to breed their own stock of human capital, but are very reluctant to buy such by hiring non-family members as managers. This study applies a case method and derives data from one of the family businesses located in southern part of Sri Lanka. The business is in its third generations and is presently performing poorly.