Business Succession in Family-Owned Enterprises

For family-owned businesses, generational transition represents a profound change. It becomes particularly challenging when business succession coincides with a period of strong growth, a major digital transformation, and a pandemic all at once. This is exactly what Schilling Engineering GmbH, a cleanroom specialist based in Baden-Württemberg, experienced. We spoke with Ute and Gaby Schilling about the challenges of this multifaceted change. The sisters will soon take over the company founded in 1998 by their father, Günther Schilling. Incidentally, they also have a clear stance on the issue of gender quotas.

The four phases of business succession

In general, medium-sized (family) businesses should plan five years for the change at the top and thus for business succession. This period, in turn, can be divided into four phases.

1. First, the goal is to make or keep the company or organization fit for the future. In the case of mergers and acquisitions (M&A), this is the time when the “bride” is made ready. Business models are reviewed, investment needs are identified, and investments are made. Two to three years before the handover, the active search for a successor should then begin.
2. If the successor is found within the family business itself, the question of any necessary training or development should be addressed.
3. This is followed by a transition phase to be determined on an individual basis. During this time, the successor gradually becomes familiar with the internal and external structures of the business. The BMWi recommends agreeing on common ground rules and defining precise areas of responsibility and tasks, which are then transferred step by step according to an agreed-upon schedule. In addition, governance, role clarification, and coordination between the family and the company are recommended.
4. The final phase consists of the handover itself.

The phases 1 to 3 at Schilling Engineering

Maturation (phases 1+2)

It was clear that identical twins Ute and Gaby Schalling would take over the family business after they completed their bachelor’s degrees in industrial engineering with a focus on mechanical engineering. They then went on to earn master’s degrees, worked for four years at other companies, and finally began working as engineers at the family business. At the same time, their father made the company fit for the future with appropriate investments. The first two of the four phases of a business succession had thus been successfully completed.

Transition (phase 3)

After optimizing the business and training the successors, the third phase of the generational transition could follow: the transition phase, which also lasted several years. Right from the start, everyone involved faced a special challenge. This was because the family business’s revenue had been growing by an average of up to 15 percent annually for quite some time. Consequently, a significantly larger company building became necessary – with space for future capacity needs as well. After Ute and Gaby Schilling explained to their father that they would be taking over the company as part of a generational transition, Günther Schilling gave the green light for the prospective construction project in 2016.

Pressure on internal communications

However, one thing was not to be lost amid the significantly larger new building: the family-oriented character of the corporate culture that had developed over roughly two decades. As is common with startups, this family-like character is expressed, among other things, through short lines of communication. However, when the workforce grows rapidly, internal communication usually suffers: information that could be shared almost instantly within a small circle no longer gets through quickly enough in a large team. Employees’ knowledge no longer flows into relevant decision-making processes, or at least not in a timely manner.

In our experience, effective internal communication is also a key prerequisite for ensuring that knowledge can be shared, combined, and translated into innovation within the company. This is especially true when companies are growing rapidly. In such cases, informal coordination must be gradually supplemented by robust communication and participation structures.

The Schilling family was aware of this and responded accordingly, as Ute and Gaby Schilling report in ChangeTALK. Last year, the Oskar Patzelt Foundation honored the family business with the Grand Prize for Medium-Sized Businesses and the Medal of Honor for the resulting positive work environment, as well as for its innovations – including numerous patents and utility models – for job creation, environmental protection, and social and community engagement.

How COVID accelerated innovation

In 2018, founder Günther Schilling appointed his daughters Ute and Gaby to the executive board. Two years later, the two had to navigate the COVID-19 pandemic. During the first lockdown, they introduced a two-shift system. However, ongoing issues – such as during shift handoffs – prompted the sisters, together with their father and an innovation team, to establish a more effective alternative to shift work in preparation for the expected next wave. To this end, the cleanroom technology specialist leveraged its filter expertise. In the end, they developed the mobile air filter unit “Windfried” with a ULPA-15 filter and equipped both their own offices and a local school with it.

There is also research backing this up: While crises can strain innovation activities, they simultaneously create strong pressure to solve problems and thereby accelerate new products, processes, or forms of cooperation. Several studies highlight that family businesses can benefit from a long-term orientation, rapid decision-making processes, and mobilizable reserves during crises. Research on the COVID-19 period also shows that innovation and workplace quality were key drivers of family businesses’ resilience. The Schilling case thus fits a pattern frequently described in the literature: companies repurpose existing competencies during a crisis and translate them into concrete, often highly practical solutions.

New ERP as a change initiative

Another challenge Ute and Gaby Schilling had to address during the generational transition in management was digitalization. They oversaw the implementation of an upgrade to the existing tool for planning personnel, capital, operating resources, and other assets – that is, an Enterprise Resource Planning system (ERP). It is easy to see that this ERP system upgrade affected the entire company. The two describe the details of this, as well as the impact on the current workforce of around 70 employees, in the conversation with viadoo ChangeTALK host @doctorchange.

The literature on ERP projects is clear on this point: The success of such projects depends not only on the technical quality of the system, but also significantly on change management, communication, training, and visible support from top management. Precisely because ERP systems standardize processes across departments, employees often perceive them as a profound disruption to routines, roles, and transparency. Accordingly, studies repeatedly cite company-wide communication, training, and active support in addressing resistance as critical success factors. An ERP upgrade is therefore not merely an IT project, but an organization-wide change process.

Women in succession & Lessons learned

We recorded the ChangeTALK with Ute and Gaby Schilling one day after Equal Pay Day and two days after International Women’s Day. Naturally, we asked the two women about this as well. The two young entrepreneurs operate not from a regional hub, but from the southern Black Forest, in close proximity to the Swiss border and thus in an environment with correspondingly higher wage levels. The Schilling sisters’ response to the topic of women’s quotas is correspondingly pragmatic:

“In times of a skilled labor shortage, our focus is clearly on the quality of the applicants. (…) For us, it’s really all about the job itself and whether the requirements can be met with the right qualifications.”

The Schilling Engineering case shows that business succession is far more than the transfer of responsibility from one generation to the next. It is a strategic, cultural, and communicative process of change. Especially in family businesses, success depends not only on the professional qualifications of the successor but also on role clarification, internal communication, a willingness to change, and leadership that brings people along with it through the transition. Anyone who must manage succession, growth, digitalization, and crisis management simultaneously therefore needs more than just a good handover plan. What is required is an integrated approach that brings together strategy, governance, communication, and people management.

ChangeCAST with Ute & Gaby Schilling (Video)

For family businesses, generational change and business succession is far more than a mere handover of responsibility. This episode of viadoo ChangeCAST focuses precisely on this challenge using the example of Schilling Engineering GmbH from Baden-Württemberg. Our guests are Ute and Gaby Schilling, who will soon take over the company founded by their father in 1998. In conversation with ChangeCAST host @doctorchange, the two speak openly about how they are shaping the generational transition during a phase of strong growth, comprehensive digitalization with new ERP and DMS systems, and under the conditions of the COVID-19 pandemic. Topics include maintaining the family-oriented character despite expansion, the importance of internal communication, innovation during the crisis, and their stance on gender quotas. Comprehensive. Practical. In just 20 minutes. Find more videos in our Kowledge Base!

Photos: © Faust / viadoo GmbH