International Journal of Research and Innovation in Social Science (IJRISS) |Volume V, Issue I, January 2021|ISSN 2454-6186

Succession Planning and Success in Family-owned

Business Enterprise; A Case Study
C. H. Wijayasinghe
Central Environmental Authority

Abstract: The authorized and published papers revealed that the Evaluation of the business
persistence of family businesses is controversial in the future.
There is empirical evidence to prove the fact that only 30% of More than 80 percent of the world's businesses are family
family businesses span to the second generation and that only owned. In Sri Lanka, there are well-known family-owned
about 10% to 15% survive by the third generation. The major businesses like DSI Samson Group, Hemas Holdings Ltd.,
reason for this failure is improper succession planning. The Damro Group, Siddhalepa Group, Dilma Group, Maliban Plc.,
objective of this case story is to identify whether the existing Perera & Sons and Ceylon Biscuits Ltd etc. and have been
succession process is durable enough to safe guard the future of ensured their persistence through success. Some of these
the well-known Sri Lankan family-owned business called companies are operated in international soils. Southern
Harischandra Mills PLC. The Company has a long history of
over seventy-three years along with a household brand name
Province of Sri Lanka is considered as the ground for family
with quality assurance. While this case focuses on the business enterprises. As an example, Harischandra Mills PLC,
generational differences and the leadership transformation Nipolac Group, Odiris Silva Company, Rich Curd Company,
pattern between the founder and the successors of Harischandra and Saman Mal Restaurant have widely known family
Mills PLC, it also offers some important guidance for the micro businesses originated in Southern province. However, some of
and macro perspectives in entrepreneurship. The leadership these companies are not continuing at present due to several
transformation gaps of Harischandra Mills PLC were explored reasons.
by the researcher along with safety measures to ensure long-term
success, as well as for a smoother transition of the leadership. ‘Harischandra’ is a well-known family business which,
The success of a family firm depends on its ability to maintain originated in the district of Matara of the Southern Province,
the stability of the business. Hence, it can be said that an effective Sri Lanka. Matara is one of the largest cities in Sri Lanka
succession strategy is vital for Harischandra Mills Ltd. to attain belongs to the low country wet zone. Its population is about
a higher level of business performance and to maintain long-term 803,999 according to the 2012 Population and Housing
sustainability.
Census. Matara is situated between Galle and Hambantota
Key words: Succession planning, Family-owned business, districts. Although there are other ethnic groups, the majority
Harischandra Mills PLC of the people in the district are Sinhala Buddhist.
Harischandra is a familial business which has a greater
I. INTRODUCTION
history. Kandaudarata Arachchige Odiris Silva (father of
Memories of a greater capitalist Harischandra) is the founder of the preliminary business, who
was born on 2nd August 1867. As his education was disrupted
C . A. Harischandra of Matara was a greater industrialist,
known to everyone. He was born on 13th of November
1911 and was the fourth son of late Odiris De Silva, a
due to some reason, he had started a business for extracting
coconut oil by using a Sekkuwa (a grinding machine made out
of granite and driven by a bull) belonging to his grandfather –
respectable and reputed business magnet in Matara engaged in Samichchi de Silva. In addition to his oil business, he had run
coconut oil milling. Harischandra had four brothers. He a cinema and a printing press. Although Odiris Silva had five
received his primary education at St. Thomas Boys School, sons and six daughters, Harischandra was the only child
Matara and secondary education at Ananda College, (fourth son of the family) who actively involved in his father’s
Colombo. In 1930 he entered the University College, businesses. After some time, Harischandra decided to start his
Colombo and graduated in economics, and he obtained his own business and as a result, he had started a rice mill with a
Inter Commerce degree with credit. After his university small capital. With the commencement of the World War II in
education, he came back to Matara and started to run the 1942, he started a timber mill and obtained contracts from the
Broadway Cinema Hall, a bookshop, and a printing press. In government and the Army to supply rice and timber.
1938 he married to Miss Cornelia Shanthi of Thihagoda, a
textile weaving teacher at that time. His charming wife was The Harischandra Mill was formed by Harischandra, in 1943,
his own selection and was a tower of strength to him. They with an initial capital of Rs. 25,000/- on a land area of 20
had four daughters. Harischandra was a best-known social perches. The Company has a long history over seventy-four
worker involved in educational, health and philanthropic years and a household brand name has been born purely base
activities. Harischandra died in 1985 at the age of 74 years. on quality. The Harischandra Company had been started as a
small business to supply daily essential food, flour and

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International Journal of Research and Innovation in Social Science (IJRISS) |Volume V, Issue I, January 2021|ISSN 2454-6186

coconut oil for the neighborhood. The company’s initial flour mill. Soon the reputation of the company for quality
operation was milling of rice, Kurakkan, and other grains. spread far and wide. Then the company formed under the
First, a rice mill was started with a small capital at Angarika name of the Harischandra Mills (Pvt.) Ltd. in 1953. The
Dharmapala Mawatha, Matara in 1943. Subsequently, several company was converted to a Public Quoted Company with
mills had been started such as mill for timber, rubber, copra, limited liability on 14th December 1959 under the name of
oil, soap and the production of gingelly oil as well. The Harischandra Mills PLC. The Registered Office and the
business had gradually expanded into various other fields principal place of business of the Company are located at
including the milling of coconut oil. During the period of No.11, C. A. Harischandra Mawatha, Matara. In 1983 the
1945 – 1946, the business had been shifted over to No. 11, company was listed on the Colombo stock exchange. At
Delkada Road, Matara, Sri Lanka. Within few years, present, the Harischandra Company is in its third generation.
operations were expanded by adding sawmill and Kurakkan

Table 1: Harischandra product portfolio

Segment Description Products

Harischandra soap range is gentle on the skin and has no
added animal fat. Harischandra soaps are backed by
Soaps Sal Bar, Senola, Namal, Saman, Aththora
generations of trust and are the smart choice for the modern
household.
Harischandra instant products are the convenient option for String Hopper flour (Red)
the modern Sri Lankan home. With Harischandra instant String Hopper flour (White)
Instant products
products making delicious and healthy home cooked meals is Kurakkan Thosai Mix
simple and quick. Hopper /Thosai Mix
Harischandra coffee has a rich and deep flavor and as it is
made from 100% coffee it produces a pure blend that is
Coffee smooth in taste and rich in aroma. Drink a cup of Harischandra Coffee
Harischandra coffee in the morning and it will give you the
perfect start to the day.
Harischandra flour has been trusted in homes for generations. Rice flour
Flour With Harischandra flour you are sure of preparing meals that Ulundu flour
are of quality and taste. Kurakkan flour
Harischandra noodles range has been a trusted product for White Rice noodles
generations. Turning simple family meals into special events, Red Rice noodles
Noodles
Harischandra noodles are the convenient way to preparing Kurakkan noodles
delicious and healthy home cooked meals. Special/Plain noodles
has been a favorite accompaniment for generations, with the
young and old alike enjoying the crispy taste. Harischandra Masala Papadam
Papadam papadam is made from natural ingredients and is packed with Rice papadam
taste and goodness. Fry some Harischandra papadam and Papadam
watch the food disappear.
With its home cooked flavor, natural ingredients and no
Date and Lime chutney/ Tamarind
Pickles / Chutney artificial preservatives, the Harischandra pickle range is a
chutney/ Malay /Garlic pickle
/ Curry Pastes & convenient and healthy choice for the modern home. Turn
Curry paste/ Chilli paste
powders everyday meals into special occasions as Harischandra pickles
Turmeric/Chilli powder
enhance the flavor of your dishes.
Harischandra gingerly rolls are legendary and are the perfect
Gingelly rolls after meal dessert or snack. Jaggery and sesame seeds are Harischandra Gingelly rolls
combined to create this local heavenly sweet.
A staple in all Sri Lankan homes Harischandra Kitul treacle is
made from natural Kitul sap. It is used to make traditional
Kithul Treacle Harischandra Kithul Treacle
sweets and is also ideal for curd, ice cream or with freshly
baked bread.
Harischandra coconut vinegar brings out the natural flavor of
salads made with fresh vegetables. Just a splash of
Coconut vinegar Harischandra Coconut vinegar
Harischandra coconut vinegar makes home cooked fish and
meat curry tastier.
Bread, Rolls, Biscuits, Buns, Murukku
Bakery Products Harischandra produces a wide range of bakery products.
…etc
Source: Official website of Harischandra Mills PLC, 2019

Presently, Harischandra is the market leader for noodles, offers a wide range of goods (thirty-three brands) as depicted
coffee, Kurakkan flour and Ulundu flour. In addition, the in Table 1, all across Sri Lanka. All the Harischandra brands
company has an appreciable market share for rice flour, are fallen under two main marketing segments of food and
laundry bar soap and blue washing soap. Today, the company

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International Journal of Research and Innovation in Social Science (IJRISS) |Volume V, Issue I, January 2021|ISSN 2454-6186

soap. Thus, the principal activity of the company is Supplying of absolutely natural, pure wholesome food for
manufacturing and distribution of food and soap products. their customers is the utmost intention of the company. For
that reason, the company had set forth quality objectives as a)
Business model that developed with heritage
Reduce the reject rate by 2% every year from the previous
The main objective of the company was to utilize local raw year’s rejects b) Reduce customer complaints and increase
materials and to provide maximum job opportunities to the market share by 2% every year from the previous year’s
people in the area. The company has four main corporate complaints, c) Update equipment and install new equipment to
objectives namely; a) Constant improvement of the quality of meet the safety and hygienic requirements, d) Utilize 5% of
all products b) Provide a fair return to shareholders while the net profit of the company to improve environmental
safeguarding their investment c) To encourage and promote hygiene, including adequate handling of factory discharge to
the manufacture of foodstuffs and maximizing the use of raw prevent pollution of the environment both inside and outside
materials locally available. d) Provide opportunities for the factory premises. The company has received ISO 9000 in
personal and career development of employees with 2001 and ISO 9001 in 2008 for their products by fulfilling
maximum benefits. The company Vision lies down to enhance quality requirements. Traditional Sri Lankan food is made in a
the heritage brand status and serves the nation. The way of combination with love, care, and best ingredients. The
formulated Mission statement of the company is to provide quality policy of the company is “to improve the quality of the
the public with a variety of high-quality foods and soaps. Both products constantly and to enhance customer satisfaction
statements reflect the differentiation of strategy and the towards increasing the market share effectively”. The brand
accountability of enhancing the national heritage brands by ‘Harischandra’ have earned the respect and appreciation from
means of maintaining the high quality. The company always consumers mainly for the quality of the goods. For over seven
used indigenous raw materials for its products. Therefore, the decades, ‘Harischndra’ maintains its market position at a
farmers in the area got an opportunity to supply required raw higher level by providing good wholesome food for their loyal
materials and they were able to find a market. The company customers. The company has a strong and loyal customer
ensures maximum manual operations in the base. Those who believe the quality of the product always
manufacturing/supply/value chain to sales and marketing stands with Harischandra brands. Currently, the company is
besides employing the state-of-the-art technologies for the renowned for its indisputable brands of Harischandra noodles
production of bulk products. and coffee.
During the last ten years, the company has bought some high- Charismatic attributes of C. A. Harischandra
tech machinery to accelerate the manufacturing process and to
Harischandra was born wealthy and therefore he had more
minimize the wastage. The company’s commercial operations
chances to grab different types of opportunities. He is not an
somewhat unique when compared to fully machinery-oriented
inventor but he had greater entrepreneurial capabilities to grab
business models. As competitors more tend to use high-tech
the correct market opportunities. He believed that he can work
modern technology with minimum human resources, the
more happily and freely by becoming his own boss and
rivalry within the marketing segment is very high. But in the
wanted to control business operations by himself. Therefore,
case of Harischandra, it always tries to use maximum human
he decided to start up a new business without hanging on his
resources during the manufacturing and packaging processes.
father’s businesses and he set his own agenda and worked
The company’s packaging process is almost done by manually
within his boundary. He tried to fulfil the market demand by
with the intention of providing more employment for the
supplying necessary commodities. Playing a role of a risk
people in the region. Harischandra has always maintained the
taker, Harischandra started the first manufacturing plant of
original quality of their products and therefore the “powdered-
noodles in Sri Lanka. He had a self-motivation to build a
coffee” has become the market leader in the coffee marketing
profitable business. He preferred a flexible lifestyle but highly
segment, Sri Lanka. Harischandra coffee has a precise taste
committed for his business activities. He knew that those who
and aroma unique to Sri Lankans. Harischandra is the first
can perform well can earn much profit. He always tried to find
manufacturer of noodles in Sri Lanka which has a
solutions for existing problems. He became the pioneer to
considerable market share in the food industry. Labour
start up a new Co-operative hospital in Matara. He had a
relations are one of the most important elements for the
desire to do something for the community and find solutions
success of its unique production process. Today, the brand
to social problems. Those attributes reflect entrepreneurial
name of ‘Harischandra’ has become highly popular and the
traits of a social entrepreneur. Although he was not primarily
products are available island wide. The Harischandra Mills
motivated by money, he knew that the profit is not only the
PLC has six key divisions such as finance, marketing, human
factor affecting for the sustainability of the business.
resource management, quality assurance, production and
commercial activities. All the operations of these divisions are Harischandra had born with the talent for entrepreneurship.
performed under one roof. The Company had 935 employees He was a graduate in economics and his knowledge had been
by the end of 2016. applied for his business practices. He has not very much
believed the luck or supernatural powers, but he always
A trusted name for quality
believed the talent and the commitment are coming with the

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success. He always trusted that the company should provide family businesses are required to apply innovative strategies
good quality products for its customers. Therefore, he had to remain economically sustainable. Diversification
advised his employees, not to destroy the credibility of the considered as one of the most frequently adopted innovation
business. He knew that the customer loyalty and the brand strategies (Schot and Geels, 2008). These strategies couple
equity are the most critical elements to be maintained for with the innovative ideas of the successor thus, the
household food commodities. He had greater management and innovativeness applied to the business can be changed time to
employee relation capabilities. He has expertise in business time and generation to generation. The innovation can be
management, accounting, manufacturing and, marketing motivated by identifying actual needs of the society and
capabilities as well, in the same area of business. He believed exploring creative ways to fulfill those needs (Bickerdyke,
his own ability to meet challenges and had the self-confidence Lattomore, and Madge, 2000). Therefore, the persistency of a
to accomplish whatever the task. Naturally, concerning high- family business depends upon the ability of the successor to
quality works, he had a desire to sell only better-quality run an innovative business. Many venture capitalists try to
products. keep up their innovative efforts in order to face the
competitiveness of the industry. Taneja, Pryor, and Hayek,
II. THEORETICAL FRAMEWORK
(2016) have identified the ‘innovation’ as one of the key
Environmental entrepreneurship widely confers under drivers of competitive advantage.
Schumpeter’s Economic Development Theory (Witt 2002;
Family contribution to run the business
Schumpeter, 1934). According to Schumpeter “entrepreneurs
are the innovators that provide the innovation or creative Harischandra was the Chairman of Haischandra Mills (Pvt.)
destruction that gives society a new way of addressing Ltd. up to May 1985. After the death of Harischandra (1985),
problems” (Schumpeter, 1934, p. 66). The original Russian Cornelia Harischandra’s brother (Mr Jinadasa) had
version of the Economic Development Theory was first overlooked the business work. After some time, Cornelia
published in 1911 under the name Theorie der Harischandra got the power to run the business. She was the
wirtschaftlichen Entwicklung and the first English edition was chairperson and the managing directress up to 1989.
published in 1934. According to this theory, the Harischandra’s four daughters (R. K. Samarasinghe, C. P.
entrepreneurship is an engine for economic development Rodrigo, N. D. Wijayanandana and M. P. De Silva) and two
which can eventually act as a driving force of destructive son-in-laws (F. D. Wiajyanandana and G. S. V. De Silva)
innovation (Witt, 2002). Similarly, this theory highlights that were in the director board and they also helped Cornelia
environmental innovation could expand the monetary value of Harischandra to run the business. During this period, H. D.
a business. Wijayanandana had overlooked the operations in Matara and
G. S. V. De Siva had overlooked the operations in Colombo.
The empirical review of the related literature
Cornelia Harischandra passed away in 1989. After her death,
There is empirical evidence to prove the fact that only 30% of the company nominated a new Chairman (E. M. Wijenaike),
family businesses span to the second generation and that only from outside the family. E. M. Wijenaike held the position of
about 10% to 15% survive by the third generation (Beckhard, the Chairman, from 1989 to 2005. In 2006, M. A. Bastian (a
and Dyer, 1983; Handler & Kram, 1988; Handler, 1994). qualified lawyer) had been nominated as the new chairperson
Improper succession planning can be severely affected the and he was an outside member. In the year 2000, Senaka
sustainability of a family firm (Beckhard, and Dyer, 1983). Samarasinghe, the grandson, the eldest son of the eldest
Entrepreneurs strive to reveal potential niche opportunities is daughter of Harischandra, was elected as the managing
a universal assumption. There is a belief that the entrepreneurs director (MD) and up to now, he is holding the position of
are motivated essentially by money (Amit et al., 2001). MD. The present director board consists of family members of
However, the profit is not the only factor affecting the second and third generations and also with some other outside
persistence of a family-owned business. Several scholars members. R. K. Samarasinghe (the eldest daughter of
(Lankester, 2012; Suess-Reyes, and Fuetsch, 2016) Harischandra), M. P. De Silva (youngest daughter of
emphasized that the strategies related to sustainability and Harischandra), and Sanath De Silva (son-in-law of
innovation ensure the long-term survival of a family-owned Harischandra) are still serving for the company. When
business. Similarly, Arthur D. Little described ‘sustainability- considering the period starting from 1943 to 2017, there was a
driven’ innovation based on “the creation of new market significant diminishing of family contribution in running the
space, products and services or processes driven by social, business (Figure 1).
environmental or sustainability issues” Little (2006). The

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Figure 1: Family Contribution to the Board of Directors

Source: Author’s survey, 2019

Transition of the company leadership Warning signs to focus on succession

In general, the transition will come from generation to The financial performance of a company can be normally
generation. When considering the past period (1943 – to date) measured by using key financial ratios namely; profitability
of the company, there is a significant diminishing of family ratios, liquidity ratios, and leverage ratios. For this study, the
contribution in running the business (Figure 2). Further, it can researcher has used Return on equity (RoE) and Current Asset
be noticed that the performance of the company had been ratio as they are fairly depicted the financial performance of
severely affected by the places of previous leaders’ death or any business entity. The financial information related to RoE
retirement has occurred. Therefore, it can be seen a and CA had directly obtained from the archive data of
relationship between the succession process and the Harischandra Mills PLC (Annual reports, financial statements,
performance of the company. sales reports and other publications on company
Figure 2: Succession Process of Harischandra Mills PLC
performance).
Profitability of a company is an indicator for increasing the
productivity through maximum utilization of available
resources to obtain the maximum profit to attain the set goals.
On the other hand, the efficiency of the company’s operating
cycle depicts the liquidity position of the company. The
variation of Return on Equity (RoE) and Current Asset (CA)
ratio during the transformation of the leadership has shown in
Appendix 1. One of the most important profitability matrixes
is RoE. The RoE defines as net income available to common
stakeholders divided by common stakeholders’ equity. It is a
measure of the return on total investment in the enterprise.
RoE offers a useful signal of the financial success. When
considering the past thirty-three years, the company’s RoE
values have fluctuated throughout the period. A steadily
decreases in RoE is a signal of poor performance of a
company. Figure 5 clearly shows the variation of the RoE
from the year 1982 – 2016.

Source: Author’s survey, 2019

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Figure 3: Variation of Return on Equity during the transformation of the leadership (1982 – 2016)

Figure 4: Dropped products from the product line (1943 – to-date) values. Harischandra (1st Managing Director) of Harischandra
Mills PLC has passed away in 1985 and then the RoE value of
that year has drastically dropped from 31.9 percent to (1984)
to 4.9 percent (1985). After the death of the 1st MD, Cornelia
Harischandra took over the MD position of the company. She
was the 2nd MD of the Harischandra Mills PLC. The RoE
value was stable in 1985 (4.9%) and 1986 (4.85%) and started
to increase gradually and reached to 19.03 percent in 1988.
The 2nd MD’s death occurred in 1989 and RoE value dropped
from 19.03 percent (1988) to 7.14 percent (1989). Similarly,
the oil mill suffered a loss within this period due to declining
oil prices and poor-quality ‘Copra’. After the death of 2nd MD,
the company nominated a new Chairman (E. M. Wijenaike)
and a director board consisted of four daughters and two son-
in-laws of Harischandra. E. M. Wijenaike is not a member of
the family and he held the position of Chairman, from 1989 to
2005. Within the period of 1991 -1992 company introduced a
few new products to the market out of which the herbal toilet
soap “Aththora” has had encouraging demand. In 1993, the
government had increased turnover tax and excise duty by 30
percent and therefore, the company’s RoE value had declined
up to -2%.
In addition to that, RoE value was decreased due to low
Source: Author’s survey, 2019 utilization of oil mill and the poor performance of the soap
Backdrop factory. During the year 2003, rising cost of raw materials was
affected to the low profitability of the business. However,
Throughout the past period, starting from 1943, some of the RoE values had been fluctuated throughout the period of 1990
culinary items were dropped from the product line of the – 1999 and finally reached the maximum value of 23.36
Harischandra Company, due to several reasons. The company percent in 1999. Within the period of 1998 – 1999 the
had to close down the oil mill in 2003 due to continued losses. company improved its technology and it caused to have an
Products which, dropped from the product line have been excellent performance of the production of coffee and noodles
shown in the Figure 3. During the years 1982 (RoE -22.2%) together. In the year 2000, Senaka Samarasinghe, the
and 1983 (RoE-21.13%), company maintained a high RoE grandson of Harischandra, had appointed as the 3rd MD of the

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Harischandra Mills PLC and during his tenure, the company MD tenure, the CA ratio was at a reasonable level. Due to
had obtained the ISO 9002 certificate for the soap segment excess stocks of raw materials and finished goods may be the
and RoE values had increased from 11.35 percent (2000) to reason to lead the increase of the CA ratio during the period of
21.98 percent (2001). During 2002 -2003, RoE dropped again the 2nd and 3rd MD.
down from 13.03 percent to 10.99 percent due to the high raw Figure 5: Variation of Current Asset Ratio (1982 – 2016)
material cost of soap and also the low profits of the oil mill.
Within the period of 2003 – 2004, the oil mill was closed due 06:00
to continued losses. This section has made continuous losses Curren…
from 1999 – 2003 and it became increasingly difficult for the
company to absorb these losses. During 2004 – 2005, the 04:48 2nd MD’s 3rd MD’s
company’s RoE fell down from 12.17 percent 8.63 percent Era Era
due to the effect of the tragedy comes with the tsunami. But, 03:36 1st MD’s
again starting from 2006 – 2009, the company’s RoE
percentage increased from 10.58 up to 15.71 due to favorable Era
market conditions. But, again starting from 2010, the RoE 02:24
values were gradually declined due to sales affected by
drought conditions prevailing in the Northern and Eastern
areas of the country, as well as low overall demand. The main 01:12
reason for the decline is due to higher input costs which the
company was unable to pass on to the consumer. 00:00
As shown in the Exhibit 5, there was a significant drop in

1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
return on equity at the point where the transition of leadership
had occurred. Family conflicts due to poor succession
planning were the major reason for decreasing RoE during Succession process as a strategic paw
this period. When considering the average figures of each The authorized and published papers revealed that the
MD’s era, 1st MD marked the 20.03 percent highest average of persistence of family businesses is controversial in future.
RoE value, 3rd MD recorded the average of 12.13 percent RoE There is empirical evidence to prove the fact that only 30% of
value and the 2nd MD recorded the lowest average of 11.64 family businesses span to the second generation and that only
percent RoE value. The second highest ratio of 12.13 percent about 10% to 15% survive by the third generation. The major
recorded in the period of the second generation, when the reason behind this failure is improper succession planning.
daughters and sons-in-law run the business. The ultimate objective of the succession planning is to provide
Efficiency of the company’s operating cycle for continuity of business through the transition of ownership
and management. Therefore, a proper succession plan is a
Current Asset (CA) ratio is used in analyzing the efficiency of vital constituent for ensuring the long-term viability of a
the company’s operating cycle to measure the liquidity business. As the founder does not live forever it is the
position of the company. This ratio also helps to get an idea responsibility of the founder to develop a successor. When
about the working capital management abilities of each leader. succession planning is delayed the family members may
It is said that the companies which have a CA ratio of 2:1 are develop their own sense of expectations. Any postponement
managing in a favorable position. Companies should have a of the planning may diminish the success of the business.
Current asset ratio of at least 2:1. Graph 2 is shown the Normally, founders’ desire is to pass the business to a family
variation of the CA ratio in relation to the succession of the member. But, if the founder fails to identify a suitable family
company. Accordingly, during the period of 1st MD (1981- successor to hand over the business, he or she may transfer the
1985) CA ratio managed to maintain within 2:1 – 3:1. After ownership of the business to an outside party.
the demise of C. A. Harischandra in 1985, the CA ratio
increased from 3:1 (1985) to 4:1 (1986) within the leadership The founder of the company spent so much time on building
transition period. After then, during the 2nd MD’s period and running the business and therefore, he lost the attention in
(1986 -1989), CA ratio has remained stable at 4:1. planning the succession process. Due to that reason, members
of the next generation were not prepared to take over the
However, CA ratio has fluctuated throughout the period of the business. Any postponement of succession planning
years in-between 1990-1999. When considering the past diminishes the value of the succession process. At the time of
thirty-four years (1982 - 2016), the company’s current asset the death of the founder, there was no successor to take over
ratio had fluctuated remarkably in-between 2:1 to 4:1. During the business, since the succeeding generation was not
the 3rd MD’s period starting from 2000, CA ratio remained prepared to take over the leadership. If the owner family has
stable at 4:1 and again in 2007, the ratio has declined up to not developed a successor to take up the business after the
3:1. A company with a very high current ratio may be stable death or retirement of the incumbent, they will be in a
in the short term it probably has no means of sustaining its dilemma about the new successor appointment and the
long-term growth and performance. During the period of 1st

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success after the new appointment. If the family might not establish possible successors but also contribute to the health
nominate a suitable person to take up the business, then it will of the company and avert rivalry among members. The
be the biggest loss in the entire life of the business. Company should plan the succession process to best fit with
the future growth of the business. Top management should
The founder (1st MD) and the 2nd MD experienced the
take necessary actions to establish a talent pool for all key
difficulties in appointing the next leader of the business as
positions within a firm. Every leader of Harischandra Mills
there was no son in the family to take over the business. The
Ltd. is accountable for developing of successors and should
founder and his wife (2nd MD) had a risk of transferring the
have a proper method to identify the strengths, weaknesses,
leadership to sun-in-laws. Therefore, there were succession
opportunities, and threats that may impact to the company’s
gaps within the company’s succession process. When
leadership. Failure of the succession will depend on the
comparing the succession gaps and the business performance
owner’s specific knowledge on marketing abilities, decision-
of the company, it can be clearly identified that there is a close
making abilities, performance expertise, and customer
relationship between these two events. Most of the succession
relationships which cannot be easily passed on to the next
gaps were followed with the performance failures of the
leader. Mr. C. A. Harischandra (founder) had always been
business. Business performance of the company had been
maintained close relationships with the employees and with
affected wherever, at the places of leaders’ death or retirement
the general public. Hence, the company culture has been
has occurred. Family members are responsible for identifying
developed based on those relationships. However, the
potential successors for their business. It is vital to share the
company culture had changed under the leadership of the
future business strategies and leadership plans with the family
present MD.
members. Deterioration of interpersonal relationships of the
family members could destroy the business and create Today, most of the family businesses give less priority for
conflicts among the family members. grooming future successors, although the succession is the
most vital factor for family businesses. If the blood relations
The 1st MD had run a profitable business, but less emphasis
are unavailable to take over the business, then the
has given on successor development. The 2nd MD also
management has to consider an individual who has legally
enjoyed strong relationships among family members. The
binding relations. If the successor is a family member who has
current MD’s main concern is to run the business in the most
a relationship with the incumbent and the family by blood or
efficient way possible. But he has no clear view on future
by law, then there is a lesser risk of transmitting the
successors and no plans set so far to develop potential
leadership. A good business strategy will act as a roadmap to
successors. He believes that the other family members in the
a successful succession plan. Most of the entrepreneurial
third generation would not join the company as most of them
business models do not consist of a proper succession plan.
are now living in aboard. But, some of the family members,
Therefore, it is difficult to transfer the business to the next
who are living in Sri Lanka, may have aspirations to join the
generation without any disruption. The high-performing
business.
family firms are very much aware of both family and the
III. CONCLUDING REMARKS business dimensions. The success of a family firm depends on
its ability to maintain the stability of the business. Hence, it
Although this case focused on the generational differences
can be said that an effective succession strategy is vital for
and the leadership transformation pattern between the founder
Harischandra Mills Ltd. to attain a higher level of business
and the successors of Harischandra Mills PLC, it offers some performance and to maintain long-term sustainability.
important guidance for the micro and macro perspectives in
entrepreneurship. The researcher has identified the leadership ACKNOWLEDGEMENT
transformation gaps along with safety measures to ensure
To Mr. Senaka Samarasinghe, Managing Director of
long-term success, as well as for smoother transition of the
Harichandra Mills PLC, for granting me permission to write a
leadership. There is theoretical evidence to prove the fact that
case story on the succession process of the Harischandra Mills
the people with innovative thinking could wisely discover
PLC.
opportunities from the environment. The scholars have
emphasized that the people with a high need for achievement Appendix 1: Thirty-four years financial summary
have a strong desire to find a solution to a problem. Thus, it is Return on Equity Current Asset
# YEAR
worthwhile to understand, how the founder of Harischandra Ratio (RoE) Ratio (CA)
Company had brought its brand image up to an elevated level 01 1982 22.2 2:1
and how the founder’s personality traits helped for that 02 1983 21.13 2:1
achievement. Harischandra has a good reputation for its
03 1984 31.9 3:1
quality products. Thus, the company can capitalize its brand
name to expand the market share. 04 1885 4.9 3:1
05 1986 4.85 4:1
The Harischandra Company needs a solid succession plan to
ensure a long-term success which could provide an un- 06 1987 15.53 4:1
disruptive future. A formalized succession plan will not only 07 1988 19.03 4:1

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International Journal of Research and Innovation in Social Science (IJRISS) |Volume V, Issue I, January 2021|ISSN 2454-6186

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