- First-generation family business clearly outperform their subsequent generation peers
- 53% of businesses reporting double-digit growth have clear, written articulation of values
- 'Unleash values to unlock growth,' says PwC
Family businesses should seek to maximise the competitive advantage that comes from their strong values-led culture, according to the Global Family Business Survey 2018 released by PwC.
This year's survey saw family business leaders globally reporting robust health, with levels of growth at their highest level since 2007. Revenues are expected to continue growing for the vast majority of businesses (84%), with 16% saying it will be "quick" and "aggressive".
Regionally businesses in the Middle East and Africa were the most optimistic, with 28% expecting aggressive growth. They are followed by those in Asia Pacific (24%), Eastern Europe (17%), North America (16%), Central/South America (12%) and Western Europe (11%).
First-generation family businesses clearly outperform those run by subsequent generations in their ability to achieve double-digit growth, highlighting the need to balance business model continuity with an appetite for disruption.
The top three challenges cited by family businesses are innovation (66%), accessing the right skills and capabilities (60%) and digitalisation (44%). Indeed, 80% see digitalisation, innovation and technology ranked together as a significant challenge.
Most strikingly, the 2018 edition of the survey demonstrates a link between putting values at the heart of strategic planning and strong growth prospects. While 75% of family businesses believe their stronger culture and values gives them an advantage over non-family businesses, less than half (49%) of respondents have those values articulated in written form.
Among those family businesses reporting double-digit annual growth, 53% were able to point towards a codified set of values. This reflects the increasing emphasis needed on integrating business ownership strategies and family business growth strategies.
Peter Englisch, Global Leader for Family Business at PwC and report co-author says,
"The message is clear: adopting an active stance towards company values generates practices that pay off in real terms. A commitment to a clearly defined set of values can act as an 'inner compass' for a family business as it navigates the challenges of technological and competitive disruption.
"What this survey clearly indicates, however, is that family business values are not simply the same as family values," Englisch says. "Business values should be clearly defined and articulated, but also strongly embedded in the business culture and the day-to-day decision-making regularly reviewed."
The PwC Family Business Survey also contains insights into how the pace of technology change and generational differences are informing family businesses' approach to legacy and succession planning.
- Concern about the threat from digital disruption - ranging from new competition, to security vulnerability, and understanding of the threat - is higher than average (30%) amongst media, entertainment (65%), retail (53%) and financial services (52%) sectors.
- Over a quarter (26%) of large organisations (with $100m+ revenues) identify AI/Robotics as a concern over the next two years, significantly higher than those with $20m revenues or less (16%).
- 69% of respondents say they expected or encouraged the next generation of future leaders - including family members - to gain experience and develop skills outside of the family business to ensure they keep pace with innovation.
Peter Englisch says,
"With over 350,000 family and private businesses set to change hands in the next years as owners retire, there is understandable concern about continuity planning. The next generation will be increasingly facing a different landscape in terms of the impact of technologies such as artificial intelligence and robotics, as well as cybersecurity risks," he says.
"Yet our research again highlights the benefits of a values-led approach that can focus a family business on the continuity planning they need to do, and how that approach can help attract and equip the next generation with the skills needed to thrive in a digital age."
Despite family businesses' confidence and growth potential, the report cautions that the growth expectation is not always achieved. David Wills, Global Leader for Entrepreneurial and Private Business at PwC comments:
"Whilst the aspiration is strong, focusing on strategic planning remains a blind spot for too many family businesses. 21% report having no strategic plan at all, 30% have a plan in mind, but it is not far advanced. However, of the 49% that have formal mid-term plans, 42% of them were experiencing double digit growth. This demonstrates the strong correlation between strategic planning and performance excellence and builds up the habits that, over time, create a distinctive legacy."
"The speed of change in business is far greater than ever before. Just because you are growing now does not mean it will continue. Now, more than ever, capitalising on the inherent advantages of family business ownership requires business owning families to bring two core components together - the ownership strategy and the business strategy."
Niphan Srisukhumbowornchai, Family Business Leader and a Tax and Legal Partner at PwC Thailand, adds that family businesses play a pivotal role in driving the Thai economy. They account for more than 80% of all businesses, varying from small to large-sized businesses. Three quarters of listed companies in Thailand are also family-run businesses.
"What's happening now is that many of these family businesses are increasingly passing on the baton from second-generation leaders to third-generation leaders. Like other family business leaders globally, these third-generation family businesses in Thailand are sharing similar pain points in driving their organisations. These range from building trust to bridging the generation and communication gaps."
To overcome these challenges, both generations must open their minds and increase communication to reduce tensions and ensure a smooth transition.
"A family constitution will be another tool to building a sustainable future. It will help set common rules and conditions so that family members understand their roles and responsibilities and reduce succession-related issues of next-generation leaders. To develop a concrete family constitution, strong values must be embedded in the foundation of both the family and the family business, which could be different depending on the nature of that particular family. The family business values will be reflected in a strategic plan that is clear and balanced between the goals of the business and the needs of the family.
"We've seen that many Thai next gen leaders have begun working more professionally, leading the organisation towards good corporate governance. This would help build trust and a positive image, paving the way to new business opportunities. These Thai next gen leaders are also keen to invest in digital technologies, which is a positive sign for today's family businesses."
He also said that first-generation family businesses were able to grow their business better than those run by the following generations because they have a set of well-documented and agreed values. Today's generation leaders tend to face more pressures from multiple factors, including the economic situation and changing consumer behaviour.