Family businesses need to adapt, innovate be professional
Family businesses must adapt faster, innovate sooner and become more professional in the way they run their operations if they are to remain successful, according to the findings of the latest PwC survey of 2,378 family business executives in more than 40 countries worldwide.
The report titled “Up close and professional: the family factor” is PwC’s seventh survey of family businesses with a sales turnover of US$5 mln to 1 bln.
Overall, this year’s survey indicates that – despite a tough economic environment, with pressures around skills shortages, innovation and governance – family firms remain dynamic and resilient, accounting for 70 - 90% of GDP globally and an effective barometer of the health of the economy.
One eye-catching finding from this year’s survey is that the need to professionalise the business is gaining ground as a key concern for family firms. It scarcely registered in 2012, but this year 40% of respondents agree this is a key challenge over the next five years. And it must be accompanied by an equally rigorous approach to professionalising the family.
More competitive, more volatile: In general, family businesses are in reasonably good shape, with 65% reporting growth in the last 12 months and 70% expecting to grow steadily over the next five years. About 15% are seeking aggressive growth, compared to 12% in 2012. Growth ambitions are particularly strong in China (57%), the Middle East (40%) and India (40%).
However, the number of respondents apprehensive about their ability to recruit skilled staff in the next 12 months has risen from 43% in 2012 to 49% today. And the proportion citing the general economic situation as a key challenge in the coming year has risen slightly from 60% in 2012 to 63% in 2014.
Diversify to survive? This year’s survey shows that 68% of family businesses are exporting, with overseas sales accounting for about a quarter of turnover for all respondents. Around three quarters of those surveyed expect to be exporting within the next five years, and predict this will account for over a third of all sales. The most internationally ambitious are those: pushing for aggressive growth, with a turnover of $100 mln+, and based in the manufacturing and agriculture sectors. Geographically, the most ambitious are those in Eastern Europe, the BRIC countries, and the ‘MINT’ quartet of Mexico, Indonesia, Nigeria and Turkey.
But few businesses expect to be exporting to a larger number of countries than they do now, with most tending to stick to neighbouring countries or those with the same language and similar culture.
The digital imperative: In this year’s survey, 81% cited technological advances as one of the top three trends most likely to transform their business over the next five years. And family businesses similarly recognise the growing impact of digital technologies, with 79% placing this in the top three trends.
Professionalising the business: What does ‘professionalising the business’ mean? It’s about giving structure and discipline to the vision and energy so often exhibited by the entrepreneurial family business. This helps them innovate better, diversify more effectively, export more and grow faster.
Professionalising the family: But getting the business on a professional footing is not in itself enough; it has to be accompanied by an equally rigorous approach to professionalising the family. This means, for example, putting processes in place to govern how the family interacts with the business – including establishing an infrastructure for decisionmaking and formal channels for communication. These will be essential during times of tension or conflict. It’s about protecting the family’s interests, and safeguarding the firm’s survival.
Making a success of succession: Nowhere is this professional approach more critical than when it comes to succession. Far too many family businesses have still not fully grasped this potentially destructive issue, with 53% saying they have succession plans in place for some if not all senior roles, but only 30% of these ‘plans’ are properly documented. Only 16% say they have a robust succession process. The report on the findings of the family business survey can be downloaded at www.pwc.com/familybusinesssurvey