Succession planning, innovation and talent are top family business concerns

19 December 2016 4 min. read

Family businesses remain a key pillar for the global economy, with their focus on long-term sustainable growth, strong culture, focus on more than just profit and streamlined decision making. Succession planning remains a challenge however, finds a new report, while talent and innovation bottlenecks can impede competitiveness.

Across the globe, family businesses form a key pillar of economic activity, offering stability, a commitment for the long term, and responsibility to their communities and employees. They face challenges however, sometimes different to those of public or other forms of private businesses.

In a new study by PwC, based on a survey of more than 2,800 family businesses, the business advisory firm explores the family business landscape globally as well as key trends and factors affecting their success.

How family businesses differ from non-family businesses

Differentiating family businesses

In terms of what differentiates family businesses from publicly traded and private companies, the research highlights that 74% of family businesses respondents believe that they are considerably more focused on culture and values, furthermore 72% believe that they measure success differently – with focus on more than just profits and growth. 71% of respondents believe that their decision making process is faster and more streamlined, while 61% say that they tend to be more entrepreneurial. 

Family businesses respondents also tend to believe that their business models allow for a more long-term approach to decision making. 40% however, felt that they take more risks than traditional players, while 32% say that it is harder to access capital.

Succession planning for senior roles

Succession planning

Recent research found that owner-operated businesses tend to outperform capital owned companies – in line with the various benefits identified by survey respondents. A number of difficulties do arise for family owned businesses however, with intergenerational, and interim CEO succession planning, one of the more key issues cited by respondents.

As it stands, while family businesses often do span long periods of stability, the average lifespan of a family business is three generations – with around 12% of businesses making it that far. The current global environment of easy to access opportunities, particularly for well off families, makes grooming a new generation of heirs more difficult. 

The research found that around 55% of businesses have a succession plan in place for at least some senior roles, up from 53% in 2014. Of those with a succession plan in place, around 15% are able to replace all senior executives, 18% some senior executives, and 21% a small number of senior executives. Across public, portfolio and PE companies, around 31% have no CEO successors identified, while 20% said their firm had just one successor identified – highlighting that the succession is a difficulty too for companies more broadly.

Top six challenges over the next five years

Next five years

Respondents were also asked about the key challenges they face over the coming five year period. Top of the list is the need to stay ahead through continually innovating, cited by 64% of respondents. The ability to attract and retain talent, was cited by 58% of respondents as an issue; the report notes that the first two issues play into each other, with a lack of skills affecting the ability for the business to meet changing market conditions. 

Sector wide competition was cited by 56% of respondents as an issue they face in the coming half decade. The general economic situation was found to be a key challenge for 54% of respondents, while keeping pace with digital and new technology came in at 47%. The need to professionalise the business was cited as a key issue by 43% of respondents. 

Main issues being faced in next 12 months

Next 12 months

In terms of more short term concerns (coming 12 months), 51% respondents highlight market conditions. Family businesses, much like businesses in general, prefer relative stability. Current conditions affecting companies include digital disruption; fluctuating commodity prices; geopolitical changes, from the US Presidential election cycle to Brexit; and considerable uncertainties about emerging markets.

The recruitment of skilled staff/labour shortages comes in second spot, as cited by 30% of respondents, while 27% cite concerns about regulatory/government conditions as their main issue. 23% cite competition, while 19% cited currency/exchange rates. 

Stephanie Hyde, Global Entrepreneurial & Private Business leader at PwC, comments, “It is clear family firms remain a vital part of economies across the world, contributing the bulk of GDP in many territories, and are a primary driver of job creation. Overall, their performance and outlook for growth remain strong with notable progress on professionalisation, but less so on strategic planning. Having an ambition to grow, without a strategic plan of how to get there, is just an aspiration. Not only is it limiting their ambition to expand and grow, it could also expose them to additional risks that they have not effectively planned for.”