Family businesses must balance short-term and long-term goals

20 September 2019 4 min. read
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Many family businesses face a disconnect between their need to perform as a business and preserve tradition and legacy, according to a new global study. With family-run organisations facing a juggling act between succession planning and general modernisation, only 41% say they are prepared for the next generation to take the reins in the next two decades.

Family businesses are one of the essential elements of sustainable growth, focused on generating long-term value for generations to come. However, family ownership, by itself, doesn’t guarantee a business’s longevity. Concerns surrounding talent shortages are on the rise, while access to talent is likely to become increasingly scarce, particularly for British proprietors.

According to a new study from Deloitte, striking the right balance between short-term initiatives and long-term goals will be the key differentiator for those that succeed in the coming years. Deloitte interviewed 791 executives from 58 countries about the challenges and opportunities they are currently facing. Retaining family ownership is one of the key elements of their long-term goals, and while respondents are generally upbeat about their prospects in the coming decade, fewer than half said they were confident in their plans for succession.

Respondents feel generally confident about their family business’s preparedness for the next 10 to 20 years

Deloitte found that the majority of respondents felt confident that their ownership, governance and strategy were ready for the next 10 to 20 years, while between a third and a quarter of those polled were at least neutral on the matter. By contrast, 35% said their companies were stuck in neutral on the matter of succession, and 24% said they were not ready. With succession between generations being the life-blood of family businesses, this could spell trouble for almost a quarter of such companies in the approaching decades.

Despite these long-term concerns, firms are focusing on financial performance and growth in the next year. According to the study, 62% and 57% respectively list these as their top two criteria over the next 12 months. Developing new products and the intake of new talent from outside the family are the next highest priorities, alongside business model innovation and digital transformation plans. Succession planning lags behind all these factors at a mere 18% of respondents, suggesting firms place more importance on keeping the organisation fit for purpose, over who will ultimately run that company.

Financial performance and growth are the top two priorities for the next year

Furthering this, when asked what the key characteristics were that will drive the sustainability of family businesses over the next 10 to 20 years, the most common answer by far was agility in adapting to changing environments. Agile working provides organisations an approach to improve both efficiency and effectiveness, as well as employee satisfaction. According to a study by Wemanity, 83% of large corporates in Western Europe are today adopting agile, so it is unsurprising that 61% of family businesses place such a level of importance upon it.

Innovation was also of high importance to family business leaders. Almost four in every ten respondents told Deloitte that innovation capabilities would be essential to keep their family’s firm surviving and thriving. The continuation of a family legacy is subsequently relegated to a long-term priority, then. Forty-nine percent of respondents said that continuing the tradition and legacy of a family business was their highest priority for the coming two decades, while a further 36% understandably said preserving family capital was their top priority.

Agility and innovation are perceived as key to sustaining the business

According to the researchers, this could cause a number of long-term problems for family businesses. While agility, innovation and financial growth are important to family businesses, as is the case with any business, neglecting succession and tradition in the short-term could lead to discord in the long-term.

“Despite the focus by most executives on the long-term goals, family-run businesses appear just as prone to pursuing immediate priorities that, necessary as they may seem at the time, can fail to support the company’s ultimate vision and objectives,” Carl Allegretti, Deloitte Private Global Leader, said. “Such disconnect between long-term aspirations and short-term priorities can jeopardise the preservation of family tradition and legacy, as well as family capital.”