Addressing the ‘missing middle’: Digital and innovation

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Family businesses: Disrupt or be disrupted

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“Digital has to be absolutely integral to every organisation’s marketing and communication strategy. It’s central to every aspect of consumer engagement, whether that’s e-commerce, advertising, consumer targeting, or social media. That’s the future, and it’s happening now.”

Osama Ibrahim Seddiqi CFO, Seddiqi Holdings, UAE

Three quarters of the family firms we surveyed this year think that being more innovative is either important or very important, and the need to continually innovate came out as the biggest single challenge respondents see over the next five years (64%).

Family firms are well positioned to make a success of innovation. They consistently tell us that they believe they are able to re-invent themselves with each new generation – 57% said so this year, and this figure has risen steadily from 47% in the 2012 survey. But is this really true? Some firms do manage this, and JBM Group in India and Mane Group in France are great role models for how to do it in practice. But there are many more examples we come across in our work where family firms have struggled to change, and find it hard to innovate. This is also a very common observation among non-family CEOs and senior managers who’ve been brought in from outside. And the next generation also see this as a real challenge for the future success of the family firm, while acknowledging that they often struggle to make the case for change.

"The big challenge is that it takes a long time to change the thinking in the family business as they feel that the old way has created their success story. It is the biggest challenge for professional managers joining these companies.”

Professional manager Taiwan, 2nd generation

So what makes innovation such a challenge for the family firm? One answer may be skills. Every time we run a Family Business Survey, the respondents cite skills as a key issue, and many say they struggle to attract and retain the right people (this year it was the second highest priority for both the next year and the next five years). It is hard to identify the ‘right’ people and skills without a clear strategic plan. This sets out the future direction of the business, and that in turn, will determine the range of skills and experience needed to achieve it. In other words, defining the challenge solely in terms of skills shortages could be masking the real problem. This is especially relevant when it comes to innovation.

Doing innovation well

Given today’s rapid pace of change, new technologies and disruptive business models, all companies need to be able to think beyond the immediate demands of day-to-day business and develop an informed view of what the picture will look like in two, five or ten years. This means understanding the trends driving change, assessing which products are vulnerable to new technology, and how global trends such as demographic change are affecting the market.It also includes looking out for non-traditional competitors from outside the industry with new and different business models.

This assessment is what will drive the development of the strategic plan. That in turn will help determine what skills the business will need to develop or hire for the future. Without this, companies will struggle to identify how, where and what they should be innovating. 

“Breaking the mould is hard. 100% of the share capital is in the hands of family, and to actually innovate and develop the business is a challenge in and of itself.”

Professional manager UK, 3rd generation

Some major listed companies are good at this sort of future thinking (and have dedicated resources to do it); family firms often aren’t (and don’t). But the sector quickly needs to develop this ‘medium term mind-set’, especially, in relation to issues such as the challenge of digitalisation, because that will require considered and possibly significant investment to stay ahead of the curve, and the right skills inside the business to ensure that investment delivers.

“We have an innovation division where the employees work with innovation labs in Israel, the US and elsewhere in India. We incubate new ideas, and work hard to keep pace with new developments. We also encourage our doctors to take part in conferences and research forums across the world, and to collaborate actively with one another.  We don’t let people or ideas get stuck in silos.”

Shobana Kamineni, Executive Vice Chairperson, Apollo Hospitals, India

This year only 7% of our respondents cited technology as a key challenge in the next twelve months, and technology and digital only feature in the list of top priorities for the medium term on a prompted basis (taking fifth place, at 47%).  This is clearly a concern, especially when a third of respondents think family firms are less open to new thinking and ideas than other companies, and only 40% believe they’re willing to take more risks than other firms. And perhaps most telling of all, only one in four say they feel vulnerable to digital disruption, and only 54% have ever discussed this at board level. Alfred Peguero, Family Business Leader, PwC US, cautions: “Every business is vulnerable in some way to digital disruption, and those who think they are immune will soon find out that this is not the case. I see this as a threat which is facing all businesses and individuals, no matter their geographical location, industry or size.”

As we discuss later, digitalisation is an area where the next generation could have a significant part to play. Many of them have grown up with new technology, and are keen to employ it when they take over. 59% of the current generation believe they understand the tangible benefits of moving to digital but 37% of the next generation say they struggle to get the business to understand the importance of having a digital strategy, and this rises to 43% in smaller family firms.

As we have observed many times, the most innovative companies are invariably those which are open to new ideas and new ways of working. Having a more diverse and inclusive workforce is a considerable advantage here, but being able to not just manage change but thrive on it is even more important. As Nishant Arya, Executive Director of India’s JBM Group says, “In our family, we say nothing is permanent except change. And we like it that way.”

Explore the data

Use our data modeler to look at the findings from our Survey in greater depth. 

Explore five themes: Business performance & challenges; global considerations; The family business DNA & succession planning; digital; the people piece. 

Filter the data by territory, industry, generation or turnover.

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Contact us

Dr. Peter Bartels

Global Entrepreneurial & Private Business Leader, Partner, PwC Germany

Tel: +49 40 6378-2170

Peter Englisch

Global Family Business and EMEA Entrepreneurial and Private Business Leader, PwC Germany

Tel: +49 201 438 1812

Siew Quan Ng

Asia Pacific Leader, Entrepreneurial and Private Clients, PwC Singapore

Tel: +65 6236 3818

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