The next gens of 2016 are well prepared, confident, and ambitious – both for themselves and for their companies.
The survey respondents want to be more than just ‘caretakers’: they do want to take care of the business and hand it over in good shape, but many of them would also like that business to look very different. Not just bigger and stronger, but more international, more diversified, and more modern. The second of our critical success factors - scale - features here as this brings its own set of challenges.
The next gen are exploring new ideas, new markets, new locations, and even new business models. Look at Mark Lee, of the Singapore-based clothing company, Sing Lun Holdings: “I had big plans and big ideas when I came to the business. I looked at the business we had, the segments we were in, and the trends that were happening in the wider world, where I thought the next wave of our growth could come from. Back in 2000 we were manufacturing conventional clothes in Singapore, Malaysia, and Sri Lanka. Now, we’re focusing on making technical performance sportswear in Vietnam and Cambodia. My father would have called his business an apparel manufacturing company; but now we’re in the sportswear and lifestyle supply chain management business.”
And he has an important piece of advice for the next gens: "One thing I've learned is that you have to drive change fearlessly, if you’re going to continue to grow. Not doing this is the single biggest barrier to success – you cannot meet the needs of an evolving market if you’re not prepared to evolve yourself. As to where the next disruption will come from in our market – who knows?” You can read the rest of Mark’s story here.
Some next gens are - like Mark - also considering new products and services, but here the pull of the past is very strong: as the charts above show, 59% would like to diversify their product portfolio, but 68% believe their firm is unlikely to make this change, even a decade ahead. This may explain why 47% are looking to set up a parallel venture, alongside what the main business is doing.
Abhimanyu Munjal, of the India-based Hero Group, is a good example. His family business started out in auto components in the 1950s, but now it’s empowering its next gens to set up their own ventures under the group umbrella. And that’s exactly what Abhimanyu has done: “The family has faith in us and gave us the freedom to create something of our own, as long as we meet certain criteria in terms of investment returns, and so on. So I went to my family, and asked them for money to set up a 'next generation' approach to financial services. They considered it, and reluctantly agreed, and that's how Hero Fincorp was born. Since then, I've been involved in every part of the business from designing the strategic plan, to hiring every single employee. And in the last four years we have been incredibly successful.” You can read the full story here.
"I think if I had a magic wand I would probably go outside of our core businesses. I don't think that we have maximised our full potential yet."
''I’d really like to adapt our business model by starting up an incubator for other entrepreneurs with similar values, which would sit alongside our main business. We could mentor them, and give them start-up funding, and if they’re successful we could either buy them out or spin them off."
The survey results also capture a recurrent tension in many family firms: 58% believe that family firms reinvent themselves with each new generation, but only 31% believe these firms are more prepared to take risks than other types of business.
But family firms can – and do – reinvent themselves: Sabrina Chong is a next gen who’s helping to transform her family’s Singapore-based beauty business with her father’s support: “We need to be insecure, especially in a fast-moving consumer goods market like beauty products. Digital is transforming the business model of our industry, and especially the role of the distributor. So if you don’t adapt, you won’t survive.” Sabrina puts much of her family firm’s success down to being quicker and smarter than the competition: “Things can move at a faster pace in a family firm – proposals can get debated and approved faster, and the board and management work together as one.” You can read the full case study here.
"I feel we're not focusing enough on the long term."
"My great-grandfather always said ‘Tradition is not about worshipping ashes but keeping the fire burning’. Therefore, we must not rely on what worked in the past but be innovative."
"There is a clash of ideas: those I bring to the table and those we currently have."
''In the past, whoever was quickest won. Making fast decisions and implementing them quickly was the key to success. Today, anyone can be fast, but the real differentiator is good ideas. My job is to nurture those ideas, and create a culture where innovation can flourish.''
But not all family firms manage to adapt quickly, and there can be a tension between respecting the processes (and the products) of the past, and seizing the opportunities the next gen see for the future. Finding a balance between those two things has always been a challenge in family firms, but that challenge is probably sharper now than ever before, given the pace of change. And that, in turn, brings issues like skills into much sharper focus.
Finding and retaining skilled and experienced people is a concern for all businesses, and again featured strongly in this year’s PwC Global CEO Survey. In our own survey, 74% of next gens said a skilled, educated, and adaptable workforce is a business priority, and rank it at number one, which is virtually identical to the score accorded by respondents to the PwC Global CEO Survey (75%).
"Recruitment is a big topic and is very challenging. We are just a little company and it is hard to convince good and qualified people to become part of the team. We're a good company but it's hard to prove that to outsiders sometimes."
Talent is an important agenda for the next gens, because, as Mark Lee of Sing Lun Holdings observes, it can be a particular challenge for family firms: “I have to attract the talent we need for the future. I’m very much aware that family businesses aren’t always as aggressive as they need to be in attracting talent from outside. But we won’t become a half-billion-dollar company without constantly grooming our next generation of leaders. Today’s young people have a very different outlook, and want different things from their careers. I’m learning how to adapt to their working culture, and also to reshape business practices to appeal to them. Thinking of ourselves as a lifestyle company rather than a manufacturer is a big part of that.”
On the one hand, many employees are drawn to the special culture of the family business, which can be a significant competitive advantage. As Christian Weber of Karlsberg Brauerei says, “We are as professional and ambitious as any other company, but we are also value-driven, which means we can communicate to both employees and consumers in an emotional way without it sounding artificial. That’s because our culture stems from our family rather than anonymous owners no-one knows. That builds loyalty inside the firm, and is very attractive to talented people outside. That’s a huge advantage.”
''Your business has to keep evolving, but what gives you your identity should always be the same, especially in a family firm. That’s what unites us as a family and as a business – the values and principles we all believe in.''
The flipside of this is that recruitment can be harder at the very senior levels. Family firms often struggle to match the options and benefits offered by multinationals, and some potential external CEOs are wary of the issues that working within a family dynamic can generate. Why is this especially relevant for next gens? Because professionalising the business is very high on their list of priorities, and 69% want to achieve that by attracting experienced managers from outside.
We explored the issue of increasing professionalisation in detail in our main Family Business Survey two years ago. This covers everything from organisational processes and systems, to corporate governance and reporting, to a complete overhaul of the business model to make it more modern and streamlined. We have also looked at the importance of good corporate governance in a number of our previous surveys, and it remains an important priority for family businesses in general, and next gens in particular. As Siew Quan Ng, PwC's Asia Pacific Entrepreneurial and Private Clients Leader says, “Good governance can really help next gens feel prepared for entering the family business and develop the confidence to meaningfully participate in family and business discussions. They take real comfort from knowing how distinctions are drawn between family and business matters, and from having a clear framework which provides for their education and development."
"One of the things that we have to be very conscious about, my father and me, is not getting into a ‘Parent-Child’ mode, but staying in a business mode. I think that’s something that all family businesses have to figure out at some time. My dad’s still the consummate leader of our organisation and we don’t want him to go anywhere. But, that said, I do have to develop my own management style, my own leadership skills. I can’t be him.''
"There are many processes that can and should be improved. We can formalise and document certain processes better."
"We are a very thin organisation and don't have enough qualified individuals. We need to obtain a better qualified level of management." Aged 50, 1st-generation family business, Canada
As the adjacent chart shows, there are a significant number of next gens who fully intend to take an active, and indeed senior, role in their family firm, but expect the company to bring in professional managers at the highest level. Our experience suggests that, in some cases, this is because the next gens recognise that their own skills aren’t the ones the company needs in an operational role, but they are still keen to make a contribution at a board or supervisory level. As Sabrina Chong of Luxasia observes, “It’s about who is best for the job, and that might well be an external leader. It’s about meritocracy – that’s the only way the company is going to be a success.
You can’t put a family member in a CEO role unless they’re the best person to take that role.” Jakub Dzik, of the Polish outsourcing group Impel, agrees: “I would love to run the whole business myself one day, and that’s what we’re working towards, but it’s not an absolute certainty. I would accept it if there came a time when an external professional was the best option for the business, and in those circumstances I’d look to take a role on the supervisory board. Other next gens may prefer to set up their own business, or pursue a career elsewhere, but still want to be professional owners, offering proper and scrupulous oversight to the executives in charge.
“I think the challenge for family businesses is in professionalising decision-making. If there are talented people in the family, great, they should join, but it shouldn’t be expected, and you should only be given a senior role if you are qualified to do it. That’s the sort of business I want us to be – I have fought hard for that, and I am proud to have helped develop robust policies and processes that make us a stronger organisation which can be an example to others."
The important point to note here is that bringing in professional managers isn’t an event, it’s a journey. It’s often a very successful way to lead the business forward to growth, diversification, and international expansion, but once that process begins, it’s unlikely that family members will be in the majority on the management team in the future. As Paul Hennessy, Leader of PwC’s Family Business Services in Ireland, observes, “Doing this is harder than most family businesses expect.
A lot of them are enthusiastic about starting the process, but become less so when they realise the full implications down the line. That in itself can create tensions and conflicts. In our experience, the best way to look at it is as part of the transition from being a ‘family business’ to a ‘business family’, which we explored in the main Family Business Survey in 2014”.
"Getting strong, more experienced senior management [is a challenge]. Because I think the business has become more professional and it requires more experienced people. I think customer expectations have become higher and you need to be able to deal with that."