The world the family business is operating in has changed out of all recognition from the one the current generation encountered when they first started work. The next gen will need to understand these challenges, and have the skills and strategies to deal with them.
In recent years, PwC has been tracking the five global megatrends in studies such as the annual PwC Global CEO Survey, and we, in turn, have incorporated these trends into our discussions with family businesses. In this year’s Next Gen Survey we asked our respondents which of the five trends they expect to have the most significant impact over the next five years, and the answers are shown below. These are very closely aligned with the last main Family Business Survey in 2014, and with the responses to this year’s PwC Global CEO Survey.
It will come as no surprise that technological change is so far ahead of the rest. Like all other corporate leaders, the next gens know that this will be vital to business survival and success in the future, and yet they also know that they probably face greater issues with this than their peers in more conventional companies.
Digital is an area where the generation gap still lingers. Many next gens struggle to convince their parents that the firm needs to do more on digital: 29% believe that family firms are slower than other types of business to keep up with new technology, and 40% confessed to some degree of frustration in trying to get new ideas like this accepted by the current generation.
"I see our competitors implementing [digital technology] and doing well, but nothing is happening at our end. I've suggested this many times and but it simply seems to be ignored."
"We are a little bit behind the curve on technology and to bridge the gap would be a challenge"
"The older generation don't understand the digital aspects of the business world at the moment, and they don't see the value in investing in IT infrastructure and social media, but I do."
"There is a lot more technology now and there is a lack of resources available to smaller businesses to source that type of technology."
It can, admittedly, be hard to quantify the potential returns from investing in technology, not least because the sums involved are so high, and the landscape is changing so fast. It’s easy to see why the current generation would be wary of spending a lot of money on systems that might be superseded within a few months. This is where external advisers or the supervisory board can really help bridge the generation gap: outsiders may well be seen as more objective, and can help both generations work together to map out exactly how digital could affect the business, and what they can do to limit the risks and capitalise on the opportunities. In our experience, this is what family firms find most challenging: once they have a plan, they’re usually more than capable of executing it.
"We are digitalising the whole of our production process. We're investing in technology and operational systems. We're diversifying our channels of distribution and content that we offer. In general, we are looking at implementing new business models."
"We are into a process where all our business areas have a clear digital strategy and this involves changes and significant investments in people, systems, and clients' sales channels and for us, is very relevant. We are at a level where each one of the business areas has an individual strategy."
"We are working on the possibility of starting to use Amazon as a tool and not see it as a threat but as a stimulus."
But it is vital to have a plan (and a map, for that matter). Of our survey respondents, 41% said they believed their firm had a strategy fit for the digital world, which means as many as 59% do not. Likewise, 37% struggle to get their business to understand the importance of having a clear digital strategy, and only 47% have ever discussed the threat of digital disruption at board level, and most of those are the larger businesses and those with outsiders on the board. So when only 28% of our next gens told us their business is vulnerable to digital disruption, our natural response was to wonder about the rest. Are the other 72% really as well-prepared as this would suggest, or is there a dangerous degree of denial in play here? From our experience, we fear the latter. Some respondents believe their sector is immune from digital disruption, and it’s true that industries like construction are relatively less exposed than, say, retail or financial services:
"We sell huge capital equipment so you can't create a platform like Uber for that; it is possible to use technology to build better machines more efficiently but you'd still need a lot of factory space and a lot of capital, so we're not that vulnerable."
"We are not hugely reliant on the digital era - the business is very hands-on. Most business is done over the phone line. As long as we have got a phone line we'll be OK."
"We are a manufacturer and distributor of automotive vehicles. We don't sell directly to end users. Digital disruption can affect up the value chain but most of the vulnerability (that I can see) lies in the end user retail space."
But you only have to look at Simon Brand’s experience to see that no sector is completely immune. His family runs a logging business in New Zealand, but even though felling trees might seem a very long way from the digital revolution, the sector is being transformed by the advent of highly sophisticated precision cutting machines, which in turn is changing working practices in areas like Health & Safety. And while internet coverage may be slower in some emerging markets, this doesn’t solve the problem, merely postpones it, and probably not for that long.
In our view, what’s really changed in the two years since we last ran the Next Gen Survey is the attitude of the current generation. They may still have reservations about where, how and what to invest in digital, but they no longer question whether they should do it: they know they must. In that respect, they may very well be the very first generation of family business owners to know that change isn’t just likely when their children take over, but absolutely certain. As Jonathan Flack, PwC's US Family Business Co-Leader, says, “Most next gens have been saturated in new technology all their lives, so it’s no surprise they expect it to play a significant role in shaping their family business.”
"In many ways it's easier for our generation because technology is a fantastic enabler."
Dominik von Au, Managing Director of the INTES Academy for Family Business and Director of PwC Germany, agrees:
“It’s no longer enough to develop a successful business model and then expect that to work for every new generation. Owners, management and staff face new challenges, and only those who accept that change is now the norm in business will be able to keep up and shape the digital transformation. That means real innovation, disruptive business models, and new ways of working.”
Given the perception that ‘gadgets are for guys’, it was intriguing to find that the female next gens we interviewed were more aware of the challenges of new technology than the men. They’re particularly attuned to the risk of not embracing digital - 37% feel that their business is vulnerable to the threat of digital disruption, compared with only 24% of men, and 44% say they struggle to get the firm to understand the importance of having a clear digital strategy, as against 34% of the men. There seems to be a degree of frustration, too, in the fact that 36% agree that family firms tend to be slow to take up new technology, with only 27% of men saying that.
The challenge, it seems to us, is for female next gens to turn these very real concerns from the negative to the positive. Instead of warning about the risks, start talking about the opportunities, and exploring what these might mean in practice. It’s worth observing, in this context, that only 68% of women say they have lots of ideas about how to take the business forward, compared with 84% of men. There’s clearly a lot more women could do to get on the front foot here.
Those who advocate having more women on boards say that this gives a business a richer and more balanced understanding of the company’s customers and that, in turn, can enhance its competitive advantage. Women need to have the courage of their convictions, and turn their digital disquiet into digital drive.