Current Issue #488

How Will Family Businesses Survive the Digital Era?

How Will Family Businesses Survive the Digital Era?

It is not surprising that two of the major challenges facing Australian family businesses are digital disruption and lack of professionalism in both business and family. However, it is pleasing that the next generation of family business leaders are more confident and better prepared for senior roles than they were two years ago.

PricewaterhouseCoopers’ Next Generation Survey 2016 confirms what we’ve been hearing about a sluggish global economy and some challenging times ahead, yet interestingly, some of the issues experienced are a little more close to home.

The survey showed that almost one third of next gens think family businesses are slower than other types of business models to keep up with technology. It found that 40 per cent of participants were frustrated trying to convince the current generation that the business needs to do more in the digital space such as cloud computing or online advertising.

This could explain why only 41 percent of next gens think their business has a strategy fit for the digital world, which means 59 percent don’t.

“It is understandable that the current generation is cautious about making big investments in digital considering how fast technology is changing. However, standing still is not an option if family businesses don’t want to lose their market relevance,” says Stuart Morley, Partner in PwC Australia’s Family, Business and Wealth team.

There is little doubt that many family business ownership structures are unique in that they can make decisions with a greater flexibility and with a longer-term view. Maybe this will be the saving grace as digital and disruptive forces continue to play a significant role in shaping the current business environment. Or maybe not? Interestingly, 72 percent of next gens do not believe their business is at risk of digital disruption from technology innovation and start-ups.

There is either a dangerous degree of denial or they believe they are nimble enough to adapt. Those family businesses grappling with digital and disruptive forces are taking the initiative to work with external advisors, or independent board members, who have the skills and expertise to bridge the generation gap and guide the business (and generations) on their journey.

Another key theme is the issue of professionalising the family business, with nine out of ten next gens agreeing that having non-family members in key positions is positive. This has increased from eight out of 10 in the 2014 survey.

This means family businesses are becoming more open and trusting of independent board members with relevant skills matched to their needs and strategy. The challenge for businesses is to have governance mechanisms in place which enable them to periodically review and refresh their boards to remain market relevant.

family-businesses-survive-degital-era-adelaide-reviewHow does a family ‘professionalise’ itself?

Contrasting the issue of professionalising the family business is developing skills and professionalising the family itself. Conflict is a natural part of human relationships.

Issues such as balancing the business versus the family needs, succession issues stemming from transitioning wealth or the business between generations and family communication more broadly are becoming increasingly prevalent.

When it comes to dealing with these issues there is less progress, despite 52 per cent of next gens expressing concern about managing family politics and disputes in the future. Alarmingly this is up 16 per cent from the 2014 survey.

It is well known that family businesses often don’t fail for business reasons but for family reasons. For many family businesses, particularly those transitioning to next gens, this is a blind spot and it is not uncommon for a serious event to happen to the family which triggers conflict.

PwC Australia’s Executive Chairman of Family, Business and Wealth, David Smorgon, knows this all too well. He was heavily involved in his family’s business, Smorgon Consolidated Industries, one of Australia’s largest family businesses when it was disbanded. Smorgon was also the inaugural Chairman of Family Business Australia.

“The most successful family businesses strike a balance between professional management, responsible business ownership and a healthy family dynamic, particularly when it comes to handling next generation issues,” Smorgon says.

“Professionalising the family is about establishing accountabilities, responsibilities, and ensuring ongoing transparent communication.”

James Blackburn, Partner, PwC

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