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Hurdles to digitalisation of family businesses

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Among the next generation of family business leaders, three in four have big plans to take their business forward. However, generational challenges persist, largely in the areas of digital and innovation.
PwC conducted in-depth conversations with 35 next-gens from 21 countries and polled more than 100 additional next gens for its new report, “Same passion, different paths: How next generation of family business leaders are making their mark”. The results showed an incoming generation of family business leaders confronting generational gaps and culture change.
Andries Brink, PwC national private company services leader, says: “Digital is one area that businesses can no longer ignore. It is also one area where the generation gap still lingers. Our research shows that while next gens are excited to tackle digital, but often at a pace that can be uncomfortable for the current generation.
“In today’s business landscape, all firms — family businesses or otherwise — need to address the digital challenge, and next gens seem to grasp this.”
Three-quarters of those polled believe it’s very important or essential to have a strategy fit for a digital age. As digital natives, they feel much more comfortable with digital technology and see its potential for change. However, only 7% of respondents believe their firm is currently doing this well.
Partly due to a greater degree of transformation and investment needed to effect digital change, many current generation leaders may be cautious about committing to it. About a third of next gens polled (36%) expressed frustration that the current generation does not fully understand the potential for digital and the risks it could pose.
Likewise, the vast majority of next gens see innovation as a core component, with 82% responding that innovation is very important or essential to business success. However, a mere 15% of those polled see innovation being implemented well at their firms.
In the study, PwC identified four main approaches next gens are taking to build their own paths to success: stewards, transformers, intapreneurs, and entrepreneurs. Some next gens straddle more than one of these continually evolving paths, but they can provide a helpful way to separate the different challenges, risks and opportunities that the next generation faces, and how success can look and feel different depending on the route they choose to take.
* Stewards — Individuals focused on ensuring the long-term sustainability of the family firm and protecting its profitability by staying true to the established core business.
* Transformers — Next gens who take on the task of driving significant change in the family firm, with the scope and support to do so.
* Intrapreneurs — Those whose families carve out a specific venture for next gens within the family firm — effectively the opportunity to be an entrepreneur within the firm itself.
* Entrepreneurs — Next gens who pursue their own ventures outside the family firm, often in completely unrelated sectors.
“These next gens are truly remarkable individuals, who are already making a significant mark, whether inside their family firm or on their own,” Brink adds.
While next gens will take their family firms down different paths, a set of common success factors emerged from the research. Regardless of the chosen path, these “five Cs” comprise guiding principles for all family businesses:
* Culture — The family firm should foster a ‘safe place’ for the next gen to explore and grow.
* Communication — Genuine two-way engagement between the current and next generation, based on mutual respect and trust, ensures that experience is properly valued and new ideas are appreciated.
* Clarity — It is vital to have a clear strategy and agreed demarcation of roles and responsibilities — particularly where colleagues are also relations and emotions are always in play.
* Credibility — As the ‘boss’s child’ a next gen tends to earn the respect of co-workers, possibly gaining experience outside the family firm first.
* Commitment — The business needs to make a long-term commitment to the development of the next generation, but the next gen should also reciprocate with a willingness to invest time in the business and give it a chance to work.
“Given that the next generation may follow different ‘paths’ in the future; the challenge for the current generation is to prepare, equip and support the next gen to be successful whichever path (or indeed paths) they choose in the future,” says Brink. “The development of the next generation must be development with a purpose to create the options that will allow the next generation to pursue their passion in the future.”