Family businesses remain resilient despite the adverse economic environment they find themselves in post-recession.
Significant challenges facing family businesses continue to focus around shortages of skills, the need to innovate, political instability, price competition and the containment of costs.
At a time when other businesses are struggling to create revenue, around 78% of South African family businesses reported growth in the last 12 months, and 21% are aiming to grow quickly and aggressively over the next five years.
These are some of the highlights from PwC’s “Family Business Survey: Head over Heart 2014/2015”, which was carried out among 2 378 family business firms across the world, including 120 South African family businesses, represents a broad spectrum of industries such as manufacturing, wholesale and retail, automotive, agricultural and construction.
Andries Brink, PwC National Private Company services leader, says: “It is clear that there are new challenges; the economy is a colder and harder place for the family firm, competition is more intense, price pressure is growing, and the speed of change continues to accelerate. In this climate, family businesses accept they will have to adapt faster, innovate earlier, and become more professional in the way they run their operations.
The recession and the tough environment emerging afterwards have sharpened family business thinking. As a result, the importance of their personal and business goals has shifted significantly, with the result that the long-term future and success of the business come first.
A notable finding contained in this year’s survey is that the need to professionalise the business is gaining ground as a key concern for family firms, driven by an almost perfect storm of competitive pressure, rising costs and global megatrends.
Family businesses in South Africa have a similar outlook to the world as a whole in terms of the global trends that are expected to transform business over the next five years. The top three trends that are expected to transform
South African family firms are: demographic shifts (56%), a shift in global economic power (57%), and resource scarcity and climate change (58%).
In general, family businesses are in reasonably good shape, with 96% of South African family firms confident of achieving growth in the next five years. South Africa is listed among China, the Middle East, Kenya, India and Russia as the top six countries to grow quickly and aggressively.
The key issues facing family businesses in South Africa are similar to those facing family firms globally. A large percentage (77%) of South African respondents (63% globally) think that market conditions and the general environment remain key external challenges over the next 12 months as well as the next five years.
Working with one’s relations can generate greater levels of trust and commitment, but it can also lead to tensions, fostering resentments and even open conflict, as the individuals concerned struggle to keep ‘head’ and ‘heart’ separate, and make a success of both their work and family lives. ‘Professionalising the family’ means putting processes in place to govern the way in which the family interacts with the business.
“Professionalising the business will allow family businesses to innovate better, to bring in fresh perspectives, diversify more effectively, grow faster, and be more profitable,” adds Brink.
Many family businesses are filling the skills gap by bringing in outside talent at both management and executive levels – 63% of respondents (65% globally) have non-family members on the board, and 39% (34% globally) have non-family shareholders.
“This shows that South African businesses are seeing the value of appointing experienced non-family members on the board, and that they might only now be catching up with their global counterparts, of which, 65% have non-family members on the board.”
The majority of family businesses recognise the importance of a digital world. A high 76% of family firms in South Africa (79% globally) identified digital technology as one of the top five global trends most likely to transform their business over the next five years.
In addition, 68% of respondents recognise that they will have to adapt the way they operate externally, and organise themselves to fully exploit the opportunities of digital and avoid being overtaken or left behind by more innovative and advanced competitors.
Just under half (47%) of South African respondents agree that family businesses have a longer-term approach in decision-making than non-family businesses. The majority of family businesses (80%) also agree they make more streamlined and faster decisions.
The need to innovate is one of the most pressing internal issues for family businesses in 2014 (58%, 64% globally). Innovation is closely related to the challenge of attracting the right talent to the family business: skills rank second in the family businesses’ list of priorities and 65% (61% globally) list it as a key issue over the next five years.
Family businesses are still lacking when it comes to succession planning. Although most businesses have some sort of succession plan, only 13% of family businesses have a succession plan that has been discussed and implemented.
Too many businesses are either not planning for succession at all, or are managing it as a personal issue between two individuals rather than as a process which requires the same objectivity as any aspect of business decision-making.
“It is welcome to note that progress has been made in some areas regarding potential conflict,” Brink says. A high percentage of respondents in South Africa (91%) report having at least one mechanism in place to deal with family member issues or conflict, which is higher than the global average (83%).
“Being an effective owner means being an effective custodian of the family’s values – the principles and priorities that give the business its character and continuity,” Brink adds.