The Upcoming Generation of Family Business Leaders Wants Change, but Struggles to Advocate for Ideas

A new PwC study involving discussions with 268 family members from the upcoming generation across 31 countries likely to take over business management shows that 60% want to expand operations into new geographical markets.

The upcoming generation of family business leaders consists of well-prepared and confident individuals who primarily have high ambitions for themselves and their businesses. 88% want to do something special with the business. They do not just want to increase and strengthen it, but also expand into international markets, diversify, and modernize.

A new PwC study involving discussions with 268 family members from the upcoming generation across 31 countries likely to take over business management shows that 60% want to expand operations into new geographical markets. They are considering new ideas, new products, and even new business models. The study “Great expectations: The next generation of family business leaders” simultaneously shows that members of the upcoming generation face multiple challenges both within the business and in the broader business context.

PwC has been conducting international family business research for over ten years, and in 2014, it included research on “waiting” leaders for the first time. In this research, we asked members of the upcoming generation about their personal ambitions, future plans for the business, and the challenges they face as sons or daughters of the head. We discovered three key “gaps” that threaten a successful transition from one generation to the next:

• Generational gap: the current generation is not always convinced that their children are ready and capable of taking over the business.
 
• Value gap: the upcoming generation feels they must work harder than others in the business to prove their worth.

• Communication gap: family businesses must deal with both personal and professional relationships, which brings the potential for conflict.

Confident generation ready to make their mark

After two years, the picture has changed significantly and positively. The confidence of the upcoming generation has increased, their horizons have expanded, and their preparation for taking on more serious roles has improved. For example, 70% have gained valuable work experience outside the family business and bridged the value gap before joining the family business. Respondents stated that they do not want to be just “guardians”: they want to leave their mark on the business and are not afraid to bring in outside help to achieve their goals. 69% would hire experienced managers from outside their family to help modernize/professionalize the business.

– One of the trends we have noticed in our work with family businesses is that talented members of the upcoming generation are becoming increasingly selective about the roles they want to take on, said Henrik Steinbrecher, global leader responsible for mid-market businesses at PwC.

– They want a job that matches their skills and where they can stand out. They have a deeper and more refined understanding of what will be needed for successful management of family businesses in the future and are asking what they can offer that would help advance the business.

Revolution or evolution?  

Despite increasing confidence and clear ideas about where they want to direct the business, members of the upcoming generation are still held back by the “weights of the past”. They would like a revolution, but for now, they foresee, at best, an evolution. 40% admitted that they are frustrated when trying to convince the current generation to accept new ideas, and 52% said they fear they will have to spend time fighting against the interference of family life in business.

While family businesses can restructure, and they do, not everyone succeeds in adapting quickly, and there can be tension between maintaining existing processes (and products) and seizing the opportunities that the upcoming generations see in the future. For example, 59% of the upcoming generation would like to diversify the product portfolio, but 68% believe that their business will not do so even in the next ten years.

– It is clear that digital technologies are one of the areas where the generational gap is still felt. Many members of the upcoming generation struggle to convince their parents that more needs to be done regarding digital technologies. Only 41% believe that the company’s strategy fits into the digital world, while 29% believe that family businesses are slower to keep pace with new technologies than other types of businesses, said Henrik Steinbrecher.

The question of inheritance

Inheritance is a concern that plagues those taking over family businesses. Unknowns such as whether the current generation will adapt or whether the upcoming generation will be good enough still play a significant role.

It is also a problem that the current generation resists handing over the business, which is what we call the “sticky baton syndrome”. 61% believe that the current generation will have significant difficulties fully handing over the business to the upcoming generation.

Stephanie Hyde, a member of PwC’s Executive Board in the UK and global partner responsible for the upcoming generation program, said: – It is crucial to remember that inheritance is a process, not an event: the upcoming generation must be fully prepared for the takeover with the support of their parents, and after the formal takeover, parents can still offer help and guidance as long as they accept the fact that they are no longer the ones making decisions.