The Next Generation of Family Businesses for Digital and Innovative Turnarounds, but ‘Room for Maneuver’ is Lacking

In the upcoming generation of family business leaders, three out of four have significant plans for business improvement. However, generational challenges still exist, primarily in the areas of digitalization and innovation.

PwC conducted detailed discussions with 35 members of the upcoming generation from 21 countries and carried out a survey of over 100 members of the upcoming generation for its new report Same passion, different paths: How the next generation of family business leaders are making their mark. The results showed that the new generation of family business leaders is facing a generational gap and cultural change.

“Our research shows that the digital space is an area where the generational gap can be a truly positive thing,” said David Wills, PwC’s global leader of the business and private client services department. “While the upcoming generation is excited to engage in digital, the current generation is somewhat more cautious in embracing the proposed pace of change.”

The current generation does not understand the potential of digital

In today’s business environment, all companies, including family and other businesses, must face the digital challenge, and it seems that the upcoming generation understands this. Three-quarters of respondents believe it is very important or critical to have a strategy suitable for the digital age. As digital natives, they feel much more comfortable in the presence of digital technology and recognize its potential for driving change. Despite this, only 7% of respondents believe their company is currently on the right track.

Given the significant need for transformation and investment to achieve the effects of digital change, many leaders of the current generation are often cautious in accepting such commitments. Approximately one-third of the upcoming generation (36%) is frustrated because the current generation does not fully understand the potential of digital and the risks that may arise.

Furthermore, a large majority of the upcoming generation considers innovation to be a fundamental component, with 82% responding that innovation is very important or essential for business success. However, only 15% of respondents believe that innovations are being well implemented in their companies.

Following their own path: four ways to progress

PwC identified four main approaches that members of the upcoming generation adopt to build their own paths to success: managers, transformers, internal entrepreneurs, and entrepreneurs. Some members of the upcoming generation follow multiple paths that are constantly evolving but can provide a useful way to recognize the various challenges, risks, and opportunities faced by the upcoming generation and can illustrate how success can be different depending on the path chosen.

• Managers – individuals focused on ensuring the long-term sustainability of the family business and protecting its profitability while remaining loyal to the core business activity.
• Transformers – members of the upcoming generation tasked with bringing significant change to the family business, who have the reach and support to do so.
• Internal entrepreneurs – those whose families within the family business shape a specific venture for the upcoming generation, which is essentially an opportunity for entrepreneurship within the company itself.
• Entrepreneurs – members of the upcoming generation who create their own ventures outside the family business, often in completely unrelated sectors.

“These members of the upcoming generation are truly impressive as they are already making a significant mark in their family business or beyond,” said Wills. “Our research shows that success can take many forms and that there are different paths to achieving it.”

Achieving success in five steps

Although members of the upcoming generation will take their family businesses down different paths, our research revealed a number of common success factors. Regardless of the chosen path, the following five steps contain guidelines for all family businesses.

• Culture – The family business should represent a “safe space” where members of the upcoming generation can explore and grow.
• Communication – A genuine two-way connection between the current and upcoming generations, built on mutual respect and trust, allows for proper appreciation of experience as well as new ideas.
• Clarity – It is crucial to have a clear strategy and agreed division of roles and responsibilities, especially in places where colleagues are family-related, and emotions are always at play.
• Credibility – As the “boss’s child,” a member of the upcoming generation must earn the respect of colleagues, which they may do by first gaining experience outside the family business.
• Commitment – the business should be committed to the long-term development of the upcoming generation, but the upcoming generation must also reciprocate by being willing to invest time in the business and providing opportunities for success.

“Sustainable success in the world of family business depends on give and take and the ability to balance the needs of the business and the family, which includes both the upcoming and current generations,” said Siew Quan Ng, PwC’s head of entrepreneurial and private business services in the Asia-Pacific region. “If any of these parts are missing or not functioning, the succession process turns into a risk rather than an opportunity.”