Deloitte: 89% of Next Gen family business leaders recognize the opportunity of business ecosystems yet 53% don’t partner with external parties

12 August, 2018 – To thrive in today’s dynamic, complex business ecosystems, many family-owned businesses will need to shift their mindset to take a more expansive view of the kinds of business relationships they can use to drive value, according to a new study from the Deloitte Family Business Center: Next-generation family businesses: Exploring business ecosystems. The study showed that while most family-owned businesses view ecosystems as an opportunity for growth, a number of more-insular behaviors persist even among some organizations whose leaders view themselves as more open to collaboration.

“The Survey confirms that Next Gen family entrepreneurs are adapting to emerging business ecosystems to use them as an opportunity to grow their Family Business. Family Businesses in the Middle East must continue to adapt to the ever-changing business environment to sustain continued growth and bring added value to their businesses, ” said Walid Chiniara, Partner and Family Enterprise Consulting Leader, Deloitte Middle East.

Ecosystems offer opportunities for innovation

A large majority (89 percent) of the 575 survey respondents from 52 countries worldwide agreed that business ecosystems enabled their organization to innovate beyond its individual capabilities. Yet when asked about their actual participation in innovation projects, more than half (53 percent) said that they rarely or never partnered with other organizations during the past three years, pointing to a lingering reluctance among at least some family-owned businesses to engage with external parties. Further, 32 percent of the respondents said that their businesses would only work on new services and/or products with organizations with which they already had a long-standing relationship.

“This is consistent with many family businesses’ traditional emphasis on operating within stable, closely knit networks of collaborators, a model that is at odds with the more fluid and varied modes of interaction that characterize today’s business ecosystems,” said Chiniara.

Acquisitions to access innovation

Acquisitions were the most frequent type of business combination that respondents undertook over the last three years—and that they expected to engage in more acquisitions than in any other type of combination over the next three years as well. When asked why they pursued business combinations, 30 percent of respondents cited “access to innovation” as a driver, making it the third-most-frequent reason given for undertaking a business combination. The study also found that family businesses place a high value on owning intellectual property (IP), with 63 percent of respondents saying that owning IP was “very” or “fairly” important to their organization.

“In business ecosystems participants do not necessarily have to own assets or IP. Participants can reap the benefits of assets without actually owning them,” explains Chiniara.

Outward-facing mindset required

“To fully exploit the opportunities presented by modern business ecosystems, next-generation family business leaders should consider adopting a flexible, outward-facing mindset that allows for variation in the types of relationships they pursue. This represents a change in attitude that many family business leaders themselves are aware must take place,” said Chiniara.

More than half of the survey respondents believed that they needed to change the approach of their business to collaboration, mergers and acquisitions (M&A), and alliances, either to some extent (53 percent) or substantially (17 percent).

Chiniara added, “Next-generation family business leaders are aware of the need for change, even though some may not yet realize the extent to which changes might be needed. They would do well to consider how their business model can work effectively in an evolving business ecosystem, without neglecting the history and traditions embedded within the family.”

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