Family-owned businesses: Leading in an evolving business ecosystem
Today’s economic environment is requiring family-owned businesses to adapt quickly and shift to a more flexible, outward-facing mindset in order to compete in dynamic markets and uncertainties
Date: January 2020
Author: Phansak Sethsathira and Sakolsri Satityathiwat
In almost all countries, family-owned businesses are the backbone of the economy. In Thailand, family-owned businesses has been growing strongly and rapidly, collectively contributed about 28 trillion baht or 72% of total business value and over 50% of listed company are family-owned businesses or run by families. Professionalizing the business remains key concern as family businesses around the world are facing complex challenges and uncertainties such as trade barriers, cyber-attacks, and the cost of raw materials, involves not only business and investment decisions, but also ownership issues and relationships among family members. Most family-owned companies struggle to survive beyond a single generation. Deloitte Private Studies suggested only one out of three family businesses make the transition successfully from the one generation to the next. The most common issues that cause a breakdown in families include a lack of communication and transparency, a failure to define the purpose of the wealth, regularly concluding in the preceding generation keeping control, inequalities amongst family members and failure to educate and prepare for wealth inheritors. Without trust from preceding generation, family legacy cannot moved forward. It is time to embrace the value that other generations have to contribute by learning from them. These family-owned businesses will need to 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.
Here we collected and combined uniquely different qualities of the next generation into two key drivers including generational gaps and different in values.
- Innovation and technology
Innovation is one area in which many family business leaders’ attitudes seem particularly out of step with their actions. Preceding generation tend to emphasis on operating within stability and close network of collaborators, while the new generation embrace technology and automation as they see the benefits in terms of productivity and economic growth. They embrace technology to ensure they can continue to serve the evolving needs of their colleagues, customers and family members focusing on value-add activities. With today’s business ecosystem of continuous change and innovation, business will need to be able to adjust to new ideas and the next generation will be key driver to this success.
- Flexible working lives
Traditional generation prefers traditional workspace while the next generation demands to work in an environment that promotes personal wellbeing and happiness. With technology in hand, they are globally networked. They live and work across the world and embrace technology to remain connected to family. They crave to be trusted to just get the job done, and in turn, they respond with loyalty.
- Leadership style
Family businesses are vulnerable at times of transition in leadership when there is often a conflict between the desire to maintain and respect tradition and the need to adapt and progress the business in response to its changing environment. While most family-owned businesses view the new business ecosystems as an opportunity for growth, a number of more-insular behaviors still remain. Former leaders are more relationship-based leader while new leaders will maximizing the effectiveness of technology and innovation to drive outcomes with foundation of flexibility.
- Family versus independents
The transition of family wealth to the next generation often adds a layer of complexity as the first generation likes to keep everything to their own while the next generation are advocates for collaboration and value the input of independents. As generations change, ownership will have to be transferred from the founder to a partnership of siblings, and potentially to cousins as well. As the decision makers grow in number, so does the potential occurrence of conflict. The biggest challenges will be to maintain family values, succession planning and introducing further professionalism into the family firm.
Difference in values
As most of the preceding generation are Baby Boomers, they are known for being hard workers and diligent wealth builders. The younger generations have grown up more privileged, surrounded by excessive amounts of digital media and are known for their perspective on work that job isn’t just a means of living; it is a reflection of themselves. The new generation desire individual fulfilment and are aiming to make their own impact. They are ambitious and want to ensure that purpose driven individuals are guiding the culture. They achieve this by prioritizing continuous professional development and they value relationships over loyalty.
They also have a deeper sense of community and expect the same of business, too. They believe the success of a business should be measured in terms of more than just its financial performance but also to make differences in society. The challenge then becomes the balance between their desire to give back to the community while preserving the family or business capital.
From what mentioned above, we see variation in characteristics of different generations. As they will come across working together as family-owned businesses, challenges are how to bridge these gaps and creating a legacy? Multigenerational approach could be your answer!
A multigenerational approach is key to wealth and legacy transition in what is a faster and vastly different business landscape. Underpinned by the fundamentals of communication, transparency, education, and planning, the best of your family’s diverse generational values can be explored and understood through the optic of difference and leadership. This is central to bridging generational gaps and creating legacy, not only in wealth and succession, but also through the embedding of characters of successful, deeply considered transitions that nourish families and businesses through the long-term futures. Leading with flexibility and maximizing the effectiveness of technology and innovation while entailing relationship based leadership to drive outcomes.
In successful families, the generations learn from each other and adopt the best aspects of all groups. Most importantly, family businesses will need to consider how their business model can work effectively in an evolving business ecosystem without neglecting the history and traditions embedded within the family. It will be interesting to see whether the coming year tests family businesses’ ability to navigate through emerging challenges. Family businesses that can evolve their culture and business practices to take advantage of the same opportunities can gain a competitive edge.
To read this article in Thai language