PwC Global Survey Shows Strategic Planning Issue
5th November 2016 Paul Andrews
Lack of strategic planning more likely to hold back family businesses than economic headwinds according to latest global research from PwC
• Slow or no progress on strategic planning could impact growth
• Family businesses in Asia Pacific are the most aggressive growth seekers
• 43% of family businesses do not have a succession plan in place
Despite economic uncertainty, almost two thirds (64%) of family businesses have grown over the past year, according to a new global survey of over 2,800 family businesses in 50 countries by PwC. The sector has ambitious plans to grow again over the next five years with only one in five family businesses reporting a drop in sales in the last financial year.
Family businesses in Asia Pacific are the most ambitious, with 21% looking for the quickest and most aggressive growth according to findings from PwC’s biennial global survey of family businesses - The ‘Missing Middle’: Bridging the strategy gap in family firms.
Fewer family businesses in Western Europe (10%) and North America (12%) are gearing for quick and aggressive growth, with respondents in these regions mainly predicting ‘steady growth’. Globally, 15% of respondents aim to grow quickly and aggressively in the next five years, while 70% aim to grow steadily. The UK sits above the global average with nearly one in five (18%) aiming for quick and aggressive growth.
On the whole, respondents globally do not see the result of the EU referendum affecting their growth ambitions (only 15% say it will have a negative impact). Unsurprisingly, fears about the potential impact of Brexit in the next 1-2 years are highest in the UK (38%). Globally, 83% say they are not planning to take action to address Brexit. However, almost half of UK family businesses surveyed (49%) have already taken measures or plan to take measures as a result of Brexit.
Sian Steele, UK family business leader at PwC, said: “Experience has taught us that UK family businesses are adaptable when confronted with new challenges and opportunities. There will be significant uncertainty over the coming months as the detailed political and legal issues around Brexit are worked through, and business confidence may be impacted.”
Despite the relatively steady outlook, growth forecasts could be curtailed by an organisation’s lack of strategic planning rather than by economic or other external factors. In fact, many of the issues facing family business come back to a lack of strategic planning – the ‘missing middle’ – namely having a strategic plan that links where the business is now to the long-term and where it could be. This results in many families not being able to turn early promise into sustainable success.
While some family firms are managing strategic planning well, many are caught between the deluge of every day issues and the weight of inter-generational expectations. Areas such as succession planning, diversification, digital transformation, cyber security, and innovation, are taking a backseat.
Sian Steele added: “Family firms remain a vital part of economies across the world, contributing the bulk of GDP in many territories and a primary driver of job creation. Overall, their performance and outlook remains strong with notable progress on professionalisation, but less so on strategic planning. Having an ambition to grow, without a strategic plan of how to get there is just an aspiration. Strategic and medium term planning is the missing piece that would allow many family firms to achieve greater success and fulfil their true potential. Not only is it limiting their ambition to expand and grow, and wider contribution to economies, but it could expose them to additional risk they have not effectively planned for.”
Commenting on the professionalisation journey, family governance and the role of the Board, Clare Stirzaker, UK family governance leader at PwC, said: “Successful family business leaders understand and implement both good corporate governance and good family governance. Our survey findings show that real progress is being made but there is clearly more that still needs to be done. Good governance can take many forms, its key function is to promote effective ownership and enable the business to truly compete in the market. Better processes and a clearer division of roles and responsibilities frees up time and space for the senior team to think and plan more strategically."
“Family firms need a Board which is able and willing to give opinion, and question decision making, but which also shares the company’s vision and values. Attracting the right individuals and ensuring a good fit can be challenging, as potential non-executives need to understand the dynamics of the family business and the complexities of the family relationships involved.”
In three successive surveys over the past six years, family businesses have made on average, around a quarter of their sales overseas but stated an ambition to raise that to a third. Yet in each survey, international sales have remained at around 25%. One in three family firms are still operating in only one sector and in their own home market, yet 80% plan to export/sell goods outside of their home market within five years.
A number of the key challenges respondents from over 2,800 businesses in 50 countries identified related to their strategic planning:
• Succession: Only 16% of family firms have a plan for their succession process for all senior executives: 43% have none at all.
• Innovation: 64% identify innovation as a key challenge to keep ahead in the next five years
• Digital: 47% say keeping pace with digital and new technologies is one of their key challenges, yet only a quarter think their business is vulnerable to digital disruption
• Professionalisation: Three out of five respondents say they will bring in non-family professionals to help run the business.
• Skills: 58% say their ability to attract and retain the right talent is a key challenge over the next five years. Almost half believe that they need to work harder than non-family businesses to recruit/retain top talent (48%)
• Finance: A third say that they find it harder to access capital (32%) than their non – family business counterparts. Three quarters (76%) say they will use their own capital to fund growth
• Cyber security: Less than half (45%) believe their business is prepared for dealing with a data breach or cyber-attack
• Geopolitical concerns: The majority of family businesses identify political and economic stability as more important than growth potential when considering new export markets.
• Working life: Next generation family members are more certain they have to work harder to prove themselves than current generations (88% vs 66%). Nearly two thirds say they are properly appraised (65% vs 59% in current generations)
Sian Steele, UK family business leader at PwC, added: “Finance is a recurring theme for family businesses, and their reliance on their own finance to fund growth and expansion is reason in itself to focus on the missing middle and putting a strategic plan in place. Right now, if something goes wrong, for many families their own wealth is at risk, as well as their businesses."
“This year’s results on succession show a recurring theme too. It’s the fault-line in the family business model. There’s no point having detailed plans for business continuity, if the single most significant risk to this is not addressed. A managed succession process can be a rallying point for the family, allowing it to reinvent itself in response to changing circumstances, but without a plan it is the most obvious ‘failure factor’ for the family firm. Failing to plan is planning to fail."
“The next generation have an increasingly vital role to play in creating the family business’ future. Both in the success and strategy process and they need to be empowered and supported to do so. The great majority of family businesses around the world don’t believe they are vulnerable to digital disruption and many believe they have a strategy fit for a digital world. In our experience they often underestimate the impact of digitisation. It can prove fruitful to listen to the next generation and let them be the change agents for digital transformation.”
The report finds that a more uncertain economic environment means that for many family businesses, ensuring the company stays in the family is possibly not as important as it once was. Fewer than half of family businesses plan to pass both ownership and management of business fully to the next generation (39% will pass on management; 34% will pass on ownership). First generation business owners are now almost twice as likely to be planning to sell or float their business (29% vs 17% average across all businesses).
Download your copy of the report here