Family businesses revisiting strategies and embracing digitization

Survival in the short-term and planning for long-term growth sums up the family business agenda for this year, with technology as a means to both ends. A PwC survey explains how this ever-resilient segment is navigating the crisis.

More than 2,800 family business owners and executives from nearly 90 territories worldwide participated in PwC’s survey, which positioned this principled segment as a steadying pillar for a global economy in distress.

“When times are tough, the strong fundamentals that are their hallmark—commitment to values, long-term thinking, sensible leverage—are what recoveries are based on,” noted Peter Bartels, global leader for entrepreneurial and private business at PwC Germany.

And this long-term, grounded yet strategic approach is shining through under the circumstances. No doubt, the pandemic and the ensuing economic crisis have hit business fundamentals at their core. For the rest of this year at least, downsizing and consolidation are on the agenda for more than a third of family businesses.

The good news is that all other respondents expect to grow steadily through 2021 – if not quickly and aggressively. Most of those who are in survival mode for this year expect to be recording some form of growth by 2022 at the latest. “This optimism isn’t blind; it’s based on planning and risk management,” noted Peter Englisch, global family business leader at PwC Germany.

“Four out of five (82%) are prioritizing diversification and/or expanding into new markets or products; these are two of the three top priorities for businesses over the next two years.” Adapting their business model, and inorganic growth and restructuring are other positive strategies in the works – forming grounds for optimism.

A recurring feature through all recovery strategies – short and long term – is the use of technology. More than half of PwC respondents noted how improving their digital capabilities is high on the agenda – reflecting a broader acceleration of transformation efforts in response to pandemic-induced shifts online for work and consumption.

Nearly half also plan to experiment with new technologies in their business. Part of this digital drive is to make up for a relatively slow uptake of technology before the pandemic. Nearly two-thirds of businesses report having a “long way to go” in their digital journeys – widely recognizing that a strong digital base translates into better business performance.

With tech and innovation as a foundation, the goal is to strategically repivot for the new normal. Supporting this resilience is the personal and emotional energy that goes into running a family business. The top long-term priority for more than 80% of respondents is to protect the business as the most important family asset.

Other top goals include making sure the business stays in the family, creating a legacy, and generating dividends for members. Current strategies align with these priorities, although the researchers highlight one area where family businesses are falling short – building a responsible operation.

Sustainability imperative

Environmental, social, and governance (ESG) factors such as reducing emissions, rethinking success and supporting local communities through investment are all bottom of the agenda for family businesses this year – a scenario that PwC argues is a direct detriment to their identity as value-driven entities that can be trusted.

“ESG is an existential issue. Businesses that don’t demonstrate their commitment to sustainable practices could be punished by consumers, the media and even regulators. Family business owners want, above all, to create an enduring asset for future generations,” explained Bartels.

“If family businesses fail to demonstrate their commitment to sustainability with concrete actions, they may risk losing the trust and goodwill that give them licence to operate.” The segment remains socially responsible in many markets, although a more fundamental rethink of their purpose – combined with their existing digitalization and innovation drive – is key to building a truly enduring legacy.