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We have entered a new era that presents unprecedented challenges as well as significant opportunities for family enterprises. Some of the characteristics of successful family businesses – their long-term perspective, strong financial resilience, stakeholder loyalty and commitment to positive social impact – will help them succeed in this new era. However, other characteristics—such as privacy and control, their narrow definition of stewardship, their prioritization of family harmony over family unity, and their reluctance to make major changes and change direction—need to change.
New ways of thinking, strategies and practices are needed for family enterprises to survive and thrive in today’s turmoil. The owners themselves must take charge from within and insist on new directions and transformative measures to ensure success in the coming years.
In a two-year study released in September 2022, the Cambridge Family Enterprise Group (CFEG) explored these new requirements for success. Our research includes a global survey of family ownership, interviews with senior and next-generation family members, and extensive secondary research—all based on CFEG’s 33 years of consulting, teaching, and researching family enterprises around the world. The resulting white paper shares our lessons learned and recommendations for navigating the new era. Here are some highlights:
The new realities of change for enterprise families
Families and their enterprises have always needed to adapt to changing times, but in general (and with the exception of disruptive periods) they faced fewer changes and had more time to adapt than today. In today’s complex, fast-paced and highly connected world, the nature of change itself has changed. Witness greater volatility, a myriad of perturbing influences and frequent disruptions in recent years, all of which make predicting the future very difficult.
In addition to good ownership requirements, we now tell owners to think like futurists and be champions of change, not bastions of stability, the traditional expectation of family-owned groups.
To help families anticipate change, CFEG tracks four global, macro forces affecting family enterprise: 1) environmental degradation and ecosystem disruption, 2) technological advances and digital disruption, 3) globalization/globalization, and 4) socio-political-economic forces. . We also track the dynamic characteristics of enterprise families and family enterprises. We combine these perspectives to regularly assess the impact on society, businesses, family offices and families.
Change-ready families use insider-outer mindsets to adapt to external and internal change. Both are essential for building resilience and resilience needed for survival and long-term growth. Successful families need strong internal support among owners, family members, and governance groups such as the board and family council to make the necessary changes.
How ready (ie, willing and able) are households and family enterprises to change? Our survey reveals an alarming gap: Enterprise families recognize that the future is turbulent and that they recognize the need to change and adapt; But They are unsure of their ability to change in the ways needed. Respondents believe that their families are more ready to change than their family enterprises.
Some families, however, seem prepared for these new conditions. The third-generation owner describes her family’s experience with “the volatility and disruption of recent years,” citing both challenges. And The opportunities they faced.
“Disruption forces you to challenge traditional business models. We think ours will last, but we must be ready to change and constantly ask ourselves, ‘What are the potential pitfalls and how can we avoid them?’ Our greatest opportunity is the disruptive side. It is taking us out of our comfort zone and presenting us with new investment opportunities.
Such attitudes are encouraging, but many families need a greater sense of urgency to meet the challenges ahead. Below, we present a new family enterprise model and five transformation strategies designed to do just that.
A new model for family enterprise success
The traditional approach to family enterprise stewardship—maintaining the family’s existing family business—encouraged reinvestment in the old business, which in turn supported business growth in the industry. Historically, this focus has discouraged diversity and limited the family’s options for long-term growth and success. In today’s chaotic environment, where even businesses and industries can come and go quickly, this sense of stewardship hastens the loss.
Today, good stewardship should be broadly defined as building multiple forms of value, including money, reputation, relationships, intellectual property, social influence and talent ̶ ̶ in each generation. The key to long-term success is building and rebuilding an attractive portfolio of assets and operations guided by a renewed, compelling family enterprise mission and shared values.
My new mantra for my family today is: Build value according to your value. But how can families implement this new model for family enterprise success?
Change strategies for enterprise families
The “Future of the Family Enterprise” study identified five transformational strategies that are necessary to implement the new values ​​and values-based model and to succeed in difficult times. Our white paper provides actionable recommendations for each strategy, as summarized below.
Reorganize your owners and reuse them.
Skilled, aligned and loyal owners are always an important foundation for the success of a family enterprise. The stakes are high in chaos, when the business needs to be more agile and the owners need to make smart bets quickly.. How can families ensure that their owners understand their roles and are equipped with the mindsets, skills and networks they need to navigate the new era successfully?
Families should take ownership seriously rather than treating it as a birthright. Investing in an owner development program increases the likelihood that enough owners will support their company’s professional and financial needs. Developing a stronger group of active owners, especially a small group of owners who can make critical strategic decisions, should be a priority.
Some of the most challenging changes to prepare for this new era will be changes in perspective. Owners – who typically believe they need 100% ownership control and key decisions – need to collaborate more and control less. Families need to be more flexible about ownership structures, percentage of equity ownership, and collaboration with outside groups, all of which are critical to access knowledge, capital, and new opportunities.
Get ready to plug.
The ability to address risks and pursue opportunities in a timely manner separates the winners from the losers. You can’t predict the future, but you can – and should – anticipate and react quickly to changing circumstances. How can owners ensure family enterprises and their families are prepared?
Owners need to gain altitude, watch for signs of change, and build their perspective on the future. Family enterprises today must be in a constant state of exploration, with an eye to the future. Strategic foresight—an important tool for that purpose—requires a formal process for surveying the horizon and tracking key trends, developing alternative futures, and grounding a stake that expresses the owners’ strategic vision and preferences—as a movable stake. Owners learn more.
Family enterprises must also develop an entrepreneurial culture and approach to new ideas, business models, and methods of value creation (eg, “think big, start small, grow fast”). Owners must be willing and able to move in and out of businesses, assets and activities easily and quickly to build efficiency for their family enterprise portfolio and organization.
Accelerate your digital transformation.
Recent research shows that strong digital capabilities translate to strong financial results for family businesses, but they are behind the curve in their digital journeys. How can family companies and family offices quickly reap the benefits of digitalization while mitigating the risks of the digital age?
Owners need to have a sense of urgency about this and push digitalization to the owner level. Owners must be strong digitalization champions, driving the development of the digital transformation roadmap and driving incremental and radical innovation. Owners must also ensure that their family enterprises and their families proactively manage cybersecurity risks, including financial, operational, reputational and privacy risks.
Prioritize social impact.
Resident families are called upon to play a leading role in addressing severe social and environmental problems by enhancing their long history of community service. How can families prioritize social impact, strengthen their traditions, engage family members and make a positive difference in the world?
Examining their entire family enterprise to understand how they can strengthen their long-term social impact. Family members should come together to define their social impact goals and a plan to achieve them. As part of the effort, owners should promote and support ESG (Environmental, Social and Governance) practices in companies.
Today, many households are joining the socially responsible investment movement, which includes various investment vehicles with the twin objectives of financial return and social benefit. Family offices and private investors influenced the pioneers by investing. Today, it is especially popular (and in a good way) among family members of the younger generation.
Engage and nurture your family.
Families are the foundation of family enterprises, but like any organization, each generation must be engaged in a compelling mission and motivated to contribute. Keeping families united, interested and contributing to the family enterprise is especially challenging today when they are separated by values, lifestyles and geographical dispersion. Family leaders must embrace and use the new family diversity to maintain family unity and tap into rich talent. Personal relationships, openness to new ideas, formal inclusion policies and giving family members different roles to contribute to the family enterprise can all help.
Families must engage and entertain their growing generations, who have different expectations and more options in life than in the past, or they risk losing them. Proactive and flexible approaches are needed, including earlier invitations to “sit at the table” for meaningful discussions about the future, capacity building programs, and opportunities for intergenerational partnerships.
These difficult times require families to step up their stewardship to take the bold steps needed to succeed. In particular, family councils, which take the lion’s share in family management, should be more strategic and capable of preparing families for the future.
A call to action for entrepreneurial families
In order to survive, let alone succeed, in this new age of chaos, it will require constant adaptation and some significant changes by family enterprises. Every family needs to look outward and understand the challenges and opportunities they face. And Look inside and examine the strengths and weaknesses of their family enterprise. Then, family members share the responsibility of defining their future and mapping their journey of change.
“The Future of Family Enterprise” serves as a call to action and a valuable resource for entrepreneurial families, especially the owners. The family roadmap may involve more or more radical changes, or perhaps a combination of both, to embrace our new model and change strategies. Whatever the agenda for change, there is no time to waste. As John Kabat-Zinn famously said, “You can’t stop the tide, but you can learn to surf it. The waves are coming bigger and faster.
Happy surfing.
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