How gen-next is reshaping family businesses while preserving founding culture

By Ganesh Raju K
Family businesses across the world are at the crossroads. On one hand, the next generation has to maintain the founding culture and tradition and on the other, they have to cope with disruptive challenges. How are they bringing about change in their business and their views on business strategy?

How are they enabling their businesses to adapt to and adopt digital and technology? What are their views on innovation? How are they making themselves heard by family business leaders? How are they exploring the set-up of their own ventures?

This year, globally, we spoke to 137 GeNext entrepreneurs (45 in India). The findings presented in our study, Same Passion, Different Paths, highlight four categories in the next generation — stewards who focus on protecting the profitability of the family business and ensuring its long-term sustainability; intrapreneurs who set up their own venture within the family business, often with family business backing; transformers who look at driving change in the firm and entrepreneurs, who set up their own venture outside the family firm.

Irrespective of the path chosen by them, there are five factors that determine success — culture, communication, clarity, credibility and commitment.

THE CASE: REINVENTION, REGENERATION AND ADAPTABILITY
Family businesses are the backbone of the Indian economy. In our Family Business Survey 2016, Aligning with India’s Growth Story, we spoke about the role of family businesses.

To reiterate the thoughts, “In India, the role of family businesses in nation building, wealth creation, employment generation and contribution to the exchequer is both significant and commendable. While some family businesses have followed the same lines of businesses started by their fathers or grandfathers and grown these significantly, others have diversified considerably by setting up new businesses, exploring new sectors and markets, expanding geographically and increasing their global footprint.”

Each successive generation reinvents, regenerates and adapts on account of changes in thought processes across generations as well as changes in the external environment. This could not be truer today, as we see technology both disrupting and enabling business enterprises.

While some are able to leverage technology and stay ahead of the curve, those who aren’t able to, or perhaps are not willing to, are unfortunately getting left behind. The cause for digital, innovation and technology change is one which is very close to every GeNext’s heart.

DIGITAL, TECH AND INNOVATION
Perhaps that’s why 81% of Indian next generation leaders (we surveyed) feel that it is important to have a strategy in place for the digital age. Yet only 53% felt that their company performed well on this front, of which only 11% say they performed very well. Another 83% feel it’s necessary to continuously innovate their product or services.

STRATEGISING FOR THE FUTURE
Most of the next generation we spoke to have postgraduate degrees, a good number in entrepreneurship, business management, engineering or finance. A few have worked outside the family business and some have worked overseas.

With their global outlook, the next generation leaders are keen on bringing learnings and experiences into the business.

This could very well be the reason why most lay emphasis on the need for a clear-cut, mid-term strategy, along with a clear and documented long-term plan. Our survey of family business leaders last year revealed that planning for the middle years was not given as much importance as the long-term strategy.

The next generation are more than ready to recognise the need for bridging the gap between the present and the long-term.

WITH THE FAMILY, IN THE BUSINESS
From our conversations with family business leaders and the next generation, we have historically found that the latter faced three kinds of gaps with the current generation — the credibility gap, the generation gap and the communication gap.

Family dynamics, culture of the business and the degree of autonomy and independence given to the next generation all play a crucial role in defining their career paths and decision-making ability. Most of next generation leaders we spoke with said they performed better and learned more when they were given the room to make decisions and, more importantly, make mistakes.

There is an ask from the next generation to move away from the traditional, hierarchical way of doing things and to delegate and decentralise more while ensuring there is clarity and demarcation of roles and responsibilities across the company and an openness to accepting new thoughts and ideas.

Modernisation, professionalisation and bringing in external subject matter experts, digital, innovation — all of these are important to GeNext — and again a lot of this can be attributed to the education and experiences of the next generation while away from their family businesses.

GeNext leaders acknowledge that to make their transition into the business smooth, it is imperative that they have patience, listen to experienced business leaders — family or non-family — and convince their parents and teams by making decisions and executing them on the basis of information, study, trials and preparation. Commitment to the business and willingness to invest time are critical for the two generations to work together.

OWNERSHIP VS MANAGEMENT
When we surveyed Indian family business leaders last year, we found only one-third planned to pass the business fully on to the next generation, while half planned to pass on ownership of shares while bringing in professional management.

Let’s compare this to what we have heard the next generation say: Almost half of them expect to be managing the business. However, till date, this has this been agreed upon only for 19%. Further, 16% are in senior roles or expect to take up senior roles but don’t expect to manage the company, while another 17% are looking at ownership and not management.

As more and more next generation leaders get inducted into the family business or leverage the family business for their own ventures, it is necessary that their roles are clearly articulated, while considering their expectations and ambitions as well as the current generation’s outlook. This is imperative for successful transition, in the business and in the family.

The author is Partner and leader, entrepreneurial & private business, PwC India
(Edited excerpts from PwC’s family business study)