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Global Family Business: Short Term Drives

Bridging the chasm between long- and short-term priorities can be a challenge for many family businesses. Those who wish to hand down control to future generations need to address the disconnect.

FAMILY Businesses tend to lean towards a long-term view that is rooted in shared values, vision, and culture. But even though many of them strive to maintain family control, family ownership in itself doesn’t guarantee that a business will survive the decades. In the context of today’s rapidly and fundamentally changing business environment, simply having a long-term orientation is not enough. To thrive, family businesses also need to take relevant short-term action.

Four key areas: ownershipgovernancesuccession, and strategy

While it has been found that just over one-half believe their organizations are fit for the future, we also found that many family businesses lack clarity in at least one of these four areas. For these businesses, it will be important to find ways to align stakeholder goals, develop a strategy that matches short-term actions to long-term priorities, and explore diversification to become sustainable for the long haul.

Especially interesting is that the long-term orientation of family businesses’ does not necessarily mean that their strategic plans look farther out than the five years typical of non-family-owned businesses. Of the 89 percent of respondents who said their companies had a strategic plan, 71 percent planned only for the next two to five years, and another 6 percent said that their plan covered only the single year ahead.

Family businesses are known in general to have a long-term orientation, yet fewer than 30 percent of these businesses survive into the third generation of family ownership. This raises the obvious question as to whether family ownership, in itself, is enough to ensure a business’s longevity.

THE ANSWER, OF COURSE—especially considering that family businesses today are buffeted by a variety of forces.

  • The family system: Families seem to be growing larger and more complex; and events such as death, marriage, divorce and disputes create the potential for disruption.
  • The market/industry: Businesses are operating amid unstable market conditions, changing consumer behavior, and the evolution of business ecosystems rather than traditional industry structures.
  • The broader social and political environment: Businesses also face issues arising from factors such as educational systems, climate change, geopolitical volatility, and environmental degradation.

How are families in business organizing themselves to deal with these challenges? Are they really focusing on the long term, or are they too busy dealing with the continuous short-term pressures on their companies? How do they balance long-term objectives—such as keeping the business in the family and preserving family capital—with short-term challenges arising from disruption, digitization, and globalization? And how can current business owners ensure that their legacies are realized?

WITH THEIR WELL-KNOWN TENDENCY to take the long view, it might seem that family businesses would find it easy to balance short-term initiatives with long-term goals. Yet despite the focus by most on the longer-term future, family-run businesses appear just as prone to pursuing immediate priorities that, necessary as they may seem at the time, can fail to support the company’s ultimate vision and objectives. Such a disconnect between long-term aspirations and short-term priorities can jeopardize the preservation of family tradition and legacy—as well as family capital.

How can family business leaders achieve the right balance between the short and the long term—in the context of the unique family, marketplace, and sociocultural dynamics that characterize the family enterprise?

Among most notable findings:

  • Of the 791 family business executives we surveyed in 58 countries, a little more than one-half believe their organizations are fit for the future in terms of ownership, governance, and strategy—but only 41 percent feel similar confidence in their plans for succession.
  • While a strong succession plan can help align short- and long-term goals, many family businesses have not invested the time to create formal plans.
  • Sixty-eight percent of surveyed executives intend to keep the business in the family; however, slightly more than one-third of respondents would trade at least some measure of family control over the business for even greater long-term financial success.
  • Family business leaders traditionally focus their strategy on a two-to-five-year time horizon, and often take a reactive approach to events as they happen.
  • Good governance can be a critical value driver for family businesses, but effective governance structures should be tailored to the company and opened up to non-family members.
  • Family members may lack alignment in their goals for the business—including goals beyond financial success.

Equally important to consider is developing a shared vision by aligning individuals’ goals with those of the enterprise, both financial and non-financial. Alignment of vision and values is achievable for virtually any family business, provided they have the right discipline, governance structure, and communication practices in place. Families that can appropriately define both their 10- to 20-year aspirations and their 6- to 12-month initiatives— and maintain a clear line of sight from the one to the other—will stand a far greater chance of staying ahead of the game for years to come.

It’s also worth stressing that succession planning can be a critical bridge between the short term and the long term. Many family business leaders seem to perceive succession as an event that they would rather not acknowledge or deal with—indeed, only 41 percent of survey respondents said their business was ready for the future in terms of succession planning. Yet an orderly succession is often crucial to keeping the business on track for both the immediate and the far future.

Many successful businesses can fall prey to fast-changing markets that no longer permit traditional approaches. Yet alignment of vision and values is achievable for virtually any family business, provided they have the right discipline, governance structure, and communication practices in place. For family businesses, remaining competitive means translating their vision for the future into a solid plan for action—and executing that plan with vigor and commitment.

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