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How family enterprises can build resilience in a post-pandemic future
FAMILY enterprises have been a cornerstone of economies and communities worldwide. The unique traits of successful multi-generational family enterprises, including their long-term perspective, entrepreneurial spirit and guiding sense of purpose, have traditionally distinguished them from their peers.
According to The Family 1000: Post the Pandemic report by Credit Suisse Research Institute, family enterprises are less concerned about the long-term impact of the Covid-19 pandemic on their business, even though it is still regarded as one of their biggest challenges.
How can family enterprises continue to flourish through uncertainty and change and build resilience into the future?
BALANCING STEWARDSHIP AND TRANSFORMATION
Family enterprises, by nature of their origination, are focused on the long term. The focus on stewardship steers family enterprise leaders to manage capital and assets differently. For one, not all business decisions may be strictly business but rather, may be driven by the desire to harmonise business and familial interests.
Such long-term perspective has its impact on investment and decision-making, as well as the speed at which decisions are made.
Private family enterprises may not feel the pressure or need to see returns in the next quarter in an approach that comes from patient capital. Additionally, they typically take on far less debt so as not to place their equity value at risk to excessive debt leverage. Even if the family enterprises should take on debt, there is a propensity to pay off the debt early.
At a time when the pandemic has amplified and accelerated disruption, the question is whether such prudence can be a double-edge sword for family enterprises as they seek to not just survive but to grow beyond the pandemic.
EY studies have found that across the globe, corporate and family enterprise leaders rate rapid decision-making as the No 1 factor in improving agility - an increasingly vital quality amid change. A core strength of family enterprises is their entrepreneurial spirit. Yet, while most businesses start from a flash of entrepreneurialism, sustaining an entrepreneurial culture - particularly being adaptive and agile - must be an ongoing effort.
Family enterprises that aim to endure into the next generation will need to constantly look ahead, anticipate trends and find new ways to do things better. With technology as a critical enabler to drive improved operational and business outcomes, digital transformation must become a priority. Successful digital transformation goes beyond adopting the latest and best technology - it requires an innovative culture, a clear strategic vision and recognition that protecting what has worked well in the past will no longer be enough.
For family enterprises with a strong patriarchal culture, they may need to intentionally consider widening their decision-making tent by bringing in external talent with a broader array of experience - and in the context of the above, expertise in digital strategy and transformation.
Diversity in talent breeds innovation but only if inclusive leadership is practised from the top.
Particularly as companies seek to level up their digital capabilities to drive business transformation, non-conventional or previously less-considered strategic approaches such as forming partnerships with others in the ecosystem, or leveraging M&As (mergers and acquisitions) to acquire technology and talent in emergent companies and start-ups will become increasingly viable options.
More than just onboarding talent, it is useful to consider giving the management of the acquired firm a seat at the table and in shaping the business strategy. Merely bringing in new talent to perform tasks as directed or previously done - without giving them the opportunity to share new insights or new ways of working - will do little for the business. It is also important to invest time in post-merger integration to harmonise the differences in corporate cultures, work processes and styles.
Another strategic approach that family enterprises may want to consider is divestment, which is sometimes seen as a "taboo" topic. In reality, divestments can be a means to growth.
After all, divestment can add value in two ways: selling non-core assets not only simplifies and tightens the portfolio in response to the evolving market and demand; it also releases capital for reallocation to the business' growth priorities.
PURPOSE AT THE CORE
For family enterprises with an inter-generational workforce, going forward, they will need to find ways to better harness the talents of their different generations, even as they proactively consider external expertise.
Some of the most successful family enterprises have a strong track record of integrating younger generations of family members into the business. While respecting the values of their founders, these businesses welcome the fresh insights that new generations offer.
Having a shared purpose and set of values is vital. Many family enterprises do not survive beyond the third generation because of a lack of this binding element.
This is unsurprising - as family enterprises expand in size and complexity over decades, an increasing number of family members may not be directly connected to the enterprise. Add to that the infusion of external management and the result is a twin challenge of keeping successive generations engaged while ensuring a cohesive corporate culture.
How family enterprises can continue to thrive into the post-pandemic future will depend on how well they rebalance their approach to strategy, transformation and talent. They do have an inherent advantage: even as circumstances change, the entrepreneurial agility that once breathed life into the founder's vision will remain highly relevant as a future-proofing inspiration.
- The writer is Max Loh, managing partner, Singapore and Brunei, EY. The views in this article are those of the author and do not necessarily reflect the views of the global EY organisation or its member firms.