Opportunities and challenges in family business
Building a strong narrative
At a recent family business summit in Valencia, Spain, more than 200 family business thought leaders from academia, prominent family businesses and professional practitioners came together to connect, share big ideas and explore practical ways for shaping the future of family businesses everywhere.
Under the theme "Re-gener@tion: Managing Change and Innovation in Family Business," the event addressed some of the most important opportunities and challenges facing family businesses globally today and in the foreseeable future.
Here are some of the insights that caught my attention:
The art of forecasting the future
One of the summit's keynote presentations provided an overview of the current global economic outlook. In these times of geopolitical, social and economic unpredictability, forecasting the future is becoming more of an art than a science.
Following the worst days of the pandemic, there was a glimmer of hope that economies across the world might slowly begin to rebuild. However, the speed of recovery has been uneven, and inflation has risen in most major economies. Though family businesses tend to focus on the long term, interest rates will likely continue to rise in the short term, and it will be necessary to think carefully about when and where companies invest.
Sustainability as a commercial imperative
The number of presentations and discussions regarding the commercial imperative of sustainability struck me the most. It rippled throughout most conversations alongside concerns about how to manage the dramatic shifts taking place in the current global economic environment while also continuing to drive innovation. What I hear most often from family businesses is: “We know we need to do something to make our business more sustainable, but where and how do we start?”
The response from business families that are already on the sustainability journey was simply this: You must start now, and the first step is to understand what the commercial impact of not embracing sustainability is likely to be. As one family business leader expressed openly, “If you do nothing, your company likely won't be here in five years — let alone 10 — because customers (whether they are individuals or corporates) are making decisions today based on the extent to which your organization is living the sustainability values that they want to see.”
This message was echoed often throughout the three days of the summit, including in a presentation from a family business leader who described how the first step in his company was to make sure that its entire supply chain is sustainable, then embedding sustainability throughout the culture of the company and its operating model so that every employee understands how important sustainability is as a competitive differentiator right through to their customer base.
Similarly, the leader of a construction company described how procurement departments are now applying new weightings in tender documents, where as much as 10% of the value of the tender may be allocated to environmental and social impact performance. Essentially, they are looking for evidence that every member of their supply chain is up to the task. Increasingly, this can make the difference between winning or losing a bid.
Opportunities to reposition the family business brand
Next-generation family members’ values and the way they think was touched on many times. They have ideas on how to change the way the business sells itself, which many refer to as “value branding.” In a panel discussion, one next-generation member of a family whose business manufactures high-end mattresses noted that most people buy a mattress only once every 20 years. However, she and other next-generation members of her family who understand the importance of health and wellness have successfully repositioned their company’s brand, shifting the customer base from people who just need a new mattress to customers seeking products that promote health and well-being.
It's time to elevate the social value story
What's often missing across the many compelling stories focusing on value creation and the role of sustainability is a strong narrative that supports everything the companies are doing as purpose-driven organizations. Many recognize that they’ve been too quiet in the past, and this is something they need to work on. A few are making their sustainability story and performance part of their published accounts. One, for example, entered all the data related to their charitable and community efforts in an online social value calculator, which indicated that the company has invested several million U.S. dollars to underpin its social value, and this is now being reported as an asset on the balance sheet.
The ability to quantify social value is a powerful step forward in being able to build a strong social value narrative. And it reinforces my belief that creating social value and being profitable are not mutually exclusive.
Tom McGuiness is the global leader of family business for KPMG Private Enterprise.