An estimated 80 percent of privately-held companies across the globe are family-owned.1 In the old days, business was pretty straightforward, and for many, it was a given that heirs would step in and take over when the original founder retired or passed away. Things were simpler then, whereas now, the role of heirs can take on many shapes and forms.
On the one hand, some family members don’t want to be involved with running the family business when the previous generation departs. They would prefer to sell a business outright or that outside management comes on board to run the day-to-day operations.
On the other hand, heirs who choose to play an active role in the business often take a different approach than generations past. Due to the globalization and increasingly competitive nature of business today, sons and daughters need to take steps to prepare themselves to drive innovation if they want to take the family business to the next level.
Organizations frequently experience a “boost of innovation” when there is a generational change in leadership. When the heirs step fully into their autonomous roles, they often find opportunities to challenge the status quo, and with fresh eyes can tap into the innovative technology and tools available to them. Effectively managed and transformed, these organizational systems that manage people, processes and finances can become levers for growth.
Innovation is a big challenge for family businesses
The need to innovate was chosen as a top challenge by 62 percent of respondents to PwC’s 2012 “Family Business Survey.”2 Innovation doesn’t occur by maintaining the status quo, and one way the next generation can help drive innovation is by learning about the business world outside of the family-owned company.
Some heirs go to college to learn skills and strategies that they can utilize when they return to the family business. Whether it’s an MBA to enhance business knowledge or a field of study that leads to innovation on the technical side, heirs today have more education options than their parents or grandparents had at their disposal.
Several top universities now offer coursework developed specifically for middle-market business management and operations. Business schools at Cornell, Columbia and the University of North Carolina are just a few institutions to embrace this trend.
Heirs find innovation inspiration in the real world
Along with what they learn in college, many heirs today choose to gain valuable, hands-on experience by working for other companies before returning “home.” For example, a daughter might go to work for a start-up operating with limited capital and take the cost-saving measures she has learned and later integrate them into the operations of the family business.
Other heirs will learn the ropes by working their way up the ladder at the family business (or do both). Either way, this time in the real world, can be a huge asset and inform decisions that shape the future of the family business for years to come.
With this knowledge in hand, savvy heirs can effect the changes needed to innovate and grow. According to a 2014 PwC survey, 80 percent of the next generation of leadership surveyed said they “have big ideas for change and growth.”2 These big ideas typically necessitate significant changes to business operations, strategy and personnel.
Thoughtful succession planning facilitates innovation
To outpace the competition and spur innovation in a dynamic and global business climate, middle-market family-owned businesses shouldn’t underestimate the importance of exit strategies and succession plans. Unfortunately, these critical tools often end up on the back burner, until the senior owner’s departure becomes an urgent matter.
Further complicating these leadership transitions is the unwillingness of some family members to look outside the organization for insight or a change in key personnel. For companies to be truly innovative, they often need to bring in a diversity of talent from outside of the family. Innovative family-owned businesses need to consciously develop talent within the family and proactively recruit, develop and retain outside expertise in areas where family members come up short.
While the business’s financial status is a top priority, the future of the cultural operating system is important, too. Family-owned businesses should seek innovative approaches that effectively evolve personnel, processes and technology systems to keep pace with market realities. This strategy can bring sustainability to family-owned businesses and lead to a competitive advantage in the marketplace.
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1. Groysberg B, Bell D. “Generation to Generation: How to Save the Family Business.” Harvard Business Review, April 10, 2014. Available at http://blogs.hbr.org/2014/04/generation-to-generation-how-to-save-the-family-business/. Accessed July 22, 2014.
2. PwC Next Generation Survey. “Bridging the gap: Handing over the family business to the next generation.” PwC. April 15, 2014.