Risk and reward: How family businesses can tackle digital disruption

08 January 2019

By Jim Woods, Global and China/Hong Kong Risk Assurance Leader, PwC China and Hannah Harris, Family Business Leader, PwC UK

Asking businesses what they think about digital disruption these days usually prompts some pretty interesting responses. But when PwC recently asked thousands of family businesses across 53 territories about the topic, what came back was striking.

In the PwC Global Family Business Survey 2018 – involving over 2,900 respondents at companies mostly with annual revenues of US$21 million to $100 million – we found a marked increase in the number of businesses that felt vulnerable to digital disruption: 30%, compared with 25% in 2016, the last time we did the same survey.

However only a minority of respondents were able to talk about specific technologies. The threats perceived to be challenging their existing business models were more general, or referenced large tech companies such as Amazon, Google or Uber. 

So, for example, when asked “In what ways do you think you are vulnerable to digital disruption? Which technologies in particular?”, what often came back was mention of a general threat like that of multinationals challenging the way in which family businesses sell their products, or a fear that an increasingly price-led marketplace might devalue their traditional strengths.

This tells us that while family businesses are starting to recognise the challenge of digital disruption, that doesn’t mean they are ready for it. In the case of cyber, specifically, the relatively high share of respondents saying they were not very vulnerable to cyber-attack (50%) was especially noteworthy.

It also tells us that for family businesses, the biggest existential risks to the business may well come from outside the core set of operations and priorities that family management has been used to dealing with for a long time – possibly even for generations.  For example, a family-run haulage business may be used to thinking about how fuel prices and engine emissions standards might affect operations. But what about driverless trucks and digital freight matching? 

For family businesses, recognising and acting on the digital challenge – and other emerging risks – is especially important. Failing to do so may threaten the inherent brand and trust they will have likely built up over generations, factors that have been critical to their longevity and resilience.

So, what do family businesses need to do?

First, it pays to get skills and governance right. With increased threats comes a need to find the right talent to deal with them. Without the right team in place, managing risks around security, privacy and ethics becomes a much steeper climb. These hires may be completely different from the type of hires that a family business may have made in the past. Indeed, key roles such as chief information security officer, chief security officer, chief risk officer and chief data officer are often absent at many companies – not just family businesses, as we found in PwC’s latest Digital Trust Insights survey (formerly PwC’s Global State of Information Security Survey).

Family businesses should therefore think about how best to recruit outside their core industry. Digitally qualified people don’t necessarily need to be familiar with the business of that particular family-run company to be a good fit, although it certainly helps for such hires to understand how to navigate the challenges that are unique to the recruiting family business.

One thing that stands in family businesses' favour in this context is a sense of purpose. Business leaders are talking more than ever about finding the right balance between the profit motive and a heightened sense of purpose. Family businesses tend to have a strong sense of purpose, and this can be great as a recruiting tool.

Of course, it’s important not to lose that “family feel”. So, another focus when it comes to skills within the family can be on tech-savvy millennials. In our Family Business Survey 2018 we found that 69% of respondents expected or encouraged the next generations they hire – including their family members – to gain experience outside the family business. They recognise that no company has a monopoly on digital innovation, and it’s better to learn from a broad base of experience.  

In terms of governance, a strong combination of directors with the right skills can be hugely beneficial as family businesses look to tackle digitalisation. Family members who may be directors “around the family dinner table” may now need to accommodate new faces with specialist skills. Businesses may need to formalise new governance structures at the board level as a result. Cutting back on the number of people on the board will probably be inevitable, too. 

There is no “one size fits all” solution, and family businesses each have their own unique characteristics. But it’s about building resilience in a digital world, so that one generation can confidently hand over a lasting legacy to the next generation. There could even be an opportunity for family businesses to leapfrog larger and more sophisticated competitors. Who knows what the responses might say when we next carry out our Family Business Survey in 2020?

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