PwC Irish family business survey highlights need to 'professionalise' the family as well as the business
- Over a quarter (28%) report the need to professionalise their businesses being a key challenge in the next five years
- In excess of 85% expect growth in the next five years
- Irish family businesses see themselves as less entrepreneurial (43%) than their global counterparts (59%) when compared to other sectors
- Access to skills, finance, increasing price competition and innovation are all key challenges
- Succession remains a challenge with only one in ten having a succession plan that is robust and fully documented
- Ireland scored one of the lowest amongst its global counterparts in terms of understanding the commercial potential of digital
- Irish family businesses are now significantly more likely to be planning to bring in professional management than they were two years ago
Irish Family businesses must become more entrepreneurial, adapt faster and become more professional in the way they run their operations if they are to remain successful. Succession is more hazardous than ever and digital presents great opportunities. This is according to PwC's 2014 Irish Family Business Survey launched today, a study which is performed every two years as part of a major PwC Global initiative having over 2,300 interviews around the world including over 100 Irish family businesses.
A key concern for Irish family businesses, according to the survey, is the need to professionalise the business, driven by competitive pressures, rising costs and global megatrends. The need to professionalise scarcely registered in 2012, but this year over a quarter (28%) of respondents agree this is a key challenge and an important personal and business goal over the next five years.
Speaking about the survey results, Paul Hennessy, PwC Irish Family Business Leader, said: "Irish family businesses need to upgrade the processes, governance and skills within their businesses, and their own families, to stay ahead of competitors and remain relevant as the economy returns to growth. Professionalising the business is about giving structure and discipline to the vision and energy so often exhibited by the entrepreneurial family firm. This helps them innovate better, diversify more effectively, export more and grow faster."
Growth and diversification, full steam ahead
Nearly two-thirds (60%) of Irish family businesses reported growth in the last year. An overwhelming majority (86%) expect growth in the next five years of which 10% are seeking aggressive growth. A sign that Irish family businesses are keen to diversify, nearly a third (30%) plan to internationalise their business in the next five years, up from 25% right now. The most popular market by far is the UK (43%). Emerging markets such as China (10%), Africa (10%) and the Middle-East (9%) also feature, but to a lesser extent. Less than one in ten (7%) of Irish family businesses report plans to target the US.
Staff recruitment has become a key constraint to growth with over half (59%) saying this is a key challenge in the year ahead, up from a third (34%) in 2012. Cash flow/cost control is a challenge for a third (33%) and a similar proportion are concerned about availability of finance (31%), up from 13% in 2012. Key challenges in the next five years are price competition (68%) and the need to continually innovate (66%). Interestingly, in line with a recovering economy, the proportion reporting concerns around the general economic situation has fallen 85% in 2012 to 53% in 2014.
Room for improvement on entrepreneurship
Globally, family businesses generally feel positively about how their sector compares with other businesses. However, Irish businesses are a little more mixed. For example, they tend to think that family businesses are less open to new thinking, less entrepreneurial and not as open to re-inventing themselves with each generation. On the other hand, Irish family businesses are more likely to think that they take a long term approach to decision making compared to other businesses and their global counterparts.
Long term future and profitability key priorities
Family businesses have become much more hard-headed since the 2012 survey. The most important priorities they cite in the next five years are to remain in business and to improve profitability. Next come the factors that will make this happen (high quality skills, running the business professionally and being more innovative), with the 'heart' issues of family and community coming much lower. Their sense of supporting employment (2014:69%; 2012:90%) has fallen dramatically as has that of supporting community initiatives (2014:43%; 2012: 74%).
Ireland scored one of the lowest in terms of understanding the commericial potential of digital
60% of all Irish CEOs are of the view that technological advances is the top global trend that will impact their businesses. However, Irish family businesses recognise this trend as being much more important (78%). At the same time, Ireland scored one of the lowest amongst global counterparts in terms of understanding the commercial potential of digital. They are less likely than the global average to adapt the way they operate to fully exploit digital opportunities (Ireland: 67%; Global: 72%) and avoid being overtaken by more advanced competitors. Less than half (45%) understand the tangible business benefits of moving to digital (Global: 57%) and less than a third (29%) place attracting key digital skills as a top priority (Global: 43%).
Also speaking at the survey launch, John Dunne, Partner, PwC Private Business Services, said: "Irish family businesses are now much more focused on profitability and long term success but recognising a key challenge is their ability to continually innovate. Seizing the digital opportunities will be critical to stay ahead of the competition and the survey suggests that Irish family businesses have some way to go compared to their global counterparts in understanding the full benefits of digital and adapting their organisations to the world of digital."
Next generation less likely to be future managers
Family businesses in Ireland are significantly more likely than in 2012 to be planning to bring in professional management and they are more likely when compared to global counterparts to be planning to sell or float rather than to pass on to the next generation. The proportion of Irish family businesses planning to pass on management to the next generation has fallen significantly from 55% in 2012 to 31% in 2014. However, the proportion planning to pass on ownership but bring in professional management has increased significantly (2014: 29%; 2012:15%). A quarter will seek to sell or float the business when the time comes and this is higher than the global average (20%).
Only one in ten have robust succession plans
Nowhere is the professional approach more critical than when it comes to the all-important issue of succession. Although a lot of progress has been made over the last decade, the survey highlights that many Irish family businesses have still not grasped this potentially destructive issue. For example, over half (55%) have no succession plan for key senior roles (Global: 44%) and only one in ten have a succession plan in place that is robust and fully documented (Global: 16%). However, over three-quarters (78%) have at least one procedure in place to deal with conflict (Global: 83%).
Paul Hennessy concluded: "A plan that is not written down is not a plan; it's just an idea. And this is an issue family firms must address with the same commitment and energy as they are devoting to professionalising other aspects of the business. Because without it, the whole enterprise is at stake."
The Irish survey was conducted in Summer/Autumn 2014 having 102 Irish family business participants. Globally, the survey has 2,378 family business participants in 40 countries.
The 2014 Global Family Business Survey can we accessed here.