Last week at PwC Spencer Dock, over 60 family business members and industry experts attended 'The Values Effect', an event which marked the launch of the 2019 PwC Irish Family Business Report. PwC's John Dillon described the report at the launch event as "really about the power of values" and bringing businesses together with a sense of purpose.
The Irish report is part of PwC's Global Family Business Report, a major project that runs biennially and provides insight on a range of topics of particular interest to family firms and the private business sector. The results of Irish respondents, totalling 129 businesses, are compared against global peers in 53 territories, with the total number of respondents nearing 3,000. The 2019 survey is their largest and most comprehensive survey to date.
The event was led by John Dillon, Leader, Entrepreneurial and Private Business at PwC, and keynote speaker Professor Maura McAdam, Director of Research at DCU National Centre for Family Business. A panel of special family business guests included Tom Shipsey, Stonehouse Marketing; Liz McCarthy, Fexco; Frances McArdle; Height for Hire; Mairead Connolly, PwC Tax Partner; Prof Maura McAdam, DCU; and moderator Owen McFeely, Brexit lead, PwC Entrepreneurial & Private Business Practice.
Pictured launching PwC's 2019 Irish Family business survey are l-r: Liz McCarthy, Dogpatch Labs; Tom Shipsey, Stonehouse Marketing; Frances McArdle, Height for Hire and John Dillon, Leader, PwC Entrepreneurial & Private Business Practice. The report is a comprehensive review of nearly 3,000 global family businesses including 129 in Ireland and reveals high optimism for growth, but the pace of this growth is likely to slow in the next two years.
The Values Effect focusses on several key topics which PwC describes as “fundamental considerations for the sustainability of family business and business families”.
Key findings from Ireland’s report
The report highlights seven key areas of insight for family businesses; values, purpose, growth, digital, next gens, diversity, and funding.
1. Agree values for better business
The Values Effect points to tangible benefits of having a clear and agreed upon set of values and purposes. According to the report, 80% of Irish family businesses surveyed feel that having a clear sense of values and purpose led to increased revenues and profits.
Across several areas when assessing the impact of values and purpose on the business, Ireland ranked either equal, or more often higher than the global benchmark.
91% of Irish family businesses also believe that:
- a clear sense of values and purpose improved the businesses reputation in the market (benchmark: 87%),
- made the businesses a happier place for employees to work (benchmark: 85%),
- and improved the business’ staff retention (benchmark: 82%).
Interestingly, despite eight out of ten family businesses having a clear sense of agreed values and purpose, only 35% have these values articulated in writing – much less than their global peers at 49%.
2. Documenting the business’ purpose
PwC’s research shows that Irish businesses (60%) are very slightly behind their global counterparts (68%) when it comes to documenting their vision and purpose statement. Embedding purpose into a written statement can help families maintain a clear path going forward, and according to the report, family businesses that do have a well-defined purpose are more likely to reach their full potential
3. A ‘fit for growth’ strategy
When it comes to looking at growth for the future, Irish family firms are optimistic with 86% planning on expanding their business in the next two years, and 15% planning aggressive growth.
Ireland’s growth is behind the global average, with 25% of Irish respondents reporting double-digit growth compared to 34% globally. Again, 70% of Irish respondents stated having achieved sales growth in the last year, whereas in the 2016 Report, 91% of Irish firms projected growth in the following five years – an indication of a gap in expectations versus delivery.
Pictured launching PwC's 2019 Irish Family business survey are l-r: Liz McCarthy, Dogpatch Labs; Tom Shipsey, Stonehouse Marketing; Frances McArdle, Height for Hire and John Dillon, Leader, PwC Entrepreneurial & Private Business Practice. The report reveals that having a clear sense of values and purpose directly increases revenues and profits.
Running counter to this optimism are the uncertainties facing family businesses; Brexit, the worldwide geo-political situation, and climate change.
Brexit remains the highest concern among Irish respondents, with 58% identifying it as the key challenge for their organisation – much higher than 11% globally
Other challenges for Irish family firms to consider include the growing need to access key skills (52%), the need to innovate (51%), and dealing with the overall economic environment (50%).
Some of the ambitions of Irish respondents regarding personal and business goals are in a contradictory tug-of-war with their actual business practice. When asked to score items as ‘very important’ in the next two years:
- 84% of Irish firms identified growth and profitability as a significant ambition. However, from the same cohort 64% stated that they did not have a formalised strategic plan.
- Despite Brexit being identified as the most challenging obstacle going forward, 46% of Irish respondents operate in a one sector, one country environment. While there has been an increase in the number of Irish family businesses who plan to internationalise (9% in 2016 compared to 23% in 2018), this figure remains much lower than the global average (37%).
Regardless of the challenges facing family-owned businesses, aspirations for growth remain positive
To address the challenge of accessing key skills, 84% of Irish respondents identified the goal of attracting and retaining the best talent for the business as ‘very important’ over the next two years (benchmark: 87%) – a dramatic increased compared to 30% in 2016.
Other positive aspirations for the future include the desire to be more innovative (64%), to offer a compelling reward system for employees (60%), to contribute to the community and leave a positive legacy (50%), and to promote diversity (40%).
4. Building digital capabilities
The results of PwC’s research point to escalating fears over digital disruption and cyber-attack.
Of Irish respondents in this year’s survey, 40% feel vulnerable to digital disruption, compared to 25% in 2016 (global benchmark: 30%). A greater number of businesses in Ireland feel vulnerable to a cyber-attacked (54%) compared to 40% globally.
Unfortunately in light of these concerns, digital transformation ranked low on the priorities of Irish family-owned businesses, with only 26% identifying it as a top concern (global benchmark: 44%).
“It seems that Irish family businesses will make less progress than their global counterparts on digitisation, but will put more of a priority into their people agendas”, The Values Effect, PwC
During the panel discussion, Tom Shipsey described digital as “a growth area… where the future of business will be”. Frances McArdle emphasised the need to invest in digital in a “fit for purpose way”. Echoing her comments from a legal perspective, Mairead Connolly advised businesses to invest in the correct systems for audits and for legal protection.
Pictured launching PwC's 2019 Irish Family business survey are l-r: Tom Shipsey, Stonehouse Marketing; Frances McArdle, Height for Hire; Liz McCarthy, Dogpatch Labs and John Dillon, Leader, PwC Entrepreneurial & Private Business Practice.
5. Greater focus on NextGens & succession
“Next gens need to believe in values… values are driving the brand and what they stand for”- Tom Shipsey, Stonehouse Marketing
NextGens were a focus of the panel discussion. The relationship between values and next gen involvement was emphasised again by Liz McCarthy, as she highlighted the importance of having “a sense of fun for next gens”, and the value of connecting as individuals rather than purely as family business colleagues.
When asked if there is a succession plan in place, Irish family-owned businesses had mixed responses:
- Just 18% have a robust, formalised and communicated plan (global benchmark: 15%),
- 33% have a less formal plan (global benchmark: 34%),
- 45% have no plan in place (global benchmark: 44%),
- And 5% don’t know (global benchmark: 7%).
There has been an improvement in Irish respondent’s preparedness for succession, an increase from 10% in 2014. Yet, the majority of the 129 businesses surveyed lie within the grey area between having nothing at all and having an informal plan. This is an important issue to address, as 50% of Irish respondents said that the management/ownership handover to the next generation will happen within the next five years – 10% higher than the global average. Meanwhile, 60% of those with a succession plan confirmed that this plan has been discussed with other family members.
6. To be inclusive and diverse
“A family business wishing to attract the best talent should ensure that they have representation from all walks of life. To obtain top skills and talent, family businesses should retain and develop women to empower them to overcome institutional challenges. Family businesses who achieve this will become a force to be reckoned with” – Maura McAdam, DCU National Centre for Family Business
Over the next two years, 45% of Irish respondents – scoring the same as their global peers - feel that promoting diversity is ‘very important’. Ireland scored roughly the same as the global average for women’s participation in the business: 25% of boards are occupied by women (global benchmark: 27%), 28% on average are in management (global benchmark: 24%), and 27% are next gen women in the business (global benchmark: 23%).
Keynote speaker, Maura McAdam, spoke around the theme of action when it comes to diversity. She called on the audience to “just do it”, and to implement what we already know. Addressing the key issue of attracting talent, Maura described how diversity feeds talent, and vice versa. Nevertheless, before we even think about decision-making, inclusivity needs to begin at a basic level. Liz McCarthy added to this in the panel discussion, stating that diversity needs to be part of business from the very beginning.
Pictured launching PwC's 2019 Irish Family business survey are l-r: Owen McFeely, PwC Entrepreneurial & Private Business; Frances McArdle, Height for Hire; Maura McAdam, DCU; Mairead Connolly, PwC Tax Partner; Liz McCarthy, Dogpatch Labs; Tom Shipsey, Stonehouse Marketing
7. Funding from private equity
The final area of insight for Irish family businesses is the consideration of private equity as a source of funding. The research indicates that funding strategies may be changing, with 36% of Irish respondents stating that they would consider private equity as a source of funding, less than their global peers at 49%. Banks and internal resources remain the preference for the majority (>70%) of businesses in Ireland and globally.
In addition, 21% of Irish family businesses expect to be involved in a merger of acquisition with another Irish business in the next two years, while 12% expect something similar with a business outside of Ireland.
The majority of respondents in Ireland were from first generation (33%) and second generation (44%) family businesses. Supporting longevity and next generation involvement in family business is no easy task, and what the results of PwC’s report indicate is that there are a multitude of challenges that need to be addressed if the goals of talent retention, innovation, growth, and profitability are to be achieved. Identifying this tug-of-war between ambitions and practice may be a practical place to start, particularly when it comes to having a concrete plan in place for the future and communicating the well-defined values, and purposes of the business, internally to the next generation, and externally to stakeholders.
“These statistics highlight that it pays to take an active approach to values and purpose, and to formalise the strategic plan for the business” – The Values Effect, PwC.
Family business innovation has been of particular interest to researchers at DCU National Centre for Family Business. In a newly published paper, Centre members Vanessa Diaz, Eric Clinton, Justin Craig and co-author Nadine Kammerlander explore innovation motives in transgenerational family firms in Ireland. The paper can be accessed here.
Their research identifies an important relationship between innovation motives, long-term thinking, and innovation outcomes. One of the key findings of this research is that the long-term perspective in family business decision making “is an important shaper of specific innovative behaviour in multigenerational family firms” and can influence transgenerational entrepreneurship. This long-term perspective, specific to a family firm, is patterned with their innovation motives, which in turn affects innovation behaviour in the next generation. Considering the goals of Irish respondents in PwC’s latest survey when it comes to growth, diversity, and innovation, it may be helpful for current family business owners to look inward at their own long-term outlook, and consider how the next generation might step into this vision and carry it – perhaps somewhat differently – into the future.
The Values Effect can be read in full here.