Strategic planning for this and, at the same time, ensuring leadership diversity and supporting entrepreneurship are the keys to securing success for the family business.
The report, Transition, Diversity and Entrepreneurship: How Australian family businesses are sparking next-generation success Family Business report 2021 is the result of combined research from KPMG Australia and the University of Adelaide’s Family Business Education and Research Group (FBERG). It draws on in-depth interviews with seven Australian family businesses held between September 2020 and January 2021, as well as relevant academic research, including the recent STEP KPMG Project Global Consortium surveys.
“The pandemic has certainly highlighted within many families the need to develop a formal strategy for the important transition stage,” said Robyn Langsford, Partner in Charge of Family Business and Private at KPMG Enterprise. “As we saw in the recent Federal Budget handed down on 11 May 2021, family businesses are essential to Australian society and the economy – and the statistics back this up. It’s significant that family businesses represent 67 percent of all Australian businesses, provide 55 percent of private-sector employment, 48 percent of total private sector wages paid, and 50 percent of Gross Industry Value Added.”
Ms Langsford said the KPMG report shows that for over half of family leaders globally, the planned retirement age is between 61 to 70. Nearly 30 percent plan to retire when they are over 70, while the remaining 20 percent plan to retire before 60. These numbers are reflected in Australian family businesses.
“We see Australian family businesses as the engine room of our economy. These are busy and often complex enterprises making transition planning a key step but one that can be overlooked,” she said. “When family business members are younger, they tend to aspire to retire early, which can make sense as they may not have dependents, debt, or significant responsibilities to the family business. However, as they get older, and perhaps take over, these factors often come into consideration and naturally the timeline for retirement extends.”
Ms Langsford said this can lead to conflict between them and the next generation, as the next generation wants the leadership generation to retire so they can get started, while the leadership generation don’t think that the current generation are ready.
“These potentially challenging issues can be prevented if the business has a clear transition plan in place far in advance of when it is needed. KPMG is seeing rising demand for assistance in planning for the change in leadership – and indeed, in bringing in diversity. The KPMG report also shows why fostering diversity of gender and experiences is beneficial – both in leadership roles and more broadly across the business.”
She says family businesses can benefit from bringing diversity of experiences into other leadership roles – whether that be through gender, age, education, skills, culture or more. Diversity can help to open up new opportunities, foster innovation, make the business a dynamic place for employees to work, and bring an overall competitive advantage.
“A powerful way to bring diversity into a family business is when hiring non-family employees,” says Robyn Langsford. “This requires striking a balance between finding people with values that align with the business and can thrive in the family business culture, while also looking for people who bring in an array of perspectives and experience. It is an opportunity to fill experience and skills gaps that family members are not able to provide.”
The report calls out a third key step in maintaining a sustainable business into the future focusing on entrepreneurship. Robyn Langsford noted: “Entrepreneurship lies at the heart of many family businesses. It can diminish as a new generation takes over but it is possible to sustain this vital competitive trait.”
KPMG says the entrepreneurial mindset of family business leaders can be assessed through measuring the Entrepreneurial Orientation (EO) of family businesses. EO measures five entrepreneurial qualities of a business: innovation, risk-taking, proactiveness in responding to market opportunities, aggressiveness in taking on key competitors, and the extent to which they allow employees to act autonomously to pursue entrepreneurial opportunities.
Ms Langsford said: “Family businesses in the Asia Pacific region – including Australia – exhibited higher levels of EO compared to most other geographical regions. This is consistent with the higher levels of market dynamism in the region. A key challenge facing Australian family businesses is their ability to bring the founder’s entrepreneurial mindset to life across generations.”
How to spark next-generation success in family businesses
Three key recommendations
1. Transition planning for the leader
This is an important area in which to be proactive. If taken seriously, transition planning has many benefits for the leader, the business and the family. KPMG says it needs to start early, be formally documented, and focus on factors such as what the senior leader will retire to do, their financial needs in retirement, and how those needs will be met.
2. Diversity in leadership and other levels
Diveristy can and should be fostered in a family business, even if the key leadership role is destined for a family member without the ability to control gender. The benefits of diversity include opening up new market opportunities, sparking innovation, and making the business a dynamic place for employees to work.
3. Entrepreneurship across the generations
Entrepreneurship can diminish for various reasons, such as second- or third-generation concerns about preserving wealth rather than taking risks. However, entrepreneurship is also vital in keeping a business competitive and able to grow sustainably. Factors such as the support of leadership in allowing the next generation the freedom to develop entrepreneurship skills can bring a competitive edge.
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We investigate how Australian family businesses have navigated the past 2 years, and what challenges they face.
How Australian family businesses navigated the past 2 years and the challenges they face.