Business transformations today often occur in faster cycles than in the past. In the past, the need for change in the short term usually concerned a specific area of the company's operations, such as restructuring the sales function. Such projects usually had a clearly defined process with a beginning and an end. The fundamental business model tended to change in long-term cycles, if at all.
Today, business transformation has expanded to many levels and involves continuous adjustments to the organisation and business models. Recent crises have highlighted the need to continuously adapt. Family-run businesses, like most others, had to react quickly to the sudden consequences of the Covid 19 pandemic. We are seeing something similar today with regard to the Russia-Ukraine war and its economic and political repercussions.
Creating a culture of continuous transformation
This means that today's economy is characterised by constant, rapid change and an incessant drive for innovation. Family businesses are aware of this and already bring with them a high level of adaptability and resilience. But given the high speed of change in family businesses, how can a culture of continuous adaptation and reorientation be consolidated and strategically cultivated? We address this question in our publication „Sustaining a culture of continuous transformation in family business”.
An individual transformation culture is primarily based on the approach that real change is always proactive, not reactive. It is based on the goals and values of the business families, their continuous search for new business opportunities and the greatest possible flexibility in dealing with potential threats to the business and family assets.
But who is responsible for the culture of continuous transformation in the family business? How are risks brought about by constant change identified, assessed and managed? How is the future of the company shaped sustainably and, above all, across generations in the owner family? We talked about these and other questions with managers of family businesses from all over the world and compiled the results in our publication.
Dr. Vera-Carina Elter
CHRO, Member of the Managing Board; Divisional Director Family Businesses
KPMG AG Wirtschaftsprüfungsgesellschaft
Business transformation is much more than technological change
Participants agreed that business transformation encompasses everything that is relevant to family businesses and the owning families and is not limited to technologies or IT systems. From the perspective of the executives interviewed, it is important to consider digital transformation separately as an enabler of change. In addition, there are other adjustments that may be necessary for the company at its core: These relate to the business purpose and culture of the family business, social and environmental impact, governance and liability, among others.
In particular, our discussants mentioned the ESG agenda as a driver of the transformation movement. This issue area is particularly intertwined with the DNA of family businesses and interacts with the purpose and culture of the business as well as the family's attitude towards responsible entrepreneurship. ESG aspects revolve around a variety of relevant issues: from customer demand to the alignment of supply chains with ethical requirements. Increasingly, this raises the question of whether the company's back-end systems can provide the necessary data to measure impact, including in terms of non-financial goals.
"The first step in digital transformation concerns the employees of a company. While technology can help accelerate processes and rethink business models, among other things, data-driven and digital transformation goes far beyond technology and requires the establishment of a culture of innovation and the involvement of every individual.
Governance: Who is responsible for the transformation?
Family businesses often develop and change with the arrival of next-generation family members who bring different views and perspectives, skills and knowledge.
For sustainable ownership and management, it is initially something very positive if the next generation identifies with the business in the same way as their predecessor generations. The bond with the company and the early involvement with the common values and their further development leads to increased personal responsibility and identification in the company.
In this context, it is important to integrate the next generation into the governance of the company in a structured way. Without appropriate considerations and structures, the roles and responsibilities of the individual family members become blurred all too quickly. The consequences of unclear distribution of competences can be of a business, organisational or family nature and can lead to conflicts, especially in complex family structures. They affect family members as well as non-family employees in the most diverse ways: from job security to questions of a corporate policy compatible with one's own values.
Therefore, it is essential for company leaders in modern family businesses to clearly define the roles and responsibilities of all family members, external managers and members in supervisory and advisory functions (supervisory board or advisory board) in the company. This applies especially to the key people who are responsible for a culture of continuous change and innovation.
"In multi-generational owner families, the question of effective and sustainable corporate governance is increasingly arising. The driver - against the background of the necessary continuous transformation - is in particular the long-term preservation of assets, which goes hand in hand with the safeguarding of social responsibility. Strengthening governance, for example by establishing an advisory board, can support these goals."
Keeping an eye on and managing risks
Continuous change always brings uncertainties. There is a need for a clear and early overview of the internal and external risks that may affect the company, its strategy or the transformation model. This includes examining dependencies with other companies or supply chains. Effective risk management is an important measure to identify and manage hazards. For example, processes can be made more resilient, and dependencies can be examined and reduced.
Read more about these and other insights from family business leaders and our experts on a culture of continuous transformation in „Sustaining a culture of continuous transformation in family business". Learn how you can revitalise, realign and renew your family business.
Keeping up to date with our "Weitsicht für Familienunternehmen" newsletter
The publication presented here is the first part of a new series of articles by KPMG Private Enterprise. For further information on publications and events from our national and international network, please register here for our newsletter. We will be happy to provide you with regular information on current topics and developments in the fields of business administration, information technology, tax and law, with a particular focus on family businesses and SMEs. Whether in questions of governance, succession or digital transformation: stay well informed with us.