We are pleased to introduce a new article series from KPMG Private Enterprise exploring how family businesses are adopting new ways of thinking and driving continuous innovations that are preparing their businesses and their families for future opportunities in light of the current landscape.
This first article ‘Sustaining a culture of continuous transformation in family business’ focuses on the broad topic of business transformation and shares insights from family business leaders on their approach to business transformation and how it sustains their purpose, values and the long-term success of their businesses.
What’s driving the transformation of your family business?
Who is accountable? Have the risks been considered? How are you measuring your success?
Who is accountable?
Clear accountability for achieving results can be an important form of recognition in family businesses. And the importance of shared accountability for achieving a culture of continuous transformation can be the bedrock of many family businesses as the business and the family both evolve over time.
Business transformation – is it a potentially risky business?
Continuous transformation doesn’t come without risk. Clear visibility is needed of the internal and external risks that can affect the business, strategy or transformation model. An Enterprise Risk Management (ERM) assessment can be a key exercise to help address or eliminate the risks.
The need to re-recruit the family
For sustainable ownership and management, family members should remain excited about the business, especially younger generations with new skills and talents. It’s important not to lose sight of the family’s shared purpose, vision and values to continuously re-recruit family members.
Is change fatigue setting in?
With continuous transformation, there is the potential for “change fatigue” and the amount of churn in the workforce is one indicator of waning energy. The key is to have good policies and procedures in place so when turnover occurs it isn’t too disruptive.
The unseen driver of financial performance
There is often a correlation between the financial performance and the involvement of an independent director. With formal board evaluations to assess the performance of the board as a whole, significant improvements have been seen in business performance.
How are you measuring success?
Family members’ roles and accountabilities may be blurred for the family and non-family employees. It is important to have everyone’s roles and responsibilities clearly defined and for employees to know how their performance is measured.
Sustaining a culture of continuous transformation in family business
The need to transform many companies — even entire industries — is the next stage in dealing with the impact of the pandemic. In the past, the need for change generally targeted a specific area of a company’s operations, such as restructuring the sales function or implementing a new performance management system. The far-reaching impact of the pandemic on businesses and society has changed that thinking.
The impetus for companies to transform their businesses in this new environment is taking the concept of change to a much higher level, which is being driven by the need to assess and potentially reinvent several aspects of businesses from top to bottom. Transformation is not a new idea in the world of family businesses, as heard in the recent KPMG Private Enterprise roundtable discussions with senior family business leaders across the world.
What sets business transformation apart in family businesses?
Family businesses, like most other business types, had to react quickly to the sudden impact of the pandemic. Necessary changes were made, but the kind of change that is truly transformative is proactive, not reactive. The continuous transformation mindset is driven, first and foremost, by the family’s purpose and values, their continuous search for new opportunities, and their agility to mitigate potential threats.
Beyond digital
The roundtable participants agreed that business transformation includes everything that is important to the family business and the business family which includes — but is not solely focused on — its technology and operating systems. They emphasized the importance of distinguishing digital transformation as an enabler of change from the broad transformation that might be required across most of the business itself.
Sustainability and the environmental, social and corporate governance (ESG) agendas of the family business and the business family are also becoming new driving forces behind the need to transform the business. They recognize that ESG links back to the shared purpose of the family and the culture of the business. It also helps drives the choices that customers make, strives to ensure the supply chain is ethical, and makes it a priority to collect and report accurate data that gauges the impact of their actions.
Who should be accountable for continuously transforming your business?
In a typical corporate setting, roles and responsibilities are narrowly defined and accountabilities are prescribed. Employees have titles, role descriptions and they work within the scope of those roles.
In family businesses that are more fluid, family members might take on multiple roles, and they’ll often lend an extra helping hand wherever and whenever it’s needed. With a more flexible structure compared to corporate enterprises, they are also often known to change and evolve with the entry of next-gen family members who bring new skills and expertise to the table.
In family businesses, the family’s identification with the business and their shared values also generates an added layer of personal accountability. As one family business leader described, “The family is the business, and the business is the family. When things aren’t going well in a family, you can’t just throw up your hands and walk away. The same is true for the family business.”
However, there are concerns among some family business leaders that if a family is running the business and owning it, they are essentially reporting to themselves. Could this lead to potential problems if they aren’t answerable to someone who has an objective perspective and holds them to account by asking the right questions?
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Klaus Rytz
Chair of the Board and Partner
KPMG in Denmark
David Olafsson
Partner
KPMG in Denmark
Henrik Y. Jensen
Partner, Audit
KPMG in Denmark