KPMG and SPGC uncover the secret to family businesses’ transgenerational success

New research from KPMG and the STEP Project Global Consortium (SPGC) shows how family businesses are driving regenerative power and resilience from generation to generation to boost future performance.

In the Global Family Business Report 2022, KPMG and the STEP Project Global Consortium identified three key elements that family businesses are leveraging to facilitate their prolonged sustenance, resilience and regenerative ability. These are entrepreneurial orientation, socioemotional wealth and motivational leadership.

The report titled ‘The regenerative power of family businesses — Transgenerational entrepreneurship’ is a compilation of insights from about 2,439 family business leaders, spanning across 70 countries and territories. The Middle East and Africa represents 5% of the respondents, with Europe, the Americas, and the Asia Pacific being the other key regions.

Some of the key highlights that emerged from the report are listed below:

Entrepreneurial orientation highest in the Middle East and Africa, and the Americas

About 25% of the global family businesses reported steep entrepreneurial orientation, with the highest being in the Middle East and Africa, and the Americas. The two regions also emerged as the most proactive and risk-taking, which complemented their strong opportunity-seeking mindset. The report found out that entrepreneurial orientation is not only critical in setting apart businesses but is also a necessary requisite for transgenerational innovation and growth. Family businesses need to put in place a system that allows them to constantly seek opportunities both inside and outside their business to facilitate longer sustenance of their innovative practices and behaviors. It is crucial that they consider the opinions of other family business members and involve the right people in the decision-making process to make for good governance and ensure that they can tap into untapped markets to generate completely new revenue streams. They realise the importance of preserving their founders’ entrepreneurial spirit and are taking measures to educate potential successors, even if it means spending family capital toward creating first-hand learning experiences for them.

Social outcomes’ financial performance de-emphasized; the Middle East and Africa report low levels

There is a need to view business performance both financially and non-financially. Profitability is not top of mind for younger generations in a family business; they are laser focused on their dedication and loyalty toward building the business. Family business owners understand the importance of embedding a sense of business ownership versus functional ownership in next-generation family members to facilitate continued evolution and growth of their business. The report highlighted that socioemotional wealth is imbued in all the aspects of family business performance. The family’s control and influence and identification with the business is deeply rooted in how their performance is with regard to financial, social and non-financial parameters. The level of emotional attachment between the families and their businesses was the most in the Middle East and Africa, and the Americas. Furthermore, the family members’ identification with the business soared in Europe and the Middle East and Africa. The report further emphasized that a family’s control, coupled with its influence, leads to faster decision-making. To them, socioemotional wealth is paramount and serves as a means to gauge performance beyond financial wealth — something that is inimitable for non-family businesses.

Shift in leadership style noticeable in next-generation family business owners

The propensity to shift toward more charismatic and transformational leadership styles is evident in newer generations looking to take over their family business. They are not only considering the future outlook but are also aware of the fact that entrepreneurial orientation, diversity and charismatic leadership style drive higher financial and non-financial performance. Transformational leaders were the overall preference across regions as they are more capable of delivering from a financial, social and environmental standpoint, as compared to authoritarian leaders who rely more on exerting their authority to achieve their financial and non-financial goals. The charismatic leadership style was a close second, with its popularity stemming majorly from Latin America. The report attributed the inclination toward this style to such leaders’ power of persuasion and the ability to motivate. The authoritarian (or paternalistic) leadership style was the least preferred globally.

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