15 Nov 2016 | 10.44 am
PwC Spotlight On Irish Family Businesses
Succession planning still a thorny issue
15 Nov 2016 | 10.44 am
PwC has published its 2016 Irish Family Business Survey of over 100 participating firms. The research is part of PwC’s 8th Global Family Business Survey of over 2,800 firms in 50 countries.
Paul Hennessy, Family Business Leader at PwC Ireland, noted that only one in seven Irish family businesses have a robust, documented succession plan. “Having an effective succession plan is critical in terms of creating the conditions for the next generation to be successful,” he said.
“This year’s survey shows that more Irish family businesses continue to have ambitious growth plans than their global peers, with over nine out of ten planning to increase sales in the next five years. However, Irish family businesses are struggling more with innovation than their global counterparts.”
Hennessy added that in benchmarking themselves against non-family businesses, half of Irish respondents believed family businesses to be less open to new ideas; the global equivalent is significantly lower, at 34%. Similarly, less than a third of Irish respondents believed that family businesses are prepared to take on more risks than non-family businesses, by comparison with the global average of 40%.
On diversification, almost 80% of Irish survey respondents expect the majority of new revenues to come from existing markets and products. When it comes to digital, just over half say that they have a strategy that is fit for the digital age.
According to Hennessy: “This year we see a more fundamental shift: from the short term and the tactical, to the medium term and the strategic. Successive surveys, both Irish and global, show us that family businesses are not achieving their projected growth targets. The challenge is in the middle: having a strategic plan that links where the business is now to the long term and where it could be. That is what we call the ‘Missing Middle’.”
In Hennessy’s view, family firms may lack the skills to develop a robust strategic plan, and may not even know what such a plan needs to look like. Likewise, some family business owners assume that ‘thinking in generations’ means that the medium term will somehow look after itself.
John Dunne, Partner, PwC Ireland Family Business Practice, said: “This year’s results highlight that Irish family businesses are still struggling with succession. There’s no point having detailed plans for business continuity, if the single most significant risk to this is not addressed. A managed succession process can be a rallying point for the family, allowing it to reinvent itself in response to changing circumstances, but without a plan it is the most obvious ‘failure factor’ for the family business.”
Eric Clinton, Director, DCU Family Business Centre, said: “Succession needs to happen early. In my experience of dealing with over 1,500 family businesses, the one thing family businesses want to know is how to be multi-generational – how to pass on the business better than it was received. Having options for the next generation is important.”
While some family firms are managing strategic planning well, many are caught between the deluge of everyday issues and the weight of inter-generational expectations. PwC found that in survey to survey, areas such as succession, diversification, digital, cyber security and innovation are not being tackled as well as they could be.
Kevin O’Connor, managing director of Colourtrend, a PwC client, commented: “It’s important that the business is run according to the needs of the business, rather than the needs of the family. Running the business should be like running a lc. We have non-family members on the board and continually look to best practice. The important thing is that the business continues and that you have the passion to take it forward.”
Teresa McColgan,Tax Partner, PwC Ireland Family Business Practice, added: “The next generation play an important role in creating the family business’s future. The majority of family businesses believe that they are not vulnerable to digital disruption, and just over one in two think they have a strategy fit for a digital world.
“In our experience, they underestimate the opportunities and potential risks of digitisation. Every business is vulnerable in some way to digital disruption, and those who think they are immune will soon find out that this is not the case. Listening to the next generation as change agents for the digital transformation might prove fruitful.”
Photo: Rachel O’Connor (left), Colourtrend; Maura McAdam, DCU Family Business Centre; Kevin O’Connor and Paul Hennessy (right). (Pic: Maxwell’s)