Even as it has become imperative to innovate to anticipate customer needs and also to offer better products and services, a whopping 83 per cent of upcoming family business leaders see innovation as their key challenge.
Despite having money and resources to keep pace with dynamic market needs to stay relevant to customers, family businesses aren’t finding comfort in the concept of innovation. Even as it has become imperative to innovate to anticipate customer needs and also to offer better products and services, a whopping 83 per cent of upcoming family business leaders see innovation as their key challenge, according to a report by consulting firm PwC India.
Interestingly, the innovation concern runs deeper among next generation leaders as relatively lesser — 66 per cent of the current family business leaders find innovation to stay ahead as the top challenge for them over the next two years, as per PwC India Family Business Survey 2019.
“Innovation is a key issue because senior family business members are still not open and enthusiastic about changes to be made in their existing businesses,” Mita Dixit, family business advisor and co-founder at Equations Advisors told Financial Express Online.
The new generation operates with a pressure of proving themselves and also sometimes there is a resistance from senior members towards allowing the younger generation to experimenting in technology as they themselves are not very comfortable with technology. Hence, technology innovation gets impacted, Dixit said.
Apart from innovation, attracting talent with the right skills and capabilities is the second top reason for concern for 60 per cent family businesses. This is because non-family members or external employees are “wary of family interference and the ability to make decisions independently, conflicts between the family and business and, most importantly, the lack of a definitive career path to the top,” the report said.
Importantly, when it comes to planning for a successful transition from one generation to another, also called as succession planning, a paltry 21 per cent of family businesses in India have a documented succession plan given that only 16 per cent of family businesses are able to carry forward the businesses to the fourth generation.
“The younger generation is not enticed to continue working with existing members as they have more carrier options than joining the family business. Their role models are the likes of Elon Musk and Flipkart’s Sachin and Binny Bansal and they want to do something on their own on those lines instead of taking family support,” said Dixit.
Coming back to the challenge of innovation, it is not just about thinking ahead with the support of talent but also about getting the new ideas developed by startups in an established family business. Such large family businesses often engage with startups either through their corporate venture capital arms, incubation centres or simply via acquisition to imbibe startups’ ideas, flexibility and culture.
“Startups in certain areas such as shipping, logistics, travel and tourism etc., are posing threats to conventional ways of doing businesses by families. In the next five years if family businesses don’t change those ways then it might challenge their existence in that particular area of business as startups are risk takers unlike large businesses,” said Dixit.
Economic environment, regulations, and digitalisation were among the top five areas of challenge for family businesses.