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Transforming a Family Business in Turbulent Times

We have entered a new era that’s presenting unprecedented challenges, as well as significant opportunities, for family enterprises. Some of the traits of successful family businesses — their long-term outlook, strong financial resilience, stakeholder loyalty, and commitment to positive social impact — will aid their success in this new era. However, other traits — such as their insistence on privacy and control, their narrow definition of stewardship, their prioritization of family harmony over family unity, and their slowness in making big changes and reversing course — will need to change.

New mindsets, strategies, and practices will be required for family enterprises to survive and thrive in today’s turbulent era. Owners themselves must lead the charge, from the inside, and insist on new directions and transformative action to ensure success in the years ahead.

In a two-year study released in September 2022, sponsored by Citi Private Bank, Cambridge Family Enterprise Group (CFEG) explored these new requirements for success. Our research included a global survey of owning families, interviews with senior and next generation family members, and extensive secondary research — all guided by CFEG’s 33 years advising, educating, and researching family enterprises worldwide. The resulting white paper shares our learnings and advice for navigating the new era. Here are some highlights:

The New Realities of Change for Enterprising Families

Families and their enterprises have always needed to adapt to changing times, but in general (and except for disruptive periods), they faced fewer changes and had more time to adapt than they do today. In today’s complex, fast-paced, and hyper-connected world, the nature of change itself has changed. Witness the greater volatility, far-reaching ripple effects, and more frequent disruptions of recent years, all of which make the future much harder to predict.

In addition to all the other requirements of good ownership, we now tell owners that they must think like futurists and act like champions of change rather than bastions of stability, the traditional expectation for family ownership groups.

To help families anticipate change, CFEG tracks four global, macro forces affecting family enterprise: 1) environmental degradation and ecological disruption, 2) technological advances and digital disruption, 3) globalization/deglobalization, and 4) socio-political-economic forces. We also monitor the changing characteristics of enterprising families and family enterprises. We combine these perspectives to regularly assess the impact on society, businesses, family offices, and families.

Insight Center Collection

Building a Resilient Family Business

Best practices for managing a company that will endure.

Change-ready families use outside-in and inside-out thinking to adapt to external and internal change. Both are essential to build the resilience and agility needed to survive and thrive for the long-term. Successful families muster strong internal support for making necessary changes among owners, family members, and governance groups like the board and family council.

How ready (i.e., willing and able) to change are families and family enterprises? Our survey reveals a worrisome gap: enterprising families foresee turbulent times ahead and recognize the imperative to change so they can adapt, but they are less certain about their ability to change in the ways needed. Respondents believe their families are even less ready to change than their family enterprises are.

Some families, however, do seem ready for these new conditions. A third-generation owner shared her family’s experience with the “volatility and disruption in recent years,” pointing to both challenges and opportunities they have encountered.

“Turbulence makes you challenge traditional business models. We think ours will last, but we have to be ready to change and are constantly asking ourselves, ‘What are the potential pitfalls and how would we pivot?’ Our biggest opportunity is the flip side of disruption; it’s getting us out of our comfort zone and presenting us with new investment opportunities.”

Such attitudes are encouraging, but many families need a greater sense of urgency to meet the challenges ahead. Below, we propose a new model of family enterprise and five transformation strategies that are designed to do exactly that.

A New Model for Family Enterprise Success

The traditional approach to family enterprise stewardship — nurturing the family’s existing family business — encouraged reinvestment in the legacy business, which supported business growth within the industry. Even historically, this focus discouraged diversification and limited a family’s options for long-term growth and success. In today’s turbulent environment, when businesses and even industries can come and go quickly, this definition of stewardship accelerates demise.

Today, good stewardship needs to be more broadly defined as building multiple kinds of value  ̶  ̶  including financial, reputational, relational, intellectual property, social impact, and talent  ̶  ̶   in each generation. The key to long-term success is building and rebuilding a portfolio of attractive assets and activities, guided by a refreshed, compelling family enterprise mission and shared values.

My new mantra for families today is: build value according to your values. But how can families implement this new model for family enterprise success?

Transformation Strategies for Enterprising Families

“The Future of Family Enterprise” study identified five transformation strategies that are essential for implementing the new value and values-driven model and succeeding in turbulent times. Our white paper offers actionable, practical recommendations for each strategy, as briefly illustrated below.

Reorient and retool your owners.

Capable, aligned, and loyal owners have always been an essential foundation for family enterprise success. The stakes are even higher in turbulent times, when businesses need to be much more agile, and owners must make smart bets quicklyHow can families ensure that owners understand their roles, and are equipped with the mindsets, skills, and networks needed to navigate the new era successfully?

Families must take the job of ownership seriously, rather than viewing it as a birthright. Investing in an owner development program will increase the odds that enough owners will support the professional and financial needs of their company. Further developing a strong team of Active Owners, typically a smaller group of owners who are capable to make critical strategic decisions, should be a priority.

Some of the most challenging changes to be ready for this new era will be attitudinal. Owners — who traditionally believe they need 100% control of ownership and major decisions — must collaborate more and control less. Families need to become more flexible about ownership structures, their percentage of equity owned, and partnering with outside groups, all of which are critical for gaining access to knowledge, capital, and new opportunities.

Get ready to pivot.

The ability to address threats and pursue opportunities in a timely way will separate the winners from the losers. You can’t predict the future, but you can — and must — be able to anticipate and quickly respond to changing conditions. How can owners ensure that their family enterprises and families are prepared?

Owners need to gain altitude, monitor signals of change, and construct their view of the future. Family enterprises today must be in a constant state of exploration, with an eye to the future. Strategic foresight — a valuable tool for that purpose — requires a formal process for scanning the horizon and tracking key trends, developing alternate future scenarios, and then putting a stake in the ground defining owners’ strategic vision and choices — a stake that can move as owners learn more.

Family enterprises also need to develop an entrepreneurial culture and approaches for experimenting with new ideas, business models, and value-creation methods (e.g., “think big, start small, scale up fast”). Owners must be willing and able to move in and out of businesses, assets, and activities with ease and speed, to build agility into their family enterprise portfolio and organization.

Accelerate your digital transformation.

Recent research shows that strong digital capabilities translate to strong financial results for family businesses, but that they are behind the curve on their digital journeys. How can family companies and family offices catch up and reap the benefits of digitalization more quickly while mitigating Digital Age risks?

Owners need to have a sense of urgency on this issue and elevate digitalization to the owner level. Owners must be strong champions of digitalization, spearheading the development of a digital transformation roadmap that can involve incremental and radical innovations. Owners also must ensure that their family enterprises and families proactively manage cybersecurity risks, including financial, operational, reputational, and privacy risks.

Make social impact a priority.

Enterprising families are being called upon to take a leadership role in addressing tough societal and environmental problems, building on their long history of community service. How can families make social impact a priority, to strengthen their legacy, engage family members, and make a positive difference in the world?

Examining their entire family enterprise to understand how they can strengthen their long-term social impact. Family members need to be mobilized to define their social impact goals and a plan for achieving them. As part of that effort, owners need to promote and support ESG (environmental, social, and governance) in operating companies.

Many families today are joining the socially responsible investing movement, which includes a variety of investment vehicles with the twin goal of financial returns and social good. Family offices and private investors were impact investing pioneers. Today, it is especially popular among (and a good way to engage) younger-generation members of the family.

Engage and revitalize your family.

Families are the bedrock of family enterprises but, like any organization, in each generation they need to be engaged around a compelling mission and revitalized to contribute to it. Keeping families united, interested, and contributing to the family enterprise is especially challenging today when they are increasingly diverse in terms of values, lifestyles, and geographic dispersion. Family leaders need to embrace and harness the new diversity of the family, both to preserve family unity and tap into a rich pool of talent. Personal relationships, openness to new ideas, formal inclusion policies, and offering a variety of roles for family members to contribute to the family enterprise can all help.

Families must engage and excite their rising generations, who have different expectations and more options in their lives than in the past, or risk losing them. Proactive and flexible approaches will be needed, including earlier invitations to “sit at the table” in important discussions about the future, talent development programs, and opportunities to partner across generations.

To make the bold moves required to succeed in these turbulent times requires that families step up their family governance game. In particular, family councils, which do the lion’s share of family governance work, need to become more strategic and empowered to prepare families for the future.

A Call to Action for Enterprising Families                

Surviving, let alone succeeding, in the new turbulent era requires nearly constant adaptation as well as some significant transformation by family enterprises. Each family needs to look outward and understand the challenges and opportunities they face, and look inward and examine the strengths and vulnerabilities of their family enterprise. Then, family members have a collective responsibility to define their desired future and map their transformation journey.

The “Future of Family Enterprise” serves as a call to action as well as a valuable resource for enterprising families, especially the owners. A family’s roadmap for adopting our new model and transformation strategies may involve incremental or more radical changes or, more likely, a combination of both. Whatever the change agenda, there is no time to waste. As Jon Kabat-Zinn famously said, “You can’t stop the waves, but you can learn to surf.” The waves are getting bigger and coming faster.