Demographic Shifts, Globalization and Technology Impacting Family Businesses

Demographic shifts, globalization and technology are impacting family businesses, according to analysis in the EY Growth Barometer: Family Business Report. EY is YPO’s Strategic Learning Advisor.

The study reveals that over the next 12 months, family businesses view demographic shifts as having the most immediate impact (with 34 percent of responses), followed by technology (24 percent) on their business strategies and growth projections. Talent rounds out the slate of challenges, with lack of skilled talent (15 percent of responses) ranking higher than disruption and insufficient cash flow (the top two challenges ranked by non-family business leaders).

The study’s analysis examines the key challenges, ambition and strategies to growth for family businesses building upon its sister report, the EY Growth Barometer: Global Highlights, which surveyed 2,340 C-suite, middle-market executives from 30 countries. Family-owned businesses constitute 18 percent of that global total.

Marnix van Rij, EY Global Family Business Leader, says, “Uncertainty is the new normal and family business owners are not afraid of this. A focus on long-term strategy, the agility to invest in innovation and a solid and stable capital base have always been hallmarks of family businesses, wherever they operate. But to be successful moving forward, family businesses must place greater emphasis on geographic expansion and talent as drivers of growth.”

Economic outlook

According to the survey, almost four in ten family business companies (38 percent) are targeting current-year growth of 6 percent-10 percent and more than one in four (27 percent) are looking at revenue growth rates of 11 percent-25 percent, significantly above World Bank forecasts of global GDP growth this year of 2.7 percent and well ahead of non-family business peers.

Family businesses in Australia (33 percent) and Mexico (29 percent) top the list of companies pegging growth of 16 percent-25 percent this year. India (33 percent) and the Netherlands (29 percent) follow with family businesses in those respective countries targeting growth rates of 11 percent-15 percent. These rates are significantly ahead of non-family businesses their respective countries.

The study also found that the sector in which the family businesses operates has a significant role in determining immediate growth plans. Family businesses focused on financial services are planning the highest levels of growth with almost one in four family businesses (24 percent) targeting growth of 11 percent-15 percent, while more than one in five (21 percent) technology family firms are pegging the same growth rate of 11 percent-15 percent. The automotive and media and entertainment sectors, in particular, have more modest growth plans, as they are being challenged by digitization and convergence. These sector differences are also consistent with the wider global respondent pool.

An emphasis on company culture

Nowhere in the survey results are the differences between family businesses and other businesses more starkly differentiated than in leaders’ approaches to talent. Overall, 72 percent of family-owned businesses plan to increase staff, compared to just 56 percent of non-family peers. Breaking this down, the headcount increases in full-time jobs account for 33 percent for family businesses compared to 26 percent for non-family firms, while increases in part-time and freelance roles account for 39 percent of family businesses and just 30 percent of non-family organizations. These hiring plans reflect family business leaders’ confidence in the long-term sustainability of their growth plans and their embracing of new ways of accessing talent through the gig economy.

Van Rij says, “In family firms, employees see themselves as part of a broader family culture. Leaders’ commitment to their staff is second-to-none, and many employees, as a result, work for the same family firm for their whole careers. Family business leaders must look to internal strengths to drive their innovation agenda by harnessing the power of their own people’s creativity and insight, which will ultimately enhance their business’ productivity and growth.”

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