Family firms across the globe were 42 percent more likely to implement transformation strategies than non-family businesses during the pandemic, according to a new report from the STEP Project Global Consortium and KPMG Private Enterprise, which includes insights from nearly 2,500 family businesses and more than 500 non-family businesses.
The research found that family businesses with multiple generations involved were a further 45 percent more likely to transform than single generation businesses, using technology to change their operating models, creating new products or exploring new markets in response to the pandemic.
Due to the availability of patient capital, family businesses also avoided making knee jerk reactions. More than one in three (33.7%) took time to understand the full impact of COVID-19 on their business and others in their industry and adapted their strategies for the long term, rather than just mitigating the short-term impact of the pandemic.
Over a third (34.1%) of family businesses surveyed said they prioritised the community when planning their response, taking steps to address the impact of the pandemic not only on their family and business but other stakeholders including employees, customers, suppliers and local communities.
Key report findings:
- Nearly seven in ten (69%) of family businesses reported that COVID-19 resulted in an initial revenue decline, nine percent reported an increase specifically due to actions taken to pivot their business, and a fifth (22%) reported no revenue change.
- There was an 8.56 percent workforce reduction among family businesses globally, compared to a 10.24 percent reduction in non-family businesses.
- Three quarters (76%) of family firms globally made use of government support programs, primarily in the form of low-cost loan arrangements. There was less interest in government subsidies among family firms compared to non-family businesses.
- More than 70 percent reported that they maintained their R&D investments and continued to launch new products and services.
Business size and age contributed to how businesses chose to respond to COVID-19. The report asserts that the combination of a commitment to sustaining entrepreneurship across the generations, alongside patient capital and financial resources, especially among older and larger family businesses allowed them to withstand major changes and challenges to their operations in the short term and to identify opportunities for the long term.
Tom McGinness, Global Leader, Family Business, KPMG Private Enterprise: “For many family businesses, an unexpected and positive outcome of the pandemic was the gift of time. With a slowdown in their business operations, several family business leaders found they now had the time to explore ideas for new products, new markets and extensions of their business that had been in consideration for several years. Others took the time to look seriously at ways to streamline their operations, including implementing new digital solutions, and to focus on important family issues such as succession planning and their ownership structures.”
The report identifies two key factors that influenced families’ strategy decisions: whether the business is led by a family or non-family CEO, and whether the company shares are owned by a small or large number of family members.
Businesses led by a family-CEO and with high family involvement were more likely to adopt a social responsibility strategy as one of their choices was to focus on the welfare of employees and the communities where the family lives and operates. Whereas, if a family business is led by a non-family executive or with lower family involvement, there was a higher likelihood that the business leader made difficult decisions to soften the impact on the business such as reducing employee numbers, general cost cutting and potential restructuring.
Andrea Calabrò, STEP Project Global Consortium Global Academic Director says: “One of the key differentiators of family businesses is how they define success. While profits and dividends are important financial measures, success in family businesses is also defined by both financial and non-financial objectives, such as control, transgenerational succession, social capital, emotional connection to the firm, and reputation.
“These non-financial (socio-emotional) objectives are important enough in family firms to have a direct impact on their decision making and how they measure success. It also explains why, after taking immediate actions to cushion the financial shock of COVID-19, families turned their attention to longer-term strategies for sustaining the purpose and non-economic value that the family derives from owning and managing the business.”
The study reveals this has been accelerated when multiple generations work together. When two or more generations of the family are involved in the business, next-generation family members have helped to advance two critical agendas: their firms’ rapid digital advancement and putting ESG in the strategy spotlight. This meant that 70 percent of families reported that they maintained their R&D investments and continued to launch new products and services throughout the pandemic.
Jonathan Lavender, Global Head, KPMG Private Enterprise: “The pandemic opened up opportunities for young, tech-savvy family members to take on prominent roles in introducing digital technology solutions that streamlined their business operations and launched a host of new products into the market.
“These NextGen influencers also recognized that implementing an ambitious ESG strategy was an essential ingredient in the transformation of the family business. As a result, they have expedited the operational changes necessary for achieving their firms’ environmental and societal goals and firmly embedded ESG as a strategic business priority.”
Learn more by reading the full report below:Mastering A Comeback family-business-survey-report