All good things come in threes. This saying also holds true in corporate strategic planning. After all, planning is typically divided into short-term, medium-term, and long-term categories. Companies can only be successful if they give equal attention to all three time horizons. Unfortunately, the reality is different for many German family-owned businesses.
German small and medium-sized enterprises (SMEs) perform well in both short-term and long-term planning, according to a report by the auditing and management consulting firm PwC. However, the report notes that many companies lack a medium-term perspective. This shortcoming becomes particularly problematic when it comes to succession planning.
A mere 25 percent of German family businesses have developed a concrete succession plan and communicated it internally. The authors conclude that this percentage remains at a low level. In fact, the figure has even declined recently; in 2014, it was still 28 percent. These findings come from the “Global Family Business Survey 2016, ” for which PwC surveyed more than 2,800 companies in 50 countries.
Although German companies still lead the way in an international comparison—in the U.S., for example, only one in five family businesses has a concrete succession plan—PwC expert Peter Bartels points out that a particularly large number of large companies in Germany participated in the survey, which is why the result is anything but reassuring.
According to PwC, this lack of medium-term planning is at odds with another key objective: ensuring the family business’s long-term survival. Nine out of ten respondents consider this “important” or “very important.” PwC expert Bartels says: “Management should therefore close this gap and underpin its long-term perspective with appropriate medium-term strategic and implementation-oriented planning.”
The issue of succession is actually now widely known among the general public. There is a massive imbalance between companies up for sale and potential buyers. By 2019, about 15 percent of all small and medium-sized enterprises will be up for sale or planning a succession transition. This means nothing less than that up to 600,000 companies are looking for a successor. German companies also do not fare well when it comes to digitalization. When comparing the top challenges for the next five years, respondents ranked “digitalization and new technologies” only fourth—behind the shortage of skilled workers, innovative capacity, and competition. A lack of risk awareness is also evident in the fact that two-thirds of respondents believe their company is safe from cyberattacks.
For the auditors, the figures demonstrate that “many decision-makers underestimate the disruptive impact of digitalization.” “Here, the next generation—whose members are generally much more familiar with digital topics—could play a decisive role. Entrepreneurs should therefore listen to them and make them drivers of digital transformation,” says Dominik von Au, PwC partner and managing director of the INTES Academy for Family Businesses. However, this requires ongoing collaboration not only within the family but also across all levels of the organization.
That said, the study also highlights progress among family businesses. For example, more and more family businesses are open to hiring top executives from outside the family. The proportion of managing directors who are not family members now stands at 68 percent; in 2012, it was only 60 percent. In addition, more and more entrepreneurial families are implementing family constitutions or contingency plans.
It is also encouraging that German family businesses are doing well: 66 percent were able to increase their revenue over the past twelve months. Many are also looking to the future with confidence. More than three-quarters of the 102 German family-owned businesses surveyed expect steady growth over the next five years, while another 7 percent even anticipate “aggressive” growth.
