Lack of strategic thinking an obstacle to family businesses in Singapore, says PwC

SINGAPORE - Family businesses in Singapore are feeling the brunt of the economic slowdown and technology disruption, but it is ultimately a lack of strategic thinking that holds them back, according to a report by PwC.

In its biennial global survey of family businesses released on Tuesday, it found that firms are not effectively tackling areas such as digital and innovation, conflict management and succession planning.

These issues can be linked back to a lack of a strategic roadmap - deemed the "missing middle" - that addresses their mid-to-long-term challenges.

Among the Singapore respondents, while 65 per cent of family firms see the need to innovate to keep ahead, only 12 per cent said that the need to be more innovative is "very important", while 42 per cent rated it as "not important".

In addition, less than half (47 per cent) of family businesses here have a strategy fit for the digital age, compared to the global average of 53 per cent.

The report indicated that such "digital denial" among local family businesses was a cause for concern.

Ng Siew Quan, Asia-Pacific entrepreneurial and private clients leader, PwC Singapore, said:

"(The) majority of family businesses don't believe they are vulnerable to digital disruption nor have a strategy fit for a digital world. In our experience, they underestimate the impact of digitisation."

Another issue when it comes to a family business is the ability to reconcile the personal and the professional.

Only 50 per cent of firms here agreed that their business strategy is aligned to the firm's family, much lower than the global average of 69 per cent.

To bridge this gap, more are recognising the need for professionalisation of the business, with 55 per cent of local family firms ranking it among their top challenges over the next five years, higher than the global average of 43 per cent.

On this, Mr Ng said: "The better aligned the family strategy is with the business strategy, the longer the business will run."

Findings also show that 43 per cent of Singapore respondents do not have procedures or mechanisms to manage conflict within the family compared to the global average of 18 per cent.

Succession planning is also being neglected, with only 10 per cent of firms having a robust, documented and communicated succession plan in place. Some 45 per cent have no plan at all.

The report also found that there is an increased desire to have ownership remain within the family even as professional management is brought in to handle daily operations.

When it comes to future ownership plans for the business, 30 per cent of local firms plan to pass on management to the next generation.

Some 37 per cent intend to pass on ownership but bring professional management in - an increase from 25 per cent in the 2014 survey.

The proportion of those that intend to sell or float the company has also dipped to 20 per cent, from 32 per cent two years ago.

Mr Ng concluded: "A managed succession process can be a rallying point for the family, allowing it to reinvent itself in response to changing circumstances, but without a plan it is the most obvious 'failure factor' for the family business. Succession planning is a process, not an event."

PwC surveyed over 2,800 family businesses in 50 countries between May and August 2016, with turnovers ranging from US$5 million (S$6.9 billion) to over US$1 billion .

Among them, 60 respondents were from Singapore.

This article was first published on November 02, 2016.
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