Transforming a Family Business in Turbulent Times

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.

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.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.

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.

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.

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Wrestling with Legacy in a Family BusinessLegacy is an intangible, invisible force that affects the decision making of the next generation in a family business. Psychologists call the motivation to build legacy generativity, and it stems from the concern for the welfare, well-being, and security of future generations. Developing and sustaining legacy is a way for family members to perpetuate the family identity and purpose. But are legacies always positive? The paradox is that legacy has been shown to lead to both positive and negative outcomes for organizations and individuals. Legacy is an asset to a family business when it serves as a source of identity, inspiration, and direction. The downside is that legacy can also be a liability — this is the inherent paradox of legacy. Firms can become so entrenched in tradition and “the way things have always been” that they constrain innovation, change, and organizational agility. The challenge for family business leaders is to manage this legacy paradox.
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