The coronavirus crisis has re-affirmed to us all the importance of technology. Organisations that were able to employ digital solutions were better able to cope, and those that weren't realised they must accelerate their digital transformation to survive or thrive.
Even before coronavirus, a study by market intelligence firm IDC estimated that annual global spending on the digital transformation of businesses reached USD2 trillion in 2019. This was projected to rise to USD2.3 trillion by 2023.1
The subsequent pandemic and wide-ranging lockdown measures only served to supercharge that agenda. In a few short months, we have transitioned to a 'new normal', where tech is fundamentally reshaping the way we live and work – whether through now-everyday tools such as video conferencing, or emerging technologies such as immersive reality, robotics, 3D printing and the internet of things.
It's a trend that is also, inevitably, altering the environment in which businesses operate. In retail, for example, COVID-19 has speeded up the shift to e-commerce in the United States — already well underway — by five years.2 And in construction too, 75 per cent of senior executives worldwide say the crisis has increased the pace of digitisation.3
The importance of now
This brave new world presents family businesses with a fresh set of challenges, as well as significant opportunities – to innovate in the short term, plan for the longer term and adopt a more globally minded approach to growth and wealth creation.
"A big strength of family businesses is that they can take the long view," says Russell Prior, Regional Head of Family Governance, Family Enterprise Succession and Philanthropy, EMEA at HSBC Global Private Banking. "But sometimes it's good to ask yourself: is taking the long view stopping you from innovating today?"
What could that innovation look like? For family businesses, it might mean leveraging new technology to enter untapped markets and meet redefined goals; embracing disruptive tech through venture capital (VC) investment; launching separate enterprises to test newly held ambitions, values and digital tools; or working with VCs to identify tech-led efficiencies and gaps that enable growth – both within and across borders – in an already familiar industry.
Pushing for technological change is all well and good, but not when it is simply for change's sake. Family businesses first need to understand the motivations for change, how best to manage the process of transformation and how to bed it in in a way that delivers tangible benefits.
Fostering the right approach
In family-owned businesses, it's often the younger generation that advocates for the adoption of new technologies, while elders are more cautious about what they see as a risk to existing business models and brand values.
"In many family firms, you can have two, sometimes even three generations working together," says Sidney Wang, Head of International Connectivity in Asia and Global Lead for Next Generation Proposition at HSBC Global Private Banking. "They may have very different ideas on the direction the business should take. And it's often views about technology that bring this to a head."
"If the family manages these conversations well," Prior says, "they can be rewarding. They tease out the tension between preserving the value in the existing business model and adapting for the future."
Family firms that are best placed to negotiate these challenges are those in which everyone is clear about what they want, about their individual roles within the business, and about the value of communication and experimentation.
"Another approach I have seen work well is when the family firm supports the younger generation in gaining external experiences, such as creating their own start-up," Wang notes. "This allows younger family members to try new ideas and strike out on their own. Then, if the new business is successful, its practices and its technologies are integrated back into the main family firm."
Rising to meet the challenge
In some cases, the family may step back entirely, Prior adds. This often happens when there are just too many family members involved to easily reach consensus. The family, for the most part, moves to an ownership role, bringing in managers and technologists from outside the family who have the sector and technology-specific skills required to update business models and platforms.
Both agree that the crux of the dilemma family businesses face is meeting the challenges of a rapidly digitising economy, while simultaneously preserving, and growing, the value of the business.
"These are the kinds of challenges we see all the time," Wang says. "Whether the conversation starts with technology or some other catalyst, many of the underlying issues are the same. Our specialists can help family-owned firms get to grips with this process of change management, to ensure that their legacy is protected, preserved and passed on for future generations."
1 Worldwide Semiannual Digital Transformation Spending Guide, International Data Corporation, October 2019↩
2 IBM's annual US Retail Index, August 2020↩
3 Construction in the Perfect Storm of Transformation, Industry Today, 16 June 2020↩