Four Things to Know About Long-term Orientation in Family Business

One of the real strengths of family business is a long-term outlook. But what do we actually mean by ‘long-term outlook’? And how can a better understanding help improve performance in your business? A recent paper published by the IFB Research Foundation in collaboration with Dublin City University, unveils new insights into UK family business and their long-term outlook. In this article we highlight the top four things you should know about the long-term orientation of family businesses.

What is long-term orientation?

Long-term orientation is the tendency of a firm to prioritise important business issues that arise in the long run. In fact, we often say that family business think in quarter centuries, rather than financial quarters. They can make long-term investment decisions because they are looking to build something that will continue to deliver value over generations.

What are the advantages of long-term orientation?

Because it often involves patient capital and longer term investments, long-term orientation is commonly recognised as a source of competitive advantage. But it might also help family firms to achieve non-financial goals too, because it encompasses the planning, patience and drive needed to realise such goals. For instance, a defining feature of many family firms is the intention to pass on the business to future generations or to play an active role in the communities that they operate in. This, in turn, often results in longer employee tenures and customer trust.

Balancing heritage and innovation

Family business owners have a strong sense of respect for their heritage. They seek to build on the successes of the past, and to pass on a stronger business to the next generation. Even if it is sometimes incorrectly assumed that this means they aren't innovative, family owners know that to be sustainable for the long term they need to continue to invest, innovate and adapt.

One of the keys to balancing tradition and innovation is to acknowledge the challenge and how it effects the business. Families can assume that because they are family they must be good communicators.  But that isn’t always the case. Honest and effective communication can help you address this challenge. If you can identify and agree on your long-term goals for the business as a family, you will be better able to make decisions about how to meet those goals.  That may mean deciding to build on your heritage and use it as part of your marketing and customer experience to help the business grow. Or that certain parts of the business will not help you reach those goals.

How LTO affects your decision-making

One of the consequences of having a long-term outlook is being released from the pressures of short-term returns on investments. Whilst still being very much interested in profitability, many family businesses prioritise long-term profit rewards over immediate wealth creation and shareholder return. This gives managers more opportunities to act strategically and seize a wider spectrum of opportunities, whilst also weigh potential risks and future challenges.