Understanding the Past is Key to Success: Long-term Planning in Family Business
29th May 2018
Family businesses have a prominent place in societies across the globe. Something which sets these businesses apart from non-family businesses and contributes to their enduring role in society is their disposition towards adopting a long-term orientation (LTO). Recently, the Institute for Family Business Research Foundation has published a paper detailing new insights into the strategic behaviours that guide long-term planning in family business; insights which could benefit family business owners and managers in the long run.
The paper, Long-term Thinking in UK Family Business, reports the findings from new research carried out by Dublin City University’s Centre for Family Business. The research included a survey of 31 firms as well as a series of in-depth case studies exploring the role of LTO in large family firms in the UK, and provides practical recommendations for family businesses.
A deeper, more nuanced understanding of LTO can help current and next generation business owners and managers make better informed plans for the future through identifying the specific motivations behind family decision-making. These insights can also benefit non-family managers by strengthening the synergy between past behaviour and best practice in future planning. The research reveals how the underlying motivations of business families drive business decisions towards long-term goals. And these goals are more attainable with greater LTO understanding, making the findings of this research relevant to family business planning.
The family businesses surveyed in this research prioritised long-term rather than short-term objectives; a key finding was the need to understand LTO as a crucial part of understanding families’ strategic behaviours. Here, LTO is understood in terms of three characteristics: continuity, futurity, and perseverance.
Lessons for family businesses
The paper makes a number of practical recommendations relating to LTO in family firms. It is important that leaders of family businesses fully understand the characteristics and consequences of their specific LTO because this can help them reach their goals more efficiently. For example, the desire to preserve the founder’s guiding values can motivate decision-making in family businesses and inform long-term strategies, which ultimately affects future generations. Furthermore, the tension between the desire to innovate and the desire to maintain the family’s legacy needs to be recognised and managed.
Acknowledging and understanding how the business strives for continuity is also important; for example, maintaining a reputation or keeping the business within the family. These long-standing missions need to be examined by current and next generation family business leaders.
Non-economic goals also drive LTO in family businesses and exist in the overlap between the business and the family. Understanding these goals is crucial because the shared values between family members and the business itself can affect how decisions are made in the present, and the consequences for generations in the future.
Figure 1 The non-economic goals of family businesses
Source: Clinton et al. 2018. Long-Term Thinking in UK Family Business
Being able to identify the situations that require professionalisation is also key to enduring success. Putting new management and governance processes in place can foster competitive advantages within family businesses, bringing them closer to their long-term goals.
Family business insights
The desire for continuity may motivate families to innovate and adopt a more flexible approach in balancing family traditions with the need to change and adapt. Legacy is important to family businesses, but so is change, and this balancing act is part of understanding LTO in family businesses.
The research also highlights how non-economic goals are important to family businesses. These goals were consistently family centred and long-term in nature, meaning they were guided by a specific LTO. In particular, they centred around topics of social responsibility and the founder’s guiding values.
The findings of this research relate to how family businesses act in the present and plan for the future. PwC’s Family Business Survey 2016 found that keeping a long-term mind-set towards the family business becomes increasingly important with each generation, and that over the next five years family-business generations predominantly aim for steady growth. However, two major challenges for family firms are the need to continuously innovate and professionalise the business.
Source: Adapted from PwC’s Family Business Survey 2016
This is where a deeper understanding of a family’s LTO comes into play, and the recommendations of this research can make a difference. The two key challenges of continuous innovation and professionalisation can be better addressed by family businesses with a nuanced understanding of their own LTO. The long-term goal of steady growth can be achieved with a greater knowledge of the here and now – the current motivations of family businesses – to ensure the existence of a growing, sustainable business for generations to come.
The full research paper that this article is based on can be downloaded here.