A healthy outlook for family firms

The KPMG European Family Business Barometer has revealed continued confidence in the future of family businesses. The barometer is an annual survey of family businesses from across the European continent and is a valuable benchmark of the issues and concerns facing the sector.

Based on responses from more than 1,500 family businesses in 26 countries in Europe, including from Ireland, the barometer shows privately-owned businesses face challenges on many fronts. They are engaged in global competition to attract talent with specialised skills. And an increasingly challenging regulatory environment has meant they can no longer depend on conducting business as usual.

Furthermore, growing political uncertainty combined with an unprecedented rate of change has left many businesses pondering what could be just around the corner. Despite these factors, family businesses continue to flourish.

Family business owners have traditionally kept an eye on the long term, however, the new reality requires these businesses to balance their instinct for long-term planning with an agile approach to tackling the latest disruptive innovations. For many, that will mean embracing innovation to forge new paths in new, untapped markets.

According to Ryan McCarthy, partner with KPMG Private Enterprise in Ireland, “Family businesses are often portrayed as risk-averse and reluctant to change. Yet, in reality, they are among the most adaptive companies in the world. Their streamlined decision-making processes and ability to react quickly to new trends have enabled many family businesses to not only adapt but thrive over decades of change spanning several generations.”

Irish family businesses have had a strong year of growth and are positioning themselves for further growth over the next 12 months, the survey indicates. This, combined with a relatively favourable economic environment, has helped to spur the confidence of family businesses and their optimism for the future. In fact, 79 per cent of Irish respondents to this year’s survey said they were confident or very confident about the prospects for their family business over the next year.

This confidence has been reflected in the strategic decision-making of European family businesses overall, including head-count increases over the last year. More than 54 per cent of survey respondents said they had increased their staff complement over the past year, compared to only 41 per cent in 2017.

At the same time, a majority of family businesses indicated they had significantly increased turnover over the past year. In this year’s survey, 63 per cent of European respondents said turnover in their company has increased over the past year.

Innovation top-of-mind

Innovation is top-of-mind for many family businesses in Europe. The survey found family businesses are increasingly focused on driving innovation. The pace of change is accelerating rapidly, with new technology causing tremendous disruption across a wide range of industries.

Companies are being pushed to make dramatic changes to adapt to new market conditions and to compete with new business models. Family businesses are rising to the innovation challenge, actively monitoring signals of change and streamlining decision-making.

Looking ahead, innovation is expected to remain a significant priority Europe-wide over the coming year. In the survey, 24 per cent of respondents across Europe listed innovation as one of their top two priorities. However, in Ireland, moving into new markets (31 per cent) and diversifying into new products (22 per cent) were listed as the top two priorities.

Unsurprisingly, political uncertainties were also cited as the single biggest concern (21 per cent) by respondents in Ireland, highlighting the likely negative impact of Brexit on many Irish businesses. Also reflecting Brexit-related concerns and a desire to move into new markets, 38 per cent of Irish respondents increased their activities abroad in the last year.

Meanwhile, the war for talent is seen by many to be a significant issue. This year, 53 per cent of European respondents identified the war for talent as one of their top three concerns. This compares to 43 per cent in 2017 and 37 per cent the year before.

In Ireland, the war for talent was cited by respondents as their second biggest concern after political uncertainties and ahead of issues such as increased competition and increased labour costs. Non-traditional and technical roles, which are of paramount importance for driving innovation and helping family businesses compete in the digital economy, are proving to be particularly troublesome. The specific skill set these positions demand may not be available within the family and may be difficult to find through traditional training and development, forcing business families to look outside to fill these roles.

While this is a natural occurrence as the business grows and matures, it can pose challenges on a number of fronts. On the one hand, family businesses are forced to compete against large and attractive employers for talent. On the other hand, they have to consider the impact on the family when they decide to pass over family members for what might be perceived as attractive positions.

To find out more about the European Family Business Barometer Ireland Edition see kpmg.ie.