Succession Planning is a Key Challenge for 62% of Family Businesses in Malaysia

January 20, 20178:20 am862 views

Malaysian family businesses must focus their efforts in formulating a robust strategic plan if they want to successfully carry on their legacy into the future generations. For many, day-to-day operational activities appear to take precedence over strategic planning that can ensure future growth.

19 percent of family businesses in Malaysia aim to grow quickly and aggressively in the next five years, according to PwC’s Family Business Survey 2016 (the Malaysian chapter).

However, many local family businesses lack a strategic plan that links where the business is now to the long term, referred to as the ‘missing middle’ in the survey. With a lack of emphasis in strategic planning, the road towards success is down to luck which is clearly not ideal.

But this issue is not unique to Malaysia. The strategy gap is one of the key trends observed among family businesses globally, a concern that’s amplified in Asia Pacific where businesses have the most ambitious growth plans.

An integral component of the strategic plan is succession planning. In Malaysia, out of the 48 family businesses surveyed, 31 percent have no succession plan in place vs 43 percent globally, while only 15 percent have a robust, documented and communicated succession plan in place. In fact, 62 percent of Malaysian family businesses identify succession planning within the company as a key challenge in the next five years.

Fung Mei Lin, PwC Malaysia Entrepreneurial and Private Clients Leader, and Senior Executive Director comments, “It is encouraging to note that 54 percent of Malaysian family businesses are keen to reinvent themselves with each generation in response to the changing business landscape. However, without a robust and properly communicated succession plan, not only will these aspirations remain as lofty ambitions, the entire business may risk failing. It is an obvious fault-line in the family business model and an inevitable risk derailing even the most carefully constructed business continuity plans.”

Considering that 69 percent of family businesses already have next generation family members working in the business, they can’t afford to let the lack of a strategic plan limit them in their growth ambitions. Succession planning is more than just identifying the right person to take over the current generation’s role.

It is the embodiment of the overall decision making process within the family business, making the values and aspirations of the current generation real for the future generations to come. It also ensures that the aims of the owners and the family, and the objectives of the firm are properly aligned over the medium to long term.

See: Top 6 HR Strategies for Effective Succession Planning

Increasingly many family businesses recognise that it is not necessary to have only family members manage the business as they adapt to the rapidly evolving environment. 54 percent of family businesses foresee that they will bring in non-family professionals to help run the business in the next five years. 38 percent plan to pass on ownership but bring in professional management.

As the number of family shareholders grows, the introduction of corporate and family governance can be a significant advantage to clearly segregate what is family and what is business.

The family business can benefit from the wisdom and experience contributed by the independent professional managers, thus allowing family shareholders to focus their efforts in dealing with exceptional issues and developing clear strategic plans for future generations.

Responding to change and new trends

Looking at the future of the business, it is evident that Malaysian family businesses are keen to capitalise on technological trends and also grow the business differently. 56 percent understand the tangible benefits of moving to digital and have tangible plans for measuring them.

33 percent want to establish new entrepreneurial ventures. Given the uncertain economic environment, increasingly, family businesses will be tested by how well they manage multiple generations working in the business, and how they align the business strategy into their overall family strategy.

Mei Lin adds: “As the business and family members mature, their needs, expectations and goals may conflict. A family business strategy must fit well with its family structure, values and strengths, taking into account the risk tolerance of its family members – and this is not going to be easy. The best family strategies are those which are explicit, communicated, and agreed upon.”

A typical company has rules, systems and procedures that employees learn when they join the company. These structures are also present in a family business, except that they are more informal and organic, given the more agile nature of the family business.

Potential conflicts can arise when these two systems merge. The family and business systems can be strong together when the right attitude and mindset are applied with the right conflict resolution mechanism.

“Done well, this can be a strong competitive differentiator, helping family businesses achieve sustainable success across generations.”

Also read: Talent Succession Planning: How Can Organisations Create and Retain High Performers?

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