The coronavirus crisis has accelerated a digital transformation trend already years in the making. Organisations employed digital solutions to cope, and we have since transitioned to a 'new normal', with tech fundamentally reshaping the way we live and work.
According to the International Data Corporation, 75 per cent of organisations will have comprehensive digital transformation roadmaps by 2023, up from 27 per cent in 2020.1
It's clear that many of the changes we have experienced are here to stay, and with new technologies emerging seemingly every day, it's a trend that is inevitably altering the environment in which business families operate.
The importance of now
This new normal presents family businesses with 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 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) investments; launching separate start-ups 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. Businesses can also use tech for good, achieving sustainability goals and protecting themselves against environmental, social and governance risks.
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 senior generations may be more cautious about what they see as a risk to existing business models.
"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 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."
Knowing when to make the leap
For some wealthy families, digital transformation goes beyond their family-owned business, with implications for their family office as well. The presence of "digital natives" can be helpful in guiding a digital transformation, though this isn't always the case.
"I have seen family offices with founders in their mid-fifties embracing the newest technologies," says Aik-Ping Ng, Co-Head of Family Office Advisory Asia Pacific, Wealth Planning and Advisory at HSBC Private Banking. "It is ultimately a family decision and down to their desire to quickly adopt newer ways of communicating and working."
The involvement of the next generation in running the family office is also a growing trend. "I see next generation family members in their late twenties or early thirties already working in their family office, and they would be more inclined to embrace digitalisation in the operations of the family office," says Ng. "I've seen some of the younger family members stepping up to take charge of running a deep diagnosis of their family office's existing systems and protocols."
That said, the age of family members, executives and staff is ultimately less important for sparking transformation than the awareness that the family office or family business has outgrown its traditional way of working and must implement suitable end-to-end IT infrastructure. "Each family needs to ask themselves when they are ready to make that leap forward," says Ng. "If you never do so, you will continue to operate in the old normal."
Rising to meet the challenge
Family enterprises that are best placed to negotiate digital transformation projects 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."
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.
The crux of the dilemma families face is meeting the challenges of a rapidly digitising economy, while simultaneously preserving, and growing, the value of their family business and family office.
"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."
To learn more about the digital transformation trend, and how HSBC Private Banking can support your family, contact us or your Relationship Manager.
1 IDC FutureScape: Worldwide Digital Transformation 2021 Predictions, International Data Corporation, October 2020 ↩