McKinsey: Fine-tuning family businesses for a new era

Commentary  |  July 2017 |  by  Sarah Reid

Global businesses today face a new set of challenges: greater international competition, lower profit margins and dwindling prospects for global growth. In this new reality, family businesses must learn how to capitalize on their unique strengths and combat their particular challenges, says a report by McKinsey & Company.  

“Despite the growing power and influence of family businesses, executives and investors typically have a poor understanding of the unique attributes providing that edge,” the report says. 

McKinsey identifies four characteristics of successful, large family-owned enterprises:

  1. Entrepreneurial vision: this can be a company’s “hallmark of success,” but can also lead to emotional attachments and risk aversion. To maintain or restore entrepreneurial vision at a family-owned business, companies must decide on an ownership strategy; learn how to internalize creative destruction; and foster the talent of next generation owners. 
  2. A balanced approach to governance: “in an era when agility is at a premium, the key challenge for many family businesses is finding the right path from an informal, centralized decision-making process to a more empowered top team,” the report says. 

  3. Family capital: what McKinsey describes as “the organization’s culture, ethos and network.” If the family business can deftly manage four elements – tribe, family identity, trust and stewardship – they will be successful. 
  4. Developing the next generation: the development, engagement and motivation of the next generation of family leaders is the biggest challenge family businesses face today, McKinsey says. Doing so successfully “calls for both technical and interpersonal focus.”

Family businesses mix personal and professional in a way not seen in more widely-held companies. Those that can innovate, move quickly, and take smart risks will continue to profit from their distinct makeup.

Read the full McKinsey report here.

Sarah Reid is a freelance writer based in Toronto.