Kenyan family businesses struggling with succession plans

November 30, 2016
This is according to a new report by PriceWaterhouseCoopers (PwC) Kenya that indicates little change from 23 percent in 2014/FILE
This is according to a new report by PriceWaterhouseCoopers (PwC) Kenya that indicates little change from 23 percent in 2014/FILE

, NAIROBI, Kenya, Nov 30 – Only 24 percent of Kenya family business owners reported having a robust, documented and communicated succession plan in place during 2016.

This is according to a new report by PriceWaterhouseCoopers (PwC) Kenya that indicates little change from 23 percent in 2014.

According to the report, this insignificant change is worrisome as the sector is a huge contributor of the economy.

Globally, the average life-span across the sector is still only three generations with only 12 percent making it that far and the number getting past four generations falls to as low as 3 percent.

The survey indicates that 44 percent of respondents are owners of first generation family firms; 31 percent of second generation firms and 19 percent of third generation firms.

“Succession planning is vital to ensure business continuity but it has a wider impact, too. Succession planning is essential to ensure the aims of the owners and the family and the objectives of the firm are properly aligned over the medium to long term,” the report states.

According to the report, some family businesses have exhibited the “sticky baton” syndrome where the older generation hands over management of the business in theory, but in practice retains complete control over everything that really matters.

“Developing, implementing and communicating a robust succession plan as early as possible before the actual handover will ensure a seamless transition from one generation to the next. A well-managed succession process can be a rallying point for the family firm, allowing it to reinvent itself in response to changing circumstances and find new energy for growth, diversification and professionalization,” said Michael Mugasa, Partner PwC Kenya.

Despite economic uncertainty, Kenya’s family business sector continues to be vibrant, successful and ambitious.

The sector has plans to grow over the next five years despite economic head winds with 84 percent of survey respondents remaining confident of their businesses growth potential.

“The main challenges faced by family businesses in Kenya over the next 12 months and indeed over the next five years include changing market conditions, government policy, regulation and staff recruitment. Family business owners also identify dealing with corruption, containing costs and the threat of increasingly regional competition. These challenges point to the need for family businesses to plan their professionalization journey carefully,” noted Mugasa.

Another major challenge is the rapid pace of change due to new technologies and disruptive business models with about 42 percent of Kenya family business owners terming it as the most important challenge over the next year.

“Family businesses in Kenya need to be able to think beyond the immediate demands of the day-to-day business and develop an informed view of the future .This means understanding the trends driving change, assessing what products are vulnerable to new technology and how global trends are affecting their markets,” the report acknowledges.

The report also highlights that family firms also struggle to develop or execute plans beyond the next 12 months to the next five or 10 years.

“This is what we call the ‘missing middle’ and we believe that this is why many family firms fail to turn early promise into sustainable success” said Mark Simmons, Partner PwC Kenya and the firm’s Advisory and Strategy Leader for the East Africa Region.

Simmons says that greater emphasis should be on strategic and medium term planning many family firms to achieve greater success and fulfil their true potential.

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