STAX reveals interesting insights about future of Sri Lanka’s family-owned businesses
STAX, Sri Lanka’s leading strategy consulting firm organised a panel discussion titled ‘Taking over the Mantle,’ in collaboration with the Sri Lanka Institute of Directors (SLID).
This pioneering event was held to highlight the hurdles that family businesses face around continuity and persevering to the next generation. The panel comprised three renowned business magnates encompassing three generations; Laugfs Holdings Chairman W.K.H. Wegapitiya, Jetwing Travels (Pvt.) Ltd Managing Director Shiromal Cooray and SAIG & Orion Director and CEO Jeevan Gnanam. During the panel, the tycoons shared their perspectives and experiences in taking on the challenge of continuity.
Prior to the discussion STAX carried out an extensive survey to determine the current state of affairs at Sri Lankan family businesses. STAX’s focus is on serving companies as a strategic partner for growth—the spotlight on family businesses in particular is motivated by the unique potential of these firms. “As I see it, Sri Lankan family firms stand on the cusp of a phenomenal opportunity as the region expands. Most of these firms are now managed by 2nd and 3rd generation family members who have an unprecedented advantage in terms of global education and exposure. However, there is a short window to capitalize on the opportunities that dot the horizon; from overseas expansion to product diversification,” commented Ruwindhu Peiris Manager, Director of STAX.
STAX surveyed a select group of 31 family business leaders—70% of those firms have been in existence for over 30 years. The survey was structured to explore 4 key themes—Strategic Thinking, Succession Planning, Professionalization, and Innovation—that leaders need to consider for the longevity for their businesses.
Armed with these interesting insights, the discussion was underway with Cooray stating that having a clear vision played a key role in the continuity of their business along with retaining family unity. Positively, the survey revealed that a combined 77% of family businesses either have a well-defined vision or are on the process of developing one. On the flipside, only 58% of companies have their vision in writing – the rest rely upon a verbal agreement. A failure to articulate the vision of the business in writing can be especially problematic as a company transitions from the 1st Generation to the 2nd because the underlying goals are no longer as clear as they once were.
A failure to embark on timely succession planning is one of the main reasons cited for family business discontinuity. The first generation businessman, Wegapitiya, shared statistical evidence emerging from a Harvard Business professional who had theorized that businesses boom and burst in a predictable wave period of standard length. Therefore, understanding this wave and initiating succession planning at the right time is imperative. According to the survey, the majority (68%) of the family businesses in Sri Lanka reported that they had a succession plan that satisfied their aspirations.
However, some leaders are yet to develop a sense of clarity and comfort regarding the extent to which the next-generation will contribute towards the business. During the panel, a key discussion point was the hesitance of next generation family members to pick up the baton. The survey also corroborated this point—65% of incumbent leaders surveyed reported being unsure if the next generation would join the business. Commenting on this insight, Shiromal Cooray informed that there was never any compulsion to join their company, despite a general drive and urge. “Similarly, our children are not forced but there is a tendency that they will join as they are educated in the respective fields.”
The act of professionalizing involves achieving a separation between family ownership and business management. While family businesses can be slow to embark on this process, the majority of the firms (94%) surveyed are willing to bring in external expertise; with the key reason being a perceived need for greater diversity and maturity among leadership teams. Gnanam, who is part of the third generation, added that it is important to harness each person’s unique skills towards the benefit and growth of the company—family or not—as it can be an advantage.
Another significant aspect of continuing a family-owned business is innovation and diversification into hitherto unexplored realms of business in order to ensure long term sustainability. According to the survey, 87% of Sri Lanka’s family businesses have considered diversification. In general, the panelists agreed with the idea of diversification in order to avoid conflict but noted that most preferably it should be done in alignment with the core competencies of the main business.
Ultimately, the thrust of STAX’s message at ‘Taking over the Mantle’ was clear—family businesses are strong contributors to the Sri Lankan economy and enjoy a wealth of growth prospects. However, in order to truly capitalize on these avenues before the window of opportunity closes, firms need to pay heed to key areas like strategic thinking, succession planning, professionalization and innovation.
