Family businesses in the Middle East and North Africa (Mena) region are facing challenges to development, according to a recent study by management consultancy Strategy&.
To overcome these obstacles, they need to identify their priority areas and proactively institutionalise, the report said.
According to Strategy&, Mena family businesses are currently facing three main challenges to sustainable business growth.
First, problems with transitioning from generation to generation. Second, increasingly challenging business environments, and third, more complexity in existing business models.
For example, Strategy& said, the older, founding entrepreneur of the business is often faced with next-generation family members who have different aspirations for the company and want to be involved in decision-making.
Family business models have also become more complex, now often having a fragmented portfolio spread across various asset classes, geographies and industries, which can create instability and the need for more oversight.
Lastly, tighter financial conditions, increased competition, economic slowdown and disruptive innovative trends continue to threaten these businesses.
To overcome these challenges, Ramy Sfeir, a partner with Strategy& and the leader of the family business, investments, and real estate practice in the Middle East, explained, “Family conglomerates in the Mena region need to focus on becoming institutions. The journey towards becoming professionally-run institutions will be different for each family business and each will have a different starting point. Institutionalisation will successfully separate family matters from corporate affairs, increase professionalism and maximise value to the owners of the business. It will also make the transition from a family business to a professional enterprise run to the highest standards of corporate governance and transparency.”
To respond to these challenges, family businesses need to identify their priority areas of action as they embark on their institutionalisation journey. They need to take measures in one or more of the three critical areas- governance, strategy and corporate enablers, the report said.
When examining governance practices, family businesses need to build a resilient and best-in-class family and corporate governance tackling areas such as the separation of family and business matters, information sharing between stakeholders, and overall levels of transparency. Such governance structures are vital because they help to deal with the often divergent perspectives between the generations.
In terms of strategy, family businesses must identify a few core capabilities to focus on. They should them ensure that their entire organisation and resources are devoted to developing these core capabilities and they should align their core capabilities with their business objectives. This will allow them to differentiate themselves from competitors and maintain a right to win.
Family firms’ corporate enablers could also help it to deliver on its business strategy, the study said. This is particularly important for conglomerates with diverse portfolios that contain business entities with different maturities. These require a strong holding entity that will consolidate business assets under one roof and ensure proper oversight and support. Such a holding entity needs best-in-class centralised corporate functions.

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