Playback of this video is not currently available
As the reins of family businesses are set to pass into the hands of a new generation of leaders, a profound transformation is underway—one fuelled by the catalytic force of generative AI (GenAI). This moment marks not only a change in leadership, but a strategic shift towards harnessing a fundamentally new technology within family-run and -owned businesses.
For those that get it right, generative AI will shape future success. And we believe that the next generation of family business leaders (a group we call NextGen, which refers to members of the next generation of a business-owning family who are between ages 18 and early 40s and are aiming to become responsible owners, influential board members or visionary leaders) hold the key to this transformation. Our global survey of more than 900 NextGen suggests not only that they are more optimistic about generative AI than the incumbent generation, but that they understand the urgent need to shift responsibility for AI out of discrete silos and to deploy it to support enterprise-wide adoption in their companies.
NextGen show remarkable alignment with the sentiment of global chief executives regarding the transformative powers of generative AI. According to the 2024 PwC Global CEO Survey, 70% of business leaders believe that generative AI will significantly change the way their business creates, delivers and captures value. We also see broad acknowledgment of the importance of developing an “early days” generative AI strategy to get ahead of an accelerating existential crisis. Fully half of all bosses of privately owned companies—of which family businesses are an important subset—say that their company will cease to be viable within ten years if they stay on the current path.
We cannot afford for family businesses to ignore this transition. Family businesses are a substantial part of the economy, contributing approximately 70% of global GDP and employing 60% of the world’s workforce. Thus, harnessing the potential of generative AI isn’t only about any one firm staying competitive; it’s about shaping the global economic landscape. NextGen as future business owners—and important inheritors of the largest wealth transfer in history—have a unique responsibility towards their business, its employees, their families, society and the environment. This includes an outsized interest in the business’s ability to responsibly navigate the hype, hopes and fears surrounding generative AI.
Our survey findings and the important actions we outline below across three critical areas—innovation, trust and succession—show that these changes cannot be delayed until the next natural transition of generational ownership. They must begin now.
Playback of this video is not currently available
The willingness of NextGen to explore new ideas and technology while feeling that they are fighting against the more traditional instincts of the current leadership is a long-standing trend in family businesses. The reality is that each generation has its own capabilities and is working towards the same goal: to secure the business and its legacy.
‘The hardest part of digital transformation is changing the culture of the business to align with new challenges—and that’s even more difficult in a family-owned and -operated enterprise.’
More than 70% of NextGen believe that AI is a powerful force for business transformation, but they are rightly concerned about the ability of their family business to withstand the disruption of generative AI and to capitalise on its opportunities. They are significantly less optimistic than the current generation of leaders about the business’s readiness and doubt that the current generation grasps the full potential of AI. The upsides encompass ‘unlocking a range of opportunities, including improved products and services, faster time to market, improved decision-making and higher profits,’ according to Scott Likens, Global AI and Innovation Technology Leader, PwC US.
Family businesses, which typically approach innovation more cautiously than publicly listed companies, do indeed find themselves in a precarious position. Almost half of family businesses (49%) have either prohibited or not yet started to explore AI, and only 7% have implemented it anywhere in the business. In comparison, 32% of all CEOs say they have already implemented AI in their business, and 31% of all CEOs say they have changed their technology strategy as a result of AI.
There are solid reasons for this conservative approach. In any business or sector, implementing generative AI is a marathon rather than a sprint. Any company will need to strike the right balance between urgency and prudence: move too slow, and you lose out to your competitors; move too fast, and the risks increase significantly.
‘The driver for the incumbent generation will be when they see the results of industries that have implemented AI, compared with those that have not—even more so when you see your margins decrease and the margins of your competitors increase.’
Family businesses in particular are rarely technological front-runners. Due in part to their restricted access to capital, as a rule they heavily favour proven technology over emerging tech like generative AI. However, the investment landscape appears to be shifting, and may signal an increased willingness to innovate. Family businesses consistently report healthy growth, with 43% reporting double-digit increases in sales last year, according to research conducted for our Family Business Survey 2023. What’s more, private equity has become an increasingly attractive option for family businesses seeking a capital injection, a strategic partner or a rapid exit route. Research by PwC Germany shows that 90% of family businesses would now welcome private equity investment—a significant rise from 2011, when only 18% said the same.
Trust in business and trust in technology are inextricably linked. The rapidly evolving landscape of generative AI places considerable pressure on leaders to make the right decisions for their customers, their employees, the environment and society. Family businesses, which consistently rank as the institutions most trusted to do what’s right, are well situated to build trust.
Family businesses have to observe guard rails as they experiment with generative AI—and they can’t afford to get it wrong. According to Scott McLiver, Asia-Pacific generative AI partner, PwC New Zealand: ‘The rise of generative AI marks a significant change in how businesses create and capture value. It also casts a spotlight on the resilience and adaptability of family businesses, and puts their enduring trust premium under pressure.’
Global CEOs see a variety of risks associated with generative AI, including cybersecurity risk and the potential for biased decisions being made or biased actions being taken towards groups of employees or customers. CEOs of family businesses show similar levels of concern. But NextGen are notably less concerned—which could suggest either that they are underestimating the risks associated with generative AI or that they, as a younger, more tech-savvy cohort, are more knowledgeable and experienced than the established business leaders.
Even so, NextGen understand the importance of implementing generative AI carefully; 50% believe that there is an opportunity for family businesses to lead the way on the responsible use of AI and other technology. Conscious, responsible adoption will ensure that family businesses gain from the technology while protecting their vital trust premium with employees and customers.
‘We use [AI] today in our loyalty apps, so that our customers get deals on products they like. However, the AI did not give great results in the beginning, as it took a while for the technology to learn customer habits. We saw that having the right amount of communication was important for our franchisees to give the technology some time to work properly.’
For family businesses, that translates to an urgent need to make AI a strategic issue, and to pay close attention to governance and communication. By doing this, they can show that generative AI can be implemented with a high level of care, diligence, oversight and controls. Strong governance is essential. But because family businesses are at a very early stage in the journey, only 6% have defined governance around using AI responsibly; an additional 62% believe they should establish such governance but haven’t done so. NextGen also strongly believe that good communication with employees is crucial to preserving trust—84% believe that there should be training for management and employees so they can better understand the risks and opportunities of AI, although only 12% of businesses have taken this step so far.
‘It’s very important that we get to know and understand AI—we may think we understand it, but we don’t yet know its limitations.’
NextGen understand their value in an AI-driven world—40% believe being an AI champion will help them move into a leadership position. But this is much more than a golden opportunity for NextGen to carve out an important role in the business. The legacy of family businesses is at stake.
‘One of our family companies is already using AI. In the more established business, a manufacturing company which has been going for 70 years or more, it’s hardly discussed. The two sides of the business definitely need to talk more and explore synergies.’
Only 14% of family businesses currently have a team or person in the company who is directly responsible for generative AI, often the head of IT. The likelihood of such a position existing increases in larger and more mature companies. So far, NextGen have not been closely involved—only 12% are already engaged in AI—but a further 58% say that they are likely to be engaged in generative AI discussions in the future. NextGen’s potential is being neglected, which will have consequences for the business, for governance and for family dynamics.
‘The generative AI champions of tomorrow are likely to be passionate and entrepreneurial challengers,’ says Frauke Schleer-van Gellecom, EMEA finance transformation (generative) AI partner, PwC Germany, ‘rather than mature experts who tend to think within the current boundaries.’
NextGen who are already actively engaged in AI are more forward-looking in their approach to the business; they are also more likely to be engaged in sustainability investment, for example, and in investing in innovation and R&D. They are more optimistic about the opportunities that AI brings, but also clear about the impact AI could have on the business and its workforce and skills.
‘We are at an early stage of contemplating the use of AI in the business, and I make sure that the people responsible for considering our options keep me in the loop. I don’t have a background in IT, but I feel I can add to the debate because I come from a newer generation and can show a modern mentality.’
The views of the next generation of family business leaders underscore a compelling narrative surrounding generative AI. Although adoption may currently be limited, a considerable segment of NextGen demonstrate a forward-thinking approach, indicating that they will soon make use of the technology’s transformative capabilities.
We are at a critical inflection point, wherein NextGen possess a unique perspective that can help shape the leadership transition process. By contributing ideas, spearheading initiatives and catalysing organisational change, they have the power to not only propel innovation but also determine the strategic trajectory of family enterprises in an era defined by digital disruption.
The authors would like to thank the NextGen Advisory Council and the NextGen who took part in the survey.
A series of deep-dive articles and webcasts explains how family businesses need to adopt new priorities to secure their legacy.
Unlocking your potential as a visionary leader, responsible shareholder, beneficiary, or competent board member of your family enterprise.
Global Family Business Leader and EMEA Entrepreneurial & Private Business Leader, Partner, PwC Germany