How are family businesses adapting to AI?
This story originally appeared on Verbit and was produced and distributed in partnership with Stacker Studio.
How are family businesses adapting to AI?
Multigenerational family businesses are often built on reputation and relationships. Today, the rise of generative artificial intelligence introduces both a challenge and an opportunity for family enterprises that have long negotiated how to maintain their values and succession goals while evolving with the times.
To better understand how family businesses can adapt to AI, Verbit analyzed data from PwC's Global NextGen Survey 2024. Respondents were next-generation members (called "NextGen") of family businesses; all were from companies with over $500 million in revenue. Survey respondents included third- and fourth-generation leaders of family-owned conglomerates across industries, including retail, hospitality, and manufacturing.
A family business is a company owned and run by multiple family members, often across several generations. Many members often hold shares of the enterprise; their approach varies widely based on geographical and cultural differences, regulatory environments, and interpersonal dynamics. It's worth noting that many of the world's largest corporations, such as Walmart, LVMH, LG Group, and Mars Inc., are family-managed enterprises.
While corporate-owned businesses have swiftly adopted AI tools in their operations, family businesses—constituting around 7 in 10 of the world's gross domestic product and providing jobs for nearly 60% of the world's workforce—have been slower in adopting AI, despite eagerness among the next generation, according to the PwC survey.
Approximately half of family businesses either have yet to explore AI or have presently ruled it out. The survey revealed that only 12% of NextGen leaders reported being currently active in generative AI; a modest 7% of family businesses said they've implemented it.
Generative AI—with its capability to create images, text, code, and other forms of content—has opened up new opportunities across industries. GitHub Copilot, which aids programmers in generating code, and Boost.ai's ability to automate customer support through AI-powered chat are just two of the myriad AI tools companies are leveraging to boost productivity, efficiency, innovation, and growth.
Family businesses are apprehensive about AI
Despite the accessibility and relative ease of integration for most tools, family businesses are taking a more cautious approach to adopting generative AI, which reflects the unique challenges they face. Family-owned firms tend to value long-term stability, reputation, family legacy, and longstanding relationships, in contrast to their more transactional corporate-owned counterparts. Compared to newer, more nimble startups or publicly traded firms with large amounts of capital, this approach might seem overly prudent. Yet it's these same values and priorities that contribute to the trustworthiness of family businesses in the public eye.
As noted by PwC, one key reason for family businesses' cautious approach to AI adoption is their limited means of raising funds for investments compared to publicly traded companies. Furthermore, as consumers' most trusted type of business, family businesses risk undermining their reputation should AI implementation go awry.
That said, the study found that in family businesses, the next generation is less risk-averse about AI adoption due to their personal experiences with technology. Members of the rising generation are also bullish about the prospects AI will bring upon adoption, according to the survey. CEOs, however, are more cautious in implementing AI and express cybersecurity and bias concerns.
The next generation of family businesses may have some catching up to do. According to PwC's 2023 Emerging Technology Survey, large companies have already adopted AI tools in business, with over half (55%) of executives surveyed reporting that their companies made significant AI investments over the previous 12 months. Moreover, 89% of executives indicated budgetary increases in technology, potentially to fund AI initiatives.
Automation comes with risks for family businesses
Concerns about AI adoption are not unfounded. Respondents identified cybersecurity, misinformation, legal and reputational risks, and systemic bias as four significant risks associated with AI, with the next generation being less concerned about them than CEOs.
AI tools occasionally encounter hallucinations that generate inaccurate information based on insufficient data. Moreover, biases can seep into AI's decision-making, potentially exposing a firm to legal action if the biases infringe upon the rights of protected categories of people.
The study illustrated two clear trends among the next generation. They trust emerging technologies more, are less risk-averse, and see significant benefits in a tech-forward business approach while believing that ethical practices and maintaining trust are vital to the business.
As younger family business leaders take the helm of their family businesses, we may see a more open yet balanced approach to AI that respects and values traditional principles.
Story editing by Alizah Salario. Additional editing by Elisa Huang. Copy editing by Paris Close. Photo selection by Clarese Moller.
