INNOVATION IN FAMILY BUSINESSES: HOW TO FACE THIS CHALLENGE?
On another occasion, we addressed some of the challenges faced by family businesses. For many family-run organizations, another barrier is present: innovation. It is very common for people to associate family businesses with square organizations, averse to risk and lacking the ability to innovate.
THIS VIEW IS EXPLAINED BY SEVERAL FACTORS:
Family business whose leader has not had work experience elsewhere tends not to be interested (or uninterested) in innovative ideas from other industries.
In some family organizations, there is the idea that “no one understands our family and our business as we do”. This leads to an unwillingness of family members (especially those who have been in the business for decades) to adopt good ideas from outside.
As all the chips are invested in the family organization, family members tend to be a little afraid of taking risks, which often ends up stagnating the company.
Innovation in family businesses is something much discussed and our proposal today is to show both sides of the coin:
· Characteristics of innovative family businesses and
· How to put innovation into practice in family businesses
To start, let’s get to the question:
HOW DO FAMILY BUSINESSES WORK WITH INNOVATION?
The Harvard Business Review released an article entitled Research: Family Firms Are More Innovative Than Other Companies. According to HBR, family businesses invest less in innovation, but when they do, they are much more accurate and efficient.
As we presented in the introduction, family members tend to be fearful of taking risks precisely because virtually all eggs are placed in one basket. As it turns out, for innovative family businesses, this isn’t a particularly bad thing.
Harvard Business Review research found that this fear of taking risks makes family business owners more parsimonious about investments in innovation. In this case, innovation in family businesses only occurs after the certainty that the resources will be used effectively. Thus, family organizations are more patient with their capital in the sense of avoiding innovating for the sake of innovating.
A positive point for Innovation in family businesses is time to market. The Harvard Business Review points out that innovation was perceived in family businesses whose owners have a deep knowledge of the sector, the company, and its stakeholders. “They also spend considerable time with the organization and communicate frequently with employees, customers, and other stakeholders,” says the article.
Another point highlighted by the survey has to do with leadership generation. As HBR shows, companies led by members of the younger generations are more innovative than those led by their founders. When they innovate, family businesses managed by founders are less efficient, that is, they have fewer results than what was perceived in companies led by new generations.
HOW TO PUT INNOVATION INTO PRACTICE IN FAMILY BUSINESSES?
First, innovation in family businesses has a lot to do with culture. A paternalistic culture, in which leaders hold power and make key decisions, tends to be closed to new ideas, which makes the process of innovating difficult.
When the successor is faced with this situation, he must understand that the path to reverse this scenario can be long. This will often mean adopting a more participatory culture, and of course, this doesn’t happen overnight. As explained in this article, the successor’s first step is to identify the company’s culture pattern.
The culture is linked to the values of the founders, and this must be maintained, as long as these values are not barriers to innovation. Therefore, innovation in family businesses only occurs when the culture is gradually modified in what is necessary.
The Harvard Business Review, in the same article, comments that family business leaders must be committed and informed about what happens in their organizations. In this case, the successor must also encourage innovation, sharing information with his collaborators and allocating resources to innovative projects.
The HBR research also identifies that innovation in family businesses happens when meetings between CEO and employees are promoted. This can be either in a lunch with CEO and employees, in the organization of events and workshops, or even through a chat so that the top leadership gets closer to their subordinates.
As a successor interested in bringing innovation to the business, keep in mind that employees must feel like part of the company, knowing exactly what is expected of them and what the organization is headed for. This is the only way that thinking about and developing new products, processes or services will make sense for employees.
If there are family members who are averse to innovation, a good way to change this mindset is to present data from competitors and compare the results achieved by them and your company, and carry out market analysis in the medium term. Information based on numbers is more reliable and will open the eyes of other members regarding the need to take a step toward innovation.
Since innovation in family businesses doesn’t happen by magic, stipulate a budget for innovative projects and monitor the results. As the company’s cash registers feel the difference, the other leaders are more open to innovation and more money can be allocated.
Innovation in family businesses can be much more efficient than in non-family businesses, as research from the Harvard Business Review points out. Despite this, we still see many successors struggling to introduce innovation into the company.
As we have tried to show, successors must first assess the organization’s culture. Then, it is necessary to introduce small changes so that this culture is not averse to innovation. It is necessary to remember that inspiration comes from above, therefore, innovation in family businesses is only possible when the entire leadership acts as an incentive.
Providing space for the exchange of ideas and intensifying contact between leaders and followers is essential. Furthermore, as we live in a highly competitive environment, today’s successors must be even more aware of what is happening both in their industry and in others.
Finally, do not forget that communication must be transparent. If you, as a successor, have taken over a business with a more paternalistic culture, gradually give your employees space so that they can participate in decision-making. And don’t forget: ensure that your company’s strategic planning has room for innovative projects.