One of the big benefits of a family business is their freedom from short-term pressure. Niels Christiansen, CEO of family-controlled Lego, says about family businesses: ‘They outperform non-family ones, and the reason is their longer-term view.’
Without shareholders clamouring for quick returns, family businesses should be able to take bigger risks. Yet when it comes to innovation, sometimes they can be more cautious, not less.
The problem: the ‘we tried this in 1985’ mindset
Family businesses have long memories (often because the people leading them stay in their posts much longer than their corporate counterparts). And this can make them ‘once bitten, twice shy’.
Heinz Leopold, brought in from Unilever to shake up the German family-run coffee giant Tchibo, says on our Family Formula podcast: “The business history is linked to the family history: some uncle or son had an idea that didn’t work out. The family remember those disasters where what they think of as their money was wasted. But always thinking of it as your own money can make you conservative in decision-making. And times change. Just because something didn’t work in 1955 or 1985 doesn’t mean it won’t work today.”
And they can be reluctant to change the formula that got them where they are now. Leopold explains, “They will always say, ‘This is how I made my four billion. It can’t be wrong.’” That can make them slow to embrace new technology, for example. Our principal, Gilmar Wendt, says, “Take digital: it’s where the generations in family businesses are often split. The younger generation, who’ve grown up with it, are quite happy, but the older generation are sceptical.” According to research by PwC, only 25% of family businesses are worried about digital technology and competitors disrupting their market – a much lower figure than in corporates. That either makes them supremely confident, or worryingly naïve.
So how do you get family businesses to embrace the freedom to innovate that should be one of their greatest strengths?
“It’s the one thing that’s absolutely transforming most companies, and most family businesses are scared of it”, says Gilmar. “The German insurance giant Ergo fully embraced digital innovation by creating a whole new business within the group, Ergo Digital IT, based in Warsaw and Berlin. But they needed to attract an international employee base with very specific skillsets in order to lead and participate in such a big change. We created a whole new website and employer brand, including produced videos – starring current employees. Naturally, digital affects your recruitment, your marketing and what you say about your brand in the outside world.”
Make the whole business comfortable with innovation
But it’s not just an external thing. Digital is a cultural shift as much as it’s a technological one, which means how you communicate it internally is critical too. “So, when international lighting group Zumtobel created its own service brand, we trained a team of brand ambassadors to help get their colleagues excited about the new brand and its innovations.”
Gilmar continues, “We also run innovation workshops to help senior teams see the benefits of trying new things. In family businesses it takes some buying into – but once they’re convinced, they’re good at getting things done quickly.”
Empower the younger generation
If they’re the ones in family businesses who are enthusiastic about doing new things, the older generation need to give them the licence to try those things out. The ‘Father’ from our first podcast says, “I’m very happy that in my daughter I have a [tech] evangelist on my side. I’m being led into new areas that are exciting, I feel rejuvenated by it, and I enjoy passing on the responsibility.”
That empowerment doesn’t have to be right at the heart of the current business. According to PwC, 54% of family-run business start-up new entrepreneurial ventures. That’s the perfect proving ground for the younger generation – without having to risk the core of the what the company does. And of course, they can get expert help from outside to help. Our podcast ‘Daughter’ says of working with Gilmar on a new initiative: “I was really struck by the clarity and insight that he was able to provide. It really helped us to interrogate effectively what it was we wanted to do, and what it was we could do, and to define that.”
Full series: Five ways family businesses can flourish
Fiona Unsworth is Strategy & Development Director at GW+Co