Despite being everywhere, disturbingly, most family businesses are watching the digital phenomenon passively. But if they don’t change this attitude and actively embrace digitalisation soon family-owned companies are unlikely to have a business in a few years time, let alone one to pass on to the next generation.
I have talked to many family businesses and believe that few are taking digitalisation, and how it might disrupt their business, seriously enough. Some time ago, I spoke to a book publisher who thinks that digitalisation isn’t going to destroy his industry like it did the music publishing business. But isn’t he making a big assumption? Those who know the power of disruptive innovation would say so. But his view is symptomatic of the attitude I’m seeing among many family businesses in plenty of different industries.
It’s now time for family businesses to really learn from the past and see how disruptive technologies have affected companies during the last 50 years. I would encourage those in senior positions at family businesses to read books like Clayton Christensen’s The Innovator’s Dilemma and the follow-up Innovator books he has written.
The Harvard Business School professor was among the first to come up with the idea of disruptive innovation and how it affects business. He described very precisely what has happened to several incumbent industries in the past that haven’t adapted. The examples he gives are very insightful for family business owners. My own research, focused on family firms, shows that those firms show some very specific dilemmas that are mostly related to legacy concerns and a lack of external perspectives when confronted with disruptive changes.
Family businesses can also look at the success stories among their counterparts when it comes to adapting to the digital revolution. In Germany there are a couple of great examples. The machine tool group Trumpf is a good case in point. The family-led firm is currently digitizing its entire production process and has recently launched its own system software for manufacturing. Also, Otto, a third generation mail-order company founded in 1950, which today is the second biggest online retailer in the world after Amazon. The agricultural machinery manufacturer Claas was also quick to use digital technologies to keep it at the forefront of a very competitive and traditional industry.
Those family businesses that are most successful with digitalisation are the ones that listen to younger people. Family owners also need to listen to non-family business professionals. Reflecting knowledge created by universities on family firm innovation might be another fruitful way to learn about the traps and prospects of digitization. It’s the family firms that are very open to new ideas that adapt fast and in a successful way.
In a recent practitioner conference at my university I had the opportunity to talk to many smart and committed next gen family members, who seemed to have a good understanding that something needs to be done in the near future – now they need to act. Otto, Trumpf and Claas showed they were open to new ideas, despite being businesses in very traditional sectors. So, the sector the family business is in is no barrier to embracing digitalisation.
Family businesses can also play to their strengths when it comes to digitalisation, as my own research shows. They have the ability to move quickly when adapting to new ideas and innovation. That’s because they are usually less bureaucratic than their non-family counterparts. They can also run with new ideas longer than non-family businesses, because they are less concerned about instant success and can take much more of a long-term approach to innovation.
Nevertheless, it would be wrong for family businesses to rely on the strengths of their businesses models alone to deal with digitalisation. As Christensen says in The Innovator’s Dilemma, those that fail to adapt to new technologies will eventually fall behind, and fail. Clearly, the consequences of not embracing the digital revolution are just too serious.
Professor Nadine Kammerlander is chair of family business and academic director of the Institute of Family Business at WHU - Otto Beisheim School of Management