When you hear the words “disruptive innovation” you might think of tech start-ups, the likes of taxi app Uber perhaps. You shouldn’t. You should think of family firms, because they are tailor-made for innovation and disruption.
That is, in essence, because of their long-term outlook. The thing about disruptive innovations is that they take time to pay off – they are not a short-term profit booster – so they are a good fit with long-termist family firms.
There is plenty of evidence that some family businesses can innovate much better than non-family firms. Take Beretta, a 16th-generation Italian firearms-maker founded in 1526, who are amazing at balancing innovation with tradition. They have a very strong family tradition and their new products are a combination of high-tech parts with very old, traditional craftsmanship. They prove that you don’t have to jettison the past to move into the future.
The best time for family firms to try disruptive innovation is at times of generational transition. At these times people in the firm are in an unstable mood – they have a lot of different views about the future goals of the firm. These multiple and competing claims create goal diversity in the family firm. The new leader can take advantage of this instability – or open-mindedness – to disrupt and innovate, to unfreeze the old status quo and move the firm to a new one. Succession can be the perfect catalyst for disruptive innovation.
Of course, it isn’t easy. The desire to change can cause conflict with the more conservative older generation. Family firms due to their noneconomic goals tend to preserve their “socioemotional wealth”, a kind of wealth that is non-monetary. This creates business aims like keeping family control, or providing jobs for the new generation. That drive is inherently conservative and is in conflict with the desire to innovate.
All this means that in family firms there is a “willingness and ability paradox”. The structure of family firms should make them very able to innovate, but they are sometimes unwilling to do so because of the conservative demands of socioemotional wealth. So it is very important to put in place mechanisms that can stimulate innovation.
That said, the older generation doesn’t always resist change. Founders tend to be very nervous about the changes their successors make, but later generation changes are often smoother because the older generation remember that they also innovated when it took over.
Also, there are times that a family firm has to innovate. Non-family firms tend to innovate at the start, then they become less proactive over time, and better at their day-to-day business.
Family firms, however, can be forced into disruptive change because the business has to support a greater number of relatives as time goes on – the business grows arithmetically, but the family geometrically. Sometimes it has to innovate to keep up. In most firms if you drew a graph of innovative activity it would slope linearly downwards, while for family firms it is a horizontal-S.
It might be tempting for successors to be dazzled by the possibilities of disruptive innovation, and for new leaders to ignore the complaints of older family members. But the innovators should listen. It is vital to keep the older generation on board when innovating because it is precisely the continuity and link with the family’s values are exactly what help family firms over-perform non-family ones in the first place.
Even the most disruptive innovators should keep one eye on the past.
Professor Alfredo De Massis is Chair in Entrepreneurship and Family Business at the Lancaster University Management School and is Director of the School’s Centre for Family Business.