It strikes me that one of the most interesting areas of research around the world of family enterprises today is innovation. There are a number of reasons for this, but, from my perspective, two stand out.
One is obvious and involves how family businesses continue to remain innovative even though the original entrepreneur may have long since died. But, the other reason, and I think the more fascinating involves two interconnected points. Talk to any family business owner and ask then about innovation, and they will inevitably become very enthusiastic. But they will almost always give a completely different answer to the question than their counterparts at other family businesses. So, here’s the bigger point: there’s a lot going on around innovation in family enterprises, and the challenge for the advisory world is to better interpret these different themes emerging around innovation.
I talk to many family businesses and family investment groups every year through my website Family Capital, but also through writing the annual Family Business YearBook for EY. And the one subject that really brings family enterprises alive is innovation. Yes, family owners will talk about succession, the next gen, governance, but often there’s something a bit samey about their responses. But ask them about innovation and they will spark up and give you very different answers.
Recently, I spoke to Jørgen Mads Clausen, the chairman of the Danish company Danfoss, and asked him how his company innovates. Danfoss is good when it comes to innovation. Back in the 1930s, Danfoss was a pioneer in the development of refrigeration technology – what Jørgen said was equivalent in technological terms back then as the smartphone has been for us over the last 10 years. Jørgen said that innovation at Danfoss was a bit chicken and egg in its interpretation – first, you need the technology and then you get the innovation. He also talked about the idea of promoting the concept of the “moon landing” within the culture of the company. This is a way to achieve good innovation, reckons Clausen. Innovation led to the landing on the moon, but how they got there was also due to meticulous planning. This, says Clausen, is good innovation, which can be translated into products and services customers want.
I also recently spoke to Guido Vanherpe, CEO of La Lorraine Bakery Group. The Belgian company is one of the biggest bakery businesses in Europe, and Vanherpe represents the third generation of the family owners. Vanherpe says that innovation is interchangeable with entrepreneurship. “You don’t have one without the other.” Vanherpe takes a strategic view of what innovation isn’t. He reckons acquisitions can undermine innovation, especially if it involves buying a business that has a culture very different from core company. So, for Vanherpe, innovation is best promoted through organic growth.
And here’s another view on innovation that reinforces the view that innovation is so multi-faceted for family businesses. For Heinrich Jessen, the head of the Singapore-based family business Jebsen & Jessen, innovation means to continue to move up the value chain for his business. Jebsen & Jessen is an industrial enterprise, spanning manufacturing, engineering and distribution. So it’s in many sectors, and that’s where moving up the value chain, across different sectors, makes real sense when it comes to innovation for Jebsen & Jessen.
Just these three views on innovation open up a wealth of thinking on the subject. The commonality from a family business perspective is the long-term aspect of achieving these goals. These three businesses aren’t talking about quarterly innovation targets, nor one-year targets, but five-year targets and beyond. But all three views are also completely different – yes, the three family business owners would probably agree about the importance of each other’s ideas, but they are expressing very different views when it comes to what innovation means to them.
A recent Harvard Business Review article by academics Nadine Kammerlander and Marci Van Essen underlines the growing importance the subject of innovation is becoming for family businesses. It also showed how family businesses are often much more innovative than non-family businesses. Of course, that view would appear to be counterintuitive. How can a family business be more innovative than a Silicon Valley startup? But then, businesses don’t survive over multiple generations by being bureaucratic, they need to continually innovate. And often they bring the next generation into the business precisely because of this reason.
But what further makes this such an interesting subject is what constitutes innovation for one family business is likely to mean something completely different for another family business. The challenge for us as observers of the sector is to look at these different views and come up with some common themes, but also highlight the differences.
Work by academics and the advisory community is highlighting the growing importance of innovation and the family business. But I believe it is still in its infancy, and that’s what makes it so interesting.