Viewpoint: Give it to the “natives”. Why the next gen should lead the digital transformation of family businesses

Family businesses across the world need to embrace digitisation. And the best way they can do this is through the digital savvy next generation.

From my perspective, the greatest challenge for any business is the ever-increasing pace of change. Although traditional industries and their value chains have always been continuously evolving, the speed of change is becoming even faster with digitisation. This means it is essential for business decision makers to get up to speed with these changes to ensure businesses remain competitive.

The borders between industries have become increasingly blurred. Tech companies are leading this charge and giants like Apple and Google are constantly moving into traditional sectors. A good example of this is how Google entered the heating systems market in 2014 by acquiring Nest, a producer of home automation systems and thermostats. As such, Google was now competing with Viessmann, a long-established family business in the market, which had just recently celebrated its 100th anniversary.

Digital business models are lean and agile, which are necessary characteristics to cope with the ever-faster change. However, long-run family businesses are often said to be stiff and rigid in their structures, perhaps some are even outdated in the digital age. In fact, they have big advantages when confronted with change. They are often characterised by flat hierarchical structures, quick decision-making, and strong alignment between ownership and management. Hence, they often benefit from lower coordination and transaction costs, and quicker entrepreneurial decision-making.

A good example of these qualities is Viessmann. But how did Viessmann react when a company like Google starts to compete with its products? In fact, very well – and by embracing the next generation and adhering to its strong family business values. Viessmann recognised the upcoming threat and adopted a new strategic path very quickly. Back in 2014, the owner Martin Viessmann introduced a new position called the Chief Digital Officer.

The position has since been held by his son Maximilian, who previously attained a degree in industrial engineering and used to work as a strategic consultant at the Boston Consulting Group, as well as a business angel. Maximillian’s prior professional experience might not have qualified him as an eligible successor for the top position at Viessmann, but his working experience in the startup scene has been especially decisive for the digital strategy pursued by the company since 2014.

Digitisation is not only about the automation of processes through technological innovation, but much more about a digital mindset and cultural change driven by the vast amount of new digital opportunities. The current next generation of potential successors have grown up with digital technology and are therefore often described as “digital natives”. Consequently, many of the changes associated with digitisation are already common sense for them.

One essential pillar of the digital revolution is a fundamental change in corporate culture. Viessmann is a classic case of a German Mittelstand, which are internationally renowned for their “Made in Germany” high quality. What Martin Viessmann and his son Maximilian agreed to do was to tweak the culture at Viessmann – one that had been heavily based on the pursuit of perfection – by introducing the concept, familiar with so many startups, of failure.

For Viessmann, this meant a digital transformation, which was achieved through their own company building vehicle-based in Berlin called WATTx and also through a specifically established venture capital fund based in Munich called Vito Ventures. The company builder focuses on deep technology in the industrial and consumer area within the “Internet of Things”. With regard to the core business, this initiative could mean the connection of classic products with cutting-edge digital services.

The venture fund supports promising start-ups worldwide either in early or growth phases. Its investment focus lies on artificial intelligence and deep learning, for instance in the fields of Industry 4.0 (the current trend of automation and data exchange in manufacturing technologies), big data, smart home and industry, as well as other areas.

In my opinion, the next generation of potential successors like in the case of Viessmann pose a great and unique chance for family businesses to promote their digital transformation. But, since succession planning has always been challenging and is especially complex in the digital age, I think it is advisable to give over the banner to the next generation step by step in a cooperative manner.

This can create a fruitful environment for both generations in order to learn from each other and guarantee a smooth transition. As I have shown, the younger generation can provide necessary input and solutions regarding the family business when it comes to those all-important digital opportunities. On the other hand, the older generation can share its deep insights and know-how about the company, its strengths and weaknesses, and knowledge of their industry.

I believe – just like in earlier phases of generational transition – the next generation of digital natives should be embraced to provide a better chance for realising opportunities in an increasingly digital environment. In fact, family businesses need to encourage the next generation more than ever if they are to remain competitive.

Leopold von Schlenk-Barnsdorf

Leopold holds a Master’s degree in management from the European Business School (EBS) in Oestrich-Winkel, Germany and is now PhD candidate at the Witten Institute for Family Business (WIFU). His doctoral thesis is on innovation in family businesses. Apart from theory, he also has insights into his own family’s fifth generation business which was founded in 1879.