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Innovation: "Family businesses are better at further developing products"

February 12, 2021

reading time: 6 minutes

by Klaus Rathje, guest author

Prof. Dr. Nadine Kammerlander, Institut für Familienunternehmen und Mittelstand, Lehrstuhl für Familienunternehmen, über Innovation

Family businesses are important for economies around the world. Professor Nadine Kammerlander is well-acquainted with the their advantages and disadvantages.

Mrs. Kammerlander, as a professor you impart knowledge to young people. What do students think about family businesses?

Many students don’t have family businesses on their radar at all. Having said that, our family business courses are always full. My goal is to convey to students that sooner or later, they will deal with family businesses – for the simple reason that there are so many of them. In addition, in my lectures, I demonstrate just how exciting family firms can also be as employers. In order to continue to forge ahead with digitalization, it’s important that the mechanical engineering company from the Swabian Alb, for example, is also included in the discussion. These companies need young people with the appropriate skills to achieve this.

Does digitalization tend to be easier or more difficult for family businesses compared to large corporations?

There are some great examples of companies that happen to have the right people leading them. For example: the heating systems manufacturer Viessmann, where the son recently took the helm, operates the "Maschinenraum" in Berlin. This is a platform through which medium-sized companies want to jointly drive forward digital innovation. However, this is still the exception rather than the rule. In general, family firms tend to struggle in this area. This is partly for emotional reasons, for example, because they don’t want to give up their grandfather’s business model or cannibalize it through digitalization.

Promoting digital innovation in family businesses

But there are also structural reasons, because many family businesses are led by people over the age of 60, 70 or 80. Of course, they bring a lot of experience to the table, but they haven’t grown up with digitalization. In addition, the company headquarters are often located in rather rural areas such as the Lüneburg Heath or the Swabian Alb or the Middle Rhine Valley – these are not exactly the locations where young, digitally-savvy people who graduated from university in Hamburg, Berlin or Munich want to go.

This is exactly why Christian Berner, who took over the Berner Group from his father in 2012, moved the holding company’s headquarters to Cologne – he couldn’t attract digital natives to Künzelsau.

Yes, that is another example of successful digitalization. And it shows that once family businesses decide to implement a digital transformation, they can be really good at it, sometimes even better than other companies, because they have someone at the top who is convinced of the change and is also good at getting it done.

How do you think family businesses fare overall in terms of innovation?

"Family entrepreneurs invest less money in research and development, but get more innovation out of that money."

When it comes to incremental innovation, that is to say, the further development of products or processes, family businesses are more successful. Together with a colleague, I did a meta-study on this based on 100 individual studies. It showed that family entrepreneurs invest less money in research and development, but at the end of the day, they get more innovation out of that money. If the family has a good culture, they can sometimes also make totally "crazy" suggestions. They have much more freedom to leave their own comfort zone. That is an absolute innovation driver.

Value-based entrepreneurship at LGT

LGT has been managed by the Princely Family of Liechtenstein for over 90 years. 

More in the company profile

And what about disruptive innovation?

When it comes to radical innovation, it gets more difficult, because many family businesses have a long tradition that they don’t want to destroy. In such cases, people tend to say, "But we’ve always done it that way." The second problem is that disruption also costs money, and that money can end up going down the drain. The money used for such innovation is usually the company’s own money – which can make it more difficult to make a risky decision. But family firms that have decided to introduce radical change are sometimes even more successful because they have the staying power. A family business owner tends to think in terms of decades; they think about the next generation.

But conflicts with the next generation often arise...

"Constructive disagreements can also help a company move forward."

Yes, but constructive disagreements can also help a company move forward. And if the people know each other well, they can manage conflicts better. With family members, there is a much better understanding of how to talk to each other or criticize something before things escalate. And if an argument really does emerge, it doesn’t immediately destroy the whole relationship, because they’ve also had a lot of positive experiences together. Things get difficult when the conflicts date back to childhood, such as jealousy or envy between siblings.

All in all, would you say that the advantages outweigh the disadvantages at family businesses?

Yes. If you look at the success of all family businesses as a whole, there is no significant difference compared to other businesses. However, some family businesses continue to operate purely based on tradition, even if they no longer make a profit. On the other hand, you also have many family firms that are performing very well. This segment of the family business community has successfully addressed challenges – such as succession or digitalization – and has understood how to expand and leverage the specific advantages of family businesses. These advantages cannot be imitated, because the CEO of a corporation cannot say, "Let’s pretend we’re a family and have known each other for 30 years."

Not the Swabian Alb - family businesses in search for talent.
Prof. Kammerlander: "Lüneburg Heath or the Swabian Alb  – these are not exactly the locations where young, digitally-savvy people want to go".

From a research perspective, what exactly constitutes a family business?

That is a question that can easily keep a researcher busy for an entire week. It really depends on what the research is examining. If I want to explore the culture of a family business, then BMW does not fall into that category, because employees at the BMW plant in Dingolfing don’t know who Mrs. Klatten is. But when it comes to issues such as relocating jobs abroad, it makes perfect sense to consider BMW a family business because Susanne Klatten and company have the power to influence such decisions as a family through their supervisory board functions.

Generally speaking, a company is considered a family business from the second generation onwards. Sometimes this comes about unexpectedly. I once heard about the son of the head of a company who was never supposed to join the company. Sometime later, as an adult, he bought out the only shareholder who was not part of the family. He then went to his mother, the head of the company, and greeted her with the words, "Mom, from today onwards, we’re business partners."

Prof. Dr. Nadine Kammerlander

The Chair of the Institute of Family Businesses at WHU – Otto Beisheim School of Management in Vallendar, near Koblenz, studied physics in Munich and received her doctorate in business administration in Bamberg. Her interest in family businesses began during her time as a consultant at McKinsey & Company. Nadine Kammerlander is currently conducting research on internal corporate ventures as intra-company units that can drive digital transformation in family firms.

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