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Family business mentality

Family business

How can a “family business mentality” improve your digital transformation?

Published 1 December 2021 in Family business • 4 min read

Family businesses might not spring to mind when we imagine organizations at the vanguard of digital business model innovation. But family-owned enterprises are well-equipped for this journey and offer helpful lessons for others.

 

Most companies can cope with the adoption of digital technology in some areas of their business, such as adopting remote working tools during the pandemic or offering services via an app. However, with its continuous twists, turns and iterations, the digital transformation of an organization’s business model is a challenge on an entirely different scale.

On one hand, the goalposts move regularly as technological innovation, customer expectations and new market entrants continuously redefine the landscape. Then there is the risk that partners brought on board to help in this complex process seize any intellectual property and ideas behind a transformation or, worse still, the business itself.

The market is strewn with horror stories of digital transformations gone awry or unfinished, with millions of dollars wasted and competitive advantage lost. So, what can companies do to chart a better path through this treacherous terrain?

Our research shows that three of the key factors – or dynamic capabilities – that underpin successful family-owned enterprises also prove beneficial when it comes to managing the challenges, scale and risks of digital business model innovation. Perhaps surprisingly to some, family businesses are hard-wired to handle this deeply complex process well.

1. Exploiting knowledge

Because digital innovation is rapid and ongoing, digital business model transformation involves a relentless and fluid process of prototyping and roll out. This is a far cry from traditional business model transformation, and poses significant challenges for organizations, from decision making to implementation.

At the heart of any successful family business is the desire to pass on economic and social values and resources to future generations. This long-term, collaborative and trust-based approach enables a smoother transfer of knowledge and expertise than might be seen in non-family-owned companies.

2. Managing risk

Digital technologies carry novel and often unpredictable risks, from data privacy concerns and cyber-attacks to the challenges associated with relying on external partners. As such, risk management is crucial to drive digital business model transformation.

The longer-term view that underpins the archetypal family business means that careful risk management is core to success. Over time, this multi-generational “longevity” approach creates highly effective and collaborative learning and risk management processes. In turn, family business develop an advantage in the way they assess and scrutinize risks.

 

3. Marketing power

Successful digital business model innovation involves the ability to adapt in a nimble, informed and sensitive way to changing customer needs and market conditions. This calls for advanced marketing power.

In family business, customer and business relationships are developed with longevity, trust and stability in mind. Heavily-involved family owners are instrumental in the careful management of these relationships, including online communities. At the same time, decision-making and choices regarding new collaborations face fewer hurdles and relationships are easier to maintain.

This tuned-in, conscious approach means family businesses are better equipped to respond to the needs of the market and more focused on customer needs. This means the marketing power of family-owned enterprises is aligned to the needs of digital business model innovation.

One example of an estab-lished firm developing digital BMI is Voith, a traditional machine and plant manufacturer owned by fifth- generation family members, offering a vehicle communication platform that connects on- board systems in public transportation with several cloud- based functionalities

When it comes to digital business model innovation, there is plenty that family businesses can do to leverage their innate strengths to succeed in digital business model innovation. And non-family-owned businesses can also learn from the way family businesses operate to enhance their own digital journeys.

 

This article is based on the research article Family Influence and Digital Business Model Innovation: The Enabling Role of Dynamic Capabilities by Jonas Soluk, Ivan Miroshnychenko, Nadine Kammerlander and Alfredo De Massis, which was first published online in the FT50 journal Entrepreneurship Theory and Practice in March 2021.

Authors

Ivan Miroshnychenko

Ivan Miroshnychenko, who joins IMD as a Research Fellow and Term Research Professor in November, is an Assistant Professor of Economics and Management at the Free University of Bozen-Bolzano.  

 

Alfredo De Massis

Alfredo De Massis

Alfredo De Massis is a Professor of Entrepreneurship and Family Business, ranked as the most influential and productive author in the family business research field in the last decade in a recent bibliometric study published in the European Journal of Family Business, and he provides intellectual contributions to IMD by working on collaboration and scientific advisory activities as the Wild Chair in Family Business.

 

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