Thursday, 7 November 2013

The Family Innovator's Dilemma: how family firms approach discontinuous technologies

The unique properties of family firms are often characterised by four Cs. Continuity, their commitment to longevity; Command, concentrating power within leadership, not across the organisation or with shareholders; Community, the organisation in some ways resembling an actual family; and Connections, with close relationships to suppliers and stakeholders. In a recent theoretical paper, Andreas König and colleagues consider the impact such qualities have on the uptake of discontinuous technologies, game-changers like e-publishing, online news, or biotechnology. They suggest that although family firms are free from typical 'innovator's dilemmas', they trade these off for some profoundly psychological obstacles to taking on the Next Big Thing.

The first trade-off is that family firms are less formalised than other organisations, but more mentally rigid. A formalised business absorbs and processes information using standardised approaches – information-gathering is assigned to certain roles, using prescribed methods, such as visiting trade fairs, or annual audits of business processes. Similar to installing a radar screen, this makes it easier to spot what you are looking for – typically, trends that are likely to have impact on short-term performance – but also easier to miss things that go beneath the radar, such as  discontinuous technologies. Family firms tend not to be formalised, as the community aspect of family firms encourages more informal information-sharing, and its continuity aspect makes it receptive to conversations on wider issues that might turn out to have long-term benefit.

But according to König, family firms end up trading external regimentation for an internal one. Mental models are the ways individuals see and think about the world, and evidence suggests that organisations with less change thanks to long employee tenures – family firms fit squarely in this category – end up with less flexible and diverse models. People tend to see things the same way, and the same way they've always done. This makes it harder to identify new technologies, and if they are implemented, to fully recognise the ramifications for the whole of the organisation.

The second trade-off surrounds the decision to adopt technology after it has been identified as potentially useful. The classic 'innovator's dilemma' describes how established companies, lacking both the family firm's focus on continuity and the oomph of top-down control, prefer to invest in continuous innovations (such as minor process improvements) to fulfil short-term financial obligations to shareholders, even when discontinuous ones better serve its long-term prospects.

The 'family innovator's dilemma' is rather different: an innovation may be best for the future, but can we justify the short-term disruption this will cause to the company – to the family? Adopting new technologies can be painful, involving lay-offs and acquisition of new skills, as well as diverting funds and focus from existing projects. The community focus and desire for employee continuity may paradoxically hamper taking steps in the long-term interest. Successful family firms are hardly sentimental, and accustomed to making tough decisions, but collateral damage due to a break with the old ways may feel like violating a compact made with organisational members.

On the plus side, when a family firm does decide to adopt a discontinuous technology, it is well equipped to get it up and running. This is thanks to its lower levels of formalisation and bureaucracy, coupled with a long-term willingness to sustain investment even when results are not immediately apparent. The study authors suggest that if family firms can learn to widen their knowledge bases and flex the mental models of their members, then they may reap substantial benefits from the discontinuous technologies emerging in our age.

ResearchBlogging.orgAndreas König, Nadine Kammerlander, & Albrecht Enders (2013). The Family Innovator's Dilemma: How Family Influence Affects The Adoption of Discontinuous Technologies by Incumbent Firms Academy of Management Review, 38 (3), 418-441

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