The discourse around innovation in a family business has evolved over the years. Traditionally, innovation in family businesses might not come naturally, given the inherent characteristics of such enterprises. Firstly, the limited industry exposure and less ability to adapt to new work setups hinder innovation. In addition, there is inbuilt inertia within the management to incorporate outside ideas and suggestions, which arises due to the excess pride that one carries after years of business establishment. This sense of superiority becomes a blocker for future growth as the feeling of “we know it all” takes precedence.
Thirdly, family business’ members perceive risk as a negative impact on profit instead of an opportunity to do something big. They require an external nudge to take evaluated risks as they operate with the traditional thinking of “all of the family’s eggs are in one basket, thus why disturb it?” The key to the survival and growth of any business lies within its ability to innovate.
Contrary to popular misconceptions, the true essence of innovation runs way beyond product development. It involves everything that allows a firm to re-imagine, conceive and develop new processes, culture, offerings, and business models. It brings an extensive pool of valued outcomes for a family business and its stakeholders.
Many Indian family businesses like Haldirams and Dabur owe their success to continuous innovative practices. According to a survey by PwC in 2019, 66 per cent of the family businesses in India believe that continuous innovation is necessary for business sustainability, and categorise it as a challenge in the coming time. R&D activities go under a lot of testing procedures so there are lot of chances of failures but still they add value to the firm as stock market investors consider this very important while investing in a company’s shares.
Investing or continuously working in this department is one of the ways of achieving market leadership. Though it does not give instant results, it will help the company lead in the future.
Entrepreneurial spirit
Innovation can be categorised into knowledge innovation, radical innovation and product innovation. The Tatas have capitalised on each aspect of innovation over the years to support their ongoing entrepreneurial spirit. The knowledge innovation in the company stems from the involvement of family members in the business. The family members who led the management of the company were highly educated and understood the importance of applying knowledge to innovation. The same continues through TCS COIN (TCS Co-Innovation Network). Product innovation initially stemmed from investments provided by family members-owners-managers (in alignment with the resource dependence theory).
Radical innovation took place not only through disruptive technology but also through social and HR innovation. Eco-innovation is an emerging area wherein companies are investing to comply with the growing need for environmental sustainability.
Though this might not influence the firm value or stock price directly, it improves interactions between eco-innovation, regulatory and compliance agencies and the public.
With Godrej’s Good and Green Vision 2025, it has become a household name — a comfort brand. Additionally, its technological adoption to revamp e-commerce has strengthened its hygiene and household insecticide businesses. Over the years, the company’s EBITDA margins have also moved up.
Innovation management is treated differently across generational stages. There are mainly four broad categories highlighting how innovation capabilities are passed on to the next generations (Yin, 2003) — decline, transformation, consolidation, and preservation. Approaches towards innovation also change as new successors take the lead.
This evolution of innovation is influenced by different typologies of the founder (individual innovator, collaborative innovator, orchestrator innovator) and successors (prodigal child, game-changer, talent scout, faithful disciple).
As long as family managers choose to evolve with changing times, it’s a step closer towards securing business’s longevity, firm value and its unique social capital.
Sasidharan is an Assistant Professor, and Aggarwal is a IBM Student, at Jindal Business Global School, Haryana. The views are personal