Innovative hardly describes many family businesses, which are often derided as old-fashioned or rigid. In defense, these businesses claim that because they do not have the resources of conglomerates, they have no choice but to scrimp on budget, thus killing innovation before it can even begin.
However, Morten Bennedsen and Brian Henry of Insead Wendel International Center for Family Enterprise assert that innovation, far from being an afterthought, is actually integral to the family business, and “guarantees [its] survival.”
They cite two Asian examples: Formosa Plastics Group of Taiwan and Toyota Motor Corporation of Japan.
The children of Formosa Plastics founder YC Wang are embroiled in a succession battle (“Taiwan Family Feud,” June 15, 2015), but the company is surviving.
The children are extremely innovative: Winston created his own semiconductor business after being ousted; Charlene founded her own computer company; Cher founded a cell phone company; and Susan chairs the plastics division of the family business.
“Owner-managers are often in a better position than they think in building innovation at the core of their organizations, families and successors,” say Bennedsen and Henry in their piece “Fostering the Innovation Spirit” for The South China Morning Post.
“Family firms that already have a strong focus on innovation can use their family assets, history and legacy, networks and values, to institutionalize innovation … Members of the next generation who are drawn to the successful role models will want to prove themselves in joining the business.”
Sakichi Toyoda made his name through his power loom business, but instead of expecting his son Kichiro to be constrained by it, he encouraged the latter to go to the US, where Kichiro learned car making from no less than Ford himself.
Kichiro returned to Japan, founded Toyota, and the rest is history.
Silo effect
One sure way to kill innovation is to stay in your own corner, do your own thing, and avoid interacting with others. This self-isolation from others has been termed the silo effect by US anthropologist and finance journalist Gillian Tett.
In her book of the same name, Tett gives examples of how the silo effect is disastrous to companies. Take Sony, once an electronics giant.
Sony had been innovative at first, but over the years, it has grown complacent. Apple’s release of the iPod sounded the death knell of the Walkman, and in desperation, Sony appointed the first non-Japanese CEO in history—UK executive Howard Stringer—in 2005.
In his first address to the employees, Stringer said, “Sony is a company with too many silos!” and tried his best to get the people to communicate with one another.
But it was too late. Silos were already entrenched, and people did not want to leave their comfort zone.
“The team that made the PlayStation did not want anything to do with the television or music group, and so on,” says critic Philip Delves Broughton in a Wall Street Journal review.
“And so Sony kept producing hundreds of gadgets that didn’t work together.”
Now Sony is a mere shadow of what it once was and what it could have been.
According to Tett, Facebook is an example of an innovative company with few, or no, silos.
“Employees are rotated around projects, urged to switch teams, given new challenges. The corporate culture is reinforced with group activities and slogans printed on posters: Move fast, break things! Done is better than perfect! In meetings you are not allowed to talk about ‘those idiots in team six’ or ‘those stupid marketing guys’ … Employees are people first, their job title second.”
Innovate, before it is too late.