Embracing innovation in the family business

Enrique Soriano —CONTRIBUTED PHOTO

Enrique Soriano is an author, professor of global marketing at the Ateneo Graduate School of Business and a senior fellow at the IPMI International Business School in Jakarta. He serves as the executive director of the Wong + Bernstein Group, an Asia Pacific-based strategic advisory firm specializing in family governance, succession and next-generation leadership. Additionally, he holds the position of independent director at Emperador Distillers and Travelers Hotel International (developer of Newport World Resorts) and serves as a board advisor to 25 family businesses in Asia.

Question: What should the next generation of entrepreneurs be mindful of compared with the first generation?

Answer: In today’s dynamic and competitive business landscape, family members must acknowledge the hard truth: only through change and innovation can the enterprise survive and thrive. The rapid evolution of digital technologies and data-driven strategies is essential for both efficiency and competitiveness. It is, therefore, crucial for families to recognize that what is functional today may become obsolete tomorrow.

Amidst this drive for innovation, the next generation successors should also remain mindful of the humble beginnings of their predecessors, who often started with nothing more than the shirts on their backs. Moreover, it should build upon the legacy of their founders by fortifying their impressive growth with robust governance structures. This proactive approach not only strengthens the foundation laid by their forebears but also cultivates a culture of stewardship and accountability.

The cautionary tale of “shirtsleeves to shirtsleeves in three generations” looms, urging a delicate balance—embracing innovation while preserving founder values for enduring prosperity.

Q: For family businesses focused on long-term legacies, how do they balance short-term innovative gains with strategies that ensure sustained innovation over generations?

A: To strike a balance between immediate gains and enduring success, family businesses must pursue both quick wins and sustainable strategies. They should remain open to innovation and constantly seek opportunities for improvement. Strategies for achieving this equilibrium include instilling a culture of adaptability, establishing a dedicated innovation committee, integrating scalable technologies, exploring external partnerships and incorporating innovation into succession planning. In my work, I would constantly encourage family business leaders to invest in the education and learning innovation of the next generation. This includes opportunities for cross alliances overseas.

Q: In terms of governance structures, how do family businesses create frameworks that support and encourage a continuous flow of innovative ideas within the organization?

A: Family businesses can foster a continuous flow of innovative ideas by creating inclusive governance structures that prioritize open communication and idea sharing. This can be achieved through a dedicated council that comprises proactive family members exchanging notes and ideas with internal and external experts. The mandate is to identify and evaluate opportunities, technologies and market trends. Once a space for diverse representation is established, a reward system for successful innovation initiatives must be considered. This initiative can contribute immensely to a culture where creativity is valued.

Q: Are there specific cultural elements within family businesses that foster or hinder innovative thinking?

A: The presence or absence of change significantly influences innovation within family businesses. Innovation thrives in environments characterized by open communication, collaboration, a willingness to take risks and a long-term vision.

Conversely, hindrances to innovation include insufficient communication, aversion to risk and a focus on short-term gains. The adaptability of the culture, acknowledgment of innovation and inclusive decision-making are pivotal factors.

Striking a delicate balance among these elements is crucial for cultivating an environment that fosters creative thinking and ensures sustained innovation in family businesses.

Q: Are there particular challenges that family businesses face when introducing innovative practices during succession transitions?

A: In my experience assisting Asian families, a significant hurdle for family businesses arises when the younger generation seeks change while senior leaders cling to established practices, guided by the “why change when it’s not broken” mindset.

Achieving a delicate equilibrium between preserving family business traditions and embracing novel concepts proves challenging. It’s akin to navigating a tightrope—embracing new ideas while respecting the old ways. Striking this balance facilitates the seamless growth of the family business, harmonizing the strength of tradition with the vitality of new ideas.

Q: For family businesses rooted in tradition, what strategies can be employed to introduce innovative practices without compromising core values?

A: Harmonizing tradition and innovation in family businesses necessitates inclusive discussions within the family, ideally creating a forum—referred to as a “blue zone”—where the voices of the younger generation are actively heard, fostering the generation of innovative ideas. This zone also promotes mentorship programs.

Emphasizing once more, any advancement of change must be fortified through family governance structures. Leaders can bolster this process by formulating rules, crafting family agreements and implementing initiatives like successor training and cross-generational tasks.

When done right, these governance initiatives can seamlessly integrate tradition and innovation, preserving core values while embracing progressive practices.

Q: What role does risk-taking play in fostering innovation within family businesses, and how do they manage and navigate the associated challenges?

A: Risk-taking serves as a cornerstone for innovation in family businesses, serving as a catalyst for growth and the inception of new ideas. Notably, successful family businesses I’ve collaborated with embody the following qualities:

a) They foster a culture of calculated risk, recognizing setbacks as valuable learning opportunities.

b) They understand that navigating challenges involves cautiously embracing risk, implementing resilient practices and instilling a mindset that values experimentation.

c) They actively employ risk management strategies, encompassing thorough research, scenario planning and the establishment of clear communication channels.

By harmonizing innovation with judicious risk-taking, family businesses can adeptly navigate evolving landscapes, ensuring both stability and long-term prosperity. —Contributed 

Josiah Go is chair and chief innovation strategist of Mansmith and Fielders Inc. The 8th Entrep Summit, themed “Future Ready NextGen,” is slated for Jan. 30 via Zoom.

Visit day8.org for details.