Study: Family firms lead in innovation

By April Hall

 

Family businesses are among the most innovative in their industries, according to a recent study by an international team of researchers.

When they looked at investments in new ideas -- in both time and money -- Patricio Duran of Universidad Adolfo Ibáñez in Chile, Nadine Kammerlander of WHU—Otto Beisheim School of Management in Germany, and Marc van Essen and Thomas Zellweger of University of St. Gallen in Switzerland found that family firms can be more innovative than non-family firms. The findings were published in the Academy of Management Journal.

The study, which compared money spent on research and development with new products, patents and patent citations, found that family firms were more successful by ratio of input to output and by return on dollars invested.

The researchers examined 108 empirical studies focused on 42 countries published between 1981 and 2012 for their meta-analysis. Through investigating statistics in these studies and their correlation, they were able to “discern significant relationships between family control of a firm, its innovation input, and its innovation output while controlling for a series of study-, firm- and industry-related factors.”

One interesting point the group noticed, Kammerlander tells Family Business in an email interview, is that later-generation leaders of family businesses invest fewer resources in innovation, indicating that they are more risk-averse than business founders. This could be because founders take great risks in establishing the business.

“But even if their [next-generation leaders’] spending is risk-averse,” Kammerlander says, “their innovation output is great.”

Industry expertise enables family firms to invest conservatively in innovation but still get great results, the study authors noted in a Harvard Business Review piece explaining their findings.

“Because of their long relationship with the firm, family owners typically have a deep knowledge of the industry, the firm and its stakeholders,” Kamerlander and van Essen wrote.

“Moreover, many family firms profit from their ‘family-like’ culture and their close relationships with a handful of partners, from suppliers to customers, who can help these firms develop their creative ideas, products and processes,” the researchers wrote.

Based on that “family” atmosphere, leaders in family businesses often empower any employee to come up with new ideas. The researchers used W.L. Gore and Associates as an example, citing the company’s “think outside of the box” culture.

One of Gore’s “guiding principles” noted on the company’s website is “Freedom: We encourage each other to grow in knowledge, skill, scope of responsibility and range of activities. We believe that Associates will exceed expectations when given the freedom to do so.”

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