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Article Information

Family Assets and Liabilities in the Innovation Process

EXECUTIVE SUMMARY

 

Introduction

To many, common family firm qualities like tight control, risk aversion, and lengthy CEO tenure suggest that innovation within the firm might often be suppressed. But family firms can be highly innovative. Prominent examples include Toyota -- which is known for its sustained, incremental process innovations, and Lego -- which has undergone recent dramatic innovation in management. One thing is clear: the lack of sustained research effort in the space of family firm innovation has lead to competing perceptions. Are family firms innovative or not? Conflicting findings may stem from not sufficiently examining the role of “family assets,” the value-creating resources that are unique to family firms: name, reputation, legacy, network ties, and intangible values can all have an effect on the process of innovation.

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An Auchan SA "hypermarket."

Family Assets

What sets family firms apart is their ability to base their businesses and innovation strategies on specific kinds of resources that are unique to family firms. Because “family assets” like brand legacy and shared values are often established over the course of many generations, rival firms face difficulties in imitation and family firms typically derive substantial competitive advantages as a result. The glue that binds families and resources together is feelings of kinship and other emotions, paired with direct ownership stakes. These factors can induce higher levels of commitment among family owners. As such, family assets contribute strongly to the value creation and appropriation of family firms.

Innovation

The Mulliez family is the owner of one of the largest retail empires in the world. Beginning with a textile manufacturing operation in 1903, founder Louis Mulliez-Lestienne built a brand named Phildar which principally sold knitting and sewing supplies. His family inherited the business, building their empire on a mix of internalized values and family assets, including a Catholic background, strong work ethic, entrepreneurial spirit, and desire to form a strong network in the retail sector. In 1961, Gerard Mulliez founded Auchan, “France’s Walmart.” Today, Auchan SA is one of the world’s main distribution groups, with a presence in 12 countries and nearly 270,000 employees.

Family assets informed the basis of this family business’s growth, and the increasing number of family members forced the firm to innovate both in organization - through new ownership, finance, and educational structures - and in business strategies, by inspiring new family members to become primary stakeholders by engaging in new business proposals. The network advantages of a large family is one prominent example of an innovative advantage held by family firms versus non-family firms. While non-family firms can also create external networks that are useful to the innovation process, family firms can more easily inspire trust because each new member is automatically conferred the reputation and trust built over the course of the family firm’s history.

Family assets like brand legacy and shared values are often established over the course of many generations.

Implications

Family firms are the most common form of business around the world, and can be just as innovative as other top firms because of certain assets unique to family firms. These family assets, like legacy, values, and extended networks, combined with the willingness of family stakeholders to take on higher levels of commitment to the business, can confer real competitive advantages. However, there are also stumbling blocks. To find out more about how these assets can contribute to a firm’s ability to innovate, read the full article.