One of the inherent system risks for family-owned businesses is the lifecycle (May 2012). Schumpeter (1939) explained why doing business in capitalistic markets is a cycle of economic growth and recession. Especially for companies with the aspiration to sustain over many generations this is a huge challenge. May (2012) suggests family businesses to outwit the lifecycle by following a few simple rules: (1) operate in long-lasting markets, i.e. chose a product portfolio which is independent from short-term trends, (2) introduce a lifecycle radar, a combination of strategic tools and KPIs, (3) continuous adjustments to such an extent to constantly eliminate products which are at the end of the lifecycle and to invest into innovation, (4) make bold decisions, e.g. radical changes like cannibalizing the current revenue and jumping onto new technologies to overcome the innovators dilemma (Christensen 1997).
Bartels, von Hochberg and May (2017) interviewed 50 owners of large family businesses among others related to disruptive trends. They identified that companies that had already survived several generations and had been faced with the downfall of their original business areas have developed strategies to diversify their business and change the business models. Some do not operate in their original business area any more, but others had been able to adopt their business model from selling their product to offer their product-as-a-service (cf. Digital Transformation Process). The common challenge today is the increasing dynamic and speed of change. These changes are not only of technical nature, but especially a question of changing the culture. A possible success factor might be the opportunity of succession as the following generations are already digital natives (cf. Digital Transformation Context).
These considerations demand transformation capabilities in family-owned businesses. Cassia, Massis and Pizzurno (2012) researched “strategic innovation and new product development in family firms” due to the fact that little is known about leading and managing complex transformations in family businesses and with the aim to offer a better understanding of the influence of “familiness” (cf. Family Businesses) in particular the strength and weaknesses. They found out that the advantages are long-term orientation, human resources and dedication to “progression”, tendency to be close to their customers and being focused. Their disadvantages are being conservative and risk averse, a lack of openness, readiness to change, conflicts within the family and the economic rationality of decision-making processes.
Gouillart, Kelly and Gemini Consulting (1999) say that the business models originate from the industrial age and are influenced by mechanical engineering. In the digital age these business models come to a limit. Business transformation means a fundamental change, where a company needs to redefine all dimensions (cf. Digital Transformation Content). Gouillart et al. (1999) researched how companies in industries like chemistry, electronics, pharmacy, automotive etc. managed the change and synthesized these approaches into the “four R of transformation” that need to be achieved:
- Reframing, i.e. change of attitude by achieving mobilization of the employees, creating a vision and setting the goals and KPIs;
- Restructuring by constructing a value adding business model, aligning the necessary infrastructure and redesigning the business processes;
- Revitalizing by becoming customer centric, inventing new business and changing the rules with the help of emerging technologies;
- Renewing by creating a reward structure, encouraging individual learning and renewal of the organization.
This business transformation approach follows the basic principle of change management described by Lewin (1947, 34): “Unfreezing, Moving, and Freezing of Group Standards”.
The most prominent model underlying the research of Lewin are Kotter´s “8 step process for leading change” (Kotter 1995), summarized here only on headline level: (1) establish a sense of urgency, (2) form a powerful guiding coalition, (3) create a vision, (4) communicate the vision, (5) empower others to act on the vision, (6) plan for and create short-term wins, (7) consolidate improvements and produce more change, (8) institutionalize new approaches.
Kotter never claimed to have developed this model, he captured it by observing more than 100 companies going through transformational change (Farell 2017). One prominent example is the digital transformation of IBM after the company lost more than US$ 16bn and needed to change their business model from selling and running mainframe computers to an e-business company (Farrell 2017).
Although evidently successful for many large enterprises, Oxley (2017) claims that “Kotter’s change framework doesn’t work for large family businesses”. He argues that on the one hand, steps 1 to 5 of Kotter’s model are based on the assumption that no individual leader can enforce change and followers must be convinced to change. On the other hand, the underlying message of steps 5 to 8 is that those who do not comply with the change must leave the organization. Oxley (Oxley 2017) says that this is contradictory to the “familiness” and therefor special characteristics of a family business: (A) dominant ownership, often combined with the existence of a figure who is followed unquestioned by the organization and (B) individual loyalty, i.e. a very strong commitment to the employees and the sense of obligation to take care of them (cf. Family Businesses).
An alternative approach for family business and hidden champions will be provided by Müller-Seitz and Weiss (2019) who describe five success factors for cultural and structural change to manage digital transformation, cf. Figure 1:
- Self-organization:
Change to agile ways of working as the central guiding principle to give space for innovative thinking due to interdisciplinary teams and flexible work environments. Self-organization demands a respectful understanding of people, in which employees are fully trusted. - Dealing with uncertainty:
“Across many industries, a rising tide of volatility, uncertainty, and business complexity is roiling markets and changing the nature of competition” (Doheny, Nagali and Weig 2012). VUCA as an acronym referring to volatility, uncertainty, complexity, and ambiguity has recently found its way into business lexicons (Bennet and Lemoine 2014). To deal in a VUCA world demands curiosity and the attitude of “fail early and fail often”. - Work, organization and communication:
A customer and innovation centric company culture as the basis for success and strengthen the strength of the people as a guiding principle for HR. - Add value with cooperation partners:
Valuable partnerships create the basis for common success as well as building of intercompany networks and linking of work. - Organizational learning and knowledge management:
Implicit knowledge is difficult to handle, but worthwhile to transfer within the organization. Knowledge platforms inside the intranet are possible solutions.
Work Cited
Bartels, Peter, Peter von Hochberg, and Peter May. Strategien erfolgreicher Familienunternehmen 2017. Report, PWC, 2017.
Bennet, Nathan, and G. James Lemoine. “What VUCA really means for you.” Harvard Business Review, Vol 92. (1/2), 01 15, 2014: 27-29.
Cassia, Lucio, Alfredo de Massis, and Emanuele Pizzurno. “Strategic innovation and new product development in family firms.” International Journal of Entrepreneural Behaviour & Research, Vol. 18 (2), 03 2012: 198-232.
Christensen, Clayton M. The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. Boston: Harvard Business School Press, 1997.
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Farrell, Adrian. Lou Gerstner – IBM’s Digital Transformation Change Master. 05 21, 2017. https://candowisdom.com/change/change-management/lou-gerstner-ibm-digital-transformation (accessed 09 01, 2019).
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Lewin, Kurt. “Frontiers in Group Dynamics: .” Human Relations, Vol 1 (1), 1947: 5-41.
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Müller-Seitz, Gordon, and Werner Weiss. Strategien zum Umgang mit der digitalen Transformation … aus der Sicht eines mittelständigen “Hidden Champions”. München: Vahlen, 2019.
Oxley, David R. Why Kotter’s Change Framework Doesn’t Work for Large Family Businesses. 07 11, 2017. http://www.davidroxley.com/kotters-change-framework-doesnt-work-large-family-businesses/ (accessed 09 01, 2019).
Schumpeter, Joseph A. Business Cycles – A Theoretical, Historical and Statistical Analysis of the Capitalist Process . New York, Toronto, London: McGraw-Hill Book Company, 1939.