The innovation gap in family firms

The innovation gap in family firms
Felipe Guzman, Associate Professor of Leadership and Organizational Behaviour at IÉSEG School of Management, explains why family firms should listen to outside voices.
By Felipe Guzman
  • Family firms often prioritise ideas from family members, regardless of merit.
  • When non-family ideas are ignored, morale and engagement suffer.
  • Decision-makers need to recognise the value of all inputs.

Mr Smith, head of Smith’s Family Restaurants, convenes a meeting to address declining customer satisfaction. He begins the meeting by asking, “How can we improve our menu?” John, Mr Smith’s nephew, suggests adding an Eton Mess burger – a cheeseburger with meringue, strawberries, and whipped cream. Jane, from marketing, proposes a data-driven approach to revamp the menu based on recent social media trends. Despite the soundness of Jane’s idea and the complete lack of support for John’s, Mr Smith decides to endorse John’s suggestion. Jane immediately knew what just happened – Mr Smith often prefers ideas from his blood relatives.

This scenario, though fictitious, depicts a recurring theme: family firms often prioritise ideas from family members. This is problematic because innovative ideas can come from anyone in the organisation, irrespective of rank, status, or background. Good ideas enhance a firm’s ability to innovate, remain competitive, adapt to changing conditions, and seize new market opportunities.

Why is this a problem?

Overlooking contributions from non-family members can have significant long-term repercussions in family firms, such as lower innovation, decreased employee morale, and talent exodus.

Lower levels of innovation occur when firms only select ideas from a narrow group of employees. By excluding diverse perspectives, family firms limit their ability to adapt to changes, which stifles their innovative processes and outcomes. 

A decreased sense of employee morale can happen over time as non-family employees realise that their ideas are not given the same level of attention as those from family members. This is particularly problematic for non-family employees who have extensive industry knowledge and experience, as they can feel particularly demotivated and disengaged when their contributions are constantly undervalued. When employees feel a sense of futility, their willingness and motivation to participate and pitch ideas decreases. This decreased morale not only affects employees’ willingness to share innovative solutions to problems, but also their engagement with the job, and even their performance. 

This leads to the last problem: Talent exodus. Once talented employees start seeking opportunities elsewhere, more employees tend to follow.

Why do family firms prioritise ideas from family members?

There are two main interrelated reasons. On one hand, family members may believe that only the core family has the firm’s best interest at heart. This in-group bias stems from the belief that “only the family really cares about the family.” On the other hand, family members may identify more strongly with the ideas of other family members. In family firms with a strong family identity, any idea from a family member is seen more favourably because it comes from within the family. Put simply, when one family member proposes an idea, other family members may perceive it as if it came from themselves.

To leverage ideas from all employees, family firms can implement several strategies, such as:

  1. Prioritising team-based structures. By organisng work around leaderless teams composed of both family and non-family members, the organisation will foster diverse perspectives and more collaboration. In relation to structures where family members make all decisions, teams like are less likely to over-endorse bad ideas from family members. 
  2. Fostering a “no idea left behind” culture. This means to encourage a culture where no idea is dismissed without proper consideration. Decision-makers should follow up on all initiatives by discussing them in more detail, provide specific feedback, and explore how the idea might be refined for future consideration. This would help to avoid overlooking potentially good ideas that were not pitched by the right person (or in the right way).
  3. Embracing and applauding diversity. It is important to train decision-makers (both family and non-family members) to recognise the value of diverse inputs. Implementing leadership development programs that emphasise inclusivity can reduce biases and ensure all ideas are properly considered.

By adopting these strategies, family firms can create an environment where all employees feel valued and motivated to contribute. Embracing diverse ideas not only enhances innovation but also strengthens the firm’s long-term sustainability and competitive edge.

While family firms naturally gravitate towards ideas from core family members, it is crucial to recognise the input from all employees. Implementing more democratic structures, fostering a developmental approach to evaluating ideas, and encouraging inclusivity can help family firms jumpstart their innovative potential, ensuring their continued growth and success.

Felipe Guzman is Associate Professor of Leadership and Organizational Behaviour at IÉSEG School of Management and academic director of the school’s Research Center on Leadership & Development. He is the author of numerous publications on leader-subordinate relationships, proactive work behaviour, and cross-cultural research. 

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