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STRATEGY SPOTLIGHT

Family businesses need to innovate through the ranks

Innovation needs to be more pervasive amongst all levels of staff in family businesses, according to professional services firm KPMG Singapore.

Recent research by the firm shows that innovation is currently mostly limited to founders and senior people in a family business when it is important for every worker to be empowered to innovate.

In an age where disruptive change has become more of a norm, family businesses should also consider how they can be disruptors in their industry.

"With the rapid march of digitalisation and global competition, local enterprises have to regard continuous innovation as necessary," said Chiu Wu Hong, partner and head of enterprise services at KPMG in Singapore.

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"Likewise, family businesses therefore need to take a longer term view to their innovation agenda and the investments required," he added.

In a recent KPMG report, Family Businesses in a Digital Economy, two-thirds of respondents said that innovation takes place within the management team.

This suggests that in many family businesses, there is a “closed” ecosystem where idea generation is centralised amongst key individuals.

Some 53 percent of family businesses do not have any existing plans to build a culture of innovation.

Mr Chiu said family businesses are sometimes vulnerable to inertia, with the senior management - often the family members - emotionally tied to a single product or service.

"Founders, in their desire to leave a longer lasting legacy, may become more risk averse and conservative in the face of new ideas. This can make it more challenging for innovative ideas to take root and grow in a family business," said Mr Chiu.

Ms Lisa Liew, managing partner of public accounting firm and family business Philip Liew & Co, agrees that many family businesses are still relatively conservative when it comes to innovation.

Typically, she said, the founders or patriarch will provide the direction for the company and call the shots.

“It is not uncommon for staff of such family businesses to take a back seat and just follow instructions,” said Ms Liew. 

“This is especially apparent in those companies with long-serving staff; the culture has been reinforced over the years,” she added.

Mr Chiu said every company needs a concerted effort to nurture a workplace culture that supports innovation.

“While leaders in a family business need to set the tone for having an innovative culture, all employees should be part of the innovation process,” he said.

This means all employees should be empowered to think about their jobs, products and processes that they handle, and how these can be improved and done more efficiently or differently, Mr Chiu added.

“Tone from the top is important - founders and senior management must be prepared for a mindset change,” said Ms Lo Wei Min, managing partner of Lo Hock Ling & Co, a public accounting firm that is family-owned and operated.

“To better promote innovation through the ranks, top management may bypass the mid-management and deal directly with younger employees to allow them to work on specific projects to promote innovation in the firm,” Ms Lo added.

Agreeing, Ms Liew said, “innovation has to move up the priority value chain. Mindset has to evolve from ‘why fix it if it ain’t broken’ towards proactive innovation and disruption.”

Business owners and staff will also need to accept a decentralised decision-making model.

“Communicate and inculcate staff participation in the innovation and decision-making process - perhaps fine-tune the appraisal and compensation system to reward staff who dare to be different would drive home the idea,” said Ms Liew.

“People who are creative and innovative shouldn’t be penalised if the idea does not take off,” she added.

According to KPMG, innovation has to be revolutionary but can take various forms.

Projects can promote incremental improvements but yet stay close to the company’s core operations, and also be designed to maintain competitiveness.

Others could be forward-looking, aimed at engaging new customers or inventing new product offerings.

"Companies that effectively involve their entire organisation in innovation and coordinate their innovation with a strategic globally-driven approach to marketing can realise real revenue growth and value creation," said Mr Chiu.

Some family businesses believe that learning from the experience of large commercial firms or even start-up enterprises may be beneficial because this will enhance understanding of alternative business models and help improve existing processes.

“Start-ups are often more productive and innovative due to their limited resources,” said Ms Lo, adding that family businesses are often constrained by their relatively limited resources to cope with disruption.

But family business owners and management can also do more to build a culture of innovation within their organisations.

“Listen to and engage the younger team members (and) consult the specialists or consultants for assistance,” said Ms Lo.

“Innovation is key to managing disruption,” she said.

KPMG feels that there is no magic bullet to success through innovation but good ideas can breed further good ideas or refine existing ones.

"The larger the pool of people called to ideate and improve the business, the higher probability that new ideas are more innovative, and existing businesses can be ‘reinvented’ for future success," said Mr Chiu.

  • This series is brought to you by CPA Australia to share knowledge on topical issues relevant to business, finance and accounting.
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