Innovation and family firms do go together

THE words "family firms" and "innovation" seem to be at odds. Family firms smack of tight control, risk aversion, lengthy CEO tenure, existing in traditional industries and products. Some research has even gone as far as to say that family ownership harms innovation for these very reasons. Others say it benefits innovation. But both arguments miss a fundamental variable that determines the innovative edge of a family firm: its "family assets".

Family assets can be defined as value-creating resources, such as name, reputation, legacy, networks and cultural and family values. As Nicolai Foss, professor of strategic management at Copenhagen Business School, and I point out in our paper, Family Assets and Liabilities in the Innovation Process, such assets are capable of attracting employees, boosting motivation, increasing stakeholder loyalty and building valuable networks.

This is why I argue that family firms have an edge when it comes to innovation. Resources such as "family values" cannot be controlled by non-family firms. They are also able to command loyalty from suppliers less likely to drive hard bargains because of long-term relationships. Their ability to base business and innovation strategies on these kinds of resources is what makes them different.