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Asia's family enterprises - The imperative to innovate
THE role and value created by family enterprises in Asia are noteworthy and numerous. Family enterprises constitute over 60 per cent of all publicly-listed companies and 85 per cent of all billion dollar businesses in South-east Asia. Notably, they have been a driving force behind the industrialisation of Asia-Pacific economies and will continue to shape the region's development in terms of job creation and spawning new industries.
In fact, as the world gets more integrated and synchronised in terms of economic and business cycles, family businesses can no longer operate in a domestic or regional confine; a good example is how, of late, the effects of a slowing Chinese economy have reverberated with issues of corporate survival and solvency.
For example, the weaker Chinese demand alongside a free-fall in commodity prices, since a year ago, have financially impaired Glencore - once a formidable mining conglomerate.
Therefore, to compete successfully in the dynamic international arena, it's imperative that family businesses stay on top of evolving global business trends; to do so, they have no choice but to focus on innovation - whether sustaining or disruptive in nature - in order to survive and grow in the new digital age.
It follows that family business owners have to diffuse the concept of innovation throughout the enterprise - specifically, in terms of policies, people, processes and products - see figure 1.
AS A STRATEGIC DEVELOPMENT
In terms of strategic endeavor, family enterprises need to develop and maintain a pool of business innovators by bringing together an eclectic mix of brains with different, identifiable skills, and not just individuals from the family or related parties.
Only then can new perspectives, ground-breaking ideas and real value be generated on an ongoing basis. A good case in point is the business policy of European luxury goods maker LVMH, which underscores the importance of this critical success factor- that only innovative people innovate - and give its artists and designers complete freedom to create without limits.
No doubt creative people require greater latitude in terms of delegated authority; more importantly, managing this pool of talent can turn out to be a rather delicate process.
However, the efforts are clearly worth the while as creative minds and hands can effectively build up the long term, sustainable capabilities of family enterprises. Such game-changing core competencies will eventually translate to real financial gains in terms of sales and profitability.
The experience of Apple - ranked as world's most valuable brand by Interband's 2015 survey - clearly attests to it; the company prides itself of being able to produce cutting edge and "cool" designs that sell like hot cakes.
It's an indisputable fact that both people and process matter in innovation. Processes - by themselves - don't innovate; however, poor organisational systems and structures can hobble and hinder talented people.
So, to the extent that smart processes and procedures benefit both cautious and creative people, it behooves family enterprises to pursue process innovation - pertaining to organisational leadership style, systems and structures. These components are hygiene factors which will directly facilitate the germination of creative ideas.
Specifically, it's in the long-term interest of business owners to allow and promote an environment where staff can question, challenge and suggest changes to established business practices and norms without any hesitation or trepidation. In essence, such killings of sacred cows in creative business decision making means that staff cannot simply go down the path of least resistance.
However, business founders/owners may need to tolerate some needed compromises, reduced control and increased uncertainty.
Despite the unease they could pose, eventually, the accrued benefits far outweigh the discomfort or sacrifices made. Tellingly, Samsung - a leading electronics company - believed so when it adopted TRIZ in research and development efforts.
This systematic approach to creatively solving problems has allowed the company to discover new patentable ideas in its competitors' backyard; evidently, the success of this "religion" within Samsung is apparent from the gamut of innovative products that were launched.
As a sustainable differentiator - strategy & super-ordinate goals
Historically, family enterprises in Asia also tended to pursue low-cost and investment-based strategies that relied primarily on technological imitation - also generically known as "me-too" strategies. In the new economy, it's becoming even more crucial that family enterprises formulate business strategies which are characterized by sustainable competitive advantages that are reflective of firm's core competencies at work - a real differentiator!
To do so, business strategies must continuously evolve from strategic innovation and in a culture or environment where creative people can generate leading to bleeding-edge products.
More importantly, if Asian enterprises seek sustainable profitability, they have to invest time and money in brand-building efforts and spend significant sums on research and development - two areas which family enterprises in Asia have been touted to lag those of international peers.
- The writer is chief investment officer, Asia and Middle East, Barclays Wealth and Investment Management