“Family firms must have a strategy of innovation”

“Change is something normal and healthy and fixed behavior is unnatural,” were the opening words of Jeff Melanson, an expert on innovation and a consultant to family businesses at US consulting firm LGA. Melanson at the “Globes” Family Companies Conference. Melanson touched on a number of main points that can help family businesses to grow in today’s ecosystem through technological development.

Identifying advantages

Melanson explained that family organizations have many advantages including commitment to businesses and employees which in many cases is higher than at publicly traded companies. “Most family companies feel a personal commitment to the quality and durability of the product,” he said, but emphasized that a major drawback in these organizations is a gap between generations. “Sometimes the older generation opposes new ideas and the younger generation is in favor of innovations, which creates an interesting dynamic. The importance of innovation, for example, is critical for the organization. Lack of openness to new ideas and adaptation to changes, this is why some find themselves facing existential struggles. Family organizations should not be part of a system that relies on past conduct and does not try to innovate.”

Correct planning ahead

Melanson continued that family companies must formulate and implement management strategies that deal with innovation and development. “This includes the ability to collect and analyze data, through which it can formulate its future vision. Not every family organization has access to these components. Also, a future vision is not limited to just one area within the organization and it is not correct to formulate strategies in some channels and not in others. The amount of information and value that is lost between business units within the company is enormous, and therefore the company must more and more absorb the understanding of the importance of integration.” He stressed that there is a financial gain in this.

Melanson also dealt with the importance of the founding generation of family organizations. “This generation built something that didn’t exist before, so it can be said that the tradition of any family organization illustrates the importance of looking forward and not clinging to the past. Holding on to the original idea for years may inhibit the understanding and integration of the importance of innovation.”

He emphasized that flexibility of thought was of major importance for family businesses, including being alert to competitors entering the market, new learning methods, and what is happening in the ecosystem. “An organization cannot exist by relying on and hanging on to the successes of the past, but reality also requires a vision for the future.” Melanson also observed that even when a business develops new ideas, it must formulate a vision, otherwise it will not be of any use.

“As part of implementing innovation, an organization must rely on a defined strategy and not only on technology. In other words, the company must create a culture in which questions are asked in relation to the desired results from technology, while not automatically implementing technological tools. An organization that will invest a lot of money in technological development, but will not build an orderly strategy behind it, may get lost”. On this matter, Melanson noted that organizations should be cautious. In the field of AI, for example, which has been growing in recent years, “There are many people who have written and continue to write articles on the subject, but they lack real experience in applying it in the business world,” he said.

To normalize change

“Within the family network there is a set of tools that can be applied over time in a certain way, but because you get used to applying them in a certain way, it may prevent the possibility of thinking and understanding how you can use the same tools in other cases. Businesses go through changes over the years and this is normal. Therefore, one should normalize the ‘consciousness of change’, and not necessarily wait for external triggers. Change should be normalized as an inherent part of the organization’s business conduct.

“We are at a very significant point in history. Today’s technological revolution is going to be big or even bigger than previously, and organizations, including family companies, must be aware of this.” Within this understanding, Melanson reiterates a very significant point, which is the lack of correlation in the conduct and assimilation of innovations between different organizational units.

To look at the needs of the customer

Melanson added that family organizations always need to examine the market to understand the technological changes that apply and look at the customers and their needs and how they change. “These thinking patterns should also be integrated into the company’s work teams. An organization should be ready for change, and as mentioned, above all should form a technological vision. A company should build a strategy and a technological vision, through which it will understand where it wants to go.”

He explains that it is important to build business plans “from above” and maintain flexibility. “If an organization is not careful, its business plan may be similar to the one it built the previous year based on assumptions from the past. Therefore, it must be open to the possibility of reimagining and succeed in assimilating innovation and technology within its ranks.”

To learn from the past

To illustrate what he was saying, Melanson referred to past cases. For example, Japanese gaming giant Nintendo defined a fundamental principle according to which it must produce a game in which several players can play at the same time. However, over the years, the company introduced several changes. “Nintendo reflects a success story of implementing innovation in a family business. With every change the company made, the original idea was still preserved.

The original purpose of the company did not change, they just found different ways to implement the original core idea of the organization. This is an example, for those who founded a family business and are a little stressed about what will happen in the future, that loyalty to core ideas helps to succeed.”

Full disclosure: The Conference was sponsored by GAC, LGA, KPMG, Meitar law firm, Julius Baer and Ginsburg & Co.

Published by Globes, Israel business news – en.globes.co.il – on July 7, 2024.

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