Family businesses: models of agility and sustainability

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Assets for innovation

Family-owned SMEs are like any other company: to gain market share in their industry, they have to innovate. Fortunately, they benefit from several unique advantages.

An Ernst & Young study in 2013 revealed that family businesses were particularly adept at withstanding crisis. Why? They develop their own drivers of success that allow them to seek new avenues for development. Contrary to popular perception, family businesses are not so bound by tradition that they resist all change. Quite the opposite. A long-term vision, the imparting of values, stability, cohesion, a success-driven leadership—these are all assets that help family businesses innovate.

Capital structure

One asset of a family-owned SME is its concentration of capital. It is owned by a single person, or at any rate a single family, who frequently serve as directors or even controllers. This structure makes it easy to allocate resources needed for innovation. Indeed, family members are more inclined not to insist on rapid investment returns but rather to focus on the long-term growth of their company's value. They make less use of debt, preferring to reinvest earnings rather than to pay dividends. In essence, they are willing to put forward funds for innovation and thus increase the value of their investment. Moreover, their personal involvement and loyalty ensures that they refrain from using assets irresponsibly.

Emotional bonds are a source of strength

Another advantage of family businesses is the fact that trust, solidarity and altruism all play a significant role in the way they are run. This encourages directors to listen to employees, obtain the long-term commitment of family members and reconcile various interests. This culture of participation, which fosters deeper involvement on the part of each stakeholder, is a godsend for innovation. Indeed, whatever form the innovation takes, everyone in the company—from marketing to production, sales and management—benefits from being involved with it, not just R&D. Every individual has the ability to offer a new perspective on any problem encountered, such as customer dissatisfaction, regulatory changes, technological improvement, higher production costs or changes in customers' needs.

Long-term vision needed for reinvention

The lasting presence of family shareholders, the substantial length of managerial mandates and the importance attached to the company's sustainability help prevent ineffective short-term decision-making in favour of a long-term perspective. This desire to make the company viable in the long term often leads to the realisation that the company must change—and thus innovate—while still remaining true to itself. An important advantage in this respect is the family history attached to the business, as it can help distinguish what is ephemeral from what is permanent.

Outward-looking approach

Finally, many family businesses are capable of opening up to the outside world, either through incorporating new managers or through partially opening up their capital to outsiders. This outward-looking approach is often a source of renewal in itself and can become a driver of innovation as new ideas and networks are welcomed in. This openness does not alter the family's cultural heritage constructed over many years. On the contrary, it brings to light new development prospects and increases the professional character of the organisation. It can also lead them to participate in reinsurance arrangements with financial bodies that are likely to invest in these companies.

We had to innovate to refocus our business

In 1997, when Claire Lagrange and her brother Christophe took over the 25-year old concrete products business founded by her parents, it was not the future that Claire had imagined for herself. "The company was supposed to go to my older brother. He'd had a technical education and had already worked there. Meanwhile, I followed my own path and studied commerce. But when Christophe had to take control of the company, he couldn't see himself doing it alone and he asked me to join him."

Changing the look of our products

From then on, the two worked in tandem, and complemented each other fairly well. "Quite naturally, we maintained our parents' division of labour. My brother took care of the technical side while I handled administration, but we shared the same strategy and commercial outlook. We have no other siblings. We share a close bond based on trust." This trust allowed them to share the responsibility of managing the company, without ever feeling isolated, and especially to make decisions together. "Shortly after taking over, we came to the agreement that the business needed to be refocused on enclosures and the look of the concrete enclosures had to change." Christophe took care of R&D himself. Several trials later, and with the help of Oséo [a French public service that assists SMEs], a new type of concrete enclosure with an imitation wood finish on both sides was created. French and European patents were filed for this unique process, leading to a significant boost to the company's sales.

A second family business

"This ultra-high-performance fibre-reinforced concrete is of very high quality and has some surprising characteristics. This contemporary, high-end material makes it possible to use new colours and forms which can, for example, be used to make furniture such as chaises longues or tables, or even custom-made projects. For example, we produced the barriers around the recently renovated Molitor swimming pool in Paris. To handle these activities, we even created a new business structure: Vision Béton, a company that is naturally also managed with my brother."

"Innovation is not just a matter for the CEO"

When Joseph Puzo was hired by Volvo in 1980 to manage a business of approximately 100 employees that manufactured small-scale standard cables, the engineer had no idea he would turn the company into a leader in the interconnection market.

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"An imperative competitiveness"

At the EDHEC Business School's Family Business Centre, created two years ago with the support of family businesses such as Michelin, Mulliez, Roquette, Bic, Sisley and Promod, the family business is the core focus, with activities such as pragmatic applied research for companies, conferences to share experiences and training aimed at reviving family-owned organisations. For centre director Sylvain Daudel, family businesses have a "competitiveness imperative" that drives them to innovate.

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