The innovation deficit

Family businesses tend to have a different attitude to innovation and design than their non-family counterparts. No business can afford to neglect the importance of research and development and increasingly, the power of social media.

Many family businesses have a different take on innovation. There’s some evidence suggesting they struggle with it. They certainly do it less but, paradoxically, they can also do it better, too.

Examples include Geoff McGeary’s Australian Pacific Tours (Full frontal innovation, April 18), which has cornered the travelling baby boomer with lots of chutzpah and marketing flair. The company’s culture is its brand. There are many other examples around the world.

But the latest RMIT-MGI survey on family business identified what appears to be blind spots for Australian family businesses. 

For example, the survey of 5000 Australian family businesses (the response rate wasn’t indicated) found that most of them did not incorporate social media into their strategies.

It’s a significant oversight. Social media is something that no business, no matter how small, can ignore. Tapping into social networks is a way for small businesses to reach a bigger market. In this uber-connected age, people are online talking about your company whether you like it or not. Successful companies managing social media these days know how to use it to develop relationships and then leverage them.

But according to the RMIT-MGI survey, two-thirds of family businesses (65 per cent) said they did not use social media – whether it be Facebook, Twitter or blogs – to communicate with customers.

There was a similar story with designing style, logos and process innovation as part of company strategies. While 67 per cent of family businesses indicated they use design as part of their strategy, they said it was a struggle. Many said they faced significant hurdles that limited their creative use of design. Nearly 40 per cent said there were issues getting the money to fund the innovation. A similar proportion said they didn’t have the time. And just under 20 per cent said they couldn’t find the right people who could manage it and fit into the company culture.

All this is despite the government offering grants and programs encouraging innovation. These include the Research and Development tax incentive which has actually been increased from the 2012 financial year. It allows businesses to access either a 45 per cent refundable tax offset or a non-refundable 40 per cent tax offset, depending on group turnover. There were many other schemes introduced when the government brought in the carbon price.

The reality is that family businesses have a completely different approach to innovation to that taken by non-family businesses. If they do it less, it’s because of an aversion to risk. The family owners might see little return from investments in innovation, or they might be so internally focused that they see fewer outside opportunities. They don’t have big R&D departments and, unlike companies like Apple or Google, innovation is rarely part of their corporate vision and strategy going forward. 

When family businesses innovate, they do it because they’re opportunistic in nature. Social media or design might not fit in with that. Or they might do it to target a niche, to diversify or they do it for long-term security. Also, family businesses tend to take a longer term perspective which means they might be more patient with the process. Because they are more frugal, their innovation efforts can be much more cost efficient. And many do it to become more efficient, something that has traditionally put them way ahead of the rest of the market.

For example, the world’s biggest retailer Walmart, which remains a family business with the Walton family controlling 48 per cent, innovates relentlessly to be more efficient than its competitors. It developed a range of green initiatives that were not only about generating good press but also getting a better return on their investment.

Walmart has massive roof-mounted refrigeration units at pilot stores. It uses a closed loop system to increase energy efficiency and had reduced its refrigerant charge by 90 per cent. The company saves on hot water with units reclaiming waste heat to provide hot water in restrooms and kitchen areas. Indeed, 70 per cent of the hot water in Walmart stores now comes from refrigeration units. Walmart also has bio-diesel trucks that run on cooking grease extracted from Walmart stores.

While the findings of the RMIT-MFI survey are striking, it’s not necessarily any cause for alarm. It might reflect a more inward focus, the wagons drawing around in a circle as it were, following the global financial crisis. Companies are still recovering.

And the children of the family business owners, who grew up with social media and technology, are more likely to have a different attitude to innovation.

One of the researchers, Lucio Dana, puts it succinctly: “While the parents are not using social media, while the parents might have obsolete businesses, their children will be encouraged and energised and might even be given seed money or capital to start their own businesses, which are more likely than not to be technology oriented.”

For more Family Business commentary click here.

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