In the public perception family firms may be perceived as backward and little digitized. It seems clear that multinationals lead the fourth industrial revolution. But what about family firms? Can they keep pace in an ever more rapidly changing business environment?
Three main criteria define a family firm: 1) Family firms are subject to the significant and characteristic influence of one family or several families; 2) Typically, this is connected to the majority ownership of the stake respectively the voting rights of the company; 3) Family members do not have to be employed in the company and third parties can run the management (Berthold, 2010). Even though family firms may be very heterogeneous, they share crucial fundamental characteristics like long-Term orientation, institutional memory, smart diversification, and a balance between tradition and change. Family firms’ leaders run their business with the objective of handing it over to the next generation in better condition than when they received it. The family members’ long relationship with the firm and their deep industry knowledge helps them to guide the business even through troubled economic waters. They undertake smart decisions on business diversification to reduce risk and leverage knowledge. Finally, tradition and the adaption to, for example, technological chance always stay well balanced (Rodriguez, n.d.). It seems as if those characteristics may support family firms’ successful digital transformation.
But at the same time, these very characteristics may be the reason why family firms in particular struggle with digitalization. The geographical and temporal independence of information or data and family firms’ limited resources and regional roots fundamentally contrast with each other. Family firms are naturally forced to focus and thereby may oversee innovations disrupting their business. Furthermore, family firms’ hierarchical structure and centralized decision making may let many opportunities coming with digitalization unused. Finally, entrepreneurs in family firms often intend to be free from dependencies and act on their own free will. Anyway, in a more digitalized world, individual companies will be barely able to operate in isolation from the digital world and other companies (Cravotta & Grottke, 2019). The general long-term orientation of family firms is represented appropriately in the average CEO tenure: family firm leaders stay with their company for 20 to 25 years. For publicly owned firms, the average CEO tenure is six years. This increases the difficulties of coping with shifts in technology, business models, and consumer behavior (Stalk & Foley, 2012). In fact, 75% of family businesses agree that there is a need for digitalization but they may not fully understand the significance or its possible benefits given limited understanding of digitalization. Among family businesses that see a need to digitalize their businesses, 63% cited a lack of expertise and skills needed to develop and implement a digitalization strategy (KPMG, 2017).
To conclude, a family firm’s key differential resources, its organizational culture, the employees’ deep commitment and loyalty, its patient financial capital, and its long-term orientation can be critical barriers when coping with digital transformation (von Olenhusen, 2019). But still, the very characteristics of family firms mentioned above could contribute to a successful way of mastering the fourth industrial revolution. Whether a family firm’s characteristics inhibit or promote digital transformation will be subject to persistent discussions.
References:
Berthold, F. (2010). Familienunternehmen im Spannungsfeld zwischen Wachstum und Finanzierung. Lohmar: JOSEF EUL VERLAG.
Cravotta, S., & Grottke, M. (2019, January-June). Digitalization in German family firms – some preliminary insights. Journal of Evolutionary Studies in Business, 4(1), pp. 1-25.
KPMG. (2017, May 29). Family businesses in the digital economy. Retrieved September 2020, from KPMG: https://home.kpmg/sg/en/home/insights/2017/05/family-businesses-in-the-digital-economy.html
Rodriguez, K. (n.d.). Why Family Businesses Outperform Others. Abgerufen am September 2020 von The Economist: https://execed.economist.com/blog/industry-trends/why-family-businesses-outperform-others
Stalk, G., & Foley, H. (January-February 2012). Avoid the Traps That Can Destroy Family Businesses. Abgerufen am September 2020 von Harvard Business Review: https://hbr.org/2012/01/avoid-the-traps-that-can-destroy-family-businesses
von Olenhusen, F. (7. October 2019). Digital transformation in German family firms : internal enablers and barriers for the development of dynamic capabilities for digital transformation. Abgerufen am September 2020 von Universidade Catolica Portuguesa: https://repositorio.ucp.pt/handle/10400.14/29080
Image source: Unsplash – Markus Winkler
