As in any industry, strategy formation and innovation are critical for the family business. Through a solid vision and mission, family businesses can stay ahead of their competitors. Here, innovation for a sustainable future remains a key focus area.
A significant portion of Dutch small and medium-sized enterprises (SMEs) are family-owned businesses. Figures from CBS show that in 2016 our country had some 276,900 family businesses, representing 71% of SMEs. Family businesses generally do well: a recent survey shows that, on average, they outperform non-family businesses. To maintain such performance, it is important for family businesses to have a sound strategy that allows them to innovatively prepare for the future.
Dirk Harm Eijssen is a Partner at and founder of Gwynt, a consultancy firm for the family business working with and for family businesses in manufacturing, retail and wholesale. The firm’s approach is characterized by its cooperation with clients; it is “very close,” according to the firm. With that approach, the advisor tries to use as much as possible the knowledge and experience already present with clients. As owner of the firm, Eijssen is considered an expert on family businesses. For example, he previously reflected on maintaining the strength of a family business in a dynamic market. He also wrote about the supporting role of an outside manager in a family business.
According to Eijssen, the success of family businesses is often not the result of an elaborate long-term strategy and business plan. Based on that statement, he questioned whether it would then make sense to spend time formulating a strategy and sharing it with employees. Recently, Eijssen came to a response, distinguishing the sense and nonsense of strategy formation within the family business. In doing so, he came up with five strategic recommendations.
Five tips for strategy formation
In Eijssen’s view, first, it is wise to start by determining the values of the family and the business. Once this is done, then these values must be translated concretely into the strategy. Linking the values of the family and the company to the strategy gives it much more appeal and solidity.
In addition, he argues that a strategy consisting primarily of a revenue and profit target is never going to live and work: “Employees are not going to work harder or better or smarter as a result.” People must believe in the strategy because, he says, “A strategy can also be seen as an attractive outline of the future. At the same time, this makes it more relevant for employees to work at and for the company.”
Third, Gwynt’s partner argues that it is important to identify which operational knobs need to be turned in order to make strides toward strategy. Until an organization knows what middle management and/or the man on the floor needs to do differently, no real strides will be made within the company either.
Furthermore, it is important to involve a group of employees in the development of the strategy. With that, the process may take a little longer, but it is much more likely to be acted upon, Eijssen says. To ensure that the elaboration does remain manageable, care must be taken that this group is not too large.
Fifth, he points out that entrepreneurs should not be afraid that “the organization will get away with strategy.” The challenge is precisely to make the intuitive strategy concrete and communicate it. Of course, if the family or entrepreneur sees new opportunities, it’s still possible to change course, Eijssen said, “But as long as these outside opportunities don’t arise, people work steadily on the strategy.”
Where strategy and innovation overlap
Given what is to come, a company’s strategy must include innovation. Eijssen has thought about that too, and he is not alone. For example, previous research found that innovation within family businesses is a key challenge is. Eijssen argues that family businesses are often more innovative than ‘ordinary’ companies – “a recurring conclusion in various studies, such as those by ABN AMRO and ING.” But being innovative is one thing, it is all the more an art to also remain innovative.
According to Eijssen’s agency, this has to do with challenge: “We believe that innovation only becomes truly successful when talents in all layers of the organization are challenged. That they jointly develop new products, processes or even business models. Interconnectedness can be an important force in this regard. At the source of that connectedness in a family business are important core values such as ‘shared values’ and ‘like-mindedness.'” But how exactly is innovation fueled? Eijssen has six practical tips for that.
Six tips to fuel innovation
In this regard, it is first important to invest time, space and (if necessary) money in innovation and in a culture of innovation in the beginning. This way, everyone can contribute: “It is important for innovation to take place independently of specific individuals.”
Another thing to consider is that the innovation process is adequately planned and monitored: “Successful innovation requires commitment, creativity, discipline, but also a good project approach,” Eijssen said.
Third, an entrepreneur should not be afraid to fail occasionally, Eijssen points out, indeed, “Dare to make mistakes: nine out of 10 innovations fail.” In particular, he tries to see the bright side of failures, implying that failures should not be considered as such: “So that effectively means that it takes nine learning moments to arrive at the tenth innovation, which does succeed.”
To continue to innovate successfully, it is also important to know that sometimes it is wise to involve others as well: “Not just internally, but select external partners for collaboration.” External cooperation may be understood broadly, said Eijssen: “Think of universities, colleges, but also competitive colleagues or just companies in other industries (with similar processes or goals).”
Fifth, Eijssen says it is wise to document the innovation process: “Record the relationship with collaboration partners and what happens to innovative results.” Although being precise has its advantages, care must be taken not to take this too far: “Remember that being too strict stops innovation.”
Finally, in certain cases, it is important to pull the plug on a project in a timely manner: “The amount of resources (such as money) is limited and the payback period of innovations is shorter and shorter due to increasingly shorter life cycles.” It takes courage to end a project into which a lot of time has been put, but an entrepreneur must remain realistic, Eijssen points out: “So stop in time with innovations that have no real chance of success.”
