Innovative strength of family businesses has great potential

The outcomes of research on innovation in family businesses debunk the myth that family businesses are not innovative. This is according to the research report by Prof. Dr. Roberto Flören, professor of family businesses at Nyenrode Business Universiteit, in collaboration with ING and NPM Capital. Family business owners are more supportive of innovation policy than owners of non-family businesses. At the same time, the study shows that when more financial resources are available, nearly one-third of family businesses will be more innovative. Family businesses are therefore on par with other types of businesses when it comes to innovation.

Rob van den Biggelaar, Sector Banking Manager at ING explains: “Family businesses have a major impact on the innovative strength of the Netherlands. We help by sharing insights and organizing networking and inspiration sessions, enabling them to make better (long-term) decisions.” The study reveals that over 62% of all family businesses have brought at least one new product or service to the market in the past three years. In addition, nearly 72% of all family businesses have significantly improved or updated their internal business processes over the last three years. “Family businesses are therefore on par with other types of businesses when it comes to innovation,” concludes Prof. Flören. “In fact, thanks to capital provided by their owners, family businesses can afford to make long-term investments in innovation.”

Family wealth and financial resources

The study also shows that while there is potential in the innovative strength of family businesses, there are threats as well. Key threats to innovation in family businesses include the dependence on the innovative strength of the founder and the high percentage of the family wealth tied up in the family business, making it unavailable for innovation. Flören: “Family businesses actually tend to have significantly fewer financial resources for innovation. This means that there is still room to enhance the innovative strength of family businesses. Over 32% of these businesses would indeed be more innovative if they had more financial resources at their disposal.”

Support of owners

Nearly 79% of family business owners are willing to forgo dividends in order to boost innovation (non-family businesses: 60%). The study additionally indicates that more than 65% of family business owners are willing to accept negative results for a year if that boosts innovation (non-family businesses: 40%). “Family business owners’ support for innovation strategies thus appears to deviate significantly from the willingness of non-family business owners,” the professor concludes. “This could be an important explanation for the fact that, despite their limited resources, family businesses are able to compete very effectively with non-family businesses in the area of innovation.”

Innovative capacity

Business succession is an important topic for family businesses and can pose a threat to innovative capacity, according to the study. In over 29% of all family businesses, the current director fears that the innovative character of the business will diminish after his or her departure. This number jumps to 38% for family businesses in which the founder is still actively involved. “Family businesses therefore have to anticipate and prepare for this real threat ahead of time, and this is also being done to an increasing extent,” says Roberto Flören. “A large portion of family businesses actually see the business succession as an opportunity to increase the innovative strength of the business. Nearly 52% of current directors state that it is crucial for the continuity of the family business that the new director is more innovative that the current one,” Flören says.