What It Takes for a Family Business to Innovate
The key is balancing a C-Suite skill set with an "F-Suite" mindset.Based on insights from Justin Craig for KelloggInsight Newsletter
Every family business faces its own unique challenges. Some struggle with treacherous in-laws; others find it hard to replace a charismatic founder. But one challenge is common to all: How does a family business innovate?
Justin Craig, a clinical professor of family enterprise and codirector of the Center for Family Enterprise at the Kellogg School, finds that family businesses can drive innovation by combining what he calls a "C-suite skill set" with an "F-suite mindset."
A C-suite skill set refers to the managerial chops that are crucial for running a for-profit business; an F-Suite mindset includes the virtues inherent to family businesses: long-term vision, community engagement, a sense of legacy, and clear values. "The key is preserving the founders' vision while making sure the business can deliver on its strategy," Craig says.
Family businesses looking to innovate have unique tools at their disposal. Here are three ways a family enterprise can use its advantages to innovate.
Bring the F-Suite and the C-Suite TogetherMost family businesses have complicated leadership structures that may include family descendants, in-laws, and nonfamily professionals. The main source of potential conflict is between the C-Suite, whose ranks often include nonfamily members, and the F-Suite. Where F-Suite leaders may have their focus on tradition and a long-term strategic outlook, C-Suite executives are tasked with product launches and driving quarterly returns. Successful innovation requires a partnership between the two groups.
"Both sides need to understand the viewpoint of the other," Craig says. "The C-Suite needs to understand the nuances and idiosyncrasies of the family's tradition and values, and the F-Suite needs to understand the importance of driving growth."
Craig points to the Ricketts, who purchased the Chicago Cubs in 2009, as an example of a family business that has blended the two sets of priorities well.
"Family businesses have a different institutional memory... and they make decisions with a different set of metrics."
The Ricketts stocked their C-Suite with a new front-office team to shepherd in major changes both on the playing field and off. The famously inept club has turned into a title contender, while making striking changes to its iconic ballpark, decisions that speak to the family's long-term interest in fostering a unique culture around fan experience. The balance between continuity and long-term change is visible in the club's 1060 Project, which preserves Wrigley Field's unique architectural elements - the concourse tile work, the ivy-covered outfield wall, the hand-operated scoreboard - while expanding dining and retail, installing new bleacher seating, and adding a video board in left field.
Synchronicity between F-Suite and C-Suite has enhanced the effectiveness of both groups' decisions. A step as simple as establishing a weekly conference call between key family members and the front office allowed for information sharing about daily operations and the Ricketts' vision for the team.
These four skills can diffuse conflict, particularly within family businesses.
"Family businesses have a different institutional memory," Craig says. "They have a different way of communicating, and they make decisions with a different set of metrics."
Make the Most of the Family-Enterprise AdvantageA family business can be particularly vulnerable to inertia, its leaders emotionally tied to a single product or a specific way of doing business. But when it comes to driving innovation for the long term, family businesses actually have some strategic advantages.
First, because there are often fewer levels between decision-making management and leadership, decisions can be made - and appropriate funding allocated - quickly. The stronger sense of continuity many family businesses foster means that, with any single decision, there may be less fear that someone's job is on the line.
Family businesses can also afford to be more patient with their capital. They have less need to innovate superficially to match shorter product cycles or flash-in-the-pan trends. "It's good to have a sense of urgency, but not a sense of panic," Craig says. "A family business can see out the cycles in a way that others can't."
In that sense, while they may have an eye on the next five years, the real focus is the next fifty.
The Wagner family, who run a prominent Australian firm, decided to build Brisbane West Wellcamp, an international airport on their property in Toowoomba, a hundred miles from Brisbane. The average business executive might consider this a risky, even ludicrous, prospect. After all, it is hard to imagine the remote airport will turn a profit anytime soon. But, with its goal of becoming a major freight hub for livestock transport, the airport might turn out to be a valuable asset for future generations.
"This is the F-Suite mindset," Craig says. "They're working with a different sort of attitude. Family businesses don't grow for the sake of growing. They grow when the cycle suits them, rather than at the mercy of the market." So while timing may be everything in business, that timing is different for a family enterprise.
Consider the Next Generation"Family firms have to think about the inevitable," Craig says, "and what's inevitable is that the family is going to grow. In fifty years, a family of six can easily become a family of eighty-five. So it doesn't make sense to think: 'How can we squeeze more out of this one-site convenience store? '"
Craig has found that innovation in family business is often less about launching new products, and more about changing the way the company does business. That means putting systems in place to keep the family and business leaders in regular communication. It also means keeping business-inclined family members attuned to the culture and workings of the organization from a young age.
"You've got to continue to make it interesting for the next generation to engage," Craig says. An engaged generation, brought up and socialized inside the company, can position it to sustain innovation with a clear investment in the power of the family brand.
Take, for example, Zegna, the Italian luxury fashion company. Long known for its high-quality tailoring, the company first moved into retail, and then into manufacturing. Over the course of four generations, Zegna has created a process to control production from start to finish; it even owns the mills and farms where the materials are made. The company's fourth-generation leaders are now working within their own supply chain to design a casual wear line and to capture markets around the globe, particularly in Asia. But the growth strategy started with process improvements.
"The innovative capabilities you put in place are for growth," Craig says. "But it's a specific kind of growth. You're expanding the business and gaining customers with your grandchildren in mind."