Disruptive Innovation: Preparing family Business for the future

Disruptive innovation has wiped out entire industries and poses challenges for business. According to estimates the average life span of a business has shortened from 61 years in 1958 to just 18 years today. More conservative estimates reveal the life span to be only 10 years. With shorter life cycles and shifting consumer tastes businesses today need to be even more prepared for the future.

Family businesses owing to their form and structure are even more susceptible to the challenge of disruptive innovation. Over each generations life time several products and industries are now a thing of the past. In order to ensure sustainability family businesses need to adopt best practices of non-family firms.

Most family business are minutely involved in the day to day operations of the business and lose sight of the big picture. Good governance can change that. If family businesses are to ensure sustainability they need to assume the role of stewardship. Stewardship of the business means providing a direction to the firm. This is different from managing day to day operations.

Stewardship is defined by Tomorrow's company (a think tank) 'the active and responsible management of entrusted resources now and in the longer term, so as to hand them on in better condition'. Guiding principle especially relevant for family businesses is are"

Its four principles of stewardship have been developed and adapted to the family business context.

  • Setting the course
  • Driving performance
  • Sensing and shaping the landscape
  • Planting for the future

With disruptive innovation family businesses need to think beyond current products and markets. Disruptive innovation is not a new phenomenon. However the rate of change from the first to the fourth industrial revolution has decreased significantly from 160 years to 20 years. Pakistani family businesses need to view disruptive innovation not as a threat but rather as a stimulus for sustainability. In the current context Pakistani family businesses need to adopt disruptive technologies to capitalize on opportunities.

Disruptive technology such as Internet of Things, Location Detection Technologies, Advanced Human Machine Interface, Authentication & Fraud Detection, 3D Printing, Smart Sensors, Big Data Analytics, Multi Level Customer Interaction, Augmented reality, Cloud Computing etc. have created new and emerging business models.

Pakistani family business may need to move from Red Ocean to Blue Ocean to be sustainable. Innovation is the key to creating an uncontested market space and make competition irrelevant. Family businesses can really take advantage of proximity to market and use technology to create business models targeting customer pain points.

In the hypercompetitive market only those firms will survive that can differentiate themselves. Family firms also need to be set their eyes on the horizon to be sustainable. As next generation enters the business their dissatisfaction with the existing business model is expected. Years of listening to complains take its toll in the form of a negative perception of the business.

Family business owners have an opportunity here to provide a platform to the next generation to carve a space for themselves within the larger context of the business yet separate from the family business. It is an opportunity for expansion and mentorship.

In addition disruptive innovation can be a means to diversify the family business and avoid conflict. Family businesses evolve over time from a single entrepreneur to the sibling stage and cousin consortium. Decision making becomes more complex at each stage of the family business evolution moving from a single decision maker to multiple decision makers. One strategy to avoid conflict is to create separate businesses with the family business as a holding company.

In order for family business to thrive both the business and the family have to succeed. The key to sustainability is not just accepting today's business may not exist tomorrow but with intent of working for tomorrow to secure today. This is only possible if family businesses create governance structures and act as steward of the business.

Aysha Anas Iftikhar

Aysha Anas Iftikhar is Founding Academic Director Family Managed Business Diploma Program at the Institute of Business Administration, Karachi

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