Guest post by Alfredo De Massis and Emanuela Rondi
Family enterprises occupy a unique position in the business landscape. Their longevity and resilience are often built on a foundation of tradition, deeply embedded values, and a commitment to legacy. Yet, in today’s rapidly evolving world, these same enterprises are under immense pressure to change and innovate. The ability to balance the weight of tradition with the necessity of change is crucial for family businesses seeking sustainable growth and competitive advantage. In this article, we distill some of the key insights and strategies to manage the tension between tradition and innovation in family enterprises.
Innovation in Family Enterprises
Tradition: The Anchor of Stability
Tradition in family enterprises is more than a nostalgic nod to the past; it’s often the bedrock of their success. It manifests in the form of long-standing customer relationships, a commitment to quality, and a reputation built over generations. These elements provide family businesses with a unique identity and a competitive edge in markets where trust and authenticity matter. However, an over-reliance on tradition can stifle innovation. In a fast-paced business environment, clinging too tightly to the “way things have always been done” can result in missed opportunities and an inability to adapt to new challenges.
Innovation: The Driver of Relevance
Innovation, on the other hand, is the lifeblood of staying relevant in a competitive world. Whether it involves adopting new technologies, exploring untapped markets, or reimagining business models, innovation enables family enterprises to thrive in the face of disruption. Many family businesses have successfully embraced innovation without sacrificing their heritage. In the context of family enterprises, innovation often extends beyond products and services to include governance structures, succession planning, and leadership development. This broader perspective on innovation ensures that the business remains adaptable across generations.
Balancing Act: Strategies for Family Enterprises
Striking the right balance between tradition and change requires intentionality and strategic foresight. Here are some strategies for family enterprises to navigate this delicate equilibrium. In our research, we investigated the strategy of innovation through tradition (e.g., De Massis et al., 2016; Erdogan et al., 2018; Rondi et al., 2024). The innovation-through-tradition strategy in family businesses leverages the rich heritage and deeply ingrained values of the organization to drive modern advancements and foster sustainable growth. By intertwining the wisdom of past generations with forward-thinking ideas, family enterprises can create a unique competitive edge. This approach involves maintaining core traditions that define the business’s identity—such as quality, craftsmanship, or customer trust—while embracing technological advancements or attributing new meanings. It allows these businesses to remain relevant in a rapidly changing environment without compromising their authenticity. The balance of honoring legacy while fostering innovation strengthens brand loyalty, promotes adaptability, and ensures long-term continuity, making it a compelling strategy for family-run organizations. How can it be implemented?
Embrace a Dual Mindset. A dual mindset recognizes the importance of preserving core values while fostering a culture of innovation. Family business leaders can achieve this by distinguishing between the “core” and the “periphery.” The core—values, mission, and legacy—remains steadfast, while the periphery—processes, products, and technologies—is open to experimentation and change. In this process, it is necessary to understand what aspect of past knowledge should be interiorized and what needs to be renewed. It is crucial to formalize and categorize relevant aspects of past knowledge as well as values and legacy in order to secure its transferability across generations.
Invest in Next-Generation Leadership. The next generation often serves as a bridge between tradition and innovation. Millennials and Gen Z members of entrepreneurial families bring fresh perspectives, digital fluency, and an appetite for change. However, their involvement should be supported by structured development programs that align their innovative ambitions with the family’s values and long-term vision. For example, mentoring programs, exposure to external industries, and opportunities to lead innovation projects can prepare next-generation leaders to drive meaningful change while honoring the family legacy.
Create Governance Structures that Foster Innovation. Strong governance mechanisms can help family enterprises institutionalize innovation without undermining tradition. Boards of directors, advisory councils, or innovation committees that include both family and external members can provide diverse perspectives. This diversity of thought can spur creative solutions while ensuring alignment with the family’s mission and values. It is crucial to ensure that the family business governance embraces an innovative posture consistent with the one of the owning family.
Leverage Family Values as a Compass. Family enterprises can use their values as a guiding compass for innovation. Sustainability, social responsibility, and a long-term perspective—hallmarks of many family businesses—are increasingly aligned with market demands. For example, embracing green technologies or supporting community-driven initiatives allows family enterprises to innovate in ways that reinforce their values rather than contradict them. Having impact through innovation projects that leverage family business tradition can be a means to engage next generation in the process of change.
Engage in Open Dialogue Across Generations. Open communication is vital for balancing tradition and innovation. Generational differences in risk appetite and approaches to change can lead to conflict. By fostering open and respectful dialogue, family enterprises can create an environment where diverse perspectives are valued, and consensus can be reached on strategic decisions. This is held for non-family members as well as for next-gen members who might bring innovative ideas.
Experiment and Scale Incrementally. Family enterprises can reduce the perceived risks of innovation by starting small. Pilot projects, limited-scale experiments, or partnerships with startups allow the business to test new ideas without disrupting core operations. Successful initiatives can then be scaled incrementally, ensuring a smoother transition. Allocating pet projects to next generations can also be a means to allow them to develop legitimacy in the working environment, gradually exposing them to the organization and progressively engaging with the operations.
Challenges on the Journey
Being able to interiorize past knowledge and understand how to reinterpret it through new technologies or new meanings is essential for family firms to keep thriving in the long run. Emotional attachment to legacy practices can create resistance to change, in family members but also in non-family managers and other employees. Additionally, family dynamics, such as conflicting visions between generations, can complicate decision-making. External pressures, including technological disruption and global competition, further add to the complexity. Overcoming these challenges requires clarity of purpose, disciplined execution, and a willingness to adapt. Family enterprises must also recognize that maintaining this balance is an ongoing process rather than a one-time achievement.
As managers and members of family businesses, embracing this balance requires a mindset shift. Tradition is not a constraint but a foundation upon which innovation can thrive. Conversely, innovation does not have to mean abandoning the past but rather building upon it to create a future that honors the family’s legacy. For family enterprises, this means innovating boldly while staying true to the traditions that make them unique. By doing so, they can navigate the challenges of the present and secure a prosperous future for the next generations.
Alfredo De Massis and Emanuela Rondi are authors of The Family Business Book: A roadmap for entrepreneurial families to prosper across generations out now, published by FT Publishing
References:
- De Massis A., Rondi E. (2024). The Family Business Book. A roadmap for entrepreneurial families to prosper across generations. Pearson FT (Financial Times Series), Harlow, United Kingdom. 978-1-292-72560-4.
- De Massis, A., Frattini, F., Kotlar, J., Messeni-Petruzzelli, A., Wright M. (2016). Innovation through tradition: Lessons from innovative family businesses and directions for future research. Academy of Management Perspectives, 30(1), 93-116.
- Erdogan I., Rondi E., De Massis A. (2020). Managing the tradition and innovation paradox in family firms: A family imprinting perspective. Entrepreneurship Theory & Practice, 44(1), 20-54.
- Rondi, E., Magrelli, V., Debellis, F., De Massis, A. (2024). The evolution of craft work in the strategic development of a family enterprise. Strategic Entrepreneurship Journal, in press. https://doi.org/10.1002/sej.1503
See more breaking stories here.
