FIVE STEPS TO SUCCESS Redefining Family Firm Sustainability with Artificial Intelligence
Image courtesy of Ann Sophie K. Löhde

Ann Sophie K. Löhde

Associate CEO at aiso-lab GmbH, Senior Research Fellow at WIFU Witten Institute for Family Business


FIVE STEPS TO SUCCESS Redefining Family Firm Sustainability with Artificial Intelligence
Image courtesy of Dr Giovanna Campopiano

Dr Giovanna Campopiano

Associate Professor of Family Business at Lancaster University Management SchoolDirector of the LUMS Centre for Family Business, Senior Research Fellow at WIFU Witten Institute for Family Business 

The Rise of AI – Why Now?

Artificial Intelligence (AI) – everybody is talking about it, but not many understand it, and only a few know how to use it to their advantage. The basic idea behind AI is simple. Machines are now able to perform tasks that we thought only humans could successfully master. With increasing computing power, however, we are able to program machines in a way that enables them to learn from experience and adapt to new inputs. Computers can be programmed to fulfil many tasks in a manner similar to humans but with the capability of processing more substantial amounts of data.

The question often arising in this context is about where the current “hype” is coming from and whether it might be just that – a “hype”. The technological ideas behind AI can be traced back to the early 1920s. The algorithms were invented decades ago, yet the topic has reached the attention of the masses only recently. The main drivers behind these sudden “leaps” are the advancements in processing power and the success of Google’s AlphaGo in 2017, which was not considered possible by experts around the world even just a few years ago.

The Impact of AI on Business

As with many technological advancements, AI provides tremendous benefits for businesses and is changing our workplace environment permanently. It will have a high impact on business functions – thus internal processes – as well as products and offerings. In particular, business functions such as administration, marketing and sales, production and research and development will benefit from AI applications in the short term by increasing productivity and efficiency. However, in the long run, entire business models will be disrupted. AI does not only impact how a firm works but also what it offers to its customers.

Whereas, so far, one of the key differentiating factors for companies is still the quality of their products and services, a shift towards business models that mainly build on customer relationships (fully integrated solutions or platforms) is taking place. Production processes powered by AI offer a high level of optimisation to various manufacturers. In this scenario, the competitive advantage will stem
from the relationship with and a deep understanding of the customers and their specific needs.

FIVE STEPS TO SUCCESS Redefining Family Firm Sustainability with Artificial IntelligenceAI and Family Firms

For family firms, this shift in paradigm towards an integration of AI poses an exceptional challenge to family firms, as it might mean that they have to detach themselves from their family legacy and often centuries of tradition to sustain their business over time. On the other hand, family businesses possess a strong competitive advantage in these new market conditions. Whereas many business functions can be optimised through AI applications, creativity and personal relationships require capabilities that are still uniquely human. And family firms have long been known for their familial customer relationships, often lasting over generations.

Incoming generations are facing the challenge of detaching their traditional business from its past and – so far – successful model to embrace the novel opportunities offered by AI. The emotional attachment to what has been created and implemented by their ancestors might be a hindrance to this inevitable change.

Family businesses might also find it difficult to reposition their workforce, often considered part of the family, in the business models resulting from AI applications. However, once the renewed value of close and personal customer relationships is understood, family businesses have the chance to benefit from unique advantages when innovating their business models towards AI-driven customisation and tailor-made solutions.

Towards a New Sustainable Family Business Model

By integrating AI solutions into their operations, family business owners can significantly impact current business strategies and activities. An overall cultural change and restructuring of the business is necessary in the light of the breakthroughs AI is engendering. Family businesses might redirect their efforts towards devoting more attention to their stakeholders, establishing a value-based governance system at different levels and building a long-lived and viable business model for future generations.

In doing so, family firms can revitalise the sustainability of their business model both at the business and family level. AI radically affects strategic and operational decisions. The implications for family business sustainability condition the profitability of the business as well as the values and shared vision of the family. Although this disruption and the resulting internal dynamics may dismantle the status quo, family businesses can use it to earn a competitive advantage and regenerate their sustainability.

FIVE STEPS TO SUCCESS Redefining Family Firm Sustainability with Artificial IntelligenceAI and Family Firm Stakeholders

The revolution AI drives into family businesses deeply affects stakeholder management. Both employees and external actors, who affect and can be affected by the business activities, play a significant role in the definition of a new, sustainable family business model. Customers, suppliers and competitors have to be under the screening lens of firm managers at all times. To reap every business opportunity that the implementation of AI offers, the main focus should be on satisfying customers’ needs and building even stronger relationships with them, as well as strengthening synergies with suppliers and maintaining an advantage over competitors.

Employees might face a difficult time when their roles are partially or completely replaced by machines, which can perform many tasks more efficiently and effectively. However, family businesses are usually reluctant to lay people off, as they consider them part of the family. As such, family firms might consider alternative ways to reposition their employees, redesigning the overall structure and the individual roles of both family and non-family members.