Hidden Resources: How Family Firms Use Their Past to Innovate

Hidden Resources: How Family Firms Use Their Past to Innovate

Family business researchers and practitioners have highlighted the distinct pool of resources including human, social and financial capital that can boost innovation performance in family firms. For example, the early involvement of family members in the business offers special opportunities for developing firm-specific tacit knowledge that is crucial for innovation. Social capital in the form of bonding and bridging ties provided by the family can facilitate coordination in innovation projects. The long-term perspective of family owners leads to the availability of “patient” financial capital that allows family firms to tackle promising investment projects that short-term competitors cannot afford.

What is often overlooked, however, is the “hidden” resource that family firms have as a result of their history and strong connections with the past. In family firms, values, beliefs and knowledge are handed down from generation to generation for decades, sometimes centuries, creating a close link between the family’s and the firm’s tradition. Conventional wisdom suggests that tradition does hinder innovation, and innovation managers are often advised to dismiss the old to make room for the new. However, this may not always be the best strategy. Consider, for example Polaroid. After the departure of its founder Edwin H. Land in 1980, Polaroid took distance from its traditional instant camera roots. Between 2001 and 2009, while the second-hand market for old Polaroid cameras was booming, Polaroid filed for bankruptcy twice and changed six CEOs.

The success stories of innovative family businesses offer a clear illustration of how tradition can boost the innovation capability of a family business. In our research, we examined several highly successful family firms and found that their tradition had lent itself to distinctive, in depth knowledge and had used to it innovate, connect more closely with customers and achieve superior competitive advantage.

Vibram is a classic example. A traditional mountain wear firm, founder Vitali Bramani is credited with inventing the first rubber sole for hiking boots in the 1930’s. Since then Vibram soles have been associated with cutting edge footwear design – their FiveFingers barefoot technology has revolutionized outdoor footwear and took an Outdoor Industry Award in 2014. The original FiveFingers shoes collection combine the family’s passion for shoeless hiking and their desire to reinterpret the conventional mountain shoe concept. FiveFingers shoes are successful not only for their technical characteristics, but also for rediscovering the traditional experience of coming into contact with nature.

Similarly, Aboca is a health care company ranked amongst the best Italian companies by the European Business Awards for its ability to develop homeostatic and pathological health care solutions based on complex natural matrices found in ancient officinal herbs. The company dates to 1978, when Valentino Mercati bought a farm in Tuscany to research the properties of ancient medicinal herbs found in the local territory. In doing so, Aboca unveiled the potential of past knowledge to be combined with biotech technologies to create new products that are enthusiastically received by the market because they are effective without the side effects found in their competitors’ products.

As suggested by these examples, past knowledge can be an asset for creating value in innovation. Knowledge from the past, which comes from the tradition of the firm or the tradition of the territory in which it operates, can provide a source of reliable raw materials, product signs, manufacturing processes, assumptions, and beliefs that can be transformed into new products. Moreover, past knowledge offers unique advantages for appropriating value from new products as tradition is a highly idiosyncratic resource that cannot be easily replicated by others.

The challenge for Vibram, Aboca and other long-lasting family firms is then how to turn past knowledge into innovative products. First, family firms need the capability to bring past knowledge culturally close to employees, especially those involved in the innovation process, in order to make it fully understood and reduce the risk of incorrect applications due to forgotten practices, lost records and staff turnover. The Aboca Museum and the Bibliotheca Antiqua illustrate how historians and researchers interiorize the tradition of the territory where the officinal herbs are cultivated, including its history and culture. In addition, ad hoc training courses and a variety of symbols in the headquarters and production sites are used to spread and share knowledge about the properties of traditional officinal herbs.

Second, family firms need the capability to integrate past knowledge and recombine it to develop new product concepts. Past knowledge can be recombined with technologies from distant industrial fields or with solutions and technologies that are familiar and largely adopted in the specific industrial field but used to develop unexpected product functionalities or meanings. For example, Aboca recombines ancient officinal herbs with biotech and leading-edge manufacturing techniques widely applied in the pharmaceutical industry. Vibram reinterprets the basic assumptions and beliefs of the mountaineering shoe by using recent rubber-based innovative products to manufacture footwear, delving into the traditional values and beliefs of the founding family and their love for barefoot walking.

Long-lasting innovative family firms such as Aboca, Vibram and many others show that the past should be considered not a core rigidity but an opportunity to discover knowledge to be turned into new products. By leveraging their tradition and developing a Tradition-Driven Innovation strategy, family firms can unlock their innovation potential and achieve remarkable results.

This article is part of the special series of articles on “Secrets of Family Business Innovation” and it was developed with the great support from Vittoria Magrelli at Lancaster University Management School’s Centre for Family Business and researchers at the Free University of Bozen-Bolzano’s Platform on Family Business Management.

Further readings

De Massis, A., Frattini, F., Kotlar, J., Petruzelli, 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.