How family businesses are embracing innovation during times of crisis

After two pandemic years, war in Ukraine, shipping routes in disarray, inflation reaching new heights and an endless cacophony of economic challenges, several family businesses have been challenged into changing their methods of operation, including organisational transformation and embracing innovation.

Easier said than done, organisational transformation tends to meet several obstacles within a family-run structure due to their innate difficulties, the likes of which tend not to impair non-family businesses.

Generally speaking, experience has shown that crises can either spur or inhibit innovation, and, therefore, strategic responses to serious economic challenges foster important debates among family businesses.

Indeed, while family businesses are often viewed as stable and risk-averse, some of the most innovative organisations are counted within the ranks of such family-run outfits.

Capitalising on unique situations, many family businesses combine innovation with their own traditions. They tend to effect change incrementally, avoiding any radical shifts to their modus operandi and thereby ensuring the sustainability of any new innovative practices.

Here in Malta, family businesses managed to sustain themselves, weather recent challenges and beyond that, carry on with incremental changes, thanks to Government aid implemented at the early stages of the pandemic.

Typically, the general perception of a traditional family business is that it underinvests in R&D and innovation during stable times, but ramps up risk-taking during times of crisis, when such action is called for.

However, when considering that radical innovation in products, services and even business models might especially be necessary during times of major crises and challenges, it is important to develop a greater understanding about family business’ abilities to engage in risk-taking and radical innovative behaviour.

Such behaviour may ensure the survival of a family business during dramatic external environmental and operational changes.

So, how does a traditional family firm evolve its innovative behaviour during calm times as well as during times of crises? To get to the bottom of such a research question, a good launchpad would be gaining a better understanding of the connection between crisis behaviour and innovation in a family business’ long-term evolution.

It could transpire that carrying out risk-taking behaviour and innovative practices during black swan events could unleash slack resources developed during stable periods, allowing it to navigate through shaky ground.

While no two family businesses are the same, one may still observe a general trend among family businesses in the way they innovate. Contrary to non-family set ups, they tend to focus their energies on incremental change, relying on a relatively large number of third party collaborators.

Family businesses are also, for the most part, SMEs, allow for a greater degree of flexibility and resilience during times of crises.

Evidence has shown the different ways in which family firms have tackled the COVID pandemic, with such businesses in most of Europe, inclusive of Malta, opting for the following survival measures:

Reduced hour working models; remote work; intensive communication drives with employees over fears related to the pandemic; and rapid embrace of digitalisation.

As such, family businesses have responded to the pandemic and other crises in a variety of ways, changing their practices to align with the circumstances of the day, with some going from being risk-averse businesses to risk-taking ones out of necessity.