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Innovation is recommended by many but only truly executed by few. In order to understand how family businesses can become successful innovators, it is essential to understand the family business itself. By nature family businesses in the Middle East have many competitive advantages because of their unique combination of resources, their implied trust between stakeholders, and their long-term strategic vision. Undoubtedly, these families have shown that they know how to make money; the real question is whether they are also creating value. Mohamed Tahiri, Engineer & MBA from UCLA & IE Business School, entrepreneur and innovator with the Tahiri Family in Morocco (operating in import, manufacturing and distribution of plastic sandals, and real estate), explains why family businesses are uniquely placed to enable innovation, what they can change and how they can gain competitive advantages.
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Tharawat Magazine Volume 12
he word innovation originally stems from the Latin word innovare, which stands for to renew or to change. In this article we explore how family businesses
past, even if the circumstances are not relevant anymore. Secondly, through that path-dependency large companies fail to undertake disruptive innovation. As opposed to sustaining innovation which improves on existing products and services, disruptive innovation requires an entirely new value proposition (new product or service for a new customer segment) that might not always be aimed at the main existing customer segment of a company and therefore would be more difcult to implement, in an environment of short term vision, and constant pressure from the shareholders, and the nancial market To manage these issues successful international companies look for innovation outside. For instance, Google is viewed as a highly innovative company, however, most of the ground-breaking innovation comes from outside; the company buys small start-
can understand and incorporate innovation and why it is important for value creation.
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GROWTH
ups that comprise innovative products and services. It can be argued that both these obstacles present themselves to a lesser extent in family businesses. Often they do not have to answer to external shareholders and, therefore, can have a more long-term vision. Moreover, through the mix of generations that are managing the family business, path-dependency might be lessened, and therefore innovation might be easier to implement once the necessary mindset is acquired.
Value is created only if these three factors are present. Family businesses generally do not have big issues with trust between stakeholders as they are known for their strong ties not only amongst family members but also with their suppliers and communities. However, families often nd realising the other two factors somewhat more difcult. This brings us invariably back to the required mindset and culture of a company that will lead to innovation. In order to assess the nancial success of a family
businesses we should not question whether the company is making money, but rather whether the company is making enough money compared to the risk that it is taking. The only way for a family business to make above average returns, and outperform the competition is by making sure that the three components of innovation, fast execution, and trust are combined. If the management is not able to
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produce above average returns, the shareholders are generally better off by investing in the stock market.
that will have a positive impact on our society, we will be able to drive innovation and create value. The relationship with risk and failure: Unfortunately, in oriental culture and family businesses especially, risk is never perceived as a learning opportunity. Of course, taking unnecessary risks is never encouraged, and we should always do our homework and due diligence. However, when we assess risks we tend to ask the question What if I fail? while instead, a much more interesting question would be What is the cost of failure?. If the cost of failure is relatively low and the time it lasts is short, companies should proceed and take the risk. The most important thing is to assess that the recovery from failure is faster than that of other competitors. Family businesses should start thinking like venture capitalists: if two out of ten projects succeed and yield what they wished for in prot, then that is an excellent outcome. The failure of the other eight becomes relative. Careful with social contracts: That there are certain social contracts is true for any society: Pressure from failure, and pressure to have the resources needed before seizing an opportunity. Maybe in oriental culture these contracts are still somewhat stricter than in Western culture. Many companies, for instance, stop short of innovation because they feel they do not have the resources and capabilities to start the processes needed. My professor George Geis at UCLA always said: Entrepreneurship is the pursuit of opportunity beyond the resources you currently control. George Bernard Shaw once said The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man. Family businesses should try and move away from the mentality that all the
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The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man.
George Bernard Shaw
these changes then the road towards sustainable innovation and the creation of value becomes clear. Businesses should understand that change is the only constant in today world from which resources need already be in place before they undertake a project. they can gain.
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In the end, innovation and value come from doing common things uncommonly well.
franchises and agency agreements and those that produce knowledge transfer. Innovation in partnerships will only be motivated if there is a shared purpose. Investment in innovation: Family businesses, especially in the MENA should invest in startups and incubator processes. There are a lot of companies in Europe and the US, as well as the Middle East itself that are short of nancing and would represent great investment opportunities. Partner with connectors: In order to successfully make innovation known, a company needs people with relationships and communication skills that share the common purpose. This is very tricky because the communication that is needed is targeted at disseminating the innovation inside as well as outside the company. Thus, we need to nd people that can connect internal as well as external stakeholders. Allocate innovation-time: We have to create space and time for innovation to take place. Google employees, for example, have to allocate 20% of their time to innovation activities that have nothing to do with their day-to-day jobs. It is not optional; they have to allocate that time to new ideas. Engaging employees in this way increases the chances for sustainable innovation. Review the processes: In order to enable innovation the family business has to make sure that its processes are optimised. They have to be efcient and up to date or else they can inhibit the
realisation of new ideas and opportunities. Question everything: There is no room for complacency in running a family business or any business for that matter. The family has to keep questioning what they do and what they believe in, even the very essentials of the businesses. There is a great lack of that questioning mentality in family businesses even though it is a great tool towards fostering innovation.
Bottom Line
When a company embraces an innovative mindset, it is still not guaranteed that innovation will ensue. Many innovative thinker never get anything done. Indeed, in order to succeed a company cannot stand still at an innovative attitude but has to become an innovative executer. In other words, it has to acquire the third factor towards value creation fast execution. In the end, innovation and value come from doing common things uncommonly well. In family businesses the young generation can contribute much to bringing about innovation and fast execution. In fact, they are the key towards new ideas and approaches. Young family members are often not burdened with the path-dependency and have less difculty in questioning existing paradigms. They are not scared of challenging core values, which to a certain measure can be benecial. Of course, they must be well-educated, preferably abroad, and have external work experience. In order to be able to convince the older generation of their new ideas, young family members have to be able to demonstrate convincingly how value is added in the long run, and learn how to manage the resistance to change. AUTHOR Mohamed Tahiri, Engineer & MBA from UCLA and IE Business School, entrepreneur and innovator with the Tahiri Family, Morocco
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