Building innovation strategy in a family company

Jeff Melanson  credit: courtesy of the subject
Jeff Melanson credit: courtesy of the subject

Jeff Melanson, of US consultancy LGA, and the keynote speaker at the "Globes" Family Companies Conference, talks about resistance to change, and the likes of The New York Times and Nintendo that embraced it.

About a year ago, IBM announced that it was replacing 8,000 employees with AI technology, chiefly in administrative functions such as human resources. Artificial intelligence can "make every enterprise process more productive," IBM chairman and CEO Arvind Krishna told CNBC at the time, adding, "That means you can get the same work done with fewer people. That’s just the nature of productivity. I actually believe that the first set of roles that will get impacted are what I call back office, white-collar work."

Many companies have presumably followed in IBM’s footsteps in the past year, and the process can be expected to accelerate in the coming years. How is this issue, and adaptation to innovation in general, relevant to family businesses specifically? "Innovation is relevant to every business, but in family businesses there’s a tendency to oppose change because of the desire to stick to past practices," says Jeff Melanson, an expert on innovation and a consultant to family businesses at US consulting firm LGA. Melanson will give the keynote lecture at the "Globes" Family Companies Conference that will be held for the second year next week in Tel Aviv.

How does the tendency of family businesses to stick to the familiar manifest itself?

"The family members, who are the owners and sometimes the operators as well, have reached tremendous success on the basis of what they have built and done in the past, and they want to preserve these assets. That makes complete sense, and it’s also the source of resistance to change. Another aspect is inter-generational transition, when a younger generation entering a business, for example, holds different ideas from those of the older generation, which can generate tension. There’s another issue: sometimes, because the family is so invested in what has been built, the employees hesitate to raise new ideas."

As a consultant, what do you do in cases like these?

"We remind people that change is part of life. When you look back at the Fortune 500 companies of twenty years ago, more than 50% of them have been acquired or no longer exist. If we go back to 1955, almost 90% of the companies have disappeared. That means that 440 out of 500 companies that were at the top have gone out of existence within 70 years.

"Therefore," Melanson stresses, "families that want their business to last a long time have to pay attention to this, and have to be aware of how an innovation strategy should be built into their systems. In the lectures I give, I frequently ask the audience: 'How many of you are doing exactly the same thing as you did twenty years ago?' Only a few raise their hands," says Melanson, who heads innovation and strategy at LGA. For three years, LGA has had a representative office in Israel, headed by Mika Mazor and Galit Philosof.

Hard to adapt to change

Going back to artificial intelligence, and the fact that it will probably require a rethink of enterprise structures and of functions within enterprises, it may be that dismissing employees in family business is particularly difficult, because of the family atmosphere and the intimate acquaintance.

"There are many challenges in the transition to a new world, but it’s unavoidable. We live in a competitive world. And the reality is that if you don’t adapt, or adopt an AI strategy in the company, then your competitor will, and you are liable to disappear. It can be likened to a factory manager in the period in which electricity came in saying to himself: ‘Maybe I won’t make use of it.’ What I say to managers, at family and non-family companies, is: Learn the subject. Think about how AI could help you solve problems today."

On family companies and the difficulty of firing people, Melanson thinks that managers need to bring their workers into this strategic process. "This is an issue that goes further than family businesses. It’s at government level. Governments will have think about how to develop the labor market in a changing environment," he says.

Nintendo’s successful pivot

Are there global family companies that have demonstrated impressive adaptation to change over the years? Melanson mentions two: "The New York Tines" newspaper, belonging to the Sulzberger family of the US, and Japanese games company Nintendo, belonging to the Yamauchi family. Both these businesses were founded towards the end of the nineteenth century, and have survived to this day, adopting substantial innovation along the way.

The New York Times made a groundbreaking digital move in 2011, when it was among the first news companies in the world to erect a paywall around its Internet site. Until then, the site’s content was accessible by anybody, for free, whereas the paywall obliged surfers to pay for content on a digital subscription model. The move was a success. It boosted the newspaper’s earnings, and by now has become standard at most news organizations. "The gamble there was: Will people be prepared to pay for quality content and in-depth coverage, and that’s a question that’s still relevant, as people’s power of concentration becomes shorter all the time," says Melanson.

Nintendo was a playing cards company that changed its business to computer games in the 1970s, and developed consoles like Game Boy and games like Super Mario. "Nintendo preserved the original legacy of the company, different characters that appeared on playing cards, and added the technological layer. There was a moment at which the family members wondered whether they were breaking up the company or whether it was on the way to disappearing. Fortunately, they succeeded in making a pivot."

Are you in favor of creating field experiments within companies, to see which new channels have potential and which don’t?

"Absolutely. I think that managers are sometimes afraid of going to these places, of field experiments in a company, and that’s a shame. First of all, because doing experiments and trying out innovation is really fun. Secondly, it’s a better enterprise culture, as opposed to a culture that says ‘We’re a productivity machine, we do this thing this way, and simply push as much as possible of it onto the market.’"

What personal characteristics typify CEOs who lead successful change processes in an enterprise, in your experience?

"I’d say: creativity and curiosity. These are CEOs who ask ‘What if?’ questions, such as ‘What if we were to try this as well?’, or ‘What if we could make a pivot this way?’, or ‘What’s the blind spot in our strategy?’

"I’ll give you an example. Sometimes, when you come to consider a business’s budget, you ask the management: ‘How did you define the budget?’, and the response is ‘We took the previous year’s budget and went up or down X percent.’ When you start to look into past budgets, there’s no-one who defined the original budget. You ask: ‘What assumptions led to the construction of the original budget?’ - and no-one knows. So in my view, leaders who are good at innovation are very open and willing to challenge original assumptions of this kind."

Published by Globes, Israel business news - - on June 27, 2024.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.

Jeff Melanson  credit: courtesy of the subject
Jeff Melanson credit: courtesy of the subject
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