Incremental vs. radical innovation (“Everything in moderation”)

Joe Schmieder
Joe Schmieder

Groundbreaking new products—like the iPhone or Viagra—rarely emerge from family businesses. Family-run enterprises tend to prefer smaller-scale, incremental innovation over radical changes, versus the publicly held Apples and Pfizers of the world, which have deep pockets for R&D funding. For most family enterprises, growing by incremental steps is preferable to advancing by giant leaps. This “incrementalist” approach dominates partly because family businesses are averse to taking large risks and taking on large debt. Not surprisingly, then, family businesses tend to be quick followers or quick improvers, rather than original innovators. But we can argue that incrementalism represents a form of innovation, as it focuses on steady improvement of offerings or ways of doing business through meaningful change.

Research suggests that successful, long-lasting family firms exercise moderation with regard to most key dimensions: planning, leverage, and innovation, among others. A 2013 research study conducted by Alfredo De Massis, Federico Frattini, Emanuele Pizzurno, and Lucio Cassia entitled “Product Innovation in Family versus Nonfamily Firms: An Exploratory Analysis,” highlighted how family businesses tend to take an incremental approach to new product development, as part of a broader objective of careful resource management. The moderation approach is related to the desire to maintain sufficient resources, financial and otherwise, for family shareholders. Thus, while venture capital firms talk about burn-rate, or the amount of cash a start-up venture plows through in early stages, and how quickly a given innovation can be brought to market and scaled, family businesses tend to talk about less exciting things, like self-funded developments or modifications to existing products. That prompts some to believe that observing family firms innovate is like watching paint dry. In reality, steady progress is the key to success and continuity for many family businesses and non-family firms. The paint may take time to dry, but it sets very well, with deeper, longer-lasting color.

The moderation approach to innovation has served most family businesses well: They evolve at a pace that fits them, based on collaborative thinking among family leaders and non-family executives who understand and adhere to the family’s guiding principles. At the same time, the incrementalist approach may not always be ideal, especially in fast-shifting markets. Family businesses that fail to adapt quickly enough to the changing landscape will struggle to perform. The print media industry, for example, has been a high-profile sector populated by many family-owned firms (such as newspapers). In the new millennium this market has undergone rapid transformation, mainly because of the rising popularity of non-traditional content-delivery channels, especially digital ones. Some family firms have adapted very well to the Digital Age, innovating digitally based strategies and offerings. Others have not adapted nearly as well, and are suffering greatly for it.

The highest-performing family businesses are those that have learned to be just innovative enough, like Goldilocks searching for the “just right” bowl of porridge in the bears’ house. They match their innovation speed to the requirements of their industry and the pace of their competition, moving more deliberately than many non-family peers, in part because they don’t face the same kind of pressure for short-term results.

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