Family business qualities such as a sense of identity, tradition, and long-term vision are potent drivers of success and endurance. Yet, tradition can also become a barrier to innovation — another key factor in ensuring longevity and growth. Heterogeneity in families, meaning differences in skills, experiences, and generational mindsets, can become the source of new ideas, diverse perspectives, and flexible thinking. In this article, we’ll explore how family businesses can turn heterogeneity into a source of strength.

Innovation as a Driver of Family Business Longevity

Innovation is often the deciding factor in whether a family business thrives or struggles in the long term. While some firms adapt and succeed for generations, others lose momentum as their structure and thinking become rigid.

Research by Rau, Werner, and Schell (2019) highlights a key reason for this difference: family firms tend to experience a decline in innovation output in later generations. While first- and second-generation leaders often introduce bold ideas, innovation output tends to decline by the third generation and beyond.

Yet, this decline isn’t inevitable. When younger-generation owners develop a strong sense of psychological ownership, they are far more likely to contribute creative ideas and embrace innovation. Psychological ownership refers to the emotional connection individuals feel toward the family business — a sense that the business is theirs, even if they aren’t the (only) legal owners. As a firm passes from a single-owner firm in the first generation, to a sibling-run firm in the second generation, it then morphs into a cousin-consortium in the third generation. Without a clear intention to create a family-wide Vision and associated Values, the psychological ownership is diminished. If a family takes intentional steps to create a bond among siblings and cousins, a sense of ownership drives individuals to care deeply about the firm’s success and motivates them to bring forward new ideas, embrace risk, and challenge outdated practices. The research shows that when later-generation leaders develop this mindset, they can be just as innovative as their predecessors.

For family businesses seeking to sustain innovation, fostering psychological ownership is crucial. This requires creating meaningful opportunities for younger family members to connect with the business, not just through financial involvement, but by actively participating in strategic discussions, creative projects, or new ventures.

Practical Tips for Cultivating Psychological Ownership:

  1. Create Meaningful Roles: Assign younger family members clear roles that connect them to decision-making, innovation projects, or emerging business areas.
  2. Mentorship Programs: Encourage older generations to mentor the next generation to share both their knowledge and their emotional connection to the business.
  3. Family Governance Structures: Establish platforms like family councils or advisory boards where younger members can voice their ideas and shape the family’s values and vision
  4. Celebrate Contributions: Acknowledge the impact of younger-generation ideas.

These practices will also create a flow of creative ideas and solutions, besides keeping both younger and older generations involved.

The Role of Socioemotional Wealth (SEW) in Innovation

Family businesses often measure success differently from other companies and place a high value on family identity, family ties, and legacy. This emotional connection is known as socioemotional wealth (SEW), and it is a key influencer of family business decision-making. On one hand, SEW serves as a stabilising force and helps family firms stay committed to their values and long-term goals. On the other hand, SEW can also create tension when it comes to innovation.

Because SEW encourages families to preserve what they’ve built, it can sometimes make them reluctant to take risks or challenge established ways of practice. For example, a family business may avoid exploring new markets or modernising its operations out of fear that change could threaten its identity or legacy.

Just as psychological ownership fuels innovation by deepening emotional investment, SEW can support or hinder innovation depending on how tradition is framed — as something to protect or evolve. Family businesses don’t have to choose between tradition and innovation. They can maintain their SEW values by making their tradition future-proof and embracing change to strengthen their identity.

Practical Tips for Balancing SEW and Innovation

  1. Link Innovation to Family Values: Frame new ideas as a way to protect and enhance the family’s legacy. For example, adopting sustainable practices or digital tools can help modernise the business while reinforcing values like responsibility, quality, or customer care.
  2. Tell the Story of Innovation: Share stories within the family about times when bold decisions, creative ideas, or unconventional thinking led to success to reinforce that innovation is already part of the family’s identity.
  3. Involve Family Members in Change: Encourage family involvement in new initiatives. Giving key family members roles in innovation projects will make them feel less like a disruption and more like a shared achievement.
  4. Create a Safe Space for Experimentation: Innovation doesn’t always require big risks. By setting up pilot projects or smaller-scale experiments, family businesses can explore new ideas without jeopardising what they’ve already built.

These practices can help balance tradition with new ideas and unlock the creative potential within their family.

Innovation Styles of Family Businesses

Family businesses are as diverse as the families behind them, each with its own approach to innovation. We can establish different innovation configurations in family businesses based on their levels of:

  • Openness: how willing the business is to seek external knowledge and collaborate with outsiders.
  • Adaptability: how flexible the business is in responding to change and implementing new ideas.
  • Risk Appetite: the degree to which the business is willing to embrace uncertainty and invest in innovation.

Based on these qualities, we can distinguish 9 distinct innovation styles.

Innovation Style Subcategory Openness Adaptability Risk Appetite Description
Optimisers Preservers Low Low Low Focus on protecting core processes; innovate minimally.
Balancers Low Moderate Low to Moderate Improve processes steadily without major disruptions.
Explorers Low High Low to Moderate Pursue improvements eagerly within their comfort zone.
Adapters Preservers Moderate Low Low Selective about new ideas; adopt proven changes carefully.
Balancers Moderate Moderate Moderate Adapt steadily to changing demands while staying grounded.
Explorers Moderate High Moderate Embrace continuous improvement and process innovation.
Visionaries Preservers High Low Moderate Take bold steps while staying rooted in family values.
Balancers High Moderate Moderate to High Balance tradition with forward-thinking strategies.
Explorers High High High Pursue ambitious transformation and embrace entrepreneurial risks.

Recognising which style best aligns with their structure, values, and goals allows family businesses to create an innovation strategy that fits their unique structure and preferences.

Optimisers and Strengthening What Already Works

Optimisers excel at refining processes and improving efficiency while guarding their stability. They may hesitate to pursue radical changes and focus on internal improvements rather than finding entirely new directions.

Practical Tips:

  • Embrace Process Innovation: Focus on small, impactful improvements that enhance efficiency without disrupting the business. For example, introducing automation tools, improving inventory systems, or streamlining reporting processes can yield significant benefits.
  • Leverage Trusted Experts: Optimisers who feel hesitant to explore unfamiliar ideas can safely innovate by inviting trusted advisors or experienced family members to propose thoughtful improvements.
  • Build on Your Strengths: Focus innovation efforts on refining the areas where your business already excels — strengthening your unique value rather than chasing trends.

Adapters and Embracing Change in Measured Steps

Adapters thrive on flexibility and incremental innovation. While they may avoid radical shifts, they succeed by adjusting steadily to market trends, customer needs, and internal challenges.

Practical Tips:

  • Test Ideas with Pilot Projects: Small-scale trials allow Adapters to experiment with new processes or products in low-risk environments.
  • Create Internal Innovation Teams: Bringing together employees, family members, and trusted advisors to brainstorm ideas can be highly effective while keeping risks low.
  • Stay Customer-Focused: Adapters often excel by listening closely to customers. Regular feedback loops, such as surveys or informal conversations, can bring in ideas for improving services or identifying new opportunities.

Visionaries and Making Way to Transformation

Visionaries are proactive innovators who embrace calculated risks and forward-thinking ideas. While some Visionaries balance their boldness with tradition, others are comfortable taking disruptive steps to explore new markets or reinvent their business model.

Practical Tips:

  • Create a “Future Fund”: Dedicate resources specifically for bold experiments, innovation projects, or digital transformation initiatives.
  • Encourage Entrepreneurial Thinking: Visionaries thrive when family members are empowered to experiment. Provide structured opportunities — like dedicated innovation roles or intrapreneurship projects — that encourage creative risk-taking.
  • Manage Risk with Foresight: While Visionaries excel at embracing change, it’s crucial to identify low-risk environments where bold ideas can be tested before committing significant resources.
  • Take steps to improve the Absorptive Capacity of the firm: The Absorptive Capacity describes the ability to take in new knowledge, store this, reconfigure it and adapt it to the effect of creating new knowledge or innovations.

Many successful family businesses combine strategies to balance stability with creativity. For example:

  • An Optimiser may introduce pilot projects like an Adapter to test small improvements.
  • An Adapter may adopt Visionary-style risk-taking in low-stakes scenarios.
  • A Visionary may apply Optimiser principles by improving processes to support their bold ideas.

Most successful family businesses adopt elements of all three strategies by optimising their processes, adapting to changing markets, and occasionally taking visionary leaps when the opportunity is right.

Overcoming Family Dynamics for Innovation

While strong relationships are powerful assets for the family business, they can also create obstacles when it comes to innovation. Conflicting priorities, emotional ties, and power struggles can slow progress or lead to tension when new ideas challenge established ways of working. The challenges family businesses face often vary depending on their innovation mindset.

  • Optimisers may struggle with resistance to change, as family members who prioritise stability may hesitate to embrace even small adjustments. Disagreements often arise when newer generations push for improvements that feel unnecessary or risky to the family’s established processes.
  • Adapters face tension when balancing continuity with change. While some family members may want to push forward with new ideas, others may worry that frequent adjustments could undermine stability.
  • Visionaries often face the greatest risk of internal conflict. Bold ideas — especially those that challenge traditions — can create tension between family members who are protective of the company’s legacy and those who see change as essential for growth.

Practical Tips:

Hold Structured Family Meetings with Innovation Objectives

Create dedicated spaces for innovation-focused conversations. Regular meetings that focus specifically on new ideas — separate from day-to-day business discussions — help reduce emotional reactions and allow family members to align on goals.

  • For Optimisers, these meetings can focus on incremental improvements to existing processes.
  • For Adapters, the focus can be on balancing stability with necessary changes.
  • For Visionaries, these meetings can serve as a platform to explore bold ideas.

Establish Clear Roles in Innovation Projects

Defining clear roles ensures that responsibility is distributed fairly, helping to minimise power struggles.

  • For Optimisers, designate process managers who focus on refining existing strengths.
  • For Adapters, assign a change lead to oversee adjustments.
  • For Visionaries, appoint a risk manager to safeguard key traditions during innovation efforts.

Use External Facilitators or Advisors

An impartial advisor can guide difficult discussions, particularly when family members struggle to separate emotional concerns from strategic decisions. They can also help families structure meetings effectively, manage conflict, and align diverse perspectives.

  • For Optimisers, an external consultant can suggest low-risk innovations that maintain stability.
  • For Adapters, facilitators can help ensure that both tradition and new ideas are respected.
  • For Visionaries, advisors can challenge overly risky ideas or encourage thoughtful decision-making.

Conclusion

Innovation is essential for securing the future success of any family business. When family members are involved early and entrusted with meaningful roles, they feel empowered to think creatively and contribute their best ideas. By combining diverse perspectives with thoughtful innovation strategies, family businesses can turn differences into strengths and build resiliency.

Sources:

Rau, S.B., Werner, A. and Schell, S. (2019) ‘Psychological ownership as a driving factor of innovation in older family firms’, Journal of Family Business Strategy, 10(4), p. 100246. Available at: https://doi.org/10.1016/j.jfbs.2018.03.001.