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Family businesses: The winners of digitization — if they want it!

Why the digital transformation in Germany depends on the success of family businesses.

They are the spine of the German economy: Family businesses. More than 90% of all German companies are considered to be family businesses, they generate 55% of the total revenue while employing about 57% of all employees within Germany. That said, the digital transformation in Germany can only be successful, if the family-owned and family-controlled businesses master the change: technologically and process-related, but also organizationally and from a staffing point of view.

Unfortunately, the reality still turns out to be different: In Germany, only 20% of the small and medium-sized businesses are so-called Digital Pioneers. Digital Pioneers can be considered as companies that have already started developing new digital business models while building the necessary technological, process-related as well as organizational and personnel capabilities. Good examples of Digital Pioneers can be found in companies like “Trumpf”, “Viessmann” and “KUKA”.

On the other hand, there are about 50% of indecisive companies. Those companies realized the constant change of environment. They came up with first ideas of how to digitize their products; but what they don’t know is how to handle the digital transformation, where to start, what capabilities they need. They don’t have any orientation, they need navigation while making those important changes.

Finally, there are about 30% of companies waiting. Just waiting. Most of those companies act in industries with a low level of digitization. However, there are also many “Hidden Champions”, companies with a big market share, that currently rely on their success. They don’t see the importance of changing. They prefer to stand aside looking at other companies fail. The point is: the indecisive companies as well as the waiting companies should immediately start transforming their own business as they face the risk of falling behind.

Family businesses don’t have a reason to be scared: they have four major advantages over large enterprises, which is why they can be the winners of the digitization.

First they offer high-quality products, which have been produced and developed with German engineering and in the highest perfection – they justly stand for the quality seal “Made in Germany”. For such product-oriented, medium-sized businesses, it is much easier to develop a digital service besides the product, as it is for a platform provider like Amazon, Airbnb or Google. For a long time these companies didn’t have the product knowledge or the assets to do so. They had to understand the customer and his needs first.

Secondly, family businesses always act sustainable. They strive to pass on to the next generation what has been built up over generations, which they themselves have inherited. This means that their decisions are designed to be long-term and do not follow the next quarterly result.

Thirdly, family businesses have experience in transformations. Companies that are led in the second or third generation already went through times of change and economic crisis. The ability to successfully change is anchored in their corporate DNA. Today, the only problem these managements have is missing experience when it comes to transforming in the digital era. It is therefore all the more important to reconsider the experiences of the past and to use the knowledge and learnings.

Fourthly, family businesses have a responsibility for the entire region and thus also for sustainable economic activities and actions in their environment. This responsibility is what pushes them forward to recognize and exploit the opportunities of the digital world. They know that not-acting and waiting will take away the perspective for many people within the region.

During the digital transformation, it is the owner of the family business who has the responsibility for the necessary changes within the company. A responsibility that cannot be delegated. In this case, a thought about the founder generation can be helpful. Ultimately, it is about having the courage to do what the founder generation has done: having the knowledge of one’s technological abilities and strengths, passionately pursuing a business idea that is more important than the next quarterly result and investing in the future while taking risks. It is not about waiting and pondering, but about doing, trying, failing, learning and keep going to reach the personal aim. The behavior of startup founders from Berlin, Tel Aviv or the Silicon Valley has to be copied. They encourage family businesses to tackle the digital transformation. This is why it is so important for family businesses to network with these startups and thereby retrieve and profit from their innovation capabilities.

#Michael

[originally published on January 26th, 2018]

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