Family business governance can substantially influence the family businesses’ ability to cope with novelty, uncertainty, and complexity, and thus play a key role in either enabling or impeding innovation processes in family businesses. One such process is the development of new products and a number of elements should be considered.

The New Product Development ( NPD ) team is a central aspect of designing a successful NPD project. The composition of NPD teams and the quality of interactions, both among team members and between them and other departments, are widely seen as key success factors. There is often a tendency in family businesses to select team members based on altruistic criteria rather than merit or project requirements. Low transparency about selection criteria can result in the rivalry and resentment of department colleagues who are excluded from NPD projects, leading to a lack of external support and difficulties in circulating relevant information between NPD teams and other departments

The selection of NPD project leaders plays a key role as well, as they act as bridges between teams and senior management in family businesses. Project leaders not only need the skills to manage the project, but they must also ensure support for the project by lobbying for resources, protecting teams from outside interference, and managing relationships with senior management. Unfortunately, family businesses face a difficult dilemma in selecting project leaders. On the one hand, family members often take leadership roles in NPD projects but lack the technical background to fill those roles successfully. On the other hand, “professional” project managers often experience difficulty in gaining the acceptance of family managers and employees

Finally, incentives are important to foster motivation and commitment among team members and project leaders. But while this is typically attained through the provision of monetary rewards directly linked to NPD performance, the less transparent accountability norms in family firm combined with their centralized authority structures makes these incentives problematic. Family business leaders often describe such incentives as redundant and ineffective. In extreme cases, they can damage the informal working environment and the relationships between family owners/managers and other employees by replacing the relational contracts with transactional ones. What is more, monetary rewards tend to aggravate the rivalry and envy existing between the employees involved in NPD projects and those excluded, and this, in turn, can reduce goal commitment and collaboration during NPD projects. Successful family firms tend to use more intrinsic, non-monetary incentives, such as nominating NPD team members and leaders as “family ambassadors” or giving them opportunities for increasing their public visibility and linking their name to that of the family business. These incentives reinforce rather than damage the relational contracts between the family and nonfamily employees and help maintain a high commitment to NPD goals without the negative spillovers among nonfamily personnel who are not chosen to participate in the NPD projects.

(All factual and statistical information presented in this blog has been obtained from an extract of a blog from fambusiness.org  ) Follow us on our Facebook page and Family Business Office website at www.familybusiness.org.mt

At the Family Business Office we can offer you assistance in dealing with family business succession planning issues through incentives supporting advisory and mediation services. Contact us today on familybusinessact@gov.mt.