The Innovative Behaviour of Family Businesses in times of crisis

In general, evidence has shown that a crisis  can act as either a catalyst of or an inhibitor to innovation, and therefore, the crisis context and resulting strategic responses create important and interesting questions for family businesses. Indeed, while family businesses are often seen as sufficiently steady and risk-averse , they also include some of the most innovative organizations.

Many family businesses tend to combine innovation with their traditions. Family businesses tend to innovate incrementally, often avoiding radical innovation initiatives. On the local sphere , here in Malta, what has enabled family businesses to sustain themselves, and carry on with incremental changes necessary was Government aid implemented in the infant stages and offered continuously through the pandemic.

The typical view of a traditional family business implies that it underinvests in R&D and innovation in stable times but then increases its risk-taking when necessary during crisis. However, given that radical innovation in products, services, or even business models might be especially necessary during major crises—such as the recent and ongoing coronavirus pandemic one must understand more about family businesses’ abilities to engage in risk-taking and radical innovation behaviour. Radical innovation activities may enable the family businesses to survive dramatic external environmental changes.

Aiming to answer the research question “How does a traditional family firm configure its innovative behavior during stable periods and crises over time?” A starting point would be a better understanding of the interrelation between crisis behavior and innovation in family businesses’ long-term evolution. It could very well be that engaging  in risk-taking behavior and innovation during exogenous shocks, through which this family business was able to unlock the slack resources during crises that it had deliberately developed during stable periods.

Many family businesses seem to innovate differently than non-family businesses ; they tend to focus on incremental innovations, rely on a relatively high number of external collaborators. Family businesses are also mostly small- and medium-sized enterprises. This scale means that, when a crisis hits, family firms are vulnerable to the “liability of smallness, but, on the other hand, they might be more resilient, flexible, and innovative than larger non family businesses.

Emerging evidence has already suggested how family firms are tackling the current pandemic crisis. Family businesses in most of Europe as well as here in Malta have undertaken the following measures to survive the coronavirus pandemic: (a) implementing reduced-hour working models; (b) facilitating remote work; (c) addressing coronavirus-related fears through intensive and proactive communication with their employees; (d) developing an even stronger sense of solidarity compared to non-crisis times; (e) undergoing major changes toward digitalization. Family businesses pursue a wide variety of responses and changes, and these changes align with when family businesses face challenging circumstances, they might turn from risk-averse behavior toward risk-taking; moreover, such “preference reversal” behavior might be more pronounced among family businesses than non-family businesses.

(All factual and statistical information presented in this blog has been obtained from an extract of an article from the Follow us on our Facebook page and Family Business Office website at

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