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Int. J. Entrepreneurship and Innovation Management Vol. 13, No. 1, 2011

Dynasties of innovation: highly performing German

family firms and the owners role for innovation
Marc-Michael H. Bergfeld*
Munich Business School,
Elsenheimerstr. 61, D-80687, Munich, Germany
E-mail: bergfeld@courage-partners.com
*Corresponding author

Felix-Michael Weber
Elephant Equity GmbH,
Triftstr. 13, D-80538, Munich, Germany
E-mail: weber@elephantequity.com
Abstract: At least 70% of all large and old German corporations are still
controlled by the owning families. Studies have found that these firms can be
successful in adapting to changing environments and innovating in a
sustainable way over more than 100 years. Innovative dynasties outperform
publicly listed companies.
This paper looks at the owning families influence on the innovativeness of
their companies. In qualitative interviews, it investigates the innovative
behaviour of dynastic families across generations: their attitude towards
innovation, their time-orientation herein and their approaches to ensure
innovativeness in their firms over the mid- to long-term.
In summary, successful dynastic families define innovation as the ability to
constantly address new markets and technologies, based on a clear long-term
strategy. The owning families assure constant incremental innovation in daily
operations and, even more importantly, initiate radical innovations and
corporate renewal as strategy-setting entities behind the scenes.
Keywords: family firms; FFs; dynasties; innovation; entrepreneurship;
corporate development; corporate strategy; performance; ownership; control;
Germany.
Reference to this paper should be made as follows: Bergfeld, M-M.H. and
Weber, F-M. (2011) Dynasties of innovation: highly performing German
family firms and the owners role for innovation, Int. J. Entrepreneurship and
Innovation Management, Vol. 13, No. 1, pp.8094.
Biographical notes: Marc-Michael H. Bergfeld holds a PhD from Manchester
Business School and a Master of Business Administration/Dipl.-Kfm. from
Ingolstadt School of Management at the Catholic University of Eichstaett. As
Founder and Managing Director of Courage Partners, he serves as Trusted
Advisor on corporate strategy and innovation to family- and private
equity-controlled firms. He is a Lecturer of Strategy, Innovation and Family
Business at Munich Business School and an Affiliate to the Manchester
Institute of Innovation Research.

Copyright 2011 Inderscience Enterprises Ltd.

Dynasties of innovation

81

Felix-Michael Weber holds a Doctoral degree from the Centre of Corporate

Governance and Capital Markets at the University of Witten-Herdecke and a
Master of Business Administration/Dipl.-Kfm. from Ingolstadt School of
Management at the Catholic University of Eichstaett. As Founder and
Managing Director of Elephant Equity GmbH, he specialises on venture capital
investments in emerging markets, particularly in cooperation with family firms.

Introduction

This paper attempts to shed light on the innovative behaviour of highly-performing

German family firms (FFs). By presenting a data-based foundation of FF performance
and detailing these insights in qualitative interviews with owners of relevant
German companies, this paper gives a first orientation regarding the owners role for
innovation in FFs and how this can trigger sustainable innovation performance over the
long-term.
Many firms put large attention to managing innovation and especially German
society is recently promoting innovation and change as the panacea for corporate
and economic prosperity. The national government calls for Germany to be a land of
ideas (land der ideen) and urges the public to take responsibility in you are Germany
(du bist Deutschland) campaigns. Large corporations and small-/medium-sized
enterprises (SMEs) strive for international innovation leadership in their respective
fields.
Still though, anecdotic evidence shows that this hype about innovation is not always
rooted in a profound understanding of how sustainable innovation and thus corporate
performance is achieved long-term. It is a specific characteristic of the German economy
that 80% of all companies are FFs and at least 70% of all large German corporations are
still controlled by the owning families (see Weber, 2005).
Hence, understanding the influence of families on innovation in their firms is an
important insight to elaborate more widely on the potentials of the country itself to
remain a leader in the global innovation context.
This paper adds to the debate on innovation as a long-term strategic imperative for
German companies and the country itself. By looking at the way in which owning
families influence innovation in their highly successful companies, the paper gives an
insight into replicable routines and the needed dynamic capabilities for long-term
success.
The paper is structured as follows: Section 2 provides a brief insight into the topic of
FFs and the related literature. Section 3 introduces the underlying reasoning and the data
applied. Section 4 presents the analytical approach and comprises the theoretical
framework as well as the method of investigation. Section 5 presents the learnings from
FFs by providing detail about how the owners of FFs define innovation, on which types
of innovation their involvements focus and how they strive to maintain a high level of
corporate innovation over time. Section 6 concludes with an overview of results and a
perspective for future research.

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M-M.H. Bergfeld and F-M. Weber

Family firms and their relevance

Due to differing definitions and approaches to FFs, it applies to briefly outline the
understanding of FFs used in this paper.

2.1 Related literature: importance of FFs

Recent research shows a high concentration of FFs around the world. Based on
ownership structures of companies from the 27 richest countries, La Porta et al. (1999)
show that families control 30% of the worlds top 20 firms. According to Faccio and
Lang (2002), 44% of Western European firms are family-controlled. They also found that
firms are more likely to be family-controlled in continental European countries (e.g.,
France 64.8%, Germany 64.6% and Italy 59.6%) than in the UK (23.7%) and Ireland
(24.6%). These figures are consistent with Franks et al. (2005) who find that family
ownership in the UK was rapidly diluted in the 20th century.
An analysis of the owning families is particularly interesting when it comes to
looking at their impact on the evolution of operational control and performance. But
although family ownership is essential in most countries, so far, only few studies have
looked at the performance of FFs empirically: Prez-Gonzlez (2002) shows that FFs are
different from public firms, because they tend to keep management within the family,
even though the pool of CEO candidates in the family is naturally small (nepotism).
Bertrand et al. (2004) argue that they are different because family dynamics (sibling
rivalry) might affect firms, which is not an issue in other firms with concentrated
ownership but without family shareholders. Ehrhard et al. (2007) analyse the evolution of
ownership, control and performance in German FFs over the last century. They found
that families are slow to give up ownership and control of family businesses remains
strong even after several generations. Further, they argue that family businesses seem to
outperform non-FFs in terms of operating (but not stock) performance and performance
declines over the generations.
Further, the literature has extensively covered the importance of corporate renewal
and innovation for corporate performance and prosperity (see e.g., dynamic
resource-based view in Helfat and Peteraf, 2003; knowledge-based view of the firm in
Conner and Prahalad, 1996). Pars pro toto, the following can be stated:
[M]ost value and uniqueness can be swiftly competed away in the current,
very dynamic, business environment and the key to sustained competitive
advantage is to keep renewing uniqueness and value [i.e., innovation
performance of the firm] through continuous self-transformation. Sustained
competitive advantage comes [] from being able to outrun the competition.
To do this, the organisation needs dynamic capabilities, the ability to
continuously develop new resources that are unique and valuable. [Medcof,
(2000), p.61].

In essence, innovate or die is the first rule of industrial competition [De Pury, (1994),
p.9].
Occasional publications have hinted towards the potentially specific capability of FFs
to dynamically develop over generations (see Landes, 2006) and become world market
leaders by doing so (see Simon, 2007).

Dynasties of innovation

83

Given the long-term impact of family ownership on firm performance and the
potentially specific capability of FFs to continuously innovate, a new question arises:
how do families maintain innovativeness of their businesses over centuries, multiple
generations and even if they are not active in operational management? Ultimately, does
family ownership open up a new perspective on dealing with innovation?

2.2 Defining FFs

Our definition of FFs is restrictive in comparison to others in the literature. For example,
Franks and Mayer (2001), Anderson and Reeb (2003) and Villalonga and Amit (2006),
define any firm as family-owned where family ownership is greater than zero. We define
a firm as family-owned only when there is a dominant influence of the founding family,
documented by a voting rights concentration of over 50%. Firms sold to other families
are no longer taken as an FF. Under our definition, participation of family members in the
management board is not essential for classification as family-owned. More relevant is
the familys potential to influence strategic decisions at the annual general meeting
(AGM) through voting rights via the supervisory board and advisory committee.
We trace founding family ownership from incorporation up until the family loses
controlling influence, i.e., when their voting rights fall below 50%. Thereafter, firms are
no longer perceived as FFs in this study. Further, we focus on FFs that are at least in the
third generation of family ownership. Hence, or focus is in close alignment to Landes
(2006) conceptualisation of dynasties.

Underlying reasoning and the data applied

We want to provide an answer to the question Through which understanding and control
of innovation have large German FFs evolved over generations? Therefore, our central
research topic is the relationship between family control, firm performance and
innovation.
We first refer to a performance analysis of family-owned firms in a historical
time-series context before we go into explorative detail asking about the special
innovation focus in firms that are representative for the sample.

3.1 The underlying data

Source of our sample is the Weber (2005) database of 654 large German companies that
were founded before 1913 and are still owned by the founding family today. The main
sources for historical ownership data are the annual editions of the directories for stock
companies (see Hoppenstedt Aktienfhrer, 19032003, Darmstadt) and the directory for
large companies (see Spezialarchiv der Deutschen Wirtschaft, Handbuch der Deutschen
Grounternehmen, 19532003, Darmstadt). Data about ownership structures are
generally published from 1953 based on voluntary data provisioning by the respective
companies. Further, disclosure requirements have only existed for publicly listed
companies in the official market segment since 1894.

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M-M.H. Bergfeld and F-M. Weber

Weber (2005) started by identifying all German family-owned firms founded before
1913, which were still in existence in 2003 and stated annual turnovers of more than 50
million Euro. Further, details of the firms and their founding families were sourced in
annual reports (if available) or in reports on the corporate history. Furthermore,
individual research based on newspaper and/or corporate archives was carried out to
document a companys status as a family or non-family-owned firm.
Hence, Weber (2005) separated 456 FFs still owned and operated by the
descendants and 198 non-FFs. Furthermore, he separated a specific matching sample of
62 FFs and 62 non-FFs. It represented firms of various sizes in various industries.
Subsequently, he analysed a variety of variables like ownership, board control, industries,
control transfers, performance and bank relationships.
The FFs in the matching sample were similar to the non-FFs in terms of age, number
of employees and profitability. In 2003, the descriptive statistics of the FF sample
showed the following profile:
The families influence had prevailed over generations: The descendants still owned
an average controlling stake of 83% of the firms and continued to be present in the
management board in 60% of the cases. In 83% of the cases, they were also present in the
advisory board. The median sample FF was in the fourth generation of ownership. The
FFs were generally active in all industries, although Weber (2005) found that family
control diluted above average in capital- and technology intensive industries over the last
century. Furthermore, the sample showed that families preferred to either sell their
companies en bloc or continue an active engagement with the firms, if they had decided
to cultivate their familys entrepreneurial legacy further.

3.2 Performance of FFs

It has already been stated elsewhere that strong family control can be a detriment to firm
performance (see Prez-Gonzlez, 2002; Villalonga and Amit, 2006). To document the
operating performance of the firms in the above explained sample, Weber (2005) looked
at the return on assets for the years 19032003 [for even further elaborations on the basis
of the Weber (2005) sample, also see Ehrhardt et. al., (2007)]. Through a regressions
analysis, it was found that the FFs performed significantly better than non-FFs in this
period. Overall, the operating performance of FFs was better than that of non-FFs
because they had proven to be more profitable. However, the firms ages had a significant
(negative) impact on performance. Other potential control variables like technology
intensity, bank relationships or location in a small town turned out to be irrelevant.
Along the same lines, Weber (2005) and Ehrhardt et al. (2007) identified that
generational effects may have an influence on firm performance: They found strong
performance in the founder generation and even stronger performance in the second
generation. The third and fourth generations did not maintain to the same levels of
performance. After receiving control from the founder, the second generation, on
average, increased performance by 1%. The third generation in turn reduced performance
by 15%. The fourth generation performed slightly worse than the third.
However, all generations performed better than non-FFs if the firms were steadily
renewed. Figure 1 exemplifies the performance cycle including the performance
influence of the founder and post-founder compared to the evolution of performance over
the entire lifespan of the sample firms.

Dynasties of innovation
Figure 1

85

Performance cycle of multigeneration FFs

Performance

Performance
cycle of the
family fir m

Performance
influence of
the fou nder

Performance
influence of the
post-founder
gener atio n

Performance
cycle of the
family fir m

time
Pionierphase

Source

Growth
phase

Matuityphase
Matuityphase
Maturityphase
Maturityphase
Maturityphase
/alternation of
/alternation of
/alternation of
generations
generations
generations

Weber (2005, p.159)

Analytical approach

4.1 Theoretical framework: corporate innovation

We base our investigation upon an understanding of innovation which comprises more
than mere research and development (R&D) and technology-push. Alongside the
classification of continuous, dynamically continuous and discontinuous innovations (see
Robertson, 1971) and bearing the various possible types of innovation in mind (see
Sternberg et al., 2003; but without using their extent of detailing), we root our
argumentation in the differentiation of radical, progressive and incremental innovation
(see Bergfeld, 2008, 2009). These three categories are applied to the respectively
analysed company itself: How new in terms of markets or technologies is an innovative
move from the inside perspective of the company and thus how much of an innovation is
it for our FFs?, as one of the interviewees put it (see Figure 2).
A radical innovation is either the presentation of entirely new technologies in markets
in which the respective company is already present, in markets adjacent to existing ones
or in markets that are entirely new to the analysed company. Alternatively, radical
innovation can also be the presentation of existing or adjacent technologies to markets
that are entirely new. Radical innovations are characterised by high technology-related
complexity and high market uncertainty. Often, they trigger significant corporate
diversification. Regarding the corporate history, they are discontinuous.
Progressive innovations are defined as the presentation of adjacent technologies to
existing or adjacent markets. Further, they can be the presentation of existing
technologies to adjacent markets. Adjacent means that there is a certain degree of
similarity to the markets and technologies in which the respective firm operates already.
In our sample of firms, this could, for example, be a move from shipping into ship

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M-M.H. Bergfeld and F-M. Weber

manufacturing, from serving mobile phone operators to enhancing mobile phones or from
printing currencies to offering currency automation systems. These innovations can be
understood as extensions of existing businesses into areas which are continuations to the
existing legacy of the FF.
Incremental innovations are understood to be the improvement of existing
technologies in existing markets. They are characterised by low technology-related
uncertainty and lower market uncertainty and continue the FFs traditional fields of
business.
Corporate innovations along the market and technology axis

Existing /
established

Radical innovations

Market

Adjacent

Entirely
new

Figure 2

Progressive innovations

Incremental
innovation

Existing / established

Adjacent

Entirely new

Technology

4.2 Qualitative interviews for the exploration of corporate innovation in FFs

Various articles (see e.g., Ward, 1997; McCann et al., 2001; Hall et al., 2001) confirm the
interest in exploring how innovation and corporate change is understood, addressed and
undertaken in FFs. Based on the specific fact that the buzzword of innovation is so
strongly discussed in the German corporate and political context at present, we focused
on this country as a first research anchor. We approached ten successful dynasties out of
the Weber (2005) sample for personal interviews. Our interview sample spread across
different industries and company sizes: annual turnovers in 2005 ranged from over 20
billion to a minimum of 0.5 billion Euros.
All selected firms were still dominated by the descendants of the founding families.
They held more than 50% of the voting rights. We spoke to the persons which
represented the families in the respective control boards.
All selected companies were characterised by a history of being highly innovative in
terms of their product portfolio and their proven ability to having changed or extended
their core business over their corporate history of more than 100 years in all cases.
In 45 minutes each, we posed the following key questions:

Dynasties of innovation

87

How do the owners of FFs define successful innovation and why is it important for
them?

How do the owners of FFs position their activities in the scheme of radical,
progressive and incremental innovations?

How do the owners of the FFs strive to maintain the innovative performance of their
firms across the company lifecycle?

Lessons learned: the owners role for innovation in FFs

Although the selected FFs varied in size and orientation (e.g., working in high-tech as
well as construction material markets), they shared a common attitude towards
innovation:

5.1 A definition of successful innovation from the FF perspective

Being asked to give a top of their head definition of innovation, all the questioned
interviewees understood innovation to be a per se entrepreneurial topic, having to do with
employing the right people in their firms (i.e., entrepreneurial character of staff). It was
found that a deep entrepreneurial understanding and spirit was the founding ground for
innovativeness in all questioned FFs and that the key challenge was to make such an
attitude a company routine although the original entrepreneurs were not actively
managing the companies any more.
Only such constant entrepreneurial spirit would enable the FFs to stay successful and
thus in independent/family-controlled existence over the long-term. Therefore, innovation
as the result of entrepreneurial efforts and skills was seen to be the insurance for strong
competitive positions of the companies, enabler of organic growth and thus promoter of
the familys capital assets that are tied to the company.
Innovation was not merely understood as a cost position in the area of R&D, but
rather an investment in long-term success, firm existence and family wealth. For
example, one of the interviewees stated: In a publicly listed company, expenses related
to innovation are perceived as costs, for us its a self-evident investment in the future.
Here, one of the families even waived a percentage of the annual profits in order to boost
investments in R&D and the development of new businesses. In another firm, the family
claimed 25% of the profit for itself; the rest is reinvested into the company. Further, one
family allocated five million Euros to the establishment of a dedicated business division
whose only strategic imperative was to generate ten million Euros of additional turnover
with new technologies and new customers in five years.
On a day-to-day basis, turning ideas into valuable patents and products was identified
as the most important driver of innovation performance.
Thus, the term innovation had two perspectives for our interview partners: higher
scale corporate renewal and change as well as daily innovation in systems, products,
processes and services. The latter was seen as a rather operational approach to innovation
often driven by external managers (nice to know that we are doing such things, but thats
not real innovation). The first was seen as a strategic approach to innovation which had
significant effect on the future character and position of the FFs.

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M-M.H. Bergfeld and F-M. Weber

In the above mentioned framework of corporate innovation, the first is the

management of incremental innovation whilst the two latter refer to progressive and
radical innovation. Radical innovations were understood to be strongly triggered by the
families:
We set the strategic imperatives. One target could be to enter an entirely new
market and/or drive entirely new technologies.

Without an active target from the family in this area, external managers were expected to
most likely stick to incrementally improving what they already did well. With such a
mere focus on incremental improvements, however, our firm would not continue to grow
significantly.
Although FFs might not calculate as sharp as companies that are stock-market listed
and might be able to afford some personal freedom in investment decisions, all three
dimensions of innovation clearly had to pay-off; if not short-term than at least mid- to
long-term:
We do not innovate in order to win innovation prices. Eventually, it all has to
pay off. After all, any innovation project or initiative has to result in a
competitive advantage and additional value for our firm.

This is not different to the maxims of publicly listed companies: As one interviewee put
it:
Any company has to be constantly changing in todays environment. FFs,
however, have the luxury to stick to rather long-term courses in otherwise
rough and highly competitive seas. Publicly listed companies need to report
progress on a quarterly basis. Only incremental innovation can be calculated on
a quarterly basis.

In one particular firm, the family even supported seven years of R&D to create an
entirely new technology and hence a new area of business. Today, the resulting business
division contributes 38% to the corporations annual turnover.

5.2 How FFs innovate over time: a scheme of constant renewal

Looking at the corporate histories of the analysed corporations and the steps of corporate
renewal that took place alongside their growth paths, we found that the sources of growth
were mainly laid by radical and progressive innovations i.e., shift into entirely new
areas of business, the application of radically new technologies in existing fields of
business or a combination of both at the same time (see Figure 3). Such radical and
progressive moves were enabled by the profitable performance of the core businesses
which were driven towards continuous incremental innovation to secure the base.
Further, although FFs might give the impression to be slow and sedate, the firms in
our sample (that are obviously biased because we only looked at highly successful
companies that survived long-term) were strong examples of continuous corporate
change. In these firms, being family-owned never triggered convictions such as this is
how we have always done things, why should we change? Rather, being a
multigeneration FF urges us to flexibly respond to our environments and develop the
company further in order to secure wealth for the future generations.

Dynasties of innovation
Family involvements in corporate innovation decisions

Existing /
established

Fam ilie s set the strate gic impe rati ves and back-up
radical and prog ressive moves (de cid ed based on
pr ofe ssiona l e valu atio n a nd advice ).

Market

Adjacent

Entirely
new

Figure 3

89

Operationa l manageme nt executes gr owth

stra teg ies an d sug gests imp rovements / ne xt steps.

Fa milies are interested in results. In particular cases

even act as me ntors of particular proje cts.
Operationa l manageme nt executes an d is
responsible for day-to -day p erformance accor ding to
pe rfo rma nce g oals set by the familie s.
Existing / established

Adjacent

Entirely new

Technology

In addition, we noted that the precise recognition of upcoming mid- to long-term needs
and trends was the underlying mechanism for strategic long-term planning of the FFs.
For example, one company identified the needs that would emerge in the years of
reconstruction (after World War II) and turned its attention to new business sectors that
would serve this need, e.g., building materials and their distribution. This ability to
flexibly respond and come to terms with ever changing outside conditions is and always
will be particularly crucial for our long-term success. In another example, the respective
company moved from being a steel forming and cutting firm in the beginning to
producing steel tools (i.e., entering a market that was adjacent to their original field of
businesses), later applying automation technology to their tools as first company to ever
do so (i.e., a progressive step applying significantly new technologies to the established
products and markets) and eventually diversifying into new areas progressively through
acquisition activities.
In the third example, the FF developed from being a grocery, food and wine merchant
house in the 1750s to radically becoming a steel trader, iron works operator and
shipping company in the 1800s, before it turned into a vertically integrated conglomerate
providing mining for raw materials through to shipping the eventual product. Today, the
respective firm operates in building technology, cleaning, recycling/environmental
services and trading. With change cycles of 1520 years between building businesses and
divesting them, this company had quasi turned into becoming modern private equity
holding with long-term investment perspectives in new markets and technologies.
In the fourth example, the respective company developed from being a printing
company into becoming a security corporation and later turning into a technology
corporation which served highly dynamic markets in the areas of telecommunications,
payment and government solutions.
Along these paths, the respectively owning families were involved in setting the
strategic directions and taking decision regarding progressive and radical innovation steps
in their roles as members of the supervisory boards or advisory committees.

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M-M.H. Bergfeld and F-M. Weber

In essence, the analysed FFs showed a high orientation towards innovation. The
involved families focused on maintaining the long-term innovativeness of their FFs
instead of getting too involved with the incremental innovation challenges of daily
business. In a manner of long-term family investment, the respective families innovated
by setting long-term goals for the firms by defining a portfolio of innovative potentials
and preferred future growth paths. The actual execution of these steps, however, was
often left to the external operational management, for example, a CEO that was not a
member of the owning family. The discussions with our interview partners showed that a
potential threat was developing because the competitive markets increasingly urged
companies to shorten innovation cycles even for radical and progressive innovations.
This stood in contrast to the families general long-term focus on corporate change. This
challenge was described as the need to establish close cooperation mechanisms between
the operational management team and their insight into short-term market and technology
developments and the entities representing the families with their mid- to long-term
orientation and sense of stability. At the same time though, it was recognised that the
FFs long-term orientation must not be disrupted by a market-triggered short-term
orientation to innovation. Whilst the daily management had to deal with short-term
challenges, the families were mainly expected to have a strong influence on mid- to
long-term issues.
On a higher level of analysis, the innovation approach of the FFs was even seen as a
sensible contra-post to the innovation hype triggered by the financial markets. The
families long-term orientation assured continuity and stability and provided room for
longer breath with regards to the introduction of radical innovations.
In conclusion, the FFs had a clear mid- to long-term strategy for progressive and
radical steps that was significantly influenced by the owning families and their
entrepreneurial spirit and competencies. The dynamic capabilities of the operational
management team to react to short-term challenges through incremental innovations
complemented these positions.

5.3 The externalisation of operative innovation management

A process of externalisation of operative management and thus certain innovation
decisions became evident along the corporate history of the analysed FFs. In this process,
the owners of the companies assumed new roles of influence. They externalised the
operative management of their companies due to succession gaps or as conscious
decisions in order to keep business affairs out of family life and professionalise decision
taking and staffing decisions on the executive levels. Professionalising did not imply
that family members were unprofessional. Rather, collaborating with managers and
advisors that were not family members was dedicated to acquiring additional managerial
and technical knowledge which helped the owning families to multiply the effect of their
decisions and intentions within their firms and in inter-company collaborations. Hence,
they increasingly turned to merely setting strategic imperatives or taking high-level
market- and technology-entry decisions through the supervisory board and advisory
committees of their firms. Hence, the families themselves continued to hold an essential
role in incubating innovation, esp. radical and progressive ones, but did not necessarily
need to get involved with the operational execution of it.
This externalisation of operative management and thus also of incremental innovation
decisions became particularly evident when companies had grown so large and complex

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91

(e.g., through their internationalisation or diversification) that not only entrepreneurial

spirit but also professional and political management was needed. Alternatively, highly
dynamic technology contexts such as, for example, mobile telecommunications or
internet ventures, called for specialist knowledge and thus triggered an even earlier
allocation of external managers and advisors if the family members themselves were not
specifically experienced in these fields.
In this understanding, the daily business of incremental innovations in established
areas was most likely to be entirely managed by the external management. When it came
to progressive innovations and especially in the case of radical moves, however, the
owning families held strong interest and control even if it was of indirect nature.
Thus, the owning families continued to influence the innovative behaviour of their
firms significantly until today. The family members themselves or those who represented
them in the controlling entities, set the imperatives for innovation which was then
executed by external managers. Although the families might have retrieved from actively
influencing short-term innovation decisions, they still remained important players for
progressive and radical innovation steps in FFs:
If our strategic imperatives state that we wish the firm to be innovation leader,
then this is a very clear signal to the operational management to take the
according steps to reach such a position.

Today, the controlling families might not be the entrepreneurs that originally built the
companies by believing in products and visions even if they struggled in the beginning
and might not get involved with daily innovation management and processes
(we like to be informed and are interested in what is in the pipeline, but we do
not get actively involved in these innovation projects, especially if we perceive
them to be part of well done daily business).

However, they continue to set the bigger stage and the strategic frameworks in which
progressive and radical innovations in the sense of corporate development and change
can take place for future corporate growth. One of the firms formulated:
The common goal is to increase the value of the company. Sustainability
remains the most important guiding principle. It defines the long-term
corporate and portfolio strategy, which also includes acting contrary to current
trends. The traditional values created by the family thus complement the
dynamic forward impetus and entrepreneurial unrest of the management.

Summa summarum, the seamless interaction of an outside management team and the
owning family was seen as a must for overall successful corporate innovation
management that reached from steady incremental improvements through to radical
corporate development. In brief, the basics of innovation management were put into the
hands of external managers whilst profound innovation decisions, corporate renewal and
strategic reorientation remained family business.

Conclusions and outlook

In Germany, families continue to own and control their firms and large stakes of the
national economy. In this position, the founders successors have an important role and

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M-M.H. Bergfeld and F-M. Weber

responsibility to cultivate the innovation capability in their firms and the country. By
doing so, they ensure performance across generations.
Our work sets the current findings of Bertrand et al. (2004; i.e., that family dynamics
such as sibling rivalry might affect firm operations) and Prez-Gonzlez (2002; i.e.,
family control leads to nepotism) into perspective: We find that these internal dynamics
in FFs might be of minor relevance, as long as the capability to innovate is maintained
over the long-term. Here, however, further research needs to be conducted to clarify
whether causality between nepotism, sibling rivalry and innovation capabilities might
exist.
Further, our exploratory findings extend the conclusion made by Ehrhardt et al.
(2007; i.e., in Germany FFs operating performance is significant better than in public
companies) by elaborating upon the importance of innovativeness for sustained company
performance. We find that the way in which families maintain their competitive position
by focusing on innovation management might be an important underlying driver of
performance. Still though, we recognise that this outlook will need to be validated by
larger scale quantitative research.
In summary, successful families strive to secure their wealth long-term by applying
radical and progressive innovation as mechanisms to diversify the orientation of their
holdings and assure the future-proofness of their firms (e.g., by innovating into new
markets and technologies). The FFs analysed in this paper understand innovation as the
continuous management of corporate engagements and change. These highly successful
dynasties of innovation are innovators with an open mind policy that can even lead to
entire corporate change [i.e., radical innovation] for the sake of long-term perspectives.
Thus, we found our interview partners to indeed be masters of growth (see Ward, 1997)
that see themselves as stewards of capital, future prospects and pan-generational wealth.
In practical terms, innovation in daily business is largely the responsibility of external
managers and long-term corporate orientation through e.g., radical and progressive
innovations is a family topic.
Overall, the awareness and attitude of FFs towards innovation is a lot higher than
publicly noticed. Successful FFs are excellent in managing innovation. Nevertheless, a
large number of German FFs continue to exist in which promoting innovation capabilities
remains an unaddressed challenge. Managing innovative behaviour of FFs wisely is a
key future imperative in this land of ideas, especially as competitive pressures increase,
market and technology complexities rise and FFs are passed on to future generations.

Acknowledgements
This article has benefited from ten interviews with owners of German FFs. We are
thankful to interviewees at Borgers AG, Cofra Holding AG (C&A), Gtermann AG,
E. Merck KGaA, Wacker Construction Equipment AG, Henkel KGaA, Franz Haniel and
Cie. GmbH, Giesecke and Devrient GmbH and two firms that preferred entire anonymity.
We also thank the attendees of the R&D Management Conference 2006 and the IFERA
Conference 2007 for their fruitful suggestions on earlier versions of our work. Further,
our thanks are extended to two anonymous reviewers. While we happily share the credits
of this work with all the above, possible errors remain our responsibility.

Dynasties of innovation

93

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