A family business is a form of business that involves some family members in owning or operating the business. Every entrepreneur would want his business to be passed on to his children and grandchildren. However, it turns out that the problem of maintaining the family business is not an easy matter. There is an anecdote among entrepreneurs that says “The first generation builds, the second enjoys, and the third generation destroys”. Various studies have shown that there are many family businesses that cannot survive through the first generation. Research conducted by Vris (1993) and Ward (2011) showed that only 30% and 13% can be maintained to the second and third generations. Even Miller, et al. (2003) concluded that only 5% of family business survive the fourth generation.
One of the reasons for the failure of family companies to survive and succeed in doing business across generations is because they are unable to create a sustainable competitive advantage. The failure of family companies to create sustainable competitive advantage is due to their reluctance to invest in new businesses, tend to avoid risks, slow down change. They tend to be reluctant to share control with other family members and lack the capability and willingness of family members to seek, share and transfer knowledge among family members and between generations.
As a result, the family companies are incompetent due to the lack of knowledge to develop their business. According to Adner & Helfat (2003), companies that can gain new knowledge and accumulate knowledge to be used in the company can support the dynamic ability of company management to create superior value from their resources to stay ahead of competitors. Owners and managers of family businesses need to always improve their knowledge of various aspects of their business so that they are able to come up with new ideas to manage their companies in line with the times. In the era of global globalization marked by uncertainty, efforts to improve dynamic capability and innovative work to adapt are needed.
Companies are required to always acquire new knowledge to run their business. However, the creation of new knowledge in family company owners and managers that can stimulate innovative performance seems to be a mysterious process. To complement these limitations, we conducted a study with the aim of exploring continuous processes for managerial actions of family members in managing knowledge and using it to stimulate innovative performance and to create sustainable competitive advantage in family companies.
Using a single case study, this research was conducted at a family company in Indonesia called Ardiles. The company engaged in the footwear industry, has entered the third generation, has 9 business units with share ownership in all sons of the second generation (4 boys) and the management of the company’s decision making is carried out by family members with blood ties. Data collection was carried out through in-depth interviews involving 7 second and third-generation family members as well as 2 professional participants outside of the family members involved in the family business.
From this study, it was found that the internal learning process of family members is carried out through internal social interaction with family members and also with professionals outside of family members who are placed in the family company business unit. With this social interaction, there is a transfer of knowledge within the company’s internal environment. Moreover, family members also gain knowledge through social interactions outside the company such as through their participation in local/international exhibitions, conducting consumer and market surveys related to products and prices.
In this study, it was also identified that the owner of the Ardiles family company has given an opportunity by placing family members to manage the family business unit. Those involved in the management of the family business are family members who are considered to have excellent knowledge in seeing future business developments. The study also found a fact that Ardiles always tried to collaborate with parties from outside the company to develop its business. This collaboration with outside parties is able to improve the company’s competitive advantage in terms of production capabilities, technology and international marketing networks.
The results of the study showed that an effective knowledge management process is a very important means of creating a sustainable competitive advantage in family companies in Indonesia. The accumulation and mobilization of knowledge acquired by members of family business owner is an effective way to increase the dynamic capabilities of the company. By managing the knowledge acquired by company managers, both knowledge from outside and within the company, the company can produce many innovative new products, adapt to market developments and dynamics and is willing to adopt new technologies to increase the quality and quantity of its products. This ability in the end can keep the family company business going for a long time.
Authors: Sugiarto Koentjoro and Sri Gunawan
Details of the study can be viewed on: https://www.mdpi.com/2199-8531/6/3/90
Reference: Koentjoro, S., Gunawan, S. (2020), “Managing Knowledge, Dynamic Capabilities, Innovative Performance, and Creating Sustainable Competitive Advantage in Family Companies: A Case Study of a Family Company in Indonesia”, Journal of Open Innovation: Technology, Market, Complexity, Volume 6, Issue 3
