What characteristics are conducive to the development of family businesses and turnover at the top? How to deal with generational transition and foster innovation?
We discuss this with Alfredo De Massis, Professor of Entrepreneurship and Family Business Management at the Free University of Bozen/Bolzano and Director of the University's Centre for Family Business Management.

In Italy very often there is still a tendency to confuse family business with small and medium-sized enterprise. While it is true that most small and medium-sized enterprises are family businesses, however the definition of family business is irrespective of firm size.
Family business should be identified as that organized economic activity behind which there is one or more families who have the power to influence the vision of the business and at the same time the will to pass the business down through the generations.
Therefore, when we talk about family businesses in Italy, we are referring to about 93% of businesses in the private sector and include both small and medium-sized enterprises and larger ones. Indeed, suffice it to say that in Italy almost half of the groups listed on the stock exchange are family businesses anyway. In all economies of the world, this form of enterprise is the prevalent one in the business system. In Europe we have a percentage of presence in the total approaching 85% while in the United States family businesses are around 80-90%.
In Italy, however, family business takes on a special significance: the very backbone of our economy is based on family businesses, active in both the service and manufacturing sectors.

A key stage in the life of these enterprises is the generational transition. This is an extremely delicate time: we know, for example, that only 30% of firms survive the transition from the first to the second generation; a share that declines to about 12% in the transition from the second to the third and 4% from the third to the fourth generation. Added to this inherent difficulty is a further critical element: in Italy, most generational transitions and thus successions at the helm of the business occur in an unplanned manner, usually when the incumbent leader suddenly disappears due to natural causes.
For reasons perhaps inherent in the Italian temperament, the topic of succession is often not even among the issues to be addressed during the life of the company, configuring itself rather as a taboo subject. The mistake made by the average entrepreneur king, in fact, is to view the generational transition as an event to be dealt with when it occurs and not as a process.
In fact, both business practice and scientific knowledge on the subject have repeatedly shown that such a step instead constitutes a long process that requires proper planning: on average it takes 7 to 10 years of the life of the enterprise. In this process, moreover, both the two main parties, predecessor and successor, as well as other parties inside and outside the enterprise, must interact and cooperate. Contributing to bring further complexity to the process is the socio-demographic evolution occurred over the past decades: the rise in the average age in our country and the reduction in the average number of children.
According to the latest available data, today in Italy 22.3% of the population is over 65 years old and the average number of children per woman is 1.34. Within the enterprise, this circumstance entails a lengthening of the overlap period between the senior generation and the next generation and a reduction in the number of potential successors.
There has also been a radical transformation of the concept of family: you reduce the number of children per household but multiply the number of children had as a result of other unions. Extended families and new family concepts other than traditional ones, such as domestic partnerships, have created "disruptions" which may in turn have an impact at the time of succession in the family business. This trend affects not only Italian and European businesses: without prejudice to the difficulties faced by all such businesses at the time of generational transition, anywhere in the world, sociological and cultural factors may further affect. Consider, for example, China, where the one-child policy, abolished in late 2015, has effectively limited the options available for generational change. And yet, again in China, it is not uncommon to come across the phenomenon of the "over-skilled": potential heirs of prominent business families, educated abroad, upon return encounter a managerial culture so different from the western one such that it sometimes prompts them to experiment with other avenues Than taking over the leadership of the family business.

Succession in itself is a concept that encompasses multiple dimensions: succession can be either internal or external to the family and can invest leadership or ownership.
In a broad sense, the least critical aspect of succession is the transfer of stocks and shares ownership: the management of this transition does not have a direct impact on the conduct of the business since it mainly involves tax and financial issues.
Instead, the most significant challenges to the very survival of the company arise when dealing with leadership succession involving the transfer of the helm of the enterprise from one generation to the next. Sometimes grafting of external managers may be necessary, for example, when the successor is very different in terms of personal characteristics from the founder in terms of managerial skills and charisma. In short, depending on what will be the characteristics of subsequent generations, it is important to be open to outward openness and avoid an a priori closure to that option. External management can indeed be useful in managing a whole range of complex business transformation processes in a rational way, especially since the owning family is often too emotionally involved in the choices to be made.
Not necessarily, however, the external element, despite a widespread but fundamentally erroneous opinion, is the only way for a family business to open the door to innovation.
In practice, in fact, the innovation potential of family firms is limited by the existence of a paradox, whereby these firms tend to have a lower willingness to innovate than non-family firms, despite potentially having a higher capacity to successfully complete innovation projects.
To solve this paradox, it is necessary for family businesses to learn how to develop "tailor-made" innovation strategies that take into account their strong specificities. This approach to innovation in family businesses, which together with other researchers, we have renamed Family-Driven Innovation (or FDI), can be successfully implemented in any family business interested in innovating, regardless of size or industry sector.

The model identifies three main dimensions against which a family business is called upon to make decisions as it fine-tunes its innovation strategy: "where, how and what". According to the FDI model, the decisions a family business makes along these dimensions should be calibrated to be consistent with its distinctive characteristics. One way to identify the distinctive characteristics of a family business is to focus on the following variables.
Where: this variable captures the goals and intentions of shareholders who exercise control over the enterprise. There are businesses that are more oriented toward achieving noneconomic goals, such as harmony within the family, reinforcing a certain social status or maintaining a strong relationship with tradition. Other family businesses, on the other hand, may be more focused on pursuing economic-financial goals, such as maximizing short-term profits.
How: This variable refers to the degree to which the family or family groups controlling the firm are able to direct the use of their firm's resources toward the achievement of defined strategic objectives. In practice, their power in influencing decisions about the use of resources. There are, for example, firms in which the family's ability to control the firm's resources is accentuated by pyramid mechanisms, cross-shareholdings, and enhanced voting shares, which can allow the family to bypass the board of directors when making strategic decisions.
What: This variable pertains to the type of resources that the enterprise possesses and that family ownership needs to achieve desired goals and emphasizes the role played by the unique capabilities of the family business-such as its social and relational capital-in bringing innovation projects to fruition and influencing the behavior of the entire organization. Only when decisions made along the three dimensions of an innovation strategy are aligned with the specific characteristics of the family business under consideration - mapped to the three dimensions of "where, how, and what" - is FDI possible and the paradox of innovation in family businesses can be resolved. In other words, there needs to be a correspondence between the "where, how, and what" that identifies the firm's strategic innovation decisions and the "where, how, and what" that identifies the specific characteristics of the family business under consideration.
In the absence of a match between innovation decisions and the specific characteristics of the family business, creating a competitive advantage through innovation in the family business becomes unlikely. In contrast, if innovation decisions are consistent with the distinctive characteristics of the family enterprise, then Family-Driven Innovation is possible and can lead to the establishment of competitive advantage through innovation.