I recently attended the Family Firm Institute conference in Washington DC as we (Moores Family Enterprise) were presenting one of the conference sessions. Our session was focussed on one of the potential competitive advantages that family businesses can leverage to their benefit, specifically innovation or innovative behaviour. Using an illustrative case we integrated new evidence with best practices to distil guidelines for families wanting to ensure they encouraged innovative behaviour in their businesses going forward.
Another of the speakers at the conference was Charles Duhigg, a reporter with The New York Times and author of the recently published book, The Power of Habit. This book is about the science of habit formation in our lives, companies, and societies. He was a very engaging speaker and made his point about creating and changing habits sound very simple and effective.
According to Duhigg researchers at MIT discovered a simple neurological loop at the core of every habit, a loop that can be broken down into three basic components (see Figure 1).
- A prompt that puts your brain into automatic pilot mode is a cue. The cue can be internal, such as a feeling or thought, or external, such as the company of certain people or a specific time of day. To be habit forming a cue must trigger a routine and elicit a craving for a reward.
- A routine then is the behaviour that leads to the reward. It can be physical, cognitive, or emotional.
- Finally, a rerward can also be physical, cognitive, or emotional and determines if a particular habit loop is worth memorising. They are powerful because they satisy cravings.
Figure 1 Habit loop
To understand your own habits you need to identify the components of your loops. If you have developed any bad habits that you would like to change then Duhigg suggests you can do this by identifying the routine, experimenting with different rewards, isolating the cue, and having a plan to change your behaviour.
Change might not be fast and it isn’t always easy. However, with time and effort, almost any habit can be re-engineered or changed.
Changing family business habits
This got me thinking… What if we were to take Charles’ ideas about creating and changing habits at an individual level and use these insights to understand how to promote innovative behaviour at an organizational level? Specifically can families-in-business build their competitive advantages by creating cultures that promote habits of innovative behaviour?
More specifically, how could we apply the framework mentioned above and provide a practical guide to reshape the behaviours we identified in our presentation regarding innovation in family firms in order to build competitive advantage?
If a family firm wants to grow, be innovative and entrepreneurial its leadership (style) needs to configure its strategy and structure to be reflective of its family influence and culture. The complex and constantly changing interplay of environment, entrepreneur, strategy and structure creates an “optimal configuration” for the family firm to generate cues that will foster routines that produce innovative behaviours.
Figure 2: Configuring to create routine innovative behaviour
The rewards here are clearly the enhanced performance that arises from exploiting a competitive advantage and these rewards require routine behaviour that is innovative. The cues that we identified from a single-case study that will drive such behaviour we have labelled as STARS:
- Reputation via relationships with customers, suppliers, community
- Long-term orientation (LTO)
- Lower monitoring costs
- Financial capital …patient capital, concentrated ownership
- Organizational capital
- Human capital (overstaffing, slack/capacity to innovate)
- Shared values
Further details of these STARS and how to leverage them for your advantage are outlined in greater detail in our upcoming Knowledge Insights #3. Access to our Knowledge Insights can be obtained by subscribing to our mailing list via our website www.mooresfamilyenterprise.com
 Charles Duhigg is a Pulitzer prize-winning reporter at the New York Times and author of The Power of Habit: Why We Do What We Do in Life and Business, which has sold over 1 million copies worldwide and spent over 90 weeks on New York Times’ best seller lists.