Maintaining a connection to one’s origins might lead to lethargy at a time when innovation is absolutely important.
Recent studies have disproved the long-held belief that traditional family businesses are incapable of fostering an innovative culture. In point of fact, the cultural distinctions between them can be the basis for a clear advantage in terms of innovation. Yet, these same strong beliefs might make it more difficult for family businesses to develop a new business model in the event that the existing one unexpectedly becomes a barrier to the company’s progress.
Because of its inherent nature, loyalty to the company provides owner-managers with a competitive edge in the process of growing the company over the long run. This makes loyalty to the company a differentiating family asset. On the other hand, when it comes to business strategies, loyalty simply for the sake of loyalty can become a liability. An excessive amount of loyalty can be detrimental to a company’s growth since it may prevent the founders of family businesses from embracing innovative business strategies until it is too late to do so.
The fall from grace of Laura Ashley in its entirety
An excellent illustration of this is the textile company that Laura Ashley established in 1953. Ashley was born in Wales in 1925, and her grandmother, who was an accomplished quilter, taught her how to sew when she was a youngster. Her family, friends, and coworkers cherished the handmade scarves, napkins, table mats, and tea towels that she produced once she became an adult. Her designs brought to mind the quiet domesticity of her grandmother’s youth in the United Kingdom, when ladies spent their time quietly caring for their homes and gardens. It was a transient way of life that was coupled with an emphasis on one’s nation of origin. Ashley came to the realization that she had developed a company strategy that was the driving force behind her meteoric ascent to success.
Ashley wed an industrious gentleman who quit his work in London to manage the manufacture of textile goods printed with his wife’s designs. The husband’s role was to monitor the manufacturing. They relocated the business from their one-bedroom apartment in London to a big factory in Wales, where they paid their employees wages that were far higher than the norm for the area. In a short amount of time, the Laura Ashley brand was able to establish itself as a prominent luxury fashion player by branding all of its items as “Made in Wales.” Once the couple’s firm took off, all four of their children were able to find work in their respective fields. Ashley and her family were able to establish a global network of 500 shops and employ 1,000 employees by the year 1975 because to the commercial empire that was founded on a deep attachment to Ashley’s Welsh heritage.
But in 1985, tragedy struck the family and the company when Ashley passed away suddenly at the age of 60. The death was a blow to both. Around this time, many of the company’s competitors were beginning to outsource their production to countries on the outside of Europe, building substantial supply chain networks in Morocco and Turkey. This was a time when the company was beginning to compete with many of its rivals.
At the same time, the exotic clothing that were sold by the company’s competitors at significantly lower prices opened up an entirely new competitive climate for the Welsh company. There were even assertions made by some experts that the “Laura Ashley look” was too British and had become archaic. Throughout the 1980s, it was necessary for women to wear attire that was more forceful in order to match their rising prominence in the job.
Once Ashley passed away, her husband and their children had a difficult time finding an appropriate reaction to the shifts that had taken place in the market. Nonetheless, the fundamental aspects of their business strategy were not altered in any way. They made the announcement to their workforce in Wales, where the company was founded, that the production as well as the logistical operations will continue to be based there. Nevertheless, during the first five years, the firm experienced severe financial difficulties, which led to the hiring of an outsider as CEO in 1991, which was then followed by a series of additional CEOs. As an Asian corporation acquired the majority stakeholder in the company in 1998, the family was no longer in control of the business. The corporation essentially operates only as a licensing organization at this point.
This heartbreaking conclusion to a trip that had been a dream come true is reflective of the challenges that any family company may encounter when both internal and external obstacles unexpectedly surface at the same time. But, if owner-managers institutionalize innovation at the core of their company model, it may not be as difficult to avoid such a fate as the majority of onlookers fear it will be.
Innovation within Zara’s existing business model
Take for instance the clothing brand Zara, which was established in 1975 by Amancio Ortega and his wife in the city of La Corua, located in the north of Spain. Following ten years of success in the Spanish market with low-priced clothing, Ortega made the decision to incorporate innovation more deeply into the economic strategy of his company. He was under the impression that he could outperform well-known businesses like Laura Ashley by minimizing the amount of time needed for production and rapidly reacting to emerging fashion trends.
Ortega was cautious to avoid making future investments for the express purpose of helping his countrymen, despite the fact that he maintained his loyalty to the workers who had worked in the plant that he had founded. He made the decision to establish production facilities in the neighboring country of Portugal, as well as in Turkey and Morocco. Ortega established a cutting-edge supply chain that linked all of the manufacturing facilities together. The rest, as they say, is history. Zara’s 2,100 stores spread over 88 countries are now serviced by a highly responsive supply chain that distributes clothing to those retailers twice a week. Additionally, the creative process of designing new garments based on changes in fashion trends has been sped up to the point where the new designs on Zara’s drawing boards reach the stores as fully finished garments within two weeks. This is made possible by the fact that the creative process has been sped up to this point.
Ortega evolved Zara from a fashion retailer into the largest clothes manufacturer in the world, overseeing up to 20 clothing lines annually. He did this by not being overly committed to his operational region but at the same time institutionalizing innovation across the supply chain. In contrast to Ashley, who was tied to her operations in Wales, Ortega made the decision to completely overhaul the old processes of design, manufacture, and distribution. He built a whole new business model that was centered on maintaining a state of constant development while also demonstrating the benefits of breaking old behaviors.