Business perpetuity as Innovation. Lessons from an elderly “Lady”

By Pedro B. Agua

For business, Innovation is the secret of youth, and adaptation is key for longevity. Many companies face organisational dilemmas, which are seemingly irreconcilable dichotomies. The short term or the long term, embracing modernisation or maintaining traditions. Beretta family business, with its almost five hundred years, relies on permanent adaptation and managing dichotomies. One could say that this elderly “Lady” has found the secret of youth. A company that excelled all over the world by being a pure representation of elegance and technology, always up to date with the latest trend and innovation in all the sectors in which they were present, never afraid to change their core business.

Prudence and Audacity at Villa Beretta

When we talk about Beretta, we are talking about the oldest arms manufacturer in the world, with almost five hundred years of history and family traditions that prevail overtime against all crises¹. But this family business, which has prospered in the small valley of Gardone Val Trompia, in Northern Italy, is not an italian vecchia signora (elderly lady) that its corporate longevity seems to convey. If the walls of Villa Beretta could speak, perhaps they would say that the secret which lies behind its long history of success in the incessant search for innovation and new technologies, while keeping tradition. It is up to its managing director to take the helm of the family business and bring the good habits and values of the company to fruition. But how can a secular company continue to grow, in the face of new markets and competition, without losing its corporate culture of excellence? The ability to manage the dichotomy between Prudence and Audacity is at its heart.

From the Doges of Venice to the US Armed Forces

Beretta was founded at a time when the Republic of Venice was fighting against the Papal States in the Italian war of 1521-1526. Bartolomeo Beretta, the founder, was contracted by Doge Andrea Gritti to supply 185-gun barrels for 296 ducats. His son inherited his father’s business in Gardone Val Trompia, as was the custom of the time, and from there the family business passed from father to son through the centuries until today.

Primarily, the company only marketed firearms used for military purposes, but Pietro Beretta (1791-1853) after having been involved in the production of weapons for Napoleon Bonaparte’s army, decided to diversify into the production of weapons for sporting purposes. He ended up travelling all over Italy to market the company’s products, but it fell to his son Giuseppe to reach international markets.

The twelfth generation, upsized the organisation to some 1300 employees and established a dam on the Mella River to build a source of power generation for the company. Upsizing brought about a significant change in Beretta’s production operations, where weapons were no longer produced by hand, but on a large scale. Beretta hence entered the 20th century, heralding the start of a world war. In the First World War, Beretta saw an opportunity to increase its profits from arms sales, but to do so it needed to appeal to the armies for its products. Here the contribution of Tullio Marengoni (1881-1965) who grew up in Gardone Val Trompia, and worked for the Beretta factory, was fundamental. Marengoni designed the M1918 SMG Berettas for the Italian Army in the First World War, and the Model 38 Berettas used in the Second World War.

Therefore, Beretta gained the worldwide visibility it had long sought and finally entered the American market in 1977 with the acquisition of an arms factory that had declared bankruptcy. Beretta USA was founded that year, and in the first few years established several contracts with the US Armed Forces with its Beretta M-9 semi-automatic products.

From then on, the company has always been on the path of innovation with the adoption of integrated growth strategies, which made possible the diversification of its products, into hunting and outdoor clothing and accessories.

Innovating by navigating in a VUCA environment

The VUCA framework assists in decision making by answering two essential questions: How much do we know about the particular situation, and how well can we determine the outcome of a decision? This analysis focuses on four essential points: volatility, uncertainty, complexity and ambiguity. Volatility refers to the relatively unstable change to which a company is subject. With prudence and audacity being Beretta’s core values, change is something this family business is used to deal with. A company that excelled around the world by being a pure representation of elegance and technology, always up to date with the latest trend and innovation in all the sectors they are present in, was never afraid to change. It is this balance between tradition and change that makes Beretta so unique. Uncertainty, impacts on how a company reacts to the introduction of a new plan and is always difficult to predict. However, change management is critical to innovation and the long-term sustainability. Complexity derives from the interaction with different stakeholders. In a family business, its small size brings proximity, reflected in a transmission of certain leadership and decision-making skills among its people, while complexity and diversity of markets around the world are taken into account.

Ambiguity brings risk. Risk has always been part of business. Making it predictable also makes risk easy to contain.

The subtle art of managing dichotomies

The art of managing dichotomies is central to Beretta. The various dichotomies that characterise the company’s philosophy and the excellent way they are managed are key. The most relevant one turns out to be “money and Hearts“. In the business world, many people believe that the heart should be silenced so as not to put sentimental values in interference with decision making. However, this does not seem to be the kind of company that makes such separation. Another dichotomy present is the blend of nature allied to craftsmanship and high technology. Beretta includes master gunsmiths and mass production robots under the same roof, showing the balance between traditionalism and innovation and guaranteeing “quality without compromise“.

Figure 1 – The art of dichotomy management is critical to longevity.

Of the many dichotomies or dilemmas that managers face, there is low cost versus high quality (Figure 2). In some sectors, although there are some exceptions, the manager must choose between offering his audience an attractive product or a vintage product. In the first case, a low-priced product may also have low production costs and, depending on the product, may also indicate high market demand. Conversely, if the company, chooses to distribute a high-quality product with a high selling price, this will imply high training, labour and production costs. In such dichotomy it becomes quite difficult to make the best use of these two factors. When creating a high-quality product, one has high production costs. If we choose to sell this product at a low price, we may not be able to cover these costs, with the risk of lowering the price below the marginal cost of production.

Figure 2 – Dichotomies are not always a dilemma.

Here, too, the dichotomy between an aggressive approach to competition and the graciousness of a renowned tradition stands out. Certainly, one of the best ways to get the organisation on the right track is to know how to manage these and other dichotomies.

Lessons from Beretta

• The secret of Beretta’s success and longevity

Is reflected in several factors and values which has been preserved since its beginnings around 1526. The geographical and social context of the company is one of the proofs of this success. Many believe that the arms business is part of the DNA of the people of Gardone Val Trompia.

• Staying true to its roots while seeking to grow by reaching the global marketplace.

Apart from leadership, two characteristics that were crucial to the company’s success were corporate culture and adaptability. “A finely Tuned Organisation is crucial to Success“[1]. Being a family business with a good atmosphere within, the qualities of a good leader end up being passed on across generations, ensuring that, from a young age, the Berettas learn to believe in their intuitions when making decisions.

• At Beretta, tradition and change are two concepts that always go hand in hand

As innovation and keeping abreast of the latest technologies are part of its philosophy. Beretta uses a cycle of investment in state-of-the-art technologies, giving the company a prominent place among competitors. The company, however, entrusts its experienced craftsmen with the uniqueness of its products. The unique design, the specialised cutting and the depictions of the Italian natural environment are what make such, true collector’s gems.

• Family businesses have different goals, approaches and a different philosophy from other businesses.

In these companies there is an orientation towards group cohesion, but there is also room for individual development. Leaders, may sometimes be a “father figure” and mentors concerned with the internal orientation and overall flexibility of the group. They value employee’s motivation creating bonds of intimacy with them. Family businesses are associated with a “clan” culture adapted to the organisational culture. In the context of this company, it would be impossible to think of a CEO making any kind of decision without first thinking of his “family”.

Table 1- Family businesses are different¹.

Organisational culture is critical to understanding companies like Beretta. It can be defined as a set of basic assumptions that a group of people or organisation has developed in the process of adapting to a given environment. These basic assumptions form a philosophy: The “Power of One”, “Quality without Compromise” and “Prudence and Audacity” are golden rules. Being a Beretta means being constantly changing in order to go further, but any change or restructuring respects its philosophy.

The progressive and innovative style the company has adopted for five hundredth years has been a decisive strategy for success in the fight against the dichotomies that all companies face. Managers shall harness how to deal with such dichotomies that arise from the natural activity of a company². Beretta has arguably become adept at managing these polarities, but the remarkable thing about this organisation is that it has managed to strike a balance long before its main competitors emerged. The dichotomy between having short-term and long-term results will have been one of the main progressive drivers of the organisation. It is important to have short-term results in order to pay off short-term debts arising from day-to-day business; however, attention must also be paid to the long-term that underpin business sustainability.

To meet this vital need, it is critical that a company ensures several and varied sources of revenue, as well as their sustainability. For start-ups, it is crucial to achieve solid returns from the early days of business. In Beretta’s case, the Battle of Lepanto will have marked the early years of the company and funded the beginnings of what would become one of the oldest companies in history.

The continuity of a company over time will always depend on the decision-making abilities of its leaders, and it is increasingly important to draw their attention to the resolution of strategic conflicts. In Beretta, the experience and lessons learned throughout its five hundred years of history makes this vecchia signora an expert in its industry. Beretta is a company that has developed an almost natural instinct for understanding what the market is asking for, and when it will ask for it. In achieving this, Beretta guarantees its almost timeless perpetuity, being born every day for the eternal novelty of the world.

About the Author

Pedro B. Agua is a Weapons and Electronics Engineer, and currently a Professor of General Management at the Portuguese Naval Academy and Senior Teaching Fellow at AESE Business School in Lisbon. Professor Agua has authored many articles and book chapters featuring various systems and business policy subjects. He combines his teaching profile with an extensive business background of more than 27 years dedicated to cutting edge industries like defence, telecommunications and subsea engineering. Pedro holds a Ph.D. in Engineering and Management awarded by the University of Lisbon.

References

• [1] Lief, C. & Ward, J. L. (2006). Prudence and Audacity: The House of Beretta. IMD.
• [3] Favaro, K., & Dodd, D. (2006). Managing the Right Tension. Harvard Business Review.