Innovation in Family Firms: An Agency and Resource‐Based Lens on Contingencies of Generation and Management Diversity
| DOI | http://doi.org/10.1111/1467-8551.12375 |
| Published date | 01 October 2020 |
| Date | 01 October 2020 |
British Journal of Management, Vol. 31, 792–810 (2020)
DOI: 10.1111/1467-8551.12375
Innovation in Family Firms: An Agency and
Resource-Based Lens on Contingencies of
Generation and Management Diversity
Sebastian Hillebrand , Thorsten Teichert and Jonas Steeger
Chair of Marketing and Innovation,University of Hamburg, Von-Melle-Park 5, 20146, Hamburg,Ger many
Corresponding author email: sebastian.hillebrand@whu.edu
Family firms areincreasingly recognized as a heterogeneous group of businesses with spe-
cific strengths and weaknesses that make them either superior or inferior to non-family
firms. Recent researchhas therefore started shifting away fromcomparisons between fam-
ily firms and non-family firms to comparisons between family firms. This study investi-
gates the influence of two key paramete rs of ‘familiness’ – the generation in control and
the (non-family) management diversity – on family firm innovation. While agency-based
arguments stress the liabilities of these twoparameters of family influence, resource-based
arguments highlight their benefits. Conflicting eect hypotheses are derived and tested in
the contextof Ger man family firms. The empirical results imply that family firms’ genera-
tional development and higher management diversityinfluence their innovation positively
and that their benefits outweigh their liabilities in the context of German family firms.
Introduction
Family firms are often portrayed as highly con-
servative businesses focusing on the past and
refraining from seeking new opportunities and
innovation (Kellermanns and Eddleston, 2006).
However, other evidence shows that the ‘German
Mittelstand’ comprises a number of ‘hidden
champions’ (Simon, 1996) that are the innovation
leaders in their business segments (Rammer and
Spielkamp, 2015). Accordingly, the results of
research on family firms’ interface with innova-
tion are ambivalent (Bennedsen and Foss, 2015),
implying that family influence may bring both
liabilities and benefits, which can make a business
either less innovative(Block, 2012; Munari, Oriani
and Sobrero, 2010) or more innovative (Classen
et al., 2012; Llach and Nordqvist, 2010).
The authors thank the Zentrum f¨
ur Europ¨
aische
Wirtschaftsforschung (ZEW) in Mannheim for the
provision of the CIS data and their continuoussupport.
Traditionally, family firm research compared
family firms’ performances with those of non-
family firms, which led to ambivalent findings
(Dyer, 2006). Consequently, family firms are in-
creasingly recognized as a particularly hetero-
geneous group of organizations (Arregle et al.,
2007). Newer research seeks to reduce the pre-
vious findings’ ambivalence by deconstructing
the family’s influence on firm-oriented perfor-
mance (Gedajlovic et al., 2012). Two approaches
investigate the dierences in family firm per-
formance: a more descriptive ‘demographic ap-
proach’ and an ‘essence approach’, which tries to
assess family-oriented strategic decision-making
(Basco, 2013). Scholars have also searched for
positive and negative drivers specific to families’
influence on innovation (Chrisman et al., 2015;
De Massis, Frattini and Lichtenthaler, 2013).
However, only a few studies have investigated
whether family firm innovation suers or benefits
from the two aspects of familiness (e.g. Decker and
Guenther, 2017; Zahra, Neubaum and Larra˜
neta,
2007).
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Agency and Resource-Based Lens on Innovation in Family Firms 793
This study follows recent research on family
firms’ heterogeneity (Chrisman et al., 2015) and
tests the eects of familiness’s two key constituent
features on innovation as proxies for the essence of
familiness: the family generations as an important
demographic variable and the top management
team (TMT)’s diversity (Duh, 2010). We draw on
agency theory and the resource-based view (RBV)
to highlight the liabilities and benefits of these two
facets of family influence on the firm (Bennedsen
and Foss, 2015). Since both theoretical streams
oer compelling, but conflicting, arguments,we re-
frain from hypothesizingbeforehand that the argu-
ments of one of the theories seems to be more ap-
pealing. Instead, we start with a set of conflicting,
but impartial, predictions (Kettenring, Tuschke
and Friedl, 2014). Taking both perspectives into
account, this study extends recent research, which
aims to reconcile the ‘family firm innovation para-
dox’ by disentangling familiness parameters and
their specific influence on family firm innovation.
Our view thus shifts from a comparison between
family and non-family firms towards an in-depth
analysis of family firms’ within-heterogeneity.
This shift helps reconcile previous evidence, which
was mainly gained from dichotomous compar-
isons between family firms and non-family firms.
For example, agency-based scholars identified a
negative family influence on the innovation output
(Chin et al., 2009; Decker and Guenther, 2017),
while resource-based scholars found a positive
influence on the innovation output (Llach and
Nordqvist, 2010; Matzler et al., 2015). We suggest
that these and other discrepancies, for example
between innovation input and output (Duran
et al., 2016), should be reconsidered in the view of
the dierent underlying facets of familiness.
We develop and empirically test our hypotheses
specifically in respect of German family firms. This
empirical context accentuates both lines of argu-
mentation. A vast 85% of German family firms
have an owner who is also active in its manage-
ment (Federation of German Industries,2012) – in
the UK, this applies to less than 40% of firms (Lu-
binski, 2011). This finding suggests that German
family firms operate in a distinct agency-related
situation. At the same time, unlike in any other
European country, many ‘German Mittelstand’
family firms develop into ‘innovation leaders’ and
form the engine of the domestic economy (Duran
et al., 2016), thus representing a special resource
capability.
Based on the development of two sets of con-
flicting hypotheses, we exemplify that theoretic
reflections can contribute successfully to solving
the ambivalence observed in the empirical field.
Applying an agency and resource-based lens leads
to opposing predictions of family generations’ and
TMT diversity’s eects on innovation. Empirical
results indicate that their benefits outweightheir li-
abilities in respect of German family firms.
Conceptual framework
Family firm heterogeneity
Given the systematic dierences between the
various performance measures of family and
non-family firms, the question arose of howfamily
firms dier and why this contributes to their suc-
cess. Early research applied group comparisons
to discriminate one-dimensionally between both
the company types, for example according to
their ownership structures and voting rights (e.g.
Decker and Guenther, 2017). More importantly,
empirical studies often led to diverging empirical
findings, causing researchers to mention family
firm paradoxes such as the ‘innovation paradox’
(Haour, 2004).
The recent literature takes a broader, multi-
faceted perspective of ‘familiness’. After review-
ing 80 empirical studies on family firm perfor-
mance, Basco (2013) categorized these into two
approaches to characterize family firms: studies
following a ‘demographic approach’ utilize de-
mographic characteristics such as ‘family owned’,
‘family controlled’ and ‘the generation involved’
to capture the family eects on firm performance
(Mazzi, 2011). A second group of studies (fol-
lowing an ‘essence approach’) emphasize the way
a family firm is actually governed and managed,
which then impacts its performance (Dyer, 2006).
The two viewpoints complement each other: while
studies on family firm demographicsrecognize that
family resources and behaviour dier across fam-
ily firms, studies using the essence approach stress
the quality of the family involvementas a proxy for
specific firm behaviour.
Basco’s (2013) inventory of empirical studies on
family firm performance presents those variables
that describe the dierent qualities of familiness.A
total of 28 studies applied the percentage of family
ownership as the demographic indicator of family
firms, followed by family generations in 15 studies
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