Continuing our popular series of Executive Summaries of current FBR articles, assistant editor Karen Vinton and her colleagues Andrew Hier, Nava Michael-Tsabari and Lori Muse discuss Integrating Time into Family Business Research and The Temporal Evolution of Proactiveness in Family Firms, two of the articles from the March 2014 issue.
Summary 1: Integrating Time into Family Business Research: Using Random Coefficient Modeling to Examine Temporal Influences on Family Firm Ambidexterity
Thomas H. Allison, Aaron Francis McKenny and Jeremy Collin Short
Managing family firms for success across time is one of the toughest challenges in business. Recently, it has been especially hard given the turbulent economic conditions that have existed globally. Previous research has shown that firms with organizational ambidexterity can affect firm performance.
Ambidexterity describes an organization’s ability to balance opportunity exploration with opportunity exploitation. Exploration activities include experimentation, search and discovery. Exploitation activities include refining and implementing discoveries. This research attempts to expand our understanding of organizational ambidexterity in family firms by answering three questions:
- Does ambidexterity change over time in family businesses?
- How does ambidexterity change over time in family businesses?
- What environmental factors influence family firm ambidexterity?
This study analyzed the effects of time on organizational ambidexterity of the S&P 500 from 2001-20010 by using a computer-aided text analysis of shareholder letters. Table 1 in the paper shows what words were looked for and gives actual excerpts from some shareholder letters.
The major findings are as follows:
- Family firms tend to maintain a steady balance between exploration and exploitation in the short to medium term
- When family firms decide to change their focus, they alter the balance between exploration and exploitation relatively rapidly
- The extent to which family firms can focus on exploration versus exploitation is constrained by the cost and effort required to innovate in their industry.
While this research study has several limitations, in particular, the fact that the sample is from the S&P 500 and limits the ability to generalize the results to private firms, the findings should give practitioners and family businesses many ideas to ponder. By using the concepts of exploration and exploitation, practitioners can help their clients plan how to balance these two concepts the most effectively for their industry.
To learn more about exploration and exploitation read another article in the March 2014 issue of Family Business Review, “Strategic Consistency of Exploration and Exploitation in Family Businesses” by Todd W. Moss, G. Tyge Payne and Curt B. Moore.
Summary 2: The Temporal Evolution of Proactiveness in Family Firms:
The Horizontal S-Curve Hypothesis
Alfredo De Massis, Francesco Chirico, Josip Kotlar and Lucia Naldi
What exactly do we mean by “proactiveness?” The authors employ a definition by Lumpkin and Dess (2001): “the firm’s efforts to seize new opportunities, anticipating future market demands, and actively sharing the external environment.” Perhaps even more importantly, why is proactiveness important to family businesses? The authors highlight that proactiveness has been linked to sustained growth and performance in family firms, yet researchers and practitioners of family business know little about how proactiveness evolves in family firms. This study explores how levels of proactiveness in family firms may change as the family firm ages.
The authors use multiple regression to analyze data from 199 Swiss family firms. The results support the authors’ hypothesized model of a horizontal “S” curve relationship between family firm age and proactiveness. What exactly does the horizontal “S” curve relationship mean?
- Phase 1: Proactiveness starts high with information gathering by founders at the onset of the business. However, as the family firm ages and more family members are involved in the business, family members begin to become more fragmented. This fragmentation leads to a divergence in family and business goals and ultimately a decline in proactiveness. The family business’s growth tends to be stunted by the decline in proactiveness, eventually leading to a failure in the business to meet the economic needs of the family members.
- Phase 2: In an attempt to revive the family firm to meet the financial goals of the family members, they work toward reuniting the family and business goals, creating a rise in proactiveness.
- Phase 3: However, as the business continues to age, it often becomes less salient to family members and business goals take a priority over family goals, making the family firm more and more like a nonfamily business. This transition eventually leads to another decline in proactiveness.
The authors take their analysis a step further by exploring the possible impact of dispersed managerial control on the fluctuation of proactiveness in family firms. Results reveal that the curve is steeper when managerial decision-making is dispersed throughout multiple family members. In essence, this means that the impact of family dynamics on proactiveness is stronger when more family members are exerting control on the business.
What can family business practitioners learn from this study? Even though the authors agree that more research needs to be done on this fascinating topic, there are some practical implications which should be considered.
Family firms interested in sustaining family firm proactiveness should pay particular attention to the stage immediately following the founding of the firm, sometimes referred to as “sibling partnership stage,” and the latest phase of the aging process since that seems to be where the greatest challenges for proactiveness occur.
However, the seemingly negative influences of these stages can be lessened and managed by having fewer family members with decisional power. Centralizing a family firm’s leadership seems to make fluctuations in proactiveness less dramatic because there is less goal diversity with fewer decision makers. Practitioners and family business families need to recognize that the pattern of proactiveness is strongly impacted by the role of controlling families and the dynamics of the family system.
About the Contributor
Karen L. Vinton, Ph.D. is a 1999 Barbara Hollander Award winner and Professor Emeritus of Business at the College of Business at Montana State University, where she founded the University’s Family Business Program. An FFI Fellow, she has served on the FFI board of directors and chaired the Body of Knowledge committee. From 1997 through 2011, Vinton served on the editorial board of Family Business Review and is the current assistant editor. Karen can be reached at email@example.com.
Stay tuned next week for another issue of The Practitioner.
Yours in Practice,