(Authors: Julio Diéguez-Soto, Montserrat Manzaneque, and Alfonso A. Rojo-Ramírez)
Research Applied précis prepared by Frank Hoy, Worcester Polytechnic Institute
Diéguez-Soto, Manzaneque, and Rojo-Ramírez report findings from a study of 551 small to medium-sized manufacturers in Spain that have implications well beyond that country’s borders. They start by letting us know what research has shown in the past:
- Family business owner/managers are less likely to take risks than managers of non-family enterprises.
- Family involvement is associated with reduced innovation inputs and outputs.
- Family business owners do not seek only increasing profits, but also avoidance of loss, and non-economic outcomes such as a positive reputation for the family.
In their review of the literature, the authors felt that previous researchers took too short-term a view of firm performance, overlooking critical issues. They decided to look at performance over a longer period of time, specifically a three-year period.
The authors did an assessment of:
- The efficiency of family-owned enterprises in research and development leading to continuous technological innovation; and
- The influence of family management on technological innovation and higher levels of long-term performance.
The key findings were that family firms were not efficient in converting R&D expenditures to innovative outcomes, but that they actually improved the effects of technological innovation on performance over the long-term. This may appear to be a contradiction, but the authors presented arguments for their observations. They attributed the inefficiencies to the hesitance of family managers to incur the expense associated with innovating or to jeopardizing the company if the innovations fail. Expenses are not only monetary, but also the risk to non-economic goals of the family, often labeled socio-emotional wealth.
Regarding performance, the long-term orientation of family management may result in more positive results from technological innovations when the managers choose to implement them. The authors indicated that the social capital of family members can have pluses and minuses. It may contribute negatively to efficiency by managers trying to protect family name and reputation, but positively to performance when it is used to cultivate, nurture and develop stakeholders.
The study shows a key role for outside experts in helping family businesses achieve continuous technological innovation (CTI). Conducting research and developing innovations are important and behaviors are reducing their efficiency in adopting technological innovations. Advisors can be crucial in helping managers recognize attitudes and behaviors that have become embedded in their decision-making processes. Family managers may choose to weigh socio-economic wealth as a factor in decision-making, but the outside advice can enable them to be conscious of their decisions and the impacts on economic performance.
Advisors to family businesses play a variety of roles in helping their clients recognize the consequences of behaviors. Management consultants may recognize the value of long-range planning within family firms while coaching managers on efficient processes for implementing technological innovations. Financial experts may clarify the implications of investment paths for the managers. Legal consultants may prove invaluable with their advice on intellectual property protection and infringement. The authors provide some baseline knowledge to advisors with the following conclusions:
- Socio-emotional, non-economic factors may negatively influence R&D investments and implementation.
- The desire to avoid risks may reduce the efficiency of implementing technological innovation.
- Family members’ social capital can be an advantage in working with others inside and outside the organization, facilitating the adoption of technological innovation.
- Family businesses are characterized by longer-term orientations than non-family firms, potentially a competitive advantage leading to superior performance.
About the contributor
Frank Hoy is the Paul R. Beswick Professor of Innovation & Entrepreneurship at Worcester Polytechnic Institute. He is an FFI Fellow, a former board member and recipient of the 2009 Barbara Hollander Award. Frank can be reached at firstname.lastname@example.org.