Does family matter in corporate venturing? Converting the question, can a family firm survive without corporate venturing? Life cycle theory contends that it is normal for an organization to form, grow, mature, decline, and die. Long-term survival, especially through multiple generations, would require renewal through innovation to avoid decay and death. Strategic corporate venturing may be the answer for many family firms. To innovate and prosper, a family enterprise must contend with multiple life cycles, rarely synchronized, any one of which may be in a decline stage at any point in time. This commentary examines how life cycles complicate the ability of families to plan strategically for corporate entrepreneurship.
The Venturing Prerequisite
The authors of "Corporate Entrepreneurship in Family Firms: A Family Perspective" emphasize the role of corporate venturing in revitalizing and achieving healthy growth, revenue streams, and profitability. Their use of the term "corporate entrepreneurship" encompasses innovation combined with the ability to recognize opportunity, specifically technological opportunities (Kellermanns & Eddleston, 2006). There is ample prior literature to support their contention. According to Hamel (2000), innovation is crucial for corporations to compete effectively in the twenty-first century. Kuratko and Welsch (2001, p. 347) contend that entrepreneurial behavior in corporations is essential to address three problems:
* required changes, innovations, and improvements in the marketplace to avoid stagnation and decline;
* perceived weaknesses in the traditional methods of corporate management;
* the turnover of innovative-minded employees who are disenchanted with bureaucratic organizations.
It should be noted that these problems could be descriptive of both family and nonfamily employees.
Kellermanns and Eddleston (2006) cite criticisms of family firms in the literature: They fail to invest in new ventures, avoid risks, resist change, and become fixated on maintaining the status quo. The authors acknowledge the need for family businesses to modernize and to enter new markets in order to survive from one generation to the next. They contend that a strategic planning approach can facilitate reducing resistance to change, involving successor generations, and increasing the ability to recognize opportunities. In this commentary, I suggest that life cycles are moderating variables, complicating the ability of firm leaders to be entrepreneurial.
The Concept of Life Cycles
Derived from biological analogies, life-cycle models have become useful tools in the study of organizations, beginning with products particularly related to strategy applications (Hoy, 1995). Seminal contributors have included Chandler (1962) and Scott (1971). Both suggest that transitions occur with age and that behavior, especially the ability to adapt to the environment, may change from stage to stage. The key distinction of the life-cycle approach is the expectation of entropy, i.e., that organisms eventually degrade and die. A critical assumption of corporate entrepreneurship is that it can serve to reverse entropy, to avoid decline, and to revitalize a corporation that has entered a decline stage. This occurs through strategies of innovation, as described by the authors.
Many scholars have investigated life cycles, developing both normative and empirical models (Adizes, 1988; Gersick, Davis, Hampton, & Lansberg, 1997; Kazanjian, 1984). A simple 4-stage model is shown in Figure 1. However, additional stages could be added and labeled. In their thorough literature review and taxonomic study, Hanks, Watson, Jansen, and Chandler (1993) proposed five stages. Gersick et al. (1997) have even included a third axis. For the purposes of this commentary, however, four stages will suffice.
[FIGURE 1 OMITTED]
More recent studies have extended life-cycle research beyond products and organizations. One derivation has been the application to organizational learning, examining efficiency and effectiveness of gains in companies over time (cf. Arthur & Huntley, 2005; Vera & Crossan, 2004). A more novel approach was taken by Washington and Zajac (2005) who studied the acquisition of status as an organization matured. Bansal (2005) investigated how firms in an environmentally sensitive industry achieved sustainable development through evolutionary stages. Looking specifically at the family business literature, Sharma (2004) observed that performance was the key dependent variable chosen for life-cycle studies, but that multiple independent variables associated with family characteristics and behaviors have been included in research designs.
Strategic planning, as suggested by the authors, is critically important for ensuring that the strategies are effectively matched to the opportunities and designed to overcome the problems at each stage. It should be noted, however, that formal strategic planning at start-up is rare, with a minority of founders preparing written business plans. Business plans are more likely to be developed in the growth stage in response to demands by lenders and investors.
Portraying a single life cycle model, however, is misleading, especially for the family firm. One of the most popular arenas for applying life cycle analysis is with new product introduction. Marketers assess the timing and mode of introduction, monitor how different customer segments adopt the new product, determine appropriate tactics when the product matures, then modify ("new and improved") or discontinue. It will be obvious, therefore, that the organization and a firm's product(s) will, from time to time, be in different life-cycle stages. Closely associated with product life cycle is technology life cycle. The decline of old technologies and introduction of new ones both jeopardize and create opportunities for firms.
Extending the logic of additional life-cycle applications, it is possible to propose birth, growth, maturity, and death/renewal stages for other entities relevant to the firm:
* the founder
* other family members
* key employees
* the industry
* market segments
The list could continue, dependent on other constituent groups that
might be important to the business or the family.
Suppose, e.g., that one of the firms responding to Kellermanns and Eddleston's (2006) survey was led by a founder entering the decline stage of life, concerned with health and a financially secure retirement. Assume the founder has two children in the business, one in the mature stage with a growing family, the other single with few personal assets to risk. The firm might be mature, with a product in decline, serving two market segments: aging baby boomers and retro Gen-Yers. At this point, the founder's view of strategic planning may be to minimize risk in order to ensure an annuity equivalent, unwilling to change in any substantive way. The older child sees the need to adjust the product line and open new markets, but not in a way that places the company at risk in the short term. At a growth life-cycle stage, the younger child could argue that new technologies are requiring a radical reinvention of the firm, and could see signs of decline, both internal and external. Which strategic plan takes precedence? Whose goals get priority? Which life cycles are most critical?
Kellermanns and Eddleston (2006) have highlighted the need for corporate entrepreneurship to foster the long-term viability of a family firm. They urge family business executives to engage in strategic planning focused on opportunity seeking, specifically looking for new technologies to exploit. Through life-cycle analysis, it is evident that consensus in the planning process may be difficult to achieve as a result of conflicting life cycles related to the firm and conflicting life-cycle goals of the principals. It is self-evident that different generations in a family enterprise will be in different stages of their personal, familial, and career life cycles. It is reasonable to expect that the respective stages will influence their planning priorities, their assessment of opportunities, and their openness to change. Thus, incorporating life-cycle models into strategic planning processes is one step toward expanding how family members perceive the venture and its future, combined with greater empathy for the needs and objectives of other parties.
Poza (1988, 2004) proposed a set of guidelines for devising an interpreneurial culture within a family firm. He coined the term "interpreneurship" to describe a strategy for fostering an environment in which succeeding generations would acquire skills and experience for innovative management of the enterprise. Poza's (1988, 2004) approach calls for a strategic planning process that extends through the founder's involvement with the business and beyond. It calls for early preparation of family members and other key employees to be entrepreneurial and innovative as the venture matures, anticipating in particular, that the succeeding generation of owners may need to reinvent the corporation for its continuance and health.
Adherence to Poza's recommendations would result in a cultural transformation for the family-owned and family-managed corporation. This is not unlike the guidelines found in the classics of the corporate venturing literature (Block & MacMillan, 1995; Kanter, 1985; Pinchot, 1985). Creating an entrepreneurial mindset within a corporation is difficult to achieve, demanding sustained effort over a lengthy period of time. In the sense of ownership and management continuity, family firms may have advantages over nonfamily corporations to accomplish cultural conversion.
To create an interpreneurial culture, Poza posited a set of requirements and interventions for corporate strategy, organization, finance, and family. One empirical test of the model (Hoy, Reeves, McDougall, & Smith, 1989) suggested that successful implementation of an interpreneurial culture might even precede involvement in the business, being influenced by child/parent interactions. Kuratko and Welsch (2001) added to Poza's prescriptions by introducing the notion that interpreneurship can also be influenced by the organizational stage during which the new generation enters the business.
Adding life-cycle analysis to the corporate venturing mix complicates the hypothesized relationships proposed by the authors of the corporate entrepreneurship article. Hypothesis 1, "willingness to change is positively associated with corporate entrepreneurship in family firms," must take into account the life-cycle stages of the senior generation, successors, and key employees. The stage each is in may moderate their viewpoint of the rationality of alternative change scenarios. Hypothesis 2, "higher levels of generational involvement are positively associated with corporate entrepreneurship in family firms," should similarly be evaluated relative to the life-cycle stages of the principals. Hypothesis 3, "higher levels of technological opportunities are positively associated with corporate entrepreneurship in family firms," introduces another variable that has a life cycle of its own, technology, that may correspond to or may be in conflict with the life-cycle stages of family business owners/managers. Finally, hypothesis 4, "the relationship between (1) willingness to change (2) generational involvement and (3) technological opportunity and corporate entrepreneurship is moderated by strategic planning," could acknowledge the companion role of corporate culture and may need to extend beyond organizational boundaries to the nuclear family unit.
As the authors indicate, the investigation of corporate entrepreneurship within family firms is in its infancy. Initial empirical investigations, such as theirs, add to our understanding of how family firms can become entrepreneurial, yet raise more questions, particularly regarding whether or not current normative models are relevant to family-controlled enterprises. An omission in the Kellermanns and Edleston (2006) article is whether or not family adds value to a corporate venture. Based on this commentary, we would further ask, in what ways could family--business interactions or the entrance and exit of family members at different stages of development create value for the firm? Life-cycle models have been found useful in both the strategy and the entrepreneurship literatures. The intergenerational nature of family firms may make them especially appropriate organizations for life-cycle studies. Future studies should be comparative, not only between family and nonfamily enterprises, but also comparisons of different kinds of family firms (e.g., Sonfield & Lussier, 2004), such as publicly traded with privately held, multigenerational with single generation, early stage with later stage, and others.
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Please send correspondence to: Frank Hoy, tel.: (915) 747-7727; e-mail: email@example.com.
Frank Hoy is director of the Centers for Entrepreneurial Development, Advancement, Research, and Support, at the University of Texas at El Paso. He is a professor of entrepreneurship and management and holds the Chair for the Study of Trade in the Americas.…