Academic journal article Entrepreneurship: Theory and Practice

Knowledge Combination and the Potential Advantages of Family Firms in Searching for Opportunities

Academic journal article Entrepreneurship: Theory and Practice

Knowledge Combination and the Potential Advantages of Family Firms in Searching for Opportunities

Article excerpt

This study examines differences in knowledge structures and combinative capabilities that provide family firms with distinct advantages over nonfamily firms in identifying opportunities. Drawing on constrained, systematic search, we explore how noneconomic goals and family relations enhance searching for opportunities. Unique human capital conditions create specific knowledge and economies of scope in knowledge combination. Differences in knowledge stocks, knowledge combination, and the long-term orientation of family firm managers explain differences in finding opportunities between family and nonfamily firms. Furthermore, we propose that family firms are more likely to improve their search routines over time. Fewer endgame scenarios in family firms allow the refinement of search routines.

Introduction

What all the successful entrepreneurs I have met have in common is not a certain kind of personality but a commitment to the systematic practice of innovation. (Drucker, 1998, p. 3)

How do firms engage in the systematic practice of innovation? Do some firms have an advantage over others? Are some firms more likely to become better over time at the systematic practice of innovation than others? Organizational research has addressed these questions from perspectives such as organizational learning (Brown & Duguid, 1991), corporate entrepreneurship (Zahra, 1996), technology management (Gopalakrishnan, 1997), exploration- and exploitation-based search for innovations (Raisch & Birkinshaw, 2008), and entrepreneurial orientation (Covin & Slevin, 1989). These perspectives utilize internal routines and capabilities, which appear to help firms scan, identify, develop, and exploit innovations related to the systematic practice of innovation.

Governance mechanisms have received less attention than routines and capabilities when it comes to understanding innovation practices. Managers use governance mechanisms to control and monitor the use of their authority (Williamson, 1996). Governance mechanisms operate by promoting or inhibiting managerial behavior, which can be related to the systematic practice of innovation. When these governance practices are oriented toward short-term performance, they promote the identification of entrepreneurial opportunities that favor incremental innovation because managers are less inclined to engage in radical innovations that primarily benefit their successors. Similarly, governance mechanisms that lead to entrenchment constrain searching to low-risk opportunities related to incremental innovation. Alternatively, governance practices, which are more oriented toward the long term, create incentives for developing and sustaining innovation routines and practices to enhance overall firm value. Although managerial incentives tend to promote a short-term orientation, unique factors related to family firm governance lead to an increased long-term orientation.

An area of increasing interest in the field is comparing differences in governance practices between family and nonfamily firms. Family firms are those in which ownership and control are combined to a varying extent (Chen, Chen, Cheng, & Shevlin, 2010). Driven by noneconomic motives, family, as an organizing principle, provides unique advantages in searching for, identifying, and exploiting opportunities. It also leads to unique organizational, sociocognitive, and cultural conditions that position family firms in rich yet parsimonious knowledge networks. Our purpose in this research is to demonstrate that the unique positioning of a family firm allows it to engage in a more systematic practice of innovation than can be accomplished by a nonfamily firm.

Compared with managers in nonfamily firms, family firm managers are driven by noneconomic motives. For example, the governance mechanisms used by family managers generate "dominant propensities" such as personalism, parsimony, and particularism (Carney, 2005, p. …

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