Tracing the roots of innovation in family businesses

Principal Topic: The effect of family business ownership on firm-level innovation remains little understood (De Massis et al ., 2013a) . Our lack of knowledge partly derives from the fact that the growing body of research investigating innovation in family firms yielded mixed and inconsistent results (Carnes & Ireland, 2013; De Massis et al ., 2013a) . Within this literature the majority of studies have either focused on innovation inputs, notably R&D spending (Block, 2012; Chen & Hsu, 2009; Chrisman & Patel, 2012), or innovation outputs such as patent citations (Block et al ., 2013) in the context of family firms . Most recently however, scholars have called for additional insights on how family business ownership shapes the organizations' innovation activities (De Massis et al ., 2013a) and their general tendency to experiment and support new ideas, referred to as innovativeness (Lumpkin & Dess, 1996) . Developing a better understanding on the family specific antecedents of firm-level innovativeness is crucial, as the latter has been found to promote performance (cf . Lumpkin & Dess, 1996; Wiklund & Shepherd, 2005) . Moreover, shedding light on whether and how family business ownership affects organizational innovativeness holds promise for explaining the heterogeneous findings of existing literature focusing primarily on input and output variables (De Massis et al ., 2013a) . Methodology: We argue that these inconsistent findings might be caused by the scholarly neglect of two sources of heterogeneity among family owned firms . First, family firms differ regarding the extent to which they focus on family specific socio-emotional wealth (SEW) (Berrone et al ., 2012), which might explain the inconclusive results within the literature comparing innovation in family versus non-family firms . In this paper we argue the owner-mangers' focus on SEW is dependent on family functionality (Smilkstein, 1978) . If owner-mangers are highly satisfied with their intra-family relationships they are more likely to pursue familial goals in the corporate context leading to a higher attention on SEW . If, on the contrary, family functionality is low, owner-mangers are expected to block out the ‘family logic' (see Greenwood et al ., 2010; Miller et al ., 2011) whilst being at work and instead purely act according to corporate principles . Second, family business scholars maintain that owner-mangers' SEW is not a one-dimensional construct but instead incorporates five distinct dimensions (Berrone et al ., 2012; Cennamo et al ., 2012) . Yet, it remains unclear whether and how each SEW dimension affects innovation in family firms . In this paper we tap into this research gap by investigating the effect of each SEW dimension on the firms' innovativeness . Accordingly, we hypothesize that a strong influence of the familial value system and a high degree of family-firm identification reduces firm level innovativeness due to the familial preference for the status quo (Gomez-Mejia et al ., 2011; Gomez-Mejia et al ., 2007) and desire for stability (Carnes & Ireland, 2013) . On the contrary, we expect that strong ties to employees and emotional bonding among active family members increase the firms' tendency to innovate because tacit knowledge that is vital for innovation activities (Sirmon & Hitt, 2003) is more likely to be shared and combined in such trusted and close-knit relationships . Finally, we argue that the owner-mangers' wish for dynastic succession increases firm innovativeness as it centers owners' attention on the long-term prosperity of the firm . Such long-term orientation has been found to increase the propensity of investing in innovation (Classen et al ., 2013) . Results and Implications: Our findings, which derive from a sample of 141 Finnish family business owners using structural equation modeling, contribute to family business literature in three important ways . First, we contribute to the growing literature on innovation in family firms by shedding light on the antecedents of those firms' innovativeness . A better understanding of what drives and what hinders family firms' innovation tendencies might help to resolve the seemingly conflicting results generated by existing literature focusing on innovation inputs and outputs (De Massis et al ., 2013a) and family versus non-family comparisons (e .g ., Chrisman & Patel, 2012; De Massis et al ., 2013b) . Moreover, using structural equation modeling enables us to conduct a holistic exploration of family firm innovativeness, including family level antecedents, as well as firm level performance implications .Second, we contribute to the literature on socio-emotional wealth (Berrone et al ., 2012; Cennamo et al ., 2012; Gomez-Mejia et al ., 2011) by exploring the effect of each SEW dimension individually on firm level innovativeness . While the five dimensions proposed by Berrone et al . (2012) enjoy broad acceptance within the family business literature studies testing the effect of each dimension are still sparse . Moreover, our study is, to the best of our knowledge, first to explore how SEW emerges (Berrone et al ., 2012) by identifying and testing family functionality as important precursor of the owner-mangers' attention to SEW . By doing so, our study speaks to researchers cautioning that not all family business owners automatically pursue non-economic goals (Berrone et al ., 2012) . Finally, our results contribute to literature that has started exploring the interplay of the family and the corporate logic in the context of family firms (Greenwood et al ., 2010; Miller et al ., 2011; Mitchell et al ., 2011) . We argue that the influence of the family logic on corporate innovativeness is dependent on owner-mangers' satisfaction of their family life . Accordingly, high degrees of family functionality drive institutional pluralism in family businesses that emerges as the family logic coincides with the corporate logic in this type of firm (Greenwood et al ., 2011)