Abstract
This chapter illustrates the main issues with respect to innovation process within family firms. In the first part, it describes the main theories underlying the innovation process of family firms (agency theory, altruism, portfolio theory, stewardship theory, socioemotional wealth perspective). In the second part, it exposes the R&D underinvestment problem in large companies with a focus on the effect of the family ownership on the R&D investments. In the third part, it describes the effect of family ownership on the innovation output with a focus on the kind of innovation (radical vs. incremental). In the fourth section, studies exploring the innovation strategies of family firms (prospectors, analysers, defenders, reactors) are examined. In the fifth section, it sheds light on the innovation management process of family firms. In this part, it explores the issues of internal innovation process (functional vs. cross-functional structure) and of the partnerships with external actors aimed to generate innovation.
TopIntroduction
Over the last years, technological innovation within family firm context is receiving an increasing attention (Calabrò et al., 2019; De Massis et al., 2012a). Although family firms are recognized more conservative and less incline to innovation, the majority of the most innovative firms around the world are family firms (Calabrò et al., 2018; Rondi et al., 2018). According to the consolidated process based conceptualization (Tidd & Bessant, 2009), technological innovation can be conceived as the set of activities through which a firm identifies, designs, produces, and introduces a new product, technology, system, or technique (Freeman, 1976). Literature indicates that innovation represents a key driver for firms’ competitiveness and technologically innovative companies are more likely to achieve an enduring competitive advantage (Geroski et al.,1993). Scholars have widely investigated innovation process in small and medium firms so as with respect to large companies. Anyway, only recently an emerging strand of literature has focused on innovation activities within a family firm context, emphasizing the scant attention paid referring this theme. This is surprising considering that family firms are characterized by an interaction between family, individual family members and the business (Habbershon & Williams, 1999) that generates a unique bundle of idiosyncratic resources and capabilities with an intangible and tacit nature favouring the achievement of long-lasting competitive advantage. Technological innovation issue represents a great potential research area ”… because there are strong theoretical reasons to believe that the antecedents and effects of technological innovation” (De Massis et al., 2012b p. 1). Family firms may differ from nonfamily counterparts with respect to risk aversion, investment horizons, return aspiration, climate organization and so on (Carney, 2005; Zellweger et al., 2012). These aspects inevitably influence firms’ propensity to invest in innovation and in managing innovation activities. While some research portrays family firms as reluctant to undertake R&D investments (Chen & Hsu, 2009), and assume risk (Morris, 1998), other research suggests that family firms show a high innovation productivity rate (Matzler et al., 2015).
The aim of this chapter is to review and systematize literature referring to technological innovation in family firms, separating the different phases of family firms’ innovation process (De Massis et al., 2012b), and emphasizing the role of family-related antecedents. The discussion of the main issues regarding family firms’ innovation allows to illustrate the research areas where scholars find a consensus and other areas where literature manifests different results and therefore the consequent debate is still open. In order to explore family firms’ innovation process, empirical studies will be examined and the interpretation of the relative results will leverage on the main theoretical frameworks used within family business literature.
The chapter is articulated in the following sections:
Key Terms in this Chapter
Underinvestment Problem: Within R&D decisions, it represents the choice of management to undertake investment in R&D below their optimal level.
CEO Duality: It refers to the situation of the CEO that simultaneously wears the hat of the chairperson of the board of directors.
Socioemotional Wealth: It represents the nonfinancial aspects of the firm and may come in a variety of related forms, such as the family members’ control over strategic decisions and their identification with the firm.
Family Ownership: It represents the percentage of shares owned by controlling family and is measured as the number of shares of all classes held by the family divided by total shares outstanding.
Large Shareholder: It is an owner that has a sizable percentage of voting shares and therefore has a great incentive to gather information about firm investments.
Cross-Functional Team: It is a group made up of employees from different functional areas (finance, marketing, production, etc.) that interact in order to reach a common goal.
R&D Investments: They represent the economic effort made by the firm and they are generally calculated as R&D expenditures scaled by total sales.