The Influence of Family Business on the Entrepreneurial Orientation

to Performance RelationshipMcKenny, Short, Payne, & Mitchell

Presented by Aaron McKenny

Processes, practices, and decision-making styles of entrepreneurial firms. (Lumpkin & Dess, 1996)◦ Autonomy◦ Competitive Aggressiveness◦ Innovativeness◦ Proactiveness◦ Risk Taking

Positive relationship with firm performance (Rauch, Wiklund, Lumpkin, & Frese, 2009)◦ Moderately strong relationship

What is Entrepreneurial Orientation (EO)?

Increasing research on EO in small family businesses◦ EO DimensionsPerformance (e.g., Naldi et al., 2007)

◦ Moderation in small businesses (e.g., Casillas, Moreno, & Barbero, 2010; Casillas & Moreno, in press)

Little focus on large family businesses◦ E.g., Ford, WalMart, Disney, S.C. Johnson◦ Levels of EO (e.g., Short, Payne, Brigham, Lumpkin, &

Broberg, 2009)

EO Research in Family Business Context

Two Studies◦ Study 1 – EOPerformance relationship in large,

publicly-traded businesses Does family business status moderate?

◦ Study 2 – Configurations perspective to look for patterns of EO dimensions First study to look at patterns of EO Compare family/non-family businesses use of

patterns Look at performance consequences of pattern use

Our Paper

Study 1The moderating role of family business

status

The characteristics of a firm that are central to the character of the organization, distinguish the organization from others, and endure through time (Albert & Whetten, 1985)

Two, sometimes competing, identities in family businesses◦ Utilitarian Identity: Business

Economic goals of business (Albert & Whetten, 1985)

◦ Normative Identity: Family Idiosyncratic goals to family (Tagiuri & Davis, 1992)

The Identities of Family Businesses

Family has significant, ongoing influence on normative identity (Arregle, Hitt, Sirmon, & Very, 2007)

Identity emerges from management’s interactions with most salient stakeholders (Scott & Lane, 2000; Mitchell, Agle, & Wood, 1997)◦ Families have urgency, legitimacy, and power◦ Family may be represented in management

Family’s Influence on Identity

Competitive Aggressiveness◦ Aggressive organizational positioning or responses

to defend against competitors, unfavorable industry trends, and other external threats (D’Aveni, 1994; Lumpkin & Dess, 2001; Smith, Ferrier, & Grimm, 2001)

Family businesses are likely to respond in a way that minimizes the total impact on both financial and non-financial goals.

Non-family businesses would primarily minimize the impact on the financial performance of the company.

Moderation of Competitive Aggressiveness Performance

Family business status moderates the entrepreneurial orientation-performance relationship among large, publicly-traded companies.

Hypothesis 1

Sample◦ S&P 500 over the years 2001-2003

75% of the US publicly traded equity (Standard & Poor’s, 2009)

33% are family businesses (Anderson & Reeb, 2003) Unit of analysis

◦ Shareholder letters Took three-year averages

◦ Control for year-specific idiosyncrasies

Method

Firm Performance◦ Approximation of Tobin’s Q (Chung & Pruitt, 1994)

◦ Ratio of the market value of the firm to the replacement cost of its assets

Entrepreneurial Orientation◦ Content analysis using DICTION 5.0 (Hart, 1990)

◦ Use dictionaries validated to measure EO (Short, Broberg, Cogliser, & Brigham, 2010)

Measurement

Family Business Status◦ If any member of senior management or the

board of directors was also a member of the founding family, the company was classified as a family business (cf., Dyer & Whetten, 2006; Short et al., 2009)

Control Variables◦ Firm size, in number of employees (cf. Stam &

Elfring, 2008)◦ Industry sectors (SIC Divisions A-J) (cf. De Clerq,

Sapienza, & Crijns, 2005)

Measurement

Two EO dimensions were related to performance◦ Competitive Aggressiveness (β=-0.14, p<0.05)◦ Innovativeness (β=0.13, p<0.01)

Family business status was related to performance (β=0.25, p<0.01)

Family business status did not moderate the EO-Performance relationship

Hypothesis 1 was not supported

Results

Study 2Patterns of Entrepreneurial Orientation

Strategy and Entrepreneurship Literatures◦ Strategic groups (Cool & Schendel, 1987)

◦ Generic strategies (Dess & Davis, 1984)

◦ VC investment criteria (MacMillan, Siegel, & Narasimha, 1985)

◦ Entrepreneurial strategy making (Dess, Lumpkin & Covin, 1997)

◦ EO, access to capital and dynamism (Wiklund & Shepherd, 2005)

New possibility: Dimensions of EO◦ Related to, but vary independently (Lumpkin & Dess,

1996)

◦ Different relationships with performance (Rauch et al., 2009)

Uses of the configuration approach

Family business scholars are interested in family business performance relative to that of non-family businesses

EO influences firm performance◦ Patterns of EO may influence firm performance◦ If family businesses espouse some patterns over

others, this may influence family business performance

Patterns of EO in Family Business

Hypothesis 2: Patterns of entrepreneurial orientation can be detected in large, publicly-traded firms.

Hypothesis 3: Family businesses exhibit different patterns of entrepreneurial orientation than non-family businesses.

Hypothesis 4: Performance differences exist among the patterns of entrepreneurial orientation.

Hypotheses 2-4

Same sample and unit of analysis as study 1

Cluster analysis◦ 5 dimensions of EO (Lumpkin & Dess, 1996)

Standardized (Z-Score) (cf., Ketchen & Shook, 1996)◦ Two-stage clustering procedure (Ketchen & Shook,

1996) 1. Hierarchical Agglomerative Clustering

Percentage Change in Heterogeneity stopping rule (Hair, Black, Babin, & Anderson, 2010).

Ward’s Method combination procedure 2. K-Means Clustering

Method

Two clusters found:◦ First, higher on Competitive Aggressiveness,

Innovativeness, and Proactiveness◦ Second, higher on Risk Taking and Autonomy◦ Hypothesis 2 supported

Higher percentage of family businesses in first cluster◦ Hypothesis 3 supported

First cluster outperforms second cluster◦ Hypothesis 4 supported

Results

Results

Multiple definitions of ‘Family Business’◦ Not all of them classify the same firms the same

way (Chrisman, Chua, & Sharma, 2005)

◦ Future research should replicate using other measures of family business

Shareholder letters contain impression management rhetoric (D’Aveni & MacMillan, 1990)

◦ Most firms engage in impression management◦ Future studies should try using other data sources

(e.g., intracompany email, training matierials, meeting transcripts

Limitations

Definition of organizational identity is contested◦ Albert and Whetten (1985) include an ‘enduring’

aspect◦ Other studies have offered that an identity can

change over time (e.g., Fox-Wolfgramm, Boal, & Hunt, 1999; Gioia, Schultz, & Corley, 2000; Gioia & Thomas, 1996)

◦ Future research should look at the extent to which identity reflected in EO is persistent through time

Limitations

Generalization and extension of previous EO studies in family business (Tsang & Kwan, 1999)

◦ Casillas and Moreno (in press) Family Involvement moderated link between EO and firm growth in small-med companies

◦ We found that this did not hold in large, publicly-traded companies

Does the EO-performance relationship behave differently between large and small family businesses?

Do the family identities of family businesses from certain cultures influence the EO-performance relationship differently?

What role does industry play when understanding the dynamics of family influence?

Implications

Two patterns of EO dimensions emerged in large, publicly traded firms◦ Family businesses were present in both groups◦ Family businesses made up a greater percentage

of firms in the group with higher competitive aggressiveness, innovativeness, and proactiveness

◦ Consistent with previous studies Family firms lower on autonomy (Short et al., 2009) Family firms lower on risk taking (Naldi et al., 2007;

Short et al., 2009)◦ Future studies should look at why certain firms

espouse some elements of EO over others

Implications

Only just begun to look at EO in family business

Three key contributions◦ Illustrate the importance of looking at large,

publicly-traded businesses in family business research

◦ Identify common patterns of EO espoused by these businesses

◦ Explore the performance consequences of each pattern.

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