Entrepreneurship in family vs. non-family firms: a resource-based analysis of the effect of organizational culture.
Family firms are an important source of economic development and growth. These firms create value through product, process, and service innovations that fuel growth and lead to prosperity. The long-term nature of family firms' ownership allows them to dedicate the resources required for innovation and risk taking, thereby fostering entrepreneurship. Furthermore, the kinship-ties that are unique to family firms are believed to have a positive effect upon entrepreneurial opportunity recognition (Barney, Clark, & Alvarez, 2003). Owner managers also understand that their family firms' survival depends on their ability to enter new markets and revitalize existing operations in order to create new businesses (Ward, 1987). Entrepreneurial activities increase the distinctiveness of the family firms' products and therefore enhance their profitability and growth (Zahra, 2003). Thus, it is important that family firms are able to innovate and aggressively pursue entrepreneurial activities.
Yet, over time some family firms become conservative, unwilling or unable to take the risks associated with entrepreneurship (Autio & Mustakallio, 2003; Dertouzos, Lester, & Solow, 1989). Founders of family firms, who desire to build a lasting legacy, may become more conservative in their decisions because of the high risk of failure of entrepreneurial ventures (Morris, 1998), as well as the risk of destruction of family wealth (Sharma, Chrisman, & Chua, 1997). Family firms may also choose conservative strategies as a result of their organizational cultures (Dertouzos et al., 1989), defined as the enduring values that shape the firms' characters and how they adapt to the external environment. These cultures embody the beliefs, aspirations, histories, and self-concepts that are likely to influence firms' disposition to support and undertake entrepreneurial activities. Family firms' cultures develop over time reflecting the dynamic interplay between owners' values, organizational history and accomplishments, the competitive conditions of the firm's major industry, and national cultures (e.g., Corbetta & Montemerlo, 1999; Pistrui et al., 2000). These cultures also reflect the ethnic heritage of the family that owns and runs the firm (Pistrui et al., 2001). A society's regional cultures and historical experiences also shape these cultures (Davis, Pitts, & Cormier, 2000; Ward, 2000). In addition, these organizational cultures reflect a wide range of political, ideological, sociological, experiential, economic, and psychological factors (Pistrui et al., 2000). In the context of family firms, scholars have observed that national and regional cultures exert a unique influence on key family business processes such as succession (e.g., Howorth & Ali, 2001 ; Sharma & Rao, 2000). The multiplicity of the variables that influence these family business cultures makes them distinct and difficult to imitate. While the literature on family firms and their cultures is evolving worldwide, little empirical research has investigated the specific links between these firms' cultures and entrepreneurship, an issue this study explores.
This article empirically examines the relationship between family firms' cultures and entrepreneurship. It proposes that family firms' cultures are an important strategic resource (Barney, 1986) that can give these firms a distinct advantage over their rivals by promoting and sustaining entrepreneurial activities. Using the resource-based view (RBV) of the firm (Barney, 1991; Priem & Butler, 2001), this article advances specific hypotheses about the links between the multiple dimensions of culture in family firms and entrepreneurship. The study then empirically tests these relationships, by comparing the influence of dimensions of culture on entrepreneurship in family and non-family firms, using data from U.S. manufacturing companies.
This article makes two contributions to the literature. First, it highlights the importance of organizational culture for value creation in family businesses. Given that entrepreneurship is important for value creation (Zahra, Neubaum, & Huse, 2000), and the important role family firms play in creating new ventures (Astrachan & Shanker, 2003), linking organizational culture to entrepreneurship provides an important test of RBV propositions. Second, with some exceptions (e.g., Hall, Melin, & Nordqvist, 2001) few studies of organizational culture have focused on family firms (Dyer, 1986). Also, prior studies of organizational culture have failed to distinguish family from non-family firms. Given the potential differences between family and non-family firms (Sharma et al., 1997), it is important to empirically delineate which dimensions of organizational culture are conducive to entrepreneurship within family firms. We achieve this by comparing the influence of dimensions of culture on entrepreneurship in family and non-family firms. The remainder of the article presents a theoretical rationale for the influence of culture on entrepreneurship in family firms and an empirical examination of this relationship.
The Importance of Organizational Culture in Family Firms
Organizational culture refers to the coherent pattern of beliefs and values that represent acceptable solutions to major organizational problems (e.g., Dyer, 1986; Schein, 1992). According to the RBV, organizational culture can be a strategic resource that generates a sustainable competitive advantage (Barney, 1986) by promoting learning, risk taking, and innovation (e.g., De Long & Fahey, 2000). Family firm cultures are also difficult for rivals to imitate (Dierickx & Cool, 1989) because of the ambiguity about their origins and their embeddedness in family history and dynamics (Gersick et al., 1997). There are also substantial diseconomies resulting from time compression, because culture cannot quickly be developed or changed. Organizational culture is a tightly connected system of artifacts, espoused values, and underlying assumptions. The interconnectedness of family firms' intangible and tangible assets also inhibits the imitation of their cultures.
Several characteristics unique to family businesses increase the significance of organizational culture as a strategic resource (Rogoff & Heck, 2003). As noted, owners and managers are often one and the same, mitigating the problem of alignment of goals of principal and agent (Daily & Dollinger, 1991). This alleviates concerns about opportunistic behavior by agents (Chrisman, Chua, & Litz, 2002; Schulze et al., 2001) reducing the need for contractual controls and monitoring, and increasing reliance on social controls such as trust (Steier, 2001). Reduced reliance on formal controls and coordination increases the importance of a firm's culture as a key determinant of its behaviors.
Dimensions of Culture that Support Family Business Entrepreneurship
While there are numerous dimensions of organizational culture (Detert et al., 2000), building on the literature (e.g., Chua, Chrisman, & Sharma, 1999), this study examines four dimensions that are expected to be associated with entrepreneurship in family firms: individual versus group orientation; an internal versus an external orientation; assumptions concerning the centralization/decentralization of coordination and control; and short- versus long-term orientation. The potential advantage is realized when these dimensions of culture encourage the firm to be more proactive, innovative, and risk-oriented (Miller, 1983; Zahra et al., 2000).
Individual vs. Group Cultural Orientation. This dimension refers to the value placed upon individual versus group contributions in family firms (Detert et al., 2000). Since the degree of individualism versus group orientation will influence innovation and risk taking (Herbig, 1994), RBV scholars view this as a potential source of sustainable competitive advantage (Barney, 1986; 1991). A group cultural orientation stresses cooperation and collaboration in the firm's decision-making processes. Group-oriented family business cultures explicitly reward individuals when they share knowledge, cooperate and collaborate (DeLong & Fahey, 2000). In these cultures, the belief is that only through joint effort can the best solutions be identified and tested. The resulting trust and sharing of sensitive data and innovative ideas across functional boundaries encourages entrepreneurship (Burgelman, 1983). This is likely to be the case in family firms where kinship relationships bind members of the firm. Thus, we expect that a group orientation has several positive benefits for entrepreneurship in family businesses.
In individual-oriented organizational cultures, opportunities, and rewards result from demonstrations of individual excellence, and this may discourage organizational members from collaborating and sharing new knowledge or information. However, entrepreneurship requires risk-taking, autonomy, individual empowerment, and personal commitment (Lumpkin & Dess, 1996). The autonomous activities of organizational members are conducive to the initiation of entrepreneurial projects (Burgelman, 1983).
While a cultural orientation of individualism facilitates the recognition of radical innovation by individual entrepreneurs, a group cultural orientation encourages entrepreneurship (Herbig, 1994). Therefore, these two opposing forces should be somewhat balanced for entrepreneurship to flourish. One cross-cultural study found that moderate levels of individualism were most strongly associated with entrepreneurship (Morris et al., 1993). Therefore:
Hypothesis 1: There will be a curvilinear relationship between the organizational cultural dimension of individual-versus-group orientation and entrepreneurship in family firms. Moderate levels of individualism will be associated with the highest levels of entrepreneurship.
Internal versus External Cultural Orientation. This dimension refers to the dominant beliefs within the family firm about its relationship to the external environment. An internal cultural orientation emphasizes the development of knowledge and expertise that resides within the firm's boundaries. In this culture, entrepreneurship results from the intellectual capital within the organization (Detert et al., 2000). Over time, however, an internal orientation may evolve into inertia that stifles entrepreneurship. An inward orientation might inhibit a family firm's ability to explore the innovative methods and practices introduced by its rivals, thus lowering its entrepreneurial activities. Concern about the dysfunctional effects of an inward organizational culture is magnified by the fact that the founder or founding family might dominate an organization for years, controlling the decision-making process and limiting its exploration of innovative ideas.
Externally focused cultures place greater value on signals from their external environment, studying market trends that provide important insights into emerging entrepreneurial opportunities. Customers, competitors, suppliers, and markets are also viewed as important sources of information to be used in the identification of organizational problems and in developing innovative solutions for them. Von Hippel, Thomke, and Sonnack (1999) describe how organizations leverage their customers' unique knowledge to develop breakthrough product and service innovations, which are key to entrepreneurship. Therefore, following the RBV, an inward culture can place the family firm at a disadvantage because it does not develop the capabilities necessary to promote entrepreneurship. In contrast, an externally focused organizational culture is expected to dedicate greater resources to develop the capabilities that allow family firms to acquire knowledge from a variety of external sources and thus increase their entrepreneurial activities (Kanter, 1983). Therefore:
Hypothesis 2: High external cultural orientation is positively associated with entrepreneurship in family firms.
Assumptions Concerning Coordination and Control. A third dimension of organizational culture is the firm's beliefs regarding coordination and control. These beliefs form a continuum ranging from total decentralization to complete centralization of decision-making authority. Centralization places power in the hands of a few select people and may stifle entrepreneurship by inducing rigidity within the family firm's structure. Centralization may also limit the exchange of entrepreneurial ideas that will make it difficult for employees to gain the support needed for their ventures. In contrast, organizational cultures that accept and encourage legitimate, decentralized authority and coordination of effort will enhance flexibility and promote the independent contributions of their members (e.g., Kanter, 1983). Decentralization enables employees to take initiative and propose new entrepreneurial ideas (Miller, 1983; Pinchot, 1985). Therefore:
Hypothesis 3: A cultural orientation toward decentralization will be positively associated with higher entrepreneurship in family firms.
Short- vs. Long-Term Time Orientation. A final dimension of a family firm's culture is their orientation toward time (Deal & Kennedy, 1983). This orientation refers to the family firm's disposition toward long-term value creating activities that have a low probability of success, but are important for new business creation and revenue generation.
Some family firms are short-term oriented and support only those projects with an immediate high potential payback. These firms' owners may be unwilling to risk their wealth or put the future of their firms at risk. Family members might also worry about the loss of their inheritance, pressuring managers and employees to downplay long-term value creating activities. However, other family firms may emphasize their commitment to long-term value creating activities such as entrepreneurship. Following the RBV, these cultures can be an important resource that increases their entrepreneurial activities.
The time orientation of a firm's culture is reflected in its choice of control system. When organizations have a short-term orientation, they are likely to favor financial, rather than strategic controls. Financial controls are based on established goals, targets and performance quotas. Success or failure, therefore, depends on how managers and employees meet pre-established parameters. Financial controls reinforce a short-term orientation (Zahra, 1996), which reduces employees' willingness to assume the risks associated with entrepreneurship. In contrast, strategic controls reflect a long-term orientation and require an understanding of the task at hand, the risks involved, and the potential tradeoffs among the choices managers might make. Understanding the risks and tradeoffs is important because entrepreneurial activities are chaotic and often unpredictable (Kanter, 1983). Cultures that favor patient investments in long-term but risky activities are more likely to support entrepreneurship (Hitt et al., 1996). A study of Fortune 500 companies found that strategic controls are positively associated with higher levels of entrepreneurship (Zahra, 1996). Therefore:
Hypothesis 4: Emphasis on financial controls is negatively associated with family firms' entrepreneurship. Hypothesis 5: Strategic controls are positively associated with family firms' entrepreneurship
Organizational Culture and Entrepreneurship in Family vs. Non-Family Firms
Some researchers suggest that the unique interactions between the family subsystem, the business subsystem, and the individual organizational members, generate a bundle of unique resources and capabilities (Chua et al., 1999; Olson et al., 2003). The outcome of these interactions has been referred to as familiness (Habbershon et al., 2003), a variable that can differentiate the firm, resulting in a competitive advantage, as suggested by the RBV. In their study of Swedish family firms, Hall et al. (2001) found that family business cultures are an important influence on an organization's ability to adopt radical changes. Pistrui et al. (2000) identify how individual, organizational, and cultural characteristics in East and West German family firms interact to influence entrepreneurial orientation.
Familiness emerges from the interaction of the family subsystem with the assets and capabilities that family firms possess. An important feature of family firms is that there is less concern over opportunistic behavior by agents (Chrisman et al., 2002; Schulze et al., 2001). A consequence of this is an increased salience of organizational culture for influencing the behavior of organizational members. Therefore, in family firms, cultural dimensions that facilitate rapid and effective responses to environmental change and new opportunities will have a greater effect on entrepreneurial activities than in non-family firms. Thus, the associations between the four dimensions of culture outlined above, and entrepreneurship, will be stronger for family than for non-family firms. This suggests the following hypothesis:
Hypothesis 6: The association between the four cultural dimensions and entrepreneurship will be stronger for family firms than non-family firms.
Sample. In order to test the study's hypotheses, we used data collected in 1997 for a larger project through a mail survey. The survey targeted manufacturing companies in five U.S. states: Georgia, Tennessee, South Carolina, North Carolina and Virginia. Organizational cultures develop over time and new ventures' cultural values may lack clarity. Therefore, the survey was sent to firms that have been in business for at least three years. Companies were selected from five high and five low technology industries, representing ten two-digit SICs. The names and addresses of 2,379 companies were identified from state directories. Two mailings targeted CEOs or highest-ranking company officers, generating 536 completed responses (22.53 percent). Of these 218 (41 percent) were family firms and 161 of these respondents indicated that they were members of the owner family.
T-tests revealed no significant differences between responding and non-responding firms on age or size. The [X.sup.2] test also showed no significant associations between responding vs. non-responding companies by state or industry type (low vs. high technology). Three other analyses validated the data. First, secondary data such as company publications, company Web sites, state directories, and Lexis. Nexis were used to gather data on the study's key variables. Secondary and survey data were then correlated to establish the validity of the survey-based measures, as reported later.
Second, a copy of the survey was also sent to a second manager in each of the 536 responding companies. This process yielded 157 replies, which were then correlated with the responses received from the first wave of respondents. Of the second group of respondents, 78 indicated that they were members of the owner family. Next, we correlated the responses of the first group of senior managers (n = 536) with replies received from the 157 second respondents on all survey items. The simple correlations between responses of senior managers were significant across each variable, with an average correlation across all variables of r = .59, indicating significant inter-rater reliability. (1) The modest correlation might be explained by several factors: managers at different levels may perceive things quite differently; managers might emphasize different parts of their environments and address different strategic issues; senior managers who control the firm's resources might also feel differently about their firm's culture from their subordinates; members of the same family might have different aspirations for the firm and its mission, possibly attenuating the correlations found in this research. Finally, tensions between generations of owners and between senior managers and their second in command are fairly common and are likely to color respondents' views of the firm's culture.
Third, due to a concern that observed statistical relationships may be the result of a common measurement source we used Harman's single-factor test by performing a factor analysis of all of the study's variables. The existence of a common source or method bias is revealed when a single common factor emerges or a general factor emerges that accounts for the majority of the variance in the variables (e.g., Podsakoff & Organ, 1986). The orthogonal factor analysis generated eight factors with eigenvalues above unity. Following Podsakoff and Organ (1986), we concluded that source bias was not a serious problem in this study.
The use of a survey methodology may not capture the complex relationships and beliefs that exist in organizational cultures with the same degree of depth and richness achieved through ethnography. This should be kept in mind as the results are interpreted. Yet, researchers have frequently used mail surveys to capture organizational culture (Hofstede et al., 1990; Morris et al., 1993; O'Reilly, Chatman, & Caldwell, 1991 ; Thomas & Au, 2002). Further, the significant correlations between responses from firms' senior management are reassuring that there is agreement about their cultures.
Different authors define family firms differently (Litz, 1995; Sharma, Chrisman, & Chua, 1996). In this study, family firms are defined as those businesses that report some identifiable share of ownership by at least one family member and having multiple generations in leadership positions within that firm. This definition follows Astrachan and Kolenko (1994), who suggest that a family had to own over 50 percent of the business in a private company or more than 10 percent of a public company in order to qualify as a family business. We have emphasized this definition because entrepreneurship is a resource consuming activity and executives should be in a position to make the required resource allocations. The ownership parameters established in the definition were consistent with this empowerment. Ownership also had important implications for the various cultural variables being examined (e.g., centralization). Furthermore, considering the number of generations in the business captured the pervasiveness of the family's influence in the firm's operations. Applying the ownership and multiple generation criteria identified 218 family firms in the sample.
Measures. The Appendix presents the study's measures. Entrepreneurship was measured using the 7-item index that was developed and validated by Miller (1983). This measure has been widely used in prior research because of its documented reliability and validity (e.g., Morris et al., 1993; Zahra et al., 2000). The entrepreneurship index ([alpha] = .71) was constructed using the average response to the seven survey items.
The four dimensions of family firms' cultures were measured using multi-item indexes, as shown in the Appendix. In all cases, responses to the multiple items were averaged to develop the study's measures. Items for individual orientation were based on the literature (e.g., Hofstede, 1991; Morris et al., 1993; Morris, 1998) and were developed specifically for this study. The average value of the items for individual orientation was squared in order to assess the hypothesized non-linear relationship. Items for the external orientation were also based on prior research (e.g., Deal & Kennedy, 1983; Kanter, 1983; Morris, 1998). The items measuring assumptions about the centralization of control followed prior research (Hofstede et al., 1990; Miller, 1983). Financial and strategic control measures were extracted from prior research (e.g., Hitt et al., 1996; Zahra et al., 2000). Cronbach [alpha]s for these measures were as follows: individual orientation ([alpha] = .67), external orientation ([alpha] = .78), decentralization ([alpha] = .63), financial controls ([alpha] = .65), and strategic controls ([alpha] = .68).
The study also controlled for five firm-related variables that could influence the relationship between culture and entrepreneurship: company size, company age, liquidity, past performance, and industry type (low vs. high technology). We used the natural log of total assets to measure the impact of company size. Large firms typically were expected to have bureaucratic structures, suggesting that size might be negatively associated with entrepreneurship (Kazanjian & Drazin, 1990; Tasi, 2001). Further, we controlled for company age because older organizations might undertake entrepreneurial activities less frequently because of inertia (e.g., Hannan& Freeman, 1989). Age was measured by the number of years since the company's founding (Autio, Sapienza, & Almeida, 2000).
Liquidity was also included in the analysis because the availability of slack resources could promote entrepreneurship. Past performance was included in the analyses because it could improve organizational slack resources that encourage entrepreneurship (Tasi, 2001). The analyses used return on assets (ROA), calculated as a three-year average. Finally, we controlled for industry effects using a dichotomous variable that captured whether the firm's major industry was high technology (coded 1) or low technology (coded 0). High technology companies were expected to pursue entrepreneurship aggressively.
Family firms in our sample were older and smaller than non-family firms. Family businesses averaged 31.40 (sd = 26.10) years whereas non-family firms averaged 25.34 years (sd = 20.28). The average family firm had 76.10 (sd = 181.30) employees, indicating that the sample is predominantly of smaller and medium sized family firms. Non-family firms averaged 121.69 (sd = 351.90) employees.
Table 1 presents the simple correlations among the study's variables. The correlations were moderate and did not indicate serious multicolinearity in the sample. Being a family business was positively associated with entrepreneurship (p < .05).
We tested the study's hypotheses using hierarchical regression. We ran the analyses separately for family (equations 1a-1b) and non-family firms (equations 2a-2b). In the first step (equation 1a and 2a), we entered the study's control variables. In the second step (equation 1b and 2b), we added the independent variables.
The results of hierarchical regression appear in Table 2. Results for family firms appear in equations 1a and 1b. When entrepreneurship was regressed on the control variables (equation 1a), the results were significant and the model explained 12 percent of the variance (p < .001). The inclusion of the independent variables (equation 1b) explained an additional 12 percent of entrepreneurship (p < .01). The non-linear (inverted U-shaped) relationship predicted between individual orientation and entrepreneurship was supported (p < .05), consistent with hypothesis 1. The predicted positive association between external orientation and entrepreneurship was also supported (p < .01), consistent with hypothesis 2. Similarly, the results revealed a positive and significant association between an emphasis upon decentralization and entrepreneurship (p < .01), supporting hypothesis 3. Consistent with hypothesis 4, a cultural focus on financial controls and entrepreneurship was negative (p < .05). As predicted in hypothesis 5, the effect of a long-term orientation on entrepreneurship was positive (p < .05). (2)
The results for non-family businesses are also shown in Table 2 (equations 2a and 2b). The results for equation 2a were significant, explaining nine percent of variance in entrepreneurship, although company size was the only significant variable (p < .05). Equation 2b was also significant (p < .001), explaining 15 percent of the variance in entrepreneurship. The explanatory power of equation 2b was higher than that of equation 2a (p <.05). However, only external orientation was positively associated with entrepreneurship (p < .01). (3)
To examine hypothesis 6, the Chow test was used to determine the significance of the differences across the two subgroups in the effect of the independent variables on entrepreneurship. We compared the regression coefficients for each pair of identical equations for the family and non-family business groups (e.g., equation 1b vs. equation 2b). The results can be summarized as follows. The inverted U-shaped predicted between a culture's focus on individualism and entrepreneurship was stronger in the family businesses than in non-family businesses (p < .05). There were no significant statistical differences between family and non-family firms in the positive effect of external orientation on entrepreneurship (p = .18). The effect of a focus on decentralized coordination and control and the use of strategic controls was stronger in family firms than in non-family firms (p < .05). Financial controls had a stronger negative effect on entrepreneurship among family firms than non-family firms (p < .05). The relationship between a firm's relative emphasis upon strategic versus financial controls and entrepreneurship is significantly stronger for family firms than it is for non-family firms. Overall, the results strongly support hypothesis 6.
Organizational culture is an important strategic resource that family firms can use to achieve a competitive advantage by promoting entrepreneurship and enhance the distinctiveness of these firms' products, goods, and services. Entrepreneurship also enables family firms to obtain a competitive edge over their rivals by reducing the cost of operations, making these companies one of the most efficient organizational forms. Applying the RBV, the results show that four dimensions of a family firm's culture significantly influence their entrepreneurial activities and have a more powerful influence than for the non-family firms studied here.
The results show that family firms' individual-versus-group orientation has an inverted U-shaped relationship with entrepreneurship, as predicted in hypothesis 1. Family firms whose cultures strongly favor an individual orientation may find it easy to spur the entrepreneurial initiatives resulting from the autonomous action of their managers and employees. However, these firms may find it difficult to build the cooperation necessary to implement these activities (Pinchot, 1985). Entrepreneurship flourishes at moderate levels of individualism (Morris et al., 1993) and family businesses may benefit from balancing these two opposite cultural orientations.
Consistent with hypothesis 2, external orientation in a family firm's culture emerges as a strong and significant antecedent of entrepreneurship which exposes the firm and its employees to diverse sources of knowledge, improving its ability to identify opportunities for entrepreneurship. Entrepreneurship in family firms is supported by a culture that values new knowledge acquired from customers, suppliers and competitors (Morris, 1998). This is especially salient for family firms because founders may hold the same position for years, increasing the likelihood of an inward focus in the organizational culture (Westhead & Cowling, 1996).
A cultural orientation toward decentralization of control and coordination is also positively associated with entrepreneurship, supporting hypothesis 3. Looser, decentralized organizations, in which autonomy and coordination through mutual adjustment is viewed as legitimate, will be more sensitive and responsive to changing conditions (Kanter, 1983). This is important because some family firms centralize their operations, a factor that can undermine their pursuit of entrepreneurial activities (e.g., Hall et al., 2001).
The orientation of a family firm's culture toward time shows a strong association with its entrepreneurial activities. The time-orientation of family businesses is usually reflected in their choice of control system. A short-term focus is reflected in a preference for financial controls. Conversely, a preference for strategic controls reflects a long-term orientation. The results show that financial controls, a proxy for short-term orientation, lower entrepreneurship. These results support hypothesis 4. The results of this study provide evidence of a positive association between strategic controls and entrepreneurship, indicating the importance of a long-term cultural orientation. This finding is consistent with hypothesis 5 and recent studies that did not specifically explore family firms (e.g., Zahra et al., 2000).
Finally, the results of this study provide support for the view that the influence of culture on entrepreneurship will be greater in family than in non-family firms. Consistent with hypothesis 6, the two groups of firms differed significantly in the effect of organizational culture on entrepreneurship in four of the five variables examined. These results highlight the importance of the concept of familiness (Habbershon et al., 2003), especially in promoting entrepreneurship. The results reinforce the frequent observation, seldom supported by empirical evidence, that the intermingling of the family and the business may generate competitive advantages for family firms (Gersick et al., 1997).
The results discussed above must be interpreted with caution. Even though the sample is representative of its target population, it does not cover all manufacturing industries in the United States and the results may not apply to all sectors of the economy. Also, given that family business values, operations, and organizational cultures vary significantly across countries (Davis et al., 2000; Owen & Rowe, 1995; Pistrui et al., 2000; Sharma & Rao, 2000), our results may not apply to cultural settings that differ radically from the United States. The study has also examined the relationships between four dimensions of culture and entrepreneurship, possibly overlooking other dimensions. Furthermore, the sample came from a single geographic region in the United States and this might limit its generalizability to other regions. While the use of a mail survey is a legitimate research approach, it may not adequately capture the subtle features of organizational cultures. Therefore, future research should replicate these results using alternative approaches to the measurement of the central constructs. Ethnographic methods, in particular, may be useful in this regard. Finally, the study explores the impact of a family firm's culture on entrepreneurship, without explicitly distinguishing between those cultural factors related to family dynamics from those that develop naturally in these firms' operations (Olson et al., 2003). Given that family subsystems vary considerably within and across cultures (e.g., Hall et al., 2001; Sharma & Rao, 2000), the effect of organizational culture on entrepreneurship may be more complex than uncovered in the current study. Despite these limitations, the results make several contributions to the field.
Contributions to the Literature
This empirical study provides a test of RBV propositions by examining the relationship between the culture of family firms and entrepreneurship. The evidence is supportive of the proposition that such intangible strategic resources promote long-term value creation through innovative entrepreneurial activities. The study's second empirical contribution lies in investigating the relationships between specific dimensions of culture in family firms and entrepreneurship. Despite the popularity of discussions of organizational culture in the literature, few studies have examined the relationship between specific dimensions of culture and organizational outcomes such as entrepreneurship. The study offers an initial effort in this regard, laying a foundation for a more thorough examination of these complex issues in future studies. In a broad sense, the study advances research on the dynamics of family firms, an area that requires further analysis (Gomez-Mejia, Nunez-Nickel, & Gutierrez, 2001; Schulze et al., 2001). Third, the study offers some preliminary results on the effect of organizational cultures and entrepreneurship in family vs. non-family business firms, filling a gap in the literature.
One of the study's key findings is that cultural variables and organizational mechanisms that are shaped by dimensions of organizational culture have a strong and significant impact on family firms' entrepreneurial activities. Family firm managers should identify, understand, and use organizational values that foster entrepreneurship. This will require a cultural audit to identify salient organizational cultural values. Managers need also to establish systems and structures that give employees the opportunity to contribute to entrepreneurship while providing the mechanisms necessary to coordinate and integrate these efforts.
The results also highlight the importance of reaching a balance between encouraging individual initiative (e.g., rewarding individual achievements) and fostering group collaboration (e.g., through creating job domains with overlapping responsibilities). This can be achieved by reducing unnecessary bureaucracy, valuing consensus in making key strategic decisions and supporting information sharing across functions and business areas. Managers need to foster an external orientation to promote the acquisition of new knowledge and the identification of new opportunities. This requires scanning the external environment to identify changes and opportunities.
Organizational mechanisms, including the use of family charters, family meetings, and councils, may also play a crucial role in fostering the distinctive familiness that promotes entrepreneurship. Family meetings offer an opportunity to strengthen and share the basic cultural values among family members active in the business (Corbetta, 1995). They also provide a forum in which shared collective cognitions are created. These cognitions guide collective actions (Habbershon & Astrachan, 1997) that enhance distinctive familiness.
Future Research Directions
The results suggest several avenues for further research. A promising research avenue is to document how organizational culture affects entrepreneurship in different national cultural settings (Hayton, George, & Zahra, 2002). As previously noted, both family and company cultures often have unique characteristics in different countries. National cultures might moderate the relationships observed in this study between family firm attributes and entrepreneurship. Some national cultures encourage risk taking, whereas others reduce managers' willingness to pursue entrepreneurial activities.
We have previously noted the significance of family business subsystems, which refers to the dynamic but complex interplay between business, family, and national and regional cultural variables (Pistrui et al., 2000; Sharma & Rao, 2000). Future researchers should empirically identify these subsystems and then relate them to entrepreneurship in family firms.
Little is known about how culture evolves in family firms throughout the different stages of their life cycles, and how such evolution affects these companies' ability to nurture entrepreneurship. As family firms evolve across generations, their risk-taking preferences shift (Autio & Mustakallio, 2003). Future research should explore cultural differences across life cycle stages (Gersick et al., 1997), and the role these differences play in influencing family firms' entrepreneurship. There is also a need to investigate the role of other dimensions of culture on entrepreneurship. Family firms' assumptions about rationality in decision-making, the centrality of work and beliefs about human motivation deserve attention (e.g., Hofstede, 1991; Schein, 1992). Researchers need also to document how these assumptions, beliefs and values influence employee attitudes and performance and, as a result, entrepreneurship (Rogoff & Heck, 2003).
Future research should also identify key moderators of the relationship between organizational cultures and entrepreneurship. The extent to which the founder or other influential family members are central to the family firm's operations may enhance or hinder the impact of different dimensions of culture on entrepreneurship. Similarly, the number of family members who are active in the business, or the number of generations, may influence the direction, strength, and significance of these relationships (Winter et al., 1998). The unique nature of social networks within family firms may influence opportunity recognition (Barney et al., 2003), which suggests a need to understand the extent to which different forms of family network ties might moderate culture's influence on entrepreneurship (and vice versa).
The differences found between family and non-family firms in the influence of organizational culture on entrepreneurship suggest a further need to contrast these two groups of firms. How do their cultures develop? Do these firms benefit from different sets of organizational cultural variables? Are the relationships found in this study stable over time? Clearly, these and similar issues warrant further investigation.
Entrepreneurship is an important way in which family businesses create value. Given that family businesses are typically characterized by an emphasis on social control and the centrality of their founder, organizational cultures may be of even greater strategic significance than for non-family firms. This study shows the strategic importance of organizational culture for family businesses, by presenting evidence of the relationship between four key cultural dimensions and entrepreneurship. These differences are significantly stronger in family firms than in non-family businesses.
The study's measures and their reliabilities are described in the text. This Appendix presents the exact measures used to capture the study's variables. Items followed by (R) are reverse scored. All items, except as noted, followed a five-point scale [1 = very untrue vs. 5 = very true, with a "not applicable option" offered to respondents]. Items were as follows:
 ... Shows a great deal of tolerance for high-risk projects.
 ... Uses only "tried and true" procedures, systems, and methods (R).
 ... Challenges, rather than responds to, its major competitors.
 ... Takes bold, wide-ranging strategic actions, rather than minor changes in tactics.
 ... Emphasizes the pursuit of long-term goals and strategies.
 ... Is the first in the industry to introduce new products to the market.
 ... Rewards taking calculated risks.
Individual vs. Group Cultural Orientation--This company values ...
 ... Being a team player.
 ... Consensus in making key decisions.
 . .. Tying pay to group performance.
 ... Rewarding performance based on individual achievement (R).
External vs. Internal Cultural Orientation--This company ...
 ... Tracks changes in its markets on a regular basis.
 ... Values working with key customers and learning from them.
 ... Values working with key suppliers and learning from them.
 ... Values learning from the actions of its competitors.
 ... Resists ideas that were developed by other companies or groups (R).
Assumptions Concerning Centralized versus Decentralized Control--This company...
 Is open to change.
 Encourages employees to challenge the status quo.
 Is decentralized in its decision making.
 Maintains open communications channels in its operations.
Strategic vs. Financial Cultural Orientation Financial Controls. To what extent are the following used in managing and evaluating your company's performance? Please circle the one number that best describes your company's situation over the past 3 years. Where I = Not used at all, 5 = Widely Used.
 Cash flow.
 Return on investment.
 Objective criteria, such as return on assets.
 Formal performance appraisal.
Strategic Controls. To what extent are the following used in managing and evaluating your company's performance? Please circle the one number that best describes your company's situation over the past 3 years. Where 1 = Not used at all, 5 = Widely Used.
 Formal face-to-face meetings among managers to discuss company performance
 Informal face-to-face meetings among managers to evaluate company goal achievements
 Evaluating company performance against subjective criteria such as customer satisfaction
Table 1 Means, standard deviations and intereorrelations (N = 536)([dagger]) Variables X sd 1 2 3 4 5 01 Corporate 3.11 1.27 Entrepreneurship (CE) 02 Individual vs. 3.04 1.09 .20 Group Orientation 03 External 3.11 1.13 .26 .13 Orientation 04 Decentralized 2.83 1.29 .21 .21 .14 control 05 Strategic 2.97 0.98 .20 .33 .23 .20 Controls 06 Financial 3.27 1.12 -.29 .10 .11 -.04 .19 Comtols 07 Liquidity 2.03 2.81 .14 .13 -.09 .11 .22 08 Company age 27.69 25.10 -.16 -.09 .20 .18 -.05 09 Company size 89.50 153.05 .09 .12 .13 .24 .07 (employees; logged) 10 Past return 4.48 7.89 .18 .08 .09 .12 .12 on assets 11 %, high 48.00 51.00 .09 .09 .26 .18 .14 technology industry 12 % Family 40.67 4271 .12 17 .16 -.13 .09 business (Yes = 1) Variables 6 7 8 9 10 01 Corporate Entrepreneurship (CE) 02 Individual vs. Group Orientation 03 External Orientation 04 Decentralized control 05 Strategic Controls 06 Financial Comtols 07 Liquidity .27 08 Company age .12 .11 09 Company size .31 .21 .32 (employees; logged) 10 Past return .11 .16 .14 .14 on assets 11 %, high -.03 .06 -.09 -.03 .17 technology industry 12 % Family .17 -.08 .08 .19 .11 .37 business (Yes = 1) ([dagger]) Simple r has to be .11 higher to be signficant at p < .05. Table 2 The Influence of Family Business Culture on Entrepreneurship: Regression Results Variables Family Firms Non-Family Firms 1a 1b 2a 2b Company age -.09 -.09 .05 .06 Company size .13 @ .13 @ .28 * .26 * Liquidity .17 * .17 * .11 .10 Past ROA .18 * .25 * .12 .14 High technology industry .11 .12 .03 .03 Individual vs. group orientation .24 ** .15 Individual Orientation squared -.21 * -.04 External orientation .40 *** .29 *** Decentralized control .29 ** -.09 Strategic controls .21 * .04 Financial controls -.19 * .03 Adjusted [R.sup.2] .12 .24 .09 .15 F-value 3.18 *** 6.43 *** 2.17 * 5.04 *** Chance in [R.sup.2] .12 .06 F-value for Change in [R.sup.2] 3.05 ** 2.31 * @ p < .10; * p < .05; ** p < .01; *** p < .001
(1.) The average correlation coefficient, reported above, related to all the survey items (many of which are not used here). When we examined the inter-rater correlations for the issues covered in this study, the average r was .62. When the correlations were calculated for companies from which a second family member responded (n = 78), the average r was .64 when all survey items were evaluated and .65 when items pertaining only to this article were considered.
(2.) In a third step, we included the ratio of the strategic controls score to the financial controls score, indicating a company's relative emphasis on strategic vs. financial controls. The results were consistent with those obtained from 1b. The model explained 20 percent of variance in entrepreneurship (p < .001), which was significantly higher than the explanatory power of model 1a (p < .05). The ratio of strategic to financial controls was positively associated with entrepreneurship in family firms (p < .001), providing further support for hypotheses 4 and 5.
(3.) As for family firms, we assessed the contribution of a variable indicating the ratio of strategic controls to financial controls scores. The results were significant (p < .01) and explained 12 percent of variance in entrepreneurship. These results were significantly better than those obtained from equation 2a (p < .01). This provides further support for our hypotheses 4 and 5.
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Please send correspondence to: Shaker A. Zahra at email@example.com, James C. Hayton at James.Hayton@usu.edu, and Carlo Salvato at firstname.lastname@example.org.
Shaker A. Zahra is a professor at Babson College, in the Arthur M. Blank Center for Entrepreneurship.
James C. Hayton is a professor at Utah State University, in the Department of Management and Human Resources.
Carlo Salvato is a professor at the Universita. Cattaneo--LIUC, in the Entrepreneurship Research and Development Center.
We appreciate the comments we received from Ramona Heck, two anonymous reviewers, Patricia H. Zahra, and the participants in the Second Annual Conference on Theories of Family Firms at Wharton Business School. We acknowledge with gratitude the detailed suggestions of Jim Chrisman, which improved the article significantly.
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|Author:||Zahra, Shaker A.; Hayton, James C.; Salvato, Carlo|
|Publication:||Entrepreneurship: Theory and Practice|
|Date:||Jun 22, 2004|
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