Family Owned Business Institute

Research Scholar's Abstracts 2009 - Francesco Chirico, Carlo Salvato

Dynamic Capabilities in Family Firms: A Knowledge-based Approach
Francesco Chirico, Carlo Salvato
2009

In today's high-velocity environments, recognizing enablers of dynamic organizational adaptation is essential to sustainable competitive advantage. This is especially relevant in family firms, whose specific threats to trans-generational success and survival have long been discerned. The speed of change in competitive environments has driven firms to develop processes directed at changing existing capabilitiestheir idiosyncratic, path dependent ways of doing business-to increase their strategic adaptiveness and competitive fit. This is captured by the notion of dynamic capabilities (DCs), which offers an explanation of the evolutionary nature of capabilities (e.g., Teece et al., 1997; Eisenhardt and Martin, 2000; Winter, 2003).

The bedrock of the DCs concept lies deep in notions of organizational knowledge and knowledge recombination. As Penrose (1959) first noted, the cumulative knowledge of the firm provides options to expand in new markets and businesses in the future, hence matching, if not creating, environmental dynamism. Building on this premise, the DCs perspective suggests that firms learn new skills at increasingly higher levels, by recombining knowledge embodied in capabilities (e.g., Kogut and Zander, 1992; Teece et al., 1997).

Despite the intuitive appeal of this approach, it has been a task of considerable complexity to identify the knowledge-related units of analysis driving organizational adaptation, the underlying causal mechanisms, and the outcomes at the level of competitive advantage. The fundamental explanatory notions of the knowledge-based approach to organizational adaptationnotions such as routines, capabilities, competencies and DCsare aggregate concepts that may be located in teams, firms, among firms, and even in industrial districts and industries (Foss, 2005). As a result, the micro-foundations of the DCs approach are still unclear, hence hampering the value of this concept for both theory and practice.

Although family business research has addressed knowledge transfer and acquisition (e.g., Cabrera-Suarez et al., 2001; Zahra, 2007), little attention has been paid to knowledge integration (KI) and to the antecedents of such integration. The present research proposal focuses on KI as a DC characterized by peculiar forms in family firms, which allows illuminating its functioning in any type of organization. We empirically test a model of KI as a dynamic capability (DC) through which capabilities can be changed (i.e., modified or built) to adapt a family organization to environmental shifts. In particular, we will explore the family-specific antecedents of KI among members of the controlling family active in the controlled business. The model proposes that KI is directly affected by (1) internal social capital, (2) affective commitment to change, and (3) relationship conflicts. Given the unique social context which exists in family firms, this specific form of organization offers an interesting setting to examine KI occurring among family members. The interaction of two social systemsthe family and the businessenables family members to simultaneously participate in both family and business relationships in their personal and professional lives. This increases their complexity and creates a unique context for KI, which can be conducive of both positive and negative outcomes (Sirmon and Hitt, 2003). The density of family social interactions based on kinship ties may hence shed light on the underlying mechanisms through which knowledge is integrated and applied to new product development activities. Our aim is to emphasise the unique features of family social relations that create a context where intra-group interactions within the family are identifiable and strongly influence the firm's KI.

Our empirical work contributes to unveiling the mechanisms behind the evolution of capabilities in family firms. Exploring family-specific antecedents of KI offers valuable contributions to both our understanding of sustainable competitive advantage in family firms, and of the causal mechanisms underlying dynamic adaptation within any kind of organization. The present work contributes to research on family business management in at least three ways. First, a focus on family firms- i.e., firms in which family social relations are particularly strong and more vivid than in non-family firms- will advance our understanding of KI processes in family organizations. Specifying and empirically measuring those factors which affect the integration of family members' specialized knowledge will allow us to expand existing research on family firms' ability to adapt capabilities when environments shift. Second, empirical results on family firms will both advance knowledge on the micro-foundations of DCs in any type of firm, and help scholars and practitioners to understand why some family firms are more successful than others in dynamic markets - i.e., markets in which the competitive landscape shifts quickly and unexpectedly, and change must be promoted to survive; and how a family firm can maintain and sustain a competitive advantage, thus leading to family and business- success across generations. Unveiling some important antecedents of knowledge processes will clarify the nature of DCs as knowledge-access and knowledge-recombination processes. This awareness will open up new avenues for both further research into other determinants of DCs, and managerial manipulation of these variables aimed at improving the adaptive chances of organizations active in dynamic environments. Third, we will advance research on the analysis of family firms' uniqueness while suggesting that our framework may be applied to other types of organizations characterized by a dominant social group- a group possessing its own institutionalized practices, values and norms of behavior.