Entrepreneurship and Familiness

Familiness as competitive advantage

Despite a lot of family business research is published in entrepreneurship journals and although family business research is organized within the Academy of Management’s entrepreneurship division, a clearer focus on family firms as a context for enterprising activities has only emerged in recent years (Habbershon and Pistrui, 2002). One theoretical approach applied is the concept of familiness assuming that family firms have particular prerequisites for continued entrepreneurship (Habbershon and Williams, 1999; Chrisman, Chua and Steier, 2005).

Using the Resource-Based View of the Firm (RBV) as point of departure, the familiness literature assumes that family businesses control idiosyncratic resources thanks to the interaction of family and business (Habbershon, Williams and MacMillan, 2003). These are a potential source of sustainable competitive advantage, as they are difficult or impossible to imitate. Habbershon and Williams (1999) report that family companies’ resources are often intuitive-based and causally ambiguous. Hence, it will be very hard for competing firms to acquire them. There is a wide variety of candiadates for resources that may constitute familiness. Applying a social capital perspective, Pearson, Carr and Shaw (2008) try to open the black box of familiness. They describe familiness in terms of the three dimensions of social capital (Nahapiet and Ghoshal, 1998), including a structural, a cognitive and a relational dimension. Structurally, internal network ties and the possibility to transfer family organization to a business setting can be important resources. In the cognitive domain, shared vision, language and culture can be sources of competitive advantage. In family firms, these resources are often embedded in family history and provide the firm with meaning (Lansberg, 1999). Finally, in the relational dimension trust, norms, obligations and identification contribute to familiness.

Sirmon and Hitt (2003) include social capital in their discussion of familiness. However, they also stress a number of other resources, including human capital, patient financial capital and survivability capital. The latter two refer to the long-term investment horizon family business owners typically apply. Habbershon and associates (Habbershon & Williams, 1999; Habbershon, Williams and MacMillan, 2003; Habbershon and Pistru, 2002) emphasize the discussion of familiness as a source of competitive advantage, rather than elaborating much on specific resources. However, they mention “value-based organizational culture, a particular geographic location or historical asset or a firm’s location” as examples (Habbershon and Williams, 1999 p. 12).

Family firms and path dependence

The reasoning of Habbershon and associates includes an interesting tension. On the one hand they maintain that the intuitive-based and causally ambiguous nature of family firm resources contribute to their inimitability and their potential for creating sustainable competitive advantage (Habbershon and Williams, 1999). These characteristics of resources can be explained by the fact that they have grown historically in family-specific settings. On the other hand, Habbershon and Pisturi (2002) argues that family business often get stuck in path-dependent developments and historical legacies, preventing them from renewing themselves and pursuing entrepreneurial strategies. It thus seems as a paradox that family firms on the one hand derive their competitive strength from path-dependent developments of socially complex resources (cf. Barney, 1992). On the other hand, it is the path-dependent nature of these resources that may prevent them from entrepreneurial action. Habbershon and Pisturi (2002) criticize families that identify themselves with a specific business too strongly and thus for instance continue investing in the business even when prospects are weak. They propose that enterprising families should assume a family-as-investor mind-set, meaning that they deploy the family’s resources to those businesses that have the best potential for generating wealth at the time in question. Rather than focusing on a specific business or firm, the family ownership group, acting as an investor in different businesses, should be the focal unit of family entrepreneurship research. While Habbershon and associates address the potential tensions between path-dependent resources as a creator of family-specific advantages and path-dependent resources as an obstacle to entrepreneurship, they do not come up with clear suggestions if and how these tensions might be resolved.

Path dependencies have become an increasingly popular topic in business studies since the seminal work of David (1985) and Arthur (1989). It basically assumes that imprints from the past restrict the range of strategic choices of a firm. A seemingly small event triggers a self-reinforcing process that eventually lead to a lock-in, meaning that it is no longer possible to depart from the path that has been formed (Schreyögg, Sydow and Koch, 2009). Most path dependence literature has focused on technology development and lock-ins related to technologies or physical resources. Schreyögg and Sydow (2009), however, underline that the scope of lock-ins needs to be broadened. Particularly they point out the importance of cognitive and social path dependencies, relating to corporate culture, hidden institutions or learning effects. In their study of the truck maker Scania, Brunninge and Melin (2009) point out that technology related lock-ins can be complemented with a cognitive dimension as technologies become institutionalized in a firm and are subsequently cherished for their own sake. In a similar vein, Selznick (1957) describes firm-level institutionalization processes. He argues that organizations that were originally created for achieving a specific end are institutionalized and become ends in themselves. The same may be the case with family firms and their businesses (Habbershon and Pisturi, 2002), locking up resources in settings that have lost their competitiveness. History is thus present in firms through resource configurations, technologies and systems of meaning. These can be obstacles to entrepreneurship. However, historically grown path dependencies are not always deterministic. More recent research has pointed at possibilities for entrepreneurs to create their own paths (Garud and Karnøe, 2001), de-locking path dependencies (Schreyögg, Sydow and Koch, 2009) or combining the preservation of strategic paths with deliberate renewal (Brunninge and Melin, 2009). While history may be an obstacle to entrepreneurship, it is ironically that history also may be a potential engine for change if managers succeed in finding historical arguments that support their change ideas (Brunninge, 2009; Blombäck and Brunninge, 2009). Historians have described history with a quarry metaphor (Schulze, 1987). It implies that history comprises a large variety of events and processes and that managers can selectively choose which features of corporate history they want to communicate, emphasize and use to support their strategic agendas.

It is reasonable to assume that history plays a particularly important role in family firms. By definition, in a family business past and present are not only linked through corporate history, but also through the history of the family. Continuous lines of succession link the owners of the family firm not only to the historical background of their firm, but also to their own ancestors. As Habbershon and Pistrui (2002) point out, sentimental ties to history in a family firm can lead to the business sticking to legacy assets that are dysfunctional from a purely economic perspective. On the other hand, the legacy of a family firm can be a powerful argument motivating employees and mobilizing their energy for new strategic ventures if these are appropriately linked to history (Brunninge, 2009).

Family firm identity and change

One feature of family firms that is strongly linked to family businesses is their identity as family firms, i.e. their collective idea that the firm is indeed a family firm and that family issues matter to ownership and management. Albert and Whetten (1985) define the identity of an organization as those features that members believe are central, distinctive and continuous over time. The historical dimension thus becomes a key part of any organizational identity. A family firm will be conceived as a family firm if it has had this identity for a sufficiently long period and, ideally, if it shows commitment to remain a family firm in the future (cf. Brunninge, 2005; Whetten, 2006). At the same time, following Albert and Whetten’s (1985) definition, the identity of a family business assumes that the fact of being a family business actually differentiates the firm from other businesses. According to Barney, organizational identity is a classic socially complex resource (Barney et al., 1998). Hence, it is difficult to imitate and can be a source of competitive advantage. When owners or managers emphasize the family business identity of their firm, it is understood that being a family business actually matters. An interesting question in this context is what implications a family business identity has for the firm. If the family business label for instance is used for emphasizing the difference in comparison to listed companies, family firm identity can be an argument for deviating from the institutionalized norms that prevail among non-family firms. Kondra and Hinings (1988) point out that deviations from institutionalized norms are a prerequisite of achieving and maintain competitive advantage. If a firm behaves as an institutional actor and complies with all institutions in its field, the potential of differentiating itself from its competitors is severely limited. Differentiation is on the other hand a prerequisite for achieving a sustainable competitive advantage. Firms thus need to balance the trade-off between complying with norms in order to be legitimate and the need for differentiation. Labeling oneself as a family-firm is an explicit differentiation from non-family firms. Hence the identity claim of being a family firm opens up for differentiation along other dimensions.

Generally, differentiation in an institutional field is often easier said than done. DiMaggio and Powell (1983) compare the pressures for conformity in an institutional field to an iron cage that forces firms to be alike. This is due to laws, regulations and norms as well as the tendency of firms to imitate the structures and strategic behaviors of their industry peers. Once an organization chooses to deviate from institutionalized norms, its legitimacy is put at stake (Meyer and Rowan, 1977). As Greenwood and Hinings (1996) point out, institutional pressures from the field level can be counterbalanced by institutions on the organizational level. These may include organizational systems of meaning, such as organizational culture or identity. In a family business context, also family level institutions, like the family’s norms and traditions may challenge the norms of the field. For a family business context, Dyer (2006) stresses the importance of the matching of family firms and the institutional field (industry) in order to perform well financially.

Analysis and conclusions

At first sight the potential for entrepreneurship in MoDo seems limited. The company is stuck in path-dependencies of various kinds and on various levels. On the field level, (the Swedish pulp and paper industry) with its traditions and its norms, such as the live and let live policy towards the European competitors, sets a rigid framework for development. On the organizational level, there are both cognitive constraints such as the respect for family traditions and previous managers strategic choices and technological constraints, manifested in long-term investments. Still, MoDo has undertaken major renewal efforts, trying to challenge and creatively destroy the established industry structures, The question is how this could happen and what forces enabled MoDo to assume the role of a challenger?

One important aspect behind MoDo’s ability to deviate from industry norm is the fact that the company over generations has constructed an identity of being different as well as being open to changes. Already Frans Kempe referred to MoDo’s character as a family business to explain that the company distinguished itself from other firms. This view was carried on by Carl Kempe and Matts Carlgren. It is further notable how the characteristics of the founding father JC Kempe’s personality (stubborn and at the same time bold and enterprising in decision making) reappear in latter portraits of Frans Kempe, Carl Kempe and Matts Carlgren. The attitude is precisely condensed in Matts Carlgren’s statement in 1991:

“You have to be bold. Many has failed in this industry due to cautiousness. To be cautious could sometimes be mixed up with cowardness.” (Interview Dagens Nyheter 1991)

Being different was thus one of the key features in MoDo’s organizational identity and this identity of being different was again motivated by and intimately linked with the identity of being a family firm.

“Concern for the employees has been and still is a distinctive mark for MoDo. We can enjoy the result - a strong tie between our employees and the company….. MoDo’s personell policy is based on old traditions. We aim to continue that way.” (Matts Carlgren, Chairman of the board, MoDo annual report 1984:13)

As a family firm MoDo had long rooted traditions and could argue to follow a logic that differed from that followed by the two larger competitors STORA and SCA2. The SCA institutionalized identity on the firm level thus served as a counterweight to the field level pressures for conformity. MoDo’s family business identity in this case sereved as a stabilizer and as an engine for change at the same time. While the concept of organizational identity, at least in its classical form (Albert and Whetten, 1985) is inherently linked to stability, the firm level stability of MoDo’s identity added change on the field level. In addition, traditions of being bold and quick in decision making were associated with the firm and the Kempe family. As a consequence, being able to accomplish strategic change and to try out new solutions in business reproduced and stabilized the identity of the company.

In the MoDo case the firms family business identity stands out as a key resource that owners and managers can deploy in order to broaden the scope of strategic options for the firm. The family business identity legitimizes strategic choices that substantially deviate from the prevailing norms in the field and would be difficult to legitimize by other means. The family business identity is thus a core feature of familiness in the MoDo case, that allows the firm to differentiate itself from its competitors. If this strategic differentiation is successful it can be a basis of sustainable competitive advantage as it is based on and legitimized by the unique history of the firm. On the level of the industrial field, MoDo’s sticking to family traditions of boldness and quick decision making ironically implies entrepreneurial change. MoDo’s strategic moves that reinforce and stabilize the firm’s family business identity challenges the field level institutions and has a potential of creatively destroying them. In line with Habbershon and Pistrui’s (2002) arguments the MoDo case support the path-dependent nature of familiness and in the particular of family business identity. However, the MoDo case challenges the view that path-dependence stands in conflict with entrepreneurial action, as path-dependence on the firm level can potentially trigger change on the level of the industrial field (cf. Greenwood and Hinings, 1996).

It is interesting to note that path-dependent developments on the firm level and on the industry level can exist side by side for a long time, like it was the case with MoDo’s entrepreneurial family business traditions and the institutions of the Swedish pulp and paper industry. It was not until MoDo’s entrepreneurial action challenged the field level institutions in the 1980’s that the development paths of MoDo and the industry collided rather than running in parallel. In the present case, the overall path of the industry proved to be stronger than the challenging path of the entrepreneurial family business. Although MoDo managed to challenge industry norms, the company did not succeed in transforming the structure of the industry and the company finally ceased to exist as a family business. It is not possible to conclude from this single case that field level institutions will always be stronger that the institutions of a family firm. But it seems as familiness is a potential trigger for entrepreneurial change in an established institutional field. At the same time challenging field norms by drawing on the distinctive character of a family business involves high risk-taking. Not all family firms will survive collisions of their institutions with those prevailing in the industry.