Corporative Entreprenuership Family Firms

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Corporate

Entrepreneurshipin Family Firms:A Family PerspectiveFranz W. KellermannsKimberly A. Eddleston

Entrepreneurship has been recognized as an important factor contributing to firm success.Despite the potential benefit of corporate entrepreneurship to sustain the family firm acrossgenerations, corporate entrepreneurship has been underresearched in the family firm litera-ture. We investigate how generational involvement, willingness to change, and the ability torecognize technological opportunities impact corporate entrepreneurship in family firms.We also examine strategic planning in family firms as a facilitating process. Our findingssuggest that willingness to change and technological opportunity recognition are positivelyrelated to corporate entrepreneurship in family firms. We further found strategic planningto significantly moderate the relationships between (1) generational involvement and (2)technological opportunity recognition and corporate entrepreneurship. These findings andimplications for management and research are discussed.

Introduction

Corporate entrepreneurship is critical to family firm survival, profitability, and growth(Rogoff & Heck, 2003; Salvato, 2004). Corporate entrepreneurship refers to the entre-preneurial activities within organizations that are designed to revitalize the companysbusiness by changing its competitive profile or by emphasizing innovation (Zahra, 1995,1996). Examples of corporate entrepreneurship include product innovation, process inno-vation through research and development, and the pursuit of new markets (Covin &Selvin, 1991; Miller, 1983; Zahra, Neubaum, & Huse, 2000). These entrepreneurialactivities promote the continuity and success of the family firm by contributing to growthin employment and wealth (Upton, Teal, & Felan, 2001). Indeed, research has shownthat corporate entrepreneurship increases revenue streams, empowers employees, andimproves profitability (Barrett & Weinstein, 1998; Lumpkin & Dess, 1996; Zahra, 1996).With the competitive landscape of the twenty-first century becoming increasinglydynamic and uncertain (Hamel, 2000), it is of the utmost importance that family firmsdevelop an entrepreneurial mindset that allows them to identify and exploit opportunitiesin their environments (Sirmon & Hitt, 2003).

Please send correspondence to: Franz W. Kellermanns, tel.: (662) 325-2613; e-mail: [email protected].

PTE &

1042-2587 2006 byBaylor University

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Despite the importance of corporate entrepreneurship to the success and survival offamily firms across generations, few studies have examined how families influence theirfirms entrepreneurial activities (e.g., Nordqvist, 2005; Rogoff & Heck, 2003; Salvato,2004). Furthermore, little is known regarding why some family firms are more successfulat corporate entrepreneurship than others (Nordqvist, 2005). While some research portraysfamily firms as reluctant to invest in new ventures (Cabrera-Suarez, Saa-Perez, & Almeida,2001), assume risk (Morris, 1998), or induce change (Levinson, 1987), other research

suggests that family firms that invest in entrepreneurship have greater potential for highperformance (McCann, Leon-Guerrero, & Haley, 2001). Therefore, in response to a call forresearch that studies the influence of the family on corporate entrepreneurship (Aldrich &Cliff, 2003; Chrisman, Chua, & Steier, 2003; Nordqvist, 2005), this study examines whysome families are better at fostering corporate entrepreneurship in their firms than others.

In line with Salvatos (2004) research on entrepreneurship in family firms, Millers(1983) view of entrepreneurship was used to frame our study. Miller defines entrepre-neurship as a multidimensional concept encompassing the firms actions relating toproduct-market and technological innovation, risk taking and proactiveness (p. 771).This view of entrepreneurship is widely accepted in the field (Salvato, 2004; Zahra, 1996),

and therefore was considered in developing our research model.More specifically, because technological innovation drives entrepreneurship (Shane,

1993), we examined how the technological opportunities perceived to be present in afamily firms environment influence corporate entrepreneurship. The importance of antici-pating, embracing, and inducing change to entrepreneurial thinking (Miller, 1983) isreflected in our consideration of family members willingness to change. In addition,because Miller argues that researchers need to distinguish different types of firms whenexamining entrepreneurial activities, the generational involvement of the family firm wasincluded. Indeed, Salvatos (2004) research suggests that the generational involvementof the family firm influences entrepreneurial activities. Lastly, because strategic planning

is expected to play an important role in a family firms endeavors (Salvato, 2004), weinvestigate strategic planning as a facilitating process in family firms, i.e., a moderator. Weconceptualize strategic planning as an integrative effort (Ketokivi & Castaner, 2004)that may help to align family members with organizational priorities, thus enhancing theeffects of technological opportunities, willingness to change, and generational involve-ment on corporate entrepreneurship.

Our article contributes to the literature in at least three ways. First, we add to thecorporate entrepreneurship literature by investigating how variables associated with inno-vation as well as variables common to the family firm realm affect corporate entrepre-neurship in family firms. While studies investigating the antecedents of corporate

entrepreneurship in nonfamily firms are common (e.g., Covin & Selvin, 1991; Lumpkin& Dess, 1996; Zahra et al., 2000) and some initial research has been conducted in midsizeorganizations (e.g., Wiklund & Shepherd, 2003b; Zahra et al., 2000), to our knowledge,this is one of the first empirical studies to examine corporate entrepreneurship in familyfirms (for another exploratory study see Salvato, 2004). Second, we show the culture ofthe family firm in regard to perceiving technological opportunities and willingness tochange matters to corporate entrepreneurship. This underscores the importance of thefamily in understanding family firm entrepreneurship and success. Third, we add tothe literature on strategic planning by considering strategic planning as a moderator thathelps encourage corporate entrepreneurship. While strategic planning has not always been

directly linked to organizational performance (for a review see Miller & Cardinal, 1994),we clearly show that strategic planning can indirectly enhance corporate entrepreneurshipin family firms.

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Our article will be structured as follows: After a brief literature review on corporateentrepreneurship, we will develop our hypotheses and outline the methods employed inthis study. Then, we will report and discuss our results, outline the implications of ourstudy and conclude with limitations and avenues for future research.

Literature Review and Theoretical Development

Corporate entrepreneurship has been recognized as an important factor that contrib-utes to firm success (Zahra, 1996; Zahra, Hayton, & Salvato, 2004). Corporate entrepre-neurship involves a variety of potential tasks including product innovation, risk taking,and proactiveness that are aimed to facilitate organizational renewal and sustainability(Covin & Selvin, 1991; Miller, 1983). As such, corporate entrepreneurship is seen as animportant element in the survival of family firms because it helps create jobs and wealthfor family members.

However, the decision to invest in corporate entrepreneurship is not always simple for

family firms. Family control imposes capital constraints that can inhibit family firms fromfunding entrepreneurial activities (Carney, 2005). For example, the risks and changesinvolved in pursuing entrepreneurial activities may limit a family firms investment incorporate entrepreneurship due to their concern for wealth preservation (Carney, 2005;Chrisman, Chua, & Steier, 2005). In addition, the decision to invest in corporate entre-preneurship is unique in family firms because family interests and values are an integralpart of the goals and strategies of a family business (Sharma, Chrisman, & Chua, 1997).While some family firms appear to have a culture that supports innovation (Upton et al.,2001) and change (Vago, 2004; Zahra et al., 2004), other family firms may have littlecorporate entrepreneurship because the family may have a desire to maintain the statusquo (Gersick, Davis, Hampton, & Lansberg, 1997; Kepner, 1991) or they may notperceive opportunities in their environments (Salvato, 2004). As such, in examiningcorporate entrepreneurship in family firms, a family perspective that considers familymembers attitudes and values is necessary.

Accordingly, our model, presented in Figure 1, reflects the attitudes and values thatare expected to contribute to corporate entrepreneurship as suggested by Millers (1983)work on entrepreneurship that stresses the importance of technological innovation andchange as well as the need to consider firm types. Specifically, we propose that perceivedtechnological opportunities, willingness to change, and generational involvement influ-ence family firm corporate entrepreneurship. We also investigate strategic planning as anintegrative effort (Ketokivi & Castaner, 2004) that facilitates corporate entrepreneurship

in family firms by aiding in the sense making of the families priorities (Weick, 1995) andthe exploitation of strategic initiatives. As such, our model is in line with research thatportrays the ability to recognize opportunities, the willingness to pursue opportunities, andthe strategic planning to exploit opportunities as key factors that support corporateentrepreneurship (e.g., Covin & Miles, 1999; Venkataraman, 1997; West & Farr, 1989).Each of our hypotheses is further developed later.

Willingness to Change

Given todays global competition, shorter business cycles, and diverse workforce,willingness to change is expected to become increasingly important to family firm success(Vago, 2004). Eventually, most firms need to make organizational changes if they are to

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survive environmental shifts and take advantage of opportunities that come their way(Bloodgood & Morrow, 2003). A family firm culture that facilitates rapid and effectivechange should therefore be quite conducive to the pursuit of entrepreneurial activities(Zahra et al., 2004). A firms willingness to take risks and to induce change has long beenassociated with entrepreneurial behavior (Miller, 1983). Indeed, the fastest growingfamily firms have been found to pursue first-to-market and early-follower market-timingstrategies (Upton et al., 2001), thus suggesting the importance of flexibility and the pursuitof new ideas.

Unfortunately, some family firms are reluctant to change (Beckhard & Dyer, 1983;Vago, 2004; Ward, 1987) because they believe it will cause conflict, be too expensive(Vago, 2004), or they are simply unwilling to let go or to modernize (Beckhard & Dyer,1983; Handler, 1989; Stavrou, 1999). Such a fear of change by family firms has beenshown to be associated with stagnation and loss of market share (Miller, Steier, & LeBreton-Miller, 2003). It appears that family members frequently develop emotionalattachment to their organizations strategic positions (Miller et al., 2003). This rigidityprevents the business from having the flexibility to adapt when situations change (Duncan,

1973). Indeed, businesses can have difficulties adapting to shifts in their environmentswhen they resist change and view innovation as a threat (Miller & Friesen, 1982). Theseinertial tendencies highlight the importance of an organizational culture that supportschange (Karagozoglu & Brown, 1988). Willingness to change has been linked to innova-tion (Karagozoglu & Brown, 1988) and similarly, willingness to experiment supportsorganizational adaptation and long-term viability (Hedberg, 1981). Accordingly, willing-ness to change may be an important factor that distinguishes entrepreneurial family firmsfrom their less entrepreneurial counterparts. Specifically, family firms that demonstratethe greatest willingness to change may have the highest rate of corporateentrepreneurship.

Hypothesis 1: Willingness to change is positively associated with corporate entre-preneurship in family firms.

Figure 1

Venturing Activities in Family Firms

H2

H1

Corporate

entrepreneurship

in familyfirms

Generational

involvement

Willingness to

change

Perceived

technological

opportunities

Strategic

planning

H3

H4a-c



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Generational Involvement

While founders of family firms are obviously entrepreneurial, i.e., they recognized abusiness opportunity which they then exploited through the creation of new businessventures (Aldrich & Cliff, 2003), it is often suggested that over time, many foundersbecome conservative and unwilling or unable to invest in corporate entrepreneurship(Autio & Mustakallio, 2003; Dertouzos, Lester, & Solow, 1989; Zahra et al., 2004).However, a family firms survival through generations often depends on the businessability to enter new markets and ability to revitalize existing operations (Ward, 1987). Assuch, it is often suggested that while first generation family firms need to possess thespecial technical or business backgrounds necessary to start a business, subsequent gen-erations need to be focused on maintaining and enhancing their business growth andsuccess (McConaughy, Walker, Henderson, & Mishra, 1999). Accordingly, there may bedifferences in the level of corporate entrepreneurship among family firms of differentgenerations.

Much research focuses on the differences between first, second, and multigenerationfamily firms (i.e., Aronoff, 1998; Dyer, 1988; Gersick et al., 1997; McConaughy et al.,1999; Sonfield & Lussier, 2004). First generation family firms are family-owned andmanaged firms with more than one family member working in the business and all familymembers from the first and founding generation. Second generation family firms are thosein which the second generation of the family is also involved in the ownership andmanagement of the business. Multigeneration family firms are third and later generationfirms in which family members from several generations are involved in the ownershipand management of the business.

Although first generation family businesses are often based on innovative ideas, aftera few years, they often lose their entrepreneurial momentum (Salvato, 2004). Becausefounders of family firms typically want to build a lasting legacy for their offspring, theyoften become conservative in their decisions because of the high risk of failure of

entrepreneurial ventures (Morris, 1998) and their fear of losing family wealth (Sharmaet al., 1997). In addition, the centralized decision making of first generation firms (Dyer,1988) may limit the exchange of entrepreneurial ideas, thereby decreasing corporateentrepreneurship (Zahra et al., 2004). Thus, although the founders of family firms werewilling to take the risks associated with starting a business, their desire to keep thebusiness in the family and to maintain family wealth may keep them from taking the risksassociated with corporate entrepreneurship. Therefore, first generation family firms mayhave the least amount of corporate entrepreneurship.

In comparison, while first generation family firms tend to want to maintain the statusquo, later generations tend to push for new ways of doing things (Kepner, 1991). Indeed,

family firms owned and managed by multiple generations must rejuvenate, recreate, andreinvent themselves over time if they are to sustain the same level of growth and financialinheritance of the previous generation (Jaffe & Lane, 2004). Corporate entrepreneurshipis particularly important to later generation family firms because it promotes the conti-nuity of the family business and helps the family firm create jobs and wealth for the newergenerations (Poza, 1989). Indeed, later generation family members are much more likelyto be the driving force behind innovation (Litz & Kleysen, 2001) and entrepreneurialactivities (Salvato, 2004; Ward, 1987). For multigeneration family firms to succeed, thenewest generation must acquire the preceding generations knowledge (Cabrera-Suarezet al., 2001) while at the same time offering new and diverse perspectives to modernize

organizational objectives and procedures (Handler, 1992). Activities associated with cor-porate entrepreneurship that may help family firms succeed into the next generation

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include creating new products and services, reaching new markets, and internationalizingoperations and sales (Sharma et al., 1997). Therefore, second and later generation familymembers may be most likely to add fresh momentum to the entrepreneurial endeavors offamily businesses (Salvato, 2004). Accordingly, we propose:

Hypothesis 2: Higher levels of generational involvement are positively associatedwith corporate entrepreneurship in family firms.

Perceived Technological Opportunities

Entrepreneurial behavior is spawned when environmental shifts create informationasymmetries or gaps in an industry (Aldrich & Cliff, 2003). The ability to recognize andexploit opportunities created by environmental shifts is therefore important to entrepre-neurship (Covin & Selvin, 1997; Wiklund & Shepherd, 2003a). Indeed, family firms thatare able to spot opportunities have been found to be the most entrepreneurial (Salvato,2004). A change in technology is a common trigger that spurs such environmentalshifts (Aldrich & Cliff, 2003; Shane & Venkataraman, 2000). Accordingly, technologicalopportunities are often considered an important driver of entrepreneurship (Shane &

Venkataraman, 2000) and therefore, a family firms ability to perceive technologicalopportunities in its environment may be a key factor that distinguishes the most entrepre-neurial family firms.

Technological opportunities refer to the degree to which family firms perceive theirindustry to be rich in opportunities for innovation and breakthrough technologies (Zahra,1996). As such, while corporate entrepreneurship embodies a firms entrepreneurial andventuring activities (Zahra et al., 2000), perceived technological opportunities refer to afirms ability to see opportunities for innovation and research and development withinones industry. Being able to spot such technological opportunities is then expected topromote corporate entrepreneurship. For example, in a study by Blake and Saleh (1995)it was suggested that family firms operating in uncertain environments rich in opportunityhad greater innovative activity than family firms in more stable environments. Whenfamily members perceive their environment as opportunity rich, they should invest inbuilding new capabilities and be proactive (Dess & Lumpkin, 2005). The ability torecognize technological opportunities should therefore encourage a family firm to morevigorously pursue entrepreneurial activities. Indeed, it has been shown that firms operat-ing in environments perceived as being rich in technological opportunities are more likelyto invest in corporate entrepreneurship (Zahra, 1996; Zahra et al., 2000).

In contrast, a lack of adaptation to environmental changes will transform core com-petencies into core rigidities (Leonard-Barton, 1992). Firms that are unable to see beyondtheir current customers and markets (Hamel & Prahalad, 1991) may fail to see theimportance of corporate entrepreneurship. Indeed, research has suggested that the oppor-tunities present in an environment is important in predicting entrepreneurial activities(Shane & Venkataraman, 2000; Venkataraman, 1997). Without a mindset that can recog-nize technological opportunities, the competitive exploitation and adaptation to onesenvironment through corporate entrepreneurship is unlikely. Accordingly, we hypothesizeas follows:

Hypothesis 3: Higher levels of perceived technological opportunities are positivelyassociated with corporate entrepreneurship in family firms.

The Moderating Role of Strategic PlanningStrategic planning is an integral part to family firm success. Family firms mustmanage their resources and strategically plan for the future to succeed in todays



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competitive landscape (Sirmon & Hitt, 2003). For example, the most successful familyfirms have been found to invest in effective management processes, allocate resources forbusiness growth, develop new products and services, and invest and encourage the par-ticipation of all employees (McCann et al., 2001). Fast-growth family firms are morelikely to engage in strategic planning than their slower growth counterparts (Barringer,Jones, & Lewis, 1998). Accordingly, strategic planning may affect the degree to whichwillingness to change, generational involvement, and perceived technological opportuni-

ties contribute to family firm corporate entrepreneurship.Concerning willingness to change, research on fast-growth family firms has suggested

that family firms should adopt strategic planning in order to integrate innovation and fosternew product development throughout the organization (McCann et al., 2001; Upton et al.,2001). Entrepreneurship is likely to be prompted by deliberate strategic and managerialintent that reflects the willingness of management to change and experiment (Karagozoglu& Brown, 1988). Indeed, research suggests that the most entrepreneurial firms continuallystrive to keep pace with change and often induce changes in their environments throughstrategic planning (Miles & Snow, 1978; Miller & Friesen, 1982). Therefore, whenwillingness to change is accompanied by strategic planning, entrepreneurial activities are

more likely to occur in family firms.Strategic planning can give purpose to the family members working in the family firm

and channel their efforts toward a greater participation in the corporate entrepreneurshipprocess, thus heightening the positive effect of generational involvement on corporateentrepreneurship. Concerning first generation family firms, founders often stifle theirbusiness growth by becoming fixated on a previously successful strategy and failing toplan for the future (Ward, 1987). Founding generations often are reluctant to let the nextgeneration join in the decision making of the business (Handler, 1989; Lansberg, 1988).In particular, founding family members often make themselves indispensable to thebusiness in an effort to maintain decision-making authority over newer generation family

members (Handler, 1989; Lansberg, 1988). However, in successful family firms, theincumbent and newest generations communicate ideas, offer feedback, and encouragemutual learning (Handler, 1991). Strategic planning is thus seen as an integrative device(Ketokivi & Castaner, 2004) that allows individuals to better understand where theorganization is heading and can reduce individual biases (Ketokivi & Castaner, 2004).This is particularly important in family firms where the founding generation tends to biasthe decision-making process.

Furthermore, as a business grows to include multiple generations, it becomes increas-ingly important to take part in formal strategic planning (Jaffe & Lane, 2004). Forbusinesses to continue to grow, new strategies need to be developed for each new gen-

eration of leadership (Ward, 1987). With greater generations comes the desire for thefamily to sustain connections, but family members have less and less of a commonfoundation as family relationships become more removed and differences intensify (Jaffe& Lane, 2004). This growth in family members and connections that occurs in multigen-eration family firms requires much more formal organization and strategic planning if thefirm is to remain successful and family controlled (Jaffe & Lane, 2004). Thus, strategicplanning offers the opportunity to coordinate and create cooperation among familymembers and in turn facilitate corporate entrepreneurship.

Concerning perceived technological opportunities, strategic planning has been shownto be an important tool in an organizations ability to leverage their resources and to gain

a competitive advantage (Barney, 1996; Chrisman, Chua, & Zahra, 2003; McGrath &MacMillan, 2000). The strategic planning process provides a framework that guidesindividuals in their understanding of their environment and strategic issues at hand (e.g.,

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Burgelman, 1983; Hambrick, 1981). Thus, if family members perceive technologicalopportunities and are actively involved in strategic planning, it should allow them toexploit these opportunities more efficiently. For example, it has been argued that corporateentrepreneurs have to undergo sense-making processes to integrate insights and facilitatefurther entrepreneurial activities and learning (Zahra, Nielsen, & Bogner, 1999). In otherwords, strategic planning provides family members with the ability to more vigorouslypursue entrepreneurial activities.

Hypothesis 4: The relationships between (1) willingness to change, (2) generationalinvolvement, and (3) perceived technological opportunities and corporate entrepre-neurship are moderated by strategic planning. Specifically, higher levels of strategicplanning will enhance the positive relationships of the independent variables.

Method

Sample

We collected the data for this study via mail surveys, which is a common method toobtain data in family firm and small business research (e.g., Chrisman, Chua, & Litz,2004; Chrisman, Gatewood, & Donlevy, 2002). Addresses for a mailing list of 232 familybusinesses was provided by family business centers and associated contacts at two uni-versities in the Northeastern United States. We defined family businesses for the purposeof this study as firms where ownership lies within the family and at least two familymembers are employed in the firm. We chose to employ a top management team (TMT)approach to our sampling, by seeking out multiple respondents per organization. Wemailed a package containing five questionnaires to each organization and asked thatthe questionnaires be distributed to key family members working in the business. The

multiple respondent approach should diminish concerns that the responses are notrepresentative of the different stakeholder groups in the organization (Chua, Chrisman, &Sharma, 1999; Sharma, Chrisman, & Chua, 2003). We included self-addressed envelopesto ensure the respondents anonymity. The questionnaires were numbered to matchrespondents from the same family firm and to allow for aggregation. We received 126questionnaires from family members working in 74 family firms, which resulted in a 32%response rate at the firm level of analysis, which was utilized for this study. The employ-ment size for nonfamily employees ranged from 2 to 545 with an average size of 97 anda median of 44.

While we strived to obtain multiple respondents from each family firm, in only half of

our organizations did two or more family members respond. Of the 37 other firms, thesingle family member that responded was most often the CEO. While the TMT researchoften exclusively relies on the CEO as a key informant and considers him/her a reliablesource of information who reduces biases associated with responses from other organi-zational levels (Glick, Huber, Miller, Doty, & Sutcliffe, 1990), the unbiased assessmentof issues might not be present in the family firm environment. While the aggregation ofindividual level responses to the group level is designed to reduce biases and form anobjective estimate (Simons & Peterson, 2000, p. 105), the aggregation might be question-able for family firms. Accordingly, in order to justify the aggregation of the responsesbetween family members, we calculated the rwg according to James, Demaree, and Wolf

(1984). The values for all constructs were within acceptable values and suggested that theaggregated constructs were assessed similarly between family members. Allrwgvalues aswell as the individual and firm level alphas of the constructs are reported in the Appendix.



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Additionally, we conducted a one-way ANOVA of the independent variable as well as thedependent variable between family firms with one and multiple respondents and found nosignificant differences between them, thus mitigating our single-respondent concerns.

Since our data were collected via a mail survey, common method bias was a concern.In order to mitigate this potential problem, we tested for common method bias assuggested by Podsakoff and Organ (1986). All items pertaining to the independent,moderator, and dependent variables were entered in a factor analysis and the factor

analysis extracted seven factors explaining 77.6% of variance. The factors separatedcleanly and the first factor explained only 28.9% of the variance and the remaining factorsexplained 48.7%. We concluded that common method variance was not a major concernin the current study, particularly, since no single method factor emerged.

Measures

This study examines the degree to which corporate entrepreneurship in family firmsis influenced by willingness to change, generational involvement, and perceived techno-logical opportunities, and also considers strategic planning as a moderator. We screened

the data with the help of the KolmogrovSmirnow test to ensure normality and checkedfor outliers in the sample using Mahalanobis distance measures. Necessary transforma-tions are noted in the subsequent paragraphs. All constructs were measured on a 7-pointLikert scale anchored by strongly disagree to strongly agree unless otherwise noted.The construct items, the individual level alphas (all larger than .80), firm level alphas (alllarger than .86), and the rwg (all larger than .87) are listed in the Appendix.

Corporate Entrepreneurship. We assessed our dependent variable by utilizing a 7-itemscale developed by Miller (1983). While more differentiated measures of corporateentrepreneurship were available (e.g., Zahra, 1996), we felt that the more traditional and

widely used measure developed by Miller fit the context of the family firm better since thequestions were more generic and did not require larger organizations to constitutethe sample.

Willingness to Change. We adapted four items to measure family memberswillingness tochange from the personal characteristics inventory (Barrick & Mount, 1993). The big fiveare personality dimensions that are well established across a variety of theoretical frame-works (Barrick & Mount, 1991). Although originally developed to assess individual traits,we rephrased the items to assess the general willingness to change among family members.

Perceived Technological Opportunities. We asked the respondents to assess the per-ceived technological opportunities within their industry. We used a scale previously usedby Keats and Hitt (1988) and Zahra (1996) consisting of four items. The constructimplicitly controls for industry influences since the respondents were asked to assess theopportunities within their own industry. The items appear in the Appendix.

Generational Involvement. Generational involvement was measured with a single-itemquestion that asked respondents to indicate how many generations were currently involvedin the management of their family firm. The respondents could check one generation, twogenerations, or multiple generations (more than two).

Strategic Planning. To assess strategic planning in family firms, we modified a scale byGould (1979). The four items were reworded to reflect strategic planning in the corporate

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setting and were hoped to improve previous family firm research designs that tended torely upon single item measures (e.g., Schulze, Lubatkin, Dino, & Buchholtz, 2001).

Control Variables. Three controls were used in this study. First, we controlled fororganizational size because larger firms might have more slack to engage in corporateentrepreneurship and thus organizational size might bias the results. We used the loga-rithm of number of employees to control for size. A transformation was necessary to

achieve normal distribution. Second, we controlled for ownership dispersion by asking ifthe company ownership is concentrated in one, two, or multiple generations. We utilizedthis measure as an alternative to age of the organization, since the age of the organizationdoes not necessarily denote the ownership stage and processes due to ownership disper-sion within family firms (Gersick et al., 1997). Third, we controlled for past organiza-tional performance, in the last 3 years, since mediocre performance might entice thefamily firm to engage in corporate entrepreneurship to increase future performance. Sinceobjective measures are often not available if the firms are not publicly traded (Love,Priem, & Lumpkin, 2002), we needed to use a subjective measure of performance.Subjective measures of firm performance have been shown to correlate highly with

objective performance data (Dess & Robinson, 1984; Love et al., 2002; Venkatraman &Ramanujam, 1987). Eight performance-related questions were asked regarding growth insales, growth in market share, growth in employees, growth in profitability, return onequity, return on total assets, profit margin on sales, and the ability to fund growth fromprofit. Specifically, respondents were asked to indicate if their past performance was muchworse, about the same, or higher than their competitors in terms of each of the indicatorsof performance in the last 3 years. This approach has the additional benefit of indirectlycontrolling for industry effects. The individual scores were then added to form an overallperformance score (Dess & Robinson, 1984). Higher values connote better performance.

Results

The means, standard deviations, and zero-order correlations are shown in Table 1. Wetested the proposed hypotheses via multiple regression analysis. The results are portrayedin Table 2. In order to mitigate multicollinearity concerns, we centered the variablesbefore creating the interaction terms (Aiken & West, 1991) and calculated the varianceinflation factors (VIF) and condition indexes. The highest observed VIF equaled 1.63 andthe highest value of the condition index equaled 19.05, far below values which wouldsuggest multicollinearity concerns (Tabachnick & Fidell, 1995).

We tested four models. In model 1, we entered size, ownership concentration, and pastperformance as controls. To test our first three hypotheses, we regressed corporate entre-preneurship in family firms onto willingness to change, perceived technological opportu-nities, and generational involvement. A significant change in R2 was observed (DR2 =.18;p


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Table 1

Correlation Matrix, Means, and SDs

Variables Mean SD 1 2 3 4 5 6 7

Past performance 17.53 3.39

Size 3.45 1.70 -.05

Ownership concentration 1.72 .68 -.27** .20*

Willingness to change 19.21 4.38 .38**** .13 -.20*

Perceived tech. opportunities 13.17 5.09 .01 .17 -.14 .20*

Generational involvement 1.75 .59 -.05 .21* .47**** -.02 -.08

Strategic planning 20.23 4.82 .25** .01 -.16 .50**** .15 -.07

Corporate entrepreneurship 24.28 9.73 .275** .22* -.04 .39**** .38**** .14 .32***

N= 74.*p < .10; **p < .05; ***p < .01; ****p < .001

Logarithmized.SD, standard deviation.

Table 2

Results of Regression Analysis

Variables

Corporate entrepreneurship

Model 1 Model 2 Model 3 Model 4

Controls

Size .24** .12 .12 .08

Past performance .29** .19* .18 .23

Ownership concentration -.01 .03 .03 -.01

Independent variable

Willingness to change .25** .17 .19

Perceived technological opportunities .32*** .31*** .33***

Generational involvement .12 .13 .16

Moderator

Strategic planning .15 .16

Interaction effect

Strategic planning and willingness to change -.15

Strategic planning and perceived technological opportunities .23**

Strategic planning and generational involvement -.22**

DR2 .13*** .18**** .02 .10**

R2 .13 .31 .33 .43

Adjusted R2 .10 .25 .26 .34

F 3.60** 5.06**** 4.624**** 4.71****

N= 74.*p < .10; **p < .05; ***p < .01; ****p < .001 Standardized regression weights.

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change, (2) generational involvement, and (3) perceived technological opportunities andcorporate entrepreneurship. We found partial support for hypothesis 4. Strategic planning

was found to moderate the relationship between perceived technological opportunities(b =.23; p


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opportunities in an effort to grow and succeed. Indeed, our research suggests that theability to recognize technological opportunities, pursue organizational change, and exploitopportunities through strategic planning increases corporate entrepreneurship in family

firms. These results have important implications for both research and practice.Concerning opportunity recognition, higher levels of perceived technological oppor-

tunities were found to lead to greater corporate entrepreneurship in family firms. Thissupports our arguments that family firms are more likely to invest in corporate entrepre-neurship when they see their environments as being rich in technological opportunitiesand that the ability to identify opportunities should lead to greater corporateentrepreneurship. This finding is important given the lack of research on technologyand entrepreneurship in the family firm literature. In addition, we further showed thatstrategic planning enhanced the positive relationship between perceived technologicalopportunities and corporate entrepreneurship. As hypothesized, strategic planning appears

to facilitate the exploitation of environmental opportunities. Accordingly, strategic plan-ning plays an important role in explaining when perceived technological opportunitieslead to the greatest increase in corporate entrepreneurship in family firms. Our findingssuggest that when technological opportunities are recognized and the exploitation of theseopportunities is strategically planned, family firms will experience the highest level ofcorporate entrepreneurship. Certainly, future research should build on these findings andfurther investigate how strategic planning can enhance the exploitation and success of themarket opportunities a family firm recognizes.

Our research also points to the importance for family firms to be willing to pursueopportunities through organizational change. Specifically, our finding that willingness to

change positively impacted corporate entrepreneurship is significant given that familyfirms are often criticized for resisting change (Levinson, 1987) and being reluctant tochange (Beckhard & Dyer, 1983; Vago, 2004; Ward, 1987). This is the first known study

Figure 3

Perceived Technological Opportunity and Strategic Planning

DS1+VIDS1-VI

Perceived Technological Opportunities

10.50000

11.00000

11.50000

12.00000

12.50000

CorporateEnterpreneurship

Strategic Planning

Low

High

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that empirically examines family firms willingness to change and then demonstrates howit increases corporate entrepreneurship; another characteristic that family firms are oftencriticized for lacking (Cabrera-Suarez et al., 2001). Given the importance of these twovariables to the sustainability and success of family firms, it is critical that family firmscreate a culture that facilitates and accommodates change and entrepreneurship (Litz &Kleysen, 2001). Future research should further examine how willingness to change affectsfamily firm success and survival, particularly in dynamic environments and during times

of succession.Concerning generational effects, while we did not find generational involvement to

directly influence corporate entrepreneurship, our results did demonstrate the importantrole that strategic planning plays in examining generational effects in family firms. Ourresults show that when strategic planning is taken into account, family firms with greatergenerational involvement appear to experience greater corporate entrepreneurship.However, we also see that this relationship is quite complex. That is, while strategicplanning heightened the corporate entrepreneurship of first generation family firms, it didnot have a positive effect on multigeneration family firms. One explanation for thisrelationship could be the increased level of political activity, i.e., necessary to develop

strategies around priorities that everybody can agree on in multigeneration family firms,since greater generational involvement leads to a more diverse set of interests and ambi-tions among family members (Gersick et al., 1997). Alternatively, while strategic planningmay be key to corporate entrepreneurship in first generation firms, the formalization andprofessionalism typically associated with multigeneration firms (Gersick et al., 1997) maymake strategic planning less important to corporate entrepreneurship in these firms.Certainly, more research is needed to unravel these complex findings.

In addition, the lack of a main effect of generational involvement on corporateentrepreneurship indicates that, contrary to popular opinion, first generation firms do notnecessarily become less entrepreneurial as time progresses, nor are multigeneration firms

always the most entrepreneurial. As Litz and Kleysen (2001) suggest, entrepreneurshipcan be found in both first generation and later generation family firms while still otherfamily firms exist that lack entrepreneurial spirit across many generations. Studies in thefuture should investigate and compare the factors that encourage family firms acrossgenerations to invest in corporate entrepreneurship.

Limitations and Implications

Before discussing the implications of our findings, a few limitations of our studyshould be noted. Because our research design is cross-sectional, we cannot deduce causal

relationships. Clearly, there are likely to be additional and important insights from futurelongitudinal studies. However, we tested for common method bias (Podsakoff & Organ,1986) and are hopeful that our findings were not affected (see also Doty & Glick, 1998;Spector & Brannick, 1996). This is particularly true for our findings pertaining to theinteraction effects, since common method bias cannot create significant interaction, butcan only attenuate them (Evans, 1985).

Turning to the implications, our study underscores the importance of strategic plan-ning in family firms by demonstrating that strategic planning indirectly enhances corpo-rate entrepreneurship. This is important considering that little is known concerning howfamily firms formulate and implement strategies (Sharma et al., 1997). It also suggests

that the common suggestion to move to professional management as soon as possible(Levinson, 1971), i.e., nonfamily management, may not be necessary as long as sufficientamounts of strategic planning are in place. Furthermore, the implications of strategic



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planning are not limited to family firms. Indeed, our research adds to recent empiricalfindings stressing the value of strategic planning in general (e.g., Ketokivi & Castaner,2004). This is noteworthy considering that the strategic planning literature does notalways show a direct link between strategic planning and organizational performance(e.g., Miller & Cardinal, 1994). Our finding that strategic planning in interaction withother variables can enhance corporate entrepreneurship helps us to better understand therole that strategic planning plays in predicting firm performance.

While we deliberately chose to examine variables that support Millers (1983) view ofentrepreneurship and are associated with opportunity recognition, pursuit, and exploita-tion, future research should certainly consider other factors that may facilitate corporateentrepreneurship in family firms. In particular, investigating how family attitudes andfamily values influence corporate entrepreneurship and strategic initiatives in family firmsappears to be a fruitful avenue for future research. Future research also needs to employa family perspective in investigating potential inhibitors of corporate entrepreneurship infamily firms. For example, Kellermanns and Eddleston (2004) discussed the devastatingeffect of relationship conflict in family firms. It is reasonable to assume that relationshipconflict could also hamper corporate entrepreneurship in family firms by directing efforts

toward creating family harmony as opposed to pursuing business needs. Thus, how familymembers interact may be an important factor in predicting corporate entrepreneurship.

Furthermore, the stage of family leadership should be considered. How successionplanning influences corporate entrepreneurship may be important given that entrepreneur-ial activities are associated with organizational renewal, innovation, (Guth & Ginsberg,1990; Zahra, 1996) and corporate growth (Barrett & Weinstein, 1998; Lumpkin & Dess,1996; Zahra, 1996) necessary for family firm continuity and success. Variables likeresistance to planning, foundersuccessor relationships or successor training (Dyer &Handler, 1994) might influence a family firms willingness to engage in corporate entre-preneurship. Understanding how succession issues affect corporate entrepreneurship and

how corporate entrepreneurship sustains family firms across generations is of the utmostimportance for firms trying to remain in the family while also increasing their success andmarket share.

In conclusion, we contributed to the family firm literature by examining how thefamily influences corporate entrepreneurship. Because our research did not find genera-tional involvement to impact corporate entrepreneurship, our study refutes the commonmisperceptions that first generation firms become less entrepreneurial over time or thatmultigeneration firms are the most entrepreneurial. Our study shows that family membersability to identify technological opportunities and to be willing to change differentiates themost entrepreneurial family firms. In addition, families that create strategic plans can

further facilitate the degree to which technological opportunities increase their firmscorporate entrepreneurship as well as the corporate entrepreneurship of first generationfirms. However, our study was only the first step in applying a family perspective to thestudy of corporate entrepreneurship in family firms. Considering the importance of familyfirms to the U.S. economy and the high percentage of family firms in the United States(e.g., Gersick et al., 1997), research needs to better understand how specific familyprocesses facilitate or inhibit corporate entrepreneurship in family firms.

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Appendix

Scale Items and Reliabilities

Construct Items Individuala Firma rwg2

ControlsPast Performance How would you rate your firms performance as

compared to your competitors? Past three years:

.90 .90 .99

Growth in sales

Growth in market share

Growth in number of employees

Growth in profitability

Return on equity

Return on total assets

Profit margin on sales

Ability to fund growth from profits

Independent Variables

Perceived Technological Opportunities Opportunities for product innovation are abundant in

our major industry.

.84 .83 .87

Opportunities for technological innovation are

abundant in our major industry.

Spending on research & development is higher in our

major industry than in most industries.

Opportunities for major technological breakthroughs

are abundant in our major industry.

Willingness to Change Family members are generally ready to take on any

new challenges that our family firm faces.

.80 .86 .90

Family members are generally open to trying new

things for our family firm.

Family members are generally fascinated by novel

ideas.

Family members generally find it hard to change.1

ModeratorStrategic Planning We have a strategy for achieving our business goals. .86 .87 .85

We have a plan for our business.

We know what we need to do to reach our business

goals.

Our business objectives are not clear.1

Dependent Variable

Corporate Entrepreneurship Our firm has introduced many new products or

services over the past three years.

.91 .92 .88

Our firm has made many dramatic changes in the mix

of its products and services over the past three

years.

Our firm has emphasized making major innovations in

its products and services over the past three years.

Over the past three years, our firm has shown a strong

proclivity for high-risk projects (with chances of

very high return).

Our firm has emphasized taking bold, wide-ranging

action in positioning itself and its products or

services over the past three years.

Our firm has shown a strong commitment to research

& development, technological leadership and

innovation.

Our firm has followed strategies that allow it to

exploit opportunities in its external environment.

1 Reversed scored2 rwgreported for family firms with multiple respondents



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Franz W. Kellermanns is an Assistant Professor of Management in the College of Business and Industry at theMississippi State University. He was recently selected as a Family Owned Business Institute Research Scholarby the Family Owned Business Institute of the Seidman College of Business at Grand Valley State University.He received his PhD from the University of Connecticut. His current research interests include strategyprocess and entrepreneurship with a focus on family firms. His research has appeared in journals such as the

Journal of Management, Journal of Business Venturing, Entrepreneurship Theory and Practice, and the

Academy of Management Learning and Education. He is the co-editor of the recent book Innovating StrategyProcess in the Strategic Management Society Book Series.

Kimberly A. Eddleston is an Assistant Professor at Northeastern University, where she holds the RiesmanResearch Professor and Tarica-Edwards Fellowship. She was recently selected as a Family Owned BusinessInstitute Research Scholar by the Family Owned Business Institute of the Seidman College of Business atGrand Valley State University. She received her PhD in Management from the University of Connecticut. Herresearch has appeared in journals such as the Academy of Management Journal, Academy of Management

Executive, Academy of Management Perspectives,Human Resource Management Review,Journal of Occu-pational and Organizational Psychology, Entrepreneurship Theory and Practice, Journal of Business Ven-turing, andJournal of Applied Psychology.

We would like to thank Jim Chrisman and Erick Chang for their helpful comments in developing the article.

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Corporative Entreprenuership Family Firms