Strategic innovation and new product development in family firms

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Strategic innovation and new product development in family firms An empirically grounded theoretical framework

198 Received 13 November 2010 Revised 20 February 2011 Accepted 11 April 2011

Lucio Cassia and Alfredo De Massis Department of Economics and Technology Management and CYFE – Center for Young and Family Enterprise, University of Bergamo, Bergamo, Italy, and

Emanuele Pizzurno Department of Management, Economics and Industrial Engineering, Universita` Carlo Cattaneo – LIUC, Castellanza, Italy Abstract Purpose – This study aims to investigate the relationship between the presence of the family variable within a business enterprise and the managerial factors affecting the success of new product development (NPD). This can be structured into three research questions: What is the relationship between the presence of the family variable within a business enterprise and the managerial factors affecting the success of NPD activities? How the managerial factors affecting the NPD process are faced in family firms? Which are the main differences (e.g. strengths and/or weaknesses) in dealing with the managerial factors affecting the NPD process between family and non-family firms? Design/methodology/approach – The study employs a grounded-theory and case-study approach to investigate the relationship between the presence of the family variable within a business enterprise and the managerial factors affecting the success of NPD. The starting point is an in-depth literature review on the managerial factors differentiating family from non-family firms, and the managerial factors affecting NPD success. Then, a multiple case-study on five Italian family firms and five Italian non-family enterprises is conducted. The case-studies lead to the development of an empirically grounded theoretical framework that outlines how the distinctive characteristics of family businesses are related to the managerial factors affecting NPD success. Findings – Family firms clearly emerge as more long-term oriented than non-family enterprises. The long-term orientation of family businesses vs non-family companies seems to play a pivotal role in originating NPD projects with long-term thrust. If a company is long-term oriented it is reasonable to expect that it will put its long-term vision in NPD programs, thus reaching a NPD long-term thrust. Research limitations/ implications – The study advances research on strategic innovation and NPD in family vs non-family firms. It develops new theory at the important intersection of family business and innovation/NPD research, filling a gap in the literature and providing justification and guidance for the design of more comprehensive studies. Future research could investigate and test the theoretical framework on a wider empirical base, using either qualitative or quantitative methods. Originality/ value – The paper addresses the failure of innovation management research to recognize, embrace, and deliberately incorporate family firms. It therefore fills a gap in the literature and extends prior research by introducing specific propositions that are supported by the case data and originally integrating them in the general research stream on NPD and family-firm characteristics. The originality of the study lies also in the fact that it appears to be the first comparative analysis on this specific topic involving both family and non-family enterprises. International Journal of Entrepreneurial Behaviour & Research Vol. 18 No. 2, 2012 pp. 198-232 q Emerald Group Publishing Limited 1355-2554 DOI 10.1108/13552551211204229

Keywords Family business, Family firms, New product development, Innovation, Strategic entrepreneurship, Italy, Innovation Paper type Research paper

Authors’ names are listed in alphabetical order

Introduction Strategic innovation and New Product Development (NPD) are important dimensions of strategic entrepreneurship (Hitt et al., 2007; Ireland et al., 2003). This study is focused on NPD in the important and most significant form of organizational enterprises: family firms. Although there is no commonly accepted definition of what is meant by the term “family business” (Kraus et al., 2011; Chua et al., 1999; Westhead and Cowling, 1998), in this study we follow Chua et al. (1999) in defining a family business as “a business governed and/or managed with the intention to shape and pursue the vision of the business held by a dominant coalition controlled by members of the same family or a small number of families in a manner that is potentially sustainable across generations of the family or families.” This definition is consistent with the fact that the term family business is typically used to define organizations in which the behavior of actors and the nature of relationships within them are influenced by the family vision that is oriented to trans-generational pursuance and controlled by a familial dominant coalition. The firms that fit this definition play a crucial role in all the economies of the world (Neubauer and Lank, 1998; Aronoff and Ward, 1995; Churchill and Hatten, 1987). However, given that the family firm is a very important organizational form today, it is surprising that only a few studies in the mainstream management literature have included the family as a variable and most of the management journals and books seem to have rather ignored it (Dyer, 2003; Schulze et al., 2001). This is true, in particular, in the field of innovation management and new product development where a small number of researches have been published (Cassia et al., 2011, Craig and Moores, 2006; Litz and Kleysen, 2001) about the managerial and organizational practices related to innovation in the specific and prevailing context of family firms. More specifically, the field of new product development within family businesses has been largely ignored and it requires more in-depth investigations (as suggested by Souder and Thomas, 2003), considering the crucial role NPD plays as determinant of sustained company performance (Ernst, 2002; Cooper and Kleinschmidt, 2007). In fact, it is nowadays largely accepted that NPD is remarkably important for the survival, sustainable competitive advantage and performances of every company (Cormican and O’Sullivan, 2004; Di Benedetto et al., 2003; Song and Parry, 1997; De Brentani, 1989), and also for the specific category of family firms (Souder and Thomas, 2003; Hausman, 2005; Craig and Moores, 2006). This consolidated relevance can be demonstrated also by the huge amount of contributions studying factors affecting NPD success as presented in the following sections (among the others: Cooper and Kleinschmidt, 2007; Ernst, 2002; Calantone et al. 1997). We must question whether current innovation and NPD management theory and practice can be generalized to the important population of family firms and how the presence of a family within a business enterprise may affect its innovation and NPD activities. The failure of innovation management research to recognize, embrace, and deliberately incorporate family businesses may lead to family-related factors being missed that would make existing theories more robust and valuable to family and non-family firms alike. To address this gap in the literature, this study deals with the topic of NPD in family vs non-family firms. In particular, it attempts to investigate the relationship

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between the presence of the family variable within a business enterprise and the managerial factors affecting the success of NPD. It provides an empirically grounded theoretical framework that outlines how the distinctive characteristics of family businesses (compared to those of non-family firms) are related to the managerial factors affecting NPD success, thus providing an exploratory understanding of how the presence of a family in the business may affect the success of NPD activities. To this aim, a grounded-theory approach has been employed (Glaser and Strauss, 1967) and a multiple case-study (Strauss and Corbin, 1998; Yin, 1994; Handler, 1989) on five Italian family firms and five Italian non-family enterprises has been conducted. The paper is organized into five main sections. The following section extensively describes the theoretical context of the study, and is structured in three distinct subsections providing a review of the previous literature on: (1) the relationship between the family variable and the management of a business; (2) innovation and npd in family firms, focusing on the few contributions in this field specifically related to family businesses; and (3) the managerial factors affecting the success of NPD. Afterwards, the research questions and methodology are presented. This is followed by the section dedicated to the empirical study and the implications of the empirical findings. Finally, in the last section an empirically grounded theoretical framework is proposed, the several contributions and limitations of the study are discussed, and directions for future research and theory development are outlined. Literature review The family as a key variable in the management of the business Some researches suggest that the exclusive intersection 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; Zahra et al., 2004). The outcome of these intersections 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 resource-based view (RBV) (Habbershon et al., 2003; Sirmon and Hitt, 2003; Habbershon and Williams, 1999; Prahalad and Hamel, 1990; Barney, 1991). The family is, indeed, a variable that influences behavior at the individual, group and organizational levels of analysis, resulting in a significant impact on the management of the firm (Dyer, 2003). This is confirmed by some studies revealing that family firms are different from non-family enterprises in the way they operate and are governed (Dunn, 1996; Stoy Hayward, 1989, 1990, 1992; Donckels and Frolich, 1991; Welsch, 1991). The primary reasons of this difference can be found in two primitive “family features” that characterize relationships and drive behavior in family firms: family goals and values (Fukuyama, 1995; Tagiuri and Davis, 1992; Dyer, 1986). The goals of a family are generally to develop, support and take care of family members. Conversely, non-family firms base their goals on profits, efficiency and other economic measures. Research on family firms indicates that family goals and needs often are key influential issues in decisions regarding business strategy, financial strategy, and organizational structures, such as plan location (Mishra and McConaughy, 1999; Kahan and Henderson, 1992). The value of altruism also plays a crucial role in family firms that is

not generally found in non-family companies. As asserted by Schulze et al. (2001), altruism induces family members to be considerate of one other, promote and sustain the family bond; and this in turn promotes loyalty and commitment to the family firm’s long-run prosperity. But when the value of altruism is infringed in families, it may conduct to antipathy and jealously, originating conflicts in the firm (Hilburt-Davis and Dyer, 2003). Family goals and values characterize relationships and drive behavior in family firms. Relationships and behaviors in a firm have a significant impact on several managerial factors, such as long-term orientation, “conservativeness” of strategic behaviors and risk aversion, governance mechanisms, etc. A list of the managerial factors that are likely to differentiate family firms from non-family enterprises, a short summary of key findings from the family business literature and a few selected bibliographic sources are reported in Table I. Time orientation (long-term vs short-term). There is an accumulation of evidence supporting that family goals and values lead family businesses to be characterized, if compared to non-family companies, by a long term view resulted in less pressure for short term paybacks and more attention to ensure the longevity of the business (Dunn, 1996; Stoy Hayward, 1992, 1993; Stein, 1989, 1988). This clearly affects the strategic decisions (Sharma et al., 1997). “Conservativeness” of the strategic behavior and risk aversion. Donckels and Frolich (1991) state that a major difference of family firms is that their strategic behavior is “conservative”, with a concentration on incremental, regional expansion rather than rapid or wider international expansion. This characteristic, mainly due to the risk-aversion of family entrepreneurs, emerges also from the research of Dunn (1996) and Stoy Hayward (1993). Dunn (1996) and Donckels and Frolich (1991) assume that family firms are cautious and stable rather than progressive or dynamic forces in their economies because their owner managers are significantly less profit and growth oriented than managers in non-family firms. Degree of “progression” of human resources issues and appropriateness of staffing. Family firms are considered to be “less progressive” in terms of human resource issues such as employee involvement (Donckels and Frolich, 1991). Furthermore, the study by Dunn (1996) on ten Scottish small and medium family firms showed that a common characteristic for many of them was over-staffing, with potential risks of less efficiency in the execution of their business activity. Motivation, cohesiveness and commitment of workforce. Family businesses tend to pay higher wages than non-family firms and care significantly more about the satisfaction of their employees (Donckels and Frolich, 1991; Stoy Hayward, 1989). This may result in a generally superior motivation of the workforce (Dunn, 1996), that feels a significant sense of responsibility to the family and is highly committed to pursue shared goals and values, thus potentially creating a unique source of competitive advantage (Fukuyama, 1995; Lyman, 1991). “Openness” toward social capital/networks and external environment. Family businesses are “closed family related systems” (Donckels and Frolich, 1991) and “familiness” influences social capital and resource networks (Fukuyama, 1995; Wong et al., 1992). Family firms appear to be more “inward looking” (Dunn, 1996) and “introverts” (Stoy Hayward, 1989, 1990) than non-family businesses. They need fewer socio-economic networks and are perceived as rather “independent” and with “less

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Family goals and values entail the typical long term orientation of family firms and this may influence strategic decisions The strategic behavior of family firms is usually more “conservative” and averse to risk if compared to that of non-family companies, with less exporting and internationalization Family firms appear to be less progressive than nonfamily ones in terms of human resource issues (e.g. employee involvement, proper staffing); over-staffing may be a regular problem in family firms Family firms show shared goals and values and tend to be characterized by higher motivation, cohesiveness and commitment of the workforce if compared to non-family firms Family firms may be more “inwardly directed” and less depending on environment-culture and macro-economic situation Family firms tend to consider innovation and creativity less important and may be less oriented to innovation and growth and more resistant to change than non family enterprises Family firms tend to raise high their visibility and family reputation with customers, suppliers, and the whole community In family firms, frequent conflicts and the mixture of blood and professional relationships between group members may lead to less rational decision making processes if compared to non-family enterprises Under certain conditions family firms may have closer monitoring and reduced agency costs if compared to non-family companies; governance bodies may work differently in family firms

Time orientation (long-term vs shortterm)

“Conservativeness” of the strategic behavior and risk aversion

Level of monitoring efforts and agency costs

Group dynamics, conflicts and economic rationality of decision making processes

Inclination to be visible with key stakeholders and the community

Propensity to innovation, creativity and change

“Openness” toward social capital/ networks and external environment

Motivation, cohesiveness and commitment of workforce

Filbeck and Smith (1997); Haynes and Usdin (1997); Mendoza and Krone (1997); Dunn (1996); Lundberg (1994); Kaye (1991); Prince (1990); Davis and Tagiuri (1989); Lane (1989) . ; Stern (1986); Levinson (1971) Dyer (2003); McConaughy (2000); Gomez-Mejia et al. (2001); McConaughy et al. (1988); Swartz and Barnes (1991); Fama and Jensen (1983)

Dunn (1996)

Hilburt-Davis and Dyer (2003); Dyer (2003); McCann et al. (2001); Poza et al. (1998); . Dunn (1996); Kaye (1996); Donckels and Frolich (1991); Stoy Hayward (1992)

Dunn (1996); Fukuyama (1995); Wong et al. (1992); Donckels and Frolich (1991); Stoy Hayward (1989, 1990)

Dunn (1996); Stoy Hayward (1989) Fukuyama (1995); Wong et al. (1992); Donckels and Frolich (1991); Lyman (1991)

Dunn (1996); Donckels and Frolich (1991); Stoy Hayward (1989)

Zellweger (2007); Dyer (2003); Carlock and Ward (2001); Sharma et al. (1997); Dunn (1996); Harris et al. (1994); Stoy Hayward (1992, 1993); Kahan and Henderson (1992); Stein (1988, 1989) Dunn (1996); Stoy Hayward (1993); Donckels and Frolich (1991)

Selected sources

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Degree of “progression” of human resource issues and appropriateness of staffing

Key findings

Table I. Managerial factors differentiating family from non-family firms

Factor

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intense interdependencies with the environment-culture and macro-economic situation” (Donckels and Frolich, 1991). Propensity to innovation, creativity and change. Dunn (1996) and Donckels and Frolich (1991) pointed out that family firms tend to consider innovation and creativity less important than non-family companies, and consequently they are fewer pioneers in terms of entrepreneurial style, leading to less innovation and growth, with evidence of new product development taking place incrementally. The “familiness” affects sources of resistance to change (Hilburt-Davis and Dyer, 2003; Handler and Kram, 1988). Stoy Hayward’s study (1992) also showed that the propensity to innovation, creativity and change tends to be reduced as the family business is transferred across generations since later generations become complacent and less innovative. The innovation-related aspects in family firms will be more thoroughly analyzed in the next section (“Innovation and NPD in family businesses: a big gap in the literature?”). Group dynamics, conflicts and economic rationality of decision making processes. A major issue in family firm research concerns the conflicts that often arise within the family (Davis and Tagiuri, 1989; Stern, 1986; Levinson, 1971) and the impact of family relationships on the group dynamics and the management of the business (Filbeck and Smith, 1997; Dunn, 1996; Lane, 1989). The commixture of blood and professional relationships between group members impacts the decision making processes of family firms. For example, in order to preserve family relationships, some family business managers may make decisions that may appear, from a business standpoint, to be illogical to non-family observers. Inclination to be visible with key stakeholders and the community. Dunn’s study (1996) on ten Scottish family enterprises showed that family firms are characterized by the tendency to raise high their visibility and family name with customers, suppliers, staff and, in broader terms, the whole community. This may lead to family working closely and dealing personally with customers and suppliers to sustain closely held family business system. The commitment to save the family reputation reflects in a prevailing stimulus to create excellent and quality products (Dunn, 1996). Level of monitoring efforts and agency costs. One of the most important debates regarding governance concerns agency costs (Jensen and Meckling, 1976). Some studies acknowledge that concentrated investors – like family owners – have substantial economic incentives to monitor managers closely, thus leading family firms to reduced agency costs vis-a`-vis non-family enterprises (Fama and Jensen, 1983). Others (Gomez-Mejia et al., 2001) suggest that family firms may actually incur higher agency costs compared to non-family enterprises, since the family may be unwilling to fire an incompetent family member, thus fostering nepotism. The research by Schulze et al. (2001) found that family firms that have some objective standards for monitoring the performance of family managers and are willing to enforce discipline may pursue the advantage of lower monitoring costs since the goals of owners and managers are aligned. Conversely, those firms that because of the family altruism encourage the uncontrolled diffusion of nepotism, without adequate monitoring, may be at a competitive disadvantage (Dyer, 1986). In summary, the goals and values of a family typically differ from those of individuals working in enterprises without a family connection, and this is reflected in the managerial factors listed in Table I that are likely to be basically different in family businesses.

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It is reasonable to expect that many of the aforementioned managerial factors may affect the way the NPD process is managed in a firm. This gives space to the assumption that differences can exist between family and non-family firms in NPD process and its managerial and organizational implications. Innovation and NPD in family businesses: a big gap in the literature? Innovation is an entrepreneurial activity with the exploitation of new ideas not appropriated by incumbent firms (Kirzner, 1973), favored by the current opening of markets and competitiveness (Williamson, 1965). Innovation is an expensive, uncertain and risky business process that very often requires several excellent capabilities and competences to be performed successfully. In the meantime, it is widely recognized that it represents the crucial base to increase competitiveness and for business development (Schumpeter, 1934). For these reasons, it is clearly evident why companies are continuously searching techniques and practices that enable them to optimize the process, to manage it with greater efficiency and effectiveness (among the others: Chapman and Hyland, 2004; Di Benedetto et al. 2003; Swink, 2002; Moffat, 1998, Iansiti and McCormack, 1997). The large number of contributions and studies in this direction confirms the aforementioned relevance. Among the possible approaches to innovation, the development of new products and new services arises as one of the areas of greatest interest (Molina-Castillo and Munuera-Alema´na, 2009; Craig and Moores, 2006; Lempres, 2003; Swink, 2002; Harmsen et al., 2000) since it allows businesses to obtain, when successfully carried out, an important competitive advantage (Berg and Einspruch, 2009; Cormican and O’Sullivan, 2004). However, although family businesses are considered as a significant part of the global economy (Schulze et al., 2001), linkages between family firms and innovation have not been adequately theoretically and empirically investigated (Cassia et al., 2011, Craig and Moores, 2006; Litz and Kleysen, 2001) and the literature on this specific topic is rather scarce. This could explain why, in the few available studies, is it possible to observe different and conflicting statements about the innovative capacity of family businesses. As already discussed in the previous section, the propensity to innovation, creativity and change of family businesses emerges from the literature as evidently less significant than in non-family companies. In fact, Dunn (1996) states that family businesses: . tend to be less innovative and creative and more traditional and conservative; and . are inclined to be more unwilling to the external collaborations and more “inwardly directed”. This tendency has been confirmed by McCann et al. (2001); in the priority ranking of the strategic objectives in family businesses, the NPD is in the lower half. For Litz and Kleysen (2001) the innovation in family-owned companies is essentially a responsibility for the younger generations that, in order to pursue this objective, need to be properly trained and left free to innovate. Although innovation drives the early years of the family business, the following generations often tend to become stable rather than innovators. For a family business to succeed from generation to

generation, it will have to overcome the tendency towards being risk-adverse as it matures. At the same time proper attention, support and funding are needed in order to embed innovation as a core competence, especially for the younger generations. Few recent contributions are in contrast to previous researches. Craig and Moores (2006) assert that “established family firms appear to place substantial importance on innovation strategy and practice”. At the same time, studies dedicated to small family firms demonstrate as, in family businesses closely held and with power and decision-making concentrated in the owner/manager (Dyer and Handler, 1994), the innovativeness is an intrinsic characteristic of the owner/manager rather than of the company (Verhees and Meulenberg, 2004). The conflicting relationship between family businesses and innovation is due to the commixture of their long-term orientation (which allows dedicating resources to innovation) and their conservative nature (given by tradition, organizational culture, avoiding the risk to destroy family wealth, etc.) (Zahra et al., 2004). Among all possible fields of innovation, those related to the development of new products are commonly considered as the most important for the performance of companies (among the others: Urban and Hauser, 1993; Ernst, 2002). Consequently, the efforts of companies have been mainly focused on the NPD process, which has been only roughly traced for family firms. In fact, as suggested by the model of small family business innovativeness proposed by Hausman (2005), only two are the possible outputs of the family firms’ innovation process: (1) Innovative products and services. (2) Adoption of innovative products, practices or ideas. The relevance of this topic is confirmed also by Souder and Thomas (2003) that point out as a significant issue for the future of product innovation, the different approaches to the management of new products he found in a variety of family-controlled businesses. However, family-owned firms have been largely ignored by innovation researchers (Craig and Moores, 2006). One recent contribution on NPD in family business is the exploratory study of Cassia et al. (2011) that, through a case-study on the NPD processes in four small family firms from Northern Italy, draws out a preliminary set of family-related enabling and constraining factors for NPD. According to this landscape, how the innovation is managed into family firms appears as not sufficiently discussed and investigated; in addition, studies about NPD process in the specific context of family business are quite completely missing. This is consistent with the emerging available literature asserting that the current challenge to increasing growth, profit and sustainability for family firms is to achieve the proper balance between the “traditions” of the family’s business and its innovation capacity. Managerial factors affecting NPD success This study attempts to expand our understanding of how “familiness” influences innovation and NPD, and what impact the family variable may have on the managerial factors affecting the success of NPD. A literature review has been therefore conducted on the managerial dimensions that can explain a successful new product development process. On the one hand, a vast literature clearly outlines which are the most relevant and critical phases of NPD, and especially those highlighted as critical success

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factors. This huge scientific literature can be reviewed citing few comprehensive contributes, including also the stream of innovation literature that has highlighted peculiarities of radical new product innovation (de Visser et al., 2010; Berg and Einspruch, 2009; Walsh and Kirchhoff, 2002; Lynn et al., 1996, 1998; Rice et al., 1998; Morone, 1993). According to Cooper and Kleinschmidt (2007), that conducted an in-depth investigation on the topic of a successful NPD process, it is possible to identify nine critical success factors for NPD: (1) A high-quality new product process. (2) A defined new product strategy for the business unit. (3) Adequate resources of people and money. (4) R&D spending for new product development (as a percentage of sales). (5) High-quality new product project teams. (6) Senior management committed to, and involved in, new products. (7) An innovative climate and culture. (8) The use of cross-functional project teams. (9) Senior management accountability for new product results. Where the top four factors are more important than the others, which have a modest effect on performance. Another important contribution has been written by Ernst (2002). Even if it is largely based on several studies by Cooper and Kleinschmidt, this exhaustive paper reviews the literature about success factors of new product development in the last 30 years, giving a summary the most important empirical findings. More specifically, it points out five broad categories of success factors in NPD, directly influenced by management, as reported in Table II together with the selected sources for each category. NPD process: . Quality of execution: the quality of execution in all phases of NPD is a key factor. Among all phases, the earlier ones (strategic marketing, evaluation of ideas, the execution of feasibility studies and commercial evaluation) are highlighted as the most relevant. . Continuous assessment of NPD project: the NPD project has to be continuously monitored from a commercial point of view, in order to stop it if it is reputed unprofitable in relation to current market conditions. The initial selection decision, made before the entry into the development stage, is of decisive importance. . Market orientation of the NPD project: this refers to all activities related to gaining a broad view of the of market research with reference to the understanding and evaluation of customer needs, accurate forecast of the market, potential markets, tests, etc. Organization: . Cross-functional NPD team: the project team should include experts from all the different areas of knowledge of the company, involving those who can really provide significant contributions to the development of a new product.

Category

Factors

NPD process

Quality of execution Continuous assessment of NPD project Market orientation of the NPD project

Selected sources

O’Dwyer and Ledwith(2009); Bamber et al.(2002); Ernst (2002); Balbontin et al. (1999); Lynn et al. (1998); Calantone et al. (1997); Griffin (1997); Souder et al. (1997); Lynn et al. (1996); Cooper and Kleinschmidt (1994, 1996); Atuahene-Gima (1995); Cooper (1994); Parry and Song (1994); Morone (1993); Dwyer and Mellor (1991); De Brentani (1989); Calantone and di Benedetto (1988) Organization Cross-functional NPD team de Visser et al.(2010); Bamber et al.(2002); Ernst Strong project leader (2002); Balbontin et al. (1999); Rice et al., 1998; Commitment of project leader Gerwin and Moffat (1997); Griffin (1997); Song and Parry (1997); Balachandra et al. (1996); and NPD team Intensive communication Cooper and Kleinschmidt (1994, 1996); Yap and among team members Souder (1994); Morone (1993) Kok and Biemans (2009); Ernst (2002); Song and Culture Innovation-friendly climate Parry (1997); Cooper and Kleinschmidt (1996); in the organization Barczak (1995); Morone (1993); Cooper (1986); Systematic scheme for suggesting new products Voss (1985) Product champion or promoter Role and Support of senior Ernst (2002); Rice et al. (1998); Cooper and Kleinschmidt (1996); Morone (1993); Thamhain commitment of management (1990); Bronnenberg and Van Engelen (1988); senior management Adequate resources Baker et al. (1986); Cooper (1984) NPD strategy Well-defined objectives of the Ernst (2002); Griffin (1997); Cooper and NPD Kleinschmidt (1996); Morone (1993); NPD strategy Thamhain(1990); Cooper (1984, 1983) communication NPD strategic focus NPD long-term thrust Source: Adapted from Ernst (2002)

.

.

.

Strong project leader: the project leader has an important role; he must demonstrate the necessary qualifications, command sufficient authority and be able to devote sufficient attention to the project. The authority of the project leader is represented also by the level of responsibility for decision-making that is delegated to the project team. Commitment of project leader and NPD team: the commitment of the project leader and team members to the NPD project significantly influences its success. Intensive communication among team members: successful NPD projects are characterized by a high level of communication and interactions among the members of the team.

Culture: . Innovation-friendly climate in the organization: an innovation-friendly, risk taking and entrepreneurial climate in the organization is a key factor for NPD success.

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Table II. Managerial factors affecting NPD success

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.

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Systematic scheme for suggesting new products: NPD studies show that the adoption of a systematic methods and practices for proposing new product ideas, different from other institutional company-based suggestion schemes, can have a positive influence on the success of new products. Product champion or promoter: the success of new products depends on the commitment of individuals within the organization that believe in the new idea and advance it through the organization with great personal devotion.

Role and commitment of senior management: . Support of senior management: the support of senior management is a critical success factor in NPD. It is typically addressed as “nonmaterial support”. . Adequate resources: the material support from the management, in terms of adequate resource allocation and available budget for NPD projects, plays obviously a pivotal role in the success of the NPD project. NPD strategy: . Well-defined objectives of the NPD: the objectives of the NPD program need to be clearly and explicitly defined. . NPD strategy communication: the role of new products in achieving the company’s strategic goals should be clearly and properly communicated to all individuals. . NPD strategic focus: the NPD program should have a strategic focus that gives overall direction to individual NPD projects. . NPD long-term thrust: the NPD program should have a long-term vision, i.e. a relevant number of long-term projects in the NP portfolio. Research questions and methodology The objective of this study can be structured into three main research questions: RQ1. What is the relationship between the presence of the family variable within a business enterprise and the managerial factors affecting the success of NPD activities? RQ2. How the managerial factors affecting the NPD process are faced in family businesses? RQ3. Which are the main differences (e.g. strengths and/or weaknesses) in dealing with the managerial factors affecting the NPD process between family firms and non-family enterprises? To this aim, we started from the findings of the in-depth literature review previously conducted, that led us to identify: . the managerial factors differentiating family from non-family firms; and . the managerial factors affecting NPD success. Then, an empirical study has been carried out. It consisted in a multiple case-study (Strauss and Corbin, 1998; Yin, 1994; Handler, 1989) on five Italian family firms and

five Italian non-family enterprises, aimed at in-depth investigating how the distinctive characteristics of family businesses (compared to those of non-family firms) affect the management and organization of the NPD processes. The analysis of each case study has been therefore focused on the relationships between the factors differentiating family firms from non-family enterprises and the managerial factors affecting the NPD process. The strength of case-study methodology is in that they are extremely suitable for exploring processes (Van Maanen, 1983) and answering “how” and “why” questions, they provide explanations rather than statistical information, causality can be investigated, and theory can be tested and generated (Eisenhardt, 1989; Wolcott, 1994). A grounded-theory approach has been used in conducting the case studies (Glaser and Strauss, 1967). This theory-building approach is likely to have important strengths like novelty, testability, and empirical validity of the theory developed from case study, which arise from the intimate linkage with empirical evidence (Eisenhardt, 1989). It is therefore particularly well-suited to new research areas for which a fresh perspective is useful, such as in the case of NPD in family firms. Qualitative evidence was collected between October 2009 and May 2010, and the primary method of data collection was personal in-depth interviews, informal conversations, and personal observation (Yin, 1994). We interviewed the entire top-management team and the staff in charge of innovation and NPD activities; where relevant, some key family or external members were also involved in the interviews. The multiple interviewees for each firm allowed us to gain a holistic view of the managerial factors that are expected to affect the NPD success and to be influenced by the family dimension. The interviews varied in time from 30 minutes to two hours; they were recorded and transcribed directly from the tapes. We addressed potential problems of retrospective biases of the primary data collected (Golden, 1992; Schwenk, 1984) by critically comparing responses from multiple respondents and by directing respondents to describe actual behavior and actions. The interviews were then integrated with secondary source data, such as available company documents, company catalogs, family information, and other available information pertinent to the firms and their innovation and NPD processes. These sources were used to verify the interview data and ensure objectivity in the data collection process. The use of multiple sources of data allowed the triangulation of evidences (Yin, 1994) and ensured that our research followed established data-collection practices and contributes to the long tradition in management research to advance theory building based on case studies. Then, the main evidence and emerging findings have been discussed with some of the people interviewed, in order to verify their validity. Finally, a structured cross-case analysis was carried out, through which data and information collected have been elaborated, categorized and compared in order to point out how the presence of a family within a business enterprise may affect the managerial factors affecting the NPD success, so as to draw a reliable and synthetic picture of the sample analyzed. In selecting the cases, Eisenhardt (1989) affirms that randomization is not necessary; rather, the objective is to choose cases that are likely to replicate or extend the theory. Therefore, qualitative samples should be purposive rather than random. We started contacting 25 prospective family firms and 25 prospective non-family enterprises to determine if they met the requirements of Italian location, involvement in innovation and NPD, age of the company, family involvement, and willingness to

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participate in the study. Following the long tradition of case studies in family business research (Sharma and Irving, 2005; Handler, 1989), we selected for our investigation ten exemplary firms (five family and five non-family) that promised to provide rich and detailed description of the phenomenon from multiple respondents. This multiple case-study allowed us to introduce specific propositions that are supported by our case data and to develop an empirically grounded theoretical framework that outlines how the managerial factors differentiating family from non-family enterprises are related to the managerial factors affecting NPD success. The multiple case-study The case studies The multiple case-study has been conducted on five family businesses and five non-family enterprises; they are all located in the northern part of Italy and range in size from 5 to 280 employees. Names of companies have been changed to preserve their anonymity; some additional information, even if collected for descriptive reasons, has been kept confidential. A member of the family currently heads the family firms, even if some outside members are in charge of the management of specific business areas (in some cases the HR Executive Officer, the Chief Commercial Officer or the Chief Production Officer are outsiders). Further descriptive information on the studied companies is reported in Table III. Findings and implications The empirical findings have been framed around the nine managerial factors differentiating family firms from non-family enterprises as previously derived from the literature review. Each of these factors has been in-depth analyzed within the ten studied companies in terms of its emerging relationships with the managerial factors affecting the success of NPD. An essential feature of theory building is comparison of the emergent concepts and hypotheses with the extant literature (Eisenhardt, 1989). The emerged empirical evidence has therefore been constantly compared with findings in the extensive literature review previously conducted. The main results are briefly reported hereafter (see Table IV). Time orientation (long-term vs short-term) Family firms clearly emerge as more long-term oriented than non-family enterprises. We compared our case observations with the literature on the factors differentiating family and non-family firms and with that on the managerial factors affecting NPD success. The emerged long-term orientation of family businesses vs non-family companies seems to play a pivotal role in originating NPD projects with long-term thrust. If a company is long-term oriented it is reasonable to expect that it will put its long-term vision in NPD programs, thus reaching a NPD long-term thrust. Our case data extends therefore prior research by providing initial direct evidence on how the “familiness” is associated to the NPD long-term thrust, leading to the following proposition:

Medium

Medium

Large

Small Medium

Micro

Large

Small Small Medium

A

B

C

D E

F

G

H I L

9 10 23

116

0,3

19 27

83

38

13

Turnover (million euro)

45 37 67

280

5

38 212

240

130

70

No. of employees

Textiles and fashion Chemical Telecommunications

Technical and scientific services Electronic systems

Plastic goods Aeronautics

Textiles and fashion

Coffee machines

Plastic moulding

Industry

NA NA NA

NA

NA

3rd 3rd

3rd

4th

2nd

CEO, R&D Chief and Chief Commercial Officer CEO and Chief technical officer CEO and HR Executive Officer CEO, R&D Chief and HR Executive Officer

All employees and owners

CEO, Chief Commercial Officer and HR Executive Officer CEO, R&D Chief, and Chief Commercial Officer CEO, Chief Technical Officer and HR Executive Officer CEO and Chief Technical Officer CEO and HR Executive Officer

Generation Interviewees

Note: aAccording to the definition in the Recommendation of European Commission (2003/361/EC)

Non family

Family

Company Dimensiona

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Table III. The ten case studies

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Company Family A

212 B

C

D E Non family F

G H

I L Table IV. Schematic description of the empirical evidence related to time orientation

Empirical evidence The long-term and “intergenerational” orientation of the company has led to several ongoing long-term NPD projects: “I want that my business will be sustainable across generations and this is the reason why we are strongly investing in long-term R&D and new product development projects that will give us a pay-off in the short period” (interview to CEO) The technological leadership in the long-term is considered as a keyvalue for this firm. In the last years, it has been the first company investing in several pioneering areas of technology. This implied many sacrifices for the family in the short term. “My dream is to expand the business and transfer it to the future generations. As a consequence, our family provides a long-term thrust and support in all innovation activities” (interview to CEO) Long-term oriented firm: the R&D on new potential textiles is very effective even if the specificity of the industry (fashion) requires a short-run innovation (seasons). “We are not interested in short-term returns. Our family has enough money to live well for the next years, but we want that our business is long-lasting through generations [. . .] To my sons and nephews [. . .] This is why we are involved in longterm NPD projects” (interview to the son, R&D Chief) The long-term view and the attention of the family dominant coalition to ensure the longevity of the business reflect in a long-term vision of NPD processes Clear long-term perspective in the examination of all business activities, especially those related to innovation and NPD In this very small and innovative company the long-term orientation is part of the firm culture. “Innovation is part of our life, to survive we cannot rely on what we have done in the past; we must constantly change on the basis of our expectations in the future” (interview to one of the owners) The characteristics of the industry (vehicle protection electronic systems) request a continuous radical innovation, even if the company has not shown a long-term vision in undertaking NPD projects Short-term oriented; this company considers the long-term period as completely unpredictable and consequently it addresses activities only with a limited time horizon perspective. “We cannot take on the risk of investing in uncertain innovation that will potentially pay-off in the future. Our clients look for traditional and well-known textiles. This is our strength” (interview to CEO) The firm operates in a highly regulated market; as consequence, most of innovation and NPD is just the reaction to the new rules, developing new law-compliant products. A long-term perspective is lacking Customers drive the innovation process. The company is recognized for its ad-hoc solutions. As a consequence a market-driven short/ medium-term orientation emerges, well-explained by the CEO: “We give our customers what they expect, we innovate only when they ask for innovation and typically try to avoid risky NPD projects associated to uncertain future pay-offs” (interview to CEO)

P1.

The presence of the family variable entails a typical long-term orientation of family firms, and this is positively associated with NPD long-term thrust (see Table V).

“Conservativeness” of the strategic behavior and risk aversion The emerged empirical evidence is consistent with the literature showing a more “conservative” and risk averse behavior of family firms if compared to non-family enterprises. This distinguishing characteristics of family businesses appear to be related to the emergence of a relatively low innovation-friendly organizational climate. Based on the limited empirical findings, we speculate that the innovation-friendly and risk taking attributes of family firm B as well as the risk aversion and conservativeness of the strategic behavior of the non-family firm I are rather the exception and not the norm. Our case data lead therefore to the following formal proposition: P2.

The presence of the family variable causes “conservativeness” of the strategic behavior and risk aversion, and this will be negatively associated with the establishment of an innovation-friendly climate within the organization (see Table VI).

Degree of “progression” of human resources issues and appropriateness of staffing Due to a widespread subjectivity and emotionality in the progression of careers, human resource issues in family companies are less progressed than in non-family enterprises; however, a careful interpretation of our cases displays that the potential lack of a strong NPD project leader does not actually emerge as a big problem in family firms since a strong level of leadership is ensured by at least one of the family members involved in NPD project teams. This leads to the following proposition: P3a. The presence of the family variable causes a low degree of “progression” of human resource issues, and this is positively associated with the presence of a strong project leader in NPD projects. The case data also show a typical overstaffing of human resources in family firms, that seems to assure the availability of adequate resources when NPD projects are started, thus supporting the following proposition: P3b. The presence of the family variable usually induces overstaffing, and this is positively associated with the availability of adequate resources for NPD projects (see Table VII). Motivation, cohesiveness and commitment of workforce The empirical findings are clearly consistent with the literature asserting that the presence of the family variable originates high motivation and commitment between the employees. They also evidently support our conjecture that this is a fundamental ingredient fostering the typically high level of commitment of family firms’ project leader and team in NPD activities. So, this is the emerging proposition supported by our case data: P4.

The presence of the family variable originates high motivation, cohesiveness and commitment of workforce, and this is positively associated with the commitment of the project leader and team in NPD programs (see Table VIII).

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Company Family A

214 B

C

D

E

Non family F

G

H

I Table V. Schematic description of the empirical evidence related to the “conservativeness” of the strategic behavior and risk aversion

L

Empirical evidence The attitude of the family leader towards innovation is risk averse and cautious and this is reflected in a general risk averse climate in the whole organization: “My father is very cautious, he avoids excessive risks, but I think this attitude led us to miss some potential opportunities related to innovation and NPD projects” (interview to CCO) Innovation is a driving force, the company climate can evidently be considered as innovation-friendly and our top management is significantly risk-taker. “Walk in our offices and talk to our people, innovation is in the air. Everyone has its chance to be an inventor” (interview to R&D Chief) Internal entrepreneurship and continuous innovation are not supported and promoted by the family strategic behavior. This impacts on the company’s operations and procedures, and does not lead to an innovation-friendly business climate Very traditional company; it relies much on its current range of products and tends to avoid aggressive NPD investments. Incremental adjustments to the product are only those required by clients. “I can’t undertake ambitious investments in NPD because I have the responsibility for the destiny of the whole family and of future generations. For us, the tradition is very important” (interview to CTO) The internal climate is equable, moderately risk-taking within traditional lines of research. The company is conservative and riskadverse, and innovation is mainly incremental Strong orientation to continuously scout new and risky business opportunity, and continuously launching new ventures initiatives. The top management explicitly encourages suggestions for new ideas, products, etc. arising from employees of the company. “Our employees have several formal and informal opportunities to come to my office to give me any kind of suggestion for innovation” (interview to CEO) The development of new products protecting vehicles requires a concrete and continuous effort on R&D and innovation. Very risktaking organization. Relatively risk favoring and innovation-friendly firm within shortterm. “We have put in place an innovation friendly climate. However, all the proposed innovations must be carefully evaluated in order to take the decision whether to invest or not in a specific project” (interview to CTO) The company is risk-adverse, it has a reactive strategy, avoiding any unnecessary innovation. “Our strategy is very clear: only traditional products guarantee volumes and margins” (interview to CEO) Clear capability of the top management to bet on high risk NPD projects, on request. Innovative and risk-taking company, mainly due to the industry (TLC) and customers requirements. “In your mobile phone there are two important innovations coming from this company!” (interview to R&D Chief)

Company Family A

B

C

D E Non family F

G

H

I L

Empirical evidence The leader of NPD teams is always a family member; human resources are adequate or supported by specialists or external consultants; resources are often overstaffed. HR management practices are embryonic. ‘A member of the family has always taken on the leadership of innovation activities, showing a strong commitment; however, we must upgrade our HR management practices since we know they are very basic’ (interview to HR executive officer) The workforce appears well-trained even if human resource issues appear as managed in an unprofessional way; strong NPD project leadership has been provided to past NPD projects through the recourse to both family members and external managers; human resources are clearly overstaffed. “We do not have advanced methods to manage human resources and it is very difficult to identify the most skilled people to be staffed to a specific NPD project. However, our family has always spent many efforts in leading NPD projects” (interview to R&D chief) Low level of skills in human resources and very strong NPD project leaders (both designers and family members); significant overstaff of resources and unclear HR evaluation systems: “Employees do not need incentives, they must perform well because they receive a wage for their job” (interview to CTO). In past NPD projects the leadership has proven to be weak if entrusted to non-family members; tendency to overstaff and to modest HR management The leadership is mainly technical; resources for NPD projects are available – in quantity and quality – without any specific constraints Strong project leadership by the shareholders, which are also managers; few however skilled employees. Proficient HR management techniques. “We are a very small company, a professional NPD team plays a key role in our successful innovations” (interview to one of the owners). Problems to obtain adequate material assistance from the top management to support NPD projects Due to the importance of NPD projects, the project leaders (in general they come from the commercial/marketing function) have a clear and strong role and are supported by many expert technicians. Welldeveloped career paths and evaluation systems based on objective and impartial criteria The project leader is often the most skilled human resource in a specific field, s/he does not have any hierarchical control over the human resources in the NPD team. No particular problems related to HR specific skills emerge as well as to HR management. Frequent problems in terms of adequate resource allocation to NPD projects Few adequate resources are available for innovation and NPD projects; the project leader acts only as a coordinator. Advanced evaluation systems, even if available, are not commonly applied Human resources for NPD are scarce: “We have often incurred in serious problems related to find the adequate budget to fully support NPD projects” (interview to HR executive officer); the company relies on suppliers to fulfill this lack. The project leader is a key role

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Table VI. Schematic description of the empirical evidence related to degree of “progression” of human resources issues and appropriateness of staffing

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Company Family A

216 B

C

D

E

Non family F

G

H

I Table VII. Schematic description of the empirical evidence related to motivation, cohesiveness and commitment of workforce

L

Empirical evidence The participation of both the workforce and team leader to NPD projects is quite high. It can be explained with a well-diffused feeling of all individuals “to be part of a big family“ (interview to CCO) Very experienced and professional employees are strongly committed in the development of new products, being pleased to carry out that kind of task in a well-known and innovative company. High level of motivation widespread throughout all individuals Motivation, cohesiveness and commitment are well diffused in the daily activities as well as in the development of new products. “NPD teams do not work differently if compared to other areas of the company. They feel safe and cohesive in this family company” (interview to HR executive officer) High commitment is diffused in the workforce: the stability of the workplace, granted by the family even in periods of crisis, is an important source of cohesiveness. This high commitment and motivation is clearly reflected in NPD teams The family is an element of cohesiveness, balance and strength in the day work of all employees. This has been fundamental also in NPD programs: “Without the strong commitment and determination of family managers in leading NPD activities we would not have been able to successfully complete the recent challenging NPD projects” (interview to CEO)

Low levels of commitment and motivation among the workforce. Generally low sense of devotion of human resources in charge of managing NPD projects A high degree of competitiveness among employees does not guarantee a steady and diffused level of commitment. This is reflected also in NPD activities: “The failure of our last new product development project was partly due to the low commitment of the project leader and overall NPD team” (interview to CEO) Partial cohesiveness and commitment; most of the employees show a limited loyalty and dedication to the company activities. This reflects on NPD projects. “Employees feel to be constantly object of review and evaluation by the HR office. This creates a ineffective work climate and prevents people involved in NPD from achieving a high level of commitment to their work” (interview to CTO) The motivation of workforce is rather scarce; commitment in NPD projects appears low, thanks to a not fully dedicated attitude of the team leader No special levels of motivation, cohesiveness and commitment of workforce have been found. “I must confess that aspects such as motivation and devotion cannot be considered as strengths of our company. Unfortunately, a general sense of dissatisfaction has become a common attribute in our company” (interview to CEO)

“Openness” toward social capital/networks and external environment The empirical evidence is consistent with the literature; family companies seem to be closer than non-family firms (most common motivations are related to the preservation of secrets, know-how and technologies within the family, avoiding possible spillovers). In fact, even if they open the gates of the company, collaborations are limited only to those few external subjects that cannot represent a menace for the family firm. These circumstances seem to affect the quality of execution of the NPD process, that in our case data emerges as lower in family vs non-family firms, thus leading to: P5.

The presence of the family variable entails a low degree of “openness” toward social capital/networks and external environment, and this is negatively associated with the quality of execution in all phases of NPD (see Table IX).

Propensity to innovation, creativity and change The careful interpretation of our case observations indicates that family firms are less oriented to innovation, creativity and change if compared to non-family enterprises. This low propensity to innovation, creativity and change seems to lead, if we consider some of the critical success factors in NPD, to a lack in family vs non-family firms of: . advanced systems for organized new product opportunities for all employees to suggest new products (this opportunity is usually “reserved” only to family members); . professional product champions different from family members; and . a strong “non-material” support of senior management to NPD projects (even if with very important positions, senior managers tend to remain in the shadow of the family within the innovation field). The limited empirical evidence appears therefore to be consistent with the following proposition: P6.

The presence of the family variable prompts a low propensity to innovation, creativity and change, and this will be negatively associated with the adoption of systematic schemes for suggesting new products, the presence of a product champion or promoter in charge of advancing NPD projects through the organization, and the support of senior management to NPD projects (see Table X).

Group dynamics, conflicts and economic rationality of decision making processes Our empirical evidence is consistent with the existing literature outlining that the mixture of blood and professional relationship between group members in family businesses leads to less rational decision making processes and more frequent conflicts than in non-family firms. On the basis of the interpretation of our limited empirical evidence we are directed to conjecture that this specific characteristic of family enterprises can generate communication problems among NPD team members and inefficiencies in the commercial assessment of the different stages of the NPD process. These arguments support the following proposition: P7.

The presence of the family variable facilitates frequent conflicts and rational decision making processes, and this will be negatively associated with both a

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Company Family A

218 B

C

D

E

Non family F G H I

Table VIII. Schematic description of the empirical evidence related to “openness” toward social capital/networks and external environment

L

Empirical evidence The company is characterized by a low propensity to scout the external environment and leverage on sources of innovation that are external to the organization, even if they may be of critical importance for the NPD process. “We prefer to keep in house the ‘secrets’ of our family and manage by ourselves all activities related to innovation and new product development [. . .]This often leads to a low level of expertise in managing specific phases of the NPD process” (interview to CEO) Completely closed to external collaboration, this firm is convinced to lose secrets and technologies if involved in open-innovation initiatives; NIH syndrome is also present. Significant investments to maintain a high level of internal capabilities. “We had very bad experiences in the past. Now the R&D projects are definitely protected avoiding any intentional opportunistic behavior even if, in this way, we can loose important collaborations” (interview to R&D Chief). The quality of execution in many phases of NPD shows room for improvement It does not have large internal R&D labs and thus they are forced to systematically leverage on the competences of customers and universities in order to obtain several advantages (e.g. to enlarge the knowledge base, to keep up with market developments and to meet customers’ demand). Due to an unsuccessful initiative (failed because the wrong partners were selected, without adequate competencies and a strong organization of this network of partners) the company relies exclusively on internal capabilities. This clearly limits the quality of execution in all the phases of the NPD process. “We are aware of our lack of specific knowledge in the management of new product development initiatives. But this is the lesser evil” (interview to CTO) Technological collaborations are not employed to execute any of the phases of the NPD process. “We are a family company and we must preserve a certain degree of independence from the external environment. Potential technological partners are more a threat than a real opportunity for the company and for our family” (interview to CEO). The family business itself recognizes as low the quality of execution of NPD projects

The firm actively seeks out new complementary technologies from external sources and technological collaborations. As result the quality of execution of NPD appears as extremely professional While the level of technological innovation is quite high, the external collaborations are strictly focalized on specific bordered technological fields. Open-innovation practices (i.e. R&D outsourcing and network usage in innovation process) have been observed. These support the quality of NPD projects Even if the firm is not organized for technological collaborations, it relies on several external collaborators to fulfill internal scarce NPD skills (it licenses IP from other firms). This is necessary to ensure high quality in the execution of specific phases of the NPD process The collaborations with external suppliers are necessary, for this reason these are well exploited in most of NPD phases. “We read several articles about the open innovation and we can say that we’re doing it, in practice. We have dozen of selected external sources of technologies. It has been an hard work but now we can observe the positive results” (interview to CEO). This positively affects the quality of NPD

Company Family A

B C D

E

Non family F

G

H

I

L

Empirical evidence Scant importance is given to creativity and innovation. Systematic schemes for suggesting NPs are missing. The product champion is often a member of the family; if not, s/he is a well-recognized expert in the specific field. The support of senior management is limited “In this company innovation is a ‘family affair’, my support to a new product or to another has a very limited effect” (interview to CCO) Innovation is not among the top three priorities of the firm. A simple scheme for suggesting NPs has been found, not a clear product champion(s). Not any specific support by senior management to NPD Suggestions for incremental innovation of the product are informally collected by the responsible of the function design. The relevant new products are sponsored by the family; this is the only existing support to NPD initiatives The propensity of the firm to innovation and change is low and NPD decisions are taken exclusively by family members. Due to the family control over R&D activities, there are neither product champions nor schemes for NP proposals; also the support of senior management to NPD projects is very limited. “All the key roles in new product development are played by family members. This often causes frustration among non-family members and hinders the emerging of new ideas from non-family members” (interview to CEO) The level of innovation can be considered as quite considerable, while structured schemes for NPD ideas are missing. A product promoter is a common technical role and the senior management informally supports the efforts for innovation

The company has a remarkable inclination to innovate and change its processes and products. Processes and systematic practices to propose new product ideas are well established, and the material and non-material support of senior management to NPD initiatives is clearly evident. Given the dimension of the firm, a formal product champion emerges as unnecessary The firm has a standardized and systematic procedure for NPD suggestions that has been established few years ago. A committee is later responsible for evaluation and selection. A product champion is informally present in all NPD projects. Stable support by senior management “A new product is a chance for our employees to emerge, a good idea can come out by everyone in the company. We know and so we have gradually adopted some practices to support this process” (interview to R&D chief) High propensity to start radical innovation projects if they generate pay-offs in the short-time. Presence of systematic bottom-up practices to propose new product ideas. A product champion is formally associated to any NPD project and the support of top management to NPD appears as circumscribed to specific top relevant projects Innovation is seen just as the reaction to changes in market rules even if the firm shows a substantial propensity to change. Neither schemes for suggesting NPs nor product champions have been found. The senior management provides all the necessary support to NPD projects when they are activated Broad support of senior management to new products; it plays often the role of product champion and is characterized by great personal commitment. Even if schematic schemes for suggesting new products are missing, a large number of suggestions are available, coming from the commercial area of the company. Interviewees showed a substantial importance to issues related to strategic innovation and change

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Table IX. Schematic description of the empirical evidence related to propensity to innovation, creativity and change

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Company Family A

220

B

C

D

E

Non family F

G

H Table X. Schematic description of the empirical evidence related to group dynamics, conflicts and economic rationality of decision making processes

I L

Empirical evidence Presence of frequent conflicts with non-family members, that emerges as a key factor to hinder the communication among NPD team members and the continuous commercial evaluations of the projects during the different stages of the product development process. “We are a family firm and quite often, in order to preserve family relationships, I must take decisions that may not be easily comprehended by non-family members. They ask for more objectivity and rationality in decision making processes and some of the communication problems we experienced in many NPD projects have been caused by this factor” (interview to CEO) The level of communication among team members involved in NPD is rather low, and this is mainly due to the frequent conflicts (both within the family and with non-family members). The continuous commercial assessment of new products is managed in a relatively unprofessional way and has often generated problems in the evaluation of past NPD attempts Frequent conflicts with non-family members and difficult group dynamics. Clear communication problems between individuals involved in NPD activities. “Many of the problems we experience with the new product development process are related to communication between and within team members. This is the consequence of the recurrent conflicts that arise within our organization because of the different ways of treating family and non-family members” (interview to CTO). Weak commercial assessment of NPD products Recurrent conflicts between individuals. Low level of communication between members of the NPD team and clear evidence of room for improvement in the methodologies adopted to assess the commercial value of the NPD project in different stages of the development process An excessive informality in the relationships between individuals does not grant a high level of communication and interactions among the members of NPD teams. The assessment of new products is strictly monitored and managed by the family dominant coalition, even if some times conflicting and inconsistent opinions emerge among different family members Decision making processes based on objective and rational criteria and no significant conflicts in the organization. Structured methodologies and timing allow the continuous assessment of NPD projects. Specific software and recurrent meetings are used to constantly share all information between individuals involved in NPD projects Rational decision making processes and lack of conflicts. A stage and gate approach and a strict market control allow the rapid termination of unprofitable NPD projects. The flow of information to all employees is formally guided and supported Rationality and objectivity in taking decisions allows a calm and peaceful climate within the firm. Specific managers cope with the constant assessment of new products during the different stages of the development process. The communication among members of NPD is frequent and includes all necessary information Lack of conflicts. A good communication in NPD teams is coupled with a strong commercial assessment of new products in all phases of NPD Calm organizational conditions. The NPD projects are formally and continuously checked in terms of their commercial potential; The communication in NPD team is very technical and fluent, and is supported by organizational and ICT infrastructures

high level of communication among the members of NPD teams, and the continuous assessment of the NPD project (see Table XI). Inclination to be visible with key stakeholders and the community Family businesses tend to raise high their visibility and family reputation with key stakeholders and the whole community. This is consistent with the findings of the previous research of Dunn (1996). The active participation of family members and their, even informal, contacts and relationships with key stakeholders maintain their company constantly aligned with customers needs, positively influencing the market orientation of NPD projects. Even if occasionally similar activities have been observed in non-family firms (i.e. companies G and L), this emerges as a distinctive characteristic of family business in managing NPD if compared to non-family enterprises, thus supporting the following: P8.

The presence of the family variable fosters high inclination to be visible with key stakeholders and the community, and this will be positively associated with the market orientation of NPD projects (see Table XII).

Level of monitoring efforts and agency costs Four out of five family companies have settled standards to regulate the behaviors of family members and show reduced agency costs, thus confirming the lower agency costs of family firms vs non-family enterprises. In these companies the strategic focus of the NPD programs has been formerly and clearly defined and the selection of new NPD projects is objective and rigidly coherent with the corporate strategy defined by the family. In the studied non-family firms, given some exceptions, higher agency costs seem to be coupled with a less clear strategic focus of NPD programs. Our limited case data seem therefore to preliminarily support the following: P9.

The presence of the family variable causes closer monitoring and reduced agency costs, and this will be positively associated with the presence of a strategic focus of the NPD program.

Discussion, limitations and future research directions This study has attempted to shed some light on the complex and very important issue of innovation and NPD in family businesses. The first contribution to the literature lies in investigating the relationships between the presence of the family variable and the managerial factors affecting NPD success. We sought to fill a gap in the literature and extend prior research by developing an empirically grounded theoretical framework that outlines how the managerial factors differentiating family from non-family enterprises are related to the managerial factors affecting NPD success. Figure 1 summarizes the nine research propositions emerged from our investigation into the developed theoretical framework. The arrows reported in Figure 1 illustrate the causal relationships between the managerial factors in the two categories. For example, the “Time orientation” is associated to “NPD long-term thrust” because our case data showed that if a company is long-term oriented it puts its long-term vision in NPD programs, thus reaching a NPD long-term thrust. The symbols (þ /2) on the arrow indicate the effect (positive or negative) of the emerged distinctive characteristic of family companies (vs non-family

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222 B

C

D E

Non family F G H

Table XI. Schematic description of the empirical evidence related to inclination to be visible with key stakeholders and the community

I

L

Empirical evidence Attention of the family firm to continuously establish the family reputation with key stakeholders. Remarkable market orientation, the family is largely responsible for these market-related activities. “The manager in charge of CRM is a member of the family. A significant part of planned activities is related to the company relationships with main stakeholders. Investments in CRM have traditionally performed very well, high returns on investments have been observed” (interview to CEO) The intention of the family firm to establish the family reputation with key stakeholders has an evident influence on the market orientation and the quality of NPD projects. “We consider very important to maintain the good reputation of our family in the community and so we undertake many efforts to carefully understand the needs and the feedback from our community, and to develop high quality new products that are very appreciated” (interview to CCO) Strong inclination of the family to be visible in the community. The needs of the customers are considered a key element in new products development. “Our family has been always part of our community. This ensures us several advantages as clear opinion on new products and needs. We face continuously our market even if with initiatives that are apparently far from the business” (interview to R&D Chief). The direct and developed relationships with clients appear as irreplaceable in order to provide market orientation to NPD projects. ‘The clients, in most of cases, become long-term partners of our company. I invest a huge amount of time, more than 50 per cent, on site’ (interview to HR manger) The family firm tends to raise high its visibility and family name with customers, suppliers, staff and, in broader terms, the whole community, and this positively influences the market orientation of NPD projects Family members are responsible and managers of the commercial business unit. Their active interaction with key stakeholders ensures the market orientation of all NPD projects. “My participation to the life of the community is well-known. But I consider this a pleasant part of my job as marketing manager” (interview to CEO) No particular attention to the interactions with key stakeholders. Few wellknown clients. Their needs are clearly considered in the evaluation of NPD projects Several in-depth market researches support the NPD programs and projects. “This company is a very important client for the main market-research Institute of this country” (interview to CEO) Limited interaction with stakeholders and low participation of the firm to the initiatives of the business community. The NPD projects are mainly developed conforming to client’s request No attention to the interactions with key stakeholders and the community. Scarce market orientation, it relies mostly on the legal compliance and performances of new products. “The clients have to adapt their finished goods to our new products and not vice-versa” (interview to CEO) Even if the inclination of the firm to be visible with key stakeholders is not particularly relevant, all the projects are directly or indirectly suggested by clients; the market orientation is thus guaranteed

Company Family A

B C

D

E Non family F G H I L

Empirical evidence An informal measurement valuation system for family members’ performances has been introduced few years ago. This has allowed a structured and more rational definition of the strategic focus to be associated to NPD programs “This PMS took many years to be fully applied, but now the strategy of NPD program avoids any possible personalism” (interview to CCO) The family has highlighted the strategic focus of NPD programs and clearly defined all the related aspects. Agency costs are low due to an organized monitoring of the performances. Low level of monitoring costs. Within a brand extension strategy, the new products are developed following well-defined paths. “We do not believe that many formal communications are necessary. Despite this, strategy of the company is well known and strictly followed in NPD as well as in the rest of activities” (interview to CTO) Agency costs appear as significantly high because of the family members’ opportunistic behaviors. The strategic focus of past NPD programs has not been well addressed and influenced by these behaviors. “I’m very disappointed but, even nowadays, some of the family members attempt to promote their personal believes sometime are not aligned with strategy of the company” (interview to CTO) Reduced level of agency costs. The strategic focus of NPD projects is clear and, mainly, defined with a strong commitment and participation of family members High level of agency costs given the clear separation between owners and managers. Simple and clear strategic focus, mainly consisting in responding to client’s challenging requests Very high agency costs “A strict supervision and control of the strategic focus of the company is always part of NPD programs. But it’s not for free” (interview to CEO). Lack of an explicit and coherent strategic focus for new products High agency cost. All new products are strictly related to each other and fall within the current range of existing products of the company. A strategic focus of NPD programs, however, appears as very not clearly evident High agency costs. The strategic focus of NPD programs is intended merely in developing products that fit perfectly in the current range of the firm’s product line Client oriented company with a relatively high level of agency costs “This company has one full-time employee involved in designing and setting a performance measurement system able to maintain our NPD projects consistent with the company strategy” (interview to CEO)

firms) on the associated managerial factor affecting NPD success. For example, on the arrow between “Time orientation” and “NPD long-term thrust” there is a “ þ ” because family firms emerged as more long-term oriented than non-family companies and this resulted in a higher NPD long-term thrust. The arrow and symbol between “Time orientation” and “NPD long-term thrust” thus supports our formal P1: The presence of the family variable entails a typical long-term orientation of family firms, and this will be positively associated with NPD long-term thrust. On the contrary, on the arrow between “Conservativeness of the strategic behavior and risk aversion” and “Innovation-friendly climate in the organization” there is a “-” since family firms

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Table XII. Schematic description of the empirical evidence related to the level of monitoring efforts and agency costs

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Figure 1. Theoretical framework of the relationships between the managerial factors differentiating family from non-family firms and those affecting the NPD success

emerged as more “conservative” than non-family companies and this negatively influenced the innovation-friendly climate in the organization. The proposed framework identifies therefore some managerial factors that are expected to affect the NPD success and to be influenced by the family dimension, thus providing a preliminary understanding of how the presence of a family within a business enterprise may affect the success of NPD activities. Furthermore, from an empirical point of view, this appears to be as the first comparative analysis on this specific topic involving both family and non-family enterprises and provides an empirically grounded foundation for a more thorough examination in future studies. Our theoretical framework offers exploratory results on

the managerial factors affecting the success of NPD activities in family vs non-family firms, filling a gap in the literature and providing justification and guidance for the design of more comprehensive studies. A better understanding of how “familiness” influences innovation and NPD promises more successful actions to foster innovation and NPD in family firms. The recognition of how family ties represent both strengths and weaknesses should enable family firm managers or business consultants to better address them. We therefore consider the further empirical investigation of the research propositions outlined in this study an important issue and encourage future theory-driven empirical research. However, attention must be paid in the interpretation of the study’s findings, especially in any attempt to generalize them to a broader population. Considering our focus on only ten firms and the limited number of empirical studies in this area, we consider our findings in need of further empirical investigations. Future research could be aimed at further investigating and testing our theoretical framework on a wider empirical base, using either qualitative or quantitative methods. Further qualitative studies would be useful since the managerial factors affecting the success of innovation and NPD are many and complex (Yin, 1994; Eisenhardt, 1989). However, in order to test propositions related to a managerial phenomenon as complex as the one proposed in this article, large-scale quantitative studies are also necessary. Ideally, such future studies should consider also the outcomes of the innovation and NPD process and strive to include both successful and failed innovation and NPD cases in order to gain further important evidence about the success of innovation and NPD in family vs non-family firms. Also, given that the case studies came from a single geographic region and the family business values, managerial behaviors, operations, and organizational attitudes may significantly differ across countries (Davis et al., 2000; Pistrui et al., 2000; Sharma and Rao, 2000), our results may not completely apply to geographical regions that differ radically from Italy. Cross-country researches are therefore encouraged to investigate the validity of our findings in other geographic areas. The research propositions and the empirical findings reported in this article provide both legitimacy and guidance for such future research avenues. Finally, this study focused on NPD in family business and this research topic is different from that of NPD in SMEs since the definition of “family business” adopted in this research does not consider the company dimension as a distinctive characteristic of family firms. Big companies can be family businesses and not all SMEs can be considered family firms. Future researchers, building on the literature on innovation and NPD in SMEs, could include the company dimension in the analysis and further investigate to what extent NPD in family businesses differs from SMEs. In conclusion, this study advances research on strategic innovation and NPD in family vs non-family firms. It develops theory at the important intersection of family business and innovation/NPD research. This stream of research is expected not only to advance our theoretical understanding but also to improve how family businesses manage and organize innovation and NPD activities – a topic of substantial interest given the crucial importance of this typology of firms in all the economies of the world (Neubauer and Lank, 1998; Aronoff and Ward, 1995; Churchill and Hatten, 1987). We introduced specific propositions that are supported by our case data and integrated them in the general research stream on NPD and family-firm characteristics.

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Yin, R.K. (1994), Case Study Research. Design and Methods, 2nd ed., Sage Publications, Thousand Oaks, CA. Zahra, S.A., Hayton, J.C. and Salvato, C. (2004), “Entrepreneurship in family vs non-family firms: a resource-based analysis of the effect of organizational culture”, Entrepreneurship Theory and Practice, Vol. 28 No. 4, pp. 363-81. Zellweger, T. (2007), “Time horizon, cost of equity capital, and generic investment strategies of firms”, Family Business Review, Vol. 20 No. 1, pp. 1-15. About the authors Lucio Cassia is Full Professor of Strategic Management and Entrepreneurship at the University of Bergamo and Director of CYFE – Center for Young and Family Enterprise of the same University. He has been Research Fellow at ST-Microelectronics, head of R&D Department at ISMES, and Founder and CEO of hi-tech electronics and IT companies. He is a member of the Board of Directors of the University of Bergamo and is currently leading research and teaching activities on entrepreneurship, and business strategy. On these topics he is author of several books and international publications. He is member of several scientific associations as well as member of the scientific committee of national and international academic journals. Alfredo De Massis, PhD, is Assistant Professor in the area of family business at the University of Bergamo and Deputy Director of CYFE – Center for Young and Family Enterprise of the same university. He is also member of the faculties of other universities and leads research activities for SCS Consulting. He has been financial analyst in the Italian Stock Exchange and consultant in the strategy service line of Accenture. He is currently conducting research and teaching activities on family business and strategic entrepreneurship, and is author of four books and more than 70 scientific publications. He is member of several scientific associations as well as member of the scientific committee of national and international academic journals. Alfredo De Massis is the corresponding author and can be contacted at: [email protected] Emanuele Pizzurno, PhD, is currently Assistant Professor in the management area at the Faculty of Engineering of the University Carlo Cattaneo – LIUC where he developed most of his academic activities. He is also Research Fellow and Professor at the Scuola Mattei – Eni Corporate University and at the Department of Management Engineering at Politecnico di Milano. The major research and teaching topics concern innovation and technology management and the organization of R&D; he has also long studied environmental strategies and management. On these issues, he is the author of several scientific publications.

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