Family firms and the paradox of stability and change

Abstract

How and why do some family firms succeed in combining stability and change, whereas others do not? This paper presents a conceptual model offering an answer to this question. In order to remain competitive in today’s economy, organizations need to be flexible, they need to be able to change the way work is organized and thus initiate and implement organizational innovations. However, despite their importance, many organizational innovation efforts don’t live up to their expectations (Bouwen and Fry, 1988; Schein, 1996a; Lambrechts, et al., 2009). We argue that the success of an organizational innovation process depends largely on whether a firm succeeds in the difficult combination of stability and change. Recently, there is growing awareness that for successful adaptation in the long run, not only mechanisms that support change are needed, like openness and redundancy, but also mechanisms that support stability, like discipline and control (Leana and Barry, 2000; Pettigrew, et al., 2001; Graetz and Smith, 2008; Farjoun, 2010). However, traditionally, the mechanisms for change and the mechanisms for stability are considered to be fundamentally different and therefore, pursuing stability and change at the same time is largely a matter of choosing the one at the expense of the other. However, we argue, in line with the recent view of stability and change as a duality (Farjoun, 2010), that organizational forms and practices that support change and the ones that support stability are not necessarily incompatible.

To examine in depth how organizations reconcile stability and change, our paper focuses on an economic important and omnipresent form of organizations, namely family firms. In family firms organizational innovation can be even more complicated, as they not only have to successfully manage the business system, but also the family system, which has different goals and dynamics (Chrisman, et al., 2004). In this sense, family firms have a natural tendency towards stability due to their focus on maintaining socio-emotional wealth and institutional integrity (e.g., Gomez-Mejia, et al., 2007), which thus needs to be taken into account during organizational innovation efforts. Hence, maintaining stability during change is even more important in family firms, which makes family firms a particularly interesting context for studying the paradox of stability and change.

The conceptual model proposed in this paper broadens and expands the framework of stability and change as a duality, by integrating the concepts of social capital (Nahapiet and Ghoshal, 1998; Pearson, et al., 2008) and corporate governance (Mustakallio, et al., 2002; Uhlaner et al., 2007). The paper contributes to the literature in two ways. First, we contribute to the family firm literature as we reconcile the often cited weaknesses (e.g., risk-averse, reluctant to change (Aronoff and Ward, 1997; Morck and Yeung, 2003)) with the acclaimed strengths of family firms regarding organizational change and innovation (e.g., stronger commitment to the business and more informal structure (e.g., Kellermanns and Eddleston, 2006; Zahra, et al., 2004)) and accordingly explain how and why some family firms succeed in reconciling stability and change whereas others fail. Second, we also contribute to the organizational innovation literature in general as we propose - building on concepts of social capital and corporate governance - new mechanisms explaining a successful combining of stability and change.