Long-Term Orientation as a Resource for Entrepreneurial Orientation in Private Family Firms

Abstract

Objectives: Drawing upon the resource-based view (RBV) of the firm, this study proposes that a family firm’s long-term orientation (LTO) can be an important resource that increases firm-level entrepreneurial orientation (EO). We argue that a family firm’s LTO provides potential resources to engage in entrepreneurial activities, while a participative decision making (PDM) style serves as coordinating mechanism that helps the firm to manage these resources. Therefore, the objective of this paper is to investigate the moderating role of participative decision making (PDM) on the LTO-EO relationship in family firms. Prior work: Building on Zahra et al.’s (2004) work, we propose that a family firm’s LTO can function as a distinctive resource that contributes to higher levels of EO but possessing this resource alone is not sufficient; instead, family firms need to orchestrate their resources in order to be more entrepreneurial. Prior research indicates that competitive advantage results from efficiently controlling and exploiting valuable and rare resources (Hitt, Ireland, Sirmon, & Trahms, 2011; Sirmon, Hitt, & Ireland, 2007), like LTO. Just like all non-family firms, family firms often have to cope with short-term pressures, for example, during cash flow management or changing market conditions. Therefore, to fully exploit their LTO as a resource for engaging in entrepreneurial activities, family firms can engage in PDM because it enhances managerial commitment (Huang, et al., 2006) towards the implementation of their dominant logic (LTO) and it reduces potential conflicts (Eddleston, et al., 2008) that may prevail as a result of short-term pressures. Approach: 3600 SMEs were randomly selected from a family business database. A response rate of 12.5% resulted in 452 surveys. The nine-item Miller/Covin and Slevin (1989) scale was used to capture the family firm’s EO. We assess a family firm’s LTO using Zahra, Hayton, and Salvato’s (2004) operationalization. Further, we used Covin et al.’s (2006) five-item scale to capture the PDM construct. As method, we use moderation regression models. Results: The results show that LTO is only associated with higher levels of EO when there is a certain amount of PDM among managers in the family firm. Even more so, when the firm is characterized by very low levels of PDM, LTO no longer seems to affect EO. Implications and Value: PDM was found to be an important moderating variable in the LTO-EO relationship because it encourages managers to voice their individual opinions which enhances knowledge sharing, fosters commitment and constructive interactions, while at the same time reducing potential relational conflicts.