STRATEGIC ORIENTATIONS OF FOUNDERS VS 2ND GENERATION FAMILY FIRM OWNERS: IMPACT OF FIRM PERFORMANCE (A CASE STUDY OF FAMILY BUSINESS IN LAGOS)

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

In current rapidly globalizing world, companies use different techniques to achieve competitive advantage. Achieving strategic competitiveness is difficult in turbulent and complex markets. These difficulties are compounded when firms do not have a clear understanding of what affects their firm performance. The heart of the strategic management process is to achieve the performance outcomes that allow firms, including family influenced firms, to be competitive over time (Habbershon et al. 2010). Family businesses significantly impact to economy and the social life of a nation. The typical family business has been characterized as an organization controlled and usually managed by multiple family members. In general, management structure in the family business will be determined by the top level manager. Usually at least two generations of family are found in corporate governance. Spouse, siblings, mother/father, and child in the definition of the family company enter partnerships (Shanker and Astrachan, 2016; Lansberg, 2012). Family businesses dominate the business landscape (Acquah, 2012) and in most developing economies they account for most industrial output, entrepreneurial activities, corporate growth, economic development, innovation and employment (Heck, 2011; La Porta, Lopez-De-Silanes & Shleifer, 2012; Miller & Le Breton, 2015; Shanker & Astrachan, 2016). Consequently, research on these businesses has increased (Chrisman et al., 2010) with a majority of them focusing on: generational involvement, long-term strategic orientation and the advantage of members’ collective effort towards the firm’s survival (Gómez-Mejía, Núñez-Nickel & Gutierrez, 2014; Miller, Le Breton-Miller & Scholnick, 2015). Also arising from these studies is an increasing debate regarding the entrepreneurial and strategic behaviors of these family firms. While some studies found family firms to be resistant to change and therefore stagnant (Allio, 2011) others reported that family firms are just like non-family-controlled firms (Zahra, 2015). Similarly, other studies have examined the opportunities and threats faced by large family businesses with an emphasis on their strategic and entrepreneurial orientation in the developed country context (Covin & Slevin, 2011; Lumpkin & Dess, 2016; Porter, 2011; Miles & Snow, 2014). Recent research indicates that companies achieve their aims easily which are in family firm structure. Family firms often have concentrated ownership and/or voting rights that might enhance performance (Miller et al. 2011). Strategic behaviour which has been explained variously in the literature as strategic fit, strategic choice, strategic thrust and strategic orientation is a primary means of understanding actions that firms take to enhance profitability, financial performance or competitive advantage (O’Regan & Ghobadian, 2015). According to Ardito & Dangelico (2017), two main strategic orientations can be distinguished in the literature: technology orientation and market orientation. The former covers the adoption of new technologies, products and ideas whilst the latter entails intelligently responding to the ever-changing needs and expectation of customers. Boohene & Kotey (2009) on the other hand, presented that for small firms, strategic orientation can be examined on a continuum of increasing adaptive capability, ranging from reactive (with relatively little adaptive capability) to proactive (with the highest level of adaptive capability). Relatedly, Agbeblewu & Boohene (2015) viewed entrepreneurial orientation as the strategy oriented practices in firms reflecting the attitudes, intentions and styles of key decision makers and functioning in a dynamic business environment. Thus, for small family firms to compete and survive in today’s globalized economy with its attendant market challenges (Ardito, Messeni Petruzzelli & Albino, 2015), there is the need for them to be both entrepreneurially and strategically oriented. Various studies from developed economies have examined the entrepreneurial orientation-strategic orientation-performance relationships. For example, a research by Wang (2015) examined the influence of Entrepreneurial Orientation (EO) and learning orientation on performance of medium-to-large UK firms with strategy type as the moderating variable found entrepreneurial orientation to be an important predictor of performance. A later study by Welsh et al. (2012) on the strategic orientation in family owned firms, reported that family firms are more entrepreneurially active than non-family controlled, as the former is more proactive and uses different approaches than non-family-controlled firms.

Little is reported about multiple orientations studies and how strategic orientations are related between them and its relationship with performance (Lee, 2011; Hakala, 2011). For instance, Hakala (2011) reports that he did not find studies relating entrepreneurial and technology orientation or entrepreneurial, technology and learning orientation and their relationship with the firm performance, declaring that a window is open for future research, not only through empirical studies, but also through the use of qualitative research. Many authors have researched the relationship between market orientation and performance with the purpose of contradicting or fortifying the paradigm in marketing research about the superior contribution of market orientation to performance (Grinstein, 2015). However, empirical studies have shown mixed results about the linkage between market orientation and performance, several studies have tried to assess how alternative strategic orientations are related to market orientation and how these relationships have an impact on the firm performance (Noble et al., 2002; Grinstein, 2015). These studies suggest that research should be shifted from the binomial relationship of market orientation-performance toward the multiple orientations performance form. However, few studies have used more than one strategic orientation (Grinstein, 2015; Hakala, 2011), so this field remains open and researchers are encouraged to deepen in this research field.

Thus, whilst these studies have the relevance of connecting strategic Orientation to firm performance, many questions remain about how strategic Orientation affects performance in family firms in a developing country context. Failure of researchers to fully address these questions has led to persistent uncertainty about the practical value of strategic Orientation (Wales, Monsen, & McKelvie, 2011) in developing countries. Moreover, as noted by Wright et al. (2010) research on firm strategies in developing countries is few. This was corroborated by Acquah & Mosimanegape (2011) who presented that research on business strategies in developing countries need to be embraced to advance the development of theory and practice. Small enterprises form the majority of firms in Nigeria and within these firms, majority can be classified as family firms, particularly those found in Nigeria. These firms contribute immensely to job creation, income generation and poverty reduction. With these positive contributions notwithstanding, most of them have been performing poorly due to their inability to respond proactively and competitively to changes in their environment (Boohene & Kotey, 2009). Specifically, how do firms’ business operation modes influence their entrepreneurship orientation customer orientation, learning orientation, and innovativeness? Which interaction effects among market orientation, learning orientation, and business operation modes will impact on a firm’s innovativeness and business performance? Previous studies concerning these issues are limited and subject to further validations. By the agency of this study it is tried to determine the level of their effects on firm performance. In addition, previous studies seldom consider the role of business operation mode on learning, innovation, customer, entrepreneurship, and business performance. The study specifically answers the question, ‘what contextual factors shape or determine the performance of family businesses in Nigeria?’

1.2 Statement of Problem

Firm performance is one of the biggest concerns in the strategic management literature (Venkatraman & Ramanujam, 2016; Sosiawani; Ramli; Mustafa & Yusoff, 2015). In the context of family firm, much research has been conducted to identify antecedents of family firms with good business performance so that such companies can perform better. Freel (2010), Verhees & Meulenberg (2011) and Westerberg & Vincent (2015) claim that family firms will achieve improved performance if they are more intensive in presenting innovative activities, because the implementation of innovation is able to provide clear direction and become a source of competitive advantage (Kiiyuru, 2015). The ability of family firms to behave in an innovative way will help them to survive in the competitive business environment (Johnson et al., 2013) and even achieve superior performance (Hurley & Hult, 2011). The business owner or manager plays an important and perhaps a crucial role in family firms when it comes to the formulation of a firm’s strategy. The family business owner/manager is responsible for the strategic decisions of the company. The owner/manager’s competitive development and personal goals determine the understanding and use of strategic management and planning (Postma and Zwart, 2014). The strategy is often strongly influenced by the distinct competencies and unique knowledge of the owner/manager. Strategy and strategic vision create a clear direction for the company and this proves to be an important input for firm policy and operational decisions (Philipsen and Kemp, 2010). Within small and medium-sized firms the strategy remains often implicit, top-down, informal and intuitive (Mintzberg, 2011). This is because of the important role of the business owner/manager. The owner/manager is usually the person who has the vision. Often, this vision is not disseminated throughout the organisation. Nevertheless, family businesses will probably have a better performance if they set up a clear strategy and if that strategy is dispersed throughout the organisation. With a clear and communicated strategy, employees can take decisions with that strategy in mind. Which strategy leads to the best performance for family firms? According to the contingency theory, the optimal strategy of a firm depends on many factors, for example availability of qualified employees and other resources (external factors), quality of the current employees and the goals and strategic behaviour of the business owner (both internal factors). Also sustainable competitive advantages are often referred to as important determinants for the selection of the strategy. These factors differ largely between firms. For this reason it is not possible to derive one most favourable strategy for a certain group of firms. Each company has to find its own optimal strategy, which is determined by the external and internal factors of the firm. This theory states that firm performance is mainly determined by the quality of the strategy and the role of the entrepreneur in the formulation of strategy instead of the direction of the strategy. The environment, development stage of the industrial life cycle and the organisational development also has influence on the strategy selection. Specific for small or family firms is the potential ability of small firms to adapt to changing circumstances. Dean et al. (2011) suggested that family businesses might pursue strategies built upon the strength of speed, flexibility and niche-filling capabilities.

1.3 Objectives of the Study

The major aim of the study is to examine impact of strategic orientations on family firm’s performance. Other specific objectives of the study include;

1. To examine the relationship between market orientation and the performance of family firms in Nigeria.
2. To examine the relationships between customers orientation and family firm performance in Nigeria
3. To examine the effect of product innovation orientation on family firm performance in Nigeria
4. To examine the relationship between technological orientation and family firm performance in Nigeria

1.4 RESEARCH QUESTIONS

1. What is the relationship between market orientation and the performance of family firms in Nigeria?
2. What is the relationship between customer’s orientation and family firm performance in Nigeria?
3. What is the effect of product innovation orientation on family firm performance in Nigeria?
4. What is the relationship between technological orientation and family firm performance in Nigeria?

1.5 RESEARCH HYPOTHESES

1. H0: There is no significant relationship between market orientation and the performance of family firms in Nigeria.

2. H0: Product innovation does not affect the revenue turnover of family firms in Nigeria

3. H0: There is no significant relationship between customer’s orientation and family firm performance in Nigeria

4. H0: There is no significant relationship between technological orientation and return on investment of family firms.

1. Significance of the Study

The study would be of benefit to because family business represent two thirds of businesses around the world and produce an estimated 70%-90% of annual global GPD (FFI, 2016), they are fundamental drivers of economic prosperity, stability, and growth, and they play a critical role in the global and domestic economy (Ghee et al., 2015; Randerson, Bettinelli, Fayolle, & Anderson, 2015). The study intends to contribute to marketing research by providing some new insights into the relationship between strategic orientation and superior firm performance. Although there are many studies in the marketing literature on strategic orientation most of these have been conducted in developed countries. According to Rauch et al. (2009), it is misleading to assume the homogeneity of strategic orientations in different national contexts as the sampling variance is low and suggests that there are possibly moderators influencing its effect on family business performance that are specific to a certain locale. This research will be the first large scale study of strategic orientation conducted in a developing country like Nigeria. The study would also be of immense benefit to students, researchers and scholars who are interested in developing further studies on the subject matter.

1. Scope of the Study

This research is limited to the impact of strategic orientation of family businesses on firm performance in Nigeria. Therefore, the findings and conclusions drawn from the research can only be cautiously and restrictively applied to a wider setting. The choice of Nigeria as the research site is basically due to the research gap identified in the existing literature on the country. Lagos State, the commercial centre of Nigeria is chosen as the research location because it is a home for families from almost all the tribes and ethnic groups in Nigeria. The firms selected are heterogeneous family firms which cover businesses that are in their first, second and third generation; no restriction is also placed on the industry type. The Small and Medium Scale Enterprises of Nigeria (SMEDAN) provided some assistance in identifying family businesses within their recently concluded 2010 nationwide survey.

1.8 Limitation of the Study

Financial constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview)

Time constraint: The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1. Definition OF Terms

Family: Family is defined as a specific group of people that may be made up of partners, children, parents, aunts, uncles, cousins and grandparents or one or more other persons living in the same household who are related to the householder by birth, marriage, or adoption.

Family-owned business (FOB): Any business in which two or more family members are involved and the majority of ownership or control lies within a family. Family-owned businesses may be the oldest form of business organization.

Firm Performance: This implies the organizational performance, including manufacturing of products and services, functioning of different units of the firm, performance of its employees and outcomes of their work in total.

Strategic orientation: Is the ability to link the long-range vision of Indigenous self-determination to daily work, ranging from a simple understanding to a sophisticated awareness of the full impact of thinking and actions.