Project Topic:
STRATEGIC ORIENTATIONS OF FOUNDERS VS 2ND GENERATION FAMILY FIRM OWNERS: IMPACT OF FIRM PERFORMANCE (A CASE STUDY OF FAMILY BUSINESS IN NIGERIA)
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 behavior 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. 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 startegic 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.
1.2 Statement of Problem
Firm performance is one of the biggest concerns in the strategic management literature (Venkatraman & Ramanujam, 2016; Sosiawani et al., 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.
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