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1042-2587

2006 by
Baylor University

E T&P

Corporate
Entrepreneurship
in Family Firms:
A Family Perspective
Franz W. Kellermanns
Kimberly A. Eddleston

Entrepreneurship has been recognized as an important factor contributing to firm success.


Despite the potential benefit of corporate entrepreneurship to sustain the family firm across
generations, corporate entrepreneurship has been underresearched in the family firm literature. We investigate how generational involvement, willingness to change, and the ability to
recognize technological opportunities impact corporate entrepreneurship in family firms.
We also examine strategic planning in family firms as a facilitating process. Our findings
suggest that willingness to change and technological opportunity recognition are positively
related to corporate entrepreneurship in family firms. We further found strategic planning
to significantly moderate the relationships between (1) generational involvement and (2)
technological opportunity recognition and corporate entrepreneurship. These findings and
implications for management and research are discussed.

Introduction
Corporate entrepreneurship is critical to family firm survival, profitability, and growth
(Rogoff & Heck, 2003; Salvato, 2004). Corporate entrepreneurship refers to the entrepreneurial activities within organizations that are designed to revitalize the companys
business by changing its competitive profile or by emphasizing innovation (Zahra, 1995,
1996). Examples of corporate entrepreneurship include product innovation, process innovation through research and development, and the pursuit of new markets (Covin &
Selvin, 1991; Miller, 1983; Zahra, Neubaum, & Huse, 2000). These entrepreneurial
activities promote the continuity and success of the family firm by contributing to growth
in employment and wealth (Upton, Teal, & Felan, 2001). Indeed, research has shown
that corporate entrepreneurship increases revenue streams, empowers employees, and
improves profitability (Barrett & Weinstein, 1998; Lumpkin & Dess, 1996; Zahra, 1996).
With the competitive landscape of the twenty-first century becoming increasingly
dynamic and uncertain (Hamel, 2000), it is of the utmost importance that family firms
develop an entrepreneurial mindset that allows them to identify and exploit opportunities
in their environments (Sirmon & Hitt, 2003).
Please send correspondence to: Franz W. Kellermanns, tel.: (662) 325-2613; e-mail: fkellermanns@
cobilan.msstate.edu.

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809

Despite the importance of corporate entrepreneurship to the success and survival of


family firms across generations, few studies have examined how families influence their
firms entrepreneurial activities (e.g., Nordqvist, 2005; Rogoff & Heck, 2003; Salvato,
2004). Furthermore, little is known regarding why some family firms are more successful
at corporate entrepreneurship than others (Nordqvist, 2005). While some research portrays
family firms as reluctant to invest in new ventures (Cabrera-Suarez, Saa-Perez, & Almeida,
2001), assume risk (Morris, 1998), or induce change (Levinson, 1987), other research
suggests that family firms that invest in entrepreneurship have greater potential for high
performance (McCann, Leon-Guerrero, & Haley, 2001). Therefore, in response to a call for
research that studies the influence of the family on corporate entrepreneurship (Aldrich &
Cliff, 2003; Chrisman, Chua, & Steier, 2003; Nordqvist, 2005), this study examines why
some families are better at fostering corporate entrepreneurship in their firms than others.
In line with Salvatos (2004) research on entrepreneurship in family firms, Millers
(1983) view of entrepreneurship was used to frame our study. Miller defines entrepreneurship as a multidimensional concept encompassing the firms actions relating to
product-market and technological innovation, risk taking and proactiveness (p. 771).
This view of entrepreneurship is widely accepted in the field (Salvato, 2004; Zahra, 1996),
and therefore was considered in developing our research model.
More specifically, because technological innovation drives entrepreneurship (Shane,
1993), we examined how the technological opportunities perceived to be present in a
family firms environment influence corporate entrepreneurship. The importance of anticipating, embracing, and inducing change to entrepreneurial thinking (Miller, 1983) is
reflected in our consideration of family members willingness to change. In addition,
because Miller argues that researchers need to distinguish different types of firms when
examining entrepreneurial activities, the generational involvement of the family firm was
included. Indeed, Salvatos (2004) research suggests that the generational involvement
of the family firm influences entrepreneurial activities. Lastly, because strategic planning
is expected to play an important role in a family firms endeavors (Salvato, 2004), we
investigate strategic planning as a facilitating process in family firms, i.e., a moderator. We
conceptualize strategic planning as an integrative effort (Ketokivi & Castaner, 2004)
that may help to align family members with organizational priorities, thus enhancing the
effects of technological opportunities, willingness to change, and generational involvement on corporate entrepreneurship.
Our article contributes to the literature in at least three ways. First, we add to the
corporate entrepreneurship literature by investigating how variables associated with innovation as well as variables common to the family firm realm affect corporate entrepreneurship in family firms. While studies investigating the antecedents of corporate
entrepreneurship in nonfamily firms are common (e.g., Covin & Selvin, 1991; Lumpkin
& Dess, 1996; Zahra et al., 2000) and some initial research has been conducted in midsize
organizations (e.g., Wiklund & Shepherd, 2003b; Zahra et al., 2000), to our knowledge,
this is one of the first empirical studies to examine corporate entrepreneurship in family
firms (for another exploratory study see Salvato, 2004). Second, we show the culture of
the family firm in regard to perceiving technological opportunities and willingness to
change matters to corporate entrepreneurship. This underscores the importance of the
family in understanding family firm entrepreneurship and success. Third, we add to
the literature on strategic planning by considering strategic planning as a moderator that
helps encourage corporate entrepreneurship. While strategic planning has not always been
directly linked to organizational performance (for a review see Miller & Cardinal, 1994),
we clearly show that strategic planning can indirectly enhance corporate entrepreneurship
in family firms.
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ENTREPRENEURSHIP THEORY and PRACTICE

Our article will be structured as follows: After a brief literature review on corporate
entrepreneurship, we will develop our hypotheses and outline the methods employed in
this study. Then, we will report and discuss our results, outline the implications of our
study and conclude with limitations and avenues for future research.

Literature Review and Theoretical Development


Corporate entrepreneurship has been recognized as an important factor that contributes to firm success (Zahra, 1996; Zahra, Hayton, & Salvato, 2004). Corporate entrepreneurship involves a variety of potential tasks including product innovation, risk taking,
and proactiveness that are aimed to facilitate organizational renewal and sustainability
(Covin & Selvin, 1991; Miller, 1983). As such, corporate entrepreneurship is seen as an
important element in the survival of family firms because it helps create jobs and wealth
for family members.
However, the decision to invest in corporate entrepreneurship is not always simple for
family firms. Family control imposes capital constraints that can inhibit family firms from
funding entrepreneurial activities (Carney, 2005). For example, the risks and changes
involved in pursuing entrepreneurial activities may limit a family firms investment in
corporate entrepreneurship due to their concern for wealth preservation (Carney, 2005;
Chrisman, Chua, & Steier, 2005). In addition, the decision to invest in corporate entrepreneurship is unique in family firms because family interests and values are an integral
part of the goals and strategies of a family business (Sharma, Chrisman, & Chua, 1997).
While some family firms appear to have a culture that supports innovation (Upton et al.,
2001) and change (Vago, 2004; Zahra et al., 2004), other family firms may have little
corporate entrepreneurship because the family may have a desire to maintain the status
quo (Gersick, Davis, Hampton, & Lansberg, 1997; Kepner, 1991) or they may not
perceive opportunities in their environments (Salvato, 2004). As such, in examining
corporate entrepreneurship in family firms, a family perspective that considers family
members attitudes and values is necessary.
Accordingly, our model, presented in Figure 1, reflects the attitudes and values that
are expected to contribute to corporate entrepreneurship as suggested by Millers (1983)
work on entrepreneurship that stresses the importance of technological innovation and
change as well as the need to consider firm types. Specifically, we propose that perceived
technological opportunities, willingness to change, and generational involvement influence family firm corporate entrepreneurship. We also investigate strategic planning as an
integrative effort (Ketokivi & Castaner, 2004) that facilitates corporate entrepreneurship
in family firms by aiding in the sense making of the families priorities (Weick, 1995) and
the exploitation of strategic initiatives. As such, our model is in line with research that
portrays the ability to recognize opportunities, the willingness to pursue opportunities, and
the strategic planning to exploit opportunities as key factors that support corporate
entrepreneurship (e.g., Covin & Miles, 1999; Venkataraman, 1997; West & Farr, 1989).
Each of our hypotheses is further developed later.

Willingness to Change
Given todays global competition, shorter business cycles, and diverse workforce,
willingness to change is expected to become increasingly important to family firm success
(Vago, 2004). Eventually, most firms need to make organizational changes if they are to
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811

Figure 1
Venturing Activities in Family Firms
Willingness to
change

Generational
involvement

H1

Corporate
entrepreneurship
in family firms

H2

H3

Perceived
technological
opportunities

H4a-c

Strategic
planning

survive environmental shifts and take advantage of opportunities that come their way
(Bloodgood & Morrow, 2003). A family firm culture that facilitates rapid and effective
change should therefore be quite conducive to the pursuit of entrepreneurial activities
(Zahra et al., 2004). A firms willingness to take risks and to induce change has long been
associated with entrepreneurial behavior (Miller, 1983). Indeed, the fastest growing
family firms have been found to pursue first-to-market and early-follower market-timing
strategies (Upton et al., 2001), thus suggesting the importance of flexibility and the pursuit
of new ideas.
Unfortunately, some family firms are reluctant to change (Beckhard & Dyer, 1983;
Vago, 2004; Ward, 1987) because they believe it will cause conflict, be too expensive
(Vago, 2004), or they are simply unwilling to let go or to modernize (Beckhard & Dyer,
1983; Handler, 1989; Stavrou, 1999). Such a fear of change by family firms has been
shown to be associated with stagnation and loss of market share (Miller, Steier, & Le
Breton-Miller, 2003). It appears that family members frequently develop emotional
attachment to their organizations strategic positions (Miller et al., 2003). This rigidity
prevents the business from having the flexibility to adapt when situations change (Duncan,
1973). Indeed, businesses can have difficulties adapting to shifts in their environments
when they resist change and view innovation as a threat (Miller & Friesen, 1982). These
inertial tendencies highlight the importance of an organizational culture that supports
change (Karagozoglu & Brown, 1988). Willingness to change has been linked to innovation (Karagozoglu & Brown, 1988) and similarly, willingness to experiment supports
organizational adaptation and long-term viability (Hedberg, 1981). Accordingly, willingness to change may be an important factor that distinguishes entrepreneurial family firms
from their less entrepreneurial counterparts. Specifically, family firms that demonstrate
the greatest willingness to change may have the highest rate of corporate
entrepreneurship.
Hypothesis 1: Willingness to change is positively associated with corporate entrepreneurship in family firms.
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ENTREPRENEURSHIP THEORY and PRACTICE

Generational Involvement
While founders of family firms are obviously entrepreneurial, i.e., they recognized a
business opportunity which they then exploited through the creation of new business
ventures (Aldrich & Cliff, 2003), it is often suggested that over time, many founders
become conservative and unwilling or unable to invest in corporate entrepreneurship
(Autio & Mustakallio, 2003; Dertouzos, Lester, & Solow, 1989; Zahra et al., 2004).
However, a family firms survival through generations often depends on the business
ability to enter new markets and ability to revitalize existing operations (Ward, 1987). As
such, it is often suggested that while first generation family firms need to possess the
special technical or business backgrounds necessary to start a business, subsequent generations need to be focused on maintaining and enhancing their business growth and
success (McConaughy, Walker, Henderson, & Mishra, 1999). Accordingly, there may be
differences in the level of corporate entrepreneurship among family firms of different
generations.
Much research focuses on the differences between first, second, and multigeneration
family firms (i.e., Aronoff, 1998; Dyer, 1988; Gersick et al., 1997; McConaughy et al.,
1999; Sonfield & Lussier, 2004). First generation family firms are family-owned and
managed firms with more than one family member working in the business and all family
members from the first and founding generation. Second generation family firms are those
in which the second generation of the family is also involved in the ownership and
management of the business. Multigeneration family firms are third and later generation
firms in which family members from several generations are involved in the ownership
and management of the business.
Although first generation family businesses are often based on innovative ideas, after
a few years, they often lose their entrepreneurial momentum (Salvato, 2004). Because
founders of family firms typically want to build a lasting legacy for their offspring, they
often become conservative in their decisions because of the high risk of failure of
entrepreneurial ventures (Morris, 1998) and their fear of losing family wealth (Sharma
et al., 1997). In addition, the centralized decision making of first generation firms (Dyer,
1988) may limit the exchange of entrepreneurial ideas, thereby decreasing corporate
entrepreneurship (Zahra et al., 2004). Thus, although the founders of family firms were
willing to take the risks associated with starting a business, their desire to keep the
business in the family and to maintain family wealth may keep them from taking the risks
associated with corporate entrepreneurship. Therefore, first generation family firms may
have the least amount of corporate entrepreneurship.
In comparison, while first generation family firms tend to want to maintain the status
quo, later generations tend to push for new ways of doing things (Kepner, 1991). Indeed,
family firms owned and managed by multiple generations must rejuvenate, recreate, and
reinvent themselves over time if they are to sustain the same level of growth and financial
inheritance of the previous generation (Jaffe & Lane, 2004). Corporate entrepreneurship
is particularly important to later generation family firms because it promotes the continuity of the family business and helps the family firm create jobs and wealth for the newer
generations (Poza, 1989). Indeed, later generation family members are much more likely
to be the driving force behind innovation (Litz & Kleysen, 2001) and entrepreneurial
activities (Salvato, 2004; Ward, 1987). For multigeneration family firms to succeed, the
newest generation must acquire the preceding generations knowledge (Cabrera-Suarez
et al., 2001) while at the same time offering new and diverse perspectives to modernize
organizational objectives and procedures (Handler, 1992). Activities associated with corporate entrepreneurship that may help family firms succeed into the next generation

November, 2006

813

include creating new products and services, reaching new markets, and internationalizing
operations and sales (Sharma et al., 1997). Therefore, second and later generation family
members may be most likely to add fresh momentum to the entrepreneurial endeavors of
family businesses (Salvato, 2004). Accordingly, we propose:
Hypothesis 2: Higher levels of generational involvement are positively associated
with corporate entrepreneurship in family firms.

Perceived Technological Opportunities


Entrepreneurial behavior is spawned when environmental shifts create information
asymmetries or gaps in an industry (Aldrich & Cliff, 2003). The ability to recognize and
exploit opportunities created by environmental shifts is therefore important to entrepreneurship (Covin & Selvin, 1997; Wiklund & Shepherd, 2003a). Indeed, family firms that
are able to spot opportunities have been found to be the most entrepreneurial (Salvato,
2004). A change in technology is a common trigger that spurs such environmental
shifts (Aldrich & Cliff, 2003; Shane & Venkataraman, 2000). Accordingly, technological
opportunities are often considered an important driver of entrepreneurship (Shane &
Venkataraman, 2000) and therefore, a family firms ability to perceive technological
opportunities in its environment may be a key factor that distinguishes the most entrepreneurial family firms.
Technological opportunities refer to the degree to which family firms perceive their
industry to be rich in opportunities for innovation and breakthrough technologies (Zahra,
1996). As such, while corporate entrepreneurship embodies a firms entrepreneurial and
venturing activities (Zahra et al., 2000), perceived technological opportunities refer to a
firms ability to see opportunities for innovation and research and development within
ones industry. Being able to spot such technological opportunities is then expected to
promote corporate entrepreneurship. For example, in a study by Blake and Saleh (1995)
it was suggested that family firms operating in uncertain environments rich in opportunity
had greater innovative activity than family firms in more stable environments. When
family members perceive their environment as opportunity rich, they should invest in
building new capabilities and be proactive (Dess & Lumpkin, 2005). The ability to
recognize technological opportunities should therefore encourage a family firm to more
vigorously pursue entrepreneurial activities. Indeed, it has been shown that firms operating in environments perceived as being rich in technological opportunities are more likely
to invest in corporate entrepreneurship (Zahra, 1996; Zahra et al., 2000).
In contrast, a lack of adaptation to environmental changes will transform core competencies into core rigidities (Leonard-Barton, 1992). Firms that are unable to see beyond
their current customers and markets (Hamel & Prahalad, 1991) may fail to see the
importance of corporate entrepreneurship. Indeed, research has suggested that the opportunities present in an environment is important in predicting entrepreneurial activities
(Shane & Venkataraman, 2000; Venkataraman, 1997). Without a mindset that can recognize technological opportunities, the competitive exploitation and adaptation to ones
environment through corporate entrepreneurship is unlikely. Accordingly, we hypothesize
as follows:
Hypothesis 3: Higher levels of perceived technological opportunities are positively
associated with corporate entrepreneurship in family firms.

The Moderating Role of Strategic Planning


Strategic planning is an integral part to family firm success. Family firms must
manage their resources and strategically plan for the future to succeed in todays
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ENTREPRENEURSHIP THEORY and PRACTICE

competitive landscape (Sirmon & Hitt, 2003). For example, the most successful family
firms have been found to invest in effective management processes, allocate resources for
business growth, develop new products and services, and invest and encourage the participation of all employees (McCann et al., 2001). Fast-growth family firms are more
likely to engage in strategic planning than their slower growth counterparts (Barringer,
Jones, & Lewis, 1998). Accordingly, strategic planning may affect the degree to which
willingness to change, generational involvement, and perceived technological opportunities contribute to family firm corporate entrepreneurship.
Concerning willingness to change, research on fast-growth family firms has suggested
that family firms should adopt strategic planning in order to integrate innovation and foster
new product development throughout the organization (McCann et al., 2001; Upton et al.,
2001). Entrepreneurship is likely to be prompted by deliberate strategic and managerial
intent that reflects the willingness of management to change and experiment (Karagozoglu
& Brown, 1988). Indeed, research suggests that the most entrepreneurial firms continually
strive to keep pace with change and often induce changes in their environments through
strategic planning (Miles & Snow, 1978; Miller & Friesen, 1982). Therefore, when
willingness to change is accompanied by strategic planning, entrepreneurial activities are
more likely to occur in family firms.
Strategic planning can give purpose to the family members working in the family firm
and channel their efforts toward a greater participation in the corporate entrepreneurship
process, thus heightening the positive effect of generational involvement on corporate
entrepreneurship. Concerning first generation family firms, founders often stifle their
business growth by becoming fixated on a previously successful strategy and failing to
plan for the future (Ward, 1987). Founding generations often are reluctant to let the next
generation join in the decision making of the business (Handler, 1989; Lansberg, 1988).
In particular, founding family members often make themselves indispensable to the
business in an effort to maintain decision-making authority over newer generation family
members (Handler, 1989; Lansberg, 1988). However, in successful family firms, the
incumbent and newest generations communicate ideas, offer feedback, and encourage
mutual learning (Handler, 1991). Strategic planning is thus seen as an integrative device
(Ketokivi & Castaner, 2004) that allows individuals to better understand where the
organization is heading and can reduce individual biases (Ketokivi & Castaner, 2004).
This is particularly important in family firms where the founding generation tends to bias
the decision-making process.
Furthermore, as a business grows to include multiple generations, it becomes increasingly important to take part in formal strategic planning (Jaffe & Lane, 2004). For
businesses to continue to grow, new strategies need to be developed for each new generation of leadership (Ward, 1987). With greater generations comes the desire for the
family to sustain connections, but family members have less and less of a common
foundation as family relationships become more removed and differences intensify (Jaffe
& Lane, 2004). This growth in family members and connections that occurs in multigeneration family firms requires much more formal organization and strategic planning if the
firm is to remain successful and family controlled (Jaffe & Lane, 2004). Thus, strategic
planning offers the opportunity to coordinate and create cooperation among family
members and in turn facilitate corporate entrepreneurship.
Concerning perceived technological opportunities, strategic planning has been shown
to be an important tool in an organizations ability to leverage their resources and to gain
a competitive advantage (Barney, 1996; Chrisman, Chua, & Zahra, 2003; McGrath &
MacMillan, 2000). The strategic planning process provides a framework that guides
individuals in their understanding of their environment and strategic issues at hand (e.g.,
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815

Burgelman, 1983; Hambrick, 1981). Thus, if family members perceive technological


opportunities and are actively involved in strategic planning, it should allow them to
exploit these opportunities more efficiently. For example, it has been argued that corporate
entrepreneurs have to undergo sense-making processes to integrate insights and facilitate
further entrepreneurial activities and learning (Zahra, Nielsen, & Bogner, 1999). In other
words, strategic planning provides family members with the ability to more vigorously
pursue entrepreneurial activities.
Hypothesis 4: The relationships between (1) willingness to change, (2) generational
involvement, and (3) perceived technological opportunities and corporate entrepreneurship are moderated by strategic planning. Specifically, higher levels of strategic
planning will enhance the positive relationships of the independent variables.

Method
Sample
We collected the data for this study via mail surveys, which is a common method to
obtain data in family firm and small business research (e.g., Chrisman, Chua, & Litz,
2004; Chrisman, Gatewood, & Donlevy, 2002). Addresses for a mailing list of 232 family
businesses was provided by family business centers and associated contacts at two universities in the Northeastern United States. We defined family businesses for the purpose
of this study as firms where ownership lies within the family and at least two family
members are employed in the firm. We chose to employ a top management team (TMT)
approach to our sampling, by seeking out multiple respondents per organization. We
mailed a package containing five questionnaires to each organization and asked that
the questionnaires be distributed to key family members working in the business. The
multiple respondent approach should diminish concerns that the responses are not
representative of the different stakeholder groups in the organization (Chua, Chrisman, &
Sharma, 1999; Sharma, Chrisman, & Chua, 2003). We included self-addressed envelopes
to ensure the respondents anonymity. The questionnaires were numbered to match
respondents from the same family firm and to allow for aggregation. We received 126
questionnaires from family members working in 74 family firms, which resulted in a 32%
response rate at the firm level of analysis, which was utilized for this study. The employment size for nonfamily employees ranged from 2 to 545 with an average size of 97 and
a median of 44.
While we strived to obtain multiple respondents from each family firm, in only half of
our organizations did two or more family members respond. Of the 37 other firms, the
single family member that responded was most often the CEO. While the TMT research
often exclusively relies on the CEO as a key informant and considers him/her a reliable
source of information who reduces biases associated with responses from other organizational levels (Glick, Huber, Miller, Doty, & Sutcliffe, 1990), the unbiased assessment
of issues might not be present in the family firm environment. While the aggregation of
individual level responses to the group level is designed to reduce biases and form an
objective estimate (Simons & Peterson, 2000, p. 105), the aggregation might be questionable for family firms. Accordingly, in order to justify the aggregation of the responses
between family members, we calculated the rwg according to James, Demaree, and Wolf
(1984). The values for all constructs were within acceptable values and suggested that the
aggregated constructs were assessed similarly between family members. All rwg values as
well as the individual and firm level alphas of the constructs are reported in the Appendix.
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ENTREPRENEURSHIP THEORY and PRACTICE

Additionally, we conducted a one-way ANOVA of the independent variable as well as the


dependent variable between family firms with one and multiple respondents and found no
significant differences between them, thus mitigating our single-respondent concerns.
Since our data were collected via a mail survey, common method bias was a concern.
In order to mitigate this potential problem, we tested for common method bias as
suggested by Podsakoff and Organ (1986). All items pertaining to the independent,
moderator, and dependent variables were entered in a factor analysis and the factor
analysis extracted seven factors explaining 77.6% of variance. The factors separated
cleanly and the first factor explained only 28.9% of the variance and the remaining factors
explained 48.7%. We concluded that common method variance was not a major concern
in the current study, particularly, since no single method factor emerged.

Measures
This study examines the degree to which corporate entrepreneurship in family firms
is influenced by willingness to change, generational involvement, and perceived technological opportunities, and also considers strategic planning as a moderator. We screened
the data with the help of the KolmogrovSmirnow test to ensure normality and checked
for outliers in the sample using Mahalanobis distance measures. Necessary transformations are noted in the subsequent paragraphs. All constructs were measured on a 7-point
Likert scale anchored by strongly disagree to strongly agree unless otherwise noted.
The construct items, the individual level alphas (all larger than .80), firm level alphas (all
larger than .86), and the rwg (all larger than .87) are listed in the Appendix.
Corporate Entrepreneurship. We assessed our dependent variable by utilizing a 7-item
scale developed by Miller (1983). While more differentiated measures of corporate
entrepreneurship were available (e.g., Zahra, 1996), we felt that the more traditional and
widely used measure developed by Miller fit the context of the family firm better since the
questions were more generic and did not require larger organizations to constitute
the sample.
Willingness to Change. We adapted four items to measure family memberswillingness to
change from the personal characteristics inventory (Barrick & Mount, 1993). The big five
are personality dimensions that are well established across a variety of theoretical frameworks (Barrick & Mount, 1991). Although originally developed to assess individual traits,
we rephrased the items to assess the general willingness to change among family members.
Perceived Technological Opportunities. We asked the respondents to assess the perceived technological opportunities within their industry. We used a scale previously used
by Keats and Hitt (1988) and Zahra (1996) consisting of four items. The construct
implicitly controls for industry influences since the respondents were asked to assess the
opportunities within their own industry. The items appear in the Appendix.
Generational Involvement. Generational involvement was measured with a single-item
question that asked respondents to indicate how many generations were currently involved
in the management of their family firm. The respondents could check one generation, two
generations, or multiple generations (more than two).
Strategic Planning. To assess strategic planning in family firms, we modified a scale by
Gould (1979). The four items were reworded to reflect strategic planning in the corporate
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817

setting and were hoped to improve previous family firm research designs that tended to
rely upon single item measures (e.g., Schulze, Lubatkin, Dino, & Buchholtz, 2001).
Control Variables. Three controls were used in this study. First, we controlled for
organizational size because larger firms might have more slack to engage in corporate
entrepreneurship and thus organizational size might bias the results. We used the logarithm of number of employees to control for size. A transformation was necessary to
achieve normal distribution. Second, we controlled for ownership dispersion by asking if
the company ownership is concentrated in one, two, or multiple generations. We utilized
this measure as an alternative to age of the organization, since the age of the organization
does not necessarily denote the ownership stage and processes due to ownership dispersion within family firms (Gersick et al., 1997). Third, we controlled for past organizational performance, in the last 3 years, since mediocre performance might entice the
family firm to engage in corporate entrepreneurship to increase future performance. Since
objective measures are often not available if the firms are not publicly traded (Love,
Priem, & Lumpkin, 2002), we needed to use a subjective measure of performance.
Subjective measures of firm performance have been shown to correlate highly with
objective performance data (Dess & Robinson, 1984; Love et al., 2002; Venkatraman &
Ramanujam, 1987). Eight performance-related questions were asked regarding growth in
sales, growth in market share, growth in employees, growth in profitability, return on
equity, return on total assets, profit margin on sales, and the ability to fund growth from
profit. Specifically, respondents were asked to indicate if their past performance was much
worse, about the same, or higher than their competitors in terms of each of the indicators
of performance in the last 3 years. This approach has the additional benefit of indirectly
controlling for industry effects. The individual scores were then added to form an overall
performance score (Dess & Robinson, 1984). Higher values connote better performance.

Results
The means, standard deviations, and zero-order correlations are shown in Table 1. We
tested the proposed hypotheses via multiple regression analysis. The results are portrayed
in Table 2. In order to mitigate multicollinearity concerns, we centered the variables
before creating the interaction terms (Aiken & West, 1991) and calculated the variance
inflation factors (VIF) and condition indexes. The highest observed VIF equaled 1.63 and
the highest value of the condition index equaled 19.05, far below values which would
suggest multicollinearity concerns (Tabachnick & Fidell, 1995).
We tested four models. In model 1, we entered size, ownership concentration, and past
performance as controls. To test our first three hypotheses, we regressed corporate entrepreneurship in family firms onto willingness to change, perceived technological opportunities, and generational involvement. A significant change in R2 was observed (D R2 = .18;
p < .001). Willingness to change (b = .25; p < .05) and perceived technological opportunities (b = .32; p < .01) were found to have a significant positive impact on corporate
entrepreneurship, thus supporting hypotheses 1 and 3. However, our second hypothesis
linking generational involvement to corporate entrepreneurship was not found to be
significant (b = .12, not significant [ns]).
In order to test the suggested moderation effects, we first entered the moderator
independently in model 3 and then entered the three interaction terms in model 4. A
significant change in R2 was observed in model 4 (D R2 = .10; p < .05). Hypothesis 4 stated
that strategic planning would moderate the relationships between (1) willingness to
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ENTREPRENEURSHIP THEORY and PRACTICE

Table 1
Correlation Matrix, Means, and SDs
Variables
Past performance
Size
Ownership concentration
Willingness to change
Perceived tech. opportunities
Generational involvement
Strategic planning
Corporate entrepreneurship

Mean

SD

17.53
3.45
1.72
19.21
13.17
1.75
20.23
24.28

3.39
1.70
.68
4.38
5.09
.59
4.82
9.73

-.05
-.27**
.38****
.01
-.05
.25**
.275**

.20*
.13
.17
.21*
.01
.22*

-.20*
-.14
.47****
-.16
-.04

.20*
-.02
.50****
.39****

-.08
.15
.38****

-.07
.14

.32***

N = 74.
* p < .10; ** p < .05; *** p < .01; **** p < .001

Logarithmized.
SD, standard deviation.

Table 2
Results of Regression Analysis
Corporate entrepreneurship
Variables
Controls
Size
Past performance
Ownership concentration
Independent variable
Willingness to change
Perceived technological opportunities
Generational involvement
Moderator
Strategic planning
Interaction effect
Strategic planning and willingness to change
Strategic planning and perceived technological opportunities
Strategic planning and generational involvement
D R2
R2
Adjusted R2
F

Model 1

.24**
.29**
-.01

.13***
.13
.10
3.60**

Model 2

Model 3

Model 4

.12
.19*
.03

.12
.18
.03

.25**
.32***
.12

.17
.31***
.13

.19
.33***
.16

.15

.16

.18****
.31
.25
5.06****

.02
.33
.26
4.624****

.08
.23
-.01

-.15
.23**
-.22**
.10**
.43
.34
4.71****

N = 74.
* p < .10; ** p < .05; *** p < .01; **** p < .001

Standardized regression weights.

November, 2006

819

Figure 2
Generational Involvement and Strategic Planning
Strategic Planning
Low
High

Corporate Entrepreneurship

14.00000

12.00000

10.00000

8.00000

IV -1 SD

IV +1 SD

Generational Involvement

change, (2) generational involvement, and (3) perceived technological opportunities and
corporate entrepreneurship. We found partial support for hypothesis 4. Strategic planning
was found to moderate the relationship between perceived technological opportunities
(b = .23; p < .05) and generational involvement (b = -.22; p < .05) and corporate entrepreneurship. However, strategic planning was not found to moderate the relationship
between willingness to change and corporate entrepreneurship (b = -.15, ns).
To facilitate interpretation, the significant interactions were plotted in Figures 2 and 3
(Cohen & Cohen, 1993). Figure 2 shows that, as expected, strategic planning leads to
higher levels of corporate entrepreneurship in organizations where only one family generation is present. However, contrary to our predictions, Figure 2 also shows that strategic
planning has little effect on the corporate entrepreneurship of multigeneration family
firms and that those multiple generation family firms with little strategic planning appear
to have the highest level of corporate entrepreneurship. The second significant interaction
effect between strategic planning and perceived technological opportunities is displayed
in Figure 3. Here we find, as predicted, that strategic planning increases the positive effect
between perceived technological opportunities and corporate entrepreneurship. The implications of these findings are discussed in the next section.

Discussion
Nonfamily firms are often seen as more innovative than family firms (e.g., GomezMejia, Larraza-Kintana, & Makri, 2003). Therefore, in order for family firms to remain
competitive, it is of the utmost importance to understand corporate entrepreneurship in
family firms and how the family firm recognizes, pursues, and exploits entrepreneurial
820

ENTREPRENEURSHIP THEORY and PRACTICE

Figure 3
Perceived Technological Opportunity and Strategic Planning
Strategic Planning
Low

Corporate Enterpreneurship

12.50000

High

12.00000

11.50000

11.00000

10.50000

IV -1 SD

IV +1 SD

Perceived Technological Opportunities

opportunities in an effort to grow and succeed. Indeed, our research suggests that the
ability to recognize technological opportunities, pursue organizational change, and exploit
opportunities through strategic planning increases corporate entrepreneurship in family
firms. These results have important implications for both research and practice.
Concerning opportunity recognition, higher levels of perceived technological opportunities were found to lead to greater corporate entrepreneurship in family firms. This
supports our arguments that family firms are more likely to invest in corporate entrepreneurship when they see their environments as being rich in technological opportunities
and that the ability to identify opportunities should lead to greater corporate
entrepreneurship. This finding is important given the lack of research on technology
and entrepreneurship in the family firm literature. In addition, we further showed that
strategic planning enhanced the positive relationship between perceived technological
opportunities and corporate entrepreneurship. As hypothesized, strategic planning appears
to facilitate the exploitation of environmental opportunities. Accordingly, strategic planning plays an important role in explaining when perceived technological opportunities
lead to the greatest increase in corporate entrepreneurship in family firms. Our findings
suggest that when technological opportunities are recognized and the exploitation of these
opportunities is strategically planned, family firms will experience the highest level of
corporate entrepreneurship. Certainly, future research should build on these findings and
further investigate how strategic planning can enhance the exploitation and success of the
market opportunities a family firm recognizes.
Our research also points to the importance for family firms to be willing to pursue
opportunities through organizational change. Specifically, our finding that willingness to
change positively impacted corporate entrepreneurship is significant given that family
firms are often criticized for resisting change (Levinson, 1987) and being reluctant to
change (Beckhard & Dyer, 1983; Vago, 2004; Ward, 1987). This is the first known study
November, 2006

821

that empirically examines family firms willingness to change and then demonstrates how
it increases corporate entrepreneurship; another characteristic that family firms are often
criticized for lacking (Cabrera-Suarez et al., 2001). Given the importance of these two
variables to the sustainability and success of family firms, it is critical that family firms
create a culture that facilitates and accommodates change and entrepreneurship (Litz &
Kleysen, 2001). Future research should further examine how willingness to change affects
family firm success and survival, particularly in dynamic environments and during times
of succession.
Concerning generational effects, while we did not find generational involvement to
directly influence corporate entrepreneurship, our results did demonstrate the important
role that strategic planning plays in examining generational effects in family firms. Our
results show that when strategic planning is taken into account, family firms with greater
generational involvement appear to experience greater corporate entrepreneurship.
However, we also see that this relationship is quite complex. That is, while strategic
planning heightened the corporate entrepreneurship of first generation family firms, it did
not have a positive effect on multigeneration family firms. One explanation for this
relationship could be the increased level of political activity, i.e., necessary to develop
strategies around priorities that everybody can agree on in multigeneration family firms,
since greater generational involvement leads to a more diverse set of interests and ambitions among family members (Gersick et al., 1997). Alternatively, while strategic planning
may be key to corporate entrepreneurship in first generation firms, the formalization and
professionalism typically associated with multigeneration firms (Gersick et al., 1997) may
make strategic planning less important to corporate entrepreneurship in these firms.
Certainly, more research is needed to unravel these complex findings.
In addition, the lack of a main effect of generational involvement on corporate
entrepreneurship indicates that, contrary to popular opinion, first generation firms do not
necessarily become less entrepreneurial as time progresses, nor are multigeneration firms
always the most entrepreneurial. As Litz and Kleysen (2001) suggest, entrepreneurship
can be found in both first generation and later generation family firms while still other
family firms exist that lack entrepreneurial spirit across many generations. Studies in the
future should investigate and compare the factors that encourage family firms across
generations to invest in corporate entrepreneurship.

Limitations and Implications


Before discussing the implications of our findings, a few limitations of our study
should be noted. Because our research design is cross-sectional, we cannot deduce causal
relationships. Clearly, there are likely to be additional and important insights from future
longitudinal studies. However, we tested for common method bias (Podsakoff & Organ,
1986) and are hopeful that our findings were not affected (see also Doty & Glick, 1998;
Spector & Brannick, 1996). This is particularly true for our findings pertaining to the
interaction effects, since common method bias cannot create significant interaction, but
can only attenuate them (Evans, 1985).
Turning to the implications, our study underscores the importance of strategic planning in family firms by demonstrating that strategic planning indirectly enhances corporate entrepreneurship. This is important considering that little is known concerning how
family firms formulate and implement strategies (Sharma et al., 1997). It also suggests
that the common suggestion to move to professional management as soon as possible
(Levinson, 1971), i.e., nonfamily management, may not be necessary as long as sufficient
amounts of strategic planning are in place. Furthermore, the implications of strategic
822

ENTREPRENEURSHIP THEORY and PRACTICE

planning are not limited to family firms. Indeed, our research adds to recent empirical
findings stressing the value of strategic planning in general (e.g., Ketokivi & Castaner,
2004). This is noteworthy considering that the strategic planning literature does not
always show a direct link between strategic planning and organizational performance
(e.g., Miller & Cardinal, 1994). Our finding that strategic planning in interaction with
other variables can enhance corporate entrepreneurship helps us to better understand the
role that strategic planning plays in predicting firm performance.
While we deliberately chose to examine variables that support Millers (1983) view of
entrepreneurship and are associated with opportunity recognition, pursuit, and exploitation, future research should certainly consider other factors that may facilitate corporate
entrepreneurship in family firms. In particular, investigating how family attitudes and
family values influence corporate entrepreneurship and strategic initiatives in family firms
appears to be a fruitful avenue for future research. Future research also needs to employ
a family perspective in investigating potential inhibitors of corporate entrepreneurship in
family firms. For example, Kellermanns and Eddleston (2004) discussed the devastating
effect of relationship conflict in family firms. It is reasonable to assume that relationship
conflict could also hamper corporate entrepreneurship in family firms by directing efforts
toward creating family harmony as opposed to pursuing business needs. Thus, how family
members interact may be an important factor in predicting corporate entrepreneurship.
Furthermore, the stage of family leadership should be considered. How succession
planning influences corporate entrepreneurship may be important given that entrepreneurial activities are associated with organizational renewal, innovation, (Guth & Ginsberg,
1990; Zahra, 1996) and corporate growth (Barrett & Weinstein, 1998; Lumpkin & Dess,
1996; Zahra, 1996) necessary for family firm continuity and success. Variables like
resistance to planning, foundersuccessor relationships or successor training (Dyer &
Handler, 1994) might influence a family firms willingness to engage in corporate entrepreneurship. Understanding how succession issues affect corporate entrepreneurship and
how corporate entrepreneurship sustains family firms across generations is of the utmost
importance for firms trying to remain in the family while also increasing their success and
market share.
In conclusion, we contributed to the family firm literature by examining how the
family influences corporate entrepreneurship. Because our research did not find generational involvement to impact corporate entrepreneurship, our study refutes the common
misperceptions that first generation firms become less entrepreneurial over time or that
multigeneration firms are the most entrepreneurial. Our study shows that family members
ability to identify technological opportunities and to be willing to change differentiates the
most entrepreneurial family firms. In addition, families that create strategic plans can
further facilitate the degree to which technological opportunities increase their firms
corporate entrepreneurship as well as the corporate entrepreneurship of first generation
firms. However, our study was only the first step in applying a family perspective to the
study of corporate entrepreneurship in family firms. Considering the importance of family
firms to the U.S. economy and the high percentage of family firms in the United States
(e.g., Gersick et al., 1997), research needs to better understand how specific family
processes facilitate or inhibit corporate entrepreneurship in family firms.

November, 2006

823

Appendix
Scale Items and Reliabilities
Construct
Controls
Past Performance

Independent Variables
Perceived Technological Opportunities

Willingness to Change

Moderator
Strategic Planning

Dependent Variable
Corporate Entrepreneurship

1
2

Items

Individual a Firm a rwg2

How would you rate your firms performance as


compared to your competitors? Past three years:
Growth in sales
Growth in market share
Growth in number of employees
Growth in profitability
Return on equity
Return on total assets
Profit margin on sales
Ability to fund growth from profits

.90

.90

.99

Opportunities for product innovation are abundant in


our major industry.
Opportunities for technological innovation are
abundant in our major industry.
Spending on research & development is higher in our
major industry than in most industries.
Opportunities for major technological breakthroughs
are abundant in our major industry.
Family members are generally ready to take on any
new challenges that our family firm faces.
Family members are generally open to trying new
things for our family firm.
Family members are generally fascinated by novel
ideas.
Family members generally find it hard to change.1

.84

.83

.87

.80

.86

.90

We have a strategy for achieving our business goals.


We have a plan for our business.
We know what we need to do to reach our business
goals.
Our business objectives are not clear.1

.86

.87

.85

Our firm has introduced many new products or


services over the past three years.
Our firm has made many dramatic changes in the mix
of its products and services over the past three
years.
Our firm has emphasized making major innovations in
its products and services over the past three years.
Over the past three years, our firm has shown a strong
proclivity for high-risk projects (with chances of
very high return).
Our firm has emphasized taking bold, wide-ranging
action in positioning itself and its products or
services over the past three years.
Our firm has shown a strong commitment to research
& development, technological leadership and
innovation.
Our firm has followed strategies that allow it to
exploit opportunities in its external environment.

.91

.92

.88

Reversed scored
rwg reported for family firms with multiple respondents

824

ENTREPRENEURSHIP THEORY and PRACTICE

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Franz W. Kellermanns is an Assistant Professor of Management in the College of Business and Industry at the
Mississippi State University. He was recently selected as a Family Owned Business Institute Research Scholar
by the Family Owned Business Institute of the Seidman College of Business at Grand Valley State University.
He received his PhD from the University of Connecticut. His current research interests include strategy
process and entrepreneurship with a focus on family firms. His research has appeared in journals such as the
Journal of Management, Journal of Business Venturing, Entrepreneurship Theory and Practice, and the
Academy of Management Learning and Education. He is the co-editor of the recent book Innovating Strategy
Process in the Strategic Management Society Book Series.
Kimberly A. Eddleston is an Assistant Professor at Northeastern University, where she holds the Riesman
Research Professor and Tarica-Edwards Fellowship. She was recently selected as a Family Owned Business
Institute Research Scholar by the Family Owned Business Institute of the Seidman College of Business at
Grand Valley State University. She received her PhD in Management from the University of Connecticut. Her
research has appeared in journals such as the Academy of Management Journal, Academy of Management
Executive, Academy of Management Perspectives, Human Resource Management Review, Journal of Occupational and Organizational Psychology, Entrepreneurship Theory and Practice, Journal of Business Venturing, and Journal of Applied Psychology.
We would like to thank Jim Chrisman and Erick Chang for their helpful comments in developing the article.

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