Can Family Firms Innovate? Sharing Internal Knowledge From a Social Capital Perspective

Abstract

Many studies focus their analysis on the effects of knowledge management on the development of organizational innovations. Innovation is posited, in this paper, to be a managerial priority that facilitates the creation of competitive advantage. The data, information and knowledge that contribute to innovation processes are available in social capital. Social capital is understood as the networks, norms and trust that enable participants to act together more effectively to pursue shared objectives (Putnam, 1993). From this foundation, we argue that the effectiveness of these networks can be determined by whether the personnel who interact perceive the relationship to be worthwhile, equitable, productive and satisfying. Only individuals can apply their own experience and contextual understanding to interpret the details and implications of a particular situation in order to determine what is the appropriate action or actions to take. Internal social capital enhances the ability of members within a firm to know who to contact for relevant knowledge. This means that internal social capital facilitates the development of innovation through the acquisition of knowledge from internal and external networks. However, there are some problems in family firms. The utilization of internal capital does not guarantee that appropriate information is used in appropriate circumstances or that information is appropriately updated (De Holan and Phillips, 2004). The influence of the family on the company may inhibit or foster the exploitation of this knowledge. In this context, we try to test the influence of social capital on innovation on family firms. We develop a measure of the extent of family control of family companies – familiness – and examine the moderator role of this variable in the relationship between social capital and product innovation. The results of our empirical study of 282 family firms show that social capital has a positive relationship with product innovation. That is, the active connections among people – “the trust, mutual understanding, shared values and behaviors that bind the members of human networks and communities and make cooperative action possible” (Cohen and Prusak, 2001) – allow companies to generate innovations. Second, we also found that familiness plays a moderator role in the relationship between social capital and innovation. In this case, we have found that cultural dimension of familiness positively moderates the relationship between social capital and innovation.