SOCIAL CAPITAL AND FAMILY BUSINESSES

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Literature Review

The purpose of this chapter is to give an in-depth overview of the current literature and research conducted in the field of family business, corporate entrepreneurship, transgenerational entrepreneurship and social capital. First, the research carried out in the fields of family business in general will be outlined, describing some significant frameworks and findings of previous studies in that area. This will be followed by an overview of the research field corporate entrepreneurship, defining the concept, its process and link to family businesses. Subsequently, the transgenerational entrepreneurship framework will be explained and discussed, giving an insight into the concept of entrepreneurial orientation, clarifying its connection to specific environmental influences, internal resources and capabilities, and showing its effects on the family firms’ performance creating transgenerational potential. Following, an overview of recent research within the fields of social capital and family firms will be presented. Finally, the chapter will be concluded by outlining the implications of this literature review for this paper’s case study.

 Family Business Research

As described previously, the focus on family business research increased during the last years. This can be explained by the great impact family businesses have on the economy and by the unique environment of the family firms that has been discovered (Habbershon & Pistrui, 2002). Miller & LeBreton-Miller (2005) define a “family controlled business as a public or private company in which a family (or related families) controls the largest block of shares or votes, has one or more of its members in key management positions, and members of more than one generation are actively involved within the business” (Miller & LeBreton-Miller, 2005). Habbershon and Williams (1999) state that compared to non-family businesses, family businesses have a unique working environment. Habbershon and Williams (1999) describe the internal environment of family firms as family-oriented, where employees are treated “nicely”, which causes higher loyalty than in other businesses. Besides, they argue that family businesses can be described as rather informal, meaning that they are very flexible and do not have a very strict organizational structure, which facilitates a trust-based decision making process. Furthermore, they say that the high influence of the family creates a family culture within the company and leads to an environment that supports trust, high identification with the firm and highly motivated employees, especially the ones being members of the family. This efficiency not only decreases costs in terms of labor and other resources, but also allows having a more informal and faster flow of information (Habbershon & Williams, 1999).
Described in previous research, the decision-making process in family firms is mostly centralized and the main responsible people are members of the family (Habbershon & Williams, 1999). Family firms, as discussed by Habbershon and Williams (1999), tend to strictly follow their vision and mission and set clear long-term goals for the future; whereas the values and goals that the owner-family embraces and represents, mainly influence the values and goals within family firms, demonstrating that the company is influenced to a large extent by the family culture. In terms of internal and external relationships, family firms are described in the literature as firms that build strong relationships with partners, and create large networks. Moreover, these relationships turn out to be very personal, and cannot be destroyed easily later on, which also distinguishes family businesses from other businesses and may cause a competitive advantage. (Habbershon & Williams, 1999).
The accomplishment of family business success depends greatly on how the business manages to pass on the business to the next generation (Habbershon T. , 2006). Habbershon defined the transgenerational concept as the way “how families adopt the entrepreneurial mindset and capabilities to generate new economic activity within each generation, which in turn creates continuous streams of wealth across many generations”. To ensure this success, says Habbershon (2006) more awareness of failure reasons is necessary, and family businesses need to know how they can avoid failure and how to deploy their resources to generate transgenerational wealth.
In addition, until recent years, no adequate performance model had been developed in order to analyze the impact of the unique family-characteristics on the business and its performance (Habbershon, Williams, & MacMillan, 2003). Consequently, Habbershon, Williams and MacMillan (2003) acknowledged this gap in the literature and developed the Unified Systems Model, which will be discussed later on. Moreover, as a different example of recent focus, the transgenerational entrepreneurship framework, which will be explained in the subchapter Transgenerational Entrepreneurship, was developed jointly between researchers from the European STEP Partner Universities during the period 2005-2008 to also address these issues.
To provide an overview of recent research done in the family business sector, the following section will give insight into different models and concepts describing the specific context of family businesses in more detail.

 Integrated Systems Approach

Dual systems model

As described before, family businesses have unique characteristics deriving from the fact that a family business embraces two social subsystems, the family and the business (Habbershon, Williams, & MacMillan, 2003). Referring to Habbershon, Williams and MacMillan (2003), the circle models explain the different purposes and interests of a family firm, meaning they demonstrate to what extent interests are either conflicting or overlapping.
The Dual Systems Approach was developed, first, by Hollander (1983) to demonstrate the main difference between non-family businesses and family businesses and to outline the unique characteristics of family firms. The dual system approach consists of two circles, which differentiate two systems, the family and the business (Figure 1). The two systems are characterized by different traits and purposes as described subsequently.
1. The family
Habbershon et al. (2003) describes the family system as emotional driven; it is mainly about tradition, family culture and identity. He says that the most important for the family is to keep the family traits and characteristics within the firm and focus on what the company stands for and represents.
2. The business
The business system, discussed by Habbershon et al. (2003), is fact-driven, stands for making profit by developing the required skills and follows the right strategies to become a profitable business.
As Whiteside and Brown (1991) discuss, these distinct areas show the uniqueness of family businesses and the contradiction between the two subsystems. The degree of the circle overlap, as mentioned by Habbershon et al. (2003), demonstrates the different intentions of the systems and constitutes the main difference of the family business compared to other businesses. Hence, the combination of the two systems leads to unique resources and capabilities that require a different strategic approach (Habbershon, Williams, & MacMillan, 2003).
Stakeholder Model – The different roles within a family business (Sharma & Nordqvist, 2008)
Sharma and Nordqvist (2008) discuss the integrated systems approach and evaluate the different models that have been developed. One emphasis of their literature discussion, points out the relevance of the stakeholder model, and describes the different roles within a family business. Moreover, they say that the integrated systems approach is derived from the issue that family businesses consist of two different subsystems (as described in the dual systems approach), which needs to be integrated to manage the emerging conflicts. They further explain that these conflicts derive from the different roles the family members have to take, being a family member, a manager and an owner at the same time. Consequently, they stress the need of developing regulations to manage the disadvantages and channelize them towards the creation of competitive advantage. These advantages, which will be recalled in the discussion of the Unified Systems Model, derive from the overlaps among these systems and are also called “familiness” in current literature (Habbershon & Williams, 1999).
The Integrated Systems Approach or Three-Circle Model (Figure 2) has been drawn up demonstrating the stakeholder interests and defining the roles of the business (Sharma & Nordqvist, 2008). Here, the dual systems approach model has been enhanced by dividing the business circle into two circles, the manager/employee and the owner because these two have different goals and purposes as well. Sharma and Nordqvist (2008) refer to this approach by saying, “It is a very useful tool for understanding the source of interpersonal conflicts, role dilemmas, priorities, and boundaries in family firms”.
Yet, the Three-Circle Model has also some shortcomings discussed by Sharma and Nordqvist (2008). The main shortcomings discussed by them are that the integrated systems approach ignores other possible sub-systems that may influence family firms, it does not provide any insight into the performance outcomes of the interactions within family firms and the similarities are overemphasized, forgetting the differences that are appearing. Moreover, Habbershon et al. (2003) also point out some weaknesses of the model, saying that it mainly emphasizes the different purposes of the systems and outlines the boundaries instead of trying to analyze how these different systems could function as one entity and synergize.
The next chapter will discuss the Unified Systems Approach (Habbershon, Williams, & MacMillan, 2003), which is a modification of the Integrated Systems Approach, considering the shortcomings of the integrated systems approach.

Unified systems approach – including enterprising family concept

As described in the two and three-circle models, the family business consists of two distinct subsystems within one system, namely the family and the business. Yet, as Habbershon et al. (2003) criticize, the circle model does not emphasize how these different subsystems can simultaneously exist and how they can be managed most efficiently. Therefore, they developed the Unified Systems Model (Figure 3) of family firm performance, focused on how the two different parts interact with each other and lead to unique performance outcomes facilitating the creation of competitive advantage. The model helps family firms to manage the different systems and stay profitable on a long-term, ensuring the existence of the firm among several generations (Habbershon, Williams, & MacMillan, 2003).
Habbershon et al. (2003) describe the family business as a social system within the framework of this model. Moreover they define a system as ‘‘a discipline for seeing wholes…interrelationships rather than things…patterns of change rather than static snapshots’’. Deriving from that, they claim that the different parts cannot be independent and the outcome of the interaction is unique and can only be reached through the interaction of the entire system. Within this model, the family business social system is called a “metasystem” (Habbershon, Williams, & MacMillan, 2003) and consists of three different components. The three components are the controlling family unit (history, traditions and life cycle of the family), the business entity (strategies and structures utilized to generate wealth) and, thirdly, the individual family member (interests, skills, and life stage of the participating family owners/managers). This division is similar to the Integrated Systems Approach discussed in the previous section.
In contradiction to the Integrated Systems Approach, Habbershon et al. (2003) emphasize how the actions taken in one of the subsystems influence the other two subsystems by becoming a source of feedback to them. Therefore, according to them, the different subsystems influence each other and hence all have a cause and effect in the other subsystems, meaning that the product of these interactions can only be reached through the interaction of the different systems. They call the product the utility function of the system (f), which represents the factors that influence positively the transgenerational value within the family firm.
As Ackoff (1994) explains, each system needs at least one or more defining functions. Habbershon et al. (2003) claim that in terms of a family business, this means that the interaction of the three subsystems – family, business and individual – must have a positive effect on the performance. By this, they imply that there must be a function, which only exists because of the combination of the three subsystems, and is acting as a system instead of three separate systems. Moreover, they indicate that the final result would be a synergy of the three subsystems forming the defining function. If however the outcome is not positive, then, the unsystemic aggregation of parts, here family, business and individuals, in this case, would not be any existing defining function (Habbershon, Williams, & MacMillan, 2003). Hence, instead of emphasizing the value creation, Habbershon et al. (2003) say that the focus should be on transgenerational value creation.
Families that create wealth among several generations are called enterprising families (Habbershon, Williams, & MacMillan, 2003). In this case, the defining function would be the transgenerational wealth creation, which would ensure that the family firm would survive on a long-term, thus, the focus of such enterprising families would be a long-term planning to keep the business alive and to protect it from failure (Habbershon, Williams, & MacMillan, 2003).

The ‘‘familiness’’ of a firm

As described before by Habbershon et al. (2003), the family firm comprises three subsystems, the family, the business and the individual family members, whereas the interaction of these subsystems creates several idiosyncratic resources and capabilities. They refer to these resources and capabilities as the “family factor” (f factor). Moreover, the resources and capabilities are family-based inputs that derive on the metasystem performance model (Habbershon, Williams, & MacMillan, 2003). Hence, they can have either a positive (f+) or negative (f-) impact on the firm’s performance (Habbershon, Williams, & MacMillan, 2003). In this sense, Habbershon et al. (2003) indicate that these resources and capabilities can either constrain the firm’s competitiveness or, on the contrary, enable its creation of competitive advantage.

1 INTRODUCTION
1.1 BACKGROUND
1.2 PROBLEM
1.3 PURPOSE
1.4 RESEARCH QUESTIONS
1.5 DELIMITATIONS
1.6 KEY DEFINITIONS
2 LITERATURE REVIEW
2.1 FAMILY BUSINESS RESEARCH
2.2 CORPORATE ENTREPRENEURSHIP
2.3 TRANSGENERATIONAL ENTREPRENEURSHIP
2.4 SOCIAL CAPITAL AND FAMILY BUSINESSES
3 IMPLICATIONS FOR RESEARCH
4 METHOD
4.1 CHOICE OF METHOD
4.2 QUALITATIVE RESEARCH
4.3 CASE STUDY APPROACH
4.4 RESEARCH APPROACH
5 EMPIRICAL FINDINGS AND ANALYSIS
5.1.1 Coronilla S.A
5.1.2 Goal
5.1.3 Mission
5.1.4 Company philosophy
5.1.5 Main public achievements
5.1.6 Organizational structure
5.2 HISTORY
5.3 CONTEXTUAL FACTORS
5.4 FAMILINESS AND SOCIAL CAPITAL
5.5 ENTREPRENEURIAL ORIENTATION
6 FINAL DISCUSSION AND CONCLUSION
6.1 SOCIAL CAPITAL AND INNOVATIVENESS
6.2 SOCIAL CAPITAL AND PROACTIVENESS
6.3 FINAL CONCLUSIONS
6.4 LIMITATIONS
6.5 IMPLICATIONS
6.5.1 Implications for research
6.5.2 Implications for Practitioners
7 REFERENCE
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