A Resource-Based Framework for Assessing the Strategic Advantages of Family Finns.

The Resource-Based View (RBV) of competitive advantage provides a theoretical framework from the field of strategic management for assessing the competitive advantages of family firms. The RBV isolates idiosyncratic resources that are complex, intangible, and dynamic within a particular firm. The bundle of resources that are distinctive to a firm as a result of family involvement are identified as the "familiness" of the firm. This approach provides a research and practice method for assessing the specific behavioral and social phenomena within a firm that provide an advantage. Using a familiness model for assessing competitive advantage overcomes many of the problems associated with the generic claim that family companies have an advantage over nonfamily companies. It also provides a unified systems perspective of family firm performance.

Introduction

The purpose of this paper is to begin developing a theoretical basis for the exposition of the relationships among individual family firm behaviors, the advantages of being family-controlled, and their distinctive performance capabilities. The paper is based on research underway at the Family-Controlled Corporation Program at the Wharton School of the University of Pennsylvania, conducted in collaboration with Wharton's Snider Entrepreneurial Research Center. Prior studies conducted at the Snider Entrepreneurial Research Center developed a research model that links indicators of future competitive advantage at the firm level to behaviors at individual and group levels (Levinthal & Myatt, 1994; McGrath, Tsai, Venkataraman, & MacMillan, 1996; McGrath, MacMillan, & Venkataraman, 1995). The Family-Controlled Corporation Program is now applying similar research models to the analysis of medium and large family businesses to better understand their unique potential for competitive advantage and how this relates to subsequent performance.

As the research program got underway it became clear that there was no theory on which to base the research. After considerable investigation we turned to the strategy arena and the Resource-Based 'View of the Firm (RBV) for explaining sources of advantage for family-controlled corporations. In this paper we explicate our approach, in the hope that it will establish a direction for others studying the performance capabilities of family firms. Progress in this direction would create a theoretical foundation for conducting firm-level performance research in the future. It would also provide a disciplinary framework for analyzing the competitive advantage claims currently found in the family business literature and would open a door into the strategy arena for researchers from the field of family business.

As Wortman (1994) pointed out, there is no unifying paradigm for research and practice in the field of family business studies. Scholars trained in psychology, sociology, law, accounting, economics, organizational behavior, strategic management, entrepreneurship, and numerous other disciplines have conducted some research on family firms. The varied approaches used to analyze family businesses are the result of this diversity among disciplines, as well as the diversity that exists within the disciplines. While this multidisciplinary effort has added breadth to the field as a whole, the lack of a cohesive structure and unified methodology has hindered progress in more deeply understanding family firms.

This limited progress is particularly evident when examining the family business performance or advantage literature. The literature is replete with largely anecdotal descriptions of the unique characteristics and processes of family firms and claims of how this uniqueness can lead to a competitive advantage. But, with few exceptions (Astrachan & Kolenko, 1994), these claims do not directly link the descriptive attributes of family-controlled firms to specific firm performance variables. Conversely, those studies that have utilized performance variables and found that a defined category of family firms has an advantage (McConaughy, Walker, Henderson, & Mishra, 1995) have not linked those advantages to actionable antecedents (i.e., the descriptive attributes mentioned in other studies).

Wortrman (1994) presented a research typology for the field of family business, outlining the potential relationships among the macro- and micro-environments, organizational contexts, and content issues. He delineated major topical areas appropriate for study within the field of family business, including our current research interest firm performance. Although Wortman's efforts have advanced the field of family business to the point of having a suggested research typology, they nevertheless fell short of suggesting an organizational framework on which to analyze the uniqueness of family firms and their performance in the economic arena. There is a rich vein of performance literature in which to search for an organizing approach (industrial organizational models, neoclassical economics, transaction and agency theory, organizational theory, organizational behavior, strategic management), but the RBV uniquely synthesizes many of the other approaches and provides a framework intended to link firm-level antecede nts to performance outcomes.

The RBV of competitive advantage applies the lens of analysis to the firm or business unit and isolates specific resources that are complex, intangible, and dynamic. Because family firms have been described as unusually complex, dynamic, and rich in intangible resources, the RBV gives researchers in the field of family business an appropriate means to analyze them. Likewise, family firm advantages are most often described as specific to a given family and business. In the RBV, the bundle of resources that holds the potential for performance advantage is identified as idiosyncratic to a particular firm in a particular environment. Additionally, many of the advantages family firms are said to possess are found in their family and organizational processes. Numerous research examples within the RBV literature find linkages between firm processes and firm performance. Table 1 provides a sampling of the literature with specific organizational processes or firm assets that have been linked to firm performance.

In short, the RBV provides an established theoretical model to analyze the relationships among firm-level processes, assets, strategy, performance, and sustainable competitive advantage for the family firm. It becomes a framework for evaluating the multidisciplinary performance and advantage literature already in the field and allows for the inclusion of all potentially idiosyncratic firm-level characteristics and capabilities in the analysis. Because the RBV is found within the demonstrated discipline of strategic management, the framework provides the field of family business with a disciplinary approach to family firm performance and advantage. It also creates an opportunity for strategy researchers to further investigate the unique essence of the family structure of business organization as a distinct form of enterprise and for family business researchers to publish in the field of strategy.

This article will, therefore, demonstrate how the RBV is a proper framework for understanding the competitive advantages of family firms. After a review of the literature on family firm performance capabilities, we outline problems with the current approach and then describe the RBV from the strategic management literature and compare its assumptions to other models. This section is intended to lay a foundational understanding of the RBV so that the framework can then be applied to the study of family firm advantage. We conclude with implications for family firm research and practice and interact with the work currently being conducted at Wharton's Family-Controlled Corporation Program using the RBV framework.

Performance Capabilities of Family Firms

Over the past 15 years, the field of family business studies has evolved significantly in understanding how family firms are different from other businesses in both their organizational composition and performance capabilities. Notable contributions have been made in identifying the systemic nature of family firm behavior (Davis & Stem, 1980; Lansberg, 1983; Whiteside & Brown, 1991), in describing the psychological and process aspects of systems interactions (Ackoff, 1994a, 1994b), in delineating the dual characteristics of family and business as a source of both benefit and disadvantage (Kets de Vries, 1993; Prokesch, 1986; Tagiuri & Davis, 1996), and in noting the distinctive operational and outcome capabilities of family companies (Moscetello, 1990).

Despite such well-known headlines as "Father-son struggle splinters Haft dynasty" (Swisher, 1993) and "Rum on the rocks: Bacardi's family secrets are spilling into a court fight" (Henriques, 1996) that continue to capture the public's attention, the family business literature is filled with more positive assertions that family firms have performance advantages over nonfamily firms. Broadly, they are more likely to succeed than any other kind of business, with an unparalleled competitive advantage (Brokaw, 1992) that embodies the management practices and business values required for competitiveness (Prokesch, 1986; Aronoff, Astrachan, & Ward, 1996). Moreover, the family business is the ultimate long-term investor (Dreux, 1990) and a model for future business success (Aronoff & Ward, 1995).

One of the most significant outcomes of this newfound (or some would contend hard fought) positivistic view has been the incentive it provided families in business to seek the advantages of family involvement and to create multigenerational success. As family owners and managers strive to better understand how family firms capitalize on these advantages, academics and practitioners have begun to more clearly define and categorize them. To date, the advantages of family firms have been presented primarily in a descriptive fashion with broad theoretical and anecdotal support that cuts across traditional academic disciplines. A review of the literature substantiates this descriptive emphasis on the unique characteristics of family businesses and the potential they have for competitive advantage and superior firm performance.

Family firms have been described as having a unique working environment that fosters a family-oriented workplace and inspires greater employee care and loyalty (Ward, 1988). They have been said to pay higher wages to employees (Donckels & Frohlich, 1991) and to have the ability to bring out the best in their workers (Moscetello, 1990). They have more flexible work practices for their employees (Goffee & Scase, 1985), have lower recruitment costs, lower human resource costs, and are said to be more effective than other companies in labor intensive businesses (Levering & Moskowitz, 1993).

Family members have also been described as more productive than nonfamily employees (Rosenblatt, deMik, Anderson, & Johnson, 1985). They have a "family language" that allows them to communicate more efficiently and exchange more information with greater privacy Family relationships generate unusual motivation, cement loyalties, and increase trust (Tagiuri & Davis, 1996).

Overall, family firms reportedly have lower transaction costs (Aronoff & Ward, 1995), a more trustworthy reputation (Tagiuri & Davis, 1996; Ward & Aronoff, 1991), efficient informal decision-making channels, less organizational structure, and lower monitoring and control costs (Daily & Dollinger, 1992). Decision making tends to be centralized among top. family members, which decreases cost and increasing the flexibility of the firm (Goffee & Scase, 1985; Hall, 1988; Poza, Alfred, & Maheshwari, 1997; Tagiuri & Davis, 1996).

Likewise, family firms have been known to reduce agency costs, a result of the overlapping owner/principles and manager/agents relationships (Aronoff & Ward, 1995; McConaughy et al., 1995). It has been asserted that the concentration of shares in family management …