Shedding of unproductive resources in family firms

Sheddingofunproductiveresourcesinfamilyfirms:RoleoffamilystructureandcommunityculturePramoditaSharmaSchoolofBusinessandEconomicsWilfridLaurierUniversityWaterlooONCanadaN2L3C5Tel:[phone](Ext.2532)Fax:[phone]Email:[e-mail]ofManagementAhmedabadINDIATel.:[phone]Fax:[phone]Email:[e-mail]2003BestUnpublishedResearchPaperAwardfromFamilyFirmInstitute.AnupdatedversionofthisarticleispublishedinEntrepreneurshipTheory&PracticeinMay2005.Sheddingofunproductiveresourcesinfamilyfirms:RoleoffamilystructureandcommunitycultureTimelysheddingofunproductiveresourcesisessentialforsustainingthecompetitiveadvantageofafamilyfirm.However,acombinationofpastsuccess,emotionalattachment,andpathdependenciescanleadtoextensiveinertiatowardsresourceshedding.Areallfamilyfirmsequallyreluctanttodivesttheirunproductiveresourcessuchasailingbusinessunits?Drawingontheliteraturesoffamilystructuresandnationalculture,wedeveloppropositionsonthevaryinglevelsofinertiatodivestmentinfamilyfirmsdependingonthevaluesheldbytheowningfamilyandthecultureprevailingintheircommunity.Thearticleconcludeswithadiscussionoftheimplicationsforresearchandpractice.Resourcebasedviewofthefirmsuggeststhatpossessionofunique,valuable,non-substitutable,andnon-imitableresourcesisessentialforthecreationofcompetitiveadvantageofafirm(Barney,1991;Penrose,1959;Wernerfelt,1984).Thecloseinteractionoffamilyandbusinesssystemsinfamilyfirmsleadstothecreationofresourcesthatcanactasasourceofadvantageorconstraintinthesefirms.Habbershon,Williams,&MacMillan(forthcoming)refertosuchresourcesasthe‘familinessofthefirm’.Recently,scholarshavearguedthatpossessionofappropriateresourcesisonlyastarttowardsachievingthetargetofsustainablecompetitiveadvantage.Effectivemanagement(addingandshedding)oftheresourceinventoryisessentialtoensurethatthecompetitiveadvantageachievedissustainedoverareasonableperiodoftime(SirmonandHitt,forthcoming).Whileefficientresourcemanagementisimportantatalltimes,itbecomescriticalduringeconomicdownturnsasfirms’abilitytoabsorbunproductiveresourcesissignificantlyreduced.Duetoacombinationofemotionalandpracticalreasons,familyfirmshavebeennotedtobenotoriousfortheirinabilitytoshedunproductiveresourcesinatimelymanner,toanextentthatthesefirmscanbecomea‘sickness’(Kaye,1996).Ownersoftenfailtorecognize‘whenit’stimetoterminatetheirflight’(Kaye,1998:2277).Callshavebeenmadetostudytheroleofsocialpressuresinvolvedindifficultiesofdivestingfamilyfirmsorpartsthereof(e.g.,Kaye,1998).Inresponsetosuchcalls,thisarticleaddressesthequestion:Areallfamilyfirmsequallyreluctanttodivesttheirunproductiveresourcessuchasailingbusinessunits?Scholarsfavoringanevolutionaryperspectivesuggestthatfirmsareembeddedintheirenvironmentsandthenetworksofsocialrelationssurroundingafirmsignificantlyinfluencedecisionsmade(Aldrich&Zimmer,1986;Parsons,1956;Shane,forthcoming).As‘family’playsacriticalroleinfamilyfirms,thefundamentalvaluesguidingafamilystronglyinfluencethedecisionsmadeinthesefirms(c.f.,Aldrich&Cliff,forthcoming).Moreover,aswithallotherfirms,familyfirmsareembeddedintheirsocialenvironments.Thus,theprevailingcultureisalsoboundtoinfluencethedecisionsmade(Hofstede,1980;2001).Inthisarticle,weattempttounderstandtheinteractinginfluenceofdifferenttypesoffamilystructuresandtheprevailingcultureononetypeofresourcesheddingdecision–divestmentofailingbusinessunits.AnthropologistTodd(1985)hasidentifiedfourtypesofbasicfamilystructuresdependingonthefamily’svaluesondimensionsofequality-inequalityandauthority-liberty.Theseareauthoritarianfamily,communityfamily,absolutenuclear,andegalitariannuclearfamily.Ling(2002)haseffectivelyusedthesefamilytypestounderstandthegovernanceoffamilyfirms.Followingherlead,weusethesebasicfamilystructurestounderstandtheirroleondecisionstodivestailingbusinessunits.Inhisclassicstudiesofcultureacrossmorethan50countries,GeertHofstede(1980,2001)foundsignificantdifferencesonbasicdimensionsguidingasociety’sworld-viewrelatedtothevaluesandacceptablebehavior.Heidentifiedandempiricallyverified3fivedimensionsalongwhichthecultureofeachnationcouldbedistinguished.Thesedimensionsare:powerdistance,uncertaintyavoidance,masculinityversusfemininity,long-termversusshort-termorientation,andindividualismversuscollectivism.Althoughweacknowledgetheimportanceofstudyingtheroleofeachofthesedimensionsondivestmentdecisionsofafamilyfirm,inthisarticlewefocusonlyononedimensionthatrelatesclosesttotheintegrationofindividualsintoprimarygroupssuchasfamilies–individualismversuscollectivism(Hofstede,2001:29).Withtechnologicaladvancementsleadingtoeasycommunicationsandtravelintheworld,significantinterminglingofculturesistobeexpected(e.g.,McRae,1994;Tapscott,Ticoll,&Lowy,2000).Asfamiliesmigrateacrossnations,theirbehaviorisguidedbyacombinationoftheirfamilyvaluesandthesurroundingcultures.Hofstedehasencouragedsocialscientiststo‘exploremorethanonelevelofsocialreality’todevelopexcitingandproductivemodelsofhumanbehavior(Hofstede,2001:414).Takingcuefromsuchencouragement,wedevelopprop