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A Configurational Approach to Strategic Change in Family Firms

The article, titled “A Configurational Approach to Strategic Change in Family Firms,” offers actionable insights into what drives or hinders strategic change in family firms.  Authored by Phuong-Anh Nguyen Duong, Wim Voordeckers, Pieter Vandekerkhof, Frank Lambrechts, and Rüveyda Kelleci from Hasselt University (Belgium) and Open University (Netherlands), this research, part of this SBO-project, delivers a fresh perspective on managing strategic change.

 

Why strategic change matters?

Strategic change is vital for the long-term success and survival of any organization, including family businesses. Yet, existing research often examines factors like governance, organizational values, capabilities, or firm size in isolation, leading to fragmented insights. For instance, on the one hand, family firms’ attachment to tradition, which is one of the predominant values in family businesses, has long been seen as a source of change resistance; on the other hand, some of the world’s leading change champions are family firms who embrace their tradition.


Departing from the conventional approach mentioned above, this study employs a configurational approach and a framework built from models of fit in family firm literature to identify the combinations of governance structures, organizational values, capabilities, and firm size that can either promote or hinder strategic change in family firms. This configurational approach helps shed light on several paradoxes or tensions, particularly, how family firms can foster changes while embracing their tradition, or how family firms that opt for changes can balance both family and business values.


Key findings at a glance

First, strategic change in family firms is shaped by combinations of factors rather than isolated elements; in other words, no single factor alone is sufficient to drive or prevent change. Second, the analyses identify six configurations leading to high levels of strategic change and three configurations explaining low levels of strategic change. Third, the effectiveness of governance mechanisms, namely, the presence of outside directors and a family charter, depends on their combination with organizational values, capabilities, and firm size. Fourth, family values such as tradition can either propel or inhibit strategic change, depending on how they align with other factors such as governance mechanisms and capabilities. Similarly, firm size can be either an asset or a liability for strategic change, depending on how it complements other organizational factors.


Practical insights for family businesses

Here is how these findings translate into actionable strategies:


Engage outside directors: the involvement of outside directors can increase the board discussion of entrepreneurial issues; thereby, these directors can be important catalysts to leverage strategic entrepreneurial behaviors capability. Especially in smaller firms undergoing strategic change without a strong focus on family or business values, outside directors appear to have an important role in reducing the uncertainty associated with strategic change strategies via their insightful advice. In larger, entrepreneurial family firms that are deeply rooted in family values, outside directors can bring an unbiased perspective, enabling the firm to critically evaluate its strategies without being influenced by emotional ties to traditions or legacy decisions.


Use family charters wisely: For larger family firms lacking outside directors and a focus on business values, a family charter serves as a powerful governance tool to unlock resources and drive strategic change. By fostering open discussions on critical topics such as dividend distribution and reinvestment preferences, the charter facilitates consensus among family shareholders. This process not only aligns diverse interests but also cultivates a shared vision, strengthening cohesion and long-term commitment. In doing so, the family charter helps secure patient financial capital—an essential resource for sustaining and accelerating strategic change initiatives.


Leverage combined governance mechanisms: For large family firms that lack strategic entrepreneurial capabilities but are strongly guided by family values, the key to promoting strategic change while preserving tradition lies in combining two governance mechanisms: outside directors and a family charter. Outside directors bring valuable external expertise and networks, enabling the firm to identify and implement innovative strategic directions, effectively offsetting the absence of entrepreneurial capabilities. Complementing this, a family charter reinforces cohesion by uniting the family around critical business priorities, such as strategic change. It serves as a bridge between the family and the business, fostering open communication, and aligning long-term goals and visions. Together, these governance tools create a balanced framework, allowing the firm to embrace change without compromising its cherished traditions.


Embed organizational values: Several large, family-controlled businesses that integrate both family and business values at the heart of their organizations, use these values as a compass for strategic change decisions. In these firms, the board of directors—predominantly composed of outside directors—plays a pivotal role as a steward of these values. They actively recruit board members and employees who align with the organization’s values and craft strategies that reflect the firm's principles and the long-term vision of the business family.


Common pitfalls to avoid

The study identifies several firms that place a strong emphasis on family values but fail to establish robust governance mechanisms or cultivate business values and strategic entrepreneurial behavior capabilities. This imbalance often hinders their ability to drive meaningful change. Furthermore, larger family firms that neglect both business values and strategic entrepreneurial behavior capabilities—and operate without effective governance structures—are particularly prone to stagnation, experiencing significantly lower levels of strategic change. This highlights the critical need for a balanced approach that integrates governance, values, capabilities, and firm size.


Final takeaways

Holistic approach: Evaluate the interplay between governance structures, organizational values, capabilities, and firm size rather than treating them as separate issues.


Leverage family values: Don’t view family traditions as barriers to change. Instead, see them as potential competitive advantages that can be strategically integrated into change processes.


Tailor governance mechanisms: Choose and implement governance structures, such as outside directors or family charters, that complement the firm’s existing values, capabilities, and firm size.


Develop strategic entrepreneurial behavior: This capability can be a powerful driver of change, especially when combined with appropriate governance structures.


Adapt to firm size: Recognize that strategies for driving change may differ based on firm size. Larger firms may benefit from different configurations than smaller ones.


Embrace complexity: Understand that there is no single formula for achieving strategic change—what succeeds for one organization may not be effective for another. Strategic change in family firms is shaped by unique combinations of factors, making it essential to analyze your firm’s specific context, such as governance mechanisms, organizational values, and capabilities. By identifying and tailoring the right “recipe” to fit your organization's distinctive characteristics, you can navigate complexity and unlock pathways to increase strategic change level.


Final word

By considering these findings and recommendations, family firm practitioners can develop more nuanced and effective approaches to managing strategic change, using their unique characteristics as potential strengths rather than viewing them as limitations. The journey toward strategic change is complex but immensely rewarding when the right combinations of factors come together.




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© 2022 Project Strategic Change in Family Firms

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