Researchers have now identified two key competencies that owner-managers must possess to facilitate growth within their firms: matching competence and governance competence. In a recent study published in the Strategic Entrepreneurship Journal, the team has not only uncovered a notable challenge faced by owner-managers of family firms in effectively leveraging their governance competence to drive growth but also pinpointed strategies to overcome this obstacle, providing valuable insights for the field of strategic entrepreneurship and family business management.
The study, led by the esteemed Jannis von Nitzsch from the University of Munich, Miriam Bird from the Technical University of Munich, and Ed Saiedi from BI Norwegian Business School, aimed to delve into the components of sound judgment exhibited by owner-managers of private firms. These individuals hold full decision-making authority to allocate the firm’s resources in alignment with their distinctive beliefs to foster value creation, showcasing the depth of expertise and knowledge behind this research.
Von Nitzsch emphasises the significance of growth as the primary indicator of value creation within private firms. This drove the researchers to intertwine the construct of owner competence with Penrosean growth theory, which posits that growth breeds further growth. This integration sought to elucidate how owners adeptly allocate resources to propel growth, an aspect previously nebulous in Penrosean growth theory.
To scrutinise the role of entrepreneurial judgment in resource allocation decisions, the researchers adopted a secondary research design to conduct a comprehensive empirical examination and extension of the owner competence construct. They examined owner-managers competence in matching and governance, as reported on their LinkedIn profiles, and incorporated these metrics into a longitudinal sample alongside data on their firm’s growth and various firm characteristics. Matching competence pertains to conceptualising the potential value of specific resource combinations (“what to own”). In contrast, governance competence involves crafting effective governance structures to align incentives within a firm (“how to own”). Additionally, the researchers gathered survey data from German owner-managers to validate that their approach effectively captured matching and governance competence.
The findings underscored the pivotal role of owner-manager competencies, particularly in the nascent stages of their firms when standardised processes are yet to be established. Surprisingly, the team discovered that owner-manager matching competence was not bolstered in family firms, contrary to their initial hypothesis. For instance, familial ties among owners and managers within a firm may either facilitate or impede the exercise of owners’ judgment regarding strategic actions.
“This sheds light on intriguing family dynamics that may impede the exploration of innovative, risk-taking strategies — despite the family’s inherent trust and support of the owner — and hinder the professionalisation of firms when it entails relinquishing family control,” remarks von Nitzsch.
The study suggests that these dynamics obstructing growth could be alleviated by implementing governance mechanisms to deter nepotism. Furthermore, the insights for firm owners include introspection on their own competences, the unique environment of their firm (such as the influence of family members on decision-making), and the cumulative impact on firm growth. Von Nitzsch advocates for owners to contemplate enhancing their competencies to propel further growth within the firm, providing actionable recommendations for owner-managers in family firms.
More information: Jannis von Nitzsch et al, The strategic role of owners in firm growth: Contextualizing ownership competence in private firms, Strategic Entrepreneurship Journal. DOI: 10.1002/sej.1497
Journal information: Strategic Entrepreneurship Journal Provided by Strategic Management Society