Entrepreneurial by Design: How Organizational Design Affects Family and Non‐family Firms’ Opportunity Exploitation

• DOI: http://doi.org/10.1111/joms.12568
• Date: 01 January 2021
• Author: Alfredo De Massis,Kimberly A. Eddleston,Paola Rovelli
• Published date: 01 January 2021

© 2020 Society for the Advancement of Management Studies and John Wiley & Sons, Ltd.

Entrepreneurial by Design: How Organizational

Design Affects Family and Non-family Firms’

Opportunity Exploitation

Alfredo De Massisa,b, Kimberly A. Eddlestonc and

Paola Rovellia

aFree University of Bozen-Bolzano; bLancaster University Management School; cNortheastern University

ABSTRACT Opportunity exploitation is a key aspect of the cor porate entrepreneurship process

and is particularly important to maintain a family firm through multiple generations. Drawing

on an organizational design perspective, we investigate opportunity exploitation in family versus

non-family firms. The empirical analyses on survey data from a sample of 224 Italian fir ms

reveal that family firms exploit significantly fewer opportunities than non-family firms, and this

result is fully mediated by the organization of their TMT. Our findings show that how fam-

ily firms organize is crucial for opportunity exploitation, thus extending and enriching prior

corporate entrepreneurship research, highlighting the importance of bringing an organizational

design perspective to corporate entrepreneurship and family business studies.

Keywords: corporate entrepreneurship, family business, opportunity exploitation,

organizational design, top management team

INTRODUCTION

Corporate entrepreneurship is the process through which firms innovate, set up new

businesses, and transform themselves (Guth and Ginsberg, 1990; Sharma and Chrisman,

1999; Teng, 2007; Zahra, 1991, 1993; Zahra et al., 1999) by actively creating and ex-

ploiting opportunities (Ireland et al., 2009; Teng, 2007). Product innovation, process

innovation, and entering new businesses are just some examples of corporate entrepre-

neurship (Covin and Slevin, 1991; Miller, 1983; Zahra et al., 2000). Through corporate

entrepreneurship, firms can positively affect their survival, growth, wealth, and com-

petitive advantage (Bhardwaj et al., 2006; Bojica and Fuentes, 2012; Dess et al., 2003;

Journal of Man agement Studi es 58:1 January 2 021

doi:10. 1111/j om s.1 25 68

Address for reprints: Kimberly A. Eddleston, D'Amore-McKim School of Business, Northeastern University,

209 Hayden Hall, Boston, Massachusetts, USA 02115 (k.eddleston@northeastern.edu).

28 A. De Massis et al.

© 2020 Society for the Advancement of Management Studies and John Wiley & Sons, Ltd.

Zahra, 1991, 1993). It is therefore seen as vital to the long-term prosperity of family

firms (Kellermanns and Eddleston, 2006; Uhlaner et al., 2012).

The importance of corporate entrepreneurship to family firms’ prosperity has spurred

research investigating differences between family and non-family firms (e.g., Duran et al.,

2016; Kellermanns and Hoy, 2017; Zahra et al., 2004), as well as differences among

family firms (Eddleston et al., 2012; Kellermanns and Eddleston, 2006; Minola et al.,

2016). However, the findings are mixed (i.e., Kellermanns and Eddleston, 2006; Naldi

et al., 2007; Patel and Fiet, 2011; Ratten et al., 2017; Sciascia et al., 2012; Zahra et al.,

2004; Zellweger and Sieger, 2012), which may be due to the field’s predominant focus on

opportunity recognition (also labelled opportunity formation, and creation), which is just

one side of the corporate entrepreneurship coin (Barney et al., 2018; Foss et al., 2013).

Indeed, there is a difference between recognizing an opportunity and taking action to exploit

that opportunity (McMullen and Shepherd, 2006).

Opportunity exploitation refers to the deployment of actions, resources, and investments

to exploit opportunities that have previously been formed (Cha and Bae, 2010; Eckardt

and Shane, 2003; Foss and Klein, 2012; Foss et al., 2013; Shane and Venkataraman,

2000). Thus, opportunity formation[1 ] and opportunity exploitation are two key aspects

of corporate entrepreneurship (Barney et al., 2018). For example, once a firm has recog-

nized an opportunity to develop a new product (i.e., opportunity formation), it must then

decide whether to take action to exploit that opportunity, which often includes identify-

ing resources and investments, and making decisions related to production, marketing,

and sales. To date, the scarce articles that focus on family firms’ opportunity exploita-

tion are largely conceptual (e.g., Goel and Jones, 2016; Sharma and Salvato, 2011). We

therefore lack understanding of what drives opportunity exploitation in the context of

family firms, despite recent organizational design research stressing the importance of

capturing a firm’s ability to realize entrepreneurial opportunities (Foss et al., 2013, 2015).

Organizational design is expected to be related to a firm’s exploitation of opportu-

nities because it reflects how an organization and its top management team (TMT) are

structured to realize its goals, and how different structures are particularly suitable for

the performance of certain activities (Nadler and Tushman, 1997; Russo and Harrison,

2005). Specifically, organizational design is defined as the roles, processes, and structures

created by an organization to establish accountability and responsibility, and to develop

and implement its strategies (Greenwood and Miller, 2010). As such, it is seen as the

architecture of an organization that calls for a configurational approach that considers

the holistic, interdependences of a firm’s structural elements rather than simply studying

each element in isolation (e.g., Ennen and Richter, 2010; Foss et al., 2013; Greenwood

and Miller, 2010). The underlying principle of organizational design is that it is only

possible to understand the actual effect of the whole organization (i.e., the joint effect of

the design of its organizational elements) on firm behavior by simultaneously considering

the interdependent elements (Ennen and Richter, 2010; Thompson, 1967). Key organi-

zational design elements expected to affect a firm’s opportunity exploitation are: delega-

tion, incentives, coordination, communication, formalization, and organization size (Foss

et al., 2013, 2015). Thus, although contingency theory recognizes that there is no ‘one

best way to organize’ (e.g., Galbraith, 1973; Mintzberg, 1979; Shetty and Carlisle, 1972),

Entrepreneurial by Design 29

© 2020 Society for the Advancement of Management Studies and John Wiley & Sons, Ltd.

some organizational designs may be more conducive to opportunity exploitation than

others.

Accordingly, organizational design may help to elucidate family firms’ entrepreneurial

behavior. For example, in comparison to non-family firms, family firms tend to be more

centralized and CEO-centric (Carney, 2005; Feltham et al., 2005; Martin et al., 2016),

with less incentive compensation (De Massis et al., 2016; Neckebrouck et al., 2018),

and less formalization (Stewart and Hitt, 2012; Zhang and Ma, 2008). Research has

long recognized that family ownership is associated with unique governance practices

(Carney, 2005; König et al., 2013; Lubatkin et al., 2007; Schulze and Gedajlovic, 2010)

and the desire for strong control over decision-making that can limit the top manage-

ment team’s participation (Gomez-Mejia et al., 2001, 2007; Kammerlander and Ganter,

2015; Schulze, 2016). Thus, if family fir ms tend to have a different organizational design

than non-family firms, this may explain why they are less entrepreneurial. Further, dif-

ferences in organizational design among family firms may explain why some family firms

exploit more opportunities than others.

In this paper, we thus aim to answer the following research questions: (i) Do family and

non-family firms differ in the extent to which they exploit opportunities? and (ii) Can differences in op-

portunity exploitation be explained by the organizational design of family firms and non-family firms?

Accordingly, we extend organizational design principles (e.g., Galbraith, 1974; Hambrick

and Mason, 1984) to the study of corporate entrepreneurship by exploring whether fam-

ily firms’ propensity to design a more centralized organizational structure explains why

their opportunity exploitation differs from that of non-family fir ms. In so doing, and

consistent with the principles of organizational design, we follow the suggestions of pre-

vious studies (Ennen and Richter, 2010; Foss et al., 2013; Jansen et al., 2005) and adopt

a configurational approach, which allows us to capture the interplay and complemen-

tarities among different organizational design elements rather than study single elements

in isolation (Jensen, 1998; Thompson, 1967). This approach has been adopted in man-

agement research (e.g., Burns and Stalker, 1961; Gruber et al., 2010; Mendelson, 2000;

Miller, 1981, 1996; Mintzberg, 1979; Weber, 1947), as ‘a study of configurations leads to

insights that would otherwise be unattainable or that would at least be out of the scope

of research that focuses only on the effects of individual elements’ (Gruber et al., 2010,

p. 1338). Moreover, studies focusing on opportunity exploitation (e.g., Foss et al., 2013)

highlight the specific need to study organizational design elements in the form of config-

urations to further our understanding of organizations’ ability to exploit opportunities.

We build on Ireland et al.’s (2009) idea of a ‘pro-entrepreneurial organizational ar-

chitecture’ and propose that a participative TMT configuration (i.e., a TMT where orga-

nizational elements are designed so that all members participate in decision-making in

a coordinated way) promotes opportunity exploitation, while a more CEO-centric TMT

configuration hinders it. While we theorize the existence of two TMT configurations,

the cluster analysis of the six organizational design elements (i.e., delegation, incentives,

coordination, communication, formalization, and organization size) unexpectedly re-

vealed the presence of three TMT configurations[2 ]: the CEO-centric TMT organiza-

tional configuration, and two participative organizational configurations that we label

integrated TMT and incentive-based TMT, which differ in the mechanisms used to align

TMT members’ objectives with those of the CEO (i.e., coordination and communication