International and product diversification: Which strategy suits family managers?

• Author: Christian Stadler,Michael C. J. Mayer,Julia Hautz,Kurt Matzler
• Published date: 01 February 2018
• Date: 01 February 2018
• DOI: http://doi.org/10.1002/gsj.1190

SPECIAL ISSUE ARTICLE

International and product diversification:

Which strategy suits family managers?

Christian Stadler

1

| Michael C. J. Mayer

2

| Julia Hautz

3,4

| Kurt Matzler

5

1

Warwick Business School, Coventry, U.K.

2

School of Management, University of Bath, Bath,

U.K.

3

Department for Strategic Management,

University of Innsbruck, Innsbruck, Austria

4

Department of Strategic Management, University

of Cologne, Cologne, Germany

5

Faculty of Economics and Management, Free

University of Bolzano, Bolzano, Italy

Correspondence

Kurt Matzler, Faculty of Economics and

Management,Free University of Bolzano, Piazza

Università 1,39100 Bolzano, Italy.

Email: kurt.matzler@unibz.it

Research Summary: This article explores the impact of

family and professional managers on performance and

how this relationship is affected by international and

product diversification. Using a dataset of 262 German

firms from 2000 to 2009, we find that an increasing pro-

portion of family managers on the management board is

associated with higher performance. This relationship is

negatively moderated by higher levels of international

diversification but reinforced by increased product diver-

sification due to differences in the human and social capi-

tal between family and professional managers. Firms with

a significant presence of family members on the top man-

agement team (TMT) face a choice of either adopting a

corporate strategy that runs counter to “globalfocusing”

or adjusting the balance of family and professional man-

agers in the TMT.

Managerial Summary: Deciding the extent of family

involvement on the executive team is a key strategic deci-

sion. While our research supports the general proposition

that family managers will enhance performance, we show

they do not have the same positive impact in all situa-

tions. More precisely, we show that family managers are

more suited to lead diversification than internationaliza-

tion. If a family firm wants to go international, it is sensi-

ble to increase the proportion of professional managers

on the executive team. Diversifying into new product

markets, however, does not require outside expertise

commonly associated with professional managers.

KEYWORDS

family management, human capital, internationalization,

product diversification, social capital

Received: 29 January 2016 Revised: 28 April 2017 Accepted: 25 May 2017

DOI: 10.1002/gsj.1190

Copyright © 2017 Strategic Management Society

184 wileyonlinelibrary.com/journal/gsj Global Strategy Journal. 2018;8:184–207.

1|INTRODUCTION

Is the effect of family managers on performance positive or negative when compared to the impact

of professional managers? Increasingly, research is suggesting that the answer to this critical ques-

tion depends on understanding the contextual factors that affect the relationship between the

involvement of family and professional managers and performance (Chang & Shim, 2015; Miller,

Le Breton-Miller, Minichilli, Corbetta, & Pittino, 2014; Wright, Chrisman, Chua, & Steier, 2014). A

firm’s levels of international and product diversification constitute such key contextual factors, as

they shape the specific strategic and administrative challenges with which family and professional

managers are faced (D’Angelo, Majocchi, & Buck, 2016; Gomez-Mejia, Makri, & Kintana, 2010;

Sciascia, Mazzola, & Chirico, 2013). In contrast to many other contextual factors considered previ-

ously (Miller, Minichilli, & Corbetta, 2013), both aspects of corporate scope are more directly

affected by strategic choices. Understanding their impact is, thus, of particular importance. In this

article, we explore how the relationship between the involvement of family and professional man-

agers and performance is shaped by international and product diversification. Increased international

diversification, as we will argue, can be detrimental to the benefits of family managers, while prod-

uct diversification can enhance these benefits.

Conceptually, we focus on the different resources that family and professional managers offer to

the firm in terms of their respective managerial human and social capital. Such resources have been

used to explore the impact of family and professional managers on family firm internationalization

(D’Angelo et al., 2016; Kontinen & Ojala, 2011a, 2011b; Kraus, Mensching, Calabrò, Cheng, & Fil-

ser, 2016) as well as family firm performance (Sanchez-Famoso, Akhter, Iturralde, Chirico, &

Maseda, 2015). Differences in a firm’s endowment with these complementary and competitively rel-

evant resources (Acquaah, 2012; Geletkanycz, Boyd, & Finkelstein, 2001) are expected to influence

strategy and performance outcomes, particularly at the level of the top management team (TMT)

(Minichilli, Corbetta, & MacMillan, 2010). The effect on performance is, however, likely to differ

depending on the extent of international and product diversification. Notably, the human and social

capital of family managers is typically locally rooted and grounded in relatively tight sets of rela-

tionships and communalities (König, Kammerlander, & Enders, 2013). This suggests that family

managers are well positioned to manage firms as long as these are neither highly diversified nor

internationalized. But, how does their impact—compared to that of professional managers—on per-

formance change when levels of international and product diversification increase? Internationaliza-

tion presents a particular challenge to family managers, as the “diversity of national contexts in

terms of consumers’behaviors, legal and administrative requirements, and market conditions

increase significantly the complexity that managers should handle”(D’Angelo et al., 2016, p. 4).

While product diversification also increases strategic and administrative complexity, family man-

agers can leverage their social and human capital across product market domains more easily. Spe-

cifically, we hypothesize that a greater representation of family, rather than professional managers,

on the TMT will impact negatively on performance in internationally diversified firms, whereas the

reverse is true for product diversification. Contributing to efforts in resource-based theory to better

understand the contextual factors that shape the performance benefits of resources (Barney &

Mackey, 2016; Lioukas, Reuer, & Zollo, 2016; Nyberg, Moliterno, Hale, & Lepak, 2014; Teece,

2011), we find support for these hypotheses using a panel data set of 262 German firms from 2000

to 2009.

This study extends recent research on the role of family in the context of internationalization by

considering performance implications (Arregle, Naldi, Nordqvist, & Hitt, 2012; Calabrò, Torchia,

STADLER ET AL.185