Knowledge management in family firms

A newly published article¹ in the Journal of Knowledge Management reports on the findings and insights from a systematic review of the academic literature in regard to knowledge management (KM) in family firms. Using a six-step, systematic literature review protocol, 74 articles focused on family-firm KM published in 23 journals were identified and reviewed.

Review authors Emma Su and Joshua J. Daspit advise that while there is a robust body of literature related to KM in firms in general, less is known about the KM of family firms. This is despite these firms being the most common form of business organization worldwide. Further, even though the number of studies examining family-firm KM has increased in recent years, the insights gained remain fragmented.

Through their systematic review, Su and Daspit have sought to advance family firm KM scholarship by:

• identifying key factors and relationships and integrating them into a robust conceptual map
• reviewing the primary antecedents, outcomes, and moderating factors associated with family firm KM processes
• highlighting promising opportunities for future research.

Even though further research into the family firm aspect of KM is needed, the conceptual map and primary antecedents, outcomes, and moderating factors will be useful to any knowledge managers who are working with this type of organization now.

The conceptual map is shown in Figure 1, and the antecedents, outcomes, and moderating factors are summarised in the following sections.

1. Antecedents

Knowledge creation

Positive effects

Family social capital – Family social capital consists of the unique resources embedded in and accessible through the network of family-based relationships. This form of social capital among kin has the potential to deliver a knowledge creation advantage for family firms (compared to non-family firms) given the ability of family firms to efficiently synthesize existing knowledge via their unique relational bonds.

Trust-based, external relationships – Family firms are cautious when engaging with external organizations. When knowledge creation opportunities that involve an external organization are identified, family firms are more likely to engage when trust-based, external relationships exist with such organizations.

Negative effects

Family social capital – When family social capital is salient, non-family employees are more likely to be perceived as less trustworthy. Non-family employees – who are a potentially rich source of diverse knowledge for the family firm given that family members tend to share similar knowledge and have overlapping networks – may not contribute the full scope of their knowledge given the lack of trust from (or with) the family firm.

Family firm identity – The family firm identity held by a member of the controlling family can create conflict between family-centered priorities and the needs of the family business. This conflict results in family owners underestimating the firm’s learning-related needs and attributing less importance to activities like employee training and development programs. Such actions negatively impact employee development and limit knowledge creation in the family firm.

Knowledge storage/retrieval

Positive effects

Stories and traditions – The stories and traditions of the family firm are distinctive mechanisms for storing and retrieving knowledge that potentially create transgenerational value. The core of family-centered stories remains quite stable over time, further underscoring that shared stories are a worthwhile means of long-term knowledge storage for family firms.

Collective culture – A collective and “people-centric” culture, for which many family firms are known, includes a long-term commitment to employees and enhanced trust, which often results in less turnover compared to non-family firms. Less turnover, in the context of a collective culture underpinned by long-term commitment and trust, supports knowledge storage given that long-serving employees are a knowledge repository.

Negative effects

Family status – Communication has differing effects based on family status; specifically, for non-family employees, communication enhances firm-level innovation but has a negative effect on shared perceptions of knowledge storage. This underscores the importance of the type, quantity, and quality of communication between family and non-family employees.

Knowledge transfer

Positive effects

Family social capital – As a resource among kin in the firm, family social capital – and the deep, trust-based relational bonds with which it is associated – can positively affect knowledge transfer in the family firm. For example, in regard to transgenerational knowledge transfer, which is often examined in the context of parent-child succession.

Incumbent and successor characteristics – The perceived relational competence of the successor, in terms of the successor’s ability to initiate and maintain relationships, is positively related to the accuracy and amount of knowledge transferred from the incumbent to successor.

Generalized exchange – Generalized exchange is collectively focused exchange with no immediate expectation of return, and benefits knowledge transfer through the phases of succession. Generalized exchange is enhanced by reciprocal nepotism, which is seen as distinct from entitlement nepotism. Reciprocal nepotism is developed from family member interdependence, prior interactions among kin, and family-benefitting norms.

Trust-based, external relationships – When knowledge transfer occurs across the firm’s boundary, having trust with the exchange partner is crucial for most family firms. Trust-based, external relationships reduce information asymmetry and facilitate the transfer of tacit  knowledge between the parties involved.

Negative effects

Family social capital – Familial ties can be “too much of a good thing,” creating insularity among kin that results in less motivation to share knowledge with non-family employees.

Family conflict – A strong family influence in the firm may support family social capital; however, the same family influence may also cause family conflict, which can consist of interpersonal tension, affective differences, and sibling rivalry. This conflict can be destructive for knowledge transfer.

SEW preservation intentions – The intentions of the controlling family to preserve socio-emotional wealth (SEW)² are related to the family’s emotional attachment to the firm, power concentration, identification with the firm, and related factors. The intentions to preserve such elements are noted to restrict knowledge transfer between the family firm and external (non-family) parties.

Knowledge application

Positive effects

Family social capital – Family firms with more established family social capital are more likely to possess valuable tacit knowledge about the firm’s processes and have lower governance costs, allowing these family firms to excel at applying new knowledge. Governance costs are lessened as a result of the “socially intense” and trust-based relationships among family members. Kin in the firm are also more likely to share the desire to apply knowledge for the benefit of the collective.

Family knowledge base – The shared experiences, frequent exchanges, and length of time affiliated with the family firm contribute to a specialized family knowledge base embedded in the tacit knowledge of kin. Family firms (compared to non-family firms) are shown to excel in their ability to process and exploit internally developed knowledge.

SEW preservation intentions – A family firm’s ability to apply knowledge is associated with their socio-emotional wealth (SEW) preservation intentions. The family owner’s emotional attachment can be a strong incentive to apply knowledge. When a strong emotional attachment to the firm exists, family owners are more motivated to ensure knowledge is properly applied because their name and reputation are at stake.

Negative effects

Family conflict – Sibling rivalry and other forms of conflict generated from interpersonal, affective incompatibilities prevent family members from integrating knowledge, weakening the effectiveness and efficiency of knowledge application in the firm.

Limited human capital – Family firms often have limited human capital given that they select from a smaller pool of talent given the types of employees generally attracted to work in a family firm. If non-family members are hired who do not enhance the human capital of the firm, the ability for the family firm to successfully engage in knowledge application may be jeopardized. On the other hand, if non-family members with diverse knowledge resources are involved in the family firm, the goals of the non-family members may differ from the dominant coalition of family, and/or non-family employees may not be well-socialized within the family firm.

SEW preservation intentions – While the family owner’s emotional attachment is noted to increase knowledge application in the family firm, other socio-emotional wealth (SEW) preservation intentions can negatively affect knowledge application. In particular, family firms may encounter difficulties extracting value from external, exploratory knowledge given the family’s desire to maintain control of the firm.

2. Moderators

Family and non-family involvement – Among family firms, the extent to which family are involved in firm-level governance varies, and the level of involvement is likely to affect the firm’s KM processes. One form of involvement shown to have a significant moderating effect is the family’s involvement in the firm’s management. Specifically, when the management team is composed of a greater number of family members, fewer formal mechanisms are typically instituted, which enhances perceptions of empowerment and stewardship, leading to greater knowledge sharing when kin have psychological ownership. Involving non-family members can be instrumental to offsetting the insular nature of the dominant coalition of family, yet non-family involvement can have a hindering effect on the relationship between family social capital and knowledge application since the family-related benefits that enhance knowledge transfer are mitigated when non-family members are involved.

Generational involvement – When kin are involved and embedded in the family firm, they are more likely to engage in stewardship behaviors that benefit the firm and, likewise, the KM processes. However, the extent to which this occurs is influenced by generational involvement. For example, while the psychological ownership of kin is positively related to knowledge transfer, the generation in control negatively moderates this effect. Specifically, the effect of psychological ownership on knowledge transfer is weaker in later-generation family firms, while the same relationship is strengthened in earlier-generation family firms due to the closer, more informal relationships that facilitate knowledge transfer. Furthermore, family firms run by later generations increase the positive effect of family social capital on knowledge application owing to the professionalization that manifests during later generations.

Environmental factors – When the environment is rapidly changing, the involvement of the family has been found to result in a weaker knowledge application ability. Additionally, the uncertainty introduced by significant events such as the COVID-19 pandemic, which required businesses to quickly adapt to new constraints, is likely to limit the benefits of family and organizational social capital.

Family and generational involvement in the firm – Involvement by multiple generations indicates a greater diversity of knowledge shared, and the greater involvement of family members can support the development of family social capital, creating synergies for  knowledge sharing that lead for example to enhanced technological capabilities.

Organizational social capital – Family firms with moderate levels of structural family social capital are considered to benefit from a high level of organizational social capital through the increased scope and likelihood of transferring knowledge from outside the family circle. Thus, greater organizational social capital enhances the positive effect of moderate structural family social capital on family firm performance.

3. Outcomes

Firm-centric outcomes

Innovation – The family’s capability to efficiently combine and apply knowledge creates a unique advantage over non-family firms in identifying and exploiting opportunities related to innovation. Family firms can leverage knowledge stored in their traditions to support innovation, highlighting the potential advantages of past knowledge for the family firm’s innovation pursuits. On the other hand, the family firm’s desire for cohesiveness and control can lead to a decreased emphasis on acquiring external knowledge and on creating new external relationships, which restricts the quality and quantity of innovation-related outcomes. Further, while a family focus in shared stories is positively associated with innovation, a founder focus in shared stories is negatively associated. When shared stories strongly focus on the founder, the family is typically more resistant to change in their business, resulting in less innovation.

Entrepreneurial orientation – On one hand, the psychological ownership of family members fosters knowledge sharing and the exchange of tacit knowledge, which improves the family firm’s ability to identify and exploit entrepreneurial opportunities, enhancing the proactive and innovative posture of the business. On the other hand, the psychological ownership of kin also fosters the exchange of values and increases the family firm’s desire to preserve their socio-emotional wealth (SEW), thus leading to a more conservative, risk-averse posture. Further, the relationship between knowledge transfer and the family firm’s entrepreneurial orientation is not always linear.

Internationalization – Generational differences, in addition to available knowledge resources, are shown to affect the family firm’s internationalization. The founding generation often acts with future generations in mind, and is motivated to create value for future generations by exploring alternative uses of knowledge-based resources. Given this, the founding generation is more likely to pursue strategic decisions, such as internationalization, as knowledge resources increase. Moreover, the family firm’s internationalization process is constrained, in part, by the personal network of key family members, given the limitations for broader knowledge transfer that supports the identification of foreign investment opportunities, and also by the reluctance to hire outsiders to run overseas operations.

Financial performance and competitive advantage – The collective KM capabilities of the family firm positively influence firm performance in comparison to competitors. Specifically, the behavioral dimension of employee-level resilience is found to enhance the performance of small family firms because the owners are more likely to share their knowledge and vision, which builds commitment and resilience among employees and leads to enhanced knowledge application and, ultimately, increased competitiveness and performance. Nonetheless, some characteristics hinder firm performance and competitive advantage. For example, when multiple generations are involved in a family firm seeking to be entrepreneurial, knowledge transfer is met with conflict, causing firm performance to suffer. To overcome such conflict, researchers find that when the family firm has multigenerational family involvement, coordinating mechanisms, like a participative strategy that increases involvement in knowledge transfer, can realize financial performance gains.

Family-centric outcomes

Succession – The choice of the family firm’s successor is partially attributed to the idiosyncratic nature of knowledge in the firm, and is also influenced by the successful transfer of this knowledge across generations.

Transgenerational value creation and transgenerational entrepreneurship – Family firms must create financial value over generations to survive long-term, and the ability to do so largely depends on the extent to which they can utilize and combine their current knowledge to generate new knowledge. Such an achievement requires knowledge transfer across generations. The elements of knowledge transferred across generations include moral values, competence values, and cognitive heuristics, which highlight types of knowledge that are foundational to the transgenerational success of the family firm. Knowledge and organizational culture can enable or inhibit the recombination of resources through which transgenerational value is created. Specifically, a closed and paternalistic family culture in which knowledge transfer is not encouraged fosters family inertia and negatively affects resource recombination and transgenerational value creation. On the other hand, an open and entrepreneurial culture that encourages knowledge transfer and innovativeness counteracts family inertia and positively affects resource recombination and transgenerational value creation.

Header image: McGuire Family at Oregon Family Business of the Year Awards (source: Oregon State University on Flickr, CC BY-SA 2.0).

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Also published on Medium.