NETWORK UTILIZATION AND RECONFIGURATION IN FAMILY FIRMS A widely reported attribute of family firms around the world is the involvement of family

members in the decision-making and operations of the firm. Previous studies have documented that appointing family members on the board or managerial positions are common in family firms (Davis & Harveston, 1998; Mariussen, Wheelock & Baines, 1998;

Ram & Holliday, 1993; Simpson, Wilson, & Jackson, 1992). The family ties constitute the core of internal social network in a family firm. The family members are close to each other as they generally have long history of interaction even before becoming co-workers or co-founders. Family members are also likely to have frequent interactions among themselves.

These strong and close relationships among family members form the foundation of social capital within family firms (Arregle, Hitt, Sirmon, & Very, 2007).

The construction of this strong social network within the organization enables family owners to transfer the common family values such as loyalty, fairness, and harmony to their family firms (Ram & Holliday; 1993). This network can also reinforce the behavioral preference such as risk-aversion and long-term orientation. Since individuals bonded by close social ties develop strong trust toward each other, family members are willing to fund the family firm or to contribute disproportionately more in marginal productivity relative to compensation in order to sustain the growth of the family firms (Mariussen, Wheelock, &

Baines, 1998; Simpson, Wilson, & Jackson, 1992). Strong ties among family members also enhance family cohesiveness (Salvato & Melin, 2008). As a family firm grows, non-family staff, manager, and board members are recruited to fill the newly created positions. The internal social network connecting the family members would expand to connect select non-family employees or directors. The internal network provides a mechanism of socialization (Portes, 1998) to ensure non-family employees occupying key positions understand and accept the norms and obligations upheld by the family owners.

The strong social network within family firms is likely to have profound impact on the behaviors of family firms. For example, Chirico and Salvato (2008) propose that the social capital derived from the internal social network enhances the knowledge integration among family members. In addition, close relationship among family members increase the willingness of knowledge integration within family. Although there is little evidence about the impact of family-based internal social network in family firms on the development of novel new products, the close internal social network in family firms are likely to affect outcome of non-conventional NPD.

Extensive research has offered guidelines, manuals, and tools to assist engineers and managers to effectively integrate environmental concerns into the new product development process (Brezet & Hemel, 1997; Mackenzie, 1997). While some of these practices have little impact on the composition of stakeholders in the NPD process, network reconfiguring

practices such as cross function integration enable firms to integrate environmental stakeholders to the NPD process more effectively. Given the strong-tie nature of innovation networks in family firms, network utilization and network reconfiguration practices are likely to have different effects in green NPD performances in family and in non-family firms.

Environmental Commitment and R&D

Corporate environmental policy refersto an organization’scommitmentto green NPD.

Such commitment is reflected in the support from the top management and explicit expressions of environmentally responsible policies. Management supports and policy expressions provide a platform to incorporate an explicit and clearly defined environmental product strategy into the overall corporate strategy. An explicit product innovation strategy enables managers to plan for specific product development (Gupta & Wilemon, 1990). In addition, the outcome of the new product development process depends upon the willingness of top management to commit R&D activities and other resources to the new projects (Dwyer, 1990; Hegarty & Hoffman, 1990).

However, the development of green new products requires developers to review the existing product development process and even design green substitute products to replace their existing product lines. Development teams need to search for new information and to involve individuals (e.g. environmental lawyers or community groups) who are not included in conventional product development process in the new product process. Firms capable of reaching out to acquire such new information and involve new participants are more likely to develop successful green new products than the other firms. The intrafirm network plays a vital role in the process because this social capital assists in-house developers to identify internal and external information sources and participants for green product development projects. As the internal network in family firms are closer or stronger than that of non-family firms’(Tsui-Auch, 2005), we hypothesize:

Hypothesis 1a. Family and non-family firms will moderate the relationship between the organizational commitment to environmental responsibility and the environmental performance of green innovation projects, such that the relationship is lower in family firms than in non-family firms.

Hypothesis 1b. Family and non-family firms will moderate the relationship between the organizational commitment to environmental responsibility and the financial performance of green innovation projects, such that the relationship is lower in family firms than in non-family firms.

Hypothesis 2a. Family and non-family firms will moderate the relationship between the R&D strength and the environmental performance of green innovation projects, such that the relationship is lower in family firms than in non-family firms.

Hypothesis 2b. Family and non-family firms will moderate the relationship between the R&D strength and the financial performance of green innovation projects, such that the relationship is lower in family firms than in non-family firms.

Cross-Functional Integration

Product development is a complex social process involving people from different backgrounds and management positions (Dougherty, 1992). To a large extent, the success of a product depends on the effective communication and collaboration between the various members of the team (Cooper & Kleinschmidt, 1993; Dougherty, 1992). Cross-functional integration has been identified as a key driver of new product success (Griffin & Hauser, 1996; Gupta, Raj, & Wilemon, 1986; Olson, Walker, & Reuker, 1995). Cross-functional integration typically involves facilitating communication among different functions (Gatingnon & Xuereb, 1997; Song, Montoya-Weiss, & Schmidt, 1997; Troy, Hirunyawipada,

& Paswan, 2008). When environmental issues are integrated into the various functional areas of a firm, the environmental issues are more likely to be integrated into the strategic planning process (Judge & Dogulas, 1998). Developing the capability to incorporate environmental issues into the strategic planning process allows environmental champions to assert themselves in the green product development process (Fineman & Clarke, 1996; Winn, 1995).

In summary, organizational commitment to cross-functional integration enable a firm to engage multiple stakeholders and diverse source of information for new product development.

Cross-functional integration complements the existing social capital of an organization by bringing new expertise or information to the process of green new product development. As family firms are more likely to have an effective new product development platform derives from its close internal network, we hypothesize that family firms positively moderate the relationship between cross-function integration and green new product performances.

Hypothesis 3a. Family and non-family firms will moderate the relationship between the cross-functional integration and the environmental performance of green innovation projects, such that the relationship is higher in family firms than in non-family firms.

Hypothesis 3b. Family and non-family firms will moderate the relationship between the cross-functional integration and the financial performance of green innovation projects, such that the relationship is higher in family firms than in non-family firms.

The hypothesized relationships are illustrated in the research model (Fig.1).

*** Insert Figure 1 about here***

METHODOLOGY

We adopted existing survey items to measure our dependent variables and independent

variables. However, since these survey items are developed for American managers, we translated the questions and invited a panel of seven highly experienced professionals to review the validity of the translated questions. The refined questions were pretested in environmental managers from thirty six companies listed in the directory of Taiwan Electrical and Electronic Manufacturer’s Association. The feedbacks help us further refine the questionnaire. Our two dependent variables and two independent variables are measured using seven-point Likert scale from 1 to 7 rating from strongly disagreement to strongly agreement.

Measure Development

The measurement of environmental performance included four items: (1) The company chooses the materials of the product that produce the least amount of pollution for conducting the product development or design; (2) the company chooses the materials of the product that consume the least amount of energy and resources for conducting the product development or design; (3) the company uses the fewest amount of materials to comprise the product for conducting the product development or design; (4) the company would circumspectly deliberate, whether the product is easy to recycle, reuse, and decompose for conducting the product development or design (Chen, Lai, & Wen, 2006). The financial performance was measured using a four-item scale. The items were developed from prior research in natural environmental issues (Judge & Douglas, 1998). Measuring perceived financial performance has been used successfully in the literature (Covin, Slevin, & Schulz, 1994; Dess, 1987;

Miller & Friesen, 1994).

We measured corporate environmental policy as the respondent’s perception of environmental policy and top managerial support for green new product development. The environmental policy was measured with four items developed by Pujari, Wright and Peattie (2003). The cross-functional integration was measured using an eight-item scale. The items were modified from prior research in new product development (Gupta, Rja, & Wilemon, 1986; Moenaert & Souder, 1990). We focus on the extent of behavioral activities of marketing-R&D-environmental communication and cooperation for green new product development project.

Following Lee and Ma (2006), a family firm is defined as a company where (1) the members of the controlling family (i.e., the family group having the largest control rights) jointly hold at least 10% of equity ownership of the company, and they also hold at least one board seat at the company, or (2) the members of a family or the legal representatives from other companies/entities controlled by the family jointly hold more than 50% of board seats.

Among 181 valid responses, eighty companies are identified as family firms.

We have also included four control variables in this study, age, size, environmental benchmarking, and R&D strength. The age is calculated as the difference between 2008 and the founding year of organization. As an organization grows older, organizational efforts to

adopt new innovation may be hindered by organizational inertia (Egri & Herman, 2000). We control the size of firms because large organizations are more likely to have resources to adopt new innovations (De Luca & Atuahene-Gima, 2007) and to take an active role in natural environmental management (Aragon-Correa, 1998). Following Child (1972), the size of firm is the log value of number of employees.

Benchmarking is a firm seeks to identify best practices that produce superior results in other firms and to replicate these to enhance the competitive advantage of the observing organizations (Camp, 1995; Mittelstaedt, 1992; Vorhies & Morgan, 2005). Environmental benchmarking was found to affect the performance of green innovations in the market (Pujari et al., 2003). Following Pujari, Wright and Peattie (2003), we measure this variable using seven Likert scale items. Finally, we controlled the R&D Strength of a firm because an organization’sresourcesand capabilitiesto develop new innovation would haveprofound impact on the performance of innovations (Li & Calantone, 1998). We adopted the three items used in Li and Calantone (1998). The first was the R&D expenditure in dollars relative to sales.Thenexttwo itemsasked therespondentto assessthestrength ofthecompany’s R&D investmentand proprietary technology relativeto itslargestcompetitor’s.

Sample and Data Collection

To test our hypotheses, we randomly selected one thousand member firms of Taiwan Electricaland Electronic manufacturer’sAssociation (TEEMA).In 2008, this organization has nearly four thousand members who contribute about 50% of GDP of Taiwan. One thousand questionnaires were mailed to the selected companies in late 2008. We asked for the managers responsible for environmental management to respond to our questionnaires. As the designated individual responsible for this task have different job title in different organizations, our respondents include CEOs, Environmental Protection Managers, Marketing Manager, and R&D Manager. Our responded are asked to complete and to return the questionnaires in two weeks.

Historically, manufacturers from these two industries are major sources of industrial waste and pollutions. Additionally, unlike high pollution industries in more developed economies, the Taiwanese government and manufacturers are still in the process of correcting the natural environmental damages from strong for-growth policies not too long ago. A second reason to conduct our research in Taiwan, Taiwanese economy is known for its high concentration of family-owned manufacturers which increases the likelihood of obtaining sufficient number of family firm responses from our sample pool.

We received 188 responses. Seven responses were eliminated because they are not complete. The final number of valid responses is 181 (Table 1). The 18.1% respond rate is comparable to other survey-based strategy research (Delmas & Toffel, 2008; Hoskisson, Cannella, & Tihanyi, 2004; McEvily & Chakravarthy, 2002; Slater & Olson, 2001).

*** Insert Table 1 about here***

We examined the differences between respondents and non-respondents using the size of firm, number of employees, and industry. No significant differences were found. Further, t tests were applied between a sample of early responses and very late responses. The results did not provide significant differences either. The factor analysis was performed examine common method bias.

Data Analysis

Weused thefactoranalysisand Cronbach’salpha to assessthevalidity and reliability of our scales. To test the hypothesized relationship, the moderated regression analysis is performed to examine the moderating effect of family firms in the relationships between corporate policy, cross-functional integration and performance. Table 2 and 3 shows the factor analysis results. The results show two factors with eigenvalues greater than one, accounting for 78.392% of the variance (K-M-O statistic 0.926; Barlett statistic 2806.729, significance 0.000). An analysis of Screen plot also shows a two-factor solution. The reliability ofthesefactorsismeasured using Cronbach’salpha,theresultshowsallover0.7 (Churchill, 1979).

*** Insert Table 2, 3 about here***

Descriptive Statistics

Before we tested the hypotheses, we examined a correlation matrix for the composite scales of the major constructs (see Table 4). The signs of the bivariate correlation appear to be consistent with the hypothesized relationships. There is also variability in the measures of the major constructs, as reflected by the means and standard deviations shown in Table 4.

***Insert Table 4 Here***

We used moderated regression analysis to test our hypotheses. Following Aiken and West (1991) and Jaccard and Turrisi (2003), we centered (^-x = 0)theindependent’variableswhen performing our moderated regression analysis to minimize the effects of any multicollinearity among variables comprising our interaction terms. Table 5 and 6 summarize our results.

According to Table 5 Model C, the family business dummy variable negatively significantly moderates the relationship between corporate environmental policy and environmental performance and the relationship between R&D strength and environmental

performance while positively significantly moderates the relationship between cross-functional integration and environmental performance, supporting hypotheses 1a, 2a, and 3a.

*** Insert Table 5 about here***

According to Table 6 Model F also tests our family business hypothesis. The family business dummy variable negatively moderates the relationship between corporate environmental policy and financial performance and between R&D strength and financial performance. This moderation effect is significant at the level of < 0.05, supporting H1b and H2b. On the other hand, family business positively moderates the relationship between cross-functional integration and financial performance, supporting H3b.

*** Insert Table 6 about here***

DISCUSSIONS

Our analysis shows that environmental benchmarking is significant predictors to the performance of green new product development. In addition, corporate policy and cross-function integration, independent variables of this research, also positively correlate to the commercial and environmental success of green new product development. These results are consistent with the previous studies on the antecedents of successful green new product development (Pujari et al., 2003).

The regression analysis also confirms the hypothesized moderation effect between independent variables, corporate policy, R&D strength, and cross-function integration, and dependent variable, performances. This result suggests that the close innovation network in family firms moderate the impacts of corporate policy and cross-functional coordination on the outcome of green new product development. The close innovation network provides an effective problem solving platform for new product development when family firms develop conventional new products.

Our findings have two research implications. First, many researchers have examined and identified factors contributing to the adoption of green new product development (Johansson, 2002), such as the integration of environmental professionals (Ehrenfeld & Lenox, 1997), and top management support (Ehrenfeld & Lenox, 1997; Pujari et al., 2003) are considered crucial factors. These conclusions may have to be modified if we specifically look for the moderation effect of family firms in these relationships.

Second, since the innovation network in family firms moderate the effects of organizational

actions, family firms may be adopt different approaches than their non-family counterparts to address strategic and organizational challenges. Family business literature has documented a great number of behavioral differences between family and non-family firms. While some of the differences may be attributed to the family values and regional culture, as proposed in a recent study by Salvato and Melin (2008), the close innovation network within the a family firm may be a key predictor of behavioral uniqueness of family firms.

The managerial implication of our research is that managers of family firms can improve their abilities to acquire new technology and market information by constructing a more balanced innovation network for innovation. Managers in family firms may develop and implement organizational mechanisms such as cross-functional coordinator to improve their organizations’ability to acquireand processnovelinformation.

Limitation and Future Research Directions

This study verified hypotheses with a questionnaire survey, only providing cross-sectional data. A longitudinal research design is necessary to validate these claims of causality. Furthermore, because respondents provided data on both the independent and the dependent variables, there is the possibility that the correlations are inflated as a result of single-source bias. The results of Harman’s one-factor test (Podsakoff & Organ 1986) enabled us to rule out single-source bias. However, the fact remains that data collected from multiple sources (e.g., senior management, organizational employees) would have provided a stronger test of the model. This study is focused on the information and electronics industry in Taiwan, an emerging economy with strong Confucius transition. Our findings may be more applicable to similar economies such as Korea, Hong Kong, Singapore, and Malaysia than in more developed economies such as Canada and the United States. Further research on the effects of institutional condition in economies of different developmental stages and regional cultural tradition in our findings may clarify the role of intrafirm network within family firms in the development of green new products.

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