Can Family Firms Innovate? Sharing Internal Knowledge Under a Social Capital Perspective

Many studies have focused their interest analyzing the effects of knowledge management on the development of organizational innovations. Innovation is posited in this paper as a managerial priority that facilitates the creation of a competitive advantage. The data, information and knowledge that contribute to innovation processes are available within the social capital. Social capital is understood as the networks, norms, and trust that enable participants to act together more effectively to pursue shared objectives (Putnam, 1993). Considering this, we argue that the effectiveness of these networks can be determined by whether the personnel who interact perceive the relationship as worthwhile, equitable, productive, and satisfying, only individuals can apply their own experience and contextual understanding to interpret the details and implications of a particular situation in order to determine what is the appropriate action or actions to take. Thus, internal social capital enhances the ability of members within a firm to know who to contact for relevant knowledge. This means that internal social capital facilitates the development of innovations through the updated knowledge acquired from internal and external networks. However, there are some problems in family firms. The utilization of internal capital does not guarantee that appropriate information is used in appropriate circumstances or that information is appropriately updated (De Holan and Phillips, 2004). The influence of family on a company could inhibit or foster the exploitation of this knowledge. In this context, we try to test the influence of the social capital over innovation on family firms and the moderator role of familiness in this relationship. The results of our empirical study on 282 family firms show that social capital has a positive relationship with product innovations. That it, the active connections among people -the trust, mutual understanding, shared values and behaviors that bind the members of human networks and communities and make cooperative action possible"- (Cohen and Prusak, 2001) allow companies to generate innovations. Second, we have also found that familiness plays a moderator role on the relationship between social capital and innovation. In this case, we have found that culture dimension of familiness positively moderate the relationship between social capital and innovation.