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Strategic Orientations and Their Effects on Firm Performance in Turkish Family Owned Firms

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Strategic Orientations and Their Effects on Firm Performance in Turkish Family Owned Firms
  See discussions, stats, and author profiles for this publication at: Strategic Orientations and Their Effects onFirm Performance in Turkish Family OwnedFirms  Article  · January 2006 Source: RePEc CITATIONS 17 READS 64 3 authors , including: Some of the authors of this publication are also working on these related projects: Research paper   View projectErkut Alt ı nda ğ Beykent Üniversitesi 17   PUBLICATIONS   37   CITATIONS   SEE PROFILE A.Zafer AcarPiri Reis University 35   PUBLICATIONS   152   CITATIONS   SEE PROFILE All content following this page was uploaded by Erkut Alt ı nda ğ  on 28 March 2014. The user has requested enhancement of the downloaded file. All in-text references underlined in blue are added to the srcinal documentand are linked to publications on ResearchGate, letting you access and read them immediately.   Eurasian Business Review Volume 1 (2011) 18-36 * Corresponding author: Gebze Institute of Technology, Turkey, Email address: ** Gebze Institute of Technology, Turkey, Email address: *** Okan University, Turkey, Email address: S TRATEGIC O RIENTATIONS AND T HEIR E FFECTS ON F IRM P ERFORMANCE IN T URKISH F AMILY O WNED F IRMS Erkut Altindag * , Cemal Zehir  **  and A. Zafer Acar  ***   Abstract:   In this day and age, family based companies need more flexible and faster organization structures to respond effectively to the customers’ growing various type of needs in the dynamic markets. Family owned firms use more strategic tools to increase their firm performance. These tools include some strategic orientations as customer, innovation, entrepreneurship, and learning orientations. This new concept requires new strategic alternatives for the companies. This study tries to explore the relationship between effects of strategic orientations levels on firm performance and the family firms in Turkey. As total of 280 questionnaires are collected from the managers whom have key roles in the organizational structure in different scaled family owned firms. After the findings are examined by data reliability and exploring factor analyses, regression analyses are used for evaluating the relations between the dimensions. Consequently, it is presented the positive effects of strategic orientations on the qualitative and quantitative performance of family firms. In the conclusion section, various suggestions are offered for academicians and managers. Keywords:   Family-owned firms, strategic orientations, firm performance, empirical study 1. Introduction In current rapidly globalizing world, companies use different techniques to achieve competitive advantage. Achieving strategic competitiveness is difficult in turbulent and complex markets. These difficulties are compounded when firms do not have a clear understanding of what affects their firm performance. The heart of the strategic management process is to achieve the performance outcomes that allow firms, including family-influenced firms, to be competitive over time (Habbershon et al.  2003). Family businesses significantly impact to economy and the social life of a nation. The typical family business has been characterized as an organization controlled and usually managed by multiple family members. In general, management structure in the family business will be determined by the top level manager. Usually at least two generations of family are found in corporate governance. Spouse, siblings, mother/father, and child in the definition of the family company enter partnerships (Shanker and  Astrachan, 1996; Lansberg, 1999). Recent research indicates that companies achieve their aims easily which are in family firm structure. Family firms often have concentrated ownership and/or voting rights that might enhance performance (Miller et al.  2007). Specifically, how do firms’ business operation modes influence their entrepreneurship orientation,   Altindag et al. / Eurasian Business Review Volume 1 (2011) 18-36 19 customer orientation, learning orientation, and innovativeness? Which interaction effects among market orientation, learning orientation, and business operation modes will impact on a firm’s innovativeness and business performance? Previous studies concerning these issues are limited and subject to further validations. By the agency of this study it is tried to determine the level of their effects on firm performance. In addition, previous studies seldom consider the role of business operation mode on learning, innovation, customer, entrepreneurship, and business performance. For all that, the purposes of this study are as follows: (1) An exploration of the interrelationships among the constructs of entrepreneurship orientation, learning orientation, innovation orientation, and customer orientation. (2) An investigation of the impacts of business operation mode on entrepreneurship orientation, learning orientation, innovation orientation, customer orientation, and business performance. Family businesses may offer particularly appealing circumstances for studying certain kinds of organizational phenomena (Chrisman et al.  2003). It is hoped that this special research will contribute to filling this gap. 2. Literature Review 2.1. Family Firms  A family business is a business in which one or more members of one or more families have a significant ownership interest and significant commitments toward the business’ overall well-being. The literature on family business is wide-ranging and it is difficult to find consensus on the exact definition of a family firm. However, the typical family business has been characterized as an organization controlled and usually managed by multiple family members (Shanker and Astrachan, 1996; Lansberg, 1999), often from multiple generations. Approximately 95% of companies in Turkey are family owned business (Findikci, 2008; Kirim, 2002). Most of the research projects studying goals in family firms compare the goals of these types of firms to those of non-family firms in order to detect significant differences. Results in relation to this subject are mixed. In family firms, goals related to family roles tend to be far more important than the tradi-tional firm-value maximization goal (Sharma et al.  1997). Among those important family roles are survival, financial independence, family harmony, and family employment (Trostel and Nichols, 1982; Donckels and Frolich, 1991). Moreover, family firms are described as being more risk-averse and less growth-oriented. They focus less on technology, creativity, and innovation (Donckels and Frolich, 1991). Family firms can be viewed as a contextual hybrid - a unique combination of two sets of rules, values, and expectations: The families and the business concept (Flemons and Cole, 1992; Gersick et al.  1997). Family firms share certain characteristics that render them unique in terms of patterns of ownership, governance, and succession (Chua et al.  1999). For instance, owner-families share the desire for ownership control and the continuity of family involvement in the   Altindag et al. / Eurasian Business Review Volume 1 (2011) 18-36 20 firm. To fully appreciate these special characteristics, it is crucial to focus on family firms where the family is likely to have considerable impact on entrepreneurial activities. We therefore define family firms as firms where one family group controls the company through a clear majority of the ordinary voting shares, the family is represented on the management team, and the leading representative of the family perceives the business to be a family firm (Naldi et al.  2007). Some scholars suggest that the reputation and long-term presence of the family in ownership, as opposed to firms where ownership and management turnover are on a relatively continuous basis, allow the family firm to enjoy a lower cost of debt financing compared to non-family firms. Recent researches have found that public family firms are significantly better performers than non-family firms (Martinez et al.  2007). In this context, strategic orientations are the key elements of the family firms to get superior performance against rivals. 2.2. Entrepreneurship Orientation Entrepreneurial activities in family firms do involve taking risks, but to a lesser extent than in non-family firms. If family firms generally are characterized by less internal and external formal monitoring, risk taking in family firms is likely to mean that these family firms make decisions that are less biased on closely calculated risks; less grounded in a systematic, unbiased way; and with less incorporation of outsiders’ perspectives and opinions (Schulze et al.  2001; Naldi et al.  2007). Miller (1983, p.771) defines entrepreneurship-oriented firm as one that “engages in product marketing innovation, undertakes somewhat risky ventures, and is first to come up with proactive innovations”. In many global markets, speed of technological change is rapid. Especially family firm-based companies have to adopt this turbulent environment as an organic organization. Innovation-oriented firm focuses on developing key organizational competencies in resource allocation, technology, employees, operations, and markets. Most prior innovation research has focused on factors that affect innovations, primarily rate, speed, and benefits (Simpson et al.  2006). There is a strong link between entrepreneurship orientation and new product development on firm performance (Drucker, 1985; Lumpkin and Dess, 1996). Researchers have long identified this linkage. In a family-owned firm, entrepreneurship orientation provides an environment in which learning by exploration and experimentation is encouraged and will most likely take place an important objective of this exploration and experimentation is pursuit of great improvement in new product development by focusing on customers' latest needs (Li et al.  2006). 2.3. Innovation Orientation In the literature and organizational context, innovation may be linked to performance and growth through improvements in efficiency, productivity, quality, competitive positioning, market share, etc. All organizations can   Altindag et al. / Eurasian Business Review Volume 1 (2011) 18-36 21 innovate, including for example hospitals, universities, and local governments. A convenient definition of innovation from an organizational perspective is given by Luecke and Katz (2003, p.2) as “innovation is generally understood as the successful introduction of a new thing or method; innovation is the embodiment, combination or synthesis of knowledge in srcinal, relevant, valued new products, processes or services”. An innovation-oriented knowledge structure is a set of organization-wide shared beliefs and understandings that guide and direct all organizational strategies and actions, including those embedded in the formal and informal systems, behaviors, competencies, and processes of the firm (Simpson et al.  2006). Most prior innovation research has focused on factors that affect innovations, primarily rate, speed and benefits. More recent research has examined innovation as a system-based, firm-wide orientation toward innovation. Along with this broader perspective comes a need for understanding outcomes of the orientation, both positive and negative. The innovation literature to date has largely relied on a handful of specific, readily calculated outcomes of innovation, with few studies examining the link between a more comprehensive innovation orientation and its organizational effects (Totterdell et al.  2002). Furthermore the importance of the innovation–orientation implies the need for firms to deploy organizational mechanisms to proactively manage the perceptions of principal stakeholders towards innovation and growth (Nambisan, 2002). 2.4. Customer Orientations Customer orientation is the set of beliefs in sales that says that customer needs and satisfaction are the priority of an organization. It focuses on dynamic interactions between the organization and customers as well as competitors in the market and its internal stakeholders. It involves a continuous improvement in business processes. It is the business seen from the point of view of its final result, that is, from the customer’s point of view (Drucker, 1994). Customer orientation or the customer is king is a key word of the management economics. Missing customer orientation can reduce the conversions. The causes for the lack of customer orientation lie frequently in the culture, the structure, and the processes of the enterprise. Customer orientation as strategy requires new processes and a new organizational culture. In global marketing concept, customer orientation should have a favorable impact on business unit performance, and presumably this should be true regardless of whether customer orientation is measured in terms of the perceptions of the supplier/seller or those of the customer. Most authors approach customer orientation as an element of corporate culture from vantage point of the seller. The marketer’s customer orientation, as reported by customers, is related positively to business performance (Desphande et al.  1993).
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