The Conversion Rate of R&D into Technological Innovation in Family-Managed Firms Under Vulnerability

04/07/2017 1 The Conversion Rate of R&D into Technological Innovationin Family-Managed Firms under Vulnerability Monserrat Manzaneque-Lizano Alfonso A. Rojo-Ramírez Julio Diéguez-Soto María José Martínez-Romero General aims of the study EFFICIENCY TURNING R&D INTO TI MODERATING ROLE OF SLACK AND FAMILY MANAGEMENT Evaluating whether under vulnerability decision-makers will be able to turn R&D into TI more efficiently Evaluating whether under vulnerability decision-makers will be able to turn R&D into TI more efficiently Investigating whether the presence of slack and family management affects to the conversion rate of R&D into TI under vulnerability Investigating whether the presence of slack and family management affects to the conversion rate of R&D into TI under vulnerability Introduction Hypotheses Method Findings and Contributions 04/07/2017 2 Our proposel model R&D Intensity Technological Innovation Historical /Social Historical/Social Aspiration Level Financial Slack Family Management H1 + H3 + H2 + Introduction Hypotheses Method Findings and Contributions Hypothesis Hypothesis development Technological Innovation R&D Intensity Historical /social aspiration levels Historical/social aspiration levels H1 . Performance below aspiration levels strengthens the positive effect of R&D intensity H1. Performance below aspiration levels strengthens the positive effect of R&D intensity on the likelihood of obtaining TI. BAM: Loss aversion and problem framing (Wiseman & Gómez-Mejia, 1998). Firstly loss averse and only secondly risk averse. Under vulnerability, strategic and tactical changes executed to save the firm from deteriorated financial conditions (Bromiley, 2009). Decision-makers exceptionally talented and receptive Different coalitions of stakeholders arise (Cyert & March, 1963) H1 + Introduction Hypotheses Method Findings and Contributions 04/07/2017 3 Hypothesis Hypothesis development Technological Innovation R&D Intensity Historical /social aspiration levels Historical/social aspiration levels H2 . As slack (particularly financial slack) increases, the influence of performance H2. As slack (particularly financial slack) increases, the influence of performance below aspiration levels is more likely to strengthen the positive effect of R&D intensity on the likelihood of obtaining TI. Financial Slack H2 + Slack can be employed for strategic organizational activities (Parida & Örtqvist, 2015). Under vulnerable situations, it gives managers flexible resources (Kotlar, De Massis, et al., 2014) and allows engaging in more efficient orchestration actions (Sirmon, Hitt, Ireland, & Gilbert, 2011) Introduction Hypotheses Method Findings and Contributions Hypothesis Hypothesis development Technological Innovation R&D Intensity Historical /social aspiration levels Historical/social aspiration levels H3 . Family management positively moderates the effect that performance below H3. Family management positively moderates the effect that performance below aspiration levels exerts on the positive relationship between R&D intensity and the likelihood of obtaining TI Family management Family management H3 + Vulnerability implies more willingness. It is more likely to achieve a certain critical mass of R&D to obtain higher productivity growth (Kancs & Siliverstovs, 2012) Also greater ability to pursue innovation as a result of their tacit knowledge stocks, knowledge combination, their long-term orientation (Patel & Fiet, 2011; Röd, 2016) and parsimony (Carney, 2005) The willingness and the ability to innovate go in the same direction because socioemotional and financial endowment may be lost (Chrisman & Patel, 2012; Gómez-Mejia et al., 2010) Introduction Hypotheses Method Findings and Contributions 04/07/2017 4 Data The data used come from the Survey on Business Strategies (ESEE). This survey is built on information from Spanish manufacturing firms. Accounting and innovation data was collected for the years 20012013. After removing firms with missing data for the analysed variables, the final sample consisted of 3,116 observations Introduction Hypotheses Method Findings and Contributions Variables Technological innovation. Completely new product or make important changes on their products (product innovation) and/or introduction of significant changes in production and/or distribution process (process innovation). R&D intensity. Total expenditures for R&D divided by total sales Performance below aspiration level based on own prior performance (historical aspiration) is constructed by comparing the level of the firm aspiration level in period t-1 and the aspiration level from the prior period t-2. The second proxy of aspiration level, “social aspiration” is built comparing Firm’s performance in period t-1 with the performance of a typical firm in the same industry for the same period. Financial Slack. Firm’s current ratio (current assets divided by current liabilities). Family management. Continuous variable counting the number of family members involves into the top management team of the firm. Introduction Hypotheses Method Findings and Contributions 04/07/2017 5 Technological innovation= β1R&D intensity t-1 +β2Performance below aspiration level + β31 R&D Intensityt-1*Performance below aspiration level +Controls +Ɛ Technological innovation= β1R&D intensityt-1 + β21 Performance below aspiration level + β23 Unabsorbed Slack t-1 + β31 R&D Intensityt-1 * Performance below aspiration level + β34 R&D Intensityt-1* Unabsorbed Slackt-1 + β35 Performance below aspiration level yt-1 * Unabsorbed Slackt-1 + β42 R&D Intensityt-1 *Performance below aspiration level* Unabsorbed Slackt-1 + Controls + Ɛ 04/07/2017 6 Technological innovation= β1R&D intensityt-1 + β21 Performance below aspiration level + β22 Family managementt-1 + β31 R&D Intensityt-1 * Performance below aspiration level + β32 R&D Intensityt-1 * Family managementt-1 + β33 Performance below aspiration level yt-1 * Family managementt-1+ β41 R&D Intensityt-1 * Performance below aspiration level * Family managementt-1 + Controls + Ɛ Referent and historical target-performance gaps matter when analysing firms’ conversion rate: risky decisions (Chrisman and Patel, 2012; Gómez-Mejía et al., 2007) and different strategic actions (Holmes et al. 2011). When managers detect deviations of performance outcomes below the aspiration level, they become more likely to obtain better conversion rates (giving the best, change firm strategic and tactic behaviour, exceptionally talented and receptive,…). Introduction Hypotheses Method Findings and Contributions 04/07/2017 7 Slack helps firms to improve the conversion rate of R&D into TI also under vulnerability. Managers utilize slack to enlarge exploitation of current advantages and to explore new opportunities and new occasions for business from internal sources (Kotlar et al., 2014). Unabsorbed slack offers managers potentially utilizable resources that help them to achieve their goals, particularly relevant when firms are under their aspiration performance levels Introduction Hypotheses Method Findings and Contributions Vulnerability means for F-MFs a higher willingness to reach a critical mass of R&D, and a greater ability to orchestrate unique resources, able to generate better conversion rates. However, the decisions affecting the process of the conversion are not immediately effective (Hall & Oriani, 2006). Consistent with economic considerations, family managers try to improve conversion rate to overcome declining performance, but when the preservation of the firm’s discretion and socioemotional wealth is endangered, they opt for adopting a technological strategy which accepts below target performance. Introduction Hypotheses Method Findings and Contributions 04/07/2017 8 Family managers consider a loss of competitive advantage relative to industry as the most important reference when actions regarding the process of achievement of TI from R&D investments have to be carried out. Utilizing a continuous measure of the level of family management allow us to explore heterogeneity across family firms in their efficiency of converting R&D expenses into TI in a context of losses Finally, this paper answers the call of Duran, et al. (2015) for additional research on the conversion rate of innovation input into output, by studying this relationship taking into consideration vulnerable situations (Gómez-Mejia et al., 2015). Introduction Hypotheses Method Findings and Contributions Thanks for your attention! Málaga Almería Castilla.-La Mancha 04/07/2017 9 Sample Characteristics Year Firms in the population Matched sample 2001 3462 314 2002 3462 262 2003 3462 232 2004 3462 254 2005 4050 242 2006 4357 232 2007 4475 272 2008 4629 226 2009 4851 216 2010 5040 214 2011 5040 210 2012 5304 220 2013 5304 222 Matched sample One firm with TI outputs (157 firms in 2001) with another matched control firm without innovation outputs (157 firms in 2001) in the same year and similar size and industry Sample composition by industry Industry N % 1. Meat industry 130 4.17% 2. Foodstuffs and snuff 364 11.68% 3. Drinks 98 3.15% 4. Textiles and clothing 209 6.71% 5. Leather and footwear 57 1.83% 6. Timber industry 64 2.05% 7. Paper Industry 165 5.30% 8. Graphics 99 3.18% 9. Chemical and pharmaceutical products 304 9.76% 10. Rubber and plastic 222 7.12% 11. Non-metallic mineral products 82 2.63% 12. Ferrous and nonferrous metals 129 4.14% 13. Metal products 427 13.70% 14. Agricultural and industrial machinery 184 5.91% 15. Computer, electronic and optical products 52 1.67% 16. Electrical machinery and material 122 3.92% 17. Motor vehicles 220 7.06% 18. Other transport equipment 83 2.66% 19. Furniture industry 83 2.66% 20. Other manufacturing 22 0.71% TOTAL 3,116 100.00%