Breaking with the Past to Face the Future? Organizational path dependence in family businesses

Abstract

This study adopts a qualitative approach in order to determine why and how the idiosyncrasies of family business influence path formation and path-breaking (and their outcomes) in strategically persistent family businesses. Findings are based on an analysis of six in-depth case studies of family businesses from Switzerland’s textile industry, including interviews with family and nonfamily firm members, archival data and expert interviews. The study finds that idiosyncrasies rooted in power hierarchy, chronicle orientation, and network embeddedness spur self-reinforcing mechanisms – in particular expectation effects and learning and investment effects – in path formation. However, at a later stage, they may become drivers of path-breaking. The study contributes to research on organizational path dependence by illuminating the role of power hierarchies in path formation and breaking. Path-breaking requires certain shifts in formal and informal power hierarchies; such shifts of power happen not only with respect to individual family members but also between family subgroups and nonfamily members. The study further identifies different strategic outcomes of path-dependent processes: protecting by renewing, pivoting and perfecting. While protecting by renewing and pivoting encompass path-breaking, perfecting occurs within the framework of a strategic path by leveraging incremental changes. In the case of protecting by renewing, businesses develop new revenue streams detached from the previous core business; these are partly used to subsidize the remains of the previous core business, thereby accepting inefficiencies for parts of the business. Pivoting refers to changing the business model without accepting inefficiencies. Implications for family and nonfamily businesses are discussed.