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2. Literature Review and Hypothesis
2.1 Corporate Entrepreneurship and Family Firms
Family firms are created as a consequence of the entrepreneurial behavior of one or
more founders who discover and exploit an opportunity but, in order to grow and survive,
they not only need to maintain or exploit existing advantages, but also are required to search
for new ideas and solutions through the generations. The concept of corporate
entrepreneurship has been viewed as the driver of new businesses within on-going
enterprises and it is concerned with various forms of novelty. According to Dess, Ireland,
Zahra, Floyd, Janney, and Lane (2003), as a firm starts to sell an offering in a new product
category (Golder and Tellis, 1993), the company redefining its domain is proactive and
demonstrates a strong entrepreneurial orientation (Lumpkin and Dess, 1996); seen
specifically in “domain redefinition”, referring to the entrepreneurial phenomenon whereby
the firm proactively explores and creates new product-market niches that others have not
recognized (Covin and Miles, 1999). In other words, the focus here is exploring what is
possible rather than exploiting what is currently available.
In every organization, there are two kinds of behavior—exploration and exploitation;
which have been identified as important determinants for firm survival and underpinning
organizational adaptation research (March, 1991; Gupta et al., 2006). Exploration involves a
relatively broad and generalized search to expand the firm’s knowledge domains into
unfamiliar or novel areas and/or to establish new combinatory mechanisms (Katila and
Ahuja, 2002). Exploitation relies on more narrow, localized and in-depth search and/or
repetitive combinative mechanisms in order to obtain well-defined solutions pertinent to a
firm’s existing knowledge domains (Galunic and Rodan, 1998; Katila and Ahuja, 2002).
It is widely accepted that a central component of success is the maintenance of a
balance between exploration and exploitation within a firm (Cohen and Levinthal, 1990;
Hendry, 1996; Levinthal, 1997; Levinthal and March, 1993). However, organizations turning
to entrepreneurial activities often find it difficult to balance exploration and exploitation
(Ireland, Hitt, and Sirmon, 2003) because these two kinds of behavior generate significantly
different performance outcomes over time (He and Wong, 2004). Exploitation generates
clearer, earlier and closer feedback while exploration is more risky and only pays off in the
long run. Due to the temptation to bear less risk and generate quicker feedback, managers
tend to display bias against exploration (March, 1991). This is particularly true when such
behaviors would detract from current profitability (Barker and Mueller, 2002). Managers’
preference for exploitation may not be harmful in the short run, or even in the long run if the