In the Pursuit of Innovation: The Role of Top Management Team Functional Diversity and Open Discussion in Family Firm Innovation Intentions

Abstract

Academic Summary

Interest in family firm innovation has increased in recent times, generating the assumption that family firms are less willing to innovate than nonfamily firms. We investigate firm innovation inputs by examining whether family firms differ from nonfamily counterparts regarding innovation intentions. We then adopt an upper echelons perspective to study whether the TMT functional diversity and open discussion explain the alleged lower intention to innovate of family firms. The analysis of survey data from 393 Italian firms reveals that family firms are less willing to innovate than nonfamily firms and that the TMT functional diversity partially mediates this result, meaning that family firms develop lower innovation intentions due to their lower TMT functional diversity compared to nonfamily firms. Focusing on family firms, we find that the relationship between TMT functional diversity and innovation intentions is positively moderated by TMT open discussion. Our study shows that TMT functional diversity and TMT open discussion are essential to stimulate family firms' innovation intention, contributing to the family business innovation literature, the debate on the ability-willingness paradox, and upper echelons research. Moreover, it provides practical implications by highlighting the importance of creating a functionally diverse TMT, while fostering open discussion among its members.

Managerial Summary

Our study highlights how family firms can overcome their lower intention to innovate compared to nonfamily firms. The analysis of survey data from 393 Italian firms highlights two key factors that help explain and address this gap: the functional diversity of the TMT and the presence of open discussion within the team. Our findings indicate that, because of their lower TMT functional diversity, family firms develop fewer intentions to innovate. Thus, family firms should invest at least as much as their nonfamily counterparts in TMT functional diversity. A practical way to do so is by promoting TMT appointment criteria to deliberately include individuals with varied functional backgrounds. However, diversity alone is not enough. An environment where TMT members feel encouraged to share doubts, opinions, and suggestions is essential to ensure that diverse knowledge is shared and used effectively. Together, these practices can significantly strengthen a family firm's intention to innovate. What is interesting about the implications of this study is that functional diversity and open discussion are not fixed traits; rather, they are strategic levers that leaders can shape over time to strategically refine and improve the attitudes toward innovation of their TMT and unlock their firm's innovation potential.