Family business efficacy and the role of dynamic capabilities: a social cognitive approach

Family businesses represent the most dominant form of business structure across all economies. While confronting the same challenges as non-family firms and requiring high-level competitiveness and responsiveness, their survival and performance is also subject to unique problems and advantages. The main aim of this study is to apply a socio-cognitive perspective to provide new theoretical and empirical insight into family firm performance. A new Family Business Efficacy (FBE) construct is posited as a distinct form of collective efficacy in family firms and a critical causal factor for family firm performance. Empirical analysis is undertaken to evaluate FBE and identify its role in firm performance and interaction with key variables. The research employed a mixed method sequential approach consisting of two phases: the development and validation of the concept of FBE and empirical analysis and verification. Phase 1 employed a qualitative inductive design to conceptualise and operationalise the concept of Family Business Efficacy, drawing on a sample of founders and CEOs of family businesses (n=24) in Saudi Arabia and the UK. Phase 2 employed a quantitative deductive approach using a multi-informant survey method to gather quantitative data on key variables: family relation, family culture, family governance, dynamic managerial capabilities, reward, ambiguity, family business efficacy and firm performance. The sample (n=4,165) of top management team and employees was drawn from 503 family firms in Saudi Arabia. Structural equation modelling (SEM) was used to test and verify the relationship between the variables to address the research questions. The findings confirmed all proposed hypotheses and verified FBE as a significant predictor of family firm performance and family relationships as a significant source of FBE. Further, the relationship between FBE and firm performance is mediated by dynamic capabilities and moderated by reward and ambiguity. This research makes a novel contribution to family business research in applying a socio-cognitive perspective to conceptualise and validate a family business efficacy scale, and confirms FBE as a major causal factor influencing variations in performance. This conceptualisation of FBE can be used to identify and understand domains of efficacy and contribute to the identification of strengths and characteristics that influence the functioning and performance of family businesses.