The relationship of absorptive capacity and innovation in family firms

The main aspect of this paper is to analyse how family firms create the capabilities that foster the absorptive capacity, organizational memory and innovation in these companies. In this work, two important knowledge management capabilities are analysed. First, absorptive capacity, or the firm's ability to identify, assimilate and exploit knowledge from the environment. Second, organizational memory or the accumulated body of data, information and knowledge created during the organization's course of action. There is an increasing interest in studying family firms because they are the prevailing form of enterprise worldwide and because they are an important engine of economic growth and job creation in European economies, and product innovations generated by family firms are a key source of growth. In order to understand the family's role in supporting knowledge management, this paper focuses on the influence of family in ownership and management, and experience of the generation in control. Furthermore, in family firms, innovation is important, since it allows the transmission of its wealth to later generations. However, this process requires the participation of internal stakeholders (employees, owners-managers) and external stakeholders (clients, suppliers or other organizations). This study tries to show how family businesses, within their particular idiosyncrasy, can confront these processes of learning and development of innovations. This aspect of crucial relevance to stay alive in the market has not been treated with the attention needed in previous literature. The present study investigates 249 Spanish manufacturing firms with more than 40 employees. The data was collected using a structured questionnaire via a webpage designed specifically for this purpose. Finally, a structural equation modelling (SEM) methodology was employed to test the hypotheses. Our results show, a positive relationship among organizational memory, absorptive capacity and product innovations. This relationship is further enhanced as organizational memory increases, since it mediates the relationship between potential and realizable absorptive capacity, but also there is a positive effect of absorptive capacity and innovation, what demonstrates that these capabilities are determinants of the development of successful innovations. Also, we have found evidence that family involvement in management fosters knowledge management capabilities (absorptive capacity and organizational memory), and also there is a positive direct relationship between family involvement in management and generation and innovation. These results have important implications about the role of family firms in knowledge management and innovation processes.