Employee Incentives and Family Firm Innovation: A Configurational Approach

Abstract

According to family business theory and practice, family firms often face a paradoxical tension between their anchorage to the past and the need to renew and innovate to remain competitive, which often hampers innovation. Given that innovation is inherently a social process that depends on the knowledge and creativity of an organization’s people, employee incentives may be key to managing the tradition–innovation paradox and unlocking a family firm's innovation potential. However, current research has not addressed how family firms can effectively configure incentives to promote innovation. Drawing on a configurational approach and the unique properties of the qualitative comparative analysis method, our study reveals that the set of incentives that family firms use to motivate their employees toward innovation differs in relation to whether they are more or less attached to tradition. As such, in line with the principle of equifinality, family firms with high attachment to tradition can be as innovative as those with low attachment to tradition by implementing the right configuration of incentives. Thus, we offer a human resource management perspective on innovation that advances knowledge on how family firms can unlock their innovation potential.