Innovation Through Tradition as a Mixed Gamble: Exploring Family Firms’ Heterogeneity and the Role of Environmental Dynamism

This study examines innovation through tradition (ITT) – an innovation strategy based on the use of mature knowledge – within family firms. Family firm research shows that these firms rely more on ITT compared to non-family firms and highlights the benefits of ITT as a way to preserve socio-emotional wealth (SEW) while being able to innovate. However, the innovation management literature has shown that an overreliance on mature knowledge can lead to negative financial outcomes. We reconcile these perspectives by conceptualizing ITT as a mixed gamble in which family firm leaders face a trade-off between SEW gains and financial losses. We argue that diverse family firm leaders frame the trade-off differently, with family CEOs weighing more SEW preservation and thus favoring ITT, while later generations in control prioritize financial considerations, thus hindering ITT. Furthermore, we propose that these relationships are strengthened and mitigated, respectively, by environmental dynamism. Our analysis, based on a longitudinal sample of 102 family firms across multiple sectors from 2013 to 2020, supports our hypotheses. This study has important implications for both the family firm ITT research and the broader innovation management literature.