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Schools Of Thought
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Copyright 1992 by
Baylor University
Strategic Management's
Potential Contributions
to a Theory
of Entrepreneurship
William R. Sandberg
The article offers an overview of strategic management and its various schools of
thought,
followed by a summary of the field of entrepreneurship and its own disagreements
over
definition and boundaries, it suggests that strategic management might help resolve
such
disagreements through its focus on quot;the entrepreneuriai work of the organization,quot;
which is
based on variables that describe the organization's industry, resources, processes,
and
strategy. Finally, the articie both describes and proposes contributions of strategic
management
to entrepreneurship theory, specifically addressing issues of new business creation,
innovation, opportunity seeking, risk assumption, top management teams, and
group
processes in strategic decisions.
An considering how the field of strategic management might contribute to a theory
of entrepreneurship, one faces two substantial obstacles. First, one needs a definition of
entrepreneurship, which can no more be defined to everyone's satisfaction than can
peace, justice, or pornography. Like Supreme Court Justice Stewart on the latter subject,
I can't define entrepreneurship but I know it when I see it. Second, one must circumscribe
the field of strategic management, an almost equally daunting prospect.
This article skirts the first obstacle by being broadly inclusive, hoping thus not to
exclude any important elements of entrepreneurship. Inasmuch as it addresses how
entrepreneurship theory is (or might be) affected by strategic management, the latter
field's real (and potential) contributions govern this article's specific coverage of
entrepreneurship.
And strategic management's boundaries are stretched to encompass perspectives
from outside its mainstream that might bear on entrepreneurship. Finally, as
requested by the editor, this article applies strategic management perspectives, insights,
and approaches to new business creation, innovation, opportunity seeking, and risk
assumption.
This article consists of three major sections. The first describes strategic management
in terms of its dominant paradigm and the multiple perspectives that paradigm
comprises. Selected constructs, variables, and methodologies common to strategic
management
are described and related to the perspectives that employ them.
The second section discusses contending definitions of entrepreneurship, then describes
2. entrepreneurship in terms of the themes commonly attributed to the word. These
themes later will serve to describe aspects of entrepreneurship that are open to
contributions
from the field of strategic management.
The third section identifies contributions of strategic management to the themes of
entrepreneurship identified earlier. It begins by tracing the treatment of entrepreneurship
within strategic management's dominant paradigm, then links strategic management's
Spring, 1992 73
current domain to themes in entrepreneurship. The coverage highlights potential
applications
of strategic management research to new business creation, innovation, opportunity
seeking, and risk assumption. In addition, the third section points out strategic
management's potential contributions to knowledge on entrepreneurial teams. The article
concludes with speculation on the prospects for cross-fertilization between the fields
of strategic management and entrepreneurship.
THE FIELD OF STRATEGIC MANAGEMENT
The field of strategic management descends from business policy and still earlier
embodiments of a continuing interest in the tasks and responsibilities of general
management.
Although some organizational scientists deny the existence of a dominant
paradigm in strategic management (Bowman, 1990) and other scholars dispute the
field's origins (Mintzberg, 1990). most strategic management research today conforms
to a paradigm articulated in 1979 by Schendel and Hofer. The following description of
that paradigm and its associated process of strategic management is intended as an
updated overview rather than a complete summary or critique. As will be seen below,
many schools of thought contend within the bounds of this dominant paradigm.
The Dominant Paradigm of Strategic Management
Using as their point of departure a concept of strategy that had developed over the
previous 20 years, Schendel and Hofer (1979, p. 11) proposed quot;the strategic management
paradigmquot; to clarify the concept of strategy and link it with the tasks of managing
strategy and the roles of the general manager. They described strategic management as
a process that deals with the entrepreneurial work of the organization, with organizational
renewal and growth, and more particularly, with developing and utilizing
the strategy which is to guide the organization's operations.
At the heart of this paradigm is the concept of strategy that prevails to this day in
strategy-based theory and researcb. Strategy consists of four components: (1) scope,
defined in terms of product/market combinations; (2) deployment of organizational
resources as competitive weapons, perhaps creating a distinctive competence; (3)
competitive
advantage stemming from appropriate matches of competitive weapons and
scope; and (4) synergy among activities, resources, and scope.
Within an organization, up to four strategies may be present in a hierarchy: an
enterprise, or institutional, strategy to ensure the firm's social and political legitimacy;
a corporate strategy that governs the firm's choice of businesses, allocation of capital
among them, and their integration into an effective whole; business strategies governing
how it will compete in its various businesses and how functional areas will be integrated
3. at the business level; anA functional area (e.g., marketing, production) strategies.
Goals and objectives always are present but have been treated differently by various
strategic management scholars: either they are an additional component of strategy at
each level or they combine with these strategies to form an overarching, quot;masterquot;
strategy for the firm (Schendel & Hofer, 1979, p. 11). This distinction need not concern
us in this paper, as it does not cut to the heart of the strategic management paradigm.
Recognizing that quot;administrative structure and processes [construed broadly to include
numerous macro- and microbehavioral variables] . . . also influence strategy,quot;
Schendel and Hofer acknowledged the possibility that quot;structure and processes should
74 ENTREPRENEURSHIP THEORY and PRACTICE
be considered a component of strategyquot; (pp. 17-18). During the 1980s many researchers
went on to incorporate both structure and processes in their frameworks of strategic
management.
The Process of Strategic Management
Schendel and Hofer identified six interactive ''major tasksquot; that constitute the
process of strategic management. These tasks are goal formulation, environmental
analysis,
strategy formulation, strategy evaluation, strategy implementation, and strategic
control.
Far more controversy has surrounded the nature of the process than has attached to
the identity of its elements. The opposing camps generally divide on the question of
whether strategic management can be studied as a rational-analytic process. Schendel
and Hofer, as well as the most influential of the earlier thinkers about strategy, strongly
reflected a rational-analytic orientation—so much so that Bygrave (1989, p. 16) joked
that the uninitiated sometimes mistook diagrams of strategy formulation processes for
quot;electrical control drawings for heating and ventilating the Empire State Building.quot; He
(quite seriously) traced this perspective to the engineering and mathematics training of
Schendel, Hofer, and many others among its most prominent advocates. Whatever its
origins, the rational-analytic perspective remains overwhelmingly common in strategic
management research (Hambrick, 1990).
Those who doubt the rationality of organizational processes (necessarily including
strategic management) instead posit several variant strains of incrementalism. In their
models of decision making, issuesareaddressedandactions taken on the basis of inertia,
political power and coalitions, organizational routines, or other nonrational factors. At
the extreme there really is no room for strategy formulation, since no coherent strategy
can be said to exist. A more moderate perspective describes a middle ground of quot;logical
incrementalismquot; (Quinn, 1980) in which top managers move gradually hy building
awareness and consensus, seeking a series of partial solutions rather than radical
changes, and juggling analytical, behavioral and political processes along the way.
Research Methodologies
Two organization theorists (Daft & Buenger, 1990, p. 91) have taken strategy
researchers to task for
adher[ing] strongly to a belief in systematic, definable strategy procedures and
structures that can be described, measured, analyzed, and compared. This assumption
so dominates the discipline that it obscures any others that might compete
with it.
4. Moreover, they add, quot;positivist assumptions lead straightaway to dominance of research
method over theory as the primary concern of investigation.quot;
Their opinion notwithstanding, the field of strategic management comprises contending
schools of thought and harbors divergent approaches to research. The following
paragraphs sketch the field's main research methodologies as a prelude to detailing some
of its principal schools of thought.
In strategy research the total organization or one of its portfolio businesses typically
is the unit of analysis, although the increased attention to structure and processes during
the 1980s brought more studies of groups or individual managers. Based on an analysis
Spring, 1992 , 75
of the 50 most-cited strategic management works published between 1980 and 1985,
Hambrick (1990) concluded that the 23 empirical projects relied most often on archival
data, notably from the PIMS database, followed by interview or observation data and
survey data; no laboratory studies were included. The empirical projects leaned heavily
toward deductive rather than inductive intent, and nearly all contained specific
propositions
or concluded with a model or theory. Only four of the empirical projects used
longitudinal data, and only seven others used cross-sectionai data to test a dynamic
model. Most tested static models with cross-sectional data.
Research in the field of strategic management traditionally has been viewed as
prescriptive. To organization theorists Daft and Buenger (1990, p. 92) this orientation is
a ''fixationquot; that hinders discovery of knowledge and leads researchers to define
performance
so narrowly as quot;to oversimplify not only what it is but how it is achieved.quot;
Most strategic management scholars would agree with Hambrick (1990), however, that
their criticism misses the mission and distinctive competence of strategic management.
Moreover, he found, the most-cited works in strategic management were about evenly
divided between prescription (i.e., linkages to performance) and description (i.e.,
theoretical
analysis unrelated to performance).
Some Contending Schools of Thought
To undertake a full exposition and classification of strategic management thought in
this article would be foolhardy indeed. Fortunately Henry Mintzberg has provided a
shortcut. His review of 1,495 works on strategic management—and, more broadly, on
quot;systems of collective social action Ito] set direction and change itquot; (1990, p. 110)—-led
him to identify ten schools of thought. He characterized each school by how it conceives
of strategy formation, as shown in Table 1.
According to Mintzberg, the first three schools (design, planning, and positioning)
are prescriptive and normative, while the rest are mainly descriptive. The entrepreneurial
and cognitive schools emphasize visionary leadership and the mental process associated
with it. The remaining four schools of thought broaden strategy formation quot;beyond the
individual and his or her cognition, to other forces and other actorsquot; (p. 109). The
Table 1
Mintzberg's (1990) Schools of Thought on Strategy Formation
School of Thought Sees Strategy Formation Process as
E>esign conceptual
5. Planning formal
Positioning analytical
Entrepreneurial visionary
Cognitive mental
Learning emergent
Political power-based
Cultural ideological
Environmental passive
Configurational episodic
76 ENTREPRENEURSHIP THEORY a n d PRACTICE
following capsule descriptions are adapted from Mintzberg's detailed treatment of each
school.
Design School. This school was born of the original, Harvard-driven, case method
with its belief in rational leadership to match organizations to their environments. Still
the foundation of much prescription and of many business policy courses, it focuses on
the CEO as architect of a strategy clear enough to be understood throughout management.
Its leading early work was Andrews's The Concept of Corporate Strategy (1971).
Planning School. This highly rational school of planning, programming, and budgeting
developed parallel to the design school. Its formalized procedures, replete with
checklists and the diagrams that Bygrave (1989) lampooned, favored the ascent of a
planning staff distinct from top management. Ansoff s Corporate Strategy (1965)
provided
its momentum, but the school's influence waned in the 1970s because its advocates
never established a research program to lend empirical support. (On the latter
point, see Sandberg and Glueck (19801.)
Positioning School. The third prescriptive school has a strong empirical foundation
and roots in industrial organization economics. Its impetus can be traced to researchers
(notably Schendel) at Purdue University and later to Porter's Competitive Strategy
(1980). The positioning school emphasizes generic strategies and strategic groups based
on them, analysis of industry structure, and identification of generic environments. Its
research base includes studies using the case method and hybrid, quot;medium grainedquot;
methods as well as those using large databases.
Entrepreneurial School. This school conceives strategy as quot;the personal, flexible
construct of one individualquot; (Mintzberg, 1990. p. 137), built on his intuition, judgment,
experience, etc. Its initial impetus came from Schumpeter's Theory of Economic
Development
(1934), which portrayed the extraordinary visionary whose innovation destroys
equilibrium. This entrepreneur could be a hired manager as well as an owner or
founder, and the organization could be a large corporation. Mintzberg considers the
Entrepreneurial School relevant to start-up and turnaround situations and to organizations
of sustained small size. (This school also spawned numerous studies of the entrepreneur's
personality which, though prominent in the entrepreneurship literature, are
peripheral to strategic management.)
Cognitive School. Even more than the Entrepreneurial School, the Cognitive School
attempts to penetrate the strategist's mind. Strategy is a concept that emerges as limited
cognitive capabilities cope with complexity. Progenitors of this school include March
6. and Simon's Organizations (1958). Mintzberg believes the Cognitive School is applicable
to the original conception or a reconception of a business.
Learning School. Essentially the incrementalist perspective described earlier, this
school's most influential sources include Lindblom's quot;The Science of Muddling
Throughquot; (1959) and Quinn's Strategies for Change (1980). The strategic management
process is informal, and strategy implicit; leaders respond to initiatives taken by
whomever
has ideas or insights. According to Mintzberg, the school most closely fits decentralized,
professional organizations that face complex, dynamic situations. It is frequently
applied to corporate venturing (quot;intrapreneurshipquot;).
Political School. This school emphasizes the exercise of political (i.e., noneconomic)
power either within or by the organization. Its origins are in political science; Allison's
Essence of Decision (1971) brought its perspectives to strategy formation. Because
political means are illegitimate or are legitimate, conflict usually accompanies them.
Mintzberg sees applications of this school to strategic change within and around
organizations.
Cultural School. Strategy emerges from a process of collective behavior, according
to the Cultural School, and takes the form of a perspective shared throughout the
Spring, 1992 , 77.
organization. Impletnetitation rests on normative pressures that grow out of shared
beliefs. Although potent and effective in a stable environment, the culturally anchored
strategy can promote resistance to change. Management's key challenge is to manage
collective cognition.
Environmental School. This school emphasizes all-powerful extemal forces that
drive organizations into safe niches or to their death. Leadership, including strategic
management, is futile, its apparent impact illusory. A more moderate approach within
this school emphasizes the environment's contingent impact on organizations and their
strategic management processes. The latter approach, says Mintzberg, can be applied to
situations of severely constrained strategic choice, such as industry maturity.
Configurational School. This school is Mintzberg's professed favorite, and his own.
It conceives of an episodic process that configures various types/forms of strategy
formation, environment, and organization at a particular time. Mintzberg sees this
school as offering a means to integrate and make sense of other schools of strategic
management, in the following way: Configurations tend to form pattems along a life
cycle of strategy formation; specification of the configuration would help reconcile
conflicting premises and findings among the other nine schools. [Readers may recognize
that the configurational school promises essentially a frame theory (Rumelt, 1979) that
tells when to apply each of the various limited domain theories represented by the other
nine schools. 1
Summary
The presence of so many contending schools of thought within strategic management
attests to the field's highly permeable boundaries. Its openness to new ideas sometimes
verges on susceptibility, but probably accounts for the durability of strategic
managemetit's
dominant paradigm. To a remarkable degree, new ideas are absorbed into existing
constructs, sometimes giving birth to new schools of thought. Thus, for example,
7. can the configurational school attempt integration of notably diverse approaches without
discarding strategic management's dominant paradigm.
WHAT IS ENTREPRENEURSHIP?
If the boundaries of strategic management are permeable, those of entrepreneurship
are downright porous. No dominant paradigm exists to repel new ideas; self-appointed
defenders of the faith themselves disagree on doctrine. This section of the article tums
to entrepreneurship, briefiy describing first a fundamental disagreement on definition
and boundaries, then two potential routes to common ground.
Convictions and Controversy
Most attempts to define entrepreneurship begin with ati author's conviction as to its
essence. Thus Gartner's advocacy of a quot;behavioralquot; approach to definition began by
identifying quot;the primary phenomenon of entrepreneurship—the creation of organizations,
the process by which new organizations come into existencequot; (1988, p. 21);
indeed, quot;[ejntrepreneurship ends when the creation stage of the organization endsquot; (p.
26). This approach is contrasted to a traditional, quot;traitquot; approach to definition,
characterized
by Gartner as quot; 'if-we-can-just-find-out-who-the-entrepreneur-is-then-we'llknow-
what-entrepreneurship-is' quot; (p. 23).
Though acknowledging the importance of entrepreneurial behavior, defenders of the
trait approach have argued that to understand small business ventures quot;one must leam
78 ENTREPRENEURSHIP THEORY and PRACTICE
more about the individuals who create and manage them, because the two are inextricably
boundquot; {Carland, Hoy, & Carland, 1988, p. 34). They also have cautioned
against a definitional exclusion of corporate venturers and purchasers or inheritors of
firms from the population of entrepreneurs. The definition proposed by Carland and
associates included such quot;entrepreneursquot; (and their ventures) on the presumption that
their business goals, pursuit of Schumpeterian innovation, and adherence to strategic
management practices distinguished them from quot;small business ownersquot; (Carland,
Hoy, Boulton. & Carland, 1984).
Given their very different convictions about the essence of entrepreneurship, it
follows that the behavioral and trait approaches adopt different units of analysis. The
behavioral approach
views the creation of an organization as a contextual event, the outcome of many
influences. The entrepreneur is part ofthe complex process of new venture creation.
This approach to the study of entrepreneurship treats the organization as the primary
level of analysis and the individual is viewed in terms of activities undertaken to
enable the organization to come into existence (Gartner, 1988, p. 21, emphasis
added).
The trait approach focuses on the individual, of course, and treats the organization, at
least in its formative stages, as a projection of the individual's goals and his financial
dependence on it (Carland et al., 1984).
Observing correctly that the Carland definition requires knowledge of a person's
intentions, Gartner concluded that these ostensibly behavioral factors merely led
researchers
back into a trait approach. His conclusion seems hasty, though, as one certainly
can study intended strategies without also presenting psychological portraits of
8. key managers, as can be seen in several studies of new ventures (Roure, 1986; Sandherg,
1986) or small firms (Covin, Slevin, & Covin, 1990). Gartner also criticized the Carland
definition for its reliance on innovativeness and strategic management practices, saying
that researchers would be plagued by ambiguity as they tried to determine quot;the degree
of difference between one product and another similar product . . . [and] between the
truly innovative [method of manufacturing, marketing, or distribution] and the not so
innovativequot; (1988, p. 24). Again, though, Gartner's criticism appears overdrawn; without
minimizing the problem, it can be noted that such measurements often are made in
research on strategy (e.g., Covin et al., 1990) and the management of innovation (e.g..
Van de Ven & Chu. 1989).
In a sense, Gartner would postpone but not avoid the researcher's encounter with
ambiguity. His proposed study of entrepreneurial behaviors, patterned after Mintzberg's
study of managerial behaviors, would require identification of, inter alia, the information
on entrepreneur processes, the pressures of his job, and the roles he performs quot;in
moving information, in making decisions, in dealing with peoplequot; (Mintzberg, 1973, p.
3). Such identifications, though, require inferences on the part of the researcher that
promise to raise the spectre of ambiguity just as surely as does Carland's definition.
Moreover, the ambiguity inherent in various organizational processes (e.g., team
formation;
quot;claiming ownership of a new idea, organization, etc.quot;; generating esprit de
corps) that Gartner proposed for study (1988, pp. 27-28) poses obvious definitional and
measurement problems.
As noted above, the dispute hetween partisans of the behavioral and traits approaches
is rooted in honest convictions as to which type of business or manager is
entrepreneurial; indeed, given the disputants' evident passion and their esteem for the
entrepreneur, perhaps their disagreement is over who deserves the label. Probably it can
Spring, 1992 , 79
be settled only through joint custody of the coveted term, with each user specifying the
population or phenomenon to which it applies in his writings.
Search for Common Ground
Gartner has detected in recent writings quot;the worry that entrepreneurship has become
a label of convenience with little inherent meaning. Labeling a research study as an
entrepreneurship study does not seem to identify what will be studied and whyquot; {1990,
p. 16). Citing the terminology in the 1989 call for papers by the Entrepreneurship
Division of the Academy of Management, Gartner asked, quot; . . . what are the
commonalities
that link family businesses, small business management, and new ventures?quot; (p.
16).'
Rather than a deductive answer to his question, Gartner offered the results of a
Delphi panel that expiored the meanings attached to quot;entrepreneurshipquot; by 44 researchers
and practitioners. His factor analysis of their responses discerned eight common
themes: the entrepreneur (described in terms of personality and abilities); innovation (an
essentially Schumpeterian phenomenon, in either a new or an existing organization);
organization creation; creating value; profit or nonprofit (i.e., can a nonprofit venture
be entrepreneurial?); growth as an orientation or an attribute; uniqueness; and the
presence
9. of an owner-manager. Although Gartner's panel also ranked the themes according
to their importance to entrepreneurship. their identification is sufficient for the purposes
of this article. These themes will reappear in a discussion of how strategic management
might contribute to a theory of entrepreneurship.
Gartner's question may find an answer in the emergence of theory and research that
treat family-owned, small, or new businesses as limited domains of strategic management
(Sandberg, 1989). The primary variables of strategic management describe an
organization's resources, processes, and strategy as well as its industry. Together these
variables exercise potent, near-universal influence on firm performance. Yet firms that
are family-owned, small, or new are thought to be substantively unique in ways that
make them special cases of strategic management.
Theorists have pursued this notion. For example, Churchill and Hatten (1987, p. 55)
isolated family succession as the distinguishing feature of family firms and the succession
process as quot;where changes in management, in strategy, and in control are planned
for and/or executed.quot; Similarly, Keats and Bracker (1988, p. 42) offered a model of
small firm performance quot;as a first step in the development of a limited domain theory
of small firm strategic management,quot; and Sandberg (1986, p. 1) approached new
ventures as quot;a special case of existing strategic management theory.quot;
In looking to strategic management for limited-domain theories applicable to
entrepreneurship,
one must temper optimism witb realism. Though useful, such theories are
unlikely to offer a complete theory of entrepreneurship. The domain of strategic
management,
despite its great breadth, does not comprise all topics that interest entrepreneurship
scholars. Little will be found of the personality or psychological characteristics
of managers, nor is much written about the presence of owner-managers. What follows
in the final section of this article, then, is not an attempt to treat all aspects of
entrepreneurship;
rather it is an attempt to apply strategic management theory to entrepreneurship.
1. The question remains ripe, as the Entrepreneurship Division retains those terms in its
1991 domain
statement.
80 ENTREPRENEURSHIP THEORY and PRACTICE
STRATEGIC MANAGEMENT'S CONTRIBUTIONS TO
ENTREPRENEURSHIP THEORY
Strategic management's great breadth and eclectic origins enable it to speak to many
issues in the less mature, highly heterogeneous field of entrepreneurship. This section
recounts how strategic management has treated entrepreneurship and identifies further
contributions that strategic management might make to building a theory of
entrepreneurship.
Particular attention will be given to its contributions to the study of new
business creation, innovation, opportunity seeking, and risk assumption. The section
concludes by discussing selected strategic management topics that also might benefit
entrepreneurship theorists.
Entrepreneurship was hardly a neglected topic in the management literature prior to
the emergence of the strategic management paradigm (Sandberg, 1986). This literature
10. has been reviewed elsewhere (e.g., Cooper, 1979; Vesper, 1980). For our purposes,
though, it is enough to trace the topic's treatment within that paradigm.
Entrepreneurship in the Strategic Management Paradigm
Several basic distinctions are drawn by strategic management theorists in contemplating
entrepreneurship. The most fundamental is between independent and corporate
entrepreneurship. Within the realm of independent entrepreneurship, strategic
management
has in mind almost exclusively the new venture rather than the established smali
business or the family business. Within the realm of corporate entrepreneurship, strategic
management distinguishes between types that create new organizations or organizational
units and types that do not. The first grouping includes what is commonly
known as corporate venturing, intrapreneurship, corporate new venture divisions, and so
on. The second grouping includes strategic change undertaken to renew an organization
or to innovate within the framework of existing businesses.
In their paradigmatic work, Schendel and Hofer (1979) accorded entrepreneurship a
prominent role. They described strategic management as quot;a process that deals with the
entrepreneurial work of the organization, with organizational renewal and growth . . . quot;
(p. 11). Moreover, quot;a model that fails to place entrepreneurial choice at the center of the
managerial universe . . . is incapable of providing a mechanism for renewing the firm
beyond its originally intended purpose.quot; quot;Any successful business begins with a 'key
idea' quot; that is a quot;product of the entrepreneurial mind. Without it, there is no business.
. . . Thh entrepreneurial choice is at the heart of the concept of strategy . . . quot; ( p .
6, emphasis added).
Their use of quot;entrepreneurialquot; was not identical to that of many entrepreneurship
theorists, of course. Clearly Schendel and Hofer included established as well as new
organizations, and managers as well as founders. In this respect they followed
Schumpeter
(1934), as they did also in stressing that the key idea is quot;a new strategy for a
businessquot; (Schendel & Hofer, 1979, p. 6). But they also referred to small businesses as
quot;where the pure entrepreneurial character of strategic management is perhaps seen bestquot;
(p. 20) and quot;the simplest, cleanest, and easiest environment in which to see the basic
strategic management tasksquot; (p. 309). In other words, anticipating the views of Gartner
(1988), they saw the essence of entrepreneurship in the actions of strategic managers.
quot;Newly founded firms, small and ongoingquot; were the subject of a separate topic
paper by Arnold Cooper in Schendel and Hofer's presentation of the strategic
management
paradigm. The aim was to explore quot;the commonalities and differences in the
Spring, 1992 ^ t 81
strategic management processquot; across three organization archetypes (Cooper, 1979, p.
304). [Using Mintzberg's terminology, one would call that a configurational study!]
Cooper (1979) noted the scarcity of research on the relationships among the
characteristics
of entrepreneurs, venture strategies and performance. He focused on three
stages in the life of a growing firm: start-up, early growth, and later growth. An
entrepreneur's first decision was whether to start a business; here Cooper viewed the
11. research question as why and whether persons with certain characteristics became
entrepreneurs.
This decision made, the entrepreneur faced decisions conceming competitive
strategy; here Cooper broadened his focus to include the performance of the venture,
and the effects of strategy on that performance. He thought the need was especially
great for research on the relationship between strategy and performance, and suggested
that important dimensions of this relationship might include a venture's business strategy,
its product/market choice, and the industry's stage of evolution. In addition. Cooper
discussed new ventures by existing corporations, citing their similarity to independent
ventures but emphasizing issues involving the organizational mechanisms for
launching and managing them.
Thus Cooper had placed new ventures squarely within the strategic management
paradigm. Moreover, along with the accompanying commentary by Susbauer (1979),
his paper argued persuasively that strategic management researchers should study
growth-oriented new ventures and established firms but avoid quot;mom and popquot; small
businesses. These recommendations presaged the definitional distinction between
entrepreneurs
and small business managers (and their respective firms) favored by Carland
and associates (Carland et al., 1984).
Cooper also had set an agenda for a decade of strategic management research in
entrepreneurship. Following his lead, Sandberg (1986) studied the effects of business
strategy and industry structure on the performance of growth-oriented, independent new
ventures. He devised a classification scheme for venture strategies that encompassed
breadth of product/market scope, basis of competition (differentiation, low cost, or
none), and competitive weapons (in the form of various quot;entry wedgesquot; [Vesper, 1980]
that could be used with strategies). His small-sample results showed significantly
superior
performance to be associated with industry disequilibrium, subsequently rising
entry barriers, early stages of industry evolution, and industries that offer noncommodity
products; with differentiation rather than focus strategies; and with several combinations
of strategy and industry structural conditions, including broad-scope strategies pursued
in early-stage industries.
Perhaps more important than any of these particular findings was the conclusion that
the strategic management paradigm applies to new ventures. Subsequent studies have
bolstered this conclusion. The following sections of this article relate strategic
management
theory and research to several key topics in entrepreneurship: new business creation,
innovation, opportunity seeking, and risk assumption. In so doing, the discussion
ties various schools of strategic management thought (Mintzberg, 1990) to the major
themes of entrepreneurship articulated by Gartner's (1990) Delphi panel.
New Business Creation
As conceived in the strategic management paradigm, new business creation comprises
both the decision to start a business and ensuing decisions on competitive strategy
(Cooper, 1979). The topic of new business creation seems to capture elements of two
entrepreneurship factors identified by the Delphi: organization creation (factor 3) and
creating value (factor 4).
12. Factor analysis of panelists' responses linked rather obvious organization-creation
82 ENTREPRENEURSHIP THEORY and PRACTICE
items (e.g., quot;new venture development,quot; quot;the creation of a business that adds valuequot;)
and several items describing the acquisition, mobilization, and deployment of resources
and their integration with opportunities. Such themes suggest a contributory role for
strategic management, drawing perhaps on the Design School's emphasis on matching
resources to opportunities. Indeed, the acquisition and use of resources are the core of
some strategic management models of the firm and its performance (e.g., Barney, 1991;
Wemerfelt, 1984).
The potential value of resources is realized through their conversion—concretely,
into goods and services, but abstractly, and more importantly, into competences. This
tenet of strategic management (Schendel & Hofer, 1979) is reiterated in more recent
research. For example, two studies of mature businesses have found that a firm's
performance depends on how closely its competences fit its industry's key success
iquot;actors (Chrisman & Boulton, 1987; Sousa de Vasconcellos e Sa & Hambrick, 1989).
Unfortunately, their methodologies may not be perfectly replicable in entrepreneurship
research. Both studies used expert panels to assess industry conditions and firms'
strengths; the latter could be difficult to arrange for a contemporaneous study of new
organizations. Alternative sources of information are available, though. For instance,
Chrisman and Boulton also used trade journals and other published sources of
information
conceming firms. Romanelli (1989) successfully used a similar approach in her
longitudinal study of start-ups in the minicomputer industry.
quot;Creating value,quot; the fourth factor in Gartner's (1990) study, comprised quot;the
creation of a new businessquot; and quot;creation of wealthquot; as well as quot;transformation of
a business that adds valuequot; and quot;growth strategy for an organization.quot; The latter
two items clearly apply to established companies and recall Schendel and Hofer's
(1979) emphasis on the renewing role of entrepreneurship. They also are consistent with
organizational reconception, a process for which the Design School is well suited
(Mintzberg, 1990).
The strategic decisions made early in an organization's life generally affect its
strategy for years afterward (Boeker, 1989). Romanelli (1989) found little change in
strategies following the third year after firms' foundings. Not only do such decisions
lock a firm into a strategy, but they also affect its perfonnance. Subsequent to Sandberg's
(1986) study, other researchers have reported similar results. Romanelli (1989)
concluded that broad-scope strategies performed better than narrow-scope strategies
when industry sales were growing rapidly but that the effect was reversed when industry
sales were declining. Research that has narrowly defined or operationalized strategy has
not always found it to affect performance, as when Eisenhardt and Schoonhoven (1990)
operationalized strategy solely in terms of technical innovation in their study of start-ups
in the semiconductor industry, and found no significant effect.
Innovation
Members of the Delphi panel (Gartner, 1990) seemed to have Schumpeter's concept
of entrepreneurship in mind. quot;Innovationquot; (factor 2) comprised innovative product,
market, technology, and service. It also included new ways to meet market demand and
13. adapting a creative idea to a market opportunity. Echoing Schumpeter's quot;new
combinations
of factors of production,quot; panelists included new combinations of resources.
The possibility of a corporate setting was realistic, as the factor included items on
corporate entrepreneurship, large organizations, and older organizations. Finally,
innovation
also included quot;convinces others to join the venture,quot; suggesting some concern
for team building.
Strategic management offers tremendous potential contributions to this theme in
Spring, 1992 , 8 3
entrepreneurship research. Which of the field's schools of thought would prove fruitful
depends on what aspect of innovation is under study. For example, if innovation is
conceived as an individual process, both the Cognitive and Entrepreneurial Schools
might contribute, although both would be severely limited. Cognitive research in strategic
management has not explored creativity, and so is of little help in explaining how
innovative ideas occur (Mintzberg, 1990). The Entrepreneurial School explains the
strategic nature of innovation but does not tell how to put innovations into practice.
If innovation is considered an organizational phenomenon, the Learning School is
applicable. Strategic management researchers have investigated the process by which
project ideas are developed, gain sponsorship, and rise through the organization to final
approval, and the means by which upper management can manipulate an organization's
structural and strategic contexts to influence this process (Bower, 1970; Burgelman,
1983). (These topics also are explored by business historians and journalists, usually in
studies of a major innovation by one company. See, for example, Graham [1986] on
RCA's development of video players and Chposky and Leonsis [1988] on IBM's
development
of the personal computer. Both strategic management and entrepreneurship
researchers could profit from this literature.)
If the interest in innovation lies in its integration into a business or corporate
strategy, however, the Positioning School applies. It is inconceivable that Schumpeterian
innovation would not require modification of an organization's logistics, production,
marketing, and so forth. The techniques of value-chain analysis (Porter, 1985)
could pinpoint these changes and identify their effects on other parts of the organization
and on buyers' value chains. Such knowledge enables management to reduce the impact
of unintended consequences both within the innovating unit and among organizational
units that are linked to it. (Synergies require coordination or sharing of activities among
business units or product lines. Such linkage may bring benefits but. in the case of a
particular innovation, may also threaten greater economic losses to an established
company
than to a new venture. Whereas both risk losing their investment in the innovation,
only the established company also risks unfavorable effects on activities that also serve
other business units or product lines.)
Opportunity Seeking
No factor clearly equated to opportunity seeking emerged from the Delpbi panel.
However, about half the items in factor 7 (labeled quot;uniquenessquot;) seemingly relate to
opportunity seeking. quot;Identifies a market,quot; quot;provides a concept or a product or service,quot;
14. and quot;ability to see situations in terms of unmet needsquot; seem highly relevant;
quot;vision of accomplishmentquot; and quot;creates a competitive advantagequot; seem related as,
respectively, antecedent and subsequent conditions of opportunity seeking; and even quot;a
special way of thinkingquot; may relate to opportunity seeking.
Once again the potential contributions of various schools of strategic management
thought depend on how the theme from entrepreneurship is presented. The
Entrepreneurial
School views strategy as a quot;personal, flexible, construct of one individualquot; built
on that person's intuition, judgment, experience, and similar bases (Mintzberg, 1990, p.
137). Herron (1990) has explored the relationship among the individual entrepreneur's
skills and aptitudes (operationalized via the quot;Structure of the Intellectquot; model [Gui!-
ford, 1967; Meeker. 1969] as various forms of intelligence) and new venture
performance.
Entrepreneurial skill, quot;essentially a facility in conceiving the opportunity to
profitably reallocate company resources to new endeavors in the face of disequilibriumquot;
(Herron, 1990, p. 79), contributed significantly to venture performance.
Whereas the Entrepreneurial School recognizes the importance of an individual's
84 ENTREPRENEURSHIP THEORY and PRACTICE
vision and concepts, the Cognitive School also addresses their formation and, sometimes,
their existence as group phenomena. In many respects this viewpoint is consistent
with the concept of quot;entrepreneurial intentions,quot; described as entrepreneurs' quot;states of
mindquot; (Bird, 1988, p. 442). Two studies may prove useful to entrepreneurship theorists
because they describe how managers, individually and in teams, think about opportunities
and threats.
Jackson and Dutton (1988) have investigated how individual managers discem
threats and opportunities and, in an experiment, detected a threat bias that leads
individuals
to pay greater heed to perceived threats than to opportunities. They discuss how
organizations may encourage a threat bias by more generously rewarding the manager
who successfully handles a threat than the one who successfully handles an opportunity.
The implications of a threat bias and the organizational incentives that foster it are
worthy of further investigation by researchers in corporate entrepreneurship, particularly
since many such incentives seem likely to be informal and thus to have eluded some
researchers.
A cognitive process study of a group as it tracked an emerging technology identified
stimuli that prompted changes in the group's frames of reference (El Sawy & Pauchant,
1988). These changes swung the group between focuses on opportunities and threats, but
even after completing their work, participants were unable to identify the stimuli that had
triggered the switches.
Risk Assumption
Despite their importance in the inventory of personal characteristics measured by
entrepreneurship researchers, risk propensity and risk assumption have not figured so
prominently in the field of strategic management. Two principal examples will serve to
summarize what strategic management offers to entrepreneurship.
A study of top managers of very large, successful manufacturers found that their
15. strategic decisions were markedly influenced by a strong desire to maintain their
company's
fmancial health and independence (Donaldson & Lorsch, 1983). In fact, many
top managers limited investment to the amount generated internally rather than become
reliant on external capital markets. That these sentiments prevailed among professional
managers may be a surprise, but one can anticipate even stronger sentiments in many
owner-managed businesses. The role of a management belief system, usually including
some notion of acceptable financial risk, looms large in such firms. It probably explains
the quot;conscious underachieverquot; firm (Susbauer, 1979) and many decisions in familyowned
firms where preservation as a legacy takes precedence over riskier initiatives.
Risk assumption also impinges on corporate entrepreneurship at the individual level,
in terms of a manager's personal finances, job security, and career prospects. In some
organizations compensation and promotion opportunities are tied to the size of the unit
(or budget, or sales) for which a manager is responsible. Under such circumstances the
potential rewards for championing a new product, technology, or business are not
commensurate with the degree of personal risk (Beatty & Gordon, 1991; Burgelman &
Sayles, 1986).
Additional Topics from Strategic Management
Having discussed the potential implications of strategic management theory and
research for several major themes in entrepreneurship, there remain many other aspects
of strategic management on which entrepreneurship researchers might draw. Two in
Spring, 1992 ®^
particular seem noteworthy because of their implications for a topic of increasing interest
in entrepreneurship research and a second, related topic that has yet to receive so much
attention.
Top management teams. Researchers in entrepreneurship have begun to give the role
of entrepreneurial teams the attention it deserves. In the early 1980s researchers
maintained
their traditional focus on the entrepreneur, perhaps out of habit. My own study of
new ventures was typical: It measured characteristics of the entrepreneur rather than the
top management team, and found no link to performance. 1 speculated that
entrepreneurial
teams or hired managers might be filling gaps in the entrepreneur's experience
or other qualifications (Sandberg, 1986, p. 125). Soon afterward another researcher
using a similar sample and model found that team completeness and prior joint
experience
were strongly associated with superior performance, whereas the entrepreneur's
various forms of experience had no effect (Roure, 1986).
Strategic management theorists have attempted to identify the characteristics of
successful top management teams. The mixture of backgrounds, knowledge, skills, and
cognitive styles influences a team's strategic choices and hence the organization's
performance
(Hambrick & Mason, 1984). In their policy-capturing simulation of individual
top managers' strategic acquisition decisions, Hitt and Tyler (1991) found that the extent
of this influence was significant, both directly and as a moderator of other, stronger
influences. As strategic management researchers continue to explore the impact of top
16. management teams' characteristics, their findings should inform research on
entrepreneurial
teams.
Group processes in strategic decisions. The effectiveness of decision-making groups
is an issue that has been largely overlooked in entrepreneurship researcb. Strategic
decisions are the result of much more than the characteristics of a top management (or
entrepreneurial) team. Those characteristics can be thought of as representing the
potential
quality of a decision—the base of knowledge, experience, cognitive skills, and
other resources on which the team may draw. Exploitation of those resources depends on
the effectiveness of the team's decision process.
Except for extreme instances of solo decision making as conceived by the Entrepreneurial
School, strategic decisions typically are worked out in management teams. A
vast literature describes decision making, but the most promising theoretical applications
to entrepreneurship involve the handling of conflict in the decision process. Both
anecdotal
and experimental evidence indicates that groups make better strategic decisions
when they build cognitive conflict into tbeir process (Schweiger, Sandberg, & Rechner,
1989). Otherwise they act on faulty assumptions, fail to utilize the knowledge available
within the group, and accept inferior decisions.
Other strategic management research has a particular bearing on the timeliness of
decisions. In a study of eight microcomputer firms, Eisenhardt (1989) found that
decision-
making speed came from accelerated cognitive processing and a smooth group
process on the part of tbe top management team; effective resolution of conflict played
a key role. In this dynamic industry, faster decisions led to superior performance.
The distinction between looking to top managers' characteristics and looking to their
decision processes in an effort to explain performance parallels the traits-versusbehaviors
dispute in entrepreneurship. The first approach implies confidence that the
right ingredients in a top management team will be transformed into good decisions. The
second approach implies skepticism that this transformation is so reliable. Experimental
evidence favors the second approach; procedures that ensure cognitive conflict lead to
better strategic decisions precisely because they make better use of a team's individual
knowledge and capabilities (Schweiger «fe Sandberg, 1989).
ENTREPRENEURSHIP THEORY a nd PRACTICE
The Prospects for Cross-Fertilization
Throughout this article I have argued that the strategic management paradigm has
much to contribute to the study of entrepreneurship. Although beyond the scope of the
present topic, it is also apparent that research in entrepreneurship can contribute to the
field of strategic management. On the precise points of contact between the two fields
and on the elements of theory that can be transferred, scholars can be expected to
disagree. After all, they remain far from consensus on the definition of each field and,
at the extremes, quite disparate in their topical interests. Prospects for a merger, friendly
or otherwise, seem remote.
Even without total integration, though, momentum is building for substantially mwe
cross-fertilization between the fields. The locus of contact is corporate entrepreneurship,
17. to some an oxymoron but to others a bridge. Two particular conceptual and theoretical
efforts—one from entrepreneurship, the other from strategic management—may have
brought us closer to a paradigm that embraces both subjects. Stevenson and Jarillo
(1990) sought to facilitate the flow of knowledge from entrepreneurship to the study of
corporate management. They proposed a paradigm of entrepreneurship that emphasizes
individual actors, whether independent or within an existing organization, and the pursuit
of opportunities irrespective of the resources initially under one's control. Their
quot;purely behavioral, situational defmitionquot; of entrepreneurship leads to the recognition
of quot;the crux of corporate entrepreneurship'': quot;opportunity/or the firm has to be pursued
by individuals within itquot; (pp. 23, 24). Organizations find it hard to create inducements
that will bring individuals' perceptions of personal opportunity, based on both incentives
and access to organizational resources, into harmony with opportunities for the firm.
Many of the steps suggested by Stevenson and Jarillo to achieve this alignment fall under
the heading of strategy implementation.
From the opposite side of the bridge, so to speak, Chrisman and Bauerschmidt
(1990) extended the strategic management theory of new venture performance to include
corporate ventures. By adding the constructs of organizational structure and resources to
Sandberg's (1986) strategy, industry structure, and entrepreneur, they incorporated two
critical dimensions of corporate entrepreneurship. Whereas the independent entrepreneur
creates an organization and acquires new resources, the corporate entrepreneur works
within the (sometimes stifling) strictures of an existing organization and seeks to
reorganize
resources already under its control. The effects of these differences, according to
Chrisman and Bauerschmidt, account for both the higher failure rate and higher
maximum
retums experienced by independent ventures.
CONCLUSION
This article closes as it began, with personal observations. The prospects for developing
a theory of entrepreneurship seem brighter than might have been imagined a mere
decade ago, when the shortcomings of the traits approach, including its inability to
predict performance, began to become obvious. At the same time, the prospects for
cross-fertilization between strategic management and entrepreneurship have never
seemed brighter.
These two observations are closely related, I think, because both prospects owe
much of their present luminosity to a common phenomenon: increased attention to the
behaviors of human actors in strategic contexts, whether inside or outside organizations.
The behavioral approach's more sophisticated and nuanced interpretations of
entrepreneurship
have their conceptual (and temporal) counterparts in the burgeoning research on
Spring, 1992
strategy implementation. As both fields develop and refine their theories along these
lines, we can expect continued sharing of knowledge between them.
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William R. Sandberg is Associate Professor of Management at the University of South
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An earlier version of tbis article was presented to the Interdisciplinaiy Conference on
Entrepreneurship
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90 ENTREPRENEURSHIP THEORY and PRACTICE