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Schools Of Thought

  1. 1. 1042-2587^92-163$1.50 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. REFERENCES Allison, G. T. (1971). Essence of decision: Explaining the Cuban missile crisis. Boston: Little, Brown.
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  21. 21. Schweiger. D. M., & Sandberg. W. R. (1989). The utilization of individual capabilities in group approaches to strategic decision-making. Strategic Management Journal, 10, 31-43. Schweiger, D. M., Sandberg, W. R.. & Rechner. P. L. (1989). Experiential effects of dialectical inquiry, devil's advocacy, and consensus approaches to strategic decision making. Academy of Management Journal. 32, 145-112. Sousade Vasconcellos e Sa, J. A., & Hambrick, D. C. (1989). Key success factors: Test of a general theory in the mature industrial products sector. Strategic Management Journal. 10. 527-538. Stevenson. H. H., & Jarillo. J. C. (1990). A paradigm of entrepreneurship: Entrepreneurial management. Strategic Management Journal, 11, 17-27. Susbauer.J. C. (1979). Commentary. InD. E.Schcndel&C. quot;^.HofcriEds.), Strategic management pp 327-332. Boston: Little, Brown. Van dc Ven, A. H., & Chu. Y-h. (1989). A psychometric assessment ofthe Minnesota Innovation Survey. In A. H. Van de Ven, H. L. Angle, & M. S. Poole (Eds.), Research on the management of innovation, pp. 55-103. New York: Harper & Row. Vesper. K. H. (1980). New venture strategies. Englewood Cliffs, NJ: Prentice Hall. Wemerfelt, B. (i984). A resource-based view of the firm. Strategic Management Journal, 5. 171-180. William R. Sandberg is Associate Professor of Management at the University of South Carolina. An earlier version of tbis article was presented to the Interdisciplinaiy Conference on Entrepreneurship Theory at the University of Baltimore. January 18, 1991. The author thanks conference participants and students in his doctoral seminar in entrcpreneurship for their comments and suggestions. 90 ENTREPRENEURSHIP THEORY and PRACTICE