TYING IT TOGETHER:

THREE ESSAYS ON THE ROLES OF KNOWLEDGE, ENTREPRENEURIAL

ACTION, AND INSTITUTIONS IN THE FORMATION OF ...
The School of Business of The George Washington University certifies that Mike Provance

has passed the Final Examination ...
© Copyright 2010 Mike Provance
     All Rights Reserved




              ii
This page left blank intentionally.




                iii
Acknowledgments




        This path has been a long one, spanning seven years and two institutions. As it
reaches its co...
I want to thank all of my closest academic colleagues for the inspiration and
guidance you have provided throughout the lo...
(for trying to convince me to include Monte Carlo simulation in the studies, among other
reasons), Colette Desmarais, Kris...
This page left blank intentionally.




                ix
Abstract of Dissertation



  TYING IT TOGETHER: THREE ESSAYS ON THE ROLES OF KNOWLEDGE,
 ENTREPRENEURIAL ACTION, AND INST...
from them lead to shifts in the socio-institutional environment of the industry and over time

effect changes in informal ...
Table of Contents


List of Tables                                                                               xiv

List...
This page left blank intentionally.




               xiii
List of Tables



Table 1:   Components of Politico-Institutional Model Along Statist and

           Corporatist Dimensio...
List of Figures



Figure 1: Quadruple Helix Of Knowledge Flows In An Innovation System                    5

Figure 2: Mu...
1    Introduction


        The worldview of technology entrepreneurship espoused by the author of this

dissertation is w...
that they shape strategic choices of actors within their span of control (often referred to as

organizational fields, but...
systems.” Certainly, most scholars agree institutional forces are fundamental elements of

entrepreneurship (Scott, 1994)....
Why are these questions relevant and important? Conventional wisdom presses

entrepreneurs to produce novel offerings, to ...
Figure 1. Quadruple Helix of knowledge flows in an innovation system.


The four layers of academia, industry, government,...
Broader institutional forces structure interactions that create and sustain markets,

influence the allocation of resource...
mechanisms that are socially constructed through interactions between actors and informal

institutions (Scott and Meyer, ...
institutions. Some entrepreneurs are deviants, rejecting or avoiding the institutionalized

norms and practices of the fie...
ventures that are reproducers of existing organizational forms and innovators that fall under the

definition above. In dy...
that enforce these constraints.


1.2.4   Knowledge [organizational]

        Knowledge is a socially constructed intangib...
interact” to promote and catalyze the emergence of new ventures (Spilling, 1996: 91). Within

this manuscript the environm...
technological factors influence the types of business models employed by new

microgeneration ventures. This essay is conc...
building block of new venture formation processes. This study introduces institutional

mediation of entrepreneurial knowl...
The model used in this essay is framed on the assumption that institutions vary in

the ways in which they influence the f...
venture formation at a firm level of analysis.

        These essays address the complex system that links the entrepreneu...
This page left blank intentionally.




                16
2    Institutional Influences on Business Model Design by New Ventures in the

                                 Microgener...
in demand for and development of microgenerated energy: the next era of technological

development will occur with great u...
Microgrid.' Sauter's (2008) perspective on business models provides a foundation for

developing a more robust explanation...
model choice of entrepreneurs (also Amit and Zott, 2001). The business model is defined as

“the content, structure, and g...
and where this value creation will occur. Further, it explains which market or markets will be

targeted, why customers wo...
opportunity (Shane, 2003). The entrepreneur’s choice of business model then is shaped by

the pattern of resource combinat...
entrepreneurial ventures (Sine and David, 2003; Rutherford and Buller, 2007). While multiple

lines of discourse address t...
Expanding the strategic framework from Figure 3 to include political and socio-cognitive

institutional factors, as shown ...
between market and non-market actors (Spencer, et. al., 2005). These dimensions identify

four distinct politico-instituti...
conditions that cause organizations to comply similarly and adopt consistent management

practices. Normative isomorphism ...
technologies with a new venture than with a larger corporate licensee.

          New ventures are not powerless in the pr...
supply chain components, and assuring compliance with appropriate regulatory

organizations. Sauter and Watson (2007) redu...
dramatically different paths, or technology S-curves (Schilling and Esmundo, 2009). This

explanation only enables us to c...
(2008) offers a stakeholder-based rendering of the forces in this market, describing the

microgeneration sector as part o...
Figure 6. Application of politico-institutional framework to business model choice.



       High levels of statist polic...
such as the United States, however, policies favoring centralized resource allocation and

social welfare related to energ...
corporatism), the Plug-and-Play and Company Driven models will both emerge to differing

degrees with Plug-and-Play becomi...
model characteristics. These forces induce their impacts primarily by driving legitimating

behaviors from new ventures th...
contrast is reinforced with existing or proposed policies regarding distribution models for

electricity from renewable so...
on being integrated with other stakeholders in the regional market, such as company-driven

        or community microgrid...
influence of socio-institutional factors on the politico-institutional context. Socially

constructed expectations of whic...
distinct circumstances and contexts (Baker and Nelson, 2005; Garud and Karnøe, 2003).

       Combining business models en...
2.4    Discussion

       Taken together, the influences of politico-institutional and socio-institutional forces

have im...
should be viewed as an open system of externally- and internally-generated dynamics that

yield business model concepts ap...
their business models. Our objectives with the paper is to inform the thinking of

entrepreneurs in this regard, shape cho...
This page left blank intentionally.




            42
3    Social and Institutional Embeddedness in the Regional Sustainability of

                                         Ent...
The institutions co-located with them in the region significantly influence the new

knowledge these entrepreneurial ventu...
to the development of simple theory because of its strengths in enhancing theoretical

precision and related internal vali...
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures
Upcoming SlideShare
Loading in …5
×

Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures

4,359 views

Published on

This dissertation addresses two questions that emerge from this phenomenon: 1)
How do new ventures contend with the forces of institutionalization in their processes of
entrepreneurial action, and 2) how do these processes affect growth (at both firm and
regional levels of analysis)? The study develops theory more holistically around the
interaction of institutions and entrepreneurs and then uses it to undertake an empirical study
with simulation to investigate these questions from regional and venture levels of analysis.
The conceptual model is presented using entrepreneurial business model choice in the
microgeneration industry as an explanatory context. Informal and formal institutional
environments interact with socio-institutional factors to shape the decision-making of
entrepreneurs when choosing business models, but these choices and the actions that result
xi
from them lead to shifts in the socio-institutional environment of the industry and over time
effect changes in informal institutional layers that span the economic environment more
broadly across regions and nations.

0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
4,359
On SlideShare
0
From Embeds
0
Number of Embeds
13
Actions
Shares
0
Downloads
59
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

Tying it Together: Three Essays on Knowledge, Entrepreneurial Action, and Institutions in the Formation of New Ventures

  1. 1. TYING IT TOGETHER: THREE ESSAYS ON THE ROLES OF KNOWLEDGE, ENTREPRENEURIAL ACTION, AND INSTITUTIONS IN THE FORMATION OF NEW VENTURES By Mike Provance B.S., Management Science, 1990, Massachusetts Institute of Technology M.B.A., 1994, The Pennsylvania State University Ph.D., 2010, The George Washington University A Dissertation submitted to The Faculty of the School of Business of the George Washington University in partial fulfillment of the requirements for the degree of Doctor of Philosophy August 31, 2010 Dissertation directed by Elias Carayannis Professor of Information Systems and Technology Management
  2. 2. The School of Business of The George Washington University certifies that Mike Provance has passed the Final Examination for the degree of Doctor of Philosophy as of May 18, 2010. This is the final and approved form of the dissertation. TYING IT TOGETHER: THREE ESSAYS ON THE ROLES OF KNOWLEDGE, ENTREPRENEURIAL ACTION, AND INSTITUTIONS IN THE FORMATION OF NEW VENTURES Mike Provance Dissertation Research Committee: Elias Carayannis, Professor of Information Systems and Technology Management, Dissertation Director Richard Donnelly, Associate Professor of Information Systems and Technology Management, Committee Member Robert Waters, Professor of Engineering Management, Committee Member Anupama Phene, Associate Professor of International Business, Committee Member Hun Lee, Associate Professor of Strategic Management, George Mason University, Committee Member i
  3. 3. © Copyright 2010 Mike Provance All Rights Reserved ii
  4. 4. This page left blank intentionally. iii
  5. 5. Acknowledgments This path has been a long one, spanning seven years and two institutions. As it reaches its conclusion, I wanted to express deep gratitude to those who have stood by me, motivated me, and guided me into the profession that lies ahead. First, I must thank Elias Carayannis for a collaboration that began before admittance to the doctoral program. Our work together has developed into the beginnings of revealing and forward-thinking research on entrepreneurs. Your guidance and insights throughout this process has been immeasurable. And, your personal dedication to my success has been unparalleled. I owe deep gratitude to Nathaniel Givens for his efforts to take my vision and turn it into a phenomenal piece of software, all trying to begin his own Ph.D. efforts. You have put yeoman effort into this simulation, and I appreciate every moment and idea you have contributed to it. Thank you also to Robin Givens. You added ideas to this design early on and helped along the way on the development of the simulation, and put up with Nathaniel devoting so much time to it. Also, I would like to thank Barry Lawson at the University of Richmond for introducing me to Nathaniel and for schooling me along the way in the art of simulation. My doctoral committee has been immensely supportive throughout the development of this research and completion of the dissertation. I want to thank Dick Donnelly, Bob Waters, and Anu Phene from George Washington University, and Hun Lee from George Mason University for their active and energetic participation in this process. Your help has been instrumental. To Rocki DeWitt, Dave Wilson, Chris Muscarella, and Irene Petrick, thank you for being inspirational in my decision to pursue the doctorate, for helping me understand what it means to be a research scholar, and for providing the beacons of academic success to which I aspire. vi
  6. 6. I want to thank all of my closest academic colleagues for the inspiration and guidance you have provided throughout the long haul. To my friends and colleagues at the University of Richmond and George Mason University -- Jeff Harrison, Doug Bosse, Jonathan Whitaker, Mahesh Joshi, Steve Tallman, Rob Phillips, and everyone else, I appreciated the wonderful environment you created, support and guidance you offered, and role models you represented during the final part of this process. I extend my gratitude to Elizabeth Huff and the Doctoral Program committee for working with me on the transition to George Washington University. I would like to credit the present and former faculty of the Management and Organization department at the University of Maryland, particularly Bob Baum, Ken Smith, Anil Gupta, Brent Goldfarb, David Kirsch, Dave Waugespack, Chris Bingham, Violina Rindova, Tim Pollock, Curt Grimm, and Cindy Stevens with the phenomenal start to learning my craft they provided. During my Ph.D. work, I have encountered some exceptional doctoral students who have become my friends, research collaborators, and mentors. I want to offer my heartfelt thanks to Azi Gera, Antoaneta Petkova, Bret Fund, Caro Sipp, Dax Basdeo, Dante Di Gregorio, David Major, Dmitry Khanin, Don Stewart, Flore Bridoux, Gosia Langa, Holly Slay, Jay Carson, Jocelyn Leitzinger, Karen Wouters, Karly, Dairabayeva, Katherine Decelles, Lori Kiyatkin, Mary Schoonmaker, Mike Pfarrer, Patricia Kanashiro, Patrick Maggitti, Scott Livengood, and Sharon Hill. I look forward to opportunities for us to reconnect in the future. I want to express my thanks to the Management faculty and administration at Old Dominion University for seeing enough potential in this research to bring me into the department. I look forward to the coming years. Finally, I want to thank family and friends. To Daphne, Jack, Coco, Mom, and Dad, I can never repay what you have invested into my doctorate. Please know that the successes that follow from it over the coming decades are yours as much as they are mine. To everyone else -- the Paquette and Provance families, Emily Crandall, Sara Flynn Murphy, Kevin Murphy, Honor Murphy, Stephen Provance, Tobey Gonnerman, Ron Gerrans, Chris Massa vii
  7. 7. (for trying to convince me to include Monte Carlo simulation in the studies, among other reasons), Colette Desmarais, Kristin Maresca-Gilley, Elizabeth Roark, Jerry Paytas, and the Penn State MBA staff and members of the Alumni Board, you have offered encouragement and support even when faced with my unintelligible explanations of the research. Thank you! Namaste. viii
  8. 8. This page left blank intentionally. ix
  9. 9. Abstract of Dissertation TYING IT TOGETHER: THREE ESSAYS ON THE ROLES OF KNOWLEDGE, ENTREPRENEURIAL ACTION, AND INSTITUTIONS IN THE FORMATION OF NEW TECHNOLOGY VENTURES Scholars, policymakers, and entrepreneurs are increasingly interested in understanding the factors that influence successful new venture formation from a holistic perspective. Many view the lone, heroic entrepreneur as only one element or node in a complex system of entrepreneurial activity that contributes to growth in regional and national economies. However, some entrepreneurship literature seems to suggest that entrepreneurs are central players in these systems rather than one of several contributing forces that shape the innovation system and foster sustainable entrepreneurship. Developing a more nuanced and systemic view of how these forces co-exist offers the potential for expanding our knowledge of the entrepreneurial phenomenon. This dissertation addresses two questions that emerge from this phenomenon: 1) How do new ventures contend with the forces of institutionalization in their processes of entrepreneurial action, and 2) how do these processes affect growth (at both firm and regional levels of analysis)? The study develops theory more holistically around the interaction of institutions and entrepreneurs and then uses it to undertake an empirical study with simulation to investigate these questions from regional and venture levels of analysis. The conceptual model is presented using entrepreneurial business model choice in the microgeneration industry as an explanatory context. Informal and formal institutional environments interact with socio-institutional factors to shape the decision-making of entrepreneurs when choosing business models, but these choices and the actions that result x
  10. 10. from them lead to shifts in the socio-institutional environment of the industry and over time effect changes in informal institutional layers that span the economic environment more broadly across regions and nations. The simulation was constructed to emulate the actions of new ventures and incumbent firms to appropriate external knowledge through formal partner networks and informal knowledge clusters in order to construct innovations and sell them to buyers in the market. It modeled the behaviors underlying this process in order to test the effects of changes in the conditions of the simulation on new venture formation outcomes. The evidence from this simulation was used to examine both knowledge appropriation factors influencing sustainable entrepreneurship at a regional level and the process of new venture formation at an individual venture level. The results from these studies reinforce the existing premise in the literature that formal networks are important to the formation of new ventures, but the structure of those networks may have dramatically different outcomes based on the nature of the institutional environment the venture resides in. New ventures should seek out and develop the 'right' networks for their situation and location. What ‘right’ looks like depends on nature of the new venture and its knowledge appropriation process, and the type of environment the entrepreneur is operating in. The same network (and type of network) in Silicon Valley may not work as well in Research Triangle Park, or one built from a US base should not look or work the same as one in Japan or China. This dissertation expands our understanding of formation processes for new ventures and the particular interactions that occur between these ventures and the institutions that surround them. It makes contributions to the entrepreneurship and neo-institutionalism literature in this regard. xi
  11. 11. Table of Contents List of Tables xiv List of Figures xv 1 Introduction 1 1.1 Research Question 3 1.2 Definitions 8 1.3 Structure of Manuscript 11 2 Entrepreneurial Action and Institutional Factors Within the Microgenerated Energy Industry 17 2.1 Introduction 17 2.2 Institutional Forces on Business Model Design 19 2.3 Entrepreneurial Business Models in Microgeneration 27 2.4 Discussion 39 3 Social and Institutional Embeddedness in the Regional Sustainability of Entrepreneurship 43 3.1 Introduction 43 3.2 External Knowledge Acquisition and Institutions in Sustainable Entrepreneurship 45 3.3 Simulation Design and Methodology 49 3.4 Results and Analysis 57 3.5 Discussion 67 4 The Effects of Network Structure and Knowledge Appropriation on New Venture Formation 71 4.1 Introduction 71 4.2 Knowledge Appropriation in the Formation of New Ventures 74 4.3 New Venture Knowledge Acquisition Through Strategic Alliances 78 4.4 Computational Model of New Venture Formation 81 4.5 Results and Analysis 87 4.6 Discussion 94 5 Conclusion 97 5.1 Theoretical Contributions 99 5.2 Policy and Practitioner Implications 102 5.3 Limitations and Future Research 103 6 Appendix: Simulation Design 107 6.1 Simulation Agents 109 6.2 Simulation Events 113 6.3 Model Robustness and Stability Testing 121 6.4 Summary of Simulation Parameters and Variables 126 7 References 127 xii
  12. 12. This page left blank intentionally. xiii
  13. 13. List of Tables Table 1: Components of Politico-Institutional Model Along Statist and Corporatist Dimensions 24 Table 2: Knowledge Mediating Institutions 48 Table 3: Analysis of Variance for Absolute Levels of New Venture Formation Across Regions 61 Table 4: Analysis of Variance for Probability of New Venture Formation Across Regions 62 Table 5: Correlation Matrix For Lattice Point Aggregated Simulation Data 63 Table 6: Results of Tobit regression analysis on probability of new venture formation 65 Table 7: Analysis of Variance for New Venture Network Size Across Regions 90 Table 8: Analysis of Variance for New Venture Closeness Centrality Across Regions 91 Table 9: Correlation Matrix for Agent-Level Simulation Data 92 Table 10: Results of Probit regression on New Venture Formation 92 Table 11: Demonstration of knowledge matching method for thresholds 119 Table 12: Analysis of Variance for Total New Venture Formation Between Configurations 124 Table 13: Summary of Simulation Parameters and Variables 126 xiv
  14. 14. List of Figures Figure 1: Quadruple Helix Of Knowledge Flows In An Innovation System 5 Figure 2: Multi-Layered Institutional Model Of New Venture Formation 7 Figure 3: Strategic Framework for New Venture Business Model Design 20 Figure 4: Institutional Adaptation of Strategic Framework 23 Figure 5: Relationships Between Institutional Context and Entrepreneurial Business Model Choice 30 Figure 6: Application of Politico-Institutional Framework to Business Model Choice 31 Figure 7: New Venture Formation Simulation Model 51 Figure 8: Simulation Configurations for Regional Analysis of New Venture Formation 56 Figure 9: New Venture Formation Levels Across Configurations and Regions 58 Figure 10: Survival Rates for New Ventures, Expressed as Probability of Formation Occurring Across Configurations and Regions 60 Figure 11: Simulation Configurations for Firm-Level Analysis of New Venture Formation 86 Figure 12: Comparison of New Venture Network Size Across Configurations 88 Figure 13: Comparison of New Venture Node Centrality Across Configurations 89 Figure 14: Conceptual Mapping of Manuscript to Institutional Systems Model of Entrepreneurship 98 Figure 15: Conceptual Model of Heterogeneous Agent Landscape of Simulation 107 Figure 16: System of Events in New Venture Formation Simulation Model 114 Figure 17: Landscape Configurations for Testing Robustness and Stability of Simulation 122 Figure 18: Distribution of Total New Venture Formation Across Lattice Points 123 Figure 19: New Venture Formation Levels Over Time 125 xv
  15. 15. 1 Introduction The worldview of technology entrepreneurship espoused by the author of this dissertation is woven into a tapestry of entrepreneurship theory from competing theories on the dynamics and actions of organizations, and perspectives on innovation and knowledge. It is cast in the light of objectivism where people interact with the surrounding physical, political, institutional, technological, and economic environments through their firms to achieve rational, capitalistic gains using knowledge. Reality exists as an objective absolute—facts are facts, independent of man’s feelings, wishes, hopes or fears. Reason (the faculty which identifies and integrates the material provided by man’s senses) is man’s only means of perceiving reality, his only source of knowledge, his only guide to action, and his basic means of survival. Man—every man—is an end in himself, not the means to the ends of others. He must exist for his own sake, neither sacrificing himself to others nor sacrificing others to himself. The pursuit of his own rational self-interest and of his own happiness is the highest moral purpose of his life. The ideal political-economic system is laissez-faire capitalism. It is a system where men deal with one another, not as victims and executioners, nor as masters and slaves, but as traders, by free, voluntary exchange to mutual benefit. (Rand, 1962) In this light, it should come as no surprise that this dissertation connects entrepreneurial action with the dynamics of the environment within which they compete for growth and advantage. In particular, the focus of this research is on entrepreneurs’ interactions with institutions in the pursuit of knowledge. Institutions are socially constructed mechanisms for channeling the actions of organizations. They may be informal, such as sanctions, customs, or norms; they may be formal (laws, property rights, standards). Institutions may take the form of organizations, relations between organizations, or cultural or political context within which organizations persist. The common thread of institutions is 1
  16. 16. that they shape strategic choices of actors within their span of control (often referred to as organizational fields, but also equivalent to nation-states, industries, or scientific domains). Actors gain access to valuable, difficult-to-acquire resources by adhering to the formal and informal control devices of institutions. By acting on these devices, actors such as entrepreneurial ventures can shift the value assigned to resources in their favor, contributing to their growth. Every entrepreneur faces a constant need to allocate scarce resources across actions in order to maximize their prospects for survival initially and then their potential for growth. A fundamental – and often overlooked – premise of these allocation decisions is that they occur in social environments in which the entrepreneur must act with deviance in order to establish competitive advantage while conforming to constraints established by institutions that demand legitimating behaviors. Fligstein (2001: 27) describes this behavior as self- awareness of the entrepreneur disentangled from the conformity present in stable markets: “In moments of formation or transformation of political or market fields, actors become self-aware and engage in new forms of interaction to produce new arrangements.” The choices to allocate scarce resources to new arrangements represent trade-offs between factors that may contribute differently to the new venture’s survival and growth, and are articulated through actions. The actions most typically associated with entrepreneurs are competitive ones in which new technological pathways are constructed or new models for rent appropriation are devised. However, actions against institutions represent complements to the competitive ones that may shape a new venture’s growth. In fact, issues of institutionalization and legitimacy may dominate other forces. As Boulding (1981: 31) suggests: “It can be argued indeed … that the dynamics of legitimacy ultimately dominate all other elements of social 2
  17. 17. systems.” Certainly, most scholars agree institutional forces are fundamental elements of entrepreneurship (Scott, 1994). What remains less well understood is how new ventures combine competitive and institutional actions to improve the likelihood of success. 1.1 Research question This manuscript presents a model for new venture growth based on a complex systems perspective of entrepreneurs' interactions with their institutional and competitive environments (Carayannis and Campbell, 2006; McKelvey, 2004). Prior literature has suggested that the independent environment is, in fact, a myth; the broader dynamics and forces often characterized as ‘environment’ mutually interact with the lesser elements (e.g., actors) contained with it to some purposive end (Boulding, 1981; Bar-Yam, 1997). The research presented here proposes then provides evidence that variation in formation of new ventures is [at least partially] explained by the systems of actors, actions, and forces across these environments that shape the flows and use of knowledge for these processes. New ventures are socially constructed through the interdependent relations of many diverse actors and institutions across several layers in the environment, also known as an entrepreneurial system. Better quality entrepreneurial systems are thought to increase economic performance in a region by creating reliable and sustainable processes of new venture formation (Carayannis, 2009; Spilling 1996). An important facet of these processes is the entrepreneurial venture’s appropriation of knowledge from the entrepreneurial system as the basis for actions that grow the organization. The primary questions this dissertation focuses on are: 1) How do new ventures contend with the forces of institutionalization in their processes of entrepreneurial action, and 2) how do these processes affect growth (at both firm and regional levels of analysis)? 3
  18. 18. Why are these questions relevant and important? Conventional wisdom presses entrepreneurs to produce novel offerings, to act differently, and to focus on getting their offerings out to a willing and waiting market (whether the market realizes it at that time or not). Yet, the current state of scholarship on entrepreneurial action reveals a richer, complex, and sometimes contradictory story of diverse influences on the rates, types, and processes of new venture formation. The studies presented here attempt to address this richness by examining how external factors surrounding entrepreneurial action influence the choices made by entrepreneurs in forming their ventures, which of these choices will lead to better results under different conditions, and how the choices shape future conditions. The examination is summarized here as a dynamic model of interactions that can occur at multiple levels within an economic system (Carayannis and Campbell, 2006). Carayannis and Campbell (2009: 202) describe the model as “a multi-layered, multi- modal and multi-lateral system, encompassing mutually complementary and reinforcing innovation networks and knowledge clusters consisting of human and intellectual capital, shaped by social capital and underpinned by financial capital.” In other words, entrepreneurship occurs as an endeavor within a complex system of systems throughout which knowledge is a primary currency. And, this is a system that never rests or reaches equilibrium. It has previously been described as a Triple Helix of Innovation linking the knowledge-based activities of academia, industry, and government over time (Etzkowitz and Leydesdorff, 2000), to which Carayannis and Campbell (2009) added a fourth helix of society – in particular the interactions of media and culture (Fig. 1). 4
  19. 19. Figure 1. Quadruple Helix of knowledge flows in an innovation system. The four layers of academia, industry, government, and media- and culture-based society comprise an innovation system that produces endogenous economic growth (Carayannis and Campbell, 2009). Variety in the flows of knowledge between layers of the innovation system and use of knowledge by system participants produce heterogeneity in the quality and rate of entrepreneurial activity within and between regional innovation systems (i.e., communities, geographies, or countries). The sustainability of this activity produces greater economic performance. 5
  20. 20. Broader institutional forces structure interactions that create and sustain markets, influence the allocation of resources across and within markets, and guide the behaviors of actors within those markets (North, 1991). Markets serve as institutions that naturally and directly shape the rate, quality, and location of entrepreneurial activity (Fligstein, 2001). Competitive forces play likewise influential roles in shaping the nature of entrepreneurial action. These dynamics are viewed generally as the actions and responses of members in a market (competitors, partners, etc.) seeking to gain competitive advantage (Smith, et.al., 1991). In markets characterized as dynamic, or changing, the innovation system represents a central engine of growth in the presence of these forces. The model framing the research presented here connects institutional forces with the innovation system, and behaviors of organizations in that system with the actions of new ventures seeking access to it. Figure 2 below illustrates the model. Organizational environments are comprised of multiple layers of institutional activity that shape the behaviors of organizations. The model presented in Figure 2 adapts the layered institutional model proposed by Scott and Meyer (1994) to the new venture context in order to explain the formative activities of these ventures within an entrepreneurial system (Neck, et.al., 2004; Spilling, 1996). In this model, the dynamics of regional innovation systems – and, in particular, the entrepreneurial subsystems of interest here – are embedded in the context of national political economies. The nature of a region’s political economy determines underlying infrastructure (i.e., education, governance, competition policy, labor markets) that influences the sustainability of entrepreneurship. Within the region, informal and formal institutions emerge over epochs, shaped by the conditions of the political economy. Informal institutions consist of “meaning systems and behavior patterns, constitutive and normative rules, and regulatory processes,” while formal institutions are organizations and governance 6
  21. 21. mechanisms that are socially constructed through interactions between actors and informal institutions (Scott and Meyer, 1994: 57). The model incorporates mechanisms of institutionalization (which enforces legitimating behaviors on new ventures) and institutional change (which results from the deviant actions of new ventures). Figure 2. Multi-layered institutional model of new venture formation. Institutions do not affect the dynamics of entrepreneurial activity necessarily in positive ways, nor are the formative behaviors of all entrepreneurs engendered equally by 7
  22. 22. institutions. Some entrepreneurs are deviants, rejecting or avoiding the institutionalized norms and practices of the field. Some scholars view heterogeneity in entrepreneurial actions, in fact, as a central element in the formation of new ventures at organizational, regional, and national levels (Carayannis, 2009; Krueger, Reilly, and Carsrud, 2000). Entrepreneurs choose from a wide array of actions and draw upon disparate sources of knowledge in order to start and growth their ventures. Some of these ventures will be more influenced by institutional dynamics in their environments, while others will respond more to competitive forces. Yet my position – and the positions of these scholars – is that heterogeneity in the formative actions of entrepreneurs may produce diversity in the types of new ventures, but it does not produce idiosyncrasy; the new ventures form through patterns of actions; these patterns may be categorized and analyzed to provide scholarly insights into the process of new venture formation and practical guidance for entrepreneurs and policymakers regarding choices made on the allocation of resources, actions in markets, and formation of alliances. The purpose of this dissertation study is to examine the sources of these patterns in order to discern the institutional and organizational conditions under which they thrive and the influence they have on new technology venture formation. 1.2 Definitions This section provides concise definitions of terms used in the context of this research throughout the manuscript: 1.2.1 New venture A new venture, or an entrepreneurial firm, is defined here as a new organizational form that possesses practices, business models, and competencies that vary substantively from existing forms (Aldrich, 1999). Aldrich (1999) distinguishes between entrepreneurial 8
  23. 23. ventures that are reproducers of existing organizational forms and innovators that fall under the definition above. In dynamic environments that undergo rapid technological change, reproducer forms are less likely to survive than innovators. For that reason, here the focus rests on new technology ventures as innovators. 1.2.2 New venture formation New venture formation is defined here as a social process of repeated experiments that incorporate the acquisition, allocation, and use of human and intellectual capital into a new (or entrepreneurial) venture to exploit market opportunities (Carayannis, 2009; Levie and Lichtenstein, 2010; Slevin and Covin, 1997). While the beginning and end of this process are not discrete, they are characterized by transitions from nascent beliefs to articulated behaviors and actions, and from a cognitive focus on survival and to one of managerial growth and economic performance, respectively (Grebel, Pyka, and Hanusch, 2003; McKelvey, 2004; Santarelli and Vivarelli, 2007). Other definitions have treated new venture formation as an entrepreneurial event or discrete stages, which fails to capture the non-linear, turbulent qualities of entrepreneurial growth in its earliest stages (Levie and Lichtenstein, 2010). 1.2.3 Institutions Institutions are formal or informal, socially constructed mechanisms that shape the actions of new ventures to create order and reduce uncertainty, so that the new ventures may acquire valuable resources for survival and growth (North, 1991; Scott & Meyer, 2004). Institutional mechanisms for stabilization develop relative permanence from shared beliefs, norms, and cultural artifacts in an organizational field that informally deliver constraints to organizations within the field and form the basis of the construction of formal institutions 9
  24. 24. that enforce these constraints. 1.2.4 Knowledge [organizational] Knowledge is a socially constructed intangible resource of organizations that provides a foundation for the creation and acquisition of other, tangible resources (Cohen and Levinthal, 1990; Nonaka, 1994). That is, the creation of new knowledge requires the presence of prior knowledge delivered through some means of communication. It may be shared, transferred, and modified through interpretive processes of exchange between organizations, both through formal mechanisms such as alliance networks and informal exchanges such as interpersonal communication (Weick, 1995). In entrepreneurial technology firms particularly, knowledge provides an irreplaceable basis for innovation and operations. Carayannis and Formica (2006) reinforce the importance of knowledge when they characterize entrepreneurs as ‘intellectual venture capitalists.’ 1.2.5 Regional innovation system A regional innovation system is a multi-tiered system of systems comprised primarily of ‘knowledge generation’ and ‘knowledge exploitation’ subsystems (Cooke, 2004). It exists in a mesoscopic layer between local governance and organizational structure, and national and international environmental and institutional conditions (Bar-Yam, 1997; Carayannis and Campbell, 2006). Regional innovation systems are social constructions that facilitate the transmission and appropriation of knowledge, resources, practices, and competencies, leading to the introduction of new technological innovations and entrepreneurial ventures. 1.2.6 Entrepreneurial system An entrepreneurial system is a one primary facet of a regional innovation system that “consists of a complexity and diversity of actors, roles, and environmental factors that 10
  25. 25. interact” to promote and catalyze the emergence of new ventures (Spilling, 1996: 91). Within this manuscript the environmental factors consist of specialized conditions and forces within the competitive, or task and technical, environment (formal institutions in Fig. I-2), while excluding generalized informal and global institutional factors., such as cultural or international political relations. These limitations on the agent-based complex systems methodology described in Chapters 3 and 4 are necessary in order to effectively develop conclusions from the simulation results (McKelvey, 2004). 1.2.7 Landscape Landscape refers to the multi-dimensional, socially constructed cognitive space in which strategic activity occurs. In institutional theory, landscape is equivalent to an organizational field. It can also be considered an industry or market sector within which innovation and competition occur. Within this manuscript, landscape is used to translate these theoretical constructs into the two-dimensional environment within which the simulation runs. 1.3 Structure of manuscript The rest of this manuscript consists of three essays and then a concluding chapter that integrates the concepts and contributions from the essays. Each essay focuses on distinct aspects of the layered institutional model of new venture formation discussed above. The first essay, “Entrepreneurial action and institutional factors within the microgenerated energy industry,” explores entrepreneurial action in the presence of significant and diverse institutional forces by focusing on the nature of variation in entrepreneurial business models within the microgenerated energy industry. The essay uses an unstructured case study of the industry to examine the question of how institutional and 11
  26. 26. technological factors influence the types of business models employed by new microgeneration ventures. This essay is conceptual, developing a set of propositions regarding the nature of business model choice under differing environmental conditions. These propositions are qualitatively tested against the backdrop of a profile of entrepreneurship in the microgeneration industry. The institutional context for entrepreneurial action is distributed unevenly within this global industry. Some technologies enjoy stronger positions with the institutions in this sector, drawing financial and regulatory support. Others are constrained by the nature of institutional, competitive, and technical factors present. The microgeneration sector also varies in the degree of ecosystem interdependence leading to the formation of new venture. This variation leads inevitably to heterogeneity in the sources of entrepreneurship, and to the business models chosen by entrepreneurs who enter this market. The microgenerated energy industry setting provides an interesting backdrop for examining the institutional effects on entrepreneurial business models because it is an emergent industry, where the contest for the dominant technology design is still underway and institutional forces are in flux. The industry also exhibits what Carayannis (2008: 1) describes as “co-opetition, co- evolution, and co-specialization” of incumbent and emergent firms. The second essay, “Social and institutional embeddedness in the regional sustainability of entrepreneurial activity,” uses a complex systems agent-based simulation model to examine linkages between institutional factors, stakeholders, and actions of entrepreneurs across regions. This essay builds from an existing simulation project under way at The George Washington University School of Business that examines the system dynamics of new venture formation (Carayannis, Provance, and Givens, 2010). The original simulation work created a preliminary model of external knowledge appropriation as the 12
  27. 27. building block of new venture formation processes. This study introduces institutional mediation of entrepreneurial knowledge into that simulation model, with additional software coding conducted exclusively for this research. Given the importance of institutions to entrepreneurial ecosystems and the formative actions of entrepreneurs, this essay investigates the phenomenon of institutional mediation of entrepreneurial knowledge based on the initial premise that institutions vary in the ways in which they influence new ventures’ formation of alliances, which in turn affects sustainability of entrepreneurial activity within the entrepreneur’s region (Carayannis and Campbell 2009; Saxenian, 1994). An institutional lens frames this study by combining formal institutionalism with the cognitive institutional dynamics of neo-institutionalism and socio-economics (DiMaggio and Powell, 1983; North, 1991; Scott, 1994). The informal or cognitive institutional perspective emphasizes the socially structured formation of practices to reduce uncertainty and provide constraints on behavior. It emphasizes the norms and practices that are reinforced and gradually aligned through social interaction and efforts to engage in exchange. Formal institutional theory addresses the organizational and supra-organizational (i.e., political, regulatory) actors that enforce the institutional constraints and conditions on other organizational actors in the field. While both perspectives focus on the constraining nature of social behavior within a dynamic environment, they approach the problem from different levels of analysis and through different mechanisms. The position of this study regarding institutionalism is that, while institutional theory explains the mimetic and constraining forces of society, contained within this explanation is also the contrary – heterogeneity and conflict in the practices and norms produced by institutional dynamics. This heterogeneity leads to entrepreneurial actions to exploit opportunities that lie outside of typical institutionalized behaviors through institutional entrepreneurship (Garud, et.al., 2002). 13
  28. 28. The model used in this essay is framed on the assumption that institutions vary in the ways in which they influence the flow of information to entrepreneurs in an innovation system. They produce structures that influence heterogeneity in the knowledge domains within a region (Carayannis, Kalouidis, and Mariussen, 2007). Some institutions may constrain or reduce variation in the information flow, thus removing or limiting opportunity. Other institutions may increase variation in the nature of information flowing through the system, or create diversity in the distribution of information flows. The resulting complex system of institutional-entrepreneurial relations is examined for patterns of knowledge appropriation and institutional interaction that result in greater regional sustainability of entrepreneurial activity. The third essay, “What makes a start-up valuable? The effects of competition for knowledge on new venture formation,” emerges from the same simulation study, but adopts a firm level of analysis to explore heterogeneity in the knowledge appropriation practices of new ventures. Entrepreneurial actions have traditionally been viewed through lenses of opportunity exploitation and competition (Shane, 2003). With few exceptions (Shaffer, Quasney, and Grimm, 2000; Quasney, 2003; Usero and Fernandez 2008), these perspectives limit our ability to account for a broader, anecdotally observed palette of entrepreneurial actions that include non-competitive actions such as technology standard-setting, alliance formation, intellectual property protection, and political influence efforts. Likewise, the effects of actions directed towards institutional change on new venture performance have been investigated. However, little research has been conducted on the choices made by entrepreneurs to assemble a portfolio of competitive and institutional actions, and the effects of this portfolio on performance. This study concentrates on this relationship by examining the combined effects of competitive and institutional actions on the process of 14
  29. 29. venture formation at a firm level of analysis. These essays address the complex system that links the entrepreneurial venture with its ecosystems of suppliers, customers, collaborators, competitors, investors, regulators, and other stakeholders. This system exists simultaneously across several layers of the institutional environment, most notably sectoral, regional, national, and international layers (Scott, 1994). The study builds on the system of systems model offered in prior literature to explain the co-evolutionary and interdependent nature of entrepreneurial action (Carayannis and Campbell, 2009). Specifically, I focus on content within these systems that fuels sustainable entrepreneurship through the creation and growth of new technology ventures. This manuscript offers an integration of theories that are traditionally examined independently, and provides a multi-faceted theoretical and empirical view of entrepreneurial action that will reveal contingencies in the growth of entrepreneurial ventures. It provides insights into the effects of institutional forces on new venture formation that expand scholarly insights and suggest a path for future research. The results of this research inform future research in the entrepreneurship domain, particularly in areas that address heterogeneity and institutional interaction in the formation of new ventures. It also delivers practical guidance on the actions of entrepreneurs that can aid new venture management and affect the investment profiles and practices of economic development policymakers. Entrepreneurial support infrastructure plays an important role in new venture formation. However, the practices in place today exhibit mixed results in the promotion of sustainable entrepreneurial activity. This research provides new insights into the relationships between economic development and new venture formation by examining the role of institutions in the process of entrepreneurial knowledge appropriation. 15
  30. 30. This page left blank intentionally. 16
  31. 31. 2 Institutional Influences on Business Model Design by New Ventures in the Microgenerated Energy Industry 2.1 Introduction Current estimates project microgenerated electricity will comprise 30-40% of the total electricity distribution in the United Kingdom by 2050 (Sauter, 2008). If this level of impact is extrapolated to other industrialized nations, the impact of microgeneration is clearly monumental. Microgeneration has disrupted the incumbent technological regime of centralized electricity generation and distribution (Sauter, 2008). Its distributed nature demands changes to the Large Technical System that has become institutionalized into the public electricity system (Hughes, 1983). Yet, several microgeneration designs are currently under development and competing for dominant position within this redefined electricity system technology regime. The United Kingdom’s Department for Business Enterprise and Regulatory Reform defines microgeneration as “the production of heat and/or electricity on a small-scale from a low carbon source” (UK Energy Act, 2004). The U.K. Energy Act of 2004 refines the definition of this global industry sector by placing limitations of 50 kilowatts in electricity generation and 45 kilowatts thermal for heat production from energy sources that include biomass, biofuels, fuel cells, photovoltaics, water, wind, solar thermal, geothermal sources, in addition to CHP (combined heat and power systems). Van der Veen and De Vries (2009: 2788) simplify this definition by describing it as “power generation at the level of households and small businesses.” The industry is characterized further by a rapidly increasing rate of entrepreneurial activity. Two assumptions emerge clearly from the growth 17
  32. 32. in demand for and development of microgenerated energy: the next era of technological development will occur with great uncertainty and culminate in significant competition for the dominant design, and the level of opportunity for entrepreneurial action to mine this uncertainty and shape the competition will increase dramatically over the next two to three decades. The importance of technology maturity to entrepreneurial action in the emerging independent power and renewal energy sectors has been demonstrated (Schilling and Esmundo, 2009; Sine, Haveman, and Tolbert, 2005). Sine and colleagues link neo- institutional factors to the adaptation of energy technologies. Entrepreneurial action has been further categorized based on technical elements influencing the undertaking of innovative energy programs and the effects of embeddedness within production networks. Sauter (2008), for example, employs a Large Technical System (LTS) perspective to explain the emergence of entrepreneurial business models in the microgeneration sector. Institutional factors create variation in entrepreneurial action across technologies in this industry. However, what remains less well explained is which types of entrepreneurial actions are likely to occur within the microgenerated energy sector under distinct institutional conditions. The choice (and initiation) of business model serves as one of the earliest actions taken by entrepreneurial ventures, and is essential to the successful growth of these ventures. Recent literature on the emergence of the microgeneration industry proposed three business models that would represent the vast majority of growth in this sector because of the nature of LTS that defined the industry structure and the increased active role of buyers in in what was historically largely a producer-driven market structure (Sauter and Watson, 2007; Watson, et.al., 2004). These models are 'Plug-and-Play,' 'Company Driven,' and 'Community 18
  33. 33. Microgrid.' Sauter's (2008) perspective on business models provides a foundation for developing a more robust explanation of new ventures' business model choices in the microgeneration segment of the energy sector, specifically addressing the question of when different entrepreneurial models are likely to be employed across institutional conditions in the industry. This business model typology is examined later after introducing an institutional perspective on new venture business model choice. The chapter describes a strategic framework for business model design. Then, the framework incorporates institutional influences into the business model design process extends the framework. Finally, the extended framework is applied to the case of microgeneration in order to present propositions regarding institutional influences on business model choice for microgeneration ventures, along with discussion of the perspective presented here. 2.2 Institutional forces on business model design Business models provide a framework for management to allocate resources in order to gain competitive advantage and appropriate rents. For entrepreneurial ventures, business models play more structurally significant roles. They ensure a logical and internally consistent approach to the growth of the venture, define the architecture through which key variables -- or resources and capabilities – will be combined, demonstrate the economic appeal of the venture, and guide ongoing operations (Alvarez and Barney, 2005; Rindova and Kotha, 2001). Many explanations of business models are present in the entrepreneurship and strategy literature (Morris, et. al., 2006). Often these approaches are in conflict with each other, and generally adopt an internalized perspective on the organization's design. By contrast, Zott and Amit (2007) incorporate external factors as determinants in the business 19
  34. 34. model choice of entrepreneurs (also Amit and Zott, 2001). The business model is defined as “the content, structure, and governance of transactions designed so as to create value through the exploitation of business opportunities” (Amit and Zott, 2001: 511). This definition is used here because of its consistency with the framework in which business model design for an entrepreneurial venture is posited as the result of both internal resource acquisition and allocation decisions by the entrepreneur and the influences of institutional factors in the environment. Figure 3. Strategic framework for new venture business model design (Morris, et. al., 2006). The business model has been depicted as a tangible translation of the resources and capabilities chosen by the entrepreneur to create value and deliver returns to shareholders (Amit and Zott, 2001; Chesborough and Rosenbloom, 2002). This translation describes how 20
  35. 35. and where this value creation will occur. Further, it explains which market or markets will be targeted, why customers would prefer to choose this technology, and how the technology will be delivered to the client (Morris, et. al., 2006). Morris and colleagues (2006) describe a structure of entrepreneurial business models that consist of three domains: strategic, operational, and economic. These domains correspond with increasingly broad conditions of economic dynamics, customer requirements, and market characteristics for market opportunities that entrepreneurs design their business models to capture (Figure 3). Business model design has traditionally been treated as a strategic activity contained within the boundaries of an organization. For entrepreneurs, it necessarily entails transforming their visions into tangible, rent-appropriating capabilities since they begin their ventures with scarce resources typically (Baker and Nelson, 2005; Helfat and Peteraf, 2003). Several processes have been proposed to describe the nature of entrepreneurial business model design (Morris, et. al., 2006). These processes may be generally characterized as experimentation (Baker, Miner, and Eesley, 2003), organic creation (Alvarez and Barney, 2005; Schumpeter, 1934), knowledge arbitrage or purposeful recombination of knowledge (Carayannis, 2009; Kirzner, 1997, 2008), or serendipitous formation (Carayannis, 2009). Experimentation processes rapidly alter components of the business model design, typically by reconfiguring resources and/or selecting new markets to enter (Baker and Nelson, 2005). Creation processes involve the construction of new organizational forms from previously unavailable resource configurations. Combinatorial processes join existing resource configurations in order to address new buyer markets or new opportunities in existing markets (Carayannis, 2009). All of these categories assume an entrepreneur-centric orientation, focusing on the nature of and means by which scarce resources are brought to bear on an entrepreneurial 21
  36. 36. opportunity (Shane, 2003). The entrepreneur’s choice of business model then is shaped by the pattern of resource combination the venture engages in and alignment of that combination with an appropriate opportunity(ies) in the market. These approaches to describing entrepreneurial business models falter under conditions where the content, structure, and transactions motivating the entrepreneurial venture are not contained completely within the venture. In other words, the presiding definitions of business models work in environments where simple, direct competitive actions are dominant and firms act on their own. Some scholars have introduced environmental influences into the construction of business models. Zott and Amit (2007) introduce environmental characteristics as moderators of the relationship between business model design and new venture performance, but find only limited support for environmental influences. The perspective of venture-environment interaction in business model design is made more salient by viewing the models as market devices that reflect “relations between people and the instruments that they use as well as … the interactions between human agents as mediated by the material entities that they put into circulation” (Doganova and Eyquem-Renault, 2009: 1561). Callon (1998: 3) describes markets as “calculative agencies” not described sufficiently by cognitive and institutional factors typically applied to relations between firms and external agents, but rather by the network between agents (Doganova and Eyquem-Renault, 2009). Despite this distinction, the framework here asserts that institutional and socio-cognitive factors play significant and intrusive roles in entrepreneurs’ designing of business models under certain circumstances. In industry sectors where institutional forces are stronger, a more complex and systematic set of interactions shape the formation of new business models (Aldrich and Ruef, 2006; Scott and Meyer, 1994). Institutional forces play significant roles in shaping the formation and growth of 22
  37. 37. entrepreneurial ventures (Sine and David, 2003; Rutherford and Buller, 2007). While multiple lines of discourse address the nature of institutional forces, they all agree on the importance of firms gaining legitimacy in their institutional contexts in order to survive, access resources, and grow (DiMaggio and Powell, 1983; North, 2005; Zimmerman and Zeitz, 2002). This role of legitimacy is particularly important for new ventures that lack both significant resources and reputation to enable them to develop a competitive advantage in the market. Zimmerman and Zeitz (2002: 414) have called for focusing on the formative stages of new ventures’ growth by suggesting “researchers interested in helping new ventures succeed cannot focus solely on legitimacy's role in the profit stage, since many new ventures never reach that stage.” Figure 4. Institutional adaptation of strategic framework. 23
  38. 38. Expanding the strategic framework from Figure 3 to include political and socio-cognitive institutional factors, as shown in Figure 4, provides a lens to understanding the impact of legitimacy during a new venture’s earliest growth. CORPORATISM Low High “FRANCE” “JAPAN” RESOURCE DISTRIBUTION RESOURCE DISTRIBUTION • Widely dispersed - Equitable PUBLIC/PRIVATE COLLABORATION PUBLIC/PRIVATE COLLABORATION High • Competing and • Extensive and collectivist individualistic TECHNOLOGY POLICY TECHNOLOGY POLICY • Public property rights • Public property rights EXCHANGE GOVERNANCE EXCHANGE GOVERNANCE • Integrated public power STATISM • Integrated public power “UNITED STATES” “NORWAY” RESOURCE DISTRIBUTION RESOURCE DISTRIBUTION • Widely dispersed • Equitable PUBLIC/PRIVATE COLLABORATION PUBLIC/PRIVATE COLLABORATION Low • Competing and • Extensive and collectivist individualistic TECHNOLOGY POLICY TECHNOLOGY POLICY • Private property rights • Private property rights EXCHANGE GOVERNANCE EXCHANGE GOVERNANCE • Social authority • Social authority Table 1. Components of politico-institutional model on statist and corporatist dimensions. In politico-institutional theory, national institutions influence the innovation systems that produce new technologies and ventures. These institutions affect technology policy, which in turn shapes the choices of firms within that organizational field (Vasudeva, 2009). These institutions have been shown to vary along two important dimensions with regard to legitimacy: the role of government (statism) and degree of collaboration (corporatism) 24
  39. 39. between market and non-market actors (Spencer, et. al., 2005). These dimensions identify four distinct politico-institutional types, as shown in Table 1. The most extreme differences occur between Japan-type environments where welfare and resource distribution concerns outweigh wealth opportunity, and US-type environments where private property rights and resource accumulation dominate. More moderate conditions are present in France- and Norway-type environments where statist structure is high in the former and corporatism is high in the latter. These institutional preconditions will affect the nature of entrepreneurial action in each environment differently and influence the emergence of distinctly different tendencies towards business models. Socio-institutional dynamics derive their influence from variation in the cognitive models of entrepreneurial action among participants in a market (Oliver, 1997). Under this perspective, the pursuit for legitimacy drives behaviors of entrepreneurial ventures to act like incumbents in order to secure their favor and increase the likelihood of access to resources (Rutherford and Buller, 2007). DiMaggio and Powell (1983) describe these legitimating forces as competitive and institutional isomorphism, and focus particularly on the latter. Competitive isomorphism is characterized in technical environments as a homogenizing and simplifying of actions, such as the evolution of technological paradigms to stability and standards in generations of new technology (Schilling and Esmundo, 2009; Suarez and Utterback, 1995). By contrast, institutional isomorphism occurs through the migration of market participants' cognitive assessments of which qualities or behaviors in firms are considered legitimate. Institutional isomorphism consists of three elements: coercive isomorphism, normative isomorphism, and mimetic isomorphism (DiMaggio and Powell, 1983; Zimmerman and Zeitz, 2002). The coercive form is a reflection of regulatory and legislative 25
  40. 40. conditions that cause organizations to comply similarly and adopt consistent management practices. Normative isomorphism occurs when organizations adopt the cultural norms, values, and behaviors of the environments within which they reside in order to secure legitimacy and gain access to vital resources. Mimeticism is a co-evolutionary type of institutionalization that occurs when organizations begin to adopt traits and behaviors similar to their competitors or other related stakeholders as a means of establishing legitimacy in the eyes of these stakeholders. Institutional isomorphism poses the greatest challenge for new ventures because they begin with little if any socio-cognitive legitimacy, either through competitive or institutional isomorphism (Zimmerman and Zeitz, 2002). These institutional forces act as constraints on the range of entrepreneurial action available to these ventures, often too early in their lifecycles. As a result, entrepreneurs act either (or both) to adopt legitimating norms and practices, or use their deviance from these norms and practices to change the institutions (Deephouse, 1999). The choice of appropriate business model designs is one early and significant way in which entrepreneurial ventures attempt to secure legitimacy while positioning their resources and capabilities to ensure a competitive advantage (Zott and Amit, 2007). The stakeholders of a new venture grant legitimacy. This attribution is gained through actions and behaviors that align with the visions and strategic intents of these stakeholders, causing the new venture to 'look more like them.' The natural corollary to this relationship is that the stakeholders are relatively more actively engaged in shaping the actions and behaviors of a new venture than they would be with an incumbent. For example, venture capital investors are likely to be actively involved with the management team in determining new target markets for entry, establishing pricing and product strategies, and installing new management. Universities may have a more influential role in the development of new 26
  41. 41. technologies with a new venture than with a larger corporate licensee. New ventures are not powerless in the presence of institutions, however. The very qualities of these organizations that place them at institutional disadvantage also enable them to change the institutions in order to become legitimate without altering their business models, practices, or capabilities (Garud, Jain, and Kumaraswamy, 2002; Oliver, 1991). Prior literature suggests that, to the extent that institutions exert influences on the competitive and innovative behaviors of new firms, some of these ventures will adapt to the institutional constraints while others will act in deviant manners in attempts to alter the institutional characteristics of their environment by introducing competing technological forms and business models (Oliver, 1997; Phillips and Zuckerman, 2001; Rutherford and Buller, 2007). The conditions when conformance or deviance determines effective entrepreneurial action have not been clearly delineated. However, in an environment defined by strong institutional forces, the influences of political and social dynamics actively shape the nature of entrepreneurial business models. The microgeneration industry sector exists in this type of environment, regulated and legislated substantially and guided by the strong, invisible hand of incumbent energy industry organizations. In this way, microgeneration provides a context that offers considerable insight into the phenomenon of entrepreneurial business model design. 2.3 Entrepreneurial business models in microgeneration One of the early sets of decisions made by these entrepreneurs is the choice of business model. Within the microgenerated energy sector, this choice means identifying and/or developing electricity generation and transmission technology at a residential, commercial, or community scale, designing and negotiating ownership of networks and 27
  42. 42. supply chain components, and assuring compliance with appropriate regulatory organizations. Sauter and Watson (2007) reduce these choices to three types of business models that represent the extreme possibilities for new ventures choosing to enter this market: Plug-and-play, company driven, and community microgrid (see also Sauter, 2008 and Watson, 2004). Plug-and-play refers to traditional models of product development and marketing in which microgeneration technology is packaged for purchase and installation by consumers through retail channels. Company driven models are service-based models in which the producer retains ownership of the technology and charges fees for the delivery of microgenerated energy, even when those systems might be installed on the consumer's residence or office. Community microgrids as socially architected agreements within a municipality or region of limited scope to aggregate the acquisition and installation of microgeneration technology and share the energy output from the installation. Sauter (2008) suggests that the choice between these alternatives is a reflection of consumer involvement in the acquisition process, and that variation or combination of these models is certainly possible. This perspective is extended in the model here with the addition of politico- institutional and socio-institutional forces in order to explain the variation in level of activity and business model choice within the microgeneration sector between countries, ventures, and technologies. The evolution of the microgeneration industry sector could, on the surface, be attributed primarily to the rate of emergence of new technologies in this field. Comparison of national R&D spending across countries suggests there is significant variation among the rates of growth of predominate renewable energy sources (Schilling and Esmundo, 2009). A study of nine countries suggested that these renewable technologies – the same ones that are central to the microgenerated energy industry sector's offerings – are developing along 28
  43. 43. dramatically different paths, or technology S-curves (Schilling and Esmundo, 2009). This explanation only enables us to conclude that the business models (e.g., technology choice) for microgeneration may vary consistently across nations based on purely technological dimensions, such as the availability of source material (i.e., wind, solar energy, geothermal conditions). Variation in institutional conditions across these nations also influences the practice of microgeneration. Figure 5 illustrates the combined technological and institutional factors at work in the entrepreneurial systems of the microgeneration industry. In this model, technology maturity is treated as a baseline explanation, so that the additional influence of institutional factors may be unpacked. This model depicts two levels of institutional forces that impact the microgeneration industry (as originally identified in Fig.4): politico- institutional and socio-institutional factors. Politico-institutional factors exert strong influence on the industry at a national level through the domestic energy policies of competing economies. For example, the United Kingdom introduced into its 2006 Energy Bill specific provisions for targets and funding related to microgenerated energy. In this same year, its Department for Business Enterprise and Regulatory Reform introduced a detailed strategy on microgeneration (Department of Business Enterprise and Regulatory Reform, 2008). By contrast, proposed clean energy legislation in the United States (U.S. Senate Bill 1462, 2009; U.S. House Bill 2454, 2009) does not allocate distinct funding for microgeneration. Some variation between countries and technologies may be attributable to socio- cognitive institutional forces. Microgeneration technology is reaching a point of maturity in which market demand is driving the technology choice of firms entering this industry, a condition referred to as “market push-technology pull” (Carayannis and Roy, 2000). Sauter 29
  44. 44. (2008) offers a stakeholder-based rendering of the forces in this market, describing the microgeneration sector as part of an LTS, which consists of technical and non-technical components that co-exist as a complex system controlled by a wide-ranging set of market, technological, and regulatory stakeholders (Hughes, 1983). New ventures that enter environments constructed in this way are subject to diverse, and often severe, forces that impact multiple levels of economic activity (Carayannis and Campbell, 2006). Figure 5. Relationships between institutional context and entrepreneurial business model choice. A microgeneration venture's business model must account for regulatory factors that influence the entire range of activities for the venture, from R&D to product/service development and customer service. National, regional, and local political environments within which the venture resides and conducts business determine that nature and intensity of these factors. As noted above, two important dimensions that are determinant of the type of regulatory environment are statism and corporatism (Spencer, et. al., 2005). Figure 6 depicts which microgeneration business models are likely to be most relevant in each quadrant formed by statism and corporatism. 30
  45. 45. Figure 6. Application of politico-institutional framework to business model choice. High levels of statist policy within regions produce dependence on central governance for allocation of resources and support of social welfare. Consistent with the model in Figure 6, while the U.S. maintains the largest microgrid capacity, excluding military installations and relative to population Japan and Denmark lead the deployment of community-wide microgrids, while the United Kingdom continues to increase its investment in this area (Asmus, Cornelius, and Wheelock, 2009; The Galvin Project, 2010). These policies are normally be implemented at national levels. Even in liberal market economies 31
  46. 46. such as the United States, however, policies favoring centralized resource allocation and social welfare related to energy generation and distribution may be exercised at regional and local levels. For example, the Marin Energy Authority in Marin County, California has attempted to control energy distribution at a county level. Community microgrids, which are conceived and directed by community-based groups and consumers, are consistent with an institutional environment that focuses on the social welfare and public property rights. Region 1 in Fig. 6 shows the locus of institutionalization (radiating down from a position of high statism and high corporatism) in which community microgrid models are most likely to succeed. Region II, radiating out and down from a position of low corporatism reflects the domain of company-driven business models in which technology-based services are dominant. In cases of high statism where corporatist tendencies are lower, the potential for Company Driven business models is also strong. Under these conditions, technology ownership tends to remain centralized and in the public interest while competing distribution mechanisms can emerge, typically as service-oriented business models. Technology policy at national and regional levels will reflect this bent, emphasizing funding and legislative support for community- and service-based models. Lower levels of statism will emphasize greater direct rivalry among competing technological designs and platforms. The emphases in business models under these conditions will be product R&D and scale economics in production. Private property rights will become dominant and, in turn, investment in models demonstrating unique technological advantages will rise. When regulatory influence exists, it will be in development of standards and compatibility across competing systems and in ensuring consumers benefit from competition. Under the loosest politico-institutional conditions (low statism, low 32
  47. 47. corporatism), the Plug-and-Play and Company Driven models will both emerge to differing degrees with Plug-and-Play becoming more dominant (Region III). Plug-and-Play models will remain prominent under conditions of high corporatism because of an emphasis on private property rights, but state-based investment would likely also increase with a focus on maximizing social returns and achieving equitable access to renewable energy sources. P1a More equitable distribution of resources will more likely foster socially-constructed business models, such as community microgrids, while more varied distribution of resources will more likely foster value-added service business models like company-driven microgeneration. P1b Government-led public/private collaboration on business models will more likely foster socially-constructed business models, such as community microgrids, while firm- specific, competition-oriented public/private collaboration will more likely foster value-added service business models like company-driven microgeneration. P1c Technology policy enforced through public property rights will more likely foster socially-constructed business models, such as community microgrids, while technology policy enforced through private property rights will more likely foster product innovation business models like plug-and-play microgeneration technology. P1d Integrated public power will more likely foster socially-constructed business models, such as community microgrids, social authority will more likely foster product innovation business models like plug-and-play microgeneration technology. Socio-institutional forces will influence business model design choices differently and more directly at a firm level, furthering complicating the permutations of available business 33
  48. 48. model characteristics. These forces induce their impacts primarily by driving legitimating behaviors from new ventures that seek access to the resources in renewable energy markets. Recalling that entrepreneurial ventures tend to lack both legitimacy and resources at their founding, managers of the new ventures engage aggressively in some actions that aim to create competitive advantage and other actions that seek to generate legitimacy in the minds of their stakeholders. For the microgenerated energy sector, these actions involve technological R&D, product design, marketing, compliance and regulatory adherence, production and installation of equipment, and management of customer relationships. These actions represent choices in the design of the new venture's business model, and are shaped directly by socio-institutional forces of competitive and institutional isomorphism (Fig 4). The Plug-and-Play models will be most influenced by competitive isomorphism in the sector since these models represent commitments to technology trajectories and higher levels of product R&D investments. As competing technologies evolve, they begin to possess similar characteristics and tend towards similar usage. Schilling and Esmundo (2009) describe a convergence in performance characteristics, including cost, which is consistent with competitive isomorphism. The evolution of these technologies is influenced in part by stakeholders' cognitive evaluation of potential winners and losers, as these evaluations may lead to allocations or redirection of financial, technological, and human resources to a particular technology(ies). The distinctions in the cognitive evaluations by certain stakeholders across countries are clearly evident in comparisons of US and UK legislation of clean energy. Where the UK makes broad commitments to a range of technologies, the US legislation demonstrates decidedly more lock-in with committed R&D funding to a more limited set of renewable technologies that influence the microgeneration sector. This 34
  49. 49. contrast is reinforced with existing or proposed policies regarding distribution models for electricity from renewable sources. The UK specifically favors microgenerated energy, while the US seeks to continue the centralized distribution model of the existing LTS (Department of Business Enterprise and Regulatory Reform, 2008; U.S. Senate Bill 1462, 2009; U.S. House Bill 2454, 2009). Institutional isomorphism in the microgeneration sector is more likely to influence choices regarding the Company Driven and Community Microgrid business models, by contrast. These models produce strategies by the new ventures that draw heavily on being embedded within the market in which they act. The ability of new ventures to create social resonance with stakeholders and achieve sufficient levels of legitimacy is critical for these business models to succeed. Additionally, the characteristics of the three components of institutional isomorphism (coercion, normative behavior, and mimeticism) are context specific and thus vary across countries and regions even within the microgeneration sector. For example, consumer practices regarding and acceptance of microgenerated energy varies between countries. This variation plays a critical role in the determination of energy policies and delivery of services within the respective country (Van der Veen and De Vries, 2009). These facets of competitive and institutional isomorphism lead to two propositions regarding the formation of entrepreneurial business models. P2a As the level of competitive isomorphic forces (technology standardization, market convergence) within a region increases, new ventures are more likely to favor business models that depend on product innovation, such as plug-and-play models in the microgeneration industry, rather than market integrated ones. P2b As the level of institutional isomorphic forces (coercive, normative, mimetic) within a region increases, new ventures are more likely to favor business models that depend 35
  50. 50. on being integrated with other stakeholders in the regional market, such as company-driven or community microgrid models in the microgeneration industry, rather than product innovation ones. The politico-institutional and socio-institutional factors in a market do not act on organizations independently. Rather, they co-exist and co-evolve on multiple levels at multiple levels within the environment (Carayannis and Campbell, 2006). In the microgeneration industry, these interdependent factors determine technological trajectories and preferences in the market. They also shape the incentives and allocations of resources that incumbent firms and new ventures may draw upon, such as the availability of funding from national agencies to pursue technology development and business model design. For example, the U.S. market for microgeneration technology is dominated by investments in wind power and solar photovoltaics. Technology development funding encourages entrepreneurs to engage in the development of new business models for these technologies, despite the presence of other, technically equal methods for microgenerated energy. The choices made by government agencies regarding microgeneration technology influence understanding within society of the dominant technologies. To the extent that these political and regulatory choices are stable and reinforced through repeated investments and allocations of resources to particular technologies, the complementary socio-institutional factors will align with them over time. These stabilization processes (Fig. 2) reduce the availability of opportunities for deviant entrepreneurial business models and encourage the formation of business models that conform to institutional factors. In contrast, institutional interactions can create change in the underlying factors, too. These will tend to be driven by dissonance among the societal participants in the institutional environment, so change will tend to emerge from the 36
  51. 51. influence of socio-institutional factors on the politico-institutional context. Socially constructed expectations of which microgeneration technologies are more effective or appealing may emerge from the actions of opinion-holders in the market. These opinions will shape the behaviors, norms, and choices of participants in the market, allowing entrepreneurs particularly attuned to deviant voices in the market to act (Provance and DiGregorio, 2007). Over time, the social reconstruction of expectations for microgeneration will reshape the politico-institutional factors that guide business model choice. P3a As the variation in politico-institutional factors within and between political economies decreases (increases), the institutional isomorphic factors will become more (less) stable and aligned with the politico-institutional factors. P3b As the variation in socio-institutional factors within a political economy increases (decreases), the politico-institutional factors will become less (more) stable and susceptible to change. New ventures play important parts in the institutional dynamics described above when they act to create uncertainty among participants in the institutional environment. While all three microgeneration models are generally aligned with different politico- institutional categories, these categories represent extremes of business model regimes that may be recombined into many different permutations. For example, CTC Enertech combined company-driven and plug-and-play business models to gain leadership positions in parts of Scandinavia and other western European countries (Baker, 2010). Combining business models is a natural part of new ventures’ design processes. As discussed previously, these processes are driven typically through experimentation or resource-leveraging activities (such as briccolage), and lead to frequent shifts in the model or adaptation of models to 37
  52. 52. distinct circumstances and contexts (Baker and Nelson, 2005; Garud and Karnøe, 2003). Combining business models enables the new venture to operate across institutional contexts by addressing competing perspectives on legitimacy. Competing perspectives on legitimacy engenders uncertainty in the minds of organizational field members. This uncertainty regarding legitimate technological or organizational factors, in turn, enables new ventures in these fields to pursue business models that leverage higher levels of innovation and technical risk because of market risk is diffused across multiple perspectives. As some new ventures engage in these institutional deviant business models, the shared understanding of microgeneration among stakeholders in the organizational field is redefined around these innovations. These changes become institutionalized through the norms and practices adopted by others in the socio-institutional environment and through the policy, program, and resource allocation changes executed within the politico-institutional infrastructure. P4 As entrepreneurial business models become more varied and innovative, the level of change in the relationships between politico-institutional and socio-institutional factors increases, which in turn (over longer periods of time, ex. t+n) generates change in the levels of institutional forces affecting business model choice. These propositions collectively contribute to the basis for a systems perspective of the interactions between institutions and entrepreneurial ventures. New ventures are not (necessarily) passive recipients of institutional forces, but rather may act in ways that drive change in the institutional environment with which the ventures exist. For microgeneration, this means change occurring dynamically within the industry because new ventures act on the industry’s institutional environment. At the same time, these firms and institutional are enacting change on the broader energy sector. 38
  53. 53. 2.4 Discussion Taken together, the influences of politico-institutional and socio-institutional forces have important implications for policies that encourage the formation of new ventures in the microgeneration industry sector. They also play substantial roles in the choices of business models these new ventures make in order to compete in the industry. This paper examines the roles of politico-institutional and socio-institutional dynamics in the choice of business models for microgeneration ventures, which prior literature has tended to overlook. Business models have traditionally been viewed as constructions of the internal values, strategies, and resources of organizations. But, this perspective overlooks the role that external forces have on these models, particularly in more highly institutionalized contexts like microgeneration. When these factors are introduced into the framework, as depicted in Figures 4 and 5, the choice of business model becomes less a function of firm idiosyncrasy and more about variation that exists within national innovation systems, political infrastructure, and local socio-technological conditions. The degrees of statism and corporatism in a region influence the choice between three currently dominant microgeneration business models – plug-and-play, company driven, and community microgrid. Highly statist environments will favor models that improve the overall social welfare, which lower levels of statism tend towards models that reflect a free- market perspective of firms owning intellectual property. Corporatism determines the degree to which the success of business model design is determined by competition among alternatives (i.e., technologies, firms) or through collective action. The convergence of technological parameters in this sector and the cognitive evaluations of stakeholders regarding policies, practices, and actions of competitors in the industry play crucial but under-appreciated roles in business model choice. In fact, the framework presented here 39
  54. 54. should be viewed as an open system of externally- and internally-generated dynamics that yield business model concepts appropriate to specific ventures at specific points in time. The same business model at a different time or under different management could result in dramatically different consequences. While the concept is not explored in depth here, the system dynamics perspective of business model design offers considerable opportunity for theory development and empirical examination. The framework provides a comprehensive view of business model design, and its application to the microgenerated energy industry sector demonstrates the effectiveness and importance of this expanded model. However, the framework also has limitations. Throughout we treat the elements of the institutional framework (politico-institutional and socio-institutional forces) as discrete factors. The true relationship between these factors is undoubtedly more nuanced and interdependent. For example, national technology policy will have meaningful impact on future cognitive evaluations of the value of particular ventures or technologies based on the access to resources and availability of funding for continued development. Likewise, social embeddedness of a particular venture may also provide sufficient support to overcome limitations imposed by conditions of statism and corporatism that envelope the venture. The framework also simplifies the distinctions between microgeneration business model categories (Sauter, 2008). Business models of specific new ventures may combines facets of more than one of these categories. By simplifying the categories we are attempting to shows vectors of choice in business model design rather than develop specific recommendations that entrepreneurs should apply directly. These vectors or directions for business model design offer distinctions in the choices based on external institutional factors in addition to the typical strategic ones entrepreneurs would normally evaluate when design 40
  55. 55. their business models. Our objectives with the paper is to inform the thinking of entrepreneurs in this regard, shape choices made in the microgeneration industry, and provide an extension to existing literature at the intersection of entrepreneurship and strategic management that leads to thinking in new directions about the challenges of business model design in more institutionalized contexts. 41
  56. 56. This page left blank intentionally. 42
  57. 57. 3 Social and Institutional Embeddedness in the Regional Sustainability of Entrepreneurship 3.1 Introduction The formation of new ventures draws considerable attention in the strategic, organizational theory, and entrepreneurship literature. One of the central perspectives that scholars adopt is that of knowledge and the development of capabilities. New ventures pursue knowledge in order to establish capabilities and gain competitiveness with the introduction of novel products and services. Scholars differ on the importance of regional proximity in these knowledge acquisition activities, however. Some scholars believe that entrepreneurial activity is primarily a product of localized spillovers of knowledge that lead to agglomeration of economic activity (Krugman, 1991). Others suggest that entrepreneurs’ knowledge networks overcome the limitations imposed by agglomerative activity (Almeida and Kogut, 1999; Rosenkopf and Almeida, 2003). From both these theoretical perspectives, the importance of the relationships between regions, and between a region and the entrepreneur may be derived. These relationships lead to the central question of this study. How does the institutional context of a region influence new ventures’ knowledge acquisition actions during their growth, and in turn the level of sustained entrepreneurial activity within the region? Entrepreneurial knowledge is knowledge used to shape the new venture during formative stages of a venture’s growth. The acquisition of knowledge plays a crucial role in the formation and growth of new ventures. When the level of new venture formation is compared across regions, however, the conditions under which this growth occurs also become relevant. 43
  58. 58. The institutions co-located with them in the region significantly influence the new knowledge these entrepreneurial ventures acquire. Much of the existing literature considers the relationship between the new venture, the entrepreneur’s social capital, and firm performance. However, relatively less research has been devoted to examining the influence of the institutions surrounding the new venture on its knowledge acquisition activities and sustainability. This paper focuses on formation of alliances by new ventures, one particular form of knowledge acquisition that has been established as critical to new venture success in the high technology sector. The acquisition of knowledge is one of the most pressing strategic activities of entrepreneurs and their new ventures to enable them to survive and grow. At a regional level of analysis, the sustainability of entrepreneurial ventures alters the competitive dynamics by introducing alternative products and services into the market, which in turn improves the economic conditions of the market (Freeman and Engel, 2007). Carayannis (2009: 236) has defined sustainability as “the creation of viable, profitable and scalable firms that engender the formation of self-replicating and mutually enhancing innovation networks and knowledge clusters…,” which suggests that a cornerstone of sustainable new venture formation is external knowledge acquisition. This paper builds upon a simulation study already underway (Carayannis, et.al., 2010). The foundation for using simulation to study organizational dynamics is quite strong, though it has its opponents as well. Some scholars have argued that simulation may be used to enlighten complex linkages in organizational settings, while research critical of the method has suggested that simulation creates models that are distantly removed from the phenomena they seek to explain (Zott, 2003). In response, Davis and colleagues clarify the most relevant use of simulation for organizational research: “Simulation is particularly suited 44
  59. 59. to the development of simple theory because of its strengths in enhancing theoretical precision and related internal validity and in enabling theoretical elaboration and exploration through computational experimentation” (Davis, Eisenhardt, and Bingham, 2007: 482). The simulation methodology employed in this study builds off the relevancy of simulation to simple theory. Simple theory may be described as rough-cut logical explanation of a phenomenon that has few constructs and related propositions, uses propositions that -- while likely correct -- are weakly situated in empirical research, or explain the less understood interactions between better known basic processes (Davis, et. al., 2007). Knowledge acquisition through alliances by fledgling ventures falls into this category of simple theory. A growing body of empirical work existing regarding the formation and structure of alliances by entrepreneurs. However, this work draws from disparate strands of organizational theory, often with conflicting or disconnected conclusions. What is evident from all of this research is that the processes associated with the acquisition of knowledge by entrepreneurs from external sources have complicated interdependencies and contingencies. For this reason, simulation provides a methodology that will enable this study to address the question of how a region’s institutional context influences the structure of entrepreneurs’ alliances and the rate of regional new venture formation. The relationship between institutional influence and entrepreneurial alliance structure with the rate of new venture formation is discussed. Then, a computational design for the simulation is described, results of the analysis are provided, and discussion regarding the results is offered. 3.2 External knowledge acquisition and institutions in sustainable entrepreneurship Entrepreneurs possess scarce resources that they must allocate in order to maximize their production of entrepreneurial rents. Early in the life of the venture, the allocation of 45

×