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Organizational growth: linking founding team strategy, environment, and growth among U.S. semiconductor ventures, 1978-1988
Administrative Science Quarterly, Sept, 1990 by Kathleen M. Eisenhardt, Claudia Bird Schoonhoven
Organizational Growth: Linking Founding Team, Strategy, Environment, and Growth among U.S. Semiconductor Ventures, 1978-1988
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This study explores organizational growth in technology-based ventures. We relate characteristics of the founding top-management team, strategy, and environment to the sales growth of newly founded U.S. semiconductor firms. The results indicate significant main and interaction effects for the founding top-management team and market stage on firm growth. In contrast, the technical innovation of firm strategy and marketplace competition were not significant. Finally, the founding top-management team and market-stage effects were increasingly large over time. Overall, these results indicate that both environmental determinism and strategic choice operate on young firms. These findings also suggest chaos-theory linkages to positive-feedback models and sensitive dependence of organizational growth on founding conditions. In his seminal paper, Stinchcombe (1965) argued that young firms have a high propensity to fail. He noted that new organizations are likely to fail because organization members cannot adjust quickly enough to new roles and working relationships and because these organizations lack a "track record" with outside buyers and suppliers. The validity of this phenomenon, the "liability of newness," has been supported in a number of studies across many types of organizations (e.g., Carroll and Delacroix, 1982; Freeman, Carroll, and Hannan, 1983; Singh, Tucker, and House, 1986). However, the liability of newness research fails to deal with two common observations. One is that leaders sometimes can and do influence the performance of firms, particularly young and small ones. Second, there are often enormous differences in the quality of life of different surviving ventures. Some young firms become resounding successes. Names such as Apple and Sun come to mind as young firms that have become large and important within the economy. Others languish as small firms, surviving, but barely clinging to life. Why do these differences in organizational growth arise? Previous research indicates that founding conditions play an important role in shaping young firms. Kimberly (1980) and Mintzberg and Waters (1982) indicated that founding executives influenced the structures and processes of a new medical school and grocery chain, respectively. Carroll and Delacroix (1982) showed that environmental factors at founding influenced the hazards of death among a sample of newspapers. Carroll and Hannan (1989) also showed that population density at founding had a persistent effect on the life chances of organizations across multiple populations. Thus, it seems likely that founding conditions also affect organizational growth. The purpose of this paper is to link organizational growth with founding conditions, including the top-management team, technical strategy, and competitive environment. The research population is firms in the U.S. semiconductor industry founded between 1978 and 1985. In previous research, we linked an early measure of entrepreneurial performance, first product introduction, to founding conditions (Schoonhoven, Eisenhardt, and Lyman, 1990). This paper extends that work and extent research by examining organizational growth and by adding top-management-team and strategic effects to environmental ones in a study of technology-based ventures.
BACKGROUND
Stinchcombe (1965) argued that founding conditions have a disproportionate effect on young firms. Young organizations are set on a course at founding that may be difficult or costly to change (Boeker, 1989). Structures and processes develop quickly (Gersick, 1989), and organization members equally quickly come to see them as the only way to do things (Zucker, 1977). Structures and processes become part of an integrated whole in which it is difficult to change one element without unraveling the whole (Eisenhardt, 1988). Finally, young organizations make investments in people, technology, and assets that they may not be able to change because they are too myopic or resource-poor. Stinchcombe (1965) emphasized the importance of two sets of founding factors. One is environmental. Young firms face perils because they lack the legitimacy and power of existing suppliers. A second set is organizational. Young organizations typically have key organization members in unfamiliar roles and new work relationships. The result is often delays and inefficiencies that jeopardize the young organization. More recently, researchers, within and outside of the liability of newness paradigm, have elaborated on these factors. Some of this research has focused on founding environmental factors such as demand. Carroll and Delacroix (1982) found that newspapers born in conditions suggestive of high demand, such as industry maturity and economic expansion, outlived newspapers born in conditions of low demand. Romanelli's (1989) results indicated that minicomputer firms born during times of increasing industry sales had enhanced life chances. Sandberg and Hofer (1987) found that barriers to entry contributed to the success of young firms. Others have concentrated on the role of founders as the critical factor shaping young firms. The bulk of the evidence comes from case studies. Mintzberg and Waters (1982), who studied Steinberg's grocery chain, attributed much of the success of the firm to the unique abilities of its entrepreneur, Sam Steinberg. In his study of a medical school founding, Kimberly (1980: 40) attributed the school's early structure and results to the founder, "his personality, his dreams, his flaws, and his talents." Kazanjian (1988) found that top managers played an important role in solving the problems that allowed young firms to progress into subsequent stages of development. In more specific research, Cooper and Bruno (1977) found that team size was associated with high growth, and Eisenhardt and Bourgeois (1988, 1989; Eisenhardt, 1989) found linkages between firm performance and the speed, politics, and conflict of entrepreneurial top-management teams. Roure and Maidique (1986) showed empirical support for links between the prior joint experience among top-management team members and venture success. Other researchers have examined organizational strategy. Sandberg and Hofer (1987) found that a differentiation strategy led to young-firm success, while Romanelli (1989) identified various conditions favoring specialist versus generalist strategies among young minicomputer firms. This research all suggests that the liability of newness arguments may provide a framework for understanding the growth of young firms and that specific environmental, leadership, and strategic factors are likely to be germane. However, with the exception of Cooper and Bruno (1977), there have been no studies within the organization literature examining the growth of young firms, and none linking top-management-team factors to environment, strategy, and growth.
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