Damage control for new corporate ventures.

In the aggregate, corporations lose billions on new ventures. Here's a venture cost management program that can save fortunes by keeping the cost of losers down while accelerating the success of the winners.     

An examination of the influence of industry structure on eight alternative measures of new venture performance for high potential independent new ventures

This study examined the influence of the structure of new ventures’ entered industries on eight alternative measures of new venture performance for 199 high potential independent new ventures. Each of the 199 entrepreneurial ventures had undertaken an initial public offering (IPO) within the first 6 years of the venture’s founding date and were free of corporate sponsorship or prior corporate parentage.Specifically, this research examined the influence of: (1) stage of the life cycle; (2) industry concentration; (3) entry barriers; and (4) product differentiation on eight alternative measures of new venture performance. The eight measures of new venture performance examined in this research consisted of: (1) change in sales; (2) sales level; (3) net profit; (4) earnings before interest and taxes; (5) return on sales; (6) return on assets; (7) return on invested capital; and (8) return on equity.Most prior research examining the influence of industry structure on new venture performance has: (1) utilized only one or two measures of new venture performance as indicators of the venture’s overall effectiveness and efficiency; (2) often failed to provide theoretical justification for the measure(s) of new venture performance or industry structure examined; and (3) utilized data derived from questionnaires and/or the PIMS data base of corporate-sponsored new ventures. In addition, prior industry structure studies examining independent new ventures have often utilized relatively small sample sizes.This study sought to advance the progress in the field of entrepreneurship with regard to understanding the influence of the structure of new ventures’ entered industries on new venture performance by: (1) examining eight alternative measures of new venture performance; (2) providing theoretical justification for the measures of new venture performance and industry structure examined; and (3) utilizing the largest nonquestionnaire data base of independent new ventures developed to date.This research found that the stage of the life cycle of the venture’s entered industry was the most important determinant of new venture performance among the four industry structural elements examined. Stage of the life cycle had a statistically significant relationship, at a 0.05 level, with the majority of the new venture performance measures examined in this research. In addition, ventures entering industries in the introductory stage of the life cycle achieved the highest levels of venture performance, particularly when compared with those ventures that entered industries in the mature stage of the life cycle.However, this study did not find a statistically significant relationship between stage of the life cycle and change in sales. This suggests that there is a trade-off between profitability and sales growth, and that new ventures that undertake an IPO have a stronger focus on achieving profitable operations rather than sales growth during the initial years after their IPO. This may be due to pressures placed on the new ventures to achieve profitability by the external credit market.Conversely, this research found that: (1) industry concentration; (2) entry barriers; and (3) product differentiation did not have statistically significant relationships, at a 0.10 level, with any of the eight alternative measures of new venture performance examined in this research. However, this research did find that over 90% of the new ventures entered industries characterized by: (1) a low degree of industry concentration and (2) a high degree of product differentiation.The relative absence of new venture entry into industries characterized by: (1) high degrees of concentration and (2) low degrees of product differentiation provides support for prior theory, which suggests that successful entry into such industry environments may be substantially more difficult.In sum, the results of this research suggest that high potential independent new ventures that undertake an IPO should enter industries in the introductory stage of the life cycle. In addition, the results of this research suggest that industries characterized by: (1) relatively low degrees of industry concentration and (2) highly heterogenous products may be necessary but not sufficient conditions for successful entry by high potential independent new ventures seeking to raise equity capital through an IPO.     

Value proposition evolution and the performance of internal corporate ventures

The success of internal corporate ventures (ICVs) is contingent upon their ability to: (1) anticipate the bases on which their offerings appeal to their target markets, (2) adjust these value propositions as the venture develops, and (3) leverage their parent corporations' relevant knowledge stocks. Aimed at developing a deeper understanding of the process requirements of successful exploratory initiatives, we build and test a model of venture performance using data from 145 ICVs. We find that value proposition evolution is related to venture performance in a curvilinear manner. ICVs whose value propositions exhibit moderate evolution perform better than ICVs whose value propositions exhibit no evolution or extensive evolution. Furthermore, the value proposition evolution–performance relationship is moderated by the parent corporation's familiarity with the venture's target market.     

Strategic experimentation: Understanding change and performance in new ventures

This research was motivated by an interest in understanding more about the extent to which entrepreneurs initiate changes along various dimensions of strategy, the nature of those changes and their implications for firm performance. Our interest in this topic began with the observation that, within the large body of strategic-change literature, the research effort has focused almost exclusively on large and established firms. Moreover, a fundamental assumption underlying much of this work is that strategic change involves movement from one dominant strategic approach to another. This premise does little to motivate or contribute to the understanding of change and strategy in new ventures, where it is less likely that a dominant approach exists. Thus, we drew upon the literature in managerial cognition to develop the idea of strategic experimentation as the conceptual foundation for studying change and strategy in new ventures. Our basic premise is that in new ventures, changes along dimensions of strategy are reflective of a process of trial and error learning, whereby the entrepreneur seeks to develop an understanding of the competitive situation and determine how to compete within that context. Further, we suggest that some aspects of the firm's strategy are more likely to be the focus of experimentation than others.Building on these premises we developed a series of research hypotheses which propose that the greater the level of perceived environmental hostility, the higher the level of strategic experimentation that will be undertaken. We also propose that experimentation will always be greater along some dimensions of strategy than others, and that the degree of environmental hostility will influence the extent to which there are performance benefits associated with strategic experimentation. Our hypotheses are tested using data from a three-year study of over 400 young businesses. Overall, we find support for our assertions.For entrepreneurs and their advisors, this study has several important implications. First, it suggests that strategic experimentation is a normal part of the process by which entrepreneurs seek to position their businesses. Although the present study does not empirically address the linkage between formal planning and experimentation, the learning and cognition literature upon which the construct of strategic experimentation is based suggests that, no matter how much attention to detail is involved in the preparation of the business plan, the actual formation and development of the business will involve considerable adjustment to and/or deviation from that plan. This is because the process of new business development involves iterative changes in the way the entrepreneur positions his/her firm as he/she develops an understanding about what does and does not work. The results of this study further suggest that some dimensions of the firm's strategy are more likely to change than others. Specifically, it appears that peripheral changes (competitive emphasis and time allocation) are more likely to be the focus of such learning and adaptation efforts than core features (product scope and partnership status). This, in part, is because the former dimensions are easier to change than the latter. Moreover, our results show that ventures in more hostile environments clearly face difficult dilemmas. Although poor performance may stimulate experimentation along various dimensions of strategy, the complexity of learning within a hostile environment suggests that entrepreneurs will have a particularly difficult time determining the type of changes that will make a difference.     

Competitive advantages in new corporate ventures: The impact of resource sharing and reporting level

Ideally, new ventures “born” into a corporation's “family” of existing businesses have a wealth of established resources to successfully draw upon. Such new corporate ventures do not have to reinvent every wheel. There are already marketing programs and plants in place as part of the existing business' operations, and they should be able to piggyback upon these. Likewise, the managers from across the corporation already have established a brand name and gained important experience in dealing with customers, and the new venture should get to ride on these coattails. However, along with these benefits come costs that may be more than offsetting. Corporations may try to force the new venture into the established way of doing things in the name of efficiently utilizing existing resources. Perhaps the new venture will be hamstrung by an effort to coordinate its development with the ongoing operations of the corporation's established businesses.It is not at all clear that sharing corporate resources is always a good thing for new corporate ventures. Some have argued that for new ventures to be successful, they often need the direct involvement of top management to see that they get the benefits of corporate resources without suffering the costs. This suggests the general hypothesis underlying much of this work: reporting to top management will be especially beneficial to new corporate ventures heavily involved in sharing corporate resources.In considering this idea, we explore the complicated relationship between resource sharing, top-management involvement, and the ability of new corporate ventures to establish a competitive advantage. We consider both the relative overall quality and relative production costs as forms of competitive advantage. We find that in new corporate ventures heavily involved in resource sharing, achieving either of these advantages is highly contingent upon the level of corporate management to which the new venture regularly reports.In ventures heavily involved in resource sharing, reporting to top-ranking managers appears to be beneficial in terms of controlling cost, but detrimental in terms of the new venture's overall relative quality. In other words, when it comes to benefiting from shared corporate resources, reporting directly to top management is apparently a “two-edged” sword, offering both benefits and costs. (Reporting level appeared to make little difference in new ventures not involved in corporate resource sharing, and competitive advantage is complex and counter to some existing theories.) New theoretical arguments are needed to explain the empirical results. We develop three such theories, all appropriate for further empirical examination.     

Strategic ambidexterity and performance in international new ventures

We drew on the literature on ambidextrous organizations to propose that international new ventures (INVs) that concurrently pursue paradoxical pairs of strategies—known as the capability of strategic ambidexterity—can achieve superior performance. These paradoxical strategies are: (a) few investments and many countries, and (b) standardization and innovation. Our hypotheses were tested using data from 70 Canadian INVs. This is the first study that attempts to theoretically and empirically link ambidexterity and INV performance. Our findings suggest that INVs that are capable of pursuing and implementing paradoxical strategies achieve superior performance over those lacking such capability. Copyright © 2008 ASAC. Published by John Wiley & Sons, Ltd.     

Exploring determinants of success in corporate ventures

Previous work (Biggadike 1979) has shown that corporate ventures (CVs) typically realize their first profits as eight-year-old “adolescents.” Eightyfour such CVs drawn from the PIMS database were explored to search for strong predictors of financial performance. This analysis resulted in several findings that corporate level managers (i.e., managers of portfolios of business) can act upon to influence CV performance, as well as numerous other findings that lower level managers can use to strategically position their operations better. Some of these findings are either contrary to those reported elsewhere in other studies of CVs or contrary to results of more mature businesses. These conflicting findings should be of particular interest to the growing number of academicans studying CV management.Corporate level managers are responsible for selecting the markets in which they will fund the development of new CVs, and maintaining a corporate environment conducive to the support of the CVs as they develop. Results of this research indicate that in selecting markets to enter, corporate managers should look for situations in which high market growth can potentially reduce the effect of competitive pressures; in which they are likely to realize a technology-based advantage: and in which they can stand up to international competition. An in-house environment stressing a hands off attitude on the part of corporate level managers appears most appropriate.Business level managers directly involved with the operation of the adolescent business can improve their CVs chances of success through good strategic positioning. By aggressively maintaining a high market share after an early entry into a broadly defined market, they can expect to move more quickly down their learning curves and beyond their break-even points. Given the choice of one or the other, a product that stresses quality over price is more likely to produce higher profits, although customers are obviously able to shop for value by considering both price and quality. Finally, any of the adolescent business' resources devoted to vertical integration should emphasize downstream rather than upstream development.Where the supporting results differ from those results expected and/or reported elsewhere, such differences are described and possible explanations offered. Before turning to the results, we need to describe this work's position within a broader context of developing literature on corporate ventures.     

Corporate versus independent new ventures: Resource,strategy, and performance differences

This study examines differences between independent ventures (IVs), which are established by individual entrepreneurs, and corporate ventures (CVs), which are controlled by larger companies. It focuses on differences between these ventures related to the resources, strategies, and performance of firms in the computer and communications equipment manufacturing industries. Thus, the findings increase the understanding of the different challenges faced by each venture type and provide insight into how each venture type should be managed.The study finds that managers of CVs and IVs emphasized different resources and strategies. Specifically, CVs emphasized the following resources: internal capital sources, proprietary knowledge, and marketing expertise. IVs emphasized external capital sources, technical expertise, and development of brand identification. They also differed in their strategies; IVs pursued greater strategic breadth, more customer service, and focused more on specialty products. The findings that CVs had less strategic breadth was surprising in that CVs emphasized resources, such as internal capital sources, which could make pursuing broad strategies more feasible for CVs. It is possible that some CVs do not pursue broad strategies because they may be “infringing upon someone else's turf” within the corporation and thus may be discouraged.In spite of finding significant strategy and resource differences, the study found that IVs and CVs did not differ in performance and that resources were not directly related to performance. Based on the concept of equifinality, it follows that both venture types can be equally successful, even if they follow different roads to success. Success may be less a function of the different resources IVs and CVs have and more a function of what strategies the firms choose based upon their resources.Strategy variables did relate to performance: a low cost strategy lowered performance regardless of venture type and the influence of an aggressive strategy (i.e., wide strategic breadth) on performance depended upon venture origin. Managers pursuing a low cost strategy may have had lower performance if they became penny wise and pound foolish, missing opportunities in their efforts to lower costs. This suggests that regardless of venture type, managers of new ventures in these industries and perhaps in other volatile industries may need to be opportunistic.This study indicates that pursuing broad strategies increased the performance of IVs and decreased the performance of CVs. This finding was surprising in that CVs had greater resources, which one might think would lead to successful implementation of aggressive strategies. In securing enough resources to pursue aggressive strategies from their parents, CVs may lose the freedom of action they need to cope with the dynamism of high technology industries. This suggests that managers of CVs within the computer and communications equipment manufacturing industries should either not pursue broad strategies, or if pursuing broad strategy, they should maintain their flexibility. In contrast, IVs that pursued broad strategies achieved higher performance, indicating that perhaps IVs, unencumbered by the bureaucracy that characterizes CVs, may be able to pursue aggressive strategies while simultaneously maintaining flexibility.Thus, this study offers IV and CV managers several valuable insights. First, it argues that managers of each type of venture may need to pursue different strategies to increase venture performance and make optimal use of their unique resources. Furthermore, it suggests that CV managers encounter difficulties in applying resources to strategies and not in accessing resources. Whereas political obstacles may occur, CV managers may primarily encounter these difficulties when trying to implement strategies rather than when accumulating resources from the parent, suggesting a pitfall that managers of CVs and their parents need to avoid. Although this study has indicated that both venture types can be equally successful, it suggests that they may face different obstacles and follow different roads to success.     

Financial performance comparison between international joint ventures and wholly foreign-owned enterprises in China

International joint ventures (IJVs) and wholly foreign-owned enterprises (WFOEs) are the two major competing modes of Chinese market entry for foreign investors. However, the financial performance of and relative financial efficacy between the two modes have not been researched. The present study utilizes firmspecific financial data and examines financial ratios and characteristics of IJVs and WFOEs in the current Chinese financial environment. Results of this study reveal that the WFOE is superior to the IJV in terms of asset efficiency, financial risk aversion, and export growth whereas the IJV outperforms the WFOE with respect to local market growth and environment adaptation. © 1995 John Wiley & Sons, Inc.     

The influence of guided preparation on the long-term performance of new ventures

This article further develops a theory of guided preparation and new venture performance and tests its fundamental relationships on a sample of 159 new ventures that received outsider assistance 5–9 years earlier and had been in business for 3–8 years. The results suggest that the long-term growth of the ventures since start-up is significantly related to guided preparation. However, a curvilinear model rather, than a linear model, was found to best capture the relationships of interest. This suggests that there are diminishing marginal returns associated with guided preparation and that too much may even have a negative influence on performance.     

Gender differences in firm performance: Evidence from new ventures in the United States

Prior studies examining the performance of female- and male-owned firms have generally reported that female-owned firms underperform male-owned firms. However, it is conceivable that the performance measures used by previous studies and/or their inability to control for key demographic differences may have contributed to this finding. For example, few studies use size adjusted performance measures and yet we know that female-owned firms tend to be smaller than their male counterparts. Similarly, risk is typically not considered even though evidence suggests that women tend to be more risk averse than men. We use a longitudinal (five-year) database of more than 4000 new ventures that began operations in the U.S. in 2004 to determine whether potential differences in the performances of female- and male-owned firms disappear when appropriate performance measures are used and important demographic differences are controlled for in the models. The performance measures we examine include: 4-year closure rates; return on assets (ROA); and a risk-adjusted measure (Sharpe ratio). Univariate test results confirm our expectation (based on both liberal and social feminist theory) that there is no difference in the performance of female- and male-owned new ventures provided performance is appropriately measured. Further, these results are supported by our multivariate analyses, which control for demographic differences such as industry, experience and hours worked. Our findings should be of interest to researchers, financiers, advisors and policy makers. Perhaps more importantly, our findings should also ensure that women who are contemplating starting a new venture are not discouraged from doing so by a false belief that new ventures initiated by women are less likely to succeed than those initiated by men.     

Organizational attention to corporate social responsibility and corporate social performance: the moderating effects of corporate governance

Many studies have explored the antecedents of corporate social performance (CSP), such as institutional forces and stakeholder pressures. However, few studies examine CSP from a socio‐cognitive perspective. To address this research void, this study adopts an attention‐based approach to examine the relationship between managers' attention to social issues and CSP. More important, this study reports that this relationship will be moderated by governance mechanisms that constrain managerial discretion. Using a sample of Chinese listed firms, this study provides empirical support for these arguments. Therefore, our study adds new insights to the literature addressing CSP from a socio‐cognitive perspective and speaks to the structural features, both inside and outside organizations, that guide managers' attention.     

Technology strategy and new venture performance: A study of corporate-sponsored and independent biotechnology ventures

New ventures, companies eight years or younger, play a major role in the development of an emerging, high-technology industry. Corporate-sponsored new ventures (those supported by an established corporation) and independent ventures (those founded by independent entrepreneurs) frequently battle for industry leadership and financial success. Whereas both venture types use technology to achieve financial and market success, little is known about the differences in their technology strategies.Technology strategy is the plan that guides a new venture's decisions on the development and use of technological capabilities. This strategy covers six major areas. The first is selecting the pioneering posture, where a venture decides whether or not be among the industry's first companies to introduce new products (technologies) to the market. The second is determining the number of products to be introduced to the market. The third is choosing the extent of a venture's use of internal and external R&D sources. Internal sources usually refer to in-house R&D activities. External sources may include purchasing or licensing of technology from other companies, or joining strategic alliances to acquire that technology. The fourth is deciding the level of R&D spending. The fifth is selecting the combination (portfolio) of applied and basic research projects. Whereas basic R&D advances science, applied R&D leads to new products and technologies. The sixth, and final, dimension is the venture's use of patenting to protect any competitive advantages it might gain from its R&D activities.This article reports the results of a study that explored the differences in the technology strategies and performance of corporate and independent ventures. The biotechnology industry was chosen to test the study's hypotheses, using 112 ventures.Seven of the study's hypotheses focused on the potential variations in technology strategy between corporate and independent ventures. Independent ventures (IVs) were expected to surpass corporate ventures (CVs) in pioneering new products (technologies), using internal R&D, and emphasizing applied R&D. CVs were expected to surpass IVs in introducing new products, using external R&D sources, spending on R&D, and patenting. The study's remaining three hypotheses covered possible variations in new venture performance (NVP) and their sources.The results showed that IVs focused more on pioneering, pursued a more applied R&D portfolio, and emphasized internal R&D more than CVs. CVs utilized external technology sources, spent more heavily on R&D, stressed basic R&D, and used patenting more intensively than IVs. These results were consistent with the hypotheses. However, contrary to expectations, there were no significant differences between CVs and IVs in the frequency of new product introductions, probably because most ventures were at the invention, rather than the commercialization, stage.The results on the NVP of CVs and IVs were counter to expectations. IVs outperformed CVs, probably because of the high motivation of the IV owners who reaped the rewards of growth and profitability. Also, whereas CVs may have greater access to the resources of their sponsors, political conflicts and rigid corporate controls might have reduced their ability to achieve competitive advantages.The results also indicated that CVs and IVs appeared to gain competitive advantages from different technological choices. Pioneering, a focus on applied R&D, and extensive use of the internal R&D sources were also positively associated with the performance of IVs. Heavy R&D spending, the use of both internal and external R&D sources, frequent product introductions, and patenting were positively associated with the performance of CVs. Finding that technology strategies significantly impacted NVP should encourage executives to consider pursuing a formal technology strategy. Likewise, the finding that different dimensions of technology strategy influenced the performance of CVs and IVs in different ways has practical implications. CV managers can learn from their higher performing IV rivals. Also, because established companies frequently acquire IVs, information about their technology strategies can be valuable in assimilating the acquired ventures. Overall, the results show that technology strategy is an important factor in enhancing new venture performance.     

Ethnic-immigrants in founding teams: Effects on prospector strategy and performance in new Internet ventures

We investigated differences in strategy and performance between new Internet ventures with ethnic-immigrant members in the founding team and a matched set of Internet ventures with non-ethnic-non-immigrant team members. Results showed that new ventures with an ethnic-immigrant presence in the founding teams tended to pursue a more aggressive prospector strategy than those with non-ethnic-non-immigrant founding team members. Still, performance of the two groups of ventures was comparable. However, the positive effects of ethnic-immigrant presence on founding teams depended on team size and average age of the founding team members.     

The performance appraisal: A critique and an alternative

Performance appraisals are a standard ingredient in the employer-employee relationship. How else is a manager to deal honestly with a subordinate regarding his shortcomings and his strengths, its adherents would ask. Most would agree, nonetheless, that undue anxiety is generated-both for the manager and the employee-by the appraisal interview. Is this anxiety constructive or destructive? The author describes the dynamics of the evaluation system. Beginning with some studies which conclude that the appraisal system is counterproductive of its stated goals, he illustrates how man's fundamental psychological processes operate against this procedure. He recommends, instead, management by objectives as a technique which releases each individual's potential and emphasizes his contribution to the working environment.     

How do new ventures grow? Firm capabilities, growth strategies and performance

While new venture growth performance has been studied extensively, little work has been done to examine the complex strategic choices through which growth is pursued and attained. Building on the resource-based view and social capital perspective, this study develops a conceptual framework that links combinations of ventures' (1) technological, (2) financial, and (3) networking capabilities to different growth strategies in terms of organic growth, partnership, and acquisition. We further assess the mechanisms through which a new venture's growth choices affect firm performance. Using data from 238 new high-tech ventures in China, we find that new ventures with different resource combinations follow different growth strategies. While partnership growth leads to greater product diversity, and acquisition is more effective in realizing firm internationalization, both lead to a better chance of survival of new ventures. In addition, the study explicates the role of technological capability in moderating the relationship between growth strategies and new venture performance.     

What happens to international new ventures beyond start-up: An exploratory study

Since its inception, research in international entrepreneurship has focused mainly on how and why international new ventures internationalize early on. To date, there has been hardly any research regarding the issue of continuing corporate growth in such ventures beyond their start-up phase or initial internationalization. Theoretically, we ground our study within the dynamic capabilities view of the firm and through an inductive theory building research explore how and whether international new ventures made-it beyond the start-up phase, aiming to generate early theoretical constructs to guide international entrepreneurship research in this substantive area. Grounded in data, we develop the following constructs related to made-it points: strategic experimentation, tensions in organizational gestalt, and legitimacy lies. To get to a made-it point, entrepreneurs experiment with their venture at several levels: organizational, business model, and operational. These experimentation efforts are fueled by tensions that exist in the organizational gestalt, such as ownership structure, business proposition to the market, and product development process. To legitimate themselves and their venture in the stakeholders’ eyes, entrepreneurs may tell legitimacy lies. We maintain that international new ventures do not reach a made-it point if they only manage to develop substantive capabilities to produce desired outputs at various levels within the venture but fail to create dynamic capabilities to change and reconfigure existing substantive capabilities.