Environment,corporate entrepreneurship,and financial performance: A taxonomic approach

This study examined the association between a firm's external environment, corporate entrepreneurship, and financial performance. The study emphasized three propositions: (1) perceived—rather than objective-characteristics of the environment significantly influenced entrepreneurship activities; (2) a multidimensional definition of a firm's environment was essential to unravel the interplay between the environment, orporate entrepreneurship activities, and financial performance; and (3) a taxonomic approach had the advantage of accounting for the interrelationships among the dimensions of the environment in classifying firms.Using data from 102 companies in six4-digit industrial classification codes (SIC),cluster analysis was used to distinguish four environmental settings: “dynamic growth,” “hostile and rivalrous but technologically rich,” “hospitable, product-driven growth,” and “static and impoverished” environments. These four environments varied in their characteristics.The four empirically derived environment clusters were then used to examine variations in corporate entrepreneurship—operationalized as corporate innovation and venturing, and corporate renewal activities. The first dimension—corporate innovation and venturing—had four components: new business creation, new product introduction, percent of revenue from new products, and technological entrepreneurship. The renewal dimension had three components: mission reformulation, reorganization, and system-wide change. The data were used to test six hypotheses:

• 1.H1: In dynamic or growth environments, companies will emphasize new business creation and innovation.
• 2.H2: Environmental hostility is positively associated with the redefinition of business through venturing activities.
• 3.H3: Hospitable business environments are positively associated with business venturing and renewal activities.
• 4.H4: Static environments are inversely associated with corporate venturing and renewal activities.
• 5.H5: Corporate entrepreneurship activities are positively associated with company financial performance.
• 6.H6: Corporate entrepreneurship activities emphasised in HI through H4 will be significantly and positively associated with company financial performance in their respective environmental clusters.

The results provided general support for the six hypotheses. They showed that: (1) each environmental cluster had a distinct combination of activities relating to corporate innovation and venturing, and renewal; (2) corporate entrepreneurship activities varied in their associations with measures of company growth and profitability; and (3) the associations between corporate entrepreneurship and company financial performance varied among the four environment clusters. The results from this study can help executives in selecting specific entrepreneurial activities that match the demands of success in their business environment to improve their company's performance.     

Assessing economic value added by university-based new-venture outreach programs

A new-venture development office was set up in a university to solicit, screen, and allocate community ventures into upper-level undergraduate and graduate project courses. Innovative ventures in the early stages of development were allocated according to: 1) the project requirements of different courses and 2) the assessed needs of the ventures themselves. During 1984, 89 different projects with a weighted average of 125 manhours per project were run through the new-venture office. Students who conducted the projects included law students, industrial-design students, and a few undergraduate commerce students, although the majority of the work was done by second-year MBA students. Most of the MBA students were parttime students holding middle-management positions and having five or more years of relevant business experience. Projects were run through twelve different courses and a seed-capital conference. The program was conceptualized and coordinated by a number of professors teaching within an entrepreneurship concentration in an MBA program. Early in 1985, a telephone survey of 50 of the 63 entrepreneurs who had projects in the program was completed. These people were asked to systematically and realistically assess the resulting net benefits to their ventures along a number of different prespecified dimensions. The total value added was computed to be $1.75 million (CDN). which stands in contrast to the direct, out-of-pocket cost of the program, which was only $75,000 (CDN).The individual dimensions of value added that were measured included:

• •• Time gained or saved in advancing their new venture;
• •• Knowledge (understanding) gained of new-venture development;
• •• Information added of use in pursuing their new venture;
• •• Contacts made in support of their new venture;
• •• Strategic changes made; and
• •• Overall value of the experience.

Additionally, respondents were asked to report whether or not they had secured new capital injections, increased or decreased employee levels, or made structural advances in their ventures. Rather than assume that the program was the primary instigator of all such changes, the respondents were asked to assess the relative impact of the program along appropriate dimensions.The program was perceived to have had a significant influence on most of the dimensions measured. A summary of the major results includes:

• •• Average value added of time saved or gained: $6,097.50;
• •• Average valeu added of new knowledge about venture development: $9, 389.47;
• •• Average value added of new information added: $6,293.48;
• •• Average value added of new contracts made: $7, 238.89;
• •• Average value added of strategy changes: $16,937.50;
• •• Average value added of overall involvement in the program: $37,269.00;
• •• Net employment generated: 20.4 FTE; and
• •• New capital raised: $5.1 million.

Certain shortcomings of the research are discussed, including the validity and reliability of the value added measures. Research is continuing to validate the findings and refine the program.     

After the cash arrives: A comparative study of venture capital and private investor involvement in entrepreneurial firms

Equity investments in entrepreneurial firms continue to grow in number and dollar amount from both venture capital and private investment sources. Increasingly, these two sources of capital play an important role in the development of new and existing entrepreneurial ventures. Due to the sometimes hurried attempt to turn their dream into reality, entrepreneurs may fail to consider similarities and differences in the value-added benefits supplied by venture capital firms (VCs) and private investors (PIs).Accordingly, the purpose of this study was to determine how initial relationships are established and maintained between entrepreneurs and their primary investors. Specifically, we asked entrepreneurs to assess characteristics of the relationship with their primary investor. We then contrasted the results between entrepreneurial firms that had received venture capital funding versus private investor funding. Differences were examined along the following lines:

• 1.• Levels of investor involvement in entrepreneurial firms
• 2.• Reporting and operational controls placed on the firm
• 3.• Types of expertise sought by the entrepreneur

     

Venture capital in transition: A Monte-Carlo simulation of changes in investment patterns

This article examines the nature of the investment process which has historically generated high returns for venture capital funds, and the impact on fund returns of perceived changes in management practice and the structure of the industry. The article outlines some policy implications for fund managers, investors, and the general management of corporations.The authors have investigated the investment process and the changes in the nature of the process through the use of a Monte-Carlo simulation model. Information gathered from interviews with fund managers and the available published data on venture fund performance (including proprietary surveys) was used to develop and calibrate the model. The model replicates the relatively high average fund returns and distribution of returns for funds through the early 1980s. The model simulates a multistaged investment process which draws on a pool of investment opportunities which have a log normal distribution of returns and a low (zero) average return. The model readily permits the exploration of the impact of management and industry practices on fund returns.The conditions identified by the authors, which led to high rates of return on the part of venture capital funds, include:

• 1.1) multistaged investment or commitment of funds on an incremental basis with evaluation of venture performance before commitment of additional fund;
• 2.2) objective evaluation of venture performance with the clear distinguishing of winners from losers;
• 3.3) parlaying funds or having the confidence to commit further funds to ventures identified as winners;
• 4.4) persistence of returns from one round to the next, which implies that valuable information is gained from previous rounds of investment in the same venture;
• 5.5) long-term holding of investment portfolios for a period sufficient for geometric averaging of compound returns to cause the winners to “take over” or raise portfolio returns.

Taken together, these conditions have permitted venture capital funds to historically realize strong average returns with a few of them realizing extraordinary returns.The article also explores the consequences of what some believe is happening in the industry: a trend toward holding investments for shorter periods, increased competition both for investments and later in the product-market arena, and a growing lack of loyalty between investors and investees. All of these conditions and their indirect consequences were shown by the model to negatively impact the limited partners in the venture capital funds while general partners, given the structure of fees and the distribution of investment returns, generally realized a reasonable to extraordinary return. The article outlines a number of management and investment policy implications for investors and fund managers.     

Entrepreneurship education in the nineties

Bringing entrepreneurship education into the community support infrastructure poses one of the more important economic development issue for the 1990s. Aspart of the new strategy for job creation, entrepreneurship education holds promise as an integral component in a community's venture support system along with incubators, innovation centers, technology transfer offices, science parks, and venture capital operations. Since new venture success is foremost a function of entrepreneurial knowledge and know-how, entrepreneurship education may be the most promising of these economic development mechanisms. Unfortunately, it may be the most difficult to implement.Generally the extent and nature of education required by modern aspiring entrepreneurs is not well understood. Many would see entrepreneurship education as strictly an add-on to current education in management or engineering. Such is the option of minimal use. The real promise or entrepreneurship education will be realized when it is strategically organized for economic development and job creation. This article traces the recent history of entrepreneurship education before proceeding to deal with a number of questions facing those who would use entrepreneurship education as part of a modern economic development strategy:

1. 1.1. Why is entrepreneurship education important?
2. 2.2. How should it be distinguished from related programs?
3. 3.3. How will success be measured?
4. 4.4. Who will be the students?
5. 5.5. How will the subject be taught?
6. 6.6. What will be the curriculum?
7. 7.7. Who will be the teachers?

     

Contours of development

New ventures seem to suffer more difficulties and business failures than do established firms. Also, there is a pattern to the mortality, with most newly founded businesses lasting only a few years.Explanations of high failure rates in new ventures have often centered on “poor management,” or have postulated that firms chose inappropriate strategies for their markets and economic environments.The present article conceives of new venture mortality as similar in nature to patterns of development that we observe, for instance, in human embryos or in the formation of new species. That is, development is an inherently hazardous process.Some of the specific hazards of development are:

• 1.1. Generic Entry Barriers. It is generally not possible for a new firm or product to successfully enter an already crowded, stable market where competitors are strong. It is more feasible instead to enter a new or growing market; or to enter with a “substitute” product that is clearly superior to those existing; or to exploit an unnoticed market opening; or to develop competitive strengths “secretly,” without overtly challenging others in the industry.
• 2.2. Density of Developmental Hurdles. Any new entity must clear a sequence of important hurdles on its way to maturity, such as establishing a well-ordered office, a functional sales channel, etc. Failure at any one hurdle is potentially fatal, and a mathematical analysis shows that the likelihood of passing even 10 hurdles in a row is about one in three. The earliest hurdles tend to be the most difficult and to crowd more densely than later hurdles. Particularly troublesome are “phase changes” where a company first starts business or becomes one thing rather than another within a short period of time.
• 3.3. Amplification of Maturational Error. Any complex system that grows rapidly and is unable to predict the future perfectly is going to accumulate structural errors that become very difficult to remedy. This is a natural and inevitable developmental process, as the system grows in complexity and the flaw itself becomes a pillar of the system. If an imitator or competitor arrives soon afterward and spots the error, he or she will easily be able to retool and redesign a better system, whereas the first firm is stuck with old habits, tools, dies, and production methods.
• 4.4. Sequence and Control in Development. Every embryonic organism has a design template outlined in its DNA that is carefully followed. Both the developing fetus itself and the mother have monitoring and control mechanisms that trigger an abortion if the development process goes awry. New ventures lack such mechanisms. They are more susceptible to “developmental deviance,” likely to differ from the model successful corporation of their type.
• 5.5. Smallness and the Asymmetry of Luck. Small things are more subject to the whims of fate than big things. Amount of resources is the key. Because new ventures typically start off with scarce resources, a bad bounce can sink the company, and the probability of at least one such bad bounce is high.
• 6.6. Costs of Organizing. Like all of the larger-brained mammals, a new company, such as a medical supply firm, must learn through experience much of what it means to be mature. Costs associated with learning arrive just when the firm is most vulnerable and distracted by other challenges.

In one sense, the message of this article is good news, in that managers of failed enterprises need not assume all the blame. After all, if most new businesses do poorly, then failure is the average or typical case, and it makes little sense to say that the average manager is “poor.” The bad news is that, if our perspective is correct, managers of new ventures have less scope to influence the success of their enterprises than is commonly believed. The managerial recommendations that emerge are that new ventures are more likely to succeed to the extent that they: have sponsorship or capital, have managers with a range of experience in previous ventures, are given extra assistance of “shelter,” or can ensure a high probability of passing all of the hurdles faced by a new venture.     

Strategy constraints of Polish foreign-trade organizations

This paper presents reflections on the survey of the general managers of Polish foreign-trade organizations (FTOs). The study focuses on business deals with Western partners and the associated problems. The relative inefficiency of Polish FTOs is due to:

• 1.1. Poor working relations between the FTOs and the Polish manufacturing sector;
• 2.2. Inadequate knowledge of modern marketing techniques;
• 3.3. The lack of clear-cut strategies regarding how to develop foreign markets; and
• 4.4. Rigidity of national planning and management systems in Poland.

As far as organizational solutions to correct the deficiencies are concerned, the experience of foreign branches of FTOs and the modifications of their cooperative links with the Polish manufacturing sector appear to be the most promising.     

Corporate social responsibility and public accountability

The development of legislation determining corporate behaviour is a fascinating topic, offering insight into the societal problems of corporate enterprise as they are related to their accounting, their administration, and their external reporting. In this paper the following specific implications for accounting are examined:

-Should accountants get involved in social auditing and are they the ‘core’ persons in corporate social accounting systems?

-Should corporate social performance measurement and reporting become obligatory and to what extent?

-A general framework for the implementation of corporate social accounting systems is suggested and quidelines for its auditing are proposed.

-A tentative set of social auditing standard is outlined together with its methodological accompaniments.

     

General managers control new and existing products differently

This article presents some initial findings from an ongoing research project on the way that divisional general managers of targe organizational units control new product innovations. (Control, in this instance, refers to the set of procedures, systems, and actions that general managers use to monitor, evaluate, influence, or define what subordinates are doing.) The research presented here focuses on three broad questions:

• 1.1. Do divisional general managers of large organizational units control their new product activities differently from their more established operations?
• 2.2. Is a new product's innovation strategy related to the nature and degree of divisional general manager control—and, if so, in what way?
• 3.3. Is a divisional general manager's choice of control methods related to his/her unit's new product output?

The results were based on in-depth interviews with the general managers of 26 large Canadian-based divisions in 12 firms. All the firms were significant competitors in the North American market and all were actively engaged in new product activities. Firm size ranged from $210 million to $5 billion in sales. The following is a summary of the study's principal findings and conclusions:

• 1.1. Control varies among dimensions. The study measured the degree of control exercised by divisional general managers over new and established products on 14 control variables. It was found that none of the new products (relative to established brands) was controlled in the same fashion by the managers. Instead, new products were always managed through a variety of “loose” and “tight” controls. In so doing, it appeared that the divisional general managers were trying to balance the control and freedom required by subordinates with new products.
• 2.2. Control varies with strategy. Both theory and empirical research generally support the notion of linkage between a unit's strategy and its organizational (eg, design, reward, placement, information, etc.) practices. The results of this study strengthen this line of thinking. The data show that both the nature and degree of divisional general manager control vary with three dimensions of product strategy (i.e., familiarity, uniqueness, and advancement).
• 3.3. Control varies with output. The analysis highlighted the pivotal relationship between divisional general manager control and new product output. Both the nature and degree of control were found to be associated with new product output in each strategic category. Although there does not appear to be one best way to control all types of new products, some divisional general management approaches to control were more preferred than others.
• 4.4. Loose formal/tight informal. The general managers' control patterns showed that formal control dimensions were usually managed more loosely than informal ones; that tighter informal controls were used to off-set (or “balance” ) the more relaxed formal dimensions; and that the observed reduction in formal control should not be interpreted to mean either the absence of bureaucracy or the absence of formal control. Indeed, some formal bureaucratic control was always found in the “high output” strategic categories. Thus, rather than being considered or labeled as typically “bad”, bureaucracy may in fact be “beautiful”—provided, of course, that it is appropriately used.

The article concludes by arguing that a divisional general manager's approach to controlling new products seems to make a difference in terms of performance. As such, the control approach chosen should not be made haphazardly or with abandon.     

Learning needs of growth-oriented entrepreneurs

As firms increase in size and complexities, the entrepreneurs managing them face a number of unique problems. Often the entrepreneurs lack the experience to address these challenges. Further, finding the best method to acquire the needed information has proven elusive for both entrepreneurs and educators.The existing entrepreneurship education literature related to teaching and/or learning skills to grow a business does not significantly address the problems brought on by growth. Most studies have examined students in an academic environment, away from realworld problems, in a relatively structured setting of a specific duration and with similar levels of competency and knowledge. Practicing entrepreneurs do not fit this educational mold.The results of this study show that entrepreneurs prefer learning experiences that are short, to the point, content oriented, and taught by practicing professionals. This study also identifies the priority learning needs and preferred delivery methods of fast growth entrepreneurs. These findings could be used to develop a series of courses or modules that could enhance the management efficiency and effectiveness of fast growth entrepreneurs.This study contributes to the general knowledge of entrepreneurship education in the following areas:

• 1.1. It identifies the learning needs and preferred instructional methods of practicing, fast growth entrepreneurs.
• 2.2. It provides market information on course offerings for executive education programs.
• 3.3. It provides a model of curriculum content for universities that wish to bring their courses more in line with the needs of practicing entrepreneurs.
• 4.4. It provides a teaching approach that can help bridge the gap between academe and the business world by focusing on learning needs common to both students and entrepreneurs.

     

Towards a theory of entrepreneurship

Over 200 years of the study of entrepreneurship have provided many definitions of the word “entrepreneur”. However, no theory of entrepreneurship has been developed that would explain or predict when an entrepreneur, by any of the definitions, might appear or engage in entrepreneurship. Indeed, the search for a best definition may have impeded the development of theory.The Schumpeter economic outcome-based concept that an entrepreneur creates value by carrying out new combinations causing discontinuity is embodied in many of the definitions offered within the last 50 years. We strongly recommend the adoption of Schumpeter's definition for academic and policy-making purposes.We offer the following tentative entrepreneurship theory, extracted from anecdotal observations and extant literature, in the hope that it will better explain and begin to predict the phenomenon of entrepreneurship:“A person will carry out a new combination, causing discontinuity, under conditions of:

• 1.1. Task-related motivation,
• 2.2. Expertise,
• 3.3. Expectation of personal gain, and
• 4.4. A supportive environment.

”Several relevant research questions are posed in the hope that they will encourage discontinuity in further development of theory.     

Accelerating strategic fit or venture emergence: Different paths adopted by corporate accelerators

Corporate accelerators (CAs) are a fast-emerging form of corporate engagement with startups. Equating them with independent startup accelerators and/or corporate venturing limits our understanding of how and why corporations run CA programs and to what end. In this inductive grounded theory study, we explore how corporations design and run CAs and to what effect. This study of four CAs reveals that corporations manage accelerators via one of two distinct processes: namely, accelerating strategic fit or accelerating venture emergence. Our inductive models of these corporate acceleration processes provide new insights into how CAs operate within corporations. Strategic posture and investment time horizon influence corporations' choice of acceleration path and their identification of potential ventures for acceleration. Our study deconstructs what comprises the core corporate acceleration processes and explains how the two pathways result in distinct outcomes—nurturing innovations or nurturing ecosystems. We believe these findings can open up rich research opportunities for understanding how corporations engage with entrepreneurial ventures to enhance their entrepreneurialness.     

Commentary on “an empirical study of moral reasoning among managers”

Managerial reasoning is characteristic of a care-relationship ethics:

1. If a corporation provides certain community values to corporate members not reducible to their self-interested economic or professional objectives;
2. If such values are generated by a division of labor based on interdependence, reciprocity and concern for another's self-realization;
3. If it's based on promoting an ethical corporate self independent of its economic value.

Such an ethic is appropriate, given employees' tremendous personal contributions, the unique position of private industry to provide distinctive resources without committing extensive social resources, and due to its potential for reducing managerial moral fragmentation and hypocrisy.     

Stimulating innovation through corporate venture bases

A common shortcoming, both in the literature on corporate venturing and in practice, is insufficient or no attention to the ability and responsibility of firms to stimulate and influence the creation of innovative ideas that can lead to new ventures. This paper focuses on the initial process of corporate venturing and explores how corporate venture management can stimulate the generation of genuinely original and dynamic ideas by establishing and maintaining a venture base. The following concrete actions are proposed in order to promote and improve the functionality of the venture base: take responsibility, secure access, acquire network capabilities, gain competencies in how to influence the vision and agendas in knowledge-creating networks, contextualize, and invite to discussion at an early stage. The paper is mainly conceptual in nature but draws on 22 semistructured interviews conducted between 2000 and 2002 with managers of corporate venturing departments at six multinational Danish firms in knowledge-intensive industries. The interviews are used to illustrate the main arguments of the paper.     

Effects of managers' entrepreneurial behavior on subordinates

The recent surge of interest in promoting corporate entrepreneurship seems linked to a growing body of empirical evidence of a positive relationship between a firm's entrepreneurial orientation and its improved financial performance. Logical induction suggests that organizations that promote corporate entrepreneurship must employ managers who are entrepreneurial in their behaviors. By extension, it would seem that managers who are entrepreneurial must have a positive impact on their subordinates if the organization's entrepreneurial initiatives are to be successful. Unfortunately, despite the implicit appeal of this logic, what would “seem” to be true has not yet been substantiated empirically.To address this shortcoming and to provide managers with information from which to judge their efforts to promote corporate entrepreneurship, research was undertaken to address two specific research questions:

• 1.1. What behaviors distinguish managers who exhibit an entrepreneurial orientation?
• 2.2. How do subordinates judge the actions of managers who work for an organizational metamorphosis to an entrepreneurial model of management?

Providing a rigorous assessment of these issues necessitated the selection of a setting not typically seen as receptive to entrepreneurial initiatives. Thus, the data were collected from the two largest units of an electric utility system, one with 8,000 employees and $2.847 billion in 1992 revenues and the other with 10,000 employees and $4.297 billion in 1992 revenues. Together, these units employed 60% of the corporate staff and generated 89% of total corporate revenues.Because of the perception of the company's top management that the prospect of deregulation, if not its inevitability, threatened the viability of the company's traditional management style, executives considered specific programs to become more competitive. They formulated a plan for the long-term development of an entrepreneurial organization based on the belief of the company's executives that its future success required fundamental change in corporate culture and competitive posture.To track the evolution of its managers toward an entrepreneurial orientation, the company used two survey instruments developed with and administered by executives of the company to monitor each manager's progress and to evaluate its impact.To assess the types and frequency of entrepreneurial behaviors among managers, a theoretically driven, management “behaviors” questionnaire was developed. Eleven of its items were designed to assess entrepreneurial behavior as a distinguishable subset of generally advocated management practice. This survey was administered by the company to all 833 immediate subordinates of each of 102 individual managers.A second survey instrument, completed approximately 6 months after the behaviors questionnaire, was used to assess the “effects” of the managers' behaviors. Of particular interest were 12 questions from this instrument that measured the satisfaction levels of the 102 managers' 1,522 immediate and second level subordinates with the supervision that they received, i.e., the 12 items provided an indication of the effects of managers' entrepreneurial behaviors on their subordinates' satisfaction with the managers.The results of the data analyses support the idea that managers who are entrepreneurial in their behavior have a positive impact on their subordinates' satisfaction with their supervisors. The results indicate that as entrepreneurial behaviors increased, subordinates' satisfaction with supervision increased. Whereas 62% of the subordinates of entrepreneurial managers reported high levels of satisfaction with their supervisors, 69% of subordinates of bureaucratic managers reported low levels of satisfaction with their supervisors. Further analysis indicated that eight of 11 of the “behaviors” survey items were able to discriminate high and low subordinate satisfaction. This demonstrated that the scale developed through this research is robust in the measurement of entrepreneurial behaviors of managers.The major contributions of this study were in the development and validation of a scale that can be used to gauge entrepreneurial behaviors, and the finding that corporate entrepreneurship, as gauged by these behaviors, was well received by subordinates even when entrepreneurial management was counter to its organization's preexisting culture.     

Will the startup succeed in your eyes? Venture evaluation of resource providers during entrepreneurs' informational signaling

Experienced founders and investors are arguably the venture community members most likely to possess needed financial and social resources for startups. We present a model of venture evaluation where entrepreneurs solicit these resource providers for needed financial and social resources. Our model addresses how resource providers' venture investment propensity influences their evaluation of entrepreneurs' informational signals and how their venture evaluation predicts their willingness to provide financial and social resources. We test our model using real-time decisions and find resource providers with founding experience (both non-investor founders and investors with founding experience) leverage their investment propensity more than non-founder investors when evaluating new ventures. In addition, our post-hoc analysis reveals that resource providers' founding experience is associated with their willingness to confer social resources. Overall, this paper focuses on the perspective of resource providers and addresses how their investment propensity, types of venturing experience, and venture evaluation influence their willingness to render resource support to new ventures.     

The rise and fall of the Merlin-Gerin Foundry Business: A case study in French corporate entrepreneurship

This case study discusses the history of the creation and development within an established French electrical firm of a new business, a high-tech foundry, by a dynamic entrepreneur. We follow the trajectory of this internal venture from launch to apogee, divestment, and closure over a period of 26 years.First, we outline a framework for the selection of the external and internal variables that will allow us to interpret the case within the present theories and practices of internal corporate venturing. This framework is also useful for analyzing some particular aspects that may be attributed to the specific culture and environment of the Merlin-Gerin company. Second, we present the case history, which can be summarized briefly as follows. In 1959, the foundry of Merlin-Gerin, a leading French manufacturer of electrical apparatus, could not compete with outside suppliers. Roger Huet, an expert in aluminum casting, was hired to revitalize the business with new technologies and develop the PRECIAL (PRECIsion ALuminum) process. In 1967, he was able to market low-weight, high-strength parts to European airplane manufacturers with sales reaching $10 million. In 1970, McKinsey recommended that scarce capital resources should be reserved for the core business and that the foundry should be sold. Amazingly, this decision was not implemented for 12 years, because Huet convinced management that the foundry was profitable and had a brilliant future thanks to its unique technological skills. The foundry was sold to Alcoa in 1982 and closed down in 1985. Table 1 highlights the main events and the key corporate and entrepreneurial actions and reactions that determined the evolution and the ultimate fate of the internal venture. Third, we discuss the key factors that contributed first to the success and then to the demise of the venture, such as the culture and climate of the Merlin-Gerin and the Alcoa companies, major changes in corporate strategy and policy, discontinuities and schisms in technology and market strategies, and the leading role of the entrepreneur.Fourth, we analyze, in retrospect, whether this internal venture made a contribution to the Merlin-Gerin Company and whether the 12-year delay in implementing the divestment recommendation by McKinsey was financially and socially justified. Finally, we compare the processes observed in this company with models of corporate entrepreneurship previously developed by scholars and draw conclusions about the critical factors of success for an internal corporate venture.In our opinion, there are two unusual aspects, in addition to the international setting, that make this case interesting for both scholars and practitioners.

1. 1. This internal venture continued for 26 years, an unusually long period compared to most corporate ventures (Fast 1979; Sykes 1986; Kanter et al. 1990, 1991b, 1992). The main reasons were the personality of the entrepreneur, his close relationship with the president, the unique technology, the initial market successes, the profitability and positive cash flow of the foundry, and, finally, corporate inertia.

2. 2. The recurring shift from agreement to disagreement of business goals and strategies between the corporation (first Merlin-Gerin and then Alcoa) and the entrepreneurial venture, which, in turn, led to alternate phases of cooperation and tension between the two parties.

Table 2 summarizes the evolution of the corporate and internal venture strategies and shows the gradual shift from strategic congruence to conflict that inevitably led first to the divestment and then to the closure of the foundry. Thus, some lessons could be drawn from this case on how to survive, if not to succeed, in the difficult game of corporate entrepreneurship.

1.

2.

     

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.