Frontiers of Entrepreneurship Research 1994

Frontiers of Entrepreneurship Research


Abstracts from the 1994 Edition


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    THE STRATEGY AND PERFORMANCE OF INDEPENDENT AND CORPORATE- SPONSORED NEW VENTURES

    Mark Simon
    Shaker A. Zahra

    Address
    Georgia State University
    P.O. Box 4014
    Department of Management
    College of Business Administration
    Atlanta, Georgia 30302-4014

    Telephone
    404 651-3400

    Fax
    404 651-2804

    Principal Topics
    Today's emerging industries may be tomorrow's arenas for growth and profits (Porter 1985). To capitalize on an emerging industry's opportunities, both independent entrepreneurs and established companies start new ventures, referred to as independent ventures (IVs) and corporate ventures (CVs) respectively. While each of these venture type may succeed, many fail. Although researchers have tentatively suggested that a venture's competitive strategy influences its success, few have compared the competitive strategies followed by CVs and IVs. Similarly, few studies have focused on the effect of venture origin on the strategy-performance relationship.

    This study attempts to fill this void by empirically comparing CVs and IVs in the emerging biotechnology industry. Specifically, the study strives to answer two questions: (1) Do CVs and IVs choose different strategies?; and (2) How do the strategies they choose influence their respective performance '

    Answering these questions will further the literature in several ways. First, indicating whether strategies vary by venture origin will help clarify how, a venture's unique resources guide its actions. This goal is in keeping with Cooper's (1993) call to classify and compare new ventures to advance entrepreneurship research. Answering the second question will indicate if a strategy's effectiveness depends upon a venture's origin, a promising research area identified by Miller & Camp (1985). While researchers have studied IVs and CVs in isolation, little is known about how their competitive choices differ. To compare the two types of ventures, the study developed and tested the following hypotheses.

    HI: IVs are more likely to pursue focus strategies than CVs.
    H2: CVs are more likely to pursue low cost strategies than IVs.
    H3: IVs are more likely to pursue innovative differentiation strategies than CVs.
    H4: CVs are more likely to pursue marketing differentiation strategies than IVs.
    H5: The associations between strategy variables and performance will vary
    significantly by venture origin.

    Method
    To test the study's hypotheses, data were collected by mail survey from new U.S.-based biotechnology ventures -- companies that were eight years or younger. The survey targeted the venture's chief executive officer (CEO) or its highest ranking manager. T-tests and regression were used to analyze the data. First, the t-test contrasted the strategies of CVs and IVs. Second, separate regressions for IVs and CVs delineated the associations between strategies and performance by venture type. Both subjective and objective measures of performance were used.

    Major Findings
    Consistent with Hypotheses I through 4, t-tests indicated that IVs stressed focus and innovative differentiation strategies more than CVs (p < .05); whereas, CVs stressed market differentiation and low cost strategies more than [Vs (p < .01). Consistent with Hypothesis 5, regression results indicated that strategies associated with performance varied by venture origin. For CVs, both marketing differentiation and low cost strategies were positively associated with venture success. In contrast, focus and innovative differentiation strategies enhanced the IV's performance, while a low cost strategy decreased its performance.

    Implications
    These findings suggest that differences in resources and goals influence a venture's choice of strategies. For example, a focus strategy may be more consistent with the IV's simple structure and limited resources. In contrast, a CV may choose broader based strategies because it has access to the sponsor's resources, including capital, reputation, and distribution channels. The study also suggests that both IVs and CVs pursue those strategies that are most consistent with their success. Not only are IVs more likely to choose focus and innovative differentiation strategies, these are the strategies that enhance IV performance. The same holds true for CVs. This tentatively indicates that new ventures generally select the most appropriate strategies.

    Of course, future research needs to determine if the results above extend to other industries, other operationalizations of strategy, and other life cycle stages. Not withstanding, this study strived to advance the literature by indicating that CVs and IVs select different competitive strategies, and that these strategies affect their performance differently.


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