Frontiers of Entrepreneurship Research 1995

Frontiers of Entrepreneurship Research
1995 Edition

1995 Abstracts

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    Dennis P. Slevin, University of Pittsburgh
    Jeffrey G. Covin, Georgia Institute of Technology


    This research applies a conceptual model of total competitiveness along with a diagnostic instrument to attempt to gain insight into the key mechanisms that account for entrepreneurial success of new ventures in their early stages. A conceptual model and diagnostic instrument (Ahlbrandt & Slevin, 1992)2 was used in an attempt to gain insight into the key factors that account for entrepreneurial success in new ventures. This model/instrument defines total competitiveness in terms of specific firm behavior on the following 12 dimensions: Strategy/Direction, Human Resource Policies, Intra-Business Unit Communications, Total Quality Management, Product/Service Development and Improvement, Marketing and Sales, Vendor Relationships, Process Improvements, Participative Management, Organization Structure, Business Unit Culture, and International Competition.

    A small sample of early/middle stage entrepreneurial firms was investigated through careful empirical data collection and interviews with their CEO's and/or senior management officials. An attempt was made to select high potential new ventures that have experienced a recent and rapid growth in terms of the number of employees and sales. The five firms selected for case study investigation and empirical data collection are members of the Pittsburgh High Technology Council. This research used a carefully developed empirical instrument, The Total Competitiveness Audit (TCA), along with qualitative case study investigatory techniques in an attempt to gain insight into the keys to success for new ventures as they attempt to adapt to their competitive environment and transition through the rapid early growth stages. Most of the firms selected for this study scored quite high on the 12 competitiveness factors. Reasons for this are discussed in the analysis, but this phenomenon seemed to be strongly linked to the small size and early stage of development of these firms. Their challenge will be to sustain high levels on the twelve factors as they transition into larger, more mature business units. Quantitative data showing the profile of each firm is presented along with a brief case discussion and analysis.


    Anecdotal evidence indicates that new ventures go through a variety of difficult transitions as they go from early stage (less than 1 million dollars sales) to middle stage firms (in the vicinity of 5 million dollars sales and above) in their development. What starts out as a relatively small and simple operation can rapidly become extremely complex and challenging as the size of the business unit grows and the magnitude of its problems increase as well. However, as observed by Hanan (1987), current growth models for new ventures tend to over-simplify and inadequately explain the growth process. The whole notion of transitions and ways to understand them and manage them in an orderly fashion is an important issue for new venture development. At our recent Entrepreneurial Leadership Research Conference in San Diego, California, January 5-7, 1995, sponsored by the Center For Creative Leadership and the Center For Entrepreneurial Leadership, Inc. at the Ewing Marion Kauffman Foundation, a group of academics and practitioners identified entrepreneurial transitions as a key theme for future study in the education of potential entrepreneurs. It appears as though we have need for both a conceptual model identifying key behavioral factors that are important in the business unit's performance as well as some sort of diagnostic instrument that might be supplied to researchers and founders of new ventures. This paper reports on the application of such a model and diagnostic, the Total Competitiveness Audit (TCA), (Ahlbrandt and Slevin, 1992) to this problem in a field study of new ventures.


    A research program has been conducted at the University of Pittsburgh which has identified a 12 factor model of total competitiveness, along with a measurement instrument for scaling each of the 12 factors. Competitiveness has been described as a function of macro-economics, governmental-industrial policies, and firm-specific choices (e.g., Dertousos, Lester, and Solow, 1989; Nelson, 1992). In the current research, competitiveness was operationalized in terms of the last set of determinants (i.e. firm-specific choices) since these are the competitive success predictors most under-management's' control. Practicing managers were asked to identify issues that they felt were important and enablers of competitive response in their business units. Hundreds of individual items were generated and sorted to generate 12 behavioral factors. A two stage process resulted in the development of a behavioral instrument enabling the measurement of each of the 12 factors. Importantly, these 12 factors have all previously emerged as common themes among competitively successful businesses (see Kilmann, Kilmann, and Associates, 1991). Norms have been developed by collecting data from 194 business units across the country with the following results:

    There are no differences in average scores between service and manufacturing business units. This means that the same norms can be used for both types of businesses.

    All 12 factors correlate significantly with business unit performance measured in terms of firm financial growth over the past three years.
    The scale reliabilities for each of the 12 factors are high. The minimum Cronbach alpha is .86 and the average is .91. In short, the instrument appears to give robust and reliable readings on the 12 factors that are predictive of business unit success.
    Precise definitions of the construct of total competitiveness along with definitions of the 12 factors are provided below. In addition, a graphical model is presented in Figure 1.

    Total Competitiveness Defined

    In today's increasingly complex and dynamic global business environment, firms must quickly and effectively adapt to competitive pressures. This is a complex process and firms must be able to handle continuous change regarding a variety of factors. Such a competency emerges as organizations learn how to navigate their competitive environments over time. As argued by Williams (1992, p. 30), "managers must link their organizations' unique resources--core capabilities--to different types of strategies over time. Organizations must learn from their environment how to survive--how variations in speed of learning produce the competitive conditions that shape the character of success." Total competitiveness implies both profitable current operations while at the same time continuously repositioning key factors so that they are responsive to and anticipative of the actions of competitors. This notion of continuously repositioning key factors is consistent with much of the current literature on competitiveness. In his book, Hypercompetition, (1994), for example, Richard D'Aveni writes:

    "As competition shifts toward higher intensity, companies begin to develop new advantages rapidly and attempt to destroy competitors' advantages. This leads to a further escalation of competition into hypercompetition at which stage companies actively work to string together a series of temporary moves that undermine competitors in an endless cycle of jockeying for position."(p. 29)

    Total Competitiveness, in terms of specific firm behavior, means scoring high on all 12 dimensions of competitiveness. This instrument enables the business unit to diagnose and track performance on all 12 competitiveness factors. A factor score could be made high by an individual strongly agreeing on a 7 point scale with a variety of items indicating positive performance on that factor. The number of items per factor ranges from 6 for International Competition to 18 for Total Quality Management. Overall, the instrument contains 144 items in its measurement of the 12 factors. Raw scores on each factor can then be converted to a percentile score based on a normative sample of 194 business units from across the country. If a business unit, for example, scored at the 80th percentile on Factor 1 Strategy/Direction, it means that 80% of the normative sample of 194 business units have a lower raw score on this factor.

    12 Competitiveness Factors

    Research has indicated that the following 12 competitiveness factors are of crucial importance in the successful performance of the firm. Therefore, the questionnaire asked the strategic manager to respond to a variety of issues around the following competitiveness factors:

    1.Strategy/Direction - Long term goals and decisions concerning the means to achieve those goals.

    2.Human Resource Policies - Practices in the human resource area that support business performance. These include the traditional HRM practices of planning, staffing, appraisal, compensation, and training and development.

    3.Intra-Business Unit Communications - Efficient and effective flow of information horizontally and vertically within the business unit. Cross functional sharing of information.

    4.Total Quality Management - Emphasis on customer satisfaction as the ultimate performance measure. Dedication to monitoring and continuously improving the quality of all operations.

    5.Product/Service Development and Improvement - Innovative and new product/service development. Involvement of all functional areas plus vendors and customers in the product/service development process.

    6.Marketing and Sales - Responsiveness to customer needs. Involvement of the marketing and sales functions in tracking and improving responses to customer requirements.

    7.Vendor Relationships - Involvement of vendors in new product/service development and improvements.

    8.Process Improvements - Degree to which continuous improvement is valued and achieved in all product/service production processes.

    9.Participative Management - Empowerment of workers to make decisions through training and the sharing of information and power.

    10.Organization Structure - The basic structure of the organization represented by the organizational chart. This includes formal reporting relationships, role definition and accountability, the allocation of tasks, groupings of individuals, and structural systems for communication, coordination and integration of activities.

    11.Business Unit Culture - Shared norms (unwritten rules of behavior) as well as shared ideologies, values, attitudes, beliefs, and assumptions. Culture provides a social energy that guides peoples' daily behavior.

    12.International Competition - The degree to which the business unit recognizes that it must function in a global world with international competitors.

    (Figure 1)


    The hostile, dynamic, and complex environments faced by new ventures today puts particular stresses on them as they transition from small to medium sized business units. Making it through this time of vulnerability is particularly important for business unit survival and success. The Total Competitiveness Audit was applied to five new ventures. They are members of the Pittsburgh High Technology Council, and they were selected because they show a promise of high growth and yet are still relatively small and young new ventures. The information provided below has been disguised in the interest of confidentiality. However, the TCA scores are accurate and have not been modified. TCA profiles will be presented along with a commentary on the various factors based on case study discussions with other managers.


    COMPANY: Firm 1
    RESPONDENT: President
    Latest Fiscal Year
    One Fiscal Year Ago
    Two Fiscal Years Ago
    BUSINESS UNIT ACTIVITY: Firm 1 designs, refurbishes, and manufactures a wide range of highly sophisticated computer/mechanical equipment. Their applications include delicate positioning equipment, industrial control systems, guidance equipment, and related high tech systems. It engineers and assembles complex systems containing numerous electronic components. Firm 1 deals intensively with highly sophisticated customers in the development of these complex systems, and consequently, the price of the average system is high--in the neighborhood of $500,000.

    (Figure 2)


    All manufacturing conducted for Firm 1 is jobbed out to external vendors. They do the up-front engineering and bring in the components for inspection and assembly. They operate at the frontier of technology in their field providing high priced items with rigid specifications that must work the first time.

    As one can see from the above profile, Firm 1 scores consistently high across all of the dimensions. While, one might feel that Firm 1 has an overly inflated view of themselves, there is an explanation in terms of their relationship with their customers. Firm 1 is tremendously customer driven, and their customers are highly sophisticated. Consequently, Firm 1 has concluded that the secret of their success is in customer satisfaction. As a result, the 12 factors are driven to a high level by a technologically sophisticated and demanding set of customers. Firm 1 has an unusual in-depth technological and business relationship with each one of its small group of customers. Each system is custom designed and assembled to accommodate a unique set of customer needs. Though it is classified as a manufacturing firm, a very substantial amount of consultation with customers is a secret to its business success. Firm 1 feels strongly that their highly skilled staff is their most important asset, and as a result scores high on human resource policies, communications, process improvements, participative management, organization structure, and business unit culture. Firm 1 is attempting to continuously revisit its strategy, to enhance its already high level of quality relationships with its vendors and to monitor and improve process improvements. Firm 1, although small, is rapidly growing and will be operating more and more in the international market place.

    COMPANY: Firm 2
    RESPONDENTS: General Manager and Director of Operations
    Latest Fiscal Year
    One Fiscal Year Ago
    Two Fiscal Years Ago
    $800,000v BUSINESS UNIT ACTIVITY: Firm 2 is a rapidly growing franchise operation, supported by one of the largest high technology training and support firms in the country. The firm's mission is to serve people by increasing their effectiveness through quality training and support. They engage in highly personalized instruction enabling students to quickly and practically apply new technology to their job requirements. Firm 2 offers over 100 different courses encompassing all sorts of technical applications. Customized training is available for both in-company and out-of-company applications. Firm 2 provides a support system with free refresher classes and unlimited telephone support for each student.

    (Figure 3)


    Firm 2's lowest scores were on the following three factors:

    Product/Service Development (70%)

    Since Firm 2 is a franchise, the majority of the innovation occurs at the headquarters office. Everything is tried and tested there prior to distributing the franchisees. Not much emphasis on product development is placed at the individual business unit level. Firm 2's responses tended to be low on the TCA where suppliers were involved. Since they just do not work that closely with suppliers other than the franchisor. Also, they do not do much research on product or process improvements.

    Vendor Relations (37%)

    The major vendor of this franchise operation is corporate headquarters, and consequently, they did not attempt to establish strong and long term relations with traditional vendors. However, they have increased their number of external vendors as a result of growth and feel that this problem must be addressed as they transition to a larger size with increased sales revenues and more vendors.

    International Competition (24%)

    From a competitive standpoint, they attempt to stay aware of international competition. Approximately 20% of Firm 2's revenues come from accounts that may have been sold in other cities. If international competition does become more pronounced, this will impact upon Firm 2's likely success in their regional operation.

    Other than those factors listed above, most of the factor scores for Firm 2 were quite high, and they attribute this to the very strong leadership from a dynamic and entrepreneurial president, who is committed to growth and the development of a strong organization. Firm 2 feels that they are provided with excellent product support from corporate headquarters, and they are in a healthy and growing part of the economy. Currently, Firm 2 is still small enough to stay hands-on with lots of organic communications across the organization. Their challenge will be to manage transitions that occur during growth as they hire more middle management and more front line supervision.

    COMPANY: Firm 3
    RESPONDENT: President
    YEAR ESTABLISHED: Acquired Fall, 1993
    Latest Fiscal Year
    One Fiscal Year Ago
    Two Fiscal Years Ago
    BUSINESS UNIT ACTIVITY: Firm 3 represents an acquisition and entrepreneurial turnaround of a company that had been in existence for several decades. Since the original company, prior to acquisition, was ready to go out of business, and was on the brink of total collapse, we are treating this as an entrepreneurial new venture. Firm 3 designs and builds specialty handling devices for a variety of industries including paper, aluminum, and steel. In addition to its traditional product line, Firm 3 plans to expand into the design and construction of a variety of new components for heavy manufacturing equipment. The turnaround of Firm 3 salvaged all of their existing jobs and should create an immediate 50% increase in their workforce. The company's facilities include fabrication machining engineering and an engineering office complete with auto-cad capabilities and related technical support.

    (Figure 4)


    Firm 3 represents a much higher variability in terms of scores on the 12 total competitiveness factors. This can be attributed to the fact that Firm 3 is a turnaround situation, and some of the low scores reflect the experiences of the previous failing business unit. The following provides a very brief commentary on the various scores.

    Factor 1. Strategy/Direction (58%) -- They have a clear idea of what their strategy is; they merely need to formulate it specifically and to engage all levels of management in strategy execution.

    Factor 2. Human Resource Policies (60%) -- Due to the small size, they are able to handle the human resource policies reasonably well and hope to improve upon this, especially in the training area.

    Factor 3. Intra-Business Communications (70%) -- Communications are good due to the small size of the organization. Growth may cause problems here as additional supervision is put in place.

    Factor 4. Total Quality Management (52%) -- They are attempting to implement a program to improve this score through additional training and monitoring.

    Factor 5. Product/Service Development and Improvement(80%) -- They view new product development as a major secret to success in this business.

    Factor 6. Marketing and Sales (40%) -- As they grow and add capacity, they hope to increase their customer responsiveness.

    Factor 7. Vendor Relationships (25%) -- Historically, the company did not treat vendors very well, especially in terms of prompt payment. This will be improved dramatically with success.

    Factor 8. Process Improvements (88%) -- This is a strong area for the company, and they are continuously working to improve their processes.

    Factor 9. Participative Management (94%) -- Small size enables large amounts of participation. This will need to be carefully monitored as the business unit grows.

    Factor 10. Organization Structure (92%) -- Structure is still small and simple. Similarly, challenges will be faced here with growth.

    Factor 11. Business Unit Culture (93%) -- This factor faces the same challenges as the above 2.

    Factor 12. International Competition (57%) -- Although they are not terribly international currently, they hope to expand on this dimension with added growth.

    Firm 3's president believes strongly that his business unit will have to make all of these factors better in order to create and sustain growth. They are working on the challenges of increasing their revenues and growing their organization, while at the same time, attempting to establish orderly systems for sustained growth. Firm 3 is a good example of the complexity that new ventures face as they attempt to keep all of the 12 competitive factors at a high level as the firm grows into a larger sized business unit.

    COMPANY: Firm 4
    RESPONDENT: President
    Latest Fiscal Year
    One Fiscal Year Ago
    Two Fiscal Years Ago
    BUSINESS UNIT ACTIVITY: Firm 4 is a manufacturer of complex printed circuit board assemblies, cables, and associated harnesses and enclosures. The company strategy includes the goal of providing complete manufacturing support system for their customers. This includes engineering, technical support, materials management, fabrication, quick prototype turnaround, and rapid assembly and testing. Firm 4 has experienced very rapid growth and anticipates continuing on this trajectory.

    (Figure 5)


    Firm 4 is another example of a new venture that is rapidly growing and yet still small enough to score high on most of the 12 competitiveness factors. Their one low scoring factor (International Competition) is not applicable to their business activities at this point in time, and they do not foresee it as a significant factor for a few years to come.

    The leadership in Firm 4 believes that they will have to manage carefully the 11 relevant competitiveness factors as they grow rapidly. So far, their management style has been one of high participation and intensive one-on-one communication with all of their staff. They have managed their rapid growth with a minimum of outside financing and zero venture capital funding so far. They recognize that as the business unit becomes larger, tremendous pressure will be put on the organization in terms of communications and organization structure. In other words, they will be pressured to move from a more organic organizational form to a more mechanistic structure (Slevin & Covin, 1990). Interestingly, the president of Firm 4 characterizes himself as entrepreneurial and "organic" in terms of managerial philosophy and behavior. He characterizes his partner and vice president as conservative and mechanistic. Slevin and Covin (1990) have commented on the need to cycle between these two cells on a four cell matrix in order to achieve sustained new venture success. The management of Firm 4 feels that they have this cycling built in to a certain extent through the different styles represented by the two partners that run the firm.

    EMPLOYEES: 210-300
    Latest Fiscal Year
    One Fiscal Year Ago
    Two Fiscal Years Ago
    BUSINESS UNIT ACTIVITY: Firm 5 was formed in 1990 when the partners purchased the operating assets and contracts of a company that had been in operation for many years. Since the seller was in serious financial trouble, with critical cash flow problems, very limited order backlog, limited bonding capability and consequently on the brink of total collapse, we are treating this as an entrepreneurial new venture. When they separated, the new venture became a new company with new products, new markets, and acquired new facilities. An amazing accomplishment of new owners was their ability to get bonding and financing for this new venture, in spite of the parent's troubled financial history. Firm 5 manufactures and installs a variety of air handling and exhaust systems. The company also fabricates metal products for use in commercial, industrial, institutional, and government markets throughout the eastern United States. It also has a new operation in another city and is in the process of expanding into specialized overseas markets. The turnaround effort has been quite successful and Firm 5 is operating substantially in excess of its break-even point.


    Firm 5 typifies the challenge faced by new ventures as they rapidly grow in size to the $20 million to $50 million sales range with employees numbering in the hundreds. While their factor scores are not that low, (only 1 factor scored below the 50th percentile) they demonstrate a higher degree of variability across the 12 factors. Since data were collected from 2 respondents, average percentile scores are presented in the profile above. The inter-rater reliability was .85. Firm 5's lowest scores were on the following three factors:

    (FIGURE 6) Vendor Relations (32%)

    They have little control over their vendors, and the product supplied to them is highly standardized. Their vendors can cause problems in terms of deliveries, but they do not have many vendors to pick from and do not view vendor relationships a major problem even though the score on this factor is low.

    Product/Service Development (54%)

    In their portion of the industry new product development is relatively non-existent. Most product improvement is dictated by rules--standards and codes, and it is quite a mature industry. In such a standardized world, new product development is not exploited as a competitive tactic.

    Competition (56%)

    Only one month ago, they purchased a small business with international implications. They are in the process of pursuing a much more global strategy with this business, primarily in the Pacific rim. While this factor score is still on the low side, it is expected to increase in the near future.

    Total Quality Management (60%)

    In this industry, the non-management workers are unionized and the employer has little control over their training. Management's discretion is primarily limited to firing or not employing in the future workers that they feel are not providing high quality output. Also, competition on price is much stronger and more important than quality issues. Non-management workers just do not appear to get into the quality arena, which accounts for the relatively low score on this dimension.

    Firm 5 is interesting because it shows the dilemma new ventures face in the total competitiveness arena as they grow in size. It becomes increasingly difficult to maintain high scores on all factors as the business unit grows in excess of 100 employees. Both of the new venture owners appear aware of the fact that continuous efforts must be expended to sustain total competitiveness performance, while at the same time managing rapid growth.


    This research involved a small number of high growth firms in a field setting. Consequently, it is still exploratory. However, although it is still speculative, some qualitative conclusions can be suggested at this time. These conclusions do not so much follow from the TCA scores of the participating firms as they emerge from the totality of the research experience.

    Small is beautiful. It is much easier for the new venture founder to attend to the myriad of details in running a totally competitive business unit as long as it is still small with only a handful of employees. Perhaps, one of the reasons new ventures are able to blossom early, is the fact that the very nature of their smallness permits adaptability and rapid response.

    Growth is essential. Although a small organization may be flexible and adaptable, it is also quite vulnerable. It is essential that the business unit grow to a more durable and sustainable size.

    Transitions are difficult. As the new venture grows in size, a variety of dynamics take place that threaten all 12 of the total competitiveness factors. Organizational size becomes a major problem that must be dealt with on a variety of levels and across a variety of factors.

    New venture managers need frameworks. In managing transitions, it can be quite helpful for new venture managers to possess a solid, broad-in-scope conceptual framework concerning the key elements of new venture performance. It is not enough to just maximize profits and sales revenues. Rather, new venture managers must attend to a variety of strategic, organizational, and tactical processes that occur as they transition their organization to a more sustainable larger size business unit. Frameworks are available. Managers had little difficulty completing the TCA and reflecting on the significance of scores on the various factors. The model is broad, and has face validity for practitioners.

    New venture founders need help. It is quite a challenge to start and sustain a new venture. We, as researchers and educators in entrepreneurship, need to provide a variety of approaches and solutions for this challenge. It makes sense for us to focus on practical conceptual models that can be applied to the needs of new venture management. We must help the new venture manager by developing real world solutions to the challenge of transitioning a high growth new venture to a stable business platform.

    Although this research is exploratory, we are optimistic that significant progress can be made in the development and articulation of applied conceptual models and diagnostics to help new ventures succeed.


    Ahlbrandt, Roger S. and Slevin, Dennis P., 1992. Total Competitiveness Audit (TCA), Pittsburgh, PA 15260: University of Pittsburgh.

    D'Aveni, Richard A., 1994. Hypercompetition: Managing The Dynamics Of Strategic Maneuvering, New York, NY: The Free Press.

    Dertousos, M., Lester, R., and Solow, R., 1989. Made In America. Cambridge, MA: MIT Press.

    Hanan, Mack, 1987. Fast Growth Strategies: How To Maximize Profits From Start Up Through Maturity, New York, NY: McGraw Hill.

    Kilmann, Ralph H., Kilmann, Ines, and Associates, 1991. Making Organizations Competitive Enhancing Networks And Relationships Across Traditional Boundaries, San Francisco, CA: Jossey-Bass Publishers.

    Nelson, Richard, 1992. "Recent Writings On Competitiveness: Boxing The Compass", California Management Review, 34(2), 127-137.

    Slevin, Dennis P. and Covin, Jeffrey G., 1990. "Juggling Entrepreneurial Style and Organizational Structure--How to Get Your Act Together", Sloan Management Review, 31(2), 43-53.

    Williams, Jeffrey R., 1992. "How Sustainable Is Your Competitive Advantage", California Management Review, Spring 29-51.

    1 Portions of this research were funded by the Western Pennsylvania Manufacturing Extension Program supported by the National Institute Of Standards And Technology.

    2 The development of the Total Competitiveness Audit was supported by the Institute For Industrial Competitiveness, Katz Graduate School of Business, University of Pittsburgh.

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