BACKGROUNDThe resource-based view of the firm (Penrose, 1959; Barney, 1991; Connor, 1991) provides a theoretical foundation for understanding the role of resources and distinctions among these. This view posits that organizations are comprised of heterogeneous bundles of resources (Penrose, 1959; Connor, 1991), defined as "all tangible and intangible assets that are tied to the firm in a relatively permanent fashion" (Caves, 1980; Werenerfelt, 1984; Penrose, 1959). Resources and their combinations provide the firms strengths, and optimally are a source of competitive advantage (Penrose, 1959; Barney, 1991; Wernerfelt, 1984). An organization emerges when the entrepreneur expends resources and establishes procedures for their use (Becker & Gordon, 1966), and over time, some resources are re-organized, new ones are acquired, some become specialized and others may become idle (Penrose, 1959). Besides heterogeneity and uniqueness, resources cn be classified into distinct types.
Early authors classified these into three simple categories such as physical (inventory, plant), monetary (money, credit) and human (labor, management) (Ansoff, 1965), but these evolved into more detailed descriptions of organizational resources (integrations of skills and knowledge, and technology (technical know-how) (Hofer & Schendel, 1978) and reputational resources (Dollinger, 1995). While there is no consensus on how resources should be sorted, some appear consistently; financial, physical and human resources. Yet, these conceptualizations do not reflect the important role of the owner/founder in whose mind the possibilities for the new venture idea first come together (Shaver & Scott, 1991). A typology appropriate to new ventures is proposed by Greene, Brush and Hart (1997) that recognizes the important role of the founder, the social resources (networks, and relationships), and unique features of organizational and physical resources (See Table #1).
In contrast to these specific articulations of types of resources, references to resources in the literature on organizational life cycles is less specific. Early models identify crises (Grenier, 1972), characteristics and problems (Churchill & Lewis, 1983), and risks (Lippitt & Schmidt, 1967) that distinguish phases of development of a new or small business. (See Table #2 for summary of frequently cited phase models.) Most phase models recognize an initial point at which the entrepreneur launches the venture and it comes into existence through assembly of people and facilities (Lippitt & Schmidt, 1967; Churchill & Lewis, 1983). At this point certain problems arise that must be resolved by the leader of the organization for it to move to the next phase. Phases often are referred to in terms of management tasks; i. e. direction, delegation, coordination, collaboration (Grenier, 1967) or live or die, being a manager, making it (Steinmetz, 1969). In nearly all conceptualizations, references to particular resources are made, however, they are treated as descriptive of a particular phase (i.e. organizational systems are "simple" in the early phases, Churchill & Lewis, 1983, p. 42), or a condition that must be resolved (i.e. more money is needed Grenier, 1972).
Capital Framework for New Ventures
|Capital Type||Definition||Associated Authors|
|Human Capital||achieved attributes||Becker, 1964|
|education and experience||Cooper, 1981|
|Social Capital||relationships and networks||Bordieu, 1983|
|race and ethnicity||Glade, 1967|
|political connections||Glade, 1967|
|Physical Capital||tangible assets necessary for business operations||Hofer & Schendel, 1978|
|facilities and equipment||Hofer & Schendel, 1978|
|Organizational Capital||organizational relationships, structures||Tomer, 1987|
|routines, culture||Hofer & Schendel, 1978|
|Financial Capital||funds used to start & grow business||Bygrave, 1992|
References to resources are quite explicit at the "launch" phase, most importantly obtaining cash (Scott & Bruce, 1987); developing financial procedures and organizational leadership (Lippitt & Schmidt, 1967); establishing systems, hiring personnel and gaining product/market acceptance (Churchill & Lewis, 1973; Grenier, 1972). Following the "launch" authors will note between three and six more phases that are characterized by different problems or issues. Post-launch, it is posited that survival is the major concern, and the business focuses on inventory systems and setting direction (Grenier, 1972), financial accounting, and training personnel (Lippitt & Schmidt, 1967; Churchill & Lewis, 1983), while obtaining capital and cash management are also crucial (Scott & Bruce, 1987).
From the point of survival on, there are different conceptualizations of stages, but generally these address delegation of authority and technology development (Grenier, 1972); development of personnel motivation and management systems (Lippitt & Schmidt, 1967; Churchill & Lewis, 1983). Also in this phase there is a concern for acquiring new capital for expansion as well as new property/plant and equipment (Churchill & Lewis, 1983) and the management role is more of a coordinator (Grenier, 1972).
The last stages are characterized by formalized systems of budgets and technology processes (Grenier, 1972) concern for contributions to society (Lippitt & Schmidt, 1967); formal structures and established organizational policies (Churchill & Lewis, 1983); as well as institutionalization of culture and the informal organization (Steinmetz, 1969). At this stage, the founder may not be present, and management responsibilities require vision, motivation and future directed responsibilities (Eggers, Leahy & Churchill, 1994). Often new infusions of capital are needed to expand geographically or diversify (Churchill & Lewis, 1983; Grenier, 1972).
While there is little agreement on the number of phases, or the exact conditions encountered, these do assume growth is an objective and that size will increase. The main criteria in identifying the phases revolves around problems, crises or risks (Grenier, 1972; Churchill & Lewis, 1983; Scott & Bruce, 1987; Lippitt & Schmidt, 1967). Furthermore, the phases are described as sequential in succession, one following one another. It is implicit in these models that resources play a role helping the organization transition from one phase to the other, with particular emphasis placed on obtaining cash or financial resources, personnel, managerial or leadership talent (Churchill & Lewis, 1983; Lippitt & Schmidt; 1967; Steinmetz, 1969) and in developing organizational systems, procedures or policies in a more formalized manner (Grenier, 1972; Churchill & Lewis, 1983). Each of these discussions does refer to different types of resources as important for resolving problems.
However, the extent to which specific phases can be identified based on problems, risks, or crises has been criticized because empirical studies examining the existence of phases have produced mixed results (Gartner, 1985; Miller & Friesen, 1988). It is argued that different ventures encounter different problems at different times (Kazanjian, 1988). Recently McCann (1991) studied strategic choice patterns as a basis for distinguishing among phases. This work investigated the scope and breadth of strategy in technology ventures, and found that internal venture aspects (scale, experience, research and development) influenced choices. Other empirical work provides evidence that a relationship between resources, strategies and performance exist. Chandler and Hanks (1994) examined the fit between strategies and resource capabilities, finding that different types of resources influenced growth. In particular, manufacturing companies with broader capabilities, grew faster than those with narrower capabilities. Relatedly, Mosakowski (1993) posited that certain types of resources vis a vis strategies (low cost, differentiation, focus) would lead to above average performance over the life cycle. While she did not measure resources directly, she argued that resources are an integral part of understanding growth over the life cycle, and that unique combinations are associated with different strategies.
In summary, we concluded that current life-cycle models of organizations refer to resources as important or conditional to moving the organization from one phase to the next, and the role of management in leading and deciding about resources is essential. However, the relative importance of different types of resources depending on the stage can only be inferred. On the other hand, the resource based view of organizations begins with resources as a foundation upon which strategies and growth are based, positing that resources can be categorized and that they will develop and change over time. We draw from existing life cycle models that identify different phases of business development and suggest that different combinations of resources might be characteristic of businesses at different ages.
Our exploratory study investigated three questions:
Life Cycle Models
|Lippitt & Schmidt, 1967||Launch||risk capital, technology, organizational leadership, reputation|
|Survival||debt financing, people, accounting systems|
|Stability||technology, personnel systems, outside alliances|
|Pride/Reputation||community alliances, image, management|
|Developing Uniqueness||operations systems, money, institutional knowledge|
|Contribution to Society||community relations|
|Grenier, 1972||Growth||informal systems, new capital, employees, leadership|
|Direction||inventory, accounting systems, organizational structure, knowledge of management|
|Delegation||money, technology, manpower, control systems|
|Coordination||planning, technology, capital, staff, information systems|
|Collaboration||coordination, organizational systems|
|Churchill & Lewis, 1983||Existence||owners ideas, skills and expertise, organizational systems, supplies of raw materials, cash|
|Survival||employees, planning systems, technology information|
|Success||organizational systems, cash, management abilities, planning systems|
|Maturity||organizational structure, capabilities of management, systems|
|Scott & Bruce, 1987||Inception||cash, founder skills, structure, employees|
|Survival||money, administrative systems, management, property, plant equipment|
|Growth||money, managerial systems, expertise|
|Expansion||leadership, property plant and equipment, personnel, external relations|
|Maturity||management of systems, working capital, management|
|Steinmetz, 1969||Live or Die||management skills, money, personnel, organizational systems|
|Being a Manager||financial management, operating capital, norms, culture and informal organization, property, plant, and equipment|
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Last Updated 03/19/98