Frontiers of Entrepreneurship Research
1997 Edition

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RESOURCES IN NEW AND SMALL VENTURES:  INFLUENCES ON PERFORMANCE  OUTCOMES

Candida G. Brush
Radha Chaganti

Boston University
Graduate School of Management
595 Commonwealth Ave
Boston, MA  02215

Rider University
School of Business
2083 Lawrenceville Rd.
Lawrenceville, NJ  08648

Telephone: 617-353-3146
Fax: 617-934-1303
E-mail: cgbrush@acs.bu.edu

Principal Topics

Despite the importance role of resources, research investigating influences on performance has concentrated the relationships of strategies to performance, often including the contingent effects of industry, the entrepreneur(s) or environment (McDougall, et al, 1994; Carter, et al, 1994; McDougall & Robinson, 1990).  Only a few studies have examined the relationships between resources, strategy and performance, this work focusing on differential effects of strategies rather than resources (Chandler & Hanks, 1994; Mosakowski, 1993).  Young small firms may not articulate a single competitive strategy, or even identify with one.  It is typical that young/small firms employ a focus strategy where a single customer niche is served (McDougall, et al, 1994).   This being the case, the influence of resources and their combinations may have a more direct impact on performance that previously noted.   Following the resource based view (Penrose, 1959; Barney, 1991; Connor, 1991),  we believe that different combinations of resources will differentially influence performance in new and small  ventures.  In particular, we argue that  human resources (owner/founder background, experience) and organizational resources (experienced employees, alliances) separately and together will be related to performance outcomes.   Human resources are defined as those acquired attributes of the owner/founder (Becker, 1964), while organizational resources are defined as attributes embodied in organizational relationships, in its members or its functioning (Tomer, 1987).

Our research explores three questions:

1. What is the relationship of organizational resources to performance?
2. What is the relationship of human resources to performance?
3.  What is the relationship of human and organizational resources to performance?

Method 

The sample was comprised of 279 new and small businesses employing a minimum of 4 and maximum of 100 employees.  All companies were located in central New Jersey and personally interviewed using a structured questionnaire.  Owner/managers of these businesses were personally known to students in one of the author's classes.    Because we were interested in the differential effects of resources, rather than strategies, we chose only companies employing a focus or niche strategy, which is most common in these types of businesses (McDougall, et al, 1994).  Identification of  focus strategy was based on whether 85 percent of sales were local (i.e. made to customers within 100 miles).  Performance was measured in three ways; a)  net cash flow in the previous year; b) percent growth in the firms' employment during preceding years, and c) owner/founder satisfaction.   These measures sought to capture soundness, future possibilities for success, and owner/founder personal outcomes respectively. Venture owners seek diverse outcomes from business ownership and multiple measures of a construct are preferred to obtain a convergent validity (Denzin, 1978).  Human resources were measured using ten characteristics of the venture owner  as identified from previous research (Cooper & Gimeno- Gascon, 1992); a) parental ownership; b) education beyond high school; c) team versus single ownership, d) venture entry mode  (founded/buyout/family); e) prior ownership experience; f) years as CEO of the firm; g) owner's organizational commitment; h) economic orientation; i) family, social and personal orientation; and j) previous managerial work experience.  Three types of organizational resources were measured; a) organizational decision system; b) use of trained staff; c) use of written reporting in business operations.

Statistical analysis included descriptive statistics, multivariate analysis of variance, and regression analyses.   In order to test for differential effects of resources (human and organizational) on the three performance outcomes, we ran hierarchical regressions.  In order to be sure that age and size of ventures were not affecting our results,  we ran additional analyses using these controls.

Findings 

Our study showed that for new and small companies pursuing a focus strategy, performance outcomes are influenced by resources.  Human resources explained more than organizational resources, or the combination of human and organizational resources.  Growth in employees was affected by a combination of human (relational attitude) ad organizational (long range planning) resources.  Net Cash flow was influenced by only human resources (commitment).  Most significantly, human resources (commitment) was strongly related to satisfaction, while experience in the industry, education and years in position were not significant.  Organizational resources alone were not related to any of the three outcome variables.

Implications

This research shows that various combinations of human and organizational resources were related to different outcomes, implying support for resource based theory.  The finding that different combinations are related to different outcomes suggests owner/founders should tailor their resource configurations to particular performance objectives.  Future directions should investigate the influence of human and organizational resources on performance controlling for other strategy types (i.e. low cost, differentiation) and considering other performance measures (i.e. profitability, sales growth).

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