Organizational growth: Linking founding team, strategy, environment, and growth among U.S. semiconductor ventures, 1978-1988

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Citation: Kathleen M. Eisenhardt, Claudia Bird Schoonhoven (1990) Organizational growth: Linking founding team, strategy, environment, and growth among U.S. semiconductor ventures, 1978-1988. Administrative Science Quarterly (RSS)
Internet Archive Scholar (fulltext): Organizational growth: Linking founding team, strategy, environment, and growth among U.S. semiconductor ventures, 1978-1988
Tagged: Business (RSS) Entrepreneurship (RSS), Organizational Theory (RSS), Management (RSS)

Summary (Abstract)

Eisenhardt and Schoonhoven's basic goal is to shown that founding conditions of new ventures influence patterns of organizational growth. Stinchcomb (1965)'s classic work on the liability of newness argued that new ventures were at higher risk of dying and ecological work has showed that founding conditions influenced organizational mortality rates and other firm characteristics. In this sense, that article primary contribution is the introduction of a new dependent variable, growth rate, and then empirical work that links this variable to initial conditions and to top-management teams, initial strategy, and environmental conditions.

The authors test their theory with six hypotheses:

  • Firms experience higher growth, in growth-stage markets than they in emergent or mature markets. (Supported)
  • Lower competitive concentration at founding is associated with higher growth. (Not Supported)
  • A focus on technical innovation is associated with a curvilinear relationship with growth because too much introduces uncertainty and too little makes the firm less competitive. (Not supported)
  • Greater previous joint work relationships are associated with higher growth. (Supported)
  • Greater founding team-size is associate with higher growth rates. (Supported)
  • Greater variation in industry experience of the founding team is associated with higher growth. (Supported)

The empirics were done using a dataset of new semiconductor firms founded between 1978 and 1985 which included 102 firms of which 98 participated in the study and 92 also had available sales data. Data was collected from interviews and from available databases. Analysis was done using four different techniques.

The results showed that founding teams had an important effect -- even more than later CEOs did -- implying a strong path dependence. They also found that the effects of founding teams and founding environments grew over time (as opposed to fading) -- a surprising and interesting results. Innovation level had no lasting effect on growth.

Theoretical and Practical Relevance

Eisenhardt and Schoonhoven's article has been cited almost 800 times in the 20 years since it's publication. It is has become most influential in the organizational literature on entrepreneurship and is very influential in the literature on top management teams and the effects of strong managers on organizational outcomes.