Handbook of Organizational Behavior_2 ppt

16

Entrepreneurial Phenomena in a

Cross-National Context

Urs E. Gattiker

Aal6org University, Aalborg, Denmark

John Parm Ulhsi

The Aarhus School of Business, Aarhus, Denmark

1. Introduction

International trade is thriving, and the demand for job creation through the founding of new

firms is increasing and becoming a political hot topic. A response by researchers to these devel￾opments has resulted in a rise in cross-national studies assessing and comparing attitudes toward

technology and how these attitudes relate to the effective use of technology (e.g., Gattiker and

Nelligan, 1988; Earley and Stubblebine, 1989). Also, how cross-national differences and similar￾ities in management systems may influence the possible success of high-technology start-ups

has been investigated (e.g., Goslin et al., 1993). Others have appraised and compared the efforts

of countries to keep their workers abreast of new technology-related developments, thereby

assuring that workers' skill levels match the requirements of the workplace caused by innovation

(e.g., Muszynski and Wolfe, 1989). The literature has primarily focused on these issues in large

tirms. For instance, Adler (1998) proposed that having a less rigid bureaucracy and using control

as a tool of enablement instead of coercion will help larger firms to remain innovative. Zahra

and Garvis (1 998) reported that large U.S. firms exhibiting international corporate entrepreneur￾ship show better performance than other large firms do.

Some studies have addressed how structural changes in an economy, through mergers and

plant closures (e.g., Baldwin and Gorecki, 1990) and the formation of new companies (e.g.,

Birley and McMillan, 1992), tend to influence national employment levels as well as economic

growth. Much of the research investigating the formation of new companies has concentrated

on the personal characteristics of entrepreneurs (e.g., see Brockhaus, 1982, for an extensive

review of this literature), asking what makes them different from other people. In contrast to

this traits approach, the ecological approach (often called the rates approach) focuses on how

social, economic, and political conditions may influence variations in the number of foundings

The authors would like to thank Woody Clark and Robert Golembiewski for their insightful comments

made on an earlier draft of this chapter as well as H. Shawyer for her editorial assistance. The usual

disclaimers apply.

389

390 Gattiker and Ulhai

over time (Aldrich and Wiedemayer. 1990; Hannon and Freeman, 1977). Such studies investi￾gate firm foundings based on the operation of four processes: variation. selection. retention, and

diffusion.

There is an extensive literature on how variation, retention, and diffusion promote or

hinder organizational genesis (e.g., Mitchell, 1989; Singh et al., 1986; Wiewel and Hunter,

1985). This chapter is based on the assumption that all economic activity is embedded in social

relations and that social relations can play an important role in influencing the establishment

of business relations and the running of a business (Granovetter. 1985). Embeddedness means

that between most actors there are two or more types of ties; in addition to, for instance, advice

relations, there may be other types of social exchanges or bonds between actors. Several ties

between two or more actors mean that the relationship is dynamic and multiplex. The exchange

of information is subject to social norms, rules, structures, and so on that are influenced by

various other ties within the social network of the individual.

Without an appropriate theoretical framework,:k researchers encounter great difficulty in

understanding why one country’s small and medium-sized enterprises may have the necessary

skills to succeed while another country’s may not. Moreover, interpreting how social networks

may affect a new venture’s profitability and growth is also difficult. This chapter attempts to

inject some order into the cross-nationaJ debate and how cross-national concerns may affect

skills as well as entrepreneurial activity and innovation. In Section I1 the authors selectively

review and evaluate the current status of research dealing with cross-national issues relating to

firms, and develop a new framework integrating cross-cultural psychological, anthropological,

and sociological thought. Section TI1 sketches out how skills, innovation. and entrepreneurship

may help in further explaining the founding of new businesses. Section IV discusses what is

important for success in the entrepreneurial process, focusing on social networks. Finally, Sec￾tion V outlines conclusions and implications for decision makers as well as the most promising

directions for future research.

II. Cross-National Issues

Existing cross-national comparisons indicate numerous differences in the detinition of work

(England and Harpaz, 1990), in self-rating of performance compared with supervisory ratings

by Taiwanese and U.S. workers (Farh et al., 1991 ), and in organizational cornmitment levels

in Japan and the United States (e.g., Luthans et al., 1985; Near, 1989) as well as between the

United States and Canada (Cohen and Gattiker, 1992). How managerial hierarchies may differ

between U.S. and European high-technology start-ups has also been investigated (e.g.. Goslin

et al., 1993). In addition, conceptual models concerning how cross-national issues affect technol￾ogy transfer (e.g., Kedia and Bhagat. 1988) and training effectiveness (e.g., Black and Menden￾hall, 1990) have been offered.

Although such research and theoretical work provides important insight into these issues.

it often fails to explain or account for the behavioral differences between groups of employees.

In part, this difficulty is perpetuated by the concept of culture, which can be defined in various

ways. Even if the researcher were to choose a well-elaborated concept of culture, its successful

application in the field would be constrained by the scarcity of financing. time. and human

resources. (Compare Adler, 1982.) Moreover. differences in human and social perceptions and

interpretations would make the interpretation of findings difficult (e.g., Baghat and McQuaid,

* The term .fi-nnzc.~.ork is used interchangeably with the term r~oclel throughout this chapter.

Entrepreneurial Phenomena 391

1982). In this section, a framework that integrates cultural contributions from the fields of organi￾zational behavior, psychology. anthropology, and sociology is developed. The objective is to

develop a model for cross-national research that takes into consideration budgetary and time

constraints. This model allows for a thorough understanding of the differences and similarities

reported between samples.

A. The Meaning of Culture

Any society may be thought of as having a variety of cultural “themes,” rather than being

a single and homogenous culture. These themes are composed of various interpretations and

heterodoxies of the core culture-in addition to any incursions-that may have developed

around the core, as by ethnic groups. Cultural diversity in countries has been increasing due to

the globalization of business via, for example, subsidiaries in foreign countries and a more

variegated workforce due to the entry of guest workers. immigrants, and refugees. Cross-national

studies about individual and organizational phenomena are concerned with the systematic study

of the behavior and experience of organizational participants in different cultures. A brief discus￾sion of the most pertinent cultural issues is given below. For an extensive review, see also

Triandis (1 977).

Anthrupology. Most anthropological studies typically contain one or more of the following

crdtural cleriwtiws: symbols (including language, architecture, and artifacts), myth,

ideational systems (including ideology and values), and ritual (including traditions).

While anthropologists and sociologists continue to debate the correct usages and

meanings of these concepts, most studies treat them only as motivational factors

for individuals and groups (Silverman, 1970).

Another important dimension of cross-cultural research has been cultural stability, about

which the common view is that less stability encourages cultural diversity and

change. Goldstone (1987) suggested that cultural diversity favors innovation. In con￾trast. enforcement of a state of orthodoxy, which perpetuates old models, is likely

to result in society’s hostility toward innovation and risk taking. A tolerance of

pluralism therefore enhances openness toward these two elements. For organiza￾tions, this means that cultural instability encourages innovation and adaptation,

while orthodoxy reduces tolerance for new ideas and therefore hinders innovation

(Perry and Sandholtz, 1988).

Sociology and organization theory. Much of organization theory using a sociological

framework has paved the way for the “culture-free hypothesis.’’ (See Hickson et

al., 1974; Hickson and McMillan, 1981 .) This hypothesis suggests that cultural dif￾ferences-or contextual variables-may have little if any effect on such organi￾zational structure variables as size, specialization. and formalization (e.g., Miller,

1987). As Meyer and Scott (1983. p. 14) emphasized, however, the role of institu￾tional environments, defined as “including the rules and belief systems as well as

the relational networks that arise in the broader societal context,” will influence

organizational structure and behavior. For instance, Maurice et al. (1980) show that

organizational processes develop within an institutional logic that is unique to a

society. While structure, specialization, and technology may appear similar across

countries, their interpretation and application may therefore differ according to the

national context (e.g., Hofstede, 1984). Research indicates that concern about trans￾ferability of concepts, models, theories, and frameworks across national boundaries

is growing (e.g., Hofstede, 1984; Katz et al., 1999). Cross-national studies on techno-

392 Gattiker and UlhDi

logical issues allow for the transcending of limits in one society while establishing

the generalizability (or the limitations) of a theory and/or model (Kohn. 1989). Re￾searchers try to use inductive logic to understand the similarities and dissimilarities

between populations in order to explain different results (Bhaghat and McQuaid,

1982).

Ps~clzology. Like sociologists. psychologists have recently questioned the ability of theo￾ries and concepts to enable researchers to generalize beyond one context. whether

tirln or country. Specifically, most organizational theories and research have origi￾nated in North America (i.e., the United States and to a very small extent, Canada).

In consequence. cultural issues tend to be addressed primarily from a North Ameri￾can point of view, and for better or worse, the approaches propagated there predomi￾nate (e.g.. Moghaddam, 1987). As a result, Europeans who have tried to move to￾ward a European social psychology have rejected this North American dominance.

This separale development is partly due to European social psychology's greater

ernphasis on cooperation and conflict, conformity, philosophy of science. political

underpinnings of science. criticisms of science, and racial and ethnic issues (Fisc11

and Daniel. 1982).

A dominant North American framework, especially in cross-cultural psychology and man￾agement, is that proposed by Triandis and Vassiliou ( 1972). These authors posed

the distinction between srhjectilye and objective czrltrwe. and, although researchers

have made considerable efforts in applying these concepts in various studies (e.g..

Pepitone and Triandis. 1987), wide applicability has been difficult. Subjective cul￾ture is defined as a group's characteristic way of perceiving its social environment.

For example, office workers could differ in their attitudes toward computers based

on demographic characteristics such as gender (e.g., Gattiker et al., 1988). Objective

culture could be detined as a country's ecology and infrastructure. Accordingly,

Canada's Nunavut (Inuit for "our land," which became a territory in April 1999)

which covers a fifth of the country's land mass and contains about 23,000 inhabit￾ants, does not offer visitors cities with street vendors or cafes due to its climate and

low population density. Due to weather conditions in spring (thawing of ice) and

fall (freezing). roads through rivers may not be passable.

Triandis ( 1977, p. 134) suggested several sets of variables that should help in classifying

subjective culture. (See Table l.) A slhjectiw crrlture study can be classified into five groups

of variables, and as Table I outlines, objective cra1tlu-e can be measured using two groups of

variables.

Table 1 Classifying Cultural Variables: Objective and Subjective Culture

Subjective culture

work)

1. Subsisterice system (methods of exploitation of the ecology to survive; e.g., industrial

2. C~lltuml system (human-made environment)

3. Social system (patterns of interaction; e.g.. roles)

LC. Inter-indivitirtnl system (e.g.. social behaviors)

5. lmii~idud systenz (e.g.. perceptions. attitudes, and beliefs)

1. Ecology (e.g , the physical environment. resources, geography, climate, fauna, and Bora)

2. Objective portion of he cl~11u1-d system or irlf,.ustr-ltctut-e (e.g.. roads, tools, and factories)

Objective culture

Source: Adapted from Triandls (1977. p 144).

Entrepreneurial Phenomena 393

Often cultural moderators are used to interpret findings, such as data from studies assessing

attitudes, about the subjective culture-for example, the political system and market (Farh et

al., 1991) or formal and/or legal/political support structures for worker participation in firms

(Heller et al., 1988, p. 224). Unfortunately, what Triandis calls objective culture is not directly

measurable, so its relationship and possible moderating effect on subjective culture cannot be

assessed (e.g., formal and/or legal structures for worker participation and their effects upon

satisfaction) (Heller et al., 1988, Chap. 5). The reader can thus either accept the interpretation

given by the authors or use his or her own. In either case, a comprehensive understanding of

“why” and “how” these differences occurred is not possible.

This problem is not only prevalent for researchers. Many students attending college away

from home write papers dealing with managerial and organizational issues based primarily on

U.S.-grounded models and studies. North American ethnocentrism (i.e., the tendency by scholars

to overlook the applicability of their concepts and theories beyond their own country and/or

culture) will thus extend into the training of future managers from those learning about manage￾rial and organizational issues through North American “tinted glasses.”

B. Defining Culture: An Interdisciplinary Approach

In summary, the current and widely utilized frameworks for studying cross-national issues tend

to operationalize culture by either 1) determining its degrees of stability and orthodoxy or 2)

using a temporal continuum to assess subjective culture. In the context ofthis chapter, the authors

assume that culture represents both a stability-seeking force and alzindividllal/erzvironnzerztul or

dynamic dinzension (objective/subjective continuum, using Triandis’s terminology).

As Figure 1 reflects

1. The x axis (horizontal) is a continuum that ranges from the micro focus (i.e., the

individual) to the macro perspective (i.e., the environment) of a culture.

2. The y axis (vertical) represents the level of stability of the culture ranging from low

stability [e.g., approximate subjective (opinions)] to high stability [e.g., innate subjec￾tive (cognitive style)].

The left rectangle represents the individual dimension of Figure 1, hence its location is to the

left (x axis = micro focus), and the stability of these factors decreases from heredity down to

opinions (y axis). For instance. public opinion polls show that the electorate changes support

for a government rapidly and frequently, depending upon the latter’s most recent decision. In

contrast, people’s beliefs are relatively stable and resistant to change (e.g.. Rokeach, 1980). This

example shows that when we try to comprehend culture from a micro perspective, we must

accept that an individual’s opinions are less stable than his or her beliefs. Moreover, while we

can generally measure genetic factors such as eyesight and reproductive behavior without any

major problem, it is far more difficult to assess opinions comprehensively. It follows that while

opinions are upproximute. heredity and genetic factors are innate or givedstable. Changes occur

as a result of genetic mutations over generations (Plomin and Neiderhiser. 1992), while a per￾son’s political opinions may shift due to the president’s last speech on national TV.

The right rectangle in Figure 1 graphically illustrates the environment. At the top of the

vertical angle is the natural environment, and at the bottom, the human-made one. Similarly,

while the natural parts of the environment, such as topography and climate, are stable over

generations and centuries until the next natural disaster, population density and infrastructure,

including roads and cities, are continuously changing as the result of human actions and policies.

- Heredity and genetics

- Cognitive style

and abilities

- Beliefs

- Values

- Attitudes

- Opinions

A

C

MODERATORS

- Myths

- Symbols

- Rituals

- Norms

- Ideational

systems

C

‘L

B

Gattiker and Ulh0i

- Topography

- Climate

- Population density

- Infrastructure

- Economic & political

system

Micro Micro-Macro Continuum Macro

Figure 1 Relationship between the micro-macro continuum and the degree of cultural stability. The

micro dimension is represented by the individual whose attitudes and opinions are likely to change fre￾quently during his or her lifetime (low cultural stability); i.e., what is “cool” and “in” today may be

“out“ totnorrow. The macro side represents the natural and human-made environment. While topography

may remain stable over thousands of years, a political system can change several times within a century

(e.g.. Germany and Yugoslavia). AI-I-OM? A symbolizes the influence of the natural environment upon the

individual. For instance, a change in climate may lead to the survival of only those individuals whose

genetic makeup. as the result of favorable mutations over generations, has adapted them for survival.

Arrow B symbolizes the bicfirectionnl relationship between the approximate factors, such as the individual’s

beliefs, values. attitudes. and opinions, and the human-made environment. as represented by the infrastruc￾ture and the economic, legal. and political system of a country. Wuvr C illustrates the intermediary effect

of cultural moderators upon the approximate individual factors and the human-tnade environment. For

instance. myths and symbols about fertility and manhood may influence how a society values offspring.

A positive societal view of fertility will result in an increase in population density if the children survive

and become adults. High population density and a political system that provides negative reinforcement

for childbearing may help to establish a norm of small families. The People’s Republic of China under

Communist leadership has followed this path. thereby making small families (even those without male

offspring) more acceptable than in the past. The literature does not support the view that cultural moderators

and the natural environment affect innate individual factors. This does not mean that a certain topography

and climate may not foster certain myths and symbols, however. For instance. the Inuit language contains

various labels for snow. and Inuit fairy tales likewise reflect the importance of snow and ice

Slrbcdtrues. Subcultures may develop within a country. For instance, immigrants may

live in their own neighborhoods (e.g., Chinatown in San Francisco or Berlin’s Kreuz￾berg with primarily Turkish residents). Subcultures can also go beyond traditional

social differences, however. Youngsters across race, social status. and/or religious

beliefs may form ad-hoc subcultures based on cultural intolerance and uniformity.

The latter may define which clothing, music, and linguistic expressions are accept￾able for its members, such as being a “rapper” and/or a “skateboard dude.” Certain

Entrepreneurial Phenomena 395

groups on the Internet may have developed new subcultures with their own values,

beliefs, ideologies, attitudes, and artifacts. For instance, when communicating with

each other, German and French individuals may be communicating in a foreign

language. How this may affect the content, flow of experience, and evaluation of

the process by all parties has not been researched; nevertheless, the increased use

of the Internet makes this an important issue. Unfortunately, the authors are not

aware of research that has addressed either how language may affect the perceived

flow of experience in communication and information systems by an individual or

how individuals differ in their evaluations based on language and semantics.

Organizational culture. Similar to subcultures, organizations may also develop their own

cultures, with rituals and norms that are peculiar to a firm, within a national culture

(Isaac, 1993). Various factors may influence and shape organizational culture, such

as the physical design of the work environment, organization structure, and manage￾ment systems and procedures, as well as selection and promotion decisions (Schein,

1983). Moreover, technology and structure (Pennings and Gresov, 1986). as well

as reward systems and organizational rites relating to status and power (e.g., Beyer

and Trice, 1987), directly or indirectly affect and shape corporate culture. Kunda

(l 992) found that the organization's ideology articulates a system of normative con￾trol (p. 91).

In general, the literature on organizational culture has contributed very little to the under￾standing of the process of culture creation, maintenance, and change. The predominant approach

taken by researchers in the field has been to investigate organizational culture simply to enable

one to better describe or change the current culture. Moreover, such efforts have often been

based on the assumption that the distilled guidelines (i.e., the outcome of such research) are

universally applicable. The limitations of such an assumption need to be critically evaluated,

however. Specifically, using such findings to develop guidelines for best practices has been

criticized (Gattiker, 1998).

Diversity of new organizational forms is growing. For example, flat and unbureaucratic,

as well as entrepreneurial structures may develop. Additionally, project-based organizational

structures and network forms evolve to permit organizational and individual learning. These

forms all imply that the faith in finding models. or what is also called "good" theory-which

can be applied universally. as suggested by some (e.g., Kohn, 1989)"should be questioned.

These theoretical trends point to a fundamentally new conceptualization. Gattiker (1998)

suggested that instead of sensing organizations as being in temporary static states, it might be

more fruitful to perceive them as an ongoing process. Accordingly, organizing is a continuous

and dynamic process whereby ad-hoc adjustments and fixed configurations such as best practices

may be an anomaly, and instead continuous fine-tuning may be necessary (Gattiker, 1990).

Schein (1983) has pointed out the importance of the entrepreneur in understanding the

interrelationship between culture creation and enterprise creation. The implications thereof seem

to be that the entrepreneurial enterprise creation process is intimately linked to the process of

organizational culture creation.

The above suggests that a firm's culture indicates a system of normative control (e.g., the

ropes to skip): nevertheless, as outlined in Figure 1, natural and human-made cultures do have

some influence upon organizational culture. For instance, an icy climate in the Canadian north,

such as the Nunavut territory, will make Friday afternoon pool parties 2 la Silicon Valley un￾likely. A more autocratic and hierarchical management structure enables a manager to have a

secretary pick up his or her dry cleaning and stay at work longer. In a more participatory and

egalitarian work environment, a secretary might first refuse to type some handwritten text be-

396 Gattiker and Ulhoi

cause it is private stuff (even though it is not!), and that secretary would probably not even be

asked to pick up the boss’s dry cleaning.

In summary, researchers as well as professionals dealing with cross-national issues must

be aware that I) various methodological and measurement approaches for assessing culture

(national and/or firmwide) make comparisons across studies difficult; 2) the unidisciplinary

approach to measuring culture (in which psychologists ignore sociologists and vice versa) im￾pedes understanding of cross-national issues and phenomena: and 3) ethnocentrism exacerbates

the issues raised under points l and 2. The use of an interdisciplinary approach. such as that

outlined in Figure l, is a small but important step in the right direction.

111. Entrepreneurship, Innovation, and Culture

Increased internationalization of trade and business has made the replicating of research across

national boundaries a paramount issue. For instance, free movement of labor augments work￾force diversity. Recent data show that the percentage of foreign workers increased from 1986

to 1996 in all OECD member countries. In some instances, every third (Luxembourg) or fifth

(Australia and Switzerland) worker is a foreign citizen or foreign-born national (Immigration.

Sept. 26, 1998). Not only have cross-national differences gained in importance for success in

business, but intracultural differences have also increased with the rising percentage of foreign

workers (e.g., almost one in nine of the total workforce in the greater London area is a foreign

citizen) (Emp1oyment:A new mix, Sept. 26, 1998).

Free movement of capital encourages firms to locate in various countries to increase effi￾cient allocation of resources. An entrepreneur may locate in Denmark to obtain government risk

capital at low or ‘*zero” cost instead of staying in Singapore, where financial support may be

harder to obtain, or vice versa. In spite of cross-cultural differences, (e.g., government financing

regulations for new ventures), intracultural differences may also play an important role in how

individuals acquire and maintain the skill levels required to be innovative while passing success￾fully through the various stages of the entrepreneurship process. (Compare Cox and Nkomo,

1993.) This will be further outlined below.

A. Skills

A working definition of skills was provided by Adams ( 1987) in a review of human motor skills

research. He proposed three defining characteristics: “(l) skills are a wide behavioral domain

in which behaviors are assumed to be complex: (2) skills are gradually learned through training;

and (3) attaining a goal is dependent upon motor behavior and processes” (Adams. 1987. p. 43).

Table 3 provides Adams’ definition of skill, while Table 3 presents a categorization of

Table 2 Detining Skills

Skills are leamcd beimiol-s required for the achievement of desirable performance levels when doing

job-related tasks necessitating the use of technology. while the content and type of skill required for

doing a job is in part a relational phetzonmot? (i.e,, how many and what type of people have or do

not have the necessary skills). (Compare Gattikcr. 1991; 1992.)

General-ope skdls are transferable to another job or organization. while Jit-ln-specIJic skills are usually

obtained through on-the-job training and performing job-specific tasks. Firm-speci tic skills should

increase productivity with the firm while their transferability is limited.

while attaining on-the-job training (Gattiker, 1995)

General-type skills are more likely to be obtained in an educational setting than within the firm or

Entrepreneurial Phenomena 397

Table 3 Seven Skills Categories Listed in Descending Order of Transferability

Transferability of skills to another job and/or organization decreases as follows:

Tacit skill5 are acquired through practice and experience and cannot be articulated explicitly; they

include the person's knowledge about how to avoid errors and overcome imperfections in the

work system, and are tied inseparably to the individual; they cannot be communicated directly

to somebody else and are difficult to observe and measure.

To basic (reading, writing. and arithmetic).

To social (e.g.. interpersonal skills and the person's ability to organize his or her own efforts and

To cotxeptual (including planning, assessing, decision making about task- and people-related

To teciuzology (encompasses appropriate use of technology. such as a computer, thereby

To rechrzical (physical ability to transform an object or item of information into something

To a person's tusk skills (usually job-specific. such as doing the weekly petty cash report).

In their longitudinal study, Kohn et al. (1983) found that itttellectual%e.ribilin' is greatest after

completing formal education. Generally it tends to decrease during a person's work life due to further

specialization and limited exposure to non-work-related subjects. This might suggest that a person 'S

nzost innovative phase itz life would be shortly after finishing the formal education and thus early on

during one's work life.

task performance, and possibly that of his or her peers and subordinates),

issues, and judging or assessing tasks done by self or others).

preventing breakdowns/accidents).

different).

Note. The above is adapted from Gattiker ( 1990a, Chap. 12; I990b) and also Gattiker and Wdloughby (1993). In each

position, the mdividual acquires additlonal skills through formal and informal ways. Tacit skills wdl change as one's

experlence and practice of the various skills increases during his or her worklng life.

skills listed in descending order of transferability. (See also Gattiker 1990a, Chap. 12: 1990b.)

In this context, tacit skills represent the knowledge of the individual attained through formal

and informal education, experience, and life in general. This also applies to craft-based technol￾ogy, in which tacit knowledge and experience may play an important part in success. This is

in contrast to science-based technology, whereby success relies highly on formal education and

explicit knowledge.

Knowing and understanding one's need to adjust when working in a different culture is

important. The successful adaptation to such an environment, while applying and interpreting

verbal and written communication signals appropriately in this new cultural context, however,

is a result of one's tacit skills. (Compare Berry et al., 1989.) A narrower definition suggests

that tacit skills consist of officially and actually required skills for the job, actually used skills

for doing job-related tasks, and skills acquired through preliminary training (e.g., Leplat, 1990).

The definition given in Table 3 builds upon Polanyi's work (1962).

Studying European firms. Ulhai and colleagues (1996) reported that when major change

programs such as integrated environmental management systems are introduced, new skills are

required, necessitating extensive additional training for employees. Unfortunately, such training

may not be available within the formal education system at that time (Ulhai et al.. 1996).

It may, however, be necessary to differentiate between education and training when trying

to understand the interrelationship between acquiring skills through formal education or through

on-the-job-training. Majchrzak and Cotton (1 988) suggested that training be defined as an im￾provement in a person's technical skills, while education be defined as the improvements accom￾plished in a person's understanding and comprehension. Others (e.g., Fossum et al., 1986) follow

these lines of reasoning by stressing that training follows formal education and includes a learn-

398 Gattiker and Ulhoi

ing component. Continuous learning or lifelong learning in today’s rapidly changing work envi￾ronment does, however, suggest that both additional education and training for skills upgrading

appear necessary to protect an employee’s employability (e.g., Gattiker, 1994).

The above indicates that people have a set of skills that require continuous upgrading to

stay abreast of new developments. This may occur through on-the-job training and attending in￾house or out-of-house training/seminars and/or courses (e.g.. university programs taught during

evenings and/or weekends) (e.g., Gattiker, 1994). Since Gary Becker’s formulation of human

capital theory (1964). economists assume that general training provides workers with skills that

are useful in more than one job or firm (e.g., Becker, 1964. p. 19). While general skill training

increases the employee’s potential productivity in a competing firm, specific training tends to

be on-the-job training, which will presumably increase future productivity for the firm (e.g.,

Barron et al., 1987). (See Table 2.)

This suggests that it is best for an individual to make an effort to secure additional general￾type training for maintaining or improving skills. (See Table 3.) Because general-type skills are

transferable to another work environment and make a worker more attractive for poaching by

another firm. the employee’s bargaining power is also increased. Kohn et al. ( 1983, p. 106)

reported that depending upon substantive complexity at work (i.e., the degree to which the work

requires thought and independent judgment), a person’s intellectual flexibility (i.e.. one’s actual

intellectual performance in an interview to questions asked to reveal both cognitive problems

involving well-known issues and his or her handling of perceptual and projective tests) is al”

fected. The research by Kohn et al. (1983) suggests that intellectual flexibility may be highest

shortly after completing formal education. It is reduced to some degree depending upon the

complexity of one’s work and the length of time one has been in the workforce. Research on

discoveries by eminent scientists would suggest (Anderson, 1989) that a person may have the

greatest cognitive and creative potential to be innovative early on in one’s career. Nevertheless,

while one’s intellectual flexibility may be reduced, general-type skills training can help. (Corn￾pare Kohn et al., 1983.)

B. Innovation

Table 4 provides a definition for the process of innovation. If we assume that an individual may

have the greatest level of intellectual flexibility toward the end of one’s formal education, we

may wonder how this might affect a person’s potential for innovation and creativity. Before

discussing this in more detail, however, some general issues about innovation must be addressed.

Voss (1988) argued that the study and literature of innovation as well as the diffusion of

innovation could be split into two areas of research and inquiry. One studies the process of

innovation, while the other focuses primarily on the diffusion and adoption of innovations (Voss.

1994). While the focus here is primarily on the process of innovation required for launching

new firms (having identified ;L market need and trying to satisfy it). subsequent entrepreneurial

success does, however. necessitate rapid diffusion and adoption of new technology. Table 3

outlines innovation in more detail and provides a definition.

Christensen ( 1998) pointed out that a dominant design may emerge that tends to result

in marked shifts of innovation. A particular technological approach will follow the pattern of

an S curve, flattening as certain natural limits might apply (e.g., physical limits to magnetic

storage of computer data on hard disks). Moreover, discontinuous innovation requires a depar￾ture from existing knowledge, so the technology is perceived as being new, and markets may

still have to be developed (Gattiher, 1990, Chap. 1). Typically the timeframe here is long-term,

with a high risk for failure and a greater potential for substantial returns on investment (McDer￾mott, 1998). In this context we are interested in discontinuous as well as continuous innovation

Entrepreneurial Phenomena 399

Table 4 Innovation and Applied Creativity as a Process ~

The process of innovation represents a sequence of events. At the root lies an initial need recognition

or discovery. followed by a development phase involving networks and internaVexterna1 support,

and finally. communication to diffuse the idea.

object: physical or intellectual. The idea becomes a reality once a prototype or model of the

innovation is available. which in turn can be touched or experienced.

An invention or the adoption of a new practice, product, or process may represent the succes@l

probleln solutio/?. which in turn verifies the technical feasibility and/or demand originally recognized

(i.e., necessih is the mother of all inventions).

which will facilitate a new firm’s possible growth. (See also Table 5.)

product or pladstrategy as the final outcome.

recognition, creativity is applied during a development phase to turn the idea into a tangible object.

Technical developzent is needed for completirzg the idea by turning it into a concrete and tangible

A successful problem solution will likely accelerate the chfSusion and adoption of a new tecltrtology.

Applied creativit?, refers to finding or solving a problem solution, culminating in an actual creative

Based on the above, applied creativity is usually required in art ittnovation process. After problem

~~ ~ ~ ~

Note. There are numerous ways of defining innovation and creativity. Here we have developed one way of defining

the terms. focusing In particular on the process the individual innovator or group of people or creative mind(s) all have

to go through.

and its potential effect upon entrepreneurship success. Also of interest here is whether innovators

might be entrepreneurs as well (or vice versa), or if the innovator has to team up with an entrepre￾neur for a better chance of success in a new venture. These issues will be outlined below.

C. Entrepreneurship

Business and engineering schools often represent a rather narrow perception of the entrepreneur:

a single individual who has an idea, starts a business, and owns the business. In the technology

domain, however, entrepreneurs with an idea are often part of a team. Success paired with rapid

growth during the first few years requires additional equity and risk capital, which in turn will

often push the ownership by the entrepreneuds) below 50% (e.g., Beyers et al., 1998; Gartner

and Starr, 1993). The definition provided in Table 5 takes these factors into consideration.

The definition in Table 5 does not exclude partnerships or other collective action, but

focuses on the initiating and executing person. (Compare Gartner et al., 1994.) Moreover, entre￾preneurial activity is often initiated by more than one individual, thereby permitting entrepre￾neurs to complement and strengthen important skills and competencies. While there might exist

numerous definitions of the term entrepreneurship, Moore and Buttner (l 997) suggested that an

index of ownership appears to be a helpful indicator for defining an entrepreneur. Accordingly,

an entrepreneur rarely owns the firm in full. Instead, he or she might hold a substantial minority

stake in the new firm (e.g., 10% and up), making up the largest single shareholder or the majority

together with his or her partners.

Some have also suggested that a distinction must be made between novices or “average”

or “typical” entrepreneurs and experienced founders. The habitual entrepreneur starts new busi￾nesses and usually moves on after a few years (McMillan 1986). Research on the latter is lacking,

although one study by Kolvereid and Bullvig (l 993) reported no significant differences in com￾pany growth. There were differences in how social networks were used, however. Nonetheless,

using growth in size may not be as good a performance measure as returns on investment and

a firm’s cash flow (Leleux and Muzyka, 1993).

400 Gattiker and Ulhoi

Table 5 The Entrepreneurship Process

An entrepreneur is defined as the person (or the group of people) who has the idea for the venture and

E~?tt.epre~~ertrshil, is the process of estchlishing n jrm by an intiiviclrtnl or a grorcp of people.

Entrepreneurship represents a sequence OS events, at the root of M7hich lies an irliticrl men 01- mcrrket

cienzancl r-ecogrzitiou or discove/y. followed by a development phase involving support from the

entrepreneur’s social network and others (e.g., informal advice, feedback. and suggestions; see also

phases 1-2 in Table 6). Finally, the entrepreneurship process requires the communication of the idea

to secure human and financial resources required for starting he firm.

While entrepreneurship may involve the establishment of any kind of business. in our context we are

primarily interested in cases which innovative efforts (product and/or process) are required and a

substantial technology component is part of this process (e.g., research and development activities

involving science and/or engineering graduates).

Corporate entrel,i.eneui-sllip or iiatrap/.eItelcrsllip applies to individuals’ process of recognizing an initial

need or market demand, followed by a development phase involving support for the corporate

entrepreneur(s) from superiors. management. and colleagues/team members. Corporate

entrepreneurship has gathered attention in part due to larger firm’ interest in decreasing product

cycles from bringing ideas from the research and development stage to being sold in old or new

markets, while assuring that the firm is adjusting to change ahead of its competitors. Here a firm

may decide to establish a new profit center, a subsidiary. or invest in a new venture by some of its

former employees embarking on serving a market demand that might not necessarily be part of the

corporation’s core competencies.

who carries out the founding of the business and has a Jubstantial stake in thle.finu’s equity.

Note: Large firms may strlve to facihtate change and innovation in certaln parts of the firm. Thls does not mean,

however. that the whole organization is now becoming entrepreneunal, but a new spirit may help in tearing down

certain divlsional and territorial walls, all making the firm become more responstve to new ideas and change

Because entrepreneurship is a process (compare Table 5), it is necessary to discuss this

process in some detail. In other words, the entrepreneur and his or her partners will pass through

different phases before and after starting their venture. This is discussed below.

D. The Stages of the Entrepreneurship Process

An entrepreneur may have to deal with different issues, depending upon where he or she stands

as far as establishing or running a new venture is concerned. To address this issue, Wilken

(1979, pp. 64-65) suggested that an individual thinking about founding a business will pass

through three phases or stages of entrepreneurship. We have expanded Wilken’s (1 979) three

phases in Table 6 by suggesting an additional four- stages, namely 4 through 6.

While the literature may generally assume that success is reflected by passing through all

stages as outlined in Table 6, an individual may decide to get royalties from a patent instead

of starting production. (See phase 3.) Generally, research ignores such people, and in return the

entrepreneurship literature does not address this issue (e.g., Brockhaus, 1982). In phase 3, the

entrepreneur may still depend heavily upon the innovation milieu or on others for support. know￾how, and much more at low cost.

An entrepreneur may also decide to abandon a business because of a lack of skills or

because one cannot find a partner with the complementary skills needed to improve the chances

for success. In phase 5. complementary skills and know-how for synergy effects may also be

secured by finding additional investors. Naturally this may result in a shift in ownership from

the entrepreneur to others. Similarly, research is lacking addressing the issue of phase 4, whereby

the individual may decide to sell the tirm after I year to make a profit or to move on to start

another business (habitual entrepreneur) (Kolvereid and Bullvig. 1993). In phase 5, firms that

Entrepreneurial Phenomena

Table 6 The Seven Stages of the Entrepreneurship Process

40 1

~ ~~~~____

An individual thinking about founding and running a business will pass through the following seven

stages or phases of entrepreneurship:

1.

2.

3.

4.

5.

6.

7.

A perception phase during which business ideas and opportunities are perceived and motivation

is created (e.g.. during one's studies or at one's current job)

The planning phase, such as acquiring the necessary resources to set up a business (e.g., toward

the end of one's studies or while still holding a job) and putting in an application for a patent if

feasible

The establishment phase and start-up phase. which represent the beginning of operations or else

the decision not to launch but instead sell the patent or give a license to somebody else

The pregrowth phase (e.g., years 1-2 after start-up), when the firm has not yet overcome initial

problems and typically is dependent on some support (e.g., the incubating milieu or

entrepreneurs' contacts with knowledgeable others through social networks; see Table 8) at low

cost

The abortion/shift in ownership phase, when some entrepreneurs may not survive the post

incubator phase and decide to abort the project or possibly find new partners (e.g., capital,

management, and distribution), hence distribution of ownership might change or the firm ceases

to exist

The early growth phase/postincubator phase (e.g., years 3-5), during which the new venture is

entering a fast growth period (e.g.. turnover and human resources) and leaves the technology

park

The slower growth phase/management challenge period (e.g., years 6 and beyond) when the

firm's "maturity" or "age" is characterized by the use of routines and established procedures

for running operations (degree of institutionalization) while the entrepreneur is focusing on

certain activities only

Through all of the above phases, the entrepreneur is going through a learning process and must assure

that he or she acquires the necessary entrepreneurial, innovative, and technological competencies in

order to succeed. (See Table 2.) What may help considerably is the social network available to the

entrepreneur. (See Table 7.)

Note: The above stages apply to corporate entrepreneurs insofar as they also have to pass through stages I through 3.

During the latter stages. internal resources must be secured. If management gives the go-ahead and the financial and

human resources needed for the new venture/division/profit center have been secured, subsequent steps are passed

through.

have successfully survived the first 5 years of their existence by growing and making a profit

for their owners now have to cope with the natural pains due to growth (e.g., cash flow and the

capital needed to finance growth) and align managerial and organizational structures to cope

with the firm's increasing size in turnover, personnel, and assets.

E. Skills, Innovation, and Entrepreneurship: High-Technology

Firms and Young Entrepreneurs

Based on the literature discussed in the previous sections. it seems obvious that a person's

intellectual flexibility with one's general skills acquired during formal education may enable a

person to recognize a need for a successful problem solution. (Compare, Table 4.) In turn, the

individual may go through the process to establish a firm, which in turn offers a successful

problem solution to the market. Adoption of the innovation and its market diffusion may also

help the firm to grow in size and profitability.

Universities have started entrepreneurship programs, primarily in engineering and business

schools, and the latter's graduates have been responsible for business start-ups ranging from

402 Gattiker and Ulhoi

consulting to store to manufacturing operations. Our understanding of entrepreneurship by grad￾uating students is not very extensive, however (Bryant, 1999). Moreover, the limited knowledge

we have is primarily from business school graduatestarting their new ventures during or shortly

after graduating (Bryant, 1998). Unfortunately, we know little about high-tech start-ups by teams

of students during their last semester or just after completing studies in science and engineering

programs (Gattiker and Ulhgi, 1998).

As far as the above limits are concerned, we also have limited knowledge about how

certain training programs in the sciences and engineering might facilitate innovative efforts and

the founding of new businesses by recent graduates. Founding anew business right after success￾ful completion of formal university education may be easier for an individual since family,

financial, and other commitments are lower. A graduate is less likely to have a mortgage or

have adjusted to a certain lifestyle. In turn, early in a firm’s life cycle, an entrepreneur’s income

requirements may be lower than they would be a decade after completing college. Unfortunately,

our insights into these kinds of reasons are very limited. (See Section IV.)

Finally, based on their extensive literature review, Moore and Buttner (1997) concluded

that the number of well-structured. scholarly studies on women entrepreneurs is still small. In

conclusion, researchers interested in entrepreneurship, innovation, and skill acquisition must be

aware that 1 ) various approaches to measuring thcse do exist and thus make comparisons across

studies difficult, 2) an approach linking innovation, skills. and entrepreneurship issues and the

possible foundation of a new business is lacking, and 3) cross-national issues are rarely ad￾dressed. The section below will try to shed some more light upon these issues and propose a

more integrative approach using the definitions and frameworks as oullined in Sections I1 and

111.

IV. Developing Skills and Competencies for Entrepreneurial Agility:

The Example of Social Networks

Media coverage has suggested that successful entrepreneurs are a breed apart. While personality

and sociocultural variables have been used extensively to distinguish between successful and

unsuccessful entrepreneurs, these variables explain only a small part of who might succeed

with a new venture (Beyers et al.. 1998). If future success and competitive advantage of new

entrepreneurial enterprises stem primarily from difficult-to-imitate resources (Teece, 1987: Wer￾nerfeldt, 1984; Barney, 1986; Prahalad and Hamel, 1990; Collis and Montgomery, 1995), then

there is a need to know more about what they consist of and how they can be further cultivated.

Beyers et al. (1 998) suggested that researchers should focus attention upon “other people” with

“whom the entrepreneur spends time and how they respond” (pp. 1-5). This in turn will permit

the study of how social networks may in fact help the person to secure vital input during [he

competition for scarce resources.

Another concern is how cross-national and intracultural differences may affect entrepre￾neurship as well as social networks (e.g., membership, interaction, and closeness). Naturally.

political systems as well as the general economic climate have an influence on the entrepreneur￾ship process (e.g., the availability of risk capital from government sources. generous tax provis￾ions for investors. and also the general level of risk aversion among investors/venture capital￾ists). In the present context, however, we are more interested in how social networks may

influence the overall entrepreneurship process.

A. Social Networks and the Entrepreneurship Process

Entrepreneurs require capital. skills, hard work. and some luck. Complementary assets are also

required. Entrepreneurs basically rely on three distinct yet mutually dependent types of assets.

Entrepreneurial Phenomena 403

1. Entrepreneurs must have an original idea, which must be creative and innovative

enough to satisfy customer demand.

2. Financial, legal, and accounting resources are necessary to protect property rights and

provide the capital needed to invest in the necessary facilities for running the business

while a prototype is constructed or built.

3. Entrepreneurs need access to social networks that can provide strategically important

information and the know-how required to secure scarce resources. (See point 2

above.)

The first two types of assets represent human and financial capital and have been studied to

some extent. The third type of asset, access to social networks, appears to have been pretty

much ignored in the entrepreneurship and innovation literature (Greve and Gattiker, 1998). En￾trepreneurs use social relations to further develop knowledge and routines and to establish vari￾ous business relations. The social environment surrounding the individual entrepreneur can be

seen as systems of social networks in which the number and properties of ties in the network

tend to determine the access to other critical resources necessary to realize the entrepreneurial

idea. Social networks tend to cluster according to the actual content and purpose of the social

interactions in question (e.g., industrial sectors, geography, professions, and leisure activities).

We assume that all economic activity is embedded in social relations that may play an

important role in influencing the establishment of business relations and the running of a business

(Granovetter, 1985). During the process of securing economic and other resources, the individual

will use information and make important judgments and decisions about establishing a new

venture. (Compare Table 7.) Entrepreneurial decisions are made in a cultural, social. and emo￾tional context rather than in economic-contracting relations (Borch, 1994; Stan- and MacMillan,

1990). Accordingly, the properties of one's search efforts and the social network may affect

one's success in acquiring information and other resources necessary for establishing a business

(Cooper et al., 1995).

Table 7 suggests that all economic activity is embedded in social relations. Several ties

between two actors means that the relationship is multiplex. The exchange of advice may be

subject to social norms, rules, structures, power, and so on that are tied to other ties in the social

network. Granovetter (1973) argued that weak ties are more advantageous with respect to getting

nonredundant information. Weak ties are characterized by short exchanges of information, ca￾sual acquaintances, and low frequency of interaction. These relations may occur in several differ￾ent social settings, and sometimes weak ties will be developed into stronger ties (Nohria, 1992).

Table 7 Social Networks and the Entrepreneurship Process

Social nemwrk artalysis shows what actions and structures are used to enable entrepreneurs to establish

The entrepreneur uses social nefivorkdrelations to acquire information and to make sense of

firms and gain legitimacy in a market that is governed by social norms as well as market forces.

information (e.g., an acquaintance in the legal or accounting profession). Often information and

know-how obtained through one's social network may require limited resources (e.g., financial), but

be invaluable to the entrepreneur.

We assume that all economic activity is ernbedded in social relations that may play an important role

in influencing the establishment of business relations and the running of a business.

Embeddedness means that there are more than one type of tie among most members of a social

network. For instance, in addition to advice relations, there may be other types of social exchanges

or bonds between actors, such as playing golf together, having graduated from the same high school,

or having their children attending the same grade together.

Note: The above definitions also apply to corporate entrepreneurshlp. Nonetheless, for a corporate entrepreneur a larger

social network and the abillty to draw upon experts' advice may come from within the firm itself.