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THE VENTURE MANAGEMENT TEAM IN CORPORATE ENTREPRENEURSHIP: THE ROLE OF CORPORATE SUPPORT AND CONTROL

The members of the Committee approve the doctoral dissertation of Dilene R. Crockett




Jeffrey E. McGee Supervising Professor

Mark Peterson

Abdul Rasheed

G. Tyge Payne

James J. Lavelle

Dean of the Graduate School

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Copyright © by Dilene R. Crockett 2004 All Rights Reserved

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This work is dedicated to Judie Dangott.

Her courage, love and laughter inspired and sustained me.

I miss her dearly.

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THE VENTURE MANAGEMENT TEAM IN CORPORATE ENTREPRENEURSHIP: THE ROLE OF CORPORATE SUPPORT AND CONTROL

by

DILENE R. CROCKETT

Presented to the Faculty of the Graduate School of

The University of Texas at Arlington in Partial Fulfillment

of the Requirements

for the Degree of

DOCTOR OF PHILOSOPHY

THE UNIVERSITY OF TEXAS AT ARLINGTON December 2004

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UMI Number: 3159848

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ACKNOWLEDGMENTS

This work has been shaped by the masterful touch of many astute and diligent hands. A special appreciation is due to Dr. Jeff McGee for his positive critiques and patient endurance. A heartfelt thank-you also goes out to Dr. James Lavelle and Dr. Tyge Payne for their careful evaluations and considerable contributions to the accuracy and clarity of this research. Dr. Abdul Rasheed has a special ability to inspire and motivate with his sense of humor and breadth of thought. For sharing this with me, I thank you. And I especially value the journey Dr. Mark Peterson led me through in exploring the art and science of intellectual discovery. You skillfully combine the best attributes of a beloved coach and mentor. Thank you. My friends and colleagues, Donna Stringer and Joanne and David Gavin spent numerous hours sharpening my intellect and helping me navigate this doctoral program. I am so blessed to have known them and to be able to carry a piece of them with me into my future. Thanks, friends.

Finally, I must express my deepest gratitude to my family and friends. My father-in-law faithfully drove me to and from the airport each week for 4 years, my parents and Patience Mutiso came to my aid to help me finish the task late in the night and my prayer partners sustained me with their kindness and support. I am continually amazed at the love and commitment that has been placed around me. Most importantly, I want to thank the author and finisher of my faith for providing me with a husband like Jerry Crockett. Jerry not only provided financial support for this project, but he also released me from family commitments to follow my dream. In his quiet, unassuming way, he provided the stability, levity and perspective necessary to come out of this process a better person. For you, I am forever grateful.

November 8, 2004

v

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ABSTRACT

THE VENTURE MANAGEMENT TEAM IN CORPORATE ENTREPRENEURSHIP: THE ROLE OF CORPORATE SUPPORT AND CONTROL

Publication No.

Dilene R. Crockett, Ph.D. The University of Texas at Arlington, 2004

Supervising Professor: Jeffrey E. McGee

This research focuses on the implementation of a corporate venture, exploring the separate roles the corporate and venture managers play in venture success. The findings from studies of independent ventures are applied to the characteristics of the corporate venture management team. Seventy-eight venture managers of websites of daily metropolitan newspapers provided the data for this single industry study which examines the comparative skills with which the ventures exploit similar opportunities through their venture team's implementation efforts.

As one of the first studies to look at business strategies for corporate ventures during implementation, this research identifies several characteristics of the venture team that contribute to venture success. First of all a clear, appropriate and shared vision for the venture team has a positive effect on venture performance. Second, a venture team experienced in similar markets and technologies will be more successful at implementing business level venture strategies. Third, a team with a high degree of collective efficacy will forge forward against obstacles to make the venture succeed.

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Using structural path analysis and hierarchical regression analysis, the research also tests the moderating effects that corporate actions have on competent venture management teams - both positive and negative. The results suggest that corporations who have entrepreneurial orientations and provide personal support to their ventures will better enable their venture management teams to realize their visions for success. Further, corporations that invest more resources in a venture will see higher performance in that venture regardless of the skills of the venture management team. Generally, strategic and market controls are most effective in eliciting venture performance from a hired venture management team. However, functionally heterogeneous teams may need the structure that operational controls provide to realize the benefits of heterogeneity and avoid the divisive potential of a team with diverse functional backgrounds. Likewise, liberal use of decision autonomy can have both positive and negative effects on a venture management team's ability to perform. Specifically, decision autonomy enhances the effects that venture vision and team efficacy have on venture performance, but can neutralize the positive effects that an experienced and/or heterogeneous team can have on venture performance.

vn

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TABLE OF CONTENTS

ACKNOWLEDGMENTS v

ABSTRACT vi

LIST OF ILLUSTRATIONS ix

LIST OF TABLES x

Chapter

I. INTRODUCTION 1

II. LITERATURE REVIEW 9

  1. PROPOSED MODEL AND HYPOTHESES 32

  2. RESEARCH METHOD 51

V. HYPOTHESIS TESTING AND ANALYSIS 76

VI. DISCUSSION 100

APPENDIX

A. PARTICIPATING INDUSTRY EXPERTS 114

B. INTERVIEW PROTOCOLS 116

C. SURVEY INSTRUMENT 119

D. REGRESSION RESULTS TABLES 133

E. INTERACTION RESULTS GRAPHS 148

REFERENCES 163

BIOGRAPHICAL INFORMATION 207

viii

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LIST OF ILLUSTRATIONS

Figure Page

  1. Conceptual Model 50

  2. Structural Path Analysis 81

  3. Significant Structural Path Analysis 83

  4. Model of Resulting Relationships 98

ix

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LIST OF TABLES

Table Page

  1. Substantive Validity Analysis Results 57

  2. Summary of Model Variables and Their Scale Origins 61

  3. Sample Descriptives 79

  4. Correlations Among Dependent and Independent Variables 82

  5. Summary of Hypothesis Results 97

x

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CHAPTER I INTRODUCTION

In the last two decades there have been a number of dramatic technological, demographic, and regulatory changes which have altered the face of competition in industries as disparate as telecommunications, electronics, retail, automotive, plastics and travel (D'Aveni, 1994; Kanter, 1988; Zahra & Dess, 2001). Once established industry leaders like Digital Equipment Corporation, IBM, Philips, TWA, Sears, and Westinghouse have been challenged and sometimes defeated by non-traditional competitors. For example, Digital Equipment Corporation failed to respond to the PC revolution and was later bought out by one-time upstart, Compaq, who in turn merged with Hewlett Packard.

After bouts of refocusing, restructuring and reengineering, the surviving large, established companies began to look to the future for growth. It is unlikely, however, that many of the established firms could have anticipated the effect that their downsizing would play on the exodus of innovative-minded employees who were disenchanted with their bureaucratic organizations. Kuratko and Morris (2002: viii) suggested that "this loss of talented employees was intensified by the appeal of entrepreneurship as a legitimate career and the increased developments in the venture capital industry that enabled the financing of more new ventures."

While independent challengers for industry dominance such as CNN and Microsoft have taken on almost celebrity status, some established companies like Merck, 3M and Hewlett-Packard have been attempting to challenge the orthodoxies of their own industries. No doubt, the decision for Merck to acquire Medco, a large mail-order company, signaled

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their insight into the changing environment in the pharmaceutical business. This suggests that some corporations have found the secret to successful rejuvenation and renewal.

Consider the tale of two large companies - Intuit and GTE. Intuit started as an entrepreneurial company, but as it grew from a $50 million entity to a $500 million entity, it could not sustain its entrepreneurial agility. So Intuit's CEO broke up the organization into eight product units and invested one-third to one-half of its operating income in unproven and unprofitable new products. This kind of commitment and patience finally paid off, after six years and multiple attempts, when QuickBooks made a profit for the company. GTE, on the other hand, developed a new ventures group with the sole purpose of supporting creativity and idea-generation within the corporate walls. Business plans were developed on the best of the ideas, but supervisors of the inventing employees had to sign off on any new initiatives - and many were reluctant to do so. Unfortunately, funding was denied to several bright prospects and the employees ultimately resigned to pursue their ideas independently (DeSimone, Hatsopolous, O'Brien, Harris & Holt, 1995). Such stories of corporate venturing in practice urge the following question be addressed by scholars.

Why do some corporate ventures succeed when others do not? While corporate venturing has garnered much enthusiasm from academia and practitioners alike, current knowledge of the determinants of successful corporate venturing is indeed limited (Amit, Glosten, & Muller, 1993; Brazeal & Herbert, 1999; Guth, 1995; Miles & Covin, 2002). Hence, this study explores the interplay between corporate actions, venture management team characteristics and venture performance to help elucidate at least part of the answer to that question.

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Importance of this Research

Over the last ten years, almost 18 million net jobs have been lost in America, many among white-collar, educated professionals (U.S. Bureau of Labor Statistics, 2003). At the same time, the U.S. Small Business Administration has backed more than $117 billion in loans to small businesses, almost twice as much as the total for the agency's entire history before that time ($65 billion from 1953-93).

Perhaps it should not be surprising that displaced workers would prefer to start their own businesses rather than to reenter a corporate work environment where downsizing comes with each recession. Scholarly research in entrepreneurship has shown that educated individuals are more open to innovation (Becker, 1970; Hambrick & Mason, 1984; Kimberly & Evanisko, 1981; Rogers & Shoemaker, 1971) and are more successful at entrepreneurial pursuits (Cooper & Gimeno-Gascon, 1992; Storey, 1994).

While this exodus of talent from large companies could be alarming, many scholars are working with corporations to develop internal entrepreneurial programs. However, progress is seemingly slow and difficult. In 1983, Churchill and Lewis published a report of academic interest in the subject of entrepreneurship. Out of a database of journal articles, they found 3,694 papers with the word "entrepreneur", "small business", "corporate venturing" or "intrapreneur" in them. Out of the 5,117 entrepreneurship papers published in scholarly journals since 1985, only 260 of them included the term "corporate entrepreneurship", "corporate venture", or "intrapreneur".

The relative paucity of research on corporate venturing is further beset by issues of specification. Although early writing on entrepreneurship focused on the activities of the individual (Schumpeter, 1936, 1950), eventually research suggested that entrepreneurial activities inside an organization were the outcome of the interaction of individuals and groups at multiple levels within the firm (Burgelman, 1991). This led scholars to

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conceptualize corporate entrepreneurship as a firm-level phenomenon (Covin & Slevin, 1988, 1991; Zahra, 1991, 1993). However, rarely, if ever, have researchers delineated between the corporate and business levels in respect to corporate venturing (Morris, Kuratko, & Schindehutte, 2001). Nor have researchers considered the level appropriateness for the different roles required in corporate entrepreneurship. For example, corporate researchers have placed an emphasis on the opportunity recognition skills (arguably a corporate level responsibility) required for corporate venturing (Demmert & Klein, 2003; Venkataraman, 1997) while taking little notice of the role of emergent strategy and implementation (arguably a business level responsibility) required for the exploitation of those opportunities (Covin, Slevin, & Shultz, 1994; Single & Spurgeon, 1996). This study, then, makes a distinction between corporate actions and those of the venture management team. This level-appropriate specification of determinants of venture performance constitutes a major contribution to the corporate entrepreneurship literature.

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