Name: Roderick Thomas Hidde Ram Studentnumber: S2392321 Date: 30-06-14 Word count: 32.114 First supervisor: Olga Belousova Second supervisor: A. J. Groen

How do established firms design themselves for entrepreneurship? A structural design perspective

Master thesis, MSc Business Administration

Small Business & Entrepreneurship

University of Groningen

Faculty of Economics and Business

Name:

Roderick Thomas Hidde Ram

Studentnumber:

S2392321

Date:

30-06-14

Word count:

32.114

Acknowledgements

I would like to sincerely thank my supervisor Olga Belousova who gave me accurate guidance and

was always available for useful constructive feedback.

Further I want to thank all the companies that participated in the research and provided for crucial

insights and information.

Lastly, I thank my peers, family and friends for supporting me in their own way during my studies.

Groningen, June 2014

Master Thesis in Business Administration Small Business & Entrepreneurship

Title:

How do established firms design themselves for entrepreneurship? A

structural design perspective

Author:

Roderick Ram

Supervisor:

Olga Belousova

Date:

30 June 2014

Subject terms:

Corporate Entrepreneurship, Corporate Venturing, Strategy, Organizational

Design

Abstract

Table of contents

1.

Introduction ... 6

2. Literature Review ... 9

2.1 Corporate Entrepreneurship... 9

2.2 Strategy of the venture ... 10

2.3 Organizational design ... 11

2.4 New framework/ factors ... 15

3. Research method ... 17

3.1 Research design ... 17

3.1.1 Case study design ... 17

3.2 Data collection ... 17

3.2.1 Data collection tools ... 18

3.3 Data analysis... 18

3.4 Quality criteria ... 19

3.4.1 Controllability ... 19

3.4.2 Reliability ... 19

3.4.3 Validity ... 19

4. Results and Findings ... 21

4.1 Within case analysis ... 21

4.1.1 Company A... 21

The company ... 21

Organizational Designs ... 21

Placement of the new ventures ... 22

4.1.2 Company B ... 23

Introduction ... 23

Organizational designs ... 23

Placement of the new ventures ... 23

4.1.3 Company C ... 24

Introduction ... 24

Organizational designs ... 24

Placement of the new ventures ... 25

4.1.4. Company D... 26

Introduction ... 26

Organizational designs ... 26

Placement of the new ventures ... 26

Introduction ... 27

Organizational designs ... 27

Placement of the new ventures ... 27

4.1.6 Summarizing cases ... 29

4.2 Cross-case analysis ... 32

5.1 Answering the research question ... 37

5.2 Discussion and Conclusions ... 40

Limitations... 40

Future research ... 40

List of references ... 42

Appendix 1: Interview guide ... 50

Appendix 2 -9 Transcript interviews ... 57

1.

Introduction

In the scope of the current economic crisis, firms need to be capable of generating sufficient revenue

for survival. At times, the opportunities that exist in the current market are insufficient for supporting

the firm, in which case the firm must be able to locate opportunities in markets that lie outside the

current competence base. One way for companies to grow is to start businesses in product markets in

which they have not previously competed (Biggadike, 1979). Peterson and Berger (1971) have found

that top management is more eager to consider at new opportunities when the future is less optimistic.

Companies must develop an entrepreneurial posture in order to be able to locate new opportunities.

Corporate entrepreneurship (CE) can be defined as “extending the firm’s domain of

competence and corresponding opportunity set through internally generated new resource

combinations”

(Burgelman, 1984, p. 154). Having an entrepreneurial attitude is beneficial for the

profitability of the company (Lumpkin and Dess, 1996). Zahra and Covin (1995) concluded from their

longitudinal study of 108 companies study that there is a significant positive relationship between CE

and financial performance. The difference between entrepreneurial firms and non-entrepreneurial

firms is the rate of new product introduction (Schuler, 1986). They additionally concluded that the

ability to survive and be competitive is enhanced by greater rate of product innovation, greater level of

effectiveness, particularly higher profitability and growth. Thus, to be entrepreneurial is beneficial, but

the question is how this can be achieved. Relatively little is known about the processes of large,

complex firms engaging in CE (Burgelman, 1983). Dess et. al (2003) elaborated on this article stating

that less is known about the process by which CE activities actually unfold. In addition, both scholars

and practitioners remain interested in studying and better comprehending CE (Ireland, Kuratko &

Covin, 2002).

Guth and Ginsberg (1990) have described two types of phenomena that encompass CE:

strategic renewal, and corporate venturing (CV) and innovation. The former involves the creation of

new wealth through the combination of new resources. The latter entails the birth of new ventures

within the existing organization. This definition is one of the most accepted definitions of CE (Sharma

and Chrisman, 1999).

different strategies to obtain this, for example: hiring dedicated managers, using the capabilities of the

central R&D lab, establishing alliances and negotiating licenses (Leonard-Barton, 1992). Arguably,

one of the most important advantages is that the members of the SBU become experts in evaluating

new venture opportunities (Vanhaverbeke and Peeters, 2005). Through this, the SBU becomes a

valuable vehicle for knowledge building (Kazajian, Drazin and Glynn, 2002). Finally, in these

sub-units entrepreneurial responsibilities are placed above manager responsibilities (Hedlund and

Ridderstråle, 1992; Kanter, 1986). Considering the small scale of the ventures, corporate venturing can

be a valuable strategy for companies; it can increase their speed and levels of innovation, while

simultaneously continuing to benefit from the company’s large resources (Husted & Vintergaard,

2004). Consequently, we can conclude that the focused corporate entrepreneurship is potentially

beneficial for companies.

At the same time Ernst and Young (2011) conclude that more and more firms are engaging in CV and

more resources are being devoted to associated activities. It is therefore necessary to understand how

firms could manage this beneficial process that requires ever increasing amount of resources.

One of the most important control units for the venture is its design, the individual (s) in

control, where the venture is positioned within the firm and its format (Block & MacMillan, 1993)

The exact form of these control units should, ideally, follow the strategy of the company

(Chandler, 1962; Hall and Salas, 1980; Mintzberg, 1990). The company, when it engages in CE,

proposes a strategy and an objective what they want to achieve with the ventures.

Chesbrough (2000) stated that throughout the years, many businesses have attempted to detach

their new business ventures outside of their current business structures, so as to pursue more

innovation and gain more business growth. But how do these companies organize this? Which types of

models are used and for which reasons have these been chosen? This research will elaborate on that,

further it is interesting to see how the literature compares to the activities that practitioners use. It can

be useful to enrich and deepen the existing theories about the organizational designs of CV.

The main research question is thereby as follows:

How do firms organize themselves for entrepreneurship and which factors influence their

choice?

In order to investigate this we first look at what kind of organizational design there are in the literature

and what are the differences between them. Further, in this thesis we will explore the CV practices

employed by large Dutch firms known for their innovation and entrepreneurial spirit, and explore their

link to the design structure.

1.

Which types of organizational designs exist, and what are the differences between them?

2.

Where do companies place the new venture in the organizational structure?

3.

Which factors influence this?

The initial first contribution of this study is to create a review of how companies design for CV; next it

aims to get an understanding about why companies have designed their structures in the way they

have. A third contribution is to gain a deeper insight into the relationship between the company and

the new venture.

The thesis will proceed as follows first the different concepts of CE will be discussed, followed by the

existing literature about the organizational designs that companies can have with their ventures and the

factors that can influence the placements of new ventures in the organization. After this the

methodology of the research is explained. For this research five managers from five different

companies are interviewed to get an understanding how they organize for corporate venturing. In the

final section the conclusion, discussion and limitations will be discussed.

2. Literature Review

In the literature review, the concepts and constructs most vital for answering the research question are

elaborated on. This section will commence with a detailed definition of CE and the concepts related to

it, followed by description of the strategy of the new ventures. Next, the framework by Burgelman

(1984) is introduced, which will form the basis for differentiating the various types of organizational

designs that a company can use. Finally, different factors that could influence the decision making

process of where to place the ventures will be presented.

2.1 Corporate Entrepreneurship

Entrepreneurship within companies generally occurs in two different ways, either through CV or

strategic entrepreneurship (Morris, Kuratko & Covin, 2008).

The CE definition by Sharma and

Chrisman (1999) includes CV, innovation and strategic renewal. Innovation can have an effect on both

the CV and strategic renewal, i.e.: it can result in either of these two organizational activities.

Furthermore CV can be both internal and external to the company.

Morris et. al. (2011) have described two streams that are important for the domain of CE: CV

and strategic entrepreneurship. CV entails three types of modes; “internal CV (new ventures are

created and owned by the corporation), cooperative CV (new ventures are created and owned with

one or more external partners), and external cooperative venturing (new ventures are created outside

the company and are acquired by the corporation)” (Morris, et al. 2008. p. 100). They all have in

common that they add new businesses to the corporation. Strategic entrepreneurship modes are similar

in that they encompass large-scale or important innovations that are adopted by the firm to pursue a

competitive advantage. In the case of CV, there is a clear distinction between internal CV and external

CV, the cooperative CV is a hybrid form that combines the two. External CV includes corporate

venturing capital (CVC) investments, which are generally investments in start-ups (Dushnitsky and

Lenox, 2005), alliances (Gulati, 1998), and mergers and acquisitions (Ahuja and Katila, 2001).

Internal and external venturing also entails several benefits. External venturing tends to be most

beneficial for the corporation when it creates complementary benefits with an external organization

(Miles and Covin, 2002). Internal is beneficial in that it creates real options for the corporation by

expanding the firm’s resources (Miles and Covin, 2002; McGrath, 1999).

2.2 Strategy of the venture

Organizational strategy can be ambiguous. For this reason it should be clear that the unit of analysis in

this study is the strategy that the companies employ with the new ventures. In Zahra’s (1991) study it

was concluded that growth-oriented strategies have a positive influence on firms’ engagement in CE.

When engaging into CV, the company must make choices about the type of CV and the way in which

the venture will be structured within the company. This will in large part depend on the objective and

strategy the company holds.

Porter (1996, p. 68) has defined strategy as “the creation of a unique and valuable position,

involving a different set of activities”

i.e.: it can be stated that strategy is about differentiating the

company from rivals in the market. A company’s strategy is also referred to as strategic intent, which

may defined as the ambition or obsession to achieve organizational and personal goals, and focusing

the organization’s attention and resources on achieving these goals (Hamel & Prahalad, 1989). The

company has a hierarchy of strategies for each function, one of them entrepreneurship, therefore, CE

strategy. Ireland et al. (2009, p. 21) defined CE strategy as “a vision-directed, organization-wide

reliance on entrepreneurial behavior that purposefully and continuously rejuvenates the organization

and shapes the scope of its operations through the recognition and exploitation of entrepreneurial

opportunity”.

Miles and Covin (2002) concluded in their research that firms have three reasons to pursue

CV. First is to be more innovative by making the overall company more entrepreneurial and accepting

of change. Second is to use the current capabilities of the firm to earn greater value from it or to

expand the firm’s knowledge into new areas. Third, quick financial returns. Thus, CV can be a

strategy for steering the business in new directions and obtaining new skills and capabilities. Other

strategy implications that CV can have is the encouragement of corporate renewal of the organization

(Elfring & Foss, 1997), the expansion of the core business of the organization by venturing into new

industries or as an opportunity for growth by investing in ventures that have big potential (Block &

MacMillan, 1993).

Thus, on the one hand, if the company aims to gain sustainable competitive advantage, it

should venture into opportunities that are less known to the company (Morris et al. 2008). On the other

hand, failure can be a learning process; if a venture fails, the company gains experience through

organizational learning. Block and MacMillan (1986) have concluded in their research that experience

with venturing can be of great value, firms must be aware of the fact that initial ventures are likely to

be less successful, but that the chance of success will increase with accumulated experience. The

authors’ advice is to start with ventures that require few resources. In essence, then, one of the goals of

pursuing CE is organizational learning, in the sense that new venture failure is a calculated risk.

The various outcomes imply that the different objectives held by company in terms of new

ventures, results in different types of structures for the new ventures. If the objective of the company is

to achieve short-term success, the new venture is likely to relate closely to the company’s existing

competence base. If the company aims to be more innovative, its strategy of the company to venture

into businesses that are less associated with the company’s current competence. A general consensus

exists that the structure of the company follows from its strategy (Chandler, 1962; Hall and Salas,

1980; Mintzberg, 1990; Miller 1996). Therefore, next we discuss the design.

2.3 Organizational design

In organizing the ventures, the relatedness is one of the most important factors. If the venture is similar

or entirely different on the basis of products, markets and technology, this can have serious

implications. In CE the emergent organization is embedded in the existing organizations and the

interface between these two organizations must be managed (Heller, 1999). The emerging

organization is dependent on resources of the existing organization but on the other hand it wants to be

independent. “It is a two-edged sword bringing needed resources and legitimacy to the projects and,

at the same time, exposing the activities of innovators to scrutiny, intervention and possible sanction”

(Heller, 1999, p. 28).

So, there is a constant clash between the ventures and the organization where

they are placed in. Ambidexterity is a related concept. There are challenges in managing an

entrepreneurial venture with the characteristics to learn from failure, to move swiftly and long-term

focus and with managing a mature business, with its focus on incremental improvement, productivity

and short-term orientation (Tushman and O’Reilly, 2008). Ambidexterity could be defined as a focus

on both exploitation and exploration simultaneously, with separate business models, subunits, and

distinct alignment for each (Tushman and O’Reilly, 1997). These different structures can have

different cultures, competencies, incentives and distinct alignment but are held together by a common

strategy and structural linkages to share assets (Tushman and O’Reilly, 1996).

The assessment of the two dimensions yields in a table in which the appropriate design for the new

venture should be created. This design is displayed by figure 1.

O

p

er

a

ti

o

n

a

l

re

la

te

d

n

es

s

Unrelated

3. Special Business

Units

6. Independent

Business Units

9. Complete Spin Off

Partly Related

2. New

Product/Business

Department

5. New Venture

Division

8. Contracting

Strongly

Related

1. Direct Integration

4. Micro New

Ventures

Department

7. Nurturing and Contracting

Very Important

Uncertain

Not Important

Strategic Importance

The two dimensions have resulted in nine different types of organizational designs. The more

important the new ventures, the greater the control that the corporation’s management aims to keep of

the new ventures. This will result in more administrative linkages; the new ventures come closer

integrated in the structure of the corporation. Strong administrative linkages imply that a firm’s

corporate management aims to be involved in the strategic management. According to Burgelman

(1984, p. 160) this can be through “direct reporting relationships, substantive involvement in

planning/budgeting processes, and involvement in trade-offs between the strategic concerns of the new

and existing businesses”. If the operational relatedness is high the new venture is strongly related to

the corporation, entailing that the capabilities and skills are strongly related. When the operational

relatedness is low, the new venture must be less integrated into the structure of the corporation, as

valuable resources will be required for its development. When a new venture has been established or

acquired it must be embedded into the organization; it can be originally established internally or

externally.

The nine types of design are explained below.

1. Direct Integration: High strategic importance for the company and strongly related to capabilities

and skills already established within the company. This requires strong administrative and operational

linkages.

2. New Product/Business Department: “High strategic importance and party operational relatedness

require a combination of strong administrative and medium-strong operational linkages” (Burgelman,

1984). Entrepreneurial projects are placed in separate departments.

3. Special Business Units: High strategic importance and low operational relatedness. Due to the high

importance, strong administrative linkages are required to ensure that strategic objectives are attained.

4. Micro New Ventures Department: Uncertain strategic importance and high operational relatedness.

The operational linkages are strong, so they may take full advantage of the corporation’s capabilities

and skills.

5. New Venture Division: Uncertain strategic importance and partial operational relatedness. The

administrative linkages are relatively free but sufficiently strong enough for transferring knowledge

and, information about capabilities and skills back and forth to the corporation. There is a fluid

environment, in which the new venture can develop and the strategic importance can be assed later.

6. Independent Business Units: Uncertain strategic importance and unrelated operational relatedness.

7. Nurturing Plus Contracting: No importance, and strong operational relatedness. These generally

constitute new ventures that are not important for the company, but the transfer of knowledge may be

importance.

9. Complete Spin Off: No strategic importance and low operational relatedness. For both the company

and the new venture, it is more favourable for the new venture to be a spin off.

Related to the Framework of Burgelman (1984) are the dimensions proposed by Sharma and Chrisman

(1999). They argued that in terms of development and performance, the internal corporate venture can

vary in several ways: structural autonomy, relatedness to the existing business, extent of innovation

and nature of sponsorship.

Structural autonomy: this refers to where in the corporation the venture must be placed.

Generally, there are two extremes, to totally integrate the venture or to create a separate division for it.

The structural autonomy refers to the extent to which the venture activities are integrated into the units

of the existing organization (Sharma and Chrisman, 1999).

Relatedness to the existing business: the relatedness in terms of product offering, markets or

core competencies and resources required (Sharma and Chrisman, 1999). As a construct, this scale can

range from “entirely unrelated” to “closely related”, which has implications in the way the venture is

managed (Block and MacMillan, 1993). There may be more or less administrative linkages.

Extent of innovation: “Refers to the degree of newness of a new venture in the marketplace”

(Sharma and Chrisman, 1999 p. 22). The dimension can vary from “frame-backing” innovation to

imitative innovations (Stopford & Baden-fuller, 1994).

Nature of sponsorship: This entails the extent of formal authorization for the venture. This can

vary from informal or autonomous (entrepreneurial efforts based on employees’ initiative without

formal organizational sponsorship) to formal or induced (sponsored by an organization) (Zahra, 1993).

Sponsorship implies that the venture is supported, which can be done formally by the organization, or

informally by entrepreneurs within the organization.

different characteristics and needs (Zahra, 1991). Developments in one market may create

opportunities in related markets. Although an increase in heterogeneity entails an increase in

complexity, it simultaneously increases firms’ likelihood of engaging in CE (Zahra, 1991).

Naturally, Burgelman’s (1984) framework is not entirely inclusive; there are several drawbacks in its

application. As mentioned, the external environment is not taken into account in the framework. Also

Burgelman focused primarily on American companies such as General Motors, Du Pont and IBM. The

possibility cannot be excluded that there are differences between the U.S. companies and companies

from the Netherlands. You could argue that the culture in American companies is different from Dutch

companies. Americans have the tendency to be more individualistic (Adler, 1997). There are

researchers who assign high levels of entrepreneurship in the U.S. to cultural values as individualism,

independence, self-sufficiency freedom, materialism, and achievement (Spence, 1985; Gilder, 1988;

Peterson, 1988; Sundbo, 1991). There are cultural differences between ethical business practices

between Europe and the U.S., higher emphasis is placed on leader’s role in creating and upholding

high ethical standards for the entire organization (Ardichvili, Jondle & Kowske, 2010). Some

organizational cultural variables (e.g. individualism) are reported to significantly and positively

influence CE in one country but can no effect or negative effect in other countries (Morris, Davis and

Allen, 1994). With CE it is possible that there is an intrapreneur who is responsible for bringing an

idea to the market but who is not necessarily the author of the idea (Pinchot, 1985). Similar to this is

the innovation champion who is an individual who informally promotes innovation and who represent

the venture to resource allocators to safeguard sufficient resources are released for development

(Howell & Boies, 2004; Howell, et al., 2005; Markham, 1998). It is important for the organization to

support radical champions within their positions (Peter, 1987). So, inside a company a person can

stand up with a new business idea or be designated by top management. This can be important to

know where the venture is originated, just as the strategy of the new venture.

Furthermore, the article is primarily a theoretical paper, implying that it could be elaborated on

using a more empirical focus. It would be interesting to compare the framework with the everyday

practices of several companies. The paper is predominately conceptual and to our knowledge no

proper empirical test on it has been done.

2.4 New framework/ factors

Second, external environment, the market in which the company operates can be of influence on the

organizational design of the new ventures in the firm. For example, when a market it is more dynamic

the company wants to minimize the risk. Therefore in can choose to not integrate the venture closely

in the organizational design, for this will only use valuable resources.

The other factors proposed in the research are essentially closely related to the dimension that

Burgelman (1984) suggested. Like the extend of innovation is basically associated to the operational

relatedness from Burgelman.

The factors can change the approach of Burgelman in the way that companies have another way to

solve a potential problem of placing the new ventures. With the framework of Burgelman you take the

two dimensions into account but when you use more factors you could better place the ventures in the

organization.

3. Research method

In the introduction the literature gap was presented: it remains unclear how companies design their

organizational structure for CE and which factors are important for this. To fill in this gap a research

question and the following sub questions has been constructed. The qualitative research is suitable for

understanding phenomena within their context, uncovering links among concepts and behaviors and

generating and refining theory (Miles & Huberman, 1994). With this qualitative research it must be

able to get a better understanding in the structuring of corporate ventures and what kind of forces

influence this. The research will follow an interpretivist paradigm, which is based on qualitative data

trying to explain why some things happen in a way and trying to find depth and richness of data

(Collis & Hussey, 2014).

After the literature foundation is set interviews are going to be held with managers. The results

from these interviews are analysed with each interview being a separate case. After this within-case

analysis the cases are compared with a cross-case analysis. This makes it possible to see what the

similarities and differences are with the different cases. Then concluding remarks can be made, the

limitations have the research are described.

3.1 Research design

The exploratory research design is followed in this research because this is best suitable for situations

for which there are no clear, single set of outcomes (Baxter & Jack, 2008; Yin, 2003). To answer the

main research question three sub-research questions where constructed. In the analysis and results

section these questions are addressed and answered. The data to answer the questions is obtained by

doing interviews with managers of several companies. To strengthen the interviews an interview guide

was developed, here the methods of the interview was defined and the interview questions were

established.

3.1.1 Case study design

To make this research more reliable, a multi-case study design is going to be used. Evidence from

more cases makes the research more comprehensive and is considered to be more convincing (Herriot

& Firestone, 1983). For this case study five companies are interviewed. The multiple-case study is

used because it allows for replication logic, this may lead to noteworthy patterns and confirm or

disconfirm them between cases (Yin, 2003). Each of the companies can be seen as a separate case.

3.2 Data collection

Venturing Network Netherlands (CVNN). All of the companies are operational on a global scale and

active in the Netherlands. They are active in R&D, cable industry, paint, aviation, chemical and life

sciences.

3.2.1 Data collection tools

Interviews

The data needed to answer the research question is obtained by doing face-to-face or telephone

interviews with top managers who have strategic influence in the company. They are the one who have

decision making power and therefore can best explain how the company has organized for

entrepreneurship, which steps was needed to take, and which factors did influence the decision making

process. Also it is important to know, in retro perspective, if the decisions made are the right one.

Based on this literature an interview guide will be constructed. The structure of the interview

will be based on Emans (2004). The interview guide can be found in Appendix 1. Probes are used to

let the interviewee elaborate on the answers to get a better understanding of reasons why some

decisions are made. The questions from the interview are based on the literature. After the interviews

coding is used, these codes are used to analyse the transcript of the interviews.

In total 5 people were interviewed. The interviews were held in English, although all of the

interviewee mother language was Dutch English was preferred because this would not lead to any

problems during translation. The exact words and definitions used by the interviewees are literally

transcribed.

3.3 Data analysis

After the interviews every separate case is analysed with a within-case analysis, after this step a

cross-case analysis is going to be done. This last step is for searching for patterns across the different cross-cases.

The results or insights from the analysis can be compared with existing literature.

Miles and Huberman (1994) developed a general procedure for analysing qualitative data that involves

three activities:

-

reducing the data

-

displaying the data

-

drawing conclusions and verifying the validity of those conclusions

Data reductions involve; ‘selecting, focusing, simplifying abstracting, and transforming the data in

written-up field notes or transcriptions’ (Miles and Huberman, 1994, p. 10). Displaying the data is

about presenting the data systematically this can be done by transferring the data into a visual format.

Analytical procedure:

-

giving label (codes) to words, phrases, paragraphs and to things that can be interesting

-

Adding comments, reflections

-

Using these patterns, themes and so on to help focus data collection

-

Develop generalizations that cover uniformities discovered in the data and link these

uniformities to existing constructs or theories

For the analysis all interview are digitally recorded and transcribed, these are processed for further

analysis. Hence, this will make it possible to compare and analyse all the data that is collected.

Transcribing the interview implies that they are “reproduced as a written (word-expressed account

using the actual words” (Saunders, Lewis & Thornhill, 2007, p. 475).

3.4 Quality criteria

According to the literature there are three important quality criteria these are controllability, reliability

and validity (Yin, 2003; Van Aken et al., 2007; Swanborn, 1996). In the following section the three

criteria will be addressed.

3.4.1 Controllability

The controllability is about the making the research controllable for others, it must be clear how the

research was executed. In order to comply with this criterion the research method is written down and

explained. The description makes it possible for others to replicate the study and to control the results.

Furthermore the interview guide and the case study protocol in the appendices make it possible to see

which steps were taken to come to the conclusions from this research.

3.4.2 Reliability

Reliability refers to the when the results of the study are independent of the particular characteristics

of the study and can therefore be replicated to other studies (Yin, 2009; Swanborn, 1996; Van Aken et

al., 2007). There are four potential types of bias: the researcher, the instrument, the respondents and

the situation. In the end the research should be independent of the four possible biases mentioned

above (Cooper and Schindler, 2008). Instrument reliability means that the instrument measures

what is supposed to measure and doing it consistently (Cooper and Schindler, 2008). In this research

several research instruments are applied, trying to create triangulation, this means having data from

several sources to search for regularities in the research data (O’Donoghue and Punch, 2003). The data

sources for this study are the interviews with the managers, published articles, books interviews, cases

and the website of the studied firms.

The research only uses single respondents in the same company. However the research

question is about how the companies design themselves for CE so interviewing the person directly

related or responsible for this should obtain all the data needed the answer the research question.

3.4.3 Validity

al., 2012). There are three types of validity construct validity, internal validity and external validity

(van Aken et. al., 2012; Yin, 2003).

Construct validity refers to the extent that a measuring instrument measures what it is intended

to measure (De Groot, 1969). In this research it is about the quality of the operationalization of your

concepts. According to Van Aken et al. (2012) there are two important aspects: first the concepts

should be completely covered and second the components should in the way measured match with the

meaning of the concept.

Internal validity is defined as “The results of a study are internally valid when conclusions about

relationships are justified and complete” (Van Aken et al., 2012, p. 164). Explain why result B is cause

by construct A.

4. Results and Findings

In this chapter the data gathered from the interviews and documents are presented. Furthermore, the

data will be analysed this analysis will result in answering the main research question and the

subsequent questions.

The main research question and subsequent questions are as mentioned in the introduction as follows:

Research question:

How do firms organize themselves for entrepreneurship and which factors influence their choice?

Subsequent questions:

1.

Which types of organizational designs exist, and what are the differences between them?

2.

Where do companies place the new venture in the organizational structure?

3.

Which factors influence this?

As mentioned before, each of the companies will be seen as a separate case the results section will

follow the same direction. In the next chapter each subsequent question will be answered with each

separate case. After this the main research question will be answered.

4.1 Within case analysis

4.1.1 Company A

The company

Company A is an independent R&D company with no shareholders and an annual turnover of 600

million Euros. It is the mission of the company to enhance the competitive power of the Dutch

business community. Company A has a separate legal entity besides itself and that is Company A

Companies and the purpose of this company is to bring new technologies to the market. Company A

Companies buys the technology from Company A and then with the use a strategic partners and

entrepreneurs a new venture that is able to bring the technology to the market is created. The interview

was conducted with the venturing manager (Mr. C.) responsible for identifying technologies that can

be brought to the market by new ventures.

Organizational Designs

developing and the investing in the R&D in such a way that it has more value for an outside investor

to invest”.

Placement of the new ventures

From the interview we found that the following factors play a role:

1.

Objective of the company

The new ventures are established outside of the organization, it is an autonomous company where

Company A Companies is a shareholder of the interviewee described it as “when we have created a

new venture we let go and then it is an autonomous company in the outside world where my company

is a shareholder of.” Mr. C. said that the new ventures are spin-outs of the R&D companies and his

job is to find strategic partners, to find investors and to assemble management teams. Mr. C. explained

the process of establishing new ventures as follows: “Our company is a shareholder, so Company A

Companies is separate legal entity that stands besides Company A R&D Company. Company A R&D

transfers this IT so this technology to the private Company A Companies so to the private domain, that

being paid for of Company A Companies to Company A by a license agreement. But then this separate

legal entity, the new venture that is created by Company A Companies and Company A Companies is

just a shareholder of this private company.”

The role of the shareholder is to hold a place on the board of the new created company and for try to

steer the company. So Company A Companies is involved in some of the more strategic decision, like

large investments or if new management is to be hired.

Regarding the objective that the company has with the new ventures, it is the same as the objective of

Company A itself it about strengthening the business community of the Netherlands by bringing new

technologies to the market. This will ultimately lead to new jobs and the creation of new value chains.

Although, Company A companies are a little different than Company A because Company A

Companies strives to achieve a minimum Return of Investment (ROI) to able to invest into new

ventures.

The new ventures are of strategic importance because creating new ventures is a way to achieve the

mission of the company and that is to strengthen the business community of the Netherlands. With

each new venture that is created this mission is fulfilled. However, you have to take into account that

Company A Companies has another objective that most companies do. Company A doesn’t have any

shareholders. The interviewee referred to it as: “not in a normal sense that a big corporate

organization is behind it. It is not to create a new business line or whatever.”

Summarizing, it is clear that the new ventures which are created by Company A Companies are

Spin-outs the most important factor for this is the strategy of the company itself. The objective of Company

A Companies is to enhance the Dutch business community this is done by using the technology of the

company and create new companies. Company A Companies does not do it by itself but uses external

strategic partners, investors and entrepreneurs. So, the companies are not structural related to the

current business.

4.1.2 Company B

Introduction

Company B is the largest cable company in the world, with total revenue of 18.1 billion dollars. They

deliver television, broadband internet and telephony services to 25 million customers. The company is

operating 14 countries including the Netherlands. Regarding the strategy of the company they have a

statement on the website saying: “The company’s business strategy emphasizes superior organic

growth, opportunistic M&A activity”. The organic growth is stimulated through internal innovation

competitions and projects. The M&A activity can been seen in the strategy the company uses with

their venturing unit. This is focused on minority investments in technologies. The venturing unit is

responsible for scouting of new opportunities and bringing innovation into the company. The

interview was conducted with the director of ventures in the companies venture unit (Mr. V.).

Organizational designs

The fact sheet of Company B Ventures (Appendix 5) mentioned that the strategy of the fund is to

“Leverage the company’s operating resources to drive superior investment returns”. The interviewee

mentioned several objectives that the company has with the new ventures: “If we invest because we

feel the technology is relevant to our business, we make an investment because we feel that company is

going to be successful in that technology space, obviously. We are going to invest in what we feel is

going to be a winner. So we do have financial return in considerations”. So from this we can conclude

that the first objective is financial return, second is to add new technology to the business and third is

controlling the risk.

Placement of the new ventures

From the interview we found that the following factors play a role:

1.

Bringing innovation in the company

2.

Financial profits

3.

Risk

company in three or five years.” The ‘not invented here syndrome’ can be explained as a tendency of

organizations to reject external innovation. There is a possibility that there is a mismatch because the

venture may grow in a different direction, different market. Mr. V. also elaborated on this by saying

that the company buys a company/venture or they do minority investments. When a company is

bought entirely they are left as they are or they are as the interviewee called it “dissolved” this means

that the company integrates the IPR’s, use it or license it out. Another factor that is derived from the

interview is risk, the interview mentioned;

“If there is a really young cool start-up we won’t

integrate them jet because the risk is to high maybe if they are really separate it is ok.”

When related to the strategic importance of the new ventures Mr. V. replied that there are ventures that

are more important than the others but within the company they are all placed in the same structure.

Mr. V.: “For us physically placed in the same structure, legally they are all placed in the same

structure”.

Concluding, from the interview it can be seen that there are two options; the company takes a minor

stake in the new ventures and it stays independent or the new venture is completely dissolved in the

organization. The organization uses some a type of nurturing and contracting design with the ventures,

with using the technology when necessary and supporting the ventures with knowledge. The most

important factors are innovation, financial profits and reducing the risk.

4.1.3 Company C

Introduction

Company C is the world largest paint and coatings company located in Amsterdam. The interview was

conducted with the Director Business Development Industrial Coatings (Mr. K.). In which Industrial

Coatings is a separate Business Unit inside the corporation. His responsibility is to get buy in from

leading customers on the new technology. When talking about his work and the technology the

interviewee usually referred to it as ‘the initiative’.

Organizational designs

Interesting thing about the case of Company C is that they had a Venture Unit in the past but had to

kill it due to the financial crisis and lack of money. However, this makes it possible to compare both

models and to get an understanding which factors are important in the models. In the new model the

company created a special Business Development Team for the Business Unit Industrial Coatings.

This is a multidisciplinary team consisting of engineers, chemist and business specialist. The goal of

the BD team is to start new projects with new technologies in the Business Units Wood, Coil and

Packaging. This means that in every unit a customer must be found that wants to work with the

technology. The reason why it is set up organized this way is because all industrial coatings for

industrial processes are located here there are also business units for color and powder technology.

Business Area at that time. We had a BU X and a BU Y for example and they all created a separate

unit and they all put money in it. They all said we can do the incremental stuff pretty good but the

long-term stuff needs a different approach. So we create a Team, Fund and a Portfolio to kind of make

it happen. We did external investments, we started project from within, and we worked with external”.

The venture unit was focused on the earlier stage of the development but according to the interviewee

the unit stayed to long in the entrepreneurial phase outside the company, it took too long to develop

businesses out of it. The interviewee mentioned “an acquisition we did in 2004 and in November last

year they did their first sales”. The old model with the venture unit was not productive so the

organization had their reasons to change the model. Mr. K. gave the following conclusion; “We didn’t

have sufficient steering and the end result, we had 11 ventures was not telling a story. It was a bit

there a bit there. We were extremely opportunistic”

and “They were all fantastic stories but as a

portfolio is looks messy and chaotic and that killed us”. Furthermore, Mr. K. said that the venture unit

as to distant for the business, in that sense you could say that the operational relatedness was low.

Another disadvantage of the model is that the interviewee compared it with the role of innovation

manager meaning that there was little input from other managers for innovation. The other managers

generally said: ”Innovation? Your stuff, your problem. You deal with it”. It is the opinion of Mr. K.

that you need input from other managers and customers for innovation.

The organizational design of the old and the new model can be found in Appendix 6 after the

interview transcript.

Placement of the new ventures

From the interview we found that the following factors played a role in the new model:

1.

Proximity to the customer

2.

Strategic alignment

3.

Cultural fit

What is important in the new model is the proximity to the customer, Mr. K. said the following: “in

the current situation we said: Given the size and importance of our current global clients, we cannot

do it without their input”. He also added: “the guys over there work day and night with the customers,

they go to trade fairs that is where it happens”. The customers are involved this makes it harder the

kill the project and within a reasonable fast time you know if the technology is feasible and what it is

going to deliver for the company. About the model he mentioned: “I think it the current time this

works better”. Based on the strategic importance this model can be important, the interviewee said

that: “We will know by the middle of next year whether this is going to be a three hundred of four

hundred million opportunity for this company”.

the new model this is solved by bringing the ventures or the new technology initiatives closer to the

business units.

Third, the cultural fit is a factor, in the old model there was no input from other managers and

basically there was a mismatch between the venture unit and the organization. Or could be referred to

as the “not invented here” syndrome.

In the new model the interviewee represents a sort of innovation champion because he is

responsible for an idea and that one of his tasks is to develop this idea and to find sufficient resources

to support the venture. Therefore, the current model of dealing with new ventures has shown the

necessity to overcome ‘not invented here’ syndrome and align the venture with the rest of the

organization. Two second important factors are strategic alignment (portfolio management and placing

the ventures within Business Unit for a closer and better control over the direction of venture

development) and proximity to the customer allowing a quick feasibility check procedure.

4.1.4. Company D

Introduction

The company is an airline company located in the Netherlands. The interview was conducted with

Director of Innovation (Mr. B).

Organizational designs

Innovation is stimulated in several ways in the company. First, there are internal challenges where

people are asked to help or to help colleagues on problems. Second, one of the tasks of the interviewee

is start-up scout which entails searching and connecting with outside parties from different industries

that might have relevant solutions. Thirdly, there is a venturing unit where two more companies are

involved with. Goal is to invest in companies that create solutions in the industry. Finally there are

technology programs where the company helps the implementation product technology.

Placement of the new ventures

The most important factors for this case are;

1.

Bring innovation in the company

2.

Financial return

3.

Solving problems

is said that the new ventures are closely related to the existing business and current skills and

capabilities. So, the innovation is complementary to the technology in the organization. However,

there is another edge to it because the ventures can be related to the other companies participating in

the investment fund but these companies have a joint interest.

The administrative linkages between the company and the ventures are rather close. There are weekly

or quarterly meetings and the ventures are supported with the knowledge, network of the company.

The network of the company can be used has useful introduction within the industry. The interviewee

said the following; “I must say, in general we are very close to our investments. We are constantly in

contact and talking. Seeing how we can help them out”. Furthermore, the company has a seat on the

non-executive board, this entails that they can control the ventures but they don’t have any strategic

influence, it must be said that this is all via the investment fund.

Therefore, the most important factors are innovation, financial profits and solving problems. The

company has no need to integrate the ventures, mainly because the company wants to use the

innovation and not necessarily want to become the owner but still want to use it. The company uses a

sort of contracting and nurturing design with the ventures. In buying the technology of the ventures

when necessary and supporting the venture with knowledge and their network.

4.1.5 Company E

Introduction

The company is specialized in chemicals and is originated in the Netherlands. The interview was

conducted with the VP of the Global Business Incubator (Mr. W.).

Organizational designs

The company has started a special Innovation Centre to create new businesses. The organization exist

of two clusters; the life science side and the materials side each of those clusters consist of two or

three business groups within those business groups there are business units. The Innovation Centre is a

business group of the organization. The Innovation Centre is split up in two parts; the business

creation part plus the incubator, and enabling part which is the group facilitating and helping the

company with innovation.

Placement of the new ventures

From the interview it can be concluded that the following factors are important;

1.

Pursuing radical innovation

2.

focus

3.

Signal to the rest of the organization

organization specially dedicated and focused on making that a success. The interviewee added;

“would not distract the activities of the business groups in doing stuff which is completely outside of

their scope. It was on purpose indeed set apart, mainly for focused reasons”. It should be mentioned

that new opportunities are also created in the existing business groups. In the beginning the ventures

are more explorative of nature and after a while a real business is emerging then it is time to spin-in or

spin-out. This entails creating a separate business unit for the venture with all the support function

with it, or by selling the company. When assessing new ventures the company used two axes; the

market attractiveness and the ability to execute. The former refers to the potential the venture can have

to become successful, is about the market and the competition. The later refers to if the company has

the competencies in house for the new venture, the money that is needed and possible positions in an

industry. During the interview it was mentioned several times that starting the Innovation Centre was

a signal the internal and external world that innovation is taken seriously by the company. This way it

helped to establish a culture that fosters innovation.

Talking about whether the new ventures are related to the existing business, the interviewee

said; “Yes there has to be a link”. Mainly he was referring that the here to be a link with the core

capabilities of the company; life science and materials. But still for innovation there needs to be a

certain amount of new competences. About the strategic importance of the new ventures he said that

innovation is very important for the company and it is part of the strategy of the company. The

interviewee added; Innovation is just essential in our line of business”.

The company uses a separate business group for the new ventures, called the Innovation

Centre. The interviewee said that this is important for the strategy of the company. The new ventures

are used to steer the company in new directions but they are still related to the core capabilities of the

company. The interviewee added that the majority of this technology needs to be in-house, “if 75% of

this technology needs to come from outside it is going to be a tough innovation”. This would relate to

the framework as New Product/Business Department. The article mentioned that a separate department

can be created for an entrepreneurial project, where sharing capabilities and skills is significant with

the related division or group

4.1.6 Summarizing cases

In this table it will be visible which factors are the most important for the placement of the new ventures in each case.

Table 1. Cases with the most important factors.

Placement of the new ventures

What

Company

A

Companies

Outside the company; Spin-Outs.

“When we have created a new venture we let go and then it is an

autonomous company in the outside world where my company is a

shareholder of.”

Company B

Minority investments through investment fund in

external ventures or ventures completely integrated in

the organization. For example by using the IPR’s.

“it is our objective to also integrate that company in the ‘mother ship’”

“we do minority investments.”

“For us physically placed in the same structure, legally they are all placed

in the same structure”.

Company C new

model

Business Development Team for Business Unit

Industrial Coatings.

“And here we created the BD team (Business Development team) that is

where I am.”

See drawing organizational design.

Company

C

old

model

Venture Unit in the Business Area Chemicals

supported by the different Business Units in that

Business Area.

“we had at division level we had a separate venture unit”

See drawing organizational design.

Company D

In special investment fund in cooperation with two

other companies, the ventures stay completely

independent.

“third we have a venturing fund in joint with two other companies where we

invest in companies that create solutions within the industry.”

“The Innovation Centre is treated as a business group”

Table 2. Important factors.

Important factors

Why

Company A Companies

Objective of the company.

“It is our mission to strengthen the competitive power of Dutch business

community.”

“identify the technologies that we can bring to the market place in an

accelerated way by new ventures and the reason why we do so as an R&D

organization is that mostly with breakthrough technology with which we deal

with are coming along with too high risks for business partner to invest in.”

Company B

Bring innovations inside the company.

Looking for financial profits.

Risk

“Not invented here” syndrome

“If we invest because we feel the technology is relevant to our business, we

make an investment because we feel that company is going to be successful in

that technology space, obviously.”

“If there is a really young cool start-up we won’t integrate them jet because

the risk is to high maybe if they are really separate it is ok.”

Company

C new model

Input of the most important customers and

the resources of the company to get into

contact with these customers.

Proximity to the customer.

“In the current situation we said: Given the size and importance of our

current global clients, we cannot do it without their input.”

“We know the customers and take action on it.”

Company C old model

Strategic alignment

“Not invented here” syndrome

“we had 11 ventures was not telling a story”

“They were all fantastic stories but as a portfolio is looks messy and chaotic”

Company D

Innovation, financial return and solving

problems

“We invest purely for each innovation with good outcomes.”

“We are more looking at problems with our processes or our passengers that

we are solving with these innovations.”

Company E

Radical innovation.

Signal to the organization for innovation.

Creating businesses beyond the existing

business of the company

“The activities we started where so disruptive of character that they would

basically placed in an organization which was dedicate and focused on to

make that into a success.”

4.2 Cross-case analysis

In the cross-case analysis we are going to look for similarities and differences between the cases that

are used in this research.

Organizational designs in the cases;

A.

Inside-Out; Spin-outs

B.

Outside-In; Investment fund, contracting and nurturing

C.

Outside-In; Business development team

D.

Outside-In; Investment (pooled) fund, contracting and nurturing

E.

Outside-In; Business unit focused on new ventures.

The most important factors for the placement of the new ventures in the cases are;

A.

Objective of the company/Operational relatedness (zero)

B.

Cultural compatibility, financial profits and risk

C.

Proximity to the customer, feasibility check and cultural compatibility

D.

Innovation and financial profits

E.

Signal to the rest of the organization, operational relatedness (low) and creating businesses

beyond the existing business of the organization

General differences

What is immediately noticeable is the origin of the ventures or the technology. Only in one company

the technology is created inside and transferred to the outside world. All other company extract their

technology outside-in with the use of ventures. It should be pointed out that some companies use

internal programs to stimulate innovation but this is more focused on incremental innovation.