Structure, strategy, and performance of entrepreneurial firms: A dynamic analysis of the computer industry

This research tracks structure, strategy, and performance of entrepreneurial firms over time to develop normative models of structure and strategy. This research focuses on firms' patterns of licensing and joint venturing, as well as size and organizational complexity, as critical aspects of structure. This research examines firms' breadth of product market, R&D spending, and service emphasis as critical aspects of strategy.;We collected data on 122 firms in the computer hardware and software industry that completed an initial public offering (IPO) of stock during 1983 and 1984. These years were boom years for high-technology IPOs, with little market selection against potential failures. Longitudinal data on the structures, strategies, and performance of these firms were collected from the time of IPO until January 1987. These data were analyzed using differential equations to model a process in flux.;The results of this analysis suggest that licensing detracts from performance, relative to internal arrangements. The relative performance of joint ventures differs across functions. Service joint ventures perform better than internal arrangements and licensing; R&D joint ventures perform worse; Sales joint ventures fall between internal arrangements and licensing. Differences in the know-how intensity of the joint venture activities provide one explanation for these functional differences.;Other results include an overall positive relationship between size and performance, and between organizational complexity and performance. Also, a niche strategy outperforms a more general product strategy in the overall computer market. Surprisingly, the level of total R&D spending has a negative effect on performance, yet a firm's internal emphasis on R&D has a positive effect. This may be evidence of the benefits of developing R&D know-how within the firm.;In conclusion, this research confirms that structure and strategy influence performance, even controlling for prior performance. This research supports predictions of transaction cost economics as to the optimal organizational forms, asset accumulation processes, and the protection of intellectual property. Finally, the longitudinal research design and sample of entrepreneurial firms generate insights into the temporal patterns of performance.