FACULTY OF BUSINESS AND MANAGEMENT BMNV5103 NEW VENTURE DEVELOPMENT PREPARED FOR: DR. MADZLI HARUN PREPARED BY: AZZRI BIN ABD AZIZ CGS00685701
FACULTY OF BUSINESS AND MANAGEMENT
BMNV5103
NEW VENTURE DEVELOPMENT
PREPARED FOR:
DR. MADZLI HARUN
PREPARED BY:
AZZRI BIN ABD AZIZ
CGS00685701
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Question 1
Introduction
There are some tasks which can’t be done alone. Individuals need to come together, discuss
things among themselves and work together towards the realization of a common goal. The
individuals forming a team should ideally think more or less on the same lines and should
have similar interests and objective. People with absolutely different tastes can’t form a team.
Their goals have to be the same. Every team is formed to achieve a predefined goal and it is
the responsibility of each and every member to contribute his level best and accomplish the
assigned task within the stipulated time frame. The team members must complement each
other and come to each other’s help whenever required. Individual performances do not
matter much in a team and every individual should strive hard and work in unison.
The team members don’t start performing from the very beginning, they need time. It is not
always that all the members would perform equally. Some of them might not get along well
with their team mates or have other issues with each other. Individuals sometimes find it
difficult to adjust with each other and as a result their performance suffers. Any individual
fails to perform; the complete team is at loss. Team management activities ensure that all the
team members work together on a common platform for a common goal.
What Is Team Management
Team management refers to the various activities which bind a team together by bringing the
team members closer to achieve the set targets. For the team members, their team must be
their priority and everything else should take a back seat. They should be very focused on
their goals.
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Success in the workplace depends on your ability to build a team, as well as to interact with
others on that team. Together, people are able to accomplish what one person alone cannot.
An efficient team needs support from both inside and outside. It needs to meet the individual
needs of its members in order to achieve the organization’s goals.
Entrepreneurial attitudes and beliefs
In a recent special issue on entrepreneurial cognition in Entrepreneurship, Theory and
Practice, Mitchell et al (2007) state that the central issue in entrepreneurial cognition
research is ‘How do entrepreneurs think?’ More specific focus here is to ask, ‘How do
entrepreneurs think about themselves?’ From Ajzen’s Theory of Planned Behaviour, we
know that beliefs in part determine our intentions to act. Further, intention is the single
biggest predictor of individual action (Fishbein and Ajzen, 1975). Therefore, to understand
why some entrepreneurs engage in effective actions in establishing a business, we need to
examine their beliefs about themselves and their ability to establish and develop a new
business. Key entrepreneurial beliefs relate to the feasibility and desirability of establishing a
business (Krueger, 1993). If we believe that we can establish a new venture, and that doing so
would be enjoyable and profitable financially and personally, we have higher intentions to
launch a start-up (Segal, Borgia and Schoenfeld, 2005). The feasibility of establishing a
venture depends on many factors to do with the characteristics of the opportunity, market
conditions and access to finance, and also on one’s own abilities to create and develop the
venture. So in developing intentions to act, the entrepreneur makes an evaluation of his or her
own abilities in this context. This evaluation is the cognitive process underlying
entrepreneurial self-efficacy, which Boyd and Vozikis (1994) argue is central in determining
entrepreneurial intention and action. Most applications of Boyd and Vozikis’s work have
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explored the intention to become an entrepreneur. The focus of this study is on the intention
to take specific actions in establishing a business.
Entrepreneurial action
I define action as the activities and tasks entrepreneurs engage in when establishing a
business. Previous studies have defined entrepreneurial action as the act of becoming an
entrepreneur (Begley and Boyd, 1987; Carter et al, 2003), that is, the processes and
individual characteristics that lead one to the beginning of an entrepreneurial career. I explore
entrepreneurial action at a slightly later stage, that is, in the early life of a business. My
dependent variable is not a decision, ‘Shall I become an entrepreneur or not?’ Rather, it is a
set of decisions about which opportunity to pursue, how to raise funds, what legal
organizational form to take, where to obtain further information and support, who to employ
on the start-up team, and so on. One set of actions of particular interest is the search activities
in which entrepreneurs engage. What processes do entrepreneurs engage in when selecting,
defining and refining their business opportunity, and how do their attitudes to
entrepreneurship influence these processes? The literature on entrepreneurial search has been
dominated by the alertness perspective (Gaglio and Katz, 2001) and so far concludes that
good ideas come to those who are alert. However, this insight offers nothing for those who
want to improve their search activities, other than to say ‘stay alert’ (Fiet, 2007). More
promising work identifies the different ways in which successful entrepreneurs search.
Self-efficacy
Research has shown that self-efficacy is a robust predictor of task performance (Bandura,
1997). The more confident we feel in our ability to complete a task, the more able we are to
regulate our attitudes towards the task, to persevere in order to achieve higher goal
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attainment, and to exert effort in complex situations and in response to failure (Wood and
Bandura, 1989).
The common observation that entrepreneurs typically exhibit high levels of confidence has
stimulated a great deal of interest in entrepreneurial self-efficacy. Some have attempted to
unearth the determinants of entrepreneurial self-efficacy (Forbes, 2005b), whileothers have
compared the self-efficacy of entrepreneurs with that of non-entrepreneurs (Chen et al,
1998;DeNoble et al, 1999; Markman, Baron and Balkin, 2005). A third important question
addressed here is‘What is the nature of the impact of self-efficacy on entrepreneurial action?’
Consensus is established bymany studies that support the positive association between
entrepreneurial self-efficacy and intentions tostart a business (Kickul and Krueger, 2004;
Krueger et al, 2000; Zhao et al, 2005). Chandler and Jansen (1992) also find that
entrepreneurs’ evaluations of their own competencies are positively associated with venture
performance. However, since these deal with only the first and last of Forbes’s phases of
entrepreneurship (‘Intention to be an entrepreneur’ and ‘Performance’),further study is
needed in order to understand self efficacy across the range of new venture development
phases.
The stages of venture creation of interest here often have more extreme levels of the
contextual characteristics in which self-efficacy is beneficial (Wood and Bandura, 1989): that
is, challenging goals, stressful situations, uncertainty, complexity and frequent
failure/setbacks (Baron and Shane, 2004). Venture creation is therefore one of the pursuits
that calls for high self-efficacy (Gist and Mitchell, 1992) and a context in which we would
expect self-efficacy to distinguish effective individuals. Further, entrepreneurial self-efficacy
has been shown to encourage individuals to evaluate situations as being greater in
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opportunity than threat (Krueger and Dickson, 1994), and therefore we would expect
entrepreneurs with higher self-efficacy to initiate more activities in order to establish the
business (employ staff, take on debt, start selling to customers), since they are not burdened
by doubt about the efficacy of their actions.
Confidence in the business
While self-efficacy refers to confidence in one’s own abilities, entrepreneurs also vary in the
confidence they have in the business (Cooper, Woo and Dunkelberg, 1988). Since
entrepreneurship encompasses not just the individual, but an opportunity (Shane and
Venkataraman, 2000), the lead entrepreneur’s actions will be influenced not only by
cognitive assessments of him- or herself (the individual), but also by perceptions of the
feasibility of the opportunity. Is this a good opportunity? Can resources be organized
sufficiently to sustain the venture? Is there demand from desirable customer segments? This
assessment of the feasibility of the business will influence the entrepreneur’s confidence in
the business and intentions both to start and commit resources to the business (Krueger,
1993). Intentions translate into effort and persistence when no barriers to expending effort
exist (Boyd and Vozikis, 1994). Therefore a positive association between confidence in the
business (the opportunity and ability to attract resources) and actions to establish the business
is also expected.
Commitment to entrepreneurship
An individual’s affective commitment refers to his or herpositive affect for, identification
with and willingness toexert extra effort on behalf of an organization (Jaussi,2007). It can
equally well be applied to a job or profession (Guest, 1995). While research on commitment
has not yielded the definitive results that one might expect, there is evidence that high
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commitment leads individuals to remain with a job or organization (Meyer and Allen, 1991),
that is, it reduces staff turnover. In the entrepreneurial context, this equates to persisting with
the venture. Persistence is manifested in the level of effort we apply to tasks, our endurance,
our resilience in the face of setbacks, and our ability to find alternative courses of action
when things go wrong (Eisenberger, 1992). The entrepreneurial setting therefore benefits
from high commitment and persistence because of its innate qualities: that is, difficult and
complex tasks and frequent setbacks. Persistence, like self-efficacy, may help entrepreneurs
to overcome these challenges in the same way as the more stable trait of tenacity does (Baum
et al, 2001). Further, commitment to and persistence with entrepreneurial activity constitutes
a form of setting clear and challenging goals for the individual and the business. The
entrepreneur, either implicitly or explicitly, sets his or her goal of sticking with the business
in spite of complex challenges and high uncertainty. Since goal setting theory tells us that
setting this kind of challenging goal induces higher levels of performance (Locke and
Latham, 2002), it is particularly relevant for entrepreneurs (Gartner, Bird and Starr, 1992).
Attitudes and performance
Actions are most useful when they produce performance. Performance in this, and most
settings, has multiple and interrelated determinants, and the attitudes and actions of the
entrepreneur are amongst the keydet erminants. In any theory of the entrepreneur, individual
characteristics are related to performance outcomes – albeit mediated by other variables
(Rauch and Frese, 2007). Therefore, while the strength of association between attitudes and
performance may be low because of the diluting effect of the multiple determinants of
performance, we would expect to find some association.
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References
Fishbein, M., and Ajzen, I. (1975), Belief, Attitude, Intention and Behaviour: An Introduction to Theory and Research, Addison-Wesley, Reading, MA.
Krueger, N. (1993), ‘The impact of prior entrepreneurial exposure on perceptions of new venture
feasibility and desirability’, Entrepreneurship Theory and Practice, Vol 18, No 1, pp 5-21. Segal, G., Borgia, D., and Schoenfeld, J. (2005), ‘The motivation to become an entrepreneur’,
International Journal of Entrepreneurial Behaviour and Research, Vol 11, No 1, pp 42-57. Boyd, N. G., and Vozikis, G. S. (1994), ‘The influence of self-efficacy on the development of
entrepreneurial intentions and actions’, Entrepreneurship Theory and Practice, Vol 18,
No 4, pp 63-77. Begley, T. M., and Boyd, D. P. (1987), ‘Psychological characteristics associated with performance in
entrepreneurial firms and smaller businesses’, Journal of Business Venturing, Vol 2, No 1, pp 79-93.
Gaglio, C. M., and Katz, J. A. (2001), ‘The psychological basis of opportunity identification:
entrepreneurial alertness’, Small Business Economics, Vol 16, No 2, pp 95-111. Fiet, J. O. (2007), ‘A prescriptive analysis of search and discovery’, Journal of Management Studies,
Vol 44, No 4, pp 592-611. Bandura, A. (1997), Self Efficacy: The Exercise of Control,Freeman, New York. Chen, C. C., Greene, P. G., and Crick, A. (1998), ‘Does entrepreneurial self-efficacy distinguish
entrepreneurs from managers?’ Journal of Business Venturing, Vol 13, No 4, pp 295-316. Kickul, J., and Krueger, N. (2004), ‘A cognitive process model of entrepreneurial self efficacy and
intentionality’, paper presented at the Frontiers of Entrepreneurship Research, Babson College, Wellesley, MA.
Chandler, G., N., and Jansen, E. (1992), ‘The founders’ self assessed competence and venture
performance’, Journal of Business Venturing, Vol 7, No 3, pp 223-236. Baron, R. A., and Shane, S. (2004), Entrepreneurship: A Process Perspective, Mason, South-Western,
OH. Gist, M. E., and Mitchell, T. R. (1992), ‘Self efficacy: a theoretical analysis of its determinants and
malleability’, Academy of Management Review, Vol 17, No 2, pp 183-211. Cooper, A. C., Woo, C. A., and Dunkelberg, W. (1988), ‘Entrepreneurs perceived chances for success’,
Journal of Business Venturing, Vol 3, No 2, pp 97-108. Shane, S., and Venkataraman, S. (2000), ‘The promise of entrepreneurship as a field of research’,
Academy of Management Review, Vol 25, No 1, pp 217-226. Meyer, J., and Allen, N. (1991), ‘A three-component conceptualization of organizational commitment’,
Human Resource Management Review, Vol 1, No 1, pp 61-89.
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Eisenberger, R. (1992), ‘Learned industriousness’, Psychological Review, Vol 99, No 2, pp 248-267. Gartner, W. B., Bird, B. J., and Starr, J. A. (1992), ‘Acting as if: differentiating entrepreneurial from
organizational behavior’, Entrepreneurship Theory and Practice, Vol 16, No 3, pp 13-31.
Question 2
Introduction
Founding teams of new ventures in business are typically composed of individuals with
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demographic characteristics much more alike than different as compared to a benchmark of
randomly assembled teams (Ruef, Aldrich, and Carter, 2003). However, we have little
knowledge of whether, or under what circumstances, founding team uniformity helps or hinders
venture
performance. Restated, we do not know when founders ought to include more diversity on their
founding teams. Building on the upper echelon theory of organizations relating characteristics
of the top management team (TMT) to organizational performance (Hambrick and Mason,
1984), existing studies of founding team composition generally suggest that diverse teams allow
ventures to access a broader array of skills while more uniform teams tend to speed execution
and implementation (Eisenhardt and Schoonhoven, 1990; Beckman, 2006). However, because
the benefits to one type of founding team composition are likely to be more important under
certain circumstances, we may suspect that one type of team composition is not unconditionally
better than another.
Company profile
UEM Group Berhad was founded in 1966 and has grown its operations substantially over the
years. UEM Group today, is known as an engineering-based conglomerate that focuses on
four core and related businesses namely:
• Expressways
• Township & Property Development
• Engineering & Construction
• Asset & Facility Management
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Figure 1 – Corporate Structure
With an unmatched combination of knowledge, skills, dedicated personnel and unwavering
commitment to clients, UEM Group has delivered many iconic infrastructure projects and
services around the world. These include expressways in Malaysia, India, Indonesia and
Qatar; infrastructure such as bridges, sports complexes, railways and light rail transit systems,
hospitals and airports; as well as asset & facility management services in the areas of
healthcare, waste and water management, and maintenance of buildings and transportation
infrastructure. UEM Group is also known as a major property developer in Malaysia
Literature Review
Team Composition
We examine the impact of founding team composition on UEM performance under two
contingencies often important to new ventures: the business environment and strategy. While
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the early contingency literature related organizational design decisions to features of the
business environment such as stability versus turbulence (Burns and Stalker, 1961), such
organizational design decisions did not include founding team composition. However, as
founding teams are the first TMT of the enterprise, team composition impacts both current skills
and, as a result of founder imprinting, has a variety of long-lived effects on organizational
performance (Boeker, 1989; Baron, Burton, and Hannan, 1999; Beckman and Burton, 2007). We
therefore believe that the business environment is an important yet understudied contingency to
the relationship between founding team composition and performance. Similarly, strategy has
long been thought of as how the top management team intends to position itself and interact
with the business environment (Ronda-Pupo and Guerras-Martin, 2012). While the early
literature discussed “fit” between different corporate strategies and varying organizational designs
and investments (Miles and Snow, 1981; Maidique and Patch, 1982), only later did scholars
examine how top management characteristics might align with strategies in shaping
organizational performance (Thomas, Litschert, and Ramaswamy, 1991; McGee, Dowling, and
Megginson, 1995). However, the critical role of founding team composition and the associated
founder imprinting effects are not considered in this literature.
Features of Business Environment
We examine features of UEM business environment that extend beyond the dimension of
environmental stability versus turbulence and build on the early insight in the contingency
literature that technical requirements are an important feature of the business environment that
can impact organizational design (Woodward, 1965). In business environments in which new
ventures enjoy strong appropriability for their innovations, such as through intellectual property
protection, they will more readily engage in negotiations with partners for cooperative
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commercialization (as striking deal terms must involve innovation disclosure).
Furthermore, should commercializing the innovation in a given industry also require
assembling downstream complementary assets, such as a specialized sales force that the potential
partner might possess, this reinforces the degree to which the environment favors a cooperative
strategy (Teece, 1986; Gans and Stern, 2003). In contrast, a competitive environment is
characterized by weak appropriability and relatively low cost of assembling the requisite
complementary assets. Using an upper echelon lens on information and skills, we argue that the
ideal founding team composition depends on whether the enterprise operates in a cooperative or
competitive environment.
A second contingency we examine in the link between founding team composition and
enterprise performance in UEM is the venture’s innovation strategy. When considering the
competitive strategies available to entrepreneurs, an important choice is whether or not to
pursue an innovator strategy (Lieberman and Montgomery, 1988; Eisenhardt and
Schoonhoven, 1990; Hellmann and Puri, 2000). Innovator strategies are marked by an
opportunity-driven logic in which a certain degree of risk (often technological) is accepted in
order to attain growth. Since firms have the choice of whether to pursue an innovator strategy, a
natural question is whether this choice also has implications for the ideal founding team
composition, as the team composition will impact the venture’s information and skills.
We therefore seek to address a missing perspective in the upper echelon literature as it
applies to new ventures: The notion of aligning founding team composition with the business
environment and strategy to enhance organizational performance. At a broad level, we believe
this gap in the literature is an important one because the performance of entrepreneurial firms is a
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significant engine in driving economic growth and job creation (Haltiwanger, Jarmin, and
Miranda, 2010; Roberts and Eesley, 2011). Furthermore, the founder imprinting literature
suggests that the ability to add managerial expertise over the venture lifecycle may be limited
(Beckman 2006; Beckman and Burton, 2008), implying that the stakes to founder composition
decisions are magnified.
We find that founding teams that are diverse are likely to achieve high performance in a
competitive commercialization environment. On the other hand, technically-focused founding
teams are aligned with a cooperative commercialization environment and when the enterprise
pursues an innovation strategy. Our study therefore demonstrates the contingent relationship
between founding team composition and organizational performance depending on business
environment and strategy.
Founding teams are often the first TMT of an organization, and so we might initially
expect the range of findings on TMTs to apply equally well to founding teams. We might more
specifically expect this to hold under a pure “lifecycle” view of entrepreneurial TMT succession,
in which founders are replaced with new managers possessing skills appropriate for the given life
stage of a venture (Greiner, 1972), with little or no organizational memory and adjustment costs
of organizational procedures and culture. The argument is that organizations encounter different
challenges at various stages in the “lifecycle” of the organization and therefore different top
managers with new skills should be brought in (Boeker and Karichalil, 2002; Quinn and
Cameron, 1983; Hellmann and Puri, 2002). Others have argued along similar lines that the
departure of founders and hiring of “new blood” is necessary with certain transitions in the life of
the entrepreneurial firm (Miller, 1993; Miller and Shamsie, 2001).
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At a broad level, these findings on founding teams largely echo the results from a large
body of literature relating the demographic composition of TMTs to firm strategy and
performance (for comprehensive reviews, see Finkelstein and Hambrick, 1996; Williams and
O’Reilly, 1998). Many studies demonstrate a positive relationship between top management
functional diversity and firm outcomes (Lant and Mezias, 1992). Diversity is thought to improve
firm performance because it ensures that the TMT has a broader spectrum of experience and
capabilities (Keck, 1997; Randel and Jaussi, 2003).
A related yet distinct dimension of team composition is the degree to which founding
teams adopt a technical focus, with the associated human resource management implications
(Baron, et al., 1999). For instance, a team composed solely of engineers or scientists with chief
technology officer or vice president of engineering roles would be highly technically-focused.
We chose to examine technical focus rather than other dimensions (finance, operations, or
marketing) because the prior literature has suggested that many firms, particularly those that are
technology-based, begin with a technical founding team and then subsequently “professionalize”
by adding other functions to the top management team. Technically-focused teams are also the
most relevant to our focus on innovation strategy and commercialization environments.
Unlike the founding team literature, the upper echelons literature on large, established
firms has demonstrated certain contingencies shaping the optimal TMT composition. These
studies largely show that the more complex the environment or strategy, the more that diversity
among top executives is beneficial (Priem, 1990; Hambrick, Cho, and Chen, 1996; Carpenter,
2002). For instance, a firm’s corporate diversification posture (Michel and Hambrick, 1992) and
environmental turbulence (Haleblian and Finkelstein, 1993) skew the ideal TMT composition
towards diversity. Furthermore, functionally diverse teams are more likely to survive
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disruptions in the environment (Keck and Tushman, 1993). Yet, within the literature on early
TMTs, few papers discuss team demography contingencies or the importance of fit between the
founding team and business strategy and the business environment.
In summary, while scholars have noted that many founding teams are more focused and
homogenous than diverse, we have little knowledge of when such founding team composition
might be misaligned with innovation strategy or the business environment. We seek to begin
gaining that understanding in this study by paying particular attention to the founding team,
especially in light of the early team imprinting across a range of organizational processes. By
doing so, we respond to Hambrick’s (2007) call to examine the role of the founding team in
greater depth. A recent meta-analysis on the relationship between TMT composition and firm
financial performance suggests a middling direct relationship, but calls for work on moderating
influences shaping the relationship between team composition and organizational performance
more generally (Certo, et al., 2006).
Innovator Strategy
An UEM strategy to be an innovator may impact the link between
founding team composition and venture performance. When considering the competitive
strategies available to entrepreneurs, an important choice is whether or not to pursue an
innovator strategy (Lieberman and Montgomery, 1988; Eisenhardt and Schoonhoven, 1990;
Hellmann and Puri, 2000). While it is not clear that an innovator strategy is always better than
other alternatives (Leiberman and Montgomery, 1998), the choice has implications for the
skills needed, which in turn directly relate to issues of founding team composition. A non-
innovation
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based firm tends to compete on dimensions other than technological innovation since it is not
developing new-to-the-world products. Innovators introduce new products and services and
primarily compete based on their technical edge. Since firms have the choice of whether to
pursue an innovator strategy, a natural question is whether this choice also has implications for
the ideal founding team composition.
As compared to firms pursuing an innovator strategy, which rely more on the single dimension of
technical excellence for success, ventures not pursuing an innovation strategy will
rely on a broader set of resources and skills for success. As a result, in most firms outside of that
select group pursuing an innovator strategy, having a more functionally diverse founding team
offers a performance advantage. Consistent with prior literature, most such firms will have to be
competent in a wide range of areas such as sales and marketing, product distribution, and cost
leadership. While Teece (1986) stresses that possessing such complementary organizational
assets and skills (distinct from the raw technical invention) is important for value capture in
general, these assets will be particularly important in settings in which the basis for value
capture is broader, such as in the majority of cases when firms do not pursue an innovator
strategy.
Firms engaged in a less innovation-intensive strategy are therefore more vulnerable to
their weakest organizational link. This argument is reminiscent of Lazear’s (2004) image of
entrepreneurs as jack-of-all-trades. Because entrepreneurial team success hinges on possessing
sufficient skill in each of a variety of domains, teams with a balanced but lower set of
multifaceted skills are likely to outperform teams with leading edge skills in certain domains but
with low or missing competence in other domains.
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It is also important to consider the source of complexity in a venture and whether it comes from
the technology or the business model aspects of the firm. In addition to Hambrick et al.’s (1996)
conceptualization of environmental complexity, complexity may also affect the
technical and/or business aspects of the venture. The specific source of complexity in the
venture’s strategy should be aligned with the team composition (technical focus or functional
diversity). In ventures that are using an innovator strategy, the complexity is likely to reside in
the technology aspect of the business. For instance, a cure for cancer is very complex
technically , but the business model if such a cure were discovered is relatively more
straightforward. In contrast, in ventures pursuing a non-innovator strategy, the technical aspects
are likely to be less complex and the greater source of complexity is then more likely to stem
from the business model aspect of the firm, requiring greater diversity in functional roles, such as
marketing, sales, and distribution. Thus, complexity of either type could result in diversity being
beneficial to performance. However, complexity in the technical aspects as a result of an
innovator strategy can be better addressed via technically-focused team members, and thus other
more diverse functional roles will be likely to contribute less in this case.
In sum, consistent with prior literature, we expect diverse founding teams will be positively
associated with venture performance. However, firms pursuing an innovator strategy
will be an exception and will not experience the same positive impact from a diverse founding
team. Outside of those firms pursuing an innovator strategy, multifaceted organizational skills,
resources and management are particularly important for value creation and capture, and
diverse founding teams are more likely to possess such attributes.
For firms pursuing an innovation strategy, on the other hand, a more technically-focused
founding team may improve venture performance. A technically-focused founding team is
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more likely to achieve the technological milestones necessary to develop the invention (Boeker,
1989). This can stem from a variety of mechanisms including enhanced managerial focus on
technical development, stronger links with the relevant labor market (which can facilitate
identifying, recruiting and retaining technical staff), and/or fewer frictions in executing a
product development plan due to improved communication between management and technical
staff.
Commercialization Environment
Strategy and organization theorists have long been interested in the influence of the firm’s
environment (Porter, 1991; Selznick, 1949; Starbuck, 1983; Stinchcombe, 1965). Prior work has
shown that organizations are influenced by the opportunities provided by environmental jolts
and turbulence (Grant, 2003), the industry life cycle’s effect on innovation (Abernathy and
Utterback, 1978), and the isomorphic pressures of the institutional environment (Meyer and
Rowan, 1977; Scott, 2008). Organizational ecologists have focused on the roles of density,
legitimacy and resource munificence on firm survival (Tushman and Anderson, 1986). Others
have explored the strategic decision-making implications of high velocity environments
(Eisenhardt, 1989) and managing environmental uncertainty (Pfeffer and Salancik, 1978).
Finally, the stakeholder and social movement literature have demonstrated the role of
activistsand social movement organizations (Eesley and Lenox, 2006; Hiatt, Sine, and Tolbert,
2009). We focus on the line of work examining how certain technical dimensions of the
industry environment can shape organizational design (Woodward, 1965).
Prior literature indicates that for several reasons, including technical requirements in
some industries, firms typically undertake a strategic approach and partner with as opposed to
compete against industry incumbents (Lerner and Merges, 1998; Christensen and Bower, 1996;
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Teece, 1986; Tripsas, 1997). This contains a theoretically-based way to classify
industry commercialization environments since it gives us a structured lens through which to
predict how new ventures will likely make strategic choices and what types of teams they may
need. For instance, in the biotechnology industry, ventures frequently develop a new
technology and then partner with incumbents (pharmaceutical firms) who handle the
subsequent steps of regulatory approval, marketing, sales and distribution. In contrast, in some
industries such as software it is more common for ventures to compete head-to-head in the
product market with incumbent firms. These commercialization environments, which we label
competitive versus cooperative with incumbents, tend to differ across industries (Gans, Hsu,
and Stern, 2002). A key insight from this literature is that certain dimensions of industry
environments, such as the importance of complementary assets and the effectiveness of
intellectual property protection, especially relate to the technical requirements of the industry
(Woodward, 1965; Tripsas, 1997). These shape the likelihood that a venture will pursue a
competitive versus cooperative strategy with industry incumbents for commercializing their
products or services (Gans and Stern, 2003; Lerner and Merges, 1998; Rothaermel, 2001).
Cooperative Environment
In the cooperative environment, ventures tend to cooperate with incumbents and form
partnerships with established firms in the industry to bring their products and services to
market.
Ventures in cooperative environments tend not to compete in the product market directly with
incumbents; instead they typically partner with industry incumbents. This type of cooperative
commercialization environment characterizes industries like biotechnology (that often partner
with incumbent pharmaceutical firms for regulatory approval, marketing and distribution) and
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medical devices, telecommunications, or chemicals. In a competitive commercialization
environment (for instance, software, consumer products, or web services), ventures seek to
compete in the product market against incumbent firms rather than partner for
commercialization (e.g., Katila, Rosenberger, and Eisenhardt, 2008; Tripsas, 1997).
These differences in the technical requirements of the industry environment have direct
implications for the founding team composition. When in a competitive environment,
entrepreneurial ventures typically have to make investments in their own complementary
assets, such as marketing, sales, manufacturing and distribution to build the capabilities
necessary to
compete in the market. More functionally diverse founding teams have the human capital,
skills, and diversity of experience to build the complementary assets necessary to
commercialize a good. It is more challenging for a technically-focused team of all engineers or
scientists to build the sales, marketing and distribution capabilities necessary for the firm to
compete with industry incumbents.
Since prior work finds that entrepreneurial performance is related to the founder’s
education level (Roberts, 1991), we control for the education level with master’s degree and
Grouping industries based on their complementary assets and patent protection dimensions is
a method grounded in the prior literature, and allows future researchers to classify new
industries based on these characteristics. doctorate degree controls. While having a founder
with a doctorate degree might be an indication of a technology-focused team, not all doctorates
in the sample are in technical fields, so we prefer the founding role measure and leave educational
degrees as a control. Since more general experience may increase entrepreneurial performance,
we control for founder age (Evans and Leighton, 1989). The variable founder age is the
entrepreneur’s age when the firm was founded. A number of studies show that the founder’s
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prior industry experience increases firm performance (Klepper and Simons, 2000; Klepper,
2002; Ingram and Baum, 1997). Older, more experienced TMT members are found to aid firm
performance. For example, CEOs in the microcomputer industry with an older experienced
counselor make faster decisions, improving performance (Eisenhardt, 1989). We also measure
experience in founding a firm with the variable experienced entrepreneur as a binary variable
indicating whether the founder has prior entrepreneurial experience. Prior work has shown
experienced entrepreneurial founders outperform their less experienced counterparts (Delmar
and Shane, 2006).
Finally, we control for other team and firm-level effects that may influence firm
performance. Since larger founding teams have been shown to outperform, we control for
founding team size (in addition to the respondent) since having multiple members of a team
leads to higher performance (Eisenhardt and Schoonhoven, 1990; Roberts, 1991). We control for
solo founder, which is equal to 1 if there was only one founder. Older firms tend to be larger and
have higher revenues, so we control for the age of the startup, as measured by firm age. Since
raising funding from external investors has been shown to be associated with higher firm
performance and also may be easier for an experienced entrepreneur, we seek to control for these
effects (Hellmann and Puri, 2002; Hsu, 2007). External funding is equal to 1 if the individual
raised funds from venture capital firms or angel investors. It is possible that some ventures had
more technical development prior to the founding of the company than others, allowing some to
be ready for commercial sales, while others needed more technical development first. We
therefore use a question from the survey about whether the founder had funding to develop a
prototype prior to founding the company as another control variable (prototype funded).
22
Analysis and Results
SWOT Analysis
Figure 2 – SWOT Analysis Diagram
Strength
Customer knowledge.
One of the key competitive advantages UEM has is its extensive knowledge about the
customers. The company understands the purchasing factors that influence customers to buy
and implements the best practices to induce that decision. UEM offers competitive prices and
a huge range of products. Designers constantly introduce new design products that look
Strengths
Customer knowledge
Constantly using innovations to drive costs down
Supply chain integration
Brand reputation and market presence
Diversified product portfolio
Weaknesses
Negative publicity
Decreasing quality
Standard products
Opportunities
Further expansion into developing economies
Expansion to growing oversea market
Threats
Growth of average consumer income
23
stylish in the eyes of customers. All the products are designed so it would be easy to transport
and assemble. Moreover, the company offers the widest product range and positive shopping
experience. All of these factors are aligned with what customers want and need and which
results in higher sales. Without such extensive customer knowledge and best practices to
benefit from that knowledge, UEM would be unable to outcompete its current competitors.
Constantly using innovations to drive costs down.
Competitive prices are the cornerstone of UEM business idea and the the company always try
to do things as efficient and cost-effective as possible. To drive costs down all the time, the
company must find new and innovative ways to do that and to incorporate them in its
businesses model. The business’ innovations include new materials that contribute more to
sustainable environment and are less costly or using newest ways of packaging, handling and
transporting materials.
Supply chain integration.
UEM is committed to long lasting relationships with its suppliers. In this way, the company
can order large volumes and benefit from lower prices and greater quality while suppliers are
assured of guaranteed orders. UEM sources its materials close to suppliers to reduce
transporting costs. The company also uses a good approach to closely integrate suppliers with
its supply chain. All the efforts of closely integrating supply chain results in lower costs and a
competitive advantage.
Brand reputation and market presence.
According to iproperty.com, UEM is the most valuable property developer in the world,
valued at nearly $US 12.8 billion in 2012. The business operates in other countries and is
24
present in the major world markets. More than thousand customers rate UEM as a high class
services . Worldwide market presence and strong brand reputation ensures that customers
will often choose UEM over its competitors.
Diversified product portfolio.
Unlike UEM’ largest competitors, the company has fairly diversified businesses. In addition
to its property development, the company operates waste management, facility management
and engineering. Although, firm’s main business is in property development it is not so
affected by the changing forces in this market as other property developer.
Weaknesses
Negative publicity
The company has been criticized many times for issues like poor treatment of employees,
questionable advertising practices or lobbying government authorities. Negative publicity
decreases brand reputation and customer loyalty.
Low quality of products and services
UEM is unable to find compromise between continuous cost reductions while maintaining the
same quality of products. According to UK Customer Insights report on UEM by Verdict,
UEM’s customers are less satisfied with its product and services quality than the average
customer in UK buying at other property. Firm’s cost reductions lead to decreasing product
quality, which was followed by higher number of complaints and damaged brand.
25
Standard products
UEM main competitive advantage derives from low costs, which in part are achieved due to
standardized products. Standardized products attract fewer customer segments. Therefore, the
business inability to offer better quality more customized products allows its competitors to
fill that niche and fortify their position in it.
Opportunities
Further expansion into developing economies
Property markets grew by at least 5% on average in emerging markets in the last year,
opening huge opportunities for UEM’s revenue growth. The company currently operates in
most of the developed economies but hasn’t firmly stepped into developing economies,
except China. There are great opportunities for UEM to expand into Brazil, Mexico,
Indonesia and Malaysia to increase its presence in these markets to sustain future growth.
Expansion to growing oversea market.
The current trend of properties has resulted in higher demand for housing segments in many
developed economies. UEM has an opportunity to expand its properties and utilities business
by introducing more style in its current design. The company is already successfully
managing its worldwide branches, so this expansion opportunity would be well aligned with
the current operations.
26
Threats
Growth of average consumer income
Growth of average consumer income means that people buy less low price and low quality
products, which is exactly what UEM offers in its price. With the rising income people will
be less attracted to UEM product and services and will turn to another developer that offer
higher quality in industrial products.
Discussion and Conclusion
Prior work has examined factors such as the career history of founders and top
management team, strategy and market growth (Eisenhardt and Schoonhoven, 1990). This
literature has generally argued that a functionally diverse founding team is optimal (Beckman, et
al., 2007).14 In addition, the prior literature shows that the general complexity surrounding the
organization is an important factor in top management team composition (Priem, 1990). We
provide theory and evidence that in some cases, a diverse team is less beneficial and a more
technically-focused founding team does better. In these cases, when using an innovator strategy
or in a cooperative industry environment, the complexity regarding technical issues is high
while business model complexity is relatively lower. As a result, our work responds to
Hambrick’s (2007) call to examine the role of the founding team as well as calls for work on
moderating influences (Certo et al., 2006) by showing that the characteristics of highly
performing founding teams may be contingent on their alignment with two factors - innovation
strategy and industry commercialization environment.
Those models assert that a venture becomes “professionalized” over time
and so a fit between the founding team and the eventual innovation strategy is unnecessary as
the right skills can be added at a later stage (Hellmann and Puri, 2000; Keck, 1997; Randel and
27
Jaussi, 2003). In contrast, imprinting models argue that the founding team composition has
lasting influences on the firm (Beckman and Burton, 2008; Burton and Beckman, 2007). We
contribute to this literature by showing that the initial founding team must be aligned with the
strategy and environment to produce long term organizational performance, which may limit
the effectiveness of sequential TMT professionalization over the venture life cycle.
Finally, while the firm’s business environment continues to interest strategy and organization
theorists (Porter, 1991; Selznick, 1949; Starbuck, 1983; Stinchcombe, 1965), little
or no prior work has related firms’ commercialization environments to their founding team
composition. While the prior literature studies new ventures’ entry strategies and finds that such
strategies are contingent on the business environment (Teece, 1986; Gans, et al., 2002), we
suggest that the commercialization environment is an important contingency in the relationship
between founding team composition (and the associated information and skills of the startup)
and organizational performance. Consequently, our findings contribute to the literature by
showing how technical aspects of the industry commercialization environment influence
founding team composition.
28
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