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Strategic Management of Entrepreneurial Firms during Recession
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ISBN978-952-60-5983-9(printed)
ISBN978-952-60-5984-6(pdf)
ISSN-L1799-4934
ISSN1799-4934(printed)
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DepartmentofIndustrialEngineeringandManagement
StrategicManagementof
EntrepreneurialFirms
during Recession
JuhanaPeltonen
DOCTORAL
DISSERTATIONS
AaltoUniversitypublication series
DOCTORALDISSERTATIONS194/2014
StrategicManagementof
EntrepreneurialFirms during
Recession
JuhanaPeltonen
Adoctoraldissertation completedfor thedegreeofDoctor of
Science(Technology)tobedefended,withthepermission ofthe
AaltoUniversitySchoolofScience,ata publicexamination heldat
thelecturehallAS1oftheSchoolofScience(Espoo,Finland)on
the12thofDecember 2014atnoon.
AaltoUniversity
SchoolofScience
DepartmentofIndustrialEngineeringandManagement
Supervisingprofessor
Professor Markku Maula
Preliminaryexaminers
Professor Johan Wiklund,SyracuseUniversity,USA
AssociateProfessor ScottLatham,UniversityofMassachusetts
Lowell,USA
Opponent
AssociateProfessor KarlWennberg,Stockholm Schoolof
Economics
AaltoUniversitypublication series
DOCTORALDISSERTATIONS194/2014
©Juhana Peltonen
ISBN978-952-60-5983-9(printed)
ISBN978-952-60-5984-6(pdf)
ISSN-L1799-4934
ISSN1799-4934(printed)
ISSN1799-4942(pdf)http://urn.fi/URN:ISBN:978-952-60-5984-6
Unigrafia Oy
Helsinki2014
Finland
Abstract
AaltoUniversity,P.O.Box11000,FI-00076Aalto www.aalto.fi
Author
Juhana Peltonen
Nameofthedoctoraldissertation
StrategicManagementof EntrepreneurialFirms during Recession
PublisherSchoolof Science
UnitDepartmentof IndustrialEngineering and Management
SeriesAaltoUniversity publication series DOCTORALDISSERTATIONS 194/2014
FieldofresearchVentureCapitaland PrivateEquity, GrowthEntrepreneurship and
CorporateVenturing
Manuscriptsubmitted29 August2014 Dateofthedefence12 December 2014
Permission topublishgranted(date)9 October 2014 LanguageEnglish
Monograph Articledissertation (summary+ originalarticles)
Abstract
Theexisting researchon strategicmanagementand entrepreneurship provides relatively few
prescriptions toentrepreneurial?rms for navigating recessions.Thekey managerialproblem
in recession involves ensuring short-term survivalwhileinvesting in futuregrowth.However,
decision-making during recessions occurs in a contextof highuncertainty, whichmay hinder
theability of managers totakeoptimalstrategicactions.
In this doctoraldissertation, Iexaminetheseissues mainly throughthelenses of the
behavioraltheory of the?rm, resourceorchestration theory, and entrepreneurialbricolage.I
employ survey and archivaldata on smalland medium-sized Finnishsoftwarecompanies from
2007 to2011.
The?rstessay examines when and why entrepreneurial?rms adjusttheir workforces during
recession.This study ?nds thatthesedecisions areprimarily driven by changes in sales.In
addition, theresults suggestthatworkforceadjustmentdecisions can spread throughboard
interlocks.Taken together, the?ndings suggestthatbothshort-run economicreasons and
socialin?uences explain ?rms'decisions toengagein countercyclicaland procyclical
strategies.
Thesecond essay examines theperformanceimplications of procyclicaland countercyclical
strategies during recession for ?rms withdifferentstrategicorientations.The?ndings suggest
thatcountercyclicalstrategies lead tobetter performance, butthenatureof therelationship is
in?uenced by thedegreeof proactiveness in the?rm's strategicorientation.
Thethird essay focuses on entrepreneurialbricolage, i.e., how?rms obtain newvaluable
resources atseemingly minimalcosts by combining resources of lower value.This essay
advances quantitativeresearchon bricolageby developing a novelmeasurementscalethat
addresses theweaknesses identi?ed in prior scales.Combined, this dissertation informs theory
and practiceon thestrategicmanagementof entrepreneurial?rms during recession by
examining performanceoutcomes of within recession strategies, thefactors thatdrivestrategy
adoption during recession, and thestrategicalternatives thatareavailabletodecision-makers.
Keywordseconomicrecession, behavioraltheory of the?rm, attention-based view, resource
orchestration, retrenchment
ISBN(printed)978-952-60-5983-9 ISBN(pdf)978-952-60-5984-6
ISSN-L1799-4934 ISSN(printed)1799-4934 ISSN(pdf)1799-4942
Location ofpublisherHelsinki Location ofprintingHelsinki Year2014
Pages140 urnhttp://urn.?/URN:ISBN:978-952-60-5984-6
Tiivistelmä
Aalto-yliopisto,PL11000,00076Aalto www.aalto.fi
Tekijä
Juhana Peltonen
Väitöskirjan nimi
Yrittäjämäisesti toimivien yritysten strateginen johtaminen taantuman aikana
JulkaisijaPerustieteiden korkeakoulu
Yksikkö Tuotantotalouden laitos
SarjaAaltoUniversity publication series DOCTORALDISSERTATIONS 194/2014
TutkimusalaPääomasijoitustoiminta, kasvuyrittäjyys ja teknologialiiketoimintojen
uudistaminen
Käsikirjoituksen pvm 29.8.2014 Väitöspäivä 12.12.2014
Julkaisuluvan myöntämispäivä 09.10.2014 KieliEnglanti
Monografia Yhdistelmäväitöskirja(yhteenveto-osa+ erillisartikkelit)
Tiivistelmä
Nykyinen yritysstrategian ja yrittäjyyden tutkimus tarjoaa yrittäjämäisesti toimiville
yrityksille(entrepreneurial?rms)niukasti toimenpidesuosituksia, jotka koskevattaloudellisia
taantumia.Taantuman aikana yrityksen johdon keskeisin haasteon varmistaa yrityksen
selviytyminen lyhyellä aikavälillä ja samanaikaisesti panostaa tulevaisuuden
kasvuedellytyksiin.Päätöksentekoon taantuman aikana liittyy kuitenkin paljon epävarmuutta,
mikä saattaa heikentää päättäjien kykyä tehdä optimaalisia päätöksiä.Tässä väitöskirjassa
tutkin tätä problematiikkaa pääasiallisesti behavioristisen yritysteorian (behavioraltheory of
the?rm), huomiopohjaisen yritysteorian (attention-based view), resurssien orkestroinnin
(resourceorchestration)sekä bricolage-teorian näkökulmista.Hyödynnän kysely-sekä
arkistoaineistoja pienistä ja keskisuurista suomalaisista ohjelmistoyrityksistä vuodesta 2007
vuoteen 2011.
Ensimmäinen esseetutkii milloin ja miksi yrittäjämäisesti toimivatyrityksetsopeuttavat
henkilöstönsä määrää taantuman aikana.Tämä tutkimus havaitsee, että näihin päätöksiin
vaikuttavatpääasiassa muutoksettarkasteltavan yrityksen liikevaihdossa.Tämän lisäksi
tuloksetviittaavatsiihen, että yritysten välisethallitusjäsenten muodostamatverkostot
toimivatkanavina, joiden kautta henkilöstön määrän sopeuttamiseen liittyvättoimitavat
leviävätyritysten välillä.Kokonaisuutena tuloksetviittaavatsiihen, että yritysten strategisiin
päätöksiin toimia jokotaloussykliä myötäilevästi (toimintaa supistavasti)tai sen vastaisesti
(toimintaa laajentavasti)vaikuttavatsekä lyhyen aikavälin taloudellisettekijätettä sosiaaliset
tekijät.Toinen esseetutkii miten yritysten strategisen päätöksenteon orientaatiovaikuttaa
siihen, miten nämä taloussyklin myötäisettai sen vastaisetstrategiatvaikuttavatyrityksen
tuloksellisuuteen.Tuloksetviittaavatsiihen, että taloussyklin vastaisetstrategiatparantavat
tuloksellisuutta, mutta tähän riippuvuussuhteeseen vaikuttaa yrityksen proaktiivinen
strateginen orientaatio.
Kolmas esseekeskittyy bricolage-käsitteeseen yrittäjyydessä.Käsiteliittyy yritysten kykyyn
luoda uusia arvokkaita resursseja minimaalisin kustannuksin yhdistelemällä muita vähemmän
arvokkaita resursseja.Tämä esseeedistää kvantitatiivista bricolage-tutkimusta kehittämällä
sen mittaamiseen tarkoitetun skaalan, joka korjaa aiempien skaalojen heikkouksia.
Kokonaisuutena tämä väitöskirja edistää strategisen johtajuuden ja yrittäjyyden teoriaa ja
käytäntöä tutkimalla strategioiden vaikutusta tuottavuuteen, strategiseen päätöksentekoon
vaikuttavia tekijöitä, sekä käytössä olevia strategisia vaihtoehtoja taantuman aikana.
Avainsanattaloudellinen taantuma, behavioristinen yritysteoria, huomiopohjainen
yritysteoria, resurssien orkestrointi, säästötoimet
ISBN(painettu)978-952-60-5983-9 ISBN(pdf)978-952-60-5984-6
ISSN-L1799-4934 ISSN(painettu)1799-4934 ISSN(pdf)1799-4942
JulkaisupaikkaHelsinki PainopaikkaHelsinki Vuosi2014
Sivumäärä 140 urnhttp://urn.?/URN:ISBN:978-952-60-5984-6
i
Acknowledgements
Now that this dissertation project has been concluded, it is time to thank
the many individuals and organizations that have helped make this
milestone a reality. First and foremost, I wish to thank my thesis supervisor
Professor Markku Maula for support in all areas of this research endeavor.
It is clear that without Markku’s backing, I would never have pulled
through the many ups and downs. I am deeply grateful to my pre-
examiners Professors Johan Wiklund and Scott Latham for their thorough
reviews and constructive feedback. I would also like to thank Professor Karl
Wennberg for acting as my opponent and providing insightful comments.
My sincere thanks to Professor Hannele Wallenius, the head of the
department, for supporting this research.
My development as a scholar owes greatly to understanding different
theoretical traditions. My view of the landscape has perhaps been most
refined by my visit to Stanford University through SCANCOR. Out the
numerous talented scholars I had the pleasure to interact with, I would
especially like to thank Professor Mitchell Stevens and Dr. Christine
Isakson. The ‘people of the fourth floor’ at Aalto deserve special thanks.
Above all, I would like to thank Dr. Pasi Kuusela and Professor Jens
Schmidt for our valuable theoretical discussions. I am grateful to Professor
Jay Barney for comments on my earlier work during Aalto’s Strategy
Research Colloquium. My warmest thanks to Nina Henriksson, Maria
Tikka, and Päivi Malinen for their administrative support.
In addition, I would like to thank my former colleagues at BIT Research
Centre, and particularly Dr. Mikko Rönkkö, Dr. Aku Valtakoski and Olli-
Pekka Mutanen from SBL for joint work related to the Software Industry
Survey, which acted as my primary data source. I am also very grateful to
Professor Pia Arenius from Hanken for fruitful collaboration in building a
platform for high-impact future research for my postgraduate phase, in
addition to our joint work on bricolage that goes back several years. I would
also like to thank Dr. Timo Nyberg particularly for long-sighted
investments into research infrastructure. Furthermore, one does not
graduate from the fourth floor without thanking Joosef Valli.
I would like to thank all my colleagues at Gearshift Group for an inspiring
work environment and providing me with the opportunity to work on
practitioner cases in emerging domains of ICT. Especially, I wish to thank
Dr. Jussi Autere who also acted as my supervisor during our joint time at
SBL, and has had a great influence on positioning my research.
ii
Furthermore, I want to thank Markku Nurmela, Christian Frühwirth, Jukka
Kotovirta, and Jyrki Laune for providing a practitioner’s lens to my work
through numerous discussions. Our interactions have significantly
influenced my view of the complementary and distinct roles of hands-on
business consulting and academic research.
I am also grateful to the Yrjö Uitto Foundation and the Jenny and Antti
Wihuri Foundation for their financial support that proved critical in making
this dissertation and my future research a reality. I wish to also thank my
family and friends for their unfailing support during this project. Last but
not the least, I would like to heartily thank Aleksandra for keeping my
spirits high and reminding me that life is not all about work.
Espoo 2014,
Juhana Peltonen
iii
STRATEGIC MANAGEMENT OF
ENTREPRENEURIAL FIRMS DURING
RECESSION
LIST OF RESEARCH PAPERS
This dissertation consists of this summary and the following three research
papers:
1. Peltonen, J., 2014. Board Interlocks and Entrepreneurial Firms’
Decisions to Hire and Fire during Recession.
2. Peltonen, J., 2014. Resource Orchestration of Entrepreneurial
Firms: Interaction Effects of Recession Strategy, Entrepreneurial
Orientation, and Performance.
3. Rönkkö, M., Peltonen J., Arenius P., 2013. Selective or Parallel?
Toward Measuring the Domains of Entrepreneurial Bricolage, in
Andrew C. Corbett, Jerome A. Katz (Eds.) Entrepreneurial
Resourcefulness: Competing With Constraints (Advances in
Entrepreneurship, Firm Emergence and Growth, Volume 15),
Emerald Group Publishing Limited, pp. 43-61.
Contributions of the author:
Essays 1 and 2 are single-authored studies. For Essay 3, the author jointly
developed the questionnaire items with the first author, wrote the
introduction, conducted and documented the data collection jointly with
the first author, and acted as the corresponding author throughout the
publication review process. The contributions of the first and second author
were equal.
iv
TABLE OF CONTENTS
1. BACKGROUND .....................................................................................................2
2. RESEARCH QUESTIONS ....................................................................................4
3. THEORETICAL BACKGROUND ....................................................................... 11
3.1 The Behavioral Theory of the Firm and the Attention-Based View ......... 12
3.2 Entrepreneurial Firm Boards ..................................................................... 14
3.3 Resource Orchestration .............................................................................. 15
3.4 Business Turnarounds and Retrenchment ................................................ 17
3.5 Entrepreneurial Orientation ....................................................................... 19
3.6 Entrepreneurial Bricolage ........................................................................... 21
4. DATA AND METHODS ..................................................................................... 23
4.1 Archival Data .............................................................................................. 23
4.2 Survey Data ................................................................................................. 24
4.3 Analytical Methods ..................................................................................... 24
5. KEY FINDINGS ................................................................................................. 28
5.1 Workforce Adjustments in Entrepreneurial Firms .................................. 28
5.2 Performance Implications of Resource Portfolio Structuring and
Interactions with Entrepreneurial Orientation .................................................... 28
5.3 Structuring the Resource Portfolio through Entrepreneurial Bricolage . 30
6. DISCUSSION ..................................................................................................... 32
6.1 Contributions to the Literature ................................................................. 32
6.2 Practical Implications ................................................................................ 38
6.3 Limitations .................................................................................................. 40
6.4 Avenues for Future Research ...................................................................... 41
7. REFERENCES .................................................................................................... 43
CHAPTER 1:
PELTONEN, J., 2014. BOARD INTERLOCKS AND ENTREPRENEURIAL FIRMS’
DECISIONS TO HIRE AND FIRE DURING RECESSION.
CHAPTER 2:
PELTONEN, J., 2014. RESOURCE ORCHESTRATION OF ENTREPRENEURIAL
FIRMS: INTERACTION EFFECTS OF RECESSION STRATEGY,
ENTREPRENEURIAL ORIENTATION, AND PERFORMANCE.
CHAPTER 3:
RÖNKKÖ, M., PELTONEN J., ARENIUS P., 2013. SELECTIVE OR PARALLEL?
TOWARD MEASURING THE DOMAINS OF ENTREPRENEURIAL BRICOLAGE.
1
INTRODUCTION TO THESIS
2
1. BACKGROUND
The Financial Crisis and the subsequent global economic downturn referred
to as the Great Recession have highlighted the need to better understand
strategic management surrounding major and vaguely anticipated shocks
(Agarwal, Barney, Foss, & Klein, 2009). Business failure statistics highlight
that this managerial task is highly demanding; with the onset of the
Financial Crisis, the number of bankruptcies more than doubled in the
United States compared to the beginning of 2007, and increases of over
50% were not uncommon in other advanced economies (OECD, 2013: 19).
In Finland, approximately 20% more companies
1
ceased in 2008 compared
to 2007 (Statistics Finland, 2013a). Despite some efforts to synthesize
research (e.g., Latham & Braun, 2011), there is currently no unified theory
of management during recessions that investigates which managerial
actions improve firm-level performance outcomes or what determines the
actions that firms actually undertake. However, the broad nature of these
issues calls into question whether a fully unified theoretical framework can
or should exist.
There are, however, numerous theories in the fields of strategic
management and entrepreneurship that address parts of this topic. The
three essays presented in this thesis also build on different theories to
address specific research questions. The essays all link to the body of
strategic management literature that investigates the orchestration of
strategic resources (Sirmon, Hitt, Ireland, & Gilbert, 2010; Sirmon, Hitt, &
Ireland, 2007; Sirmon & Hitt, 2003; Helfat, Finkelstein, Mitchell, Peteraf,
& Singh, 2007) of entrepreneurial firms under the suddenly increasing
environmental uncertainty and hostility caused by the onset of recession.
While the broad managerial issues related to recessions are difficult grasp
from a theoretical standpoint, recessions as a phenomenon of economic life
are easier to approach. Recessions are declared by observable declines in
macroeconomic variables (e.g., NBER, 2014; Rémond-Tiedrez, 2009).
Economic contractions are an integral part of economic life: a boom is
always followed by a bust. For example, the National Bureau of Economic
Research has documented 33 business cycles in the US since 1854. Since
1945, the average duration of a business cycle has been 5.7 years (NBER,
2014). Despite their periodic nature, the duration and magnitude of
business cycles have proven notoriously difficult to predict.
Beyond the macroeconomic variables, recessions are also a complex
societal phenomenon, which affects business environment and decision-
1
Limited liability companies, general partnerships, limited partnerships, and cooperatives.
3
making in many ways. Several scholars consider recessions essential to the
process through which economies renew themselves and the point at which
new goods, new methods of production, and new forms of industrial
organization replace the previous (Caballero & Hammour, 1994;
Schumpeter, 1934, 1942). Recessions themselves may also shift consumer
preferences and even create generations of consumers that behave
differently throughout their lifetimes (Flatters & Willmott, 2009; Hur,
2012). In other words, recessions are not only temporary quantitative
economic declines that are difficult to predict but also involve qualitative
changes in economic activity, which can include changes in both customer
preferences and offerings of firms.
During a recession, all firms must strike a balance between cutting costs
to survive in the present and investing in future growth (e.g., Gulati,
Nohria, & Wohlgezogen, 2010; Latham & Braun, 2011; Pearce & Michael,
2006; Roberts, 2003). This tradeoff can justify different recession
responses, i.e., within recession strategies (Latham & Braun, 2011),
depending on the industry in question. For mature industries with modest
long-term growth prospects, cutting costs and divesting assets to increase
profitability and slack are common and often successful strategies
(Hambrick & Schecter, 1983; Michael & Robbins, 1998; Pearce & Robbins,
1993). For entrepreneurial firms in growth industries, assuring that the
firm is able to capture its share of future revenue should not be neglected
(Guthrie & Datta, 2010; Morrow, Johnson, & Busenitz, 2004; Ndofor,
Vanevenhoven, & Barker, 2013).
While high-level boundary conditions for a within recession strategy are
not difficult to outline, identifying the means through which firms adjust
their resources is a different matter. There is a broad range of approaches to
the issue; in addition to acquiring, developing, or divesting internal
resources (Barney, 1986; Maritan & Peteraf, 2011), firms can also adjust
their use of external services, or better ‘make do’ with new combinations of
mundane resources they have access to (Baker & Nelson, 2005). In
addition, firms must consider the capabilities that their modified resource
sets provide and how to utilize these capabilities in new entries in the
changing marketplace (cf. Sirmon, Hitt, & Ireland, 2007; Sirmon, Hitt,
Ireland, & Gilbert, 2011; Lumpkin & Dess, 1996).
Apart from better knowing what resource-related actions improve firm
performance, what actions firms actually end up undertaking is a different
matter. Understanding these processes, especially harmful decision-making
biases under conditions of greater uncertainty and risk of failure, can result
in important managerial recommendations. When adapting to performance
feedback (Cyert & March, 1963), firms differ in which information they pay
4
attention to and how they react to it (Ocasio, 1997; Hoffman & Ocasio,
2001). In particular, social ties are highly important for decision-making in
entrepreneurial firms, which can have both positive and negative
consequences (Uzzi, 1997). However, there is little research on how the
managers of entrepreneurial firms develop responses to performance
declines and allocate the attention of its decision-makers. Unlike large
public firms, the boards of entrepreneurial firms are likely to play a critical
role in the process (Garg, 2013), and can give the firms a more external
orientation in the process of examining strategic alternatives (Vissa, Greve,
& Chen, 2010).
In sum, this overview highlights three perspectives that are important for
the strategic management of entrepreneurial firms during recession. First,
it is important to understand what the general strategic alternatives are for
firms. Second, in order to compare the alternatives, information is required
on their likely performance outcomes. Third, the decision-making context
in adopting a strategy needs to be understood (Vaara & Durand, 2012),
because it is not sufficient to know what actions are more beneficial than
others, but the most suitable actions also needs to be undertaken. The
following section refines these issues into more concise research questions,
and outlines the theories they are related to.
2. RESEARCH QUESTIONS
Before proceeding to the research questions, I wish to highlight some
reasons why it is important to study the management of entrepreneurial
firms
2
in a recessionary context. Firstly, while more research on
entrepreneurship is being conducted than ever before, there are several
streams of literature particularly in the domain of strategic management
that are highly relevant for entrepreneurial firms, but have predominantly
been researched in a large firm context. To give a few examples, the
behavioral theory of the firm (BTOF) (Cyert & March, 1963; Greve, 2008;
Audia & Greve, 2006; Vissa et al., 2010) has been developed with large
firms in mind, and it has been empirically studied almost exclusively in a
2
Generally speaking, the field of entrepreneurship considers that ‘entrepreneurial firms’ embody
‘entrepreneurship’ or ‘entrepreneurial behaviors’. However, there is no consensus on the definitions of
these terms (e.g., Shane & Venkataraman, 2000; Alvarez & Barney, 2004). Yet, common to most
definitions is some sort of theoretical departure from using existing resources to achieve previously
known outcomes using previously known processes and practices. This departure may subsequently
result in qualitatively novel ways of organizing economic activity. While the construct of an
‘entrepreneurial firm’ is not a simple dichotomy, industries where the rate of technological change and
interfirm rivalry are high (e.g., the software industry), firms are arguably required to be at least
somewhat entrepreneurial to thrive or simply to survive.
5
large firm context (Dew, Read, Sarasvathy, & Wiltbank, 2008). Meanwhile,
the goals (or aspirations) of decision-makers, which are central to driving
organizational adaptation according to the theory, can be highly different
and heterogeneous for entrepreneurs (e.g., Shane, Locke, & Collins, 2003;
Wiklund & Shepherd, 2003a). These kinds of generalizability issues related
both to theoretical and empirical research can be identified in several other
relevant streams as well. These include the role of boards of directors in
decision-making (e.g., Garg, 2013), the performance outcomes of cost-
cutting strategies (e.g., Morrow et al., 2004), and the strategies of managing
resources (e.g., Baker & Nelson, 2005).
Furthermore, it should be highlighted that entrepreneurial firms are
important sources of future economic growth and renewal (e.g., Ouyang,
2009; Schumpeter, 1934). The issue is also important from a short-term
perspective because firms that fail during recessions (or any other time) are
often small and young (OECD, 2013: 44–50). Given these academic and
broader societal motivations, I study the following main research question:
How can entrepreneurial firms be managed surrounding a
sudden economic downturn to increase their performance?
I begin decomposing this research question by observing that the public
eye is biased towards reporting entrepreneurial successes, while the
negative effects of recessions on entrepreneurial firms rarely receive
publicity. For example, mass layoffs by large firms often receive media
coverage, but accounted for a minority of private sector job cuts during the
Great Recession in the US and EU (Helfand, 2010; Wymenga, Spanikova, &
Derbyshire, 2011). CEOs of public companies issue statements justifying
why they resorted to workforce downsizing, but less information is available
on the reasons behind the layoffs of the ‘greater half’. This motivates my
examination of the reasons that lead entrepreneurial firms to adjust their
workforces during the onset of recession.
Essay 1 on the determinants of adapting workforce size in
entrepreneurial firms during the onset of the Great Recession
Workforce adjustments are a clear and frequently used approach to adjust
the resource portfolio of a firm (Datta et al., 2010). In this essay, I apply
BTOF (Cyert & March, 1963; Greve, 2008; Audia & Greve, 2006; Vissa et
al., 2010) and the attention-based view (ABV) (Ocasio, 1997; Hoffman &
Ocasio, 2001; Ocasio, 2011) to investigate these actions. As the trigger for
workforce adjustments, I examine the role of changes in sales. This
6
measure is perhaps the most sensitive to how a sudden economic shock
impacts a firm. A drop in sales has also been reported to be the most
important problem that small US businesses associated with the onset of
the Great Recession (?ahin, Kitao, Cororaton, & Sergiu, 2011).
Existing research drawing from several theoretical streams suggests that
retrenchment, including workforce reductions, may be harmful to the
performance of entrepreneurial firms (Guthrie & Datta, 2010; Morrow,
Johnson, & Busenitz 2004; Ndofor, Vanevenhoven, & Barker 2013).
Assuming that countercyclical strategies
3
are indeed beneficial in this
context, what actions do managers actually undertake and when?
Prior research on retrenchment (e.g., Grinyer & McKiernan, 1990) has
turned to BTOF (Cyert & March, 1963; Greve, 2008; Audia & Greve, 2006;
Vissa et al., 2010) to explain what causes companies to adapt to
performance shortfalls. This body of empirical research has mainly focused
on rather large firms in mature industries. BTOF views firms as short-run
adaptive performance feedback systems that gradually take stronger
corrective actions if the difference between aspirational and realized
performance grows.
ABV highlights that attention is situated, that is, the importance of the
situation in which decision-makers find themselves, rather than the
characteristics of the individuals themselves. One consequence of this view
is that network ties can strongly influence the organizational adaptation of
entrepreneurial firms (e.g., Uzzi, 1997), particularly when facing hostile
environmental jolts (Venkataraman & Van De Ven, 1998). Yet, person-level
network ties are abstracted away in contemporary BTOF research (e.g.,
Gavetti et al., 2007; Gavetti et al., 2012), and the social context is often
examined through higher level, aggregate variables. This leads to the
following research subquestion:
How do the network ties of decision-makers influence workforce
adjustments in response to failure to meet sales aspiration levels
in entrepreneurial firms?
Board interlocks (Mizruchi, 1996) form a particularly influential
interorganizational network, which can spread various behaviors (e.g.,
Davis, 1991; Gulati & Westphal, 1999; Haunschild, 1993; Westphal et al.,
2001). Board interlocks represent the ABV concept of attention structures
3
Paralleling Mascarenhas and Aaker (1989), here I consider a procyclical strategy to involve
orchestrating the firm’s resources and capabilities to be better aligned with the imminent state of the
macroeconomic environment. This involves ‘scaling down’ in various areas of internal and external
expenditures (e.g., in workforce size, R&D spending, and marketing) to protect the firm’s profitability
under harsher demand conditions. A countercyclical strategy refers to doing the opposite: orchestrating
the firm’s resources and capabilities in an expansive fashion during the recession, which may enable
firms to position themselves for postrecession growth at a lower cost.
7
that shape the time, effort and attention focus of organizational decision-
makers and determine how the firm legitimates and valuates issues and
answers (March & Olsen, 1976; Ocasio, 1997).
As prior BTOF has found that belonging to a business group influences
search patterns giving them an external orientation (Vissa et al., 2010), it is
reasonable to assume that the same would apply to board interlocks. The
importance of this external influence can be expected to grow as
environmental uncertainty increases, as firm may economize on search by
adopting actions from other organizations (DiMaggio & Powell, 1983;
Milliken, 1987).
The deviation from prior performance can include steep declines in sales,
which implies stronger pressure to downsize. Similarly, some firms may
encounter somewhat surprising sales increases, which increase pressure to
expand despite potentially fragile demand. Hence, either increases or
decreases in sales should make the firm more susceptible to external social
influences, including those spread by board interlocks.
Essay 2 on the performance implications of resource
portfolio structuring actions and entrepreneurial
orientation
Essay 2 examines the performance implications of countercyclical and
procyclical with recession strategies. For a more refined analysis beyond
this dichotomy, I draw on the resource orchestration literature (Sirmon,
Hitt, Ireland, & Gilbert, 2010; Sirmon, Hitt, & Ireland, 2007; Sirmon &
Hitt, 2003; Helfat, Finkelstein, Mitchell, Peteraf, & Singh, 2007). Resource
orchestration advances resource-based theory (RBT) by providing a
dynamic framework of how resources are used to create and capture value.
According to RBT (Barney, 1991; Peteraf, 1993; Wernerfelt, 1984; Penrose,
1959; Amit & Schoemaker, 1993; Barney, Ketchen, & Wright, 2011), firms
are heterogeneous bundles of resources and capabilities, which explains
observed performance differences among them (McGahan & Porter, 1997;
Rumelt, 1991). According to RBT, a firm has a competitive advantage if it
possesses valuable and rare resources (Barney, 1991). However, a firm must
renew its resources and capabilities to remain competitive because
competitive advantages can rarely be sustained (Eisenhardt & Martin,
2000; Teece, Pisano, & Shuen, 1997; Winter, 2003).
Resource orchestration examines the actions that managers take to
employ firm resources effectively by structuring the firm resource portfolio,
bundling resources into capabilities, and leveraging these capabilities to
create value. Structuring a firm resource portfolio relates to acquiring
(Barney, 1986), accumulating (Dierickx & Cool, 1989a), or divesting
8
resources. Firms can acquire or divest resources (e.g., business units,
plants, human capital, or IPR) on strategic factor markets (SFMs) (Barney,
1986). In addition to making good decisions to structure resource portfolios
and bundle resources into capabilities, firms must also leverage their
capabilities to create value (Sirmon et al., 2007). Furthermore, these
processes be synchronized and not viewed in isolation (Sirmon et al., 2007:
287); A firm should not modify its resource portfolio without
understanding how the change affects its capabilities or how the new
capability set will be utilized.
While this is an area that RBT has often ignored (e.g., Priem, Butler, & Li,
2013; Priem & Butler, 2001a, 2001b), firms can have different strategic
orientations
4
regarding how they leverage their capabilities. The strategic
orientation that involves leveraging capabilities in an entrepreneurial
fashion – which recessionary conditions warrant (Sirmon et al., 2007) –
can be examined through the lens of the entrepreneurial orientation (EO)
literature (Lumpkin & Dess, 1996; Covin & Slevin, 1989). The
entrepreneurial orientation construct (EO) relates to the degree to which
new firm entries are conducted in an entrepreneurial fashion, and it is
typically considered to consist of three dimensions: innovativeness,
proactiveness, and risk taking. The EO perspective suggests that when firms
decide on adopting countercyclical or procyclical resource portfolio
structuring strategies, they should consider their established ways of
making new entries to make most use of their modified resource portfolios.
Therefore, I examine the following subquestion:
How does an entrepreneurial firm’s strategic orientation of
leveraging its capabilities influence the firm’s performance
jointly with its resource portfolio structuring actions?
More specifically, recessions have implications on resource orchestration
in two key areas: they influence what kinds of resource portfolios firms
should have, and how firms should leverage the capabilities that the
resources enable. The resource portfolio question can be analyzed by
viewing how recessions affect SFMs. The price of the resources should
correspond to expected future returns. However, during recessions
(especially disturbances in credit markets), SFMs may become oversold as
companies with good long-term prospects fail or are forced to divest assets
due to short-run liquidity problems. This problem provides a rationale for
4
Drawing on Mintzberg (1973: 44) and Covin & Slevin (1989: 77), a firm's strategic orientation to refers
to its overall competitive orientation, that is shaped by the ways in which a firm makes important
decisions and forms strategies. A firm’s entrepreneurial (strategic) orientation (EO) is discussed in more
detail in section 3.5.
9
countercyclical strategies (e.g., Greer, Ireland, & Wingender, 2001; Greer &
Stedham, 1989; Pangarkar & Lie, 2004; Wan & Yiu, 2009) through which
firms obtain resources at a discount during recessions and utilize them to
create more value than their price would imply as the recession recedes.
However, for declining or mature industries, the long-term advantages of
a countercyclical strategy may be difficult to grasp. Firms may face a
persistent need to downsize with the declining market and act in SFMs
primarily as sellers. Additionally, future returns from resources may be
modest. Therefore, recessions may not create the same buying
opportunities in SFMs for mature industries as they do for growth
industries. Because these firms place less emphasis on future growth and
more emphasis on survival and profitability, reducing their resources
through retrenchment (Schendel, Patton, & Riggs, 1976; Hofer, 1980;
Hambrick & Schecter, 1983; Pearce & Robbins, 1993) can be a more viable
strategy to maximize performance. In addition to operating on SFMs, firms
can structure their resource portfolios through internal accumulation
(Dierickx & Cool, 1989a). SFM theory suggests that the investment costs of
developing resources through accumulation should be approximately equal
to acquiring similar resources through strategic factor markets (Barney,
1989; Dierickx & Cool, 1989b).
In simplifying terms, the above discussion captures a logic that is similar
to a stock trader’s most important rule: buy low, sell high. However, when
firms and resources are in question, there are some important departures
from this logic. First, firms are bundles of complementary resources (cf.
Adegbesan, 2009). This implies a firm’s past resource position can have a
great impact on the synergies it can create with new resources. Second,
firms are different in how they leverage their resources, which can both
influence their ability to capture value from the resources that they have,
and help them identify resources from SFMs that are valuable to them.
A firm’s EO, which is considered to be fairly consistent over time, has an
impact on both of these areas particularly in a recessionary context.
Primarily, EO deals with how a firm makes new entries, including how
capabilities can be used in new ways. EO may also influence a firm’s ability
to benefit more from ‘oversold’ SFMs by helping it identify more valuable
ways to use new resources (or to form superior expectations). Furthermore,
EO indirectly influences the accumulation of a firm’s resources and
capabilities. For example, pursuing an innovative and proactive strategy
can give the firm new experiences that improve its knowledge-based
resources.
10
Essay 3 on bricolage as a resource orchestration approach
Merely aligning accumulation, acquisition, and divestment actions with
industry conditions and the business cycle does not account for
qualitatively novel economic activity (cf. Schumpeter, 1934). As previously
noted, recessions also change consumer behavior, and merely correctly
timing actions that scale firm resources do not account for the processes
that renew economies. Furthermore, this setting suggests that larger firms
with ample resources would seemingly have a disproportionate advantage
over smaller and younger firms with fewer resources when acquiring
resources on SFMs. Yet, history is replete with examples in which
established firms are bested by younger and smaller rivals with apparent
initial resource disadvantages.
SFM theory accommodates this process partly through the concept of
resource complementarity (Adegbesan, 2009). Firms that have resources
with a greater degree of complementarity with a new target resource are
able to create larger surpluses. This is one (partial) way of articulating
Schumpeter’s (1934) entrepreneurial role, which involves the introduction
of new combinations.
Essay 3 addresses a resource portfolio structuring approach that lies
between resource acquisition (Barney, 1986) and accumulation (Dierickx &
Cool, 1989a): entrepreneurial bricolage (Baker, Miner, & Eesley, 2003;
Baker & Nelson, 2005; Lanzara, 1999). Baker and Nelson (2005) define
bricolage as ‘making do by applying combinations of the resources at hand
to new problems and opportunities’. Despite the potential of this concept to
explain how resource-constrained firms appear to create valuable and rare
resources from seemingly nothing, the measurement of entrepreneurial
bricolage is underdeveloped, which hinders empirical research on the topic.
The third essay addresses this gap and documents the process of developing
a novel scale to measure entrepreneurial bricolage.
The most commonly used measurement scale for bricolage was developed
in conjunction with the CAUSEE project (Davidsson, Steffens, & Gordon,
2011) and measures how commonly different elements of this definition
manifest at the firm level (Senyard, Baker, & Steffens, 2010; Senyard,
Baker, & Davidsson, 2009; Steffens, Baker, & Senyard, 2010; Senyard,
Baker, Steffens, & Davidsson, 2014). One benefit of this approach is that it
addresses how often bricolage takes place. However, theory developed on
bricolage suggests that the breadth of areas in the firm’s operation where
bricolage manifests impacts growth outcomes (Baker & Nelson, 2005).
Baker and Nelson (2005) refer to these areas of operation as the domains of
bricolage. The research question of the third essay can be stated as follows:
11
How can entrepreneurial bricolage be measured through the
domains in which it manifests?
According to Baker and Nelson (2005), bricolage may manifest in five
different environmental domains that fall into three categories: (i) inputs
(physical, labor, skills), (ii) customers/markets, and (iii) institutional and
regulatory environments. Baker and Nelson (2005) further argue that if
bricolage is undertaken in all domains (parallel bricolage), it is likely to
create a bricolage identity or permissive community of practice, which
hinders growth by reducing the firm’s ability to identify and seize
opportunities in broader markets. However, if bricolage manifests in fewer
domains (selective bricolage) firms may be able to develop new resources at
a minimal cost without suffering from the drawbacks of parallel bricolage.
Testing this theory requires a scale that can distinguish the degree to which
bricolage is parallel.
Particularly during recessions, entrepreneurial firms can be resource-
strapped, which implies that the resources they are able to use for
combination are seemingly very limited. On the other hand, many firms fail
during recession freeing up their resources to SFMs. Under these
circumstances, bricolage can be a viable option for entrepreneurial firms to
overcome their resource constraints and make use of resources that other
firms have been forced to abandon.
3. THEORETICAL BACKGROUND
There is currently no unified or broadly accepted theory of ‘management
during recession’. Instead, the limited number of studies that touch upon
such conditions tend to apply a broad range of theories and focus on
specific areas of strategy (e.g., Greer, Ireland, & Wingender, 2001;
Mascarenhas & Aaker, 1989; Wan & Yiu, 2009). While holistic recession-
centric approaches are yet to gain major traction in the scholarly
community, the framework developed by Latham and Braun (2011)
provides a promising step forward and a suitable lens for the main areas of
inquiry in this dissertation. Latham and Braun (2011) propose that firm-
level initial conditions (e.g., resources and capabilities) and their within
recession performance (performance during a recession) significantly
influence strategic decisions during recessions (within recession strategy).
Subsequently, a firm’s performance after a recession (post-recession
performance) is significantly influenced by the firm’s within recession
12
strategy and initial conditions. From the perspective of this framework, my
theoretical review focuses on (i) selecting within recession strategies, (ii)
performance implications of within recession strategies, and (iii) possible
within recession strategies. These domains also map closely with the
respective essays.
I examine the first domain through BTOF and ABV. The second domain is
viewed through RBT, particularly resource orchestration, which also
provides a common theoretical foundation for the essays (see Figure 1).
Entrepreneurial orientation (EO) and its dimensions are considered in
relation to how a firm leverages its capabilities. The third domain is
addressed through entrepreneurial bricolage as a complement to research
examining business turnarounds. In the remainder of this chapter, I
provide a detailed overview of these theories.
Figure 1. The relationships of the essays to resource orchestration and other literature
streams.
3.1 The Behavioral Theory of the Firm and the Attention-Based
View
The behavioral theory of the firm (BTOF) (Cyert & March, 1963; Greve,
2008; Audia & Greve, 2006; Vissa et al., 2010) is perhaps the most
commonly utilized theory to examine organizational adaptation over the
short term. BTOF argues that organizations are fundamentally averse to
change and uncertainty; therefore, they undertake major changes only if
required by significant and imminent reasons. According to this theory,
organizations adapt to environmental changes incrementally based on
13
short-term feedback, and address issues sequentially according to an order
of priority.
According to BTOF, an organization compares its realized performance to
its aspirational performance. An organization can possess aspiration levels
for areas including profitability, sales, market share, or production.
Aspiration levels are a function of previous performance and goals as well
as the performance of comparable organizations (Cyert & March, 1963:
162). Underachievement with respect to an aspiration level (or an
immediate expectation of it) can trigger problemistic search (p. 169), the
motivated search to identify (and take) actions to reach the aspiration level
of performance.
Problemistic search gradually expands from a simple model of causality in
which solutions are sought from areas that are within close proximity of the
symptoms. If no solution is found, then problemistic search proceeds to
more distant areas with higher levels of complexity and areas in which the
organization has slack (p. 171). The search process ends when the firm
reaches its aspiration level of performance or when it revises its aspiration
level to match current performance. Organizational adaptation can also be
driven by more than one aspiration level in the same area of interest. For
example, a modest decline in profits below target can be remedied through
additional risk-taking. However, if profits fall to level that threatens
organizational survival, the dangers of risk-taking increasingly influence
decision-making (Audia & Greve, 2006; March & Shapira, 1987, 1992).
BTOF assumes that problemistic search is biased by the manner in which
an organization views the environment and processes information about it
(Cyert & March, 1963: 162-171). Similarly, it can be expected that biases are
introduced when organizations form their aspiration levels through social
comparison (Festinger, 1954). However, BTOF acknowledges these biases
to exist, it does little to elaborate how they are formed. The attention-based
view of the firm (ABV) (Hoffman & Ocasio, 2001; Ocasio, 1997)
complements BTOF in this area. According to the theory, firm behavior is a
result of how firms channel and distribute the attention of their decision-
makers. Therefore, small differences in how organizations focus their
limited attention can result in inertia, inappropriate change, or successful
adaptation. (Ocasio, 1997)
According to Ocasio (1997), the cultural and cognitive schemas that are
available to decision-makers determine which environmental stimuli the
firm attends to (issues) and which responses are applicable to them
(answers) (Cohen, March, & Olsen, 1972). ABV highlights that attention is
situated, which refers to the importance of the situation in which decision-
makers find themselves, rather than the characteristics of the individuals
14
themselves. Furthermore, attention is distributed within the organization,
that is, the foci of attention vary throughout the organization.
The central constructs of the ABV include the attention structures that
shape the time, effort and attention focus of organizational decision-makers
and determine how the firm legitimates and valuates issues and answers
(March and Olsen, 1976; Ocasio, 1997). Attention structures relate closely
to procedural and communications channels, which represent the
situational contexts in which attention and action occur. They include
formal and informal meetings, reports, and administrative protocols
(Ocasio, 1997).
BTOF and ABV are applied in this dissertation in the context of
entrepreneurial firm boards. Boards of directors are a central part of firm
administration, and their role is to monitor the behavior of management
and ‘step in’ when significant corrective action is needed. Hence they are an
important part of problemistic search and also channel the attention of the
organization. This approach extends prior research in the intersection of
external organizational attention and problemistic search (Vissa et al.,
2010).
3.2 Entrepreneurial Firm Boards
Boards of directors as a corporate governance mechanism have fascinated
researchers for decades (see e.g., Daily, Dalton, & Cannella, 2003; Johnson,
Daily, & Ellstrand, 1996; Mizruchi, 1996 for reviews). Much research effort
has been devoted to applying agency theory (Jensen & Meckling, 1976;
Fama & Jensen, 1983) to explain how the separation of ownership and
control shapes organizational phenomena. Board research has focused
mainly on large public companies, while small and medium firms have
received much less attention (Daily et al., 2003; Huse, 2000; Machold,
Huse, Minichilli, & Nordqvist, 2011). Yet the boards of small firms have
long been considered an important organizational asset beyond their
control function (Certo et al., 2001; Daily and Dalton, 1992). Researchers
have examined their various value-added activities, such as securing
resources (e.g., Guler, 2007; Hallen, 2008; Katila, Rosenberger, &
Eisenhardt, 2008), providing legitimacy (e.g., Chen, Hambrick, & Pollock,
2008; Stuart, Hoang, & Hybels, 1999), and advice (e.g., Fried, Bruton, &
Hisrich, 1998; Rosenstein, Bruno, Bygrave, & Taylor, 1993).
However, theory development on entrepreneurial firm boards has
recently begun to receive more attention (Garg, 2013, 2014; Krause &
Bruton, 2014). This recent work builds on the differences with public firm
boards. For example, the separation between ownership and control is
weaker in private firms, and therefore the alignment of financial incentives
15
between the management and owners of a firm is stronger (Garg, 2013).
Boards of private firms are also likely to have better practical knowledge of
the industry sector, whereas public firm directors typically come from other
industries to improve independence (Davis & Cobb, 2010; Linck, Netter, &
Yang, 2009). Despite these strengths, Garg (2013) argues that too much
board monitoring in entrepreneurial firms may harm performance by
inhibiting innovation, drawing executives’ attention away from substantive
tasks, and leaving them with a low sense of self-control.
In this dissertation I view entrepreneurial firm boards through the lens of
the ABV, which is an approach that has been previously adopted in the
context of public firm boards (e.g., Tuggle, Schnatterly, & Johnson, 2010;
Tuggle, Sirmon, Reutzel, & Bierman, 2010). The ABV is a valuable
theoretical lens in this context for two reasons. First, as central components
of administration, boards can be considered a significant element of firm
procedural and communications channels. Second, boards of directors can
create links between organizations by forming interlocks. A board interlock
occurs when a person who is affiliated with one organization sits on the
board of directors of another organization (Mizruchi, 1996). Therefore, they
act as attention structures (March and Olsen, 1976; Ocasio, 1997) that have
an external orientation from the perspective of the focal firm.
The role of board interlocks in shaping the attention of entrepreneurial
firm boards has received little of no research attention previously. It can
however be expected, that the board becomes more active when the firm
faces a risks of a downturn or poor performance and it’s owners become
concerned about the performance of their investments (Fiegener, 2005;
Gabrielsson, 2007). Therefore, board interlock networks might also
influence how firms adapt when they deviate from prior performance levels,
especially under the economic uncertainty that surrounds the onset of a
recession.
3.3 Resource Orchestration
Resource orchestration (Sirmon et al., 2011, 2007; Sirmon & Hitt, 2003;
Helfat et al., 2007) is theoretically grounded in the resource-based (Barney,
1991; Peteraf, 1993; Wernerfelt, 1984; Penrose, 1959) and dynamic
capabilities literatures (Eisenhardt & Martin, 2000; Teece et al., 1997;
Winter, 2003) and examines the actions that managers take to employ the
firm’s resources effectively by structuring the resource portfolio, bundling
resources into capabilities, and leveraging the capabilities to create value.
The resource management model proposed by Sirmon, Hitt, and Ireland
(2007) is the dominant model in this body of literature. It seeks to address
16
several issues within ‘static’ RBT, namely neglecting dynamism,
environmental contingencies, and the role of managers.
Sirmon et al. (2007) distinguish between value creation for customers and
wealth creation for owners (e.g., Coff, 1999). The former is achieved if the
firm produces greater utility for customers than competitors do, which
implies that the firm has a competitive advantage (Hoopes, Madsen, &
Walker, 2003; Powell, 2001). The latter further requires that utility and
costs be optimized through resource management. The resource
management process model includes three levels, which address
managerial action in developing resource and capability portfolios, and
putting them into use. The first level, structuring the resource portfolio,
essentially determines the origin of the firm’s resources. This level captures
the stream within RBT that considers accumulating resources through
internal development (Dierickx & Cool, 1989a), strategic factor markets
(Barney, 1986), or divestment.
At the second level, capabilities are formed (or bundled) by integrating
resources within the firm’s resource portfolio. This formation takes place
through three main processes. First, stabilizing refers to making minor
incremental improvements to existing capabilities, such as training
employees. Second, enriching refers to extending and elaborating existing
capabilities, such as integrating newly acquired resources into existing
capabilities. Third, pioneering refers to creating completely new
capabilities. Although pioneering can involve recombining existing
resources, Sirmon, Hitt & Ireland (2007) argue that it often involves
completely new resources.
At the third level of resource management, capabilities are leveraged to
create value. This level involves exercising the option to apply firm
resources to achieve a desired outcome, which is enabled by possessing
capabilities (Winter, 2003). Sirmon et al. (2007) list three main leveraging
strategies. The resource advantage strategy involves providing higher value
to customers through a distinctive competence in an existing market. The
exploiting market opportunities strategy involves configuring existing
capabilities to target or create new opportunities, which are often adjacent
to the markets in which the firm already operates. Finally, the
entrepreneurial strategy involves producing new goods or services for new
markets. Sirmon, Hitt & Ireland (2007) also elaborate on the processes that
are required to pursue resource leveraging strategies.
Overall, Sirmon et al. (2007) argue that all elements of resource
management must be viewed jointly because they are inherently linked in
ways that often include organizational idiosyncrasies. Sirmon et al. (2007)
also acknowledge the importance of the firm operating environment, which
17
they decompose by munificence and uncertainty. Environmental
munificence refers to the ‘scarcity or abundance of critical resources needed
by (one or more) firms operating within an environment’ (Castrogiovanni,
1991: 542). Environmental uncertainty (i.e., dynamism), on the other hand,
is reflected by the regularity and amount of change occurring in the
environment, including changes in industry structure, stability of market
demand, and probability of environmental shocks (Sirmon et al., 2007:
275). Because the value of resources can vary across environmental
contexts, the value-creating potential of the firm is affected along with the
related resource management process.
Interest in resource orchestration has produced several empirical studies
(Sirmon, Gove, & Hitt, 2008; Sirmon & Hitt, 2009; Ndofor, Sirmon, & He,
2011; Chadwick, Super, & Kwon, 2014; Holcomb, Holmes, & Connelly,
2009; Morrow, Sirmon, Hitt, & Holcomb, 2007). While these studies
address only limited aspects of the Sirmon et al. (2007) model, they provide
promising evidence that supports the key theses of the theory. For example,
Sirmon and Hitt (2009) examine the relationship between human and
physical resource investments and performance for banks that vary by the
degree of sophistication of their services. While the study does not account
for the environmental context, it suggests that resource investment and
deployment decisions must be aligned.
Given the recent emergence of research on resource orchestration, there
are also many empirical research gaps. Particularly relevant to this
dissertation is resource orchestration in the context of extreme uncertainty,
and Sirmon et al. (2007: 287) propose that an entrepreneurial leveraging
strategy is likely to be required to create value for customers.
3.4 Business Turnarounds and Retrenchment
Research on business turnarounds (Pearce & Robbins, 1993; Robbins &
Pearce, 1992; Hofer, 1980; Schendel et al., 1976; Morrow et al., 2004;
Morrow et al., 2007; Trahms, Ndofor, & Sirmon, 2013) seeks to understand
how firm performance declines can be reversed. The central concepts of the
stream include the turnaround situation, where the firm's performance has
gradually deteriorated (Bibeault, 1982; Hambrick & Schecter, 1983;
Schendel et al., 1976). An additional boundary condition, which often
remains unstated in recent research, is that the firm must attempt to
reverse the decline rather than opt for liquidation (Hofer, 1980).
The cause of a turnaround situation can include any combination of
internal (e.g., operating inefficiencies) or external (e.g., a recession) factors
(e.g., Boyle & Desai, 1991; Finkin, 1985; Heany, 1985), which unfold and
impact matters from the short-term (i.e., operational cause) to the long-
18
term (i.e., strategic cause). Additionally, the severity of the turnaround
situation is considered an important construct, which relates to the
probability of business failure provided that no action is taken by the firm
(cf. Altman, 1968; Bibeault, 1982; Hofer, 1980). Depending on the nature of
the turnaround situation (its cause and severity), the managers of a firm
should select and implement a corresponding turnaround response (i.e.,
turnaround strategy). This process involves many behavioral processes
within the firm, which can delay the implementation of corrective action
(Audia & Greve, 2006; Greve, 2011; Grinyer & McKiernan, 1990).
A turnaround response is mostly understood to be one of several high-
level distinguishable patterns of actions or sequential combinations of
patterns. They are typically characterized through the timespan of their
intended effects (operational vs. strategic turnaround responses) or their
relationship to firm assets and markets (efficiency vs. entrepreneurial
turnaround responses). Hofer's (1980) typology of operating responses,
which includes cost retrenchment, asset retrenchment, and revenue
generation, is utilized even in the most recent turnaround research. These
approaches seek to improve short-term performance while largely ignoring
long-term implications. Strategic (or entrepreneurial) turnarounds involve
reformulating a firm's products, services, markets, or principal technologies
(e.g., Pearce & Robbins, 1994, 1993).
Some studies suggest that retrenchment can reverse firm decline in
mature manufacturing industries (e.g., Hambrick & Schecter, 1983;
Robbins & Pearce, 1992). However, it may produce the opposite effect in
high-growth and high-technology industries (Ndofor et al., 2013; Morrow et
al., 2004; Guthrie & Datta, 2008).
Overall, the research on turnarounds is both theoretically and empirically
fragmented and characterized by phenomenon-driven roots (Trahms et al.,
2013). Given its focus on performance outcomes, the limited extent of
integration with resource-based theory is surprising. In their review of the
previous research, Trahms et al. (2013) call for greater integration with
resource orchestration (e.g., Morrow et al., 2007). In this dissertation, I
view retrenchment primarily as a form of resource portfolio structuring
(Sirmon et al., 2007).
Additionally, the review by Trahms et al. (2013) notes that consideration
of external social influences in the turnaround research, particularly in
areas that investigates top management teams and boards of directors, is
virtually missing. In other contexts, board interlocks have been
demonstrated to influence corporate acquisition behavior (Haunschild,
1993), strategic alliance formation (Gulati & Westphal, 1999), and the use
of imitation strategies (Westphal, Seidel, & Stewart, 2001). Given a
19
recession, the impact of external social influences may be amplified because
uncertainty may promote mimicry (e.g., DiMaggio & Powell, 1983; Meyer &
Rowan, 1977).
3.5 Entrepreneurial Orientation
The entrepreneurial orientation (EO) construct consists of several firm-
level strategy characteristics that practitioners and scholars associate with
entrepreneurship. The findings linking EO to firm performance are
extensive (Rauch, Wiklund, Lumpkin, & Frese, 2009), but not without
methodological weaknesses (e.g., Andersén, 2010; Wiklund & Shepherd,
2011). EO researchers have long argued that the relationship between EO
and firm performance is context-dependent (Miller & Friesen, 1984).
Particularly, research suggests that the relationship between EO and firm
performance is stronger under environmental hostility (Covin & Slevin,
1989; Zahra & Covin, 1995; Zahra & Garvis, 2000) and low access to capital
(Wiklund & Shepherd, 2005). However, findings of the moderating effect of
environmental uncertainty (dynamism) are somewhat mixed (e.g.,
Lumpkin & Dess, 2001; Wiklund & Shepherd, 2005).
The majority of EO research considers the construct to consist of the
degree of innovativeness, risk-taking, and proactiveness (Rauch et al.,
2009), which relate to a firm's market-facing actions. The construct
occupies a space not covered by trait-based, individual-level
entrepreneurship research or the grand theories of organization studies. On
the other hand, EO does not directly consider entrepreneurial
opportunities, which removes it from the theoretical core of
entrepreneurship studies (e.g., Eckhardt & Shane, 2003; Shane &
Venkataraman, 2000, 2001; Venkataraman, 1997). However, EO's key
value for scholarly discussion may be in its ability to differentiate between
more and less entrepreneurial firms by focusing only on their pattern of
actions or ‘strategic posture’.
Miller (1983) is often considered to the beginning of EO research. The
article makes three important contributions to current EO research. First,
the paper shifts focus from an owner-manager to the firm level in order to
understand entrepreneurial behavior. According to Miller (1983: 770):
‘The entrepreneurial role stressed by Schumpeter is socially vital
but it can be performed by entire organizations which are
decentralized. It can easily exceed or even circumvent the
contributions of one central actor... But what is most important is not
who is the critical actor, but the process of entrepreneurship itself and
the organizational factors which foster and impede it.’
20
Empirical research on EO's performance relationship and its moderators
was subsequently conducted by Covin and Slevin (1988, 1989, 1990). Covin
and Slevin (1989) advance the theoretical debate on EO (or
‘entrepreneurial-conservation orientation’) by arguing that EO as a firm's
strategic posture is driven by its top management and top management
styles as ‘evidenced by firm's strategic decisions and operating
management philosophy’ (p. 77). While they adopt the dimensions of
entrepreneurial-conservation orientation directly from Miller (1983), they
view EO as relating to a broader strategic context (cf. Mintzberg, 1973)
instead of simply consisting of processes or actions as in Miller (1983). In
addition to these refinements, Covin and Slevin (1989) deployed a nine-
item operationalization of EO (the Miller/Covin and Slevin scale), which
later became dominant in EO studies (Rauch et al., 2009).
Later, Lumpkin and Dess (1996) contributed to the theoretical
articulation of EO in several ways. According to these authors, the essential
act of entrepreneurship is new entry, i.e. the act of launching a new venture
through a start-up firm, existing firm, or internal corporate venturing. A
new entry can be accomplished by entering new or established markets
with new or existing goods or services. An EO, on the other hand, refers to
the ‘processes, practices and decision-making activities that lead to new
entry’ (Lumpkin & Dess, 1996: 136).
Furthermore, unlike Covin and Slevin (1989), Lumpkin and Dess (1996)
propose that all the dimensions of EO may vary independently and have
differing effects on performance. This view challenges the dominant
approach taken in empirical studies (Rauch et al., 2009), which considers
EO a singular continuous variable (e.g., Covin and Slevin, 1989) and
entrepreneurial firms exhibit higher levels across all dimensions of EO.
This empirical question has received increasing attention (Kreiser, Marino,
Kuratko, & Weaver, 2013; Hughes & Morgan, 2007; Lumpkin & Dess,
2001), and the findings suggest that the dimensions of EO indeed exhibit
differing performance implications. A recent related research stream
examines the curvilinearity of the EO-performance relationship using either
the unidimensional construct (Su, Xi, and Li, 2011; Tang et al., 2008; Wales
et al., 2013) or each dimension (Kreiser et al., 2013; Dai, Maksimov,
Gilbert, & Fernhaber, 2013). These results generally suggest that ‘more is
not always better’.
Despite these interesting empirical and theoretical developments, the EO
literature is under theorized (Miller, 2011; Wiklund & Shepherd, 2011). It is
especially surprising that there is a general shortage of empirical studies on
EO based on RBT (for exceptions, see, e.g., Wales et al., 2013; Wiklund and
21
Shepherd, 2003). Recently, scholars have applied resource orchestration to
EO (Chirico, Sirmon, Sciascia, & Mazzola, 2011; Messersmith & Wales,
2013; Wales et al., 2013).
This dissertation contributes to recent EO research by examining the
curvilinear performance implications the proactiveness and innovativeness
dimensions of EO while considering the role of resource portfolio
structuring. From the perspective of resource orchestration (Sirmon et al.,
2007; Helfat et al., 2007; Sirmon et al., 2011), I view EO as a pattern of
leveraging capabilities when making new entries. For this purpose, the risk
taking dimension of EO has considerable theoretical overlap with
countercyclical strategies, and hence I refrain from developing hypotheses
regarding it. This rationale is further elaborated in Essay 2.
3.6 Entrepreneurial Bricolage
That some small, resource-strapped firms are able to grow or thrive in
hostile environments is seemingly paradoxical. From the perspective of
earlier resource-based theory, a firm requires resources to obtain a
competitive advantage, and the resources must be acquired or accumulated
(e.g., Barney, 1986, 1991; Dierickx & Cool, 1989a). Combining
complementary resources (e.g., Adegbesan, 2009; Ahuja & Katila, 2004)
may be one approach for firms to alleviate their financial constraints during
this process. However, obtaining the initial resources for this process is a
nontrivial matter for new firms because their resource endowments tend to
be modest. Furthermore, external conditions, such as a recession, may limit
the resources available to firms. From the resource orchestration
perspective, this issue relates to pioneering new capabilities without using
new resources (Sirmon, et al., 2007).
Baker and Nelson (2005) propose bricolage as a solution that can create
resources by applying combinations of the resources at hand to new
problems and opportunities. Entrepreneurs engaged in bricolage disregard
commonly accepted definitions of material inputs, practices and standards;
they push conventional limitations and combine and reuse available
resources for purposes other than those for which they were originally
intended or used (Baker & Nelson, 2005). As a result, this approach can
create ‘something’ from apparently ‘nothing’ ( Baker & Nelson, 2005).
In other management research, bricolage is presented as a coping
(Johannisson & Olaison, 2007) or a survival mechanism employed during
sudden, unexpected situations (Pina e Cunha & Viera da Cunha, 2007).
Outcomes related to bricolage can range from mundane and imperfect
solutions to brilliant unforeseen results (Lévi-Strauss, 1966: 17). Bricolage
is typically described on the level of individuals, tasks, and resources (Baker
22
et al., 2003; Baker & Nelson, 2005; Pina e Cunha, 2005; Lanzara, 1999).
Hence, to examine the bricolage-firm performance relationship, inter-level
mechanisms should be accounted for (Coleman, 1990). Research on this
topic has mostly been dominated by case studies (Baker & Nelson, 2005;
Baker et al., 2003; Lanzara, 1999), but studies that examine the
relationships between bricolage, innovativeness, resources, and growth
quantitatively are also emerging (Senyard et al., 2014, 2010, 2009; Steffens
et al., 2010).
The existing quantitative studies of bricolage draw on the scale developed
in the CAUSEE project (Davidsson et al., 2011). This scale measures the
frequencies of actions and behavior that relate to the definition of bricolage
proposed by Baker and Nelson (2005). However, we argue that further
scale development is needed based on how bricolage manifests within a
firm. In other words, considering whether bricolage has occurred in an
organization or how common such occurrences are may not be sufficiently
sophisticated for testing theory.
In particular, the case studies conducted by Baker and Nelson (2005)
suggest that bricolage may manifest in five different environmental
domains that relate to how the firm operates. If bricolage is undertaken in
all five domains, it is likely to result in a bricolage identity or a permissive
community of practice that hinders growth by reducing the firm’s ability to
identify and seize opportunities in broader markets. However, if bricolage
manifests in fewer domains (selective bricolage), the resource-driven
growth mechanism dominates. The lack of a scale that measures bricolage
as outlined above represents a gap that this dissertation addresses.
23
4. DATA AND METHODS
The empirical context of this dissertation is Finnish software SMEs between
2007 and 2011. This industry is well suited for this study because it has
generally enjoyed rapid growth but was not immune to the Great Recession.
The median sales growth of software firms in 2008 was 17.1%, which
contracted by 2.1% in 2009 and then grew by 7.9% and 5.3% in 2010 and
2011, respectively (Statistics Finland, 2013b)
5
. While the Finnish software
industry is perhaps best known for games sold to customers (e.g., Rovio
Entertainment and its Angry Birds franchise and Supercell with its top-
grossing Clash of Clans game), software SMEs primarily operate in the B2B
market but frequently sell their products internationally. Thus, while
growth has been rapid, Finnish software SMEs were not shielded from
credit or demand-related shocks to the global economy. Yet, the high share
of services in their offerings provides continuity in sales (Rönkkö, Mutanen,
et al., 2009; Rönkkö, Ylitalo, et al., 2009).
4.1 Archival Data
I utilized business register data extensively in Essays 1 and 2, because its
broad accessibility in Finland for private companies avoids limitations of
survey-based measures. Generally, a business entity must file its P&L
statement and balance sheet to the Finnish Trade Register
(Kaupparekisteri) annually. I utilized Bureau van Dijk’s Orbis database to
obtain these data for the study period. In addition, I obtained the entire
history of the boards for the firms analyzed in Essay 1, including the names
of CEOs and board members, their birth dates, and the starting and ending
dates for each position held. I acquired these data through an intermediary
(Asiakastieto Oy) that organizes and distributes data from the Trade
Register.
Finnish law mandates that all limited companies have a board of directors
and that changes to their composition be reported to the Trade Register
immediately. This also provides access to individual-level board member
data for small and unlisted firms. I utilize a combination of first names, last
names, and birth dates to identify unique individuals within the board
member data. I obtained additional data regarding regional changes in
5
Compared to the rest of the Finnish economy, revenues in the broader ICT services sector grew at
approximately twice the rate of GDP growth prior to the recession and its revenue contraction during the
recession was approximately half that of Finland’s GDP. (Statistics Finland, 2013c)
24
employment from Statistics Finland’s StatFin database and linked the
companies to these data using their postal codes.
4.2 Survey Data
Essays 2 and 3 utilize survey data collected during different waves of the
National Software Industry Survey (NSIS) (Rönkkö et al., 2010; Rönkkö,
Peltonen, & Pärnänen, 2011; Rönkkö, Mutanen, et al., 2009a, 2009b). This
survey has examined developments in the Finnish software industry since
1997; it has been conducted annually with a few early exceptions.
The NSIS aims to include all companies in Finland whose offerings are
significantly related to software. The core of the software industry can be
defined by industry code (NACE rev. 2 codes 62.01 ‘computer programming
activities’ and 62.02 ‘computer consultancy activities’); however, this
classification does not include all firms of interest to the survey. Therefore,
the survey has adopted an oversampling strategy, which also includes
populations adjacent to the core software industry. This is primarily
accomplished by including additional industry codes and manually
screening industry association member lists and companies that have
received funding from the Finnish Funding Agency for Innovation (Tekes).
The sampling frame of the previous year’s survey is also passed on to the
next year to enhance consistency over time.
While this approach is effective in maximizing the number of responses
from the firms of interest, it causes difficulties in assessing response rates
and variation in nonresponse processes. To address this issue, Essays 2 and
3 utilize only the subset of NACE rev 2 codes 62.01 and 62.02.
The survey targets CEOs; if contact information is unavailable, other high-
ranking executives are contacted in descending order. Prior to sending the
survey package, a letter with endorsements from related industry
associations and Tekes was sent to the firms. Companies were offered the
option to respond either by traditional mail or an online questionnaire. To
further increase the response rate, the survey package was followed by
several reminders, and a mass tailored summary report was offered as a
reward for responding.
4.3 Analytical Methods
Essay 1 predicts year-to-year workforce adjustments (change in personnel
count) utilizing OLS regression with robust standard errors. The main
independent variable is the unlagged year-to-year change in sales. For this
variable, I adopt a spline approach (Greene, 2003) which has been used
extensively in BTOF research (e.g., Greve, 2008; Vissa et al., 2010). The
25
spline approach enables separate estimation of direct and interaction
effects of sales increases and sales decreases.
The influence of board interlocks is accommodated through an
interlocked workforce adjustments variable. This variable represents the
workforce adjustments of firms with which the focal firm possesses board
interlocks. The board interlock structure was constructed using SQL
queries to a database into which the board of director data were entered.
These data were then combined with Trade Register data using company
identifiers and aggregated at the focal firm level using statistical software
(Stata IC version 10.1).
Essay 2 examines firm performance, which is operationalized as the sales
CAGR during the period 2008-2011, which captures changes between the
beginning of 2009 and the beginning of 2012. I utilize sales rather than
profit-based measures to operationalize performance due to the study
setting; high-tech firms may delay becoming profitable well into their
lifecycles, while producing revenue can be more important in
demonstrating the potential of a business. Furthermore, profits can be a
very unstable measure for small and young firms (Shepherd & Wiklund,
2009).
The independent variables in the study are drawn from two surveys. The
EO variables are based on the Covin and Slevin scale (Covin & Slevin,
1989), and they were collected during the summer of 2008 as part of the
NSIS. Data on recession strategies were collected during the summer of
2009 in conjunction with the NSIS. The seven items included in the
questionnaire represent different areas of firm operations, such as R&D,
outsourcing, sales and marketing, and software development and support.
The scale measures procyclical contraction at the negative end and
countercyclical expansion at the positive end. The questions addressed
changes during the past year, which closely overlaps with the recession in
Finland.
The combination of these two surveys reduced the overall response rate to
a level that is low even for top-management surveys (7.9%). While a low
(combined) response rate alone does not imply nonresponse bias, its
probability of existing increases, especially when combined with social
desirability related to the variables of interest. To examine and correct for
this possibility, I utilize the Heckman two-stage method (Heckman, 1979).
During the first stage, I utilize exclusion restrictions that may reduce item
difficulty and, hence, increase the likelihood of responding. For the first
exclusion restriction, I utilize the log-transformed number of board
members, including the CEO. A larger board may reflect a more active
strategy process, and responding to strategy-related questions is less
26
difficult. For the second exclusion restriction, I utilize a dummy variable
that reflected whether funding was received from Tekes. To receive funding,
firms must articulate their business plans. I estimated the models both with
2SLS and FIML estimators and obtained similar results. Survival bias did
not appear to affect the results because I failed to observe a significant first
stage probit model that predicted missing data in the dependent variable.
Essay 3 employs confirmatory factor analysis to test the factorial validity
of the bricolage scale. The three domain categories of bricolage were fitted
as separate factors that were allowed to correlate. Scale development began
by creating an initial item pool of 19 items, of which 12 items were modified
and utilized in a pilot study based on a review from an external practitioner
The data for the pilot study were collected as part of the 2010 NSIS. Six
items were dropped or modified after the pilot study, and new items were
added to create a new battery of 13 items, which were administered through
the 2011 NSIS. Of these items, 9 were included in the final scale. The items
are distributed evenly across the three bricolage domains, and each domain
of is measured by at least one item. The primary reasons for excluding
items were severe skewness and lack of correlation with the other items.
Table 1 summarizes the methodological approaches of each essay.
27
Table 1. Summary of methods
Essay 1 Essay 2 Essay 3
Title Board Interlocks
and Entrepreneurial
Firms’ Decisions to
Hire and Fire during
Recession
Resource
Orchestration of
Entrepreneurial
Firms: Interaction
Effects of Recession
Strategy,
Entrepreneurial
Orientation, and
Performance
Selective or Parallel?
Toward Measuring
the Domains of
Entrepreneurial
Bricolage
Dependent
variable
Workforce
adjustment
(one-year change in
personnel count)
Firm performance,
measured as 3-year
CAGR
n/a
Primary
hypothesis
variables
Interlocked
workforce
adjustments (sum of
workforce
adjustments in alter
firms having board
interlocks with the
focal firm), change
in sales
Innovativeness,
proactiveness
dimensions of EO
(Covin and Slevin
scale),
Countercyclical
strategy (7 Likert
items)
n/a
Survey data - Two surveys (2008
and 2009)
Two surveys (2010
and 2011)
Archival data Finnish Trade
Register (board of
director data and
financial data)
Finnish Trade
Register (financial
data)
Not used
Statistical
methods
OLS regression Heckman 2-stage
model
SEM
Number of
observations
238 focal firms (676
alter firms)
113 firms (second
stage of Heckman
model), 1582 (first
stage of Heckman
model)
315 in final analysis,
423 in pilot study
28
5. KEY FINDINGS
5.1 Workforce Adjustments in Entrepreneurial Firms
Essay 1 finds that greater short-run increases in firm sales are related to
greater workforce increases. Somewhat surprisingly, short-run reductions
in sales did not predict workforce reductions. On the contrary, I observe
weak evidence of sales decreases leading to workforce increases. However,
BTOF research offers a plausible explanation for this pattern; short-run
declines in a growth industry may be perceived by firms as changes that can
be remedied through additional risk-taking (e.g., Audia & Greve, 2006;
March & Shapira, 1987, 1992) rather than threats to firm survival.
Moreover, I investigated the role of board interlocks in directing
managerial attention. The results suggest that focal firm workforce
adjustments are systematically influenced by workforce adjustments in
alter companies with which the focal firm possesses board interlocks.
Additionally, the magnitude of this effect is greater if the sales increase of
the focal firm was greater. Figure 2 summarizes the hypothesized
relationships and findings in Essay 1. I also conducted several robustness
checks. For example, I excluded the possibility that M&A activity and
interlocks formed by venture capitalists caused spurious correlations.
Furthermore, I observe no evidence that board interlocks spread static
aspiration levels (e.g., workforce size, revenue) in this context.
Figure 2. Summary of hypotheses and main findings in Essay 1.
5.2 Performance Implications of Resource Portfolio
Structuring and Interactions with Entrepreneurial
Orientation
Essay 2 finds that countercyclical strategies that relate to expanding firm
resource portfolios relate to sales growth over a three-year time lag. I
observe that the opposite applies to procyclical strategies, which relate to
cost-cutting. In the empirical approach, procyclical strategies represent the
29
negative end of the countercyclical strategy scale. Additional robustness
checks reveal that simply increasing or decreasing sales and marketing
efforts did not explain differences in sales growth rates. However, both
internal actions (changing R&D, software development, product support
and maintenance, and sales and marketing costs) and outsourcing (changes
in the use of software development services or other external services)
explained differences in growth rates. While these results are consistent
with existing studies of turnarounds and downsizing (Guthrie & Datta,
2010; Morrow, Johnson, & Busenitz, 2004; Ndofor, Vanevenhoven, &
Barker, 2013), these data provide deeper insights for specific firm-level
actions and consider the context of one of the greatest global economic
crises in history.
The main contribution of this study comes from examining how
performance is moderated by the firm strategic orientation. In particular, I
test hypotheses related to the role of two dimensions of the EO construct:
proactiveness and innovativeness. EO was measured during the summer
prior to the escalation of the global financial crisis in the autumn of 2008.
This reduces the likelihood that abnormal economic events interfere with
the measurement of firm long-term strategic orientation.
I observe no relationship between pre-recession firm innovativeness and
subsequent growth. However, firms with either high or low proactiveness
benefit most from a countercyclical recession strategy, whereas firms that
are moderately proactive suffer least from a procyclical recession strategy.
The hypothesized relationships and main findings of Essay 2 are
summarized in Figure 3.
I also conducted additional robustness checks. When measured as a
unidimensional construct, EO exhibited no significant relationships with
firm performance. I examined both linear and curvilinear effects as well as
their interactions with recession strategy. These are all interesting non-
findings, as there are many reasons to believe that an EO (as such) would
be beneficial under the research setting. Furthermore, as with the
innovativeness dimension, risk-taking was not associated with performance
implications.
30
Figure 3. Summary of hypotheses and main findings in Essay 2.
5.3 Structuring the Resource Portfolio through Entrepreneurial
Bricolage
We developed novel scale to measure entrepreneurial bricolage. From the
perspective of resource-based theory and resource orchestration, the
development of this scale highlights the range of actions between
accumulation (Dierickx & Cool, 1989a) and acquisition (Barney, 1986) that
firms undertake when they structure their resource portfolios. These
potentially high-impact actions can be easily missed if resource portfolio
structuring is measured only through financial ratios or questionnaires that
seek to understand changes in investment on a more fine-grained level
(e.g., as in Essay 2).
The nine-item scale is based on the domains of bricolage, which Baker
and Nelson (2005) link to growth outcomes. This opens up the possibility
to test the bricolage-growth relationship as articulated by Baker and Nelson
(2005). The development of the scale by itself improves the generalizability
of prior bricolage research conducted by Baker and Nelson (2005) who
utilized snowball sampling to conduct their case studies. The results of
Essay 3 indicate that small and medium software firms vary in terms of
behaviors and practices associated with bricolage and that these behaviors
vary according to dimensions (see Figure 4) similar to those suggested by
Baker and Nelson (2005). This finding suggests that the bricolage behavior
documented by Baker and Nelson (2005) was not specific to their research
context. However, further research of the nomological validity of this
construct is required.
Developing this scale also improves the empirical understanding of
bricolage. As previously noted, several items were excluded or modified
during the development process due to high degrees of skewness. In many
cases, this may be due to social desirability. Bricolage can involve
challenging the institutional/regulatory environment, and respondents may
31
be hesitant to provide accurate descriptions of these actions. Hence,
developing items for this dimension of bricolage balanced addressing the
phenomena of interest and obtaining the information in a way that would
not discourage accurate responses.
In addition, the final scale exhibited high item uniqueness, and the
measurement model was characterized by somewhat low loadings. This
quality may represent a weakness of the scale or indicate that the sub-
constructs are characterized by further dimensionality. Future research
should therefore acknowledge that bricolage could manifest as a diverse
collection of practices. While the data were provided by software
companies, the scale itself was developed without a specific target industry
in mind. In particular, the scale does not assume the existence of physical
assets, which are commonly present in the cases examined by Baker and
Nelson (2005).
Figure 4. Outline of the measurement model in Essay 3 with statistically significant path
relationships.
32
6. DISCUSSION
6.1 Contributions to the Literature
Taken together, this thesis makes several contributions to understanding
on how entrepreneurial firms can be managed during the sudden onset of
recession to improve their performance. In short and simplifying terms,
this thesis finds that countercyclical strategies lead to higher sales growth in
entrepreneurial firms. However, the nature of this relationship depends on
the firm’s strategic orientation. Especially, firms with high proactiveness
(i.e. a strategic orientation of acting in anticipation of changes in the
environment) benefit most from countercyclical strategies that expand the
firm’s resource base, possibly because they have the means to deploy the
new resources to new market opportunities that the recession creates.
Managers are however constrained in adopting recession responses for
reasons other than obvious financial constraints. This thesis finds that
boards of directors and the interlocks they form with other firm cause
mimetic pressures on the focal firm. Especially when a firm’s sales grow
during the onset of recession, external influences may in some cases
prohibit the firm from adopting a countercyclical strategy. Finally, the
strategic options of the firm may not only include investing more to expand
the resource base of the firm, or divesting resources to improve the
financial position of the firm. Instead, firms should not ignore the common
practice of combining low-costs resources in novel ways.
To elaborate on these findings on more detail, this dissertation was
motivated by the observation that organization studies, particularly in the
fields of strategic management and entrepreneurship, do not provide a
coherent set of recommendations for managers facing vague and
unanticipated shocks, such as the Great Recession (cf. Agarwal et al.,
2009). This said, existing research does however contain relevant findings
regarding such contexts, but their generalizability to a context of a sudden
economic downturn where uncertainty (dynamism), hostility, and rapid
change coincide should be considered cautiously. Latham and Braun (2011)
provide a useful framework to approaching the contributions of this
dissertation from a phenomenon-centric perspective. According to the
framework, firm-level initial conditions (e.g., resources and capabilities)
and performance during recession (within recession performance)
significantly influence strategic decisions during the recession (within
recession strategy) and subsequent firm performance (post-recession
performance).
33
From this viewpoint, Essay 2 finds that relevant initial conditions can
include the firm’s proactiveness dimension of the EO construct. This
construct is difficult to classify as a firm capability or resource. Yet,
proactiveness influences post-recession performance by interacting with
within recession strategy. In other words, a firm’s pattern of resource and
capability use prior to a recession influences the outcome of its
countercyclical (expansive) or procyclical (retrenchment) strategies. In line
with prior related literature (Guthrie & Datta, 2010; Morrow, Johnson, &
Busenitz, 2004; Ndofor, Vanevenhoven, & Barker, 2013), this study also
observes that countercyclical strategies improve performance.
Essay 1 addresses the selection of a within recession strategy, particularly
workforce adjustments (the adaptation of a firm’s personnel count). As
expected, short-term performance influenced the within recession strategy.
More importantly, the study suggests that firms may mimic each other’s
workforce adjustments and that this effect is stronger with greater sales
increases. This study notes that improving post-recession performance not
only requires identifying beneficial strategies but also resisting mimetic
pressures that may jeopardize undertaking them. Though the study does
not directly measure the activities of the board, it points out that increasing
monitoring conducted by the board of directors may result in mimetic
behavior.
Essay 3 investigates the available set of within recession strategies, which
Latham and Braun (2011) categorize as countercyclical or procyclical. Essay
3 focuses on entrepreneurial bricolage, which may be a viable
countercyclical strategy that creates new resources and capabilities with
minimal investment and lower risk. By developing a novel measurement
scale of bricolage, Essay 3 demonstrates that entrepreneurial firms broadly
undertake behaviors related to bricolage. Yet, these behaviors cannot be
captured easily by financial ratios or changes in functional expenditures,
which are common measures in turnaround research. In the subsequent
sections, I discuss the contributions of this dissertation from the
perspectives of its main theory streams.
6.1.1 Contributions to the Behavioral Theory of the Firm and the
Attention-Based View
This thesis generally supports the BTOF adaptive mechanism for explaining
workforce adjustments in entrepreneurial firms during recessions as a
function of changes in sales. Moreover, this thesis examines how
organizational attention (Ocasio, 1997; Hoffman & Ocasio, 2001; Ocasio,
2011) influences this adaptation process. I examined board interlocks using
individual-level data and combined these network data with data on
34
workforce adjustments in the interlocked firms. To the best of my
knowledge, this research approach is currently unique to firms of all sizes.
Furthermore, research on small firm boards is generally very limited due to
data availability issues, which the Finnish regulatory environment enables
to overcome.
Overall, the results suggest that board interlocks spread actions (i.e.,
workforce adjustments) not static aspiration levels (e.g., size, sales) or
market information (changes in sales) that firms would react to. While
these findings suggest that board interlocks influence search, an alternative
explanation related to social aspiration levels exists, which this analysis
cannot fully disentangle. In other words, firms may aspire to grow at a
certain rate, and board interlocks provide the mechanism through which
social aspiration levels related to growth propagate. This interpretation is
supported by the observation that board interlocks appear to diffuse
workforce adjustments irrespective of the sales changes of the focal firms.
Furthermore, prior research suggests that the goals of entrepreneurial firms
may be different from mature firms (cf. Shane, Locke, & Collins, 2003). On
the other hand, the notion that board interlocks primarily influence search
is supported by the moderating hypothesis; greater changes in sales
produce stronger mimicry of workforce adjustments through board
interlocks.
6.1.2 Contributions to the Literature on Entrepreneurial Firm Boards
By applying rare archival person-level board data, the results provide
additional insight on how boards of entrepreneurial firms channel
organizational attention and affect adaptive action. The results also inform
future research on the monitoring function on entrepreneurial firm boards,
though this study does not measure board monitoring directly. Previously
Garg (2013) argued that too much board monitoring may hurt firm
performance by inhibiting innovation, drawing executives’ attention away
from substantive tasks, and leaving them with a low sense of self-control.
The findings of this dissertation are consistent with a finer-grained
explanation to these outcomes that depends on the interorganizational
contexts of the board members; deviation from past performance increases
monitoring by the board, and causes adaptive behaviors to spread through
board interlocks as the attention of decision-makers in the focal firm is
directed increasingly towards the actions that other organizations
undertake for various reasons.
Summarizing these findings from the perspective of Garg's (2013)
proposition on monitoring and performance, my findings pertain to a
specific scenario where managers may lose their sense of self-control and
35
attention focus as a result of excessive monitoring. The performance
outcome may also be similar; when making decisions on workforce
adjustment, having less attention to the context of the focal firm at the
expense of having more attention to external organizations is likely to be
harmful in most cases. Yet, variations in outcomes can also be expected; the
external influence of boards may bias decision-making toward ‘procyclical’
workforce reductions or ‘countercyclical’ workforce increases (e.g., Greer,
Ireland, & Wingender, 2001). The ultimate performance outcome of
increasing monitoring would therefore depend not only on the board
interlock network configuration, but also contextual factors of the focal firm
that influence the performance outcomes of these actions.
6.1.3 Contributions to the Literature on Resource Orchestration and
Turnaround Strategy
This study provides evidence to support one of resource orchestration’s
most important claims; structuring, bundling, and leveraging processes
should be synchronized (Sirmon et al., 2007: 287). This is accomplished by
jointly examining the firm strategic orientation (the proactiveness and
innovativeness dimensions of EO) and within recession strategies.
Proactiveness and innovativeness relate to how the firm typically leverages
its resources and capabilities. Within recession strategies relate to
structuring the resource portfolio. Specifically, obtaining more resources
(countercyclical strategy) or reducing them (procyclical strategy).
The findings of this study also clearly highlight the advantages of
countercyclical strategies in high growth industries, which is consistent
with previous studies of downsizing and retrenchment (Guthrie & Datta,
2010; Morrow, Johnson, & Busenitz, 2004; Ndofor, Vanevenhoven, &
Barker, 2013). By studying smaller and unlisted firms outside the US, these
findings increase the generalizability of prior research. The recession
strategies were measured utilizing a questionnaire during the recession,
which reduces the likelihood of recollection bias.
The main contribution of this study to the downsizing and retrenchment
literatures is that the outcomes of recession strategies may vary according
to firm strategic behavior or tendency to identify and respond to emerging
opportunities in the marketplace (i.e., proactiveness). This study does not
assume that these characteristics are constant on the industry level
(Morrow et al., 2004) or assume that strategic actions (e.g., the number of
new product introductions, alliances, and acquisitions) are alike (Ndofor et
al., 2013).
Furthermore, by applying survey measures and an exploratory approach
rather than financial measures, this dissertation captures countercyclical
36
strategies in more detail than many prior studies. By decomposing firm
countercyclical strategies to a more detailed level, the analysis revealed that
actions involving increasing (decreasing) internal investments and
outsourcing are beneficial (harmful) for firm performance. Increasing sales
and marketing efforts did not produce systematic performance effects.
The finding for outsourcing supports Sirmon et al. (2007), who propose
that during periods of high uncertainty, firms can benefit from a ‘resources
as options’ perspective with respect to the flexibility that these resources
provide for responding to unforeseen opportunities and threats. The results
of this study also suggest that internal resource accumulation may be the
primary means through which proactiveness affects the performance of
entrepreneurial firms under high uncertainty compared to outsourcing.
6.1.4 Contributions to the Literature on Entrepreneurial Orientation
This dissertation represents a non-result for the EO-performance
relationship, which contrasts with prior studies that reported direct (e.g.,
Rauch, Wiklund, Lumpkin, & Frese, 2009) or curvilinear effects (Su et al.,
2011; Tang et al., 2008; Wales et al., 2013) between EO (as an
unidimensional aggregate construct) and performance. However, the
dissertation also highlights one plausible explanation for the results; in the
wake of an environmental ‘jolt’ (e.g., Audia, Locke, & Smith, 2000; Meyer,
1982) associated with a decline in environmental munificence
(Castrogiovanni, 1991), the dimensions of EO have different implications on
performance (Dai et al., 2013), which obscures the effects of the
unidimensional EO construct. In particular, the growth implications of
proactiveness depend on within recession strategy. Taken together, the
results suggest that future research on EO should pay more attention to the
performance implications of the individual EO dimensions in different
contexts (cf. Lumpkin & Dess, 1996, 2001).
Within the EO literature, this dissertation extends the findings of recent
studies that combine resource orchestration with EO (Chirico et al., 2011;
Messersmith & Wales, 2013; Wales et al., 2013). Unlike prior studies, I
explicitly measure actions that change the firm resource base rather than
assuming that certain static firm characteristics influence its resource
orchestration practices.
Finally, the theorizing in this paper highlights the unsettled difference
between EO as a tendency and EO as behavior (Covin & Lumpkin, 2011),
which also persists in empirical approaches to measuring EO. This
distinction is because behavior is much more likely to lead to path-
dependent resource configurations that may become liabilities when
discontinuous change occurs. This may explain why there was no support
37
for the innovativeness-related hypotheses; the ability to launch a series of
new products and services often requires significant prior investment.
Making these investments requires making assumptions about the future,
which may prove unrealistic because of the economic shock of the Great
Recession. However, a proactive strategic orientation may be less likely to
expose a firm to path-dependent liabilities resulting from an environmental
shock.
The methodology for testing the EO-performance relationship is also
relatively rigorous compared to oft-cited extant studies (Andersén, 2010);
this dissertation employs lagged, objective performance data, controls for
past performance, thoroughly examines survival bias, and analyzes the
dimensions of EO separately. In addition, this study is rare (if not unique)
in its examination of nonresponse bias using the Heckman (1979)
procedure. Nonresponse analyses are documented in less than one-third of
organizational studies that employ surveys (Werner, Praxedes, & Kim,
2007).
6.1.5 Contributions to the Literature on Entrepreneurial Bricolage
The bricolage literature suggests that entrepreneurial bricolage may help
firms in hostile environments to create resources from seemingly nothing
and enable them to grow (Baker & Nelson, 2005). However, for this benefit
to be realized, bricolage must be used selectively. Baker and Nelson (2005)
suggest that bricolage can lead to a nonprofessional, closed culture that
limits growth if it is present across all environmental domains. In short, a
moderate amount of bricolage may help firms grow in hostile environments
but both too much and too little bricolage has negative implications.
Limited empirical research has been undertaken to test the relationship
between entrepreneurial bricolage and firm growth quantitatively (for
exceptions, see Senyard et al., 2009, 2010). These efforts have applied a
scale of bricolage that measures how often bricolage takes place – not the
breadth of areas in which it takes place. This limits the capability of existing
research to distinguish the degree to which bricolage is selective or parallel,
which increases the difficulty of testing the growth hypotheses proposed by
Baker and Nelson (2005).
Our 9-item semantic differential scale has been used in an initial study to
test the relationship between bricolage and firm growth with promising
results (Peltonen, Rönkko, & Arenius, 2012). Given the current
understanding of entrepreneurial bricolage, the scale we have developed is
a useful tool for researchers interested in the antecedents and outcomes of
bricolage in entrepreneurial firms. However, the scale must be applied in
contexts besides the software industry to establish its generalizability.
38
Furthermore, because bricolage is a fundamentally multidimensional
construct, further dimensionality in the three main domains that our scale
focuses on may exist.
6.2 Practical Implications
This dissertation finds that the social context created by board interlocks
influences decision-making related to hiring and firing in a recessionary
context. I quantify this effect in the context of several financial variables
like sales growth, profitability, and slack. In light of these findings, it is
reasonable to assume that board interlocks may spread recession responses
that are beneficial in a given industry but harmful in another. Managers
should therefore focus on the context of their own firm and be aware of the
systematic external influences that board interlocks (and possibly other
social network ties) transmit – especially if the firm manages to grow
despite the recession. Sometimes questioning ‘socially accepted’ responses
to recessions particularly promoted by board members with close ties to
other businesses can provide a starting point for selecting strategies that
improve performance over the longer term. Arguably, there is no best
practice recession strategy – each firm should tailor its approach based on
their firm-specific information.
I also find that countercyclical recession strategies are beneficial. It is
possible that the firms in the study sample continue to pursue their pre-
recession strategic plans, which unintentionally makes their strategies
countercyclical when they are merely continuing their strategic course
(Mintzberg & Waters, 1985). Hence, the results of this study do not warrant
recommending countercyclical strategies simply for the sake of benefitting
from a recession. However, managers should seriously consider the
justifications for cutting costs from pre-recession strategic initiatives
especially if there is an unquestioned sense among the close peers that
‘cutting costs is what needs to be done in recession’. In particular, reducing
outsourcing may be politically less sensitive but may result in a loss of
critical strategic flexibility. Also merely increasing or decreasing sales- or
marketing-related efforts does not systematically explain differences in
sales growth rates.
This paper’s results concerning proactiveness imply that firms should
assess their prior orientation toward changes in the market when selecting
a recession strategy. In particular, firms that are overly optimistic about
their ability to pursue market opportunities proactively may fail to obtain
their expected results from a countercyclical strategy.
39
The development and testing of a scale of entrepreneurial bricolage
suggests that bricolage is broadly practiced by firms and in different
domains of their operations (Baker & Nelson, 2005). However, the
implications of bricolage are largely unexplored in quantitative studies. Yet
given the current state of knowledge, instead of trying to eliminate the
practice, managers should rather have a healthy curiosity toward bricolage,
and consider if the practice could be selectively used in some area to
promote innovativeness and growth in their organizations.
Taken together, the findings of this thesis can be summarized through a
crude analogy: The task of navigating a recession is like racing a car (firm)
full of people (the board) to a new destination without a navigator.
Sometimes the advice of the other passengers can be useful, but oftentimes
the driver needs to keep his/her head to reach the destination and ignore
the backseat drivers. In particular, most often the driver should drive at a
speed (hire and fire) that matches the properties of the car (firm), and
ignore the advice of those who prefer a faster or slower ride because their
own cars can go faster or slower (properties of interlocked firms).
Sometimes the journey can go faster if the driver attempts to drive faster
(countercyclical strategy). However, the value of this strategy depends on
the abilities of the driver. If the driver is skilled at passing other cars and
avoiding congestion (high proactiveness), driving faster can be a good
approach. However, if the driver is only average, then driving slower
(procyclical strategy) and leaving passing to the speeders does little harm
for reaching to the destination without time-consuming setbacks. For the
drivers that never pass other cars and navigate by following the tail of other
cars (low proactiveness), driving much slower is damaging, because they
eventually run out of other cars to follow. Instead, trying to follow faster
cars makes more sense, but this will never enable them to drive by the most
skilled drivers.
Finally, financially constrained travelers that do not have enough money
to obtain a car and gasoline may need to think about their navigation
strategy in a different way. They can for example try to lift their way to the
destination on several cars. This way, they may be able to combine the
driving and navigation skills of other people, and only pay for their coffee
(bricolage). Sometime this can lead to being among the first to arrive at the
destination, but the outcome can also be hours spent standing in the rain.
On the other hand, this can lead to arriving at a completely different
destination, which can be better than the one originally intended.
40
6.3 Limitations
No study is without limitations, and certain areas are highlighted here. In
Essay 1, despite the use of several lagged control variables, the cross-
sectional research approach may fail to capture consistent firm-level effects,
particularly differing historical aspiration levels and risk preferences. This
limitation points to the need to make simplifying assumptions about
aspiration levels. Namely, that each firm considers negative growth a
problematic issue that it must remedy.
The analytical approach does not explicitly consider the stage of the
business cycle. It remains unclear how economic uncertainty and hostility
affect the propensity of the entrepreneurial firm to engage in herd behavior,
as the results suggest. A panel analysis would further enable accounting for
how the stage of the business cycle affects the outcomes and examining
fixed firm-level attributes, such as preferences to risks. Similarly, a panel
approach would enable analyzing board member specific differences in risk
preferences and, hence, enable untangling behaviors that spread from firm
to firm from behaviors that spread from board members to firms. The
analysis should also be extended to other industries. These approaches
would not be limited by the availability of registry data in Finland; however,
obtaining and processing these data would require significant additional
funding.
Furthermore, Essay 1 suffers from the difficulty of making causal
inferences due to the lack of time lags between key independent variables
and the dependent variable. However, remedying this issue may be difficult
because companies report their revenues annually, and in a fast-paced
industry, companies cannot wait for a year to adjust their operations to
meet demand. Hence, the conjecture that short-run sales changes drive
short-run workforce adjustments rather than the opposite rests on
theoretical reasoning.
Essay 2 suffers from a modest number of observations, which partly
results from combining two surveys to create its unique longitudinal data
set. While potential non-response bias was controlled for using the
Heckman two-step approach, limitations to statistical power remain.
Endogeneity resulting from self-selection into recession strategies can also
influence the results. I attempted to identify suitable instrumental variables
to address the issue without success. I particularly attempted to identify
instrumental variables based on the board interlock approach in Essay 1 by
attempting to demonstrate that firms mimic their more specific recession
strategies from each other to some extent. Despite some promising initial
progress, this effort proved to be unsuccessful.
41
A common limitation in all of the essays is the single country, single
industry setting. While this approach controls for industry-specific effects,
it nonetheless limits the generalizability of the results. Specifically,
economic recessions affect different high technology and growth sectors
very differently in different countries, especially with respect to the extent
and duration of the downturn. Labor market regulations may also influence
hiring and firing decisions in various national contexts, with direct
implications to Essay 1 and, to a lesser extent, Essay 2. Furthermore, in
Essay 1, laws and regulations concerning boards of directors vary among
countries. In particular, Finland has fewer limitations on forming board
interlocks the United States. While Essay 1 took measures to control for
these differences, the results should be considered in a broader context of
managerial social networks of which boards of directors and board
interlocks represent a special case. There are also differences among
countries regarding the necessity of boards of directors in small and
medium limited liability companies, which in Finland are required by law.
While we aimed to develop a scale that applicable to all industries, testing
it in a single industry context remains perhaps the greatest limitation in
Essay 3. Cultural differences may also challenge the applicability of the
scale in different national and regional contexts, especially reporting issues
such as challenging the institutional environment.
6.4 Avenues for Future Research
Considering the breath of managerial issues in entrepreneurial firms that
relate to sudden economic downturns, this dissertation leaves many
important avenues unexplored. In the following, I highlight some of these.
One important area of future research is examining how BTOF can be
applied to entrepreneurial firms in general (Dew et al., 2008) – apart from
small firms in established industries (Greve, 2011). As noted by Shane,
Locke, and Collins (2003), entrepreneurs may possess very different
motivations. Additionally, their dominant coalitions, which represent an
interesting area of future research in BTOF on a general level (Gavetti et al.,
2012), may change in ways that are uncommon in established firms (e.g.,
Hellmann & Puri, 2002). While there is no special reason to doubt the
applicability of the core mechanisms of BTOF in such a context, more
research is required to understand how entrepreneurial firms adapt to
performance feedback. Essay 1 touches on this area superficially by
suggesting that the actions, not static levels, may be more relevant in the
process of adapting through problemistic search. The broad topic of how an
entrepreneur’s social network (Aldrich & Zimmer, 1986) shapes responses
to sudden external shocks also remains relatively unexplored in
42
quantitative studies, perhaps because of the difficulty of obtaining
individual-level data for unlisted firms that do not suffer from coverage
biases. Future research in this area could inform entrepreneurs of the social
ties that make them more prone to beneficial or harmful strategic
adaptations during recessions.
Including the use of resource orchestration theory in turnaround research
and understanding the potential of firm strategic orientation as an
approach to leveraging capabilities in resource orchestration requires
additional research. Promising approaches to data collection include
content analyses of CEO letters to shareholders (Short, Broberg, Cogliser, &
Brigham, 2010). However, these documents are unavailable for unlisted
firms, and the demand for alternative approaches remains. Meanwhile, a
fruitful avenue for future research may be to combine existing vast survey
data sets on EO with archival measures that can be used to create proxy
variables on resource portfolio structuring actions in different phases of the
business cycle. Following this line of research could also lead to a closer
theoretical integration of business turnaround, EO and RBT studies while
remaining sensitive to changes in the business cycle. It should also be noted
that EO is only one approach to understanding how a firm uses its
capabilities to engage with its environment (e.g., Miles, Snow, Meyer, &
Coleman, 1978).
A natural next step following Essay 3 is to test the bricolage-growth
relationship utilizing the novel scale. A negative effect of broad, parallel
bricolage would support Baker & Nelson’s (2005) case study findings. If
robust support for the bricolage-performance relationship can be observed,
further research would also be needed to examine the value of bricolage as a
within recession strategy. For example, it may prove to be practically
difficult for a firm to adjust the extent to which it engages in bricolage
rapidly. If this proves to be the case, recommending bricolage as a recession
strategy to managers would be difficult even if particular levels of bricolage
could be demonstrated to be useful. Furthermore, it is unclear whether
bricolage prior to an external economic shock is beneficial. For example,
organizations may be better at improvising in the new situation through
bricolage (cf. Baker, Miner, & Eesley, 2003), or path-dependencies in
bricolage activities (e.g., Baker & Nelson, 2005: 255) may produce a
resource portfolio that is difficult to restructure in a changing environment,
which might lead to competitive disadvantages. This is yet another example
of how unexpected external shocks, such as the Great Recession, tested the
boundary assumptions (Bacharach, 1989) of existing theories; the outcomes
can only be resolved through additional empirical testing.
43
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Strategic Management of Entrepreneurial Firms during Recession
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StrategicManagementof
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AaltoUniversitypublication series
DOCTORALDISSERTATIONS194/2014
StrategicManagementof
EntrepreneurialFirms during
Recession
JuhanaPeltonen
Adoctoraldissertation completedfor thedegreeofDoctor of
Science(Technology)tobedefended,withthepermission ofthe
AaltoUniversitySchoolofScience,ata publicexamination heldat
thelecturehallAS1oftheSchoolofScience(Espoo,Finland)on
the12thofDecember 2014atnoon.
AaltoUniversity
SchoolofScience
DepartmentofIndustrialEngineeringandManagement
Supervisingprofessor
Professor Markku Maula
Preliminaryexaminers
Professor Johan Wiklund,SyracuseUniversity,USA
AssociateProfessor ScottLatham,UniversityofMassachusetts
Lowell,USA
Opponent
AssociateProfessor KarlWennberg,Stockholm Schoolof
Economics
AaltoUniversitypublication series
DOCTORALDISSERTATIONS194/2014
©Juhana Peltonen
ISBN978-952-60-5983-9(printed)
ISBN978-952-60-5984-6(pdf)
ISSN-L1799-4934
ISSN1799-4934(printed)
ISSN1799-4942(pdf)http://urn.fi/URN:ISBN:978-952-60-5984-6
Unigrafia Oy
Helsinki2014
Finland
Abstract
AaltoUniversity,P.O.Box11000,FI-00076Aalto www.aalto.fi
Author
Juhana Peltonen
Nameofthedoctoraldissertation
StrategicManagementof EntrepreneurialFirms during Recession
PublisherSchoolof Science
UnitDepartmentof IndustrialEngineering and Management
SeriesAaltoUniversity publication series DOCTORALDISSERTATIONS 194/2014
FieldofresearchVentureCapitaland PrivateEquity, GrowthEntrepreneurship and
CorporateVenturing
Manuscriptsubmitted29 August2014 Dateofthedefence12 December 2014
Permission topublishgranted(date)9 October 2014 LanguageEnglish
Monograph Articledissertation (summary+ originalarticles)
Abstract
Theexisting researchon strategicmanagementand entrepreneurship provides relatively few
prescriptions toentrepreneurial?rms for navigating recessions.Thekey managerialproblem
in recession involves ensuring short-term survivalwhileinvesting in futuregrowth.However,
decision-making during recessions occurs in a contextof highuncertainty, whichmay hinder
theability of managers totakeoptimalstrategicactions.
In this doctoraldissertation, Iexaminetheseissues mainly throughthelenses of the
behavioraltheory of the?rm, resourceorchestration theory, and entrepreneurialbricolage.I
employ survey and archivaldata on smalland medium-sized Finnishsoftwarecompanies from
2007 to2011.
The?rstessay examines when and why entrepreneurial?rms adjusttheir workforces during
recession.This study ?nds thatthesedecisions areprimarily driven by changes in sales.In
addition, theresults suggestthatworkforceadjustmentdecisions can spread throughboard
interlocks.Taken together, the?ndings suggestthatbothshort-run economicreasons and
socialin?uences explain ?rms'decisions toengagein countercyclicaland procyclical
strategies.
Thesecond essay examines theperformanceimplications of procyclicaland countercyclical
strategies during recession for ?rms withdifferentstrategicorientations.The?ndings suggest
thatcountercyclicalstrategies lead tobetter performance, butthenatureof therelationship is
in?uenced by thedegreeof proactiveness in the?rm's strategicorientation.
Thethird essay focuses on entrepreneurialbricolage, i.e., how?rms obtain newvaluable
resources atseemingly minimalcosts by combining resources of lower value.This essay
advances quantitativeresearchon bricolageby developing a novelmeasurementscalethat
addresses theweaknesses identi?ed in prior scales.Combined, this dissertation informs theory
and practiceon thestrategicmanagementof entrepreneurial?rms during recession by
examining performanceoutcomes of within recession strategies, thefactors thatdrivestrategy
adoption during recession, and thestrategicalternatives thatareavailabletodecision-makers.
Keywordseconomicrecession, behavioraltheory of the?rm, attention-based view, resource
orchestration, retrenchment
ISBN(printed)978-952-60-5983-9 ISBN(pdf)978-952-60-5984-6
ISSN-L1799-4934 ISSN(printed)1799-4934 ISSN(pdf)1799-4942
Location ofpublisherHelsinki Location ofprintingHelsinki Year2014
Pages140 urnhttp://urn.?/URN:ISBN:978-952-60-5984-6
Tiivistelmä
Aalto-yliopisto,PL11000,00076Aalto www.aalto.fi
Tekijä
Juhana Peltonen
Väitöskirjan nimi
Yrittäjämäisesti toimivien yritysten strateginen johtaminen taantuman aikana
JulkaisijaPerustieteiden korkeakoulu
Yksikkö Tuotantotalouden laitos
SarjaAaltoUniversity publication series DOCTORALDISSERTATIONS 194/2014
TutkimusalaPääomasijoitustoiminta, kasvuyrittäjyys ja teknologialiiketoimintojen
uudistaminen
Käsikirjoituksen pvm 29.8.2014 Väitöspäivä 12.12.2014
Julkaisuluvan myöntämispäivä 09.10.2014 KieliEnglanti
Monografia Yhdistelmäväitöskirja(yhteenveto-osa+ erillisartikkelit)
Tiivistelmä
Nykyinen yritysstrategian ja yrittäjyyden tutkimus tarjoaa yrittäjämäisesti toimiville
yrityksille(entrepreneurial?rms)niukasti toimenpidesuosituksia, jotka koskevattaloudellisia
taantumia.Taantuman aikana yrityksen johdon keskeisin haasteon varmistaa yrityksen
selviytyminen lyhyellä aikavälillä ja samanaikaisesti panostaa tulevaisuuden
kasvuedellytyksiin.Päätöksentekoon taantuman aikana liittyy kuitenkin paljon epävarmuutta,
mikä saattaa heikentää päättäjien kykyä tehdä optimaalisia päätöksiä.Tässä väitöskirjassa
tutkin tätä problematiikkaa pääasiallisesti behavioristisen yritysteorian (behavioraltheory of
the?rm), huomiopohjaisen yritysteorian (attention-based view), resurssien orkestroinnin
(resourceorchestration)sekä bricolage-teorian näkökulmista.Hyödynnän kysely-sekä
arkistoaineistoja pienistä ja keskisuurista suomalaisista ohjelmistoyrityksistä vuodesta 2007
vuoteen 2011.
Ensimmäinen esseetutkii milloin ja miksi yrittäjämäisesti toimivatyrityksetsopeuttavat
henkilöstönsä määrää taantuman aikana.Tämä tutkimus havaitsee, että näihin päätöksiin
vaikuttavatpääasiassa muutoksettarkasteltavan yrityksen liikevaihdossa.Tämän lisäksi
tuloksetviittaavatsiihen, että yritysten välisethallitusjäsenten muodostamatverkostot
toimivatkanavina, joiden kautta henkilöstön määrän sopeuttamiseen liittyvättoimitavat
leviävätyritysten välillä.Kokonaisuutena tuloksetviittaavatsiihen, että yritysten strategisiin
päätöksiin toimia jokotaloussykliä myötäilevästi (toimintaa supistavasti)tai sen vastaisesti
(toimintaa laajentavasti)vaikuttavatsekä lyhyen aikavälin taloudellisettekijätettä sosiaaliset
tekijät.Toinen esseetutkii miten yritysten strategisen päätöksenteon orientaatiovaikuttaa
siihen, miten nämä taloussyklin myötäisettai sen vastaisetstrategiatvaikuttavatyrityksen
tuloksellisuuteen.Tuloksetviittaavatsiihen, että taloussyklin vastaisetstrategiatparantavat
tuloksellisuutta, mutta tähän riippuvuussuhteeseen vaikuttaa yrityksen proaktiivinen
strateginen orientaatio.
Kolmas esseekeskittyy bricolage-käsitteeseen yrittäjyydessä.Käsiteliittyy yritysten kykyyn
luoda uusia arvokkaita resursseja minimaalisin kustannuksin yhdistelemällä muita vähemmän
arvokkaita resursseja.Tämä esseeedistää kvantitatiivista bricolage-tutkimusta kehittämällä
sen mittaamiseen tarkoitetun skaalan, joka korjaa aiempien skaalojen heikkouksia.
Kokonaisuutena tämä väitöskirja edistää strategisen johtajuuden ja yrittäjyyden teoriaa ja
käytäntöä tutkimalla strategioiden vaikutusta tuottavuuteen, strategiseen päätöksentekoon
vaikuttavia tekijöitä, sekä käytössä olevia strategisia vaihtoehtoja taantuman aikana.
Avainsanattaloudellinen taantuma, behavioristinen yritysteoria, huomiopohjainen
yritysteoria, resurssien orkestrointi, säästötoimet
ISBN(painettu)978-952-60-5983-9 ISBN(pdf)978-952-60-5984-6
ISSN-L1799-4934 ISSN(painettu)1799-4934 ISSN(pdf)1799-4942
JulkaisupaikkaHelsinki PainopaikkaHelsinki Vuosi2014
Sivumäärä 140 urnhttp://urn.?/URN:ISBN:978-952-60-5984-6
i
Acknowledgements
Now that this dissertation project has been concluded, it is time to thank
the many individuals and organizations that have helped make this
milestone a reality. First and foremost, I wish to thank my thesis supervisor
Professor Markku Maula for support in all areas of this research endeavor.
It is clear that without Markku’s backing, I would never have pulled
through the many ups and downs. I am deeply grateful to my pre-
examiners Professors Johan Wiklund and Scott Latham for their thorough
reviews and constructive feedback. I would also like to thank Professor Karl
Wennberg for acting as my opponent and providing insightful comments.
My sincere thanks to Professor Hannele Wallenius, the head of the
department, for supporting this research.
My development as a scholar owes greatly to understanding different
theoretical traditions. My view of the landscape has perhaps been most
refined by my visit to Stanford University through SCANCOR. Out the
numerous talented scholars I had the pleasure to interact with, I would
especially like to thank Professor Mitchell Stevens and Dr. Christine
Isakson. The ‘people of the fourth floor’ at Aalto deserve special thanks.
Above all, I would like to thank Dr. Pasi Kuusela and Professor Jens
Schmidt for our valuable theoretical discussions. I am grateful to Professor
Jay Barney for comments on my earlier work during Aalto’s Strategy
Research Colloquium. My warmest thanks to Nina Henriksson, Maria
Tikka, and Päivi Malinen for their administrative support.
In addition, I would like to thank my former colleagues at BIT Research
Centre, and particularly Dr. Mikko Rönkkö, Dr. Aku Valtakoski and Olli-
Pekka Mutanen from SBL for joint work related to the Software Industry
Survey, which acted as my primary data source. I am also very grateful to
Professor Pia Arenius from Hanken for fruitful collaboration in building a
platform for high-impact future research for my postgraduate phase, in
addition to our joint work on bricolage that goes back several years. I would
also like to thank Dr. Timo Nyberg particularly for long-sighted
investments into research infrastructure. Furthermore, one does not
graduate from the fourth floor without thanking Joosef Valli.
I would like to thank all my colleagues at Gearshift Group for an inspiring
work environment and providing me with the opportunity to work on
practitioner cases in emerging domains of ICT. Especially, I wish to thank
Dr. Jussi Autere who also acted as my supervisor during our joint time at
SBL, and has had a great influence on positioning my research.
ii
Furthermore, I want to thank Markku Nurmela, Christian Frühwirth, Jukka
Kotovirta, and Jyrki Laune for providing a practitioner’s lens to my work
through numerous discussions. Our interactions have significantly
influenced my view of the complementary and distinct roles of hands-on
business consulting and academic research.
I am also grateful to the Yrjö Uitto Foundation and the Jenny and Antti
Wihuri Foundation for their financial support that proved critical in making
this dissertation and my future research a reality. I wish to also thank my
family and friends for their unfailing support during this project. Last but
not the least, I would like to heartily thank Aleksandra for keeping my
spirits high and reminding me that life is not all about work.
Espoo 2014,
Juhana Peltonen
iii
STRATEGIC MANAGEMENT OF
ENTREPRENEURIAL FIRMS DURING
RECESSION
LIST OF RESEARCH PAPERS
This dissertation consists of this summary and the following three research
papers:
1. Peltonen, J., 2014. Board Interlocks and Entrepreneurial Firms’
Decisions to Hire and Fire during Recession.
2. Peltonen, J., 2014. Resource Orchestration of Entrepreneurial
Firms: Interaction Effects of Recession Strategy, Entrepreneurial
Orientation, and Performance.
3. Rönkkö, M., Peltonen J., Arenius P., 2013. Selective or Parallel?
Toward Measuring the Domains of Entrepreneurial Bricolage, in
Andrew C. Corbett, Jerome A. Katz (Eds.) Entrepreneurial
Resourcefulness: Competing With Constraints (Advances in
Entrepreneurship, Firm Emergence and Growth, Volume 15),
Emerald Group Publishing Limited, pp. 43-61.
Contributions of the author:
Essays 1 and 2 are single-authored studies. For Essay 3, the author jointly
developed the questionnaire items with the first author, wrote the
introduction, conducted and documented the data collection jointly with
the first author, and acted as the corresponding author throughout the
publication review process. The contributions of the first and second author
were equal.
iv
TABLE OF CONTENTS
1. BACKGROUND .....................................................................................................2
2. RESEARCH QUESTIONS ....................................................................................4
3. THEORETICAL BACKGROUND ....................................................................... 11
3.1 The Behavioral Theory of the Firm and the Attention-Based View ......... 12
3.2 Entrepreneurial Firm Boards ..................................................................... 14
3.3 Resource Orchestration .............................................................................. 15
3.4 Business Turnarounds and Retrenchment ................................................ 17
3.5 Entrepreneurial Orientation ....................................................................... 19
3.6 Entrepreneurial Bricolage ........................................................................... 21
4. DATA AND METHODS ..................................................................................... 23
4.1 Archival Data .............................................................................................. 23
4.2 Survey Data ................................................................................................. 24
4.3 Analytical Methods ..................................................................................... 24
5. KEY FINDINGS ................................................................................................. 28
5.1 Workforce Adjustments in Entrepreneurial Firms .................................. 28
5.2 Performance Implications of Resource Portfolio Structuring and
Interactions with Entrepreneurial Orientation .................................................... 28
5.3 Structuring the Resource Portfolio through Entrepreneurial Bricolage . 30
6. DISCUSSION ..................................................................................................... 32
6.1 Contributions to the Literature ................................................................. 32
6.2 Practical Implications ................................................................................ 38
6.3 Limitations .................................................................................................. 40
6.4 Avenues for Future Research ...................................................................... 41
7. REFERENCES .................................................................................................... 43
CHAPTER 1:
PELTONEN, J., 2014. BOARD INTERLOCKS AND ENTREPRENEURIAL FIRMS’
DECISIONS TO HIRE AND FIRE DURING RECESSION.
CHAPTER 2:
PELTONEN, J., 2014. RESOURCE ORCHESTRATION OF ENTREPRENEURIAL
FIRMS: INTERACTION EFFECTS OF RECESSION STRATEGY,
ENTREPRENEURIAL ORIENTATION, AND PERFORMANCE.
CHAPTER 3:
RÖNKKÖ, M., PELTONEN J., ARENIUS P., 2013. SELECTIVE OR PARALLEL?
TOWARD MEASURING THE DOMAINS OF ENTREPRENEURIAL BRICOLAGE.
1
INTRODUCTION TO THESIS
2
1. BACKGROUND
The Financial Crisis and the subsequent global economic downturn referred
to as the Great Recession have highlighted the need to better understand
strategic management surrounding major and vaguely anticipated shocks
(Agarwal, Barney, Foss, & Klein, 2009). Business failure statistics highlight
that this managerial task is highly demanding; with the onset of the
Financial Crisis, the number of bankruptcies more than doubled in the
United States compared to the beginning of 2007, and increases of over
50% were not uncommon in other advanced economies (OECD, 2013: 19).
In Finland, approximately 20% more companies
1
ceased in 2008 compared
to 2007 (Statistics Finland, 2013a). Despite some efforts to synthesize
research (e.g., Latham & Braun, 2011), there is currently no unified theory
of management during recessions that investigates which managerial
actions improve firm-level performance outcomes or what determines the
actions that firms actually undertake. However, the broad nature of these
issues calls into question whether a fully unified theoretical framework can
or should exist.
There are, however, numerous theories in the fields of strategic
management and entrepreneurship that address parts of this topic. The
three essays presented in this thesis also build on different theories to
address specific research questions. The essays all link to the body of
strategic management literature that investigates the orchestration of
strategic resources (Sirmon, Hitt, Ireland, & Gilbert, 2010; Sirmon, Hitt, &
Ireland, 2007; Sirmon & Hitt, 2003; Helfat, Finkelstein, Mitchell, Peteraf,
& Singh, 2007) of entrepreneurial firms under the suddenly increasing
environmental uncertainty and hostility caused by the onset of recession.
While the broad managerial issues related to recessions are difficult grasp
from a theoretical standpoint, recessions as a phenomenon of economic life
are easier to approach. Recessions are declared by observable declines in
macroeconomic variables (e.g., NBER, 2014; Rémond-Tiedrez, 2009).
Economic contractions are an integral part of economic life: a boom is
always followed by a bust. For example, the National Bureau of Economic
Research has documented 33 business cycles in the US since 1854. Since
1945, the average duration of a business cycle has been 5.7 years (NBER,
2014). Despite their periodic nature, the duration and magnitude of
business cycles have proven notoriously difficult to predict.
Beyond the macroeconomic variables, recessions are also a complex
societal phenomenon, which affects business environment and decision-
1
Limited liability companies, general partnerships, limited partnerships, and cooperatives.
3
making in many ways. Several scholars consider recessions essential to the
process through which economies renew themselves and the point at which
new goods, new methods of production, and new forms of industrial
organization replace the previous (Caballero & Hammour, 1994;
Schumpeter, 1934, 1942). Recessions themselves may also shift consumer
preferences and even create generations of consumers that behave
differently throughout their lifetimes (Flatters & Willmott, 2009; Hur,
2012). In other words, recessions are not only temporary quantitative
economic declines that are difficult to predict but also involve qualitative
changes in economic activity, which can include changes in both customer
preferences and offerings of firms.
During a recession, all firms must strike a balance between cutting costs
to survive in the present and investing in future growth (e.g., Gulati,
Nohria, & Wohlgezogen, 2010; Latham & Braun, 2011; Pearce & Michael,
2006; Roberts, 2003). This tradeoff can justify different recession
responses, i.e., within recession strategies (Latham & Braun, 2011),
depending on the industry in question. For mature industries with modest
long-term growth prospects, cutting costs and divesting assets to increase
profitability and slack are common and often successful strategies
(Hambrick & Schecter, 1983; Michael & Robbins, 1998; Pearce & Robbins,
1993). For entrepreneurial firms in growth industries, assuring that the
firm is able to capture its share of future revenue should not be neglected
(Guthrie & Datta, 2010; Morrow, Johnson, & Busenitz, 2004; Ndofor,
Vanevenhoven, & Barker, 2013).
While high-level boundary conditions for a within recession strategy are
not difficult to outline, identifying the means through which firms adjust
their resources is a different matter. There is a broad range of approaches to
the issue; in addition to acquiring, developing, or divesting internal
resources (Barney, 1986; Maritan & Peteraf, 2011), firms can also adjust
their use of external services, or better ‘make do’ with new combinations of
mundane resources they have access to (Baker & Nelson, 2005). In
addition, firms must consider the capabilities that their modified resource
sets provide and how to utilize these capabilities in new entries in the
changing marketplace (cf. Sirmon, Hitt, & Ireland, 2007; Sirmon, Hitt,
Ireland, & Gilbert, 2011; Lumpkin & Dess, 1996).
Apart from better knowing what resource-related actions improve firm
performance, what actions firms actually end up undertaking is a different
matter. Understanding these processes, especially harmful decision-making
biases under conditions of greater uncertainty and risk of failure, can result
in important managerial recommendations. When adapting to performance
feedback (Cyert & March, 1963), firms differ in which information they pay
4
attention to and how they react to it (Ocasio, 1997; Hoffman & Ocasio,
2001). In particular, social ties are highly important for decision-making in
entrepreneurial firms, which can have both positive and negative
consequences (Uzzi, 1997). However, there is little research on how the
managers of entrepreneurial firms develop responses to performance
declines and allocate the attention of its decision-makers. Unlike large
public firms, the boards of entrepreneurial firms are likely to play a critical
role in the process (Garg, 2013), and can give the firms a more external
orientation in the process of examining strategic alternatives (Vissa, Greve,
& Chen, 2010).
In sum, this overview highlights three perspectives that are important for
the strategic management of entrepreneurial firms during recession. First,
it is important to understand what the general strategic alternatives are for
firms. Second, in order to compare the alternatives, information is required
on their likely performance outcomes. Third, the decision-making context
in adopting a strategy needs to be understood (Vaara & Durand, 2012),
because it is not sufficient to know what actions are more beneficial than
others, but the most suitable actions also needs to be undertaken. The
following section refines these issues into more concise research questions,
and outlines the theories they are related to.
2. RESEARCH QUESTIONS
Before proceeding to the research questions, I wish to highlight some
reasons why it is important to study the management of entrepreneurial
firms
2
in a recessionary context. Firstly, while more research on
entrepreneurship is being conducted than ever before, there are several
streams of literature particularly in the domain of strategic management
that are highly relevant for entrepreneurial firms, but have predominantly
been researched in a large firm context. To give a few examples, the
behavioral theory of the firm (BTOF) (Cyert & March, 1963; Greve, 2008;
Audia & Greve, 2006; Vissa et al., 2010) has been developed with large
firms in mind, and it has been empirically studied almost exclusively in a
2
Generally speaking, the field of entrepreneurship considers that ‘entrepreneurial firms’ embody
‘entrepreneurship’ or ‘entrepreneurial behaviors’. However, there is no consensus on the definitions of
these terms (e.g., Shane & Venkataraman, 2000; Alvarez & Barney, 2004). Yet, common to most
definitions is some sort of theoretical departure from using existing resources to achieve previously
known outcomes using previously known processes and practices. This departure may subsequently
result in qualitatively novel ways of organizing economic activity. While the construct of an
‘entrepreneurial firm’ is not a simple dichotomy, industries where the rate of technological change and
interfirm rivalry are high (e.g., the software industry), firms are arguably required to be at least
somewhat entrepreneurial to thrive or simply to survive.
5
large firm context (Dew, Read, Sarasvathy, & Wiltbank, 2008). Meanwhile,
the goals (or aspirations) of decision-makers, which are central to driving
organizational adaptation according to the theory, can be highly different
and heterogeneous for entrepreneurs (e.g., Shane, Locke, & Collins, 2003;
Wiklund & Shepherd, 2003a). These kinds of generalizability issues related
both to theoretical and empirical research can be identified in several other
relevant streams as well. These include the role of boards of directors in
decision-making (e.g., Garg, 2013), the performance outcomes of cost-
cutting strategies (e.g., Morrow et al., 2004), and the strategies of managing
resources (e.g., Baker & Nelson, 2005).
Furthermore, it should be highlighted that entrepreneurial firms are
important sources of future economic growth and renewal (e.g., Ouyang,
2009; Schumpeter, 1934). The issue is also important from a short-term
perspective because firms that fail during recessions (or any other time) are
often small and young (OECD, 2013: 44–50). Given these academic and
broader societal motivations, I study the following main research question:
How can entrepreneurial firms be managed surrounding a
sudden economic downturn to increase their performance?
I begin decomposing this research question by observing that the public
eye is biased towards reporting entrepreneurial successes, while the
negative effects of recessions on entrepreneurial firms rarely receive
publicity. For example, mass layoffs by large firms often receive media
coverage, but accounted for a minority of private sector job cuts during the
Great Recession in the US and EU (Helfand, 2010; Wymenga, Spanikova, &
Derbyshire, 2011). CEOs of public companies issue statements justifying
why they resorted to workforce downsizing, but less information is available
on the reasons behind the layoffs of the ‘greater half’. This motivates my
examination of the reasons that lead entrepreneurial firms to adjust their
workforces during the onset of recession.
Essay 1 on the determinants of adapting workforce size in
entrepreneurial firms during the onset of the Great Recession
Workforce adjustments are a clear and frequently used approach to adjust
the resource portfolio of a firm (Datta et al., 2010). In this essay, I apply
BTOF (Cyert & March, 1963; Greve, 2008; Audia & Greve, 2006; Vissa et
al., 2010) and the attention-based view (ABV) (Ocasio, 1997; Hoffman &
Ocasio, 2001; Ocasio, 2011) to investigate these actions. As the trigger for
workforce adjustments, I examine the role of changes in sales. This
6
measure is perhaps the most sensitive to how a sudden economic shock
impacts a firm. A drop in sales has also been reported to be the most
important problem that small US businesses associated with the onset of
the Great Recession (?ahin, Kitao, Cororaton, & Sergiu, 2011).
Existing research drawing from several theoretical streams suggests that
retrenchment, including workforce reductions, may be harmful to the
performance of entrepreneurial firms (Guthrie & Datta, 2010; Morrow,
Johnson, & Busenitz 2004; Ndofor, Vanevenhoven, & Barker 2013).
Assuming that countercyclical strategies
3
are indeed beneficial in this
context, what actions do managers actually undertake and when?
Prior research on retrenchment (e.g., Grinyer & McKiernan, 1990) has
turned to BTOF (Cyert & March, 1963; Greve, 2008; Audia & Greve, 2006;
Vissa et al., 2010) to explain what causes companies to adapt to
performance shortfalls. This body of empirical research has mainly focused
on rather large firms in mature industries. BTOF views firms as short-run
adaptive performance feedback systems that gradually take stronger
corrective actions if the difference between aspirational and realized
performance grows.
ABV highlights that attention is situated, that is, the importance of the
situation in which decision-makers find themselves, rather than the
characteristics of the individuals themselves. One consequence of this view
is that network ties can strongly influence the organizational adaptation of
entrepreneurial firms (e.g., Uzzi, 1997), particularly when facing hostile
environmental jolts (Venkataraman & Van De Ven, 1998). Yet, person-level
network ties are abstracted away in contemporary BTOF research (e.g.,
Gavetti et al., 2007; Gavetti et al., 2012), and the social context is often
examined through higher level, aggregate variables. This leads to the
following research subquestion:
How do the network ties of decision-makers influence workforce
adjustments in response to failure to meet sales aspiration levels
in entrepreneurial firms?
Board interlocks (Mizruchi, 1996) form a particularly influential
interorganizational network, which can spread various behaviors (e.g.,
Davis, 1991; Gulati & Westphal, 1999; Haunschild, 1993; Westphal et al.,
2001). Board interlocks represent the ABV concept of attention structures
3
Paralleling Mascarenhas and Aaker (1989), here I consider a procyclical strategy to involve
orchestrating the firm’s resources and capabilities to be better aligned with the imminent state of the
macroeconomic environment. This involves ‘scaling down’ in various areas of internal and external
expenditures (e.g., in workforce size, R&D spending, and marketing) to protect the firm’s profitability
under harsher demand conditions. A countercyclical strategy refers to doing the opposite: orchestrating
the firm’s resources and capabilities in an expansive fashion during the recession, which may enable
firms to position themselves for postrecession growth at a lower cost.
7
that shape the time, effort and attention focus of organizational decision-
makers and determine how the firm legitimates and valuates issues and
answers (March & Olsen, 1976; Ocasio, 1997).
As prior BTOF has found that belonging to a business group influences
search patterns giving them an external orientation (Vissa et al., 2010), it is
reasonable to assume that the same would apply to board interlocks. The
importance of this external influence can be expected to grow as
environmental uncertainty increases, as firm may economize on search by
adopting actions from other organizations (DiMaggio & Powell, 1983;
Milliken, 1987).
The deviation from prior performance can include steep declines in sales,
which implies stronger pressure to downsize. Similarly, some firms may
encounter somewhat surprising sales increases, which increase pressure to
expand despite potentially fragile demand. Hence, either increases or
decreases in sales should make the firm more susceptible to external social
influences, including those spread by board interlocks.
Essay 2 on the performance implications of resource
portfolio structuring actions and entrepreneurial
orientation
Essay 2 examines the performance implications of countercyclical and
procyclical with recession strategies. For a more refined analysis beyond
this dichotomy, I draw on the resource orchestration literature (Sirmon,
Hitt, Ireland, & Gilbert, 2010; Sirmon, Hitt, & Ireland, 2007; Sirmon &
Hitt, 2003; Helfat, Finkelstein, Mitchell, Peteraf, & Singh, 2007). Resource
orchestration advances resource-based theory (RBT) by providing a
dynamic framework of how resources are used to create and capture value.
According to RBT (Barney, 1991; Peteraf, 1993; Wernerfelt, 1984; Penrose,
1959; Amit & Schoemaker, 1993; Barney, Ketchen, & Wright, 2011), firms
are heterogeneous bundles of resources and capabilities, which explains
observed performance differences among them (McGahan & Porter, 1997;
Rumelt, 1991). According to RBT, a firm has a competitive advantage if it
possesses valuable and rare resources (Barney, 1991). However, a firm must
renew its resources and capabilities to remain competitive because
competitive advantages can rarely be sustained (Eisenhardt & Martin,
2000; Teece, Pisano, & Shuen, 1997; Winter, 2003).
Resource orchestration examines the actions that managers take to
employ firm resources effectively by structuring the firm resource portfolio,
bundling resources into capabilities, and leveraging these capabilities to
create value. Structuring a firm resource portfolio relates to acquiring
(Barney, 1986), accumulating (Dierickx & Cool, 1989a), or divesting
8
resources. Firms can acquire or divest resources (e.g., business units,
plants, human capital, or IPR) on strategic factor markets (SFMs) (Barney,
1986). In addition to making good decisions to structure resource portfolios
and bundle resources into capabilities, firms must also leverage their
capabilities to create value (Sirmon et al., 2007). Furthermore, these
processes be synchronized and not viewed in isolation (Sirmon et al., 2007:
287); A firm should not modify its resource portfolio without
understanding how the change affects its capabilities or how the new
capability set will be utilized.
While this is an area that RBT has often ignored (e.g., Priem, Butler, & Li,
2013; Priem & Butler, 2001a, 2001b), firms can have different strategic
orientations
4
regarding how they leverage their capabilities. The strategic
orientation that involves leveraging capabilities in an entrepreneurial
fashion – which recessionary conditions warrant (Sirmon et al., 2007) –
can be examined through the lens of the entrepreneurial orientation (EO)
literature (Lumpkin & Dess, 1996; Covin & Slevin, 1989). The
entrepreneurial orientation construct (EO) relates to the degree to which
new firm entries are conducted in an entrepreneurial fashion, and it is
typically considered to consist of three dimensions: innovativeness,
proactiveness, and risk taking. The EO perspective suggests that when firms
decide on adopting countercyclical or procyclical resource portfolio
structuring strategies, they should consider their established ways of
making new entries to make most use of their modified resource portfolios.
Therefore, I examine the following subquestion:
How does an entrepreneurial firm’s strategic orientation of
leveraging its capabilities influence the firm’s performance
jointly with its resource portfolio structuring actions?
More specifically, recessions have implications on resource orchestration
in two key areas: they influence what kinds of resource portfolios firms
should have, and how firms should leverage the capabilities that the
resources enable. The resource portfolio question can be analyzed by
viewing how recessions affect SFMs. The price of the resources should
correspond to expected future returns. However, during recessions
(especially disturbances in credit markets), SFMs may become oversold as
companies with good long-term prospects fail or are forced to divest assets
due to short-run liquidity problems. This problem provides a rationale for
4
Drawing on Mintzberg (1973: 44) and Covin & Slevin (1989: 77), a firm's strategic orientation to refers
to its overall competitive orientation, that is shaped by the ways in which a firm makes important
decisions and forms strategies. A firm’s entrepreneurial (strategic) orientation (EO) is discussed in more
detail in section 3.5.
9
countercyclical strategies (e.g., Greer, Ireland, & Wingender, 2001; Greer &
Stedham, 1989; Pangarkar & Lie, 2004; Wan & Yiu, 2009) through which
firms obtain resources at a discount during recessions and utilize them to
create more value than their price would imply as the recession recedes.
However, for declining or mature industries, the long-term advantages of
a countercyclical strategy may be difficult to grasp. Firms may face a
persistent need to downsize with the declining market and act in SFMs
primarily as sellers. Additionally, future returns from resources may be
modest. Therefore, recessions may not create the same buying
opportunities in SFMs for mature industries as they do for growth
industries. Because these firms place less emphasis on future growth and
more emphasis on survival and profitability, reducing their resources
through retrenchment (Schendel, Patton, & Riggs, 1976; Hofer, 1980;
Hambrick & Schecter, 1983; Pearce & Robbins, 1993) can be a more viable
strategy to maximize performance. In addition to operating on SFMs, firms
can structure their resource portfolios through internal accumulation
(Dierickx & Cool, 1989a). SFM theory suggests that the investment costs of
developing resources through accumulation should be approximately equal
to acquiring similar resources through strategic factor markets (Barney,
1989; Dierickx & Cool, 1989b).
In simplifying terms, the above discussion captures a logic that is similar
to a stock trader’s most important rule: buy low, sell high. However, when
firms and resources are in question, there are some important departures
from this logic. First, firms are bundles of complementary resources (cf.
Adegbesan, 2009). This implies a firm’s past resource position can have a
great impact on the synergies it can create with new resources. Second,
firms are different in how they leverage their resources, which can both
influence their ability to capture value from the resources that they have,
and help them identify resources from SFMs that are valuable to them.
A firm’s EO, which is considered to be fairly consistent over time, has an
impact on both of these areas particularly in a recessionary context.
Primarily, EO deals with how a firm makes new entries, including how
capabilities can be used in new ways. EO may also influence a firm’s ability
to benefit more from ‘oversold’ SFMs by helping it identify more valuable
ways to use new resources (or to form superior expectations). Furthermore,
EO indirectly influences the accumulation of a firm’s resources and
capabilities. For example, pursuing an innovative and proactive strategy
can give the firm new experiences that improve its knowledge-based
resources.
10
Essay 3 on bricolage as a resource orchestration approach
Merely aligning accumulation, acquisition, and divestment actions with
industry conditions and the business cycle does not account for
qualitatively novel economic activity (cf. Schumpeter, 1934). As previously
noted, recessions also change consumer behavior, and merely correctly
timing actions that scale firm resources do not account for the processes
that renew economies. Furthermore, this setting suggests that larger firms
with ample resources would seemingly have a disproportionate advantage
over smaller and younger firms with fewer resources when acquiring
resources on SFMs. Yet, history is replete with examples in which
established firms are bested by younger and smaller rivals with apparent
initial resource disadvantages.
SFM theory accommodates this process partly through the concept of
resource complementarity (Adegbesan, 2009). Firms that have resources
with a greater degree of complementarity with a new target resource are
able to create larger surpluses. This is one (partial) way of articulating
Schumpeter’s (1934) entrepreneurial role, which involves the introduction
of new combinations.
Essay 3 addresses a resource portfolio structuring approach that lies
between resource acquisition (Barney, 1986) and accumulation (Dierickx &
Cool, 1989a): entrepreneurial bricolage (Baker, Miner, & Eesley, 2003;
Baker & Nelson, 2005; Lanzara, 1999). Baker and Nelson (2005) define
bricolage as ‘making do by applying combinations of the resources at hand
to new problems and opportunities’. Despite the potential of this concept to
explain how resource-constrained firms appear to create valuable and rare
resources from seemingly nothing, the measurement of entrepreneurial
bricolage is underdeveloped, which hinders empirical research on the topic.
The third essay addresses this gap and documents the process of developing
a novel scale to measure entrepreneurial bricolage.
The most commonly used measurement scale for bricolage was developed
in conjunction with the CAUSEE project (Davidsson, Steffens, & Gordon,
2011) and measures how commonly different elements of this definition
manifest at the firm level (Senyard, Baker, & Steffens, 2010; Senyard,
Baker, & Davidsson, 2009; Steffens, Baker, & Senyard, 2010; Senyard,
Baker, Steffens, & Davidsson, 2014). One benefit of this approach is that it
addresses how often bricolage takes place. However, theory developed on
bricolage suggests that the breadth of areas in the firm’s operation where
bricolage manifests impacts growth outcomes (Baker & Nelson, 2005).
Baker and Nelson (2005) refer to these areas of operation as the domains of
bricolage. The research question of the third essay can be stated as follows:
11
How can entrepreneurial bricolage be measured through the
domains in which it manifests?
According to Baker and Nelson (2005), bricolage may manifest in five
different environmental domains that fall into three categories: (i) inputs
(physical, labor, skills), (ii) customers/markets, and (iii) institutional and
regulatory environments. Baker and Nelson (2005) further argue that if
bricolage is undertaken in all domains (parallel bricolage), it is likely to
create a bricolage identity or permissive community of practice, which
hinders growth by reducing the firm’s ability to identify and seize
opportunities in broader markets. However, if bricolage manifests in fewer
domains (selective bricolage) firms may be able to develop new resources at
a minimal cost without suffering from the drawbacks of parallel bricolage.
Testing this theory requires a scale that can distinguish the degree to which
bricolage is parallel.
Particularly during recessions, entrepreneurial firms can be resource-
strapped, which implies that the resources they are able to use for
combination are seemingly very limited. On the other hand, many firms fail
during recession freeing up their resources to SFMs. Under these
circumstances, bricolage can be a viable option for entrepreneurial firms to
overcome their resource constraints and make use of resources that other
firms have been forced to abandon.
3. THEORETICAL BACKGROUND
There is currently no unified or broadly accepted theory of ‘management
during recession’. Instead, the limited number of studies that touch upon
such conditions tend to apply a broad range of theories and focus on
specific areas of strategy (e.g., Greer, Ireland, & Wingender, 2001;
Mascarenhas & Aaker, 1989; Wan & Yiu, 2009). While holistic recession-
centric approaches are yet to gain major traction in the scholarly
community, the framework developed by Latham and Braun (2011)
provides a promising step forward and a suitable lens for the main areas of
inquiry in this dissertation. Latham and Braun (2011) propose that firm-
level initial conditions (e.g., resources and capabilities) and their within
recession performance (performance during a recession) significantly
influence strategic decisions during recessions (within recession strategy).
Subsequently, a firm’s performance after a recession (post-recession
performance) is significantly influenced by the firm’s within recession
12
strategy and initial conditions. From the perspective of this framework, my
theoretical review focuses on (i) selecting within recession strategies, (ii)
performance implications of within recession strategies, and (iii) possible
within recession strategies. These domains also map closely with the
respective essays.
I examine the first domain through BTOF and ABV. The second domain is
viewed through RBT, particularly resource orchestration, which also
provides a common theoretical foundation for the essays (see Figure 1).
Entrepreneurial orientation (EO) and its dimensions are considered in
relation to how a firm leverages its capabilities. The third domain is
addressed through entrepreneurial bricolage as a complement to research
examining business turnarounds. In the remainder of this chapter, I
provide a detailed overview of these theories.
Figure 1. The relationships of the essays to resource orchestration and other literature
streams.
3.1 The Behavioral Theory of the Firm and the Attention-Based
View
The behavioral theory of the firm (BTOF) (Cyert & March, 1963; Greve,
2008; Audia & Greve, 2006; Vissa et al., 2010) is perhaps the most
commonly utilized theory to examine organizational adaptation over the
short term. BTOF argues that organizations are fundamentally averse to
change and uncertainty; therefore, they undertake major changes only if
required by significant and imminent reasons. According to this theory,
organizations adapt to environmental changes incrementally based on
13
short-term feedback, and address issues sequentially according to an order
of priority.
According to BTOF, an organization compares its realized performance to
its aspirational performance. An organization can possess aspiration levels
for areas including profitability, sales, market share, or production.
Aspiration levels are a function of previous performance and goals as well
as the performance of comparable organizations (Cyert & March, 1963:
162). Underachievement with respect to an aspiration level (or an
immediate expectation of it) can trigger problemistic search (p. 169), the
motivated search to identify (and take) actions to reach the aspiration level
of performance.
Problemistic search gradually expands from a simple model of causality in
which solutions are sought from areas that are within close proximity of the
symptoms. If no solution is found, then problemistic search proceeds to
more distant areas with higher levels of complexity and areas in which the
organization has slack (p. 171). The search process ends when the firm
reaches its aspiration level of performance or when it revises its aspiration
level to match current performance. Organizational adaptation can also be
driven by more than one aspiration level in the same area of interest. For
example, a modest decline in profits below target can be remedied through
additional risk-taking. However, if profits fall to level that threatens
organizational survival, the dangers of risk-taking increasingly influence
decision-making (Audia & Greve, 2006; March & Shapira, 1987, 1992).
BTOF assumes that problemistic search is biased by the manner in which
an organization views the environment and processes information about it
(Cyert & March, 1963: 162-171). Similarly, it can be expected that biases are
introduced when organizations form their aspiration levels through social
comparison (Festinger, 1954). However, BTOF acknowledges these biases
to exist, it does little to elaborate how they are formed. The attention-based
view of the firm (ABV) (Hoffman & Ocasio, 2001; Ocasio, 1997)
complements BTOF in this area. According to the theory, firm behavior is a
result of how firms channel and distribute the attention of their decision-
makers. Therefore, small differences in how organizations focus their
limited attention can result in inertia, inappropriate change, or successful
adaptation. (Ocasio, 1997)
According to Ocasio (1997), the cultural and cognitive schemas that are
available to decision-makers determine which environmental stimuli the
firm attends to (issues) and which responses are applicable to them
(answers) (Cohen, March, & Olsen, 1972). ABV highlights that attention is
situated, which refers to the importance of the situation in which decision-
makers find themselves, rather than the characteristics of the individuals
14
themselves. Furthermore, attention is distributed within the organization,
that is, the foci of attention vary throughout the organization.
The central constructs of the ABV include the attention structures that
shape the time, effort and attention focus of organizational decision-makers
and determine how the firm legitimates and valuates issues and answers
(March and Olsen, 1976; Ocasio, 1997). Attention structures relate closely
to procedural and communications channels, which represent the
situational contexts in which attention and action occur. They include
formal and informal meetings, reports, and administrative protocols
(Ocasio, 1997).
BTOF and ABV are applied in this dissertation in the context of
entrepreneurial firm boards. Boards of directors are a central part of firm
administration, and their role is to monitor the behavior of management
and ‘step in’ when significant corrective action is needed. Hence they are an
important part of problemistic search and also channel the attention of the
organization. This approach extends prior research in the intersection of
external organizational attention and problemistic search (Vissa et al.,
2010).
3.2 Entrepreneurial Firm Boards
Boards of directors as a corporate governance mechanism have fascinated
researchers for decades (see e.g., Daily, Dalton, & Cannella, 2003; Johnson,
Daily, & Ellstrand, 1996; Mizruchi, 1996 for reviews). Much research effort
has been devoted to applying agency theory (Jensen & Meckling, 1976;
Fama & Jensen, 1983) to explain how the separation of ownership and
control shapes organizational phenomena. Board research has focused
mainly on large public companies, while small and medium firms have
received much less attention (Daily et al., 2003; Huse, 2000; Machold,
Huse, Minichilli, & Nordqvist, 2011). Yet the boards of small firms have
long been considered an important organizational asset beyond their
control function (Certo et al., 2001; Daily and Dalton, 1992). Researchers
have examined their various value-added activities, such as securing
resources (e.g., Guler, 2007; Hallen, 2008; Katila, Rosenberger, &
Eisenhardt, 2008), providing legitimacy (e.g., Chen, Hambrick, & Pollock,
2008; Stuart, Hoang, & Hybels, 1999), and advice (e.g., Fried, Bruton, &
Hisrich, 1998; Rosenstein, Bruno, Bygrave, & Taylor, 1993).
However, theory development on entrepreneurial firm boards has
recently begun to receive more attention (Garg, 2013, 2014; Krause &
Bruton, 2014). This recent work builds on the differences with public firm
boards. For example, the separation between ownership and control is
weaker in private firms, and therefore the alignment of financial incentives
15
between the management and owners of a firm is stronger (Garg, 2013).
Boards of private firms are also likely to have better practical knowledge of
the industry sector, whereas public firm directors typically come from other
industries to improve independence (Davis & Cobb, 2010; Linck, Netter, &
Yang, 2009). Despite these strengths, Garg (2013) argues that too much
board monitoring in entrepreneurial firms may harm performance by
inhibiting innovation, drawing executives’ attention away from substantive
tasks, and leaving them with a low sense of self-control.
In this dissertation I view entrepreneurial firm boards through the lens of
the ABV, which is an approach that has been previously adopted in the
context of public firm boards (e.g., Tuggle, Schnatterly, & Johnson, 2010;
Tuggle, Sirmon, Reutzel, & Bierman, 2010). The ABV is a valuable
theoretical lens in this context for two reasons. First, as central components
of administration, boards can be considered a significant element of firm
procedural and communications channels. Second, boards of directors can
create links between organizations by forming interlocks. A board interlock
occurs when a person who is affiliated with one organization sits on the
board of directors of another organization (Mizruchi, 1996). Therefore, they
act as attention structures (March and Olsen, 1976; Ocasio, 1997) that have
an external orientation from the perspective of the focal firm.
The role of board interlocks in shaping the attention of entrepreneurial
firm boards has received little of no research attention previously. It can
however be expected, that the board becomes more active when the firm
faces a risks of a downturn or poor performance and it’s owners become
concerned about the performance of their investments (Fiegener, 2005;
Gabrielsson, 2007). Therefore, board interlock networks might also
influence how firms adapt when they deviate from prior performance levels,
especially under the economic uncertainty that surrounds the onset of a
recession.
3.3 Resource Orchestration
Resource orchestration (Sirmon et al., 2011, 2007; Sirmon & Hitt, 2003;
Helfat et al., 2007) is theoretically grounded in the resource-based (Barney,
1991; Peteraf, 1993; Wernerfelt, 1984; Penrose, 1959) and dynamic
capabilities literatures (Eisenhardt & Martin, 2000; Teece et al., 1997;
Winter, 2003) and examines the actions that managers take to employ the
firm’s resources effectively by structuring the resource portfolio, bundling
resources into capabilities, and leveraging the capabilities to create value.
The resource management model proposed by Sirmon, Hitt, and Ireland
(2007) is the dominant model in this body of literature. It seeks to address
16
several issues within ‘static’ RBT, namely neglecting dynamism,
environmental contingencies, and the role of managers.
Sirmon et al. (2007) distinguish between value creation for customers and
wealth creation for owners (e.g., Coff, 1999). The former is achieved if the
firm produces greater utility for customers than competitors do, which
implies that the firm has a competitive advantage (Hoopes, Madsen, &
Walker, 2003; Powell, 2001). The latter further requires that utility and
costs be optimized through resource management. The resource
management process model includes three levels, which address
managerial action in developing resource and capability portfolios, and
putting them into use. The first level, structuring the resource portfolio,
essentially determines the origin of the firm’s resources. This level captures
the stream within RBT that considers accumulating resources through
internal development (Dierickx & Cool, 1989a), strategic factor markets
(Barney, 1986), or divestment.
At the second level, capabilities are formed (or bundled) by integrating
resources within the firm’s resource portfolio. This formation takes place
through three main processes. First, stabilizing refers to making minor
incremental improvements to existing capabilities, such as training
employees. Second, enriching refers to extending and elaborating existing
capabilities, such as integrating newly acquired resources into existing
capabilities. Third, pioneering refers to creating completely new
capabilities. Although pioneering can involve recombining existing
resources, Sirmon, Hitt & Ireland (2007) argue that it often involves
completely new resources.
At the third level of resource management, capabilities are leveraged to
create value. This level involves exercising the option to apply firm
resources to achieve a desired outcome, which is enabled by possessing
capabilities (Winter, 2003). Sirmon et al. (2007) list three main leveraging
strategies. The resource advantage strategy involves providing higher value
to customers through a distinctive competence in an existing market. The
exploiting market opportunities strategy involves configuring existing
capabilities to target or create new opportunities, which are often adjacent
to the markets in which the firm already operates. Finally, the
entrepreneurial strategy involves producing new goods or services for new
markets. Sirmon, Hitt & Ireland (2007) also elaborate on the processes that
are required to pursue resource leveraging strategies.
Overall, Sirmon et al. (2007) argue that all elements of resource
management must be viewed jointly because they are inherently linked in
ways that often include organizational idiosyncrasies. Sirmon et al. (2007)
also acknowledge the importance of the firm operating environment, which
17
they decompose by munificence and uncertainty. Environmental
munificence refers to the ‘scarcity or abundance of critical resources needed
by (one or more) firms operating within an environment’ (Castrogiovanni,
1991: 542). Environmental uncertainty (i.e., dynamism), on the other hand,
is reflected by the regularity and amount of change occurring in the
environment, including changes in industry structure, stability of market
demand, and probability of environmental shocks (Sirmon et al., 2007:
275). Because the value of resources can vary across environmental
contexts, the value-creating potential of the firm is affected along with the
related resource management process.
Interest in resource orchestration has produced several empirical studies
(Sirmon, Gove, & Hitt, 2008; Sirmon & Hitt, 2009; Ndofor, Sirmon, & He,
2011; Chadwick, Super, & Kwon, 2014; Holcomb, Holmes, & Connelly,
2009; Morrow, Sirmon, Hitt, & Holcomb, 2007). While these studies
address only limited aspects of the Sirmon et al. (2007) model, they provide
promising evidence that supports the key theses of the theory. For example,
Sirmon and Hitt (2009) examine the relationship between human and
physical resource investments and performance for banks that vary by the
degree of sophistication of their services. While the study does not account
for the environmental context, it suggests that resource investment and
deployment decisions must be aligned.
Given the recent emergence of research on resource orchestration, there
are also many empirical research gaps. Particularly relevant to this
dissertation is resource orchestration in the context of extreme uncertainty,
and Sirmon et al. (2007: 287) propose that an entrepreneurial leveraging
strategy is likely to be required to create value for customers.
3.4 Business Turnarounds and Retrenchment
Research on business turnarounds (Pearce & Robbins, 1993; Robbins &
Pearce, 1992; Hofer, 1980; Schendel et al., 1976; Morrow et al., 2004;
Morrow et al., 2007; Trahms, Ndofor, & Sirmon, 2013) seeks to understand
how firm performance declines can be reversed. The central concepts of the
stream include the turnaround situation, where the firm's performance has
gradually deteriorated (Bibeault, 1982; Hambrick & Schecter, 1983;
Schendel et al., 1976). An additional boundary condition, which often
remains unstated in recent research, is that the firm must attempt to
reverse the decline rather than opt for liquidation (Hofer, 1980).
The cause of a turnaround situation can include any combination of
internal (e.g., operating inefficiencies) or external (e.g., a recession) factors
(e.g., Boyle & Desai, 1991; Finkin, 1985; Heany, 1985), which unfold and
impact matters from the short-term (i.e., operational cause) to the long-
18
term (i.e., strategic cause). Additionally, the severity of the turnaround
situation is considered an important construct, which relates to the
probability of business failure provided that no action is taken by the firm
(cf. Altman, 1968; Bibeault, 1982; Hofer, 1980). Depending on the nature of
the turnaround situation (its cause and severity), the managers of a firm
should select and implement a corresponding turnaround response (i.e.,
turnaround strategy). This process involves many behavioral processes
within the firm, which can delay the implementation of corrective action
(Audia & Greve, 2006; Greve, 2011; Grinyer & McKiernan, 1990).
A turnaround response is mostly understood to be one of several high-
level distinguishable patterns of actions or sequential combinations of
patterns. They are typically characterized through the timespan of their
intended effects (operational vs. strategic turnaround responses) or their
relationship to firm assets and markets (efficiency vs. entrepreneurial
turnaround responses). Hofer's (1980) typology of operating responses,
which includes cost retrenchment, asset retrenchment, and revenue
generation, is utilized even in the most recent turnaround research. These
approaches seek to improve short-term performance while largely ignoring
long-term implications. Strategic (or entrepreneurial) turnarounds involve
reformulating a firm's products, services, markets, or principal technologies
(e.g., Pearce & Robbins, 1994, 1993).
Some studies suggest that retrenchment can reverse firm decline in
mature manufacturing industries (e.g., Hambrick & Schecter, 1983;
Robbins & Pearce, 1992). However, it may produce the opposite effect in
high-growth and high-technology industries (Ndofor et al., 2013; Morrow et
al., 2004; Guthrie & Datta, 2008).
Overall, the research on turnarounds is both theoretically and empirically
fragmented and characterized by phenomenon-driven roots (Trahms et al.,
2013). Given its focus on performance outcomes, the limited extent of
integration with resource-based theory is surprising. In their review of the
previous research, Trahms et al. (2013) call for greater integration with
resource orchestration (e.g., Morrow et al., 2007). In this dissertation, I
view retrenchment primarily as a form of resource portfolio structuring
(Sirmon et al., 2007).
Additionally, the review by Trahms et al. (2013) notes that consideration
of external social influences in the turnaround research, particularly in
areas that investigates top management teams and boards of directors, is
virtually missing. In other contexts, board interlocks have been
demonstrated to influence corporate acquisition behavior (Haunschild,
1993), strategic alliance formation (Gulati & Westphal, 1999), and the use
of imitation strategies (Westphal, Seidel, & Stewart, 2001). Given a
19
recession, the impact of external social influences may be amplified because
uncertainty may promote mimicry (e.g., DiMaggio & Powell, 1983; Meyer &
Rowan, 1977).
3.5 Entrepreneurial Orientation
The entrepreneurial orientation (EO) construct consists of several firm-
level strategy characteristics that practitioners and scholars associate with
entrepreneurship. The findings linking EO to firm performance are
extensive (Rauch, Wiklund, Lumpkin, & Frese, 2009), but not without
methodological weaknesses (e.g., Andersén, 2010; Wiklund & Shepherd,
2011). EO researchers have long argued that the relationship between EO
and firm performance is context-dependent (Miller & Friesen, 1984).
Particularly, research suggests that the relationship between EO and firm
performance is stronger under environmental hostility (Covin & Slevin,
1989; Zahra & Covin, 1995; Zahra & Garvis, 2000) and low access to capital
(Wiklund & Shepherd, 2005). However, findings of the moderating effect of
environmental uncertainty (dynamism) are somewhat mixed (e.g.,
Lumpkin & Dess, 2001; Wiklund & Shepherd, 2005).
The majority of EO research considers the construct to consist of the
degree of innovativeness, risk-taking, and proactiveness (Rauch et al.,
2009), which relate to a firm's market-facing actions. The construct
occupies a space not covered by trait-based, individual-level
entrepreneurship research or the grand theories of organization studies. On
the other hand, EO does not directly consider entrepreneurial
opportunities, which removes it from the theoretical core of
entrepreneurship studies (e.g., Eckhardt & Shane, 2003; Shane &
Venkataraman, 2000, 2001; Venkataraman, 1997). However, EO's key
value for scholarly discussion may be in its ability to differentiate between
more and less entrepreneurial firms by focusing only on their pattern of
actions or ‘strategic posture’.
Miller (1983) is often considered to the beginning of EO research. The
article makes three important contributions to current EO research. First,
the paper shifts focus from an owner-manager to the firm level in order to
understand entrepreneurial behavior. According to Miller (1983: 770):
‘The entrepreneurial role stressed by Schumpeter is socially vital
but it can be performed by entire organizations which are
decentralized. It can easily exceed or even circumvent the
contributions of one central actor... But what is most important is not
who is the critical actor, but the process of entrepreneurship itself and
the organizational factors which foster and impede it.’
20
Empirical research on EO's performance relationship and its moderators
was subsequently conducted by Covin and Slevin (1988, 1989, 1990). Covin
and Slevin (1989) advance the theoretical debate on EO (or
‘entrepreneurial-conservation orientation’) by arguing that EO as a firm's
strategic posture is driven by its top management and top management
styles as ‘evidenced by firm's strategic decisions and operating
management philosophy’ (p. 77). While they adopt the dimensions of
entrepreneurial-conservation orientation directly from Miller (1983), they
view EO as relating to a broader strategic context (cf. Mintzberg, 1973)
instead of simply consisting of processes or actions as in Miller (1983). In
addition to these refinements, Covin and Slevin (1989) deployed a nine-
item operationalization of EO (the Miller/Covin and Slevin scale), which
later became dominant in EO studies (Rauch et al., 2009).
Later, Lumpkin and Dess (1996) contributed to the theoretical
articulation of EO in several ways. According to these authors, the essential
act of entrepreneurship is new entry, i.e. the act of launching a new venture
through a start-up firm, existing firm, or internal corporate venturing. A
new entry can be accomplished by entering new or established markets
with new or existing goods or services. An EO, on the other hand, refers to
the ‘processes, practices and decision-making activities that lead to new
entry’ (Lumpkin & Dess, 1996: 136).
Furthermore, unlike Covin and Slevin (1989), Lumpkin and Dess (1996)
propose that all the dimensions of EO may vary independently and have
differing effects on performance. This view challenges the dominant
approach taken in empirical studies (Rauch et al., 2009), which considers
EO a singular continuous variable (e.g., Covin and Slevin, 1989) and
entrepreneurial firms exhibit higher levels across all dimensions of EO.
This empirical question has received increasing attention (Kreiser, Marino,
Kuratko, & Weaver, 2013; Hughes & Morgan, 2007; Lumpkin & Dess,
2001), and the findings suggest that the dimensions of EO indeed exhibit
differing performance implications. A recent related research stream
examines the curvilinearity of the EO-performance relationship using either
the unidimensional construct (Su, Xi, and Li, 2011; Tang et al., 2008; Wales
et al., 2013) or each dimension (Kreiser et al., 2013; Dai, Maksimov,
Gilbert, & Fernhaber, 2013). These results generally suggest that ‘more is
not always better’.
Despite these interesting empirical and theoretical developments, the EO
literature is under theorized (Miller, 2011; Wiklund & Shepherd, 2011). It is
especially surprising that there is a general shortage of empirical studies on
EO based on RBT (for exceptions, see, e.g., Wales et al., 2013; Wiklund and
21
Shepherd, 2003). Recently, scholars have applied resource orchestration to
EO (Chirico, Sirmon, Sciascia, & Mazzola, 2011; Messersmith & Wales,
2013; Wales et al., 2013).
This dissertation contributes to recent EO research by examining the
curvilinear performance implications the proactiveness and innovativeness
dimensions of EO while considering the role of resource portfolio
structuring. From the perspective of resource orchestration (Sirmon et al.,
2007; Helfat et al., 2007; Sirmon et al., 2011), I view EO as a pattern of
leveraging capabilities when making new entries. For this purpose, the risk
taking dimension of EO has considerable theoretical overlap with
countercyclical strategies, and hence I refrain from developing hypotheses
regarding it. This rationale is further elaborated in Essay 2.
3.6 Entrepreneurial Bricolage
That some small, resource-strapped firms are able to grow or thrive in
hostile environments is seemingly paradoxical. From the perspective of
earlier resource-based theory, a firm requires resources to obtain a
competitive advantage, and the resources must be acquired or accumulated
(e.g., Barney, 1986, 1991; Dierickx & Cool, 1989a). Combining
complementary resources (e.g., Adegbesan, 2009; Ahuja & Katila, 2004)
may be one approach for firms to alleviate their financial constraints during
this process. However, obtaining the initial resources for this process is a
nontrivial matter for new firms because their resource endowments tend to
be modest. Furthermore, external conditions, such as a recession, may limit
the resources available to firms. From the resource orchestration
perspective, this issue relates to pioneering new capabilities without using
new resources (Sirmon, et al., 2007).
Baker and Nelson (2005) propose bricolage as a solution that can create
resources by applying combinations of the resources at hand to new
problems and opportunities. Entrepreneurs engaged in bricolage disregard
commonly accepted definitions of material inputs, practices and standards;
they push conventional limitations and combine and reuse available
resources for purposes other than those for which they were originally
intended or used (Baker & Nelson, 2005). As a result, this approach can
create ‘something’ from apparently ‘nothing’ ( Baker & Nelson, 2005).
In other management research, bricolage is presented as a coping
(Johannisson & Olaison, 2007) or a survival mechanism employed during
sudden, unexpected situations (Pina e Cunha & Viera da Cunha, 2007).
Outcomes related to bricolage can range from mundane and imperfect
solutions to brilliant unforeseen results (Lévi-Strauss, 1966: 17). Bricolage
is typically described on the level of individuals, tasks, and resources (Baker
22
et al., 2003; Baker & Nelson, 2005; Pina e Cunha, 2005; Lanzara, 1999).
Hence, to examine the bricolage-firm performance relationship, inter-level
mechanisms should be accounted for (Coleman, 1990). Research on this
topic has mostly been dominated by case studies (Baker & Nelson, 2005;
Baker et al., 2003; Lanzara, 1999), but studies that examine the
relationships between bricolage, innovativeness, resources, and growth
quantitatively are also emerging (Senyard et al., 2014, 2010, 2009; Steffens
et al., 2010).
The existing quantitative studies of bricolage draw on the scale developed
in the CAUSEE project (Davidsson et al., 2011). This scale measures the
frequencies of actions and behavior that relate to the definition of bricolage
proposed by Baker and Nelson (2005). However, we argue that further
scale development is needed based on how bricolage manifests within a
firm. In other words, considering whether bricolage has occurred in an
organization or how common such occurrences are may not be sufficiently
sophisticated for testing theory.
In particular, the case studies conducted by Baker and Nelson (2005)
suggest that bricolage may manifest in five different environmental
domains that relate to how the firm operates. If bricolage is undertaken in
all five domains, it is likely to result in a bricolage identity or a permissive
community of practice that hinders growth by reducing the firm’s ability to
identify and seize opportunities in broader markets. However, if bricolage
manifests in fewer domains (selective bricolage), the resource-driven
growth mechanism dominates. The lack of a scale that measures bricolage
as outlined above represents a gap that this dissertation addresses.
23
4. DATA AND METHODS
The empirical context of this dissertation is Finnish software SMEs between
2007 and 2011. This industry is well suited for this study because it has
generally enjoyed rapid growth but was not immune to the Great Recession.
The median sales growth of software firms in 2008 was 17.1%, which
contracted by 2.1% in 2009 and then grew by 7.9% and 5.3% in 2010 and
2011, respectively (Statistics Finland, 2013b)
5
. While the Finnish software
industry is perhaps best known for games sold to customers (e.g., Rovio
Entertainment and its Angry Birds franchise and Supercell with its top-
grossing Clash of Clans game), software SMEs primarily operate in the B2B
market but frequently sell their products internationally. Thus, while
growth has been rapid, Finnish software SMEs were not shielded from
credit or demand-related shocks to the global economy. Yet, the high share
of services in their offerings provides continuity in sales (Rönkkö, Mutanen,
et al., 2009; Rönkkö, Ylitalo, et al., 2009).
4.1 Archival Data
I utilized business register data extensively in Essays 1 and 2, because its
broad accessibility in Finland for private companies avoids limitations of
survey-based measures. Generally, a business entity must file its P&L
statement and balance sheet to the Finnish Trade Register
(Kaupparekisteri) annually. I utilized Bureau van Dijk’s Orbis database to
obtain these data for the study period. In addition, I obtained the entire
history of the boards for the firms analyzed in Essay 1, including the names
of CEOs and board members, their birth dates, and the starting and ending
dates for each position held. I acquired these data through an intermediary
(Asiakastieto Oy) that organizes and distributes data from the Trade
Register.
Finnish law mandates that all limited companies have a board of directors
and that changes to their composition be reported to the Trade Register
immediately. This also provides access to individual-level board member
data for small and unlisted firms. I utilize a combination of first names, last
names, and birth dates to identify unique individuals within the board
member data. I obtained additional data regarding regional changes in
5
Compared to the rest of the Finnish economy, revenues in the broader ICT services sector grew at
approximately twice the rate of GDP growth prior to the recession and its revenue contraction during the
recession was approximately half that of Finland’s GDP. (Statistics Finland, 2013c)
24
employment from Statistics Finland’s StatFin database and linked the
companies to these data using their postal codes.
4.2 Survey Data
Essays 2 and 3 utilize survey data collected during different waves of the
National Software Industry Survey (NSIS) (Rönkkö et al., 2010; Rönkkö,
Peltonen, & Pärnänen, 2011; Rönkkö, Mutanen, et al., 2009a, 2009b). This
survey has examined developments in the Finnish software industry since
1997; it has been conducted annually with a few early exceptions.
The NSIS aims to include all companies in Finland whose offerings are
significantly related to software. The core of the software industry can be
defined by industry code (NACE rev. 2 codes 62.01 ‘computer programming
activities’ and 62.02 ‘computer consultancy activities’); however, this
classification does not include all firms of interest to the survey. Therefore,
the survey has adopted an oversampling strategy, which also includes
populations adjacent to the core software industry. This is primarily
accomplished by including additional industry codes and manually
screening industry association member lists and companies that have
received funding from the Finnish Funding Agency for Innovation (Tekes).
The sampling frame of the previous year’s survey is also passed on to the
next year to enhance consistency over time.
While this approach is effective in maximizing the number of responses
from the firms of interest, it causes difficulties in assessing response rates
and variation in nonresponse processes. To address this issue, Essays 2 and
3 utilize only the subset of NACE rev 2 codes 62.01 and 62.02.
The survey targets CEOs; if contact information is unavailable, other high-
ranking executives are contacted in descending order. Prior to sending the
survey package, a letter with endorsements from related industry
associations and Tekes was sent to the firms. Companies were offered the
option to respond either by traditional mail or an online questionnaire. To
further increase the response rate, the survey package was followed by
several reminders, and a mass tailored summary report was offered as a
reward for responding.
4.3 Analytical Methods
Essay 1 predicts year-to-year workforce adjustments (change in personnel
count) utilizing OLS regression with robust standard errors. The main
independent variable is the unlagged year-to-year change in sales. For this
variable, I adopt a spline approach (Greene, 2003) which has been used
extensively in BTOF research (e.g., Greve, 2008; Vissa et al., 2010). The
25
spline approach enables separate estimation of direct and interaction
effects of sales increases and sales decreases.
The influence of board interlocks is accommodated through an
interlocked workforce adjustments variable. This variable represents the
workforce adjustments of firms with which the focal firm possesses board
interlocks. The board interlock structure was constructed using SQL
queries to a database into which the board of director data were entered.
These data were then combined with Trade Register data using company
identifiers and aggregated at the focal firm level using statistical software
(Stata IC version 10.1).
Essay 2 examines firm performance, which is operationalized as the sales
CAGR during the period 2008-2011, which captures changes between the
beginning of 2009 and the beginning of 2012. I utilize sales rather than
profit-based measures to operationalize performance due to the study
setting; high-tech firms may delay becoming profitable well into their
lifecycles, while producing revenue can be more important in
demonstrating the potential of a business. Furthermore, profits can be a
very unstable measure for small and young firms (Shepherd & Wiklund,
2009).
The independent variables in the study are drawn from two surveys. The
EO variables are based on the Covin and Slevin scale (Covin & Slevin,
1989), and they were collected during the summer of 2008 as part of the
NSIS. Data on recession strategies were collected during the summer of
2009 in conjunction with the NSIS. The seven items included in the
questionnaire represent different areas of firm operations, such as R&D,
outsourcing, sales and marketing, and software development and support.
The scale measures procyclical contraction at the negative end and
countercyclical expansion at the positive end. The questions addressed
changes during the past year, which closely overlaps with the recession in
Finland.
The combination of these two surveys reduced the overall response rate to
a level that is low even for top-management surveys (7.9%). While a low
(combined) response rate alone does not imply nonresponse bias, its
probability of existing increases, especially when combined with social
desirability related to the variables of interest. To examine and correct for
this possibility, I utilize the Heckman two-stage method (Heckman, 1979).
During the first stage, I utilize exclusion restrictions that may reduce item
difficulty and, hence, increase the likelihood of responding. For the first
exclusion restriction, I utilize the log-transformed number of board
members, including the CEO. A larger board may reflect a more active
strategy process, and responding to strategy-related questions is less
26
difficult. For the second exclusion restriction, I utilize a dummy variable
that reflected whether funding was received from Tekes. To receive funding,
firms must articulate their business plans. I estimated the models both with
2SLS and FIML estimators and obtained similar results. Survival bias did
not appear to affect the results because I failed to observe a significant first
stage probit model that predicted missing data in the dependent variable.
Essay 3 employs confirmatory factor analysis to test the factorial validity
of the bricolage scale. The three domain categories of bricolage were fitted
as separate factors that were allowed to correlate. Scale development began
by creating an initial item pool of 19 items, of which 12 items were modified
and utilized in a pilot study based on a review from an external practitioner
The data for the pilot study were collected as part of the 2010 NSIS. Six
items were dropped or modified after the pilot study, and new items were
added to create a new battery of 13 items, which were administered through
the 2011 NSIS. Of these items, 9 were included in the final scale. The items
are distributed evenly across the three bricolage domains, and each domain
of is measured by at least one item. The primary reasons for excluding
items were severe skewness and lack of correlation with the other items.
Table 1 summarizes the methodological approaches of each essay.
27
Table 1. Summary of methods
Essay 1 Essay 2 Essay 3
Title Board Interlocks
and Entrepreneurial
Firms’ Decisions to
Hire and Fire during
Recession
Resource
Orchestration of
Entrepreneurial
Firms: Interaction
Effects of Recession
Strategy,
Entrepreneurial
Orientation, and
Performance
Selective or Parallel?
Toward Measuring
the Domains of
Entrepreneurial
Bricolage
Dependent
variable
Workforce
adjustment
(one-year change in
personnel count)
Firm performance,
measured as 3-year
CAGR
n/a
Primary
hypothesis
variables
Interlocked
workforce
adjustments (sum of
workforce
adjustments in alter
firms having board
interlocks with the
focal firm), change
in sales
Innovativeness,
proactiveness
dimensions of EO
(Covin and Slevin
scale),
Countercyclical
strategy (7 Likert
items)
n/a
Survey data - Two surveys (2008
and 2009)
Two surveys (2010
and 2011)
Archival data Finnish Trade
Register (board of
director data and
financial data)
Finnish Trade
Register (financial
data)
Not used
Statistical
methods
OLS regression Heckman 2-stage
model
SEM
Number of
observations
238 focal firms (676
alter firms)
113 firms (second
stage of Heckman
model), 1582 (first
stage of Heckman
model)
315 in final analysis,
423 in pilot study
28
5. KEY FINDINGS
5.1 Workforce Adjustments in Entrepreneurial Firms
Essay 1 finds that greater short-run increases in firm sales are related to
greater workforce increases. Somewhat surprisingly, short-run reductions
in sales did not predict workforce reductions. On the contrary, I observe
weak evidence of sales decreases leading to workforce increases. However,
BTOF research offers a plausible explanation for this pattern; short-run
declines in a growth industry may be perceived by firms as changes that can
be remedied through additional risk-taking (e.g., Audia & Greve, 2006;
March & Shapira, 1987, 1992) rather than threats to firm survival.
Moreover, I investigated the role of board interlocks in directing
managerial attention. The results suggest that focal firm workforce
adjustments are systematically influenced by workforce adjustments in
alter companies with which the focal firm possesses board interlocks.
Additionally, the magnitude of this effect is greater if the sales increase of
the focal firm was greater. Figure 2 summarizes the hypothesized
relationships and findings in Essay 1. I also conducted several robustness
checks. For example, I excluded the possibility that M&A activity and
interlocks formed by venture capitalists caused spurious correlations.
Furthermore, I observe no evidence that board interlocks spread static
aspiration levels (e.g., workforce size, revenue) in this context.
Figure 2. Summary of hypotheses and main findings in Essay 1.
5.2 Performance Implications of Resource Portfolio
Structuring and Interactions with Entrepreneurial
Orientation
Essay 2 finds that countercyclical strategies that relate to expanding firm
resource portfolios relate to sales growth over a three-year time lag. I
observe that the opposite applies to procyclical strategies, which relate to
cost-cutting. In the empirical approach, procyclical strategies represent the
29
negative end of the countercyclical strategy scale. Additional robustness
checks reveal that simply increasing or decreasing sales and marketing
efforts did not explain differences in sales growth rates. However, both
internal actions (changing R&D, software development, product support
and maintenance, and sales and marketing costs) and outsourcing (changes
in the use of software development services or other external services)
explained differences in growth rates. While these results are consistent
with existing studies of turnarounds and downsizing (Guthrie & Datta,
2010; Morrow, Johnson, & Busenitz, 2004; Ndofor, Vanevenhoven, &
Barker, 2013), these data provide deeper insights for specific firm-level
actions and consider the context of one of the greatest global economic
crises in history.
The main contribution of this study comes from examining how
performance is moderated by the firm strategic orientation. In particular, I
test hypotheses related to the role of two dimensions of the EO construct:
proactiveness and innovativeness. EO was measured during the summer
prior to the escalation of the global financial crisis in the autumn of 2008.
This reduces the likelihood that abnormal economic events interfere with
the measurement of firm long-term strategic orientation.
I observe no relationship between pre-recession firm innovativeness and
subsequent growth. However, firms with either high or low proactiveness
benefit most from a countercyclical recession strategy, whereas firms that
are moderately proactive suffer least from a procyclical recession strategy.
The hypothesized relationships and main findings of Essay 2 are
summarized in Figure 3.
I also conducted additional robustness checks. When measured as a
unidimensional construct, EO exhibited no significant relationships with
firm performance. I examined both linear and curvilinear effects as well as
their interactions with recession strategy. These are all interesting non-
findings, as there are many reasons to believe that an EO (as such) would
be beneficial under the research setting. Furthermore, as with the
innovativeness dimension, risk-taking was not associated with performance
implications.
30
Figure 3. Summary of hypotheses and main findings in Essay 2.
5.3 Structuring the Resource Portfolio through Entrepreneurial
Bricolage
We developed novel scale to measure entrepreneurial bricolage. From the
perspective of resource-based theory and resource orchestration, the
development of this scale highlights the range of actions between
accumulation (Dierickx & Cool, 1989a) and acquisition (Barney, 1986) that
firms undertake when they structure their resource portfolios. These
potentially high-impact actions can be easily missed if resource portfolio
structuring is measured only through financial ratios or questionnaires that
seek to understand changes in investment on a more fine-grained level
(e.g., as in Essay 2).
The nine-item scale is based on the domains of bricolage, which Baker
and Nelson (2005) link to growth outcomes. This opens up the possibility
to test the bricolage-growth relationship as articulated by Baker and Nelson
(2005). The development of the scale by itself improves the generalizability
of prior bricolage research conducted by Baker and Nelson (2005) who
utilized snowball sampling to conduct their case studies. The results of
Essay 3 indicate that small and medium software firms vary in terms of
behaviors and practices associated with bricolage and that these behaviors
vary according to dimensions (see Figure 4) similar to those suggested by
Baker and Nelson (2005). This finding suggests that the bricolage behavior
documented by Baker and Nelson (2005) was not specific to their research
context. However, further research of the nomological validity of this
construct is required.
Developing this scale also improves the empirical understanding of
bricolage. As previously noted, several items were excluded or modified
during the development process due to high degrees of skewness. In many
cases, this may be due to social desirability. Bricolage can involve
challenging the institutional/regulatory environment, and respondents may
31
be hesitant to provide accurate descriptions of these actions. Hence,
developing items for this dimension of bricolage balanced addressing the
phenomena of interest and obtaining the information in a way that would
not discourage accurate responses.
In addition, the final scale exhibited high item uniqueness, and the
measurement model was characterized by somewhat low loadings. This
quality may represent a weakness of the scale or indicate that the sub-
constructs are characterized by further dimensionality. Future research
should therefore acknowledge that bricolage could manifest as a diverse
collection of practices. While the data were provided by software
companies, the scale itself was developed without a specific target industry
in mind. In particular, the scale does not assume the existence of physical
assets, which are commonly present in the cases examined by Baker and
Nelson (2005).
Figure 4. Outline of the measurement model in Essay 3 with statistically significant path
relationships.
32
6. DISCUSSION
6.1 Contributions to the Literature
Taken together, this thesis makes several contributions to understanding
on how entrepreneurial firms can be managed during the sudden onset of
recession to improve their performance. In short and simplifying terms,
this thesis finds that countercyclical strategies lead to higher sales growth in
entrepreneurial firms. However, the nature of this relationship depends on
the firm’s strategic orientation. Especially, firms with high proactiveness
(i.e. a strategic orientation of acting in anticipation of changes in the
environment) benefit most from countercyclical strategies that expand the
firm’s resource base, possibly because they have the means to deploy the
new resources to new market opportunities that the recession creates.
Managers are however constrained in adopting recession responses for
reasons other than obvious financial constraints. This thesis finds that
boards of directors and the interlocks they form with other firm cause
mimetic pressures on the focal firm. Especially when a firm’s sales grow
during the onset of recession, external influences may in some cases
prohibit the firm from adopting a countercyclical strategy. Finally, the
strategic options of the firm may not only include investing more to expand
the resource base of the firm, or divesting resources to improve the
financial position of the firm. Instead, firms should not ignore the common
practice of combining low-costs resources in novel ways.
To elaborate on these findings on more detail, this dissertation was
motivated by the observation that organization studies, particularly in the
fields of strategic management and entrepreneurship, do not provide a
coherent set of recommendations for managers facing vague and
unanticipated shocks, such as the Great Recession (cf. Agarwal et al.,
2009). This said, existing research does however contain relevant findings
regarding such contexts, but their generalizability to a context of a sudden
economic downturn where uncertainty (dynamism), hostility, and rapid
change coincide should be considered cautiously. Latham and Braun (2011)
provide a useful framework to approaching the contributions of this
dissertation from a phenomenon-centric perspective. According to the
framework, firm-level initial conditions (e.g., resources and capabilities)
and performance during recession (within recession performance)
significantly influence strategic decisions during the recession (within
recession strategy) and subsequent firm performance (post-recession
performance).
33
From this viewpoint, Essay 2 finds that relevant initial conditions can
include the firm’s proactiveness dimension of the EO construct. This
construct is difficult to classify as a firm capability or resource. Yet,
proactiveness influences post-recession performance by interacting with
within recession strategy. In other words, a firm’s pattern of resource and
capability use prior to a recession influences the outcome of its
countercyclical (expansive) or procyclical (retrenchment) strategies. In line
with prior related literature (Guthrie & Datta, 2010; Morrow, Johnson, &
Busenitz, 2004; Ndofor, Vanevenhoven, & Barker, 2013), this study also
observes that countercyclical strategies improve performance.
Essay 1 addresses the selection of a within recession strategy, particularly
workforce adjustments (the adaptation of a firm’s personnel count). As
expected, short-term performance influenced the within recession strategy.
More importantly, the study suggests that firms may mimic each other’s
workforce adjustments and that this effect is stronger with greater sales
increases. This study notes that improving post-recession performance not
only requires identifying beneficial strategies but also resisting mimetic
pressures that may jeopardize undertaking them. Though the study does
not directly measure the activities of the board, it points out that increasing
monitoring conducted by the board of directors may result in mimetic
behavior.
Essay 3 investigates the available set of within recession strategies, which
Latham and Braun (2011) categorize as countercyclical or procyclical. Essay
3 focuses on entrepreneurial bricolage, which may be a viable
countercyclical strategy that creates new resources and capabilities with
minimal investment and lower risk. By developing a novel measurement
scale of bricolage, Essay 3 demonstrates that entrepreneurial firms broadly
undertake behaviors related to bricolage. Yet, these behaviors cannot be
captured easily by financial ratios or changes in functional expenditures,
which are common measures in turnaround research. In the subsequent
sections, I discuss the contributions of this dissertation from the
perspectives of its main theory streams.
6.1.1 Contributions to the Behavioral Theory of the Firm and the
Attention-Based View
This thesis generally supports the BTOF adaptive mechanism for explaining
workforce adjustments in entrepreneurial firms during recessions as a
function of changes in sales. Moreover, this thesis examines how
organizational attention (Ocasio, 1997; Hoffman & Ocasio, 2001; Ocasio,
2011) influences this adaptation process. I examined board interlocks using
individual-level data and combined these network data with data on
34
workforce adjustments in the interlocked firms. To the best of my
knowledge, this research approach is currently unique to firms of all sizes.
Furthermore, research on small firm boards is generally very limited due to
data availability issues, which the Finnish regulatory environment enables
to overcome.
Overall, the results suggest that board interlocks spread actions (i.e.,
workforce adjustments) not static aspiration levels (e.g., size, sales) or
market information (changes in sales) that firms would react to. While
these findings suggest that board interlocks influence search, an alternative
explanation related to social aspiration levels exists, which this analysis
cannot fully disentangle. In other words, firms may aspire to grow at a
certain rate, and board interlocks provide the mechanism through which
social aspiration levels related to growth propagate. This interpretation is
supported by the observation that board interlocks appear to diffuse
workforce adjustments irrespective of the sales changes of the focal firms.
Furthermore, prior research suggests that the goals of entrepreneurial firms
may be different from mature firms (cf. Shane, Locke, & Collins, 2003). On
the other hand, the notion that board interlocks primarily influence search
is supported by the moderating hypothesis; greater changes in sales
produce stronger mimicry of workforce adjustments through board
interlocks.
6.1.2 Contributions to the Literature on Entrepreneurial Firm Boards
By applying rare archival person-level board data, the results provide
additional insight on how boards of entrepreneurial firms channel
organizational attention and affect adaptive action. The results also inform
future research on the monitoring function on entrepreneurial firm boards,
though this study does not measure board monitoring directly. Previously
Garg (2013) argued that too much board monitoring may hurt firm
performance by inhibiting innovation, drawing executives’ attention away
from substantive tasks, and leaving them with a low sense of self-control.
The findings of this dissertation are consistent with a finer-grained
explanation to these outcomes that depends on the interorganizational
contexts of the board members; deviation from past performance increases
monitoring by the board, and causes adaptive behaviors to spread through
board interlocks as the attention of decision-makers in the focal firm is
directed increasingly towards the actions that other organizations
undertake for various reasons.
Summarizing these findings from the perspective of Garg's (2013)
proposition on monitoring and performance, my findings pertain to a
specific scenario where managers may lose their sense of self-control and
35
attention focus as a result of excessive monitoring. The performance
outcome may also be similar; when making decisions on workforce
adjustment, having less attention to the context of the focal firm at the
expense of having more attention to external organizations is likely to be
harmful in most cases. Yet, variations in outcomes can also be expected; the
external influence of boards may bias decision-making toward ‘procyclical’
workforce reductions or ‘countercyclical’ workforce increases (e.g., Greer,
Ireland, & Wingender, 2001). The ultimate performance outcome of
increasing monitoring would therefore depend not only on the board
interlock network configuration, but also contextual factors of the focal firm
that influence the performance outcomes of these actions.
6.1.3 Contributions to the Literature on Resource Orchestration and
Turnaround Strategy
This study provides evidence to support one of resource orchestration’s
most important claims; structuring, bundling, and leveraging processes
should be synchronized (Sirmon et al., 2007: 287). This is accomplished by
jointly examining the firm strategic orientation (the proactiveness and
innovativeness dimensions of EO) and within recession strategies.
Proactiveness and innovativeness relate to how the firm typically leverages
its resources and capabilities. Within recession strategies relate to
structuring the resource portfolio. Specifically, obtaining more resources
(countercyclical strategy) or reducing them (procyclical strategy).
The findings of this study also clearly highlight the advantages of
countercyclical strategies in high growth industries, which is consistent
with previous studies of downsizing and retrenchment (Guthrie & Datta,
2010; Morrow, Johnson, & Busenitz, 2004; Ndofor, Vanevenhoven, &
Barker, 2013). By studying smaller and unlisted firms outside the US, these
findings increase the generalizability of prior research. The recession
strategies were measured utilizing a questionnaire during the recession,
which reduces the likelihood of recollection bias.
The main contribution of this study to the downsizing and retrenchment
literatures is that the outcomes of recession strategies may vary according
to firm strategic behavior or tendency to identify and respond to emerging
opportunities in the marketplace (i.e., proactiveness). This study does not
assume that these characteristics are constant on the industry level
(Morrow et al., 2004) or assume that strategic actions (e.g., the number of
new product introductions, alliances, and acquisitions) are alike (Ndofor et
al., 2013).
Furthermore, by applying survey measures and an exploratory approach
rather than financial measures, this dissertation captures countercyclical
36
strategies in more detail than many prior studies. By decomposing firm
countercyclical strategies to a more detailed level, the analysis revealed that
actions involving increasing (decreasing) internal investments and
outsourcing are beneficial (harmful) for firm performance. Increasing sales
and marketing efforts did not produce systematic performance effects.
The finding for outsourcing supports Sirmon et al. (2007), who propose
that during periods of high uncertainty, firms can benefit from a ‘resources
as options’ perspective with respect to the flexibility that these resources
provide for responding to unforeseen opportunities and threats. The results
of this study also suggest that internal resource accumulation may be the
primary means through which proactiveness affects the performance of
entrepreneurial firms under high uncertainty compared to outsourcing.
6.1.4 Contributions to the Literature on Entrepreneurial Orientation
This dissertation represents a non-result for the EO-performance
relationship, which contrasts with prior studies that reported direct (e.g.,
Rauch, Wiklund, Lumpkin, & Frese, 2009) or curvilinear effects (Su et al.,
2011; Tang et al., 2008; Wales et al., 2013) between EO (as an
unidimensional aggregate construct) and performance. However, the
dissertation also highlights one plausible explanation for the results; in the
wake of an environmental ‘jolt’ (e.g., Audia, Locke, & Smith, 2000; Meyer,
1982) associated with a decline in environmental munificence
(Castrogiovanni, 1991), the dimensions of EO have different implications on
performance (Dai et al., 2013), which obscures the effects of the
unidimensional EO construct. In particular, the growth implications of
proactiveness depend on within recession strategy. Taken together, the
results suggest that future research on EO should pay more attention to the
performance implications of the individual EO dimensions in different
contexts (cf. Lumpkin & Dess, 1996, 2001).
Within the EO literature, this dissertation extends the findings of recent
studies that combine resource orchestration with EO (Chirico et al., 2011;
Messersmith & Wales, 2013; Wales et al., 2013). Unlike prior studies, I
explicitly measure actions that change the firm resource base rather than
assuming that certain static firm characteristics influence its resource
orchestration practices.
Finally, the theorizing in this paper highlights the unsettled difference
between EO as a tendency and EO as behavior (Covin & Lumpkin, 2011),
which also persists in empirical approaches to measuring EO. This
distinction is because behavior is much more likely to lead to path-
dependent resource configurations that may become liabilities when
discontinuous change occurs. This may explain why there was no support
37
for the innovativeness-related hypotheses; the ability to launch a series of
new products and services often requires significant prior investment.
Making these investments requires making assumptions about the future,
which may prove unrealistic because of the economic shock of the Great
Recession. However, a proactive strategic orientation may be less likely to
expose a firm to path-dependent liabilities resulting from an environmental
shock.
The methodology for testing the EO-performance relationship is also
relatively rigorous compared to oft-cited extant studies (Andersén, 2010);
this dissertation employs lagged, objective performance data, controls for
past performance, thoroughly examines survival bias, and analyzes the
dimensions of EO separately. In addition, this study is rare (if not unique)
in its examination of nonresponse bias using the Heckman (1979)
procedure. Nonresponse analyses are documented in less than one-third of
organizational studies that employ surveys (Werner, Praxedes, & Kim,
2007).
6.1.5 Contributions to the Literature on Entrepreneurial Bricolage
The bricolage literature suggests that entrepreneurial bricolage may help
firms in hostile environments to create resources from seemingly nothing
and enable them to grow (Baker & Nelson, 2005). However, for this benefit
to be realized, bricolage must be used selectively. Baker and Nelson (2005)
suggest that bricolage can lead to a nonprofessional, closed culture that
limits growth if it is present across all environmental domains. In short, a
moderate amount of bricolage may help firms grow in hostile environments
but both too much and too little bricolage has negative implications.
Limited empirical research has been undertaken to test the relationship
between entrepreneurial bricolage and firm growth quantitatively (for
exceptions, see Senyard et al., 2009, 2010). These efforts have applied a
scale of bricolage that measures how often bricolage takes place – not the
breadth of areas in which it takes place. This limits the capability of existing
research to distinguish the degree to which bricolage is selective or parallel,
which increases the difficulty of testing the growth hypotheses proposed by
Baker and Nelson (2005).
Our 9-item semantic differential scale has been used in an initial study to
test the relationship between bricolage and firm growth with promising
results (Peltonen, Rönkko, & Arenius, 2012). Given the current
understanding of entrepreneurial bricolage, the scale we have developed is
a useful tool for researchers interested in the antecedents and outcomes of
bricolage in entrepreneurial firms. However, the scale must be applied in
contexts besides the software industry to establish its generalizability.
38
Furthermore, because bricolage is a fundamentally multidimensional
construct, further dimensionality in the three main domains that our scale
focuses on may exist.
6.2 Practical Implications
This dissertation finds that the social context created by board interlocks
influences decision-making related to hiring and firing in a recessionary
context. I quantify this effect in the context of several financial variables
like sales growth, profitability, and slack. In light of these findings, it is
reasonable to assume that board interlocks may spread recession responses
that are beneficial in a given industry but harmful in another. Managers
should therefore focus on the context of their own firm and be aware of the
systematic external influences that board interlocks (and possibly other
social network ties) transmit – especially if the firm manages to grow
despite the recession. Sometimes questioning ‘socially accepted’ responses
to recessions particularly promoted by board members with close ties to
other businesses can provide a starting point for selecting strategies that
improve performance over the longer term. Arguably, there is no best
practice recession strategy – each firm should tailor its approach based on
their firm-specific information.
I also find that countercyclical recession strategies are beneficial. It is
possible that the firms in the study sample continue to pursue their pre-
recession strategic plans, which unintentionally makes their strategies
countercyclical when they are merely continuing their strategic course
(Mintzberg & Waters, 1985). Hence, the results of this study do not warrant
recommending countercyclical strategies simply for the sake of benefitting
from a recession. However, managers should seriously consider the
justifications for cutting costs from pre-recession strategic initiatives
especially if there is an unquestioned sense among the close peers that
‘cutting costs is what needs to be done in recession’. In particular, reducing
outsourcing may be politically less sensitive but may result in a loss of
critical strategic flexibility. Also merely increasing or decreasing sales- or
marketing-related efforts does not systematically explain differences in
sales growth rates.
This paper’s results concerning proactiveness imply that firms should
assess their prior orientation toward changes in the market when selecting
a recession strategy. In particular, firms that are overly optimistic about
their ability to pursue market opportunities proactively may fail to obtain
their expected results from a countercyclical strategy.
39
The development and testing of a scale of entrepreneurial bricolage
suggests that bricolage is broadly practiced by firms and in different
domains of their operations (Baker & Nelson, 2005). However, the
implications of bricolage are largely unexplored in quantitative studies. Yet
given the current state of knowledge, instead of trying to eliminate the
practice, managers should rather have a healthy curiosity toward bricolage,
and consider if the practice could be selectively used in some area to
promote innovativeness and growth in their organizations.
Taken together, the findings of this thesis can be summarized through a
crude analogy: The task of navigating a recession is like racing a car (firm)
full of people (the board) to a new destination without a navigator.
Sometimes the advice of the other passengers can be useful, but oftentimes
the driver needs to keep his/her head to reach the destination and ignore
the backseat drivers. In particular, most often the driver should drive at a
speed (hire and fire) that matches the properties of the car (firm), and
ignore the advice of those who prefer a faster or slower ride because their
own cars can go faster or slower (properties of interlocked firms).
Sometimes the journey can go faster if the driver attempts to drive faster
(countercyclical strategy). However, the value of this strategy depends on
the abilities of the driver. If the driver is skilled at passing other cars and
avoiding congestion (high proactiveness), driving faster can be a good
approach. However, if the driver is only average, then driving slower
(procyclical strategy) and leaving passing to the speeders does little harm
for reaching to the destination without time-consuming setbacks. For the
drivers that never pass other cars and navigate by following the tail of other
cars (low proactiveness), driving much slower is damaging, because they
eventually run out of other cars to follow. Instead, trying to follow faster
cars makes more sense, but this will never enable them to drive by the most
skilled drivers.
Finally, financially constrained travelers that do not have enough money
to obtain a car and gasoline may need to think about their navigation
strategy in a different way. They can for example try to lift their way to the
destination on several cars. This way, they may be able to combine the
driving and navigation skills of other people, and only pay for their coffee
(bricolage). Sometime this can lead to being among the first to arrive at the
destination, but the outcome can also be hours spent standing in the rain.
On the other hand, this can lead to arriving at a completely different
destination, which can be better than the one originally intended.
40
6.3 Limitations
No study is without limitations, and certain areas are highlighted here. In
Essay 1, despite the use of several lagged control variables, the cross-
sectional research approach may fail to capture consistent firm-level effects,
particularly differing historical aspiration levels and risk preferences. This
limitation points to the need to make simplifying assumptions about
aspiration levels. Namely, that each firm considers negative growth a
problematic issue that it must remedy.
The analytical approach does not explicitly consider the stage of the
business cycle. It remains unclear how economic uncertainty and hostility
affect the propensity of the entrepreneurial firm to engage in herd behavior,
as the results suggest. A panel analysis would further enable accounting for
how the stage of the business cycle affects the outcomes and examining
fixed firm-level attributes, such as preferences to risks. Similarly, a panel
approach would enable analyzing board member specific differences in risk
preferences and, hence, enable untangling behaviors that spread from firm
to firm from behaviors that spread from board members to firms. The
analysis should also be extended to other industries. These approaches
would not be limited by the availability of registry data in Finland; however,
obtaining and processing these data would require significant additional
funding.
Furthermore, Essay 1 suffers from the difficulty of making causal
inferences due to the lack of time lags between key independent variables
and the dependent variable. However, remedying this issue may be difficult
because companies report their revenues annually, and in a fast-paced
industry, companies cannot wait for a year to adjust their operations to
meet demand. Hence, the conjecture that short-run sales changes drive
short-run workforce adjustments rather than the opposite rests on
theoretical reasoning.
Essay 2 suffers from a modest number of observations, which partly
results from combining two surveys to create its unique longitudinal data
set. While potential non-response bias was controlled for using the
Heckman two-step approach, limitations to statistical power remain.
Endogeneity resulting from self-selection into recession strategies can also
influence the results. I attempted to identify suitable instrumental variables
to address the issue without success. I particularly attempted to identify
instrumental variables based on the board interlock approach in Essay 1 by
attempting to demonstrate that firms mimic their more specific recession
strategies from each other to some extent. Despite some promising initial
progress, this effort proved to be unsuccessful.
41
A common limitation in all of the essays is the single country, single
industry setting. While this approach controls for industry-specific effects,
it nonetheless limits the generalizability of the results. Specifically,
economic recessions affect different high technology and growth sectors
very differently in different countries, especially with respect to the extent
and duration of the downturn. Labor market regulations may also influence
hiring and firing decisions in various national contexts, with direct
implications to Essay 1 and, to a lesser extent, Essay 2. Furthermore, in
Essay 1, laws and regulations concerning boards of directors vary among
countries. In particular, Finland has fewer limitations on forming board
interlocks the United States. While Essay 1 took measures to control for
these differences, the results should be considered in a broader context of
managerial social networks of which boards of directors and board
interlocks represent a special case. There are also differences among
countries regarding the necessity of boards of directors in small and
medium limited liability companies, which in Finland are required by law.
While we aimed to develop a scale that applicable to all industries, testing
it in a single industry context remains perhaps the greatest limitation in
Essay 3. Cultural differences may also challenge the applicability of the
scale in different national and regional contexts, especially reporting issues
such as challenging the institutional environment.
6.4 Avenues for Future Research
Considering the breath of managerial issues in entrepreneurial firms that
relate to sudden economic downturns, this dissertation leaves many
important avenues unexplored. In the following, I highlight some of these.
One important area of future research is examining how BTOF can be
applied to entrepreneurial firms in general (Dew et al., 2008) – apart from
small firms in established industries (Greve, 2011). As noted by Shane,
Locke, and Collins (2003), entrepreneurs may possess very different
motivations. Additionally, their dominant coalitions, which represent an
interesting area of future research in BTOF on a general level (Gavetti et al.,
2012), may change in ways that are uncommon in established firms (e.g.,
Hellmann & Puri, 2002). While there is no special reason to doubt the
applicability of the core mechanisms of BTOF in such a context, more
research is required to understand how entrepreneurial firms adapt to
performance feedback. Essay 1 touches on this area superficially by
suggesting that the actions, not static levels, may be more relevant in the
process of adapting through problemistic search. The broad topic of how an
entrepreneur’s social network (Aldrich & Zimmer, 1986) shapes responses
to sudden external shocks also remains relatively unexplored in
42
quantitative studies, perhaps because of the difficulty of obtaining
individual-level data for unlisted firms that do not suffer from coverage
biases. Future research in this area could inform entrepreneurs of the social
ties that make them more prone to beneficial or harmful strategic
adaptations during recessions.
Including the use of resource orchestration theory in turnaround research
and understanding the potential of firm strategic orientation as an
approach to leveraging capabilities in resource orchestration requires
additional research. Promising approaches to data collection include
content analyses of CEO letters to shareholders (Short, Broberg, Cogliser, &
Brigham, 2010). However, these documents are unavailable for unlisted
firms, and the demand for alternative approaches remains. Meanwhile, a
fruitful avenue for future research may be to combine existing vast survey
data sets on EO with archival measures that can be used to create proxy
variables on resource portfolio structuring actions in different phases of the
business cycle. Following this line of research could also lead to a closer
theoretical integration of business turnaround, EO and RBT studies while
remaining sensitive to changes in the business cycle. It should also be noted
that EO is only one approach to understanding how a firm uses its
capabilities to engage with its environment (e.g., Miles, Snow, Meyer, &
Coleman, 1978).
A natural next step following Essay 3 is to test the bricolage-growth
relationship utilizing the novel scale. A negative effect of broad, parallel
bricolage would support Baker & Nelson’s (2005) case study findings. If
robust support for the bricolage-performance relationship can be observed,
further research would also be needed to examine the value of bricolage as a
within recession strategy. For example, it may prove to be practically
difficult for a firm to adjust the extent to which it engages in bricolage
rapidly. If this proves to be the case, recommending bricolage as a recession
strategy to managers would be difficult even if particular levels of bricolage
could be demonstrated to be useful. Furthermore, it is unclear whether
bricolage prior to an external economic shock is beneficial. For example,
organizations may be better at improvising in the new situation through
bricolage (cf. Baker, Miner, & Eesley, 2003), or path-dependencies in
bricolage activities (e.g., Baker & Nelson, 2005: 255) may produce a
resource portfolio that is difficult to restructure in a changing environment,
which might lead to competitive disadvantages. This is yet another example
of how unexpected external shocks, such as the Great Recession, tested the
boundary assumptions (Bacharach, 1989) of existing theories; the outcomes
can only be resolved through additional empirical testing.
43
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