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Asymmetric selection among organizations

August 7th, 2009 | Posted by admin in 2003 - (0 Comments)

William P. Barnett, Aimee-Noelle Swanson, and Olav Sorenson

We discuss the creation of organizations and their survival as distinct selection processes, and consider the significance of their divergence. In particular, to understand the implications of entrepreneurial booms, we propose the possibility of asymmetric selection, where entry selection and exit selection differ from each other in strength. An observed increase in founding rates hence may reveal a decline in the selection threshold for entry—implying lower average fitness among boom-time entrants. When such an expansion occurs, organizations born during these periods of heightened entry should suffer higher failure rates in the fitness threshold required for survival remains stable or becomes more stringent. We also discuss other processes that might educe founding waves, and explain the different implications of these accounts for our empirical model. Estimates of the model support our theory of asymmetric selection in two out of three markets using a comprehensive dataset describing organizations in the U.S. computer industry.

Industrial and Corporate Change, 12 (2003): 673-695

Social networks and industrial geography

August 7th, 2009 | Posted by admin in 2003 - (0 Comments)

Olav Sorenson

In many industries, production resides in a small number of highly concentrated regions; for example, several high tech industries cluster in Silicon Valley. Explanations for this phenomenon have focused on how the co-location of firms in an industry might increase the efficiency of production. In contrast, this article argues that industries cluster because entrepreneurs find it difficult to access the information and resources they require when they reside far from the sources of these valuable inputs. Since existing firms often represent the largest pools of these important factors, the current geographic distribution of production places important constraints on entrepreneurial activity. As a result, new foundings tend to arise in the same areas as existing ones, and hence reproduce the industrial geography. In support of this thesis, the article reviews empirical evidence from the shoe manufacturing and biotechnology industries.

Journal of Evolutionary Economics, 13 (2003): 513-527

Toby E. Stuart and Olav Sorenson

In this paper, we examine the ecological consequences of initial public offerings (IPOs) and acquisitions, specifically how the spatial distribution of these events influences the location-specific founding rates of new companies. We explore whether relatively small spatial units (metropolitan statistical areas) in close geographic proximity to firms that recently have been acquired or experienced an IPO exhibit high new venture creation rates and whether the magnitudes of these effects depend on regional differences in statutes governing the freedom of employees to move between employers. Count models of biotechnology firm foundings establish three findings: (1) IPOs of organizations located contiguous to or within an MSA accelerate the founding rate within that MSA, (2) acquisitions of biotech firms situated near to or within an MSA accelerate the founding rate within the MSA, but only when the acquirer enters from outside of the biotech industry, and (3) the enforceability of post-employment non-compete covenants, which is determined at the state level, strongly moderates these effects.

Administrative Science Quarterly, 48 (2003): 175-201

Jesper B. Sørensen and Olav Sorenson

Studies consistently find regions dense in concentrations of similar firms to be fecund sources of new firms of the same kind. This pattern persists even in industries with negative returns to geographic concentration. Why do these patterns persist? On the one hand, social networks may constrain entrepreneurs’ opportunities, making it difficult to mobilize resources in more attractive locations. On the other hand, nascent entrepreneurs may systematically misperceive opportunities in such a way as to lead them to continue founding attempts in overcrowded regions. To distinguish between these two processes, we analyze a unique set of data on television stations that contains information on both attempts to start new stations, as well as successful foundings. Our exploratory analysis suggests that nascent entrepreneurs do consistently misinterpret information related to population dynamics. These patterns could easily contribute both to industrial agglomeration and to the fragility of Red Queen dynamics. We discuss the implications of these results for both future research and for public policy.

Advances in Strategic Management, 20 (2003): 89-117

Olav Sorenson

A growing body of research documents the role that organizational learning plays in improving firm performance over time. To date, however, this literature has given limited attention to the effect that the internal structure of the firm can have on generating differences in these learning rates. This paper focuses on the degree to which interdependence—and in particular one structural characteristic that generates interdependence, vertical integration—affects organizational learning. Firms face a trade-off. In stable environments, vertically integrating severely limits the organization’s ability to learn by doing because boundedly rational managers find the optimization of operations difficult when making highly interdependent choices. As the volatility of the environment increases though, integration can facilitate learning-by-doing by buffering activities within the firm from instability in the external environment. Thus, firms with a high degree of interdependence suffer less in these environments. Tests of these hypotheses on the growth and exit rates of computer workstation manufacturers support this thesis.

Management Science, 49 (2003): 446-463

Link to data at FIVE Project

Toby E. Stuart and Olav Sorenson

One of the most commonly observed features of the organization of markets is that similar business enterprises cluster in physical space. In this paper, we develop an explanation for firm co-location in high-technology industries that draws upon a relational account of new venture creation. We argue that industries cluster because entrepreneurs find it difficult to leverage the social ties necessary to mobilize essential resources when they reside far from those resources. Therefore, opportunities for high tech entrepreneurship mirror the distribution of critical resources. The same factors that enable high tech entrepreneurship, however, do not necessary promote firm performance. In the empirical analyses, we investigate the effects of geographic proximity to established biotechnology firms, sources of biotechnology expertise (highly-skilled labor), and venture capitalists on the location-specific founding rates and performance of biotechnology firms. The paper finds that the local conditions that promote new venture creation differ from those that maximize the performance of recently established companies.

Research Policy, 32 (2003): 229-253

Lee Fleming and Olav Sorenson

Some companies are better off making incremental improvements to their products. Others that must compete on their ability to innovate focus on breakthrough inventions. Either approach requires the exploration of a specific type of ‘technology landscape’ and the right strategy for searching across the terrain.

MIT Sloan Management Review, Winter 2003: 15-23