Defining the Relationship among Founding Resources, Strategies, and Performance in Technology-Intensive New Ventures: Evidence from the Semiconductor Silicon Industry

By Newbert, Scott L.; Kirchhoff, Bruce A. et al. | Journal of Small Business Management, October 2007 | Go to article overview

Defining the Relationship among Founding Resources, Strategies, and Performance in Technology-Intensive New Ventures: Evidence from the Semiconductor Silicon Industry


Newbert, Scott L., Kirchhoff, Bruce A., Walsh, Steven T., Journal of Small Business Management


The degree to which a firm's performance is dependent on its resources and strategies is widely debated in the literature. We examine this issue by analyzing historical data on the entire population of new independent firms started worldwide in the semiconductor silicon industry for the first 50 years of its existence. We measure resources (managerial capabilities and technological competencies) and strategies (emphasis on demand pull or technology push) at the time of founding and test their relationship with each other as well as with multiple measures of performance (lifespan and best year's sales). We find that firms founded on managerial capabilities emphasize demand-pull strategies at founding, whereas firms founded upon technological competencies emphasize technology-push strategies at founding. We also find that firms emphasizing technology-push strategies perform better than firms emphasizing demand-pull strategies. Lastly, we find that though managerial capabilities are related to a firm's best year's sales, this relationship is mediated by the firm's founding strategy.

Introduction

The debate regarding whether a firm's performance is a function of its strategy or its resources is long-standing. In one corner are the structure-conduct-performance (SCP) theorists, who contend that firms seeking to earn above normal rents should select the strategy employed by the best-performing firms in the industry (Bain 1956), who will by default be implementing strategies in response to the threats and opportunities present in the industry (Porter 1980). For example, SCP scholars have argued that depending on the industry dynamics, firms that implement a product differentiation strategy (Chamberlain 1933; Robinson 1933), a low-cost strategy (Porter 1980; Scherer 1980), a first-mover strategy (Lieberman and Montgomery 1988), or a collusive strategy (Scherer 1980) may earn above normal economic returns. In short, SCP theorists contend that a firm's performance is driven largely by its strategy.

In the other corner are the resource-based view (RBV) theorists, who criticize this notion on the grounds that all firms are not equally equipped to execute a given strategy. On account of the unique set of resources each strategy requires, few firms, if any, are likely to be capable of implementing multiple strategies. As such, RBV theorists contend that it is the resources accessible to the firm that will determine its ultimate performance (Barney 1991). Indeed, Lieberman and Montgomery (1998) note that whereas a first-mover strategy may be the most profitable strategic choice in a given industry, a firm's decision to pursue a first-mover or a follower strategy should be determined by its resource base.

Surprisingly, little empirical research has been conducted in an effort to integrate these two seemingly opposing perspectives. Indeed, much of the research on the determinants of firm performance has focused on either resources or strategies. As such, the empirical literature is replete with results advocating either the acquisition of valuable resources with little or no regard to how they ought to be exploited or the implementation of a particular strategy with little or no regard to the types of resources that such a strategy might require in the first place.

We will attempt to address this gap by examining how resources and strategy affect firm performance. In so doing, we develop a parsimonious model of founding resources, founding strategy, and performance in technologically intensive environments. Given this context, we argue that the decision to emphasize a demand-pull or a technology-push strategy at the time of founding is determined by the resources the firm has at its disposal. More specifically, we hypothesize that firms founded upon managerial capabilities will emphasize demand-pull strategies at founding while firms founded upon technological competencies will emphasize technology-push strategies at founding.

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