The Complicating Factor of Life Cycles in Corporate Venturing

By Hoy, Frank | Entrepreneurship: Theory and Practice, November 2006 | Go to article overview

The Complicating Factor of Life Cycles in Corporate Venturing


Hoy, Frank, Entrepreneurship: Theory and Practice


Does family matter in corporate venturing? Converting the question, can a family firm survive without corporate venturing? Life cycle theory contends that it is normal for an organization to form, grow, mature, decline, and die. Long-term survival, especially through multiple generations, would require renewal through innovation to avoid decay and death. Strategic corporate venturing may be the answer for many family firms. To innovate and prosper, a family enterprise must contend with multiple life cycles, rarely synchronized, any one of which may be in a decline stage at any point in time. This commentary examines how life cycles complicate the ability of families to plan strategically for corporate entrepreneurship.

The Venturing Prerequisite

The authors of "Corporate Entrepreneurship in Family Firms: A Family Perspective" emphasize the role of corporate venturing in revitalizing and achieving healthy growth, revenue streams, and profitability. Their use of the term "corporate entrepreneurship" encompasses innovation combined with the ability to recognize opportunity, specifically technological opportunities (Kellermanns & Eddleston, 2006). There is ample prior literature to support their contention. According to Hamel (2000), innovation is crucial for corporations to compete effectively in the twenty-first century. Kuratko and Welsch (2001, p. 347) contend that entrepreneurial behavior in corporations is essential to address three problems:

* required changes, innovations, and improvements in the marketplace to avoid stagnation and decline;

* perceived weaknesses in the traditional methods of corporate management;

* the turnover of innovative-minded employees who are disenchanted with bureaucratic organizations.

It should be noted that these problems could be descriptive of both family and nonfamily employees.

Kellermanns and Eddleston (2006) cite criticisms of family firms in the literature: They fail to invest in new ventures, avoid risks, resist change, and become fixated on maintaining the status quo. The authors acknowledge the need for family businesses to modernize and to enter new markets in order to survive from one generation to the next. They contend that a strategic planning approach can facilitate reducing resistance to change, involving successor generations, and increasing the ability to recognize opportunities. In this commentary, I suggest that life cycles are moderating variables, complicating the ability of firm leaders to be entrepreneurial.

The Concept of Life Cycles

Derived from biological analogies, life-cycle models have become useful tools in the study of organizations, beginning with products particularly related to strategy applications (Hoy, 1995). Seminal contributors have included Chandler (1962) and Scott (1971). Both suggest that transitions occur with age and that behavior, especially the ability to adapt to the environment, may change from stage to stage. The key distinction of the life-cycle approach is the expectation of entropy, i.e., that organisms eventually degrade and die. A critical assumption of corporate entrepreneurship is that it can serve to reverse entropy, to avoid decline, and to revitalize a corporation that has entered a decline stage. This occurs through strategies of innovation, as described by the authors.

Many scholars have investigated life cycles, developing both normative and empirical models (Adizes, 1988; Gersick, Davis, Hampton, & Lansberg, 1997; Kazanjian, 1984). A simple 4-stage model is shown in Figure 1. However, additional stages could be added and labeled. In their thorough literature review and taxonomic study, Hanks, Watson, Jansen, and Chandler (1993) proposed five stages. Gersick et al. (1997) have even included a third axis. For the purposes of this commentary, however, four stages will suffice.

[FIGURE 1 OMITTED]

More recent studies have extended life-cycle research beyond products and organizations. …

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