Knowledge Creation and Social Networks in Corporate Entrepreneurship: The Renewal of Organizational Capability

By Floyd, Steven W.; Wooldridge, Bill | Entrepreneurship: Theory and Practice, Spring 1999 | Go to article overview

Knowledge Creation and Social Networks in Corporate Entrepreneurship: The Renewal of Organizational Capability


Floyd, Steven W., Wooldridge, Bill, Entrepreneurship: Theory and Practice


Corporate entrepreneurs face a unique challenge in the development of opportunities within established companies. On one hand, any initiative he or she pursues should take advantage of the organization's existing capabilities. Otherwise, pursuing an opportunity is likely to stretch the organization beyond the boundaries of its core competence and result in poor organizational performance (Hoskisson, Hitt, & Hill, 1991). On the other hand, the purpose of corporate entrepreneurship (CE) is to pursue new business ventures and to renew organizational strategy (Covin & Slevin, 1991; Guth & Ginsberg, 1990; Zahra, 1997). Initiatives that are too closely associated with the status quo may not be sufficiently divergent to stimulate organizational learning. Put succinctly, the issue is how the entrepreneurial process overcomes the forces of organizational inertia without breaking the link to existing competencies (Hannan & Freeman, 1984, 1989; Huff, Huff, & Thomas, 1992). Leonard-Barton (1992) expressed the challenge more broadly as an organizational paradox. While existing capabilities provide the basis for a firm's current competitive position, without renewal, these same capabilities become rigidities constraining the firm's future ability to compete.

Burgelman's (1991) process description of CE points to a resolution of the issue. He describes CE as a renewal process, changing the organization in incremental, evolutionary ways. Over time, this avoids the costs and turmoil of total reorientation, bending, but not breaking, the core rigidities. Indeed, to the extent the CE process abandons existing capabilities, it neglects two important advantages of internal corporate venturing over independent venturing: learning from and leveraging existing competencies (Cohen & Levinthal, 1990) and buffering the development of complex, inimitable routines (Kogut & Zander, 1992). From the shareholder's perspective, the pursuit of corporate entrepreneurship is limited to the extent that firms are able to leverage these (and other) advantages (Zahra, 1991, 1997).

Burgelman's argument is based on a variation-selection-retention framework wherein entrepreneurial initiatives are seen as competing within an intraorganizational ecology. The process begins with autonomous activities at middle and operating levels that generate a requisite variety of alternatives. A process of "natural" selection forces initiatives to compete against a set of externally relevant criteria. Rather than "directing the decisions," top management ratifies the outcome of this process, thereby retaining the venture within the organization as part of official strategy (Burgelman, 1991; Venkataraman, MacMillan, & McGrath, 1992).

While the ecological model contributes much to our understanding of how organizational capabilities evolve, the theory says little about the effects of individuals in the CE process. In our view, however, the purposeful behavior of individuals is central to the definition of CE (Stevenson, Roberts, & Grousbeck, 1989). Thus, we believe that existing theory leaves several important questions unanswered. How are corporate entrepreneurs able to identify opportunities that are not obvious to others in the organization? How do entrepreneurs achieve credibility for new ideas within an established social system? How are the entrepreneur's new ways of thinking translated into tangible outcomes and organizational skills? How are entrepreneurial initiatives ultimately incorporated into the established set of capabilities? To address these questions, this paper analyzes the structure and dynamics of the selection-retention process. The purpose is to specify the individual and sociological processes associated with the creation and use of entrepreneurial knowledge in large, complex organizations.

The perspective taken in this paper is from the middle of the organization, meaning that the middle layers of the management hierarchy are assumed to be the locus of CE. …

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