THE DYNAMISM OF IT ENTREPRENEURIAL TEAM: AN EVOLUTIONARY PERSPECTIVE FENG YUANYUE (B. Eng. (Hons.), Renmin University of China) A THESIS SUBMITTED FOR THE DEGREE OF DOCTOR OF PHILOSOPHY DEPARTMENT OF INFORMATION SYSTEMS NATIONAL UNIVERSITY OF SINGAPORE 2013 DECLARATION I hereby declare that this thesis is my original work and it has been written by me in its entirety. I have duly acknowledged all the sources of information which have been used in the thesis. This thesis has also not been submitted for any degree in any university previously. X FENG YUANYUE FENG YUANYUE 15 August 2013 i ACKNOWLEDGEMENTS I would like to give my deepest appreciations to many individuals whose support made this thesis possible. First and foremost, I wish to pay tribute to my supervisor, Professor HENG Cheng Suang, for his invaluable advice, guidance, and support throughout all phases of my thesis. He has always made time to discuss my research, challenged me to strengthen my logical thinking and encouraged me to pursue ideas that have a strong impact in both theories and practices. Without his wisdom and help, I would not have the opportunity to pursue this interesting topic and would not have the persistence to go through the long and rewarding journey of this thesis. I also wish to express my gratitude to Professor CHAN Hock Chuan, Professor CHEN Yuanyuan, and the anonymous external reviewer, who served on my thesis committee. They have devoted much time and effort to helping me improve the quality of this research. Their expertise has intellectually broadened my horizons in the conceptual development and their critical comments at various stages of this study have increased the depth of the theoretical development. This thesis would not have reached the current level of quality without their continuous support. I have also received help from other faculties in the Information Systems (IS) Department who have shared with us their knowledge and views on the contemporary IS studies through various research seminars. Their dedication and commitments have made our doctoral program one of the very best in the world, and through their teaching, I have broadened my view on the IS scholarship and found my research interest. I am further indebted to Professor YANG Bo at Renmin University (China) for his help in data collection. This thesis would not have been possible without the help from his research team who devoted a lot of time and energy collecting data from the local case companies. Prof Yang has also provided constructive feedbacks on the earlier version of this thesis; he is a great partner to work with, and I have learned a lot from him. ii My colleagues in the IS Department have always encouraged me on this research despite having different research directions from me. My seniors Dr. CHEN Jin and Dr. YE Hua have spent countless hours scrutinizing my framing and offered invaluable, constructive feedback from their experience. At several critical moments, they encouraged me not to give up and advised me on how to improve the analysis step by step. My juniors CHEN Qing and LIN Zhijie have also given me a lot of encouragement and thought-provoking insights. In summary, the companionship from the colleagues has made my Ph.D. journey a lot of fun and memorable. I am also grateful to my girlfriend, ZHONG Lingling for standing beside me throughout my Ph.D. journey and the writing of this thesis. She has supported and encouraged me in every possible way so that I was able to overcome many challenges. This included putting up with me when I got moody over work, planning recreational activities for us, and more importantly, always having faith in me. I also acknowledge my parents for supporting my academic aspirations and their unconditional love. Without them, I would not be where I am now. iii TABLE OF CONTENTS DECLARATION………….…………………………………………………… .I ACKNOWLEDGEMENTS…………………………………………………….II TABLE OF CONTENTS………………………………………………………IV SUMMARY……………………………………………………………………VII LIST OF TABLES…………………………………………………………… X LIST OF FIGURES…………………………………………………………….XI CHAPTER INTRODUCTION……………………………………………… 1.1 IT Entrepreneurship Team as a Prominent Research Area…………… 1.2 Research Questions………………………………………………………… 1.3 Contributions………………………………………………………….…… 1.4 Definitions of Central Concepts………………………………………… .11 1.4.1 IT Entrepreneurship……………… …………………………11 1.4.2 IT Entrepreneurial Team………….………………………… 13 1.5 Thesis Outline………………………………………………………………15 CHAPTER LITERATURE REVIEW AND THEORETICAL DEVELOPMENT………………………………………………16 2.1 Different Research Streams of Entrepreneurial Team Literature…… 17 2.1.1 Entrepreneurial Team Resource ………………… ……… 17 2.1.2 Entrepreneurial Team Structure………………… ………… 22 2.1.3 Entrepreneurial Team Learning Process.…… ………………27 2.1.4 Entrepreneurial Team Turnover……….…………………… .33 2.1.5 Venture Strategy and Market Contexts of Entrepreneurial Team……………………………………………………… 34 2.1.6 Entrepreneurial Team Performance……………… …………36 2.2 Entrepreneurial Lifecycle and The Evolutionary Theory of Firm …….37 2.3 Applicability of Evolutionary Theory to Entrepreneurial Team Research………………………………………………………………… 41 2.4 Merits and Limitations: The IT Entrepreneurial Team as an Ideal Context to Develop the Evolutionary Theory of Firm………… ……… 44 CHAPTER RESEARCH METHODOLOGY…………………………… 48 iv 3.1 Research Design……………………………………………………………48 3.2 Case Selection………………………………………………………………48 3.3 Data Collection…………………………………………………………… 53 3.4 Data Analysis……………………………………………………………….54 CHAPTER CASE DESCRIPTION AND ANALYSIS…………………… 57 4.1 Case Descriptions………… …………………………………………… .58 4.1.1 Softstone………………… ……………………………… .58 4.1.2 Zion…………………….…………………………………… 62 4.1.3 Jupiter…………………… …………………………………64 4.1.4 Hitech….………………… ……………………………… .66 4.1.5 Broadline……………….…………………………………… 68 4.1.6 Wisdom.………………… ………………………………… 70 4.2 Case Analysis……………….…………………………………………… .73 4.2.1 Variations of Founding Team Structures… …………….… .74 4.2.2 Structual Adaptations by IT Entrepreneurial Team at Different Early Stages… .76 4.2.3 Selection of Appropriate Alignment between Team Structures and Venture Strategies by Venture Performance………….…80 4.2.4 Influential Factors for Structural Adaptation: Team Founding Resources and Team Learning Processes……… .……… .83 CHAPTER DISCUSSIONS………………………………………………….97 5.1 Influential Factors on IT Venture Strategy Formulation and Change 97 5.2 The Evolution of IT Entrepreneurial Team as a Process of Continuous Structural Adaptation……………………………………… .……… 98 5.3 Efficiency of Structural Adaptation: Complementarity of Imprinting and Learning Perspectives……………………………………… .……… .101 5.4 Antecedents and Consequences of Team Turnover…………………… 104 CHAPTER CONCLUSIONS……………………………………………….109 6.1 Theoretical and Practical Contributions……………………………… .109 6.2 Limitations and Future Research Directions……………………………116 6.3 Concluding Remarks…………………………………………………… .117 v 6.4 Bibliography… .………….………………………………………………118 vi SUMMARY The prevalence of team-based entrepreneurship has evoked a growing scholarly interest in entrepreneurial teams. However, there is scant research attention devoted to the evolution of IT entrepreneurial teams along their early entrepreneurial lifecycles. In view of that, this study endeavors to unravel the dynamic evolvement paths of different IT entrepreneurial teams along the early development stages. Specifically, my study aims at addressing two research questions: (1) How IT entrepreneurial teams adapt their team structures to the changing venture strategies and market contexts at different early stages? (2) Why are the structural adaptation accelerated in some IT entrepreneurial teams while postponed or even abandoned in other IT entrepreneurial teams? To address these research questions, I conduct a multiple-case study on six typical IT entrepreneurial teams and collect longitudinal qualitative data to understand how these teams dynamically evolve during their early stages. Using the four basic principles of evolutionary theory as the theoretical guide, I move back and forth between relevant literatures and qualitative case data to generate a number of interesting findings. There are four major findings in this study. First, IT entrepreneurial teams formulate and renew the strategies of their ventures to align with surrounding market contexts at early stages. Three venture strategies are devised by IT entrepreneurial teams in response to the two aspects of market contexts (i.e., market uncertainty and market competition). R&D strategy is formulated for a market with high uncertainty and low competition. Market exploitation is designed for market with low uncertainty and median competition. Strategic diversification is conceived for market with low uncertainty and high competition. Second, IT entrepreneurial teams constantly adapt their teams’ compositional and managerial structures to better execute the venture strategies at different early stages. For IT entrepreneurial teams conducting R&D, a compositional structure with shared working experience, shared industry knowledge and homogeneous technical backgrounds and a managerial structure of empowering leadership ensure the success of R&D. For IT entrepreneurial vii teams exploiting the market, a compositional structure with diverse working experience, shared industry knowledge and heterogeneous functional backgrounds and a managerial structure of directive leadership pave the way for effective exploitation. For IT entrepreneurial teams strategically diversifying their businesses, a compositional structure with diverse working experience, diverse industry knowledge and heterogeneous functional backgrounds and a managerial structure of empowering leadership lead to successful diversification. Two evolutionary paths of the IT entrepreneurial teams are identified, both of which closely resemble the process of continuous change and time-paced evolution. Third, this study highlights the complementary roles of IT entrepreneurial team’s founding resources and learning processes in the structural adaptation by the team. The potentials and values embedded in the human capital and social capital possessed by IT entrepreneurial team’s founders can only be fully exploited through various types of learning processes. Meanwhile, entrepreneurial learning processes in return work as transformative mechanisms to make up for the insufficiencies of founding resources. Entrepreneurial team’s founding resources and learning processes work together in explaining the speed of team evolution. Fourth, this study also amplifies the literature on entrepreneurial team turnover. I find that the entrances of new team members are typically motivated by the venture’s needs for supplementary, complementary, or diversification resources. However, the additions of new team members not significantly alter the strategic visions held by current members. In addition, I discover that the exits of team members are usually instigated by intrapersonal conflicts or interpersonal conflicts on strategic visions. Nevertheless, the withdrawals of current members have a contingent effect on venture performance, depending on the resource possessed by these leaving members. I summarize the findings of this study into an evolutionary account of IT entrepreneurial teams. This evolutionary account, coupled with the case evidences and theoretical framework provided, can help IS scholars understand the evolutionary paths of entrepreneurial teams in the IT industry, and guide them in viii future exploration through this novel lens. Important theoretical and practical contributions are drawn. Limitations and future research directions are also discussed at the end of this paper. Keywords: IT entrepreneurial teams; evolutionary theory; structural adaptation, founding resource, entrepreneurial learning process, multiple-case study ix Kor, Y. 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Asia Pacific Journal of Management, 27(3), 393-421. 143 Appendix 1: Process of Building Theories from Cases Study Research suggested by Eisenhardt (1989) Step Getting Started Selecting Cases Crafting Instruments and Protocols Entering the Field Analyzing Data Shaping Hypotheses Enfolding literature Activity Definition of research question Possibly a priori constructs Neither theory nor hypotheses Specified population Theoretical, not random, sampling Multiple data collection methods Qualitative and quantitative data combined Multiple investigators Overlap data collection and analysis, including field notes Flexible and opportunistic data collection methods Within-case analysis Cross-case pattern search using divergent techniques Iterative tabulation of evidence for each construct Replication, not sampling, logic across cases Search evidence for “why” behind relationships Comparison with conflicting literature Comparison with similar literature Reaching Closure Theoretical saturation when possible Reason Focuses efforts Provides better grounding of construct measures Retains theoretical flexibility Constrains extraneous variation and sharpens external validity Focuses efforts on theoretically useful cases – i.e., those that replicate or extend theory by filling conceptual categories Strengthens grounding of theory by triangulation of evidence Synergistic view of evidence Fosters divergent perspectives and strengthens grounding Speeds analyses and reveals helpful adjustments to data collection Allows investigators to take advantage of emergent themes and unique case features Gains familiarity with data and preliminary theory generation Forces investigators to look beyond initial impressions and see evidence through multiple lenses Sharpens construct definition, validity, and measurability Confirms, extends, and sharpens theory Builds internal validity Builds internal validity, raise theoretical level, and sharpens constructs definitions Sharpens generalizability, improves construct definition, and raise theoretical level Ends process when marginal improvement becomes small 144 Appendix 2: Selective Samples of Archival Data Company Website of Broadline (Management Team Profile) 145 Online News Article for Membership Change of Wisdom 146 Appendix 3: Samples of Selective Coding Constructs R&D Definitions IT venture focuses on research and development activities with the aim of developing a marketable IT product/service for a specific customer segment (Shan 1990) Market Exploitation IT venture dwells on marketing/selling its IT product/service to different profitable customer segments to occupy a large market share (Companys and McMullen 2007) IT venture tries to expand its business scope by experimenting and delivering new IT product/service for current or new customers (Iacobucci and Rosa 2005) Strategic Diversification Intrapersonal Conflict Discrepancy between the team members’ personal ambitions with the venture’s ambitions (Vanaelst et al. 2006) Interpersonal Conflict on Strategic Visions Divergence in strategic visions between IT entrepreneurial team members (Ensley et al. 2002) Congenital Learning The learning by entrepreneurs toward the knowledge stocks and past experience they brought into the venture at founding (Huber 1991) Examples of Quotes “In 2007, the LBS application market was still at its infancy. The market is highly uncertain cause there are very few smart-phone users. And there are very few producers in the market. Hence we decided to pool our resources to R&D to gain first-mover advantage. (CEO – Zion, 2010) “As we started in a market with relatively certain supplies and demands, we try our best to expand our customer base at the survival stage (CEO – Hitech, 2008) “The market of ITO/BPO services became matured from 2009 and our revenue was dropping due to fierce competition from large incumbents, thus we strive to look for new growth opportunities in other industries (CEO – Broadline, 2012) “Our venture was suffering from financial problems due to the delay of market surge. One of the IT experts left me due to the low dividend.” – CEO, Zion, 2012 “One IT expert exits within one year since he disagreed with me on which customer segment we should focus on to develop our product.” – CEO, Zion, 2012 “The two MBAs left the company since they don’t think my strategic decision of targeting on government and SMEs customers a good choice.” – CEO, Zion, 2012 “Most of the founders have worked as CIOs or technical directors at large companies for many years. Hence we learn from our past managerial experience and devise various managerial incentives and controls to keep the team stable, 147 Key Phases “…we decided to pool our resources to R&D to gain first-mover advantage…” “…we try our best to expand our customer base at the survival stage…” “…we strive to look for new growth opportunities in other industries…” “…One of the IT experts left me due to the low dividend.” “…he disagreed with me on which customer segment we should focus on…” “…they don’t think my strategic decision of targeting on government and SMEs customers a good choice…” “…we learn from our past managerial experience…” Experiential Learning Vicarious Learning The learning by entrepreneurs from their own direct experience of starting and managing the current venture (Balasubramanian 2011; Corbett 2005; 2007) Entrepreneurs mimetically learn from the experiences and knowledge of other firms or learning from external advices (Bingham and Davis 2012; Holcomb et al. 2009; Jones and Macpherson 2006) such as stock share allocation and exit policies.” –CEO, Softstone, 2008 “My working experience in senior management positions of the parent which is a multi-business company inspires me to set up two independent yet inter-related subsidiaries to manage the two businesses.” – CEO, Wisdom, 2012 “We recognize from the increasing purchase orders and market entrants that the market (for banking supervision system) is recovering. Hence we quickly switch our strategic focus from R&D to market exploitation and try to bring in functional specialists.” – CEO, Softstone, 2009 “We have done several pilot projects on different systems at the start of the venture. Then we did cost-benefit analysis and opportunity-risk analysis on the project results. The RFID application systems appeared to the most profitable market. Hence, we decided to maintain a complete functional structure to exploitthis market.” – CEO, Jupiter, 2008 “Most of the famous mobile apps companies started their business by delivering products for a certain customer segment, then applying the successful business models to different customer segments. We learn from this logic and try to strengthen our technical capabilities to develop a modular application for a specific customer segment. Then when the market blooms in the future, we can modify the same application to quickly occupy the market.” – CEO, Zion, 2010 “At the start, an investor from the parent company advised me to start (the venture) by exploiting the growing IT infrastructure operation services market. Hence, I follow his suggestions and search for functional experts to scale up our service level.” – CEO, Hitech, 2008 148 “…My working experience in senior management positions of the parent which is a multi-business company inspires me…” “…We recognize from the increasing purchase orders and market entrants that…” “…we did cost-benefit analysis and opportunityrisk analysis on the project results…The RFID application systems appeared to the most profitable market…” “Most of the famous mobile apps companies…We learn from this logic…” “…an investor from the parent company advised me… I follow his suggestions…” Grafting Collective Learning The introduction of new members with distinctive knowledge that is not previously available within the venture (Huber 1991; Lyle 1988) The “social process of cumulative knowledge, based on a set of shared rules and procedures which allow individuals to coordinate their actions in search for problem solutions” (Capello 1999, p. 354) “I realized that what constrains our growth is the absence of a complete functional structure and marketing specialization. Thus I found two MBAs through my personal networks to help with the formalization of functional departments and marketing of our products to different customers.” – CEO, Zion, 2012 “Later when the media consulting market started to shrink, we decided to expand our business scope to social media. Therefore, I engaged two experts from social media industry as the general manager and VP for the social media subsidiary.” – CEO, Wisdom, 2013 “From the start (of the venture), we hold regular (i.e., weekly, monthly, annually) management meetings to make strategic decisions and jointly resolve the conflicts. We also communicate now and then during daily operations whenever problems arise.” –CEO, Broadline 2008 “We regularly launch some informal social networking sessions among team members at leisure time, such as tea breaks, company dinners, or company trips. We believe these informal socializations help build cooperative and trusting relationships (among team members), which sets the stage for them to communicate and exchange their ideas, and generate radical innovations.” – CEO, Hitech, 2012 149 “…I found two MBAs through my personal networks …” “…I engaged two experts from social media industry…” “…we hold regular (i.e., weekly, monthly, annually) management meetings to make strategic decisions and jointly resolve the conflicts. We also communicate now and then during daily operations whenever problems arise…” “…We regularly launch some informal social networking sessions…” [...]... literature After that, the notion 16 of entrepreneurial lifecycle and the theoretical tenets of evolutionary theory are introduced Then, the applicability of evolutionary theory of firm to the context of entrepreneurial team is theoretically justified And relevant entrepreneurial team literature adopting the evolutionary theory of firm is also offered Towards the end of this chapter, merits and limitations... relevant literature of entrepreneurial team and the evolutionary theory of firm Then I conduct longitudinal multiple-case study and collect data on the evolution of different IT entrepreneurial teams to see whether the basic arguments of evolutionary theory of firm still hold in the IT entrepreneurial team context Finally, I compare the research findings to the theoretical tenets of evolutionary theory of. .. the introduction of the entrepreneurial lifecycle and the evolutionary theory of firm After that, relevant literature adopting the evolutionary theory of firm to study entrepreneurial teams is also reviewed Based on these literature reviews, merits and limitations of the evolutionary theory of firm are discussed, and the need to develop a contextualized theory for IT entrepreneurial team s evolution... categorization theory and social identity theory While all these theories have their own merits and explanatory power, they are limited by their static assumptions and unable to explain the dynamic evolution of entrepreneurial teams This study creatively applies the evolutionary theory and its four basic principles to the study of entrepreneurial teams and justifies their soundness and effectiveness for the understanding... stages of venture development Additionally, it discusses on how the team s resources and learning processes jointly influence the structural changes of IT entrepreneurial teams Applying the evolutionary theory and relevant literatures of entrepreneurship to analyze the data of multiple cases, this thesis shows that the four basic principles of evolutionary theory work together to explain the evolutionary. .. limitations of evolutionary theory of firm are elaborated and the potentials of IT entrepreneurial team as a new context to advance the evolutionary theory of firm is anticipated and discussed 2.1 Different Research Streams of Entrepreneurial Team Literature With the prevalence of team- based entrepreneurship, researchers have launched the examination of entrepreneurial teams from different angles In... theory for IT entrepreneurial team The theoretical lens of my study is the evolutionary theory of firm (Nelson and Winter 1985) I try to apply this theory to the context of IT entrepreneurial team and develop a contextualized theory for the evolution of IT entrepreneurial team In his seminal article of theory contextualization, Zahra (2007) proposes that when contextualize an existing established theory... (Hellman and Puri 2002; Boeker and Karachalil 2002) Hence, the management teams of these IT start-ups tend to be unstable and change relentlessly along the entrepreneurial lifecycle Hence, the entrepreneurial teams in IT industry represent an ideal subject to examine the dynamic evolution of entrepreneurial teams In view of that, this thesis follows the latter stream of research and focuses on the entrepreneurial. .. findings of this study also echo and develop relevant findings on the entrepreneurial team turnover The first chapter motivates the research and presents definitions central to this thesis The chapter ends with the expected contributions of the thesis 1.1 IT Entrepreneurial Team as a Prominent Research Area As the world steps into the information era, the IT industry has become one of the most vibrant and... discipline Therefore, it may be extremely fruitful to further develop the IT entrepreneurial team as an independent research area 2 One of the most discussed team issues in entrepreneurship literature deals with the structures of entrepreneurial teams (e.g., Ruef et al 2003) The extant literature on entrepreneurial teams has adopted various theoretical lenses to identify a wide range of team compositional . Additionally, it discusses on how the team s resources and learning processes jointly influence the structural changes of IT entrepreneurial teams. Applying the evolutionary theory and relevant literatures. which further underlines the needs and values of entrepreneurial team. Hence, studying entrepreneurial team in these IT start-ups can simultaneously contribute to the theories and practices of IS. operating in the IT industry. Through the examination of structural adaptation of IT entrepreneurial teams and the IT ventures in which the teams operate, this study stands as one of the earliest