A corporation’s culture as an impetus for spinoffs and a driving force of industry evolution

Abstract

In infant industries, a great share of new market opportunities is depleted by firms that spinoff from incumbents. A model emphasizing the relation between incumbents' evolving corporate cultures and the generation of spinoffs explains this regularity in industry evolution. Organizations reach a critical size that entails the collapse of a cooperative culture and triggers the exodus of personnel founding own firms. Thereby, organizations with a cooperative culture active in a dynamic business environment provide ideal training grounds for potential founders. We relate our findings to empirical evidence on developmental patterns in industries, such as genealogies and performance of spinoffs.

A Dynamic Analysis of American Socio-Political History. A Review of Ages of Discord: A Structural Demographic Analysis of American History by Peter Turchin (Beresta Books, 2016)

“…The theory of cultural evolution is an exception because some of its founders were population geneticists who were very familiar with dynamic systems modeling (Cavalli-Sforza and Feldman 1981). A small school of evolutionary economists have attempted to convince their colleagues of the utility of dynamic models, so far with little success (Bowles 2003;Cordes, Richerson, et al 2014;Nelson and Winter 1982).…”

“Opportunistic” spin-offs in the aftermath of an adverse corporate event

“…bankruptcy, the acquisition of the parent, and the parent's decision to discontinue a project). Cordes et al (2014) have extended possible explanations of adverse events or crisis that trigger necessity spin-offs to include changes to the parent's corporate culture. Parent organisations differ in terms of cultures, structures, employment practices, incentive systems and these factors may influence both the level of spin-offs and the performance of spin-offs (Clarysse and Moray, 2004).…”

“…Parent organisations differ in terms of cultures, structures, employment practices, incentive systems and these factors may influence both the level of spin-offs and the performance of spin-offs (Clarysse and Moray, 2004). Cordes et al (2014) propose that "with increasing firm size, a cooperative regime is becoming more and more difficult to sustain. The final drop in the level of cooperation is motivating entrepreneurially minded agents to the leave the organisation to found a spin-off" (p. 699).…”

“…While the adverse events referred to by Buenstorf included bankruptcy of a parent firm and the decision of a parent firm to abandon a market, subsequent research has used the necessity spin-off term in the context of other adverse events. For example, Bruneel et al (2012) classify spin-offs as necessity spin-offs if they are created "in response to an adverse development in the parent firm" (p. 944); Cordes et al (2014) classify spin-offs as necessity spin-offs if they occur in the context of changes in a parent's culture; and Eriksson and Kuhn (2006) classify spin-offs as "pushed" if the parent firm is characterised by weak sales growth.…”

“…Klepper (1997Klepper ( , 2001Klepper ( , 2008 argues that the competence of firms is based on their pre-entry experience. Klepper's work has informed research on spin-offs and emerging models of spin-off processes, such as Cordes et al (2014) explanation of successful regions in terms of firms that provide "training grounds" for entrepreneurs. In summary, Klepper argues that a range of factors trigger spin-offs and that a firm's pre-entry experience critically shapes its competence, which in turn influences its competitiveness, its chance of survival and growth, and the rate at which it generates further spin-offs.…”