Revisiting Burns And Stalker: Formal Structure And New Venture Performance In Emerging Economic Sectors

Abstract

This study examines the effects of formal structure on the performance of new ventures in the emergent Internet sector during the years 1996-2001. Burns and Stalker (1961) argued that in dynamic economic sectors, firms with organic structures are more effective than those with more mechanistic structures. We suggest this proposition does not hold for new ventures in turbulent, emergent economic sectors. Building on Stinchombe's (1965) arguments concerning new ventures' liability of newness, we hypothesize that new ventures with higher founding team formalization, specialization, and administrative intensity outperform those with more organic organizational structures. Results support these hypotheses.

Social Capital and Learning Advantages: A Problem of Absorptive Capacity

“…Accordingly, products, projects, decisions, routines, and performance should be easier to modify owing to fewer rigidities and constraints to assimilate, transform, and exploit learning outcomes generated through the firm's absorptive capacity routines. New ventures tend to suffer from a lack of routines which makes using knowledge and reproducing its outcomes consistently difficult (Sine, Mitsuhashi, and Kirsch, 2006). Formalizing absorptive capacity into a set of routines to assimilate, review, share, and put into use learning outcomes generated from knowledge absorption should then generate positive business performance returns to the firm.…”

“…We also pre-tested the survey instrument with scholarly experts. We sought to ensure that our constructs fit with the realities of younger firms (Sine et al, 2006). Suggestions for improving the survey instrument led to minor amendments but no material change in study constructs.…”

Optimal Structure, Market Dynamism, and the Strategy of Simple Rules

“…Structure creates the framework that enables reliable, rapid, smooth execution in well-grooved routines that is efficient. In contrast, flexibility refers to open, fluid execution of these opportunities (Weick, 1993;Sine, Mitsuhashi, and Kirsch, 2006).…”

Entrepreneurial Cognition

“…This structure is often necessary because without some kind of formalizing responsibilities and roles as well as putting someone in charge, the success of a venture is likely to decline (Sine et al 2006;Stinchcombe 1965). Increased formalization structurally differentiates the lead entrepreneur from other founding team members, which can sometimes lead to conflict and negative interactions between the team's members (Stinchcombe 1965).…”