remarks on research design corporate ventured technology spin-offs: a grounded theory of decision...

REMARKS ON RESEARCH DESIGN

Corporate ventured technology spin-offs:a grounded theory of decision andresource environments

Steven MueggeJune 18 2009

18/06/[email protected] 2

References

M.Eng. Thesis• Muegge, S. (2004). Corporate Ventured Technology Spin-offs: A Grounded

Theory of Decision and Resource Environments. Department of Systems and Computer Engineering, Carleton University. Released to the ProQuest UMI Dissertation & Theses database.

Conference Papers• Muegge, S. (2004). The Decision and Resource Environments of New

Technology Ventures. Administrative Sciences Association of Canada (ASAC04).

• Muegge, S. (2004). Value Networks and New Venture Legitimacy. 13th International Conference on the Management of Technology (IAMOT04).

• Muegge, S. (2004). The Corporate Incubator as a Risk Management Strategy. 13th International Conference on the Management of Technology (IAMOT04).


Research Design

Qualitative case-based grounded theory

• Qualitative– Words, not numbers.

• Case-based– “A phenomenon within its context.” (Yin, 1989)– unit of analysis: entrepreneurial new venture

• Grounded Theory– Emergent– Constant Comparison– Theoretical Sampling

Closely follows the recommendations of Eisenhardt (1989).


Research Question

Initial research question (May 2002):“How do the decision and resource environments for entrepreneurs differ between independent start-ups and corporate spin-outs?”• 8 matched case studies – 4 start-ups and 4 spin-offs

Ultimate research problem (January 2004):“Develop a theory to account for differences in the decision and resource environments between corporate ventured technology spin-offs and other start-ups.”• 8 case studies, 15 practitioner interviews• 5 core categories• 69 hypotheses


Results

ExternalEnvironment

SeparationAgreement

Incubation

Decision Environment- Governance- Power- Restrictions- Business model- Liquidity alternatives- Founder motivations

Resource Environment- Access to technology- Access to capital- Advice- Assets and services- Legitimacy- Customers relationships- Supplier relationships- Workforce

TechnologyCharacteristics

Financing

All new ventures

Corporate ventured

technology spin-offs

Arrows indicate testable hypotheses of cause and effect.

(69 hypotheses relating 19 categories)


Key Findings

1. Corporate ventured technology spin-offs have a separation agreement with the parent firm, and may be nurtured in a corporate incubation environment

2. The spin-off is not a homogeneous phenomenon

3. The “start-up spin-off” is a possible mode of new venture formation

4. Corporate ventures seek legitimacy of a different sort and in different ways from other start-ups

5. Corporate incubators provide the parent corporation with a means to manage corporate venturing risk


Methods

InterviewsArchival

Data Collection

GroundedTheoryLogic

Case StudyDevelopment

Documentation

Theoretical

sampling

• Core categories• Construct elements• Causal diagrams• Testable hypotheses

Interview data /direct observation

Archival data

Case studies

• Coding• Constant comparison• Memoing• Sorting

Literature

Survey

Extant theoryas data


Construct Development

Theoretical Basis• Resource Based Theory• Resource Dependence Theory• Game Theory• Organizational Ecology

Elements• Stakeholder Analysis to generate preliminary lines of inquiry.• Tested lines of inquiry at four preliminary interviews.• Continuously refined throughout the study.


Data Collection

Selecting Cases:• All cases from Nortel Networks and Ottawa region, founded 1992-2002• Theoretical sampling for replication and extension

Founding circumstances, financing arrangements, relationship to parent, outcome, etc.

Crafting Instruments and Protocols:• Triangulate multiple data sources

Interviews (founders, investors, practitioners) and archival sources.

• Leverage best practicesFoddy (1993); Yin (1984, 1989); respondent notes; interview guide.

• Review instruments for each new data source

Entering the Field:• Pre-interview: review archival sources• Data collection: audio cassette tape, key-point field notes• Post-interview: transcription (contracted to transcription service)


Coding

Edited Interview

text

Marginal coding notes:

Code + remarks

• Sorted by category• Code name • Code number• Code description

Annotate existing codes

Add new codes

List of CodesInterview Transcript or Field Notes


Coding Database

• Compile all codes in a common database (MS Excel spreadsheet)

• Filter and sort by data source, firm, code• Approximately 800 entries, 32 pages of data

C odeC ode

NumberData

SourceData

R eference Firm Quote Notes Date A dded

parent 200 1 18-29 0 0 Generally, Nortel provided no money to its spin-outs . They retained an equity position and provided intellectual property. 15-Feb-03

$ 425 1 18-29 0 0 Generally, Nortel provided no money to its spin-outs . They retained an equity position and provided intellectual property. 15-Feb-03

parent 200 4 51-53 0 An incumbent parent company will tend to be risk averse. Thus the business model of the spin-out will be risk averse and conservative. 12-Feb-03

cred 430 7 127-133 g 1 "Some people thought that we were much more financially s table because we were a part of Nortel. In reality, that was wrong. On the whim of any executive, we could be gone overnight. If you're a smaller s tartup and VC funded, you're there for a long haul."

24-Feb-03

fact-priv 620 9 412 f 0 An A-round funding agreement was ready in September 2001, contingent on securing access to intellectual property (IP) from Nortel Networks .

26-Feb-03

bm-valchain 303 9 210 f 0 The business channel is direct sales to data centre equipment providers . The potential customers number in the 10's rather than 100's . 26-Feb-03

board 270 10 294 c 0 At spin-off, there was no Nortel equity and no Nortel seat on the board. 25-Feb-03


Case and Cross-case Analysis

Case Analysis:• Compile a descriptive case study of each case

Triangulating coded interview data, field notes, archival data

• Employ a common template for each caseSummary, timeline, technology, business model, history, founders, board of directors.

• Note “off the record” remarks separately

Cross-case Analysis:• Filter and sort the database looking for trends

Revise the database, adding new codes as required.

• Develop high-level summary chartsTimeline; business model.

• Write memosResearcher insights; possible relationships between categories.


Next Steps

Shaping Hypotheses:• Mine the memo file for ideas. Write more memos.

• Develop detailed comparison charts for each construct.

• Consider possible causal relationships and alternative explanations.

Enfolding the Literature:• Read extensively, accessing the literature as it becomes relevant.

Reading too early may “force” the data.

• Compare emergent theory with conflicting literature.Agency formation models derived in Silicon Valley are not applicable in Ottawa.

• Compare emergent theory with similar literature.Organizational legitimacy is related value networks and business model discovery.

Reaching Closure:• Ideally, end at theoretical saturation (Glaser & Strauss, 1967).• In practice, the study ends when marginal improvement becomes small, within the

bounds of limited resources (time, money) (Eisenhardt, 1989).


Lessons Learned

• Learn inductive theory-building methods top-down, not bottom-up.• Start from Christensen (2002) and Eisenhardt (1989).• Beware the incongruities of the methods literature

• Code the data immediately• Ideally within 24 hours of acquisition

• Scheduling interviews isn’t as tough as you might expect• > 90% response rate• Entrepreneurs like to talk• Even one reference can open a door• Each case leads to the next one

• Researchers are delighted to talk about their work• Provide manuscripts or scans of hard to find papers• Drafts of working papers• Provide comments and answer questions

! Highly subjective! Your mileage may vary.


It is as much a mistake to ignore the accumulated knowledge of the past as it is to be limited by it.

-Vincent Ryan Ruggiero (2006), The Art of Thinking: A Guide to Critical and Creative Thought (8th Edition), Longman Publishing Group.

Closing ThoughtsTheory Building and the Literature


Questions?


References

Theory Building and Research Methods– Management Theory-Building: Christensen, Carlile & Sundahl

(2002)

– Building Theories from Case Study Research: Eisenhardt (1989)• Grounded Theory: Glaser and Strauss (1967)• Case Study Design: Yin (1984; 1989)• Qualitative Cross-case Analysis: Miles & Hubermann (1984; 1994)

– Delta from Eisenhardt: Perspective of independent practitioners• Doing Grounded Theory: Glaser (1998)

A Priori References– Innovation in Mature Corporations: Christensen (1997)

– Corporate Spin-offs: Klepper (2001)

– Business Model: Chesbrough & Rosenbloom (2000)

– Corporate Venturing: Chesbrough (2000)


Theory-BuildingChristensen et al. (2002)


Extant Literature

Spin-off research

Corporate venturedtechnology spin-offs

Corporate venturing research

Corporate venture capital

andjoint ventures

Hostile andneutral spin-offs


Causal VariablesCharacteristics describing a firm

• external environment, typology (period 1; period 2; period 3)• technology characteristics, matrix of two properties

resource intensity, range (low to high) innovation type, typology (sustaining; disruptive)

• financing, typology (VC-backed; bootstrapped)• separation agreement, matrix of two properties

parent ownership, range (0% to 100%) licensing, Boolean (yes; no)

• incubation, typology (none; structured; informal; start-up spin-off)


External Environment

The shaded bar indicates the approximate time interval of theNortel Networks Business Ventures Program.

92 93 94 95 96 97 98 99 00 01 02 03

Period One Period Two Period Three

A B C D E-H

FirstNetscapeBrowser

Nortel’sRight-angle

Turn

Dot-comcollapse Period of

restructuring andcost control

Early to Mid 1990sThe Internet

BubbleThe Technology

Meltdown


Separation Agreement

ParentOwnership

Licensing

0%

50%

100%

No Yes

A

B

C

F

D

E

Ownership trend over

time

GH


Incubation

Investor FundsSeed funding

A-roundVC

Nth-roundVC

FormationEvent

Friends and

familyB-round

VC

LiquidityEvent

FormationEvent

LiquidityEvent

FormationEvent

LiquidityEvent

Spin-offEvent

Separation agreement completed

IncubatedInternal Venture Internal Project Privately-held company

Privately-held company

Internal Project Privately-held company

1) Independent New Venture“Classic start-up”

2a) Structured Corporate Incubator- corporate venturing program

2b) Unstructured Corporate Incubator- no established venturing processes

3) “Start-up spin-off”- initially independent- later negotiates a separation agreement with the parent corporation


Orthogonality of core variables

Separation Agreement

Incubation

StructuredIncubator

CB

D

A F

E

InformalIncubator

Start-upSpin-off

ParentOwnership

TechnologyLicense


Hypotheses

69 hypotheses

relating

19 categories


It seems to me what is called for is an exquisite balance between two conflicting needs: the most skeptical scrutiny of all hypotheses that are served up to us, and at the same time a great openness to new ideas.

If you are only skeptical, then no new ideas make it through to you. You never learn anything new.

If you are open to the point of gullibility, then you cannot distinguish useful ideas from the worthless ones. If all ideas have equal validity then no ideas have any validity at all.

- Carl Sagan,"The Burden of Skepticism," Pasadena lecture, 1987

More Closing ThoughtsSkepticism


Still More Closing ThoughtsManagement Fads and Categorization

"One reason why platitudes and fads in management come and go with predictability is that typically they are not grounded in a robust categorization scheme. They are espoused as one-size-fits-all statements of cause and effect. Hence, managers try the fad out because it sounds good, and then discard it when they encounter circumstances in which the recommended actions do not yield the predicted results. Their conclusion most often is, "It doesn't work" – when the reality often is that it works well in some (as yet undefined) circumstances, but not in others."

Christensen, C., Carlile, P., & Sundahl, P. (2002), "The Process of Theory-Building", Working Paper 02-016, available on-line at http://www.innosight.com.

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