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STRATEGYANDENTREPRENEURSHIP:OUTLINESOFANUNTOLDSTORYSarasD.SarasvathyUniversityofWashingtonS.VenkataramanUniversityofVirginiaInvitedbookchapterintheStrategicManagementHandbookeditedbyHittet.al.(RevisedDecember10,2000)2Inhisbook“Invention,”ProfessorNorbertWiener(1993),commentingontherelativeimportanceaccordedtoindividualsandinstitutionsinhistoricalnarrativesofscienceandinventions,asksustoimagineShakespeare’s“RomeoandJuliet”withouteitherRomeoorthebalcony.1Thestoryisjustnotthesame.Helikensmuchofthestudyoftheeconomichistoryofscienceandaccountsofinventionsas“allbalconyandnoRomeo.”ThebalconyforNorbertWienercapturesthecontextinwhichthestoryunfolds–theculture,theinstitutions,theconstraintsandthecatalyststhatmovetheplotforwardandthickenit.Romeos,forWiener,playtheleadingpartsinthestory,becausethereisastrongfortuitouselementtoinventionsandthereisnoinevitabilitythatapossiblediscoverywillbemadeatagiventimeandspace.Takeawayeitherone,Romeoorthebalcony,andthewholestoryfallsapart.Inasimilarvein,wewouldlikenstudiesofstrategicmanagementto“allbalconyandnoRomeo.”Butifweaccusestrategicmanagementofbeing“allbalconyandnoRomeo,”strategicmanagementscholarscouldlegitimatelyaccuseentrepreneurshipofbeing“allRomeoandnobalcony.”InthischapterwewishtosuggestapointofviewfromentrepreneurshipthatwillallowstrategicmanagementscholarstoaccommodatemoreRomeosintheirstories.Althoughthesetwofieldshavemuchtooffereachother(tradeinbalconiesandRomeos),theyhavedevelopedlargelyindependentofeachother.Wewishtosuggestthatentrepreneurshiphasaroletoplayinstrategicmanagementtheoryandthatstrategicmanagementtheoryenrichesourunderstandingoftheentrepreneurialprocess,althoughthislatteraspectwillnotbethefocusofthischapter.Oneusefulwayofthinkingaboutentrepreneurshipisthatitisconcernedwithunderstandinghow,intheabsenceofmarketsforfuturegoodsandservices,thesegoodsandservicesmanagetocomeintoexistence(Venkataraman,1997).Totheextentvalueisembodiedinproductsandservices,entrepreneurshipisconcernedwithhowtheopportunitytocreate1WeinertookhisinspirationfromtheworkoftheEnglishwriter,RudyardKipling.3“value”insocietyisdiscoveredandacteduponbysomeindividuals.AsWienerhasnoted(Wiener,1993:7),atthebeginningstagesofanewidea,theeffectivenessoftheindividualisenormous:“Beforeanynewideacanariseintheoryandpractice,somepersonorpersonsmusthaveintroduceditintheirownminds…Theabsenceoforiginalmind,eventhoughitmightnothaveexcludedacertainelementofprogressinthedistantfuture,maywelldelayitforfiftyyearsoracentury.”Thefieldofstrategicmanagementcanbeusefullydescribedashavingtodowiththe“methods”usedtocreatethis“value”andtheensuingstruggletocaptureasignificantshareofthat“value”byindividualsandfirms.Thus,ifweunderstandentrepreneurshipandstrategicmanagementasthefieldsthattogetherseektodescribe,explain,predictandprescribehowvalueisdiscovered,created,captured,andperhapsdestroyed,thenthereisnotonlymuchthatwecanlearnfromeachother,buttogetherwerepresenttwosidesofthesamecoin:thecoinofvaluecreationandcapture.Onesideofthecoin,namelystrategicmanagement,hastodowiththeachievementofends–obtainingmarketshare,profit,andsustainedcompetitiveadvantage.Theothersideofthecoin,namelyentrepreneurship,hastodowiththeachievementofbeginnings–creatingproducts,firms,andmarkets.Buttheclarityandcomplexitywithwhichanauthorconnectsbeginningsandendsiswhatmakesagreatstory.Webelievethereallyinterestingstorybetweenstrategicmanagementandentrepreneurshiphasnotyetbeentold.Themainreasonforthisisthatingeneral,creationcallsforverydifferentmodesofthinkingandbehaviorthancaptureandsustenanceovertime.Yetthecreationprocessnotonlydeterminescertainpowerfultendenciesforsurvivalandgrowth,butsomeelementsofitalsopersistoverlongperiodsoftime,subtlyandsubstantiallyinfluencingtheselectionandachievementoflaterends.Carefullybearinginmind4thatlargeexpansesofstrategicmanagementmayhavenooverlapwithentrepreneurship2,thischapterneverthelessfocusesexclusivelyonwhereentrepreneurshipandstrategicmanagementoverlap.Intheprefacetotheir1994book,Rumelt,Schendel,andTeeceidentifythesubjectmatterofstrategicmanagementasthepurposefuldirectionandnaturalevolutionofenterprises.(Rumelt,et.al.,1994)Theyfurtheridentifyfourfundamentalissuesthatcomprisearesearchagendainstrategicmanagement:1.FirmBehavior3Howdofirmsbehave?Or,dofirmsreallybehavelikerationalactors,and,ifnot,whatmodelsoftheirbehaviorshouldbeusedbyresearchersandpolicymakers?2.FirmDifferentiationWhyarefirmsdifferent?Or,whatsustainstheheterogeneityinresourcesandperformanceamongclosecompetitorsdespitecompetitionandimitativeattempts?3.FirmScopeWhatisthefunctionoforvalueaddedbytheheadquartersunitinadiversifiedfirm?Or,whatlimitsthescopeofthefirm?4.FirmPerformance2Itisworthpointingoutherethatwhendiscussingcreativeprocessesintheeconomicdomain,strategyisasub-setofentrepreneurship.Forexample,foranygivennewtechnicalinventionthereare,atleastintheory,aninfinitenumberofproductpossibilitiesthatmayflowoutofthatinvention.But,inpractice,onlyafinitesub-setofthosepossibilitieswillcomeintoexistence.Ofthosenewproductsthatcomeintoexistence,onlyasub-seti