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Gartner Reviewed work(s): Source: The Academy of Management Review, Vol. 13, No. 3 (Jul., 1988), pp. 429-441 Published by: Academy of Management Stable URL: http://www.jstor.org/stable/258090 . Accessed: 18/01/2012 13:14
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B. WILLIAM GARTNER
Georgetown University
This article explores the characteristics of emerging organizations and suggests that emerging organizations can be identified by four properties: intentionality, resources, boundary, and exchange. These properties are defined and discussed. Suggestions are made for selecting samples for research on emerging organizations. Implications for research and theory on new and emerging organizations are discussed. Two important concerns regarding research on new organizations have not been adequately addressed: how and why samples of new organizations are identified and selected. Studies of new organizations confront the researcher with the difficult problem of identifying the essential properties by which organizations make themselves known. The irony is that when we turn to the literature for guidance on how to identify new organizations, our theories and definitions about organizations assume that they already exist; that is, the starting point for our theories begins at the place where the emerging organization ends. Our goal is to probe the interaction between entrepreneurship and organization theory to generate an understanding of the properties of emerging organizations and to offer possible avenues for further research. The challenge of research on new organizations is to move toward studying organizationsin-creation, not just retrospectively studying organizations that exist (Aldrich, Rosen, & Woodward, 1986, 1987). Identifying the properties of emerging organizations gives researchers a framework for distinguishing the different ways in which the organization creation process might occur as well as a way of organizing the search for organizations-in-creation. 429 The focus on properties of emerging organizations permits us to study emerging organizations as a natural extension, linked by common variables, to studies of existing organizations. Through such efforts, we hope that research on entrepreneurship can be better linked to organization theory, particularly work on new organizations, organizational stages, and innovation. This article seeks to answer the questions: What is an organization and what properties does it possess as it comes into existence? Emerging organizations are organizations-in-creation, that is, organizations at the stage in which all properties necessary to be an organization come together. Studying the emerging organization, therefore, explores the territory between the preorganization and the new organization. Samples of convenience are used for most research on new organizations. This may be due to the difficulty of finding new organizations, but it also may reflect a lack of theory to guide researchers to a starting point for developing sampling frames. It is questionable whether these samples of convenience (which often include spin-offs of divisions from existing organizations, mergers and consolidations, and organizations that move to new locations) can be defined as representative of the population of new organi-
zations. For example, samples based on new incorporations are unlikely to be representative of the population of new organizations because these include organizations founded as sole proprietorships and partnerships many years before incorporation (Birch & MacCracken, 1981). We contend that population ecology- and entrepreneurship-based studies of new organizations could be dramatically altered if sampling frames were developed that identified "newer" new organizations. Because we recognize the inextricable link between theory and method (Kuhn, 1970), the remainder of this article provides theory about emerging organizations as well as strategies for identifying them.
organization. Also, there are other viewpoints that combine both structural and process ideas (Brittain & Freeman, 1980; Carroll & Mayer, 1985; Georgopoulus, 1972; Hall, 1977; Hunt, 1972; Katz & Kahn, 1978; Kimberly, 1980; March & Simon, 1958; McKelvey, 1980; Miller, 1978; Mintzberg, 1979; Thompson, 1967; Van de Ven, 1980a). Most traditional researchers of entrepreneurship (Collins & Moore, 1964; Cooper & Dunkelburg, 1981; Mayer & Goldstein, 1961; McCelland & Winter, 1969; Vesper, 1980) do not define organizations in organization theory terms. Instead, these researchers are likely to identify types of organizations, such as manufacturing, retailing, and so forth. We contend that midrange definitions that encompass both process and structural viewpoints are the most useful for identifying the characteristics of emerging organizations. In particular, we find McKelvey's definition very useful for identifying emerging organization properties: An organization is a "myopically purposeful [boundary-maintaining] activity system containing one or more conditionally autonomous myopically purposeful subsystems having inputoutput resource ratios fostering survival in environments imposing particular constraints" (1980, p. 115). This definition was chosen for a number of reasons. First, it is well grounded in theory: McKelvey elegantly assimilates both process and structural characteristics from many previous theories. Second, this definition considers the dynamism of organizations as an essential focus of study. Third, the ecological perspective on which this definition is based has led to significant research on new organizations (Delacroix & Carroll, 1983; Hannan & Freeman, 1987; Singh, Tucker, & House, 1986). Finally, McKelvey's focus on organizational form (particularly variation in organizational forms) and his search for taxonomic characteristics of organizations fits our interest in identifying the properties of emerging organizations. Organizations emerge from the interaction of agents (individuals, partners, groups, parent organizations, etc.) and the environment. This
particular type of interaction is unusual because it reflects a synergy (Lewin, 1936; Maier, 1963) of agent and environmental connections. In more recent form, the outcome of the synergy has been called emergent properties by Katz and Kahn (1978). This concept inspired the identification of properties of emerging organizations outlined below. McKelvey's definition illustrates four major properties of organizations (including those organizations in the process of creation): intentionality, resources, boundaries, and exchange. These properties, which have both structural (resources and boundaries) and process (intentionality and exchange) characteristics, are the minimum necessary for identifying the existence of an organization. Also, these properties are reflected across organization theories, especially across systemsoriented theories. The following sections relate each of these properties to corresponding ideas in the entrepreneurship and organization theory literature and offer suggestions for how these properties might be studied further.
of the various environmental sectors, for example, capital and industrial (Maidique, 1980; Yip, 1982), technological (Cole, 1965), government-legal (Vesper, 1983), and community (Bease, 1981; Birley, 1985; Pennings, 1982). At the very beginning of the organization, intentionality may be no more than these cross-level goals, but as the organization continues to exist as a separate entity, it will possess goals that are increasingly distinct from those of the agents and the environment. This separate intentionality can be indirectly evidenced through common belief structures regarding the goals, purposes, history, traditions, and methods that emerge within the organization, such as studies of organizational culture (Deal & Kennedy, 1982; Martin & Powers, 1983; Sarason, 1972), studies of the symbolic aspects of organizations (Salancik & Pfeffer, 1977), studies of family business (Beckhard & Dyer, 1983; Savage, 1979), and studies of innovative organizations (Hackman, 1984; Kanter, 1984).
Resources
The importance of resources has seen its most recent emergence in the works of the resource dependence theorists (Pfeffer, 1978; Salancik & Pfeffer, 1977), the strategic planners (MacMillan, 1983; Yip, 1982), and the ecological theorists (Aldrich, 1979; Hannan & Freeman, 1978; McKelvey, 1980). In organization creation, resources refer to the physical components (versus informational or ideational components inherent in intention) that combine to form an organization. Human and financial capital, property (real estate, equipment, raw materials), and credit form the building blocks of most organizations (Cole, 1965; Kilby, 1971; Vesper, 1980). As the organization and strategic theorists cited in the preceding paragraph indicate, the ease of obtaining these resources determines the strategic direction and geographic distribution of new organizations (Hannan & Freeman, 1978; Liebenstein, 1968).
Intentionality
In the organization theory literature, the word intention is derived from the works of process and cognitively oriented theorists (Aldefer, 1977; Sarason, 1972; Shapero, 1975; Weick, 1979) who focus on intentional factors, such as sense making, organizing, and enacting realities. Their ideas are the least restrictive examples of intention because they use post hoc intention as well as prior intention and focus on goals directly related to individual or group cognitive homeostasis, rather than higher order and more externalized goals. We see organizational intentioncality as a label describing an agent's seeking information that can be applied toward achieving the goal of creating a new organization; McKelvey said it another way: organizations are "myopically purposeful" (1980, p. 115). Organizational intentionality at the time of creation reflects the goals of the agents or founding entrepreneurs (e.g., Dooley, 1972; Van de Ven, 1980a) and the goals 431
Boundary
In organization theory, boundary plays an important but underemphasized role; often it is de-
scribed in terms no more detailed than semipermeable boundary (Katz & Kahn, 1978; Tannenbaum, 1968) or boundary-maintaining activity systems (McKelvey, 1980), or it is used as the precursor for describing other interests, such as boundary-spanning activities (Adams, 1976). In organization creation, however, boundary is of major importance. Boundary is defined as barrier conditions between the organization and its environment (Katz & Kahn, 1978). That is, the organization itself exerts control over some of the resources in its environment (Schumpeter, 1934), namely, those within the boundary, and establishes the physical and legal basis for exchange across its boundary (Cole, 1965; Kilby, 1971). In establishing a boundary, the entrepreneur, parent organization, or environment establishes the organization's identity beyond that of the creating agent. The creation of a boundary as one of the properties of the organization also implies the establishment of subsystems of maintenance (Cole, 1965; Georgopoulus, 1972; Katz & Kahn, 1978). Before committing to establishing an organizational boundary, the agent can easily stop collecting resources and cease stating entrepreneurial intentions. With the boundary in place, and with the environment reacting to the bounded organization as well as to the agent of its creation, the creating agent is required to attend to organizational maintenance and must moderate some activities through the new entity. At a practical level, the establishment of boundaries, such as incorporations, tax number requests, and phone listings, offers the first concrete and somewhat cleanly defined sampling frames for observing organizations early in their creation. Boundary also distinguishes the individual-asorganization from the individual-as-worker. Researchers as disparate as system theorists (Katz & Kahn, 1978) and dramaturgial sociologists (Goffman, 1959) have used the idea of individuals conducting particular types of activity, such as role behavior within a boundary, as a way of defining the presence of an organization. Given 432
an individual's intention to start an organization and the resources earmarked for it, boundary serves to isolate these elements from the other aspects of the individual's life. This is readily seen when an individual establishes organizational boundary-identifying conditions such as obtaining identifying symbols (organization name, mailing address, post office box, telephone- number, and tax identification or taxexemption number) that distinguish work done as an organization member (i.e., inside the boundary conditions) from work done as an individual (i.e., work done outside the boundary conditions).
Exchange
Exchange in organization theory and entrepreneurial theory refers to cycles of transactions. These transactions can be across the borders of subsystems (Georgopoulus, 1972; Katz & Kahn, 1978; Miller, 1978), within an organization, as in the example of managing human relations (Kilby, 1971), or across the organizational boundary with individuals, the environment, or other organizations (Singh, Tucker, & House, 1986). Common to most of these theories are two notions: the repetitiveness or cyclic nature of the exchange process and the need for the exchange to benefit the organization. Once established, exchange cannot stop without the organization facing eventual dissolution. Unlike boundary, there is an implicit normative element in exchange, making it easier to say that one exchange is more efficient or effective than another. This poses a particular problem in newly created organizations, especially autonomous ones. Over a given period of time, the exchanges in these organizations may be inefficient, such as selling products below cost in order to establish a market share. Because of this, exchange is viewed as the most dynamic and volatile of the four properties. Also, researchers who focus solely on studying profitable exchanges may unduly restrict the identification and selection of newly created organizations in their early stages. Unlike McKelvey (1980), whose concern was for
effective organizations in the long run, we are concerned with the existence of any exchange process, not merely those that are advantageous to the organization. Because extraorganizational exchanges take place in an established environment, identifying firms engaged in exchange is relatively easy. The other three properties must be in place for exchange to occur in an ongoing manner. The environment's demands for records indicating exchange in the legal, financial, and organizational sectors offer additional evidence of the firm's existence (i.e., financial reports, credit ratings, transaction records, such as sales slips, etc.). These four properties of emerging organizations are necessary for an organization to exist. Unfortunately, because the properties do not become visible simultaneously, the opportunity to find newly created organizations, especially organizations that die during creation, is differentially affected by the choice of any of the four properties as a sampling variable.
1979;Hannan & Freeman, 1978),and government policies (Vesper, 1983). The problem with most research on organization creation is that the researcher studies the organization only after it has come into existence, although there are exceptions, such as the study of the founding of People Express (Hackman, 1984) or studies of the formation of new units in existing firms (Kimberly, 1979; Kimberly & Quinn, 1984; Sarason, 1972; Van de Ven, 1980). Identifying the types of firms used in studies of new organizations takes on particular importance because of three influences. First, interpretation disputes arising from the use of standardized databases by Birch and MacCracken (1981), Reynolds, West, and Finch (1985), and Armington and Olde (1982) produced a new wave of concern for what is being measured when claims are made that an organization has come into existence. Similarly, Birley (1984) showed that significant differences in the identification of new firms result from the selection of the database. Second, Star (1979) and Katz (1981) sought to account for nascent or precursor states of conventional organizations by describing the characteristics of one-person firms. Third, McKelvey (1980) sought to develop taxonomies of organizational characteristics for use in the analysis of organizational life datasets. Taken together, these events suggest a new approach to defining the organization, one based on describing existing entities, rather than one based on theoretical models. Such description has a tradition in biology, largely in taxonomic work, and reflects what McKelvey calls an asymptotic model. For all three types of studies, using a particular database was dependent largely on practical reasons (e.g., Which database has the largest number of entries? Which database can I obtain access to?), rather than theoretical reasons (e.g., Does the database cover the population I am interested in?). The selection and assessment of the database was not guided by organization theory. However, definitions do make a difference in identifying the type of organization and its stage of creation.
For example, Birley's (1985) idea of the emerging organization assumes that an entrepreneur goes through the sequence of generating an idea, setting up the firm, hiring employees, and trading products. Identifying organizations as they seek to trade products catches firms at a later stage than identifying them when they are hiring employees. For this reason, Birley used unemployment insurance and Dun and Bradstreet databases in order to sample firms at an earlier stage. By using the four properties of emerging organizations described, researchers can build a framework for analyzing potential sources of new organizations in a way that permits the identification of organizations early in their creation process. Sources of new organizations used by a variety of researchers are categorized in Table 1. Although the four properties define an organization, they may not appear simultaneously. This preorganizational period (called gestation by Van de Ven, 1980a, and prehistory by Perkins, Nieva, & Lawler, 1978) in the organization's life is vital because many fundamental decisions about industry, location, size, market, and administrative intensity may be made during this time. As a result, it is worth considering the usefulness of the four properties as sampling frames for discovering emerging organizations at the earliest possible moment. Because the issues of identifying firms using boundary and exchange processes have been considered in great detail by Birley (1985), Reynolds, West, and Finch (1985), Birch and MacCracken (1981), and Armington and Olde (1982), we will focus on the properties of intention and resources as alternative means of identifying new organizations. Using Intention to Identify Emerging Organizations If intention is described as individuals indicating their interest in organization creation, several sources of information may be of value for identifying emerging organizations.
Resources
Boundary
Exchange
1. Subscription lists to entrepreneurial magazines such as Entrepreneur, In Business, Venture, and Inc. (especially the first two), which are oriented toward individuals who are interested in starting their own businesses; 2. Membership lists of entrepreneurial organizations, such as Women Working at Home. This approach was used by Aldrich, Rosen, and Woodward (1986); 3. Directories of students or recent graduates, or directories of members of professional societies for professions or occupations that tend to have a high percentage of selfemployed individuals. Star's (1979) list of occupations is helpful for identifying those occupations of individuals who are more likely to be involved in organization creation;
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4. Client lists of specialized organizations (e.g., the Small Business Development Centers)and entrepreneurial training companies, which help individuals develop business plans; 5. Participantlists fromcorporate entrepreneurship and redesign programs to identify firms considering new ventures; 6. Participant lists from conferences on entrepreneurship, such as the Association of Collegiate Entrepreneurs conference, university entrepreneurship conferences, new business fairs, franchise fairs, and inventors and innovation fairs; 7. Participant lists from conferences on new society-wide problems, such as conferences on AIDS, day care, home health care, and public-private partnerships, that would identifyindividuals who might startboth profitand nonprofit organizations to deal with these
issues.
4. Listsof new purchasers or renters of commercial equipment; 5. Directories of new occupants in office buildings and commercial centers; 6. Lists of self-employed individuals, found through the Dun and Bradstreetfiles, to identifypeople who have loaned money to emerging firms; 7. Omnibus marketing surveys to identify individuals who have loaned money to or worked for family or friends starting a firm; 8. Surveys of real estate agents to identify individuals inquiring about sites for firms.
Implications
Using four properties of intentionality, resources, boundary, and exchange as guidelines for identifying and selecting emerging organizations has implications for both methods and theory in organization theory and entrepreneurship. For example, life cycle models of organizations, such as those described by Van de Ven (1980a) in organization theory and Timmons, Smollen, and Dingee (1977) in entrepreneurship, would benefit from an expanded description of the variables characterizing organizational birth. We find that traditional organization theory models (e.g., Greiner, 1972), strategy models (Porter, 1980) of organizational stages, or even the traditional entrepreneurship models of organizational stage (Timmons, Smollen, &Dingee, 1977)are less important to understanding the creation process than we originally thought. We find that most theories of organizational stages (organizational have a macro perspective changes in structure or process are studied over long periods of time, from birth to maturity), whereas our perspective is micro (organizational changes in structure or process are studied primarily at the gestation, prebirth, and birth stages) encompassed by the establishment of intention, boundary, resources, and exchange. Consequently, organization creation models, like Katz and Kahn's (1978) initial stages and Van de Ven's (1980b) three-stage model, are more useful in describing these micro interests. Researchers 435
These are examples of places where a researcher might locate potential entrepreneurs who are seeking information about aspects of organization creation. By seeking information, individuals may indicate an intention to start an organization. Identifying categories of information demanders, such as self-employed professions, comes in part from a model of selfemployed career choice developed by Katz (1981). As mentioned earlier, the selection of any of these lists will influence the types of emerging organization one is likely to study.
might benefit from increasing the degree of detail in traditional theories of organizational stages to include important within-state events, or, perhaps, by combining micro and macro stage theories. Finally, the ability to identify and select organizations-in-creation by using the four properties provides an opportunity to explore how the study of emerging organizations might have an impact on some theoretical issues in organization theory and entrepreneurship.
Because most sampling frames focus on one type of property (intention, resources, exchange, boundary), there may be some advantage to selecting sampling frames that reflect properties more likely to occur (or more likely to be recorded) earlier in the process of emergence. In the Singh et al. (1986) example, it is plausible that some of the organizations they studied may have emerged (demonstrated all four properties) long before formal incorporation was sought. Incorporated organizations may represent old new organizations, that is, organizations late in their process of emergence. If the Singh et al. (1986) sample had been an intention-based study (which captures organizations at an earlier age), a larger diversity of organizational forms would have existed, and it is likely that the liability of newness among these organizations would have been much higher. Diversity in organizational forms is likely to be greatest when organizations are being organized, that is, when organizations are emerging, not after they have become established organizations. We view the organization-increation as very transitory. Because an emerging organization lacks structural inertia, agents may try and abandon many organizational forms until either some type of organizational fit (both internal and external) is mac-. or failure occurs as resources are expended in the organizing process. This is because the costs of changing various goals, structures, and so forth are so much lower for the emerging versus established organization. The opportunity to identify organizations-in-creation through the four properties enhances a researcher's abilities both to observe this variation and to study how it is generated. In addition, selection pressures of emerging organizations are likely to be greatest when the organization is forming rather than when the organization already exists because emerging organizations are likely to have few reserves (Galbraith, 1973) to buffer shocks from environmental pressures. So while new combinations of organization forms are being attempted in these emerging organizations, selection pressures are simultaneously eliminating most of them. The
emerging organization is therefore a unique situation in which both the organization's abilities to adapt and environmental selection pressures are high. By using the four properties as a framework for selecting samples of emerging organizations, we are likely to find a larger population of diverse organizational forms to observe the effects of variation, adaptation, institutionalization, and selection.
ample, are likely to be conducted too late to observe these near-misses. It is therefore possible that because researchers have not observed emerging organizations and new organizations early on, they have not recognized most entrepreneurial activity.
Conclusion
The four properties of emerging organizations provide a framework for identifying and selecting new organizations. The four properties also provide commonalities between entrepreneurship and organization theory as well as links between studies of emerging organizations and existing organizations. Yet these properties also have value for identifying organizations-beforecreation, that is, preorganizations. Prior to the existence and interaction of the four properties, there is something more than randomness but less than an organization. These preorganizations vary according to which properties are used, what order the properties appear in, and how long the properties last. By focusing on organizations-in-creation, that is, the transition from preorganization to new organization, we are likely to acquire a better understanding of the nature of the concept of emergence and the answer to the question "How do organizations come into existence?" Research on emerging organizations is fraught with inherent ambiguity. Emerging organizations are likely to be small, fragile, and volatile. The process of organizational emergence may be analogous to the types of interactions that take place at the atomic and subatomic levels in physics. In order for us to identify, analyze, and understand the organization-in-creation we must change our perceptions and methodologies. Heisenberg's ideas on indeterminancy and complementarity (1958, 1971) may provide insights into the limits of our quest.
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Jerome A. Katz (Ph.D., University of Michigan) is Assistant Professor of Management and Decision Sciences, School of Business and Administration, Saint Louis University. Please address all correspondence to him at: Institute of Entrepreneurial Studies, Saint Louis University, 3674 Lindell Boulevard, St. Louis, MO 63108. William B. Gartiier (Ph.D., University of Washington) is an Assistant Professor in the School of Business Administration, Georgetown University. The authors thank participants in the 1986 Academy of Management symposium on organizational founding-Jack Brittain, Robert Brockhaus, Glen Carroll, Arnold Cooper, John Freeman, and Andrew Van de Ven-for their critiques of the ideas expressed in this paper.
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