1.1 Problem Statement
1.3 Procedural Method
2 Literature Review
2.1.2 An Organizational Approach
2.2.1 Core ideology
184.108.40.206 Core Values
220.127.116.11 Core Purpose
2.2.2 Envisioned Future
2.2.3 A Few Important Points
2.3 Company Development and the Process of New Entry
2.3.3 Risk Taking
2.3.5 Competitive Aggressiveness
2.4 Independence and Connection of the Five Dimensions
2.5 The Effect of Entrepreneurial Orientation on Business Performance
3 Research Question and Case Study Approach
3.1 Research Question
3.2 Case Study Research Approach
4 Empirical Research
4.1 The Case of Global Thermostat Markus Hoffmann
4.2 The Case Study
4.3 Vision Communication
Start-up companies go through various stages of development on their way to success. This thesis examines the communication of vision in entrepreneurial companies, a process, which is necessary and commonly encountered by or- ganizations that have already been in business for a few years. The communi- cation of vision, and thus entrepreneurial spirit, is crucial for young companies because it typically constitutes the foundation of their current and also future success. This thesis will draw upon data gathered in an entrepreneurial compa- ny, which is at a point where it has to hire new employees and communicate its vision to them. A theory on the communication of vision will be created based on the examination of the primary research data collected at this company.
Kurzfassung (in German)
Junge Unternehmen durchlaufen verschiedene Phasen auf ihrem Weg zum Erfolg. Diese Arbeit untersucht die Kommunikation von Vision in jungen Unter- nehmen. Dies ist ein wichtiger Prozess, welcher üblicherweise von Unterneh- men, die bereits einige Jahre auf dem Markt tätig sind durchlaufen wird. Vision und Unternehmergeist bilden die Grundlage des momentanen und zukünftigen Erfolges von jungen Unternehmen. Die Kommunikation dieser beiden Punkte ist daher ausgesprochen wichtig. Diese Arbeit stützt sich auf Daten, welche in ei- nem jungen Unternehmen gesammelt wurden. Dieses Unternehmen befindet sich in einer Phase, in welcher es neue Mitarbeit anstellen und diesen seine Vision vermitteln muss. Auf Grundlage der erhobenen Primärdaten wird am En- de dieser Arbeit eine Theorie über die Kommunikation von Vision aufgestellt.
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1.1 Problem Statement
There are various theories to describe the different stages of development that a start-up company goes through (e g Rostow, 1960; Christensen and Scott, 1964; Churchill and Lewis, 1983). These theories describe a varying amount of stages and differ from each other in some points. However, they all reach some common conclusions. In the early stages of a business, it is most important for a company to attract customers, generate sufficient cash and ensure growth (Churchill and Lewis, 1983).
This thesis is going to focus on a factor commonly encountered by start-up enterprises which are already further developed, namely on how to harness an entrepreneurial spirit and on how to make sure that it is well communicated from a company’s management to its employees in all ranks.
A start-up company in a more advanced stage typically has the staff and finan- cial resources to engage in operational and strategic planning. The owner and the business are quite separate, and the management is decentralized and ex- perienced. The company has the advantages of size, resources and talent (Churchill and Lewis, 1983). At the same time, the company will encounter new challenges. One of the main challenges will typically be preserving the entre- preneurial spirit that got the company to the point at which it has arrived. Com- panies that are unable to preserve that spirit enter a stage called ossification (Churchill and Lewis, 1983). Ossification is characterized by a lack of innovative decision-making and the avoidance of risk. Companies that enter this stage are too slow in noticing changes in the business environment to be successful on a long-term basis (Churchill and Lewis, 1983). Therefore it has to be the goal of any innovative start-up enterprise to preserve the entrepreneurial spirit that is the foundation of its success.
Preserving an entrepreneurial spirit becomes even more challenging if a com- pany grows at a very fast rate. Although some books and articles show a Markus Hoffmann smooth linear graph predicting growth of a company, reality is typically far from a smooth process. In periods of revolutionary growth, it is crucial for companies to remain focused on a vision and to monitor the bigger picture. This is not an easy task to complete (Lipton, 2003).
The second point this thesis is going to focus on is the communication of an entrepreneurial spirit, or a vision, to the employees of a company. Most charismatic leadership theories stress the importance of communicating a vision (Baum, Locke and Kirkpatrick, 1998). Vision communication significantly affects organization-level performance and is a key element of leadership. Leaders must use their personal communication skills, including speaking and listening, to articulate a vision to followers and to inspire them (Baum, Locke and Kirkpatrick, 1998). Only a company, whose leaders succeed in communicating a vision, will be able to maintain its entrepreneurial spirit.
This thesis is going to research entrepreneurial spirit and vision communication and explain why those points are so crucial for any young company. In the first section, an overview of current literature on the topic will be given and the dif- ferent arguments made will be analyzed. The following section will provide an empirical part, which will show more clearly how vision communication and the preservation of an entrepreneurial spirit work in an actual start-up company. Additionally, a new theory on the communication of vision in entrepreneurial organizations will be developed.
1.3 Procedural Method
This thesis is based on secondary and primary research. The first part of the thesis focuses on examining and outlining the existing literature on the afore- mentioned topic. The empirical part is based on findings from interviews with employees of an entrepreneurial venture and develops a theory on the communication of vision.
2 Literature Review
Before the communication of vision can be properly explained, there are a few terms, which need to be defined. Entrepreneurship and small business are fields, which are mentioned frequently, but the content of these concepts varies tremendously from one place, one country, and one author to another (Filion, 1988 p 7). As far as the characteristics of the entrepreneur are concerned, the difference between various types of businesses is rather small. Differentiations are mostly made from a quantitative point of view (Filion, 1988 p 8).
The field of Entrepreneurship is large and diverse. This diversity is mainly due to the wealth of work and research on the topic of entrepreneurship, performed by scholars from many different backgrounds. The main two disciplines dealing with the field come from differing backgrounds: economics and behavioral sciences (Filion, 1988 p 10).
Entrepreneurship from an Economical Point of View The first to use the term “Entrepreneur” in an economic theory was Richard Cantillon, a French banker. Cantillon had a notion of the entrepreneur as an innovator and a risk taker, someone who not only dealt with innovation, but also invested and took a risk. However, it was many decades after Cantillon that Jean-Baptiste Say made a clear distinction between the capitalist and the entrepreneur. Because of this, Say can be called the “father of Entrepre- neurship” (Filion, 1988 p 12).
“ J.B. Say, moving along in the French tradition, was the first to assign to the entrepreneur - per se and as distinct from the capitalist - a defi nite position in the schema of the economic process. ”
(Schumpeter, 1954 p 555)
Towards the second half of the nineteenth century, capitalists were produc- ing greater liquidity surpluses and using entrepreneurs to make the most ad- vantageous use of their capital. At the same time capitalists, who make it part of their strategy to do things differently, can also be regarded as entre- preneurs themselves. As the sector developed, the term Entrepreneurship was used more and more (Schumpeter, 1949 p 51-52; Filion, 1988 p 14). Most authors tend to define entrepreneurship in the way initiated by Say but developed by Schumpeter, which associates entrepreneurship with innova- tion (Filion, 1988 p 17). What distinguishes the entrepreneur from the capi- talist in this sense is the capacity to seize opportunities before others, to be the quickest to take advantage of situations of disequilibrium in the market (Kirzner, 1973; Acs and Audretsch, 2010 p 25).
“ The essence of entrepreneurship lies in the perception and exploita- tion of new opportunities in the realm of business ( ) it always has to do with bringing about a different use of national resources in that they are withdrawn from their traditional employ and subjected to new com- binations. ”
Thus entrepreneurship means obtaining higher returns while using fewer resources, or increasing the output in relation to the input as a consequence of innovative behavior. It is the entrepreneur’s capacity for innovation, which allows a yield greater than the input (Filion, 1988 p 19).
As already discussed, innovation means doing things differently and using new methods. But what are these methods? According to Schumpeter, they result from novel combinations. He identifies five: (Filion, 1988 p 20; Schumpeter, 1934 p 66)
- The introduction of a new good
- The introduction of a new method of production
- The opening of a new market
- The conquest of a new source of supply or raw material
- The carrying out of the new organization of an industry (Schumpeter, 1934 p 66)
The launching of a new enterprise thus means innovation. Nevertheless, en- trepreneurship can also occur in an enterprise or an industry that already ex- ists, as soon as innovation takes place (Filion, 1988 p 20). McDonald’s is an example for entrepreneurship. Although the company did not invent a new product per se, it applied management concepts and techniques, defined what “value” is to the customer and standardized the product. By doing this, McDonald’s upgraded the yield from its resources and redefined the market (Drucker, 1999 pp 21-22).
Entrepreneurial activities undertaken independently and those undertaken within the context of an organization are differentiated as “ independent en- trepreneurship ” and “ corporate entrepreneurship ” or “intrapreneurship ” (Sharma and Chrisman, 1999 p 18; Hisrich, 1990). While innovation is cer- tainly one of the most integral parts of entrepreneurship, economists have also tried to integrate entrepreneurship as an economical function - as one of the main elements of economic theory along with land, capital and labor (Filion, 1988 pp 20-21).
Entrepreneurship from a Behavioral Perspective
In contrast to the economical approach, behavioral scientists try to deter- mine which characteristics typically enable a human to assume an entrepre- neurial role (Filion, 1988 p 25-26). There are different approaches to achieve this - one of them determines and lists the characteristics needed (Casson, 1982 p 36), while the other one analyses what entrepreneurs are, what they do and whether or not it makes them successful (Hornaday and Aboud, 1971 p 143). The retaining criterion to define who is an entrepreneur varies from one author to another (Filion, 1988 p 26). It is not only the person who starts and develops his enterprise. The term entrepreneur is rather taken in a general sense of owner-manager - any person who runs a business (Si- ropolis, 1977 pp 23-24; Filion, 1988 p 27). This means, that there is a great variety of entrepreneurs from restaurant owners all the way to high tech en- terprises. Their levels of age, education, their experience, time spent at the business, etc will all vary enormously (Filion, 1988 p 27).
Characteristics typically found in Entrepreneurs
Entrepreneurs are people who innovate, who approach old problems in new ways and who are willing to take a risk in doing so. They see and evaluate business opportunities, gather the resources needed to take advantage of them and take action to ensure success (Filion, 1988 p 27). But what are the characteristics most commonly associated with entrepreneurs?
Researchers have been curious about this question for years. They have been eager to find out about the special characteristics of people who launch entrepreneurial ventures and succeed in them (Nair and Pandey, 2006 p 48). Many researchers have highlighted socio-economic factors as among the leading factors that influence the emergence of entrepreneurship. In the past, the role of protestant Christianity in the emergence of capitalism in the West (Weber, 1930), the prevalence of individuals from religious, ethnic or immi- grant minorities among entrepreneurs (Kunkel, 1970) as well as the age of individuals (Ronstadt, 1983) have been related to their probability of being entrepreneurial (Nair and Pandey, 2006 p 48). Researchers have also em- phasized the personality traits of entrepreneurs (Nair and Pandey, 2006 pp 48-49). As already mentioned, one of the most distinguishing character traits of entrepreneurs is their innovative nature and their desire to combine eco- nomic factors in innovative ways to increase output (Schumpeter, 1967).
Another topic that receives a lot of attention from researchers is locus of control. The idea of locus of control is that there are two categories of people - people who believe that what happens to them is the result of chance and thus beyond their control and people who believe that the future is theirs to control. These two groups of people are referred to as “ primary believers in the external locus of control ” and “ believers in the internal locus of control ” respectively (Nair and Pandey, 2006 p 49; Rotter, 1966). People who are en- trepreneurial are typically believers in the internal rather than in the external locus of control (Rotter, 1966).
2.1.2 An Organizational Approach
It should be clear to the reader by now, that there are different approaches in defining Entrepreneurship. While innovation and achieving greater output with a smaller input is an integral part and often used to outline the field (Filion, 1988 p 20; Schumpeter, 1934 p 66), the various characteristics, which define an en- trepreneur, should be considered equally important (Filion, 1988 p 25-26).
But what is it that distinguishes entrepreneurial companies from others? This organizational approach shall be explained in the next chapter.
Truly great companies understand the difference between what should never change and what should be open for change. They have core values and a core purpose that remain fixed while their business strategies and practices adapt to a changing world (Collins and Porras, 1996 p 65). The dynamic of preserving core values while stimulating progress is the reason companies like Hewlett Packard, Sony, Motorola, etc are so successful in achieving long-term perfor- mance. This ability to manage continuity and change is closely linked to the ability to develop a vision (Collins and Porras, 1996 p 66). A vision typically consists of two major components: core ideology and envisioned future (Collins and Porras, 1996 p 66).
2.2.1 Core ideology
Core ideology is the long-term component of vision. It is the consistent identity, the enduring character of an organization. It transcends products or market life cycles and individual leaders. It can be argued that the longest lasting and most significant contribution of those who build visionary companies is core ideology (Collins and Porras, 1996 p 66). Individuals who built great companies, such as David Packard (Hewlett Packard), Masaru Ibuka (Sony), or George Merck (Merck) understood that it is more important to know who you are than where you are going, for where you are going will change as the world around you changes (Collins and Porras, 1996 p 66). Therefore core ideology can be seen as the “glue” that holds a company together as it grows, decentralizes, diversi- fies and ages. Any effective vision must embody the core ideology of the organ- ization, which in turn consists of two variables - core values, a system of guid- ing principles and core purpose, the organization’s most fundamental raison d’être (Collins and Porras, 1996 p 66).
18.104.22.168 Core Values
Core values may be described as a small set of timeless, guiding principles that require no external justification. Core values have intrinsic value and importance to the people behind an organization (Collins and Porras, 1996 p 66). Since Hewlett Packard has already been used as an example previously, we shall look at their core values - for Bill Hewlett and David Packard, respect for the individual was first and foremost a deep personal value. They did not get it from a book or from someone else. It was a concept, which was crucial to the two founders themselves and thus became a core value of the company (Collins and Porras, 1996 p 67). Core values might be a competitive advantage, but that is not why companies have them. They are held because they define what companies stand for and under certain circumstances, they can even be held if they constitute a competitive disadvantage. The key is not what core values an organization has, but that it has them at all (Collins and Porras, 1996 p 67).
22.214.171.124 Core Purpose
Core purpose is the second part of core ideology and it is the organization’s reason for being. An effective purpose should describe people’s idealistic motivations to do the organization’s work. It is the “soul” of the organization. We shall, again, take Hewlett Packard as an example and describe their core purpose as illustrated in a speech given by David Packard to employees in 1960: (Collins and Porras, 1996 p 68)
“ I want to discuss why a company exists in the first place. In other words, why are we here? I think many people assume, wrongly, that a company exists simply to make money. While this is an important result of a compa- ny ’ s existence, we have to go deeper and find the real reasons for our be- ing. As we investigate this, we inevitably come to the conclusion that a group of people get together and exist as an institution that we call a com- pany so they are able to accomplish something collectively that they could not accomplish separately - they make a contribution to society, a phrase which sounds trite but is fundamental You can look around in the busi- ness world and see people who are interested in money and nothing else, but the underlying drives come largely from a desire to do something else: to make a product, to give a service - generally to do something which is of value. ”
(David Packard, 1960)
Purpose must not be confused with specific goals or business strategies. The latter ones change, purpose does not. Although purpose does not change itself, it should inspire change. The fact that purpose can never be fully realized means that an organization can never stop stimulating change and progress and letting its purpose act as a guide (Collins and Porras, 1996 p 69). When defining their purpose, many organizations are too specific and make the mis- take of describing their markets or products instead of their idealistic goal. The purpose of Hewlett Packard, for example, is not to make electronic equipment but to make technical contributions that improve people’s lives. This purpose has lead the company far from its origins in electronic instruments and it will continue to lead the company in times when markets and products have changed and electronic instruments per se might not even exist anymore (Col- lins and Porras, 1996 p 70). One way to find an organization’s purpose is to ask each member the following question:
“ How could we frame the purpose of this organization so that if you woke up tomorrow morning with enough money in the bank to retire, you would nevertheless keep working here? What deeper sense of purpose would motivate you to continue to dedicate your precious creative energies to this company ’ s efforts? ”
(Collins and Porras, 1996 pp 70-71)
As companies grow and move forward, they will need to draw on the full creative energy and talent of their people. In order to attract, motivate and retain outstanding people, companies have to have a clear understanding of their purpose (Collins and Porras, 1996 p 70).
It should be obvious to the reader by now that core ideology cannot be created or set, it can only be discovered. It has to be authentic and meaningful only to the people inside the organization, not to outsiders. It is the people inside the organization who need to commit to the organizational ideology over the long term. If a core ideology is clear and well articulated, it will automatically attract those people whose personal values are compatible with the organization’s core values and repel those whose personal values are incompatible (Collins and Porras, 1996 p 72). Articulating a core ideology is just a starting point. Once an organization is clear about the core ideology it should feel free to change any- thing that is not part of it. If its not core, its up for change (Collins and Porras, 1996 p 72).
2.2.2 Envisioned Future
A company’s envisioned future is the second major component of its vision framework. Envisioned future typically consists of two parts: a 10-30 year auda- cious goal, the so called “ BHAG ” (Big Hairy Audacious Goal) (Collins and Porras, 1996 p 72) and a description of what it will be like to achieve that goal (Collins and Porras, 1996 p 73). All companies have goals, but there is a differ- ence between a simple goal and a huge, daunting challenge. A true BHAG is clearly defined, compelling and serves as a focal point for the efforts of a team. People get it right away, it has a determined finish line and requires no, or very little explanation (Collins and Porras, 1996 p 73). Many organizations have vari- ous BHAGs on different levels, but vision requires a very special kind of BHAG -one that is universal to the whole organization and requires 10 to 30 years of effort to be completed (Collins and Porras, 1996 p 73). A BHAG should not be a sure bet, it should be visionary rather than just strategic or tactical. Most BHAGs only have a 50% to 70% probability of success, however the organization must believe in being able to reach the goal anyway (Collins and Porras, 1996 p 73).
In addition to an ambitious goal, an envisioned future needs vivid description (Collins and Porras, 1996 p 73), a vibrant, engaging and clear description of what it will be like to achieve the BHAG. Providing a vivid description means painting a picture that people in the organization can carry in their heads, thus making a BHAG more tangible in people’s minds (Collins and Porras, 1996 p 73). Henry Ford’s BHAG in the early 20th century was “to democratize the automobile”. He made this goal tangible for his employees by describing his envisioned future: (Collins and Porras, 1996 p 73)
“ I will build a motor car for the great multitude ( ) it will be so low in price that no man making a good salary will be unable to own one and enjoy with his family the blessing of hours of pleasure in God ’ s great open spac es ( ) when I am through, everybody will be able to afford one, and everyone will have one. The horse will have disappeared from our highways, the automobile will be taken for granted ( ) and we will give a large num ber of men employment and good wages. ”
(Henry Ford, 1903)
Passion, emotion and conviction are essential parts of a vivid description. Man- agers have to understand that, although they may feel uncomfortable express- ing emotion, that’s what motivates others (Collins and Porras, 1996 p 73).
2.2.3 A Few Important Points
It is important not to confuse the different components of the vision framework. Managers often exchange one for the other, mixing them together or failing to articulate them as distinct items (Collins and Porras, 1996 p 74).
Core ideology is an organization’s identity and character. It can be seen as the “glue” that holds a company together as it grows, decentralizes, diversifies and ages (Collins and Porras, 1996 p 66). Core ideology consists of two variables - core values and core purpose (Collins and Porras, 1996 p 66).
Core values are a set of timeless guiding principles that require no external jus- tification. Although core values might constitute a competitive advantage, this is not why they are held. Core values are held because they define what an or- ganization stands for. Under certain circumstances they may even be held if they lead to a competitive disadvantage. The key is not which specific values an organization has, but that it has them at all (Collins and Porras, 1996 p 67).
Core Purpose is the second part of core ideology. It is the organizations’ raison d’être, its soul. Purpose can never be fully realized and the fact that it cannot means that an organization can never stop stimulating change and progress