Strategic Management of Entrepreneurial Firms during Recession

Aalto University, P.O. Box 11000, FI-00076 Aalto www.aalto.fi Author Juhana Peltonen Name of the doctoral dissertation Strategic Management of Entrepreneurial Firms during Recession Publisher School of Science Unit Department of Industrial Engineering and Management Series Aalto University publication series DOCTORAL DISSERTATIONS 194/2014 Field of research Venture Capital and Private Equity, Growth Entrepreneurship and Corporate Venturing Manuscript submitted 29 August 2014 Date of the defence 12 December 2014 Permission to publish granted (date) 9 October 2014 Language English Monograph Article dissertation (summary + original articles) Abstract The existing research on strategic management and entrepreneurship provides relatively few prescriptions to entrepreneurial firms for navigating recessions. The key managerial problem in recession involves ensuring short-term survival while investing in future growth. However, decision-making during recessions occurs in a context of high uncertainty, which may hinder the ability of managers to take optimal strategic actions. In this doctoral dissertation, I examine these issues mainly through the lenses of the behavioral theory of the firm, resource orchestration theory, and entrepreneurial bricolage. I employ survey and archival data on small and mediumsized Finnish software companies from 2007 to 2011. The first essay examines when and why entrepreneurial firms adjust their workforces during recession. This study finds that these decisions are primarily driven by changes in sales. In addition, the results suggest that workforce adjustment decisions can spread through board interlocks. Taken together, the findings suggest that both short-run economic reasons and social influences explain firms' decisions to engage in countercyclical and procyclical strategies. The second essay examines the performance implications of procyclical and countercyclical strategies during recession for firms with different strategic orientations. The findings suggest that countercyclical strategies lead to better performance, but the nature of the relationship is influenced by the degree of proactiveness in the firm's strategic orientation. The third essay focuses on entrepreneurial bricolage, i.e., how firms obtain new valuable resources at seemingly minimal costs by combining resources of lower value. This essay advances quantitative research on bricolage by developing a novel measurement scale that addresses the weaknesses identified in prior scales. Combined, this dissertation informs theory and practice on the strategic management of entrepreneurial firms during recession by examining performance outcomes of within recession strategies, the factors that drive strategy adoption during recession, and the strategic alternatives that are available to decision-makers.The existing research on strategic management and entrepreneurship provides relatively few prescriptions to entrepreneurial firms for navigating recessions. The key managerial problem in recession involves ensuring short-term survival while investing in future growth. However, decision-making during recessions occurs in a context of high uncertainty, which may hinder the ability of managers to take optimal strategic actions. In this doctoral dissertation, I examine these issues mainly through the lenses of the behavioral theory of the firm, resource orchestration theory, and entrepreneurial bricolage. I employ survey and archival data on small and mediumsized Finnish software companies from 2007 to 2011. The first essay examines when and why entrepreneurial firms adjust their workforces during recession. This study finds that these decisions are primarily driven by changes in sales. In addition, the results suggest that workforce adjustment decisions can spread through board interlocks. Taken together, the findings suggest that both short-run economic reasons and social influences explain firms' decisions to engage in countercyclical and procyclical strategies. The second essay examines the performance implications of procyclical and countercyclical strategies during recession for firms with different strategic orientations. The findings suggest that countercyclical strategies lead to better performance, but the nature of the relationship is influenced by the degree of proactiveness in the firm's strategic orientation. The third essay focuses on entrepreneurial bricolage, i.e., how firms obtain new valuable resources at seemingly minimal costs by combining resources of lower value. This essay advances quantitative research on bricolage by developing a novel measurement scale that addresses the weaknesses identified in prior scales. Combined, this dissertation informs theory and practice on the strategic management of entrepreneurial firms during recession by examining performance outcomes of within recession strategies, the factors that drive strategy adoption during recession, and the strategic alternatives that are available to decision-makers.