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Entrepreneurship and Firm Boundaries: The Theory of "A "Firm


  • Michael G. Jacobides
  • Sidney G. Winter


In this paper, we consider how a better understanding of entrepreneurial activities can help explain how firm and industry boundaries change over time and how a more comprehensive understanding of boundary setting can explain where entrepreneurial activities are directed. We start from the premise that while entrepreneurs believe themselves to have superior ideas in one or multiple parts of the value chain, they are characteristically short of cash, and of the ability to convince others to provide it. This premise motivates a simple model in which the entrepreneur has a value-adding set of ideas for 'upstream' and 'downstream' parts of a value chain, as well as for the ways to make these two parts of the value chain work better when joined under unitary control. Assuming that the entrepreneur's objective is to maximize her wealth, we observe that even in the presence of transactional risks or other factors that might make integration preferable to specialization, initial scope depends also on relatively unexplored factors such as (a) how severe the entrepreneur's cash constraint is, and (b) how much value the entrepreneur's ideas add at each part of the value chain. Entrepreneurs will focus on the areas that provide the maximum profit yield per available cash - a criterion which implies that scope choices depend on cash availability and the depth of the demand for the new idea along the value chain. We also note that entrepreneurs make money not only from the operating profits of their firms, but also from the appreciation of the assets the firm has accumulated. This consideration can change the optimal choice of the firms' boundaries, as entrepreneurs must be sensitive to choosing the segment that will enable them to benefit not only in terms of profit, but also in terms of asset appreciation. We propose that, in the entrepreneurial context especially, it is helpful to focus on the multiple considerations affecting the choice of boundaries for 'a' firm - the context faced by an individual entrepreneur - rather than on generic considerations affecting 'the' (representative) firm. Scope choices reflect the entrepreneur's own theory of 'how to make money'. Copyright Blackwell Publishing Ltd 2007.

Suggested Citation

  • Michael G. Jacobides & Sidney G. Winter, 2007. "Entrepreneurship and Firm Boundaries: The Theory of "A "Firm," Journal of Management Studies, Wiley Blackwell, vol. 44(7), pages 1213-1241, November.
  • Handle: RePEc:bla:jomstd:v:44:y:2007:i:7:p:1213-1241

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    References listed on IDEAS

    1. Edward Barratt, 2003. "Foucault, HRM and the Ethos of the Critical Management Scholar," Journal of Management Studies, Wiley Blackwell, vol. 40(5), pages 1069-1087, July.
    2. Tony J. Watson, 2003. "Strategists and Strategy-making: Strategic Exchange and the Shaping of Individual Lives and Organizational Futures," Journal of Management Studies, Wiley Blackwell, vol. 40(5), pages 1305-1323, July.
    3. David Guest & Zella King, 2004. "Power, Innovation and Problem-Solving: The Personnel Managers' Three Steps to Heaven?," Journal of Management Studies, Wiley Blackwell, vol. 41(3), pages 401-423, May.
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    Cited by:

    1. Williams, Christopher & Lee, Soo Hee, 2011. "Entrepreneurial contexts and knowledge coordination within the multinational corporation," Journal of World Business, Elsevier, vol. 46(2), pages 253-264, April.
    2. Thomas Hutzschenreuter & Florian Gröne, 2009. "Changing Vertical Integration Strategies under Pressure from Foreign Competition: The Case of US and German Multinationals," Journal of Management Studies, Wiley Blackwell, vol. 46(2), pages 269-307, March.
    3. Thierry BURGER-HELMCHEN, 2008. "Plural-entrepreneurial activity for a single start-up: a case study," Working Papers of BETA 2008-01, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    4. Margherita Balconi & Valeria Lorenzi, 2017. "The increasing role of contract research organizations in the evolution of the biopharmaceutical industry," LEM Papers Series 2017/10, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    5. Nicolai J. Foss & Peter G. Klein, 2013. "Entrepreneurship, entrepreneurial governance and economic organization," Chapters,in: Handbook of Economic Organization, chapter 22 Edward Elgar Publishing.

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