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Uncertainty, risk preference, and new‐venture strategies

Uncertainty, risk preference, and new‐venture strategies Purpose – Conventional wisdom holds that the difference between entrepreneurs and managers is large, while uncertainty and risk are virtually interchangeable. Uncertainty and risk are treated as separate constructs and then real‐options thinking and prospect theory are drawn upon to determine how they affect the actions of entrepreneurs and managers. The purpose of this paper is to determine specifically, how the above constructs interact to affect the strategies entrepreneurs and managers are likely to adopt when undertaking new ventures. Design/methodology/approach – The research uses deductive theorizing to build a theoretical model. Findings – Contrary to conventional wisdom, it is concluded that the difference between entrepreneurs and managers is less than believed, while the effect of the difference between uncertainty and risk is larger. It is determined that entrepreneurs and managers use similar strategies when faced with similar conditions of uncertainty and when they have similar risk preferences. When environmental uncertainty is low, risk‐seeking entrepreneurs and managers will prefer licensing, whereas the risk averse will prefer wholly owned new ventures. When environmental uncertainty is neither high nor low, both risk‐averse and risk‐seeking entrepreneurs and managers will prefer alliances. When environmental uncertainty is high, risk‐averse entrepreneurs and managers will prefer licensing, whereas risk seekers will prefer wholly owned. Originality/value – By separating uncertainty and risk, this research is able to show how their interactions become the drivers of strategic decisions by entrepreneurs and managers. This is new to the literature, and the work thus reveals an opportunity for further sophistication of strategy theory and an opportunity to reduce the barriers between theory on entrepreneurship and management theory. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Strategy and Management Emerald Publishing

Uncertainty, risk preference, and new‐venture strategies

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Publisher
Emerald Publishing
Copyright
Copyright © 2010 Emerald Group Publishing Limited. All rights reserved.
ISSN
1755-425X
DOI
10.1108/17554251011064855
Publisher site
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Abstract

Purpose – Conventional wisdom holds that the difference between entrepreneurs and managers is large, while uncertainty and risk are virtually interchangeable. Uncertainty and risk are treated as separate constructs and then real‐options thinking and prospect theory are drawn upon to determine how they affect the actions of entrepreneurs and managers. The purpose of this paper is to determine specifically, how the above constructs interact to affect the strategies entrepreneurs and managers are likely to adopt when undertaking new ventures. Design/methodology/approach – The research uses deductive theorizing to build a theoretical model. Findings – Contrary to conventional wisdom, it is concluded that the difference between entrepreneurs and managers is less than believed, while the effect of the difference between uncertainty and risk is larger. It is determined that entrepreneurs and managers use similar strategies when faced with similar conditions of uncertainty and when they have similar risk preferences. When environmental uncertainty is low, risk‐seeking entrepreneurs and managers will prefer licensing, whereas the risk averse will prefer wholly owned new ventures. When environmental uncertainty is neither high nor low, both risk‐averse and risk‐seeking entrepreneurs and managers will prefer alliances. When environmental uncertainty is high, risk‐averse entrepreneurs and managers will prefer licensing, whereas risk seekers will prefer wholly owned. Originality/value – By separating uncertainty and risk, this research is able to show how their interactions become the drivers of strategic decisions by entrepreneurs and managers. This is new to the literature, and the work thus reveals an opportunity for further sophistication of strategy theory and an opportunity to reduce the barriers between theory on entrepreneurship and management theory.

Journal

Journal of Strategy and Management – Emerald Publishing

Published: Aug 10, 2010

Keywords: Uncertainty management; Risk management; Entrepreneurs; Corporate ventures; Management strategy; Product innovation

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