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The creation corridor: environmental load and pre-organization information-processing ability.

Soloist entrepreneurs are truly important personae in the national treasury of folklore, along with mountain men, cowboys, and buccaneers. However, today, in the context of a global economy and rapidly changing technologies, 'soloist entrepreneur' may be an oxymoron. The body of entrepreneurial network literature suggests that entrepreneurs who lack extensive interpersonal networks are less likely to create new ventures (Aldrich, Rosen, & Woodward, 1987). When they are created, they are less likely to survive. If they do survive, they are more likely to persist as no-growth or low-growth lifestyle- or income-substitution small businesses (Hansen, 1991). The problem is that today, creating high-growth new ventures requires more information and other resources than ever before. Enacting the soloist venture creation scenario may no longer be possible.

What has changed are the environments in which these creational acts take place. Schroder, Driver, and Streufert (1967) characterized modern environments in terms of their information load (the quantity of information to be processed) and information diversity (the variety of information). Increasing load and diversity make it difficult for soloist entrepreneurs to access and process all the information necessary to create their new ventures. Lacking sufficient information accessing and processing ability, they may be overwhelmed and act from frustration on the most readily available piece of information, or even reject information entirely (Streufert & Streufert, 1978).

Alternatively, entrepreneurs who possess sufficient management skills to (1) build large information and resource-laden social networks, and (2) effectively manage the interactive processes within them are substantially more empowered to create high-growth new ventures (Aldrich, Rosen, & Woodward, 1987; Dubini & Aldrich, 1991; Hansen, 1991; Johannisson, 1986; Van de Ven, Hudson, & Schroeder, 1984). Rather than attempting to access and process all the necessary information themselves, they augment their individual abilities through interactive structures and processes within subsets of their social networks. In the hands of socially skilled entrepreneurs, these subsets begin to display characteristics that are functionally organizational (Katz & Gartner, 1988; Hansen & Wortman, 1989). Although their organizational forms are coactivational as opposed to configurational (Dow, 1989), they develop structures and processes that recognizably parallel formal organization structures and processes such as Lawrence and Lorsch's (1967) differentiation and integrating structure. Empirical studies of these entrepreneurial networks have found positive relationships between social forms of integrating structure and subsequent new venture creation and performance (Aldrich, Rosen, & Woodward, 1987; Hansen, 1991).

From this perspective, intending entrepreneurs emerge as managers of social network subsets that are functionally organizational but not yet organizations. Katz and Gartner (1988) called them pre-organizations. Entrepreneurs manage these pre-organizations in organization-like ways to access and process a variety of information. Thus they use social forms of organization to deal with high environmental load in creating their new ventures.

PURPOSE

This study proposes to build a model of the relationships between two dimensions of environmental load, and three dimensions of pre-organizational information-processing ability. See Figure 1. The environmental load dimensions are:

1. information load--the quantity of information to be processed; and

2. information diversity--the variety of information to be processed.

The pre-organizational information-processing dimensions are:

1. pre-organization size--the number of people who cooperate or contribute in some way to creating the new venture;

2. pre-organization degree--a social structure counterpart to integrating structure (Lawrence & Lorsch, 1967), it measures interconnectivity within the pre-organization; and

3. pre-organization frequency--a social process counterpart to communication frequency within formal organizations (Snyder & Morris, 1984), it measures how often pre-organization members interact with each other.

ENVIRONMENTAL LOAD

The concept of environmental load stems from the work of Schroder, Driver, and Streufert (1967). They described the individual entrepreneur as interacting with an environment characterized by (1) the quantity of information to be processed |information load~ and (2) the variety of information to be processed |information diversity~. Thus the quantity and variety of information to be processed create environmental load. Entrepreneurs experience environmental load as uncertainty, complexity, the anticipation of the consequences of actions, and deadlines. Taken together, these things create a sense of pressure. Where many of these factors exist simultaneously, entrepreneurs experience high environmental load.

Driver, Brousseau, and Hunsaker (1990) depicted the interaction of environmental load with information processing as an inverted "U". Entrepreneurs use and process more information as environmental load increases. However, when environmental load begins to exceed the entrepreneur's ability to process information, felt pressure increases and results in a decline in the quantity and quality of information processing.

Entrepreneurs creating high-growth new ventures generally operate under high-load conditions of information complexity, uncertainty, importance, risk, and time pressure. If they lack sufficient information-processing ability under these conditions, they may be so deluged that they act in frustration on the most readily available piece of information, or even reject information entirely (Streufert & Streufert, 1978). Quality information processing occurs at levels of environmental load that are appropriate for the entrepreneur's information-processing ability.

At environmental loads that are below their information-processing abilities, entrepreneurs have more time to process information. However, the availability of time is not the only issue. Low environmental load also occurs when a task is simple, carries little importance, little uncertainty, and no risk. Processing much information under low-load conditions wastes entrepreneurial time and resources, and it may lead to task abandonment.

Environmental load dichotomizes as information load (the quantity of information to be processed) and information diversity (the variety of information to be processed).

Information Load

Information load is the amount of information in the environment to be processed. More information creates higher load. Within this dimension, secondary effects can act to reduce or increase information load. These effects include (1) noxity, the degree to which outcomes are followed by negative consequences, and (2) eucity, the degree to which the environment provides rewards. Noxity (negative feedback) tends to require the repetition of an action, resulting in an increased action requirement and a consequent increase in load. Eucity (positive feedback) tends to decrease load by providing early desired outcomes (Streufert & Streufert, 1978).

Eucity and noxity have curvilinear relationships to the level of information processing. For example, mild noxity may enhance complex performance by requiring action repetitions that positively reinforce the entrepreneurial learning experience. However, if noxity increases beyond the entrepreneur's ability to respond, the increased level adversely affects performance. Similarly, eucity can produce positive and negative effects, although the literature weighs in heavily on the side of the positive effects of reward.

Proposition 1: Information load relates positively to environmental load.

Information Diversity

Information diversity describes the perceived novelty or familiarity of information that must be processed. This novelty or familiarity is a function of previously held information and views (Schroder, Driver, & Streufert, 1967; Streufert & Streufert, 1978). If entrepreneurs perceive information as highly novel, it becomes more difficult to process. This tends to increase the level of uncertainty and complexity, and it creates a pressurized decision-making context in which deadlines may appear suddenly as entrepreneurs attempt to anticipate the consequences of their actions. The more diverse the information to be processed, the greater the environmental load. Venture creation in emerging, technology-intensive industries would tend to require accessing and processing more diverse information than venture creation in simpler industries.

Proposition 2: Information diversity relates positively to environmental load.

INFORMATION PROCESSING

Creating new ventures under conditions of high environmental load would appear to require proportionately more entrepreneurial information-processing ability. Indeed, a growing body of research suggests that entrepreneurs augment their own information-processing abilities though social contracting with members of their social networks. These members give entrepreneurs access to diverse information that might otherwise be unavailable to them as individuals (Aldrich, Rosen, & Woodward, 1987; Aldrich & Zimmer, 1986; Granovetter, 1977; Hansen, 1991; Johannisson, 1986; Van de Ven, Hudson, & Schroeder, 1984). Once entrepreneurs obtain information, they must process it. Some researchers (Aldrich, Rosen, & Woodward, 1987; Hansen, 1991; Van de Ven, Hudson, & Schroder, 1984) have found that the more successful entrepreneurs tend to favor highly interactive styles with their closest social network members. This would suggest that network members may also be involved in processing novel information. Over time, identifiable network sub-sets emerge and begin to display characteristics that are functionally organizational in nature (Hansen, 1990; Hansen & Wortman, 1989; Katz & Gartner, 1988). Katz and Gartner characterized these entrepreneurial sub-sets as more than randomness but less than organizations. They called them pre-organizations.

Three pre-organizational dimensions would appear to affect an intending entrepreneur's ability to deal effectively with high information load and high information diversity: (1) the size of the pre-organization, (2) interconnectivity between pre-organization members, and (3) frequency of communication between pre-organization members.

Pre-Organization Size

First, entrepreneurs must gain access to information. Researchers have variously called this process resource co-optation through social contracting, horsetrading, tincupping, bootstrapping, and currying personal favors. Entrepreneurs gain information through their pre-organizations. Those who succeed in creating high-growth new ventures have larger pre-organizations than those who don't (Hansen, 1991). It is likely that the demands of complex environments require proportionately larger pre-organizations to access greater amounts of diverse information to deal with the uncertainty and risk associated with high environmental load (Johannisson, 1986).

Several researchers have described the way in which entrepreneurs use their pre-organizations to access information. For example, Starr and MacMillan (1990) found that entrepreneurs identified product or service ideas that they accessed through exchange transactions with various members of their social networks. Johannisson (1986) reported that a group of successful entrepreneurs had large local as well as global networks, which they exploited in the process of starting their new ventures. More successful entrepreneurs generally used a broad network in the process of developing their specific product concepts (Van de Ven, Hudson, & Schroeder, 1984).

Proposition 3: Pre-organization size relates positively to pre-organization information processing ability.

Pre-Organization Interconnectivity

Once information is obtained, pre-organizations must process it to perform their intended tasks. In laboratory experiments, Bavelas (1951) and Leavitt (1962) found that any constraint on a small group's internal communication structure seriously interfered with the group's ability to process information. Lawrence and Lorsch (1967) applied these findings in a study of the relationship between integrating structure and organization performance in a sample of formal organizations. They found a positive, main effect relationship between integrating structure and organizational growth (operationalized as growth in sales and income). Other researchers have also linked the nature of communication channels within formal organizations with organizational performance (Dess & Origer, 1987; Kanter, 1981; Katz & Tushman, 1979; Lawrence & Lorsch, 1967; Miller, Droge, & Toulouse, 1988; Tichy, Tushman, & Fombrun, 1979; Tushman, 1977).

Interconnectivity within pre-organizations would appear to approximate the notion of integrating structure in formal organizations. The higher the interconnectivity between members, the more communication channels are available for use, and the more easily information exchange and other transactions can take place within entrepreneurial action sets. Therefore, a higher degree of interconnectivity would relate positively to new venture creation. Aldrich, Rosen, & Woodward (1987) provided a measure of empirical support for this notion. They reported a positive association between entrepreneurial network density (a measure of interconnectivity, it is the actual number of connections between network members divided by the total possible number of connections for an action set of that size) and the likelihood of both (1) business foundings, and (2) profits for young businesses.

Proposition 4: Interconnectivity within pre-organizations relates positively to pre-organizational information-processing ability.

Pre-Organization Frequency

While both size and interconnectivity together may be necessary, they do not appear to be sufficient. Under conditions of high environmental load, a network that is both large and highly interconnected must sill process a large quantity of information to create a new organization. Therefore, the frequency of communication linkage use would relate positively to complex task accomplishment (Bavelas, 1951; Leavitt, 1962). Snyder and Morris's (1984) empirical field study of communication among peer work groups in formal organizations tended to support Bavelas's and Leavitt's experimental findings. In another study, Aldrich, Rosen, & Woodward (1987) reported a positive relationship between the average number of times per week entrepreneurs had contacted their closest five network members, and the creation of their new ventures. Both Johannisson (19860 and Van de Ven, Hudson, & Schroeder (1984) described a positive relationship between entrepreneurs' interactive personal styles and new venture performance.

Proposition 5: Frequency of communication within pre-organizations relates positively to pre-organizational information-processing ability.

NEW ORGANIZATION CREATION

However, more information-processing ability may not always be better. For example, does greater and greater frequency of interaction produce a better chance for venture creation? At some level of frequency, it would seem that returns should begin to diminish. The literature on environmental load (Schroeder, Driver, & Streufert, 1967; Streufert & Streufert, 1978) suggests that as environmental load increases, so does the frequency of interaction. For each environment, there is an optimal point at which interaction frequency is appropriate to the environment's complexity. Beyond that point, increased frequency becomes counterproductive so that further interactions produce no new information. What occurs is merely a rehashing of old ideas or the revalidation of decisions already made.

This illustrates the main theme of this research. An optimal level of pre-organizational processing ability relative to environmental load is more conducive to quality information processing and relates positively to the creation of new organizations. It is this relationship that creates what we have called the creation corridor . . . the set of equilibriums that optimizes relationships between specific environmental information loads and intending entrepreneurs' total information-processing abilities.

Proposition 6: Pre-organizational information-processing ability appropriate to the level of environmental load increases the likelihood of new organization creation.

Below the creation corridor lies the zone of suboptimal information processing, where sufficient information is not able to be processed due to the severe complexity of the environment relative to the entrepreneur's pre-organizational information-processing ability. Here, entrepreneurs may be overcome by the sheer volume of information to be processed, or they may remain unaware of important information.

The area above this creation corridor becomes increasingly superoptimal. Here, too much processing ability is available relative to the degree of environmental load. Time and other resources are not being put to their best use. Too much information is being gathered and processed relative to the complexity of the task and its environment. Here, the entrepreneur may even perceive the creation task as trivial and abandon it. Either case would reduce the likelihood of creating a successful new organization.

CONCLUSIONS AND IMPLICATIONS

For intending entrepreneurs, managing the emergence of their pre-organizations may be an important pre-step to the creation of their new organization. Entrepreneurs would appear to improve their ability to create new organizations when they establish pre-organizational information-accessing and processing capabilities that are appropriate to their respective levels of environmental load.

Too much information-processing ability would waste scarce resources and result in superoptimal performance. Entrepreneurs experience this condition as excessive time spent rehashing old ideas and revalidating unimportant decisions already made, and the absence of new information. This condition probably occurs less frequently than its opposite, suboptimal performance.

Suboptimal performance occurs when entrepreneurs possess too little information-processing ability relative to their environmental loads. It is probably common among entrepreneurs attempting to create new ventures in rapidly evolving, technologically intensive industries. Entrepreneurs easily detect this condition as debilitating levels of information complexity and uncertainty, ill-timed deadlines, and the negative consequences of actions taken.

Lawrence and Lorsch's (1967) study suggested that managers of formal organizations could improve their organizations' performance by matching their information-processing abilities to the demands of their respective environments in terms of both (1) the degree of differentiation between organizational sub-units, and (2) the quantity of integrating structure between sub-units. The heavier the environmental load, the greater the need for organizational sub-unit differentiation. However, increased differentiation within the organizations in their sample was shown to increase the diversity of information that the organizations were required to process. This in turn created a secondary need for additional integrating structure to process the new information.

In a parallel manner, this study suggests that intending entrepreneurs could remedy suboptimal performance under conditions of high environmental load by adding members to their pre-organizations. In particular, Granovetter's (1977) work with the strength of weak social ties proposes that adding different members could provide entrepreneurs with access to information in their environments that would be available to them through their closest pre-organization members. In Lawrence and Lorsch's terms, such an increase in pre-organizational size would appear to increase the level of differentiation within the pre-organization, thereby improving its ability to access highly novel information from a complex environment.

However, adding new members who were isolated from the rest of the pre-organization would reduce the larger group's interconnectivity and presumably its ability to process information and ultimately perform its task (Hansen, 1991). Lawrence and Lorsch reported that a higher level of differentiation created its own need for more integrating structure to ensure communication within formal organizations. Entrepreneurs could remedy the parallel condition in their pre-organizations by building the additional members into their pre-organizations' structures and processes to improve pre-organizational interconnectivity and frequency of communication. Under conditions of high environmental load, this would increase the likelihood that these pre-organizations would achieve their intended goal . . . the creation of new organizations.

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Eric L. Hansen is an Assistant Professor at California State University, Long Beach.

Kathleen R. Allen is an Assistant Professor at the University of Southern California.
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Author:Hansen, Eric L.; Allen, Kathleen R.
Publication:Entrepreneurship: Theory and Practice
Date:Sep 22, 1992
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