TIM Lecture 3

Question 1

The Small Firm Perspective:

Liabilities of newness

Answer 1

“Liabilities of newness” lead to (empirically confirmed) increased failure rates vs. older firms:
Among them are:
– roles and tasks have to be assigned (takes time, creates inefficiencies and conflicts)
– new organizations lack reputation and experience
– exchange relationships with various actors have to be established
– new firms have to rely on interactions among “strangers”

Question 2

The Small Firm Perspective: Advantages of newness

Answer 2

dvantages of new firms:
- Organization-related advantages:
      – no path-dependence; can
         create business from
         scratch, thus more willing to
         pursue completely new
         approaches
      – less “inertia“; company
         structure more flexible
      – more open and flexible
         culture
- HR-related advantages:
      – can hire people that exactly
         match the task at hand; no
         need for re- training
      – will have, on average, more
         flexible employees (younger,
         more entrepreneurial)

Question 3

The Small Firm Perspective:

Liabilities of smallness

Answer 3

“Liabilities of smallness” also lead to (empirically confirmed) larger failure rates (new firms usually also small) Among them are:
– limited resources (financial, personnel, …)
– low variety of skills in the firm; some critical skills may be lacking
– no buffer to survive times of crisis
– disadvantage on the job market
(as an employer)
– low market power
– little “organizational slack” available for innovation, training etc.

Question 4

The Small Firm Perspective:

Advantages of smallness

Answer 4

– more flexible processes
– company structure easier to
identify, clearly laid out
– short ways, direct communication  fast decision-making
– job satisfaction typically higher

Question 5

Characteristics of innovations made by leading companies that stumble in the process by Clayton Christensen

Answer 5

– These innovations are technologically straightforward
– Initially, they do not satisfy customers in established markets; instead, they are sold to niche or new markets
– Over time, however, performance of both established and new technology grow faster than market needs
– Eventually, the new technology supplants the old one even in the established, main market

Question 6

Rule of tumb about who’s going to innovate

Answer 6

Rule of thumb (which assumes that everyone is reasonably smart): that actor with the highest benefit (i.e., the most to lose and/or gain) should be most likely to come up with an innovation