Sources of strategic flexibility in new ventures: An analysis of the role of resource leveraging practices

• Published date: 01 June 2019
• Author: Jan Brinckmann,Dietmar Grichnik,Jaume Villanueva,Luv Singh
• Date: 01 June 2019
• DOI: http://doi.org/10.1002/sej.1313

RESEARCH ARTICLE

Sources of strategic flexibility in new ventures:

An analysis of the role of resource leveraging

practices

Jan Brinckmann

1

| Jaume Villanueva

2

| Dietmar Grichnik

3

| Luv Singh

4

1

Strategy and General Management

Department, ESADE Business School,

Barcelona, Spain

2

Department of Management and Global

Business, Rutgers Business School, Newark &

New Brunswick, New Jersey

3

Institute of Technology Management,

University of St. Gallen, St. Gallen, Switzerland

4

WHU—Otto Beisheim School of

Management, Vallendar, Germany

Correspondence

Jan Brinckmann, ESADE Business School,

Avenida Pedralbes, 60-62, 08034 Barcelona,

Spain.

Email: jan.brinckmann@esade.edu

Research Summary:Especially new firms need to be strategic flexi-

ble to proactively or reactively adjust to the market and internal

demands as they aim to establish themselves. However, new firms

vary in their degree of strategic flexibility. In this paper, we analyze

resource management practices founders can use to increase the

strategic flexibility of their firms. We depict how specific resource

management practices can augment the strategic flexibility of a

new firm in addition to the strategic flexibility resulting from their

actual resource base. Scrutinizing innovative resource management

practices in various domains, our findings especially underline the

importance of specific innovative resource management practices

in the financial domain to increase the strategic flexibility.

Managerial Summary:For entrepreneurs being independent is fre-

quently the ultimate goal. Still, founders frequently find themselves

in constraints that limit their freedom to act. In this research, we

analyze various activities founders can undertake to increase the

strategic flexibility of their firm. We find that specific practices in

the financial resource management domain focusing on cash-flow

optimization such as quick customer payments and delaying sup-

plier payments prove especially effective for providing more strate-

gic flexibility for the nascent firms, while other ones do not appear

to increase the strategic flexibility.

KEYWORDS

entrepreneurship, nascent firm, new venture, resource

management, strategic flexibility

1|INTRODUCTION

Today's competitive landscape is characterized by frequent strategic discontinuities (Hitt, Keats, & DeMarie, 1998;

Shimizu & Hitt, 2004; Volberda, 1996; Zahra, Hayton, Neubaum, Dibrell, & Craig, 2008). Changes in new and existing

Received: 10 January 2017 Revised: 30 September 2018 Accepted: 22 January 2019 Published on: 25 March 2019

DOI: 10.1002/sej.1313

© 2019 Strategic Management Society

154 wileyonlinelibrary.com/journal/sej Strategic Entrepreneurship Journal. 2019;13:154–178.

customer demands, new technologies, a changing competitive landscape, or a changing regulatory setting, demand

strategic flexibility (Alvarez & Barney, 2007; Sarasvathy, 2001; Volberda, 1996; Zahra et al., 2008). Following extant

literature, we define strategic flexibility as the ability of organizations to quickly and purposefully respond to competi-

tive opportunities and threats (Johnson, Lee, Saini, & Grohmann, 2003; Zahra et al., 2008; Zhou & Wu, 2010). Strate-

gic flexibility can be proactive in nature for instance by sensing and adopting to changing customer demands in the

market or reactive by, for example, responding to regulatory demands or the emergence of new competitors (Zahra

et al., 2008). It is an important attribute for firm survival and growth as both the proactive and reactive adjustments

assure a better fit between the firm’s offerings, internal processes, and surrounding networks with external demands

(Furr, Cavarretta, & Garg, 2012). Strategic flexibility may also imply reversing prior strategic decisions and adjusting

prior business plans (Zahra et al., 2008). Strategic flexibility is especially required for new firms, which are exposed to

particularly uncertain and ambiguous environments with rapidly changing circumstances (Alvarez & Barney, 2005;

Brush, Greene, & Hart, 2001). Yet, we do not fully understand what determines new ventures' ability to be strategi-

cally flexible, nor the antecedents associated with strategic flexibility in the entrepreneurial context.

Extant research posits that the strategic flexibility of an organization is bounded both by the versatility of its

resource base, which determines the products and services that the organization can offer, as well as by the organiza-

tion's ability to leverage and modify its resource base (Nadkarni & Narayanan, 2007; Sanchez, 1995). Yet, the literature

has primarily focused on the first of these factors, namely the impact of the organization's existing resource base on

its ability to respond to a rapidly changing competitive environment, paying special attention to managerial skills and

attitudes (human capital), networks/alliances (social capital), and monetary means (financial capital) as the key

resource categories determining strategic flexibility (Nadkarni & Herrmann, 2010; Tan & Peng, 2003; Wright & Snell,

1998; Young-Ybarra & Wiersema, 1999; Zahra et al., 2008).

Extant literature remains, however, relatively silent on how firms can actively leverage their existing resource

base to purposively respond to the challenges of a rapidly changing environment. With a few notable exceptions

(Alvarez & Barney, 2002; Kraaijenbrink, Spender, & Groen, 2010; Nadkarni & Herrmann, 2010), less attention has

been paid to specific managerial actions that can be undertaken to attain a higher level of strategic flexibility than

would otherwise be possible given the firm's existing resource base. Much remains to be learned about the specific

role of managers in leveraging a given resource base to increase strategic flexibility, and on the management of spe-

cific key resources in particular.

In this study, we set out to analyze the effects of specific resource leveraging activities, grounded on the basic

principles of bootstrapping practices, as key antecedents on a firm's strategic flexibility. Bootstrapping refersto man-

agerial resource management actions that seek to overcome resource dependencies (e.g., Ebben & Johnson, 2006;

Grichnik, Brinckmann, Singh, & Manigart, 2014; Winborg & Landström, 2001). Further, bootstrapping aims at avoid-

ing unfavorable market-based transactions given the adverse conditions new firms face in the market because of

their common lack of legitimacy, track record, and capabilities to negotiate with more established counterparts

(Grichnik et al., 2014; Stinchcombe, 1965). The overcoming of these resource constraints and innovative leveraging

of access and control of resources can be expected to enable strategic flexibility of the new firms. By focusing on

specific bootstrapping activities identified in prior studies, we are able to identify levers that are available to firms

seeking to increase their strategic flexibility beyond their existing initial resource base.

We focus on the new venture context, not only because achieving strategic flexibility is of great importance for

organizations operating in high levels of competitive uncertainty and ambiguity, but also because this context offers

us the opportunity to better analyze how the resource base gets shaped in early stages of firm development

(Alvarez & Barney, 2007). Additionally, given our interest in the role of managerial action in the leveraging of a given

resource base to achieve greater strategic flexibility, the role of founding entrepreneurs in new ventures is of particu-

lar interest, as the specific activities they engage in at the venture's initial stages of development may help in over-

coming strategic limitations imposed by resource constraints. Prominent literature in the strategy and

entrepreneurship domains highlights the importance of the information, knowledge, and abilities for the performance

of nascent firms (Alvarez & Busenitz, 2001; Shane & Venkataraman, 2000). For these reasons, we particularly draw

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