The role of senior management in opportunity formation: Direct involvement or reactive selection?

• Published date: 01 May 2018
• Date: 01 May 2018
• DOI: http://doi.org/10.1002/smj.2768

RESEARCH ARTICLE

The role of senior management in opportunity

formation: Direct involvement or reactive selection?

Jay B. Barney

1

| Nicolai J. Foss

2

| Jacob Lyngsie

3

1

Eccles School of Business, University of Utah,

Salt Lake City, Utah

2

iCRIOS—Department of Management and

Technology, Bocconi University, Milan, Italy

3

Strategic Organization Design, Department of

Management, Southern Denmark University,

Odense, Denmark

Correspondence

Nicolai Foss, Universita Bocconi Dipartimento di

Management e Tecnologia, Milan, Italy.

Email: nicolai.foss@unibocconi.it

Research Summary: Much research suggests that entre-

preneurial opportunities in established firms result from

bottom-up initiative in a diverse workforce, senior man-

agement’s main role in the entrepreneurial process is to

select among opportunities generated in the bottom-up

process, and it should refrain from directly getting

involved in this process. We develop an alternative and

more active view of the role of senior management in the

opportunity formation process in which senior manage-

ment intervenes in the entrepreneurial process to resolve

coordination and collaboration problems across initiatives

and decide on resource allocation. We proffer rival

hypotheses concerning the effect of such senior manage-

ment involvement in the entrepreneurial process. Specifi-

cally, we hypothesize that the positive relations between

bottom-up initiative/employee diversity and opportunity

formation are positively (negatively) moderated by such

direct involvement by senior management. We examine

these ideas using two matched data sources: a double-

respondent survey of CEOs and HR managers and

employer–employee register data. We find support for the

view that senior management involvement positively

moderates the relations between bottom-up processes/

diversity and opportunity formation.

Managerial Summary: What are the processes through

which entrepreneurial opportunities emerge in established

companies? Research has pointed to diversity and

bottom-up initiative, but our understanding is limited with

respect to what senior managers should do to optimally

promote entrepreneurship in such companies. In one

view, senior management should keep a distance and

limit their involvement to picking the best opportunities

out of those they are presented with in the bottom-up pro-

cess. In contrast, we argue that given bottom-up initiative

Received: 14 February 2017 Revised: 13 December 2017 Accepted: 28 December 2017 Published on: 27 February 2018

DOI: 10.1002/smj.2768

Strat Mgmt J. 2018;39:1325–1349. wileyonlinelibrary.com/journal/smj Copyright © 2018 John Wiley & Sons, Ltd. 1325

in the context of a diverse workforce, senior management

should play a more direct role in the entrepreneurial pro-

cess. The reason is that senior-management involvement

at early stages of the opportunity formation process is

required to handle the management challenges arising

from diversity and bottom-up initiative. Overall, our

study suggests that firms that wish to seize the potential

benefits (in terms of entrepreneurial opportunities) of hav-

ing a more diverse workforce and more bottom-up initia-

tive need senior managers that directly engage in the

entrepreneurial process.

KEYWORDS

bottom-up initiative, decision control, demographic

diversity, entrepreneurship, opportunity formation

1|INTRODUCTION

There is increasing interest in how entrepreneurial opportunities emerge in established companies

(e.g., Foss & Lyngsie, 2014; Ireland, Covin, & Kuratko, 2009). Research points to two mechanisms

within firms that have an impact on the emergence of entrepreneurial opportunities, namely

intended, top-down planned processes and bottom-up autonomous processes (e.g., Burgelman,

1991, 2002). However, most scholars emphasize the autonomous, bottom-up process as the most

important driver of such opportunities (e.g., Burgelman, 1991; Lovas & Ghoshal, 2000; Taylor,

2010)—especially when a firm has a diverse work force (Lyngsie & Foss, 2017; stergaard, Tim-

mermans, & Kristinsson, 2011). This view also stipulates that direct senior management involve-

ment in this process is likely counterproductive. Thus, senior management should not directly

engage with the process of opportunity formation, and mainly assume the role of approving or

rejecting opportunities generated through the autonomous process (Burgelman, 1994; Foss, 2003;

Lovas & Ghoshal, 2000).

While we acknowledge the importance of the autonomous process among a diverse workforce in

generating entrepreneurial opportunities in established firms, we take issue with the view that senior

management’s role in the entrepreneurial process is mainly one of reacting to the opportunities that

are generated in the bottom-up process (the “reactive selection view”). First, if senior managers are

merely reactive, the autonomous process may generate initiatives that have little chance of ulti-

mately being exploited, because they are too costly or inconsistent with a firm’s strategy. The

employees who developed such rejected projects may be discouraged and demotivated by this expe-

rience. Incentives to engage in bottom-up entrepreneurial activity are harmed as a result

(Rotemberg & Saloner, 1994). Second, the reactive selection view fails to acknowledge organiza-

tional costs associated with generating opportunities through the autonomous process in the context

of a diverse workforce. While earlier work suggests that such a context will generate many entrepre-

neurial opportunities, bottom-up initiative and diversity may both produce problems of cooperation

and coordination that harm processes of opportunity formation. For example, demographic diversity

can make it difficult for individuals within the firm to understand and coordinate their different

entrepreneurial activities (Heath & Staudenmayer, 2000). Thus, bottom-up initiative in the context

1326 BARNEY ET AL.