Week 1
, Should entrepreneurs plan or just storm the castle? A
meta-analysis on contextual factors impacting the business
planning–performance relationship in small firms.
Brinckmann, J., Grichnik, D., & Kapsa, D. (2010)
This study looks beyond the general link between business planning and performance,
aiming for a more detailed view of when planning leads to business success. Instead of only
asking if a planning-based approach improves performance in small firms, it focuses on
when this approach works best. Three moderating factors are highlighted:
1. The development stage of the firm,
2. The form of business planning, and
3. The cultural context.
The form of business planning
matters because some studies look
at the formal outcome (like written
plans or documented goals), while
others examine the process of
business planning and how it affects
performance. This helps compare
the legitimization and
communication benefits of written
plans with the learning benefits
gained during the planning process.
Finally, studying national culture as a moderating factor asks whether business planning is a
useful approach across different countries.
There are two main schools of thought about how business planning affects firm
performance: the planning school and the learning school.
- The planning school believes that planning improves effectiveness and helps
achieve goals. Its main steps include setting strategic goals, generating and
evaluating alternatives, making decisions, and implementation control. This approach
relies on prediction and supports faster decision-making, closing information gaps,
optimizing resources, and avoiding bottlenecks.
- The learning school takes an adaptive and incremental approach. In this view,
strategies can emerge without a formal plan. In uncertain environments, emergent
strategies allow quick action to take opportunities. However, too much formal
planning can create rigidities, making firms less adaptable and lowering performance.
Earlier studies showed a positive planning–performance relationship for small firms, but a
complete empirical synthesis (including new and international firms) is still missing.
→ Hypothesis 1: Business planning in small firms increases performance.
,The effectiveness of planning may also depend on whether a firm is new or established. New
firms face higher levels of uncertainty (state, effect, and response uncertainty), lack
experience and information, and often do not have established processes. They also face
missing or unclear information, which makes predictive planning less useful. According to
effectuation theory, new firms often focus on limiting potential losses rather than
maximizing returns.
Strategic decision-making comprehensiveness (gathering and analyzing environmental
information) can improve decision quality, but in very uncertain environments it may actually
reduce performance because the costs can be greater than the benefits.
→ Hypothesis 2: Business planning increases performance more in established small firms
than in new small firms.
Business planning can be divided into two parts: the process (the activities to make plans)
and the outcome (the written business plan).
- Business planning process: This means how detailed the planning activities are,
like how often meetings happen, how deep the market analysis goes, or how much
computers and tools are used. The process helps founders learn and reduce
uncertainty, but very detailed planning takes a lot of time and resources. Sometimes,
the extra cost can be higher than the benefit.
- Business planning outcome: This is about how formal the written plan is. A plan
can also be informal (not written down), but having a formal, written plan can make
the firm look more legitimate to outside stakeholders. Often, written plans are made
more for communication and legitimacy than to directly improve performance.
→ Hypothesis 3: The outcome of business planning has a stronger effect on firm
performance than the business planning process.
Another factor is the cultural setting. Cultures differ in their level of uncertainty avoidance:
- In cultures with high uncertainty avoidance, managers prefer clear rules, strict plans,
and expert knowledge to reduce uncertainty. But this can make them less innovative
and less flexible.
- In cultures with low uncertainty avoidance, managers feel more comfortable changing
or deviating from plans. They adapt more quickly to new information and use
improvisation in uncertain situations.
→ Hypothesis 4: Business planning has a stronger effect on firm performance in cultures
with low uncertainty avoidance than in cultures with high uncertainty avoidance.
The results of this research are as followed:
- H1 confirmed: Business planning has a positive effect on firm performance.
- H2 confirmed: The effect is stronger in established small firms than in new small
firms.
- Established firms benefit more because they have prior information, routines,
and processes.
- New firms face more uncertainty and lack information, which weakens the
effect.
,- H3 rejected: The form of planning (written plans vs. planning process) does not
significantly change performance.
- H4 confirmed: The cultural context moderates the effect.
- In cultures with low uncertainty avoidance, business planning has stronger
positive effects.
- In cultures with high uncertainty avoidance, the benefits are reduced.
, International Diversification and Firm Performance: The
S-Curve Hypothesis
Jane W. Lu and Paul W. Beamish (2004)
This article explores how expanding a company's business into different countries
(international diversification) affects its overall performance. The authors focus on Japanese
firms and use data from 1,489 companies over 12 years to test their ideas.
The main idea is that the relationship between international diversification and firm
performance is not simple or straight. Instead, it follows an S-shaped curve:
- Phase 1 (Initial Expansion): When a company first starts expanding abroad, it faces
many challenges. These include the “liability of newness” (being new in a market)
and the “liability of foreignness” (being an outsider in a foreign country). These
problems can lead to lower profits at first, because the company needs to learn how
to operate in new environments and build its reputation.
- Phase 2 (Growth and Learning): As the company gains experience, it learns how to
manage foreign operations better. The initial costs and disadvantages decrease, and
the company starts to benefit from being in multiple countries. These benefits include
spreading risks, gaining access to new resources, and using its unique assets (like
technology or brand) in more markets. Profits increase during this phase.
- Phase 3 (Over-Expansion): If a company expands into too many countries, it faces
new problems. Managing a large, complex network of subsidiaries becomes difficult
and expensive. Coordination costs rise, and the company may struggle to keep
everything running smoothly. At this stage, performance can decline again.
, BENEFITS COSTS
Economies of scale and scope: By Liability of newness: Setting up new
operating in more countries, a company can operations is hard and costly.
produce more efficiently and offer a wider
range of products.
Risk reduction: If one market does poorly, Liability of foreignness: Being unfamiliar
others might do well, balancing out the with local customs, laws, and business
risks. practices can lead to mistakes.
Market power: The company can negotiate Coordination costs: Managing many
better deals with suppliers and customers. subsidiaries in different countries requires
complex systems and can lead to
inefficiencies.
Learning and innovation: Subsidiaries in Information loss: Communication across
different countries can share knowledge, layers of management can distort
helping the company improve. information.
Exploiting intangible assets: A strong brand Environmental uncertainty: Different
or advanced technology can be used in countries have different business
many markets, increasing profits. environments, making management harder.
The role of intangible assets
The authors find that companies with strong intangible assets (like technology and
advertising) benefit more from international diversification. For example, a company with high
R&D spending or strong brands can use these advantages in new markets, leading to higher
profits. The value of these assets does not decrease much when used in different countries,
so expanding internationally helps the company get more out of its investments.
Research methodsi
- The study uses both accounting-based (Return on Assets, ROA) and market-based
(Tobin’s Q) measures of performance.
- Internationalization is measured by the number of foreign subsidiaries and the
number of countries a company operates in.
- Intangible assets are measured by R&D intensity (R&D spending as a percent of
sales) and advertising intensity (advertising spending as a percent of sales).
- The authors use advanced statistical models to test their hypotheses and control for
other factors like firm size, product diversity, debt, and export intensity.
The study confirms that the S-curve relationship between international diversification and
firm performance is real. At first, company performance drops when they start expanding
abroad, but as they gain more experience and reach a moderate level of internationalization,
their performance improves. However, if they expand too much, performance can decline
again. Intangible assets, such as technology and advertising, play a key role in helping
companies benefit more from international expansion, especially during the growth phase.
The findings are consistent across different models and samples, showing that these
patterns are reliable. Managers are advised to be patient during the early stages of
expansion, as initial losses are common. They should also avoid expanding too quickly or
,too much and instead focus on building the skills and systems needed to handle the
complexity of international operations. The study also suggests that future research should
explore other factors that might influence the S-curve, such as the order and speed of
expansion and the company’s organizational structure.
Practical implications
Managers should expect some early challenges and lower profits when entering foreign
markets, but these can be overcome with time and learning. Investing in intangible assets
like technology and brand reputation can make international expansion more successful.
However, expanding too far can hurt performance, so companies need to find the right
balance and manage their international networks carefully. Sometimes, a strong reputation
and valuable intangible assets can help a company succeed in new markets even before it
has a physical presence there.
Limitations
- The study focuses on Japanese firms, so results may not apply to all countries.
- The measures of internationalization could be improved in future research.
- The model explains only part of the differences in performance between firms; other
internal factors, such as how the company is organized and how it manages its staff,
may also be important.
, A Capabilities Perspective On The Effects Of Early
Internationalization On Firm Survival And Growth
Sapienza, H., Autio, E., George, G., Zahra, S. (2006)
This article explores how early internationalization (when a company starts doing business in
foreign markets soon after it is founded) affects a firm’s chances of survival and growth. The
authors use a “capabilities perspective,” which means they focus on how a company’s
skills, routines, and resources (its capabilities) help it adapt and succeed in new
environments.
Traditional vs. New Views on Internationalization
Traditionally, theories suggested that companies should wait before going international.
The idea was that waiting allows a firm to build up resources and experience, making it
less risky to enter foreign markets. However, waiting too long can also make a company
slow to adapt and less flexible. In contrast, newer research shows that some companies,
especially in fast-moving or technology-heavy industries, go international very early. These
“early internationalizers” may grow quickly, but they also face higher risks.
The Capabilities Perspective
The article builds on the idea of dynamic capabilities; the ability of a company to change
its routines and resources to fit new situations. Early internationalization can “imprint” a
company with the ability to adapt quickly, because it is exposed to many new challenges
and opportunities right from the start. For example, a young tech start-up that immediately
starts selling in several countries will have to learn fast about different customer needs,
regulations, and competitors. This learning can make the company more flexible and open
to change in the future.
Survival vs. Growth: Not the Same Thing
A key point is that survival and growth are not always linked. A company can survive
without growing, and sometimes rapid growth can actually make survival harder. For
example, a company might expand quickly into new markets by offering very low prices,
but this could hurt its profits and make it more likely to fail. The authors argue that early
internationalization often increases the chance of growth but can decrease the chance of
survival, at least in the short term. This is because entering new markets requires big
investments and new routines, which can strain a young company’s limited resources.
The effects of early internationalization depend on three main factors:
1. Organizational Age: The younger a company is when it goes international, the more
it is shaped by that experience. Young firms can develop special skills for adapting to
change, but they also lack the reputation and routines that help older firms survive
tough times. For example, a brand-new company entering a foreign market has to
build relationships and trust from scratch, which is risky.
2. Managerial Experience: If the founders or managers have previous experience with
international business, they can bring in useful routines and knowledge. This can help
the company avoid mistakes and adapt faster. For instance, a manager who has
worked abroad before might know how to set up supply chains or deal with foreign
regulations, making the process smoother for the new company.
, 3. Resource Fungibility: This means how easily a company’s resources (like money,
people, or technology) can be used for different purposes. If resources are “fungible,”
the company can quickly shift them to where they are needed most. For example, a
company with flexible employees who can handle multiple roles can adapt more
easily to the demands of new markets. Fungible resources help reduce the costs and
risks of trying new things.
Competing Theories: Process vs. New Venture Internationalization
Process Theory New Venture Internationalization
Suggests that companies should internationalize slowly Focuses on the role of entrepreneurial managers who
and carefully, building up experience over time. It seek out growth opportunities early. It sees early
assumes that survival is the main goal and that entering internationalization as a way to gain an edge, especially
foreign markets too soon is risky. if the company has unique knowledge or technology.
The article argues that both perspectives are valid but incomplete. To really understand the effects of early
internationalization, we need to look at both survival and growth, and consider the company's age, the experience of
its managers, and how flexible its resources are.
Implications for Managers
- If a company's main goal is survival, it might be better to wait before going
international, building up flexible resources and hiring managers with international
experience.
- If the goal is rapid growth, early internationalization can be a good strategy, but
managers should be aware of the higher risks and make sure they have the right
capabilities in place.
- The industry and country context also matter. For example, in small countries,
companies may have to go international early just to survive, while in large domestic
markets, they can afford to wait.
, Causation and Effectuation: Toward A Theoretical Shift from
Economic Inevitability to Entrepreneurial Contingency
Saras D. Sarasvathy (2001)
This article explains two different ways entrepreneurs make decisions: causation and
effectuation. The author argues that while traditional business theories focus on causation,
effectuation is often more realistic and useful for entrepreneurs, especially when creating
new firms or entering markets that do not yet exist.
, Should entrepreneurs plan or just storm the castle? A
meta-analysis on contextual factors impacting the business
planning–performance relationship in small firms.
Brinckmann, J., Grichnik, D., & Kapsa, D. (2010)
This study looks beyond the general link between business planning and performance,
aiming for a more detailed view of when planning leads to business success. Instead of only
asking if a planning-based approach improves performance in small firms, it focuses on
when this approach works best. Three moderating factors are highlighted:
1. The development stage of the firm,
2. The form of business planning, and
3. The cultural context.
The form of business planning
matters because some studies look
at the formal outcome (like written
plans or documented goals), while
others examine the process of
business planning and how it affects
performance. This helps compare
the legitimization and
communication benefits of written
plans with the learning benefits
gained during the planning process.
Finally, studying national culture as a moderating factor asks whether business planning is a
useful approach across different countries.
There are two main schools of thought about how business planning affects firm
performance: the planning school and the learning school.
- The planning school believes that planning improves effectiveness and helps
achieve goals. Its main steps include setting strategic goals, generating and
evaluating alternatives, making decisions, and implementation control. This approach
relies on prediction and supports faster decision-making, closing information gaps,
optimizing resources, and avoiding bottlenecks.
- The learning school takes an adaptive and incremental approach. In this view,
strategies can emerge without a formal plan. In uncertain environments, emergent
strategies allow quick action to take opportunities. However, too much formal
planning can create rigidities, making firms less adaptable and lowering performance.
Earlier studies showed a positive planning–performance relationship for small firms, but a
complete empirical synthesis (including new and international firms) is still missing.
→ Hypothesis 1: Business planning in small firms increases performance.
,The effectiveness of planning may also depend on whether a firm is new or established. New
firms face higher levels of uncertainty (state, effect, and response uncertainty), lack
experience and information, and often do not have established processes. They also face
missing or unclear information, which makes predictive planning less useful. According to
effectuation theory, new firms often focus on limiting potential losses rather than
maximizing returns.
Strategic decision-making comprehensiveness (gathering and analyzing environmental
information) can improve decision quality, but in very uncertain environments it may actually
reduce performance because the costs can be greater than the benefits.
→ Hypothesis 2: Business planning increases performance more in established small firms
than in new small firms.
Business planning can be divided into two parts: the process (the activities to make plans)
and the outcome (the written business plan).
- Business planning process: This means how detailed the planning activities are,
like how often meetings happen, how deep the market analysis goes, or how much
computers and tools are used. The process helps founders learn and reduce
uncertainty, but very detailed planning takes a lot of time and resources. Sometimes,
the extra cost can be higher than the benefit.
- Business planning outcome: This is about how formal the written plan is. A plan
can also be informal (not written down), but having a formal, written plan can make
the firm look more legitimate to outside stakeholders. Often, written plans are made
more for communication and legitimacy than to directly improve performance.
→ Hypothesis 3: The outcome of business planning has a stronger effect on firm
performance than the business planning process.
Another factor is the cultural setting. Cultures differ in their level of uncertainty avoidance:
- In cultures with high uncertainty avoidance, managers prefer clear rules, strict plans,
and expert knowledge to reduce uncertainty. But this can make them less innovative
and less flexible.
- In cultures with low uncertainty avoidance, managers feel more comfortable changing
or deviating from plans. They adapt more quickly to new information and use
improvisation in uncertain situations.
→ Hypothesis 4: Business planning has a stronger effect on firm performance in cultures
with low uncertainty avoidance than in cultures with high uncertainty avoidance.
The results of this research are as followed:
- H1 confirmed: Business planning has a positive effect on firm performance.
- H2 confirmed: The effect is stronger in established small firms than in new small
firms.
- Established firms benefit more because they have prior information, routines,
and processes.
- New firms face more uncertainty and lack information, which weakens the
effect.
,- H3 rejected: The form of planning (written plans vs. planning process) does not
significantly change performance.
- H4 confirmed: The cultural context moderates the effect.
- In cultures with low uncertainty avoidance, business planning has stronger
positive effects.
- In cultures with high uncertainty avoidance, the benefits are reduced.
, International Diversification and Firm Performance: The
S-Curve Hypothesis
Jane W. Lu and Paul W. Beamish (2004)
This article explores how expanding a company's business into different countries
(international diversification) affects its overall performance. The authors focus on Japanese
firms and use data from 1,489 companies over 12 years to test their ideas.
The main idea is that the relationship between international diversification and firm
performance is not simple or straight. Instead, it follows an S-shaped curve:
- Phase 1 (Initial Expansion): When a company first starts expanding abroad, it faces
many challenges. These include the “liability of newness” (being new in a market)
and the “liability of foreignness” (being an outsider in a foreign country). These
problems can lead to lower profits at first, because the company needs to learn how
to operate in new environments and build its reputation.
- Phase 2 (Growth and Learning): As the company gains experience, it learns how to
manage foreign operations better. The initial costs and disadvantages decrease, and
the company starts to benefit from being in multiple countries. These benefits include
spreading risks, gaining access to new resources, and using its unique assets (like
technology or brand) in more markets. Profits increase during this phase.
- Phase 3 (Over-Expansion): If a company expands into too many countries, it faces
new problems. Managing a large, complex network of subsidiaries becomes difficult
and expensive. Coordination costs rise, and the company may struggle to keep
everything running smoothly. At this stage, performance can decline again.
, BENEFITS COSTS
Economies of scale and scope: By Liability of newness: Setting up new
operating in more countries, a company can operations is hard and costly.
produce more efficiently and offer a wider
range of products.
Risk reduction: If one market does poorly, Liability of foreignness: Being unfamiliar
others might do well, balancing out the with local customs, laws, and business
risks. practices can lead to mistakes.
Market power: The company can negotiate Coordination costs: Managing many
better deals with suppliers and customers. subsidiaries in different countries requires
complex systems and can lead to
inefficiencies.
Learning and innovation: Subsidiaries in Information loss: Communication across
different countries can share knowledge, layers of management can distort
helping the company improve. information.
Exploiting intangible assets: A strong brand Environmental uncertainty: Different
or advanced technology can be used in countries have different business
many markets, increasing profits. environments, making management harder.
The role of intangible assets
The authors find that companies with strong intangible assets (like technology and
advertising) benefit more from international diversification. For example, a company with high
R&D spending or strong brands can use these advantages in new markets, leading to higher
profits. The value of these assets does not decrease much when used in different countries,
so expanding internationally helps the company get more out of its investments.
Research methodsi
- The study uses both accounting-based (Return on Assets, ROA) and market-based
(Tobin’s Q) measures of performance.
- Internationalization is measured by the number of foreign subsidiaries and the
number of countries a company operates in.
- Intangible assets are measured by R&D intensity (R&D spending as a percent of
sales) and advertising intensity (advertising spending as a percent of sales).
- The authors use advanced statistical models to test their hypotheses and control for
other factors like firm size, product diversity, debt, and export intensity.
The study confirms that the S-curve relationship between international diversification and
firm performance is real. At first, company performance drops when they start expanding
abroad, but as they gain more experience and reach a moderate level of internationalization,
their performance improves. However, if they expand too much, performance can decline
again. Intangible assets, such as technology and advertising, play a key role in helping
companies benefit more from international expansion, especially during the growth phase.
The findings are consistent across different models and samples, showing that these
patterns are reliable. Managers are advised to be patient during the early stages of
expansion, as initial losses are common. They should also avoid expanding too quickly or
,too much and instead focus on building the skills and systems needed to handle the
complexity of international operations. The study also suggests that future research should
explore other factors that might influence the S-curve, such as the order and speed of
expansion and the company’s organizational structure.
Practical implications
Managers should expect some early challenges and lower profits when entering foreign
markets, but these can be overcome with time and learning. Investing in intangible assets
like technology and brand reputation can make international expansion more successful.
However, expanding too far can hurt performance, so companies need to find the right
balance and manage their international networks carefully. Sometimes, a strong reputation
and valuable intangible assets can help a company succeed in new markets even before it
has a physical presence there.
Limitations
- The study focuses on Japanese firms, so results may not apply to all countries.
- The measures of internationalization could be improved in future research.
- The model explains only part of the differences in performance between firms; other
internal factors, such as how the company is organized and how it manages its staff,
may also be important.
, A Capabilities Perspective On The Effects Of Early
Internationalization On Firm Survival And Growth
Sapienza, H., Autio, E., George, G., Zahra, S. (2006)
This article explores how early internationalization (when a company starts doing business in
foreign markets soon after it is founded) affects a firm’s chances of survival and growth. The
authors use a “capabilities perspective,” which means they focus on how a company’s
skills, routines, and resources (its capabilities) help it adapt and succeed in new
environments.
Traditional vs. New Views on Internationalization
Traditionally, theories suggested that companies should wait before going international.
The idea was that waiting allows a firm to build up resources and experience, making it
less risky to enter foreign markets. However, waiting too long can also make a company
slow to adapt and less flexible. In contrast, newer research shows that some companies,
especially in fast-moving or technology-heavy industries, go international very early. These
“early internationalizers” may grow quickly, but they also face higher risks.
The Capabilities Perspective
The article builds on the idea of dynamic capabilities; the ability of a company to change
its routines and resources to fit new situations. Early internationalization can “imprint” a
company with the ability to adapt quickly, because it is exposed to many new challenges
and opportunities right from the start. For example, a young tech start-up that immediately
starts selling in several countries will have to learn fast about different customer needs,
regulations, and competitors. This learning can make the company more flexible and open
to change in the future.
Survival vs. Growth: Not the Same Thing
A key point is that survival and growth are not always linked. A company can survive
without growing, and sometimes rapid growth can actually make survival harder. For
example, a company might expand quickly into new markets by offering very low prices,
but this could hurt its profits and make it more likely to fail. The authors argue that early
internationalization often increases the chance of growth but can decrease the chance of
survival, at least in the short term. This is because entering new markets requires big
investments and new routines, which can strain a young company’s limited resources.
The effects of early internationalization depend on three main factors:
1. Organizational Age: The younger a company is when it goes international, the more
it is shaped by that experience. Young firms can develop special skills for adapting to
change, but they also lack the reputation and routines that help older firms survive
tough times. For example, a brand-new company entering a foreign market has to
build relationships and trust from scratch, which is risky.
2. Managerial Experience: If the founders or managers have previous experience with
international business, they can bring in useful routines and knowledge. This can help
the company avoid mistakes and adapt faster. For instance, a manager who has
worked abroad before might know how to set up supply chains or deal with foreign
regulations, making the process smoother for the new company.
, 3. Resource Fungibility: This means how easily a company’s resources (like money,
people, or technology) can be used for different purposes. If resources are “fungible,”
the company can quickly shift them to where they are needed most. For example, a
company with flexible employees who can handle multiple roles can adapt more
easily to the demands of new markets. Fungible resources help reduce the costs and
risks of trying new things.
Competing Theories: Process vs. New Venture Internationalization
Process Theory New Venture Internationalization
Suggests that companies should internationalize slowly Focuses on the role of entrepreneurial managers who
and carefully, building up experience over time. It seek out growth opportunities early. It sees early
assumes that survival is the main goal and that entering internationalization as a way to gain an edge, especially
foreign markets too soon is risky. if the company has unique knowledge or technology.
The article argues that both perspectives are valid but incomplete. To really understand the effects of early
internationalization, we need to look at both survival and growth, and consider the company's age, the experience of
its managers, and how flexible its resources are.
Implications for Managers
- If a company's main goal is survival, it might be better to wait before going
international, building up flexible resources and hiring managers with international
experience.
- If the goal is rapid growth, early internationalization can be a good strategy, but
managers should be aware of the higher risks and make sure they have the right
capabilities in place.
- The industry and country context also matter. For example, in small countries,
companies may have to go international early just to survive, while in large domestic
markets, they can afford to wait.
, Causation and Effectuation: Toward A Theoretical Shift from
Economic Inevitability to Entrepreneurial Contingency
Saras D. Sarasvathy (2001)
This article explains two different ways entrepreneurs make decisions: causation and
effectuation. The author argues that while traditional business theories focus on causation,
effectuation is often more realistic and useful for entrepreneurs, especially when creating
new firms or entering markets that do not yet exist.
