New ventures, at their inception, face an immediate crossroads. They must select a form from a wide range of organizational design alternatives that not only allow them to achieve their goals but also allow them to access or acquire valuable and necessary resources from the external environment. Thus, the selection of the organization’s form is critical in order to garner legitimacy and sustain viability. Any structure selected may either constrain or strengthen a new venture’s ability to access and exploit such resources (Scott, 1987; Selznick, 1949). Institutional theory and, in particular, its legitimization construct may provide insight into how new ventures select one organizational form over another. Thus, two important questions must be answered: How do new ventures select their organizational forms in an effort to maximize access to life sustaining resources, and, for those new ventures blazing entirely new market paths, how does their nascent, constructed structure evoke an acceptance of legitimacy from the broader, traditional market? New ventures do not just appear; rather they are formed to exploit opportunities, whether it is a discovered opportunity or the creation of an opportunity, entrepreneurs seek to exploit competitive imperfections in the market (Alvarez and Barney, 2007). Yet new ventures in their formal structure as a firm often start long before they are officially incorporated, and indeed many of the interesting internal processes that result in an established organizational form occur before incorporation. The formation and exploitation of opportunities thus leads to the formation of organizations that are created by the entrepreneur to take advantage of the perceived opportunity. Using opportunity formation as our starting point, we attempt to offer insight into when do new ventures need forms that follow the current institutional form’s rules, governance, and structures and when do these new ventures need forms that are not imbedded in current institutions. Entrepreneurs creating new ventures rarely are able to see “the end from the beginning” (Alvarez and Barney, 2007: 15). The process of creating a new venture is enacted in an iterative process of action and reaction (Berger and Luckmann, 1967; Weick, 1979); thus, there is no end until the new venture creation has occurred. This enactment of anew venture, with the end not known at the beginning, may result in a traditional (or standard) organizational structure to exploit the opportunity.
Yet, some of these new ventures also may result in new forms—new structures that even disrupt or change established institutions as they seek to exploit the opportunity. The research question we seek to explore is how institutional theory might provide insight into the organizational structure selected by new venture firms, and also how the new organizational form obtains legitimacy for that structure and thus changes acceptable institutional norms. Below we examine how institutional forces may influence the organizational structure of new ventures in both established and new fields. Our discussion will begin with a review of institutional theory literature; how the concept of organizational structure has developed and is used in this paper; and, a definition of our use of emerging field. From that point we will discuss how institutional theory may provide an explanation of the organizational structures available to new venture firms entering into established business fields. Following the assessment of new ventures in established fields, we use institutional theory to better understand the process by which new ventures may establish an organizational structure where no institutionalized (legitimated) structure currently exists.
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(The original author: Al S. Lovvorn, Jiun-Shiu Chen