Introduction
Since the pioneering work of Joseph Schumpeter, innovation has been widely recognized as a critical driver of value creation in society. And yet, the mere access to a source of innovation is insufficient to explain value appropriation (Teece, Reference Teece2006). Organizations grapple with the challenge of aligning their organizational structure with the unique attributes of entrepreneurial opportunities, adopting governance solutions that enable access to innovation both within and beyond their organizational boundaries (Grandori and Furlotti, Reference Grandori and Furlotti2019; Jacobides et al., Reference Jacobides, Knudsen and Augier2006; Klein et al., Reference Klein, Siegel, Wilson and Wright2014; Potts, Reference Potts2018; Teece, Reference Teece1986). One approach that established firms often employ is ‘external corporate venturing’, which occurs when an existing organization uses internal and external resources to create, add, or invest in a new business (Covin and Kuratko, Reference Covin, Kuratko, Narayanan and O’Connor2008). External corporate venturing distinguishes itself from other commonly adopted strategies for fostering the exchange of information across organizations, such as open innovation (Chesbrough, Reference Chesbrough2003; Lichtenthaler, Reference Lichtenthaler2011). While open innovation focuses on the inbound and outbound flow of knowledge, external corporate venturing involves a more active engagement with entrepreneurial entities beyond the boundaries of the firm.
To help explain the organizational choices made by companies engaged in external corporate venturing activities, a growing number of studies have discussed the attributes of various ‘standard’ arrangements, such as licensing agreements, equity or nonequity alliances, joint ventures, minority holdings, corporate venture capital investments, and acquisitions (Dushnitsky and Lenox, Reference Dushnitsky and Lenox2005; Hill and Birkinshaw, Reference Hill and Birkinshaw2008; Keil, Reference Keil2004; Narayanan et al., Reference Narayanan, Yang and Zahra2009; Schildt et al., Reference Schildt, Maula and Keil2005). The overall tone in the literature is comparative, emphasizing the tradeoffs involved in the choice of a particular arrangement (Afuah and Tucci, Reference Afuah and Tucci2012; Billitteri et al., Reference Billitteri, Nigro and Perrone2013; Mortara and Minshall, Reference Mortara and Minshall2011; van de Vrande et al., Reference van de Vrande, Lemmens and Vanhaverbeke2006, Reference van de Vrande, Vanhaverbeke and Duysters2009). While this literature has provided valuable insights, recent scholarship has drawn attention to the emergence of novel approaches to pursuing innovation and collaborating with entrepreneurial firms (Kohler, Reference Kohler2016; Richter et al., Reference Richter, Jackson and Schildhauer2018; Shane and Nicolaou, Reference Shane and Nicolaou2018). These ‘emerging’ forms of interaction, which allow established organizations to access potentially disruptive innovations, include hackathons, business competitions, corporate-sponsored coworking spaces, incubators, and accelerators (Clayton et al., Reference Clayton, Feldman and Lowe2018; Cohen et al., Reference Cohen, Fehder, Hochberg and Murray2019; Hausberg and Korreck, Reference Hausberg and Korreck2020; Kanbach and Stubner, Reference Kanbach and Stubner2016; Kohler, Reference Kohler2016; Mian et al., Reference Mian, Lamine and Fayolle2016; Shankar and Shepherd, Reference Shankar and Shepherd2019; Waters-Lynch and Potts, Reference Waters-Lynch and Potts2017). Remarkably, the available literature on these emerging forms primarily focuses on the examination of individual arrangements (Richter et al., Reference Richter, Jackson and Schildhauer2018; Vandeweghe and Fu, Reference Vandeweghe, Fu, Wright and Drori2018; Yang et al., Reference Yang, Kher and Lyons2018), thus lacking a comprehensive understanding of how these mechanisms interrelate and compare within the broader landscape of governance structures. In other words, there is little insight into how established firms choose to secure control of an external source of innovation when standard and emerging governance mechanisms are simultaneously available.
To fill this research gap, we develop a framework that integrates standard and emerging governance mechanisms within a comprehensive taxonomy on the governance of entrepreneurial opportunities. Inspired by the idea of ‘discriminating alignment’ (Williamson, Reference Williamson1991a), which posits that transactions with varying characteristics are matched with governance structures differing in cost and attributes, we propose that the choice between traditional and emerging arrangements is shaped by how different organizational mechanisms align with the underlying nature of entrepreneurial opportunities. Our contribution is twofold. First, we use four attributes – the degree of reallocation of decision rights, the degree of pooling of property rights, the magnitude of set-up costs, and the extent of ex post adaptation costs – to categorize both standard and emerging arrangements into a single taxonomy consisting of three types: market scanning mechanisms, opportunity support mechanisms, and opportunity control mechanisms. Second, we examine how transactions involving entrepreneurial opportunities are jointly shaped by two key variables – uncertainty and technological distance. Specifically, we argue that entrepreneurial opportunities vary in their degree of uncertainty and technological distance, which in turn influence the governance choices firms make when structuring their external venturing activities. As a result, we offer propositions that inform the analysis of organizational choices across a broad range of real-world arrangements.
Defining the building blocks
To avoid confusion, we define the fundamental elements underpinning our framework. Suppose that many established, profit-maximizing firms compete in two distinct markets. The first is the ‘primary market’, where established firms compete by offering diverse products or services that share a common attribute. The second is the market of ‘entrepreneurial opportunities’, which involves situations where new products, services, inputs, or organizational methods can be exchanged at a price higher than their production cost (Shane and Venkataraman, Reference Shane and Venkataraman2000). Given the potential for unforeseen competitors to introduce disruptive innovations (Monteiro and Foss, Reference Monteiro and Foss2018), a fundamental question is how firms govern the exploration and the exploitation of entrepreneurial opportunities outside their boundaries. In this paper, we focus on external corporate venturing activities (Kuratko and Covin, Reference Kuratko and Covin2015), excluding organizational arrangements typically associated with open innovation (Audretsch and Belitski, Reference Audretsch and Belitski2023; Bigliardi et al., Reference Bigliardi, Ferraro, Filippelli and Galati2021; Felin and Zenger, Reference Felin and Zenger2014; Mortara and Minshall, Reference Mortara and Minshall2011; Vanhaverbeke and Cloodt, Reference Vanhaverbeke, Cloodt, Chesbrough and Vanhaverbeke2006).
Our unit of analysis is the transaction of entrepreneurial opportunities, which occurs in a world of positive transaction costs. This implies that the market of entrepreneurial opportunities is characterized by high costs associated with discovering relevant prices, as well as hurdles in negotiating, monitoring, and enforcing contracts (Coase, Reference Coase1937). The existence of positive transaction costs leads to a situation where entrepreneurial opportunities are not universally known or accessible. Several factors contribute to the emergence of asymmetries in the market of entrepreneurial opportunities. First, individuals differ in their ability to assess entrepreneurial opportunities (Foss et al., Reference Foss, Klein, Lien, Zellweger and Zenger2021; Gray et al., Reference Gray, Boehlje, Amanor-Boadu and Fulton2004; Knudson et al., Reference Knudson, Wysocki, Champagne and Peterson2004). Second, causal ambiguity may preclude the dissemination of information about these opportunities (Barney, Reference Barney1991). Third, newcomers to an industry may have more knowledge about the nature, characteristics, and potential value of opportunities compared to established firms.
While we acknowledge the ongoing debate on the nature of entrepreneurial opportunities (Alvarez and Barney, Reference Alvarez and Barney2007; Foss and Klein, Reference Foss and Klein2018; McBride and Wuebker, Reference McBride and Wuebker2022; Ramoglou and McMullen, Reference Ramoglou and McMullen2024), we assume that an entrepreneurial opportunity is, at least potentially, an ‘objective’ phenomenon. As McMullen et al. (Reference McMullen, Plummer and Acs2007) summarize, objective entrepreneurial opportunities have three basic features. The first is a high degree of ‘generalizability’, which may emerge either because many people share the same goal or because the opportunity can fulfill diverse goals. For simplicity, we assume that all transacted entrepreneurial opportunities are generalizable, meaning they materialize a goal shared by several firms in the market. The second feature is a high degree of ‘accuracy’, which depends on the confirmation of the profit potential envisioned by the entrepreneur. Finally, the third feature is a high degree of ‘timelessness’, indicating that the opportunity embodies fixed natural relationships of cause and effect. As we argue below, heterogeneous degrees of accuracy and timelessness help explain patterns of organizational diversity in the governance of entrepreneurial opportunities.
We follow the logic of Williamson’s (Reference Williamson1991a) ‘discriminating alignment’ hypothesis to build our framework. Specifically, we argue that the choice of a particular internal mechanism to govern corporate venturing initiatives ensues from an efficient alignment between the attributes of the transaction of entrepreneurial opportunities and the characteristics of the organizational arrangement to be adopted. Moreover, we assume that companies weigh the set-up and ex post adaptation costs of designing a given organizational solution and the expected value of an opportunity. Ceteris paribus, higher expected value is supposed to incentivize the adoption of arrangements where the established firm can exercise a higher degree of control over strategic decisions.
Our framework focuses on the ‘make’ aspect of corporate venturing, encompassing internal mechanisms. However, we acknowledge the importance of ‘buy-type’ strategies, such as the reliance on external providers like WeWork and Y Combinator, under conditions of very high uncertainty. We also recognize that the accompanying risk of competitors bidding away promising entrepreneurs reduces the benefits of ‘make-type’ arrangements with a limited degree of control, constraining their adoption in the real world. In this sense, our contribution should be seen as an effort to extend the taxonomy of existing arrangements, complementing other taxonomies found in the literature. After all, employing a transaction cost-based logic does not necessarily imply the analysis of ‘make-or-buy’ choices but using reasoning that allows the classification and comparison of alternative – and necessarily imperfect (Coase and Williams Jr., Reference Coase and Williams1964) – arrangements.
We now discuss each of the dimensions in our framework in detail.
The attributes of entrepreneurial opportunities
We argue that two attributes of an entrepreneurial opportunity demand particular attention from an organizational perspective. The first attribute is the degree of uncertainty. Multiple definitions of the term ‘uncertainty’ coexist in the literature (Folta, Reference Folta1998; Hoskisson and Busenitz, Reference Hoskisson, Busenitz, Hitt, Ireland, Camp and Sexton2002; Santoro and McGill, Reference Santoro and McGill2005; Villalonga and McGahan, Reference Villalonga and McGahan2005). Following our characterization of the world as a place with positive transaction costs, we adopt an interpretation of uncertainty that highlights the influence of incomplete and asymmetric information on economic decisions (Eckhardt and Shane, Reference Eckhardt and Shane2003; North, Reference North1990). We focus our attention on market uncertainty, which is a particular manifestation of uncertainty. As Tong and Li (Reference Tong and Li2011) point out, high degrees of uncertainty limit the capacity to make precise assessments, thereby restricting the ability to determine the actual value of an opportunity. Or, to stick with the terminology used by McMullen et al. (Reference McMullen, Plummer and Acs2007), the degree of accuracy goes down as uncertainty increases, ultimately reducing the expected return of an entrepreneurial opportunity.
The second attribute is the degree of technological distance, which refers to the degree of overlap among the technological knowledge bases of the firms involved in some type of interaction (van de Vrande et al., Reference van de Vrande, Vanhaverbeke and Duysters2011). Relying on the ideas of McMullen et al. (Reference McMullen, Plummer and Acs2007) once again, the degree of technological distance is related to the level of timelessness of an entrepreneurial opportunity. Exploiting a fully ‘timeless’ opportunity means unveiling a set of relations that remain relevant regardless of the bundle of capabilities and resources of an organization. However, this is seldom the case. Scholars have generally acknowledged that the ability to explore and exploit external opportunities is contingent on the possession of related knowledge (Cohen and Levinthal, Reference Cohen and Levinthal1990; Giuliani and Bell, Reference Giuliani and Bell2005). A common argument in the literature is that companies must find partners at a technological distance far enough to add something new to a project but not so far as to prevent a minimum shared understanding (Gilsing et al., Reference Gilsing, Nooteboom, Vanhaverbeke, Duysters and van den Oord2008; Nooteboom, Reference Nooteboom2000; Nooteboom et al., Reference Nooteboom, Van Haverbeke, Duysters, Gilsing and van den Oord2007). While technological distance can have a positive effect on the expected return of an external entrepreneurial opportunity, the organization’s ability to understand the opportunity rapidly diminishes as the technological distance increases (Gilbert, Reference Gilbert2005; Kelly and Amburgey, Reference Kelly and Amburgey1991; Sydow et al., Reference Sydow, Schreyögg and Koch2009).
The set of organizational arrangements
A ‘first-order economizing’ logic prescribes comparing the attributes of different feasible arrangements before making an organizational choice (Williamson, Reference Williamson1991b). In line with this reasoning, we classify the organizational arrangements that established firms adopt for external corporate venturing based on four dimensions: (1) the degree of decision rights reallocation, (2) the extent of property rights pooling, (3) the magnitude of set-up costs, and (4) ex post adaptation costs.
The first dimension is the extent to which a firm should retain control rights over the new business. External corporate venturing can lead to the design of ‘standard’ organizational forms that typically entail high degrees of control over entrepreneurial opportunities. Examples of these arrangements include licensing, equity or nonequity alliances, joint ventures, minority holdings, corporate venture capital investments, and acquisitions. We classify these arrangements, which allocate residual decision rights to the established firm, as opportunity control mechanisms. But external corporate venturing can also lead to the design of ‘emerging’ types of partnerships, outsourcing, and collaboration with entrepreneurial firms that facilitate the exchange of knowledge without reallocating residual decision rights (Kohler, Reference Kohler2016; Richter et al., Reference Richter, Jackson and Schildhauer2018; Shane and Nicolaou, Reference Shane and Nicolaou2018). We divide these governance mechanisms into two categories: mechanisms aimed at nurturing opportunities without direct influence or control (i.e., opportunity support mechanisms) and mechanisms focused on the scanning of entrepreneurial opportunities (i.e., market scanning mechanisms).
The main examples of opportunity support mechanisms are corporate incubators and corporate accelerators. While incubators help entrepreneurs at an earlier stage of business ideation (Bruneel et al., Reference Bruneel, Ratinho, Clarysse and Groen2012), accelerators work with startups that are already in the process of validating or growing their business model (Clayton et al., Reference Clayton, Feldman and Lowe2018; Kohler, Reference Kohler2016). Corporate incubators place a strong emphasis on providing access to capital and specialized services (e.g., legal and marketing support) to accelerate the materialization of entrepreneurial opportunities. Incubators also bridge the gap between nascent companies and major technology and commercial players (Grimaldi and Grandi, Reference Grimaldi and Grandi2005; Hausberg and Korreck, Reference Hausberg and Korreck2020; Mian et al., Reference Mian, Lamine and Fayolle2016). In turn, corporate accelerators temporarily provide guidance, mentoring, physical workspace, and company-specific resources to speed up the process of developing entrepreneurial firms. Established companies may decide to set up an accelerator to foster a more entrepreneurial culture within their boundaries as well (Basu et al., Reference Basu, Kher and Yang2018). Although established firms employing an opportunity support mechanism may influence the decision-making process, decision rights are generally maintained within the boundaries of the entrepreneurial firm.
Market scanning mechanisms, in turn, are designed when an organization deliberately seeks to engage with entrepreneurs to stay updated on innovation trends and perhaps identify valuable opportunities. Examples of market scanning mechanisms include corporate hackathons, business competitions, and the financing and operation of coworking spaces. In hackathons, entrepreneurs with different affiliations and backgrounds come together for a defined period to analyse complex problems, discuss new ideas, and develop projects (Kohler, Reference Kohler2016). Business competitions have structured procedures, a specialized panel of judges, and a set of awards, which may include funding to help bring the winning idea into operation. Corporate coworking spaces provide a kind of ‘hole-in-the-wall’ environment that facilitates the identification of relevant people, ideas, and other resources when individuals do not have all the necessary information to coordinate their innovative ideas (Waters-Lynch and Potts, Reference Waters-Lynch and Potts2017). As these examples suggest, designing a market scanning mechanism does not involve reallocating decision rights.
The second dimension is the extent to which property rights are pooled. The idea that firm-like organizations would be equivalent to adopting hierarchical arrangements should be enlarged to encompass horizontal arrangements as well (Grandori, Reference Grandori2019). Grandori and Miranda (Reference Grandori and Varella Miranda2024) argue that evaluating whether property rights are unified or pooled provides an alternative way to classify attempts at deliberate coordination. As the example of a joint venture illustrates (Hennart, Reference Hennart2013), opportunity control mechanisms generally demand a high degree of pooling of property rights within the boundaries of a new organizational arrangement. Conversely, opportunity support mechanisms may involve pooling a limited bundle of property rights while the parties retain their legal autonomy. Finally, market scanning mechanisms involve deliberate coordination efforts that mostly occur in a decentralized fashion. In this sense, arrangements such as hackathons or coworking spaces could be classified as polyarchies, where individuals make autonomous decisions and engage in exchanges that are not necessarily price-based (Sah and Stiglitz, Reference Sah and Stiglitz1986).
On the cost side, two dimensions matter. Each organizational arrangement is tied to particular levels of set-up costs and ex post adaptation costs. Set-up costs are the fixed costs of establishing an organizational arrangement. For example, market scanning mechanisms incur set-up costs related to configuring a space for interaction, whether it is a permanent arrangement (e.g., coworking space) or a temporary event (e.g., hackathon). Compared to market scanning mechanisms, opportunity support mechanisms typically involve higher set-up costs due to the need for a permanent structure (e.g., a physical space for an incubator), dedicated staff, and active managerial efforts aimed at understanding and assimilating entrepreneurial opportunities. Opportunity control mechanisms, in turn, involve even greater fixed costs, as they require the establishment of a dedicated entrepreneurial unit within the organization or the creation of a new organization altogether.
Ex post adaptation costs are associated with potential losses from misalignment or inadequate exploitation of the opportunity by the company in a world of positive transaction costs (Basu et al., Reference Basu, Phelps and Kotha2016; Souitaris et al., Reference Souitaris, Zerbinati and Al-Laham2007). In this sense, ex post adaptation costs are intrinsically tied to value appropriation issues. Reflecting the high level of autonomy of the parties involved, ex post adaptation costs are relatively higher in market scanning mechanisms compared to those in opportunity support and opportunity control mechanisms.
Table 1 provides an overview of the attributes associated with the governance mechanisms employed to access external entrepreneurial opportunities.
Table 1. Distinguishing attributes of market scanning, opportunity support, and opportunity control mechanisms
With these ideas in mind, we can now examine the process of governance of an external source of innovation.
The framework
Consider an established, profit-maximizing firm whose leaders seek to engage with the market of external entrepreneurial opportunities but face high uncertainty. On the one hand, successful attempts to connect with the market of external entrepreneurial opportunities can lead to innovations that yield a sustainable ‘first-mover’ advantage. Such advantages may arise from a reduction in production costs that competitors cannot easily emulate or from the development of new products and services whose key attributes can be patented (Lieberman and Montgomery, Reference Lieberman and Montgomery1988). On the other hand, high uncertainty lowers the opportunity’s expected value and constrains the firm’s ability to effectively control it. For example, managers might be unsure about their ability to effectively appropriate value from the innovation (Sunding and Zilberman, Reference Sunding, Zilberman, Barrett and Just2001). High uncertainty also hampers the ability of the firm to design organizational structures that pool a broad bundle of property rights, as managers may not know exactly which resources need to be coordinated (Alvarez and Barney, Reference Alvarez and Barney2005). If the company tries to retain residual decision rights, it may face prohibitively high set-up costs relative to the opportunity’s expected value.
Since asserting control under high levels of uncertainty is likely to generate excessive costs, market scanning emerges as the most efficient organizational choice, regardless of the degree of technological distance. Even firms with absorptive capacity may struggle to estimate accurately the value of an unexplored opportunity. While market scanning typically relies on ‘buy-type’ arrangements, firms may adopt a ‘make-type’ organizational solution if managers deem the benefits to outweigh the costs. Deutsche Bank’s programme to explore open banking solutions provides an interesting example. The leaders of Deutsche Bank believed that the organization needed to adopt technological solutions that embedded financial products in the products and services provided by other organizations, reducing the distance to consumers at their point of financial need. However, the goal was too abstract for most of their managers. Deutsche Bank then decided to organize a hackathon in 2016, inviting developers to test the interfaces of the bank and propose new applications. Reflecting on the importance of the event, Hensen and Kötting (Reference Hensen and Kötting2022) argue that ‘[…] the hackathon also showed the bank’s internal decision makers on an emotional and social level what topics like “openess,” “Application Production Interface-based business models” or “digital ecosystem” really mean. An abstract and often purely technical idea had suddenly turned into an experience full of personal encounters and stimulating discussions.’
Proposition 1 summarizes our arguments:
Proposition 1 When faced with high levels of uncertainty, an organization will adopt market scanning mechanisms to assess external entrepreneurial opportunities.
To speak of a ‘discriminating alignment’ means that, from an efficiency-based perspective, organizational choices should change as the key attributes of a transaction shift. Specifically, there would be room for the adoption of arrangements with higher set-up costs as the degree of uncertainty goes down and the expected return of the entrepreneurial opportunity increases. However, a high degree of technological distance can still hinder a firm’s ability to effectively exercise control rights over the opportunity. In such cases, the most efficient arrangement is one that enhances the firm’s understanding of the opportunity without necessarily requiring the transfer of residual decisions rights.
For example, commercial and strategic interests motivate firms to sponsor corporate acceleration programs that ‘cultivate’ entrepreneurial opportunities. By hosting and supporting entrepreneurs, established companies gain valuable knowledge and, to some degree, influence decisions along the way. Entrepreneurial firms can benefit from ties with established firms in various ways. A clear example is the provision of financial resources which enable the development of high-potential entrepreneurial opportunities or expedite the abandonment of low-potential ones (Gonzalez-Uribe and Leatherbee, Reference Gonzalez-Uribe and Leatherbee2018). As Cohen et al. (Reference Cohen, Fehder, Hochberg and Murray2019) highlight, however, the most commonly shared resource is not financial but the time and attention – and, of course, the advice – of the established company’s leaders. These interactions often lead to pilot contracts that can significantly influence decisions within the boundaries of the entrepreneurial firm. Indeed, participation in corporate acceleration programs may lead external investors to perceive entrepreneurial firms as overly aligned with the host company’s goals, potentially hindering access to venture capital (Seitz et al., Reference Seitz, Lehmann and Haslanger2024). Despite these challenges, entrepreneurs typically retain residual control rights and ultimately decide how to develop the opportunity.
These observations suggest the following proposition:
Proposition 2 When faced with low levels of uncertainty and high levels of technological distance, an organization will adopt opportunity support mechanisms to govern external entrepreneurial opportunities.
Consider now a scenario where the same firm has a well-defined innovation plan that involves leveraging an external entrepreneurial opportunity with low technological distance. Ceteris paribus, this is likely to increase incentives to pool property rights between the established company and the entrepreneurial firm. In this context, protecting the idea becomes a priority. While the company will try to reveal as little information as possible to potential external partners, the selection process itself discloses strategic information that may threaten its competitive position (Barney, Reference Barney1997). At the same time, the successful implementation of the innovation plan requires coordinating mechanisms that facilitate ex post adaptation. As a result, the firm may seek to exercise a high level of control, acting as the residual claimant to better influence the exploitation of the opportunity (Grossman and Hart, Reference Grossman and Hart1986). For example, the company might acquire control of the entrepreneurial firm to absorb its knowledge base (Ahuja and Katila, Reference Ahuja and Katila2001; Ranft and Lord, Reference Ranft and Lord2002). Alternatively, it may establish a new arrangement with ‘firm-like’ governance features, such as a joint venture (see Hennart, Reference Hennart2013), to facilitate the pooling of property rights and organize decision-making effectively.
Although control mechanisms involve high set-up costs, their adoption may be justified if the expected value of the entrepreneurial opportunity is sufficiently high. In any case, actual organizational decisions would depend not only on a comparison between the set-up costs of a mechanism and the expected value of the opportunity, but also on an evaluation of the ex-post performance of the arrangement. We argue that control mechanisms can mitigate the likelihood of ex-post misalignment by facilitating access to relevant information and allocating residual decision rights to the established firm. We thus propose the following:
Proposition 3 When faced with low levels of uncertainty and low levels of technological distance, an organization will adopt opportunity control mechanisms to govern external entrepreneurial opportunities.
Figure 1 summarizes our framework.
Figure 1. Discriminating alignment in external corporate venturing activities.
Discussion and next steps
In this paper, we explain how different levels of uncertainty and technological distance shape the way organizations engage with entrepreneurial opportunities. Our institutional-based approach complements a rich body of literature that discusses the influence of both market uncertainty and technological uncertainty on innovation processes (e.g., Fagerberg, Reference Fagerberg, Fagerberg and Mowery2006; Kline and Rosenberg, Reference Kline and Rosenberg2009). Drawing on a ‘first-order economizing’ logic (Williamson, Reference Williamson1991b), our unit of analysis is the transaction of entrepreneurial opportunities. We argue that established firms strive for an efficient alignment between the characteristics of entrepreneurial opportunities and their organizational structures. In high-uncertainty scenarios, firms implement market scanning mechanisms to explore the entrepreneurial landscape without committing to high set-up costs (Proposition 1). When organizations have a clearer understanding of an opportunity but face high technological distance, firms adopt opportunity support mechanisms to nurture the entrepreneurial opportunity and learn from the entrepreneurial firm without imposing excessive control (Proposition 2). Conversely, in situations characterized by low levels of both uncertainty and technological distance, the adoption of opportunity control mechanisms is expected (Proposition 3).
We now address the limitations and potential extensions of our work.
Complementarities between different arrangements
Our microanalytical approach does not examine how complementarities between two or more organizational arrangements might influence performance. This is a gap that other studies should fill. Incorporating the existence of complementarities into our framework implies recognizing that, in practice, managers weigh both the potential benefits of individual transactions and the synergies arising from the simultaneous adoption of different arrangements. Concrete examples help illustrate this point.
First, suppose that a firm establishes a coworking space with the primary goal of better observing the market of entrepreneurial opportunities. In a world of positive transaction costs, scanning can only occur if some managers from the main division move to the coworking space. In turn, managers interacting in a coworking space may identify similarities with other exploration activities carried out within the same organization, such as the allocation of corporate venture capital. Second, consider an established firm that launches an acceleration program. Once again, managers must be assigned to run the initiative. Employees who engage in the mentoring of entrepreneurs in an acceleration program often become less resistant to innovation efforts (Basu et al., Reference Basu, Kher and Yang2018). In both examples, the daily interactions between managers and entrepreneurs within a particular arrangement may enhance the overall performance of multiple transactions related to the exploration and exploitation of external innovation opportunities.
Understanding how complementarities between arrangements affect innovation strategies requires viewing innovation as an organizational process (Herstatt and Verworn, Reference Herstatt and Verworn2004). The organizational arrangements described in this paper can be generally associated with different stages of the innovation process: market scanning mechanisms are typically adopted in the initial search phase, whereas opportunity support and opportunity control mechanisms are more closely linked to the implementation phase. However, a framework strictly rooted in a ‘discriminating alignment’ perspective would treat complementarities between arrangements as anomalies (Ménard, Reference Ménard2013; Raynaud et al., Reference Raynaud, Schnaider and Saes2019) – a conclusion that contradicts studies showing that governance structures can have complementarities that reinforce their joint effectiveness (Bouncken et al., Reference Bouncken, Clauß and Fredrich2016; Bradach and Eccles, Reference Bradach and Eccles1989; Milgrom and Roberts, Reference Milgrom and Roberts1995).
Perhaps more importantly, adopting a ‘process-oriented’ perspective would highlight that organizational arrangements are not merely mechanisms for managing uncertainty and coordinating activities. Although our framework treats entrepreneurial opportunities as exogenous, organizational arrangements fundamentally shape the entrepreneurial landscape within an organization, influencing both the types of entrepreneurial opportunities and the strategies to pursue them. In fact, the expected return of an entrepreneurial opportunity can be influenced by the development of other corporate entrepreneurship initiatives. For example, a company that is already successful in internally creating entrepreneurial ventures may see less value in pursuing external opportunities. However, while a strong internal pipeline may reduce the incentives to external search efforts, it can also create positive externalities arising from interactions with the market of entrepreneurial opportunities. These gains can increase the expected return and intensify the exploration activities. Scholars could further explore how the adoption of a given strategy influences the emergence of opportunities, providing a framework in which entrepreneurial opportunities are endogenous to the strategy of the firm.
Dynamic aspects
We also do not discuss how organizational choices evolve over time. It is plausible that technological distance and uncertainty decrease throughout the innovation process. As many authors highlight, value is created not only when a firm identifies entrepreneurial opportunities but also as it refines its organizational design to effectively explore and exploit them (Foss and Klein, Reference Foss and Klein2012; Foss and Lyngsie, Reference Foss and Lyngsie2014; Zahra, Reference Zahra2008). For example, transaction costs may go down as organizations learn how to frame contractual relationships more effectively (Langlois, Reference Langlois1992; Mayer and Argyres, Reference Mayer and Argyres2004). Likewise, organizations with more accumulated knowledge of the market of entrepreneurial opportunities may have an advantage in searching for innovation compared to newcomers, such as a reduced variance in the estimation of expected returns. On the other hand, the accumulation of knowledge can lead to path dependency, causing organizations to overlook some opportunities. Scholars may investigate how organizations build a knowledge base about the market of entrepreneurial opportunities, as well as the effects of this accumulation over time.
Another shortcoming of our framework stems from the implicit assumption that all relevant property rights are effectively protected by either the State or private organizations. Nevertheless, we live in a world of institutional diversity – and, specifically, a world where the attributes of institutions shape the characteristics of entrepreneurial action (Baumol, Reference Baumol1990; Monteiro and Miranda, Reference Monteiro and Miranda2023). An expanded framework acknowledging the possibility of institutional failure may reveal considerable diversity in the arrangements adopted within each of the generic labels presented in this study. For example, the exercise of decision rights within opportunity control mechanisms may vary depending on the features of the society where a business operates. Wherever the influence of informal networks on organizational choices is decisive, such as in emerging countries (Morris et al., Reference Morris, Aguilera, Fisher and Thatcher2023), a lower degree of formalization in decision-making procedures should prevail.
Finally, we should not take for granted that the adoption of a given arrangement will solve all potential conflicts. The idea of ‘efficient alignment’ assumes that a chosen arrangement can address all major ex post adaptation problems (see Williamson, Reference Williamson1991a). As Granovetter (Reference Granovetter1985) explains, however, hierarchical structures do not create order per se. The specific ties between established companies and entrepreneurial firms – and, potentially, the heterogeneous abilities of organizations to create these ties – should also be considered when evaluating the performance of organizational arrangements. We could also argue that disagreements may become an important driver of the adoption of strategic decisions. Within the boundaries of a company, the outcome of internal conflicts between the potential ‘winners’ and ‘losers’ of a strategic decision may decisively influence the likelihood of adopting a disruptive technology (Gans, Reference Gans2024). Adding new attributes to our framework to better understand how ex post adaptation materializes within different types of arrangements addresses a relevant gap.
Other relevant variables
Besides uncertainty and technological distance, we acknowledge that other variables may influence the expected value of an entrepreneurial opportunity. At least three elements deserve attention: (1) the level of competitive pressure; (2) the organization’s alternative strategic objectives; and (3) the level of ownership competence of the individuals making strategic decisions at the firm level.
Competitive pressure pushes organizations to innovate, increasing the expected value of finding entrepreneurial opportunities. Strong competition also encourages radical innovation (Briest et al., Reference Briest, Lukas, Mölls and Willershausen2020), which becomes an important condition for the organization’s survival. In contrast, the absence of competitive pressure can dissuade organizations from innovating or adopting efficiency-enhancing technologies (Alipranti and Petrakis, Reference Alipranti and Petrakis2022). For example, X-inefficiencies – where firms lack incentives to pursue technical efficiency (Leibenstein, Reference Leibenstein1966) – are more likely to occur in established firms that do not face strong competition. After all, managers who fear losing their position within the firm may resist engaging with the entrepreneurial system. As a result, the firm may perceive a lower expected return on entrepreneurial opportunities. Further research should investigate how different market structures influence the pursuit of external entrepreneurial opportunities, shaping subsequent organizational choices.
In any case, lack of competition should not be viewed as a precursor to failure. Even in concentrated markets, senior management can choose to explore external entrepreneurial opportunities. First, the risk attitude of firms’ leaders can drive investments. Overvest and Veldman (Reference Overvest and Veldman2008) show that risk-averse managers are more likely to allocate resources toward innovation that reduces production costs, as they are more concerned with potential losses than risk-neutral individuals. Second, organizations with significant market power are likely to adopt ambidextrous strategies amidst the threat of disruptive technologies (Raisch and Birkinshaw, Reference Raisch and Birkinshaw2008). For example, an established firm might create an autonomous unit and set up specific bonus schemes tied to innovation targets. More broadly, the interplay between organizational design and the selection of external innovation mechanisms is an interesting field for future research.
Finally, individuals have heterogeneous levels of ownership competence, meaning some people have a superior ability to exercise ownership rights (Foss et al., Reference Foss, Klein, Lien, Zellweger and Zenger2021). In a world where evaluating heterogeneous judgments through the market is prohibitively expensive (Benner and Zenger, Reference Benner and Zenger2016; Foss and Klein, Reference Foss and Klein2012), ownership grants control, enabling individuals to overcome skepticism, and materialize the envisioned value. However, an implication of our framework is that effectively exercising ownership competence may demand pooling a broader set of property rights – thus incentivizing the adoption of arrangements with higher set-up costs. We therefore expect that, ceteris paribus, ownership competence plays a more significant role in explaining the performance of opportunity control mechanisms than in less complex arrangements, such as market scanning mechanisms. In any case, ownership competence remains a key aspect in explaining the heterogeneous performance of similar organizational arrangements across firms, regardless of the stage of the innovation process.
Conclusion
The growing adoption of ‘emerging’ arrangements to pursue innovation beyond organizational boundaries has puzzled both practitioners and scholars. Why would organizations adopt novel mechanisms such as hackathons, business competitions, corporate-sponsored coworking spaces, incubators, and accelerators when well-known, ‘standard’ alternatives like acquisitions, alliances, and joint ventures have been available for decades? In this paper, we employ a ‘discriminating alignment’ approach to explain how established firms choose between standard and emerging arrangements to explore and eventually exploit entrepreneurial opportunities. Drawing inspiration from Oliver Williamson’s work, we argue that firms select the arrangement that minimizes governance costs, considering both the features of the entrepreneurial opportunity – namely, degrees of uncertainty and technology distance – and the attributes of the adopted arrangement, which include the extent of decision rights reallocation, the degree of pooling of property rights, fixed set-up costs, and ex post adaptation costs. We also offer three propositions to explain the organizational decisions made by firms.
Open access
