Strategic disagreements and entrepreneurship

What is the strategic disagreements theory of entrepreneurship?

Steven Klepper (2007) was an American economist at Carnegie Mellon University. He introduced the used the concept of strategic disagreements to explain a particular type of entrepreneurship commonly referred to as spinout (or employee spinoff) entrepreneurship.

Klepper credited spinouts with the creation of clusters like Silicon Valley and Detroit. A spinout occurs when an employee of a firm leaves to start a new business. Most spinout entrepreneurs create ventures that compete indirectly with their employers by pursuing new strategies or going after new markets with differentiated products. However, the seeds of spinout ventures often originate in parent firms. For instance, many entrepreneurs report that they are exploiting ideas that were generated inside of the organizations of their previous employers (Bhide, 1994).

Strategic disagreements refer to disagreements between employees and managers regarding the prospects of new ideas or new projects. For instance, an employee may believe that the firm should pursue a new technology but the management of the firm may choose not to do so (Thompson and Chen, 2011). Conversely, the management of a firm may choose to exploit a new technology but the employee may not want to do so, believing instead that continued exploitation of the current technology is more efficient or effective. These types of disagreement encourage employees to leave to start their own ventures.

Strategic disagreements are viewed as inevitable because firms often produce many more ideas than they can exploit. Firms that narrow their strategies and encourage their employees to explore within them may produce fewer spinouts (Stieglitz and Heine, 2007), whereas more diversified firms may encourage the pursuit of an excessively broad set of ideas and projects that can multiply the potential for strategic disagreements.

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Bhide, A. (1994). How entrepreneurs craft strategies that work. Harvard Business Review, 72(2), 150-161.

Klepper, S. (2007). Disagreements, spinoffs, and the evolution of Detroit as the capital of the US automobile industry. Management Science, 53(4), 616-631.

Klepper, S., and Thompson, P. (2010). Disagreements and intra-industry spinoffs. International Journal of Industrial Organization, 28(5), 526-538.

Stieglitz, N., and Heine, K. (2007). Innovations and the role of complementarities in a strategic theory of the firm. Strategic Management Journal, 28(1), 1-15. 

Thompson, P., and Chen, J. (2011). Disagreements, employee spinoffs and the choice of technology. Review of Economic Dynamics, 14(3), 455-474.