Strategic disagreements and entrepreneurship
Strategic Disagreements Theory, introduced by the late American economist Steven Klepper (2007), explains a specific type of entrepreneurship known as the Employee Spinout.
The theory posits that spinouts are not random; they are the result of a rational disagreement between an employee and a manager regarding the value of a new idea.
The Core Mechanism: How Disagreements Create Rivals
Firms often generate more ideas than they can exploit. According to Bhide (1994), many entrepreneurs report that they are exploiting ideas that were originally generated inside their previous employers' organizations.
A "Strategic Disagreement" occurs when the employee and the firm have different assessments of an innovation's potential (Thompson & Chen, 2011). This can happen in two ways:
- The Frustrated Innovator: An employee believes the firm should pursue a new technology, but management rejects it (viewing it as risky or low-value). The employee leaves to prove them wrong.
- The Conservative Expert: Management wants to pivot to a new technology, but the employee disagrees, believing the current technology is superior. The employee leaves to continue the legacy technology elsewhere.
Klepper’s Legacy: Explaining Industrial Clusters
Why do car companies cluster in Detroit and tech companies in Silicon Valley?
Klepper credited Strategic Disagreements as the primary engine of these clusters. When talented employees leave a parent firm (like Fairchild Semiconductor), they rarely move across the country. They stay local, hire their former colleagues, and compete indirectly with their former employer.
This process of "spawning" creates a family tree of companies rooted in the same region, driving rapid innovation through competition.
Is Conflict Inevitable?
According to the theory, yes. Disagreements are viewed as inevitable byproducts of corporate R&D.
- Narrow Strategy: Firms that narrow their focus produce fewer spinouts because employees know exactly what fits (Stieglitz & Heine, 2007).
- Broad Strategy: Diversified firms often encourage the pursuit of a broad set of ideas. Paradoxically, this multiplies the potential for strategic disagreements, leading to a higher rate of employee exits.
Video: Klepper on The Evolution of Industries
Academic Sources
- 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., & Thompson, P. (2010). Disagreements and intra-industry spinoffs. International Journal of Industrial Organization, 28(5), 526-538.
- Stieglitz, N., & 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., & Chen, J. (2011). Disagreements, employee spinoffs and the choice of technology. Review of Economic Dynamics, 14(3), 455-474.
