Entrepreneurship in the public interest

“Entrepreneurship in the Public Interest:  Introduction to the Special Issue,” Anita M McGahan, Bennet A. Zelner and Jay B. Barney, Strategic Entrepreneurship Journal (forthcoming)

The study of entrepreneurship in the public interest needs to move from the periphery of entrepreneurship scholarship to the core. The central, value-creating opportunities of our time require detailed engagement with public issues and concerns, including the depletion of global petroleum reserves, climate change, epidemic disease, correlated financial risks, the efficient administration of security activities, and the connectivity available through sophisticated digital technologies. Engagement with these issues requires a conceptualization of the public sector, public interest, and public resources as nuanced, competition-laden, and dynamically evolving areas of activity that arise in concert with private activity. In other words, the boundaries between ‘public sector’ and ‘private sector’ have blurred to the extent that the distinction between the two is simply losing meaning.

Theoretical advances are required to deepen our understanding of coevolution, goal endogeneity, and the endogeneity of the organizational forms deployed to govern resources to advance individual and collective interests. New data sets and empirical methods are necessary to study alternative organizational forms in situations where effective instruments for examining counterfactuals are unavailable. Criteria must be developed to identify legitimate public policy recommendations emerging from the fields of entrepreneurship and strategic management.

“Capabilities and Strategic Entrepreneurship in Public Organizations,” Peter Klein, Joseph T. Mahoney, Anita M McGahan, and Christos Pitelis, Strategic Entrepreneurship Journal (forthcoming)

Public organizations are relatively understudied in the strategic entrepreneurship literature. In this paper, we submit that public organizations are usefully analyzed as entities that create and capture value in both the private and public sectors, and that a capabilities lens sheds important new insights on their behavior. As they try to create and capture value, public organizations can act entrepreneurially by creating or leveraging bundles of capabilities, which may then shape subsequent entrepreneurial action. Such processes can involve complex interactions among public and private actors. For example, public organizations often partner with private firms to produce existing products, create new products, and establish new markets, which in turn generate new capabilities for both public and private actors. Yet such co-evolutionary processes are not guaranteed to create value, and capabilities acquired in the pursuit of public interests may, over time, enable activities that damage those same interests. We show how a capabilities approach helps explain the nature and evolution of public organizations and we apply this approach to a series of cases on the growth and diversification of public organizations, the private provision of public goods, and related issues.

“A Property Rights Approach for a Stakeholder Theory of the Firm,” Peter Klein, Joseph T. Mahoney, Anita M McGahan and Christos Pitelis, Strategic Organization 10:3 (2012), pp. 304-315

Debates on “shareholder” and “stakeholder” approaches to corporate governance often get bogged down in competing normative claims about economic rent streams, entitlements of different group members, fairness, and similar distributional issues. These concerns are important, but core economic issues in shareholder-stakeholder debates revolve around the positive analysis of property rights, transaction costs, ownership, and control. Going beyond the stylized assumptions of neoclassical economics, which assume away co-investment by the firm’s transactional and contractual partners, we show how theories of implicit and explicit contracting help us understand better joint investments and the creation of joint value. We call on scholars of Strategic Organization to embrace more robust theories of the firm and interfirm relations that take seriously the complex web of investments and residual claims that characterize team production and co-created value.

“Innovation for Inclusive Growth:  Towards a Theoretical Framework and a Research Agenda,” Gerry George, Anita M McGahan and Jaideep Prabhu, Journal of Management Studies 49:4 (June 2012), pp. 661-683

Inclusive innovation, which we define as innovation that benefits the disenfranchised, is a process as well as a performance outcome. Consideration of inclusive innovation points to inequalities that may arise in the development and commercialization of innovations, and also acknowledges the inequalities that may occur as a result of value creation and capture.  We outline opportunities for the development of theory and empirical research around this construct in the fields of entrepreneurship, strategy and marketing.  We aim for a synthesis in views of inclusive innovation and call for future research that deals directly with value creation and the distributional consequences of innovation.

“Innovative Health Service Delivery Models in Low and Middle Income Countries – What can we learn from the private sector?,” Onil Bhattacharyya, Anita M McGahan, Sara Khor, David Dunne, Abdullah Daar and Peter Singer, Health Research Policy and Systems 8:24 (2010) available at http://www.health-policy-systems.com/content/8/1/24

The poor in low and middle income countries have limited access to health services due to limited purchasing power, residence in underserved areas, and inadequate health literacy. This produces significant gaps in health care delivery among a population that has a disproportionately large burden of disease. They frequently use the private health sector, due to perceived or actual gaps in public services. A subset of private health organizations, some called social enterprises, have developed novel approaches to increase the availability, affordability and quality of health care services to the poor through innovative health service delivery models. This study aims to characterize these models and identify areas of innovation that have led to effective provision of care for the poor.

“Toward a Theory of Public Entrepreneurship,” Peter G Klein, Joseph T Mahoney, Anita M McGahan, and Christos N Pitelis, European Management Review Vol. 7, No. 1 (Spring 2010), pp. 1-15 (lead article).  WINNER, EMR 2010 BEST PAPER AWARD.

This paper explores innovation, experimentation, and creativity in the public domain and in the public interest. Researchers in various disciplines have studied public entrepreneurship, but there is little research specifically on the nature, incentives and constraints of public entrepreneurship to innovate in the public interest. We begin by extending concepts of the entrepreneur to the public domain, and then turn to the role of entrepreneurs in fostering institutional change. This focus points toward opportunities for integrating transaction-cost, political and international business theories to achieve a more refined institutional theory of the state that incorporates entrepreneurial agency as a principal mechanism for innovating in the fulfillment of public and private interests.

 “The Development of Capabilities in New Firms,” Asli Arikan and Anita M McGahan, Strategic Management Journal, Vol. 31, No. 1 (January 2010), pp. 1-18 (lead article).

This research explores evidence of corporate capabilities for conducting acquisition and alliance deals in young firms. We hypothesize that investors conjecture about the future based on information about a firm’s capabilities. Each successive deal carries intrinsic value, creates experience, generates feedback, and yields information about the firm’s underlying capabilities. We evaluate whether stock prices impute expectations that firms will capably pursue particular programs of acquisitions and alliances. The analysis covers how investor responses change across successive deals on the theory that firms with a concentrated program of deals may develop capabilities more intensively than those with programs that involve both acquisitions and alliances. The dataset covers the population of firms that went through an initial public offering (IPO) in the United States between 1988 and 1999. It contains information on all of their post-IPO acquisitions and alliances, and on how their stock prices changed in response to the announcement of each deal. The results suggest that within the first year after IPO, investors expect firms to execute particular streams of alliances and acquisitions that reflect their unique histories of demonstrated capabilities. We also find evidence that investors cannot fully anticipate deal programs. The findings support a capabilities-based view of the firm and also show that accurate inference using event-study methods may require digging deep into the early histories of firms.

“The Interdependence of Private and Public Interests,” Joseph T Mahoney, Anita M McGahan, and Christos Pitelis, Organization Science Vol. 20, No. 6 (November-December 2009), pp. 1034-1052, published online in Articles in Advance, pp. 1-19 (September 25) available at http://orgsci.journal.informs.org/cgi/reprint/orsc.1090.0472v1

The predominant focus in research on organizations is on private or public institutions without consistent consideration of their interdependencies. The emphasis in scholarship on private or public interests has strengthened as disciplinary and professional knowledge has deepened: Management scholars, for example, tend to consider the corporation as the unit of analysis, whereas scholars of public policy often analyze governmental, multilateral, community, and nonprofit organizations. This article advocates a partial merging of these research agendas on the grounds that private and public interests cannot be fully understood if they are conceived independently. We review three major areas of activity today in which public and private interests interact in complex ways and maintain that current theories of organization science can be deployed to understand these interactions better. We also suggest that theories of public-private interaction require development and describe a concept called global sustainable value creation, which may be used to identify organizational and institutional configurations and strategies conducive to worldwide, intertemporal efficiency and value creation. We conclude that scholarship on organizations would advance if private-public interactions were evaluated by the criterion of global sustainable value creation, and we identify organizational research opportunities that jointly consider public and private interests.

“Strategy in the public interest,” Peter G. Klein and Anita M. McGahan, Palgrave Encyclopedia of Strategic Management, eds. David Teece, Mie Auger; vol. ed. William Mitchell (forthcoming)

The public interest is frequently described as ‘common well-being,’ ‘general welfare,’ ‘the common good,’ and ‘sustainable shared values.’  We focus in this article on public interests that are widely acknowledged as privately worthwhile but not fully aligned with the individual private interests of each member of the relevant community.  Strategy in this context is the management of organizational tradeoffs in pursuit of the public interest.

“Paradoxes of Innovation in Health and their Resolution in Embedded Innovation,” Munk Monitor 2 (Fall 2012), pp. 14-17.

Since the publication of several major critiques of development aid (Easterly 2006, Garrett 2007, Moyo 2009) , many of us in the field of global health – including scholars, clinicians, practitioners, and policy-makers – have struggled with a series of paradoxes that have become increasingly evident in the provision of aid to the poor.  How can these paradoxes be resolved?  Of course there are no easy answers.  In my research in this area, I am developing a construct that I have tentatively called Embedded Innovation with the following characteristics:  collaboration in the field; minimal reliance on competition in experimental processes; maximal reliance on competition to serve the poor; risk and profit sharing; balanced emphasis on prevention and early diagnosis as well as treatment.

“Outsourcing War:  The Coevolution of Transactions, Capabilities, and Performance in the Private Military and Security Industry,” with Joel A.C. Baum  (October 2012), submitted, R&R

The field of strategic management offers several distinct perspectives on the emergence of industry structures. We seek to contribute to a growing literature that bridges these approaches by examining the development of private military and security companies (PMSCs) over the half-century since Eisenhower’s famous “military-industrial complex” speech. During this period, PMSCs transformed from minor subcontractors to major corporations that play essential roles in Afghanistan and Iraq. We examine how and why PMSCs came to occupy such central roles and, based on our findings, identify opportunities for further theorizing on the emergence of new industry structures. Our analysis reveals a coevolution of markets, capabilities, transactions, relationships, and governance rights over several decades. A turning point occurred when the specialized capabilities of PMSCs enabled sovereigns to achieve desirable military goals that had previously been unattainable. Once PMSCs delivered performance that could not be achieved by any other organizational form, including sovereign militaries, they constituted a distinct industry on which sovereigns became dependent. We suggest the emergence of unique performance characteristics as definitive for the establishment of an industry and emphasize that performance objectives are as important as transaction costs in shaping the coevolution of firm capabilities and industry structures.

“Strategy and the Libecap Paradox:  Efficiency and Co-Adaptation of Organizations and Institutions,” with Peter Klein, Joseph Mahoney and Christos Pitelis (February 2011), submitted, R&R

Innovation in governance is central to the realization of value in an organization as resources and capabilities evolve over time.  In this paper, we theorize on the mechanisms that support and constrain governance adaptations by organizations that respond to the institutional environment, diverse coalitional interests, and the opportunities created by new resources for accruing sustainable competitive advantage (SCA). We show how the SCA of an organization depends on governance innovation that unlocks the value attainable through the deployment of the firm’s resources. We propose that both the opportunities and constraints on governance innovation depend on the nature of underlying resources and the property, decision and managerial rights of entrenched stakeholders.  The analysis stipulates several propositions that describe how organizations overcome constraints to achieve SCA.

“How Do Firms and Markets Co-Develop? Exploring the Role of Incubators in Emerging Market Economics,” with Nilanjana Dutt, Olga V. Hawn, Elena Vidal, Aaron Chatterji and Will Mitchell (May 2012), submitted, R&R

How do market institutions and firms develop when each needs the other to function effectively? We address this classic question by studying business incubators in emerging economies. We demonstrate that incubators foster firm formation by cultivating business capabilities but also by engaging in the creation of market-oriented institutions. Drawing on the institutional development and strategic capabilities literatures, we argue that business incubators tend to focus on creating market institutions more intensively than on cultivating business capabilities in countries at earlier stages of market-oriented development. In countries that exhibit higher levels of market-oriented development, incubators increasingly emphasize improving the business capabilities of firms. The study examines 129 incubators operating in 66 emerging markets formed between 1999 and 2009. The paper adds to the understanding of the processes of co-development of firms and market-oriented institutions.

“Biopharmaceutical Innovation in China, India and Brazil after TRIPS,” with Rahim Rezaie and David Wolfe (March 2011), submitted

“Fiocruz:  Public-Private Partnerships in Medicine,” with Peter Klein, Sandro Cabral and Sergio Lazzarini, in process, expected 2013

“Firm Turnover and Generations of HIV Technology,” with Giovanni Valentini and Alfonso Gambardella, in process, expected 2013