GENEAOLGY AS EVOLUTIONARY DYNAMICSGENEAOLGY AS EVOLUTIONARY DYNAMICS

Shmuel Ellis Israel DroriShmuel Ellis Israel Drori

Zur ShapiraZur Shapira

The study deals with 3 related The study deals with 3 related issuesissues

Evolution Of Industrial

Sectors

Israeli Hi-Tech

Entrepreneurship

What is the source of the What is the source of the Israeli Hi-Tech sectorIsraeli Hi-Tech sector??

• What is the secret of the Israeli Hi-Tech What is the secret of the Israeli Hi-Tech success?success?

• How can we explain the rapid growth of this How can we explain the rapid growth of this sector?sector?

• Can we find the answer in the characteristics Can we find the answer in the characteristics of the founding parents of this sector and the of the founding parents of this sector and the genesis events of their founding firms?genesis events of their founding firms?

• Are founding parents with different Are founding parents with different entrepreneurial tendencies may have different entrepreneurial tendencies may have different effect on the potency of their progenies?effect on the potency of their progenies?

Existing Literature (in short)Existing Literature (in short)

• Founders of new firms inherited their cultural Founders of new firms inherited their cultural beliefs, technological knowledge or managerial beliefs, technological knowledge or managerial blueprints from industry incumbents through blueprints from industry incumbents through their parents (Franco, 2005; Klepper 2001, 2007, their parents (Franco, 2005; Klepper 2001, 2007, Phillips, 2000, 2005; Phillips, 2000, 2005; Burton and Beckman, 2006). ).

• According to this approach, founders of spawned According to this approach, founders of spawned start-ups carry with them ‘genes’ of experiences, start-ups carry with them ‘genes’ of experiences, skills, practices and knowledge and apply them to skills, practices and knowledge and apply them to the new organization and consequently shape the new organization and consequently shape ‘the new firm behavior’. ‘the new firm behavior’.

•

GoalsGoals• We are not the first to study the dynamic We are not the first to study the dynamic

interrelationships between founding firms and their spin-interrelationships between founding firms and their spin-outs. However:outs. However:

• In contrast to previous research, we argue that parents –In contrast to previous research, we argue that parents –progenies relations may not fully explain the evolutionary progenies relations may not fully explain the evolutionary dynamics of the emerging process of new industries as dynamics of the emerging process of new industries as both parent and progenies are only a fraction of the both parent and progenies are only a fraction of the entire process.entire process.

• We suggest to adopt historical-genealogical perspective We suggest to adopt historical-genealogical perspective and to study. More specifically, to examine:and to study. More specifically, to examine:

• (a) how the entrepreneurial traits of the founding parents (a) how the entrepreneurial traits of the founding parents are being formulated, and --are being formulated, and --

• (b) how this trait and related blue-prints of incumbent (b) how this trait and related blue-prints of incumbent firms are transferred by progenies along the affinity line firms are transferred by progenies along the affinity line (several generations) and affect the potency of the whole (several generations) and affect the potency of the whole genealogy. genealogy.

Genealogy: DefinitionGenealogy: Definition

• A A genealogygenealogy is a record of descent or is a record of descent or linage of a group from its ancestors linage of a group from its ancestors to the recent generations. to the recent generations.

• By and large, the genealogical ties By and large, the genealogical ties are modeled according to the natural are modeled according to the natural relations of genealogical parenthood. relations of genealogical parenthood. However, inclusion into the However, inclusion into the genealogy may also be through genealogy may also be through affinity such as: mergers and affinity such as: mergers and acquisitions or founding event with acquisitions or founding event with an exogenous partner. an exogenous partner.

Organizational Genealogy: Organizational Genealogy: Endogenously Affiliated MembersEndogenously Affiliated Members

A firm is endogenouslyA firm is endogenously affiliated with a particular affiliated with a particular genealogy if it is related by "birth“. We have several genealogy if it is related by "birth“. We have several types of “birth”s.types of “birth”s.

• Independent Startup (De Novo): A firm that was founded by A firm that was founded by 'deserters', ex-employees of one of the firms in the genealogy. In 'deserters', ex-employees of one of the firms in the genealogy. In these offsprings, the original organization of the founders has no these offsprings, the original organization of the founders has no ownership stakes. ownership stakes.

• Acquisition: A firm that was acquired by the original organization or by one of its offsprings.

• Spinoff: A firm that used to be a division of the original organization or of one of its offsprings, and became a separate organization. In these offsprings, the original organization has In these offsprings, the original organization has ownership stakes. ownership stakes.

• Initiated: A firm that was established as an initiative of the original organization or of one of its offsprings.

Organizational Genealogy: Organizational Genealogy: Exogenously Affiliated MembersExogenously Affiliated Members

• A firm is exogenously affiliated with a A firm is exogenously affiliated with a particular genealogy if its origin is within particular genealogy if its origin is within a separate genealogy and related to the a separate genealogy and related to the former by "marriage", making the joiner former by "marriage", making the joiner a co-founder, co-acquirer, or co-merger. a co-founder, co-acquirer, or co-merger. All the firms from exogenous origins are All the firms from exogenous origins are affiliated with at least two genealogies, affiliated with at least two genealogies, and are the nodes which link different and are the nodes which link different genealogies. We call these firms genealogies. We call these firms “external affiliates” of the genealogy.“external affiliates” of the genealogy.

Research ModelResearch Model

Entrepreneurial Tendencies

ImprintingPotential

Potency( Genealogical Growth)

Genesis Events

A two dimensional model for A two dimensional model for genealogical evolution or genealogical evolution or potencypotency

• Entrepreneurial tendencies. Entrepreneurial tendencies.

• Imprinting potential: the degree to Imprinting potential: the degree to which the organizational blueprints, which the organizational blueprints, shared beliefs and values set up by shared beliefs and values set up by the founders, can be transferred the founders, can be transferred through the different generations of through the different generations of the genealogy. the genealogy.

DataData

• Interviews: Identifying the GenealogiesInterviews: Identifying the Genealogies•Data sources: companies internet Data sources: companies internet

websites, IVC, D&B, newspapers, press websites, IVC, D&B, newspapers, press releases, etc.releases, etc.

•The first phase of the project focuses on The first phase of the project focuses on the communication sector.the communication sector.

•We have 6 completed genealogies We have 6 completed genealogies Tadiran, Telrad, ECI, Rad, Fibronics and Tadiran, Telrad, ECI, Rad, Fibronics and Comverse).Comverse).

• Number of firms (exogenous and Number of firms (exogenous and endogenous): 1039. endogenous): 1039.

Table 2: Major genesis events of the founding firms of the five genealogies

Table 2: (cont’d) Major genesis events of the founding firms of the five genealogies

TelradTelradTadiranTadiranRADRADComverseComverseECIECIFibronicsFibronics

Founding yearFounding year195119511962196219811981198219821961196119771977

First IPOFirst IPO------------------199219921990199019831983

First marketFirst marketInstitutionalInstitutionalInstitutionalInstitutionalCompetitiveCompetitiveCompetitiveCompetitiveInstitutionalInstitutionalCompetitiveCompetitive

Major crisesMajor crisesEarly ninetiesEarly ninetiesEnd of Bubble End of Bubble EraEra

Late 1980sLate 1980sEnd of Bubble End of Bubble EraEra

End of Bubble End of Bubble EraEra

Mid-1980sMid-1980sEnd of Bubble EraEnd of Bubble Era

End of Bubble End of Bubble EraEra

3 years after 3 years after birthbirth1987 –1987 –resignation of resignation of the CEOthe CEO1991-1994- 1991-1994- FDDI crisisFDDI crisis

R&D policyR&D policyFirst stages:First stages:knowledge knowledge acquisition: 2 acquisition: 2 contractscontractsLater stages: Later stages: knowledge knowledge creation – creation – investment in investment in R&DR&D

First stages:First stages:knowledge knowledge acquisition: 4 acquisition: 4 contractscontractsLater stages: Later stages: knowledge knowledge creation –creation –investment in investment in R&DR&D

Knowledge Knowledge creation: creation: investment in investment in R&DR&D

Knowledge Knowledge creation: creation: investment in investment in R&DR&D

Knowledge Knowledge creation: creation: investment in investment in R&DR&D

Knowledge Knowledge creation: creation: investment in investment in R&DR&D

Table 1a: Distribution of firms according to genealogy and type of birth Type of birth

De Novo Firm Entrep.

Acquisition Merger Spin-off

Telrad Frequency % within genealogy

20 66.66.0%

4 13.33%

2 6.66%

3 10%

1 3.33%

Tadiran Frequency % within genealogy

108 81.2%

1 0.8%

9 6.8%

1 0.8%

14 10.5%

RAD Frequency % within genealogy

104 75.36%

28. 20.28%

3 2.17%

2 1.44%

1 1.44%

Comverse Frequency% within genealogy

77 72.64%

5 4.71%

16 15.09%

2 1.88%

6 5.66%

ECI Frequency % within genealogy

69 82.14%

0 0.0%

4 4.76%

3 3.57%

8 9.52%

Fibronics Frequency % within genealogy

105 89.75%

5 4.28%

6 5.12%

0 0%

1 0.85%

Telrad (founded: 1951)Telrad (founded: 1951)

TelradTelrad

Telrad without Exogenous Telrad without Exogenous FirmsFirms

Tadiran (Founded: 1962)Tadiran (Founded: 1962)

TadiranTadiran

Tadiran without Exogenous Tadiran without Exogenous FirmsFirms

RAD-Bynet (founded: 1975, RAD-Bynet (founded: 1975, 1981)1981)

RAD-BynetRAD-Bynet

RAD-Bynet without Exogenous RAD-Bynet without Exogenous FirmsFirms

Comverse (founded: 1983)Comverse (founded: 1983)

ComverseComverse

CoverseCoverse

ECI Telecom (founded:1961)ECI Telecom (founded:1961)

ECI TelecomECI Telecom

ECI Telecom without Exogenous ECI Telecom without Exogenous FirmsFirms

Fibronics (1977)Fibronics (1977)

FibronicsFibronics

Fibronics without Exogenous Fibronics without Exogenous FirmsFirms

Table 1b: Distribution of firms in each genealogy according to type of genealogical parenthood

Table 3: Potential imprinting indicators of the five founding firms

Ranking the 5 Genealogies Ranking the 5 Genealogies along the 2 Dimensionsalong the 2 Dimensions

High imprintingpotential

Low imprintingpotential

Low EntrepreneurialTendencies High Entrepreneurial

Tendencies

RAD

Comverse

Telrad

Tadiran ECI

Fibronics

FindingsFindings

Table 4a: Potency measures of the five genealogies: Volume and pace of growth

Table 4b: Potency measures of the five genealogies across years: Potency rate

ConclusionsConclusions

• Diverse genealogical evolution which exhibits Diverse genealogical evolution which exhibits varied structures and inheritance varied structures and inheritance characteristics play a key role in the characteristics play a key role in the emergence and growth of new industrial emergence and growth of new industrial sectors.sectors.

• The genealogical evolution is affected not only The genealogical evolution is affected not only by the nature of the environment and the by the nature of the environment and the population that resides within it, but also by population that resides within it, but also by the capacity for internal imprinting of values the capacity for internal imprinting of values such as entrepreneurial inclination. Each such as entrepreneurial inclination. Each genealogy has specific structural genealogy has specific structural characteristics that reflect its potency. characteristics that reflect its potency.

• Overall the application of Overall the application of genealogical research to the study of genealogical research to the study of the emergence of new organizational the emergence of new organizational forms and new industrial sectors is forms and new industrial sectors is still still terra incognitaterra incognita..

• More research should be done to test More research should be done to test the genealogical effect on firms’ the genealogical effect on firms’ absorptive capacity, innovation absorptive capacity, innovation potential and performance potential and performance

MotorolaMotorola

Motorola without Exogenous Motorola without Exogenous FirmsFirms