HBS New Business - Entrepreneurial Pursuits at HBS

by Frank White

Think of a high-tech company in Silicon Valley, and you might conjure up images of a brilliant founder and a loyal team of geeks, fueled by gallons of Diet Coke and working 25-hour days to produce "awesome" products that will make them millionaires with the next big IPO.

Research by Harvard Business School assistant professor Diane Burton shows that this image, while not altogether wrong, is superficial. No single model exists for the Silicon Valley high-tech firm. There are at least five basic models with multiple hybrids and variants, Burton notes, and the strategy and behavior of different companies is often formed from the very beginning by how they consciously or unconsciously use human resource policies to structure the firm. These choices may shape a company's future as much as product development or marketing strategy.

Unconventional Wisdom
Why do entrepreneurs choose certain people to work for them, and what kinds of structures do they believe will lead to success? Why do organizations in similar situations use radically different human resource models? Burton observed "facts that didn't fit" when asking these questions, which triggered her research. According to conventional wisdom, firms of the same age and size, competing in the same labor and product markets, should be very similar to one another. But even the most casual observations told her that this was not true. "I knew there were vast differences across these supposedly identical firms," she says. Burton also wondered why so few organizations successfully mimicked "high-commitment" organizations—a structure styled after Japanese management techniques. Examples were limited to firms, like Saturn, that set out to create a high-commitment company from day one. "This suggested that organizational cultures and models emerged very early and were difficult to change," Burton says. "The challenge was to figure out how and why things got started the way that they did and, through this understanding, how to intervene."

Two Summers in the Valley
Burton and her coauthors conducted their research in Silicon Valley because it was full of nascent companies created in the same geographic region. She and Stanford Business School Professors James N. Baron and Michael T. Hannan began their work in 1994, making their first visits to 100 companies that year. The following summer they added 72 firms, providing a robust database from which to tease out the answers to their questions.

Data gathering consisted of hour-long interviews with founders and included the question of whether they did indeed have in mind specific organizational models on which they based company structure. Some said yes: "We wanted a strong participatory culture with an enormous amount of ground-up information, not only from the management team but also from the people on the floor." Others said no: "Ours was a de facto culture of hard work and long hours. Not much of a culture."

Burton found the open-ended research approach both exciting and demanding. "It's a novel approach to research, one that combines the strengths of intensive fieldwork with the power of a large sample size." The methodology produced reams of data and abundant insights, exposing striking differences among firms operating in what seemed to be a homogeneous environment.

Work, Love, and Money
Burton and her colleagues discovered that founders drew on five "cultural archetypes" to describe their employment models: engineering, star, commitment, bureaucratic, and autocratic. They realized that each of these models contained different assumptions about what draws people to companies and keeps them there. The models also embodied different ideas about how to recruit and select people and how to coordinate the work.

Founders favoring the engineering model look for people who want to be on the leading edge of technological change and get charged up by producing exciting new products. These founders assume employees will remain attached to the company because they enjoy the work. They select employees based on well-defined skill sets and believe that work can be coordinated by teams of individuals working together and that performance can be effectively controlled by peer opinions of what is acceptable or subpar.

The star model (which Burton and her colleagues equate with the model found in scientific research and academia) assumes that success is a function of recruiting. All will be well if the company recruits the top people in the field, then steps back to let them do what they do best. As with the engineering model, these founders believe that interest in the work bonds employees to their companies. Thus, employees are selected for their potential, and it is assumed that they will manage themselves by adhering to internalized professional standards.

The commitment model gives priority to creating a "family" atmosphere. Founders of these firms seek to instill a love of the company in their workers, choosing employees on the basis of their ability to fit into the "family." Like the engineering model, control emanates from peer approval or disapproval.

At first, the bureaucratic and autocratic models look very similar, but upon closer inspection, differences emerge. In both, employees are selected on the basis of their skill sets. However, founders of bureaucratic systems believe that work draws people to a company, while the autocrats believe that money is the key motivating factor. Bureaucracies use formal policies, procedures, and systems to control workflow, while autocracies are more likely to exercise direct, personal control from senior management.

Implementing the Insights
Entrepreneurs and managers find this research exciting because they can readily apply it. "Our research is not about Silicon Valley, it's about creating companies," Burton says. "I recently gave a presentation to a group of senior human resource executives from large organizations. They were immediately intrigued by the models and confident they could label different business units in their firms according to them. In a start-up, the models apply at the firm level; in larger organizations they apply at the business unit level."

Still, it will take time to determine which variables make for long-term stability and success and which models provide the best fit with a given business strategy and industry context. "This is the million-dollar question," Burton says, "and it's why the research is still in process. We're just now beginning to see differences in the models relative to long-term success."

Burton hopes to make it even easier for company managers and founders to apply the insights contained in her work. "I want to give the founders and leaders who are building firms a vocabulary for discussing organizational issues. Until now, people haven't had a way to talk about their model or vision for their organization. Now they can."

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From HBS New Business, Fall 1999.