Start-up’s Performance: An Empirical Study on Dynamic Capabilities Under The Contributions of Bricolage and Social Capital.

Abstract

Objectives: Dynamic capabilities studies have emphasised how firms determine, integrate, build and reconfigure internal and external resources to adapt to rapidly changing business environment (Teece et al., 1997). Dynamic capabilities are described as routines to learn routines, resource integration consists of product development routines and strategic decision making, resource reconfiguration, and resource gain and release which include knowledge creation, alliance and acquisition routines (Eisenhardt and Martin, 2000). Lee et al. (2002), Zahra et al. (2006), Salunke et al. (2011) and Weerawardena et al. (2015) have proved that dynamic capabilities sustain competitive advantage, which in turn improves the performance of a new venture. However, our understanding of how a new venture builds and shapes dynamic capabilities is limited. This paper addresses the knowledge gap by empirically studying the contributions made by the bricolage and social capital of a management team on the dynamic capabilities of a start-up based upon data collected from new ventures in the UK. Prior work: In the study of Teece (2007), dynamic capabilities were disaggregated into the capability to sense and shape opportunities and threats, to seize opportunities, and to maintain competitiveness through enhancing, combining, protecting, and reconfiguring the business enterprise’s assets. To identify and shape opportunities, firms must constantly scan, search, and explore across technologies and markets through differential access to existing information and new knowledge. When the opportunity is ripe, firms will seize them by investing heavily in the particular technologies and designs most likely to achieve marketplace acceptance; the enterprises must identify when, where, and how much to invest, and select or create a particular business model implicating processes, incentives, and its alignment with the physical technologies with a commercialisation strategy and investment priorities. The dynamic capabilities of a new venture are determined by the firm’s abilities to identify, assimilate and exploit resources (Zahra and George, 2002; Lane et al., 2006). Various existing or ‘at hand’ resources will be effectively used and combined to find workable approaches to problems and opportunities through the process of bricolage (Baker, 2007). To facilitate those resource acquisitions, social capital promotes the flow of information and knowledge from diverse resources within the networks (Blyler and Coff, 2003). Thus, bricolage and social capital are respectively considered as method and catalyst to shape the dynamic capabilities of a new venture. The link between social capital and dynamic capabilities has been proposed by Blyler and Coff (2003), but has not been empirically tested by any scholar in both business and management fields. Furthermore, no study has considered bricolage as a method to exploit the existing resources in shaping the dynamic capabilities of a new venture. To address these knowledge gaps, this study will explore the British start-ups to construct a model in which bricolage and social capital shape dynamic capabilities, which in turn improve the performance of a new venture. Approach: By utilising an internet-based survey and quantitative data analysis method, this paper explores the bricolage, social capital and dynamic capabilities of management teams in British start-ups. Based upon the dynamic capability theory of Teece et al. (1997) and Teece (2007) this research constructs a new measurement to evaluate the dynamic capabilities of a new venture through sensing, seizing and sustaining dimensions. To study the social capital of a management team, this paper employs the studies of Tsai and Ghoshal (1998) to construct a new measurement for three components of social capital: Rational, structural and cognitive capital. Beside creating new measurements, this paper also employs instruments in the studies of Senyard et al. (2014) and Chandler and Hanks (1993) to measure the bricolage and performance of a new venture. To reduce common method bias, previously validated measurements were employed (Spector, 1987) and a pilot test on 38 new venture in the Dorset County undertaken which resulted in the survey being to avoid potential question confusion by respondents. Furthermore, to avoid measurement errors, the study conducted proper survey measures and used a construct validation test (the empirical indicators actually measure the construct) for validity (convergent and discriminant) and reliability. The results prove that research’s measurements are both valid and reliable. The exploratory factor analysis (EFA) is used to construct the research indicators. However, the EFA is not considered as a sufficient method to evaluate the dimensions because it cannot test the models with higher-order factors (Rubio et al., 2001). Therefore, in this study, we will utilize first-order confirmatory factor analysis (CFA) to construct the lower-order factors, and the second-order CFA to construct the higher-order factors by applying the AMOS program. By using structural equation modelling, this study constructs a robust model which shows how social capital, bricolage and dynamic capabilities influence the performance of a new venture. Results and implications: The results from an examination of the British new ventures empirically demonstrate that by using bricolage to exploit social capital a management team can improve dynamic capabilities which, in turn, enhance a new venture’s performance. This study addresses some fundamental questions to contribute to the theory-based understanding of start-ups: How do the dynamic capabilities influence the performance of a new venture? How do social capital and bricolage contribute to the process of shaping the dynamic capabilities of a new venture?