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Institutionalized Choice and Entrepreneurship

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Charles Eesley

on 8 August 2016

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Transcript of Institutionalized Choice and Entrepreneurship

Credit system allows students more choice to select courses (Alelasto, 1996)

For example, in 1981 the number of courses in the Department of Mechanical Engineering and the Department of Electronics were 52 and 48 respectively; however, in 1990, the numbers had increased to 101
and 123 respectively. Data Source: Tsinghua University Archives.

--> entrepreneurial intentions
--> founding

In contrast, a less flexible system...

Single way of thinking about the world, assumptions...
Entrepreneurial intention

Krueger (2000) examines models of entrepreneurial intention (self-efficacy, opportunity identification) - student data

Lüthje and Franke (2003) sampled MIT students (students’ personalities indirectly, perceived barriers and entrepreneurial related support factors directly affect intention)

Relatively broader factors, and little attention on effects of university education system
1952, - Soviet socialist model of higher education - arts, science and law were transferred to other universities, focused engineering

During this period, followed the academic year system - rigid teaching schedule with a fixed number of courses each year.
did not take into account students’ individual differences,
complete their courses according to the requirements of each year’s teaching outlines
not able to select courses freely and the system was relatively inflexible
Course Credit Reform At Tsinghua University
1984 - education system reform, changing the academic year system into a credit system

The courses for the credit system are divided into three parts: compulsory courses, limited elective courses and free elective courses.

select courses according to their interests and the length of study can differ from the usual four academic years, depending on specified number of credits.

Compared to the academic year system, the credit system can better meet the diverse needs of Tsinghua students and contribute to the cultivation of well-rounded talents
Tsinghua Alumni Population:

62.5% in engineering
11.9% in sciences
12.9% in humanities (architecture, medicine and law comprise the remainder)
25-30% women
19.2% doctorate degrees
53.4% graduate degrees

Tsinghua survey sample:

62.2% engineering
10.6% sciences
13.7% humanities
28% women
19.3% doctorate degrees
53.9% graduate degrees
Credit system reform was implemented at Tsinghua University in 1984, and alumni who enrolled as undergraduates in 1984 would have graduated in 1988.

1988 was taken as the dividing line, to separate alumni who went through university post-credit system reform
Empirical Setting
Analysis / Results
Stability, rigidity, standardized, taken-for-granted (DiMaggio 1991, Scott 2014)

Entrepreneurship ->change, question assumptions, divergent thinking, creativity

Relies on Institutional Change to get entrepreneurship (Dobbin and Dowd, 1997; Sine and Lee 2009, Hiatt et al. 2009; Tolbert et al. 2011)

How does increasing institutional choice influence entrepreneurial activity?

1869 - Charles Eliot, the president of Harvard University
freely choose courses according to interests; a breakthrough in the education system (Kreplin 1971).

Students receive degrees upon completing a certain number of credits (Shedd 2003; Heffernan, 1973)

Global popularity, unique advantages

makes learning flexible, allowing students to choose courses according to interests, so that students can accumulate knowledge based on career plans.

Another view - undermine university’s cumulative knowledge system, dividing into small disconnected parts, less conducive for talent cultivation (Regel 1992). Mechanize views on education (Zook and Haggerty 1936).

Few studies using empirical methods
We look into these questions in the context of alumni and entrepreneur records from Tsinghua University, a prestigious and highly selective university in Beijing.
Tsinghua University is consistently ranked first or second among the top universities in China.

Therefore, the alumni of Tsinghua are a special and important population, which the university keeps detailed historical records on, and a carefully built dataset of their entrepreneurial activities, allows us a window on how the changes in specific institutions in China have influenced venture formation in this population of elite individuals. Alumni from top research universities are an important source of new venture activity. For example, the Stanford website lists Cisco, Google, Hewlett Packard, Netflix, Silicon Graphics, Sun Microsystems and Yahoo! as several of the companies the university has helped to spawn. A study of MIT alumni concludes that its alumni have created over 25,800 companies, generating over 3 million new jobs and $2T in worldwide sales (Roberts & Eesley, 2010). Similar to that of alumni of MIT or Stanford (Hsu, Roberts, & Eesley, 2007; Barnett & Dobrev, 2005), Tsinghua alumni are responsible for many important technology-based and high growth companies, including the first Chinese search engine, Sohu.com.
Ratio of the private economy to public economy as a control for entrepreneurial environment

Ratio after 1998 changed very slightly

Fewer than 10% of the entrepreneurs started before 1998
What aspects of institutions influence entrepreneurial behavior?

Does increasing flexibility affect different types of individuals in distinct ways?
Institutionalized Choice and Entrepreneurship

with Delin Yang (Tsinghua), Xiaocong Tian, and Edward B. Roberts (MIT)
Theoretical Puzzle
Regulatory changes (Sine et al. 2005)

New organizational forms legitimized (Hiatt et al. 2009, Lounsbury and Glynn 2001, Sine and Lee 2009, Dobbin and Dowd 1997)
Institutional change fostering entrepreneurship

Embedded agency of individuals who strive to alter existing institutions (Battilana 2006, Holm 1995, Lounsbury and Crumley 2007).

Prior work does not easily allow us to extrapolate whether a new institutional change is likely to reduce or increase entrepreneurship
Institutional entrepreneurs
Institutionalized choice - characteristic of environments that mandates individual choice

Educational institutions play an important role in developing human capital, creating
innovations, and socializing young people into careers (Hsu, Eesley and Roberts, 2007)
In contrast to the early focus of institutional theory, entrepreneurship is often associated with a belief in individual autonomy, locating agency in individuals as creating new activities and breaking free from habits and traditional ways of doing things (Meyer and Jepperson 2000).

Early work on persistence and convergence has grown into current interest in dynamics and contestation.
Organizations - aligned with the expectations of environment, else viewed critically (Hunt and Aldrich 1998)

Changes in institutions - old, misaligned firms loses resources and new firms rise (Hiatt et al. 2009)

Institutions can shape not only the quantity but also the quality of entrepreneurs (Eesley, 2013; Eesley & Yang, 2013)
Embedded agency

Individuals who strive to change institutional structure (Battilana, Leca, and Boxenbaum, 2009)

context, the individual’s position in the social hierarchy (Battilana 2006)
awareness of other fields (Greenwood and Suddaby 2006)
discursive strategy (Suddaby and Greenwood, 2005)
nested-systems model of institutions (Holm, 1995)

proto-institutions, fluid, complex institutional env.
Institutionalized choice provides individuals with resources beyond the ideas that they need to start firms, such as the novel recombination of skills and social networks needed to start a business.

Hypothesis 2: After the implementation of institutionalized choice, individuals will be more likely to take entrepreneurial action.
Hypothesis 1: After the implementation of greater institutionalized choice, individuals will be more likely to have entrepreneurial intentions.
Institutionalized choice leads to entrepreneurial intentions and actions, via the mechanism of its impact on mindsets and decision-making.

1. Greater ability to see problems from different
perspectives (Spiro et al. 1988)
Greater impact on those who do not fit well in the environment

Opportunity to combine different areas, to pursue interests

GPA - relevant metric students are judged - exhibited the behaviors expected by the institution

Institutions - metric to measure acceptable behavior (GPA)
distribution of GPA scores, with those who fit in best into the institutional environment

interests, motivation, skills or talents lie outside of the current institutional environment wind up at the bottom of the distribution

Depending on labor market considerations:

Higher Human Capital - good job opportunities

Lower Human Capital - lack intellectual motivation necessary to pursue more varied coursework

Hypothesis 3: After the implementation of greater institutionalized choice, students in the middle
of the academic achievement distribution will be most influenced by the reform to increase their
entrepreneurial intentions and activity.
Implications for Institutional Theory
Implications for Academic Entrepreneurship Literature
Historical focus on the durable impact (Brunsson and Jacobsson, 2000)
Institutional change and entrepreneurship (Sine, Hiatt, Tolbert, etc.)

Introduced Institutional Choice concept
Current vs. past institutional env.
Beyond change itself, focus on properties of institutions

Related but distinct concepts
Proto-institutions vs. Fluid/changing (Rao et al)
Institutional complexity
Future work

Startup level
Venture's goals to grow revenues and profits
emphasis on focus – constraint on choice

Established firm
examples include flextime - projects of their own choosing

Implications - industry evolution, category emergence, eras of ferment, standards battles, innovative or disruptive firms
Faculty spin-offs and technology transfer

University training - role in alumni ventures

Level education on entrepreneurship

Few link content of educ. (cognitive flexibility, frame-breaking, divergent thinking, recombination)
Institutional entrepreneurs
Improved independent decision-making abilities

Students undertake course selection and career planning
Mindset towards pursuing opportunities
See examples of a variety of career paths

As one alumnus put it: "It was not just that we could take classes across subjects, but it was the idea that the choice was up to us. It forced me to really stop and think about my interests and to do a bit of career planning. I’d say it was probably the first major decision I had to make on my own without the guidance of my parents."
Flexibility increases entrepreneurial behavior:

multiple disciplines, ways of thinking
allowing to choose among and recombine
follow cultural rules that align with their ambitions / interests
cultural codes, blueprints, startup practices (Aldrich and Yang, 2012)

Enabler of entrepreneurial careers
Before 1984 --> Academic year system

Rigid teaching schedule
University arranged the courses taken by students

"When I was at Tsinghua, I had very little choice over my coursework and I considered my future career to be pretty much set from when I entered the university. The university told me which courses to take and I simply had to do my best in them. There wasn’t much choice involved. I know that most of my friends, who were studying in the same major as me, also felt that there were courses in other areas we wish we could have taken but could not."
In 1984 --> Course credit system reform

relaxed restrictions on courses, increased # across depts., change in majors

Choice was institutionalized - which courses to take to meet the required # of credits

“There was not much choice when I was an undergraduate. In fact, I had to follow the requirements… so it was a very rigid system.”

I had to choose my major when applying to college and didn’t know much about EE, other than that it sounded good. There was not much choice; everything was planned for students. They had largely the same classes, and the EE majors all stayed in the same dorm and did everything together. It was not easy to change your major and I didn’t know anyone who changed. In the first year, you could choose one or two classes and that was all.
Student composition?
(Dahlstrand 1997, Nicolaou and Birley 2003, Rothaermel et al. 2007, DiGregorio and Shane 2003)
current inst. env.
(van der Sluis et al. 2008)
Another interviewee reinforced this idea, stating, “Although the engineering curriculum is very full,
even having incrementally more choice makes a big difference because it gives you that chance to
make independent decisions about your life and also to see what opportunities are out there.”
Giving individuals choices (e.g., to pick university courses) helps to develop the ability to
question taken-for-granted assumptions.
Institutionalized choice --> entrepreneurial activity (starting a company)

Beyond the mindset and intention, provides the resources necessary (i.e., ideas, skills, and social networks) to start a company.

1. Exposing students to multiple areas of knowledge enables them to recombine knowledge in novel ways and
generate entrepreneurial ideas.
Another entrepreneur, who graduated in 1990, told us, “It was an insight from a class that I took in subject X (biology) that gave me the insight into how to solve a problem in subject Y (engineering).”

Another entrepreneur graduated from the automotive engineering department in 2004 and told us, “I chose a lot of courses in computer science, such as data structure and software engineering.”

He continued, “I think these courses were beneficial for me because they were useful tools to solve practice problems and they are related to what I do now as an entrepreneur.”

This entrepreneur operates a business at the intersection of information technology and the automotive industry.
Some advantages (change in mindset and practice in decision-making) may accrue to students who ultimately decided to take a narrower curriculum.

Other effects (knowledge recombination and networks) should be stronger for the subset of students who actually used the choices available and took a broader variety of courses.
I noticed and liked the difference at Stanford, where they had a certain number of credits and a lot more opportunities to choose courses. This was important because it was one of the first times I had the chance to make big decisions independently. Second, it gave me the opportunity to explore what was out there. I did not wind up taking classes in a different area, but I at least had the chance to learn a bit about it and see what opportunities were out there. It helped me to follow and develop my interests, and exploring courses in different content areas helped to spark new ideas.
D. Armanios, C.E. Eesley, K.M. Eisenhardt, J. Li. 2016. How entrepreneurs leverage institutional intermediaries in emerging economies to acquire public resources, Conditional acceptance at Strategic Management Journal.

R.N. Eberhart, C.E. Eesley, and K.M. Eisenhardt. Failure is an Option: Institutional Barriers to Failure, Bankruptcy, and New Firm Performance in Japan, Provisional accept at Organization Science.

Eesley, C. Barriers to Growth: Human Capital, Entrepreneurship and Institutional Change in China. (forthcoming, Organization Science)

Eesley, C.; J.B. Li, and D. Yang. 2016. Does Institutional Change in Universities Influence High-Tech Entrepreneurship?: Evidence from China’s Project 985. Organization Science, Volume: 27, Number: 2 (March-April): 446-461.

Hsu, David; Roberts, E.B.; Eesley, Charles. 2007. Entrepreneurs from Technology-Based Universities: Evidence from MIT. Research Policy 36, 768–788.

Eesley, C., Delin Yang, Edward B. Roberts, Tan Li. 2016. A Cross-National Comparison of Entrepreneurial Process and Performance. Conditional acceptance, Asian Journal for Innovation and Policy.
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