14.3 Research method

The aim of this study is to explain how the dominant logic of new ventures in Poland influenced their performance during the economic transformation of 1990 to 2000.

The cognitive, ˜soft , dimension of dominant logic is shaped by two variables . The first of these, ˜perception of environment and organization , comes from Prahalad and Bettis s (1986) concept of operant conditioning, research on sense making (Weick, 1995) and the development of organizational identities (Petraf and Shanley, 1997). This construct refers to managers perception of how organizations function ( deliberate planning versus emergent strategies) and of the effect of environmental forces (opportunities or threats). The second variable, ˜learning from experiences , reflects both behavioural psychology (Levinthal and March, 1993; Von Krogh, 1996) and the seminal work of McCall et al. (1988). This variable is measured by the quantity, content and consequences of events that respondents consider critical to a company s life cycle.

The operational, ˜hard dimension of dominant logic is also shaped by two variables. First, depending on their results, strategic choices made by management (Bettis and Prahalad, 1995; Child, 1997) either reinforce or weaken the patterns of dominant logic over time (Prahalad and Bettis, 1986; Siggielkow, 2000). Second, dominant routines (Nelson and Winter, 1982; March, 1994; Grant, 1988) are important because they structure operations across the value chain and can determine final firm performance (Bettis, 2000).

Poland s transformation from a planned to a market economy, initiated in 1989, offers a unique opportunity to study the evolution of dominant logic in new ventures, comparable only to the study of emerging high-tech industries (Zyglidopoulos, 1999). The change to a market economy allowed entrepreneurs to start new ventures and create markets and industries that had previously barely existed.

In our study, in order to minimize the influence of different conditions from the start, it was necessary to concentrate on companies with a similar point of departure in 1989 “90; that is, had been established at roughly the same time, were in the same industry and had similar opportunities and resources. Because the fate of firms can be decided by several factors we had to control for environmental changes and unexpected jolts (for example radical changes in statutory laws that favoured particular types of firm or the rapid entry of MNCs). Therefore we decided to focus on industries that met the following conditions: relative newness, low barriers to entry, initial lack of economies of scale, and limited strategic significance for multinational companies (MNCs). ^[1]

Relative newness means that the industry did not exist under the communist regime or was underdeveloped because of its lack of strategic importance to Poland s planned economy. Hence there was neither a market structure nor regulations to limit the entry of entrepreneurs. Low barriers to entry were a necessary precondition for new, undercapitalized entrepreneurs. An initial lack of economies of scale was considered important in levelling the chances of new entrepreneurs. Finally, if the market in question was of limited strategic interest to MNCs the new ventures would have ample time to develop their strategies and attain significant market shares.

After identifying industries or industry segments that met these conditions we chose five pairs of companies in the following industries: cosmetics, ^[2] public opinion and marketing research, consultancy, computers, and outdoor sports equipment.

In the computer industry we chose Optimus, a dominant computer producer established by an entrepreneur in 1989. In 1999 its turnover exceeded US$150 million. We paired Optimus with Baza, a former competitor of Optimus that had had a turnover of almost US$30 million in 1996 but was now on the verge of bankruptcy and had a turnover of less than US$3 million. In the cosmetics industry we identified Eris and Dax as outliers. Eris was a dominant firm in the industry and had a wide product range, the best brand name among Polish producers and a sophisticated distribution network. Dax was a much smaller niche firm. In the consulting business we studied WGK and Management Focus, which by international standards were quite small. WGK was five times larger than Management Focus and had a much more extensive record of sectoral studies, privatizations and large projects. The outdoor equipment industry was booming in Poland and had a clear leader: Alpinus, one of the most recognized brands in Poland. It produced equipment and clothing for climbers, cyclists, sailors and other outdoor sports enthusiasts . At the periphery of the industry was Janysport, a small producer of backpacks and climbing gear. The public opinion and marketing research industry also had a dominant leader: SMG/KRC. Established in 1990 by ten sociology students and scholars it had become a household name and had developed methods that had quickly become industry standards. We paired SMG/KRC with Demoskop, which had been established at the same time as SMG/KRC by two sociologists and was also well known. It had initially had first mover advantage, but due to a complex sequence of events it was now a much smaller company.

The author and his research colleagues conducted field interviews and surveys in 1999 “2000. In total, over 50 structured interviews were conducted and the number of interviews at each firm ranged from four to nine. The interview protocol had four distinct parts . The first focused on the managers perception of the business environment and their organization over time. They were asked about their perception of the environment in terms of opportunities, threats, problems to be solved and so on, how this had changed over time, how the firm cooperated with vendors and customers, and about the firm s relation with its competitors . Questions that focused on the formalization, centralization, and standardization of organizational operations were intended to reveal the dominant paradigms of organizational design.

Table 14.1: Pairs of analyzed firms and their turnover in 1999

	Leading firm	Peripheral firm
Cosmetics	Eris	DAX
	(US$20 million)	(US$5 million)
Public opinion and research	SMG/KRC	Demoskop
	(US$12 million)	(US$1.4 million)
Consulting	WGK	Management Focus
	(US$3 million)	(US$2.4 million)
Computers	Optimus	Baza
	(US$150 million)	(US$3 million)
Outdoor sports	Alpinus(US$22 million)	Janysport (US$250 000)

The second part of the interview protocol concentrated on decisions considered to be strategic. We were interested in how such decisions were made (incrementally or at a stroke), what they were, and how they were evaluated ex post . The third part consisted of a series of questions about routines in the organization “ how they were developed, which dimensions of the organization s activities were first formalized as routines, which routines could be bypassed and under what circumstances, and what areas in the organization were not regulated by procedures and why. In the final part of the questionnaire managers were asked to name two of the most significant events in the history of the company and how they had been handled.

^[1] This set of conditions was agreed upon by a panel of eight entrepreneurs, managers and consultants as creating in the early 1990s the best conditions for the growth of new ventures and as not favouring any particular player at the starting point.

^[2] A cosmetics industry did exist under the communist regime, but after 1989 many companies were so dependent on exports to the Soviet Union that they either went bankrupt or had such a poor reputation and limited product range that they could not set up significant barriers to entry.