Lecture 2 Flashcards
(30 cards)
Legitimacy defenition
Generalized perception or assumption that the actions of an entity are desirable, proper or appropriate within some socially constructed system of norms, values, beliefs and definitions.
What needs to be legitimate?
Depends on the innovation:
- Product -> the product/service
- Process -> the new process…
- Organizational -> ……
- Business model -> the new ways to generate value
Who grants legitimacy?
Course uses a stakeholder perspective.
Stakeholder definition
“Any group or individual that can affect or is affected by the firms objective”
Some examples of stakeholders
- Governments
- Investors
- Political groups
- Customers
- Communities
- Employees
- Suppliers
Three reasons why legitimacy is important
- To attract customers -> Mac Donalds
- To attract other stakeholders (and their resources)
- Governmental approval or protection -> legislation or subsidies
Sources to create legitimacy
That can be either external or internal.
External ways to create legitimacy
Alliances with other companies
Internal ways to create legitimacy
- Via the market -> expert on board
- Via science -> expert on board
- Via history -> successful history
- Via location -> e.g. silicon valley
Cognitive legitimacy
Refers to the spread of knowledge about a new venture. Highest form of cognitive legitimacy is when a new product, process or service is taken for granted.
Socio-Political legitimacy
Refers to the process where key stakeholders accept a venture as appropriate and right. Given existing laws and norms. Like the general public or governmental officials.
Inter-industry meaning
The nature of relations between industries whether it is competing or cooperating.
Intra-industry meaning
Processes constrain the legitimacy of new industries by structuring the immediate environment.
How can entrepreneurs signal legitimacy?
Via symbols. There are traditional symbols and visual symbols.
Examples of traditional symbols
- education of entrepreneur
- business techniques used
- certificates and endorsement
Example of visual symbols
- setting (office, locations etc…..)
- way of dressing (formal vs. informal)
- expressiveness, etc.
Level of analysis for cognitive and socio political legitimacy
- Organizational
- Intra-industry
- Inter-industry
- Institutional
Decisions entrepreneurs need to make when founding a company:
- Number of founders
- Split of shares
- Joint CEO approach vs. decision making approach
- Founders on board
Ways of organizing transactions
- Markets
- Hierarchy
- Network
Organizational level of legitimacy
Entrepreneurs need strategies for encouraging a trusting party’s beliefs in the shared expectations, reasonable efforts and competence of the aspiring entrepreneur.
Institutional level of legitimacy
Institutional conditions may constrain the rate at which an industry grows by affecting the diffusion of knowledge about a new activity and the extent to which it is publicly or officially tolerated.
Market transactions
Benefits are clearly specified, no trust required and agreements are bolstered by the power of legal sanction.
Hierarchie transactions
Communication is in terms of routines/employment. Particularly suited for mass production and distribution. Strengths are reliability and accountability.
Network transactions
Entail indefinite, sequential transactions within the context of pattern of interaction and reciprocity.
