GENEAOLGY AS EVOLUTIONARY DYNAMICS Shmuel Ellis Israel Drori Zur Shapira Zur Shapira

The study deals with 3 related issues The study deals with 3 related issues Evolution Of Industrial Sectors Israeli Hi-Tech Entrepreneurship

What is the source of the Israeli Hi- Tech sector? What is the secret of the Israeli Hi-Tech success? What is the secret of the Israeli Hi-Tech success? How can we explain the rapid growth of this sector? How can we explain the rapid growth of this sector? Can we find the answer in the characteristics of the founding parents of this sector and the genesis events of their founding firms? Can we find the answer in the characteristics of the founding parents of this sector and the genesis events of their founding firms? Are founding parents with different entrepreneurial tendencies may have different effect on the potency of their progenies? Are founding parents with different entrepreneurial tendencies may have different effect on the potency of their progenies?

Existing Literature (in short) Founders of new firms inherited their cultural beliefs, technological knowledge or managerial blueprints from industry incumbents through their parents (Franco, 2005; Klepper 2001, 2007, Phillips, 2000, 2005; ). Founders of new firms inherited their cultural beliefs, technological knowledge or managerial blueprints from industry incumbents through their parents (Franco, 2005; Klepper 2001, 2007, Phillips, 2000, 2005; Burton and Beckman, 2006). According to this approach, founders of spawned start-ups carry with them ‘ genes ’ of experiences, skills, practices and knowledge and apply them to the new organization and consequently shape ‘ the new firm behavior ’. According to this approach, founders of spawned start-ups carry with them ‘ genes ’ of experiences, skills, practices and knowledge and apply them to the new organization and consequently shape ‘ the new firm behavior ’.

Goals We are not the first to study the dynamic interrelationships between founding firms and their spin-outs. However: We are not the first to study the dynamic interrelationships between founding firms and their spin-outs. However: In contrast to previous research, we argue that parents – progenies relations may not fully explain the evolutionary dynamics of the emerging process of new industries as both parent and progenies are only a fraction of the entire process. In contrast to previous research, we argue that parents – progenies relations may not fully explain the evolutionary dynamics of the emerging process of new industries as both parent and progenies are only a fraction of the entire process. We suggest to adopt historical-genealogical perspective and to study. More specifically, to examine: We suggest to adopt historical-genealogical perspective and to study. More specifically, to examine: (a) how the entrepreneurial traits of the founding parents are being formulated, and -- (a) how the entrepreneurial traits of the founding parents are being formulated, and -- (b) how this trait and related blue-prints of incumbent firms are transferred by progenies along the affinity line (several generations) and affect the potency of the whole genealogy. (b) how this trait and related blue-prints of incumbent firms are transferred by progenies along the affinity line (several generations) and affect the potency of the whole genealogy.

Genealogy: Definition A genealogy is a record of descent or linage of a group from its ancestors to the recent generations. A genealogy is a record of descent or linage of a group from its ancestors to the recent generations. By and large, the genealogical ties are modeled according to the natural relations of genealogical parenthood. However, inclusion into the genealogy may also be through affinity such as: mergers and acquisitions or founding event with an exogenous partner. By and large, the genealogical ties are modeled according to the natural relations of genealogical parenthood. However, inclusion into the genealogy may also be through affinity such as: mergers and acquisitions or founding event with an exogenous partner.

Organizational Genealogy: Endogenously Affiliated Members A firm is endogenously affiliated with a particular genealogy if it is related by "birth “. We have several types of “ birth ” s. A firm that was founded by 'deserters', ex-employees of one of the firms in the genealogy. In these offsprings, the original organization of the founders has no ownership stakes. Independent Startup (De Novo): A firm that was founded by 'deserters', ex-employees of one of the firms in the genealogy. In these offsprings, the original organization of the founders has no ownership stakes. Acquisition: A firm that was acquired by the original organization or by one of its offsprings. In these offsprings, the original organization has ownership stakes. Spinoff: A firm that used to be a division of the original organization or of one of its offsprings, and became a separate organization. In these offsprings, the original organization has ownership stakes. Initiated: A firm that was established as an initiative of the original organization or of one of its offsprings.

Organizational Genealogy: Exogenously Affiliated Members A firm is exogenously affiliated with a particular genealogy if its origin is within a separate genealogy and related to the former by "marriage", making the joiner a co-founder, co-acquirer, or co-merger. All the firms from exogenous origins are affiliated with at least two genealogies, and are the nodes which link different genealogies. We call these firms “ external affiliates ” of the genealogy. A firm is exogenously affiliated with a particular genealogy if its origin is within a separate genealogy and related to the former by "marriage", making the joiner a co-founder, co-acquirer, or co-merger. All the firms from exogenous origins are affiliated with at least two genealogies, and are the nodes which link different genealogies. We call these firms “ external affiliates ” of the genealogy.

Research Model Entrepreneurial Tendencies Imprinting Potential Potency (Genealogical Growth) Genesis Events

A two dimensional model for genealogical evolution or potency Entrepreneurial tendencies. Entrepreneurial tendencies. Imprinting potential: the degree to which the organizational blueprints, shared beliefs and values set up by the founders, can be transferred through the different generations of the genealogy. Imprinting potential: the degree to which the organizational blueprints, shared beliefs and values set up by the founders, can be transferred through the different generations of the genealogy.

Data Interviews: Identifying the Genealogies Interviews: Identifying the Genealogies Data sources: companies internet websites, IVC, D&B, newspapers, press releases, etc. Data sources: companies internet websites, IVC, D&B, newspapers, press releases, etc. The first phase of the project focuses on the communication sector. The first phase of the project focuses on the communication sector. We have 6 completed genealogies Tadiran, Telrad, ECI, Rad, Fibronics and Comverse). We have 6 completed genealogies Tadiran, Telrad, ECI, Rad, Fibronics and Comverse). Number of firms (exogenous and endogenous): Number of firms (exogenous and endogenous): 1039.

Table 2: Major genesis events of the founding firms of the five genealogies

Table 2: (cont’d) Major genesis events of the founding firms of the five genealogies FibronicsECIComverseRADTadiranTelrad Founding year First IPO CompetitiveInstitutionalCompetitiveCompetitiveInstitutionalInstitutional First market 3 years after birth 1987 – resignation of the CEO FDDI crisis End of Bubble Era Mid-1980s Late 1980s End of Bubble Era Early nineties End of Bubble Era Major crises Knowledge creation: investment in R&D First stages: knowledge acquisition: 4 contracts Later stages: knowledge creation – investment in R&D First stages: knowledge acquisition: 2 contracts Later stages: knowledge creation – investment in R&D R&D policy

Telrad (founded: 1951)

Telrad

Telrad without Exogenous Firms

Tadiran (Founded: 1962)

Tadiran

Tadiran without Exogenous Firms

RAD-Bynet (founded: 1975, 1981)

RAD-Bynet

RAD-Bynet without Exogenous Firms

Comverse (founded: 1983)

Comverse

Coverse

ECI Telecom (founded:1961)

ECI Telecom

ECI Telecom without Exogenous Firms

Fibronics (1977)

Fibronics

Fibronics without Exogenous Firms

Table 1b: Distribution of firms in each genealogy according to type of genealogical parenthood

Table 3: Potential imprinting indicators of the five founding firms

Ranking the 5 Genealogies along the 2 Dimensions High imprinting potential Low imprinting potential Low Entrepreneurial Tendencies High Entrepreneurial Tendencies RAD Comverse Telrad TadiranECI Fibronics

Findings

Table 4a: Potency measures of the five genealogies: Volume and pace of growth

Table 4b: Potency measures of the five genealogies across years: Potency rate

Conclusions Diverse genealogical evolution which exhibits varied structures and inheritance characteristics play a key role in the emergence and growth of new industrial sectors. Diverse genealogical evolution which exhibits varied structures and inheritance characteristics play a key role in the emergence and growth of new industrial sectors. The genealogical evolution is affected not only by the nature of the environment and the population that resides within it, but also by the capacity for internal imprinting of values such as entrepreneurial inclination. Each genealogy has specific structural characteristics that reflect its potency. The genealogical evolution is affected not only by the nature of the environment and the population that resides within it, but also by the capacity for internal imprinting of values such as entrepreneurial inclination. Each genealogy has specific structural characteristics that reflect its potency.

Overall the application of genealogical research to the study of the emergence of new organizational forms and new industrial sectors is still terra incognita. Overall the application of genealogical research to the study of the emergence of new organizational forms and new industrial sectors is still terra incognita. More research should be done to test the genealogical effect on firms ’ absorptive capacity, innovation potential and performance More research should be done to test the genealogical effect on firms ’ absorptive capacity, innovation potential and performance

Motorola

Motorola without Exogenous Firms