Governing entrepreneurial opportunities: a discriminating alignment approach

Abstract Drawing inspiration from Oliver Williamson’s work, we employ a ‘discriminating alignment’ approach to explain how established organizations select and govern external sources of innovation. Our framework integrates ‘standard’ governance mechanisms, such as licensing and joint ventures, with ‘emerging’ mechanisms, such as hackathons and accelerators. First, we classify governance mechanisms into three types – market scanning, opportunity support, and opportunity control – based on four attributes: the degree of reallocation of decision rights, the degree of pooling of property rights, set-up costs, and ex post adaptation costs. We then argue that two key variables – uncertainty and technological distance – jointly help determine the choice of the appropriate mechanism for transactions involving entrepreneurial opportunities. By developing a comprehensive taxonomy of arrangements linked to the governance of external innovations, this study offers propositions that identify the drivers of ‘efficient alignment’ between transactions attributes and organizational choices in entrepreneurial contexts.