Theoretical foundations for understanding commercialization

According to Whetten (1989), a theoretical contribution must include three elements: the what, how and the why. The what of a theory concerns factors such as variables and constructs that should logically be part of a comprehensive and parsimony explanation of the phenomenon under investigation, in our case, commercialization. The how of a theory involves the connections or causalities that it claims to investigate. Together, what and how describe, though they can only explain if they are based on a why: the “underlying psychological, economic,

or social dynamics that justify the selection of factors and the proposed causal relationships? This rationale constitutes the theory’s assumptions—the theoretical glue that welds the model together” (p. 491). In order to deconstruct

commercialization, we start with the underlying why, and progress to what and

how.

1.3.1 The Why of Commercialization

Whether commercialization is the result of a prolonged and complex new development process performed by a multi-level stakeholder organization, or the first step of a simple barter between two persons, it requires agency (Munger, 2011). We go further and argue that it is the result of rational agency performed by individuals acting alone or in groups (Buchanan & Tullock, 1962). Rational agency is the desire to trade a situation that is perceived to be bad, S1, for a

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decide between S1 and S2, the individual must judge between them (Foss & Klein,

2012); however, judgment also requires time, which adds to the uncertainty in deciding over the use of the resources in S1 to attain the goal of S2 (Knight, 1921;

Popper, 1959). Foss, Klein and Bjørnskov (2018) have suggested that this judgment under Knightian uncertainty aspect of rationality is essential in understanding market processes. Commercialization judgment is hence not given or abstract, but centered on agents hence acting entrepreneurially by their judgments and resulting commitments:

For it is impossible to eliminate the entrepreneur from the picture of a market economy. The various complementary factors of production cannot come together spontaneously. They need to be combined by the purposive efforts of men aiming at certain ends and motivated by the urge to improve their state of satisfaction. In eliminating the entrepreneur one eliminates the driving force of the whole market system. (Mises, 1949, p. 249)

It is possible to nuance the agential approach of the exchange of S1 for S2 in

the pursuit of maximum utility that drives commercialization by more closely examining entrepreneurial motivation (Wry & York, 2017). Knight (1921), who in his original work mainly used utility maximization as the prime motivation in market relations, in prefaces to later editions of his 1921 work himself returns to the issue of motivation in much greater detail, mediating the distinction between what he refers to as economic motivation and the many other values that agents have and that motivate them, such as social, ethical, and esthetic values. In other words, what matters for judging uncertainty, and by extension commercialization, is what agents value: “Finally, of greatest practical significance among

nonrational elements in motivation is the factor of valuation” (Knight, 1921: xiv). “Recognition of other elements in motivation, social-symbolic, ethical, etc., will

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make the treatment more realistic and true in a human sense, less scientific in the sense of the objective sciences of nature” (Knight, 1921: xvii). Hence the why

needed to understand commercial judgment must rest on a more varied appreciation of human valuation and subsequent motivation. This is particularly the case as judgment is not guaranteed to deliver the desired S2 as the world might

change over time. Furthermore, judgments are based on subjective valuations that are distorted by ignorance, tradition, and other behavioral constraints. While this is an area of inquiry on its own,20 for the present analysis, we focus on the entrepreneurial motivation behind commercialization attempts as the main why of commercialization.

While classic economic theory argues that this is mainly irrelevant—“At any

rate, economics refers to every kind of action, no matter whether motivated by the urge of a man to eat or to make other people eat” (Mises, 1949, p. 243)—modern

management theory has established that a more nuanced view of entrepreneurial motivation can foster a better understanding of the commercialization activities of entrepreneurs and firms. For instance, Wry and York (2017) use identity theory to show how entrepreneurs can be motivated by either commercial or social identities and desires. Their work is a departure from the more regularly used entrepreneurial identities of “founder,” “inventor,” or “developer” as it opens up the possibility for more types of identities to matter for entrepreneurial motivation, particular those relating to social welfare. How entrepreneurial decision-makers who initiate and work on commercialization efforts become motivated by identity and how their approach to this shapes their firms helps answer questions related to potentially conflicting commercialization goals and opportunity recognition; for

20 _{This is the area of behavioral strategy (see Powell, Lovallo, & Fox, 2011; Gavetti, 2012;}

Greve, 2013) or behavioral decision-making theory (see Camerer, 1999; Evans, 2011; De Martino, Kumaran, Seymour, & Dolan, 2006), and ecological decision theory (see Todd & Gigerenzer, 2007; Loock & Hinnen, 2015; Artinger, Petersen, Gigerenzer, & Weibler, 2015; Bingham, & Eisenhardt, 2011; Csaszar & Eggers, 2013).

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instance, Aguilera, Judge and Terjesen (2018) use this insight to explain corporate governance divergence. The why of a given commercialization construct is therefore related to agentic motivated judgment on resource use.

1.3.2 The What of Commercialization

The what of commercialization is the opportunity to match demand with supply (Eisenhardt & Schoonhoven, 1990; Shane, 2000). While commercialization can be viewed as the successful matching of demand with supply, for instance, via the successful completion of certain internal processes (Borah and Tellis. 2014) or the attainment of revenue (Levitas & Chi, 2010), it is more inclusive and scientifically fruitful to not include the issue of success as a required tenet of commercialization constructs, as commercialization as a scientific term must equally be able to refer to unsuccessful commercialization attempts (Foss & Klein, 2012). This, however, presents a new avenue of theoretical ambiguity: how to delimit commercialization attempts, particularly unsuccessful ones, from other activities? Here, we argue that commercialization only concerns activities directly aimed at matching supply with demand, those that rest on an entrepreneurial judgment regarding resource configuration and market offering (Foss, Klein, & Bjørnskov, 2018).

Commercialization of opportunities can be seen as prompted by alertness to changes in demand curves (Kirzner, 1973). This is a fundamental customer-centric approach in which commercialization hinges on discovering what customers demand and when, rather than on what the firm can actually produce. Alvarez and Barney (2001, 2007) add to our understanding of commercial opportunities by suggesting that often customers might not know ex-ante what they demand, though the firm might hold the relevant supply resources. Hence, commercialization must involve opportunity recognition. However, left to itself, the narrow focus on the nature of opportunities is also insufficient to explain commercial judgment (Foss & Klein, 2012; 2018) as judgment is void without

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resources and the organizing of their planned use over time (Sautet, 2002). This merger of agential motivation and commercial opportunities via judgment and contained by resources and often organized in organizations, but always aimed at matching supply with demand is important for understanding commercialization, as it speaks to why firms are good at different things, such as inventing or selling, while very few are good at both.

Figure 1 summarizes our theoretical foundations. The precise fulfillment and even the existence of the commercial opportunity is wrapped in a veil of uncertainty; yet the entrepreneurial agent who drives commercialization perceives a commercial opportunity and judges the optimal resource use for creating and selling products and services to fulfill the opportunity.

Figure 1 – The Why and What of Commercialization

Source: Own adaption based on Foss & Klein (2012) and Wry & York (2017)