Optimal Time Allocation for Process Improvement and Growth for Entrepreneurs
Onesun Steve Yoo
University College London - Department of Management Science and Innovation
University of California, Los Angeles (UCLA) - Decisions, Operations, and Technology Management (DOTM) Area
Charles J. Corbett
University of California, Los Angeles - Anderson School of Business
October 1, 2012
For many growth-oriented entrepreneurial firms, the entrepreneur's time is one of the more salient resource constraint. Classifying the entrepreneurs' activities into four categories based on their revenue-related or process-related impact and short-term or long-term effects, we present a dynamic time allocation model for process improvement in growth-oriented entrepreneurial firms, and characterize the optimal time allocation policy and its impact on firm growth. We find that the optimal time allocation path consists of three phases, focusing first on long-term process improvement activities with temporal returns, and then on those with financial returns, before finally harvesting profit. In particular, entrepreneurs with lower initial revenue rate should invest more time upfront on long-term process improvement activities, which enable them to ultimately grow faster. We adapt these insights to the cases with uncertainty in growth and with limited financial resources. We benchmark the optimal policy to two commonly practiced time allocation heuristics.
Number of Pages in PDF File: 33
Keywords: Entrepreneurship, Process Improvement, Time Allocation, Dynamic Programming
JEL Classification: M11, M13
Date posted: June 26, 2013
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