Linking two dimensions of entrepreneurial orientation to firm performance: The moderating role of environment and industry life cycle
Introduction
Entrepreneurship writers in both the popular press and the scholarly literature have generally extolled the importance of entrepreneurial activities and often implicitly assumed a positive relationship between entrepreneurship and performance outcomes. Articles in business periodicals such as Forbes with titles such as “Innovate or Die” (Young 1994) and “Hooray for Risk” (Postrel 1995) are indicative of this trend. In addition to the inherent “goodness” ascribed to entrepreneurial activity, the academic literature has often conceptualized and operationalized the entrepreneurial process as a unidimensional construct (e.g., Covin and Slevin 1989a). In contrast, we suggest that entrepreneurial processes involve complex phenomena that may not always be associated with strong performance.
To explain these phenomena, we believe that the concept of an entrepreneurial orientation (EO) is potentially important to entrepreneurship research and this paper builds on previous work on the EO construct. We suggest that theoretical development and empirical research directed at this construct is important for the enhancement of both normative and descriptive theory. Earlier theoretical work proposed a contingency framework for exploring the relationship between EO and organizational performance and suggested the usefulness of considering EO (consisting of autonomy, innovativeness, risk taking, proactiveness and competitive aggressiveness) as a multidimensional construct (Lumpkin and Dess 1996).
In this paper, we investigate two dimensions of EO—proactiveness and competitive aggressiveness. We draw on prior theory and empirical research into these components of EO, as well as examples from business practice, to provide a rationale and justification for exploring three related research questions. These are (1) the independence of the proactiveness and competitive aggressiveness dimensions, (2) their relationship to firm performance, and (3) the role of “fit” in explaining their relationship to performance, that is, the extent to which the relationship of proactiveness and competitive aggressiveness to performance is contingent on the business context in which these processes occur. To address the first question, we use factor analysis. To address the second and third issue, we employ regression analysis and test environment and industry life cycle as moderators. To test our hypotheses, a sample of 124 owners and executives from 94 small firms competing in a wide variety of industries will be examined. In short, we seek to investigate both why (via theory development) and how (via empirical analysis) proactiveness and competitive aggressiveness are differentially related to performance and the implications of this distinction for the entrepreneurial firm.
Earlier theoretical work by Lumpkin and Dess (1996) has argued for the independence of several dimensions of EO—including autonomy, innovativeness, risk taking, proactiveness, and competitive aggressiveness. Briefly, autonomy is defined as independent action by an individual or team aimed at bringing forth a business concept or vision and carrying it through to completion. Innovativeness refers to a willingness to support creativity and experimentation in introducing new products/services, and novelty, technological leadership and R&D in developing new processes. Risk taking means a tendency to take bold actions such as venturing into unknown new markets, committing a large portion of resources to ventures with uncertain outcomes, and/or borrowing heavily. Proactiveness is an opportunity-seeking, forward-looking perspective involving introducing new products or services ahead of the competition and acting in anticipation of future demand to create change and shape the environment. Competitive aggressiveness reflects the intensity of a firm's efforts to outperform industry rivals, characterized by a combative posture and a forceful response to competitor's actions.
In this paper, we will focus on proactiveness and competitive aggressiveness for two reasons. First, these two dimensions of EO have generally been investigated less frequently in the entrepreneurship literature, especially relative to risk taking and innovativeness. Additionally, as discussed below, prior theory and research have often treated proactiveness and competitive aggressiveness as if they were interchangeable. We argue here, however, that they are distinct concepts with unique relationships to performance outcomes. Thus, we feel that this research issue is more “interesting” in that it “denies some aspect of the assumption ground of its audience … it tells them some truth they thought they already knew was wrong” (Davis 1971: 329). Second, any theory of the social sciences includes tradeoffs involving generalizability, accuracy, and simplicity (Weick 1979). Thus, investigating several EO dimensions at once may increase accuracy in the depiction of the EO construct but might result in a corresponding loss of parsimony. Arguing, for example, how all five (or even three or four) subconstructs relate to each other—as well as to performance—would be quite complex and cumbersome and we prefer, in effect, to “err” on the side of parsimony.
The paper is divided into four major sections. Drawing on prior research and theory, the next section advances hypotheses suggesting the independence of these two EO dimensions and performance relationships. Then, the field research methodology, instrumentation, and analysis are discussed. The final two sections present the findings and discuss the practical and theoretical implications of the research.
Section snippets
Theory development and hypotheses
The concept of an EO to explain the mindset of firms engaged in pursuing new ventures provides a useful framework for researching entrepreneurial activity. Recently, Lumpkin and Dess (1996) noted a distinction between entrepreneurial orientation and entrepreneurship by suggesting that EO represents key entrepreneurial processes that answer the question of how new ventures are undertaken, whereas the term entrepreneurship refers to the content of entrepreneurial decisions by addressing what is
Method
To test these propositions, a field study using mailed questionnaires was conducted. This approach is useful for accessing organizational processes in the settings where they naturally occur with minimal intrusiveness by the researcher (McGrath 1982). The data are cross-sectional and factor analysis and regression analysis techniques were used to test the hypothesized relationships.
Results
Hypothesis 1 explored whether proactiveness and competitive aggressiveness were distinct dimensions of an entrepreneurial orientation. Table 1 shows the rotated principal components solution. Ten of the eleven EO items had significant factor loadings (≥ ± 0.50) on one of the four factors. Such loadings are consistent with a conservative criterion (Kim and Mueller 1978). The factors of interest to this study—proactiveness (Factor 1) and competitive aggressiveness (Factor 4)—loaded on separate
Discussion
This research explored the dimensionality of proactiveness and competitive aggressiveness and how these dimensions might be related to each other and to performance. The results from the factor analysis suggest that competitive aggressiveness and proactiveness are distinct dimensions of an entrepreneurial orientation. This finding supports our claim that these constructs represent two different modes by which firms view and act on the business environment. Proactiveness refers to a firm's
Acknowledgements
We thank Darold Barnum, Dave Harrison, Jay Janney, Maria Kramer, and Rod Shrader for their helpful comments on earlier drafts of this article. We gratefully acknowledge the funding that was provided for this research by the Center for Entrepreneurial Leadership, Inc. at the Ewing Marion Kauffman Foundation. An early version of this paper was presented at the 1997 Babson-Kauffman Entrepreneurship Research Conference.
References (68)
- et al.
Measuring the performance of emerging businessesA validation study
Journal of Business Venturing
(1993) - et al.
Adaptive responses by conservative and entrepreneurial firms
Journal of Product Innovation Management
(1988) - et al.
Corporate ventures into industrial marketsDynamics of aggressive entry
Journal of Business Venturing
(1987) - et al.
Exploring determinants of success in corporate ventures
Journal of Business Venturing
(1985) - et al.
The relationship between entrepreneurship and marketing in established firms
Journal of Business Venturing
(1987) - et al.
Improving new venture performanceThe role of strategy, industry structure, and the entrepreneur
Journal of Business Venturing
(1987) - et al.
Contextual influences on the corporate entrepreneurship—performance relationshipA longitudinal analysis
Journal of Business Venturing
(1995) - et al.
Uncertainty and dependenceTwo perspectives on environment
Organizational cultureCan it be a source of sustained competitive advantage?
Academy of Management Review
(1986)Firm resources and sustained competitive advantage
Journal of Management
(1991)