1st International Scientific Conference

Knowledge and Business Challenges of Globalisation

Fakulteta za komercialne in poslovne vede (Faculty for Commercial and Business Sciences),12 - 13 November 2009, Celje, Slovenia _______________________________________________________________________

Exploring entrepreneurial learning in Croatian SMEs

Ljerka Tomljenovi, MSc
Polytechnic of Rijeka, Croatia ljerka@veleri.hr

Anita Stilin, BSc

Polytechnic of Rijeka, Croatia anita.stilin@veleri.hr

Eda Ribari Aidone, MSc

Polytechnic of Rijeka, Croatia eda.ribaric@veleri.hr

Summary
The purpose of this study is to investigate and advance our understanding of the entrepreneurial learning in SMEs. The paper begins by explaining conceptual framework of entrepreneurial learning and the role of previous experience in developing entrepreneurial competencies. In second section of the paper three theoretically different approaches (experiential approach, cognitive/affective approach and networking approach) are discussed. The third section outlines data collection, including a description of the sample and the questionnaire. Descriptive analysis confirms the importance of critical factors which influence entrepreneurial learning. Factor analysis was used to determine whether theoretically based aspects of entrepreneurial learning could describe entrepreneurial learning in Croatian SMEs. The results generally support theoretical predictions. Two aspects of entrepreneurial learning have been determined ("experiential" and cognitive/affective"). Even though the third aspect was not confirmed, the remaining variables, which did not meet the criteria to form a factor, depict the "networking approach". The paper concludes with a discussion of the implications of this study for future research. Keywords: entrepreneurial learning, experience, SMEs

Abstract
Entrepreneurial learning should be conceived as a lifelong process, where new knowledge is continuously formed and old knowledge revised as new experience appears. This is incremental process that evolves throughout the entrepreneurs' professional life. Entrepreneurial behaviour is dynamic response to a constantly changing environment. This paper aims to enhance the understanding of how entrepreneurs in SMEs learn and modify behaviour, adjust strategy and take decisions in accordance with new cognition.

Keywords: entrepreneurial learning, experience, SMEs

1. Introduction
Researches around the globe indicate that entrepreneurs who initiate their second or third entrepreneurial project are more successful then those who have just started their entrepreneurial career. With this in mind, we could pose the question: What specific entrepreneurial knowledge is obtained due to experience? According to Starr and Bygrave (1992) level of previous experience develops entrepreneurial skills through wealth that entrepreneurs create in form of financial resources, power they posses by exploiting social relationships and legitimity they acquire by developing business reputation that helps them to ensure financial resources and develop markets for their products and services. Entrepreneurs learning and acquired knowledge have specific characteristics. Politis (2005, p. 399) defines conceptual framework of term entrepreneurial learning by identifying its three main components: entrepreneurial working experience, process of transforming experience into knowledge and entrepreneurial knowledge within context of recognizing and reacting to entrepreneurial opportunities and coping with changes. According to Deakins and Freel (1998) strategic development of SMEs and changes within them emerge more often as combination of knowledge and reaction to critical incidents (successes/failures) than as a result of their planned development. The above mentioned indicates importance of learning from experience since it is crucial for development of SMEs. Using the right information and making the effective decisions concerning entrepreneurial activity is a result of knowledge transformed form prior experience. In continuance of this paper a concise overview of theoretical background of term entrepreneurial learning will be given as well as the results of empiric research conducted in Croatian SMEs.

2. Theoretical overview
According to Senge (1990) enterprises have to develop capability of effective learning if they want to succeed in complex, competitive and changing environment. Capability of enterprises and business systems to sustainably learn and adapt has a key importance in their competitive survival (Sullivan, 2000, p. 161). This specially refers to SMEs that were, within new conditions, given an opportunity for unlimited competitiveness regardless to their size, but with special attention given to their adaptability, flexibility and orientation towards buyers in comparison to large enterprises. According to Sullivan (2000) entrepreneurial learning has a critical importance in survival and development of SMEs in most markets. The question is: How does the role of learning manifest in specific conditions of SMEs respectively which specificities of learning processes are connected to entrepreneurs (Deakins and Freel, 1998)? The growing number of studies in recent years researches the importance of learning to the success of entrepreneurs (e.g. Cope, 2005; Deakins et al.,1988; Yan Man, 2006, Minniti and Bygrave, 2001; Politis, 2005; Rae and Carswell, 2000). These studies are mainly focused on factors that influence entrepreneurial learning and modes of its manifestation. The capability to learn is essential for development of entrepreneurial skills (Rae and Carswell, 2000). In addition, learning is considered to be central process of entrepreneurial development (Deakins et al., 2000). When learning and knowledge is applied by entrepreneur, his main goal is to find the way of recognizing and using opportunities, organising and managing entrepreneurial ventures and using the previous experiences to increase the success of enterprise. Nevertheless, this doesnt merely pertain to acquiring the functional knowledge. It also includes active response and recognition of what it currently provides specific

results and/or has a potential in future. In entrepreneurial learning the knowing, acting and behaving rational is interrelated and caused (Rae, 2000, p. 151). In order to understand entrepreneurial learning, it has to be observed within context of personal and business development of entrepreneurs that was basis for development of theoretically different approaches: experiential approach, cognitive/affective approach and networking approach (Man, 2006, p. 310). Experiential approach was formed by Kolb (1984) and it was continued in work of Politis and others, according to which experience is the main source of learning for entrepreneurs. Politis (2005) has developed a conceptual framework of entrepreneurial learning as experiential process by putting emphasis on research of direct connections between entrepreneurial working experience and development of entrepreneurial knowledge, in line with the need for a better understanding of transformation of the experience into the knowledge. His main focus was on characteristics of that specific knowledge and factors that influence dominant mode of transforming the experience into knowledge. The previous experiences enable growth of creativity and recognition of different association and connections that would not even be considered without the same. Politis relies on the concept of learning by doing (Cope and Watts, 2000). According to this approach, entrepreneurial learning is presented as experiential process in which personal experience is transformed into knowledge that is afterwards used as guidance in some new situations. Cognitive-affective approach tries to explain the process of entrepreneurial learning by focusing on different cognitive, emotional, attitudinal and personal factors that affect learning. According to this approach Young and Sexton (1997) observe entrepreneurial learning as a mental process of acquiring, storing and using the entrepreneurial knowledge in long-term memory. An emphasis is given to mechanism of learning process with special attention given to selfinfluence of entrepreneurs over the very process, e.g. the entrepreneur's level of confidence in their prior action (Minniti and Bygrave, 2001; Politis, 2005; Ravasi and Turati, 2005). Networking approach to entrepreneurial learning has been developed by analyzing the connections between small enterprises and their environment (Gibb, 1997) with focus on contextual nature of adult learning. In concordance with this approach, skills and knowledge of owners/managers in SMEs are greatly determined by their social relationships inside and outside the enterprises. This includes business relations with suppliers, buyers, bank managers, former enterprises () and their formal education, professional memberships, family and mentors (Deaken and Freel, 1998; Sullivan, 2000.) The abovementioned approaches emphasize different aspects of entrepreneurial learning and offer useful guidelines in sense of factors that influence entrepreneurial learning and their concrete manifestations. Man et al. (2002) have primarily researched competitiveness of SMEs. As key factors of their competitiveness they have analysed external environment, internal environment, business performances and the impact of entrepreneurs. Influence of entrepreneurs is determined by two crucial factors of success (Chawla et, al, 1997): its experience and orientation towards goals. In that sense, OECD has as well concluded in its researches that basic role in SMEs has owner/manager due to his concentration of decision making only made by him. Consequently, the entrepreneur has one of the crucial roles in competitiveness of SMEs and in their success. Finally, this additionally emphasizes the importance of analysing the entrepreneurial learning especially within context of entrepreneurial competencies. Deakins and Freel (1998) have researched critical factors of entrepreneurial learning in SMEs. They have identified those within following framework of entrepreneurial competencies and capabilities: ability to network, ability to assimilate experience and opportunity, ability to reflect on past strategy and mistakes, ability to access resources, abilities of the entrepreneurial

team. In order for SMEs to grow, entrepreneurs have to be capable to learn from decision making, mistakes, experience and their social networks/relationships. Man (2006) is continuing the competence approach to research of the entrepreneurial learning by analyzing the characteristic behavioural patterns in context of entrepreneurial learning. Applying the competence approach to the research of entrepreneurial learning, learning can be observed as part of entrepreneurial competencies that leads towards acquiring other/new competencies. Man (2006, p. 312-313) has in his research conceptualised four dimensions of entrepreneurial learning based upon generally developed dimensions of learning: (1) Inputs. Refer to different types of individual characteristics of entrepreneurs including attitudes, psychological characteristics, mental characteristics, willingness, knowledge, experience, skills and capabilities, all in line with cognitive/affective approach; (2) Process. In concordance with experiential approach, active experimenting or learning by doing represents key activity in which entrepreneurs learn and actively affect the future results; (3) Outcomes. Result of entrepreneurial learning is notable through development of entrepreneurial and other competencies; (4) Contexts. Internal environment of enterprise; especially social connections, relationships, structure and culture and external environment; market conditions, but also policy and other create context within which the entrepreneur learns. The abovementioned four areas of conceptualising the entrepreneurial learning create framework for understanding factors which influence entrepreneurial learning. Man has conducted research in shape of semi-structured interview in 12 enterprises aimed at questioning characteristic behavioural patterns that are directly connected to effective learning and development of entrepreneurial competencies. He has identified six behavioural patterns related to entrepreneurial learning: actively seeking learning opportunities; learning continuously; learning selectively and purposely; learning in depth into the trade; improving and reflecting upon experience; and transferring what have been learnt into current practice (Man, 2006, p. 316). His behavioural patterns enable further empirical researches of entrepreneurial learning. This paper has provided only basic theoretical hypotheses of entrepreneurial learning with emphasis to a fact there is a lot of contemporary literature that analyse this subject and numerous different approaches. Most empirical research of entrepreneurial learning is performed with a sample life stories of a certain number of entrepreneurs towards improving the understanding of intrinsic human processes related to development of entrepreneurial skills and learning practice and influence of so-called critical incidents in entrepreneurial learning and knowledge. This paper will not use narrative methodology but instead, the results of the previous researches will be used in formulation of the research by survey method and statistical data analysis. In continuance of this paper, the results of empirical research of entrepreneurial learning in SMEs in Croatia will be given, created according to previously established critical factors of entrepreneurial learning (Deakins and Freel, 1998) and characteristic patterns of entrepreneurial behaviour related to entrepreneurial learning (Man, 2006).

3. Research methodology and results

The aim of this research is to explore the role of entrepreneurial learning in small and mediumsized Croatian enterprises. The survey method has been used together with an e-mail as the communication channel. The survey was addressed to the owner/entrepreneur respectively director of enterprises that were targeted group. Research has been conducted in Croatia, on sample of 100 small and 100 medium-sized enterprises ranked by revenue income in 2008 year in County of Primorje and Gorski kotar and County of Istria. List of enterprises has been formed upon data collected from web site of Croatian Chamber of Economy, the register of business

subjects. Finally, while some surveys have been returned due to changed e-mail addresses, number of enterprises in the sample is 362. Research has been conducted in time period from 01st June to 01st July 2009. Questionnaires have been filled and returned by 42 enterprises (11.6%). After survey control, 41 questionnaires have been considered for analysis. Out of totally surveyed enterprises, 26 (63%) are small and 15 (37%) are medium. Research of entrepreneurial learning has been conducted through two groups of statements. The first group refers to personal attitudes/behaviours of entrepreneurs related to entrepreneurial learning. The second group of statements refers to critical factors that influence entrepreneurial learning and has been shaped as form of general attitudes. The respondents should have expressed their attitudes in relation to named statements according to Likert scale of 7 degrees where 1 means statement does not refer to me/my attitude and 7 means statement completely refers to me/my attitude. The following table indicates descriptive analysis of attitudes. Entrepreneurial learning Personal attitudes/behaviours
Development of my entrepreneurial skills was more influenced by my own experience acquired through life and work than formal education and learning from others. I actively seek for learning opportunities, if not through my own experience, then by observing the others who deal with similar or different work. Specific previous critical events have in great measure influenced my future behaviour and further development of enterprise. I learn selectively and with purpose, focused only on things that will truly be useful for my work and future development. I consider entrepreneurial learning effective only if I can use it in my concrete business practice. My competencies derive from learning from my prior experiences and provide me a qualitatively decision making and developing long-term strategy of my enterprise. Min 2 3 1 2 2 4 Max 7 7 7 7 7 7 Mean 5,27 5,83 5,93 5,76 5,44 6,10 Std. Dev. 1,397 1,022 1,191 1,157 1,450 ,831

Entrepreneurial learning General attitudes

When starting a business, it is extremely important that it is done within sector where entrepreneur already has some contacts and existing experience. Capability to learn from failure and past strategies is a characteristic of an efficient entrepreneur. Capability of entrepreneur to maximize opportunities in early period of enterprises existence determines his further development and success of his enterprise. Introducing new members of entrepreneurial team has a great influence on the development of enterprise and introduction of essential changes. Capability of entrepreneur to maximize knowledge as a result of experiential learning will determine how successfully he will recognize opportunities, cope with novelties and contribute to the enterprises success. Skill and knowledge of managers and entrepreneurs are greatly influenced by social relationships inside and outside their enterprises. 4 2 2 1 4 1 7 7 7 7 7 7 5,71 5,98 5,61 5,51 5,85 5,54 1,006 1,313 1,022 1,247 ,910 1,185

Table 1: Descriptive analysis of analysed attitudes Source: Research According to the results of descriptive analysis it can be concluded that entrepreneurs in analysed Croatian SMEs highly grade and confirm the importance of defined critical factors which influence entrepreneurial learning and apply behavioural patterns characteristic for entrepreneurial learning already defined in previous narrative researches. The highest grade (6.10) is given to statement My competencies derive from learning from my prior experiences and provide me a qualitatively decision making and developing long term strategy of my enterprise.

Considering the large number (12) of interrelated variables, the factor analysis has been applied aiming at their compression in the smaller number of common factors and eliminating the problem of co-linearity between variables. One of the basic assumptions in implementation of factor analysis data measured in interval scale has been satisfied considering the form of questionnaires and usage of Likert scale of seven degrees. Correlation matrix that includes coefficients of simple linear correlation of each couple of variables has indicated the correlation between some variables. Kaiser-Meyer-Olkin measure is the next criterion suitable for questioning the suitability of data in applying the factor analysis. It has been calculated for whole matrix and individual variables and after excluding one variable with lowest Kaiser-Meyer-Olkin measure, the value for whole matrix amounts 0.533 and confirms that correlation matrix is suitable for factor analysis. Barttlet test of sphere has indicated that correlation matrix is appropriate for factorisation (Chi- Square = 133.30, df = 66, sig = 0,000). After executing the orthogonal transformation of variables, the number of factors has been determined according to initial eigenvalues. Four factors have been excluded with eigenvalue greater than one. They explain 66.11% of total variance that exceeds minimum of 60% of total variance in social sciences. The component matrix has been calculated that includes factor loadings that indicate correlation coefficients between excluded factors and variables and rotated matrix by Varimax Rotation Method which results in simplification of factors. The interpretation of factors starts with factors structure matrix after conducted rotation of factors and identification of variables with high absolute loadings over the same factor (all important factor loadings have been marked in table 2).
Component Statements Capability to learn from failure and past strategy is skill of effective entrepreneur Capability of entrepreneur to maximize opportunities in early period of enterprises existence determines his further development and success of his enterprise Capability of entrepreneur to maximize knowledge as a result of experiential learning will determine how successfully he will recognize opportunities, cope with novelties and contribute to enterprises success My competency derives from learning and my former experiences and provide me an opportunity for qualitatively decision making and developing long term strategy of my enterprise I actively seek for learning opportunities, if not through my own experience, then by observing the others who deal with similar or different work. I learn selectively and with purpose, focused only on things that will truly be useful for my work and future development. Specific previous critical events have in great measure influences my future behaviour and further development of enterprise. When starting a business, it is extremely important that it is done within sector where entrepreneur already has some contacts and existing experience. I consider the entrepreneurial learning effective only if I can use it in my concrete business practice Skill and knowledge on managers and entrepreneurs are greatly influenced by social relationships inside and outside their enterprises Development of my entrepreneurial skills was more influenced by my own experience acquired through life and work than formal education and learning from others. 1 ,855 ,802 ,664 ,186 -,043 ,113 ,439 ,117 -,123 ,007 -,053 2 ,135 -,015 ,136 ,768 ,741 ,651 ,503 ,114 -,036 -,111 ,168 3 -,136 ,018 ,405 ,431 -,122 ,182 -,234 ,800 ,736 -,092 ,142 4 ,086 -,269 ,098 ,035 ,238 -,375 -,020 -,182 ,170 ,829 ,745

Table 2: Rotated Component Matrix Source: Research Considering the recommendation of Hair et al. (2006) by which each construct should be presented with at least three indicators and considering the value of Cronbach alfa, acceptable

are only the first two factors. With respect to their characteristics, the first factor is named experiential aspect of learning while the second factor is named cognitive/affective aspect of learning and they are both aligned with theoretical approach to the entrepreneurial learning according to Man (2006). Although the third and the fourth factor do not satisfy criteria for defining factors, insight into their respective variables indicates that they can be included into the third theoretical approach - networking approach. Accordingly, the analysed variables which are based on former narrative researches can be embedded into theoretically based approaches to entrepreneurial learning. However, certain deficiencies have been noticed in forming the statements and some of them should be transformed and supplemented, but considering the fact this is the first research if its kind, the goal was to provide guidelines for future researches. The goal of future researches is to form theoretically based dimensions of entrepreneurial learning that will enable its practical verification on statistically representative sample.

4. Conclusion
The basic goal of entrepreneurial learning, as a complex term, is to recognize and react on opportunities, organise and manage new ventures and to direct experiences to identify what currently provides concrete results and/or has a potential in future. Since recent researches have mainly used narrative method, this paper attempts to apply the results of previous research on the design of survey research. Research results, though limited by size of the sample and deficiencies in creating the statements, are confirming theoretically based behavioural patterns respectively critical factors that refer to entrepreneurial learning. Results of descriptive analysis allocate relatively high values to all statements and responses given by entrepreneurs in 41 Croatian SMEs confirm previous researches. Factor analysis indicates that analysed variables can be grouped according to theoretically determined approaches of entrepreneurial learning (in three groups) although the analyzed data were satisfactory, but not excellent for the application of this method. Conclusions of this paper are limited to the fact this was the first research of its kind so it has been concluded that some statements/variables should have been transformed, supplemented or added. Also, expanding the sample to entire Croatia could affect the results of statistic analyses that basically is the goal of further research.

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