Entrepreneurial

Leadership,
Capabilities and
Growth
Andy Lockett, James Hayton,
Deniz Ucbasaran, Kevin Mole,
Gerard Hodgkinson

Overview
Introducing a model of leadership, capabilities and
growth.
Substantive (growth) capabilities: combinations of
processes, routines and resources that enable growth
along one or more direction.
Leadership: taking an organization into the future,
through the identification and exploitation of
opportunities; requiring vision to produce useful
change.
Dynamic capabilities: extend, modify or create new
substantive (growth) capabilities.
Policy implications.

Leadership, Capabilities and

Growth

Growth Capabilities

Four possible growth vectors

(Ansoff, 1957)
New Products,
Existing Markets
(new product
development)

New Products,
New Markets
(diversification)

Existing Products,
Existing Markets
(market
penetration)

Existing Products,
New Markets (e.g.,
Internationalization
and market
development)

Substantive (growth) processes

There are identifiable and best practice processes
supporting each growth vector
Market penetration processes (e.g., continuous improvement, supply
chain management)
Innovation supportive processes (e.g., NPD process; customer
intelligence)
New market development/internationalization processes (e.g.,
country choice, entry mode choice/execution)

Growth is promoted by growth accelerators: alliances,

joint ventures, acquisitions
For SMEs Growth accelerators impacted by quality of underlying
processes (Lu & Beamish, 2006; Schlosser, 2001):
Alliances, Joint Ventures (partner identification, governance etc.)
Mergers and Acquisition processes (target identification,
integration management etc.)

General management processes

support growth
Firm profitability precedes value-creating growth (e.g.,
Davidsson et al., 2009).
Strategic management
Strategic management guides choice, provides direction (Kraus et
al., 2006)
Strategic decision making and resource allocation routines (e.g.
Eisenhardt, 1989)
Exit routines (e.g., Burgelman, 1994)

Many SMEs lack effective strategic management (Sandberg et al.,

2001).

Functional management
Functions provide inputs into, and complementarities with growth
processes in SMEs

Financial management (McMahon, 2001).

HRM (e.g., Hayton, 2003)
Marketing and customer development (Day, 1994).

There is wide variation in formalization of functional processes in

SMEs, but generally less developed than larger firms.

Growth supportive resources

Key resources: financial and intellectual capital
Financial slack is essential for uncertain entrepreneurial
growth strategies (George, 2005)
Too little, or too much slack inhibits innovation (Nohria &
Gulati, 1996; Tan & Peng 2003).

Intellectual Capital:
Human capital promotes SME capacity to learn (Hayton &
Zahra, 2005; Simsek & Heavey, 2011).

Social capital and the position of the firm in knowledge

networks impacts performance of SMEs (e.g., Collins & Clark
2003; Collins, et al., 2006).
Intellectual capital increases the extent to which acquisitions
and alliances produce profitability and growth (Zahra & Hayton,
2008).

Substantive growth capabilities:

What we know/dont know
General management capabilities influence growth/yet are
often lacking in SMEs (Kraus et al., 2006; Sandberg et al.,
2001).
Research is needed with respect to:
prioritization (e.g., developing customers versus managing people;
strategic versus financial management?)
barriers to development (e.g., Top management vs functional capacity?)
interdependence between growth processes and resources

Growth is often treated as the dependent variable source

of growth capabilities are rarely the focus
Gap in our understanding of how growth processes and routines develop
in SMEs (Barbero et al., 2011; Wiklund et al., 2009).

Growth capabilities depend on entrepreneurial leadership

(Amit & Shoemaker, 1993; Penrose, 1959)
How do leadership and entrepreneurial capability impact the development of
growth capabilities?

Leadership

Leadership: Cognition &

motivation
Growth opportunities cannot be identified and
exploited without the facilitation of individual and
collective activity (Ensley et al., 2006)
Leadership individual or collective has a strong
imprinting effect in SMEs (Boeker, 1989; Eisenhardt
and Shoonhoven, 1990)

Thus understanding the cognitive and motivational

profile of the leadership (team) becomes important

Entrepreneurial cognition:
What we know

Prior knowledge and experience can favourably influence

The ability to identify opportunities (which affects growth) (Gruber et al.,
2012, 13; Ucbasaran et al., 2009)
The acquisition of human, social and financial resources (e.g. Gompers et
al., 2010; Mosey & Wright, 2007; Starr & Bygrave, 1991; Zhang, 2011)

Knowledge diversity within the team contributes to

Opportunity identification (Gruber et al., 2012),

Learning (Clarysse & Morey, 2004),
Acquisition of resources needed for growth (Hayton & Zahra, 2005)
Growth itself (Eisenhardt & Shoonhoven, 1990).
BUT diversity can lead to functional and dysfunctional conflict.
Benefits of diversity contingent on strategic consensus and team
cohesion.

What we dont know about

entrepreneurial cognition
Knowledge and experience is a proxy for cognition
Individuals and groups vary in terms of:
a) how they make sense of experience
b) process new information
c) use knowledge i.e. cognitive processes (e.g.
intuition and analysis; categorization)
The extent to which mental models are shared and
the effects of this are not known

Entrepreneurial motivation:
What we know
In the absence of motivation, knowledge and experience
may not be put to the most productive use. Two
approaches to understanding motivation are relevant:
1. Goal setting
Specific, challenging goals result in higher performance than vague and
/ or easy goals (Locke & Latham, 2002).
Preliminary evidence suggest this holds for SMEs (Baum et al., 2001.
Baum & Locke, 2004)

2. Intentions
Influenced by desirability (attitudes & goals) and feasibility
(entrepreneurial self-efficacy) (Chen et al., 98)
Growth oriented entrepreneurs associated with positive attitudes
towards income, negative attitudes toward work enjoyment and have
high entrepreneurial self-efficacy (Douglas et al., in press)

What we dont know about

entrepreneurial motivation
How does collective motivation emerge?
What is the role of individual motivation (goals /
intentions)?
Role of entrepreneurial self-efficacy vis--vis
collective entrepreneurial efficacy
How do leaders (leadership teams) set goals?

What is the relationship between cognition (e.g. prior

experience of failure; attitudes towards failure) and
motivation?

Dynamic capabilities

Dynamic capabilities
Dynamic capabilities are the abilities to reconfigure a firms
resources and routines in the manner envisioned and deemed
appropriate by its principal decision-maker(s) (Zahra et al., 2006)
Creating dynamic capabilities requires the development and
refinement of routines for identification and exploitation of
opportunities (Eisenhardt & Martin, 2000; Feldman & Pentland,
2003; Teece et al., 1997; Teece, 2007; Zollo & Winter, 2002)
In SMEs, dynamic capabilities may be based on the skills and
knowledge of an entrepreneur or entrepreneurial team (Teece,
2012)

Opportunity identification
The ability to locate value in some market or technological condition
through the application of a new means-end relation framework that
is unknown or unavailable to others (e.g., Ardichvili, et al., 2003).
The firms productive opportunity set: all of the productive
possibilities that its entrepreneurs see and can take advantage of,
is shaped by both entrepreneurial perceptions of market demand
and the resources at their disposal (Penrose 1959: 31)
Resource functionality (Wernerfelt, 1984)

Resource (re)combinations (Lockett et al., 2009)

Closely tied to the process of knowledge acquisition (Zahra et al.,

2006)
The discovery of entrepreneurial opportunities is aided by the creation
of new information channels between the organization and the
environment (Ardichvili et al., 2003; Shane & Venkataraman, 2000;
Wiklund & Shepherd, 2003)

Opportunity exploitation
A new opportunity/idea must undergoing a process of validation
in order to be accepted, integrated, and exploited (Floyd &
Woodbridge, 1999; Zahra et al., 1999)
The opportunity/idea may need to be aligned with organizational
goals and activities, or alternatively, the organizational strategy
may be adapted to the new opportunity (Burgelman, 1983; Guth
& Ginsberg, 1990)
Prove the opportunity viable to gain resources (Burgelman, 1983)
Importance of champions (Day, 1994; Floyd & Wooldridge, 1999;
Howell & Higgins, 1990)

OE is a process that moves from the individual to venture level

(Burgelman & Sayles, 1986; Floyd & Wooldridge, 1999)
Managerial processes and systems, structures, cultures and values
all shape the integration of new knowledge and the decisions about
OE (Smith et al., 2005; Verona, 1999)

What we know
Dynamic capabilities enable a firm to move beyond ad-hoc
opportunity identification and exploitation, through developing a
systematic processes for promoting sustainable growth.
Dynamic capabilities have a positive effect on firm performance,
both measured in terms of market and financial performance
relative to firms main competitors and industry averages (e.g.,
Helfat, 1997; Majumdar, 1999; Pisano, 2000; Rindova & Kotha,
2001).

Dynamic capabilities are positively linked to the substantive

capability development (e.g., Figueiredo, 2003; Clark & Fujimoto,
1991; Woiceshyn & Daellenbach, 2005).
Capability development is a mediator of the relationship between
dynamic capabilities and firm performance (Petroni, 1998; Clark &
Fujimoto, 1991; Brady & Davies, 2004).

What we dont know

How do managers or organizations create dynamic capabilities
and improve the organizations ability to perform? (Pablo et al.,
2007)
Existing research tends to focus on larger more established
organizations few studies address dynamic capabilities in
SMEs (Arthurs & Busenitz, 2006; Zahra & Filatotchev, 2004)
We know very little about the contingencies that allow some
firms to learn, and build dynamic capabilities, while others do
not.
e.g., in terms of the individual entrepreneur and the
entrepreneurial teams cognition and their intentions for
building high growth enterprises (Hodgkinson & Healey,
2011)

Policy

Policy challenges

Growth is multi-causal, and has multiple pathways,

and derived from socially complex capabilities:

SMEs often lag behind good practice (Storey, 2003)

and invest less in management development than
larger organizations (Hoque & Bacon, 2008)

What works in one context does not work in another

Perceived competition is not the main reason for adopting

new practices (Mole et al., 2004)

SMEs may be more likely to upgrade capabilities

when encouraged by important customers (Ram,
2000)

Policy: Leadership

Growth intentions are a function of desirability and

feasibility of growth

Feasibility beliefs:

Influenced by understanding the growth vectors, drivers of growth,

and the processes and resources that support them

Understanding enhanced through training, information

dissemination and business support (e.g., UKTI)

Desirability beliefs:

Positively influenced by reflection on business needs and

opportunities (Jones, et al., 2008)

Supply chain support and coordination policies indirectly increase

incentives of SMEs to invest in capability development

Policy: Dynamic capabilities

Policy goals for Dynamic Capabilities:

Promoting knowledge exchange opportunities

Building organizational capacity for exploiting these exchanges
Link SMEs with customers, suppliers, universities, competitors or
unrelated organizations (e.g., clustering initiatives; KTPs; university
partnerships; industry and trade groups)

Evidence:

Knowledge Transfer Partnerships, Innovation Vouchers, and

Industry-University consortia create inter-organizational knowledge
sharing networks
Opportunity identification supported by reflection (Jones et al, 2008)
Evaluations of Business Link showed intensive, longer-term,
interventions more effective for growth (Mole et al., 2011)

Policy: Growth capabilities

Policy goals for Substantive Capabilities:

Developing managerial understanding of alternative growth vectors

Disseminating good practices for growth processes
Developing, managing or accessing needed resources (intellectual
and financial capital)

Evidence:

Low-cost taster approaches may not have long-term benefits

Intensive, individualized coaching is an effective mechanism for
disseminating knowledge to SME managers (Mole et al., 2011)
Adviser networks assist firms in developing capabilities (Bishop,
DEsteb, & Neely, 2011)

Policy: Overall

Because growth is multi-causal, tailored programmes are

an effective policy intervention:

Intensive, individualized coaching is an effective mechanism for

disseminating knowledge to SME managers (Mole et al., 2011)
Developing managerial understanding of alternative growth vectors
Disseminating good practices for growth processes
Developing, managing or accessing needed resources (intellectual
and financial capital)

Evidence:

Low-cost taster approaches may not have long-term benefits

Adviser networks assist firms in developing capabilities (Bishop,
DEsteb, & Neely, 2011)

Next steps

Next steps
The questions:
What are the priorities for, and barriers to, the development of
substantive growth capabilities?
What shapes entrepreneurial cognition and growth intentions in
SMEs?
How do entrepreneurial cognition, and growth intentions, shape
the development of dynamic and substantive capabilities for
supporting sustained growth?
How do dynamic capabilities evolve in SMEs?
How do dynamic capabilities lead to the re-shaping of the
ventures substantive capabilities for growth?

How will we address the questions?

Qualitative case-studies
In-depth survey of SMEs