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Copyright 1991 by
Baylor University

A Conceptual Model of
Entrepreneurship as
Firm Behavior
Jeffrey G. Covin
Dennis P. Slevin

This article outlines a conceptual model of entrepreneurship as an organizational-level

phenomenon. The model is intended to depict the organizational system elements that
relate to entrepreneurial behavior among larger, established firms, but may also be appli-
cable in varying degrees to many smaller firms. Entrepreneurship is described as a dimen-
sion of strategic posture represented by a firm's risk-taking propensity, tendency to act in
competitively aggressive, proactive manners, and reliance on frequent and extensive prod-
uct innovation. The proposed model delineates the antecedents and consequences of an
entrepreneurial posture as well as the variables that moderate the relationship between
entrepreneurial posture and firm performance. The advantages of a firm-behavior perspec-
tive on entrepreneurship are discussed, as are the theoretical and managerial implications
of such a perspective.

The domain of entrepreneurship is no longer restricted in a conceptual sense to the

independent new venture creation process (see Wortman, 1987; Low & MacMillan,
1988). The growing interest in the process and practice of corporate entrepreneurship,
for example, is indicative of an evolution in how managers and management scholars are
willing to conceptualize the entrepreneurial process. Corporate entrepreneurship in-
volves "extending the firm's domain of competence and corresponding opportunity set
through internally generated new resource combinations" (Burgelman, 1984, p. 154).
As the entrepreneurship paradigm expands, it is increasingly acknowledged that
organizations, per se, can behave in entrepreneurial manners (Jennings & Lumpkin,
1989). Entrepreneurial organizations or, as described here, organizations with entrepre-
neurial postures, are those in which particular behavioral patterns are recurring. These
patterns pervade the organization at all levels and reflect the top managers' overall
strategic philosophy on effective management practice. According to Miller (1983, p.
780):

In general, theorists would not call a firm entrepreneurial if it changed its technology
or product-line ... simply by directly imitating competitors while refusing to take
any risks. Some proactiveness would be essential as well. By the same token,
risk-taking firms that are highly leveraged financially are not necessarily entrepre-
neurial. They must also engage in product-market or technological innovation.

In short, firms with entrepreneurial postures are risk taking, innovative, and proac-
tive. They are willing to take on high-risk projects with chances of very high returns, and

Fall, 1991 7
are bold and aggressive in pursuing opportunities. Entrepreneurial organizations often
initiate actions to which competitors then respond, and are frequently first-to-market
with new product offerings. In support of this strategic orientation, entrepreneurial firms
characteristically emphasize technological leadership and research and development
(Khandwalla, 1977).
This article describes a conceptual model of entrepreneurial behavior at the organi-
zational level. The following section describes the advantages of adopting a firm-
behavior perspective on the construct of entrepreneurship. The desired characteristics of
an organizational-level model are then discussed. The components of the model are
presented, followed by a discussion of the interrelationships among these components.
Finally, the limitations and the theoretical and managerial implications of the model are
considered.
ADVANTAGES OF A FIRM-BEHAVIOR PERSPECTIVE
The adoption of a firm-behavior model of entrepreneurship has a number of advan-
tages over more traditional entrepreneurship models and theories that focus on traits of
the individual entrepreneur. Considering the level-of-analysis issue first, a firm-level
model of entrepreneurship is appropriate because entrepreneurial effectiveness is argu-
ably a firm-level phenomenon. That is, an entrepreneur's effectiveness can be measured
in terms of his or her firm's performance. Second, and related to the first point, firm
performance is a function of organizational- as well as individual-level behavior. Ad-
mittedly, individual-level behavior on the part of the entrepreneur may affect an orga-
nization's actions, and in many cases the two will be synonymous. However, the fact
that organizational-level behavior is a predictor of the key entrepreneurial effectiveness
criterion of firm performance would seem an independently noteworthy reason for
adopting an organizational-level perspective on the entrepreneurial process.
A behavioral model of entrepreneurship is suggested because behaviors rather than
attributes are what give meaning to the entrepreneurial process. An individual's psy-
chological profile does not make a person an entrepreneur. Rather, we know entrepre-
neurs through their actions. Similarly, nonbehavioral organizational-level attributes, like
organizational structure or culture, do not make a firm entrepreneurial. An organiza-
tion's actions make it entrepreneurial. In short, behavior is the central and essential
element in the entrepreneurial process.
The issue of measurability also gives advantage to a behavioral model of entrepre-
neurship. Specifically, behavior is, by definition, overt and demonstrable. Knowing the
behavioral manifestations of entrepreneurship, we can reliably, verifiably, and objec-
tively measure the entrepreneurial level of firms. This is important because the devel-
opment of entrepreneurial process knowledge hinges on our ability to accurately differ-
entiate between more and less entrepreneurial firms.
Finally, a behavioral model of entrepreneurship is appealing because behavior is
manageable. Firm-level entrepreneurial behavior is affected by and therefore can be
managed througl:i the creation of particular organizational strategies, structures, systems,
and cultures. As such, a behavioral model of entrepreneurship allows for considerable
managerial intervention, and the entrepreneurial process can be viewed as much less
serendipitous, mysterious, and unknowable.

DESIRED CHARACTERISTICS OF AN
ORGANIZATIONAL-LEVEL MODEL
A meaningful model of entrepreneurship as firm behavior would have several es-
sential characteristics, including the following:

8 ENTREPRENEURSHIP THEORY and PRACTICE

 1. The ultimate dependent variable is firm performance. Entrepreneurship is studied
for a variety of reasons, but the overriding reason for current interest in the topic
is the widespread belief that entrepreneurial activity stimulates general economic
development as well as the economic performance of individual firms. Scholl-
hamer (1982, p. 210), for example, wrote that "Entrepreneurship is the key
element for gaining competitive advantage and consequently greater financial
rewards." Accordingly, any systems or "macro" models of entrepreneurship,
and certainly any model of entrepreneurship as firm behavior, would be remiss
to ignore or subordinate the construct of firm performance.
2. The variables are clearly defined. This is critical to the development of a good
model. Clearly defined variables allow models to be developed which precisely
integrate conceptually similar streams of research and theories. Furthermore,
conceptual clarity facilitates the testing of relationships depicted in a model that,
in turn, can result in the validation, rejection, or modification of the model
(DeGroot, 1969).
3. The model includes environmental, organizational, and individual-level vari-
ables. The importance of the external environment in models and theories of
entrepreneurship is evident in the writings of Cooper (1986), Bruno and Tyebjee
(1982), Bygrave (1989), and many others. As such, environmental variables
provide a reasonable starting point for a firm-behavior model of entrepreneur-
ship. Organizational-level variables also appear essential. Business strategy, or-
ganizational structure, and organizational culture, for example, can all affect the
ability of a firm to engage in entrepreneurial activity (Maidique & Hayes, 1984;
Zahra, 1986). Finally, individual managers can have a strong and direct impact
on the entrepreneurial potential, behavior, and effectiveness of firms (Deeks,
1976). Not surprisingly, the individual manager/entrepreneur has often been
portrayed as the key component in theories and models of the entrepreneurial
process (Kirzner, 1983; Ronen, 1983). In short, a firm-behavior model of en-
trepreneurship has to consist of three levels of variables-environm ental, orga-
nizational, and individual-in order to be reasonably adequate in scope.
4. The model includes both direct and moderator effects. A conceptual model, by
definition, must depict direct or main effects between the component variables.
However, research in the field of entrepreneurship has progressed to the point
where contingency models are increasingly common. LaForge and Miller (1987),
for example, studied the moderating effects of firm size on the relationship
between several environmental and strategic variables. Peterson and Smith
( 1986) investigated the impact of cultural context on the success rate associated
with particular entrepreneurial skills. These and other studies suggest that models
of entrepreneurship must go beyond the depiction of direct effects and incorpo-
rate contingency or moderating effects.

COMPONENTS OF THE MODEL AND

THEIR INTERRELATIONSIDPS

Figure 1 depicts the proposed model of entrepreneurship as firm behavior. The

model shows the antecedents and consequences of an entrepreneurial posture as well as
the variables that moderate the relationship between entrepreneurial posture and firm
performance. The nine variables constituting the model and their interrelationships are
discussed below.

Fall, 1991 9
Figure 1
A Conceptual Model of Entrepreneurship as Firm Behavior
- - - - - - - - - - - - - ,- - - - - - - - - - - - .,.
I

' FIRM
PERFORMANCE

EXTERNAL VAR I ABLES STRATEGIC VARIABLES INTERNAL VARIABLES

EXTERNAL MISSION STRATEGY TOP MANAGEMENT

ENVIRONMENT
VALUES & PHILOSOPHIE
BUSINESS PRACTICES
- TECHNOLOGICAL & COMPETITIVE ORGANIZATIONAL
SOPHISTICATION T /\CTICS RESOURCES &
C0l'1PETENC I ES
- DYNAMISM
ORGANIZATIONAL
- HOSTILITY CULTURE

- INDUSTRY LIFE ORGANIZATIONAL

CYCLE STAGE STRUCTURE

__ l _______ t _______ J ____ J

- - - _.. Indicates a moderating effect.

---~~~ Indicates a strong main effect.

____..,._ Indicates a weaker main effect.

Entrepreneurial Posture
An entrepreneurial posture is reflected in three types of organizational-level behav-
iors: top management risk taking with regard to investment decisions and strategic
actions in the face of uncertainty; the extensiveness and frequency of product innovation
and the related tendency toward technological leadership; and the pioneering nature of
the firm as evident in the firm's propensity to aggressively and proactively compete with
industry rivals. As argued by Miller (1983, p. 770), "The entrepreneurial role stressed
by Schumpeter . . . is socially vital but it can be performed by entire organizations
which are decentralized. It can easily exceed or even circumvent the contributions of one
central actor.'' Accordingly, the concept. of entrepreneurial posture presented here is not

10 ENTREPRENEURSHIP THEORY and PRACTICE

offered as a radical departure from more traditional views of entrepreneurship but,
rather, as a logical extension of the basic construct.

External Variables
The external variables in the proposed model relate to several basic dimensions of
a firm's external environment. These dimensions include environmental technological
sophistication, environmental dynamism, environmental hostility, and industry life cy-
cle stage.
The external environment is identified as a component of the proposed model be-
cause of its seminal role in entrepreneurship theory and research. The concept of external
environment is intended to include those forces and elements external to the organiza-
tion's boundaries that affect and are affected by an organization's actions as well as more
general economic, sociocultural, political-legal, and technological forces which provide
the broader context for the organization's operations.
Several scholars have developed theories and conducted research that demonstrates
the inseparability of the external environment from the entrepreneurial process. For
example, Bruno and Tyebjee (1982), drawing heavily on the resource exchange model
proposed by Pfeffer and Salancik (1978), discuss the various environmental conditions
that stimulate or impede entrepreneurial activity. A resource exchange model has been
developed by Bygrave (1989) to explain the role of the venture capital industry in the
entrepreneurial process. Others have talked about the impact of fiscal and regulatory
environments on entrepreneurial activity (e.g., Kent, 1984; Kilby, 1971), noting that
political-legal forces can have a great impact on the pervasiveness and success of new
ventures. The environmentally focused population ecology paradigm (see Hannan &
Freeman, 1977) has been used to explain new venture creation and survival (Pennings,
1982). Industry structure variables have likewise been shown to affect the success of
new ventures (Sandberg & Hofer, 1987; McDougall & Robinson, 1988; Biggadike,
1976). Clearly an abundance of research, utilizing diverse methods and models, has
demonstrated that the external environment has a strong if not deterministic influence on
the existence and effectiveness of entrepreneurial activity. This same argument has been
made when entrepreneurship is viewed as an organizational-level phenomenon (Miller,
1983; Khandwalla, 1987).
Certain environmental characteristics may elicit entrepreneurial behavior on the part
of organizations. High-tech industries, for example, are commonly composed of dis-
proportionate numbers of entrepreneurial firms (Maidique & Hayes, 1984). Similarly,
dynamic environments have been found to encourage entrepreneurial firm-level behavior
(Miller, Droge, & Toulouse, 1988). Organizations often respond to challenging envi-
ronmental conditions, such as those present in high-tech or dynamic environments, by
taking risks, innovating, and exhibiting proactive behaviors-that is, by adopting en-
trepreneurial postures (Khandwalla, 1987).
Just as environmental conditions may prompt entrepreneurial postures, such postures
may induce a change in environmental conditions. The argument for a bi-directional
relationship between entrepreneurial posture and environmental conditions has been
made most convincingly by Miller and Friesen (1982, p. 6):

Entrepreneurial firms are often found in dynamic and hostile environments because
their venturesome managers prefer rapidly growing and opportuneful settings; set-
tings which may have high risks as well as high rewards. Such firms may even be
partly responsible for making the environment dynamic by contributing challenging
product innovations (Peterson and Berger, 1971). Because innovation prompts im-

Fall, 1991 11
 itation, the more innovative the firms, the more dynamic and competitive (hostile)
their environments can become.
On the whole, however, environmental conditions will likely have a stronger impact on
entrepreneurial posture than vice versa.
Several studies indicate that the relationship between entrepreneurial posture and
firm performance is moderated by environmental conditions. In highly competitive,
unforgiving, "hostile" environments, for example, entrepreneurial postures appear to
promote high levels of firm performance (Covin & Slevin, 1989). On the other hand, the
relationship between entrepreneurial posture and performance may be much less positive
or even negative in nonhostile or "benign" environments (Miller & Friesen, 1983).
Likewise, industry life cycle stage appears to have a moderating effect on the entrepre-
neurial posture-performance relationship. New ventures in emerging industries have
been found to benefit more from the adoption of entrepreneurial postures than new
ventures in more advanced industry life cycle stages (Covin & Slevin, 1990). In a related
vein, Mintzberg (1973) has argued that uncertain and "yielding" environments are
particularly congenial contexts for the use of entrepreneurial strategy-making modes,
implying the existence of an environmental contingency effect. In short, the effective-
ness of an entrepreneurial posture may be contingent upon a wide variety of environ-
mental conditions.
The following propositions summarize how entrepreneurial p9sture may relate to
several key environmental variables.
Pl: Entrepreneurial posture is positively related to environmental technological so-
phistication.
P2: Entrepreneurial posture is more positively related to firm performance among
firms in technologically sophisticated environments than among firms in tech-
nologically unsophisticated environments.
P3: Entrepreneurial posture is positively related to environmental dynamism.
P4: Entrepreneurial posture is more positively related to firm performance among
firms in dynamic environments than among firms in stable environments.
P5: Entrepreneurial posture is positively related to environmental hostility.
P6: Entrepreneurial posture is more positively related to firm performance among
firms in hostile environments than among firms in benign environments.
P7: Entrepreneurial posture is most common among firms whose industries are in
their early life cycle stages.
PS: Entrepreneurial posture is more positively related to firm performance among
firms whose industries are in their early life cycle stages than among firms
whose industries are in their latter life cycle stages.

Strategic Variables
The strategic variables in the proposed model include mission strategy and the firm's
business practices and competitive tactics.
Mission strategy. Mission strategy represents the firm's overall strategic philosophy
or orientation concerning the likely trade-offs between market share growth and short-
term profits. "Build" strategies are aimed at increasing market share at the possible
expense of short-term profits. "Hold" strategies are intended to enable the firm to
maintain market share and realize moderate or reasonable returns on investment.
''Harvest'' strategies are used when firms are willing to sacrifice market share for
short-term profitability and cash flow maximization. Finally, "divest" strategies are
used when a firm intends to sell or liquidate some portion or all of its operations (Abell
& Hammond, 1979; Gupta & Govindarajan, 1984). Mission strategy is more concerned

12 ENTREPRENEURSHIP THEORY and PRACTICE

with the broad objectives sought by the firm than with the specific means used to achieve
these objectives.
Entrepreneurial postures may be associated with particular mission strategies. Geller
(1980) argued that a risk-taking, highly venturesome, and innovative top management
style is appropriate in "invest/grow" situations; a moderately conservative management
style is appropriate in "earn/protect" situations; and a risk-aversive, highly conservative
management style is appropriate in "divest/harvest" situations. Partial support for these
assertions was provided by Gupta and Govindarajan (1982), who found that the general
managers of "build" SBUs exhibit a greater willingness to take risks than the general
managers of "harvest" SBUs. In short, current theory and research suggest that entre-
preneurial postures are particularly well-suited to and common among firms with build-
oriented mission strategies. The primary direction of the "main effect" appears to be
from mission strategy to entrepreneurial posture.
The preceding logic suggests that the more build-oriented the mission strategy, the
more entrepreneurial the firm's strategic posture should be in order to facilitate the
achievement of growth goals. As such, mission strategy may moderate the entrepre-
neurial posture-performance relationship. This expectation is indirectly supported by the
arguments of Hofer and Davoust (1977), Gerstein and Reisman (1983), Leontiades
(1982), and Tichy, Fombrun, and Devanna (1982). The general proposition advanced in
each of these writings is the same: General managers favorably disposed toward entre-
preneurial action will 'be effective in businesses with strategies aimed at market growth.
Conversely, more conservatively styled general managers will be effective in businesses
with market share maintenance or harvesting strategies.
Collectively, the aforementioned literature supports the following propositions.
P9: Entrepreneurial posture is highest among firms with growth strategies.
PIO: Entrepreneurial posture is more positively related to firm performance among
firms with growth strategies than among firms with less ambitious growth or
nongrowth strategies.
Business practices and competitive tactics. The content of business-level strategy is
defined in terms of the firm's overall collection of business practices and competitive
tactics. These include decisions relating to such things as financing alternatives, per-
sonnel practices, manufacturing or operations strategy, pricing policy, and customer
service systems, just to name a few. Business practices and competitive tactics are the
bottom-line manifestations of the firm's more basic strategic direction. They are the
specific means through which entrepreneurial posture and mission strategy are imple-
mented. As such, business practices and competitive tactics are the mechanisms that
allow entrepreneurial firms, and all other firms, to reach their markets. Examples of the
patterns or profiles of business practices and competitive tactics associated with entre-
preneurial posture firms are identified by MacMillan and Day (1987), Robinson and
Pearce (1988), and Miller and Camp (1985).
Entrepreneurial posture reflects an overall strategic philosophy concerning how the
firm should operate on particular behavioral dimensions. It is a ''higher-order'' construct
whose dimensions are associated with a diverse array of more specific tactical manifes-
tations. Karagozoglu and Brown (1988), for example, observed that environmental
uncertainty has different effects on the expected change in a firm's rate of innovation for
entrepreneurial and conservative firms. Miller and Friesen (1982) found that entrepre-
neurial firms, relative to conservative firms, rely more extensively on technically trained
personnel. Covin and Adler (1989) found that entrepreneurial firms, relative to conser-
vative firms, have higher scores (indicating greater emphasis or support) on variables
representing the following constructs: long-term financial orientation, external financ-

Fall, 1991 13
ing, service/support, warranties, advertising, innovative marketing, high price, product
quality, patents/copyrights, innovative operations, and industry awareness. Collectively,
these studies provide strong support for the contention that entrepreneurial posture
affects a firm's business practices and competitive tactics.
Any particular strategic orientation or posture will be effective only if it is well
implemented, and business practices and competitive tactics provide the means for this
implementation. Accordingly, they can serve in a moderating capacity. Related to this
point, research by Covin and Adler (1989) suggests that the strength of the relationship
between entrepreneurial posture and firm performance is contingent upon the set of
business practices and competitive tactics chosen by the firm. These authors found that
firms with equally entrepreneurial strategic postures can achieve different levels of
performance depending upon their use of particular configurations of ''strategic
variables." Therefore, the manner in which entrepreneurial posture is reflected in a
firm's business practices and competitive tactics may, to a great extent, determine the
effectiveness of an entrepreneurial posture for that firm.
Clearly those decisions and actions that represent business practices and competitive
tactics are diverse and wide ranging. The ways in which a few, select business practices
and competitive tactics are thought to relate to entrepreneurial posture, as suggested by
one or more of the aforementioned studies, are specified in the following propositions.
Pl 1: Entrepreneurial posture is positively related to a firm's effort to predict indus-
try and market trends.
P12: Entrepreneurial posture is more positively related to firm performance among
firms that emphasize the prediction of industry and market trends than among
firms that do not emphasize the prediction of industry and market trends.
P13: Entrepreneurial posture is positively related to a firm's level of advertising and
promotion effort.
P14: Entrepreneurial posture is more positively related to firm performance among
firms with high advertising and promotion efforts than among firms with low
advertising and promotion efforts.
P15: Entrepreneurial posture is positively related to a firm's emphasis on product
quality.
P16: Entrepreneurial posture is more positively related to firm performance among
firms that strongly emphasize product quality than among firms that do not
strongly emphasize product quality.
Pl 7: Entrepreneurial posture is positively related to the relative price (i.e., relative
to competitors) of a firm's principal product(li).
P18: Entrepreneurial posture is more positively related to firm performance among
firms with relatively high product prices than among firms with relatively low
product prices.

Internal Variables
Four internal variables are included in the proposed model of entrepreneurship as
firm behavior: top management values and philosophies, organizational resources and
competencies, organizational culture, and organizational structure.
Top management values and philosophies. It is generally acknowledged that stra-
tegic decisions are influenced by the beliefs, value structures, and management philos-
ophies of the strategists. Andrews (1980) has argued that top management's values and
philosophies are major determinants of competitive strategy choices. Guth and Taguiri
(1965) have documented value differences among business leaders and linked those
value structures to particular corporate strategy preferences. The linkage between the

14 ENTREPRENEURSHIP THEORY and PRACTICE

individual manager's values and the firm's actions is perhaps most clearly drawn in the
entrepreneurship and new venture literature. For example, Sexton and Bowman-Upton
( 1987, p. 82) have argued that ''growth is not a natural phenomenon which occurs in and
of itself; it is a social phenomenon which is under the control of the owner of the firm.''
This line of argument clearly places the entrepreneur, or more generally the top exec-
utives, at the center of any model of firm behavior. Accordingly, top management values
and philosophies are essential variables in the proposed model of firm-level entrepre-
neurship.
The choice of an entrepreneurial posture can be a heavily value-laden decision
reflecting top management's beliefs of how a firm should be managed. Certain execu-
tives will be much more inclined than others to choose entrepreneurial-type postures for
their firms regardless of specific forces in the larger business context (Gerstein &
Reisman, 1983). As previously mentioned, it is virtually impossible to separate top
management values from a firm's strategic choices (Andrews, 1980), and the decision
to adopt an entrepreneurial posture must be considered a strategic choice (Khandwalla,
1987). Some of the top management values and philosophies that may affect this choice
are identified in the following propositions.
P19: Entrepreneurial posture is positively related to the value top management
places on economic gain.
P20: Entrepreneurial posture is positively related to the value top management
places on market share.
P21: Entrepreneurial posture is positively related to the value top management
places on product-market diversification.
P22: Entrepreneurial posture is positively related to the value top management
places on being perceived as an industry leader.
Organizational resources and competencies. A firm's ability to engage in entrepre-
neurial behavior will depend, in part, on its resources and competencies. These variables
are operationally defined in the broadest sense and are intended to include such things
as monetary resources, plant and equipment, personnel, functional-level capabilities
(e.g., manufacturing flexibility), organizational-level capabilities (e.g., ability to get a
new product to the market in a timely fashion), and organizational systems (e.g.,
marketing research systems). Resources and competencies provide the bases for all
forms of organizational action. They can serve as either facilitators or deterrents of
entrepreneurial behavior, and influence the specific form of entrepreneurship in which
the firm engages.
Entrepreneurial postures tend to be resource-consuming postures (Romanelli, 1987).
Therefore, an organization's entrepreneurial capacity will be, to some extent, limited by
its resource base. Organizations with abundant resources may have a greater capacity
than those with sparse resources to engage in entrepreneurial activity. Of course, the
type of resources and capabilities possessed by a firm will also affect entrepreneurial
activity. For example, firms with a relatively high percentage of scientific and technical
personnel may possess a greater capacity for innovation than those with fewer such
personnel. Finally, it should be remembered that organizational resources and compe-
tencies are herein viewed in the broadest sense and would include organizational systems
such as the reward system. Considerable evidence suggests that an entrepreneurial
posture can be either promoted or stifled by the incentives and disincentives individuals
have to engage in behavior consistent with such a posture (Sathe, 1985; Quinn, 1985).
The strength of the relationship between entrepreneurial posture and firm perfor-
mance will depend upon the extent to which the organization's resources and compe-
tencies support such a posture. This is perhaps most evident when considering the

Fall, 1991 15
entrepreneurial posture dimension of product innovation. Successful product innovation
is promoted by a number of organizational attributes, defined in terms of resources and
competencies. For example, Maidique and Zirger (1984) found that product innovations
are more likely to be successful if the developing organization excels in the marketing
function and is willing to commit a significant amount of its resources to marketing-
related activities associated with the new product. Accordingly, the strength of the
marketing function may moderate the entrepreneurial posture-performance relationship.
Other resources and competencies that may moderate this relationship would include the
quality of the firm's environmental scanning system, the ability of the firm to institu-
tionalize innovation-related learning experiences, and the overall financial health of the
organization.
The following propositions summarize a few of the relationships one might expect
between entrepreneurial posture and an organization's resources and competencies.
P23: Entrepreneurial posture is positively related to the ability of a firm to quickly
bring new products to market.
P24: Entrepreneurial posture is more positively related to firm performance among
firms that are able to quickly introduce new products than among firms that are
not able to quickly introduce new products.
P25: Entrepreneurial posture is positively related to the percentage of a firm's
financial resources devoted toward R&D activities.
P26: Entrepreneurial posture is more positively related to firm performance among
firms with a high percentage of their financial resources devoted toward R&D
activities than among firms with a low percentage of their financial resources
devoted toward R&D activities.
P27: Entrepreneurial posture is positively related to a firm's proficiency at identi-
fying opportunities for product-market development.
P28: Entrepreneurial posture is more positively related to firm performance among
firms that are proficient at identifying opportunities for product-market devel-
opment than among firms that are not proficient at identifying opportunities for
product-market development.
P29: Entrepreneurial posture is positively related to a firm's ability to create new
product applications from generic technologies.
P30: Entrepreneurial posture is more positively related to firm performance among
firms with a high ability to create new product applications from generic
technologies than among firms with a low ability to create new product ap-
plications from generic technologies.
Organizational culture. Organizational culture can be defined as the shared set of
values, beliefs, attitudes, expectations, and assumptions, passed from one generation of
employees to the next, that determine the norms for appropriate behavior within the
organization (Wheelen & Hunger, 1988). An organization's ability to develop and
maintain an entrepreneurial posture is contingent upon that organization's culture. Con-
sistent with this point, Cornwall and Perlman (1990, p. 66) have recently written that

Culture is a key determinant of, and the first step in fostering, entrepreneurial
activity within an organization. It touches and influences everything that people do.
Positive cultures are ones that are in line with an organization's vision, mission, and
strategies. In entrepreneurial organizations positive cultures support organizational
entrepreneurship. In other organizations where entrepreneurship is lacking as a
strategic goal, the culture does not support risk taking, searching for opportunities,
and innovation.

16 ENTREPRENEURSHIP THEORY and PRACTICE

 Clearly, the culture of an organization can strongly affect entrepreneurial posture.
Research has demonstrated that a firm's innovative capacity is affected by cultural norms
(Kanter, 1982). Culture can encourage or discourage business-related risk taking
(Burgelman & Sayles, 1986). Likewise, the level of competitive proactiveness exhibited
by a firm will be, in part, culturally determined (Miller & Friesen, 1984). Not surpris-
ingly, common cultural attributes are often identified with entrepreneurial firms (Corn-
wall & Perlman, 1990).
Just as culture may affect entrepreneurial posture, it is likely that entrepreneurial
posture will help to shape an organization's culture. Entrepreneurial posture is estab-
lished at the uppermost level of a firm. The strategic managers at this level have a widely
recognized impact on organizational culture through both their substantive and symbolic
actions (Peters & Waterman, 1982; Deal & Kennedy, 1982). By encouraging innovation
and risk taking, these managers help to create a culture whose norms in turn support an
entrepreneurial posture. In short, it is easy to envision how entrepreneurial posture and
organizational culture can be mutually reinforcing and, thereby, operate in a relationship
of reciprocal causality. Nonetheless, because organizational culture provides the context
within which entrepreneurial postures may or may not emerge, the primary direction of
influence will likely be from organizational culture to entrepreneurial posture.
Some of the cultural phenomena thought to be associated with entrepreneurial pos-
ture are identified in the following propositions.

P31: Entrepreneurial posture is positively related to the degree to which the orga-
nizational culture values and supports the open expression of novel or radical
ideas.
P32: Entrepreneurial posture is positively related to the degree to which the orga-
nizational culture values and supports the empowerment of middle- and lower-
level employees.
P33: Entrepreneurial posture is positively related to the degree to which the orga-
nizational culture values and supports the belief that change and innovation are
inherently positive and essential for long-term organizational survival.
P34: Entrepreneurial posture is positively related to the degree to which the orga-
nizational culture values and supports the spirit and practice of teamwork in
carrying out the day-to-day operations of the firm.

Organizational structure. Organizational structure is sometimes defined as the ar-

rangement of workflow, communication, and authority relationships within an organi-
zation. Structure can be operationally defined in several ways. For example, the for-
malization and centralization of a firm are indicative of its structure, as is the extent to
which the firm is organic or mechanistic. Structure can also be defined in terms of the
organization of departments or work units, like functional structure, product structure,
and matrix structure. As with the other variables in the proposed model, structure can
have a major impact on an organization's entrepreneurial activity.
Given the breadth of the organizational structure construct, it is not surprising that
various scholars have addressed the topic of the entrepreneurship-structure relationship
from different perspectives. For example, Burgelman (1984) has discussed the structural
design alternatives, defined in terms of administrative and operational linkages, through
which firms may institutionalize corporate entrepreneurship. Miller and Friesen (1982)
have studied the relationships between structural dimensions and innovative activity
among firms with entrepreneurial postures. Covin and Slevin (1988) researched the
impact of structural organicity on the relationship between an entrepreneurial top man-
agement style and firm performance. Collectively, these studies demonstrate the impor-

Fall, 1991 17
tance of including organizational structure as a variable in the proposed model of en-
trepreneurship.
A firm's entrepreneurial posture can struggle or flourish in association with partic-
ular organizational structures. Khandwalla (1977, p. 426), for example, argued that
wherever there is a strong [entrepreneurial] orientation there ought to be an organic
orientation. This is because risk-taking managements usually seize opportunities and
make commitments of resources before fully understanding what actions need to be
taken. Unless management is flexible, the organization will not be able to adapt
itself to the evolving situation.
Others have noted the relationship between a firm's entrepreneurial capacity and struc-
tural formality (Stevenson & Gumpert, 1985), structural differentiation and decentrali-
zation (Miller, 1983), control mechanisms (Zahra, 1986), and number of layers in the
organizational hierarchy (Peters, 1987). As such, a firm's entrepreneurial capacity ap-
pears to be affected by multiple facets of organization structure.
By behaving in entrepreneurial manners, firms may elicit correspondingly aggres-
sive or innovative behaviors from industry competitors. In order to be capable of ade-
quately responding to others' actions which their own actions may have induced, en-
trepreneurial firms often adopt particular structural attributes that permit flexibility and
rapid decision making (Covin & Slevin, 1988). As such, entrepreneurial posture may
affect organizational structure indirectly through its effects on the external environment.
Entrepreneurial posture may also have more direct effects on organizational structure.
For example, in an attempt to institutionalize innovation, which partially defines an
entrepreneurial posture, firms often create special structural arrangements designed to
separate the innovating unit from the operating core (Drucker, 1985; Burgelman, 1984).
Nonetheless, organizational structure is most commonly depicted as a determinant-
facilitator or inhibitor-of entrepreneurial posture (e.g. , Hisrich & Peters, 1989;
Schuler, 1986; Rule, 1988). Accordingly, the primary direction of influence may be
from organizational structure to entrepreneurial posture.
An entrepreneurial posture will be most positively related to firm performance when
administered through an appropriate organizational structure. The attributes of an
"appropriate" structural form will often include decentralization of decision-making
authority, minimal hierarchical levels or structural layers, free-flowing communications
channels, and closely integrated R&D, manufacturing, and marketing functions. The
quote from Khandwalla (1977) presented above clearly argues that organic structures are
appropriate when a firm's top managers have an entrepreneurial style. This prescription
is supported by Slevin and Covin (1990), who found that the combination of entrepre-
neurial postures and organic structures is associated with higher performance than the
combination of entrepreneurial postures and mechanistic structures. Moreover, other
evidence suggests that organicity may be only one structural attribute to have such an
effect (see Bahrarni & Evans, 1988). In short, the moderating effect of organizational
structure on the efficacy of entrepreneurial firm-level behavior is generally acknowl-
edged and has been clearly demonstrated (see Khandwalla, 1987).
To summarize, the following propositions indicate how entrepreneurial posture is
often depicted as relating to key dimensions or forms of organizational structure.
P35: Entrepreneurial posture is negatively related to a firm's level of structural
formalization.
P36: Entrepreneurial posture is more positively related to firm performance among
firms with a low level of structural formalization than among firms with a high
level of structural formalization.

18 ENTREPRENEURSHIP THEORY and PRACTICE

 P37: Entrepreneurial posture is negatively related to a firm's level of structural
centralization.
P38: Entrepreneurial posture is more positively related to firm performance among
firms with a low level of structural centralization than among firms with a high
level of structural centralization.
P39: Entrepreneurial posture is negatively related to a firm's level of structural
complexity.
P40: Entrepreneurial posture is more positively related to firm performance among
firms with a low level of structural complexity than among firms with a high
level of structural complexity.
P41: Entrepreneurial posture is positively related to a firm's level of structural
organicity.
P42: Entrepreneurial posture is more positively related to firm performance among
firms with organic structures than among firms with mechanistic structures.

Firm Performance
The growing interest in the study of entrepreneurship is a response not only to the
belief that entrepreneurial activity will result in positive macroeconomic outcomes but to
the belief that such activity can lead to improved performance in established organiza-
tions. While "improved performance" could be defined in terms of a wide variety of
organizational effectiveness criteria, a narrower financially based definition is proposed
for the current model. A firm's economic performance is generally acknowledged to
have two primary dimensions-growth and profitability. The financial criteria implied
by these dimensions would include, for example, sales growth rate, return on assets, and
the profit-to-sales ratio. The prospect of favorable ratings on such criteria must be
regarded as a key reason why firms engage in entrepreneurial behavior.
Like the aforementioned variables, the level at which a firm performs may affect its
entrepreneurial posture. Both high and low performance may prompt entrepreneurial
postures. On this point, Covin and Slevin (1988, p. 230) have argued that
Some managers may feel compelled to adopt a more entrepreneurial style if they
perceive that bold, entrepreneurial actions are needed to improve their firm's per-
formance. Other top managers in poorly-performing firms may feel that risky,
entrepreneurial actions are exactly what their firms must avoid. Likewise, it is
conceivable that some top managers in high-performing firms may feel that the
inherent risk of an entrepreneurial style will jeopardize their firm's performance, and
should therefore be avoided. Other top managers in high-performing firms may feel
that an entrepreneurial style is the key to their success.
Clearly, firm performance can be used as a justification for or against the choice of an
entrepreneurial posture. Top management's values and philosophies will likely deter-
mine the direction of this relationship.
Firms adopt entrepreneurial postures in the hope and under the assumption that the
associated behaviors will help to create or sustain a high level of performance (Cornwall
& Perlman, 1990). Surprisingly little systematic empirical evidence is available to
support the belief in a strong positive relationship between entrepreneurial posture and
firm performance. One study that has addressed this issue was conducted by Zahra
(1986). He found that a firm's emphasis on corporate entrepreneurship, defined in terms
of the component dimensions of product innovation, risk taking, and "futurity," is a
significant and positive predictor (p < .01) of the net income-to-sales ratio. Another
study that has examined the entrepreneurial posture-performance relationship was con-

Fall, 1991 19
ducted by Covin and Slevin (1986). They found a zero-order correlation of r = .39 (p
< .001) between an entrepreneurial posture scale and a firm performance scale, the latter
of which assessed organizational effectiveness in terms of twelve financial and nonfi-
nancial criteria. Of course, a considerable amount of anecdotal evidence suggests the
existence of a positive relationship between entrepreneurial posture and firm perfor-
mance. Much of this evidence implicitly presents high performance as a consequence of
an entrepreneurial posture (Peters & Waterman, 1982).
P43: Entrepreneurial posture is positively related to revenue generation by the firm.
P44: Entrepreneurial posture is positively related to firm profitability.

CONCLUSION

There are several limitations to the proposed model that should be identified prior to
discussion of its implications. First, despite its deliberately generic orientation, the
model may not be applicable to all business organizations. It is intended to depict the
causes and consequences of organizational-level entrepreneurial behavior among larger,
established firms and is perhaps less applicable to new ventures and many small ''mom-
and-pop" businesses. In the latter organizations, structural and cultural influences on
entrepreneurial posture, for example, may be negligible. Second, the model is composed
of multiple constructs representing several levels of an organizational system. As such,
the model would be difficult to test in its entirety in a single research study. More
realistically, the model would be tested through independent examinations of its com-
ponent relationships. Third, while the variables in the model are clearly specified, many
of them represent broad constructs that operate at a high level of generality. The external
environment, for example, can be operationally defined in terms of forces or elements
that are too numerous to incorporate in a specific sense in a single model. A result is that
the model is not as prescriptive as a more narrowly defined model might be.
The preceding limitations notwithstanding, the proposed model of entrepreneurship
as firm behavior has several important implications. A primary theoretical implication is
that organizations can and should be viewed as entrepreneurial entities. To say that
organizations, per se, can be entrepreneurial is not a subversion or misapplication of the
construct of entrepreneurship. Rather, it is a defensible and meaningful assertion based
on the fact that organizations, like individuals, can create new value for society through
the thoughtful and productive assemblage of resources. Limiting discussion of entre-
preneurship and the entrepreneurial process to individuals is unduly restricting.
A second theoretical implication of the model is that entrepreneurial firm-level
behavior can be a pervasive and integral part of an organization's operations. Entrepre-
neurial activity should not be thought of as either absent or present in organizations, nor
should it be thought of as an inherently unnatural or disruptive process in the functioning
of organizations. A more meaningful perspective on this matter would be to view
entrepreneurial behavior, or, more specifically, entrepreneurial posture, as a strategic
dimension on which all firms can be plotted. In doing so, we create a conceptually
appealing framework and implicitly acknowledge the fact that organizations often have
within themselves the ability to, as Miller (1983, p. 770) stated, "renew themselves and
their markets by pioneering, innovation, and risk taking."
A primary managerial implication of the model is that since entrepreneurial posture
is a behavioral phenomenon, it can be managed. Consider the underlying elements of an
entrepreneurial posture: risk taking, proactiveness, and innovation. Behaviors reflecting
each of these entrepreneurial components can be encouraged or discouraged depending

20 ENTREPRENEURSHIP THEORY and PRACTICE

upon the characteristics of the organizational reward structure. Senior managers can
create "speculative fund" pools for high risk-high return projects. R&D, manufactur-
ing, and marketing personnel can be encouraged to think of ways the organization might
leverage its core technologies as a means for creating new product/market opportunities.
Organizational employees at all levels can be rewarded for identifying and suggesting
realistic paths for exploiting competitors' product line deficiencies or other areas of
vulnerability. In short, there are numerous and diverse means through which managers
can alter their organizations' positions on the entrepreneurial posture dimension (see
Schuler, 1986; Hisrich & Peters, 1989; Rule & Irwin, 1988).
Another managerial implication relates to the fact that entrepreneurial posture affects
and, more significantly, is affected by multiple organizational system elements. Spe-
cifically, because of the numerous and complex interrelationships between entrepreneur-
ial posture and other contextual variables, managers must not only manipulate the
organizational reward structure in order to manage entrepreneurial posture and derive the
benefits thereof, they must create, to the extent possible, an organizational context that
supports and helps to sustain such a posture. This would require consideration of aspects
of organizational structure, culture, and resources and competencies that can indirectly
support or impede entrepreneurial firm-level behavior.
Related to the preceding points, the proposed model has value in that it depicts
firm-level entrepreneurial behavior as an element within a larger organizational system
framework. In contrast, the majority of the writings on the topic of entrepreneurial
behavior and its correlates are more limited in scope, focusing on one or a few of the
elements in the proposed model (see, for example, Schuler, 1986; Burgelman, 1984;
Khandwalla, 1987). These more limited models generally have a high degree of face
validity. However, they risk oversimplifying the means through which organizations can
become more entrepreneurial. Specifically, they often overlook a sizable portion of the
variables in the larger organizational system which can affect such efforts. In short, no
known theories or models of entrepreneurial posture or related constructs encompass as
broad a range of associated variables as the model proposed here. The identification of
the forces that shape and are affected by entrepreneurial posture is important because, as
argued by Khandwalla (1987, p. 40), "from macro-social considerations (promotion of
economic growth in the developed and the developing worlds) and organization-level
considerations (improvement of organizational performance), a further study of vigorous
modes of management may have high social relevance."
It may be inferred from the prior discussion that entrepreneurial firm-level behavior
is desirable in all cases. No such implication is intended. In fact, in certain contexts, a
conservative strategic orientation will be preferable to a highly entrepreneurial posture
(see, for example, Covin & Slevin, 1989). It is nonetheless felt that knowing how to
manage entrepreneurial posture will become increasingly important because the envi-
ronmental conditions that "require" such a posture are evolving rapidly. The proposed
model of entrepreneurship as firm behavior could serve as a conceptual starting point
toward this end.
Future research into this topic could proceed along a number of important paths.
Studies of the forms of entrepreneurial firm-level behavior would certainly be useful in
helping to better define the process and domain of entrepreneurship as they pertain to
established organizations. As implied above, studies that seek to determine when and
where an entrepreneurial posture is appropriate would be particularly useful. No less
significant would be research into the management of entrepreneurial posture. Finally,
the proposed model presents numerous specific relationships that are open to investiga-
tion. Hopefully, future researchers will find this model a valuable conceptual framework
that suggests promising research directions.

Fall, 1991 21
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Jeffrey G. Covin is Associate Professor of Strategic Management at the Georgia Institute of Technol-
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Dennis P. Slevin is Professor of Business Administration at the Katz Graduate School of Business,
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The authors would like to thank Frank Hoy and the three anonymous reviewers for their comments on
earlier drafts of this paper.

Fall, 1991 25
 ENTREPRENEURSHIP Theory and Practice

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