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EBR
35,1
92
Received 13 March 2022
Revised 28 June 2022
23 September 2022
Accepted 3 October 2022
European Business Review
Vol. 35 No. 1, 2023
pp. 92-119
© Emerald Publishing Limited
0955-534X
DOI 10.1108/EBR-03-2022-0051
Building competitive advantages
and business success: the role of
learning orientation, reward
systems and entrepreneurial
orientation
Ricardo Jorge Correia
Instituto Politécnico de Bragança, Campus de Santa Apolónia, Bragança, Portugal
Jose G. Dias
Instituto Universitário de Lisboa (ISCTE-IUL),
Business Research Unit (BRU-IUL), Lisboa, Portugal
Mario Sergio Teixeira
Universidade de Trás-os-Montes e Alto Douro (UTAD), Centro de Estudos
Transdisciplinares para o Desenvolvimento (CETRAD), Vila Real, Portugal, and
Susana Campos
Instituto Politécnico de Viana do Castelo (IPVC),
Centro de Investigação e Desenvolvimento em Sistemas Agroalimentares e
Sustentabilidade (CISAS), Viana do Castelo, Portugal
Abstract
Purpose – The complexity of the firm’s external environment, with its constant changes, forces managers to
develop novel strategies that can meet new strategic needs. The purpose of this study is to examine the role of
reward systems (RSs) in strategic management, as well as their relationship to learning and entrepreneurial
orientation (EO), commonly referred to as the driving force behind growth, competitive advantages (CAs) and
improved performance. It also focuses on the study of the relationship between EO and business performance
(BP), the introduction and testing of the possible antecedents of this relationship and potential mediating
factors.
Design/methodology/approach – A conceptual model was tested on a sample of 1,190 Portuguese
firms using a structural equation model.
Findings – It is shown for the first time that learning orientation (LO) is an antecedent of the RSs
and, subsequently, of EO. Additionally, the CAs of differentiation and cost leadership play a
mediating role in the relationship between EO and BP. Furthermore, RSs are also a driving force
behind both CAs.
Originality/value – This study makes several empirical and theoretical contributions, addressing the gap in
the literature about the role of RSs in strategic management. It tests the relationship between LO and the firm’s
performance by taking the mediating effects of RSs, EO and CAs into account. Additionally, we discuss LO as an
Funding: This work was supported by national funds through the FCT – Portuguese Foundation for
Science and Technology under the project UIDB/04011/2020 and UIDB/00315/2020.
We sincerely appreciate the valuable comments and suggestions from the associate editor and
reviewers, which helped us to improve the quality of the article.
antecedent strategic variable of human resources practices, in particular, RSs. Finally, we broaden the scope of our Building
research by examining these issues in the context of Portuguese SMEs from different industries.
competitive
Keywords Entrepreneurial orientation, Learning orientation, Reward systems,
Competitive advantages, Business performance
advantages
Paper type Research paper

Introduction 93
Adverse economic conditions are affecting firms and their employees’ lives around the world.
Research into firms’ reward systems (RSs) needs to be developed as they guide employees’
behavior and thus help firms achieve their objectives (Balkin and Gomez-Mejia, 1987). RSs make
a fundamental contribution to the implementation of the strategy (Yanadori and Marler, 2006) to
the efficiency and to the competitive advantage (CA) of the firm (Shaw et al., 2001). Therefore, to
create the conditions for success, it is necessary to define a set of tools that allow firms to manage
employees so that they remain motivated and committed. RSs comprise a set of consistent
instruments that are in line with a firm’s objectives that will lead to personal motivation, greater
worker productivity and the convergence of interests, which is meaningful in the employment
relationship (Niguse and Getachew, 2019). This study examines RSs for the first time as an
outcome of learning orientation (LO) and as an antecedent of entrepreneurial orientation (EO) to
stimulate the CAs of differentiation and cost leadership, leading to better BP. This issue is
important because the market has changed dramatically in the past few years.
Small and medium enterprises (SMEs) face growing competitive pressure, and this entails
adaptation and response to new challenges. The rapid growth of new technologies, changing
customer needs, increasing competition and globalization have intensified this environment. It is
clear that SMEs find it increasingly difficult to maintain and improve business performance (BP).
Firms are encouraged to develop an entrepreneurial mindset to recognize the threats and
opportunities of the external environment and ensure that the firm survives (Krueger, 2000).
Entrepreneurship plays a critical role in overcoming external shocks in many low-resilient economies
(Cannavale et al., 2020). In these times of economic and environmental turmoil, it is becoming even
more evident that firms are facing especially high levels of market instability, uncertainty and
complexity, requiring them to respond to these changes (Grewal and Tansuhaj, 2001).
The evolutionary economy defines competition as a dynamic process in which firms seek to
adapt their strategies to market conditions and, at the same time, develop measures through their
strategic decisions so that they can influence the conditions of the external environment. Thus,
firms typically respond to adverse environmental conditions by taking risks, innovating,
demonstrating proactive behaviors and taking an entrepreneurial stance (Miller, 1983). This
mentality, embodied in the concept of EO, is widely discussed in the literature on the nature of the
construct and interdependence of its dimensions and the theoretical relationship between the
construct and its antecedents and consequences (Wales, 2016). As each of these issues is closely
linked to EO, a clearer definition of the concept is required. Miller (1983) and Covin and Slevin
(1989) identified what has become the generally accepted conceptualization of what
“entrepreneurial” means for a firm. Miller (1983) states that “entrepreneurial” firms are those that
are proactive, innovative and accept exposure to risk at the same time. However, it is important to
examine the elements that could trigger this orientation.
EO is often associated with LO. It should also be noted that in several studies, LO refers to an
adequate strategic ability to explain the success of firms relative to that of their competitors (Etemad,
2019; Santos-Vijande et al., 2012). A learning capability is required to renew firm resources as this is
needed for the efficient transfer of strategy into action (Kyrgidou and Hughes, 2010). LO may be the
only capacity that creates superior value for long-term customers (Gupta et al., 2020). Due to rapid
EBR market changes, firms must adapt and update their knowledge to maintain CA (Rademakers, 2005).
35,1 Given the new challenges, firms need to learn quickly. A successful organization is one that is able to
evolve and continue to develop new ways of working (Wahda, 2017). It is, therefore, recommended
that firms promote a culture of learning in times of crisis Qadri et al. (2021). Several studies show that
entrepreneurial culture promotes LO (Alegre and Chiva, 2013; Altinay et al., 2016; Weerakoon et al.,
2020). On the other hand, Ruokonen and Saarenketo (2009) revealed that the fundamentals of EO and
94 LO seem quite similar. However, for other authors, LO leads a firm to adopt entrepreneurial
characteristics capable of developing an entrepreneurial climate (Nasution et al., 2011). Therefore, in
our study, we propose the analysis of LO as an antecedent of EO.
Despite the extensive literature on these constructs, we found it is inconclusive on the role of
RSs in the field of strategic management and their effect on firms’ outcomes, namely, BP; in other
words, the role of strategic orientations on BP is not clear as different studies have found distinct
types of relationships between constructs. Additionally, prior research has not addressed a set of
indirect effects of LO, RSs and EO on BP. It has only shown partial direct relationships between
the constructs: LO and EO (Cake et al., 2020), RSs and entrepreneurial capacity (Schmelter et al.,
2010), EO and CAs (Kiyabo and Isaga, 2020) , RSs and CAs (Boxall and Purcell, 2003) and CAs
and BP (Ferreira and Coelho, 2020). In particular, the existing literature fails to consider the
combined effect of LO, RSs and EO on BP. We found no previous studies that structurally
examined the mediating effects we intended. The literature on the strategy of SMEs has tended to
examine these different orientations one by one, which limits our understanding of the
interactions and combination effects (Falahat et al., 2021). According to Pehrsson (2020), the bulk
of existing studies focuses on how a particular strategic orientation influences BP, assuming that
each orientation is independent of the others. This study contributes in three ways that have not
previously been addressed in the literature. First, we analyze the direct and indirect joint effects of
strategic orientations on BP for the first time by means of a set of mediating effects and
emphasizing the role of RSs. We found that the mediating role of RSs in these relationships has
not been tested empirically in any context; therefore, this study aims to fill the gap by developing
a new conceptual model that includes RSs as a mediating variable. Second, most literature on
human resources management (HRM) pays due attention to HR perceptions, in particular
antecedents of RSs (Hewett et al., 2018; Xiao et al., 2022). Thus, firms have to be taken into
account in an organizational context when they define the RSs focused on maximizing BP. We
describe other strategic variables that should be used to provide managers with best practices
and add to current management theory. Third, studies on LO have focused mostly on large
organizations (Aragon-Correa et al., 2007) or specific industries (García-Morales et al., 2012). We
broaden the scope of our research by examining these issues in the context of SMEs in different
industries. The importance of the RSs is underscored as an essential part of the firm’s strategy
that promotes the development of EO, CA and a better BP. Furthermore, it emphasizes LO as a
trigger of EO and for developing and implementing the RSs as a way of bolstering change in the
organizational climate. We focus on these concepts in the context of Portuguese firms, evaluating:
 the mediating effect of RSs in the relationship between LO and both CAs –
differentiation and cost leadership;
 the mediating effect of EO in the relationship between LO and both Cas;
 the effect of RSs on EO; and
 the effect of both CAs on BP.

In this way, our study brings innovation to the literature as well as novel practical
implications for firms generally, and specifically Portuguese firms. The business reality in
Portugal is composed almost entirely of SMEs. According to Statistics Portugal (2022),
99.9% of all Portuguese firms are SMEs. These firms have been identified as the driving Building
force of economic growth and job creation (Pratono and Mahmood, 2015). It is known that competitive
such firms have become a key component of the growth of many economies and play an
important role in eliminating poverty, alleviating unemployment and reducing wealth
advantages
inequality (Rafiki et al., 2021). This is especially true for the Portuguese economy. This
study aims to fill the abovementioned gaps and provide specific guidelines to practitioners
and firms’ managers for designing strategies based on the learning paradigm. This will
enable the development of an entrepreneurial culture and the design of effective HR 95
practices, such as RSs that impact BP. Focus is given to specific aspects of strategic
management and the HRM of firms in Portugal so that managers can pay more attention to
them. Our findings give managers a clearer orientation and thus help firms become more
profitable and provide a better working environment for their employees.
This article comprises five sections. The section following this introduction highlights
the theoretical background and develops hypotheses. The third section provides the data
collection methodology, sample characterization and procedures for verifying the reliability
and validity of the measurements. The fourth section contains the results, and the fifth
presents the conclusions, limitations of the study and suggestions for future research.

Theoretical background and hypotheses to test

Reward systems
The concept of reward is considered both important and valuable and is formally defined as
something that is offered to employees in exchange for work. The reward can be financial,
such as wages and other benefits (Chiang and Birtch, 2007) or nonfinancial (Elizur et al.,
1991). Noe et al. (2012) state that an RSs provides monetary compensation and other benefits.
Thus, the concept not only includes cash benefits but also other nonmonetary benefits
related to employment. The RSs, therefore, represent a package of tangible and/or intangible
benefits that are used by a firm to boost the motivation and productivity of its employees.
Consequently, the RSs will have a direct effect on the organizational structure of the firm
and on the expected results (Taba, 2018).
Lawler (2000) found that firms’ RSs have gradually changed over time. They have failed
to compensate employees based on factors such as seniority but instead base their
compensation on the contribution to the firm, and thus, promote employees’ performance
based on their skills. Several studies show the moderating role of RSs in the relationship
between strategy and BP (Allen and Kilmann, 2001; Sohail and Al-Ghamdi, 2012). Shaw
et al. (2001) argue that the effectiveness of a strategy’s implementation depends on the
relationship between the organizational systems, such as HRM, including RSs.
Different types of RSs have been studied in the literature. Wei and Atuahene-Gima (2009)
discuss the strategy of risk-related reward, which allows, for instance, monthly variation in
the salary as a function of the firm’s sales volume. Meanwhile, various studies show that
some employees do not mind the pressure to achieve high rewards, whereas others prefer a
less stressful environment. Firms must also have a long-term reward strategy; for example,
employees obtain a reward at the end of the new product development process.
Other studies have focused on encouraging employees to carry out their duties to achieve
business goals (Moustaghfir et al., 2020). The theory of expectation proposed by Vroom
(1964) shows that an employee’s motivation depends on his/her expectations of benefits
resulting from the effort put into reaching certain levels of performance. This theory
explains the interaction of an employee’s expectations with the results (s)he will achieve
with a certain level of commitment (Hackman and Porter, 1968). Furthermore, employees are
more motivated when they participate in defining the RSs (Kauhanen and Piekkola, 2006).
EBR Learning orientation
35,1 The role of learning as a means of gaining a CA in the market has been extensively explored
(Camison and Villar-Lopez, 2011; Farrukh and Waheed, 2015; Santos-Vijande et al., 2012).
The importance of learning is justified because it is used to better adapt to the market and
results in improved BP (Azadegan and Dooley, 2010). The learning literature addresses the
firm’s resource-based view (RBV), which assumes that the firm’s ability to learn is the only
96 capacity that cannot be imitated (Day, 1992). LO increases the strategic flexibility of the firm
with the constant flow of accumulated experience and new knowledge. This creative process
helps achieve CAs through the implementation of operations based on efficiency and
quality.
Baker and Sinkula (2002) state that the set of values linked to LO consists of the firm’s
commitment to learning, the shared vision and open-mindedness. On the other hand, Day
(1992) considers that the values typically associated with a firm’s learning capacities revolve
around the following characteristics: commitment to learning, i.e. a firm emphasizes
knowledge of the causes and consequences of its actions, thereby enhancing the learning
process; open-mindedness associated with doubts regarding long-term assumptions about
the established order and the best way to develop while avoiding the rigidity of
organizational behavior; and a shared vision, namely, the firm’s interest in sharing its vision
of the organization’s goals and priorities with the employees.
Learning can create CAs and firms need to build key competences to better compete with
competitors. Consequently, firms must be proactive, futuristic, think strategically and
acquire and adapt to new knowledge in a flexible way (Akhtar, 2011). LO is considered to be
a resource and organizational capability that helps firms develop their organizational
competitiveness and performance (Vega Martinez et al., 2020). It emerges by paying
attention to the (occasional) discrepancy between expectations and results, opening up to the
possibility of discussing organizational routines (Argyris and Schön, 1978) in such a way
that it encourages efforts to correct mistakes, resulting in a change of attitude. Most
organizational learning is adaptive. However, if learning results from proactive
organizational behavior and not just as a reaction to situations related to the environment,
then it is classified as a value generator (Sinkula, 1994). LO is an organizational process to
improve individual knowledge by transforming it into part of an organization’s knowledge
system (Liao et al., 2017). Firms must commit to learning and internalizing the causes and
effects of their actions (Shaw and Perkins, 1991), which is necessary to be able to detect and
correct errors in the actions they develop (Thomas and Allen, 2006).
Berson et al. (2006) suggest that the specification of learning processes at different levels
of analysis provides an opportunity to identify the role of leaders in facilitating the learning
process. These authors examined the role of leaders in terms of motivation for
organizational learning and showed that leadership promotes organizational learning and,
consequently, BP.

Learning orientation and reward systems

Several studies have suggested that a firm’s LO influences its BP by improving the quality
of its market-oriented behavior and facilitating generative learning that leads to innovation
in products, processes and systems (Baker and Sinkula, 1999; Gupta and Dutta, 2018; Gupta
et al., 2020). According to Gupta and Dutta (2018), LO increases the internal and external
dynamics of a firm, but this process takes time. Changes in firms’ LO are the result of
inherent practices, commitments and process management over time (Garvin, 1993).
Aspects of HRM that are linked with learning include RSs (Stathakoloulos, 1998).
Ruekert (1992) suggests there is a relationship between LO and HR practices.
Mavondo et al. (2005) argue that HRM mediates the relationship between LO and Building
organizational performance. competitive
Work motivation is affected by rewards and the degree to which rewards are associated
with a particular performance or behavior (Ali and Anwar, 2021; Lawler, 2000). Therefore, it
advantages
is suggested that it may be essential for managers to place greater importance on learning
processes when redefining their relationships with employees, thereby enhancing
employees’ commitment to the firm as a result of implementing or redefining the RSs. For
Tan et al. (2014), several aspects of HR practices are associated with the learning process,
97
including RSs. Consequently, we consider testing the following hypothesis:

H1. LO positively influences RSs.

Entrepreneurial orientation
EO has become one of the most popular topics in entrepreneurship research in recent years
(Martin and Javalgi, 2016; Gupta et al., 2020). Several researchers agree with Miller’s (1983)
definition of an entrepreneurial firm, namely, that EO is a multidimensional concept that
includes business innovation, a proactive approach and a risk-taking attitude (Gao et al.,
2018; Khan et al., 2020). Innovation refers to the support for new ideas, experimentation and
creative processes; proactivity is the ability to anticipate and act in line with future market
needs; risk-taking is the willingness to allocate significant resources to projects with
uncertain results. Lumpkin and Dess (1996) added competitive aggressiveness and
autonomy to these dimensions. Competitive aggressiveness is associated with a firm’s
efforts to perform better than its competitors, and autonomy is the independent behavior
and strong leadership of an entrepreneur. EO encourages the search for market
opportunities that can offer future benefits to the firm (Wiklund and Shepherd, 2011).
A number of studies have shown a positive association between EO and BP (Avlonitis and
Salavou, 2007; Lee and Lim, 2009; Galbreath et al., 2020; Sellappan and Shanmugam, 2020). Pearce
et al. (2010) and Jogaratnam and Tse (2006) also found this relationship in nonprofit organizations.
However, Messersmith and Wales (2011) found a nonsignificant relationship for young firms. The
relationship between EO and BP can be explained by the potential benefits of innovative behavior
in complex business environments (Cui et al., 2018). Firms with EO are willing to innovate and
revitalize their market offering, take risks to test new products and services and new markets, and
be more proactive than their competitors (Wiklund and Shepherd, 2005).
Okpara and Kabongo (2009) suggest that firms with high levels of EO are more involved
in export markets than firms with little concern for entrepreneurial values. They also
indicate that firms with a more proactive orientation achieve better results (e.g. profit and
growth) and that they are more willing to allocate financial resources to export activities.
According to these authors, EO helps entrepreneurs make decisions, bet on new markets
and create innovative ideas, all of which lead to better BP.

Learning orientation and entrepreneurial orientation

Previous evidence not only confirms that learning may have a two-way interaction with EO
(Bell et al., 2002) but also that learning capability enables firms to successfully combine
different orientations to improve performance (Hakala and Kohtamäki, 2011). Honig and
Hopp (2019) recognize that different LOs are important to understand the emergence of
entrepreneurship, particularly because both individuals and firms continuously strive to
learn. According to these authors, LO explains when and for whom specific learning styles
and organizing activities can lead to new venture creation.
EBR It is important to investigate the factors that increase entrepreneurial behavior and their
35,1 positive impact on BP. Santos-Vijande et al. (2005) found that LO promotes market-oriented
behaviors, which have a positive impact on long-term relationships with strategic customers.
Hakala and Kohtamäki (2011) propose that organizational learning capability enables
organizations to successfully combine several orientations. Siguaw et al. (2006) state that an
organization needs a strong learning philosophy to be entrepreneurial. Cannavale et al. (2020)
98 revealed that EO enhances performance when managers seek to bring about organizational
learning. According to Feng et al. (2020), measures to develop learning capabilities could
provide the basis for EO. Liu (2020) states that managers should build a learning mechanism
to encourage and develop EO. Furthermore, several studies found a relationship between the
organizational learning process and EO (Altinay et al., 2016; Bell et al., 2002; Hakala and
Kohtamäki, 2011; Rafiki et al., 2021). LO includes a set of values that influence a firm’s
propensity to proactively seek new knowledge (Slater and Narver, 1995; Sinkula et al., 1997),
as well as a learning climate that will undoubtedly contribute to the development of the
innovation process and enhance EO (Kumar et al., 2020; Sheng and Chien, 2016). Because
proactivity and innovation are the two fundamental pillars of EO, there should be a close link
between LO and EO; thus, we propose to test the following hypothesis:

H2. LO has a positive effect on EO.

Reward systems and entrepreneurial orientation

Previous research shows that RSs are an antecedent of market orientation (Kohli and
Jaworski, 1990; Ruekert, 1992) and that successful new product development is due to
market orientation (Wei et al., 2012). These results suggest that the RSs can indirectly
improve new product development that impacts market orientation. Like many other
studies that directly link market orientation to EO (Baker and Sinkula, 2009; Chen and Hsu,
2013; Gonzalez-Benito et al., 2009; Morris et al., 2007; Wagener et al., 2010), we hypothesize
that RSs also has an impact on EO. Literature shows that adequate RSs can also increase
entrepreneurial abilities and outcomes, such as individuals’ risk propensity or motivation
for innovations (Marvel et al., 2007; Schmelter et al., 2010). Firms with a greater reward
philosophy tend to set compensation with the aim of promoting innovation, one of the EO
dimensions (Bradley et al., 2011). Kuratko et al. (1999) show that certain managerial factors,
such as rewards and compensations, are determinants of a firm’s entrepreneurial culture.
Bratnicki (2005) states that HRM practices can contribute to promoting a culture of
innovation, creativity and initiative-taking, developing entrepreneurial attitudes within
firms that are hard to imitate. According to Floren et al. (2016), there is a lack of empirical
research on the strategic action firms should take using HRM practices to develop an EO.
Thus, we propose the following hypothesis:

H3. RSs have a positive effect on EO.

Competitive advantages
Day (1984) suggests that a firm’s strategy can promote the development of a sustainable CA.
This notion was further developed by Porter (1985), who developed a discussion on two
fundamental types of competitive strategies firms can adopt to obtain a sustainable CA: low
cost or differentiation. CA is defined as the implementation of a strategy not currently used
by competing firms that help reduce costs, explore market opportunities and neutralize
competitive threats (Barney, 1991). Yasa et al. (2020) state that sustainable CA is a long-term
benefit of implementing a certain unique value-creation strategy that competitors cannot Building
implement at the same time. competitive
The RBV theory treats the firm’s resources as a key factor for CA and BP (Amit and
Schoemaker, 1993). According to Leonidou et al. (2011), firms achieve CA by designing
advantages
strategies that leverage their strengths, avoid internal weaknesses, respond to opportunities
in the business environment and neutralize external threats. According to Ray et al. (2004),
following the RBV, not all resources and capabilities are CA sources and, depending on their
nature, firms can face the following situations: competitive parity resulting from the 99
exploitation of valuable resources and capacities that are common to other firms and a
temporary or sustainable CA based on the use of valuable and rare resources.
A sustainable CA cannot last forever, as unexpected changes in the economy and market
structure can reduce the value of the resources and/or capabilities and thus lessen their
contribution as a source of CA (Barney, 1991). To achieve the full competitive potential of their
resources and capabilities, firms must be able to run their business effectively and efficiently.

Reward systems and competitive advantages

The rewards include the planned use of a payment system to guide employee behavior and
effort to achieve business goals (Gomez-Mejia and Balkin, 1987); thus, the RSs are a key
factor in implementing the strategy. Previous research considers that rewards and
incentives are taken as elements of more strategic orientation, and if used correctly, a reward
system can enable firms to obtain and maintain CA (Boxall and Purcell, 2003). Elrehail et al.
(2019) asserted that a professionally designed reward system may not only enhance
satisfaction but also attract and retain talented employees, which leads to CA. Additionally,
HRM systems have also been found to develop CA (Albrecht et al., 2015; Chand and Katou,
2007). It is, therefore, proposed to test the following hypotheses:

H4. RSs have a positive effect on the CA of differentiation.

H5. RSs have a positive effect on the CA of cost leadership.

Entrepreneurial orientation and competitive advantages

EO also allows firms to create conditions for improving resource management (Knight,
1997). According to Covin and Slevin (1991), entrepreneurship has a strong impact on BP
and is one of the most important sources of CA. Some studies have observed a positive and
significant impact of EO on CA (Kiyabo and Isaga, 2020; Mustafa et al., 2015). Schindehutte
et al. (2008) present two case studies that analyze the temporal development of the market
and EO and their impact on BP and sustainable CA. Therefore, we propose to test the
following hypotheses:

H6. EO has a positive effect on the CA of differentiation.

H7. EO has a positive effect on the CA of cost leadership.

Competitive advantages and business performance

RBV emphasizes the importance of resources and capabilities in developing the firm’s
strategic position, leading to a better BP (Ruiz-Ortega et al., 2013). The literature states that
the capabilities associated with the organizational process by which resources are acquired,
combined and implemented promote a strategic orientation toward achieving sustainable
CAs (Shamsie et al., 2009). Therefore, when firms successfully implement a valuable and
EBR unique strategy through CA, it brings current and future benefits (Yasa et al., 2020).
35,1 Previous studies have also shown that CA has a positive and significant impact on BP
(Ferreira and Coelho, 2020; Ray et al., 2004). Resource control helps design and implement
strategies that can create sustainable CAs and achieve better BP (Bharadwaj et al., 1993;
Newbert, 2008). It is, therefore, proposed to test the following hypotheses:

100 H8. CA of differentiation has a positive effect on BP.

H9. CA of cost leadership has a positive effect on BP.
Based on the literature review and previous research hypotheses, we developed the
conceptual model summarized in Figure 1. On the one hand, we examine how the firms’ RSs
influence EO and CAs – differentiation and leadership by cost – and, consequently, BP. On
the other hand, we evaluate LO as an antecedent of the RSs and EO. Seven control variables
were also included in the model: age, size, sales volume, location, type of activity, export
activity and development of research and development (R&D) activities.

Methodology
Measures
The scales used to measure each construct come from the literature. EO was measured using
the Covin and Slevin (1989) scale, which consists of nine items. Rauch et al. (2009) state that
this scale is the most used to measure EO. Baker and Sinkula (1999) measured LO with an
18-item scale, which had been validated in several studies (Wu et al., 2020; Stelmaszczyk,
2020). RSs were measured using a 10-item scale adapted from Balkin and Gomez-Mejia
(1990) and Diaz and Gomez-Mejia (1997). CAs were measured using an adaptation of the
scale proposed by Frambach et al. (2003), with four items for differentiation and five items
for cost leadership. Finally, we measured BP using a five-item scale taken by Richard et al.
(2009). All items were measured on a 7-point Likert-type scale, from 1 = “totally disagree” to
7 = “totally agree”; except EO, which was measured on a 7-point semantic differential scale,
from 1 = “much worse than main competitors” to 7 = “much better than main competitors”.
Table A1 in the Appendix lists all items in the measurement model.

Population, sample and data collection

This study focuses on Portuguese firms, and the sampling process consists of three stages:
first, the identification of the population, which led to the definition of the target population;
second, the definition of the sample selection method; and third, the validation of the sample.

Reward H4
Differentiation
H1 systems H8

Learning H3 H5 Business
orientation H6 Performance

H2 Entrepreneurial Cost H9
orientation H7 leadership
Control Variables:
x Age
x Size
x Sales Volume
x Type of Activity
Figure 1. x Location
x Export Activity
Conceptual model x R&D Activities
A national database containing about 91,000 firms was used. Regional stratification (NUT II Building
official statistical region) was employed to ensure the sample was representative of the competitive
population. The sample is representative regarding firm size distribution, according to
Statistics Portugal (2022). The data collection process was conducted before the worldwide
advantages
effect of the COVID-19 pandemic, in a period of recovery of the Portuguese economy. The
firms were contacted directly via e-mail and informed of the scope and objectives of the
study, and the questionnaire was filled out using the Google Forms platform. To ensure that
key respondents were sufficiently informed, we required the questionnaire to be answered
101
specifically by firm managers or employees in important positions who were familiar with
their firm’s management. A pilot test of the questionnaire was conducted with a small
number of managers representing the population. This pilot test led to specific changes to
the initial questionnaire based on the respondents’ comments and suggestions and brought
greater clarity to the questions. We obtained a validated sample of 1,190 firms. The firm’s
characterization (Table 1) was based on the following control variables: size, age, location,

Control variables n %

Firm age
Less than 10 years 298 25.0
11–20 years 440 37.0
More than 20 years 444 37.3
Nonresponse 8 0.7
Type of activity
Services 594 49.9
Commerce 283 23.8
Manufacturing 201 16.9
Construction 82 6.9
Non response 30 2.5
Sales volume
Less than e50,000 140 11.8
e50,000–e250,000 354 29.7
e250,001–e1,000,000 343 28.8
More than e1,000,000 353 29.7
Location
Lisboa and Vale do Tejo 391 32.9
North 361 30.3
Center 280 23.5
South 102 8.6
Islands 56 4.7
Firm size
Fewer than 10 employees 698 58.7
10–49 employees 355 29.8
50 employees or more 137 11.5
Export activity
Yes 441 37.1
No 749 62.9 Table 1.
R&D activity Sample
Yes 346 29.1 characterization
No 844 70.9 (n = 1,190)
EBR sales volume, type of activity, development of R&D activities and development of the export
35,1 activity.

Construct reliability and validity

A confirmatory factor analysis was conducted to confirm the reliability of the measurement
scales. Specific items with low factor loadings were excluded, leaving 12 items in the LO
102 scale, three items in the CA differentiation scale, four items in the CA of cost leadership scale
and four items in the EO scale. The RSs and BP scales retained all the initial items. Table 2
shows the estimates of the factor loadings. LO is a second-order factor model (Santos-
Vijande et al., 2005), as is the RSs (Wei et al., 2012), while CAs of differentiation and cost
leadership and BP are first-order constructs. EO was initially defined as a second-order
construct, but the reliability and validity checking process led to the exclusion of five items
with low factor loadings; thus, we decided to consider this construct the first-order variable.
This decision is consistent with the criterion of Hair et al. (2022) that all indicators not
meeting the required benchmark can be deleted from the measurement model. Although it
can be considered a study limitation, several studies measure EO as a unidimensional
construct (Aftab et al., 2022; Bouguerra et al., 2022; Purkayastha and Gupta, 2022).
Table 3 reports Cronbach’s alpha, composite reliability (CR) and average variance
extracted (AVE) for all constructs based on the estimated measurement models of each one.
Items are reliable measures of a construct whenever the Cronbach’s alpha is greater than
0.80, acceptable reliability is between 0.60 and 0.80 and the lower reliability is less than 0.6

Variable Estimate Standard error Standardized estimate

Learning orientation
Commitment to learning 1 – 0.801
Shared vision 1.294 0.046 0.845
Table 2. Open mindedness 0.995 0.041 0.883
Estimates of factor Reward systems
loadings of the Risk associated with reward 1 – 0.848
second-order latent Long-term rewards 1.608 0.110 0.755
variables Effectiveness of the payment 1.970 0.133 0.846

Variable Items Cronbach’s alpha CR AVE

Learning orientation 12
Commitment to learning 5 0.889 0.899 0.615
Shared vision 3 0.909 0.913 0.780
Open mindedness 4 0.871 0.875 0.641
Entrepreneurial orientation 4 0.665 0.714 0.617
Reward systems 10
Risk associated with reward 3 0.767 0.785 0.565
Long-term rewards 3 0.859 0.862 0.676
Table 3. Effectiveness of the payment 4 0.905 0.889 0.667
Reliability and CA of differentiation 3 0.865 0.869 0.691
validity of the CA of cost leadership 4 0.694 0.749 0.432
constructs Business performance 5 0.935 0.872 0.575
(Hair et al., 2014). We find that all constructs have good consistency. The CA of cost Building
leadership, EO and the risk associated with reward are exceptions but have an acceptable competitive
consistency. The scales used also provided generally satisfactory CR and AVE, except CA of
cost leadership, with an AVE of less than 0.5. However, it was decided to keep this factor in
advantages
line with the recommendations of Li and Zhou (2010) and Santos-Vijande et al. (2012). These
indicators were assessed as described by Fornell and Larcker (1981). Table 3 shows that CR
is between 0.714 and 0.913, while AVE, excluding CA cost leadership, is between 0.565 and
0.780. These results show the internal consistency between different indicators of each 103
construct and confirm that they do, in fact, measure the same concept and essentially
explain their respective construct.

Control variables
To verify the effects of specific characteristics of the firm, we included the following control
variables in the model: age, size, sales volume, location, type of activity, export activity and
R&D activities. These variables have been widely used in the literature (Antoncic and
Hisrich, 2004; Bernerth and Aguinis, 2016; Kraus et al., 2012; Liu, 1995; Laforet, 2008; Stam
and Elfring, 2008; Zahra and Garvis, 2000). Firm age was measured using three ordinal
levels: less than 10 years, between 11 and 20 years and over 20 years. Three ordinal levels
were used to measure firm size: fewer than 10 employees, between 10 and 49 employees and
50 employees or more. Sales volume was measured using an ordinal scale: less than e50,000,
between e50,000 and e250,000, between e250,001 and e1,000,000 and over e1,000,000.
Location was categorized into North, Center, Lisboa and Vale do Tejo, South and Islands.
The type of activity was categorized into the industry, construction, trade and services.
Export activity and R&D activities were treated as dummy variables (0 = no and 1 = yes).

Data analysis
The data were compiled using the Statistical Package for the Social Sciences. Scale
validation and structural modeling were performed using MPlus 6.0. In particular, the
ordinal scale of measurement (e.g. Likert scales) used in most studies cannot be assumed to
be metric (continuous) in nature, and consequently, the assumption of Gaussian SEMs is not
realistic. The traditional approach is to compute polychoric correlations from the observed
data. In this research, we estimate an ordinal structural equation model (Muthen, 1984).

Results
Structural relationships
The hypotheses on which our conceptual model is based (Figure 1) were tested by a
structural equation model using the maximum likelihood method. Control variables were
added and directly affect CA and BP. The fit of the model is good for the observed
covariance matrix: x2 (1,199) = 3,626.422, x2/df = 3.025, comparative fit index (CFI) = 0.972,
Tucker–Lewis index (TLI) = 0.969, root mean square error of approximation (RMSEA) =
0.042, P [RMSEA # 0.05] = 1.000, IC to 90%: [0.040; 0.043], CFI and TLI are well above the
0.95 thresholds and the RMSEA is below the 0.05 threshold considered a good fit (Hu and
Bentler, 1999). All item loadings are statistically significant (p < 0.01), and factor loadings
are acceptable, which demonstrates the validity and reliability of the measurement model.
Table 4 reports the estimated coefficients of the conceptual model.
H1 states that LO has a positive effect on RSs. This effect is confirmed (b = 0.769, p <
0.001), supporting H1. LO also has a positive effect on EO (b = 0.286, p < 0.001), thus, H2 is
confirmed. H3 posits that RSs have a positive effect on EO (b = 0.309, p < 0.001); thus, this
hypothesis is confirmed. RSs have a positive effect on both CAs analyzed – differentiation
EBR (b = 0.247, p < 0.001) and cost leadership (b = 0.290, p < 0.001) – so H4 and H5 are
35,1 confirmed. The same conclusion can be drawn from the relationships between EO and CA of
differentiation (b = 0.668, p < 0.001) and CA of cost leadership (b =0.181, p < 0.001),
confirming H6 and H7. Finally, CA of differentiation (b = 0.613, p < 0.001) and cost
leadership (b = 0.070, p < 0.001) are also found to have a positive effect on BP, thus
confirming H8 and H9.
104 Based on the confirmed hypotheses, we can conclude that LO and RSs occur as
antecedents of EO, which, in turn, mediates the relationship between LO and both CAs, as
well as the relationship between RSs and CA. RSs are also mediators of the relationship
between LO and CA. Furthermore, CA of differentiation and cost leadership are mediators in
the relationship between EO and BP, and the same occurs in the relationship between RSs
and BP.
These results are further enhanced by the estimates of the indirect relationships; we
found that LO (b = 0.266, p < 0.001), EO (b =0.367, p < 0.001) and RSs (b = 0.252, p < 0.001)
have a positive effect on BP. LO was also found to have a positive impact on CA of
differentiation (b = 0.501, p < 0.001) and CA of cost leadership (b = 0.315, p < 0.001).

Effect of control variables

To verify the effects of the control variables on CAs and BP, Table 5 shows the estimated
coefficients in the structural equation model.
Depending on the type of activity, industrial firms have less differentiation and
construction firms perform less well. In terms of location, firms in the North perform better
than firms in Lisboa e Vale do Tejo. In terms of firm size, medium-sized firms perform better
than microfirms. The sales volumes above e50,000 show better performance results vis-a-vis
those with sales volumes below e50,000. Firms with sales volume exceeding e250,000 are
also better in terms of differentiation. The firm’s age and export activities show no
relationship with BP. Finally, firms with R&D activities show better differentiation rates.

Discussion and conclusions

Theoretical implications
This study represents an innovative and original contribution to both strategic management
and HR literature. This is unique in that no empirical studies have been conducted on how
the constructs in our tested conceptual model affect each other and promote CAs and BP.

Entrepreneurial Reward CA of CA of cost Business

Variables orientation systems differentiation leadership performance

Learning orientation 0.286*** 0.769*** 0.501*** 0.315*** 0.266***

(0.178;0.041) (0.515;0.037) (0.839;0.063) (0.408;0.043) (0.350;0.032)
Entrepreneurial orientation 0.668*** 0.181*** 0.367***
(1.357;0.132) (0.375;0.089) (0.523;0.058)
Reward systems 0.309*** 0.247*** 0.290*** 0.252***
(0.287;0.063) (0.465;0.069) (0.559;0.083) (0.287;0.040)
CA of differentiation 0.613***
(0.716;0.033)
Table 4. CA of cost leadership 0.070***
Estimated (0.080;0.033)
coefficients of the
structural model Notes: ***p < 0.001; In parentheses: (nonstandardized coefficient; standard error)
Control variables CA of differentiation CA of cost leadership Business performance
Building
competitive
Age (ref: until 10 years) advantages
11 – 20 years –0.001 0.053 –0.009
(–0.002;0.063) (0.085;0.067) (–0.016;0.066)
Over 20 years –0.078 –0.056 –0.024
(–0.124;0.065) (–0.091;0.070) (–0.044;0.068)
Size (ref: fewer than 10 employees)
105
10–49 employees 0.051 –0.016 0.047
(0.085;0.069) (–0.026;0.069) (0.092;0.071)
50 employees or more 0.078 0.061 0.064
(0.188;0.101) (0.151;0.107) (0.181;0.105)
Sales volume (ref: less than e50,000)
e50,000–250,000 0.097 –0.096 0.130**
(0.163;0.086) (–0.165;0.086) (0.255;0.088)
250,001–e1,000,000 0.170** 0.017 0.144**
(0.287;0.091) (0.029;0.092) (0.285;0.095)
More than e1,000,000 0.141* –0.020 0.220***
(0.235;0.108) (–0.033;0.106) (0.428;0.113)
Sector of activity (ref: services)
Manufacturing –0.092** 0.042 –0,018
(–0.187;0.074) (0.087;0.078) (–0,042;0.078)
Construction –0.010 0.022 –0.064*
(–0.029;0.100) (0.067;0.105) (–0.223;0.108)
Trade 0.040 0.038 –0.032
(0.071;0.065) (0.069;0.066) (–0.067;0.066)
Location (ref: Lisboa and Vale do Tejo)
North –0.036 –0.005 0.042
(–0.061;0.063) (–0.008;0.064) (0.082;0.064)
Center –0.028 0.013 0,027
(–0.051;0.067) (0.023;0.070) (0,057;0.068)
South –0.014 0.023 0.029
(–0.039;0.092) (0.064;0.098) (0.096;0.102)
Islands 0.056 0.073* –0.037
(0.201;0.108) (0.269;0.123) (–0.154;0.119)
Export activity –0.030 0.006 0.022 Table 5.
(–0.048;0.058) (0.010;0.059) (0.040;0.061)
R&D activities 0.237*** 0.043 0.002
Structural model
(0.400;0.056) (0.075;0.059) (0.004;0.062) coefficient estimates
(control variable
Notes: ***p < 0.001; **p < 0.01; *p < 0.05. In parentheses: (nonstandardized coefficient; standard error) effects)

Therefore, a more comprehensive framework is needed. We addressed the effect of RSs on

EO, CAs of differentiation and cost leadership and BP. In addition, we stated LO as an
antecedent of the RSs. We have therefore brought a new perspective and a new theoretical
mediation chain of constructs between LO and BP, which increases the understanding of the
causal link between LO as a propeller toward the creation of CAs and, consequently, a better
BP. Our findings make an important contribution to the recent research on learning and BP.
The learning environment is crucial to seize opportunities, and learning further strengthens
structures and internal systems. Thus, they contribute to the literature and to business
management practice, starting through a learning paradigm. Although some researchers
EBR note the importance of focusing on employees to promote innovative and entrepreneurial
35,1 environments, few studies have addressed this research topic.
Our results show that RSs, which include the level of risk associated with the reward,
long-term rewards and efficiency of payment, promote the development of EO and CAs in
terms of differentiation and cost leadership. The impact on CAs appears to be greater in the
case of differentiation. Empirically, our conceptual model provides a strong argument for
106 the importance of HRM practices for the development of EOs, in line with Schmelter et al.
(2010). These results confirm that firms should pay particular attention to their RSs when
developing their strategic orientations, as stated by Wei and Atuahene-Gima (2009). At the
same time, employee remuneration policies, goal setting and long-term career advancement
policies should be formulated carefully to ensure an ongoing increase in the firm’s
entrepreneurial values. This study also contributes to business strategy by empirically
examining how the design of RSs can improve performance. It has been shown that a firm’s
LO develops the ability to respond quickly to unexpected market conditions. As Nasution
et al. (2011) argue, successful firms are those that learn quickly and use flexibility to cope
with market instability and unpredictability. Therefore, the results reinforce the treatment
of LO as a true organizational capability. Specifically, this research outlines the novelty that
BP emerges from blended strategies that should include learning and business environment
assumptions and a formal definition of effective RSs enhancement.

Managerial implications
This study draws relevant implications for management and presents a new approach for
defining strategic and HR directions in Portugal and other countries with similar economic
models. It highlights the need for firms to place greater importance on LO and RSs.
Managers should substantially improve their understanding of the external environment of
firms. This can be leveraged with the knowledge and experience of all employees and can
enable firms to respond more quickly to market constraints by transforming their resources
in a timely manner. In the last years, the global business environment has been seriously
disrupted, which may lead firms to think carefully about their strategic orientation. Our
finding that LO has a positive indirect effect on CAs and the BP relationship will help
managers recognize the practical effects of learning. Developing learning ability and a
climate that fosters knowledge can bring a set of benefits. LO can be achieved by aligning
incentives for learning based on collective wisdom, an internal communication process that
encourages employees’ commitment to the firms’ goals and considering them as partners.
Top management should stimulate the organization to be more creative and proactive by
promoting original ideas at all times. Management aims to develop a multidimensional
concept of sustainable LO that combines a commitment to learning, shared vision of
employees and the development of open-minded management that triggers flexibility and
innovation.
Our findings that EO and RSs play a mediating role in both LO-CAs and LO-BP
relationships underscores the fact that the full benefit cannot be achieved simply by
applying LO practices. Firms need to exhibit entrepreneurial and innovative behavior,
proactivity and risk-taking in the market. As these orientations are complementary rather
than exclusive, we agree with Christ et al. (2016). Managers are faced with increasingly
diverse tasks, and companies dealing with different types of strategic options need to
understand how to improve BP. We highlight in particular the importance of R&D, the
introduction of new products and services, adopting a very competitive posture and having
a strong proclivity for high-risk projects. This is particularly relevant to managers as it
emphasizes that although learning is desirable, it must be complemented by other strategic
orientations to lead to better outcomes. In addition, a set of HRM practices are needed; more Building
specifically, RSs, LO and EO not only help implement a dual competitive strategy but also competitive
support the implementation of both differentiation and cost leadership strategies that have a
positive impact on performance. Therefore, our results are in line with Santos-Vijande et al.
advantages
(2012) and show the significance of the effect on both CA strategies. On the other hand, and
in line with Alegre and Chiva’s (2013) conclusions, results confirm that CA entails the
definition of a strategy focusing on a number of aspects, including LO and the EO.
Furthermore, the results empirically confirm that RSs play a central role in improving the 107
firms’ performance. The intensity of today’s competition together with economic
globalization, underlines the importance of implementing the best HRM practices. Designing
an effective HRM system is therefore crucial, including an effective RS in which managers
define different ways of paying employees, such as introducing variable components linked
to the achievement of goals. The RSs should be long-term oriented, and the pay policies and
practices should make a strong contribution to retaining, attracting and motivating the
firm’s employees.
Our study shows that LO is an antecedent of other strategic concepts which, according to
Camison and Villar-Lopez (2011), positively promote the development of sustainable CAs. In
relation to EO, we find that a strong ability to take risks, proactivity and innovation can
nurture the development of differentiating products and/or services that outstrip those of
competitors and/or enable firms to be more aggressive in cost-based competitive markets. In
accordance with Cake et al. (2020), it suggests that a strong EO entails firms having a
learning-oriented culture to help them discover new opportunities. Managers and employees
should therefore develop new added-value activities that maximize the value delivered to
their customers (Nasution et al., 2011). The learning climate developed by managers is also
underscored.
We suggest starting by creating a supportive environment in which employees are
happy to share knowledge with others. Implementing RSs that reward collective goals and
not just individual behaviors can foster this environment. Moreover, digital technologies are
essential to a CA. Firms can access funding programs, for instance, from the European
Recovery and Resilience Plan, to accelerate the digital shift and support digital
transformation.
Additionally, specific strategic groups were identified based on the control variables. We
concluded that the sector of activity has a greater effect on BP for construction firms than
for the service sector. This control variable also impacts manufacturing firms more than
service firms. Our results show that the firm age, firm size and export activities do not
impact CAs and BP. However, firms with R&D activities show better differentiation scores
and, depending on sales volume and firms can improve BP and CA of differentiation.
Our results recommend the application of a new strategic chain that leads to higher firm
performance. Therefore, firm managers should be encouraged to explore this new
conceptual framework by examining their respective strategic directions and the benefits of
RSs.
This study also offers insights to policymakers and higher education institutions (HEIs).
Policymakers should support the development of tools that foster lifelong training and
facilitate action between firms, government structures and HEIs. Simultaneously, the entire
bureaucratic process should be simplified so that firms can increase investment in R&D.
This would promote BP and thereby co-create value, not only providing employees,
customers and stakeholders with the best outcome but also giving rise to direct positive
individual and societal impacts. HEIs should design and implement strategies for
cooperating with firms that organize specialized courses, promote an innovative and
EBR sustainable society and involve firms in the debate on public policies in the community.
35,1 Additionally, HEI should disseminate the importance of diverse strategic orientations,
namely, learning, entrepreneurial, HR and business capabilities, to improve firms’ outcomes.
Higher education is changing with the rapid development of more diversified and flexible
learning opportunities, including blended learning, new ways of open online learning,
massive open online courses and ongoing professional development. Adapting formative
108 programs, including strategic orientation training and organizing public seminars with the
participation of experts, can also be fruitful. Moreover, public agencies could encourage the
assessment of firms’ strategic orientations; in other words, policymakers should review
existing government support programs to enhance their impact on firms’ outcomes.

Limitations and direction for further research

This study has some limitations. First, the geographical context of the study was limited to
Portuguese firms, so the applicability of the results to other countries in different cultural
and economic contexts should be considered with caution. Second, although the sample for
this study includes firms from different types of activity, conclusions may not apply to all
activities equally. However, we believe the large sample size mitigates this limitation
considerably. In future studies, a cluster or multigroup analysis could be undertaken to
determine the potential heterogeneity amongst activity sectors. Third, as these data were
collected at a single moment, a longitudinal study that allows the effect of market dynamism
to be identified and the confirmation of our results in different economic contexts is
recommended. Fourth, the study focuses on the RSs analysis related to the remuneration of
employees. Future studies could focus on other non-financial reward methods. Additionally,
we suggest conducting further research on the possibility of defining RSs as a
multidimensional construct and consequently propose and validate a measurement scale to
measure it. Further research could then explore whether subdimensions of RSs have
different impacts on each CA. Fifth, our conceptual model defines theoretical assumptions
that are supported in the literature. However, as this is a very dynamic field of research,
alternative views e.g. testing the strategic orientations (LO and EO) as complementary
precedents of RSs, could also be studied. Finally, BP was measured by managers’ attitudinal
data. We propose replicating this study taking into account other measurement elements at
the customer level and in relation to other stakeholders.
Given the important role of the RSs in a firm’s strategy as a mediator between LO and
EO and in the development of CA, it is important to delve into this topic and analyze other
elements that can influence these relationships, namely, external factors such as intensity of
competition or environmental dynamism.

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Appendix Building
About the authors
competitive
Ricardo Jorge Correia is an Adjunct Professor at the Polytechnic Institute of Bragança, Portugal. He advantages
Standard Standardized
Dimensions & Items Estimate error estimate

Learning orientation
117
Commitment to learning
1. Managers basically agree that our business unit’s ability to learn is the
key to our competitive advantage 1 – 0.757
2. The basic values of this business unit include learning as key to
improvement 1.185 0.025 0.897
3. The sense around here is that employee learning is an investment, not
an expense 1.252 0.027 0.948
4. Learning in my organization is seen as a key commodity necessary to
guarantee organizational survival 1.194 0.026 0.904
5. Our culture is one that does not make employee learning a top priority* – – –
6. The collective wisdom in this enterprise is that once we quit learning,
we endanger our future 0.954 0.028 0.723
Shared vision
1. There is a well-expressed concept of who we are and where we are
going as a business unit 1 – 0.929
2. There is total agreement on our business unit vision across all levels,
functions and divisions* – – –
3. All employees are committed to the goals of this business unit 0.995 0.011 0.925
4. Employees view themselves as partners in charting the direction of the
business unit 0.965 0.013 0.897
5. Top leadership believes in sharing its vision for the business unit with
the lower levels* – – –
6. We do not have a well-defined vision for the entire business unit* – – –
Open-mindedness
1. We are not afraid to reflect critically on the shared assumptions we
have about the way we do business 1 – 0.684
2. Managers in this business unit do not want their “view of the world” to
be questioned* – – –
3. Our business unit places a high value on open-mindedness 1.224 0.032 0.837
4. Managers encourage employees to “think outside of the box” 1.300 0.035 0.889
5. An emphasis on constant innovation is not a part of our corporate
culture* – – –
6. Original ideas are highly valued in this organization 1.318 0.037 0.901
Entrepreneurial orientation
1. In general, the top managers of my firm favor a strong emphasis on
R&D, technological leadership and innovations 1 – 0.377
2. My firm has had very many new lines of products or services in the
past five years* – – –
3. Changes in product or service lines have usually been quite dramatic.* – – –
4. In dealing with its competitors, my firm typically initiates actions to Table A1.
which competitors then respond.* – – –
Construct
1.982 0.174 0.747
(continued)
measurement
(confirmatory factor
model results)
EBR
Standard Standardized
35,1 Dimensions & Items Estimate error estimate

5. In dealing with its competitors, my firm Is very often the first business
to introduce new
products/services, administrative techniques, operating technologies, etc
118 6. In dealing with its competitors, my firm typically adopts a very
competitive, “undo-the-competitors” posture 1.676 0.154 0.632
7. In general, the top managers of my firm have a strong proclivity for
high-risk projects (with chances of very high returns) 1.082 0.113 0.408
8. In general, the top managers of my firm believe that owing to the
nature of the environment, bold, wide-ranging acts are necessary to
achieve the firm’s objectives.* – – –
9. When confronted with decision-making situations involving
uncertainty, my firm typically adopts a bold, aggressive posture to
maximize the probability of exploiting potential
opportunities.* – – –
Reward systems
Risk associated with reward
1. In this organization a portion of an employee’s earnings is contingent
on group or organization performance goals being achieved 1 – 0.479
2. We designed our compensation system so that a portion of our
compensation costs is variable 0.929 0.047 0.445
3. We believe that employees should be risk takers with some of their pay 1.894 0.122 0.907
Long-term rewards
1. The pay system of this organization has a long-term orientation 1 – 0.843
2. The pay system in this organization has a futuristic orientation. It
focuses employees’ attention on long-term (two or more years) goals 1.030 0.022 0.869
3. Our pay policies recognize that long-term results are more important
than short-term results 0.957 0.021 0.808
Effectiveness of the payment
1. Our pay policies and practices are highly effective 1 – 0.946
2. Management is very happy with the way the compensation system
contributes to the
achievement of overall organizational goals 0.845 0.025 0.800
3. Our pay policies and practices appear to enjoy widespread acceptance
among employees 0.878 0.023 0.831
4. Our pay policies and practices greatly contribute to retention,
attraction and motivation of employees 0.955 0.022 0.904
Competitive advantage of differentiation
1. In my industry, my firm is always the first to market a new product 1 – 0.746
2. Relative to competition, my firm is always ahead in the use of
innovative promotional strategies 1.218 0.027 0.898
3. Relative to competition, my firm is always ahead in the use of
innovative pricing strategies 1.092 0.025 0.811
4. My firm distinguishes itself from competition by the quality of its
products.* – – –
Competitive advantage of cost leadership
1. My firm emphasizes cost reduction in all its business activities 1 – 0.775
0.871 0.071 0.677
Table A1. (continued)
 Building
Standard Standardized
Dimensions & Items Estimate error estimate competitive
advantages
2. In my firm, the production process changes all the time with the goal of
constantly reducing production costs
3. My firm invests mainly in large projects to realize economies of scale 0.990 0.070 0.767
4. In my firm, cost is the most important consideration in the choice of a
distribution system 0.424 0.055 0.331 119
5. My firm tries to force competitors out of the market by good cost
control.* – – –
Business performance
1. Return on assets over the past 3 years 1 – 0.860
2. Return on sales over the past 3 years 1.070 0.010 0.916
3. Total sales growth over the past 3 years 0.998 0.016 0.858
4. Market share over the past 3 years 1.003 0.015 0.863
5. General profitability over the past 3 years 1.068 0.015 0.914
Note: *Item deleted Table A1.

received his PhD in Management from the University of Tras-os-Montes e Alto Douro. His main
research interests are in management, marketing, strategy, organizational capabilities and business
performance. His research has been published and presented in a variety of outlets, including the
International Journal of Productivity and Performance Management, Journal of Intellectual Capital,
Journal of Strategy and Management, Journal of Business Economics and Marketing and Smart
Technologies and Trends. Ricardo Jorge Correia is the corresponding author and can be contacted at:
ricardojorge@ipb.pt
Jose G. Dias is an Associate Professor with habilitation at the ISCTE Business School in Lisbon. He
holds a PhD in Economics from the University of Groningen, The Netherlands. His main research
interest is the application of quantitative methods (statistics and econometrics) in business and
management. His research has been published in a variety of outlets, including Journal of Business
Research, PLoS ONE, European Journal of Finance, Social Indicators Research, European Journal of
Operational Research, Expert Systems with Applications, Energy Economics and Ecological Indicators.
Mario Sergio Teixeira is an Assistant Professor at UTAD – University of Tras-os-Montes e Alto
Douro. He received his PhD degree in Management from the University of Tras-os-Montes e Alto
Douro. His main research interests are strategic management, marketing and entrepreneurship. His
research has been published and presented in a variety of outlets, including International Journal of
Productivity and Performance Management, Journal of Intellectual Capital, Journal of Strategy and
Management, Journal of Business Economics and International Marketing Review.
Susana Campos is a Postdoctoral Researcher at the Polytechnic Institute of Viana do Castelo,
Portugal. She received his PhD degree in Development, Societies and Territories from the University
of Tras-os-Montes e Alto Douro. Her main research interests are strategic management, marketing
and sustainability. Her research has been published in a variety of outlets, including Journal of
Intellectual Capital, Journal of Strategy and Management, International Journal on Food System
Dynamics and Smart Innovation, Systems and Technology.

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