Energizing Management through

Global Innovation and

Entrepreneurship
This book provides an in-depth understanding of key variables that play a
significant role at the various stages of the innovation process, leading to
successful commercialisation of products and services. Combining inter-
disciplinary studies in entrepreneurship and innovation, the book consists
of contributions focusing on theory, research and practise in the field of
innovation, management and entrepreneurship. The role of the entrepreneur
is addressed as an innovator who recognises opportunities and convert
these into marketable products and services through personal commitment,
financial resources and management skill; taking appropriate level of risk.

Terziovski has selected a variety of chapters focusing on a wide ranging

number of topics including corporate entrepreneurship, entrepreneurial
learning strategies, the impact of entrepreneurial practises on competitive-
ness, human resource management and knowledge management. The main
conclusion of the analysis in these chapters is that there is a strong relation-
ship between innovation and entrepreneurship. Moreover, this book articu-
lates two contradictory schools of thought; first that firms with a higher
entrepreneurial orientation have higher relative international sales and
operate in a greater number of foriegn countries; and secondly that entre-
preneurial orientation is not associated with subsidiary financial or market
performance, but is positively and significantly associated with subsidiary
idea generation which are subsequently converted into marketable products
and services through the innovation process. This book acts as a negotiation
between these two perspectives.

The book will make a significant contribution to management knowledge by

combining interdiscipliary studies that will collectively provide significant
new knowledge to the existing research knowledge base and to practitioners
in the field of innovation and entrepreneurship.

Milé Terziovski is Associate Professor and Executive Director at the Centre

for Global Innovation and Entrepreneurship at the University of Melbourne.
Routledge Studies in Innovation, Organization and Technology
1. Innovation in the US Service
Sector
Michael P. Gallaher, Albert N. Link
and Jeffrey E. Petrusa
2. Information and Communications
Technologies in Society
E-living in a digital europe
Edited by Ben Anderson,
Malcolm Brynin and Yoel Raban
3. The Innovative Bureaucracy
Bureaucracy in an age of fluidity
Alexander Styhre
4. Innovations and Institutions
An institutional perspective on the
innovative efforts of banks and
insurance companies
Patrick Vermeulen and Jorg Raab
5. Knowledge and Innovation in
Business and Industry
The importance of using others
Edited by Håkan Håkansson and
Alexandra Waluszewski
6. Knowledge and Innovation
A comparative study of the USA,
the UK and Japan
Helen Brown
7. Industrial Innovation in Japan
Edited by Takuji Hara, Norio
Kambayashi and Noboru Matsushima
8. Managing and Marketing Radical
Innovations
Marketing new technology
Birgitta Sandberg
9. Mobility and Technology in the
Workplace
Edited by Donald Hislop
10. Energizing Management
Through Innovation and
Entrepreneurship
European research and practice
Edited by Milé Terziovski
Energizing Management through
Innovation and Entrepreneurship
European research and practice

Edited by Milé Terziovski

First published 2009
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN
Simultaneously published in the USA and Canada
by Routledge
270 Madison Avenue, New York, NY 10016
Routledge is an imprint of the Taylor & Francis Group,
an informa business
This edition published in the Taylor & Francis e-Library, 2008.
“To purchase your own copy of this or any of Taylor & Francis or Routledge’s
collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.”
© 2009 Milé Terziovski
All rights reserved. No part of this book may be reprinted
or reproduced or utilized in any form or by any electronic,
mechanical, or other means, now known or hereafter
invented, including photocopying and recording, or in any
information storage or retrieval system, without permission
in writing from the publishers.
British Library of Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Energizing management through innovation and enterpreneurship :
European research and practice / edited by Milé Terziovski.
p. cm.
Includes bibliographical references and index.
1. Technological innovations — Management. 2. Entrepreneurship.
3. Management — Europe. I. Terziovski, Milé.
HD45.E54 2008
658.4′063—dc22
2008008125
ISBN 0-203-89207-0 Master e-book ISBN

ISBN 10: 0–415–43929–9 (hbk)

ISBN 10: 0–203–89207–0 (ebk)

ISBN 13: 978–0–415–43929–9 (hbk)

ISBN 13: 978–0–203–89207–7 (ebk)
To my wife Liljana whose love and support have inspired me
throughout my life and career.
Milé Terziovski
Contents

About the editor and authors xi

Preface xv
Acknowledgements xvii

1 Entrepreneurship and innovation management 1

MILÉ TERZIOVSKI

Introduction 1
Definitions of entrepreneurship 1
Definitions of innovation 2
The link between innovation and entrepreneurship 3
Knowledge management capabilities as main driver for
service innovation 3
Synthesis 3
Chapter summary 4

2 Developing a model of corporate entrepreneurship 6

MARIUSZ BRATNICKI AND BARTLOMIEJ J. GABRYS

Introduction 6
Ideological orientation of corporate entrepreneurship 8
Cognitive base of corporate entrepreneurship 11
Main components and logic of corporate entrepreneurship 18
Discussion 25
Conclusion 26
Implications for practice 26
Future research directions 26
viii Contents
3 Entrepreneurial strategy: sequential investment
and information gathering 28
NIGEL WADESON

Introduction 28
Decision making under risk versus decision making
under uncertainty 28
Sequential acts 30
Ex ante information collection 32
Entrepreneurial probing strategies 33
The effects of over-optimism 36
Conclusion 38

4 Entrepreneurship in the public sector 40

LEONIDAS A. ZAMPETAKIS AND VASSILIS MOUSTAKIS

Introduction 40
Entrepreneurship in the public sector 41
Fostering entrepreneurship in the public sector 42
Methods and procedures 43
Analysis and results 46
Discussion 51
Conclusions and recommendations for further research 54

5 The impact of management practices on industry

level competitiveness in transition economies 55
LILLA HORTOVÁNYI AND ROLAND ZS. SZABÓ

Introduction 55
Hypotheses development 57
The research design 61
Market behavior clusters 62
Results 65
Summary 71

6 International entrepreneurship in established

firms: does it matter? 72
MARTINA MENGUZZATO-BOULARD, MARÍA RIPOLLÉS-MELIÁ
AND LUZ SÁNCHEZ-PEINADO

Introduction 72
Entrepreneurial orientation and international commitment in
established firms 74
Methodology 78
 Contents ix
Analysis of results and discussion 81
Conclusions and implications 88

7 Human resource management and knowledge

management as antecedents of innovation 89
DANIEL JIMÉNEZ-JIMÉNEZ AND RAQUEL SANZ-VALLE

Introduction 89
Knowledge management as an antecedent of technical
innovation 90
Methodology 97
Analysis and results 105
Discussion and conclusion 105
Implications of the research findings 108
Limitations of the study 108
Future research 109

8 Implications of strategic planning in SMEs for

international entrepreneurship research and practice 110
SASCHA KRAUS, B. SEBASTIAN REICHE AND
CARL HENNING RESCHKE

Introduction 110
Strategy development in SMEs 111
Empirical evidence of strategic planning in SMEs 113
Results 114
Synthesis: do SMEs really plan strategically? 122
Discussion 123
Conclusions and implications for future research 126

9 Performance and entrepreneurial orientation in

small firms: the moderating effects of strategy, structure,
human resource policies and information systems 128
ISABEL GUTIÉRREZ, ESTER MARTÍNEZ-ROS AND
JULIO O. DE CASTRO

Introduction 128
Entrepreneurial orientation and firm performance 130
Strategy 131
Organizational structure 133
Human resource practices 134
Control and information systems 134
Empirical analysis 135
x Contents
Variables and measures 136
Results 139
Discussion 144
Conclusion 145

10 Which roles in innovation processes? A matter

of perspective 146
SILVIA MASSA AND STEFANIA TESTA

Introduction 146
Theoretical background 147
The roles of the stakeholders in the innovation process 148
Data collection 151
Data analysis and discussion 152
Synthesis 160
Limitations 165
Conclusion 165
Future research 166

11 Conclusion and implications 167

MILÉ TERZIOVSKI

Introduction 167
Complex adaptive systems 167
Entrepreneur’s confidence and business planning 167
Public entrepreneurship 168
Entrepreneurial culture 168
Internationalization and entrepreneurial orientation 169
Knowledge management and innovation 169
Strategic planning and entrepreneurship 169
Entrepreneurial orientation and firm performance 170
Innovation performance 170
Conclusion 170
Implications for managers 171

References 172
Index 200
About the editor and authors

Milé Terziovski is Associate Professor of Innovation and Entrepreneurship in

the Department of Management and Marketing at the University of Mel-
bourne. He is also the Executive Director of the Centre for Global Innov-
ation and Entrepreneurship. After completing his Ph.D at the Melbourne
Business School in 1996, he worked as a senior lecturer in the Department of
Management at Monash University. Prior to his academic career, Professor
Terziovski worked for Rio Tinto for 17 years as an engineer in maintenance,
production and project management.
Professor Terziovski has published more than 40 journal articles, 3 books,
15 book chapters and more than 50 conference papers. He has published
three articles in the prestigious Journal of Operations Management and won
the best paper award. Professor Terziovski has presented at the Academy of
Management on several occasions, where he received a nomination for best
international paper in 2000, and has just won the Best Paper (with his
PhD student S. Foon) in the Operations Division of the 2008 Academy of
Management Conference.
Professor Terziovski recently chaired the Innovation and Entrepreneurship
Track at the European Academy of Management Conference (EURAM
2006) in Norway. He served as an advisor to the late President of the Republic
of Macedonia, Mr Boris Trajkovski, on Innovation and Entrepreneurship.

Mariusz Bratnicki is a professor in management and holds a chair in entre-

preneurship at the Karol Adamiecki University of Economics in Katowice.
His present research focuses on the area of corporate entrepreneurship and
the link between entrepreneurship and organizational performance. His latest
book is The Dialectics of Organizational Entrepreneurship.

Bartlomiej J. Gabrys is a research assistant at the Centre in Entrepreneur-

ship, Karol Adamiecki University of Economics in Katowice. His present
research focuses on the area of entrepreneurship and temporal dimensions of
corporate entrepreneurship. His latest publication is “Temporal Dimensions
of Corporate Entrepreneurship: Empirical Results from Transition
Economy,” 30th ISBE Conference Proceedings.
xii Energizing management
Nigel Wadeson is a lecturer in economics at the University of Reading. He has
published on decision making, the firm, and entrepreneurship in a range
of books and journals. He teaches entrepreneurship and small business eco-
nomics at masters level. He spent several years working in entrepreneurial
ventures in the IT industry and has also acted as a consultant involved in
high-level government policy work.
Leonidas A. Zampetakis is a lecturer in management systems in the Depart-
ment of Production Engineering and Management at the Technical
University of Crete. He holds a Diploma in Agricultural Biotechnology
(Agricultural University of Athens, Greece), a Masters Degree in Environ-
mental Management and Quality Control and a Masters Degree in
Engineering Management Systems from the Technical University of Crete.
His research interests extend to creativity development, and entrepreneurial
behavior in different contexts.
Vassilis Moustakis is Associate Professor and Director of the Management
Systems Laboratory, Department of Production and Management Engineer-
ing and Affiliated Research Scientist at the Foundation for Research and
Technology – Hellas, Institute of Computer Science. He earned his DSc
degree in Engineering Management from the George Washington University,
USA (1984). He also holds a Diploma in Mechanical-Production Engineer-
ing from the University of Patras (1978).
Lilla Hortoványi is Assistant Professor at Corvinus University of Budapest,
in Hungary. She is a Research Fellow at the Research Centre of Strategic and
International Management at the university, with a research interest in cor-
porate entrepreneurship and venturing.
Roland Zsolt Szabó is a PhD candidate of the Institute of Management at
Corvinus University of Budapest, with a research interest in strategic entre-
preneurship. He is a Research Fellow at the Research Centre of Strategic and
International Management.

Dr Sánchez-Peinado is a lecturer in strategic management in the Department

of Management at the University of Valencia, Spain. She received her Ph.D
in management from the University of Valencia. Her current research
interests include diversification strategy, entry modes, entrepreneurial and
strategic orientation, and top management team’s characteristics.
Dr Menguzzato-Boulard, is a full professor of strategic management in the
Department of “Dirección de Empresas. Juan José Renau Piqueras” at the
University of Valencia, Spain. She is the director of the Valencia Univer-
sity’s Doctoral Program “Dirección de Empresas, Estrategias y Organ-
ización.” Her current research interests include strategic alliances and
collaborative agreements, corporate strategy, international business and
entrepreneurship.
 About the editor and authors xiii
Daniel Jiménez-Jiménez is a lecturer in management at the University of
Murcia (Spain). His current research focuses on the relationships among
innovation, human resource management and knowledge management. He
has recently published in International Journal of Manpower, International
Journal of Information Management, Industrial Marketing Management, and
International Journal of Human Resource Management.

Raquel Sanz-Valle is an associate professor of management at the University

of Murcia (Spain). She received her Ph.D from the University of Murcia. Her
research interests include SHRM, the linkages among HRM, organizational
culture, innovation and knowledge management, the effect of training on
performance, and expatriates management. She has published in journals
such as Journal of Business Research and International Journal of Human
Resource Management.

Dr Sascha Kraus is a senior researcher at the Vienna University of Economics

and Business Administration and Associate Member at the Newcastle (UK)
University’s Centre for Knowledge, Innovation, Technology & Enterprise. He
is Head of the Department of Entrepreneurship, Intrapreneurship & Innov-
ation at the Salzburg University of Applied Sciences, Austria. His main
research interests are strategic management and entrepreneurship.

B. Sebastian Reiche is Assistant Professor in the Managing People in

Organizations Department at IESE Business School. He earned his Ph.D
from the University of Melbourne, Australia. His research focuses on how
actors access, maintain and leverage knowledge resources in organizations,
primarily from a multinational and cross-cultural perspective.

Carl Henning Reschke is affiliated with the Institute for Management

Research Cologne. He received his doctorate from the University of Witten/
Herdecke in 2005. His interests focus on evolutionary and learning processes
of organizations in strategic management, innovation, and entrepreneurship.

Isabel Gutiérrez is a professor of management at Universidad Carlos III de

Madrid. She has a Ph.D in business administration and a licentiate degree in
economics from the University of Seville. Her research focuses on organiza-
tion theory and competitive strategy. Her research interests include competi-
tive and spatial dynamics affecting the outcomes of firms that face radical
innovation and environmental discontinuities.

Ester Martínez-Ros is an associate professor of management at the Universi-

dad Carlos III de Madrid. She has a Ph.D from the Universitat Autònoma de
Barcelona and an MSc. in Economics from University College, London. Her
research interests are in innovation decisions and their effect on a firm’s
performance.
xiv Energizing management
Julio O. De Castro is Associate Dean of Research and Professor of Strategy
and Entrepreneurship at Instituto de Empresa Business School, in Madrid,
Spain. He received his Ph.D from the University of South Carolina. His
research deals with firm strategy and entrepreneurship, and examines issues
such as product piracy, knowledge management, and the characteristics of
the process of entrepreneurship.

Silvia Massa is Informatics Assistant at the Università degli Studi di Genova

Dipartimento di Informatica Sistemistica e Telematica (DIST), Genoa,
Italy.

Stefania Testa is a professor at the Università degli Studi di Genova Diparti-

mento di Informatica Sistemistica e Telematica (DIST), Genoa, Italy.
Preface

A major challenge for managers is to reframe their short-term thinking and

focus on creating the future. This would require a multidisciplinary approach
to managing innovation and entrepreneurship, which is a process of initiating
a business venture; organizing the necessary resources; and assuming the
associated risks and rewards (Samson and Daft, 2005).
Managers need to create new sources of knowledge and ideas to develop
new products and services for customers that would meet their future
needs. For example, in 2004 approximately half of the profits of all US
companies came from products launched in the previous ten years (Wheelan
and Hunger, 2004). Innovation management is a critical factor in the
entrepreneurial process. It is generally perceived as a process by which
entrepreneurs identify opportunities from the external environment, and
transfer these opportunities into marketable products and services (Drucker,
1985).
The book is a collection of papers based on an Innovation and Entre-
preneurship Track organized and chaired by the Editor/Author at the
European Academy of Management (EURAM, 2006), held at the Norwegian
School of Management in Norway. The question we address in the book is
how to energize management through innovation and entrepreneurship
research and practice.
The book makes a contribution to management knowledge by combining
interdisciplinary studies that collectively provide an integrated approach for
the creation of entrepreneurial and innovative cultures. Based on cross-
chapter analysis we conclude that future organizational survival would
depend on managers’ willingness to develop an entrepreneurial orienta-
tion and a strong innovation culture underpinned by a sense of urgency
to act.
However, a contradiction has emerged, based on the cross-chapter analysis,
which provides an excellent platform for future research in this area of man-
agement. On one hand, firms with a higher entrepreneurial orientation oper-
ate in a greater number of foreign countries and produce higher corporate
performance than their counterparts. On the other hand, entrepreneurial
orientation is not associated with corporate performance but is positively
xvi Energizing management
and significantly associated with subsidiary idea generation. These ideas are
subsequently converted into marketable products and services through the
innovation process.

Milé Terziovski
Melbourne, Australia
February 2008
Acknowledgements

I wish to thank Professor Johan Olaisen, Head of Department – Leadership

and Organisational Behaviour, the Norwegian School of Management, and
Co-Chair of the European Academy of Management Conference (EURAM,
2006), for inviting me to chair the Innovation and Entrepreneurship Track at
the EURAM conference in Oslo.
I would also like to acknowledge the contributing authors who are listed
earlier in the order in which their chapters appear in the book. A special
acknowledgement is due to my research assistants – Jen Myers and Shaista
Pottachira – for their assistance with the preparation of the manuscript.
Finally, a special acknowledgement is made to the Routledge team, particu-
larly the commissioning editor Terry Clague and the editorial assistant
Thomas Sutton.

Acknowledgements from contributing authors

Leonidas Zampetakis and Vassilis Moustakis acknowledge the Greek
Secretariat for Research and Technology (GSRT)-PENED 2003 program for
their partial support of their research grant.
Isabel Gutierrez and Ester Martinez Ros, and Julio De Castro acknow-
ledge the Ministry of Education and Science (Spain), Grant Number:
SEJ2006-01731. Julio O. De Castro thanks the Ministry for funding by the
Ministry of Education and Science (Spain) Grant Number SEJ2006-010915.
1 Entrepreneurship and
innovation management
Milé Terziovski

Introduction
The traditional business model has changed in the past two decades. Informa-
tion Technology has enabled organizations to reengineer their processes and
therefore create flatter organizations. As a consequence, many redundant
managers have been forced to consider other options, such as establishing an
entrepreneurial venture. This chapter examines several definitions of innov-
ation and entrepreneurship. The chapter provides the contextual variables
that play a significant role in the entrepreneurial and innovation process,
leading to successful commercialization of products and services.

Definitions of entrepreneurship
The word entrepreneur originates from the French word “entreprende,”
meaning “to undertake” (Burgelman et al., 2005). There are many defini-
tions of entrepreneurship in the literature. Schumpeter (1951/1976) defined
entrepreneurship as:

doing things that are not generally done in the ordinary course of busi-
ness routine; it is essentially a phenomenon that comes under the wider
aspect of leadership.

In more recent times, Kuratko and Hodgetts (2004: 30) defined entrepreneur-
ship as:

a dynamic process of vision, change and creation. It requires an applica-

tion of energy and passion towards the creation and implementation of
new ideas and creative solutions.

Kuratko and Hodgetts (2004) explain the entrepreneurship process through

an interdisciplinary approach by identifying four key areas that need to be
addressed simultaneously:
2 Milé Terziovski
1 Unique markets – entrepreneurs identify new market segments
2 Unique people – entrepreneurial ventures are built around special talents
of one or more individuals.
3 Unique products – innovation of new products or services that capture
new or existing markets.
4 Unique resources – ability of the entrepreneurs to harness resources
such as land, labour, capital, and raw materials over the long term.

Based on the above framework, Kuratko and Hodgetts (2004: 28) define an
entrepreneur as a person who:

recognizes and seizes opportunities; converts those opportunities into

workable/marketable ideas; adds value through effort, money, and skills;
assumes the risks of the competitive marketplace to implement these
ideas; and realizes the rewards from these efforts.

Drucker (1985) sums up very well by dispelling any myth that entrepreneurs
are born with entrepreneurial capabilities: “It’s not magic; it’s not mysterious;
and it has nothing to do with genes. It’s a discipline and, like any discipline,
it can be learned.”

Definitions of innovation
There are many definitions of innovation in the literature. For example, Por-
ter and Stern (1999) define innovation from a customer perspective as:

the transformation of knowledge into new products, processes, and

services – involves more than just science and technology. It involves
discerning and meeting the needs of the customers.

Kim and Mauborgne (1999) combine customer value with technology

innovation with the term “value innovation.” Technology innovation with-
out “value” does not necessarily address customer needs and expectations.
For example, a new product may have technological excellence without
being accepted in the market as having value for the customer. Value
innovation addresses customer problems which may lead to a customized
solution.
Based on the literature review we found that a global definition of innov-
ation does not exist. There are different definitions of innovation that are
appropriate under different circumstances. Therefore, we have articulated a
definition of innovation for the purpose of this book as an application of
resources to create value for the customer and the enterprise by developing,
improving and commercializing new and existing, products, processes and
services.
The above definition encompasses the entrepreneurial process as can be
 Entrepreneurship and innovation management 3
seen from the following discussion on the link between innovation and entre-
preneurship (Kim and Mauborgne, 1999).

The link between innovation and entrepreneurship

Drucker (1985) explained the relationship between innovation and entre-
preneurship, stating that:

Innovation is the specific function of entrepreneurship . . . it is the

means by which the entrepreneur either creates new wealth-producing
resources or endows existing resources with enhanced potential for
creating wealth.

Davis and Moe (1997) contend that without a mind-set change it would
not be possible to develop and entrepreneurial/innovation culture stating
that: “Business people must shed their short-term mindsets and expand their
thinking into the future.” For example, highly innovative firms such as 3M,
HP, and Motorola tolerate uncertainty and ambiguity. These firms create
an innovative and entrepreneurial culture, and learn from their mistakes. The
most basic requirement for entrepreneurial culture is “to sense the urgency
to do it” (Burgelman et al., 2005).

Knowledge management capabilities as main driver for

service innovation
Aranda and Molina-Fernandez (2002) present a model for determining
innovation in service industries. Such a model is developed under the
knowledge-based theory lens. The authors identify and analyse those relevant
factors that foster innovation in service firms. According to Aranda and
Molina-Fernandez (2002) knowledge management is the basic ingredient for
the successful launch of new products and services.
Knowledge and its management are critical success factors in taking an
idea to market through the various stages of the innovation process, which
transforms tacit knowledge into explicit knowledge. For example, innovation
in the service industry requires the integration of knowledge related to the
service delivery system. Customer involvement in the service delivery system
requires knowledge integration of front and back office activities (Aranda
and Molina-Fernandez, 2002).

Synthesis
Innovation is a process of taking an entrepreneurial idea to market. A man-
agement paradigm shift is required for organizations to become more entre-
preneurial and innovative. Managers must expand their mind-set and aim to
create new customers as well as satisfy existing customers. A dual paradigm
4 Milé Terziovski
ensures that the “mainstream” provides the necessary cash flow to fund new
ventures, products and services, in the “new stream” (Kanter, 1989; Lawson
and Samson, 2001).

Chapter summary
Chapter 1 has provided definitions of innovation and entrepreneurship and
establishes a link between the two. Based on the above discussion, we can
deduce that entrepreneurship and innovation are strongly interrelated.
Entrepreneurship comes under the wider aspect of leadership (Schumpeter,
1951/1976).
Chapter 2 explores the dynamics of corporate entrepreneurship in four
arenas: strategic, political, managerial, and behavioural. After briefly review-
ing the existing literature on corporate entrepreneurship, management
and strategy theory, the authors propose a new theory of corporate
entrepreneurship.
Chapter 3 considers the nature of decision making under uncertainty,
entrepreneurial strategy, and the effects of over-optimism. It considers entre-
preneurship as a process that couples investments with the gaining of
information.
Chapter 4 complements the literature with concrete findings from a research
study which develops innovation and entrepreneurship models in the public
sector. The authors introduce a model covering the impact of four factors
that foster entrepreneurial behaviour, on public sector employees.
Chapter 5 investigates the central question of how strategic management
practices and organizational routines influence industry-level competitiveness
of firms. Research findings reveal that entrepreneurially oriented organiza-
tions face greater growth potential, organizational flexibility and more
innovation creation capability than their conservative competitors.
Chapter 6 examines the influence of firms’ entrepreneurial orientation
(EO) on both internationalization decision and dimensions (speed, scope)
in established companies. The chapter highlights the existence of a positive
relationship between entrepreneurial orientation and internationalization.
Chapter 7 applies structural equations modelling to test the effects of
innovation on performance. The chapter identifies five management practices
that can help firms cope with unpredictable change in a fast-growing enter-
prise. These are: understand the venture’s business logic; capture and share
information and build relationships; manage organizational politics; and take
action in real time.
Chapter 8 examines the value of strategic planning for small and medium-
sized businesses (SMEs). The chapter examines the role of strategic planning
in large companies and argues that rational decision making should prevail in
enterprises regardless of size. The chapter develops an argument for increased
use of strategic planning in SMEs.
Chapter 9 examines the impact of entrepreneurial orientation (EO) on
 Entrepreneurship and innovation management 5
performance in SMEs. Both entrepreneurship and strategy literatures suggest
that an EO improves firm performance. The empirical study shows that a
main-effect analysis provides an incomplete explanation of performance.
Chapter 10 examines the results of a recent survey of business executives
published by McKinsey (2005). Executives were asked about the most impor-
tant capability for growth. The most popular answer was: ability to innovate,
getting 43 percent of the total answers. In 2004, the same McKinsey survey
reported very similar results.
Chapter 11 conducts a cross-chapter analysis to identify key variables that
play a significant role at the various stages of the entrepreneurship and inno-
vation process, leading to successful commercialization of products and ser-
vices. An innovation and entrepreneurship framework is developed, based on
the analysis, and conclusions are developed for researchers and managers.
2 Developing a model of
corporate entrepreneurship
Mariusz Bratnicki and Bartlomiej J. Gabrys

Introduction
In this chapter we explore dialectical dynamics of corporate entrepreneurship
in four areas: strategic, political, managerial, and behavioral. After briefly
reviewing the existing literature on corporate entrepreneurship, management
and strategy theory, we propose a new theory of corporate entrepreneurship
that is amenable to empirical testing and correction.
The theory has three distinctive features. First, it focuses on the functions
that organizational ideology and learning fufil in entrepreneurial processes,
rather than on specific entrepreneurial behaviors or styles. Second, it
explicitly identifies twelve contradictions in corporate entrepreneurship, pro-
cesses, and specific dialectical dynamics where reconciliation of these contra-
dictions is most likely to have the intended organizational effects. Finally, we
explore the conditions under which the exploitation of dialectical dynamics
of entrepreneurship is likely to facilitate corporate entrepreneurship per-
formance, and in turn organizational effectiveness.
Overall, we show that corporate entrepreneurship has a direct impact on
the degree to which the proper reconciliation of contradictions are fulfilled
competently at appropriate times in appropriate circumstances. In many
respects the processes of corporate entrepreneurship are similar to those of
strategic management (Hitt and Ireland, 2000; Ireland et al., 2001). However,
the language of competitive advantage and core competences will no longer
be a condition for effective strategic guidance of an enterprise.
The ideas embodied in organizational ideology and organizational learn-
ing are important for enterprises that are aiming to be entrepreneurial. This
speculation is consistent with the opportunity-based view of the firm and the
logic of self-organization. Support for it comes from earlier works of Weick
(1979), Ranson et al. (1980), Gartner (1985), Bacharach et al. (1996), Holland
(1998) and Dooley and Van de Ven (1999).
Consequent to the above, we suggest two important questions: What is the
link between ideology, learning and entrepreneurship? How can organiza-
tional ideology, organizational learning, and corporate entrepreneurship be
managed better? Corporate entrepreneurship does matter, having a major
 Developing a model of corporate entrepreneurship 7
impact on organizations and how they are managed. In the literature that
either prescribes or describes entrepreneurial process, theorists frequently
seem to overlook or understate the potential impact of dialectical dynamics.
In that regard, we believe that the chapter will provide many readers with
a very solid introduction to a dialectical research stream that has application
in dealing with the questions not only of how and why corporate entre-
preneurship processes are structured as they are, but also why corporate
entrepreneurship dimensions can vary across organizations, why some con-
tradictions are important and others are off the radar screen, or when and
why dialectical dynamics exists and when it can be used to govern corporate
entrepreneurship. Our arguments are grounded in entrepreneurship theory,
strategic management theory, and organization theory. We offer a new
approach to answering these questions. However, the objective is to under-
stand and explain corporate entrepreneurship, and the dialectical approach
may be a preferred perspective from which to build a new enterprise and to
create wealth by moving towards an opportunity.
Dialectical reconciliation is a term used to distinguish an entrepreneurial
mode of behaviors from random actions and completely autonomous
behaviors. Corporate entrepreneurship reconciles opportunities and actions,
vision and endeavor, resources and organizational architecture, achievement
of long-term equity value and short-term profitability, creativity and discip-
line, and internal and external aspects of managing change. Therefore, we
define corporate entrepreneurship as a holistic social process of creating a
new organization (or venture) and wealth by ongoing, organization-level rec-
onciling opportunities and actions that are ideology oriented and learning
based. By implication, we advocate a fundamental reframing of corporate
entrepreneurship issues that move beyond a widely accepted perspective. By
focusing on specific entrepreneurial contradictions, we define the arguments
in the dialectical reconciliation function. We draw an analogy to map and
mapping (Cummings and Wilson, 2003) to support this claim.
Entrepreneurship in existing organizations incorporates both knowledge
and knowing (Cook and Brown, 1999), knowing and doing (Pfeffer and
Sutton, 1999), sticky and leaky components (Brown and Duguid, 2001),
imagining and managing intangibles (Power, 2001), the different ways indi-
viduals conceptualize performance and the paradoxical nature of the meas-
ures (Meyer and Gupta, 1994). We can explore this further by drawing upon
the work of Cummings and Wilson (2003) on map and mapping in strategy
creation. The authors make the distinction between orientation and
animation. Map, as ordered design in advance of action, gives orientation for
mapping as emergent design. We suggest that the maps and mapping that
corporate entrepreneurship have drawn upon are based on organizational
ideology and learning.
The enterprise whose behavior matches ideology and whose particular ideo-
logy reinforces entrepreneurial actions is generating distinctive entrepre-
neurial spirit. An entrepreneurial person proactively informs an enterprise’s
8 Mariusz Bratnicki and Bartlomiej J. Gabrys
direction by fruitfully connecting the realms of ideology and learning. We
also suggest that the higher the level of explorative and exploitative learning,
the greater the intensity and scope of corporate entrepreneurship. We there-
fore believe that corporate entrepreneurship and its content in general or
ideological and cognitive dimensions specifically are the key drivers of enter-
prise’s effectiveness. The dialectical framework shifts scholarly attention from
specific content, process, and context of corporate entrepreneurship towards
dynamics of inner contradictions. Although many earlier studies deepen our
understanding of entrepreneurship in established organizations, there has
been a paucity of research examining the internal dynamics of entrepreneur-
ial processes. Description of the success-achievement process needs an under-
standing of executive forces instead of focusing on final effect. Given the
dialectical assumptions, we expect that the critical nature of contradictions
reconcilement has important implications for new organizations and wealth
creation across all four dimensions of corporate entrepreneurship.

Ideological orientation of corporate entrepreneurship

We begin by specifying what we mean by organizational ideology and what
we mean by organizational learning, which together integrate the domain
of our model. We will follow with a claim that there is a crucial element
to consider when thinking about corporate entrepreneurship as a process
that permeates the entire organization: ideology blended with organizational
learning. To achieve this, organizations have visions coupled with learning
that produce an entrepreneurial mindset, beliefs and values that drive the
entrepreneurial enterprise (Timmons, 1999). The core ideology includes
values, or what the organization stands for, as well as purpose, or the reason
the organization exists (Collins and Porras, 1994). These are essential for the
success of any entrepreneurial undertaking. Fuller and Levis (2002) illustrate
the significance of social construction and reflexivity, as explanatory theories
of the meaning of network, personalized relationship, and strategic develop-
ment relationships. This type of thinking is compatible with an understand-
ing that corporate entrepreneurship is a process of organizational learning
and change. Ideas and values are inherently implicit in the daily interactions
between participants of corporate entrepreneurship. Thus, altering the core
organizational ideology may provoke adjustments in entrepreneurship strat-
egy and organizational architecture, resulting in changes in behaviors of
organizational members.
We consider the possibility that corporate entrepreneurship is not just
something that takes place within the heads of individuals but rather a polit-
ical process embedded in the ideology of an organization and the nature of
the interactions. Ideology is a guiding principle for long-term survival and
an organization’s well-being. It is a framework for sense-making and for the
assessment of value (Trice and Beyer, 1993). An entrepreneur’s knowledge is
uncertain until rooted in ideals and power that is ideology (Ball and Dagger,
 Developing a model of corporate entrepreneurship 9
1999). Power both enables and limits our understanding of the world and our
reflexive experience of ourselves (Butcher and Clarke, 2002).
Ideology influences both values (principles or standards used in people’s
judgments about what is important, valuable and desirable in their lives) and
beliefs (statements mentally accepted as truthful on the basis of power, argu-
ment or other people’s evidence) (McEvan, 2001). Values and beliefs embed-
ded in ideological assumption at the organizational level can act as barriers or
enablers to corporate entrepreneurship (Baum et al., 1998). The opportunities
are chosen to fit the preferred ideology.
This suggestion is consistent with Sharma (1999), who argues that the main
impediment to successful innovation in large firms is the lack of experience
and judgment at reconciling new ideas in the context of pre-existing enter-
prise interests. This, too, is not surprising. After all, people and human
organizations rarely achieve success without political capital (Ocasio, 2002).
Following the logic used by Stacey (2001), we argue that official ideology,
power relations maintenance, exclusion/inclusion, unofficial ideology, shifts
in power relations and new official ideology are fundamental elements of
building entrepreneurial themes and forming entrepreneurial behaviors. The
more general implication in the context of corporate entrepreneurship is that
ideology is likely to influence behaviors by indicating the degree to which an
organization considers entrepreneurial behaviors to be desirable.
Institutionalized ideology forms a common foundation for the ideologies
of individual enterprises (Zammuto et al., 2000). Additionally, Selznick
(1957) argues in favor of leadership as the institutionalized process which
provides conceptual reinforcement for applying it to entrepreneurship in
existing organizations. Hence, there is support for the belief that it has the
ability to shape corporate entrepreneurship. Some institutional and
organizational theorists (Scott et al., 2000; Williamson, 1999) argue that cor-
respondence between corporate elites and strategic renewal may occur
through relaxing formal and informal institutional and organizational con-
straints on resource development as well as facilitating autonomous strategic
behavior (Burgelman, 1991). This type of behavior matters for managerial
innovativeness, and in turn, enterprise effectiveness (McGrath and MacMil-
lan, 2000).
We argue that focusing on only demographic or decision-making aspects,
at the expense of ideology, leads to oversimplification and masks the true
relationship between corporate elites and corporate entrepreneurship. Real-
istically, appropriate organizational ideology should assist in the pursuit of
entrepreneurial activity.
Despite the apparently successful adaptation of institutional theory to
corporate entrepreneurship study (Bruton and Ahlstrom, 2003; Bruton et al.,
2003), we point to theory and evidence of the free-choice, internal animation
of institution map. In the light of recent empirical studies and current entre-
preneurship theory, entrepreneurial processes consist of two related parts:
opportunities and actions. Understanding the interactions between these
10 Mariusz Bratnicki and Bartlomiej J. Gabrys
two aspects is necessary to appreciate the endogenous dynamics of corporate
entrepreneurship which, like other social and organizational phenomena,
embodies a duality of structure and human agency (Bourdieu, 1990; Feldman
and Pentland, 2003). In order to emphasize the active engagement of
organizational members in ongoing entrepreneurship practices, the
overarching framework of corporate entrepreneurship should bring subject-
ivity, ideas, values, interests and power into the picture of entrepreneurial
dualities.
Some empirical results (Delmar and Shane, 2003) support the arguments
of organizational theorists who have criticized the static-equilibrium theor-
izing as a conceptual dead end (Carroll and Mosakowski, 1987). In particu-
lar, they show an important role of human decision making in the choice
and timing of organizing actions. Indeed, entrepreneurship is an activity
of self-organizing agents focusing on new order creation and on managing
the dynamics of co-evolution rather than on equilibrium and Darwinian
selection.
To pursue this line of argument, we will posit that ideological free-choice
orientation is internal, voluntarily created, which increases freedom or influ-
ence on organizational ideology. We should reconcile the enterprise’s need
for ideological control with the freedom necessary for corporate entre-
preneurship to emerge. Our exploration of the ideological contradiction is
inspired by actor-centered institutionalism (Scharpf, 1997) in stressing the
interdependencies rather than distinctions between institutions and actors
as the prime mover.
Ideological possibilities for creativity and discretion are somewhat con-
flated with the notion of autopoiesis. Maturana and Varela (1980) argue that
systems interact with themselves as they produce and reproduce themselves in
a recursive or self-creating mode. Autopoiesis is applicable to social systems
(Luhmann, 1995) that bind themselves and reproduce themselves, thus repre-
senting a radical departure from equilibrium-based theories pointing towards
norms and values as the basis for mutual coordination (Parsons and Shils,
1951).
Building corporate entrepreneurship upon autopoietic extreme means some
kind of self-producing by the process of mutual-adjustment and coevolution
of an organization’s ideology and environmental opportunities (Mingers,
1995). Hence, which opportunities are seen in the environment depends on
what the organizational members are predisposed to see. From this pers-
pective, entrepreneurial capability rests on situated practical action. Con-
sequently, strategists and managers must build the environmental (outer) and
organizational (inner) context where participants and stakeholders of cor-
porate entrepreneurship are actively looking in the opportunities direction.
Thus, we propose the following:

Proposition 1 Organizational ideology will influence enterprises’

effectiveness through their interaction effect.
 Developing a model of corporate entrepreneurship 11
Proposition 2 Enterprises with organizational actions that reconcile
ideological contradiction (institution versus autopoiesis) will have higher
effectiveness compared to those that do not reconcile ideological
contradiction.

Cognitive base of corporate entrepreneurship

In this section we show that corporate entrepreneurship is associated with an
important antecedent of effectiveness: organizational learning. As we argued
in regard to enterprise effectiveness, mere ideological orientation is insuffi-
cient for corporate entrepreneurship. Minniti and Bygrave (2001) note that
“entrepreneurship is a process of learning, and a theory of entrepreneurship
requires a theory of learning.” Zahra, Ireland, and Hitt (2000) found that
learning can have a major effect on a new venture’s performance. Inspired
by the theoretical foundation underlying cognitive aspects of organizational
processes (Argyris and Schön, 1978; Dixon, 1999; Easterby-Smith and
Lyles, 2003), we propose the following: the idea that an enterprise’s ability
to explore and exploit opportunities effectively depends on its abilities to
learn and to align them with strategic challenges that cannot be met any
other way.
Specifically, Argyris and Schön’s entire theory rests on the appreciation
of learning as the detection and correction of error by implementation.
Learned experience is useful only when it leads to new and more productive
actions. It all depends on the context of application. The important principle
of Argyris and Schön’s theory is working continually to discover gaps
between theories as expressed by organizational members and these same
theories when in use. Applying this line of reasoning, we believe that the
behaviors and assumptions of people are a part of corporate entrepreneur-
ship problems arising from deep habits of thought and action that organiza-
tional members have acquired. Given this, it would be fruitful to follow the
development of organizational learning for overcoming the organizational
culture and behaviors as a result of which corporate entrepreneurship is
suppressed.
Organizational learning is the process by which individuals and collectives
acquire, develop and spread knowledge within the organization, gain accept-
ance of it, and recognize it as being potentially useful (Starbuck and Hedberg,
2001). Entrepreneurs cope with uncertainty by learning from success as
well as failures. They update a subjective stock of knowledge and, ultimately,
improve their performance (Minniti and Bygrave, 2001).
This knowledge consists of experience of past circumstances, and under-
standing how to be entrepreneurial. In this regard, the crucial issue is for
these experiential, cognitive and behavioral aspects to be inherent in the
organisation’s culture, operation and attitude to training dynamics within and
between organizations. This helps organizations to cope with the problem of
exploration and exploitation by acting, opening up, experimenting, focusing,
12 Mariusz Bratnicki and Bartlomiej J. Gabrys
extending and internalizing (Holmqvist, 2003). Consequently, corporate
entrepreneurship requires attention to interorganizational collaborations as
well as to the experience of the single enterprise.
Organizational learning can be described as a key resource of competitive
advantage (Edmondson and Moingeon, 1996). Crossan and Hulland (2002)
assert that organizational learning takes place at the levels of individual, group
and organization. Their research suggests that the transference of learning
across levels is made by social and psychological processes of: (a) intuiting,
that is preconscious recognition by experiences, images and metaphors;
(b) interpreting, that is explaining through language, cognitive maps/conver-
sation, dialogues; (c) integrating, that is developing shared understanding
through mutual adjustments/interactive systems; (d) institutionalizing, that is
embedding into routines, diagnostic systems, rules and procedures.
The model of organizational learning also incorporates the strategic ten-
sion between assimilating new learning and using what has been learned.
Dynamic theory of corporate entrepreneurship shares common ground with
organizational learning in recognizing the importance of knowledge to
an organization’s effectiveness and primary focus on the human elements.
Therefore, our conceptualization posits corporate entrepreneurship as a spe-
cial part of organizational learning with an impact on reconciling opportun-
ities and actions. Moreover, entrepreneurial activities enhance organization
knowledge through the learning that takes place in this process. The import-
ance lies in a reciprocal relationship between corporate entrepreneurship
and organizational learning, not overlooking the ways in which power and
learning are related, as an ongoing organizational activity.
In encouraging entrepreneurship and learning, we see the two as closely
related provided that people will, can, are able to, and should get beyond
conventional management theory of action with the sheer courage to practice
different, unique ways of perceiving, thinking, and acting that create a new,
meaningful dimension of effectiveness. In a theoretical piece Koppl and
Minniti (2003) imply that entrepreneurship is an intrinsic aspect of human
action, an emerging, socially embedded learning process centered on seeing
and acting on opportunities. Learning for entrepreneurship is mainly about
possessing or acquiring a particular set of behaviors according to the
definition of success that makes an organization unique.
Moreover, entrepreneurial knowledge can be acquired only through
learning-by-doing, involving repetition and experimentation, and produces
impressive outcomes at the organizational level. At the organizational level
the learning process occurs from the very outset of the development process
(Honig, 2001). Learning strategy shapes how entrepreneurs create, sustain
and transform organization. This is undoubtedly a major reason why organ-
izational learning, knowledge management, and self-organized transition
are so important. The self-organized transition concept is central to develop-
ing organization vitality, and particularly self-reference (internal order is
grounded in organizational learning), increased competence to fulfil vision,
 Developing a model of corporate entrepreneurship 13
and interactive organizing on the edge of the chaos between tight and loose
coupling (Lichtenstein, 2000). The entrepreneurship strategic learning pro-
cess, based on the profound connections between strategy and leadership,
helps an organization to improve its performance (Pietersen, 2002).
Recently Ucbasaran et al. (2001) emphasized the processual perspective
rooted in growing recognition that entrepreneurship is not a single-action
event but is the dynamic process which is, in part, dependent on learning from
previous successes as well as failures. The finding echoed Stopford and
Baden-Fuller’s idea that enterprises develop corporate entrepreneurship in
“long-drawn-out processes over many years, not in a one-shot, single event”
(1994: 528).
The organizational learning process encompasses change in individual
and shared thought and action, which is affected by and embedded in organ-
izational infrastructure (Vera and Crossan, 2003) that in an entrepreneurial
context supports opportunity-oriented behaviors. Some scholars (Zahra,
1996) define entrepreneurship in terms of the enterprise’s innovation, ventur-
ing, and strategic renewal activities. One useful way of framing the complex-
ity of organizational learning is to map these two logics: (1) following an
exploitation logic will be positively related to the short-term effectiveness;
(2) following an exploration logic will be negatively related to the short-term
effectiveness. Crossan and Berdrow (2003) present an empirical study that
illustrates the main organizational learning process which forms the overarch-
ing tension between new learning (exploration) and using what has already
been learned (exploitation) underlying strategic renewal when enterprises
develop new competences while concurrently exploiting existing ones. In a
fundamental sense organizational learning involves two sides: explorative and
exploitative.
From the entrepreneurial perspective the explorative side is more creative.
This involves invention-focus and includes search, variation, risk-taking,
play, and flexibility which are oriented on creating, shaping, recognizing
and interpreting opportunities. Explorative learning generates variation
within the firm’s activities, including its knowledge base (McGrath, 2001).
Conversely, on the explorative side, which is recognition- and result-focused,
learning is a more unified process oriented on pursuing and seizing
opportunities.
The exploitative learning tools and techniques are aimed at making an
enterprise more operationally efficient through incremental improvements of
a routine set of activities. The explorative learning activities are focused
on experimenting, innovation and flexibility leading to the creation of new
organizational forms. A corollary is a difference in openness to opportunities.
The balance between exploration and exploitation is only a transitory stage
(Levinthal and March, 1993). The entrepreneurs will have to pay continuous
attention to working towards opportunity creation and yet retain the com-
mitment to opportunities exploitation.
We employ an exploration–exploitation framework, developed by March
14 Mariusz Bratnicki and Bartlomiej J. Gabrys
(1991) and refined by Levinthal and March (1993), to characterize the differ-
ent types of corporate entrepreneurship processes. Vera and Crossan (2003)
see the tension between assimilating new learning (exploration) and using
what has been learned (exploitation) as the basic challenge of strategic
renewal. The most effective leaders adapt their transformational and trans-
actional behaviors and are able to create flexible organizations (Tushman
and O’Reilly, 1996), which thus can simultaneously be both open and closed
and loose and tight. In the spirit of Rothaermel and Deeds’ (2004) perspec-
tive, we argue that exploration generates opportunities for creating, shaping,
identifying, interpreting and at the same time, the potential for exploitation.
This implies that the precursor for exploitation, described by seizing and
pursuing opportunities, is the existence of an exploitable set of resources and
competences.
With regard to the explorative/exploitative distinction, we posit that while
both are fundamental to the existence of corporate entrepreneurship, their
relative importance will vary. Entrepreneurial learning helps enterprise mem-
bers to discuss the feasibility of entrepreneurial actions and corporate entre-
preneurship mapping in particular ways. The above arguments lead to the
following propositions:

Proposition 3 The relationship between corporate entrepreneurship

and enterprise’s effectiveness will be moderated by use of organizational
learning (explorative or exploitative).
Proposition 4 Enterprises with organizational actions that reconcile cog-
nitive contradiction will have higher effectiveness relative to those that do
not reconcile a cognitive contradiction.

Corporate entrepreneurship integrated dialectical framework

The nature of main ideology and learning contradictions are described.
Drawing on work we discussed earlier in this section we look at corporate
entrepreneurship as dialectic activity that can only come about by the recon-
ciling of different conceptions or forms in the light of an enterprise’s particu-
lar situation. Thus, dialectics has a high generality. Our argument is that we
can see corporate entrepreneurship as the result of interplay of organizational
ideology and entrepreneurial learning. This is presented in Figure 2.1 with
ideology and learning forming two axes.
Figure 2.1 illustrates the basic components for our corporate entrepreneur-
ship integrated framework. The model is built using two main dimensions
that are the source of creative tensions for enterprises. We set the vertical axis
as locus of influence on ideology with autopoietic creation at the top and
deterministically imposed as specific kind of institution at the bottom. The
vertical axis in the model reflects the enterprise’s need to adapt to determin-
istic forces at work (according to the population ecology and resource
dependence school of thought), infusing the enterprise with new ideas and
 Developing a model of corporate entrepreneurship 15

Figure 2.1 The corporate entrepreneurship integrated framework.

knowledge from outside, while simultaneously adopting a voluntary perspec-

tive for choice and ability to influence entrepreneurial outcomes.
This ideological dimension reflects the contradiction experienced by the
need to have legitimate new (or renewed) enterprise, while at the same time
remaining proactive and open to fresh ideas and new disruptive actions
in order to exercise discretion, to get one’s own way. We then set the hori-
zontal axis to be the organizational learning focus, with exploitative on the
right and explorative on the left. The horizontal axis in the model reflects
the enterprise’s need to manage today’s activities, while creating tomorrow’s
entrepreneurial potential as well. This cognitive dimension captures the
well-known contradiction in focusing on short-term versus long-term value
(Christensen, 2001).
Juxtaposing these two dimensions produces a matrix used to define
16 Mariusz Bratnicki and Bartlomiej J. Gabrys
corporate entrepreneurship with four distinct approaches crucial for creat-
ing new (or renewed) organization and wealth. That is, ideological and
learning contradictions and the associated way of dynamic, interactive cor-
porate entrepreneurship-making are combined. This leads to four generic
entrepreneurial processes based on various blends of organizational ideology
and learning: strategic entrepreneurship, entrepreneurial leadership, entre-
preneurial management and entrepreneurial behavior. The corporate entre-
preneurship framework, thus, provides a more general view of the role of these
four processes of corporate entrepreneurship in generating new value.
The upper-right quadrant focuses on the strategic entrepreneurship that
provides guidance and direction for new competences development which
repositions the enterprise for tomorrow’s growth needed to ensure its pros-
perity well into the future. The term strategic entrepreneurship refers to pro-
ductive shaping of the direction and scope of entrepreneurship over the
long term. Strategic entrepreneurship establishes clear direction, impacts
the future, has enterprise-wide implications, has long-term perspective, and
guides reconciliation of opportunities and actions. The lower-right quadrant
also focuses on opportunity-based growth but centers on entrepreneurial
leadership to include salient stakeholders by involving them in the conduct of
ongoing operations (Wheeler and Sillanpaa, 1997). Entrepreneurial inclusion
of internal and external stakeholders can enhance legitimacy crucial for the
creation of new organization and wealth. This depends on the enterprise’s
ability to articulate a clear and convincing vision of what the future growth
path will be. Entrepreneurial leadership increases confidence in intentions
and activities by demonstrating that stakeholders’ voices and opinions matter
and can affect entrepreneurial actions.
Shifting to the lower-left quadrant of the model, the enterprise must not
only develop future potential, but should also entrepreneurially manage
today’s activities. The entrepreneurial leader reconciles opportunities and
actions with other people, whereas the entrepreneurial manager does things
to other people, that is he or she reconciles opportunities and actions by
means of other people. In contrast to leadership, which focuses on movement
or change, management focuses on consistency and on order and control
(Kotler, 1990). Entrepreneurial management means harmonizing, integrating
organizational architecture to make the most of its current resources, pro-
cesses, capabilities, and competences to seize and pursue opportunities. This,
in turn, facilitates the creation of sustainable value for the enterprise as a
process of achieving management and human development in an inclusive,
connected, equitable, prudent and secure manner.
Also, like entrepreneurial management, the upper-left quadrant focuses
on those aspects of corporate entrepreneurship that are primarily internal
and near-term in nature, however, entrepreneurial behaviours are important
drivers of making opportunities happen. Without such a focus on realization
it will be impossible for the enterprise to entrepreneurially utilize current
potential in favor of opportunity exploitation. Strategic entrepreneurship,
 Developing a model of corporate entrepreneurship 17
entrepreneurial leadership, entrepreneurial management, entrepreneurial
behavior as well as the underlying rationalities are the major dimensions of
the concept of corporate entrepreneurship. These four quadrants of corpor-
ate entrepreneurship paint internally consistent pictures of different aspects
of entrepreneurship that are important for every enterprise.
On the basis of the above reasoning corporate entrepreneurship apparently
has four faces like the Slavonic Swietowit – the god of war and crops –
who sees the four quarters of the globe. In the light of this, we argue that
entrepreneurial intelligence is a complex competence comprising strategic,
political, administrative, behavioral rationalities as fundaments of under-
standing situations and finding nimble responses. The appropriate use of
an enterprise’s entrepreneurial intelligence will be positively associated with
the degree and frequency of corporate entrepreneurship. Specifically, we
posit that corporate entrepreneurship effectiveness is a joint function of
four entrepreneurial processes: (1) strategic entrepreneurship; (2) entrepre-
neurial leadership; (3) entrepreneurial management; and (4) entrepreneurial
behavior.
As illustrated in Figure 2.1, the nature of each entrepreneurial process and
its associated mode of entrepreneurship-making corresponds to a particular
dimension of corporate entrepreneurship. According to this reasoning, the
strategic entrepreneurship process is equivalent to a strategic dimension.
Entrepreneurial leadership corresponds to the political dimension, entre-
preneurial management to the administrative dimension, and entrepre-
neurial behavior to the behavioral dimension. The four processes may arise
together, such that by regarding one, it makes you aware how mutually inter-
dependent it is with the nature of the other three. They appeared highly
interlinked, especially when implemented concurrently. As a consequence, we
propose:

Proposition 5 Corporate entrepreneurship refers to a multidimensional

approach.
Proposition 6 Strategic entrepreneurship, entrepreneurial leadership,
entrepreneurial management, entrepreneurial behavior – as indicated by
strategic, political, administrative, and behavioral dimensions respect-
ively – are salient processes of corporate entrepreneurship.
Proposition 7 Any organization that reconciles strategic, political, man-
agerial, and behavioral contradictions sufficiently is quite likely to achieve
a high standing in the criteria of organizational effectiveness.
Proposition 8 By the same token: organizations that operate in ways
that leave one or more of these contradictions unreconciled are likely to
fall short in one or more of the effectiveness criteria.
18 Mariusz Bratnicki and Bartlomiej J. Gabrys
Main components and logic of corporate entrepreneurship

Dialectical dynamics
Starting at the organizational level, it is useful to think of organizations as a
configuration of characteristics, or properties, that vary from one class of
organization to another. The clue to a reconciliation riddle on the organiza-
tional level is contradictions promoting coexistence orientation which
integrates core elements into the corporate entrepreneurship fit. The
reconciliation process unites four primary and eight secondary contradictions
that can be explored using the framework depicted below.
The development of these contradictions concepts is based on Bhaskar’s
(1993) theoretical study that discusses the dialectical nature of new conceptual
and social configurations development from the viewpoints of ontological,
epistemological, relational, practical, and aesthetic dialectics. According
to this thinking, we attempt to elaborate on the way contemporary organ-
izations build their entrepreneurship dialectically on the ontological level
of proactive future creation, on the epistemological level of creative
opportunities exploration, on the relational level of stakeholders and
resource mobilization, and on the practical level of innovative opportunities
exploitation, and assign aesthetic quality to their entrepreneurial activities
and interactions.
It is well known that the good analytical perspective is not a substitute for a
comprehensive view of organizational entrepreneurship with interconnect-
ing, reinforcing, and balancing loops. The tension between order and chaos is
inherent in organizational entrepreneurship. Moreover, the organizational
entrepreneurship-scape is the whole context of the organization full of inter-
active relationships among thinking, planning and acting (Cook, 2001), which
are shaped by a network of feedbacks both positive and negative. We posit
that the corporate entrepreneurship framework contains two kinds of dialect-
ical loops. On the individual mode-of-entrepreneurship-making level there is
a logic of self-inducement based on inner primary contradiction: planned
versus emergent entrepreneurship strategy (strategic dimension), rational
synergy versus political pragmatism of leader activities (political dimension),
closely versus loosely coupled managerial structures and systems (administra-
tive dimension) and maintenance versus creative destruction in organizational
members’ behaviors (behavioral dimension).
The four contradictions and their opposites may be arranged as eight com-
ponents of entrepreneurship, grouped in order of four related to thinking on
the left and four related to acting on the right. These contradictions and their
opposites thus create a theoretical (and mainly academic) sequence: the first
four are an integrated, harmonized unit enabling an enterprise’s survival,
and the next four are elements of entrepreneurship chaos, distinguished by
irregularities and anti-equilibrium, which is necessary for an enterprise’s
growth because it reflects great ability to learn and change. Our corporate
 Developing a model of corporate entrepreneurship 19
entrepreneurship integrated framework shown in Figure 2.1 reflects only the
dominant flow of forces, hence it is a simplified representation of relation-
ships of interest because thinking and acting occur simultaneously and with
interdependent effects (Bargh and Chartrand, 1999). The pairing of order
and chaos as well as coupling of thinking and acting may foster corporate
entrepreneurship effectiveness.
Corporate entrepreneurship, however, appears to be driven by more than
these four contradictions. We believe that the corporate entrepreneurship
integrated framework could benefit from further conceptual refinement to
spell out relations within a set of processes. That is, the dialectics of cor-
porate entrepreneurship is two-fold: (1) inner primary and secondary con-
tradictions in each of the four main entrepreneurial processes; and (2) the
integrative, co-evolutionary intersection that highlights the significance of
the contradictions between four basic processes, and shapes a unique cor-
porate entrepreneurship configuration in the given enterprise. We suggest a
dialectical view of the corporate entrepreneurship dimensions intersection,
which sits at the epicenter of Figure 2.2. It provides the integrative context
outlining the locus of contradictions between strategic entrepreneurship,
entrepreneurial leadership, entrepreneurial management, and entrepreneur-
ial behavior. We predict six main contradictions that lie at the intersection
of these four dimensions, forming a common space at which independent
dimensions meet and act on. Thus, on the integrative framework level
the corporate entrepreneurship logic is built upon six kinds of mutual rela-
tions between four corporate entrepreneurship processes (e.g. stability of
entrepreneurial management versus adaptiveness of entrepreneurial
leadership).
On the individual mode-of-entrepreneurship-making level, we develop
12 contradictions, constituting a contribution to a dialectical view of entre-
preneurship in organizations that synthesizes apparently opposite perspec-
tives (Table 2.1). The argument strengthens the case for a more deliberate
approach to entrepreneurship in organizations and favors a dialectical view
of entrepreneurial phenomena as an ontologically central construct. Taken
as a whole, these 12 instances reflect the realized and potential contribution
that research on organizational dialectics has in store for those concerned
with the corporate entrepreneurship process. Additionally, we strengthen the
argument that most apparently opposite phenomena in corporate entre-
preneurship may be integrated through syntheses, that is they form the
ideal objectives of enterprises that simultaneously favor opportunity and
action.
Coming to the generalizability of our theoretical findings and the bound-
ary conditions of our dialectical corporate entrepreneurship model, we note
that our research context is not specified. This shortcoming has now given
way to a tractable question – namely, under what conditions does the dialect-
ical dynamics of corporate entrepreneurship matter. To summarize, every
measure that can be used to indicate whether an enterprise is entrepreneurial
20 Mariusz Bratnicki and Bartlomiej J. Gabrys

Figure 2.2 The corporate entrepreneurship circle: drivers, processes, dimensions, and
relationships.

ought to echo the dialectical dynamics of core corporate entrepreneurship

processes. This discussion suggests the following propositions:

Proposition 9 When an enterprise has a dialectical approach to entre-

preneurship, it favors both order and chaos.
Proposition 10 Each dimension of corporate entrepreneurship has
its own dynamics that refers to reconciling primary and secondary con-
tradictions between opportunities and action. The forms of corpor-
ate entrepreneurship are due to differences in main contradictions
reconciliation.
Table 2.1 Main components of corporate entrepreneurship dynamics
Dimension of Core process and Primary contradiction of
corporate function entrepreneurial thinking
entrepreneurship
Strategic Strategic Entrepreneurship maneuver
entrepreneurship discretion to guide foresight
Innovativeness Deliberate, deterministic, by
optimal choice versus emergent,
voluntary by conducting trials
or tests to discover something
that is not known, opportunity
creation and shaping
Political Entrepreneurial Responsibility for
leadership entrepreneurial initiatives
Adaptativeness Top-down, individualistic versus
bottom-up, teamwork in
identifying and interpreting
opportunities that arise in
resource acquisition and
legitimacy
Secondary contradiction of Form as the ideal objective
entrepreneurial planning (valuing/
deciding) and acting (doing)
Entrepreneurial problem solving for Far-sightedness and
competence building experimentation for intelligent,
Analysis, logic, versus intuition, comprehensive
creativity in growth decisions for entrepreneurship guidance
coping with uncertainty
Entrepreneurial growth
commitment
Physical versus intellectual capital
investing in enterprise’s value
Entrepreneurial wealth creation Shared ideology and mutual
Economic effectiveness versus social benefits for building and
responsibility mobilizing community of
Involvement in entrepreneurial entrepreneurial actors who
activities adopt potent vision
Extrinsic motivation, economic
competition versus intrinsic
motivation, social cooperation in
entrepreneurial partnership
(Continued overleaf)
Table 2.1 continued

Dimension of Core process and Primary contradiction of Secondary contradiction of Form as the ideal objective
corporate function entrepreneurial thinking entrepreneurial planning (valuing/
entrepreneurship deciding) and acting (doing)

Administrative Entrepreneurial Alignment of organizational Entrepreneurship vitality Mutual adjustment, partnership

management enablers for seizing
Continuity opportunities
Tightly coupled versus loosely
coupled organizational
architecture, as organizational
context of entrepreneurial
processes
Behavioral Entrepreneurial Social flexibility for pursuing
behavior opportunities
Stability Permanence versus resilience of
organizational behaviors for
producing entrepreneurial
responsiveness around surprises,
shortages and barriers
Global, technocratic, control-
oriented versus local, humanistic,
support-oriented, organizational
design
Complexity of communicative
interaction
Accuracy versus high-speed
information flow in entrepreneurial
task execution
Social dynamics of entrepreneurship
Revolutionary versus evolutionary
changes for managing risk
Resource allocation for
entrepreneurial realization
A single stage with full commitment
upon decision versus small-step-at-
a-time or partial initiatives for
coping with insufficient resources
and improvisation for
organizational design sensitive
to entrepreneurship constraints
as well as to utilize, quick,
tentative responses to surprises
and shortages
Self-organization and renewal
for managing entrepreneurial
risk by shaping the tempo and
scope of changes in decisions
and actions as well as
commitments and non-
commitments
 Developing a model of corporate entrepreneurship 23
Proposition 11 The relationship between corporate entrepreneurship
and enterprise’s effectiveness will be more strongly related at higher
reconciliation levels of corporate entrepreneurship forms.

The corporate entrepreneurship circle: prospects for a new concept

Although the partition of corporate entrepreneurship shown in Figure 2.2
is arbitrary, its basic tenets enable us to see the corporate entrepreneur-
ship complexity as well as to break up embroiled structures, processes, and
rationalities on manageable parts. The relationships between corporate
entrepreneurship and dialectical processes are defined as a cycle of strategic
entrepreneurship, entrepreneurial leadership, entrepreneurial management,
and entrepreneurial behavior, and describes how all four merge in successful
corporate entrepreneurship. Nevertheless, generally our model of the corpor-
ate entrepreneurship circle provides clear expectations as to specific ordering
across the four entrepreneurial processes through which, as Chung and
Gibbons (1997) outlined, “the individual’s ideas are transformed into collect-
ive actions through the management of uncertainties.”
It is important to note that entrepreneurship is identified as a path-
dependent complex phenomenon in which information, adaptation, and
interdependence take center stage. The growth process of entrepreneurial
firms, in most cases, is driven by Strategic (S), Political (P), and Behavioral
(B) configuration. Along the way of the growth process, however, enterprises
develop and deploy routines. Enterprises have also developed other elements
of organizational architecture (e.g. organizational structure, systems), which
have become the enterprise’s distinctive capabilities. Still, entrepreneurial
management dimension is more important as a necessary back-end support
to maintain the growth of S–P–B configuration, than as a driver of the
growth (Chung and Gibbons, 1997).
It is important to notice that in order to successfully implement an entre-
preneurial idea, we must traverse through each of these four processes. We
anticipate this sequence in line with Quinn and Cameron’s (1983) life-stage
model comprising: (1) early innovation and creativity stage; (2) high cohesion
and commitment stage; (3) stability and institutionalization stage; and
(4) domain expansion and elaboration stage. There is also a significant
consonance between the dynamics of corporate entrepreneurship, and the
conception of venture growth in terms of strategy orientation, commit-
ment to opportunity, commitment to resources, management structure
and reward systems. As shown in Figure 2.2, strategic entrepreneur-
ship is theoretically the origin. Indeed, entrepreneurial process “starts
with conception of venture idea” (Davidsson 2003: 340). Further, a change
of strategic entrepreneurial mindset will be followed by change in
entrepreneurial leadership and, in turn, will lead to transformation of entre-
preneurial management. Finally, this sequence should result in new
entrepreneurial behaviors.
24 Mariusz Bratnicki and Bartlomiej J. Gabrys
The problem with such a perspective is that it inscribes sequential and
rationalistic series of actions that are not supported by the real-life entre-
preneurship process. One simply cannot get away from the taking into account
of entrepreneurial agency and entrepreneurs as evolved socio-biological
beings whose abilities of failure management, imaginative fiction, expect-
ations, intelligent altruism, history, and culture matter. In this view, corporate
entrepreneurship is itself an evolving phenomenon that is intertwined with
organizing, contingent upon particular founding and controlling stake-
holders, is embedded in its time, and is firmly anchored in the reality to
proceed from there into the possible and the doable.
In our context, the corporate entrepreneurship integrated framework is a
multidimensional space in which each dimension represents the values of
particular choice that an organization can make. Moreover, the specific pro-
cesses entrepreneurs enact throughout the subtle dynamics of enterprise
growth tend to coalesce over time into combinations or configurations that
define the corporate entrepreneurship forms. These patterns of entrepreneur-
ial activities can be described as configurations of independent corporate
entrepreneurship dimensions which to some degree reflect the environmental
influences. Notably, co-evolution of enterprise and environment is also a con-
tributory factor that is inexplicably intertwined with multi-faceted and multi-
tier corporate entrepreneurship processes. Taking these four entrepreneurship
processes, we suggest that a new form of corporate entrepreneurship comes
into being as a configuration of independent dimensions.
Organizational participants and stakeholders vary in how they allocate
their time and attention across organizational activities depending on their
own preferences; what they believe the organization most needs, and the
organization’s own level of initiative and maturity. Therefore, it is important
to point out that a particular dimension alone frequently does not create
entrepreneurial value. Moreover, each of the corporate entrepreneurship
dimensions interact with each other to produce the desired results as opposed
to driving effectiveness independently. It is, in our opinion, co-evolution that
lies at the heart of this interaction. Some findings suggest the need to manage
the tension between exploration and exploitation on a continuous basis of
evolutionary process (Burgelman, 2002).
Coevolution processes exist as complex and reciprocal interactions, where
one condition influences and is influenced by another (Levin and Volberda,
1999). A common set of reconciliation processes produce and reinforce
relationships among strategic entrepreneurship, entrepreneurial leadership,
entrepreneurial management, and entrepreneurial behavior causing corpor-
ate entrepreneurship dimensions to co-evolve, such that they are reciprocally
and positively associated with one another, depending on the environmental
conditions faced by and modifying to meet the demands, constraints and
problems. Moreover the evolution of one dimension is partially dependent on
the evolution of other related dimensions. Self-organization and spontaneous
emergence of new corporate entrepreneurship configuration (new order) arises
 Developing a model of corporate entrepreneurship 25
from the interaction of individual dimensions. Therefore, when corporate
entrepreneurship is not managed within connectivity and interdependence,
it may become dysfunctional. The above arguments lead to the following
propositions:

Proposition 12 The different dimensions of strategic, political, adminis-

trative, behavioral dimensions will simultaneously represent a specific
form of corporate entrepreneurship.
Proposition 13 Entrepreneurial process (strategic entrepreneurship,
entrepreneurial leadership, entrepreneurial management, entrepreneurial
behavior) have a significant, positive effect on the effectiveness of the
enterprise.
Proposition 14 Interactions among the entrepreneurial processes
enhance organizational effectiveness; that is, the effect of an entre-
preneurial process is higher, the higher are the values of the other
entrepreneurial processes.

Discussion
The current study uniquely uses dialectics to explain corporate entrepreneur-
ship dynamics. Based on a review of an existing research and theory,
we identified four conceptually driven dimensions of corporate entre-
preneurship: strategic, political, managerial and behavioral. These four
dimensions point towards a more comprehensive research-based model
of entrepreneurial dynamics in existing organizations. Although varied,
these dimensions (and processes) specify ways that managers facilitate
and develop entrepreneurship. However, the existing approaches are
not supported by evidence that addresses more dynamic links in building
corporate entrepreneurship.
There are reasons to believe that a dialectical perspective would help
organizations to be more entrepreneurial. Moreover, we hope that research
conducted within a dialectical tradition enriches our understanding of entre-
preneurial processes and outcomes. We seek here to provide a conceptual
model of entrepreneurial dynamics which considers all contradictions that
take explicit account of organizations’ temporal and environmental context.
From this foundation, each entrepreneurial problem has at least two extreme
solutions. Similarly, each of the corporate entrepreneurship dimensions is
depicted by tension between two necessary but opposing goals.
These conflicting pressures have long been recognized as the paradox of
change and stability (Burns and Stalker, 1961; Poole and Van de Ven, 1989).
When developing a continuous entrepreneurial process in organizations,
today’s managers need to follow the logic of complex adaptive systems in
uncertain environments. In this process, new ideas, new knowledge, new abil-
ities, new willingness, and new behaviors need to be considered simulatenously.
26 Mariusz Bratnicki and Bartlomiej J. Gabrys
The main components of corporate entrepreneurship dynamics that
have been presented highlight the benefits that can be obtained from a more
deliberate shaping of entrepreneurship. One could conclude therefore that
this study provides a sound foundation for a dialectic approach which
enables researchers and managers to reconcile the apparent contradictions in
entrepreneurship-based phenomena.

Conclusion
In this study we have introduced a new set of theoretical constructs to the
literature on corporate entrepreneurship. We have shown how contradictions
reconciliation can affect entrepreneurship in organizations. Future research
could advance our perspective by empirically examining how and to what
extent these constructs have an impact on outcomes that have been widely
studied and recognized as important in research on entrepreneurship.

Implications for practice

Contradictions reconciliation is a central tenet of corporate entrepreneurship
dialectics. By using the circle-of-corporate-entrepreneurship model to iden-
tify the kinds of actions that help organizations operate and grow more
entrepreneurially, we seek to advance basic understanding about corporate
entrepreneurship and to provide practitioners with concepts and principles
for managing entrepreneurship in their organizations.

Future research directions

Our research is prone to several limitations, which in turn offer opportunities
for future research. In Table 2.1 we present a conceptual framework to help
guide research and adopt a dialectical perspective on corporate entrepreneur-
ship to enhance the comprehensiveness of our explanations of the phenom-
ena. The research on corporate entrepreneurship process should be open to
these primary and secondary contradictions. Primary and secondary contra-
dictions create chains of interactions that are directly and indirectly linked to
competitive advantage, and enterprise wealth creation. Further, the develop-
ment of ideological and learning processes is of significance for establishing
corporate entrepreneurship.
There is good evidence from a number of sources confirming the important
role of equifinality (multiple paths) in the process of establishing the systems
that result in corporate entrepreneurship. This observation highlights an
important feature of the corporate entrepreneurship equation. However, it
has not been investigated in empirical research. This lack of process complex-
ity deserves closer scrutiny and investigation.
Another research question concerns isolating the variance in dialectical
entrepreneurship reconciliation processes across various strata of firms (e.g.
 Developing a model of corporate entrepreneurship 27
large versus small, new versus old, domestic versus international, and so
forth). Finally, assessing the performance implications of dialectical logic of
corporate entrepreneurship is a vital topic for future research. In this regard,
does entrepreneurship contradictions reconciliation positively affect firm
performance? If so, how strong is that effect and does the effect vary by type
of performance measure? Examining these research questions along with
others will increase our understanding of entrepreneurial dialectics.
3 Entrepreneurial strategy:
sequential investment and
information gathering
Nigel Wadeson

Introduction
This chapter considers the nature of decision making under uncertainty,
entrepreneurial strategy, and the effects of over-optimism. It considers entre-
preneurship as a process that couples investments with the gaining of infor-
mation. Part of this is the fairly standard story of real options reasoning;
under which many entrepreneurs start small, with expansion following on
from early success. However, there are further issues to be considered about
how the entrepreneur is to design strategies that efficiently probe the market
and about the very nature of the information process involved.
The discussion brings together aspects of entrepreneurship theory, such as
real options and the serving of niche markets, in order to try to draw an
overall picture of entrepreneurship as an information process. It starts from
the point of the entrepreneur having identified that a particular market offers
potential opportunities, leading to decisions over what further information to
gather, and then in which way to begin exploitation. It does not, therefore,
consider general scanning for market information prior to that point.

Decision making under risk versus decision making

under uncertainty
One type of definition of the entrepreneur is that of someone who specializes
in making decisions under uncertainty, in the Knightian sense (Knight, 1921;
Casson, 2003). Despite this, approaches centred on risk (e.g. Jovanovic, 1982),
again in the Knightian sense, are influential in the entrepreneurship literature.
Decision-making under risk implies something about the knowledge of
the decision-maker: that the decision-maker is able to assign objective prob-
abilities to potential outcomes either through a fundamental understanding,
or through a history of past occurrences under similar conditions. With deci-
sion making under uncertainty, on the other hand, the decision-maker lacks
knowledge of the fundamentals of the problem, which makes it impossible to
assign objective probabilities to outcomes, so that subjective judgement moves
to the fore.
 Entrepreneurial strategy 29
Inherent in this is the implication of learning by doing. Uncertainty
may surround the consequences of a potential act because it has never been
tried before in similar circumstances, or indeed because the surrounding cir-
cumstances are themselves a matter of uncertainty. So, by taking the steps
involved in exploiting a project, an entrepreneur sequentially gains new
information and hence reduces the uncertainty surrounding it. Concepts such
as “probe and learn” and path dependence are therefore relevant, as pointed
out by Adner and Levinthal (2004) in discussing the proper boundaries
of real options reasoning, as is the gaining of tacit knowledge through
experience. The entrepreneur collects information both prior to action, and
as a by-product of exploitation. As a step in taking this line of analysis
further, consider a problem of valuing information under risk (Hirshleifer
and Riley, 1992).
When the information is collected a “message” is said to be received, so
that, for instance, on observing a price the message that it is £9, or any
alternative message such as that it is £8.50, could be received. The decision-
maker knows ex ante the set of possible messages and objectively assigns a
probability to each one. The decision-maker, having received a message, then
takes the act that will maximize the expected return given the possible states
of the world. Again, the decision-maker knows the set of all possible states of
the world, and objectively attaches a probability to each one.
The decision-maker also knows what the payoff will be for each act that
might be taken under every possible state of the world, and knows from the
outset which act will follow each message. By having all of this knowledge,
bar knowing which particular message will be received, the decision-maker is
able to objectively assign a value to the information before deciding whether
to collect it. This involves comparing the expected payoff to that which will
be gained under the act that will be taken if the information is not collected
(the “default” act).
One way of transforming this scenario into decision-making under uncer-
tainty is to assume that only subjective judgements can be made about
the likelihood of receiving any particular message and that any particular
state of the world actually holds. However, uncertainty can go much further
than this. The decision-maker may only have partial knowledge of the set of
possible messages, and may not know ex ante which act will follow which
message.
Indeed the messages may themselves suggest possible acts of which the
decision-maker had not previously been aware. In addition, the decision-
maker may not know all of the relevant features of the possible states of the
world. Hence subjective judgement is required in allowing for unexpected
messages, for the actions that may follow, and in considering their con-
sequences. The entrepreneur facing such problems, unable to foresee many
possible messages and resulting actions, may give significant weight to the
combination of the degree and nature of uncertainty and the general flexibil-
ity to act in the response to whatever messages might arise.
30 Nigel Wadeson
The level of uncertainty may itself be uncertain. In the judgement of some
a decision-making scenario may seem little different to others encountered in
the past, while others may consider that fundamental changes have occurred
since. Uncertainty can to some extent be transformed into risk prior to action
through the collection of information. A situation can become better under-
stood by learning more about it, and objective bases for assigning prob-
abilities can be gained by learning of past outcomes of actions taken in
similar circumstances. However, this is limited by the extent of knowledge
that exists which the decision-maker might learn. Uncertainty is to varying
extents irreducible.
Information costs are a significant influence on uncertainty reduction. The
costs of learning new facts, and then of “processing” them, or in other words
“thinking through” their consequences, may make it efficient for the decision-
maker to act under greater uncertainty than is strictly necessary. Processing,
or “thinking,” costs imply that, even where the decision-maker is aware that a
particular message might be received, the action that will be taken following
its receipt will often only be identified ex post. The decision-maker may
economize on the costs of thinking it through by only doing so after a par-
ticular message has been received. The larger the set of possible messages, the
greater the case for doing so. Such thinking things through may be far from
straightforward, for instance involving creativity and the further gathering of
information.
One form of knowledge that is particularly costly to transfer is tacit knowl-
edge. This is a factor that increases the individuality of entrepreneurial deci-
sion making, as the tacit knowledge that each individual has depends on past
experience, and it will often be too costly to increase the individual’s tacit
knowledge greatly prior to beginning entrepreneurial exploitation. Signifi-
cant tacit knowledge may therefore be gained through the experience of
exploitation itself. Other determinants of information costs, such as the
entrepreneur’s network of contacts, will likewise vary between individuals.
Entrepreneurial decision-making is also made more individual by the fact
that the set of acts available to an individual, or indeed to an individual
organization, will not necessarily be the same as that available to others. They
will partly be determined by the knowledge, skills, resources, contacts, and
creativity that the individual is able to draw on. The payoffs of act–state of
the world pairs will similarly vary, partly due to differing costs.

Sequential acts
The above problem of valuing information described the collection of infor-
mation prior to choosing an act. Now consider the problem where an act may
be carried out which gives information as a by-product, and where that
information then informs the choice of which subsequent act to choose. The
application of real options logic to entrepreneurship provides examples of
such scenarios. An entrepreneur may start to exploit a project on a small scale
 Entrepreneurial strategy 31
in order to have a “look see” (Caves, 1998). Once feedback is gained, in terms
of the level of initial success, the entrepreneur may then exercise the real
option to invest in expansion, or to abandon the project.
The feedback information gained from the first action is less valuable, the
more the sunk costs that are incurred in taking it reduce the payoff likely
to be gained by then changing the choice of subsequent action away from
that which would have been chosen without the by-product information. In
other words, sunk costs can generate a degree of “lock-in.” Small-scale initial
exploitation, a strategy which relies on the values of abandonment and expan-
sion options, reduces the lock-in to continuation. With large-scale initial
exploitation, rapid abandonment can be made less attractive by high sunk
costs, which can increase the expected payoff of continuation. It can also
reduce ex post adaptation of the wider business model by increasing the sunk
costs associated with that employed at the outset. Now expand the decision-
making problem further by considering a longer sequence of acts.
For instance, once an entrepreneurial project has been started, the entre-
preneur may alter the business model in many ways (Pitt and Kannemeyer,
2000), such as trying different pricing levels, different marketing strategies,
modifying the product design, altering the range of products offered, or mov-
ing to different premises. Such actions may be driven partly by a failure of the
initial business model, but could equally well be an attempt to build on its
success, such as by investing in further product development or marketing
activities.
Hence ex post modifications, while helping to achieve success, need not
necessarily be significantly correlated with it in data covering a sample of
different firms, as shown by empirical studies (Andries and Debackere, 2006).
Adaptations may carry on for a period of years before the project even achieves
breakeven, or is abandoned. After a successful business model has been estab-
lished the need for further rounds of modifications may be generated through
changes in the environment, or by the desire to improve on it further.
In such a scenario, the business model variations tried so far determine
exactly what feedback information is gained. This generates a degree of path
dependence in the choice of subsequent actions, as the information gained so
far informs such choices. The sunk costs incurred so far also provide a degree
of lock-in to particular types of path.
The number of possible alternative paths that might be followed can be
extremely large, as there may be a significant number of branching options at
each step in the path. The amount of information gained overall may itself
also be large. This again provides an incentive for the decision-maker to
economise on the costs of thinking through every possibility ex ante, and
therefore increases the likely degree of uncertainty.
Note that the action set facing an entrepreneur following the receipt of
information affects the timing of the exercise of real options. For instance,
the exercise of an abandonment option may be delayed further if the action
set gives the potential to try out adaptations that could result in profitability.
32 Nigel Wadeson
Given significant sunk costs, abandonment may be delayed until significant
experimentation with potentially more successful variants of the business
model has taken place, as the levels of payoff, ignoring the sunk costs, that
might then be achieved could be high. This view ties in with empirical evi-
dence showing that firms that start larger are likely to survive for longer. They
will tend to have higher initial sunk costs, and the entrepreneur will also tend
to have had more confidence in success prior to start-up.

Ex ante information collection

Entrepreneurs often gather little information prior to commencing exploit-
ation (Bhide, 2000: ch. 2). One reason for this is that over-optimistic entre-
preneurs will tend to place less value on ex ante information, although this is
mitigated where their optimism leads them to make greater commitments, as
discussed below. Ex ante information will also be of less value where the same
information can be swiftly gained by ex post feedback, provided that this is
associated with little lock-in. In addition, the entrepreneur may consider that it
is unlikely that the subsequent course of action will be significantly affected
if further ex ante information is collected. The smaller the set of potential
actions, and the more wedded the entrepreneur is to a particular course
of action, the less value will be placed on further information collection
prior to action.
In a situation of high irreducible uncertainty, or high information costs,
where there is little potential to economically invest in extra information prior
to action, some fundamental features of entrepreneurial strategy may be
resilient in the face of ex ante messages. This reduces the incentive to collect
what information is available. If uncertainty can be resolved to only a rela-
tively small extent ex ante then this may lead to a small-scale, low-cost initial
approach to exploitation being inherent. However, where market conditions
and the cost structures of exploitation lead to significant initial investments
and lock-in, small reductions in ex ante uncertainty are more likely to justify
the costs involved.
Some key knowledge may exist to which the entrepreneur does not have
reliable access. For instance, potential competitors and customers may give
strategically motivated responses to the entrepreneur’s questions. The poten-
tial customers may also be large in number, and difficult to identify ex ante,
while ex ante uncertainty and an expected process of ex post adjustment
may reduce the relevance of ex ante questions. Those who already have close
links in an industry may have an advantage in gaining ex ante information,
partly because of their existing understanding of relevant conditions, and
also because of the trust that they have built up with other players.
Information collection is inherently sequential, except in situations where a
sequential approach involves extra costly delay, or involves a higher cost per
observation, as compared to parallel information gathering. With a sequen-
tial approach, having gained new knowledge, the entrepreneur then uses this
 Entrepreneurial strategy 33
to inform the choice of whether to incur the costs of collecting further infor-
mation, and in what order to do so. These principles apply both to ex ante
information collection, and when taking actions that generate ex post feed-
back. So, under the probing strategies described below, feedback information
from initial production can help the entrepreneur decide what modifications
to make to the business model, and hence what further feedback information
will be generated.
However, if there are suitable structures of costs and potential revenues
then parallel strategies can be optimal instead. For instance, if the costs of
trialling new products are low, there are economies of scope in introducing
multiple products together, and if the costs of delay in identifying profitable
products are high then parallel strategies may be employed. An example
would be a start-up import merchant simultaneously showing a range of new
products made by foreign manufacturers to its potential customers, and then
dropping those that do not sell well, and seeking out further products based
on comments received. Such a strategy combines parallel and sequential
aspects.

Entrepreneurial probing strategies

Skilled entrepreneurs devise strategies that efficiently allow the exploration
of potential market opportunities. Such strategies exploit the roles that
investments play in sequential information processes. Strategies that involve
throwing caution to the winds, rather than more cautiously probing for
information, can sometimes lead to greater profits but will often be quite
inefficient. Two basic facts should be mentioned first. As has already been
discussed, real options logic can lead to small-scale exploitation initially.
Second, some entrepreneurs have little aspiration to expand from small-
scale production, and so will naturally tend to produce in niches. This can
allow demand to exist at prices that cover the costs of a scale of production
that does not exploit major economies of scale. However, even if they do not
aspire beyond small-scale production, they may still choose to start at a
smaller scale than they intend to end up.
Those start-ups involving aspirations to larger-scale production are signifi-
cant in economic terms even though they may be relatively small in number
(Storey, 1994: ch. 5). In addition, the definition of entrepreneurship employed
here is inclusive of established firms, large firms among them, as long as they
are undertaking projects involving significant levels of uncertainty. There
are, however, good reasons why large firms are often rather shy of exposing
themselves to high levels of uncertainty.
First consider why firms may choose to innovate incrementally, and to
produce from the outset on a large scale. Incremental innovation reduces
uncertainty significantly, as much is already known about closely related
existing products, and the new product can exploit goodwill for the previous
product. Sunk investments in production, market making, and in use by the
34 Nigel Wadeson
customer may yield greater value if the new product has certain features in
common with the old product.
Existing customers then also know what to expect from the product, and
its supplier. Hence an existing firm may choose to upgrade, rather than fully
replace, an existing product. This is not to say that the firm cannot upgrade
an existing product while also bringing out something radically new. However,
a significant part of the firm’s resources may be dedicated to an incremental
new product, while a radically new product brought in alongside it may nega-
tively impact on its sales. Sunk investments in resources also provide an
incentive for the firm to keep them employed as the markets for existing
products decline. Assuming that the costs of bringing in a new product are
high, so that experimentation with a range of new products is not economic-
ally feasible, the firm may choose to pursue a low uncertainty, incremental
innovation in order to be surer of a reasonable level of success.
However, for some existing firms high uncertainty is part and parcel of the
conditions under which they operate. Fast-moving fashions and technologies
(Souza et al., 2004) can make incremental innovation a short-term option
only. The firm has to make more radical innovations in order to keep up with
the market. Parallel strategies are then more likely, where the cost structure of
developing and launching new products allows, in order to be surer of suc-
cessfully introducing new products within the timeframe required. The large
firm may also carefully scan the market place, in order to quickly exploit the
resolution of uncertainty by other firms, including the gaining of information
spillovers from the activities of small firms.
Small-scale initial production carries the danger of showing potential
competitors the entrepreneur’s idea. If they perceive significant untapped
demand then they may rush in to satisfy it. Where this is likely, this increases
the incentive for the entrepreneur to start on a larger scale. Initial smaller-
scale also delays the day at which the profits from larger-scale production can
be realised. In some cases a single large investment may be cheaper than a
series of smaller ones, though the present value of future smaller investments
will be discounted. Sequential investment, rather than a single large invest-
ment, can have the advantage of allowing the nature of the investments made,
such as exactly what machinery is bought or what product modifications are
made, to be adapted as learning takes place.
While the making of probing, small-scale production investments is an
important facet of entrepreneurial strategies, so are decisions about the
nature of the product, as was evident in the discussion of incremental innov-
ation above. One possibility is the production of a niche product. A niche
product neatly combines with small-scale production, as demand for its niche
features mean that profitable production may be possible while leaving sig-
nificant potential economies of scale unexploited.
The two therefore go naturally together, except where highly increased
scale is expected to quickly follow the initial introduction if the product is
successful. The niche may be used as the entrepreneur’s “test bed.” The niche
 Entrepreneurial strategy 35
product then has a prototypical aspect to its nature. Exploitation in a niche
may resolve a significant degree of uncertainty associated with neighbouring
niches, or for a mass-market product. The development costs for niche pro-
duction may also be much lower than for mass production, so that the costs
of the feedback information generated are reduced.
A further probing strategy is the initial production of a basic product,
which then undergoes further development following early success. In add-
ition to yielding information on the likely success of a more fully developed
product, production of the basic product may also allow the entrepreneur to
learn more about the desirable features of the more developed product, both
in terms of what works best from a technical point of view and in terms of
customer preferences. This approach may be combined with a niche strategy,
in order that there will be a demand for a basic product.
However, if the product is novel enough, then there may be demand for a
basic product in the mass market due to the lack of mass-produced close
substitutes. Hence initial production of a basic product will not always be
associated with producing for a niche market. Just as in the niche product
case, producing a basic product for the mass market has a partly prototypical
nature. Once the basic product is proven, the entrepreneur may want to move
quickly to develop it further as a barrier to entry. If the basic product does
not initially perform well, the entrepreneur may use the information gained
from its development and launch in order to design a repositioned product,
or indeed to alter other aspects of the business model such as the sales
and marketing approach. Alternatively, the entrepreneur may then choose
abandonment instead.
Finally, the entrepreneur may choose to probe with a fully developed prod-
uct, aimed at the full market that the entrepreneur plans to supply. This will
act as a probe if the entrepreneur faces uncertainty over the desirable charac-
teristics of the product or, for that matter, other aspects of the business model,
and expects to undertake significant revisions to the product, and potentially
to the wider business model, after the product launch. The desirability of
such an approach depends both on the nature of the information that the
initial launch is likely to generate, and on the characteristics of the action
set, and its associated payoffs, available to respond to the information. If
the initial product development is very costly, and generates significant
lock-in to the most relevant features, then the approach is not likely to be very
attractive.
A further factor that impacts on the choice of strategy is the process by
which goodwill builds up. It will take time for word to spread about a new
product, and for its reputation to grow. This can be speeded up through
increased sales and marketing efforts, but at a cost. Hence, one reason for an
initially cautious strategy is to allow goodwill for the product time to grow.
However, in the case of an established company, the entrepreneur is able to
rely partly on goodwill for the company itself and, as has been discussed
above, for any previous product that the new product replaces.
36 Nigel Wadeson
Penrose effects may also lead to a delay in achieving larger scale where the
entrepreneur does not want to outsource the relevant activities early on, and
is not able to transfer resources from other activities of the firm. Goodwill
may be less important as a constraint on growth where a new product satisfies
a significant need or desire on the part of potential customers, and there are
no close substitutes, or where they are in short supply.
The effectiveness of a probing strategy depends on just how reliable infor-
mation gained from it is a guide to exploitation of the wider market. For
instance, is the fact that there is good demand for a niche product a good
signal that adequate demand will exist if the entrepreneur exploits neighbour-
ing niches, or the mass market? Does good demand for a basic product give a
reliable signal of high demand for a more fully developed product? Does the
ability to cover costs in small-scale production give a good signal that larger-
scale production will be profitable? To what extent does the fact that an
entrepreneur has the skills to run a small firm signal the possession of the
skills needed to grow the firm and to successfully run the firm following
growth?
Problems with the reliability of feedback in providing such information
provide an incentive for gradual growth. Instead of launching on a small
scale, being successful, and then ramping up quickly to a large scale, scale
may be increased more slowly, so that feedback information is gained pro-
gressively as scale is increased, and as other aspects of the business model,
such as the product design, are adapted. This also has the advantage that
such continuing information can be fed into decisions about how to go about
further growth. This includes not only the issue of how to achieve higher
sales, but also organizational issues such as how to change the structure and
routines of the firm as it becomes larger. Those with experience of managing
growth, and of running larger-scale operations, are likely to have less of a
learning process to undertake.
The choice of strategy is affected by the level of interest rates. For instance,
a strategy involving a long learning process that might eventually result in
high profitability may be made relatively less attractive by higher interest rates
relative to a strategy that involves less uncertainty, and that is more likely to
achieve lower levels of profitability quite quickly. Hence higher interest rates
may result in generally less entrepreneurial approaches, and eventually to
lower economic growth. This analysis is at odds with theoretical approaches
that view entrepreneurial strategies as exogenous, and see the level of interest
rates as simply having the role of filtering out projects expected to provide
lesser returns.

The effects of over-optimism

It has been claimed that over-optimism explains much that is interesting
about entrepreneurship (De Meza and Southey, 1996; Wadeson, 2006). High
confidence reduces the incentive to collect information before making com-
 Entrepreneurial strategy 37
mitments (Hirshleifer and Riley, 1992). The more confident an entrepreneur
is in a favourable view of an opportunity, the less likely it will be thought,
when collecting information, that a message will be received that is at odds
with existing beliefs. In addition, on receiving a belief-disconfirming message,
the entrepreneur will tend to attach less weight to it, and hence be less likely
to change from the default course of action. An example of such behaviour is
that someone who is sure that flying saucers do not exist might think that
somebody claiming to have seen one is deluded, while someone who believes
in flying saucers would lend them more credence. On the other hand, a highly
optimistic entrepreneur will also tend to invest more at the outset, which
provides a counteracting effect on the incentive to gather information prior to
action.
But what is it exactly that an entrepreneur might be optimistic
about? There are, in fact, different dimensions to entrepreneurial optimism,
and the need to differentiate between them is significant. According to
Taylor and Brown (1988), optimistic bias has three main forms: positive
self-evaluation, over-optimism about future plans and events, and over-
optimism due to the illusion of control bias. For current purposes, under
what will be termed Type A over-optimism, an optimistic entrepreneur
has high confidence in knowing at the outset a business model that will
work well.
This means that the entrepreneur believes that the default action, the one
that will be taken if further information gathering does not take place, is the
correct one. Alternatively, under what will be termed Type B over-optimism,
the entrepreneur is confident that success will be achieved eventually; that
a successful business model will be reached through ex post adaptation.
These two alternative forms of optimism have different implications for the
entrepreneur’s strategy.
Under both forms of over-optimism a project that should not be started is
more likely to go ahead. Under Type A over-optimism, the entrepreneur is
likely to invest too heavily from the outset, confident of rapid success. Under
Type B over-optimism, the entrepreneur views early exploitation as a learning
process. The implications for entrepreneurial strategy are linked to timing,
and this is linked to the characteristics of the individual project. Consider the
case where increasing production capacity will be a lengthy process, and
where the entrepreneur confidently expects success to be achieved after a
rapid early learning process. The entrepreneur is then likely to invest heavily
in production capacity at the outset.
However, if production capacity can be rapidly increased, the present value
of the cost of initial small-scale capacity plus later expansion is not much
more than an initial larger-scale investment, and if the learning process
involved in adapting to achieve success is expected to be long, then the entre-
preneur is likely to start with a small-scale investment in capacity. The nega-
tive implications of Type B over-optimism are therefore likely to be less acute
in the latter case.
38 Nigel Wadeson
Capacity is not the only part of the entrepreneur’s strategy that is affected
by over-optimism. As has been discussed above, the product that an entre-
preneur launches initially may be quite basic, involving low development
costs, and the entrepreneur may then follow up initial success with continued
product development. Developing a product designed specifically for
small-scale production can also often reduce initial development costs. It
can then be refined for large-scale production once success in small-scale
production has been achieved. These strategies may be combined quite
naturally, so that a basic product designed for small-scale production is
produced. Hence the information gained from initial production comes at
relatively low cost. They may further be combined with aiming initially
at a niche market, so that the early product has particular features aimed
at niche buyers, in order to generate sales for what is otherwise a basic and
potentially costly product.
Overall, the Type A over-optimist may, initially, invest too much in capacity,
and also invest too much in product development, failing to at first develop a
basic product, designed for smaller-scale production, or designed for a niche.
However, this depends on the characteristics of the opportunity that the over-
optimist aims to exploit. For instance, many new business owners have little
aspiration to advance beyond small-scale, niche production. Type B over-
optimists expect a significant learning process, and so are less likely to be so
willing to lock themselves in, through large sunk development costs, to a
highly defined set of product features at the outset.

Conclusion
Some have viewed the tendency for entrepreneurs to be over-optimistic
as providing an important role for financiers in screening out those that
they consider to be less likely to be successful, by denying them the access
to the resources that they need to pursue their projects. However, some
entrepreneurs do not require external finance to do so; they can rely on
their savings instead. This may mean, though, that they have less money
available to them, at least until they have gained sufficient positive feedback
information from their activities to be able to access external finance. This
illustrates the fact that entrepreneurs’ strategies are affected not only by the
need to gain feedback information for their own benefit, but also by the needs
of others. Unless the entrepreneur is able to back up commitment through
personal wealth, or is operating in a firm with established profitable products,
financiers, customers, suppliers, and workers are likely to be more accom-
modating once a successful business model has been shown to have been
established.
The information process involved in entrepreneurship has been considered
from the entrepreneur’s point of view. However, spillovers are an important
further feature of the process when considered from a wider economic per-
spective. Hence those entrepreneurs who may suffer from the results of their
 Entrepreneurial strategy 39
own over-optimism nevertheless provide a positive information externality to
others (Bernardo and Welch, 2001). Such spillovers can also mean that firms
that have no aspiration to develop beyond a small scale may nevertheless
provide prototypical information to other entrepreneurs.
4 Entrepreneurship in the
public sector
Leonidas A. Zampetakis and Vassilis Moustakis

Introduction
Entrepreneurship is changing gears. Practice demonstrates and research
validates that the concept is moving from the individual to the organization
and from the private sector to the social and not-for-profit endeavours
(Borins, 2002; Leadbeater, 1997; Morris and Jones, 1999; Thompson, 2002;
Zampetakis and Moustakis, 2007). Increasingly there is more focus on
examining entrepreneurship from an organizational perspective. The con-
cept mutates to corporate entrepreneurship and companies find themselves
investing in the diffusion and entrepreneurial skill development across all
managerial echelons (Kuratko, Ireland and Hornsby, 2004; Mair, 2005).
Corporate entrepreneurship emerges as the flagship in the fight against
bureaucratic attitude and the quest towards strategic renewal, organizational
change and customer value added services (Barringer and Bluedorn, 1999;
Guth and Ginsberg, 1990; Shaw, O’Loughlin and McFadzean, 2005). Hayton
(2005) depicts corporate entrepreneurship as a highly complex process, which
interacts with internal and external organizational procedures that are not
amenable to universal treatment. Yet corporate entrepreneurship is a multi-
faceted construct, not amenable to a single practice (Morris and Jones, 1999:
87) and in the private sector, it correlates with innovation (Shaw, O’Loughlin
and McFadzean, 2005). In the public sector, despite evidence that the major-
ity of innovative practices in the public sector originate from middle man-
agers and frontline staff (Borins, 2002), corporate entrepreneurship has
received limited attention. The rather few studies and corresponding results
focus on practices such as reward systems, top management support, etc., to
indicate lack of entrepreneurial organizational support or to point out that
specific support practices are missing (Brown, 2004; Sadler, 2000). In addition,
studies of the public sector are limited to few countries and the field lacks
sufficient results, which would allow global generalization and formation of
universally accepted best practices.
This chapter endeavours to complement the literature with the concrete
findings from a research project conducted in Greece aiming towards model-
ling of public entrepreneurship. Drawing on the literature, we introduce a
 Entrepreneurship in the public sector 41
model covering the impact of four factors that foster entrepreneurial behavi-
our on public sector employees’ willingness to adopt them. We used an experi-
mental design and conclusions are drawn from extensive experimentation
with 223 public servants working across 15, randomly selected, prefectures in
Greece.
Conjoint analysis and cluster analysis were employed to empirically test
the importance and contribution of factors which foster corporate entre-
preneurship and the corresponding level of expression. Our results demon-
strate that all four factors examined are perceived as important. Furthermore,
public sector employees’ willingness to adopt those factors formed a pattern
which is consistent with Rogers’s model of diffusion of technological innov-
ations (Rogers, 1995).
Results bridge entrepreneurship between the private and the public sectors
and demonstrate that public employee attitude and preference towards cor-
porate entrepreneurship is not homogeneous. Attitude heterogeneity provides
valuable insight on how to stimulate entrepreneurial initiative within public
sector entities. In the sections that follow we overview the literature, present
the model and the experimental design, present and discuss results and con-
clude with two agendas: the first agenda delineates limitations and suggests
areas for further research and the second agenda encompasses guidelines for
enhancing corporate entrepreneurship.

Entrepreneurship in the public sector

Bruyat and Julien (2000) approach entrepreneurship via change, emergence,
creation and new value formulation at both the individual and organizational
levels. The authors argue that the scope of value creation in the public sector
should not be reduced to profit. Value should be multifaceted to encompass
citizen welfare as, for instance, Bowman and Ambrosini (2000), and Halachmi
and Bovaird (1997) have suggested in the past. Roberts (2002: 56) defines
public entrepreneurship “as the generation of a novel idea and the design
and implementation of the innovative idea into public sector practice,” and
Caruana et al. (2002: 54) claim “that public sector entities can provide new
value to the various stakeholders they serve by adopting an entrepreneurial
approach with the resources over which they have control.” Morris and Jones
(1999: 74) view public entrepreneurship “as the process of creating value for
citizens by bringing together unique combinations of public and/or private
resources to exploit social opportunities.”
However, the field lacks formal theory and modelling, and results reported
thus far in the literature are based mainly on exploratory case studies of
highly successful public entrepreneurs (i.e. Boyett, 1997; Ramamurti, 1986;
Zerbinati and Souitaris, 2005). Empirical evidence on the organizational
location of entrepreneurship is scarce; is it present in the higher organiza-
tional echelons or is it spread around (Zampetakis and Moustakis, 2007)?
However, Drucker (1985: 170) argues that “almost anyone can become an
42 Leonidas A. Zampetakis and Vassilis Moustakis
entrepreneur if the organization is structured to encourage entrepreneur-
ship.” Conversely, almost any entrepreneur can turn into a bureaucrat if the
organization is structured to encourage bureaucratic behaviour.
Entrepreneurial behaviour is difficult to explore and to measure (Auteri,
2003; Brown et al., 2001). Established definitions of entrepreneurial behavi-
our within existing organizations are typically restricted to discrete entre-
preneurial events such as new product development or the creation of new
organizations (Mair, 2005). According to Mair (2005: 49) “notions of grand
entrepreneurship remain inapplicable to various entrepreneurial phenomena
occurring in large established firms” and entrepreneurial behaviour within
existing organizations is a set of activities and practices by which individuals
at multiple levels autonomously generate and use innovative resource com-
binations to identify and pursue opportunities. Zampetakis and Moustakis
(2007: 34) found that public entrepreneurs display abilities and skills to create
an energetic working environment coupled with strategic vision and change
orientation. Research on the factors thought to stimulate entrepreneurial
behaviour splits into two main streams (Kuratko et al., 2004; Shane et al.,
2003). The first stream anchors on the organizations and the second stream
focuses on the individual.

Fostering entrepreneurship in the public sector

Stimulants of corporate entrepreneurship

Researchers have acknowledged that corporate entrepreneurship models
need to adapt to public sector specifics, claiming that the mere transfer of
private sector models or practices will not suffice (Boyett, 1997; Graham and
Harker, 1996; Sadler, 2000). Therefore, claims favouring the implementa-
tion of private sector entrepreneurship in the public sector should be revised
(Box, 1998). Studies which have investigated the differences between entre-
preneurial and non-entrepreneurial (conservative) private sector organiza-
tions have identified factors that are relevant to the stimulation of corporate
entrepreneurship.
For example, research results reported by Hayton (2005) and Shipton
et al. (2006) suggest that “pay for performance” reward schemes may pro-
mote individual or team contributions towards innovation. Zerbinati and
Souitaris (2002) demonstrated that financial incentives were of major impor-
tance with respect to innovation in manufacturing firms. Entrepreneurial firms
tend to make systematic investments in employee skills, particularly group
skills and capabilities, through training programmes (Hayton, 2005; Shipton
et al., 2006). Research suggests that extensive employee training contributes
to organizational innovation (Shipton et al., 2006). Furthermore, results
reported by Hayton (2005) and Shipton et al. (2006) confirm earlier findings
by Morris and Jones (1999) according to which values and attitudes hold
a prominent role in the creation and display of entrepreneurial and
 Entrepreneurship in the public sector 43
innovative thinking, while reward and training are useful tools towards
employee attitudinal change. Finally, according to Laursen and Foss (2003)
entrepreneurial firms commit themselves to practices such as job rotation
and project work.
With reference to the public sector, we identified the entrepreneurship
research by Sadler (2000), which reports the result of a study in the public
sector, based on 322 publicly owned water companies. The study concludes
with a set of dimensions which marked a milestone in public entrepreneur-
ship research and practice, namely: participative decision-making, autonomy
in resource planning and control, resource availability, work group cohesion,
competition, well-understood and accepted reward/punishment procedures,
and little or no political intrusion. We used them in the formulation of the
experimental tools and methods reported herein.

Methods and procedures

The present study focuses on three factors that stimulate corporate entre-
preneurship, namely: job rotation, reward system, and training. A fourth
factor is added, namely the service trial period. Specifically:

• Job rotation – this represents the number of years it takes for an

employee to move to another department of the same or different
directorate. According to Sadler (2000), job rotation facilitates the
introduction of new ideas from different perspectives and may be used
as a human resource development technique (Laursen and Foss,
2003).
• Reward system/pay for performance – this refers to the percentage increase
in the salary when the unit within which the individual works achieves
predetermined results. Reward systems are a common practice in public
sector reforms (Sadler, 2000; Ingraham, 1993) and facilitate employee
attitudinal change (Morris and Jones, 1999).
• Training factor – this is the frequency of employee seminar attendance
for the acquisition of new knowledge and skills. Extensive employee
training predicts organizational innovation (Shipton et al., 2006). More-
over, according to Graham and Harker (1996) and Morris and Jones
(1999), training is important in order for public servants to understand
the differences between public and private entrepreneurship. Frontline
employees especially need the requisite knowledge and ability to recognize
and solve problems and to ensure high-quality services.
• Trial period of public servants – according to the Greek Public Servants’
Code, public servants have to pass a two-year trial period. In that period,
they acquire the relevant skills necessary for their position. During the
trial period, public servants work under the regulations of a private law
contract and failure to achieve satisfactory results leads to employee
dismissal. On the other hand, if the trial period is successful, then the
44 Leonidas A. Zampetakis and Vassilis Moustakis
public servant obtains a “security of employment” for the rest of his or
her career, which is guaranteed by the Greek Constitution. The inclusion
of this factor in the research design is based on recent empirical evidence
proposing that employees wanting job security are more likely to increase
their work effort (Frank and Lewis, 2004).

Sample and data collection

The sample frame is public sector employees working at Greek prefectures.
The structure of the Greek state administration includes three levels: the
city, the prefecture, and the region. Greece consists of 13 regions, 54 pre-
fectures and numerous cities. Empirical data were obtained through a mail
survey. A sample of 15 prefectures was randomly selected. The director of
Administrative Services and Personnel received a questionnaire with a cover-
ing letter explaining the purpose of the survey and providing directions for
the completion of the questionnaire.
A total of 223 completed questionnaires were received. Sixty percent of
the sample were male respondents, mean sample age M = 40.06 (SD = 8.85).
Eighty percent of the respondents had a university degree and 30 percent
held a position of head of a department. The average time in years of
employment in the public service was 12.3 (SD = 9.7) and the number of
years employed in the private sector before entering the public service was
3.57 (SD = 3.7). The sample consisted of public servants working at different
directorates of the Greek prefectures.

Conjoint analysis
Conjoint analysis is a marketing research technique designed to help man-
agers determine the preferences of customers and potential customers.
The method seeks to determine how consumers value the different attributes
that make up a product and the tradeoffs they are willing to make among
the different attributes or features that comprise the product (Hair et al.,
1998).
Conjoint analysis starts with the individual’s overall judgements about a
set of alternatives (Green and Srivivasan, 1978). It then performs a decom-
position of the original evaluations into separate utility scales by which the
original overall judgements are reconstituted. This procedure provides valu-
able information about the relative importance of various attributes of a
product. It can also provide information about the value of various levels of a
single attribute.
Therefore, the aim of conjoint analysis is to identify the attribute combin-
ation which confers the highest utility to the consumer, and to establish the
relative importance of attributes in terms of their contribution to total utility.
An ideal product profile can then be judged. Empirical evidence suggests that
conjoint analysis has increased predictive validity (Vavra, Green and Krieger,
 Entrepreneurship in the public sector 45
1999; Bouma et al., 2004). Moreover, conjoint analysis has been acknow-
ledged as a technique that can advance the field of entrepreneurship research
(Busenitz et al., 2003: 300).
In conjoint analysis, products are referred to as profiles. Individuals’ pref-
erences and attitudes are reflected in their choices among product profiles. A
profile is defined as a hypothetical product consisting of different attribute
levels. In the present study, we refer to profiles as “scenarios” since they are
constructed from specific attributes (i.e. the factors that foster corporate
entrepreneurship along with specific attribute levels).

Design of the conjoint analysis

For the conjoint analysis study, the part-worth function model was chosen
and the full-profile method was employed to collect the data. This design
provides flexibility in terms of the functional form of the preference function
and it is more realistic as all factors are considered and evaluated simul-
taneously (Green and Srivivasan, 1978; Wittink and Cattin, 1989).
In the full-profile method, respondents are asked to score a set of profiles,
according to their preference. On each profile, all factors of interest are
represented and a different combination of factor levels appears constituting
different scenarios. A limitation to this approach is the possibility of informa-
tion overload, as it utilizes the complete set of factors. Use of fractional
factorial designs has been suggested to ameliorate information over-
load (Green and Srivivasan, 1978). Public servants’ willingness to adopt
scenario implementation is the dependent variable of the present study. The
independent variables are the factors that foster corporate entrepreneurship.
Table 4.1, depicts the factors and corresponding levels used in the present
survey.

Table 4.1 Attributes and their corresponding levels used in the survey

Attribute Levels

1. Job rotation a. Every four years

2. Reward system/pay for performance
3. Training with seminars
4. Trial period of public servants
b. Every five years
c. Every six years
a. 20% salary increase
b. 25% salary increase
c. 30% salary increase
a. One seminar every year
b. One seminar every two years
c. One seminar every three years
a. Six years’ trial period
b. Eight years’ trial period
c. Ten years’ trial period
46 Leonidas A. Zampetakis and Vassilis Moustakis
The levels of each of the factors used were determined prior to the
administration of the questionnaire. These were chosen according to surveys
concerning Greek bureaucracy and from suggestions made by a team of ten
expert public servants. For example, in a survey conducted in 1996, it was
found that among 970 Greek public servants (Karkatsoulis, 2004), 70 percent
of the respondents stated that the employee should change positions and
duties during his or her career in order to get a “spherical” view of the
directorates’ functions.
Moreover, 66 percent of the respondents had not changed position during
his or her career. In the same survey, 56 percent of the respondents stated
that they had not attended a training seminar during their career although
they considered skills and knowledge acquired from training as very import-
ant. Seven percent of the respondents had a training seminar once a year and
10 percent had a training seminar every three years.
As far as salary is concerned, 70 percent of the public servants surveyed
stated that they are underpaid compared to their private sector counterparts,
that their salary does not correspond to the work they perform, and that
low pay is at the root of inefficiency. Twenty percent of the respondents
considered a 35 percent salary increase as adequate, 38 percent suggested
a 50 percent salary increase and 28 percent stated that a 70 percent salary
increase would be adequate. For the trial period factor, we used the paradigm
of the Greek public universities, where the minimum time required for
an assistant professor to acquire his or her state of “security of employment”
is six years.
The present study utilized a verbal description approach and each verbal
description was placed on a profile card. A rating scale anchored from one to
seven, with one being “dislike extremely” and seven being “like extremely,”
was selected. Figure 4.1 presents a sample profile used in the present survey.
The SPSS conjoint procedure (SPSS, 2004) was used to calculate utility
scores. These utility scores are used to estimate the relative importance of
each factor. For each respondent, the utility scores were estimated using
Ordinary Least Square (OLS) regression analysis (SPSS, 2004). An orthog-
onal procedure was applied on the 81 (3 × 3 × 3 × 3 = 81) hypothetical
scenarios, to reduce them to 9 scenarios for evaluation.
In summary, the survey instrument contained nine different scenarios for
evaluation, accompanied by eight demographic variables (prefecture of
employment, sex, educational level, total number of years in public service,
total number of years employed in the private sector before entering the
public service, the directorate of employment, age, whether the respondent is
a department head).

Analysis and results

Conjoint analysis produces two types of results: individual, who corresponds
to the utility presented by each respondent in relation to the several attribute
 Entrepreneurship in the public sector 47

Figure 4.1 Fractional factorial design reduced the number of evaluation scenarios
to nine.

levels considered; and group, which corresponds to the average utilities found
in the group. The part-worth utilities of conjoint analysis will be used for post
hoc segmentation purposes (Green and Krieger, 1991; Lilien and Rangas-
wamy, 2002). Table 4.2 shows the part-worths for all respondents within the
sample. Our results indicate an adequate level of internal validity in terms of
Pearson’s product moment correlation coefficient (r = 1.000, p < 0.001), and
Kendall’s tau (τ = 0.997, p <. 001) for the whole sample (Leigh, MacKay and
Summers, 1984).
Results from Table 4.2 indicate that the “trial period” of public servants is
the most important attribute (27.88 percent). This is followed in descending
order by “training” (26.43 percent), “reward systems” (24.75 percent), and
“job rotation” (20.94 percent). The small differences in the importance scores
demonstrate that all factors are perceived as being important from the public
servants. Within the attributes, the part-worth utilities of each attribute were
also investigated. For example, within the factor “trial period,” the highest
level of utility for the public servants was obtained through the “six years”
trial period (U = 0.3109), whereas the utility obtained during the “eight
years” and “ten years” period was lower (U = −0.012) and (U = −0.2990),
respectively. Utilities are scaled to sum to zero within each attribute.

Cluster analysis
Conjoint analysis part-worth utilities were used as an input for cluster
analysis in order to identify segments of public servants based on revealed
48 Leonidas A. Zampetakis and Vassilis Moustakis

Table 4.2 Conjoint analysis results for the sample (n = 223)

Attribute Levels Part-worth Importance

utility score (%)

1. Job rotation a. Every four years 0.0703 20.94

b. Every five years 0.0120
c. Every six years −0.0822
2. Reward system/pay a. 20% salary increase −0.3438 24.75
for performance b. 25% salary increase −0.0613
c. 30% salary increase 0.4051
3. Training with a. One seminar every year 0.4216 26.43
seminars b. One seminar every two years −0.0001
c. One seminar every three years −0.4215
4. Trial period of a. Six years’ trial period 0.3109 27.88
public servants b. Eight years’ trial period −0.0120
c. Ten years’ trial period −0.2990

Notes:
a Pearson’s r = 1.000; Kendall’s tau = 0.997.
b These statistics show that the data fit was very good.
c The “trial period” was identified by public servants, as the most important factor (27.88%).

attitudes. A two-clustering approach proposed by Batcher (2002) was used.

More specifically, in the first stage, hierarchical clustering was used to deter-
mine the number of clusters and in the second stage, discriminant analysis
was used to facilitate interpretation. For the purposes of hierarchical cluster-
ing, Ward’s minimum variance method was used with squared Euclidian
distance as metric to obtain a preliminary solution. The agglomeration sche-
dule suggested either a four- or a five-cluster solution. Figure 4.2 depicts a
dendrogram indicating the clustering of the 223 respondents with Ward’s
hierarchical grouping method.
As noted by Johnson and Wichern (1998), there are no hard and fast rules
that can be used to objectively determine the number of clusters. In order to
facilitate interpretation of hierarchical cluster analysis results, discriminant
analysis, as proposed by Batcher (2002: 78), was used. The initial classifica-
tion (membership) of the hierarchical cluster analysis is implemented as the
dependent variable; the variables used to cluster the cases are taken as the
independent variables. For both cluster and discriminant analysis, SPPS
(v.13) statistical package (SPSS, 2004) was applied. Discriminant analyses
reduce the space dimensions (the 12 attribute levels), to g-1 where g is the
number of a priori groups.
The analysis computes the coefficients in such a way as to provide the
best linear function that distinguishes between the four (or five) groups pro-
posed by the hierarchical cluster procedure. This is undertaken by maximizing
the ratio of the between-group variance to the pooled sample within-group
variance of y (Johnson and Wichern, 1998). Results derived from the
 Entrepreneurship in the public sector 49

Figure 4.2 Results of the hierarchical cluster analysis.

discriminant function successfully predicted the classification of 91 percent

of the cases in the four-cluster solution and 88.4 percent of the cases in
the five-cluster solution. Therefore, four clusters were selected to segregate
the data.

Cluster analysis results

After four clusters were chosen, additional conjoint analysis was run for each
cluster to determine the defining characteristics of the segments in the indi-
vidual clusters. Table 4.3 presents the results of the profile analysis for the
whole sample.
By examining the importance levels of each of the clusters, four very strong
clusters are identified based on the level of importance for a particular attrib-
ute. Each individual group is named following the recommendations of
Bradley (2000: 10). The following paragraphs provide a short description
of the respondent profiles. The first cluster (n = 27), which represented
12.1 percent of the respondents, claimed that “reward system/pay for
performance” is the most important factor (51.5 percent). This group com-
prised public servants who are confident in their abilities to achieve
predetermined results; therefore, they are ready to adopt top management
initiatives towards public entrepreneurship. Thus, this cluster is named as the
“When do we start?” group.
50 Leonidas A. Zampetakis and Vassilis Moustakis

Table 4.3 Profile analysis for clusters identified in the sample

Attribute Importance score (%) One-way ANOVA

“When do “Convince “Tempt me” “No way” F p value

we start?” me” (n = 83) (n = 78) (n = 35)
(n = 27)

1. Job 13.50 23.29 19.43 20.90 4.456 < 0.001

rotation
2. Reward 51.50 23.96 18.83 19.40 48.207 = 0.005
system/pay
for
performance
3. Training 16.70 25.16 36.72 15.50 31.944 < 0.001
with
seminars
4. Trial 18.30 27.60 25.02 44.20 14.020 < 0.001
period of
public
servants

In the second cluster (n = 78), representing 35 percent of the respondents,

the frequency of training seminars, that is the “training” factor, is the one
with the highest importance (36.72 percent). One seminar every year is the
desired frequency (U = 1.01). Moreover, inside the “job rotation” factor,
which is the third most important factor (19.43 percent), the level “every five
years” has the highest utility for the respondents (U = 0.204). The “reward
system” factor had the lowest importance for this cluster (18.83 percent).
This group contains public servants who are willing to adopt the factors
fostering corporate entrepreneurship, as long as top management convinces
them that the initiatives taken are for personnel preparation in order to
facilitate service improvement for the citizens. We name this group the
“Convince me” group.
In the third cluster (n = 83), representing 37.2 percent of the respondents,
the subjects do not really have a particular attribute that is most important to
them. Rather it is the bundle of attributes that are important. Although the
“trial period” of the public servants is the attribute with the highest import-
ance (27.6 percent) in this cluster, when examining the relevant attribute
levels, it was found that “ten years of trial period” is the attribute with the
highest utility (U = 0.31). This cluster comprises public servants whom top
management should tempt by challenging the existing status quo. We name
this cluster the “Tempt me” group.
For the fourth cluster (n = 35), representing 15.7 percent of the respond-
ents, the “trial period” of the public servants was the factor with the highest
importance (44.2 percent), followed by “job rotation” (20.9 percent), “reward
 Entrepreneurship in the public sector 51
system” (19.4 percent) and finally “training” (15.5 percent). This group
contains public servants who tend to be suspicious of all the aspects con-
cerning the factors that foster public entrepreneurship in their prefecture.
This is evident from the examination of the part-worth utility scores for each
factor. This group prefers the lowest “trial period” for the public servants
(six years, U = 1.31), the smallest possible “job rotation” (every six years,
U = 0.435), the smallest amount of “training with seminars” (one seminar
every three years, U = 0.092), and finally, the highest salary increase
(30 percent, U = 0.511). We name this group the “No way” group.
In order to assure that each attribute importance score was significantly
different for each cluster, we conducted one-way ANOVA on the importance
scores for each of the attributes as the dependent variable and the cluster
membership as the independent variable (see Table 4.3). These results suggest
that each of the clusters can then be identified as different according to which
attribute the subjects have placed the most importance on. In the discussion
below it will become clear that the identified clusters are meaningful and
useful, which is an important aspect in assessing the external validity of the
analysis (Punj and Stewart, 1983).

Discussion
The main purpose of the present study was to explore public entrepreneur-
ship in the Greek public sector. Drawing on the literature, we introduce
a model covering the impact of four factors that foster entrepreneurial
behaviour on public sector employees’ willingness to adopt them. An investi-
gation was carried out to determine public servants’ attitudes towards differ-
ent scenarios that were constructed using three factors that foster corporate
entrepreneurship in the public sector.
Moreover, the “trial period” factor, that is the years of employment required
prior to the acquisition of the constitutional “security of employment” of the
public servants, was incorporated into the research design. In addition, we
investigated which segments could be distinguished based on the part-worth
utilities of the factor levels. Results derived from the conjoint analysis experi-
ment indicated that the factor with the highest average importance to public
servants is “trial period” (27.88 percent). This is followed in descending order
by “training” (26.43 percent), “reward systems” (24.75 percent), and “job
rotation” (20.94 percent). The results obtained in this study confirm those
derived from previous research demonstrating that public employees place
great importance on job security (Frank and Lewis, 2004), and less import-
ance on high pay (Crewson, 1997), and validate the content validity of the
present study.
According to Sadler (2000: 39), it is inappropriate to regard the public
sector as a single operational structure as far as the factors that facilitate
corporate entrepreneurship are concerned. In the present survey, important
differences between the aggregate part-worths for the whole sample and those
52 Leonidas A. Zampetakis and Vassilis Moustakis
for the four clusters identified were observed. Results indicate that it is
inappropriate to regard public servants as a single operational structure, and
confirm the importance of employee heterogeneity in attitudes towards pub-
lic entrepreneurship. Cluster analysis results clearly identified four groups of
respondents. More specifically, these are the “No way” group, the “Convince
me” group, the “Tempt me” group and finally the “When do we start?” group.
Figure 4.3 provides a histogram of the frequencies of respondents identified
in the four clusters of the survey sample.
With reference to Figure 4.3, it is clear that not all public servants react in a
similar fashion to the factors that foster corporate entrepreneurship. It seems
that public servants distribute themselves in a pattern that is consistent
with Rogers’ model of diffusion of technological innovations (Rogers, 1995).
Rogers defines diffusion as “the process by which an innovation is communi-
cated through certain channels over time among the members of a social
system” (1995: 5).
The model of innovation diffusion proposed by Rogers (1995) categorizes
potential adopters of an innovation into groups based on the time an indi-
vidual adopts an innovation. According to Rogers, adopters fall into four
categories. The first category incorporates the innovators and accounts for
16 percent of the population; these are the “early adopters” and represent
the individual’s willing to accept uncertainty.

Figure 4.3 Histogram with normal curve of the number of cases belonging to each
cluster.
 Entrepreneurship in the public sector 53
The second category captures the 34 percent of the population and
incorporates the “early majority” – the individuals who are willing to adopt
an innovation once they have learned enough about it. The third category
captures the 34 percent of the population and includes the “late majority” –
the individuals who generally are very sceptical about innovation and wait
until most of the uncertainty has vanished. The final group encompasses
16 percent of the population and is made up of the “laggards” – the last
adoption group.
Results from our survey advance our understanding on entrepreneurship
in the public sector in a number of aspects and this study is among the few
that are based on a random sample of public employees working at different
directorates of the Greek public sector. Previous research efforts predomin-
antly look at high technology firms. Results indicate that the identified clus-
ters of civil servants correspond to Rogers’ groups, with the “When do we
start?” group being the “innovators,” the “Convince me” and “Tempt me”
groups being the “early” and “late” majority individuals and finally, the “No
way” group being the “laggards.”
Additionally, results suggest that factors fostering corporate entrepreneur-
ship in the public sector are perceived as a form of innovation from the main
actors of the public sector social system that is, public servants. Introducing
such initiatives in the public sector follows a pattern similar to the diffu-
sion of technological innovations as suggested by Rogers (1995). Therefore,
results present here can provide meaningful insights for managerial prac-
tice since they can be very helpful to policy makers; the groups identified can
be targeted with a different diffusion strategy.
Following the recommendations of Bradley (2000), it can be argued that a
change-programme for the introduction of entrepreneurship in the public
sector should aim towards the “Convince me” group. If it is aimed at the
“Tempt me” group, half of the public servants will be unswayed. By con-
vincing those who need convincing, the “Tempt me” and “When do we
start?” people will most likely also be persuaded.
Furthermore, our research design reveals attitudes of frontline staff work-
ing in the public sector. Considering that intentions successfully predict
behaviour and attitudes successfully predict intentions (Kim and Hunter,
1993), our results indicate that there could be an increased possibility of
successful application of corporate entrepreneurship in the public sector,
through the practice of internal marketing. Moreover, empirical evidence
suggests that employee-initiated change is more likely to produce positive
attitudes compared to top management-driven change (Griffin, Rafferty,
and Mason, 2005). Finally, results indicate that conjoint analysis can
be used to support effective internal marketing policy formulation and
implementation.
54 Leonidas A. Zampetakis and Vassilis Moustakis
Conclusions and recommendations for further research
During the last fifteen years, considerable effort has been built up around
developing more effective, more efficient, and more flexible public organ-
izations (Pollitt and Bouckaert, 2000). Public entrepreneurship provides
promising possibilities for the public sector organizations to revise their ways
of working in order to cope with challenges and opportunities (Caruana
et al., 2002; Zampetakis and Moustakis, 2007; Zerbinati and Souitaris, 2005).
We examined public servants’ attitudes concerning scenarios that were
constructed based on three factors that have been found to foster corporate
entrepreneurship, namely: “job rotation,” “reward system/pay for perform-
ance”, and “training.” In addition, we used the “trial period” of public ser-
vants in the research design. Results indicated that the factor with the highest
average importance to public servants was the “trial period.” This is followed
in descending order by “training,” “reward systems” and “personnel turn-
over.” In addition, the aforementioned factors follow a distribution pattern
similar to the diffusion of technological innovations.
While this research represents an important step in identifying the impor-
tance of factors associated with corporate entrepreneurship, additional
research is required to enhance confidence in the generalization of findings.
First, our research relied on a sample from the Greek public sector. Thus,
results may reflect a bias since public servants from other countries were not
incorporated. Second, our data is cross-sectional in nature. Consequently,
alternative relationships might exist. Future research should be longitudinal.
Third, only four factors were incorporated in our research design. Future
research should include a broader set of factors that are important for foster-
ing corporate entrepreneurship. Finally, it would be very helpful in future
experimental designs to reveal the attitudes of the public sector’s union
members, since they are close to frontline staff and research indicates a positive
relationship among the persons who introduce initiatives and the decision to
adopt them, from the members of the social network (Rogers, 1995). More-
over, future research should incorporate multilevel designs, since employees
are nested within directorates or departments.
5 The impact of management
practices on industry level
competitiveness in transition
economies
Lilla Hortoványi and Roland Zs. Szabó

Introduction
This chapter explores different strategic management approaches as the
determinants of firm competitiveness within a transition economy (Hungary).
More specifically, we focus on investigating the central question of how
strategic management practices and organizational routines influence the
industry-level competitiveness of firms. According to our hypotheses, cor-
porations that are entrepreneurially oriented face greater growth potential,
organizational flexibility and more innovation creation capability than their
conservative competitors. Entrepreneurial corporations hence can be more
competitive even in highly volatile and complex environments.
Our empirical study is based on the data collected via the “In Global
Competition 2004–2006” research program. The aim of the survey was to
provide a picture of Hungarian competitiveness from the corporate perspec-
tive at the moment of Hungary’s accession to the European Union. In each
participating corporation the four top managers – the CEO, the sales and
marketing, the financial, as well as operational managers – were asked to fill
in the customized questionnaires. The response rate was 23 percent that
resulted in a database of 1204 individual replies. The responses came from a
population of 301 mainly medium and large corporations located in Hungary.
The strategic management practices and organizational routines of the
sample are examined by principal component analysis with varimax rotation
and k-means cluster analysis.
Historically, planned economies were governed by bureaucratic controls.
Furthermore, property rights were held by the state: individuals could not
own assets. The state-owned enterprises were closely tied to governments, and
the economic activity was largely characterized by indirect preferential treat-
ment, paternalism, and soft budget constraints (for more details see Kornai,
1986).
After the collapse of Communism in 1989, Central and East European
countries, referred to as the transition economies, had started to restructure
themselves into market economies through privatization, adoption of free-
market mechanism, and macroeconomic stabilization efforts. The “newly
56 Lilla Hortoványi and Roland Zs. Szabó
born” private enterprises went through a double-shock: first, they had to
recall the long-forgotten managerial “mentality” since the free-market sys-
tem also meant the loss of state support such as direct financial subsidiaries.
Second, they had to act very quickly in order to ensure their survival
together with their multinational competitors.
Corporations in transition economies are therefore facing a stronger pres-
sure to engage in activities and market strategies that improve their long-term
competitiveness, yet their response to that pressure is neither uniform nor
timed across different markets. Corporations are expected to engage in exten-
sive search and experimentation, and the learning is likely to be imperfect
(Hoskisson et al., 2000).
Entrepreneurial behaviors are necessary for firms of all sizes to pros-
per and flourish in competitive environments, especially where the insti-
tutional environment is experiencing transformation. Traditionally most of
the research conducted in the field of entrepreneurship focuses on either
developed countries such as Western Europe, or else on the newly industrial-
izing countries like Asian and Latin-American countries. To the best of our
knowledge, there are no studies in the literature that focus specifically on the
relationship between the market context and the management practices in
transition economies.
The entrepreneurial firms are generally distinguished in their ability to
innovate, initiate change, and rapidly react to new opportunities. Based on
the argument of Covin and Slevin (1986), we also believe that the strength of
corporate responsiveness to change is associated with a more sophisticated
and efficient management. Entrepreneurship hence can be measured by look-
ing at managerial behavior, as evidenced by the firm’s strategic decisions
and management philosophies. Corporate entrepreneurship is found to affect
firm performance (Zahra et al., 1999) and it is a means of accumulating,
converting and leveraging resources for competitive purposes (Floyd and
Wooldridge, 1999), such as the aim to outperform competitors. Therefore,
we argue that corporate entrepreneurship is a source of competitive advan-
tage. However, it works best only if the corporation has access to the critical
resources of competitiveness which are technical performance, technical
infrastructure, access to knowledge and a highly trained workforce in the new
international division of labor (Castells, 2000).
The literature of corporate entrepreneurship in transition economies is
still in its infancy due to lack of relevant, empirical data. Therefore, we
have first aimed to map the managerial practices of Hungarian medium
and large corporations and then to link them with the firms’ exhibited
market behavior in order to extend the research of sustainable competi-
tive advantage to the transition economies context. Accordingly, we have
identified three forms of market behaviors primarily in medium and large
corporations.
 Impact of management practices in transition economies 57
Hypotheses development
The creation of the theoretical framework for our research was primarily
inspired by international publications (without claiming completeness: Stop-
ford and Baden-Fuller, 1994; Burgelman, 1984; Lumpkin and Dess, 1996). As
we have already emphasized in the introduction, it is corporate entrepreneur-
ship that stands at the center of our research. Therefore, it is important to
highlight the three most important assumptions that played a crucial role
in formulating our research questions. First, entrepreneurial orientation is
not limited to the context of small, newly established and owner-directed
organizations. On the contrary, corporate entrepreneurship is primarily the
characteristic of established organizations.
Second, entrepreneurship is a behavioral phenomenon, not an end. Cor-
porations qualified as “Entrepreneurial” can similarly bring wrong decisions
and can fail just like their traditional competitors. Therefore, our aim was not
to prepare a normative study, that “prescribes” the best practices of success-
ful enterprises, but rather to launch a dialogue between different paradigms.
Third, since entrepreneurship is regarded as a behavioral phenomenon,
we share the view of Barringer and Bluedorn (1999) that all firms fall along
a conceptual continuum that ranges from highly conservative to highly
entrepreneurial.
The central problem faced by medium and large corporations is how to
maintain their growth. Several researchers, including Burgelman (1984; 1983)
have pointed out that the growth potential of medium and large corporations
is limited, even with the maximal exploitation of their existing competences
and resources. Therefore, the ability to acquire new competences is a decisive
factor in the long-term success of every large corporation. The corporate
entrepreneurship activity – through getting new knowledge and competences
– can make corporations more competitive (Zahra et al., 1999; Lumpkin
and Dess, 1996). This means that corporate entrepreneurship is not just an
appropriate tool for managing growth “barriers” – but, practicing corporate
entrepreneurship can result in a larger growth potential. Even though it is a
real challenge for corporate managers to deal with the tension of balancing
exploitation with exploration (Dess et al., 2003), equity markets still demand
shareholder value through profitable growth. It is often argued that large and
older corporations hardly embrace emerging markets due to organizational
inertia (Christensen, 2003); but it also has been pointed out that organiza-
tions with a larger knowledge base are more likely to pursue innovative
opportunities that further contribute to the accumulation of knowledge
(Cohen and Levinthal, 1990) since they already have the structures, incen-
tives, and infrastructures needed to develop new innovations within their
established domain.
This study does not distinguish between incremental and radical innov-
ations; however, we assume that entrepreneurial corporations tend to be rela-
tively larger within the size segment in which they compete. These companies
58 Lilla Hortoványi and Roland Zs. Szabó
possess greater market power and slack resources that are needed for the
appropriation of returns from innovation.
Entrepreneurial commitment demands – besides innovation – the presence
of a sound and articulated objective of superior market performance and
long-term competitiveness. This objective is often accomplished through
actions that vitalize the organization itself, and may shake up industry status
quo as well (Covin and Miles, 1999). Growth, competitiveness, and higher
than industrial average efficiency, however, require the accumulation of
profit, because reserves can be reinvested. For increasing profit, there are four
main ways in any given financial environment, with prices set by the market:
decreasing production costs (starting with wages and salaries); increasing
productivity; widening the market; and accelerating the return of the invested
capital (Castells, 2000). Therefore, we propose that among larger corpor-
ations, the entrepreneurial type (H1) is more frequent, and these corporations
focus more intensively on growth (H2) than their competitors.

Entrepreneurial corporations are larger than their traditional competitors by:

(a) total size category
(b) the number of employees
(c) asset value, and
(d) annual revenue.

Target: growth strategy

(a) Entrepreneurial corporations are hungrier1 than their traditional
competitors.
(b) Entrepreneurial corporations view the increase of their market share to
be more important than their traditional competitors.
(c) Entrepreneurial corporations have recently grown at a higher rate than
traditional corporations.
(d) Entrepreneurial corporations are more diversified (they operate in more
industries) than traditional corporations.
(e) Entrepreneurial corporations have entered more markets recently than
their traditional competitors.
(f ) Entrepreneurial corporations invest substantially more than their trad-
itional competitors.
(g) Entrepreneurial corporations pay greater attention to benchmarking
than their traditional competitors.

As previous studies (see Nyström, 1979) observed, it is principally a

decentralized, curious and open-minded organization culture that enables
corporations to meet the challenge of discovering and forming new possi-
bilities and application areas. Corporations do not carry out their innova-
tion activities in isolated research labs. They tend to build cooperation with
their consumers or even competitors for producing a “win-win” outcome
(Christensen, 2003).
 Impact of management practices in transition economies 59
This view is confirmed by Castells (2000), who points out that corporations
in Silicon Valley were able to conquer the borderlands of technology because
they continuously fertilized each other by spreading knowledge via exchange
of their employees and experts. The friendships between these people
remained regardless of the changes in jobs and the discontinuance of daily
work connections.
For example, the frequent midnight professional disputes in Mountain
View, in the grill bar of Walker’s Wagon Wheel, have made much more for the
spread of technological innovations than most of the seminars in Stanford.
The synergic combination of decentralized organizational structure and
customer-oriented business strategy – Castells continues – promotes the
productive utilization of technology.

Corporate philosophy
(a) Entrepreneurial corporations are more customer-oriented than their
traditional competitors.
(b) The top management of entrepreneurial corporations has more entre-
preneurial spirit than the top management of traditional corporations.
(c) Entrepreneurial corporations tend to operate in concentrated markets,
compared to their traditional competitors.

In order to decrease environmental uncertainty, corporations more or less

strive to scan their environment in order to be able to prepare for the predict-
able changes. Strategic planning, on the one hand, is the source of competi-
tive advantages, and on the other hand, can reduce the impact of certain
competitive disadvantages (Szabó, 2005). Many strategic schools connect
strategic planning to top management sitting at the peak of the hierarchy
(Mintzberg et al., 1998).
We assume that the existence of an eventually strong management does not
hinder the decentralized strategic planning process, extending beyond the
organizational hierarchy. However, it is always the top management which
brings the final decision. Based on the Bower–Burgelman process model,
strategy formation in our approach is not completely democratic because it
is the top management that determines those organizational and administra-
tive mechanisms by which some autonomic initiatives get support, while
many others disappear in the garbage can. Furthermore, corporate entre-
preneurship is not a one-shot event but an envisioned process with a series of
action–feedback–reaction loops through which the corporation is learning,
and refining its previous market behavior. In a complex and highly competi-
tive environment it is extremely difficult to foresee all events in advance, hence
the flexibility of plans can be ensured by frequent revisions.

Strategic planning and shaping the future

(a) Entrepreneurial corporations provide room for a deeper locus of planning
than their traditional competitors.
60 Lilla Hortoványi and Roland Zs. Szabó
(b) Entrepreneurial corporations are more proactive in initiating actions
than their traditional competitors.
(c) Entrepreneurial corporations tend to plan for a longer time horizon than
their traditional competitors.
(d) Entrepreneurial corporations more frequently review their strategic plans
than their traditional competitors.

Technological leadership and the newness of the corporation’s products are

two other distinctive features of entrepreneurial corporations. As we men-
tioned previously, it is basically the innovation and newness-seeking ability
that differentiates entrepreneurial corporations from their more traditional
competitors (Barringer and Bluedorn, 1999). Entrepreneurial corporations
try to improve their relative competitive position by the active influence of
market demand. The most well-known influencing factors are product and
market differentiation.

Differentiation competitive strategy

(a) Entrepreneurial corporations tend to differentiate their products to
greater extent than their traditional competitors.
(b) Entrepreneurial corporations tend to achieve leadership in introducing
new products, unlike their traditional competitors.
(c) Entrepreneurial corporations tend to offer wider product lines than their
traditional competitors.
(d) Entrepreneurial corporations tend to apply leading-edge technologies
unlike their traditional competitors.

The entrepreneurial venture appears in each formulated hypothesis. Although

we have presented its general features based on the international literature,
their identification is not a trivial task in practice. The primary reason for this
difficulty is that “entrepreneurship” is a complex concept that has many
interpretations.
In our study corporate entrepreneurship is regarded as a form of market
behavior in which the central activity is innovation – in any form. The goal of
innovation is the creation of a marketable competitive advantage rather than
a technological one.
Accordingly, technical–technological, organizational, financial and com-
mercial activities are equally present. These determine the way of material-
izing an idea in an integrated way. Therefore, we grouped the corporations
based on their implied conduct. The methodology of identifying these
corporations is presented in detail in the next section.
For our study, we took the research categories presented by Wimmer and
Csesznák (2005) as a basis, which are: the size of the corporation (four cat-
egories in total); the diversification of the activity; corporate performance;
market targets; and market concentration. Besides these, we created some
other categories such as: increase in market share, recent growth, change in
 Impact of management practices in transition economies 61
the number of markets, marketing strategy, entrepreneurial top manage-
ment, change in investments, the sphere of those included in strategic plan-
ning, the time horizon of strategic planning, the reformation of strategic
planning, influence of environmental changes, product differentiation, qual-
ity of the new product, the widening of the product structure, and finally,
new technology.
The working paper under the title: “Snapshot of the entrepreneurial orienta-
tion of Hungarian medium sized and large enterprises” (Hortoványi and
Szabó, 2006) contains a detailed description of these categories and the
category creation process.

The research design

In order to test our hypotheses, we have analysed the sample “In Global
Competition 2004–2006” research program2 organized by the Competitive-
ness Research Centre at the Corvinus University of Budapest during the
spring of 2004. In each participating corporation the four top managers:
CEO, sales and marketing, financial, as well as operational managers –
were asked to fill in customized questionnaires. The response rate was
23 percent resulting in a database of 1204 individual replies from top man-
agers in a total of 301 mainly medium and large corporations located in
Hungary.
In designing the sample, the location and the regional representation
played an important role. The corporations making up the database are legal
entities located in Hungary with more than fifty employees. The companies
mainly operate in the processing industry (more than 50 percent of the
sample).
The composition of the sample by economic branches is representative
of the Hungarian population of enterprises with more than fifty employees.
The sample contains ventures in the processing and energy industries, and
community services to a larger extent. On the other hand corporations
belonging to the sector of trade, construction industry and non-community
services are somewhat underrepresented.
By size categories, the sphere of the surveyed corporations can be regarded
as representative for medium-sized and large corporations. Regarding the
ownership structure of corporations, community ventures and those with
a foreign ownership are overrepresented, while those with a Hungarian own-
ership are underrepresented. By regional location, there are corporations
from Budapest and the county of Pest included in the database in a smaller
proportion, but the companies of the remaining regions are represented
in the sample to a larger extent than in the population.3 The grouping
of organizations into clusters is done according to their implied market
behavior and focusing on their innovation activity. The detailed explanation
comes next.
62 Lilla Hortoványi and Roland Zs. Szabó
Market behavior clusters
The market behaviors exhibited by the companies in our sample were identi-
fied by SPSS two-step cluster analysis procedure. The advantage of the two-
step cluster analysis procedure over the hierarchical cluster analysis is that it
does not require a matrix of distances between all pairs of cases; it requires
only one pass of data (either categorical or continuous). It can produce solu-
tions based on a mixture of continuous and categorical variables and for
varying numbers of clusters (Norušis, 2003). In addition, the procedure is
based on the selected Schwarz Bayesian Information Criterion (BIC), hence
it suggests the ideal number of clusters. Question number 26 – applied only
to operation managers, because they are assumed to have direct control over
production and hence, over innovations – was used for the clusters analysis.
In this question, operation managers were asked to judge the adequacy of a
list of statements using a five-point Likert scale.
The scale values were interpreted according to the following: 1 meant
that the statement was not true at all while 5 meant that the statement was
completely true. The statements were as follows:

1 The launch of new products at our company is regular.

2 The importance of innovation is emphasized.
3 The role of innovation in the corporate strategy is unambiguously
communicated to the employees.
4 We especially prefer projects with a high risk.
5 Top management has a decisive role in the formation of the innovation
strategy.
6 Top management tolerates failure.
7 Communication is intensive among the departments participating in
innovation.
8 We are occupied with our daily struggles; hence we have no time for
innovation.
9 Our marketing approach drives the innovation process.

Out of the 301 surveyed corporations, 41 did not complete these particular
questions. Therefore, these corporations were excluded from further analysis.
As a result our database was reduced to 260 corporations. With the two-step
cluster analysis, we have obtained three clusters which are well separable from
each other and interpretable from an economic point of view. The clusters
are: Entrepreneurial, Conservatively Offensive and Defensively Conservative.
Their distribution is illustrated in Table 5.1.
The first cluster contains 95 ventures that make up more than one-third
(36.5 percent) of the sample. We called this group “Entrepreneurial” because
the corporations in this cluster regard their entrepreneurial commitment com-
pared to the other two groups. We can observe the highest response (more
than 3.45) averages in that cluster (of course, excluding statement (8) that is
 Impact of management practices in transition economies 63

Table 5.1 Identified clusters

Clusters N %

Entrepreneurial 95 36.5
Conservatively Offensive 71 27.3
Defensively Conservative 94 36.2
Clusters in total 260 100.0
Missing values 41
Total 301

contradictory to entrepreneurial commitment). Within the Entrepreneurial

cluster, the role of top managers is very markedly acknowledged (average
of 4.51 – standard deviation of 0.666), but at the same time, for these com-
panies it is not true at all that they have no time for innovation (average of
1.26 – standard deviation of 0.488).
Taking high-risk projects is not really typical for Entrepreneurial corpor-
ations, but it is still more frequent than in the other two clusters (average
of 2.31 as against 1.80 and 1.10). The relatively low value maybe can
be explained by the fact the Entrepreneurial corporations are “carefully
brave:” they work on several projects at the same time, so they can spread
the total risk of their portfolio. Moreover, they advance only carefully, in
small steps, allowing the future to unfold, and they learn continuously from
their experiments. In that way they commit fewer resources and assets right
at the beginning when uncertainty is quite high. Since their commitment
is lower, their loss is smaller in cases where an idea turns contrary to all
expectations.
The second group, consisting of 71 ventures (27.3 percent) was named
“Conservatively Offensive.” Here we can also observe the intention for
innovation, but in a basically conservative way. This is also supported by the
relatively high value of the marketing approach (average of 3.44). It is
important to notice that these corporations show similarity in some factors
with the previous cluster but in all cases their average values are lower
(3.07–3.85), while in two aspects, their top managerial judgment and
innovation, they are both significantly different.
The lower average values may lead us to the conclusion that for Conserva-
tively Offensive corporations, the launch of new products, the role of innov-
ation and the role of marketing is typically less emphasized than for their
entrepreneurial competitors. The tolerance of the cluster towards failure
seems to be neutral. Therefore, it is reasonable to speculate that learning from
mistakes is a less integral part of the corporate culture than was experienced
in the previous cluster. Furthermore, these organizations had no time for
innovation.
In this regard they show similarity with the third, “Defensively Conserva-
tive” cluster (average values of 2.79 and 2.94).
64 Lilla Hortoványi and Roland Zs. Szabó
The third cluster is made up of 94 ventures (36.2 percent). We named
them “Defensively Conservative” because the group’s main feature is the
lagging and adaptive corporate philosophy. Defensively conservative corpor-
ations generally do not have time for innovation (average of 1.26), and maybe
this is the reason for not having prominent marketing (average of 1.91) and
launch of new products (average of 1.61). The corporations belonging to this
cluster do not prefer projects with a high risk either. This is justified by the
average value of 1.10 and standard deviation of 0.296 that is also pretty
small.
One interesting finding of our cluster analysis was that the strong top
management influence that can be well observed in all three groups, even in
the case of defensive ventures, has the average of 3.00. However, the standard
deviation (1.48) is among the highest.
The cluster analysis reflects that Conservative corporations (Offensive
and Defensive clusters together) tend to be very different from the Entre-
preneurial ones in regard to “top management tolerates failure” and “no
time for innovation.” The group average values based on the replies for
failure tolerance in the case of the former corporations are between 2.96 and
2.76 as against the average value of 3.76 of Entrepreneur corporations. For
the statement of “no time for innovation” the Entrepreneurial corporations
with an average of 1.26 stand out in sharp contrast to the average values of
2.76–2.94 of Conservative corporations. The sharp contrast between the
Conservative clusters and the Entrepreneurial cluster is illustrated by Figures
5.1 and 5.2, with representation of the means and the 95 percent confidence
intervals.

Figure 5.1 Simultaneous 95% confidence intervals for means.

 Impact of management practices in transition economies 65

Figure 5.2 Simultaneous 95% confidence intervals for means.

Results
For testing our hypotheses the most appropriate method was to use cross-
tabulation which measures the association for nominal variables by a chi-
square-based measure. This does not require the categories of the variables
to have any meaningful order. We have calculated the phi coefficients, the
Cramer’s V and the contingency coefficients to test how strongly the variables
are related. We have arranged our results into tables (Tables 5.2–5.6) in a
uniform structure. The tables present the significance of all the coefficients as
well as the phi coefficient’s value (presentation of others’ value are neglected,
because that would not make any contribution to the findings). We also
studied the distributions by each category in order to investigate which
hypotheses hold true.
The phi values indicated by ** refer to a significantly strong relationship,
while the values with * show a somewhat weaker (moderately strong), but still
significant relationship. The higher the phi coefficient is (maximum 1, min-
imum 0), the stronger the relationship it refers to. In our study, we have
accepted each hypothesis for which there exists a significant relationship (it
is indicated by  in the table). We have rejected those hypotheses for which
we had not found a relationship at a minimum 95 percent certainty (it is
indicated by ✗ in the table).
Based on the analysis, we accept all the elements of H1 size category
hypothesis except the number of employees. Therefore, by total size, total
assets, and revenue we can conclude that there are more Entrepreneurial
corporations in the larger-size categories than their traditional competitors.
66 Lilla Hortoványi and Roland Zs. Szabó

Table 5.2 H1 – entrepreneurial corporations are larger

Total size Number of employees Assets Revenue

Phi 0.284(**) 0.175 0.250(**) 0.265(**)

Level of significance 0.000 0.097 0.005 0.002
Number of elements 260 258 239 245
Result  ✗  

The result suggests that for large corporations it is vital to learn new com-
petences and knowledge in order to optimally exploit their resources and
sustain their competitiveness.
Accordingly, larger corporations have the opportunity to exploit the
advantages given by Corporate Entrepreneurship. Since these corporations
are continuously “experimenting” with several projects simultaneously, it
seems probable that over time some of the projects grow up into an independ-
ent business unit. Does this endogenous growth strategy consciously appear
among the corporate objectives?
In response to the above question, we observe from Table 5.3 that Entre-
preneurial firms compared to conservative organizations tend to give greater
priorities to the increase of market share and the increase in the number of
markets. However, this does not necessarily mean aggressive growth plans.
Moderate growth expectations are more typical. This is in accordance with
our assumption that Entrepreneurial corporations take moderate risk, so
they gradually test the viability of their projects and their new businesses.
They can afford to experiment with new alternatives, since they tend to be
industry leaders.
It was interesting to see that the recent growth of our Entrepreneurial
corporations was not significantly better than that of their traditional com-
petitors. The underlying probable reason may be that a slower growth could
be experienced between 2001 and 2003 in the world economy. It is reason-
able to speculate that this was also the case in Hungary, which stimulated
corporations to consolidate their activities.
On the other hand, it is reasonable to assume that during a permanent
boom, corporate entrepreneurship might be associated with higher growth.
This hypothesis could be tested in future research. Our assumption that the
activity of Entrepreneurial corporations is more diversified than that of their
traditional competitors was not justified. Therefore, the extent of their diver-
sification cannot be judged. We are therefore inclined to accept the point of
view that the number of industries a corporation is competing in is not a
determinant of entrepreneurial orientation, in itself. This leads us to the fol-
lowing question: from what kind of corporate philosophy can the objectives
be originated?
Table 5.4 H2 – objective: growth strategy

“Hungry” Increase of Recent growth Diversification Increase in Investment Industry leaders

market goals market share the number (bench-mark)
of markets

Phi 0.146 0.300(**) 0.211 0.170 0.258(**) 0.244 0.289(**)

Level of significance 0.252 0.003 0.173 0.113 0.009 0.054 0.000
Number of elements 251 260 260 257 256 257 244
Result ✗  ✗ ✗  ✗ 
68 Lilla Hortoványi and Roland Zs. Szabó

Table 5.3 H3 – corporate philosophy

Customer Entrepreneurial Market

orientation top management concentration

Phi 0.166(*) 0.325(**) 0.242(*)

Level of significance 0.028 0.001 0.018
Number of elements 260 260 204
Result   

The style of top management is decisive for setting up both the corporate
philosophy and the market-behavior of the firm. Furthermore, it is the role of
top management to identify direction, a domain within which new initiatives
can prosper, eventually to be integrated into the current strategic context. Our
study has confirmed that newness-seeking behavior is more likely to be a char-
acteristic of Entrepreneurial corporations because they are the ones whose
outputs are sought after by markets. Technology is not an exclusive driving
force for generating new products, but it works best together with marketing in
identifying new market opportunities. We also managed to reinforce our pro-
position that Entrepreneurial corporations primarily operate in concentrated
markets.
Shaping the future is a characteristic of Entrepreneurial corporations. Con-
sequently, entrepreneurial corporations try to influence their own environment
and initiate changes favoring their own position. We have found supporting
evidence for their more proactive nature. These firms tend to involve their
employees and continually scan the external environment to provide input
to their plans. We have not managed to confirm the hypotheses H4.(c) and
(d): Conservative and entrepreneur firms both tend to plan ahead for the long
run (typically 3–5 years) and keep on frequently reviewing (yearly) their
plans, regardless of their strategic behavior. One explanation of this result
could be that top management set the direction through corporate vision for
a longer time-frame.
The analysis of the differentiating competitive strategy has also justified
all of our four sub-hypotheses, that is, a significant relationship can be dem-
onstrated with Entrepreneurial corporations. Product differentiation, the
widening of the product structure, higher-quality products and technologies
are equally more typical. The latter analyses partly tested the adequacy of
cluster creation as well, through which the relevance of our procedure has
been confirmed. We would like to draw attention to the fact that corporate
entrepreneurship is not the “one best way.”
As we have already emphasized in the introduction, entrepreneurial firms
can also end up in weakened market positions as a consequence of invalid
decisions. Furthermore, corporations that used to act conservatively may be
able to show an outstanding industry performance by choosing the strategy
that best fits their selected environment.
 Impact of management practices in transition economies 69

Table 5.5 H4 – strategic planning and shaping the future

Locus of Proactive Planning Revision of

planning with changes horizon of strategic
strategic plans plans

Phi 0.311(**) 0.282(**) 0.244 0.214

Level of significance 0.001 0.008 0.051 0.157
Number of elements 260 260 260 260
Result   ✗ ✗

Table 5.6 H5 – differentiating competitive strategy

Product Quality of Width of New

differentiation new product product lines technology

Phi 0.311(**) 0.409(**) 0.371(**) 0.300(**)

Level of significance 0.000 0.000 0.000 0.003
Number of elements 256 260 260 260
Result    

Figure 5.3 provides a new perspective for our findings by integrating four
different but interrelated dimensions: first, the recent growth (x axis); second,
the ability to influence environmental changes ( y axis); third, the level of
applied technology (the increase of the columns’ darkness indicates the move
along the technological continuum from obsolete to leading-edge technology).
Finally, the fourth dimension – the distribution of corporations – is repre-
sented by the height of the columns. The graph has visualized two essential
issues: on the one hand, the – probably late – investment in the most recent
technology does not necessarily result in immediate growth and power to
influence environment (see the darkest column with the coordinates [1;2]).
On the other hand, a corporation with an average level of technology can
decisively influence environmental changes, and moderately grow (see also
the medium grey column with the coordinates [4;5]).

The usability of the results

Our results could be widely used; both in the academic and business areas,
since it provides valuable insights for practicing (as well as for future) man-
agers. Without claiming completeness, we would like to emphasize the
implications of our findings. Among others, we have managed to justify:

1 Entrepreneurial mentality is also a competitive advantage in itself; it

creates and sustains further competitive advantages.
70 Lilla Hortoványi and Roland Zs. Szabó

Figure 5.3 Corporate entrepreneurship is a two-edged sword.

2 In corporate practice, planning and top management have an emphasized

role in creating and practicing entrepreneurial orientation.
3 Although corporate entrepreneurship is generally a positive phenom-
enon – it can improve competitiveness to a large extent – it is not a
remedy. It must be applied cautiously, with the commitment of the whole
corporation.

It is also important to draw attention to the limitations of the implications

of the research. As discussed earlier, the sample primarily contains medium-
sized and large corporations. From another aspect, it is also a limitation. As
it turned out from the cross-check questions of the questionnaire, in the case
of 15–20 percent of the given replies, we have to be careful regarding the
reliability of data; however, such a rate is still acceptable in quantitative
research.
Our study draws attention to future research, because testing the relation-
ship between entrepreneurial orientation and industry context, as well as
 Impact of management practices in transition economies 71
testing the effect of economic boom on the growth of Entrepreneurial cor-
porations, are two exciting questions, even in themselves. It would be interest-
ing to extend the concept of corporate entrepreneurship: for example, how
the “endless rise” of entrepreneurial spirit can be ensured.

Summary
We have made important and novel statements about competitiveness, and
the behavior and practice of Hungarian corporations in the reflection of
corporate entrepreneurship. We have identified three clusters: Entrepreneur-
ial, Conservatively Offensive and Defensively Conservative corporations. We
have formulated five main hypotheses and related sub-hypotheses about the
features and competitiveness of Entrepreneurial corporations. These have
been generally accepted through the tests. Looking at the results, we can state
that Entrepreneurial corporations are typically larger, have an explicit growth
strategy and are more innovative. Our research brought up several further
questions that serve for the better understanding of the market behavior of
Entrepreneurial corporations.

Notes
1 The term hungrier refers to the more aggressive manifestation of growth.
2 Regarding the detailed presentation of the research, see the study of Chikán
and Czakó (2005), and the official website of the research:
<www.competitiveness.hu>.
3 See the detailed analysis of the representation of the sample: Lesi (2005) shows the
standard features of the sample. It compares the distribution of the surveyed
corporations by size, ownership structure, industry and region with the official
statistics of the population.
6 International entrepreneurship
in established firms: does
it matter?
Martina Menguzzato-Boulard, María
Ripollés-Meliá and Luz Sánchez-Peinado

Introduction
This chapter examines the influence of firms’ entrepreneurial orientation
(EO) on both internationalization decision and dimensions (speed, scope)
in established companies. Specifically, this chapter highlights the existence of
a positive relationship between an entrepreneurial orientation and inter-
nationalization decision; between EO and internationalization speed; and EO
and international scope in established firms. Thus, our research allows us
to develop the International Entrepreneurship (IE) field because the chapter
analyses the internationalization of established firms from an entrepreneurial
perspective.
Based on a sample of 155 Spanish firms, our findings suggest that
entrepreneurial orientation influences positively the firms’ propensity to
internationalize their activities. We also find that the firms with a higher entre-
preneurial orientation have higher relative international sales and operate in a
greater number of foreign countries. Moreover, our results also indicate that
the development of an entrepreneurial orientation in established firms may
be positive related with fast entry into foreign markets. In the last decade, the
new research stream “International Entrepreneurship” (IE) has generated
some interesting research issues. IE research is based on two theoretical per-
spectives developed independently in the existing literature: entrepreneurship
and international business studies.
Recently it has been defined as “the process of creatively discovering and
exploiting opportunities that lie outside a firm’s domestic markets in the
pursuit of competitive advantage” (Zahra and George, 2002: 258). Or as “the
process of discovery, enactment, evaluation, and exploitation of opportun-
ities – across national borders – to create future goods and services” (Oviatt
and McDougall, 2005a: 540). So, “the scholarly field of international entre-
preneurship examines and compares – across national borders – how, by
whom and with what effects those opportunities are acted upon” (Oviatt and
McDougall, 2005b: 7).
Initially this interface perspective focused on the study of factors which
permitted explaining the internationalization of recently created firms (see,
 International entrepreneurship in established firms? 73
Zahra and George, 2002; Coviello and Jones, 2004; Zahra, 2005 for a
review). These firms are known as International New Ventures (INV) or
Global New Ventures (GNV). Although these types of companies are not
totally new, they became a growing economic reality, at a global level, during
the 1990s (Dana, 2004). In this context, an important contribution of IE
research has focused on the recognition of the limitations arising from the
sequential process of the internationalization perspective, based on firm
experience and market knowledge proposed by Johanson and Valhne (1977),
to explain the exceptional speed by which INV internationalize. Despite the
fact that INV or GNV have been central to IE, recent studies point out there
is a need to expand its limits to previously established companies (McDougall
and Oviatt, 2000; Zahra and George, 2002; Dess et al., 2003; Dimitratos
and Jones, 2005). In this sense, to analyse the international commitment of
firms, specifically the speed of such commitment, from an entrepreneurship
perspective, is a key aspect that justifies the extension of IE in established
firms.
The motivations for, and effects of, internationalization for established
companies have been explored for economic and organizational perspectives;
however, they have rarely been viewed through an entrepreneurial lens. We
believe this perspective is essential (Zahra and Garvis, 2000) if we consider
that internationalization represents an entrepreneurial activity per se (Lu and
Beamish, 2001).
In this sense, recent papers have drawn attention to the need to study differ-
ent business strategies from this emerging perspective (Hitt and Ireland 2000),
based on two assumptions: previous literature in corporate entrepreneurship
has firmly established that entrepreneurial behaviours improve organizational
growth and performance, particularly in competitive environments (Zahra
et al., 1999; Ahuja and Lampert, 2001).
However, the study of the internationalization of established firms from
an entrepreneurial perspective is still unexplored and is now an important
issue that defines the research agenda in entrepreneurship and among
international strategy scholars (Oviatt and McDougall, 2005a). Since
one or both antecedent disciplines prevails in a great number of studies
developed in this research field, future research should focus on con-
ceptual frameworks which facilitate real integration from both the
entrepreneurship and international business fields (Coviello and Jones,
2004). Such integration is needed for IE research to move forward with
unifying direction and a more holistic perspective (Dimitratos and Jones,
2005).
From this integrative perspective, we propose to analyse the influence
of the firm’s entrepreneurial orientation on the different dimensions that
define the firm’s international commitment. So, in this chapter we propose to
study the potential relationships between the development of an entre-
preneurial orientation in established firms and their international dimensions
in a sample of Spanish firms. In this sense, we also attend to Zahra and
74 M. Menguzzato-Boulard, M. Ripollés-Meliá, L. Sánchez-Peinado
George’s (2002) request, pointing out that study extension through samples
based in other countries than the USA should be considered necessary for the
development of international entrepreneurship research.
This chapter is structured as follows. In the first part we present a short
overview of international entrepreneurship research, highlighting the lack of
previous research focusing on the particular issue proposed in our chapter,
and we propose some hypotheses that we will try to contrast in the next part.
In the second part, we offer a description of the methodology used in the
empirical study. Finally, we discuss the results obtained and we present the
main conclusions of the chapter.

Entrepreneurial orientation and international commitment

in established firms
From an entrepreneurial perspective, research on the nature, antecedents
and effects of entrepreneurship at firm level has grown rapidly in the last
twenty years. In that research stream, the study of Entrepreneurial Orienta-
tion (EO) has been a key issue (see Zahra et al., 1999 for a review). It is
not an easy task to identify the main aspects explaining entrepreneurial
orientation. First, researchers defined such orientation from the personal
characteristics of entrepreneurs (see Shook et al., 2003 for a review) but
then, some studies highlighted that this stream of research did not allow
researchers to identify entrepreneurial orientation, due to the difficulty of
connecting specific personal characteristics with firm behaviours (Woo et al.,
1991).
Moreover, this perspective is not suitable for studying EO in a different
context from firm creation (Stevenson and Jarillo, 1990). For that reason, in
our chapter we use the EO’s characterization proposed by Miller (1983), based
on three dimensions: innovation, proactivity and moderated risk-taking.
Although some authors have identified other dimensions, such as autonomy
and competitive aggressiveness (Lumpkin and Dess, 1996; 2001), the dimen-
sions proposed by Miller (1983) have been widely studied and extensively
used in the literature to identify entrepreneurial behaviour (Miller, 1983;
Covin and Slevin, 1989; 1991; Morris and Sexton, 1996; Covin and Miles,
1999; Wiklund and Shepherd, 2003; 2005; Covin et al., 2005), even in other
study contexts such as the corporate strategy field (Hitt and Ireland, 2002) or
marketing (Stokes, 2000).
In fact, these dimensions reflect the essential entrepreneurial behaviour in
established firms, that is, the process of developing new business opportun-
ities (Kreiser et al., 2002). Moreover, Miller (1983) also develops a measure
scale that has been utilized in a wide variety of research settings and has
exhibited high levels of reliability and validity in numerous studies (Barringer
and Bluedorn, 1999; Becherer and Maurer, 1997; Dickson and Weaver, 1997;
Kreiser, Marino and Weaver, 2002; Wiklund and Shepherd, 2003; 2005;
Covin et al., 2005).
 International entrepreneurship in established firms? 75
Concretely, innovation can materialize both in the creation of new
resources and in new ways of combining available resources (Zahra et al.,
1999). For an innovative activity to be considered entrepreneurial, it is
necessary that it involves the search for new relationships between existing
resources and products in order to expand the firm’s resources and capa-
bilities. Second, the innovations that result only from the firm’s desire to
optimize existing resources cannot be considered entrepreneurial (Kirzner,
1977; Eckhardt and Shane, 2003). Proactiveness refers to the business’s
response to market opportunities, and implies an opportunity-seeking
perspective (Lumpkin and Dess, 2001; Kreiser et al., 2002). A proactive
approach implies taking the initiative in an attempt to shape the environment
to gain a competitive advantage, and to anticipate competitors’ movements
and market needs. So, it has been defined as an organizational process
directed to pursuit of entrepreneurial opportunities regardless of the
resources which it currently controls (Stevenson and Jarillo, 1990). Entre-
preneurial actions therefore also involve taking calculated risks (Lumpkin
and Dess, 1996).

Entrepreneurial orientation and international activity

The international activity of the firm, that is, the development of a firm acti-
vity in foreign countries (either by exports or by direct investment) is per se
an entrepreneurial act because it consists of identifying and exploiting new
business opportunities in a new environment, and thus entering into new
foreign markets requires an innovative and proactive attitude in firms (Knight
and Cavusgil, 2004). In this sense, some authors describe and study the inter-
nationalization decision as a process of innovation adoption (Bilkey and
Tesar, 1977; Czinkota and Johnston, 1983).
Moreover, an international activity implies an additional risk because of the
major probability of failure in an unknown general and competitive environ-
ment with potential manifold shifts (Miller, 1992; Shrader et al., 2000). The
firm’s entrepreneurial orientation could help us to understand why a com-
pany would assume the risk of entering international markets. This also
implies that international activities are entrepreneurial because they can
occur only through brokering, leveraging and risk-taking practices (Fletcher,
2004). Thus, we agree with the statement that internationalization could be
considered an entrepreneurship form (Lu and Beamish, 2001). Therefore, in
this chapter, we propose:

HYPOTHESIS 1: Entrepreneurial orientation influences positively on

the firm’s propensity to internationalise their activities.

However, we highlight that EO is not a strategic orientation that a firm

either possesses or does not, so we cannot express it in absolute terms
either. Firms could manifest such orientation in different degrees of intensity
76 M. Menguzzato-Boulard, M. Ripollés-Meliá, L. Sánchez-Peinado
and frequency along their activities, since there would be activities more
innovative, proactive and risky than others and a firm can develop different
entrepreneurial activities (Covin and Slevin, 1991; Morris and Sexton,
1996).
Moreover, not all the firms show the same involvement in their inter-
national activity and we can consider that the more representative variables
of a firm’s international activity are degree, speed and scope (Sullivan, 1994;
Zhara and George, 2002).
Degree refers to the foreign turnover percentage, speed reflects how fast the
first entry occurs and scope reflects the firm’s geographic diversification.
However, in this chapter we argue that the intensity of an EO development
can be captured by the speed of the first entry into international markets.
In this sense, a higher percentage of sales in foreign markets is not always a
result of a firm’s higher EO, since that percentage can emerge from a country
and result from a slow and gradual internationalization process in response
to competitors’ movements. Rarely, do we find an EO behind this behaviour.
Next we are going to study how EO relates to the speed of the first market
entry and to international scope.

Entrepreneurial orientation and international speed of first entry

Traditionally the process theory of internationalization (PTI) has shown that
the firm’s international commitment is increasing gradually, as risk-adverse
and reluctant adjustment to changes in the firm or its environment (Johanson
and Valhne, 1977; 1990). Although the seminal contribution of these authors
gives rise to a great variety of studies which verify, criticize and extend this
internationalization model, we observe an acceleration in the firm’s inter-
nationalization process, and, in particular, how the phenomenon of inter-
national new ventures has broken down most of the assumptions of the
established process of internationalization. Moreover, some authors have
shown how the entrepreneurial orientation appears to be important to explain
the international speed of firms (Ripollés et al., 1999; Knight and Cavusgil,
2004).
Likewise, resource-based theory emerges as a complementary perspective
with a great potential to explain the firm’s internationalization process
(Tallman, 1991; Fladmoe-Linduqist and Tallman, 1994; Cuervo-Cazurra,
2003). In this sense, it is argued that the possession of unique assets guaran-
tees the achievement of competitive advantages in international markets
(Hamel and Prahalad, 1989; Bloodgood et al., 1996), and the possession of
these assets could explain the speedy internationalization process of firms
that are otherwise without sufficient resources (Oviatt and McDougall,
2005a).
Firms developing entrepreneurial orientation perceive new business oppor-
tunities more quickly than their competitors, and their proactive character
and their willingness to take higher risks facilitate the exploitation of those
 International entrepreneurship in established firms? 77
opportunities before competitors. Thus, the speed by which a firm begins its
international activities could be a manifestation of its proactive and innova-
tive behaviour, while a reactive international behaviour could be related to
slower internationalization processes, characterized by “push factors” (Knight
and Cavusgil, 2004). In this chapter, we propose that the firm’s entrepre-
neurial orientation can impact on the speed of the firm’s international-
ization. Thus:

HYPOTHESIS 2: Firm’s entrepreneurial orientation will be positively

related to internationalization speed in established firms.

Entrepreneurial orientation and international scope

On the other hand, the frequency of entrepreneurial orientation development
in international markets is identified by the number of international entries.
Every time that a firm enters into international markets, the firm develops
an EO. The importance of geographic diversification in the international
behaviour of new ventures has been pointed out in the International Entre-
preneurship literature by Oviatt and McDougall (1994). They claim the exist-
ence of different types of international new ventures according to the number
of countries in which they operate (geographically focused start-up and
global start-up).
In general the number of countries in which the firm operates influences
the organizational flexibility and the international risk assumed by the firm
(Miller, 1992) and it reflects how a firm is positioned in comparison with
competitors and future opportunities (Papadopoulos, 1987). The firm can
diminish the risk of its international operations by an equilibrated configur-
ation of its international portfolio in terms of the number of countries in
which it operates (Miller, 1992; Shrader et al., 2000). The operational flexi-
bility arising from geographic diversification can give sustained competitive
advantages in the long term (Kogut, 1989). This argument can justify the
delocalization observed in a great number of countries.
All these reasons can help researchers to understand the geographic
diversification in established firms. However, in our chapter we claim a new
argument: the international scope can also reflect the frequency with which
the firm develops an EO in its international activities. In this sense, each entry
into a new country can be considered an entrepreneurial activity because
it represents a firm decision to face a new environment. Therefore, we can
establish a positive relationship between entrepreneurial orientation (and
international scope). This relationship has been corroborated in the case
of INVs (Ripollés et al., 1999; McDougall and Oviatt, 2000; Knight and
Cavusgil, 2004). Thus, in this chapter, we propose:

HYPOTHESIS 3: Firm’s entrepreneurial orientation will be positively

related to international scope in established firms.
78 M. Menguzzato-Boulard, M. Ripollés-Meliá, L. Sánchez-Peinado
Methodology
In order to select our sample, based on references to 850,000 Spanish firms in
the Dunn and Bradstreet (1999) database, we ranked firms according to turn-
over. In general, large firms are usually more internationalized and, sub-
sequently, the probability of finding suitable firms to run our analysis is higher
in this type of firm. We selected the top 1000 firms with the highest sales.
The empirical study was carried out during March and April 2003.
We collected data through an on-line questionnaire addressed to general
managers. A total of 155 questionnaires were returned (sample error ± 7.87
percent; statistical confidence level 95.5 percent).
Table 6.1 summarizes the main characteristics of the final sample of firms
related to size, international experience and sales.

Dimensions of entrepreneurial orientation

In this study, as we referenced before, we consider the concept of “entre-
preneurial orientation” defined by Miller (1983) from the interrelation of
three basic characteristics: the innovative attitude, willingness to take on con-
trolled risks and proactiveness; and we use Miller’s scale further extended in
the specialized literature (Covin and Slevin, 1989). This measure has been
utilized in a wide variety of research settings and has exhibited high levels
of reliability and validity in numerous studies (Barringer and Bluedorn, 1999;
Becherer and Maurer, 1997; Dickson and Weaver, 1997; Kreiser, Marino
and Weaver, 2002). This entrepreneurial orientation scale has three sub-
dimensions, and each sub-dimension contains three items (see Table 6.2).

Table 6.1 Sample characteristics

SAMPLE
155 Spanish firms (120 international firms).
Sample error ± 7.87%; statistical confidence level 95.5%

Most reprensentative Construction industry

sectors Commercial services (consultancy, etc.)
Chemical industry
Electricity, water and gas services
Firm size 63.87% of firms with sales volume more than
40 million euros
46.5% of firms with more than 500
employees
International experience 77.42% of firms are international
countries 40.67% of international firms are present in
more than 10 countries
International sales 40.84% of international firms have
international sales of between 25% and 50%
 International entrepreneurship in established firms? 79

Table 6.2 Items of entrepreneurial orientation scale

DIMENSIONS We asked managers to indicate their degree of agreement or

disagreement with the following statements:
(1: Strongly disagree, 2: Disagree; 3: Indifferent; 4: Agree;
5: Strongly agree)

Innovation – My company favours a strong emphasis on research,

development and innovation of products and technologies (V1)
– During the past five years, my company has entered new
businesses and marketed new products (V2)
– My company usually makes significant changes in its lines of
products or services (V3)
Proactiveness – In dealing with its competitors, my company typically responds
to actions which competitors initiate and rarely initiates actions
in the sector (V4)
– My company is usually the first one to introduce new products
or services, administrative techniques, operating technologies,
etc. (V5)
– My company typically seeks to avoid competitive clashes,
preferring a “live-and-let-live” approach (V6)
Risk-taking – Owing to the nature of the environment, it is best to explore it
gradually via cautious, incremental behaviour (V7)
– My company has a strong proclivity for high-risk projects with
chances of very high returns (V8)
– When my company has to make a decision with a certain degree
of uncertainty, it typically adopts a conservative posture with
the aim of minimizing the risk of making a mistake (V9)

In order to measure the model’s reliability, we use the alpha level. The
overall alpha level for the entrepreneurial orientation measure used in this
study is 0.9002, and alpha levels above 0.70 are typically considered accept-
able when conducting organizational research. In order to determine the
convergent validity of the scale, we conducted a second-order confirmatory
factorial analysis. Figure 6.1 reports factor loadings of the path coefficients
and the t-value for each of them using the EQS programme. Table 6.3 shows
the model fit indices.
An analysis of the fit indicators showed that all of them fell above the
recommended acceptance levels. Then, we proceeded to verify whether the
factorial loadings were significant, or whether any of the variables were not
a good indicator of the latent variables or dimensions. As we can see in
Figure 6.1, the t statistic is greater than 3.291 in all cases, and thus, the
parameters are significant at p < 0.001. In addition to this, the factorial
loadings are large (near to or greater than 0.6). Therefore, our scale presents
convergent validity.
Since our entrepreneurial orientation scale encompasses three dimensions
or latent variables (innovation, proactiveness and risk-taking), discriminant
80 M. Menguzzato-Boulard, M. Ripollés-Meliá, L. Sánchez-Peinado

Figure 6.1 Entrepreneurial orientation scale.

Table 6.3 The model fit indices

Indices Recommended Model fit

standards

BENTLER-BONETT NORMED FIT INDEX Close to 0.9 0.935

BENTLER-BONETT NON-NORMED FIT INDEX Close to 0.9 0.927
COMPARATIVE FIT INDEX Close to 1 0.951
LISREL GFI FIT INDEX Close to 0.9 0.933
LISREL AGFI FIT INDEX Close to 0.9 0.874
STANDARDIZED RMR Lower than 0.034
0.08

validity must also be verified. Discriminant validity was assessed by corre-

lation analysis. Correlations between the three sub-dimensions of the scale
were calculated in order to assess the strength of the relationship between
these dimensions. The three sub-dimensions exhibit correlations with one
another lower than 0.90 (correlation coefficient between F2 and F3 was
0.708**; between F2 and F4 was 0.598** and between F3 and F4 was
0.649**; p < 0.01). We can therefore affirm that latent variables explain dif-
ferent concepts and thus, the entrepreneurial orientation scale presents dis-
criminant validity. After assessing the reliability and validity of our scale, we
consider that firm entrepreneurial orientation can be obtained from the mean
value of the scores given to the nine items.
 International entrepreneurship in established firms? 81
Dimensions of internationalization
In our paper, we consider firms as internationalized ones when their
foreign sales represent more than 25 percent of total sales. Therefore, the
variable takes value 1 if the firm is internationalized and value 0 otherwise.
With regard to the international intensity dimensions, internationalization
scope (INT_SCOPE) takes value 1 if the number of foreign countries
where firms are operating oscillates between 1 and 10 countries; value 2 if
foreign countries oscillate between 11 and 30; and value 3 if the number of
foreign countries is higher than 30. Finally, internationalization speed
(INT_SPEED) is measured as the number of years from firm foundation to
initial entry into foreign countries’ markets.

Control variables
Several control variables are considered in our study. As large firms have
greater financial and managerial capacity to undertake new entries (Kogut
and Singh, 1988; Gomes-Casseres, 1989; Erramilli and Rao, 1993, Tan et al.
2001; Barbosa and Louri, 2002), we control for the impact of firm size (SIZE)
on the internationalization measures. In order to measure firm size, we asked
managers to provide sales volume figures for the year 2002 (Yip, 1982a,
1982b; Agarwal and Ramaswami, 1992; Erramilli, 1991; Taylor, Zou and
Osland, 2000). We also control for the firm’s international experience
(INT_EXP), according to the sequential approach of the internationalization
process; and this variable is measured as the number of years since initial
entry into foreign countries’ markets. It is known that the type of sector in
which a firm is operating can influence that firm’s internationalization (Caves
and Mehra, 1986; Kogut and Chang, 1991; Kim and Hwang, 1992; Hennart
and Park, 1993) and consequently we consider the type of sector as a control
variable (SECTOR) that takes value 1 if the firm operates in a manufacturing
sector and 0 if the firm operates in a service sector.
Finally, we consider the familiar nature of the firm’s property (FAMIL-
IAR), because more and more studies are showing that family firms are less
likely to become internationalized (Gallo and Garcia-Pont, 1996; Okoroafo,
1999). In this study, the managers are asked if their firm is or is not a family
firm, taking value of 1 or 0.

Analysis of results and discussion

Tables 6.4 and 6.5 provide the descriptive statistics and the correlation matrix
for all the key variables.
Our empirical study encompasses two research questions. First, we aim to
assess if firms’ entrepreneurial orientation has influence on their propensity to
internationalize their activities. Second, considering only internationalized
firms, we aim to determine how firms’ entrepreneurial orientation affects
Table 6.4 Descriptive statistics of dependent and independent variables

Variable Mean Median Variance Standard deviation Minimum Maximum

Entrepreneurial 3.1082 3.1667 0.745 0.86295 1.67 4.78

orientation
Firm size (
) 2804214545,200876 57363869,000000 388163530187871500000,000 19701866160,0334600 7000000,0000 167435000000,0000
International experience 19.6000 16.0000 215.486 14.67946 3.00 104.00
Intern.degree* 1.5658 1.0000 0.649 0.80557 1 3
Intern.speed 16.9200 13.0000 300.237 17.32734 0 78.00
Intern.scope** 1.7500 2.0000 0.563 0.75056 1 3
Familiar nature 0.29 0 0.208 0.457 0 1
Sector 0.4474 0 0.251 0.50053 0 1

Notes:
a In intervals of 1 to 3: value 1 (foreign sales 25–50%); value 2 (foreign sales 50–75%); value 3 (foreign sales > 75%).
b In intervals of 1 to 3: value 1 (foreign countries 1–10); value 2 (foreign countries 11–30); value 3 (foreign countries >30).
c Descriptive statistics are calculated from the international firms’ subsample.
 International entrepreneurship in established firms? 83

Table 6.5 Correlation matrix

1 2 3 4 5 6 7 8

1 1.000
2 0.009 1.000
3 0.266(*) −0.019 1.000
4 0.255(*) −0.059 0.286(*) 1.000
5 0.149 −0.081 0.050 0.038 1.000
6 0.061 −0.035 0.257(*) 0.084 −0.053 1.000
7 0.433(**) −0.002 0.163 0.172 −0.019 0.130 1.000
8 −0.239(*) 0.346(**) −0.160 0.020 −0.083 0.060 −0.247(*) 1.000

Notes:
a (1) SECTOR; (2) FAMILIAR; (3) INT_SCOPE; (4) INT_EXP; (5) SIZE; (6) EO;
(7) INT_SPEED; (8) INT_DEGREE
b *p < 0.05 (bilateral)
c **p < 0.01 (bilateral)

international scope and the speed of first entry. To examine whether inter-
nationalized firms show a higher entrepreneurial orientation than non-
internationalized firms (hypothesis 1), we conducted a t-student test for two
independent samples.1 In Tables 6.6 and 6.7, we show the results obtained
in the analysis.
As we can see in the Levene test of equal variances, the p-value associated
with F contrast statistic is higher than 0.05 and, thus, for this level of signifi-
cance, we cannot reject the null hypothesis of equal variances. Consequently,
the t-statistic suitable for contrasting the hypothesis of equal means is the one
that assumes equal variances. The p-value associated with F statistic is lower
than 0.05 and, thus, we can reject the null hypothesis of equal means at 0.05
level of significance. As a result, the t-student test supports the existence of
significant differences in mean values of entrepreneurial orientation for the
two groups of firms (internationalized firms and non-internationalized firms).
Analysing the mean value for entrepreneurial orientation in the two
groups of firms, we observe that this value is higher for internationalized

Table 6.6 Statistics of firm’s entrepreneurial orientation

Internationalization N Mean Standard Typified

decision deviation error of
the mean

Firm’s entrepreneurial International 76 3.10820 0.86295 0.09899

orientation Non-international* 79 2.7890 0.82759 0.09311

Note: Non-international firms are those that do not operate in foreign countries or whose foreign
sales are lower than 25%.
84 M. Menguzzato-Boulard, M. Ripollés-Meliá, L. Sánchez-Peinado

Table 6.7 T-Student test for two independent samples

Firm’s EO

Equal Non equal

variances variances
assumption assumption

Levene test for F 0.344

equal variances
Sig 0.558
T-test for equal T 2.350 2.349
means
gl 153 152.009
Sig. (bilateral) 0.020 0.020
Mean differences 0.31916 0.31916
Typ. error of the 0.13579 0.13590
difference
95% Confidence Inferior 0.58742 0.58765
interval for the
difference
Superior 0.05090 0.05067

firms than for non-internationalized firms. Therefore, firms that decided

to internationalize their activities are more entrepreneurial than non-
internationalized firms. This result supports our first hypothesis. In order to
test hypothesis 2, we conducted a linear regression analysis to determine
whether an entrepreneurial posture in international firms influences the speed
of first international entry. To test hypothesis 3 presented in our study,
we conducted an ordinal regression2 to determine if a firm’s entrepreneurial
orientation influences its international scope. Tables 6.8. and 6.9 present the
results of the two regressions.
Our hypothesis 2 established a possible positive relationship between an
entrepreneurial orientation of firms and the number of years since firm foun-
dation to initial entry into foreign markets. However, the results of the linear
regression analysis do not enable us to confirm hypothesis 2, because the
coefficients associated with the variable do not exhibit a significant p-value
(see Table 6.9). However, the type of sector in which the firm operates does
influence its internationalization speed. We observe that firms operating in
manufacturing sectors show higher internationalization speed than firms
operating in service sectors. This result could contradict some theoretical
arguments which defend the argument that service firms are less capital-
intensive and thus they can initiate their internationalization easily (Erramilli
and Rao, 1993; Erramilli and D’Souza, 1995). However, the earlier inter-
nationalization process of manufacturing firms could allow them to establish
complex networks with foreign suppliers, thereby facilitating their inter-
nationalization. Furthermore, the actual environmental conditions create the
 International entrepreneurship in established firms? 85

Table 6.8 Ordinal regression results of international scope

Variables Estimation of parameters Typified error Sig.

Entrepreneurial orientation 0.621 0.280 0.026

International experience 0.034 0.019 0.074
Firm size 1.977E-12 0.000 0.862
Familiar 0.025 0.505 0.961
Sector 0.974 0.489 0.046

Notes:
a Dependent variable: international scope
b −2log of likelihood = 132.642
c χ2 = 16.014; p = 0.007

Table 6.9 Linear regression results of international speed

Variables Standardized t Sig.

coefficients (beta)

Constant 0.019 0.985

Entrepreneurial orientation 0.129 1.181 0.242
International experience 0.065 0.578 0.565
Firm size −0.080 −0.730 0.468
Familiar 0.005 0.046 0.963
Sector 0.446 3.945 0.000
R2 = 0.237
F = 4.046; p = 0.003

Note: Dependent variable: international speed

ideal context for rapid internationalization: the intense competition from

imports in a firm’s domestic markets and the firm’s international customers
facilitate a firm’s internationalization (Oviatt and McDougall, 1995). On the
other hand, advances in technology in production, transportation, and com-
munication provide firms with easy access to worldwide markets (McDougall
and Oviatt, 2000).
In order to find alternative explanations for the non-significant relation-
ship between entrepreneurial orientation and internationalization speed,
we assessed whether firms with early internationalization were more entre-
preneurial. We established two groups of firms: firms that initiated their
internationalization process during the first five years after their foundation,
and firms that initiated their internationalization after the fifth year since
foundation. Again, we conducted a t-student test to contrast the existence of
mean differences.
The Levene test of equal variances shows that the p-value associated with
F contrast statistic is higher than 0.05 and thus we cannot reject the null
hypothesis of equal variances at the 0.05 level of significance. Therefore, the
t-statistic suitable for contrasting the hypothesis of equal means is the one
86 M. Menguzzato-Boulard, M. Ripollés-Meliá, L. Sánchez-Peinado

Table 6.10 Statistics of firm’s entrepreneurial orientation

International N Mean Standard Typified error

speed Deviation of the mean

Firm’s entrepreneurial < 5 years 25 3.5689 1.07023 0.21405

orientation > 5 years 49 3.1224 0.86193 0.12313

that assumes equal variances. The p-value associated with F statistic is

0.036 (lower than 0.05) and, thus, we can reject the null hypothesis of equal
means at 0.05 level of significance. Our results support the existence of sig-
nificant differences in mean values of entrepreneurial orientation for the two
groups of firms (firms with early internationalization and firms with later
internationalization).
In conclusion, empirical evidence shows that firms that initiate their inter-
nationalization process early exhibit more entrepreneurial orientations than
firms with later internationalization. On the other hand, results support our
hypothesis 3, which examined a direct positive relationship between firms’
entrepreneurial orientation and the number of foreign countries where firms
are operating (see Table 6.8). We observe how firms with high entrepreneurial
orientation exhibit a higher international scope. With regard to control vari-
ables, our results show a positive relationship between a firm’s international
experience and its internationalization scope.
Specifically, we observe that firms with higher international experience are
more prone to operate in a higher number of foreign countries. Similarly, the
type of sector in which a firm operates influences its internationalization
scope. Specifically, our results show that firms operating in manufacturing
sectors exhibit a higher internationalization scope than firms operating in
service sectors. This result could be explained by taking into account the fact
that Spanish manufacturing firms initiated their internationalization process
earlier than service firms (Duran, 2002). This earlier internationalization
could justify manufacturing firms operating in a higher number of foreign
countries than service firms. On the other hand, services are intangible in
nature and their production and consumption occurs at the same time. There-
fore, in many services, direct presence is required (it is not possible to export
the service) (Erramilli and Rao, 1993). This fact could limit the range of
foreign countries in which service firms operate. Thus, empirical evidence
confirms the importance of entrepreneurial orientation in international firms
since they exhibit higher international scope, and a firm’s entrepreneurial
orientation favours a rapid internationalization decision. Our findings con-
firm previous empirical evidence based on INV’s sample (Ripollés et al.,
1999; Knight and Cavusgil, 2004).
Table 6.11 T-Student test for two independent samples

Levene test for equal T-test for equal means

variances

F Sig. t gl Sig. Mean Typ. error of 95% Confidence interval

(bilateral) difference the difference for the difference

Inferior Superior
Firm’s EO Equal variances 2.772 0.100 1.940 72 0.056 0.44644 0.23018 −0.01242 0.90530
assumption
Non-equal variances 1.808 40.306 0.078 0.44644 0.24694 −0.05252 0.94540
assumption
88 M. Menguzzato-Boulard, M. Ripollés-Meliá, L. Sánchez-Peinado
Conclusions and implications
This chapter analyses the influence of entrepreneurial orientation develop-
ment in established firms to enhance their international commitment. We
have analysed such international commitment according to the percentage of
activity developed in international markets by these firms, the speed of the
beginning in international operations and the geographic dispersion of such
operations.
This study argued the existence of differences in the development of EO,
taking into account whether the firms had international operations or not. The
results obtained in this chapter confirm the hypothesis, and thus, we can con-
clude that internationalized firms, in comparison with non-internationalized
firms, develop a higher EO. Empirical evidence also confirms that rapid
internationalization is related with firms’ higher entrepreneurial orientation.
On the other hand, we conclude that entrepreneurial orientation could
explain the geographic diversification of international firms.
In this sense, the present chapter allows academics to progress in the study
of the internationalization process of established firms because it confirms
the importance of analysing internationalization from the Entrepreneurship
perspective. This chapter offers empirical evidence that highlights the need to
consider insights from entrepreneurial theory in future studies focused on the
internationalization process of firms.
The entrepreneurial orientation can be considered as a key aspect for
understanding the international commitment of established firms, and this
important result may contribute to consolidation of a new stream of
research. In this sense, international entrepreneurship should be considered
as a new perspective that explains the internationalization process not only of
international new ventures but also of established firms.
On the other hand, analysing the influence of the EO construct in other
business contexts and strategies allows us to support the generalization of the
importance of such entrepreneurial orientation. In fact, little empirical evi-
dence has been provided to support the relationship between EO and per-
formance in established organizations and in the context of the international
strategy. For practitioners, this research suggests that the development of
entrepreneurial behaviour can have an effect on the firm’s international
commitment. Thus, CEOs interested in intensifying the international com-
mitment of their firms must first concern themselves with developing an
entrepreneurial orientation within the organization, as this study has demon-
strated a direct relation between EO and international degree and scope.

Notes
1 We first ran an ANOVA analysis but the Levene test showed that data do not
accomplish the assumption of homogeneity of variances.
2 We conducted an ordinal regression analysis because the dependent variable is
ordinal, that is, its values present an ascendant order.
7 Human resource management
and knowledge management as
antecedents of innovation
Daniel Jiménez-Jiménez and Raquel Sanz-Valle

Introduction
Knowledge management and human resource management are highlighted
in the literature as antecedents of a firm’s innovation. However, empirical
research analysing relations among them is still scarce. Applying structural
equations modelling with data collected from 373 Spanish firms, this chapter
analyses them. Findings provide support for these relations. In a global econ-
omy, companies have to face new challenges, such as increasing competition,
clients who are more and more demanding, and a continuously changing
environment.
In this context, innovation is increasingly considered as one of the key
drivers of long-term success (Utterback, 1994; Baker and Sinkula, 2002).
Innovation allows the company to respond to environmental challenges faster
and to exploit new products and market opportunities better than non-
innovative companies (Miles and Snow, 1978; Brown and Eisenhard, 1995).
Many studies have demonstrated the positive effect of innovation on perform-
ance (Damanpour and Evan, 1984; Roberts, 1999; Schulz and Jobe, 2001).
Given the importance of innovation in relation to the competitive position
of companies, a number of studies have tried to identify its main determin-
ants (Damanpour, 1991; Wolfe, 1994; Ravichandran, 1999). Among them,
knowledge management and human resource management are recently high-
lighted. Knowledge management (KM) and its output, knowledge, are fre-
quently cited as antecedents of innovation (e.g. Kogut and Zander, 1992;
Leonard-Barton, 1995; Nonaka and Takeuchi, 1995; Coombs and Hull,
1998; Carneiro, 2000; Darroch and McNaugton, 2002). The reason is that
KM plays a key role in enabling companies to achieve speed and flexibility
in the innovation process (e.g. Brown and Eisenhard, 1995; Weerd-Nederhof
et al., 2002).
The current literature also points out the importance of human resource
management (HRM) as a predictor of innovation. The assumption that sup-
porting this relationship is that firm’s capacity to innovate resides in its
employees’ competencies and motivation. Hence, HRM can play a key role in
the enhancement of innovation (Gupta and Singhal, 1993; Arboníes, 2001).
90 Daniel Jiménez-Jiménez and Raquel Sanz-Valle
Furthermore, HRM is also considered to foster innovation through its
effect on organizational learning (OL). In this sense, it is understood that a
firm’s capacity to learn resides in its employees’ abilities to learn and their
motivation to share their knowledge with their workmates. Hence HRM
enhances OL by creating a culture which fosters creativity and learning
(Thite, 2004). While the importance of these issues has been widely accepted,
to date the linkages between innovation, KM and HRM have hardly been
examined in the literature, especially from an empirical perspective.
The purpose of this chapter is to examine empirically the relationship
between HRM, KM and innovation, specifically technical innovation (TI).
First, the chapter reviews the literature on these topics. Based on that review,
it proposes a causal model to explain relationships between the variables
discussed above, which are tested using a sample of Spanish companies.
Finally, the findings are presented along with the theoretical and managerial
implications of the study, its limitations and recommendations for future
research.

Knowledge management as an antecedent of technical

innovation
Innovation has been conceptualized in a variety of ways in the literature,
depending on the perspective from which it has been studied (Damanpour,
Szabat and Evan, 1989; Wolfe, 1994; Damanpour and Gopalakrishnan, 1998).
Following Damanpour and Gopalakrishnan (1998), innovation could be
understood as the adoption of a new idea or behaviour in an organization.
Innovations can be classified according to different criteria.
For the purpose of this study we distinguish, following Damanpour (1991),
between technical or administrative innovations. While technical innovations
(TI) refer to new technologies, products and services, administrative innov-
ations include new procedures, policies and organizational forms (Evan, 1966;
Evan and Black, 1967; Normann, 1971; Utterback and Abernathy, 1975;
Hage, 1980; Dewar and Dutton, 1986; Tushman and Nadler, 1986). Technical
innovation includes two types of innovations: product innovation, the devel-
opment of new or improved products and/or services and their successful
introduction into the market; and process innovation, which involves the
adoption of new or improved methods of manufacture and distribution of
products or delivery of services. The adoption of technical and administra-
tive innovations does not respond to the same predictor variables (Aiken,
Bacharach and French, 1980; Kimberly and Evanisko, 1981; Damanpour,
1991). Ignoring these differences could obscure the appropriate conclusions
(Wolfe, 1994).
In this study, we have focused on TI because it is tightly linked to the
primary activity of the company (Knight, 1967; Daft, 1978; Kimberly and
Evanisko, 1981; Damanpour and Evan, 1984; Damanpour, 1992). Moreover,
it is accepted that both product and process innovations simultaneously have
 HRM and knowledge management as antecedents of innovation 91
a positive effect on company performance (Damanpour and Gopalakrishnan,
2001). For this reason, many authors have tried to identify the factors which
foster it (e.g. Drucker, 1985; Cooper and Kleinschmidt, 1987; Porter, 1990;
Damanpour, 1991; Damanpour and Gopalakrishnan, 1998; Capon et al.,
1999). Among those factors, literature today points out the key role of KM
(e.g. Leonard-Barton, 1995; Carneiro, 2000).
Knowledge management is the “process or practice of creating, acquiring,
capturing, sharing and using knowledge within the organization, wherever it
resides, to enhance learning and performance in organizations” (Scarbrough,
Swan and Preston, 1999). This process includes four stages: the acquisition of
information and existing knowledge, its distribution within the company, its
interpretation and its storing in the organizational memory for future use
(Huber, 1991). Several studies have been published relating KM to innovation
(Stata, 1989; Cohen and Levinthal, 1990; Nonaka, 1991; Kogut and Zander,
1992; Leonard-Barton, 1995; Nonaka and Takeuchi, 1995; Coombs and
Hull, 1998; Hage, 1999; Nooteboom, 1999; Sørensen and Stuart, 2000) and
some models have been proposed to explain the relationship between them
(e.g. Cohen and Levinthal, 1990; March, 1991; Kogut and Zander, 1992;
Hedlund, 1994; Nonaka and Takeuchi, 1995; Leonard-Barton and Sensiper,
1998). According to those models, KM contributes to innovation through
generating new knowledge, ideas, beliefs or insights that promote the creation
of new products or processes. Furthermore, the KM process increases the
capability of the firm to learn.
According to literature, learning occurs at three levels: individual, group
and organization (Crossan, Kane and White, 1999). Individual-level learning
refers to the process by which individuals generate new insights and knowl-
edge from existing tacit or explicit information and knowledge. Group-level
learning involves the sharing of individual knowledge among members of a
group in order to develop a common understanding or meaning (Daft and
Weick, 1984; Stata, 1989; Huber, 1991). Finally, organizational-level learning
occurs as the culture and systems retain individual and group knowledge,
allowing it to be shared across boundaries of space, time and hierarchy, so
that it survives the turnover of employees (Ulrich, Jick and Von Glinow,
1993). Using Crossan et al., (1999) and Bontis et al. (2002) frameworks, we
argue that the practices and policies integrated within the KM process foster
the OL capability of the firm at the three above-mentioned levels and that it is
this capability which positively affects innovation.
Although the link between KM and innovation has been conceptually sup-
ported in the literature, research to date does not provide enough empirical
evidence (Darroch and McNaugton, 2002). Only a few studies have found a
significant relationship between KM and product innovation (e.g. Yli-Renko,
Autio and Sapienza, 2001; Sherman, Berkowitz and Souder, 2005) or between
KM and process innovation (e.g. Jang et al., 2002; Scarbrough, 2003). Others
have found support for the link between OL and innovation (e.g. Hurley and
Hult, 1998; Forrester, 2000; Katila, 2002).
92 Daniel Jiménez-Jiménez and Raquel Sanz-Valle
Despite the differences among these studies, most of them found a positive
relation among them, supporting the general understanding found in the
literature. Taking into account the theoretical arguments and the results of
empirical studies, we suggest that KM affects TI mainly because KM fosters a
firm’s OL. Therefore, the following hypotheses are proposed:

H1: Knowledge management will be positively related to organizational

learning.
H2: Organizational learning will be positively related to technical
innovation.

HRM as an antecedent of OL and TI

In the last few years, human resources and therefore HRM have received
more and more attention in the literature on OL and TI as one of their main
determinants. Up to now, the literature on this issue has been developed from
a theoretical point of view. Empirical studies are still scarce. With regard
to the role that HRM plays in enhancing learning, Lang (2001) pointed out
that human beings are the main element in knowledge creation because it is
based on the individual learning of the company’s members (Huber, 1991;
Kim, 1993; Nonaka and Takeuchi, 1995) and on the introduction of new
employees into the company.
Therefore, no organization can generate new knowledge without people
(Nonaka and Takeuchi, 1995; Bontis, 1999). According to Ulrich et al. (1993),
HRM can improve the learning competences of an organization and foster
the organizational learning process, first, because through HRM practices
organizations can acquire and motivate employees with learning abilities and
can expand them, and second, because HRM can develop a culture which
encourages the acquisition and transfer of knowledge.
Regarding the relation between HRM and innovation, Gupta and Singhal
(1993) argue that “people, not products, are an innovative company’s major
assets.” The assumption underlying this affirmation is that the innovation
capacity of a firm resides in the intelligence, imagination and creativity of its
employees (Kanter, 1989; Gupta and Singhal, 1993; Mumford, 2000) and that
the development and implementation of innovation requires the involvement
and support of employees (Van de Ven, 1986; Vrakking, 1990). Despite the
wide recognition of the importance of HRM for innovation and learning,
it has not been a major feature of studies of those topics (Ulrich, Jick
and Von Glinow, 1993; Laursen and Foss, 2003; Jiménez-Jiménez and Sanz-
Valle, 2005). In this chapter, the main HRM practices which foster innova-
tion and learning are identified using a behavioural perspective; that is to
say, taking into account the employee behaviours which facilitate OL and
innovation.
In general, it is considered that KM and TI need creative, flexible, coopera-
tive and open-minded people with learning abilities and the motivation to
 HRM and knowledge management as antecedents of innovation 93
use them (McGill, Slocum and Lei, 1992; Garvin, 1993; Slocum, McGill and
Lei, 1994; Lei, Slocum and Pitts, 1999). Along the next sections we summar-
ize conclusions from the literature review regarding which specific HRM
practices are considered to enhance those behaviours and, as a consequence,
both OL and TI.

Job design
OL and TI are considered to be fostered by flexible organizational structures
and jobs design (Kim, 1980; McGill and Slocum, 1993; Nonaka and Takeuchi,
1995; Lei, Slocum and Pitts, 1999). Flexibility encourages experimentation
and learning among employees (Leonard-Barton, 1992; Garvin, 1993; McGill
and Slocum, 1993). Broad descriptions provide flexibility to employees for
developing their tasks (Wright and Snell, 1998) promoting OL (McGill,
Slocum and Lei, 1992; Garvin, 1993; Ulrich, Jick and Von Glinow, 1993;
Nonaka and Takeuchi, 1995) and TI (Kanter, 1985; Kydd and Oppenheim,
1990). Autonomy is considered to be required for employees to propose and
implement improvements in their jobs, that is, facilitating OL (Nonaka and
Takeuchi, 1995; Barrie and Pace, 1997) and TI (Kanter, 1985; Tushman
and Nadler, 1986; Axtell et al., 2000).
Employee involvement or participation in decision-making encourages
knowledge sharing and transferring (Slocum, McGill and Lei, 1994; Dibella,
Nevis and Gould, 1996; Maccoby, 1999; Rowden, 2001) and fosters employees’
creativity and the implementation of innovations (Cummings, 1965; Thomp-
son, 1965; Schuler and Jackson, 1987). Finally, organizations should foster
communication among employees and promote their use of, and sharing with
others, the information and knowledge they obtain (Ulrich, Jick and Von
Glinow, 1993; Winter, Sarros and Tanewski, 1997; Lei, Slocum and Pitts,
1999).

Teamwork
Currently teamwork is recognized as a key element for OL (e.g. Senge, 1990;
Lei, Slocum and Pitts, 1999; Forrester, 2000; Gnyawali and Stewart, 2003)
and TI (Tushman and Nadler, 1986; Einsenhardt and Tabrizi, 1995; Van de
Ven et al., 1999; Laursen, 2002) because it encourages people to share their
ideas and knowledge openly with the other members of the group (Senge,
1990; Nonaka and Takeuchi, 1995; Lei, Slocum and Pitts, 1999). This facili-
tates the dissemination of individual knowledge throughout the organization.
Literature suggests that OL and TI are mainly enhanced by the use of cross-
functional teams (e.g. Brown and Eisenhard, 1995; Snell, Youndt and Wright,
1996; Lei, Slocum and Pitts, 1999), as they perform better when they combine
their perspectives in a highly interactive and iterative way (Dougherty, 1992).
Finally, in response to the rapidly changing marketplace, teams need auton-
omy and to be responsible for improving OL (Nonaka, 1991; Garvin, 1993;
94 Daniel Jiménez-Jiménez and Raquel Sanz-Valle
Nonaka and Takeuchi, 1995; Wagerman, 1997) and TI (Drucker, 1981; Clark
and Wheelwright, 1993).

Hiring
Hiring policies are crucial because they introduced personnel with new knowl-
edge for organizations. Although there are some contradictions in the litera-
ture, a number of researches defend the use of external recruitment for OL
(Simon, 1991; Dodgson, 1993; Lepack and Snell, 1999) and TI (Olian and
Rynes, 1984; Schuler and Jackson, 1987; Sonnenfeld and Peiperl, 1988;
Raghuram and Arvey, 1994). External recruitment fosters the adaptation of
the company to environmental changes, the introduction of new knowledge
into the company and the generation of new ideas (Dodgson, 1993). Add-
itionally, long-term contracts are better in fostering OL (Nonaka, 1994;
Nonaka and Takeuchi, 1995; Kamoche and Mueller, 1998) than short-term
ones as they facilitate the development of an organizational learning culture.
Employment security also fosters employee commitment and encourages
risk-taking behaviours and the willingness to acknowledge failures (Schuler
and Jackson, 1987; Jackson, Schuler and Rivero, 1989; Storey et al., 2002)
required for TI. In general, in both OL and TI literatures, it is considered that
selection of people should be based more on their fit to organizational culture
than on their fit to a specific job (Leonard-Barton, 1992; Dibella, Nevis and
Gould, 1996). Finally, polyvalence is suggested as the best criterion for select-
ing people, because it fosters individual learning as well as the distribution of
new knowledge around the organization (McGill, Slocum and Lei, 1992;
Garvin, 1993; Nonaka and Takeuchi, 1995), as well as innovation (Gupta and
Singhal, 1993).

Training
The literature defends the importance of training in order to develop the
employee capabilities required for learning (e.g. McGill and Slocum, 1993;
Ulrich, Jick and Von Glinow, 1993) and innovation (e.g. Cascio, 1990;
Johnson, Baldwin and Diverty, 1996; Barton and Delbridge, 2001; Mark and
Akhtar, 2003). Training is considered to allow employees’ skills to turn
into organizational routines (Kamoche and Mueller, 1998) which foster the
learning process. Due to the uncertainly of environment, training has to be
planned in the long term for improving the adaptation and anticipation
capacities needed to face environmental requirements (Nevis, Dibella and
Gould, 1995) through OL (Leonard-Barton, 1992).
Besides, training should focus on the building of polyvalent competencies,
because training in specific skills reduces organizational flexibility (Leonard-
Barton, 1992; Kiernan, 1993) and innovation (Sundbo, 1999). In this case,
companies could use internal job rotations (e.g. McGill, Slocum and Lei,
1992; Ulrich, Jick and Von Glinow, 1993; Ortega, 2001) to stimulate dialogue
 HRM and knowledge management as antecedents of innovation 95
among people from different levels of the company (Snell, Youndt and
Wright, 1996). Furthermore, as teamwork is very important in learning
organizations, training should be designed with a group orientation (Garvin,
1993; Romme and Dillen, 1997). Finally, employees have to participate in the
identification of training necessities and propose what training they should
receive (Beatty and Schneier, 1997).

Career opportunities
Literature suggests that the existence of internal career opportunities stimu-
lates employees to develop and use their potential (Dodgson, 1991), which
enhances individual learning (Dodgson, 1991; Leonard-Barton, 1992) and
innovation (Tushman and Nadler, 1986; Mabey and Salaman, 1995; Ding
and Akhtar, 2001). McGill et al. (1992) pointed out that promotions should
impel the mobility of employees across divisions and functions because it
may foster the acquisition of new knowledge and employee polyvalence.
Same conclusions are recommended to promote TI (Stata, 1989; McGill,
Slocum and Lei, 1992; O’Dell and Jackson-Grayson, 1998). Promotions
should be based mainly on qualitative criteria such as adaptability to changes,
creativity, risks adoption or innovative behaviour (Stata, 1989; McGill and
Slocum, 1993; Ulrich, Jick and Von Glinow, 1993), which foster both OL
and TI. Finally, employees must exert some control over their own careers
and development (Schein, 1992) and should be responsible for recognizing
their own developmental needs (Garvin, 1993; Beatty and Schneier, 1997; Jaw
and Liu, 2003).

Appraisals
It is generally considered that the systematic use of performance appraisals
supports OL and TI (McGill, Slocum and Lei, 1992; Ulrich, Jick and Von
Glinow, 1993; Thite, 2004). The generation and implementation of innov-
ation, as well as the acquisition and distribution of new knowledge, requires
time to get results. Thus, OL (Pucik, 1988) and TI is fundamentally a long-
term activity and, consequently, performance appraisals should be based on
long-term targets (Schuler and Jackson, 1987; Mabey and Salaman, 1995).
Additionally, a group orientation is also recommended for OL (Leonard-
Barton, 1992; McGill, Slocum and Lei, 1992; Dibella, Nevis and Gould,
1996) and TI (Schuler and Jackson, 1987; Mabey and Salaman, 1995) as well
as the use of qualitative versus quantitative criteria (Lei, Slocum and Pitts,
1999). Identically, TI requires both results- and process-oriented performance
(Schuler and Jackson, 1987; Mabey and Salaman, 1995; Ding and Akhtar,
2001).
Furthermore, in order to promote OL, appraisals objectives should be the
stimulating of employees’ commitment, performance improvement and pro-
fessional development rather than control (Winter, Sarros and Tanewski,
96 Daniel Jiménez-Jiménez and Raquel Sanz-Valle
1997; London and Smither, 1999). This development aim fosters the process
of innovation (e.g. Gupta and Singhal, 1993; Mumford, 2000; Mark and
Akhtar, 2003). Because of that, organizations should provide employees
with feedback about their performance appraisals (Beatty and Schneier,
1997; Lepack and Snell, 1999) and involve employees in the whole process
(Dodgson, 1991).

Compensation
Regarding compensation, literature defends the use of higher employee wage
levels for stimulating innovations (Turbin and Rosse, 1990; Van Reenen, 1996;
Balkin, Markaman and Gómez-Mejía, 2000). In order to enhance learning,
literature states that compensation is linked to performance appraisal (McGill,
Slocum and Lei, 1992) and includes incentives. These incentives should
reward the contribution of employees to knowledge creation (Von Krogh,
1998) and transfer (Garvin, 1993) or the successful generation and implemen-
tation of innovations (Galbraith, 1984; Cascio, 1990; Gupta and Singhal,
1993; Ding and Akhtar, 2001). That is to say, a company should try to avoid
punishing individual mistakes. Instead of that, it should encourage experi-
mentation and learning (Ulrich, Jick and Von Glinow, 1993).
As a consequence, compensation should be based not on jobs, but on
employees’ performance (e.g. Leonard-Barton, 1992; Von Krogh, 1998),
skills and behaviours (McGill and Slocum, 1993; Lei, Slocum and Pitts, 1999;
Lepack and Snell, 1999) which encourage OL and innovation (Schuler and
Jackson, 1987; Mabey and Salaman, 1995). Furthermore, incentives should
be based both on individual and on group performance for OL (Nonaka
and Takeuchi, 1995; Von Krogh, 1998; London and Smither, 1999) and
TI (Schuler and Jackson, 1987; Mabey and Salaman, 1995). Additionally,
companies should use long-term rewards policies, because they promote per-
sonal flexibility for learning (McGill, Slocum and Lei, 1992) and innovation
(Schuler and Jackson, 1987; Mabey and Salaman, 1995). Furthermore,
innovative companies should promote the participation of employees in the
definition of their compensation package (Schuler and Jackson, 1987; Mabey
and Salaman, 1995; Gómez-Mejía, Balkin and Cardy, 2004). Finally, the use
of non-monetary rewards as a compensation mechanism is also considered to
foster OL (McGill, Slocum and Lei, 1992).

Innovative HRM system

Literature reviews from a configurational approach suggest that the imple-
mentation of isolated HRM practices could not achieve the expected results
on organizational outputs (see Delery and Doty, 1996). Only the adop-
tion of a set of internally consistent HRM practices could achieve the
synergistic effects on OL and TI. Research also provides evidence of the
relevance of this configurational perspective for both OL (Laursen and
 HRM and knowledge management as antecedents of innovation 97
Mahnke, 2001) and innovation (Peck, 1994; Laursen, 2002; Laursen and
Foss, 2003; Jiménez-Jiménez and Sanz-Valle, 2005). As a conclusion, we
suggest that the HRM practices identified by literature as enhancers of
OL and TI should be implemented in combination, forming a system of
coherent practices, which we may call the innovative HRM system. Then, we
proposed:

H3: The adoption of an innovative human resource management system

will be positively related to organizational learning.
H4: The adoption of an innovative human resource management system
will be positively related to technical innovation.

Methodology

Data collection and sample

Data for this study come from a more extensive survey, financed by the
European Union (by FEDER funds). The sample, which was drawn from
the SABI database, includes firms with more than 25 employees, located in
the southeast region of Spain. It was designed to reach across industries
(excluding the agricultural sector). A total of 1276 companies constituted the
population.
Data were collected by means of a personal interview with the top execu-
tive of the company, using a structured questionnaire. In total 373 usable
questionnaires were obtained, yielding a response rate of 29.2 percent.
Respondent and non-respondent companies were compared in terms of gen-
eral characteristics and model variables. These comparisons did not reveal
any significant differences, suggesting no response bias.

Measures
In order to test the hypotheses, four variables were measured: HRM system,
KM, OL and TI. All of them were measured as constructs, as will be
explained below. Table 7.1 provides an overview of the means and standard
deviations of the constructs, and the correlations between the variables.

Innovative HRM system

Concerning which HRM practices should be included to measure the com-
pany’s HRM system, the present study takes the 36 HRM practices most
commonly identified in the literature, covering the most important areas of
HRM. They were measured using a series of five-point Likert-type scales.
These HRM practices are: job design (flexibility in job definition, broad
job descriptions, autonomy, employee participation and communication),
Table 7.1 Construct correlation matrix

Construct Mean Standard 1 2 3 4 5 6 7 8 9 10

deviation

1. HRM system 1.940 1.022 1

2. Acquisition 3.340 0.881 0.080 1
3. Distribution 3.377 0.850 0.066 0.850*** 1
4. Interpretation 3.355 0.864 0.129** 0.412*** 0.405*** 1
5. Organizational 3.987 0.960 0.008 0.339*** 0.359*** 0.312*** 1
memory
6. Individual level 3.654 0.635 0.222*** 0.203*** 0.262*** 0.413*** 0.207*** 1
7. Group level 3.452 0.670 0.195*** 0.322*** 0.324*** 0.481*** 0.213*** 0.578*** 1
8. Organizational 3.866 0.645 0.075 0.396*** 0.408*** 0.500*** 0.374*** 0.415*** 0.514*** 1
level
9. Product 3.560 0.770 0.138** 0.275*** 0.283*** 0.326*** 0.251*** 0.160*** 0.253*** 0.338*** 1
innovation
10. Process 3.368 0.746 0.189*** 0.308*** 0.315*** 0.276*** 0.284*** 0.155*** 0.256*** 0.386*** 0.579*** 1
innovation

Notes:
a *** = p < 0.001
b ** = p < 0.01
c * = p < 0.05
 HRM and knowledge management as antecedents of innovation 99
teamwork (its use in the firm, the degree to which they are multidisciplinary
and the autonomy of teams), staffing (external recruitment, use of poly-
valence and fit to the culture as criteria for selecting people, and employment
security), training (broad application of training, long-term and group orien-
tation, for polyvalence, the use of internal job rotation and employee partici-
pation), career management (broad career paths, based on qualitative criteria,
mobility across divisions and functions and promotion of employees’ own
developmental needs), performance appraisal (long-term and group orienta-
tion, systematic, based on process, development target, feedback and high
participation of employees) and compensation (high wages level, many incen-
tives, based on employee competences, group and long-term performance, not
monetary rewards and employee participation in the compensation design).
The measure of the HRM system was created following the method
adopted in the study of Delery and Doty (1996). First, from literature review,
an ideal profile for an innovative HRM system was defined by adding one
standard deviation from the mean of each HRM variable (Delery and Doty,
1996). Then, using the mathematical model proposed in previous research by
Doty (Doty, Glick and Huber, 1993; Doty and Glick, 1994), the measure of
configurational fit was computed as the additive inverse of the deviation
between a real organization’s employment system and the ideal system which
promotes KM and TI.

Knowledge management
KM was computed using the four phases of Huber’s (1991) model. We meas-
ured them with 25 five-point Likert scales, using Pérez-López et al.’s (2004)
scale. Table 7.2 shows the items included for the four sub-processes of the
KM model: knowledge acquisition (scale composite reliability ρcSCR = 0.77,
average variance extracted ρcAVE = 0.54), knowledge distribution (ρcSCR =
0.79, ρcAVE = 0.56), knowledge interpretation ( ρcSCR = 0.68, ρcAVE = 0.52) and
organizational memory ( ρcSCR = 0.86, ρcAVE = 0.68).
In this research, KM is considered as a single construct made up of the
four behavioural dimensions represented by the four levels. A second-order
factor analysis was conducted to demonstrate that the four dimensions
can be modelled by the data as being reflected by a higher-order construct
(Table 7.3).
This model was estimated using LISREL 8.50. The results suggest a good
fit of the second-order specification for the measure of KM ( χ2 = 128.01,
df = 40; goodness-of-fit index (GFI) = 0.94; root mean square error of
approximation (RMSEA) = 0.074; comparative fit index (CFI) = 0.95;
Tucker-Lewis index (NNFI) = 0.93; incremental fit index (IFI) = 0.95). The
GFI, CFI, NNFI and IFI statistics exceed the recommended 0.90 threshold
level (Hoyle and Panter, 1995). Furthermore, the RMSEA is below 0.080 and
the root mean square residual (RMR) and standardized RMR are 0.059 and
0.056, respectively, which indicates an acceptable fit.
Table 7.2 Summary of construct measurement: confirmatory factor analysis and scale reliability

Item description Standardized t-value Reliability

loading (SCRa, AVE b)

Knowledge acquisition
1. Cooperation agreements with other companies, universities, technical colleges, etc. are 0.80 16.41
fomented SCR = 0.77
2. The company is in touch with professionals and expert technicians 0.86 18.10 AVE = 0.54
3. The organization encourages its employees to join formal or informal nets made up by people 0.53 10.09
from outside the organization
(scale: 1 = strongly disagree; 5 = strongly agree)
Knowledge distribution
1. Meetings are periodically held to inform all the employees about the latest innovations in the 0.74 15.27
company
2. There are within the organization individuals who take part in several teams or divisions and 0.63 12.55 SCR = 0.79
who also act as links between them AVE = 0.56
3. The company has formal mechanisms to guarantee the sharing of the best practices among the 0.85 18.13
different fields of the activity
(scale: 1 = strongly disagree; 5 = strongly agree)
Knowledge interpretation
1. Employees share knowledge and experience by talking to each order 0.70 13.75 SCR = 0.68
2. Teamwork is a very common practice in the company 0.74 14.65 AVE = 0.52
(scale: 1 = strongly disagree; 5 = strongly agree)
Organizational memory
1. The company has updated databases of its clients 0.79 17.31
2. There is access to the organization’s databases and documents through some kind of network 0.81 17.76 SCR = 0.86
(Lotus Notes, intranet, etc.) AVE = 0.68
3. Databases are always kept up-to-date 0.88 20.17
(scale: 1 = strongly disagree; 5 = strongly agree)
Individual level SCR = 0.80
1. Individuals are aware of the critical issues that affect their work 0.76 15.77 AVE = 0.58
2. Individuals are current and knowledgeable about their work 0.78 16.43
3. Individuals are able to grow through their work 0.73 14.90
(scale: 1 = strongly disagree; 5 = strongly agree)
Group level
1. Different points of view are encouraged in group work 0.76 16.57
2. Groups are prepared to rethink decisions when presented with new information 0.84 19.21 SCR = 0.87
3. In meetings, it is sought to understand everyone’s point of view 0.80 17.81 AVE = 0.63
4. Members of a group share their success within the group 0.76 16.48
(scale: 1 = strongly disagree; 5 = strongly agree)
Organizational level
1. The structure supports the strategic direction 0.71 15.15
2. The structure allows the company to work effectively 0.82 18.81 SCR = 0.89
3. Company has a realistic yet challenging vision for the organization 0.84 19.34 AVE = 0.66
4. The culture is characterized by a high degree of trust 0.87 20.47
(scale: 1 = strongly disagree; 5 = strongly agree)
Product innovation
1. Number of new products/services introduced 0.78 16.74
2. Pioneer disposition to introduce new products/services 0.83 18.25 SCR = 0.83
3. Clever response to the new products/services introduced by rivals 0.75 15.79 AVE = 0.62
(scale: 1 = below competitors; 5 = above competitors)
Process innovation
1. Number of changes in the process introduced 0.77 16.62
2. Pioneer disposition to introduce new process 0.94 21.99 SCR = 0.81
3. R&D expenditure in new processes 0.62 12.71 AVE = 0.59
(scale: 1 = below competitors; 5 = above competitors)

Notes:
Fit statistics for measurement model of 28 indicators for 9 constructs: χ2(314) = 742.20; GFI = 0.88; RMSEA = 0.059; CFI = 0.92; NNF I = 0.91.
a Scale composite reliability ( ρc= ( Σλi)2 var (ξ)/[(Σλi)2 var (ξ) + Σθii]) (Bagozzi and Yi 1998).
b Average variance extracted ( ρc = ( Σλi2 var (ξ))/[Σλi2 var (ξ) + Σθii]) (Fornell and Larcker 1981).
Table 7.3 Second-order confirmatory factor analysis

Second-order First-order construct First-order Second-order

construct
Indicator Loading t-value Loading t-value

KA1 0.79 –a
Knowledge acquisition KA2 0.86 12.74 0.54 7.96
KA3 0.54 9.75
ID1 0.76 –a
Knowledge Knowledge distribution ID2 0.63 11.18 0.72 9.91
management ID3 0.84 13.34
II1 0.66 –a
Knowledge interpretation II2 0.78 9.79 0.95 9.79
OM1 0.78 –a
Organizational memory OM2 0.80 15.88 0.47 7.24
OM3 0.89 16.71
Fit statistics for measurement model of 11 indicators for four constructs: χ2(40) = 128.01; GFI = 0.94; RMSEA = 0.074;
CFI = 0.95; NNFI = 0.93.
IL1 0.77 –a
Individual level IL2 0.78 13.44 0.78 10.80
IL3 0.72 12.74
GL1 0.76 –a
Group level GL2 0.84 16.14 0.90 12.03
Organizational GL3 0.80 15.28
learning GL4 0.76 14.54
OL1 0.69 –a
 Organizational level OL2 0.82 14.39 0.59 8.81
OL3 0.85 14.84
OL4 0.86 14.99

Fit statistics for measurement model of 11 indicators for three constructs: χ2(41) = 109.26; GFI = 0.95; RMSEA = 0.068;
CFI = 0.97; NNFI = 0.96.

PI1 0.78 –a
Product innovation PI2 0.84 15.35 0.85 12.38
Technical PI3 0.73 13.76
innovation CI1 0.76 –a
Process innovation CI2 0.95 16.40 0.84 11.55
CI3 0.61 11.93
Fit statistics for measurement model of 6 indicators for two constructs: χ2(7) = 13.45; GFI = 0.99; RMSEA = 0.049;
CFI = 0.99; NNFI = 0.99.

Note:
a
Fixed parameter.
104 Daniel Jiménez-Jiménez and Raquel Sanz-Valle
Organizational learning
In this study, 26 five-point Likert scales were used to measure the three levels
of learning using the contrasted scale of Bontis et al. (2002). The confirma-
tory factor analysis (Table 7.2) suggests the use of three items to measure
individual level ( ρcSCR = 0.80, ρcAVE = 0.58), four items to group level ( ρcSCR =
0.87, ρcAVE = 0.63) and another four to level ( ρcSCR = 0.89, ρcAVE = 0.66). A
second-order factor analysis was conducted to these levels of learning (Table
7.3). The results suggest a good fit of the second-order specification ( χ2 =
109.26, df = 41; GFI = 0.95; RMSEA = 0.068; CFI = 0.95; NNFI = 0.96; IFI
= 0.97; RMR = 0.025; Standardized RMR = 0.045).

Technical innovation
Following Manu (1992), six items were measured for each type of innovation,
covering changes in the products and processes the company developed,
the proactive or reactive character of those innovations and the effort
of the firm on innovation in terms of resources spent on innovation or
R&D. The confirmatory factor analysis (Table 7.2) suggests the use of
three items to measure product innovation ( ρcSCR = 0.83, ρcAVE = 0.62) and
another three to process innovation ( ρcSCR = 0.81, ρcAVE = 0.59). TI has
been measured with a second-order construct (Table 7.3) with a good
second-order specification ( χ2 = 13.45, df = 7; GFI = 0.99; RMSEA =
0.049; CFI = 0.99; NNFI = 0.99; IFI = 0.99; RMR = 0.016; Standardized
RMR = 0.020).
To assess the unidimensionality of each construct, a confirmatory factor
analysis of the nine constructs employing 28 items was conducted (Anderson
and Gerbing, 1988). The measurement model provided a reasonable fit to the
data ( χ2 = 742.20, df = 314, GFI = 0.88; RMSEA = 0.059; CFI = 0.92; NNFI
= 0.91; IFI = 0.92). The traditionally reported fit indexes are within the
acceptable range. Reliability of the measures was calculated with Bagozzi and
Yi’s (1998) composite reliability index and with Fornell and Larcker’s (1981)
average variance extracted index. For all the measures, both indices are higher
than the evaluation criteria of 0.6 for the composite reliability and 0.5 for the
average variance extracted (Bagozzi and Yi, 1998). Furthermore, all items
load on their hypothesized factors (see Table 7.2), and the estimates are posi-
tive and significant (the lowest t-value is 10.09), which provides evidence of
convergent validity (Bagozzi and Yi, 1998).
Discriminant validity was provided by three different procedures recom-
mended by Anderson and Gerbing (1988) and Fornell and Larcker (1981).
First, discriminant validity was indicated since the confidence interval
(±2 S.E.) around the correlation estimate between any two latent indicators
never includes 1.0 (Anderson and Gerbing, 1988). Second, discriminant val-
idity was tested by comparing the square root of the AVEs for a particular
construct to its correlations with the other constructs (Fornell and Larcker,
 HRM and knowledge management as antecedents of innovation 105
1981). Finally, we compared the chi-square statistic between the constrained
model where the correlation of a pair of factors was fixed to unity and the
unconstrained model with the correlation freely estimated (Anderson and
Gerbing, 1988). The results of these three tests provided strong evidence
about discriminant validity among the constructs.

Analysis and results

Structural equations modelling (SEM) methodology was employed to test the
hypotheses. The proposed structural model is shown in Figure 7.1. This
model summarizes the four hypotheses proposed relating the HRM system,
KM, OL and TI. Conventional maximum likelihood estimation techniques
were used to test the model (Jöreskog and Sörbom, 1996). The fit of the
model is satisfactory ( χ2 = 967,42, df = 365; GFI = 0.85; RMSEA = 0.065;
CFI = 0.89; NNFI = 0.88; IFI = 0.89), thereby suggesting that the nomologi-
cal network of relationships fits the data. This is another indicator to support
the validity of these scales (Churchill, 1979).
In terms of the hypotheses, results (Table 7.4) for H1 (KM → OL; β51 = 0.86,
p < 0.01) suggest that KM is positively associated with OL. This finding
supports the thesis argued in the literature that the process of creation of
new knowledge allows enhancement of the firm’s OL. Results also provide
evidence of a positive relation between OL and TI, supporting H2 ( β95 = 0.55,
p < 0.01).
Regarding H3 (HRM system → OL; γ52 = 0.11, p < 0.1), findings suggest
that, as predicted, HRM practices are positively associated with creation
of learning at different levels of the organization. Finally, in relation to H4
(HRM system → technical innovation; γ92 = 0.16, p < 0.01), we have obtained
evidence about the existence of a positive effect of HRM system on TI,
which suggests that HRM could foster the necessary creativity to generate
innovations.

Discussion and conclusion

Although there is a general acknowledgement that TI, KM and HRM are
sources of competitive advantage for firms and that they are related, little
research has empirically examined these linkages. From the literature review,
we have concluded that managing personnel for KM and TI requires the
adoption of a system of internally coherent HRM practices, according to the
configurational perspective of HRM (MacDuffie, 1995; Delery and Doty,
1996). We have also explained the theoretical support for the argument that
HRM, KM and TI should be linked in the organizations. Finally, we have
proposed and tested a model which includes those three variables and OL as a
mediating factor in the relation between KM and TI.
Furthermore, the findings of the empirical study shed light on the little-
studied relationships. First, it was found that KM has a positive effect on OL
Figure 7.1 A model of the relationship between HRM, KM, OL, and TI.
Table 7.4 Construct structural model

Linkages in the model Hypotheses Standardized parameter estimates

Number Sign Parameter Estimate t-value

Hypothesis
KM → OL H1 + γ51 0.86 5.86***
OL → Technical innovation H2 + β95 0.55 5.43***
HRM system → OL H3 + γ52 0.09 1.92*
HRM system → Technical innovation H4 + γ92 0.16 2.83***
Second-order construct
KM → Knowledge acquisition + γ21 0.55 8.46***
KM → Knowledge distribution + γ31 0.65 9.74***
KM → Knowledge interpretation + γ41 0.97 12.80***
KM → Memory + γ51 0.51 8.32***
OL → Individual level + β65 0.69 6.46***
OL → Group level + β75 0.73 6.60***
OL → Level + β85 0.74 6.48***
Technical innovation → Product innovation + β109 0.85 10.96***
Technical innovation → Process innovation + β119 0.83 10.28***

Notes:
a *** = p < 0.01
b ** = p < 0.05
c * = p < 0.01
d Fit statistics for measurement model of 29 indicators for 13 constructs: χ2(365) = 967.42; GFI = 0.85; RMSEA = 0.066; CFI = 0.89; NNFI = 0.88.
108 Daniel Jiménez-Jiménez and Raquel Sanz-Valle
and that OL is positively associated with TI. These results support the
relation between KM and innovation which literature defends (Cohen and
Levinthal, 1990; March, 1991; Kogut and Zander, 1992; Hedlund, 1994;
Nonaka and Takeuchi, 1995; Leonard-Barton and Sensiper, 1998) and are
similar to those obtained in previous empirical research (Hurley and Hult,
1998; Baker and Sinkula, 1999).
Support was also found for the assumption that HRM affects OL. This
result is consistent with theoretical arguments (Dodgson, 1993; Ulrich, Jick
and Von Glinow, 1993) and proves that HRM practices can enhance the three
levels of OL as a whole. Finally, the findings provided evidence of the link
between HRM and TI, corroborating previous investigations. Furthermore,
they showed that the effect of HRM on TI is stronger than its effect on OL.
This supports the assumption that HRM has an effect directly on TI by its
influence on employees’ behaviours and on the development of an organiza-
tional culture which promotes not only learning but also creativity, risk adop-
tion, failure tolerance, information access, information sharing, etc. (McGill,
Slocum and Lei, 1992; Garvin, 1993; Slocum, McGill and Lei, 1994; Nevis,
Dibella and Gould, 1995; Dibella, Nevis and Gould, 1996; Appelbaum and
Reichart, 1998; Lei, Slocum and Pitts, 1999; Lähteenmäki, Toivonen and
Mattila, 2001; Lau and Ngo, 2004).

Implications of the research findings

The implications of this study for practitioners are clear. Although the idea
that TI influences performance has gained recognition among practitioners,
how to go about this process remained unclear (Han, Kim and Shrivastava,
1998). This study provides evidence that both KM and HRM facilitate TI.
Therefore, organizations trying to enhance innovation should improve their
KM processes. This learning process would enable companies to exploit
external opportunities from customers, competitors or suppliers and develop
new products or processes that provide them with a competitive advantage.
On the other hand, organisations should pay attention to their HRM pol-
icies. They should implement a set of innovative HRM practices including
broad job description, autonomy, employee participation, communication,
teamwork, the use of polyvalence and fit to the organizational culture as
criteria for selecting people, employment security, training for polyvalence,
broad career paths, systematic performance appraisals based on process and
group performance, attractive compensation packages and variable rewards.

Limitations of the study

The results of this study should not be interpreted without understanding the
conditions of this empirical study. First, single informants were used as
the source of information. Although the use of single informants remains the
primary research design in most studies, multiple informants would enhance
 HRM and knowledge management as antecedents of innovation 109
the validity of the research findings. A second limitation is the cross-sectional
design of this research. Thus, even though the structural equations method
was employed, interpretation of the causality between the constructs should
be treated with caution (Tippins and Sohi, 2003). In order to examine
the causality of these relationships, future research should use longitudinal
studies.

Future research
For future research, we have identified three approaches that could enrich the
study. First, as it is considered that HRM is related to OL and TI mainly
because it can contribute to the generation of a culture which promotes them,
we propose to examine whether culture acts as an intervening factor between
the HR system and both OL and TI. Second, the contribution of OL to TI
could be better understood when a simultaneous approach of KM process,
soft HRM practices and hard information technology practices are imple-
mented (Gloet and Terziowski, 2004). Finally, future research should test the
effect of HRM on any of the three OL levels and on product and process
innovations separately.
8 Implications of strategic
planning in SMEs for
international entrepreneurship
research and practice
Sascha Kraus, B. Sebastian Reiche and
Carl Henning Reschke

Introduction
Small and medium-sized enterprises (SMEs) typically employ a major share
of an economy’s total employees. However, SME management suffers from
an insufficient business-related knowledge base that top managers in SMEs
possess. Indeed, formal plans or cost controls are often provided on only an
irregular basis and planning instruments are usually used by only a small
number of individuals and developed rather intuitively (Brinkmann, 2002).
These shortcomings point towards the importance of examining the value of
strategic planning for SMEs in more detail.
Given the role of strategic instruments in large companies and the notion
that rational decision-making should prevail in enterprises regardless of size,
practitioners and academics alike have recently called for an increased use of
strategic planning in SMEs. In this vein, several empirical studies reveal a link
between strategic planning and success (e.g., Rue and Ibrahim, 1998; Bracker,
Keats and Pearson, 1988; Lyles, Baird, Orris and Kuratko, 1993; Schwenk
and Shrader, 1993). At the same time, SMEs often do not have the means to
ensure the successful continuous application of strategic planning. In con-
trast to larger companies, SMEs normally maintain a lower level of resources,
have more limited access to human, financial and customer capital, and
lack a well-developed administration. Thus, the application of formal plan-
ning instruments is often missing, especially up to a certain “critical size”
(Karagozoglu and Lindell, 1998).
Building on these ideas, this chapter explores how and to which extent
SMEs apply strategic planning within the scope of their business activities.
More specifically, we investigate: (1) why SMEs seem to plan less than large
companies; (2) whether strategic planning and SME success correlate with
each other; and (3) whether strategic planning is a function of increasing
company size. The notion that enterprises that plan strategically are more
successful than those which do not would entail that – building on the initial
evidence that SMEs reveal a lower degree of formal strategic planning (e.g.,
Gibson and Cassar, 2002) – large companies are more successful than SMEs.
 Implications of strategic planning in SMEs 111
However, this seems to be very unlikely. In this vein, our review of extant
empirical studies identifies a range of additional determinants that may influ-
ence the relationship between strategic planning and SME success. In doing
so, we intend to shed light on the SME particularities and derive factors that
impact on the extent of SMEs’ application of strategic planning.

Strategy development in SMEs

Strategic management and strategic planning

The strategy development process is closely related to management. From a
corporate perspective, strategy can be defined as an approach to reach cor-
porate goals to be successful on a long-term basis (e.g., Kreikebaum, 1993;
Nötzold, 1994). The discipline of strategic management was formed in the
1980s based on advancements in the field of strategic planning. In general,
strategic management is regarded as long-term oriented (> three years),
directed towards future growth potentials, substantial, holistic, and pre-
dominantly associated with the highest management level which determines
the vision, mission, and culture of the enterprise (Haake, 1987; Voigt, 1992).
Strategic planning is the attempt to prepare for future contingencies and
thus to account for environmental dynamics and complexity. This entails the
need to build alternative future scenarios and configurations. Although the
future cannot be predicted, it is possible to prepare for the future and/or
alternative “futures” and align the enterprise accordingly. Unlike strategic
management, planning is not concerned with the development of strategic
goals and visions but rather deals with extrapolating present tendencies into
the future.
Hence, strategic planning provides guidelines and programs for the achieve-
ment of specific goals and visions. It specifies the basic conditions as well as
the scope for future business activities and is thus a key instrument for the
overall strategic management (Kropfberger, 1986). In line with Berry (1998),
five types of planning of varying depth can be conceptualized: (1) simple
financial plans; (2) planning based on forecasts; (3) externally oriented plan-
ning (the entrepreneur begins to think strategically); (4) proactive planning of
the corporate future (instead of reacting to market-based changes); and (5)
strategic planning as a systematic instrument of strategic management. The
investigation of young, small enterprises is of special interest since their strat-
egies have to be developed in a highly emergent way (Mintzberg, 1994),
reflecting their fast-changing requirements.

Characteristics of strategy development in SMEs

Many decision-makers in SMEs are convinced that real entrepreneurs do not
plan (Posner, 1985). Instead, it is assumed that they use their limited time
resources more effectively for operational or sales activities. Additionally,
112 Sascha Kraus, B. Sebastian Reiche and Carl Henning Reschke
formal planning is often regarded as limited to large enterprises and thus not
transferable to the requirements of the fast-moving and flexibly structured
SMEs. From an entrepreneur’s perspective, three major objections are
expressed against the use of strategic processes in SMEs (Esser, Höfner,
Kirsch and Wieselhuber, 1985; Füglistaller, Frey and Halter, 2003):

• Strategic instruments limit the flexibility and the ability for improvisation;
• It is preferable to use the limited time resources for operational, sales or
R&D activities rather than for strategy development processes;
• Strategic management is too bureaucratic.

At the same time, these authors acknowledge that especially in times of

increasing environmental dynamics and uncertainty it is vital to keep
informed about corporate goals and their attainment on a regular basis and
therefore view strategy development as a future investment. In this respect,
the main use of strategic planning lies in the predictability of possible future
scenarios and variations.
Although the majority of well-known strategy concepts have been
developed for large companies that generally display a higher level of aware-
ness for existing problems and hence allocate more resources to this topic,
some of these concepts and instruments also seem to be suitable for imple-
mentation in SMEs. A specific strategy concept for SMEs, however, needs to
account for their unique conditions and problems (Wirth, 1995).
As Table 8.1 illustrates, SMEs’ unique characteristics entail both problems
and opportunities for strategy development in SMEs (Füglistaller et al.,
2003). For example, compared to large companies SMEs tend to offer
a more limited range of products on a more limited number of markets
and use market penetration and product development strategies instead of
market development or diversification strategies. Moreover, since SMEs
mainly operate in a single or a limited number of markets with a limited
number of products or services – often even in a market niche – they usually
cannot afford central service departments that are able to conduct complex
market analyses and studies (Johnson and Scholes, 1997). In addition,

Table 8.1 Characteristics of SMEs

Problems Opportunities

– Limited resources, time and means – High customer proximity

– Limited know-how and
methodological knowledge
– Focus mainly on only one market or
product
– Potential overload for management
– High market knowledge
– Strong influence by the entrepreneur
(engine of change)
– High identification and motivation
of employees
– Quick implementation possible
 Implications of strategic planning in SMEs 113
they usually have a lower level of resources as well as lower access to human
and financial capital. As a result, particularly up to a certain “critical size”, the
application of formal planning mechanisms is often missing (Karagozoglu
and Lindell, 1998). The most important success factor for a small-business
owner is time. Consequently, it has a strong influence on the result of any
“activity-optimizing” considerations of the entrepreneur (e.g., Delmar
and Shane, 2003). Furthermore, the process of strategic decision-making
in SMEs is often based on experience, intuition or simply on guessing
(Welter, 2003).
Despite their relatively small market power, SMEs’ small size and flexibility
permits them to specialize in narrow niches that are generally uninteresting
for large companies due to the relatively small sales volumes and their high
fixed costs. In addition, SMEs’ limited resources result in a concentration on
a small product range where strong competitive advantages and specific
problem-solving competencies can be built up, for instance, with regard to
qualitative market leadership. Also, higher decision flexibility and direct
customer contacts are particularly helpful for the conversion of R&D results
into marketable innovations, although risks remain in terms of over-
dependency on only a few products and the resulting lack of loss compensa-
tion (Kropfberger, 1986).

Empirical evidence of strategic planning in SMEs

Methodology
As our review of the literature will show, present research on strategic
planning in SMEs is still in its infancy and reveals an insufficient level
of differentiation both concerning relevant enterprise characteristics and
compared to research on larger firms.
Our literature review is based on a comprehensive analysis of articles deal-
ing with planning/strategy in SMEs in the four leading entrepreneurship
journals (Katz, 2003): Entrepreneurship Theory and Practice, Journal of Busi-
ness Venturing, Journal of Small Business Management, and Small Business
Economics as well as the leading strategy journals: Strategic Management
Journal and Long Range Planning, over the last two decades.
We also included studies that were cited in these articles or that were
known to the authors, leading to a total of 29 studies (see Table 8.2). By
focusing on the most relevant journals, we believe we have chosen an
adequate basis for classifying the different strands of literature and thereby
refining our current understanding of strategic planning in SMEs.
Table 8.3 provides a more detailed overview of all studies included in our
analysis, specifying each study’s research design, sample characteristics and
main findings. From a methodological point of view, survey-based data
collection along with quantitative data analysis appears to be the most
frequently used approach. Although the studies differ in terms of focus and
114 Sascha Kraus, B. Sebastian Reiche and Carl Henning Reschke

Table 8.2 Bibliographic sources

Bibliographic source No. of studies Total (%)

included

Academy of Management Review* 1 3.45

American Journal of Small Business# 1 3.45
Entrepreneurship: Theory & Practice# 1 3.45
International Small Business Journal# 1 3.45
ifo-Schnelldienst* 1 3.45
Internationales Gewerbearchiv* 1 3.45
Journal of Business & Entrepreneurship# 1 3.45
Journal of Management Studies* 1 3.45
Journal of Small Business Management# 8 27.59
Journal of Business Strategies~ 1 3.45
Strategic Management Journal~ 3 10.34
Management Decision* 1 3.45
Small Business Economics# 2 6.90
Books, dissertations 4 13.79
Others (chapters in edited books, working papers, 2 6.90
conference proceedings, etc.)
Total 29 100

Note: * = General Management Journal, # = Entrepreneurship Journal, ~ = Strategy Journal.

scope, they offer a wide array of interesting partial results that we will elabor-
ate on in more detail in the following sections. Specifically, we will first exam-
ine the share of SMEs that plan strategically, comparing studies published in
German- and English-speaking outlets, and address the question of which
individuals are most likely to initiate planning activities. Subsequently, we
present evidence on the link between strategic planning and success and
finally discuss findings with regard to the effect of company size.

Results

The scope of strategic planning in SMEs

For the German-speaking countries, the following picture concerning strategic
planning in SMEs emerges: in their survey of 214 German industrial
enterprises Esser et al. (1985) found that instruments of strategic planning
are most frequently applied in the legal form of a limited (GmbH) and
incorporated (AG) company. Additionally, their results show a positive
correlation between a company’s workforce size and the use of strategic
planning activities.
Table 8.3 Overview of selected empirical studies on strategic planning in SMEs

Author(s) Sample size and characteristics Data collection Main findings

Bracker, Keats – N = 217 SMEs (> 5 years) with Survey – Positive relationship between type of planning
and Pearson < 100 employees from the US and financial success
(1988) – Industry: electronics
Carland, Carland – N = 368 SMEs with < 250 Survey – Positive relationship between personality
and Aby (1989) employees from the US (achievement orientation, risk and/or
inclination to innovate) and type of planning
(formal, informal, none)
Delmar and – N = 211 SMEs (new ventures) from Personal interviews – Planning increases the degree of product
Shane (2003) Sweden (telephone), Longitudinal development
study over 30 months – Planning increases the degree of corporate
organization
– Planning increases the probability of survival
of new ventures
Esser, Höfner, – N = 214 SMEs with < 500 Survey – 26.9% plan strategically
Kirsch and employees from Germany – The more employees the enterprise has, the
Wieselhuber more it plans strategically
(1985) – Strategic planning is to be found mostly in Ltd
(GmbH) and Inc. (AG)
Fröhlich and – N = 107 SMEs (max. 499 Personal interviews – 23% no planning, 31% short-term planning,
Pichler (1988) employees) from Austria 33% long-term planning, 12% strategic
planning
– 31% market penetration strategy, 27% product
development strategy, 15% market development
strategy, and 27% diversification strategy
(Continued overleaf )
Table 8.3 continued

Author(s) Sample size and characteristics Data collection Main findings

Gibb and Scott – N = 16 SMEs with < 50 employees Longitudinal case studies – Strategic planning in SMEs is project-
(1985) from the UK dependent and not formalized
– Strategic awareness and personal commitment
do not have a strong influence on strategic
planning
Gibson and – N = 3,554 SMEs with < 200 Survey (longitudinal) – More than 30% of the enterprises apply
Cassar (2002) employees from Australia documented planning, however only 50% of
those on an annual basis
– Larger companies plan more than smaller
ones
– The higher the level of education, the more
likely planning is
– The higher the number of years of
professional experience, the lower the
probability of planning
Haake (1987) – N = 127 SMEs (max. 499 Personal interviews – 27.9% had no written planning
employees) from Switzerland – 31.4% only used short-term planning
– Industry: clothing/apparel, food, – 26.9% used long-term planning
electronics – Only 13.7% engaged in strategic planning
Kargar and – N = 47 small banks from the US Survey – The advantages of strategic planning outweigh
Parnell (1996) the costs
– To renounce strategic planning means to
neglect a possible competitive advantage
– Effective strategic planning can mean higher
performance
Kropfberger – N = 262 (1st sample), N = 161 (2nd Survey – 31.7% no sales planning
(1986) sample) medium-sized enterprises – 49% only short-term planning (1 year), 27%
(50–500 employees) from Austria multi-year planning
– Industry: consumer goods (57.7%), – 39% long-term business policies
investment goods (35.1%) and others – Use of portfolio and life-cycle concepts: < 6%
(7.3%)
Küpper and – N = 240 SMEs (< 500 employees) Survey – Almost no long-term planning
Bronner (1995) from Germany – Product differentiation most frequent strategy
– Success depends on person
Leitner (2001) – N = 100 SMEs (50–500 employees) Personal interviews (with – Most frequent application: SWOT analysis
from Austria questionnaire) (55%), portfolio techniques and product cycle
– Industry: wood/furniture, analysis < 20%
chemicals/ synthetics, metal/ – Core competency planning in none of the
machinery examined enterprises
– 88% develop strategies due to experience, 31%
due to intuition
– 62% of the enterprises have a written
corporate policy
Lyles, Baird, Orris – N = 188 SMEs with < 500 Survey – Enterprises with formal planning have higher
and Kuratko employees from the US growth of revenues
(1993) – Strategic decision-making varies strongly
between formal and informal planners
Matthews and – N = 130 SMEs, founded < 1 year Survey – Extent and type of planning depend on the
Scott (1995) status of the enterprise (entrepreneurial or
traditional)
– The more uncertain the environment, the less
planning is conducted
(Continued overleaf )
Table 8.3 continued

Author(s) Sample size and characteristics Data collection Main findings

Naffziger and – N = 115 SMEs from the US Survey – More than 80% of the interviewed companies
Kuratko (1991) report to plan formally
– Areas for planning are predominantly
revenues, profit and efficiency
Naffziger and – N = 71 SMEs with < 500 employees Survey – 46.5% of the enterprises do not have written
Mueller (1999) from the US “vision/mission statement”
– 49% examine their goal achievement several
times a year
– Top management and CEO determine plans
O’Gorman and – N = 71 SMEs from Ireland Survey – Existence of a mission statement has no
Doran (1999) influence on corporate success
Olson and Bokor – N = 500 (fast-growing) SMEs from Survey – Approx. half of the fast-growing SMEs did
(1995) the US not have a formal business plan when founded
Orpen (1985) – N = 58 SMEs from the US Survey – Time frame for long-term planning has no
effect on success
– Personal attitude and extent of planning have
a positive effect on success
Piest (1994) – N = 154 SMEs with < 200 Survey – Comprehensiveness and type of planning are
employees from the Netherlands only rarely dependent on strategy types
– Industry: mechanical engineering
Risseeuw and – N = 1,211 estate agents from the Survey – Planning activities grow with increasing
Masurel (1994) Netherlands company size
– Positive, but only weak relationship between
strategic planning and success
Robinson and – N = 85 small banks from the US Survey – No significant relationship between formal/
Pearce (1983) informal planning and profit
Robinson and – Secondary evaluation of 50 studies Meta-analysis – Little formal planning in SMEs
Pearce (1984) – Planning usually short-term oriented
– Positive interrelation between strategic
planning and success
Robinson, Pearce, – N = 85 small enterprises from the Survey – Simple planning activities can already have a
Vozikis and US positive influence on the success of small
Mescon (1984) enterprises
Rue and Ibrahim – N = 253 SMEs with < 15 employees Survey – Positive relationship between written planning
(1998) from the US and sales growth
Scholz (1991) – N = 1,461 SMEs (50–199 Survey – 73% of the SME plan strategically
employees) from Germany
Schwenk and – Secondary evaluation of 26 studies Meta-analysis – Significant positive relationship between
Shrader (1993) planning and financial success
Sexton and Van – N = 357 SMEs from the US Survey – Strategic planning only in < 25% of the
Auken (1982) examined enterprises
– No strategic behaviour at all in approx. 20% of
the enterprises
Shuman and – N = 220 fast growing SMEs from Survey – Planning depends on the success of earlier
Seeger (1986) the US planning activities, current success and personal
attitude
120 Sascha Kraus, B. Sebastian Reiche and Carl Henning Reschke
Based on an analysis of 1461 German industrial enterprises, Scholz
(1991) identified a rate of 73 percent of SMEs indicating to plan strategically.
In contrast, the results from Austria and Switzerland look rather disillusion-
ing. Kropfberger (1986) revealed in a survey of 161 medium-sized enterprises
in Austria that nearly half of the enterprises under study plan on only a
short-term basis and that almost one third does not have any sales planning
at all.
Similarly, Fröhlich and Pichler (1988) found that almost one quarter of the
107 enterprises they investigated did not apply any planning, about one third
used only short-term and another third long-term planning, and only
12 percent used strategic planning. An almost identical picture shows up in
Switzerland, where Haake (1987) surveyed 127 SMEs from different indus-
tries: 27.9 percent of the enterprises applied no written planning, 31.4 percent
only short-term planning, 26.9 percent long-term planning and, finally,
13.7 percent strategic planning.
More than one decade later, Leitner (2001) presented a somewhat improved
situation: out of 100 Austrian SMEs from different industries, 62 percent
had established a written corporate policy. Nevertheless, strategy develop-
ment still seems to take place, to a large extent, intuitively (31 percent) or
due to experience (88 percent). Since most studies in the German-speaking
environment, however, were conducted in the 1980s, a considerable research
deficit exists in terms of more recent data.
Although studies in English publication outlets differ more in terms of
their research focus, the results look similar. In a study by Lyles et al. (1993),
71 out of 188 SME owners were reported to possess formal plans with a time
frame of at least three years. In another study by Naffziger and Kuratko
(1991), even 96 of 115 surveyed SME owners indicated formally planning and
setting functional goals. More recently, various studies have shown that
SMEs embark on planning activities, although often based on only intuition
or on a less sophisticated level (Naffziger and Mueller, 1999).
It seems likely to assume that top management possesses the primary
responsibility for the development of plans in SMEs, as demonstrated in an
investigation of 71 US enterprises (Naffziger and Mueller, 1999). In a similar
vein, Bracker and Pearson (1986) stress the importance of the entrepreneur’s
influence on strategic planning. The view that better trained or educated
entrepreneurs are more likely to think and act strategically is also well estab-
lished (e.g., Beutel, 1988).
Gibson and Cassar (2002), for instance, discovered in their study of
Australian SMEs that enterprise leaders with university degrees plan more
frequently than others. In addition, the study revealed that founders with
economic degrees are more likely to develop a business plan than founders
with other university degrees. Whether these characteristics, in turn, posi-
tively correlate with corporate growth and success is not clear, thus calling for
a more explicit inclusion in future research.
 Implications of strategic planning in SMEs 121
Strategic planning and success
Berman, Gordon and Sussmann (1997) argue that enterprises that plan
strategically obtain better financial results. This implies that expenditures
related to planning activities would be compensated financially. This hypoth-
esis was confirmed empirically several times. For example, Schwenk and
Shrader (1993) showed in their meta-analysis that the existence of strategic
planning is significantly positively correlated with an enterprise’s (financial)
success.
Similar results were obtained by Robinson and Pearce (1984) in an earlier
meta-analysis, Bracker and Pearson (1986) in an analysis of small enterprises
in the cleaning industry, Sexton and Van Auken (1982) in an investigation
of 357 small enterprises from Texas, Bracker et al. (1988) in a study of
217 managers of small electronics firms, and Orpen (1985) who examined
58 managers of small enterprises.
Furthermore, Matthews and Scott (1995) found that planning activities
can help to reduce the level of uncertainty in the company. Schwenk and
Shrader (1993) also came to the conclusion that strategic planning promotes
long-term thinking, reduces the focus on operational details and provides a
structure for the identification and evaluation of strategic alternatives. In
their analysis of 51 small enterprises in the US, Robinson, Pearce, Vozikis
and Mescon (1984) show that simple planning activities can already have a
positive influence on the success of small enterprises. Moreover, the process
of (formal) planning itself already seems to have a positive effect in that it
leads to a better understanding of the business and to a broader range of
strategic alternatives (Lyles et al., 1993).
Formal strategic planning (e.g., through the use of business plans) is also
thought to help young and fast-growing enterprises (Castrogiovanni, 1996).
For example, Delmar and Shane (2003) found in a longitudinal analysis that
new ventures conducting formal strategic planning have higher survival rates.
Finally, there is evidence that a more advanced and more detailed strategic
management increases corporate growth (Lyles et al., 1993). Conversely,
O’Gorman and Doran (1999) demonstrate empirically that the presence of a
formal mission or mission statement does not seem to have any direct influ-
ence on the performance of small enterprises.

Strategic planning and company size

Evidence from the studies suggests a link between company size (independent
of whether it is measured based on total capital, revenues, or number of
employees) and the use of strategic instruments (Esser et al., 1985; Haake,
1987). Robinson et al. (1984) also indicate that the type and degree of formal
planning are dependent on the company’s development stage. Matthews
and Scott (1995) even state that formalization is the most common dimension
of strategic planning. The formalization increases, according to their results,
122 Sascha Kraus, B. Sebastian Reiche and Carl Henning Reschke
with increasing enterprise growth since larger enterprises possess more
resources and internal differentiation.
This reasoning entails the notion that smaller companies possess fewer
resources in terms of time, personnel or knowledge and will thus carry out
less (formalized) planning activities (Robinson and Pearce, 1984). Risseeuw
and Masurel (1994) confirm their hypothesis that planning activities will
intensify with increasing enterprise growth in their study of 1211 real estate
agents in the Netherlands. In addition, they show that large enterprises plan
more intensively than small ones. However, the authors emphasize that young
enterprises tend to undertake more planning particularly in the initial phase
of the enterprise in order to raise external financial capital.

Synthesis: do SMEs really plan strategically?

From the previous discussion, it follows that planning in SMEs does not
always take place in a highly sophisticated or formal way. It often occurs
(at least sub- or unconsciously) as a sign of strategic thinking (Ohmae, 1982).
In this respect, Bracker and Pearson (1986) describe SMEs’ planning activ-
ities as ranging from an unstructured and informal approach (unstructured
planning, intuitive planning) to a more structured and formal approach
(structured operational planning, structured strategic planning).
Therefore, it remains to be seen whether SMEs do not plan “strategically”
at all or whether they just do not plan “in a formal way.” Along these lines,
Welter (2003) states that it is the quality of planning rather than strategic
planning per se that plays an important role. Indeed, planning in SMEs
seems to be rather unstructured, sporadic, incremental and often not
formalized. This suggests a rather systemic type of thinking by the entre-
preneur/entrepreneurial team which might be imprinted on the organization
for years to come. The actual process of decision-making that can be
observed in reality often deviates substantially from the ideal picture of
rationality. To relate this to our initial definition of strategic management and
planning, in this process entrepreneurs might engage too much in (informal)
strategic management as vision development while neglecting “bread and
butter” planning (see the characterization of visionary entrepreneurs in
Reschke 2005).
In addition, it seems reasonable to assume that each form of planning,
whether it is conscious or unconscious, formal or informal, positively affects
entrepreneurial success. The implementation of strategic planning, therefore,
seems to be favourable independent of company size, although a positive
relationship between increasing company size and the implementation of
(structured and formalized) instruments of strategic management appears to
exist (Haake, 1987). This finding is likely to be correlated with – if not caused
by – the increasing need to reduce uncertainty about an enterprise’s role in its
environment and the growing ability to cope with matters in a “mechanistic”
fashion.
 Implications of strategic planning in SMEs 123
Building on these arguments, it can be assumed that people in most SMEs
think strategically. A conscious or formal strategic process, however, mostly
takes place in the heads of a very limited number of employees. Due to the
well-accepted view that strategies limit an SME’s scope of activity too much,
thereby reducing its flexibility, many SMEs are still lacking written strategic
plans (Pleitner, 1986).
In addition, there are other reasons that may explain why SMEs refuse
to engage in formal strategic planning, such as insufficient knowledge, dis-
trust, and rejection of external assistance, tradition-based thinking, and fear
of radical change, high costs and lack of time or management overload
(Scharpe, 1992; Robinson and Pearce, 1984). In this regard, Gibb and Scott
(1985) are of the opinion that strategic awareness and the involvement of
the entrepreneur offsets the lack of formal strategic planning as an output
of strategic management. The degree of an entrepreneur’s strategic orienta-
tion thus seems to be a key factor for the strategic focus of the enterprise
(Mazzarol, 2003).

Discussion
Despite the fact that small and large enterprises differ considerably in terms
of size and type of resources, we have shown that decision-makers of SMEs
also apply planning, although in many cases rather intuitively and/or infor-
mally. Given that the link between the use of strategic instruments and cor-
porate success seems to be also prevalent in SMEs, it is essential to foster a
mutually respective awareness among entrepreneurs.
Since SMEs are different to small-sized large enterprises, the existing con-
cepts and instruments have to be adapted accordingly. It appears doubtful to
develop “standard” strategies and instruments that are equally effective in
large companies and SMEs. Thus, to make strategic planning in SMEs
worthwhile, the respective instruments have to be aligned with the cultural,
organizational and financial conditions of the specific enterprise in order to
be successful.
Since the position of SMEs, in particular that of young enterprises, is often
less proven and their strategies less explored over time, planning tools will
need to allow SMEs to primarily deal with external uncertainty and complex-
ity, thereby enabling them to build their vision, and to find and expand their
niche. Larger organizations, in contrast, will mainly need strategic tools to
cope with their internal complexity.
Therefore, it could be argued that there are several counteracting forces at
work with regard to the need for strategic (“vision”) management and
(“bureaucratic”) planning tools in the development from a small to a large
enterprise: external uncertainty and complexity will diminish, thus requir-
ing less exploration and testing of alternative courses of action. At the
same time, internal complexity is likely to increase and adaptability to
124 Sascha Kraus, B. Sebastian Reiche and Carl Henning Reschke
decline, which requires more detailed planning of how to implement strategic
actions.
Also, uncertainty about an enterprise’s vision will decrease. Accordingly,
we posit that young enterprises and SMEs practically engage in strategic
management, while they lack bureaucratic implementation and control of the
required measures. In contrast, large established organizations routinely
implement planning and control but lack the agility, visionary impetus and
flexibility, which is why they need explicit strategic management tools.
Table 8.4 separates some of the relevant enterprise characteristics in an
illustrative way. The differentiated consideration of these factors is even more
important, as SMEs, compared to large companies, commonly boast a
higher level of heterogeneity regarding size and development stage (Wirth,
1995).
As shown in Table 8.4, the enterprise characteristics differ significantly
between young and small firms on the one hand and established large, old
companies on the other, and so do the strategic imperatives that can be
derived for each type of enterprise. In practice, several other categories of
enterprises exist on this continuum (e.g., medium-sized and young, small and
old, medium-sized and old), each with its unique strategic requirements.
Furthermore, entrepreneurs’ roles and their attitudes towards concepts
of strategic planning are often critical in SMEs. Planning is an activity with-
out direct returns and is sometimes hard to justify psychologically, if cus-
tomers are both flocking to the company and hard to attract, and marketing
and sales activities appear more important. It seems, therefore, that the cen-
tral question is not whether strategic planning in SMEs is fruitful, but for
which groups of SMEs and under which circumstances it is worthwhile.

Table 8.4 Enterprise characteristics and strategic planning vs. management

Enterprise type

Characteristic Small, young Established, large, old

Business model Unproven Proven

Organization Flexible Inflexible
Resources Scarce Abundant
Complexity External Internal
Employees Dedicated Unmotivated
Customers Elusive Captured
Strategic imperative Learn, network and prove Differentiate and defend
yourself
DO Visionary strategic Strategic planning
management
NEED (More) planning (More) visionary strategic
management
 Implications of strategic planning in SMEs 125
A possible avenue for future research could thus focus on identifying different
configurations or clusters of comparable enterprises with particular stra-
tegic needs over the lifetime of industrial and organizational development
(Reschke and Kraus, 2005).
The earlier notion that there are differences in strategic goals between small
and larger enterprises entails the need to also differentiate between the goals
of different small enterprises. Generally speaking, goals depend on the spe-
cific conditions of an enterprise and its market niches. Within the scope of
investigating SMEs’ strategic instruments this should be considered. Likewise,
a distinction between types of SMEs is clearly needed, at least in terms of age
and market situation. While public interest mainly concentrates on SMEs as
potential generators of growth, only a subset of these enterprises will essen-
tially fulfil this role, thereby highlighting another differentiating factor.
Overall, it is plausible to assume that the problems of different SME types
will vary. Thus, the procedural instructions and instruments for these enter-
prises will vary accordingly and have to be tailored to the individual case.
This implies that there will also be differences in terms of necessary and/or
suitable instruments of strategic planning and their resulting output. Con-
sequently, the measurable economic success of an enterprise and thus the
correlation between economic success and the use of planning instruments
will also depend on the particular type of enterprise. For example, consider-
able strategic differences exist between small, mature enterprises in a stable
and specialized niche and young, growth-oriented enterprises.
While the former aim at securing their market position, further developing
their technology and closely satisfying their customers’ needs to increase
profits, young enterprises will – after testing the functional capacity of their
business model and their niche – shift their focus towards extending the mar-
ket niche and their respective market share as soon as possible. This situation
requires tools that focus much more on learning and sense-making (Weick,
1987) for young enterprises than they do for mature ones. In particular, young
enterprises need to prove their vision correct or adapt it to changing condi-
tions. It would be desirable if these tools allowed for an easy implementation
of the necessary planning activities and are integrated with “vision develop-
ment and testing.” The latter issue amounts to untangling a complex inter-
related problem that might be alleviated by a computerized tool for analysis
(Reschke, 2004).
Additionally, young enterprises have a strategic interest in demonstrating
and actively communicating the value of their product and their approach to
get access to possible customers. This is likely to encompass initial cooper-
ation building with competitors in the same market niche to benefit on a
larger scale through raising the awareness of customers and other stake-
holders. Activities like forming associations or organizing conferences can
serve as facilitators. After the market niche is established, a further develop-
ment of the niche then enables a company to differentiate itself from its
competitors (Henderson, 1989).
126 Sascha Kraus, B. Sebastian Reiche and Carl Henning Reschke
Applying economic reasoning to the question of why there is less planning
in SMEs, different conclusions emerge: first, it can be argued that planning,
in comparison to operational activities, results in less tangible outputs and is
therefore discarded in SMEs. Also, psychological factors might play a role in
that the bonus associated with operational activities is higher than for plan-
ning activities. Third, the pressure to address immediate problems and
accomplish high-priority tasks might be so strong that planning activities are
removed from the agenda.

Conclusions and implications for future research

The selected empirical studies entail numerous limitations that need to be
taken care of in future research. First, they are often limited to those enter-
prises that have already been identified as conducting strategic planning or to
the surviving enterprises, whereas failed companies are often not considered
(“survivor bias”). Second, the studies’ response rates are usually small. Thus,
it can be assumed that questionnaires are mainly returned by those enter-
prises in which people think and/or plan strategically.
The identified share of firms that use strategic management instruments
might therefore be artificially inflated. Third, the aggregation of single func-
tional plans is usually a sufficient condition for categorizing an SME as
planning strategically, which is of only little value. Fourth, existing investiga-
tions are difficult to compare due to their differences in terms of enterprise
type, industry, sample size, company size or time period. Fifth, the studies are
often limited to one industry only, which reduces their potential to derive
generalizable inferences.
Thus, it would be interesting to examine whether there are differences in
the degree of strategic planning with regard to industry affiliation. It seems
plausible that strategic planning will be less relevant in industries in which
product development and order processing have a shorter time frame (e.g. in
the services industry) or in industries with a generally smaller range of prod-
ucts. Particularly for the German-speaking countries, a clear deficit can be
identified concerning strategy research in SMEs.
In addition, more detailed research on psychological determinants and
their relation to entrepreneurs’ implementation of strategic planning versus
visionary strategic management under different conditions of environmental
and internal stress is highly desirable. This issue is related to the goals of the
entrepreneur. Planning activities should be more prevalent and of higher
quality, if the entrepreneur cares about his or her enterprise and does not
“just” become an entrepreneur to satisfy requirements for receiving subsidies
or welfare programs. Bureaucratic planning and visionary strategic manage-
ment seem to operate in different dimensions and seem to vary over the life
cycle of an enterprise.
The untangling of the different influences behind the characteristics illus-
trated in Table 8.4 requires further detailed investigation. In a similar vein,
 Implications of strategic planning in SMEs 127
the dividing line between operational and strategic planning might become
less visible when different types of companies are examined. It can be argued
that enterprises of relatively smaller size need to plan less strategically
because they are more flexible and therefore can adapt much faster to changes
in their immediate environment. This would entail differences in the time
frames of strategic planning between SMEs and large companies.
Our literature analysis indicates that strategic planning in SMEs is subject
to unique characteristics and influences. Although a high relevance of stra-
tegic planning in the context of SME management exists, its extent and
design differ from larger companies. Accordingly, research needs to devote
more time to analyze the idiosyncrasies of this corporate sector in order
to advance our understanding of strategic planning in SMEs and derive
valuable recommendations for research and practice.
9 Performance and
entrepreneurial orientation in
small firms: the moderating
effects of strategy, structure,
human resource policies and
information systems
Isabel Gutiérrez, Ester Martínez-Ros and
Julio O. De Castro

Introduction
This chapter examines the impact of Entrepreneurial Orientation (EO) on
performance in small and medium-sized enterprises (SMEs) by focusing on
the relationship between innovation and entrepreneurial activity. Both the
entrepreneurship and strategy literatures suggest that an EO improves firms’
performance, but the empirical results are mixed. Our empirical study of a
sample of SMEs competing in the Spanish chemical industry shows that a
main-effect analysis provides an incomplete explanation of performance.
Instead, we use a multidimensional conceptualization of entrepreneurial ori-
entation to show how strategy, organizational structure, and information
systems interact with EO levels to affect performance.
The findings also offer insight into how the effects of entrepreneurial orien-
tation are moderated by the complex balance between generic strategies and
policies that protect innovation. The Entrepreneurial Orientation (EO) of a
firm is defined as its predisposition to engage in behaviors that lead to change
in the organization of the marketplace. An entrepreneurial organization
concentrates on encouraging creative behavior among employees and thus
benefits by initiating development of new products, processes or systems that
maintain and increase its presence in the marketplace.
Entrepreneurial orientation concerns the “methods, practices and decision-
making styles managers use” (Lumpkin and Dess, 1996: 136). An entre-
preneurial orientation encourages what Birkinshaw (1997) called “dispersed”
entrepreneurship, the involvement of multiple management levels in for-
mulating and implementing entrepreneurial strategies. An entrepreneurial
orientation is not created by top executives, but reflects the strategic posture
exhibited by multiple layers of management.
Historically, the literature emphasized three entrepreneurial qualities: inno-
vativeness, risk taking, and proactiveness (e.g., Miller, 1983; Covin and Slevin,
 Performance and entrepreneurial orientation in small firms 129
1989). More recently, Lumpkin and Dess (1996) added autonomy and com-
petitive aggressiveness to this set in an attempt to capture the full range of
behaviors that lead to change in the organization or marketplace.
Thus entrepreneurial orientation is now conceptualized as having any-
where from three to five dimensions, which vary independently (Lumpkin and
Dess, 1996) and have different moderating effects on the relationship between
management diversity and performance. An organization may exhibit rela-
tively high levels of one or more dimensions and, at the same time, relatively
low levels of others (Lyon, Lumpkin and Dess, 2000). Research has extended
this framework in several ways. First, some researchers have refined meas-
urement instruments both conceptually (Lyon, Lumpkin and Dess, 2000)
and empirically (Brown, Davidsson and Wiklund, 2001). Second, other
investigators have expanded the pioneer contribution of Miller (1983), who
introduced the configurational approach to profiling organizations (e.g.,
Mertz and Sauber, 1995; Jambulingam, Kathuria and Doucette, 2005).
Finally, more and more empirical studies have examined the impact of entre-
preneurial orientation on overall firm outcomes, such as return on equity/
assets/sales (Miller and Bromiley, 1990; Zahra and Covin, 1995), growth of
the firm (Matsuno, Mentzer and Özsomer, 2002; Wiklund, 1999; Zahra and
Covin, 1995), and innovation performance (Atuahene-Gima and Ko, 2001;
Matsuno, Mentzer and Özsomer, 2002).
The empirical evidence on the effect of EO on performance is mixed; thus
various researchers have explored organizational and environmental factors
that might mediate or moderate the link: market orientation (Matsuno,
Mentzer and Özsomer, 2002; Atuahene-Gima and Ko, 2001), access to finan-
cial resources (Wiklund and Shepherd, 2005; O’Shea, Allen, Chevalier and
Roche, 2005), national culture (Marino, Strandholm, Steensma and Weaver,
2002), diversity in management teams (Richard, Barnett, Dwyer and Chad-
wick, 2004) or knowledge-based resources (Wiklund and Shepherd, 2003).
This chapter addresses firm-internal factors affecting the relationship
between EO and performance. First, we contribute to the configurational
approach by inferring different business profiles related to EO. Second, follow-
ing contingency and configurational methodological approaches, we deter-
mine both the direct and the moderating effects of strategy, organizational
structure, human resources practices, and information-control systems on
business performance. We introduce into the traditional framework new
elements like the role of patenting and the influence of information systems.
We provide additional evidence on how the different dimensions influence
the business performance. Finally, we contribute to the extant literature by
combining primary survey data with financial accounting figures obtained
from the Spanish Mercantile Register, a database of Spanish limited
companies.
Previous empirical analyses have been based for the most part on surveys
reporting managers’ subjective opinions regarding performance. For this
study, we used a sample of 138 SMEs in the chemical sector in Spain. The rest
130 Isabel Gutiérrez, Ester Martínez-Ros and Julio O. De Castro
of this chapter is organized as follows. First, we briefly review the relation-
ship between entrepreneurial orientation and firm performance. Second, we
describe the organizational factors influencing this relationship. Third, we
explain the empirical setting, variables and results. Finally, we present the
discussion and conclusions.

Entrepreneurial orientation and firm performance

In accord with previous research (Lumpkin and Dess, 1996), we focus on four
dimensions of entrepreneurial orientation: innovativeness, proactiveness, risk
taking and autonomy. We view these dimensions as interacting with strategy,
organizational structure, human resource practices and information systems
to affect firms’ performance. Innovative companies creating and introducing
new products, services and technologies generate above-average economic
returns and have been considered as the engines of economic development.
Innovativeness is the firm’s propensity to actively support new ideas, experi-
mentation, and creative solutions in pursuit of a competitive advantage
(Lumpkin and Dess, 1996).
An innovative strategic posture is thought to improve firm performance by
increasing the chances that a firm will realize first-mover advantages and
capitalize on emerging market opportunities (Wiklund, 1999). Innovativeness
has been recognized as a necessary (Covin and Miles, 1999) but not sufficient
(Miller, 1983; Covin and Slevin, 1991; Lumpkin and Dess, 1996) condition
for entrepreneurial orientation.
Proactiveness is the firm’s propensity to take the initiative to compete
aggressively with other firms (Covin and Slevin, 1989). Proactive companies
create first-mover advantages, target premium market segments, and “skin” the
market ahead of competitors (Zahra and Covin, 1995). Whereas innovative-
ness involves new product development, market proactiveness involves mar-
ket penetration and market development. Risk taking is a firm’s propensity to
take business-related chances in the face of uncertainty.
Companies that take risks leading to performance variation may be
more profitable in the long run (McGrath, 2001). Both risk-taking and
proactiveness require a firm to make quick decisions and compete aggres-
sively. Timeliness may be a key factor, as strategic decision speed has
been linked to firm performance (Eisenhardt, 1989). Finally, autonomy is the
freedom of individuals or teams to exercise their creativity: “the independent
action of any individual or a team in bringing forth an idea or vision
and carrying it through to completion of opportunities” (Lumpkin and
Dess, 1996).
Miller (1983) emphasized the relationship between environmental charac-
teristics and the dimensions of entrepreneurial orientation by introducing
the configurational approach into this field of study. This approach assumes
that firms that can align certain attributes with the characteristics of the
environment outperform other firms (Ketchen, Thomas and Snow, 1993).
 Performance and entrepreneurial orientation in small firms 131
Firms that fail to achieve such alignment will eventually be out-competed.
A limited number of configurations of firm and environmental attributes
can be used to describe a large proportion of high-performing firms (Miller
and Toulouse, 1986 Miller, 1996). Empirically, the configurations we are
interested in can be represented as the interaction of EO with elements of
structure and strategy.
Lumpkin and Dess (1996) theoretically introduced independent, moderat-
ing and mediating factors that affect the relationship between EO and perfor-
mance. In this chapter, we explore empirically the internal factors that can
affect the ties between EO and performance: strategy, organizational structure,
human resource practices and information systems. These factors moderate
the EO-performance relationship. In this analysis we use a configurational
approach to the phenomenon.

Strategy
For this study we conceptualized firm strategy in three ways: generic
competitive strategy, cooperative strategy and technological strategy. Porter
(1980) outlines the three main strategic options open to organizations that
wish to achieve a sustainable competitive advantage. Porter’s analysis looked
for the sources of competitive advantage by answering two questions: “Are
the products differentiated in any way, or is the firm simply the lowest-cost
producer in an industry?” and “Does the company target a wide market,
or does it focus on a very narrow, niche market?” We focus on the first of
these questions.

Firm strategy
In cost leadership, a firm sets out to become the lowest-cost producer in its
industry. The sources of cost advantage are varied and depend on the struc-
ture of the industry. They may include economies of scale, proprietary tech-
nology, preferential access to raw materials, and other factors. A low-cost
producer must find and exploit all sources of cost advantage. If a firm can
achieve and sustain overall cost leadership, then it will be an above-average
performer in its industry, provided it can command prices at or near the
industry average. In a differentiation strategy a firm seeks to be unique in its
industry in terms of some attribute(s) for which many buyers will pay a
premium price. EO’s high propensity for innovation fits better with this sec-
ond strategy. However, Dess, Lumpkin and Covin (1997) found that when
matched with high environmental uncertainty, a low-cost strategy can also
yield high performance.
132 Isabel Gutiérrez, Ester Martínez-Ros and Julio O. De Castro
Cooperative strategy: strategic alliances
Even in today’s environment of rapid technological evolution, globaliza-
tion, and progressively sophisticated competitors, firms with abundant slack
resources to invest can build competencies to survive and prosper. However,
many SMEs do not directly control sufficient resources to make the necessary
investments, and so may find themselves at a competitive disadvantage rela-
tive to their larger rivals. To compensate, SMEs may leverage strategic alli-
ances. An organizational competency focused on forming and managing these
cooperative agreements can serve as the basis for a sustainable competitive
advantage (Dyer and Singh, 1998).
For example, start-up firms that form an efficient network of agreements
which provide access to diverse information sources and a large amount of
resources per alliance initially perform better than those that do not develop
such a network (Baum, Calabrese and Silverman, 2000). And innovative
firms are more likely to enter into a greater number and variety of linkages than
other organizations (Ramachandran and Ramnarayan, 1993). Marino et al.
(2002) found that firms with higher levels of entrepreneurial orientation use
strategic alliances more extensively than those with a weaker entrepreneurial
orientation.

Technological strategy: patenting

The protection of innovation is a controversial topic. Economic analysis of
the patent system has traditionally focused on how to adjust the length and
breadth of patent protection in order to optimally balance static welfare
losses and dynamic welfare gains. This stream of literature used patent race
models in which the firms involved were maximizing the expected revenues
from future monopolies. More recently, some authors and managers have
argued that the patent system promotes neither creativity nor innovation;
patents typically come long after the fact and serve as a disincentive rather
than an incentive to innovate.
Hall and Ziedonis (2001) present very large surveys of private R&D divi-
sions that strongly support the hypothesis that modern companies judge
patents a poor tool to protect innovation. In fact, when asked to rank differ-
ent methods for protecting innovative products and processes, R&D man-
agers usually rank patents behind industrial secrecy, lead time or the use of
complementary assets. This opinion is shared by many research economists,
like Harhoff and Reitzig (2002) and Hall and Ziedonis (2001), who argue for
a reform of the patenting system.
This position can be affected by both the industry and the type of innov-
ation. Patents make more sense in industries that feature high costs of devel-
opment and long lead times, like the pharmaceutical industry, than in other
industries where the product is obsolete by the time it gets out the door.
Additionally, Gans and Stern (2003) demonstrate that patents are useful for
 Performance and entrepreneurial orientation in small firms 133
SMEs that can sell technologies in addition to products or services, but only
in those industries where technology markets are efficient. Nerkar and Shane
(2003) found that patents are crucial to induce and protect radical innovation
by start-ups. Conversely, patents with wide scope are dangerous for entrepre-
neurship because they inhibit the exploitation of new business opportunities.
The relationship among innovation protection, entrepreneurial orientation
and performance remains unexplored.

Organizational structure
Covin and Slevin (1990) highlighted organizational structure as a critical
condition of entrepreneurship. To recognize new opportunities and turn
business ideas into realities, the firm must have an appropriate organizational
structure. Defining organizational structure as the arrangement of workflow,
communication, and authority relationships within an organization, they
argue that all these can have a major impact on entrepreneurial activity. In
order to be capable of responding to changes in a dynamic environment,
entrepreneurial firms often adopt a flexible, “organic” structure characterized
by low formalization and low centralization.
Formalization is defined as “the emphasis placed within the organization
on following specific rules and procedures in performing one’s job”; central-
ization refers to the amount of responsibility and authority delegated.
Greater formalization and centralization produce uniformity of policy and
actions lessen risks of errors by personnel who lack either information or
skill, use the skills of central and specialized experts and enable closer control
of operations. Conversely, less formalization and less centralization tend to
lead to speedier decisions and actions at any hierarchical level, and such
decisions are more likely to be adapted to individual situations.
Miles and Arnold (1991) and Russell (1999) have identified positive associ-
ations between decentralized structure and entrepreneurial orientation, and
have explained these associations in terms of increased autonomy and con-
trol over resources, which enable organization members to initiate and test
more innovative ventures. These authors claim that a decentralized, informal
structure empowers lower-level managers, initiating increased participation
from team members and thus promising innovation. Formal checks, controls
and rigid structures, in contrast, tend to inhibit entrepreneurial behavior and
limit individual performance.
Departmentalization or specialization generally refers to the extent to
which a breadth of tasks is confined to a predetermined domain (Mintzberg,
1979). Although departmentalization is sometimes measured as the
number of departments into which organizational tasks are partitioned
and compartmentalized, perhaps the sheer number of departments may not
matter as much as the existence (or lack) of departmental interaction – the
degree of formal and informal direct contact among employees across
departments.
134 Isabel Gutiérrez, Ester Martínez-Ros and Julio O. De Castro
The research described below explored the effect of a specialized organiza-
tional unit devoted to championing innovation. While it is generally believed
that a greater degree of formalization and centralization is inconsistent with
entrepreneurial management, this notion has received only limited empirical
support (e.g., Caruana, Morris and Vella, 1998). And the effect of a special-
ized unit devoted to innovation is an open question.

Human resource practices

Schuler (1986) suggests that entrepreneurially oriented firms have human
resource practices that explicitly foster innovative and risky behavior and that
enable employees to keep up with changing technologies. Similarly, the litera-
ture on market orientation (Atahuene-Gima and Ko, 2001) suggest that
market-oriented firms develop human resource practices congruent with this
orientation. Thus firms that have both market and entrepreneurial orienta-
tions should exhibit not only greater direct management support for innov-
ation, but also human resource practices that place a premium on innovative
behavior. Following this logic, we expect that entrepreneurially oriented firms
will have more explicit human resource strategies to enhance innovation than
other types of firm (Schuler, 1986).

Control and information systems

According to Simons (2000), control systems play an important role in the
management of every decision-making process. Control and information
systems must balance empowerment with control, in such a way that
empowerment does not lead to control failure (by, for example, enabling
dysfunctional behaviors from subordinates), and that control does not
lead to empowerment failure (by inhibiting an innovative, opportunity-
seeking spirit). Successful implementation of those control and information
systems depends on the leadership’s ability to create an innovative and
supportive culture that motivates organizational members to belong and
contribute.
By emphasizing real-time communication and information sharing, entre-
preneurs increase their organizations’ ability to make decisions and take
actions quickly (Nicholls-Nixon, 2005). They use information systems
to enhance competencies and adapt expectations to fast-changing conditions,
rather than to establish control or sanction people for failure to meet
standards.
 Performance and entrepreneurial orientation in small firms 135
Empirical analysis

Data
Our framework is tested on a sample of firms competing in the Spanish
chemical industry. The sample frame was elaborated from the SABI database,
which contains financial and accounting information from the annual reports
of limited businesses listed in the Mercantile Register of Spain and provides
consolidated accounts. SABI lists approximately 1100 chemical firms. We sent
a postal questionnaire to 1075 limited liability companies for the year 2003.
This self-report questionnaire, addressed specifically to CEOs, asked qualita-
tive questions about strategy, innovation activities, organizational charac-
teristics, human resources policies, and information systems. The global
percentage of response was around 17 percent, similar to response rates in
other studies.
We merged the two data sets to combine qualitative variables with quantita-
tive variables (sales, employment, and profitability). Sub-sectors were identi-
fiable to within four digits of the codes in the Spanish National Classification
of Economic Activities. Descriptive statistics show that most firms are mainly
producers of pharmaceuticals, paints and detergents products. Our prelimin-
ary sample contained 177 firms distributed around Spanish territory.
Although we did not intentionally restrict the sample to SMEs, 86 percent
of the firms included in this sample fell into this category of organization; we
had 25 large firms (more than 200 workers) and 152 small and medium firms
(fewer than 200 workers). We reduced our final sample to 138 firms because
of missing responses on some questions and because we finally restricted
the analysis to manufacturing and small and medium companies (fewer than
200 employees).

Methods
We used two different types of methods. First, we conducted a statistical
descriptive analysis to configure firms into clusters with different profiles,
following the procedure used by Jambulingam, Kathuria and Doucette (2005)
and Mertz and Sauber (1995). We identified four clusters of firms. Univariate
F-tests on each clustering variable indicated statistically significant differ-
ences across the four clusters in the coefficients for all variables except
cooperation. In a second analysis, we examined the influences of EO and
moderating factors over performance. We used hierarchical regressions
(Wiklund and Shepherd, 2005; Bagozzi, 1984; Cohen and Cohen, 1983) to
test whether the universal, contingency, or configurational model best fit the
data. Specifically, we constructed the models as follows:

• Control model: Performance = f (control variables); Universal model:

Performance = (EO, moderating factors);
136 Isabel Gutiérrez, Ester Martínez-Ros and Julio O. De Castro

• Contingency model: Performance = f (EO, moderating factors, EO* each

moderating factor);
• Configuration model: Performance = f (EO, moderating factors, EO*
each moderating factor, EO* all moderating factors).

The hierarchical approach is appropriate for analyzing multiplicative terms

in regression analysis or, more generally, for analyzing highly correlated
independent variables (Bagozzi, 1984; Cohen and Cohen, 1983). The validity
of the procedure has been shown mathematically as well as in computer
simulations. In each step of the hierarchical analysis, the next higher order of
interaction is added, and incremental R2- and F-tests of statistical signifi-
cance are evaluated.
An interaction effect exists if, and only if, the interaction term gives a
significant contribution over and above the direct effects of the independent
variables. The magnitude of higher-order regression coefficients (as opposed
to their statistical significance) cannot be evaluated separately from that of
lower-order terms. Typically, assessment of how significant interactions affect
the dependent variable is done by entering selected values of the interaction
terms into the regression equation.

Variables and measures

Performance
We proxy business performance by the growth in ROA (return on assets), fol-
lowing the consensus in the literature (Brush and VanderWerf, 1992; Chandler
and Hanks, 1993; Wiklund and Shepherd, 2005). ROA growth is calculated as
the percentage difference between the value of ROA in 2003 and 2004.

Entrepreneurial orientation
Following Lumpkin and Dess’s (1996) definition of EO, we measure four
dimensions of it on a five-point scale, except for innovativeness, where we use
two dummy variables. Innovativeness equals 1 if the firm develops and intro-
duces new products, 0 otherwise; and equals 1 if the firm develops and intro-
duces new processes, 0 otherwise. Proactiveness measures whether the firm
revises and questions the strategy process to foster innovation. Risk-taking
measures, first, whether innovation projects are financed only in the short
term and, second, whether the pressure for short-term results does not
impede innovation.
Autonomy measures whether employees share and interchange informa-
tion and use the suggestion box. In the present study, the scale achieves good
reliability (Cronbach’s α values of 0.86). Information about measures and
simple descriptive statistics are reported in Table 9.1.
 Performance and entrepreneurial orientation in small firms 137

Table 9.1 Measures of variables and descriptive statistics

Scale items Mean Std dev.

ENTREPRENEURIAL ORIENTATION (α = 0.860)

Innovativeness 0.796 0.422

We develop and introduce new products
We develop and introduce new processes
Proactiveness 3.920 0.829
We revise and question the strategy process to enforce
innovation
Risk taking
Innovation projects are financed only when there is a short-term 2.722 0.675
returnR
Pressure for short-term results does not impede innovation
Autonomy
Our employees share and interchange information and use the 3.522 0.632
suggestions box
Firm strategy (α = 0.610)
Generic (α = 0.728)
Innovation objectives are leading to market orientation 4.161 0.574
Innovation objectives are leading to efficiency costs 3.224 1.011
Technology (α = 0.733)
Innovation is protected by patents 0.355 0.371
Innovation is protected by licenses 3.213 1.123
Organizational design (α = 0.601)
Unit differentiation (α = 0.833)
Innovation is organized using a department with its own plans 3.550 1.125
and its own budget
Organic structure (α = 0.713)
There are no symbols of status and hierarchical levels 3.563 0.504
Workplace design is flexible
Human resources (α = 0.873)
Policies (α = 0.784)
We have explicit policies for selection, recruiting, evaluation and 3.609 0.628
recognition
Cooperation (α = 0.826)
We encourage our employees to cooperate and work together as 3.505 0.639
a team
Information systems (α = 0.786)
Computerization (α = 0.842)
We use high levels of computerization in administrative tasks, 4.275 0.595
stock, supply chain management and other activities
ERP use (mean = 64%) 0.613 0.488
We use ERP systems
Accessibility (α = 0.688) 3.632 0.730
Our information systems are available and easy to use

Notes:
a All items used Likert-type five-point scales anchored by strongly disagree (1) and strongly
agree (5).
b R denotes reverse-coded item.
138 Isabel Gutiérrez, Ester Martínez-Ros and Julio O. De Castro
Moderating factors
Firm strategy is calculated using four items aggregated to two types of strat-
egies: generic (whether the firm’s innovation objectives are addressed to
market orientation/product differentiation or cost leadership-efficiency), with
a Cronbach’s α value of 0.73, and technological (whether innovations are
protected by patents or by license agreements), with a Cronbach’s α value
of 0.73.
Organizational design is measured using two dimensions: unit differen-
tiation and organic structure. Unit differentiation captures whether innov-
ation activities are organized in a specialized department with its own plans
and its own budget (Cronbach’s α value of 0.83). Organic structure captures
both the effect of a flexible design of the workplace and ambiguity in hier-
archical levels (Cronbach’s α value of 0.71). Human resources factors are
measured by two items: personnel management policies and cooperation.
Policies measure the existence of explicit firm policies for selection, recruit-
ing, evaluation and recognition (Cronbach’s α value of 0.78); cooperation
measures whether the firm encourages employees to cooperate and work in
teams (Cronbach’s α value of 0.83).
Information systems are introduced through three types of measures.
Computerization indicates the level of computer use in administrative tasks,
stocks, supply chain management, and other activities (Cronbach’s α value of
0.84). Use of ERP systems (Enterprise Resource Planning) is measured by a
dummy variable that equals 1 if the firm uses ERP systems, 0 otherwise.
Accessibility is defined as ease of use and availability of the information
systems (Cronbach’s α value of 0.69).

Control variables
We control for the effects of age, size and environment on performance. Age
is the number of years from the legal founding of the firm until 2003. To
measure size, we construct three dummy variables (fewer than 50 employees,
between 50 and 100, more than 100). To capture the differences in en-
vironmental effects (munificence, dynamism and hospitality) that are
typically addressed in both contingency and configurational models, we
define the variable industry. We use the three-digit industry classification
reported in the SABI database to construct a density variable composed of 10
sub-sectors. The distribution of these sub-sectors is reported in Table 9.2,
which shows that our sample are concentrated in the manufacturing chemical
products sector (22 percent) and the manufacturing paint and varnish sector
(20 percent).
Finally, region or geographic scope is measured as 14 dummy variables
corresponding to the autonomous governments within Spain. The correl-
ations among the variables are shown in Table 9.3.
 Performance and entrepreneurial orientation in small firms 139

Table 9.2 Distribution of sample according to industry

CODE Description Distribution % Number

232 Petroleum components 0.7 13

240 Chemical industry 1.4 8
241 Manufacturing basic chemical products, 22.5 368
coloring, organic and inorganic chemical
components
242 Pesticide and agro-chemical products 3.6 24
243 Paint and varnish products 19.5 101
244 Pharmaceutical components 11.6 69
245 Detergent, soap and hygienic products 15.2 87
246 Gelatin, essential oil and glue products 15.9 72
252 Plastic materials for packaging 8 65
262 Ceramic products 1.4 30

Results

The cluster analysis allows us to affirm that small firms exhibit perceptible
differences in strategy, human resources, information systems and perform-
ance. The results are displayed in Table 9.4.
Profile 3 includes young firms with a medium size, a flexible and organic
structure, high profitability and an active business strategy. In this profile
innovativeness, proactiveness and autonomy are very salient. The other three
profiles are quite different. For example, risk taking is salient only for profile 1,
composed of the largest firms within the SME group and of bureaucratic
organizations with higher sales growth but lower profitability.
These firms use patenting and alliances as prominent technology strategies.
Profiles 2 and 4 are both composed of very small firms with similar results for
the moderating factors, but they show different signs on the EO dimensions:
profile 2 firms do not exhibit any entrepreneurial attitudes, while profile 4
firms show significant proactiveness. Table 9.5 displays the results of the
hierarchical regression analysis showing how EO influences performance.
Column one shows the separate effects of the control variables. Column two
shows the main effects of the four dimensions of EO, and also the direct
effects of strategy, human resources, information systems and organizational
design on the growth of ROA. This model explains 47 percent of variation in
performance.
We found that the four dimensions of EO have different impacts on per-
formance, thus our results fall on the side of multiple constructs as opposed
to a single construct in the debate as to whether EO is or is not a single con-
struct. Proactiveness and risk-taking diminish performance while autonomy
enhances it. Organic structure improves performance while an efficiency cost
strategy harms it. These findings indicate that we need to use alternative
Table 9.3 Correlations

EO ROA Sales Alliance Protect. Differ. Efficien. HR Cooper. Level ERP Access. Unit
policies use differ.

EO
ROA −0.105
Sales 0.199* 0.031
Alliances 0.370** 0.012 0.121
Protection 0.238** −0.269** 0.039 0.415**
Differentiation 0.249** 0.094 0.046 0.110 −0.003
Efficiency 0.216* 0.052 −0.001 0.041 0.071 0.189*
HR policies 0.459** −0.070 0.109 0.321** 0.234** 0.374** 0.316**
Cooperation 0.480** −0.111 0.071 0.437** 0.345** 0.238** 0.217* 0.723**
Level 0.403** −0.107 0.059 0.377** 0.180* −0.142 0.199* 0.352** 0.388**
ERP use 0.108 −0.071 0.090 0.270** 0.304** −0.239** −0.035 −0.173* 0.106 0.139
Accessibility 0.388** −0.056 0.200* 0.264** 0.138 0.224** −0.277** 0.456** 0.508** 0.385** −0.052
Unit differ. 0.417** −0.146 0.083 0.415** 0.346** 0.124 0.046 0.378** 0.507** 0.297** 0.347** 0.254**
Org. structure 0.374** 0.196* −0.001 0.252** −0.066 0.214* 0.100 0.518** 0.438** 0.227** −0.047 0.207* 0.310**

Notes:
a * p < 0.05
b ** p < 0.01
 Performance and entrepreneurial orientation in small firms 141

Table 9.4 Cluster analysis

Profile 1 Profile 2 Profile 3 Profile 4 F

Size
< 50 employees −0.274 0.214 −0.206 0.254 14.29**
> 50 and ≤ 100 0.042 −0.107 0.224 −0.134 4.3*
> 100 and ≤ 200 0.302 −0.166 0.047 −0.134 9.2**
Age −0.159 0.187 0.063 −0.063 4.8*
Performance
Growth sales 0.334 −0.204 −0.162 −0.011 9.6**
Growth profitability −0.167 0.065 0.173 −0.040 4.5*
Entrepreneurship
orientation
Innovativeness 0.265 −0.705 0.466 −0.020 51.11**
Proactiveness 0.088 −0.961 0.436 0.415 123.75**
Risk taking 0.551 0.003 −0.861 0.176 89.24**
Autonomy −0.236 −0.911 1.099 0.131 215.96**
Firm strategy
Alliances 0.801 −0.888 0.825 −0.693 458.94**
Protection 0.527 −0.613 0.372 −0.284 69.22**
Differentiation −0.153 −0.388 0.541 0.046 33.16**
Efficiency costs −0.679 −0.324 0.871 0.235 122.25**
Human resources
Policies −0.051 −0.894 0.984 0.030 177.65**
Cooperation 0.010 −0.037 −0.057 0.035 0.32
Information system
Level 0.109 −0.837 0.564 0.173 84.18**
ERP use 0.612 −0.302 −0.079 −0.271 50.67**
Accessibility −0.139 −0.776 0.748 0.209 100.35**
Organization design
Unit differentiation 0.393 −0.970 0.632 −0.047 116.34**
Organic structure −0.069 −0.596 0.551 0.143 45.48**
Number of observations 33 30 28 33 33

Notes:
a All values are standardized Z scores.
b Contingency factors using 3-digit sectors and regions included.

models to further explore the effect of EO on performance. Accordingly, we

carried out a second analysis using hierarchical regressions, displayed in
Table 9.6. To test the effect of EO on performance, we first added the control
variables (control model), then the independent variables consisting of EO
and moderating factors (universal model), then the two-way interaction
terms (contingency model), and finally the three-way interaction term (con-
figuration model).
The control model incorporating size, age, industry and geographic environ-
ment explains 23 percent of the variation in performance. The next step of
142 Isabel Gutiérrez, Ester Martínez-Ros and Julio O. De Castro

Table 9.5 Performance and EO dimensions

ROA growth

Control model Universal model

Intercept 1.796*** 0.181

Size
≤ 50 employees 0.123 −0.198**
Between 50 and 100 0.223* −0.237
Age −0.005*** −0.003
Entrepreneurial orientation
Innovativeness 0.061
Proactiveness −0.195***
Risk taking −0.124**
Autonomy 0.141*
Firm strategy
Alliances 0.040
Protection 0.069
Differentiation 0.099
Efficiency costs −0.077**
Human resources
Policies 0.022
Cooperation −0.153
Information system
Level −0.095
ERP use −0.0231
Accessibility 0.006
Organization design
Unit differentiation −0.030
Organic structure 0.201***
R2/Adjusted R2 0.23/0.05 0.47/0.22
F 5.45*** 3.79***

Notes:
a *p < 0.10, **p < 0.05, ***p < 0.01
b Contingency factors using 3-digit sectors and regions included.

the analysis addresses the universal influence of EO, competitive strategy,

human resources, organization design and information systems on small
business performance over and above the base model. In the universal model
the main effect of EO on performance is negative and significant.
Additionally, cooperative strategy and organic structure positively affect
business performance. In this model only 46 percent of variation in per-
formance is explained. The contingency and configuration models examine
the interacting effects of EO and each moderating factor; there are no signifi-
cant differences between the two regressions. In both models, EO has a positive
impact on performance. In addition, when EO interacts with the strat-
egies of cooperation and cost efficiency, business performance is enhanced.
 Performance and entrepreneurial orientation in small firms 143

Table 9.6 Performance: ROA growth

Control Universal Contingency Configuration

model model model model

Intercept Size 1.796*** 2.898*** −8.007* −11.659***

≤ 50 employees 0.124 −0.147 −0.239** −0.208*
Between 50 and 100 0.224** −0.324** −0.467*** −0.410***
Age −0.004*** −0.003 −0.001 −0.001
Entrepreneurial
orientation −0.361*** 3.568** 4.921***
Firm strategy
Alliances 0.097** −1.575*** −1.809***
Protection 0.059 1.918 2.284
Differentiation 0.074 3.552*** 3.150***
Efficiency costs −0.015 −0.915** −0.887**
Human resources
Policies 0.021 0.095 0.689
Cooperation −0.189 0.419 0.218
Information system
Level −0.069 0.094 0.773
ERP use −0.106 −0.871 −0.223
Accessibility 0.011 1.493* 1.633**
Organization design
Unit differentiation −0.049 −0.926 −0.656
Organic 0.280*** −0.314 −0.606
EO*Firm strategy
Alliances 0.621*** 0.702***
Protection −0.735 −0.871
Differentiation −1.216*** −1.093***
Efficiency costs 0.353** 0.340**
EO*Human resources
Policies −0.176 −0.380
Cooperation −0.115 −0.042
EO*Information systems
Level −0.116
ERP use 0.224 −0.355
Accessibility −0.566** −0.023
−0.625***
EO*organization design
Unit differentiation 0.333
Organic structure 0.213 0.232
0.309
EO*All moderating 0.000
factors
R2/adjusted R2 0.23/0.05 0.46/0.24 0.59/0.33 0.59/0.33
F 5.45*** 5.53*** 3.62*** 3.96***
144 Isabel Gutiérrez, Ester Martínez-Ros and Julio O. De Castro
Consistently, EO associated with a strategy of differentiation diminishes
business profitability.

Discussion

Our results indicate that there are differences in the different firm profiles in
the relationship between EO and firm performance, and more importantly,
that firm strategy, structure, human resource practices and information sys-
tems moderate the relationship. Thus we contribute to the growing body of
research that highlights that the relationship between entrepreneurial orienta-
tion and firms’ performance is a complex one.
Thus research on entrepreneurial orientation needs to take both configur-
ational and contingency tacks when examining these relations. The results
also add fuel to the controversy with regard to the nature of EO as a con-
struct. The consideration of EO dimensions separately provides evidence that
they have different impact on performance. While we find strong support for
the dimensions of proactiveness, risk taking and autonomy, yet we do not
find support for innovativeness. Given that innovativeness has been high-
lighted as one of the cornerstones of EO, lack of support for innovativeness
is troubling in this context.
At the very least, it suggests that the EO as a construct needs refinement.
Contingency approaches might also be necessary in the context of EO. Could
it be that EO manifests itself in different ways in different contexts? While
that is not the intention of this research, our results certainly point to this
direction. Further research is needed on this regard. Moreover, our empirical
findings show that there are distinct behavioral differences in the management
of SMEs.
Each profile, but especially profile 3, exhibits distinctive characteristics in
terms of performance, strategy, organizational structure, information systems
and use of human resources policies. Profile 3, for example, shows that while
levels of risk taking are very negative, it emphasizes efficiency and alliances,
as well as human resource policies and unit differentiation. This profile could
be interpreted as one of a firm with a very risk-adverse organization and
alliances in this context might be a mechanism for risk reduction by sharing
risks with a partner.
Also interesting in the context of the ongoing conversation regarding EO is
our finding that EO is not a sufficient condition for higher performance;
moderating factors make necessary contributions to firm performance. The
pattern of interactions is of special importance in this regard. Our moderat-
ing variables, strategy, structure, human resource policies, and information
systems provide different patterns when considering different configurations
of EO. Again these results call for both configurational and contingency
approaches in the examination of the relationship between EO and perform-
ance. Specifically, our results for both the contingency and configuration
 Performance and entrepreneurial orientation in small firms 145
models indicate that EO is particularly valuable and has a strong positive
effect on performance when the firm competes on costs and uses techno-
logical alliances. This result is consistent with the findings by Dess et al.
(1997) yet since the majority of the emphasis in the literature has been on the
interaction of EO with a differentiation strategy, our results confirm the
argument that the effects can be as strong or stronger in the case of efficiency
cost strategies.
Yet surprisingly, our results indicate a negative effect on performance
of differentiation strategies and EO. This surprising result runs counter to
the accepted view on EO. We do not want to overemphasize this result given
that it is the result of one study, but it should be cause for pause and a re-
examination of the relationship. The same is true for the relationship between
firm performance and the interaction between EO and systems accessibility.
Accessibility should result in a positive relation when in conjunction with EO,
yet in this study we find the opposite effect.

Conclusion
One possible conclusion is that the effects of EO are different for large and
small firms and that the ability to differentiate and system accessibility are
not as beneficial for small as for large firms. The firm focuses on product
differentiation and access to the internal information system is complex;
an EO can counterbalance loss of efficiency and deficiencies in the informa-
tion systems. A product differentiation strategy may not guarantee returns,
because of the shortening of the product life cycle.
In general, while we confirm some of the main results of the extant litera-
ture on the relationship between EO and performance, other results provide
different directions to those in the extant literature. In accord with the ideas
of Lumpkin and Dess (1996), our findings suggest that there is a contingent
relationship between EO and internal characteristics of the firm. This implies
that the relationship between EO and performance is likely more complex
than a simple main-effect-only of internal factors and EO; it also comple-
ments Covin and Slevin’s (1989) finding that there is a contingent relationship
between EO and the external environment.
10 Which roles in innovation
processes? A matter
of perspective
Silvia Massa and Stefania Testa

Introduction
Innovation is a central driving force to the survival and growth of firms
(Teece, 1987). In a recent survey published by McKinsey (2005), business
executives worldwide were asked questions about the most important capabil-
ity for growth. The most popular answer was: ability to innovate, getting
43 percent of the total answers, all other possibilities remaining under the
threshold of 25 percent. In 2004, the same McKinsey survey reported very
similar results.
Despite this assumption, many SMEs (Small and Medium Enterprises)
seem to survive without innovating, at least according to the official statistics.
In fact, CISs (Community Innovation Surveys) constantly report that among
SMEs the share of non-innovators is the large majority. At the same time,
SMEs contribute a large percentage to GDP (Gross Domestic Product)
creation and employment rates worldwide (see, e.g., Whittaker, 1997).
This paradox has been recently underlined by several authors. For example,
Vignali (2007) claims that the misalignment between statistics and reality lies
in the fact that statistics essentially measure formalized innovation. On the
contrary, SMEs often rely on informal innovation. In fact SMEs do not apply
for public funds due to both lack of information and too complex rules, they
do not patent due to both high costs and cultural reasons, and they do not
put innovation investments in balance sheets, apart from machinery and
equipment purchasing.
Verganti et al. (2004) underline that, in the public opinion, the poor innov-
ation performances of SMEs are ascribed to the difficulties they have in
conducting research activities. On the contrary, the author claims that alter-
native models for innovation do exist and are commonly adopted by SMEs.
Nås (2007) argues that all surviving firms should be considered innovative
to some extent. In fact, firms should renew and update operations and/or
products in order to survive.
Only in rare cases and for limited periods, operations and products
can remain unchanged due to circumstances such as monopolistic market
power, full control over natural resources, or extremely conservative demand.
 Which roles in innovation processes? 147
According to the author, there are several reasons that could explain why
SMEs are not considered innovators by CISs. A first reason could be that
most changes in technology or production processes are not considered by
interviewees as “significant changes” (definition adopted in CIS question-
naires), being relatively modest or incremental. A second reason could be that
firms do not consider themselves innovative if the new adopted technology
comes from external sources.
A third reason may be that the types of innovation implemented by
SMEs are different from those defined by the survey instrument. The latter
reason is probably overcome by the renewed version of the Oslo Manual (see
section II) that extends the scope of innovations. In order to delve into the
misalignment between statistics on innovation and reality, Massa et al. (2006)
emphasize the social and cultural aspects of innovation. They introduce and
stress the different perspectives of individuals involved in the innovation pro-
cess by adopting Weick’s (1995) treatment of “sense making” as a framework
for interpreting data. In fact, even if frequently innovation definition is taken
for granted, it is worth noting that its interpretation depends on “who I
become while dealing with it (the situation) or what and who I represent”
(Weick, 1995).
Considering the above-mentioned assumptions, the present chapter aims at
answering the following questions. What innovation definitions and indica-
tors do the main innovation stakeholders, namely entrepreneurs, policy
makers and academics, prefer? Are the stakeholders’ instances in line with the
changes introduced in the third edition of the Oslo Manual? On the basis of
the definitions adopted by the stakeholders the following question emerges:
what role do they assign to themselves and to the other stakeholders in
promoting innovation?
The chapter is organized as follows. First, the main changes introduced
in the definition of innovation by the third edition of the Oslo Manual
are briefly explored. Second, the main literature about the traditional roles
of the different stakeholders in the innovation process is reviewed. Third,
the empirical research is introduced, giving details on data collection
and analysis. Fourth, the results are presented and discussed in order
to answer the proposed research questions. Finally, some conclusions are
provided.

Theoretical background

The main changes introduced by the Oslo Manual

Freeman and Soete (2006) underline that those innovation indicators which
served well in the past may no longer be as important as they were and
they may even be misleading. This makes the choice of new indicators both
critical and urgent (for a review of traditional indicators see, e.g., Massa et al.
2006). Interest in measuring innovation has already arisen in the OECD
148 Silvia Massa and Stefania Testa
(Organization for Economic Cooperation and Development) since the end
of the 1970s but the first edition of the Oslo Manual was published only
in 1992.
The first two versions of the Oslo Manual were focused on the measure-
ment of technological innovations while in the last version (OECD/Eurostat,
2005) two non-technological kinds of innovation have been introduced: the
organizational and the marketing ones. A full description of the main
changes introduced in the revised Oslo Manual is provided in Bloch (2005).
In the following sections, only some aspects, relevant to the present research,
will be underlined.
Better definitions of the non-technological kinds of innovation are required
in order to improve the description and measurement of the innovation
processes in the service sector. Nevertheless, non-technological kinds of
innovation play an important role in manufacturing as well (Heinlo, 2007).
As noted by Foyn (2007), in the revised Oslo Manual, the term “techno-
logical” has been removed from the definition of product and process
innovation.
Moreover a great emphasis has been devoted to the role of knowledge
transfers and linkages inter-firms and among firms and other institutions.
This is in line with the emerging paradigm of open/democratizing innovation
(Chesbrough, 2003; von Hippel, 2006) and with the consolidated assumption
that firms do not innovate in isolation (see, e.g., Bloch, 2007). With the
increasing scope of the definition, new indicators linked to organizational
and marketing innovative practices have been discussed (Arundel and
Lorenz, 2006). These new indicators will be used in the next CIS-2008.

The roles of the stakeholders in the innovation process

When discussing the main institutional actors involved in innovation pro-
cesses, literature often refers to industry, government and university whose
linkages are described under different perspectives (see, e.g., Lundvall, 1988;
Nelson, 1993 for National Innovation Systems; Braczyk et al., 1996, Cooke
et al., 1997 for Regional Innovation Systems and Etzkowitz and Leydesdorff,
1996; Etzkowitz and Leydesdorff, 2000 for the Triple Helix Model). In the
following section, the main literature about the different roles of the three
innovation stakeholders is summarized.

The role of entrepreneurs

Contemporary writers in management and business have presented a
wide range of theories on entrepreneurship and innovation. Many of the
leading researchers remain true to Schumpeter’s thought that described
entrepreneurs as the innovators who drive the “creative-destructive” process
of capitalism.
According to Schumpeter:
 Which roles in innovation processes? 149
the function of entrepreneurs is to reform or revolutionize the pattern of
production by exploiting an invention or, more generally, an untried
technological possibility for producing a new commodity or producing
an old one in a new way, by opening up a new source of supply of
materials or a new outlet for products, by reorganizing an industry and
so on.
(1976: 132)

Schumpeter’s entrepreneurs are the change agents in the economy. By serving

new markets or creating new ways of doing things, they move the economy
forward. Some contemporary researchers offer variations on the theme.
For instance, in his attempt to get at what is special about entrepreneurs,
Drucker (1995) puts a special focus on opportunity. Drucker does not require
entrepreneurs to cause change, but sees them as exploiting the opportunities
that change creates (in technology, consumer preferences, social norms, etc.).
He says (1995: 28), “this defines entrepreneur and entrepreneurship – the
entrepreneur always searches for change, responds to it, and exploits it as
an opportunity.” Entrepreneurs have a mind-set that sees the possibilities
rather than the problems created by change. Drucker also makes it clear that
entrepreneurship does not require a profit motive.
Stevenson, a leading theorist of entrepreneurship at Harvard Business
School, adds an element of resourcefulness to the opportunity-oriented defin-
ition. He and his collaborators suggest defining the heart of entrepreneurial
management as “the pursuit of opportunity without regard to resources cur-
rently controlled” (Stevenson and Jarillo, 1990: 25). They found that entre-
preneurs do not allow their own initial resource endowments to limit their
innovation options. Entrepreneurs mobilize the resources of others to achieve
their entrepreneurial objectives.
Current literature (see, e.g., Dodgson, 2002) presents innovation as a
dimension of the firm, as an enterprise-wide factor that includes knowledge,
technological, organizational, financial, and industrial and communication
activities leading to the introduction of a new or improved product/process.
From this standpoint the terms enterprise and innovation absolutely coincide
(Vignali, 2007).

The role of policy makers

Current trends in innovation policies reflect a change in the perception of the
rationale and effectiveness of government interventions. These trends involve
a shift from the traditional policies such as managing the science base and
financial incentives to industrial R&D (Research and Development) and
extended intellectual property rights, to new ones. The objectives of such new
policies include enabling firms to exploit existing innovation opportunities,
and to enhance them by promoting cooperation between firms, universities
and government laboratories and changing the design of institutions and
150 Silvia Massa and Stefania Testa
incentives (Andersson, 1998). A common form of public intervention in favor
of innovation includes funding intermediaries for innovation such as science
parks, innovation relay centers, incubators, etc. (for a review of the role of
intermediaries in innovation see, e.g., Howells, 2006).
At the moment the debate on the real effectiveness of such intermediaries is
open and alternative mediating roles for them in the science–industry rela-
tionship is frequently discussed in literature (Hansson et al., 2005). These
policies are, to a large extent, trial and error experiments. In this approach the
policy maker is seen not as someone who knows better than firms but as
someone who knows different things (Norgren and Hauknes, 2000).
According to Porter (1998: 89):

“governments – both national and local – have new roles to play” in

innovation and productivity growth. Sound macroeconomic policy is
necessary but not sufficient. The microeconomic foundations for com-
petition will ultimately determine productivity and competitiveness . . .
(Governments) must ensure the supply of high-quality inputs such as
educated citizens and physical infrastructure. They must set the rules of
competition – by protecting intellectual property and enforcing antitrust
laws, for example – so that productivity and innovation will govern suc-
cess in the economy. Finally, governments should promote cluster forma-
tion and upgrading and the buildup of public or quasi-public goods that
have a significant impact on many linked businesses . . . Government,
working with the private sector, should reinforce and build on existing
and emerging clusters rather than attempt to create entirely new ones.
(1998: 89)

The role of academics

Researching and teaching, whose impacts on innovation processes are well
recognized, are traditionally roles played by universities. In fact, on the one
hand, in many contexts, companies heavily rely on research performed
and supported by academic institutions, though many of them bemoan the
“academic” approach to research (see, e.g., McMillan et al., 2000). On the
other hand, the importance for innovation of highly educated human
resources has been repeatedly stressed in literature (see, e.g., Snyder, 2006;
Statistics Canada, 2006).
A re-conceptualization and enlargement of the role of universities and,
more broadly, of public research systems started during the late 1970s in the
US (Coriat and Orsi, 2002). Since the early 1990s, structural changes in
the external environment, asking for a more active role of universities in
technology transfer, took place in Europe too (Baldini et al., 2006). More
precisely, the continuous cutbacks to public research budgets increased the
sensibility towards alternative and complementary strategies for raising funds
(Geuna, 2001).
 Which roles in innovation processes? 151
In 2000, OECD (2000) explicitly introduced a “third stream” role for
universities, namely the commercialization of research results. The new
entrepreneurial role of universities has been stressed in literature (see,
e.g., Etzkowitz, 2003), even though, as noted by Smith and Ho (2006),
its implementation is, at the moment, not homogeneous. In fact some
countries are better than others at creating entrepreneurial universities
and some universities in the same country are more entrepreneurial
than others. Jacob et al. (2003) underline that the new emphasis on
commercialization of knowledge creates some degree of uncertainty
in the university roles. Delanty (2001) and Jacob (2000) claim that the
new university role needs to be harmonized with the traditional ones.
Etzkowitz and Leydesdorff (1997) argue that the acceptance of knowledge
commercialization as one of the university roles is a sort of “academic
revolution.”
As noted by Rasmussen et al. (2006), some commercialization initiatives
may be induced “top-down” from the government, while others emerge
“bottom-up” from individuals inside the universities. Some initiatives are
formal, while informal mechanisms play, in many cases, even more significant
roles. According to Etzkowitz et al. (2000), it is worth noting that, as know-
ledge becomes an increasingly important innovation driver, the university, as
a knowledge producing and disseminating institution, is destined to play an
even larger role in industrial innovation.

Data collection
In order to delve into the three stakeholders’ perspectives, entrepreneurs
spanning different manufacturing industries, policy makers operating at
regional, national, and European levels, and academics working in science
and engineering disciplines have been selected. Qualitative data were col-
lected from each of the stakeholder groups. In-depth interviews were con-
ducted, supported by documentation where possible. In order to increase
both reliability and validity, a multi-method approach was adopted. The
study thus incorporates Kanter’s (1977) suggestion that different sources of
data be used to validate each other. The interviews lasted from one to two
hours. The individual interviews ended with group discussion whenever
possible.
The data collection was organized as follows:

• first, individual explorative interviews with several stakeholders were

conducted in order to identify the main themes and the most relevant
discrepancies;
• second, 10 persons for each stakeholder group have been identified and
interviewed about the themes that emerged in the previous phase. The
checklist for the interviews is reported in Table 10.1;
• third, a one-day conference, involving entrepreneurs, academics and
152 Silvia Massa and Stefania Testa
policy makers, was organized aimed at eliciting and discussing the main
contrasting perspectives.

The data collection was conducted over a period of six months; standard
techniques for case studies were followed (Yin, 1994). After the transcription
of the interviews, data were coded to identify themes, recurring comments,
and parameters that could be analyzed with respect to the research issue. It is
worth noting that the qualitative approach, which is applied for this study,
involves few respondents and a relatively small body of data. However, the
interviewer has the opportunity to capture in-depth, tacit knowledge, emo-
tions, different perspectives and interpretations, as well as to steer the inter-
view in the most relevant direction. In the following sections, individual
stakeholders will be identified by the following codes: Entr1-Entr10, for the
entrepreneurs; Acad1-Acad10, for the academics; and PM1-PM10, for policy
makers. When referring to the interviewed stakeholders as a whole, the
determinant article is used (e.g. “the entrepreneurs” to mean “the interviewed
entrepreneurs”).

Data analysis and discussion

Innovation definitions and indicators

Different positions concerning innovation regard first of all its definition.
The entrepreneurs give a definition of innovation that is strictly connected
with the market. Claiming that innovation is “anything that makes money,”
they refer to any improvement in products and/or services that determines an

Table 10.1 Checklist for interviews

Innovation definition What do you mean by innovation?

What are the innovation sources?
What indicators would you suggest to measure innovation?
How can you define a “favorable” environment for
innovation?
What do you mean by radical innovation?
Does the distinction between radical and incremental
innovation make sense?
Innovation policies What is the role of the entrepreneur in the innovation
process?
What could/should it be?
What is the role of the policy makers in the innovation
process?
What could/should it be?
What is the role of universities and research centers in the
innovation process?
What could/should it be?
 Which roles in innovation processes? 153
increase in profits deriving, for example, from the increase of the market
share. According to Entr1: “Growing companies have necessity for innov-
ation. Distinguishing between radical and incremental innovations is not
important, only profits matter!” Entr2 adds: “Innovating is doing what is
needed in order to be competitive on the market.” Several authors share the
same focus on the innovation impacts on market performances (see, e.g.,
Mascitelli, 2000; Garcia and Calantone, 2002; Nås, 2007). Entr3 affirms:
“Innovation is made in every hierarchical level and in every department: the
head of purchasing may play an important role in choosing the right supplier
capable of developing components that allow products to be improved. The
intuition of a seller can be determinant, as well.” As Entr5 affirms: “The best
ideas can emerge by disorderly interaction processes among different actors
and involve considerable randomness.”
The entrepreneurs stress the fact that innovation sources are multifaceted
and that it is important to rely on both internal and external sources to
innovate a firm’s products or processes. The interviewees claim to rely on a
wide range of innovation sources, often simultaneously. More specifically, the
importance of customers and suppliers as well as of consultants is under-
lined, in line with the so-called “open innovation” model (Chesbrough, 2003).
The academics, on the other hand, distinguish between what innovation
means for firms and what it means for the scientific community. They agree
that innovation for firms is “doing the same things in a different way,” namely
process innovation, and/or making new products but applying well-known
technology. On the contrary, the academics define innovation for the scientific
community only as “the quantum leap,” that is, something radically new
deriving from newly created knowledge. Such a definition totally ignores the
market and profit issues, focusing on the scientific content of the innovation.
They agree that this kind of innovation is the fruit of a formal research
process that can be performed mainly by universities, research centers and the
R&D departments of large firms. These organizations produce the know-
ledge that is the basic component of each innovation. Most of them seem to
neglect the importance of other innovation sources. During the interviews a
value judgment emerges from the academics’ words. According to Acad3,
“only radical innovation can be properly called innovation.” It is worth not-
ing that some interviewees focus only on technological innovation, as emerges
from the words of Acad1: “ICTs (Information and Communication Technol-
ogy) cannot do without innovation and innovation cannot do without ICTs.”
This is in line with the stream of the innovation literature that emphasizes
that innovation primarily occurs in reference to technology, and that change
is more significant than continuity (see, e.g., Nelson and Rosenberg, 1993).
Even though the science-push or linear model of innovation, primarily based
on R&D, has been strongly criticized by modern innovation theory (Edquist,
1997), this seems to be tacitly shared by the academics.
The position of the policy makers is different from both the entrepreneurs’
and the academics’. The policy makers, considering innovation as the
154 Silvia Massa and Stefania Testa
“output of a dreamer,” put emphasis on the human resources rather than on
the innovation process itself. The entrepreneur-dreamer catches new needs on
the market and looks for someone who can fulfill his or her dream providing
technology, capital, research etc. The concept of risk is strictly connected
with innovation. In the words of PM2: “innovation is risk, by definition.”
Defining innovation as “dream and risk,” the policy makers adhere to a
“romantic” view of the innovator, an individual that dreams something
new and is able to risk to achieve his or her dream. This concept of dream
is connected to the way the innovative idea emerges in the innovator’s
mind. It is conceived neither as a way to make more money, nor as the
“quantum leap.” It rather seems to be the fruit of imagination. According to
PM10, “Innovation is in the observers’ eyes.” The relevance of motivational
aspects in entrepreneurship and innovation, going beyond mere economic
returns, is widely recognized in literature (see, e.g., Baron, 1998; Mazzarol
et al., 1998).
Speaking of the researchers who are considered as those who provide
innovative solutions for the entrepreneurs, the interviewees use the same term
that they used for the entrepreneurs: “dreamer.” The researcher is a dreamer
too, who needs to be free in the creative process of innovating. As regards the
innovation indicators, among the stakeholders different positions emerge that
are consistent with their innovation definitions.
The academics suggest indicators that aim at testing the validity of the
innovation process based on the research activity, evaluating the inputs to
the research process (i.e. investments, training hours) and the output in terms,
for example, of number of patents. Market indicators are not mentioned.
The assumption seems to be that the research, in any case, creates value. The
entrepreneurs, on the other hand, speak of intangible effects of innovation
that cannot be caught by traditional indicators. As already noted by den
Hertog et al. (1997), traditional indicators are not capable of sufficiently
reflecting economic creativity and innovation.
The policy makers too are starting to be critical towards traditional indica-
tors. As regards the patents, PM3 affirms that “counting the number of
patents doesn’t make any sense, whereas it is the number of sold patents that
should be counted. For example, only three out of the twenty patents regis-
tered at the University of Genoa between 2001 and 2005 have been sold
[Stagi, 2006].” A parameter that the policy makers consider as a basic
requirement for innovation is a high rate of skilled people that is traditionally
measured by the number of graduates. The importance of skilled human
resources for innovation is stressed repeatedly in many official reports (see,
e.g., Statistics Canada, 2006).
On the contrary, both the entrepreneurs and the academics are critical of
counting the number of graduates to measure the ability of firms to innovate.
The former speak of a generic gap between the educational qualification and
the real skills of individuals. The latter express the same concept, mentioning
recent university reform in Italy that aims at putting on the market a higher
 Which roles in innovation processes? 155
number of graduates in a shorter time. Unfortunately, they argue, this results
in decreasing skills among the graduates.

Discussion on entrepreneurs
The entrepreneurs describe their involvement in the innovation process as a
leading role that requires “instinct and courage.” In the words of Entr2:
“Many words have been spent on innovation and competitiveness but, at the
moment of truth, we stake our all, we put ourselves at risk, not only our
money but, above all, our credibility. And, especially in Italy, it’s not easy to
get back on top!” The policy makers too assign a primary role to the entre-
preneur, that they consider as “a dreamer, who can start the process but needs
intermediaries to find the resources to fulfill his/her dream.”
Nevertheless, some policy makers affirm that entrepreneurs are often skep-
tical towards new initiatives. As PM3 reports: “When we suggested to create a
cluster in order to favor collaboration processes, many entrepreneurs did not
seem interested. In that case, only the commitment of the director of the local
science park permitted to start up the cluster.”
The academics, coherently with their concept of innovation, cast some
doubts on the real innovativeness of SMEs. According to Acad3: “Frequently
entrepreneurs define themselves as innovators but they’re not really and this
mystifies statistics on the innovativeness of SMEs. Academic experts should
be consulted to evaluate the truthfulness of their declarations.” The academ-
ics seem to share the concern, sometimes expressed in literature, about the
possibility of over-assessment of innovation performances when data are
self-reported by firms (Coombs and Tomlinson, 1998; Flor and Oltra, 2004).
Nevertheless, it is worth noting that the identification of innovations by com-
pany managers/owners has been set in the Oslo Manual as a basic guideline
when collecting data on innovations (OECD-Eurostat, 1997).
According to Acad3: “The only entrepreneur really innovative could be the
one with academic background.” What seems to be a reasonable assumption
for the academics is not always confirmed by literature (see, e.g., Lofsten and
Lindelof, 2005). In fact, some studies underline that academic spin-offs do not
perform better than other companies in terms of innovation. Indeed they
claim that USOs (University Spin-Offs) succeeded only in already successful
areas, such as Route 128, Silicon Valley, and Silicon Fen (see, e.g., Benneworth
and Charles, 2005). Thus, there is no clear reason to foster them rather than
other start-ups. Several authors underline the fact that USOs might not be the
panacea for every growth and development problem mainly in areas where
entrepreneurial environments are less munificent (see, e.g., Dubini, 1989).

Discussion on policy makers

The entrepreneurs are rather negative towards the role played by policy
makers in the innovation process. They denounce too much bureaucracy and
156 Silvia Massa and Stefania Testa
too complex rules on entrepreneurship and innovation issues as elements that
reduce the pace of innovation and cause them to “lose time.” As Entr5 says:
“Bureaucracy costs the firms
10 billion per year. How can we grow and
conquer new markets when we must devote so much time and resources to
interact with the Public Administration?” Changing administrative rules too
often “results in a mess,” according to Entr6. In the words of Entr7: “A more
flexible rule regime would increase efficiency and foster innovation. Why
don’t our policy makers understand it?”
The entrepreneurs are also negative towards the effectiveness of intermedi-
aries for innovation. In the words of Entr5:

We don’t need an external actor to promote technology transfer: if the

entrepreneur is smart he is able to use stimuli from suppliers, customers
and consultants. Interacting with a “nurse,” like a Science and Technol-
ogy Park is intended to be, is time consuming! And for an entrepreneur
time is the most valuable resource.

Entr3 admits that SMEs need more to qualify their production processes
rather than to be involved in technology transfer processes. Entr6 argues that
technology transfer to SMEs is limited due to the low demand for advanced
technologies: “Complaining about the inefficacy of current SMEs supporting
policies is misleading. The only strategy could be segmenting instruments for
different needs: technology transfer for companies that really need that, and
testing laboratories or certification services for all the others!”
All the interviewees agree that the process of “formal search and shop-
ping” does not perform as well as expected. In fact it would require that both
industry and science explicitly know and are able to formalize their innov-
ation demand and supply, respectively. When technology transfer occurs, it is
more likely to be through some prior relationships among individuals rather
than through formal search. Moreover, SMEs have difficulties in communi-
cating with science laboratories, universities and intermediary institutions
because of a perceived cultural gap. It is worth noting that the difficulties
also are in regard of the relationship with the intermediaries, that should
have been designed to foster collaboration and relationships between entre-
preneurs and research centers. The policy makers are aware of the problem of
excessive bureaucracy and of too complex rules to manage several aspects of
entrepreneurial innovation. First, they speak of the fiscal condition that
should reward innovation efforts; otherwise it is extremely difficult to start
the process. They admit that in Italy the tax burden is heavy and apparently
there is not enough distinction between innovators and non-innovators.
According to PM2: “The tax system should benefit innovation and entre-
preneurship efforts. New rules should be introduced in this direction.” A
criticism of the current tax system in Italy is expressed in Antonimi (2005).
Second, they mention the problem of protecting intellectual property.
According to PM9:
 Which roles in innovation processes? 157
Nowadays, the rules about patenting in Italy and in Europe are so
inadequate that many entrepreneurs choose to skip the problem by going
to the US and patent their inventions. This fact contributes to mislead
the statistics on patenting. A great effort should be made to make the
rules on patenting easier to understand and to apply, the patenting pro-
cess cheaper and patents valid on larger territories.”

It is interesting to compare the perspective of the entrepreneurs on the same

topic. In fact they do not appear to rely on the effectiveness of patents to
appropriate their investments in innovation, in contrast with some literature
(see, e.g., Dodgson, 2002). As Entr3 reports: “Secrecy is more effective than
patents,” while Entr1 underlines: “The best way to protect our company is by
using our industrial know-how which is really difficult to copy.” Entr8 refers
to his personal experience:

I lead a small high tech company in the business of hearing aids. We

developed several breakthrough innovations in the last few years. For
example, we developed a model of subaqueous hearing aid and a non-
linear hearing aid, based on the slowing down of the sounds that can be
used to train human hearing. We soon stopped patenting our inventions.
It was definitely too expensive for us to manage the law suits consequent
to misappropriation by large firms.

Third, the policy makers raise the problem of the rules on bankruptcy. In the
words of PM10, “A set of rules should be passed to allow the easy discharge
of the bankrupt entrepreneur and the start up of new enterprises.” As regards
the active policies to promote innovation, the policy makers seem to be sure
of the need of intermediaries for innovation even if they admit the failure of
some of the previous experiences. In particular, they reiterate technology
transfer experiences based on the “naïve” assumption that knowledge is a
commodity, “easy” to transfer from one site to another.
Concerning this, PM7 reiterates the “catalogue experience”:

Some years ago, a huge amount of money was invested to make a cata-
logue containing an accurate overview of the technology resources exist-
ing in our local area. After almost ten years I have to admit it was a
utopia. As far as I know, no entrepreneurs showed any interest in making
access to any technology described in the volume. Such binders probably
make a fine show on the shelves of local entrepreneurs’ offices but, I
argue, no one has ever opened them.

The need to revise the process of technology transfer is well recognized in

literature too (see, e.g., Amesse and Cohendet, 2001).
According to PM2:
158 Silvia Massa and Stefania Testa
A new generation of intermediaries for innovation is needed in order to
practically accomplish the new technology transfer paradigm. The new
paradigm is based on the assumption that technology needs to be trans-
lated and converted in order to be shared.

In the words of PM6:

The past experiences with science parks, innovation relay centers, incuba-
tors etc., are a lesson of incommensurable value on what does not help
technology transfer. These are undoubtedly a failure from what we have
learnt [sic] many things on the entrepreneurs’ needs and wants.
What the entrepreneurs need is a web, a sort of “operating friendship.”
We are designing a service center that can help SMEs and the research
community to create a system. This center should also favor bridging and
networking among entrepreneurs.

The failure of traditional intermediaries for innovation is well documented in

literature too (see, e.g., Bakouros et al., 2002; Siegel et al., 2003a; Shearmur
and Doloreux, 2000; Hansson et al., 2005), while fostering peer relationships
seems to be the right initiative, as demonstrated in literature (see, e.g. Pittaway
et al., 2004).
The academics assign policy makers the role of allocating funds to, and
focusing attention on carefully selected technologies and disciplines. They
believe in innovation as a guided process but underline the inadequacy of the
current instruments, mainly science parks. Acad8 refers: “Science parks are
like marriage agencies, and neither work too well. At the moment, many
parks work as mere deliverers of funds coming from the EU.” When asked
what the role of science parks should be, they say that parks should provide
spaces and contacts for the joint labs between universities and firms, creating
stable and continuing relations.
Therefore, parks should employ experienced people with strong personal
networks. When asked what kind of intermediaries for innovation they dream
of, they cite Cambridge and the MIT liaison offices that collect information
from university departments and from firms as well as support the relation-
ships. They don’t believe this role could be performed by an actor outside
universities, as specific competencies are needed to understand exactly the
kind of innovation universities can offer and firms need. In fact, in order to
improve the link between science and industry, the literature reports that
many universities have introduced central technology transfer offices as
intermediary agents (see, e.g., Anderson et al., 2007).
Even though they have been designed with the intent of allowing academ-
ics to maintain a high level of autonomy for developing relations with indus-
try (see, e.g., Debackere and Veugelers, 2005), they are perceived, by the
academics, as an attempt to centralize the process reducing their autonomy.
The interviewees argue that the responsibilities for technology transfer have
 Which roles in innovation processes? 159
to be located close to research groups and they sometimes complain about the
scarce quality of the administrative support they receive from central offices.

Discussion on academics
The entrepreneurs do not consider it essential to rely on research centers and
universities to innovate. The entrepreneurs seem to prefer relying on their
peers, such as suppliers and customers. This is not surprising as “peer
exchange” is traditionally mentioned as one of the basic characteristics of
entrepreneurs (see, e.g., Gibb, 1996). As Entr1 argues: “Relationships with
universities are fruitful at the very beginning of new product/process devel-
opment. For the majority of improvements it is not necessary.” Another issue
that is often mentioned by the entrepreneurs is the misalignment between
universities’ competencies and SMEs’ needs. Entr9 reports he had to go to
the Columbia University in New York in order to find researchers able to
satisfy his innovation needs. Entr2 concludes inviting universities to step
down from their ivory towers in order to make the interaction possible.
According to the policy makers, transmitting technological innovations
from the university lab bench to industry is not an easy task. In the words of
PM4:

Universities do not have to play the role of soap sellers, going door to
door. Joint laboratories and projects are the best way to promote techno-
logical innovation. Housing collaborative research facilities should be a
role for universities. When these relationships don’t occur spontaneously,
policy makers should intervene putting intermediaries into the field.

The policy makers come back to the subject of USOs. According to PM3:
“Even though European policies are strongly focused on promoting and
fostering new venture creation by academics, the percentage of academics
deciding to move to the entrepreneurial side is still low.” Some authors
(see, e.g., Venkataraman, 2004) underline that USO promotion policy is
broadly misguided, reporting the tendency of policy makers to address com-
plex problems with simple solutions.
While all the academics seem to agree in considering universities as the
main locus where innovation is made, different positions emerge regarding
their role in supporting innovation for SMEs. Two main opposing positions
can be identified. According to the first position (hereafter “inbound” pos-
ition), the role of university in fostering innovation lies in cooperating with
SMEs in joint research activities, to be carried out on university premises.
The supporters of the inbound position claim that “universities must not
be the firms’ slaves!” As Acad1 says:

When firms invite our researchers on their premises, I know they’ve mis-
understood the meaning of our cooperation! A free place is needed in
160 Silvia Massa and Stefania Testa
order to make effective research. Firms have to come to university labs
where new ideas freely circulate among researchers, during daily activ-
ities, including lunch and free time. I learn something new every day by
speaking to my thesis students.

According to the second position (hereafter “outbound” position) the role of

university in fostering innovation lies in taking care of the innovative needs
of the SMEs by going door to door to provide advice and training. As Acad4
says:

Entrepreneurs often are not aware of their real needs. Frequently, they
call us to solve one problem and after the first meeting we discover that
the problem is another one. That is why we usually propose an initial
intervention consisting of technology and organizational assessment.
Generally, the outcoming relationship with the firm is fruitful and
long term.

It is interesting to compare the perspective on the same topic of Entr1:

“Academics argue that the entrepreneurs don’t know their own needs and
thus they need university advice. This is not true . . . the good entrepreneur
has greater knowledge of his personal business than any university
professor!”
The supporters of the outbound position claim that universities should
keep in contact with the local firms that could offer opportunities for intern-
ship and jobs to their students. According to this position, universities should
help SMEs to improve their operations introducing incremental innovations
to their processes, “the only kind of innovation SMEs can afford!,” according
to Acad10. These two positions co-exist among the academics and the differ-
ent behaviors resulting lay themselves open to fierce criticisms from the
opposite side. The following Tables 10.2 and 10.3 summarize the three
stakeholders’ perspectives that have been discussed above.

Synthesis
This work aimed to investigate the perspectives of entrepreneurs, policy
makers and academics on innovation definition and indicators and the differ-
ent roles they assign to themselves and to the other stakeholders in promoting
innovation. With regard to the defining aspects, the stakeholders’ examples
have been compared to the recent changes introduced in the last version of
the Oslo Manual. As already noted in the discussion, different preferred
definitions and indicators of innovation emerge among the stakeholders. In
this section we synthesise each stakeholder position and make recommenda-
tions for future research.
The entrepreneurs’ definition and indicators are strictly connected with the
market while the academics’ totally ignore market and profit issues, focusing
 Which roles in innovation processes? 161

Table 10.2 Innovation definitions and indicators

Definition Indicators

Entrepreneurs “Innovation is anything that “SMEs don’t put innovation in

makes money”
“Innovation is made in every
hierarchical level and in
every department: the head
of purchasing may play an
important role in choosing
the right supplier capable of
developing components that
allow products to be
improved. The intuition of a
seller can be determinant, as
well. The best ideas can
emerge by disorderly
interaction processes among
different actors and involve
considerable randomness.”
Policy makers “Innovation is ‘dream and
risk’ ”
“Innovation derives from an
excess of knowledge
produced in the research
process.”
Academics “Innovation is the ‘quantum “Frequently entrepreneurs define
leap’ ”
“Innovation is the fruit of a not really and this mystifies statistics
research process that can be on the innovativeness of SMEs.
performed only by
universities, research centers to evaluate the truthfulness of their
and large firms.”
the balance sheet and thus they ask for
new indicators being able to measure
also intangible effects of innovation.”
“Counting the number of graduates to
measure the ability of firms to
innovate is misleading. There is a
generic gap between the educational
qualification and the real skills of
people.”
“Counting the number of patents
doesn’t make any sense, whereas the
number of sold patents should be
counted.”
“The basic requirement to innovate is
a high rate of skilled people, i.e. the
number of graduates.”
themselves as innovators but they’re
Academic experts should be consulted
declarations. The only entrepreneur
really innovative could be the one with
a strong research background.”
“Counting the number of graduates to
measure the ability of firms to
innovate is misleading. The recent
university reform in Italy aims at
putting on the market a higher number
of graduates in a shorter time.
Unfortunately, this results in
decreasing skills of the graduates.”

on the scientific content of the innovation. The entrepreneurs ask for new
indicators capable of catching the intangible effects of innovation, reflecting
creativity and risk-taking ability that are, in their opinion, the main drivers
of innovation process. On the contrary, academics, coherently with their
Table 10.3 The roles of the stakeholders

The role of The role of policy makers The role of academics

entrepreneurs

Entrepreneurs “Many words have been “Bureaucracy costs the firms
10 billion per year. How can we “Relationships with universities
spent on innovation and grow and conquer new markets when we must devote so much are fruitful at the very beginning
competitiveness but, at time and resources to interact with the Public of new product/process
the moment of truth, Administration?” development. For the majority of
we stake our all, we put “Too much public money has been wasted for the so-called improvements it is not necessary.”
ourselves at risk, not intermediaries. We don’t need external actors to promote “The academics argue that the
only our money but, technology transfer: if the entrepreneur is smart he is able to entrepreneurs don’t know their
above all, our use stimuli from suppliers, customers and consultants. own needs and thus they
credibility. And, Interacting with a nurse, like a Science and Technology Park is necessitate university advice. This
especially in Italy, it’s intended to be, is time consuming! And for an entrepreneur is not true: the good entrepreneur
not easy to get back on time is the most valuable resource. Moreover, when technology has greater knowledge of his
top!” transfer occurs, it is more likely to be through some prior personal business than any
relationships among individuals than through formal search.” university professor.”
Policy makers “The entrepreneur is a “The tax system should benefit innovation and “Universities do not have to play
dreamer that catches entrepreneurship efforts. New rules should be introduced in the role of soap sellers, going door
new needs on the this direction.” to door. Joint laboratories and
market and looks for “Nowadays, the rules about patenting in Italy and in Europe projects are the best way to
someone that can fulfill are so inadequate that many entrepreneurs choose to skip the promote technological innovation.
his dream providing problem by going to the US and patenting their inventions. Housing collaborative research
technology, capital, This fact contributes to mislead the statistics on patenting. facilities should be a role for
research etc . . .” A great effort should be made to make the rules on patenting Universities.”
easier to understand and to apply, the patenting process
cheaper and patents valid on larger territories.”
“A set of rules should be passed to allow the easy discharge of
the bankrupt entrepreneur and the start up of new
enterprises.”
“When these relationships [among universities and firms] don’t
occur spontaneously, policy makers should intervene putting
intermediaries into the field.”
Academics “Frequently “Institutions too often consider intermediaries for innovation “Universities must not be the
entrepreneurs define as a panacea. This is not true, as the experience of science firms’ slaves! . . When firms invite
themselves as parks demonstrates. Science parks are like marriage agencies, our researchers on their premises,
innovators but they’re and neither work too well . . . At the moment, many science I know they’ve misunderstood the
not really and this parks work as mere deliverers of funds coming from the EU. meaning of our cooperation!
mystifies statistics on Moreover, in the majority of cases technology is not A free place is needed in order to
the innovativeness of transferred through formal search but through some prior make effective research. Firms
SMEs. Academic relationships among individuals.” have to come to university labs
experts should be where new ideas freely circulate
consulted to evaluate among researchers, during daily
the truthfulness of their activities, including lunch and free
declarations. The only time. I learn something new
entrepreneur really everyday by speaking to my thesis
innovative could be the students.”
one with academic “University must take care of the
background.” innovative needs of the SMEs
going door to door to provide
advice and training. Entrepreneurs
often are not aware of their real
needs. Frequently, they call us to
solve one problem and after the
first meeting we discover that the
problem is another one. That is
why we usually propose an initial
intervention consisting in
technology and organizational
assessment. Generally, the out
coming relationship with the firm
is fruitful and long term.”
164 Silvia Massa and Stefania Testa
definition of innovation, remain linked to traditional indicators, measuring
the inputs/outputs of the innovation process.
The position of the policy makers is different from both of them. Innov-
ation is conceived neither as a way to make more money, nor as the “quantum
leap” but, rather, it is seen as the fruit of imagination. The policy makers are
eager to have indicators of the phenomenon that testify to the validity of their
innovation policies, in line with Heinlo (2007). Their vision seems limited to
few indicators and they rarely delve into the meaning of assembled figures.
Moreover they tend to have a very short temporal perspective by which
investments in innovation should return, as they need to show, in the clearest
way, the link between policies and results. As regards the Oslo Manual, the
stakeholders’ instances do not always seem in line with the recent changes
introduced, and also the awareness of them seems to be lacking.
This is not surprising for the entrepreneurs. In fact, as noted by Foyn
(2007: 6), “Changes in wording have little effect on the results. The enterprises
use their own understanding of the innovation concept without reading the
nitty-gritty definitions.” Moreover, according to Heinlo (2007: 6), the entre-
preneurs “have one common virtue: they have never opened the Oslo Manual.”
On the contrary, such un-awareness is rather unexpected for the policy
makers and the academics who are supposed to be well informed on the topic.
For example, the academics seem not to be aware that the term “technologi-
cal” has been removed from the definition of product and process innovation.
Most of them still assign a strategic value to information and communication
technologies (ICTs) and, therefore, appreciate any policy providing subsidies
for firms, individuals or institutions to purchase advanced technologies. As
noted by Vignali (2007), such a narrow view on innovation, i.e. to set equiva-
lence between innovation and technology, contributes to reducing the real
importance of innovation.
With regard to the role issue, several mismatches emerge between the self-
assigned roles and the roles that each stakeholder assigns to the others. As
regards the role of entrepreneurs, the policy makers acknowledge them a
primary role in innovation, but they blame their scarce attitude towards
cooperation and their unenthusiastic participation in governmental initia-
tives. The academics’ position towards the entrepreneurs’ role is in the same
vein of the policy makers’. They blame entrepreneurs for their scarce pro-
pensity to rely on universities for their innovative activities. Some authors
(see, e.g., Laursen and Salter, 2004; Cohen et al., 2002) underline that several
factors impact in shaping such a propensity. Thus the best strategy for
interacting with SMEs could be segmenting instruments and customizing the
relationships (see, e.g., Wolf et al., 2006).
With regard to the role of policy makers, the entrepreneurs look for a
minimization of bureaucratic interferences. They ask for general policies to
facilitate business conditions, while they are rather skeptical about ad hoc
instruments for innovation (such as intermediaries). While the policy makers
give great importance to policies aimed at encouraging SMEs, as well as
 Which roles in innovation processes? 165
universities and public research centres, to apply for patents, the interested
stakeholders do not seem to appreciate such an effort. In particular, the
entrepreneurs don’t seem to be too concerned about patenting, as they feel
that the best way to protect their companies is through their industrial know-
how that is considered difficult to copy.
It is worth noting that there are other motives to apply for a patent than
merely protecting intellectual property. For example, some authors underline
that patents can be used to improve a company’s position in negotiations
with partners, licensees and the financial sector, or to incentivize R&D per-
sonnel (see, e.g., Blind et al., 2006). As regards the role of academics, the
entrepreneurs mainly ask for top-quality education, considering the problem
of gaining access to, getting and maintaining talented human resources
(Romano, 1990) as one of the main threats to SMES’ growth.
Moreover, while policy makers are increasingly asking universities to be
more involved in entrepreneurial activities, the entrepreneurs blame USOs for
playing unfairly on the market. In fact, USOs are perceived by the entre-
preneurs as having preferential links to financial sources (e.g. the EU) and
acting on a captive market (e.g. universities and public administrations). If
USOs acted applying front-end technologies or the results of advanced
researches, probably no one would feel threatened by unfair competition.
The suggestion could be that agencies and incubators, aimed at promoting
USOs, should be more selective in choosing who to allocate funds to. On the
contrary, policy makers seem mainly concerned to find alternative strategies
for making universities raise funds to cope with the continuous cutbacks in
public research budgets. The academics themselves seem to be the most skep-
tical about this new entrepreneurial role they are supposed to assume. Even
though the recent legislation on USOs aims at fostering the involvement in
entrepreneurship by providing academics with the possibility of being for-
mally involved in a new venture, while keeping their university position, stat-
istics still register a very low number of entrepreneur academics. In fact, as
noted by Grandi and Grimaldi (2005), Italy is a country where academics are
fairly risk-averse and, at the same time, very attached to their academic posi-
tions, which they would be willing to give up in only very rare situations, and
for only limited periods of time.

Limitations
It is worth noting that the qualitative approach, applied in this study, involved
few respondents and a relatively small body of data; thus the results are not
generalizable and should be treated with caution.

Conclusion
Based on our analysis and discussion, we conclude that a great effort should
be made to find a common language, with accepted concepts and definitions
166 Silvia Massa and Stefania Testa
as well as a shared set of tools, to facilitate innovation. Several mismatches
among the stakeholders’ aims and roles emerge. For this reason it is necessary
to integrate and coordinate actions, and policy makers are expected to play a
more and more proactive role, going beyond the traditional model where they
play a mere subsidiary role (see, e.g., Lerro, 2007). Notwithstanding its limits,
the study captures in-depth, tacit knowledge, emotions, different perspectives
and interpretations that are essential for improving the understanding of
socially constructed realities.

Future research
There are several ways that future research might move forward. Future
research could be focused on identifying different segments within the popu-
lation of every stakeholder. For example, the entrepreneurs could be seg-
mented by industry or geographic location and the academics by discipline.
Moreover innovation management researchers could be included in order to
refine the analysis. It may be fruitful to include other stakeholders such
as engineering companies, consulting companies, banks, etc. that at the
moment have been neglected despite their undoubted importance in innov-
ation processes.
11 Conclusion and implications
Milé Terziovski

Introduction
With respect to the key question addressed in the book: “How to Energize
Management through Innovation and Entrepreneurship Research and Prac-
tice?” this chapter synthesises the findings from each chapter. Conclusions
are articulated which have implications for managers on how to improve
entrepreneurial orientation and innovation outcomes in organisations.

Complex adaptive systems

Based on the discussion in Chapter 2 by Bratnicki and Gabrys, we synthesize
that an entrepreneurial process can be developed in organizations by
adopting a multi-dimensional approach. This approach is underpinned by
theoretical concepts of complex adaptive systems. These systems consist of
processes, new ideas, new knowledge, new abilities, new willingness, and new
behaviors. Covin and Miles (1999) argue that corporate entrepreneurship can
be linked to competitive advantage.
According to Covin and Miles (1999) innovation is the single concept
which underlines corporate entrepreneurship. However, the authors argue the
presence of innovation is insufficient to declare that a firm is entrepreneurial.
Other dimensions such as strategic management, leadership, knowledge
management, and performance management also need to be taken into
consideration for developing our entrepreneurial culture.

Entrepreneur’s confidence and business planning

Based on the discussion in Chapter 3 by Wadeson, we synthesise that entre-
preneurs tend to be over-optimistic with new ventures, particularly when they
are attempting to raise venture capital. More often than not, entrepreneurs
get screened out by financiers and hence miss out on funding and good
opportunities. Financiers, customers, suppliers, and employees are likely to
be more accommodating once a successful business plan has been established
by the entrepreneur (Kuratko and Hodgetts, 2004). Wadeson argues that
168 Milé Terziovski
entrepreneurs who do not succeed as a result of their own over-optimism
provide useful information to others in lessons learned (Bernardo and Welch,
2001).

Public entrepreneurship
Based on the discussion in Chapter 4 by Zampetakis and Moustakis we
synthesize entrepreneurial factors that could also be applied in the public
service. Zampetakis and Moustakis, based on their empirical research, found
that the factor with the highest average importance to public servants was the
“trial period.” This is followed in descending order by “training,” “reward
systems” and “personnel turnover.” The authors point out that the critical
factors follow a distribution pattern similar to the diffusion of technological
innovations. Diffusion is the process by which an innovation is propagated
through certain channels over time among the units of a system. Success of
an innovation does not depend entirely on technical excellence of a solution,
but rather on the degree of acceptance in the marketplace (Tushman and
O’Reilly, 1996).

Entrepreneurial culture
Based on the discussion in Chapter 5 by Hortoványi and Szabó we synthesize
the characteristics of an entrepreneurial culture. According to Hortoványi and
Szabó, entrepreneurial organizations are different to traditional corporations.
The main differentiator between traditional organizations and entrepreneur-
ial organizations is top management’s tolerance of failure, and their attitude
towards time for innovation.
Miller (1983) identified three types of firms that may characterize an entre-
preneurial culture. The first are simple firms which are small with centralized
power at the top. Typically these firms fall in the category of Small and
Medium-Sized Enterprises (SMEs) which typify an entrepreneurial culture.
SMEs rely on their entrepreneurial/innovation culture. However, SMEs lack
the necessary resources to commercialize their differentiated products and
services.
The next group of firms are larger and engage in formal planning and the
use of formal controls. These firms are strong on formal systems and pro-
cedures and gain economies of scale due to their large size. However, these
firms do not have strong entrepreneurial/innovative cultures. They tend to
focus on sustainable products rather than “disruptive products” such as the
memory stick which disrupted the floppy disk market.
Finally organic firms strive to adapt to their environments. These firms
emphasize expert power and open communication as critical factors for the
creation of an entrepreneurial culture.
 Conclusion and implications 169
Internationalization and entrepreneurial orientation
Based on the empirical research discussion in Chapter 6 by Menguzzato-
Boulard, Ripollés-Meliá, and Sánchez-Peinado, we synthesize that firms
with high entrepreneurial orientation exhibit a higher international scope.
The results in Chapter 6 also show that a positive relationship exists
between a firm’s international experience and its internationalization
scope. Menguzzato-Boulard, Ripollés-Meliá, and Sánchez-Peinado found
that firms with higher international experience are more prone to operate
in a higher number of foreign countries. Finally, manufacturing firms tend
to exhibit a higher internationalization scope than firms operating in the
service sector.

Knowledge management and innovation

Based on the discussion in Chapter 7 by Jiménez-Jiménez and Sanz-Valle we
synthesize that knowledge management and technical innovation require the
adoption of an HRM system. Nicholls-Nixon (2005) contends that entre-
preneurs in rapidly growing ventures have more difficulty in determining the
types of organizational changes needed for entrepreneurship. This is due to
the greater complexity that entrepreneurs are faced with in more traditional
organizations. Chapter 7 identifies three management practices that can help
firms cope with unpredictable change in a fast-growing enterprise.
These are: (1) understand the venture’s business logic and how it channels
individual and organizational efforts; (2) capture and share information and
build relationships with customers, suppliers and employees; (3) manage
organizational politics through an entrepreneurial style which empowers
individuals to make decisions and take action in real time.

Strategic planning and entrepreneurship

Based on the discussion in Chapter 8 by Kraus, Reiche and Reschke we
synthesize the role of strategic planning in the entrepreneurial process.
Entrepreneurial strategy making represents a distinct strategy-making process
characterized by experimentation, innovativeness, risk taking and proactive
assertiveness (Stevenson and Jarillo, 1990).
According to Stevenson and Jarillo (1990), entrepreneurship is not radic-
ally different from corporate management. Corporate entrepreneurship is
broader than “corporate venturing” or setting up intra-firm venture capital
processes. Entrepreneurship aims for growth through innovation. The main
drivers of entrepreneurship, according to Stevenson and Jarillo (1990) are
recognizing opportunities; confidence and the willingness to pursue the
opportunity; and evaluation of the risk and return. Lyon et al., (2000) con-
clude that an entrepreneurial perspective is regarded as critical to strategic
management.
170 Milé Terziovski
Entrepreneurial orientation and firm performance
Based on discussion in Chapter 9 by Gutiérrez, Martínez-Ros and De Castro,
the relationship between entrepreneurial orientation (EO) and firm perform-
ance is strongly characterized by proactiveness, risk taking and autonomy.
However, there is weak support for innovativeness. Results discussed in
Chapter 9 show that levels of risk taking have a negative effect on EO, while
efficiency and alliances, as well as human resource policies and unit differen-
tiation have a positive effect on the EO and firm performance relationship.
Lumpkin and Dess (1996) distinguish between concepts of entrepreneur-
ship and “entrepreneurial orientation” (EO). According to Lumpkin and
Dess, entrepreneurship is about entry into a new market, whereas EO refers
to the processes, practices and decision-making activities that lead to a new
entry in a market. Furthermore, firms with an EO where managers tend to
have high tolerance of ambiguity would have higher performance compared
to firms with managers who have low tolerance of ambiguity. Finally, accord-
ing to Lumpkin and Dess (1996), firms with an EO in which managers have a
high need for achievement would tend to have higher performance compared
to firms with managers who have a low need for achievement.

Innovation performance
Based on the discussion in Chapter 10 by Massa and Testa, different def-
initions and performance indicators of innovation exist in the literature which
is dependent on different stakeholder groups. As expected, the entrepreneurs’
definition of innovation and the respective indicators are strongly related
with the market. Entrepreneurs use performance indicators that are capable
of capturing the intangible effects of innovation, such as creativity and risk
taking.
On the other hand, academics tend to focus on the scientific content of the
innovation, and are comfortable with the traditional indicators, such as
measuring the inputs/outputs of the innovation process. The policy makers
are eager to have performance indicators that strengthen the validity of their
innovation policies.

Conclusion
Based on the multiple cross-chapter analysis and the key question we
conclude that there is a strong relationship between innovation and entre-
preneurship. Innovation is a process by which entrepreneurs identify
opportunities from the external environment, and transfer these opportun-
ities into marketable products and services through the application of scarce
resources (Drucker, 1985).
However, two contradictory schools of thought have emerged in the book.
The first school of thought is that firms with a higher entrepreneurial orienta-
 Conclusion and implications 171
tion operate in a greater number of foreign countries and produce higher
corporate performance than their counterparts. The second school of thought
is that entrepreneurial orientation is not associated with corporate perform-
ance but is positively and significantly associated with subsidiary idea gener-
ation. These ideas are subsequently converted into marketable products and
services through the innovation process. These contradictory schools of
thought provide a basis for future research.

Implications for managers

The following innovation and entrepreneurship implications would assist
managers to become more entrepreneurial:

• Innovation and Entrepreneurship must be seen in the context of complex

adaptive systems.
• Entrepreneurs’ Confidence and developing a business model plays a key
role in the success of an entrepreneurial venture.
• Public Entrepreneurship – entrepreneurship concepts and principles
could be applied in the public sector to overcome bureaucracy.
• Internationalization and Entrepreneurial Orientation are key to the
development of an entrepreneurial culture
• Knowledge Management and Innovation play a key role in the entre-
preneurial process.
• Strategic Planning and Entrepreneurial Orientation are important to an
entrepreneurial leadership style.
• Firm Performance must be measured as part of the innovation manage-
ment process.

Based on the above implication, entrepreneurs should identify opportunities

and convert these into marketable products and services through personal
commitment, financial resources, and taking appropriate levels of risk.
On the other hand, innovation should be seen as a process by which
entrepreneurs transfer these opportunities into marketable products and
services.
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knowledge and competence development,” Entrepreneurship Theory and Practice,
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Index

Aby, C.D. 115 corporate entrepreneurship 18–23, 23–5;

academics 170; defining innovation 153, entrepreneurial behavior 15, 16–17, 20,
161–4; innovation indicators 154–5, 22, 23–5, 42
161–4; role in innovation process 150–1, beliefs 9
159–60, 162, 165; views on entrepreneurs Berdrow, I. 13
155, 162, 164; views on policy makers Berman, J.A. 121
158–9, 162 Bernardo, A.E. 39
accessibility, systems 138, 145 Berry, M. 111
action: dialectical dynamics of corporate Bhaskar, R. 18
entrepreneurship 18–19, 21–2; Bhide, A.V. 32
opportunities and actions 9–10 Birkinshaw, J. 128
adaptiveness 21 Bluedorn, A.C. 57
administrative dimension of corporate Bokor, D.W. 118
entrepreneurship 18–23, 23–5 Bontis, N. 91, 104
administrative innovation 90 Bracker, J.S. 115, 120, 121, 122
Adner, R. 29 Bradley, C. 49, 53
age of firm 123–5 Bronner, T. 117
Anderson, J.C. 104–5 Brown, J.D. 37
Andersson, T. 150 Bruyat, C. 41
Andries, P. 31 bureaucracy 155–6
appraisals 95–6, 99 Burgelman, R.A. 1, 3, 24, 57
Aranda, D.A. 3 business planning 167–8, 171
Argyris, C. 11 Bygrave, W. 11
Arnold, D. 133
autonomy 93, 108; EO and firm Calabrese, T. 132
performance 129, 130, 136, 137, 139–41, Cameron, K. 23
142, 144 capacity 32, 33–5, 37–8
autopoiesis 10, 11; corporate career management 95, 99
entrepreneurship integrated dialectical Carland, J.A.C. 115
framework 14–17 Carland, J.W. 115
Caruana, A. 41
Baden-Fuller, C.W. 13 Cassar, G. 116, 120
Baird, I.S. 117 Castells, M. 56, 58, 59
Baldini, N. 150 catalogue 157
bankruptcy 157 Caves, R.E. 31
Bargh, J.A. 19 Cavusgil, T. 75, 77
Barringer, B.R. 57 centralization 133
basic product 35, 38 Chartrand, T.L. 19
Batcher, J. 48 Chesbrough, H. 153
Baum, J.A.C. 9, 132 Christensen, C. 57, 58
behavior: behavioral dimension of Chung, L.H. 23

circle of corporate entrepreneurship model
23–5, 26
cluster analysis: EO and performance of
SMEs 135–45; Hungarian firms’ market
behaviours 62–5; public sector
entrepreneurship 47–53
coevolution processes 24–5
Cohen, W.M. 57
collaborative research facilities 159
Collins, J.C. 8
community innovation surveys (CISs)
146–7
company size see firm size
compensation/reward system see reward/
compensation system
competitive aggressiveness 129
competitive strategy 131, 137, 138
competitiveness, industry level 4, 55–71
complex adaptive systems 25, 167, 171
confidence, entrepreneur’s 37–8, 167–8, 171
configurational approach 129, 130–1;
configurational model of EO and firm
performance 135–6, 141, 142, 143, 144–5
confirmatory factor analysis 99–104
conjoint analysis 44–7, 48; design 45–6
conservatively offensive cluster 62–4
contingency approaches 144; contingency
model of EO and firm performance
135–6, 141, 142, 143, 144–5
continuity 22
contradictions reconciliation 7, 18–23,
24–5, 26–7
control and information systems 134, 137,
138, 139–45
“Convince me” group 50, 52–3
Cook, W.J. 18
cooperative strategy 132, 142, 144
Coriat, B. 150
corporate entrepreneurship 4, 6–27, 40, 56,
57; circle 23–5, 26; cognitive base of
11–14; dialectical dynamics 7, 18–23;
ideological orientation of 8–11;
integrated dialectical framework 14–17;
main components and logic of 18–25;
stimulants of 42–3; see also public sector
corporate philosophy 58–9, 66, 67
cost leadership strategy 131, 142, 145
Covin, J.G. 56, 58, 131, 133, 145, 167
Crossan, M. 12, 13, 14, 91
Csesznák, A. 60
Cummings, S. 7
customer orientation 66
Damanpour, F. 90
Dana, L.P. 73
Davis, S.M. 3
Index 201
Debackere, K. 31
decision making 4, 28–30
defensively conservative cluster 62–4
Delanty, G. 151
Delery, E.J. 99
Delmar, F. 115, 121
Den Hertog, P. 154
departmentalization 133–4
Dess, G.G. 57, 128, 129, 130, 131, 145, 170
dialectical dynamics 7, 18–23
dialectical reconciliation 7, 18–23, 24–5,
26–7
differentiation strategy 60, 67, 69, 131, 145
diffusion of technological innovations
52–3, 168
discriminant analysis 48–9
discriminant validity 79–80, 104–5
dispersed enterpreneurship 128
Doran, R. 118, 121
Doty, D.H. 99
dreamers 154
Drucker, P.F. 2, 3, 42, 149
Dyer, J. 132
early adopters 52–3
early majority 52–3
employee participation 93, 108
entrepreneurial behaviour 15, 16–17, 20, 22,
23–5, 42
entrepreneurial cluster 62–4
entrepreneurial culture 4, 55–71, 168–9
entrepreneurial leadership 15, 16–17, 20,
21, 23–5
entrepreneurial management 15, 16–17, 20,
22, 23–5
entrepreneurial orientation (EO) 5, 171;
defining 128; dimensions of 78–80,
128–9, 130–1, 136, 137, 139–41, 142, 144;
and entrepreneurship 170; and firm
performance 5, 128–45, 170; and
international activity 75–6, 83–4, 88; and
international scope 77, 84, 85, 86, 88; and
international speed 76–7, 84–6, 88;
internationalization and 4, 72–88, 169,
171; measurement 136, 137
entrepreneurial probing strategies 33–6
entrepreneurs 170; confidence 37–8, 167–8,
171; defining innovation 152–3, 160–1,
164; goals 126; innovation indicators 154,
160–1; role in innovation process 148–9,
155, 162, 164; views on academics 159,
162, 165; views on policy makers 155–6,
157, 162, 164–5
entrepreneurship 4, 28–39, 167–8; decision
making under risk vs under uncertainty
28–30; definitions 1–2; and
202 Energizing Management
entrepreneurial orientation 170; ex ante government policy see policy makers
information collection 32–3; and graduates 154–5
innovation 3, 4, 171; over-optimism Grandi, A. 165
37–8, 167–8, 171; sequential acts 30–2; Greek public sector 43–53
strategic planning and 169–70 Grimaldi, R. 165
environmental change, ability to influence group-level learning 91, 101, 104
67, 69, 70 growth: recent 69, 70; ROA growth 136,
equifinality 26 143; strategy 57–8, 66–7, 68
Esser, W.M. 112, 114, 115 Gupta, A.K. 92
established firms: entrepreneurial
orientation and internationalization 4, Haake, K. 116, 120, 122
72–88, 169, 171; strategic planning Hall, B. 132
123–4, 125 Hansson, F. 150
Etzkowitz, H. 151 Hauknes, J. 150
ex ante information collection 32–3 Hayton, J.C. 40, 42, 43
ex post modifications 31 Hedberg, B. 11
exploitation 12, 13–14; corporate Heinlo, A. 164
entrepreneurship integrated dialectical hierarchical clustering 48, 49
framework 14–17 hierarchical regressions 135–6
exploration 12, 13–14; corporate hiring 94, 99
entrepreneurship integrated dialectical Hitt, M.A. 11
framework 14–17 Hodgetts, R.M. 1–2
Höfner, K. 112, 115
familiar nature 81, 82 Hoskissen, R.E. 56
firm performance see performance HP 3
firm size 138, 141; entrepreneurial culture Huber, G.P. 99
58, 65–6; and internationalization 81, 82; Hulland, J. 12
large enterprises 123–4, 168; SMEs see human resource management (HRM) 4,
small and medium-sized enterprises; 89–109, 169; antecedent of
strategic planning and 121–2, 123–5 organizational learning and technical
flexibility 93 innovation 92–7; EO and performance
Floyd, S.W. 56 134, 137, 138, 139–45; innovative HRM
formal search 156 system 96–7, 97–9, 108; structural model
formalization 133, 168 of relationship to knowledge
Fornell, C. 104 management, organizational learning
Foss, N. 43 and technical innovation 105, 106, 107
Foyn, F. 148, 164 Hungary 55, 61–71
Freeman, C. 147
Fröhlich, E. 115, 120 Ibrahim, N.A. 119
Füglistaller, U. 112 ideology 7–8; corporate entrepreneurship
Fuller, T. 8 integrated dialectical framework 14–17;
fully developed products 35 ideological orientation of corporate
entrepreneurship 8–11
Gans, J.S. 132–3 inbound position of universities 159–60
generic strategy 131, 137, 138 incentives 96
George, G. 72, 73 incremental innovation 34
Gerbing, D.W. 104–5 individual-level learning 91, 101, 104
Geuna, A. 150 industry: sectors in analysis of EO and firm
Gibb, A. 116, 123 performance 138, 139; sectors and
Gibbons, P.T. 23 internationalization 84–5, 86; type and
Gibson, B. 116, 120 strategic planning 126
global new ventures (GNVs) 72–3 industry level competitiveness 4, 55–71
goals, entrepreneur’s 126 informal planning 122
Gopalakrishnan, S. 90 information collection 28–32; decision
goodwill 35–6 making 28–30; ex ante 32–3; sequential
Gordon, D.D. 121 acts 30–2
 Index 203
information costs 30 knowledge acquisition 99, 100
innovation 4, 89; definitions 2–3, 170; knowledge distribution 99, 100
diffusion of 52–3, 168; and knowledge interpretation 99, 100
entrepreneurship 3, 4, 171; HRM and knowledge management (KM) 4, 89–109,
knowledge management as antecedents 169, 171; antecedent of technical
of 4, 89–109, 169; Oslo Manual and 147, innovation 90–2; capabilities and
147–8, 155, 164; stakeholders and innovation in service sector 3;
defining 152–4, 160–7 measurement 98, 99, 100, 102; structural
innovation indicators 147, 147–8, 170; model of relationship to HRM,
stakeholders and 154–5, 160–4 organizational learning and technical
innovative HRM system 96–7, 97–9, 108 innovation 105, 106, 107
innovativeness 21; EO and firm knowledge spillovers 38–9, 58–9, 148
performance 128–9, 130, 136, 137, Koppl, R. 12
139–41, 142, 144; EO and Kotler, J.P. 16
internationalization 74–5, 78–80 Kropfberger, D. 113, 117, 120
institution: corporate entrepreneurship Küpper, H.U. 117
integrated dialectical framework 14–17; Kuratko, D.F. 1–2, 117, 118, 120
ideology and corporate entrepreneurship
9–10, 11 laggards 53
interest rates 36 Lang, J.C. 92
intermediaries for innovation 156, 157–8, Larcker, D.F. 104
159, 165 large enterprises 123–4, 168
internal marketing 53 late majority 53
international activity 75–6, 81, 82, 83–4, 88 Laursen, K. 43
international experience 81, 82, 86, 169 leadership 9; entrepreneurial 15, 16–17, 20,
international new ventures (INVs) 72–3 21, 23–5
international scope 77, 81, 82, 84, 85, 86, learning: by doing 29; levels of 91, 101, 104;
88, 169 organizational see organizational
internationalization 4, 72–88, 169, 171; learning
dimensions of 75–7, 81 Leitner, K.H. 117, 120
internationalization speed 76–7, 81, 82, Levin, A.Y. 24
84–6, 88 Levinthal, D. 13–14, 29, 57
Ireland, R.D. 11 Levis, J. 8
Italy 165 Leydesdorff, L. 151
Lichtenstein, B.B. 13
Jacob, M. 151 life-stage model 23
Jarillo, J.C. 149, 169–70 Lindell, M. 110, 113
job design 93, 97 Lumpkin, G.T. 128, 129, 130, 131, 145, 170
job rotation 42–3, 43, 45–51, 54 Lyles, M.A. 117, 120, 121
Johanson, J. 73 Lyon, D.W. 170
Johnson, G. 112
Johnson, R.A. 48, 76 Mair, J. 42
Jones, F.F. 41, 43 management: entrepreneurial management
journal articles, analysis of 113–22 15, 16–17, 20, 22, 23–5; practices and
Julien, P. 41 industry level competitiveness 4, 55–71;
strategic see strategic management
Kane, H.W. 91 Manu, F.A. 104
Kannemeyer, R. 31 manufacturing sectors 84–5, 86
Kanter, R.M. 151 map and mapping 7
Karagozoglu, N. 110, 113 March, J.G. 13–14
Kargar, J. 116 Marino, L. 132
Karkatsoulis, P. 46 market concentration 66
Keats, B.W. 115 market orientation 134
Kim, W.C. 2 marketing innovation 148
Kirsch, W. 112, 115 Massa, S. 147
Knight, G.A. 75, 77 Masurel, E. 118, 122
204 Energizing Management
Matthews, C.H. 117, 121–2
Maturana, H. 10
Mauborgne, R. 2
McDougall, P.P. 72, 77
McEvan, T. 9
McKinsey surveys 5, 146
Mescon, T.S. 119, 121
Miles, M.P. 58, 133, 167
Miller, D. 74, 78, 129, 130, 168–9
Minniti, M. 11
Minniti, R. 12
Mintzberg, H. 59, 133
modifications, ex post 31
Moe, K. 3
Molina-Fernandez, L.M. 3
Morris, M.H. 41, 43
Motorola 3
Moustakis, V. 42
Mueller, C. 118, 120
Naffziger, D.W. 118, 120
Nås, S.O. 146
Nerkar, A. 133
networks 58–9, 148, 158
niche production 33, 34–5, 38, 113, 125
Nicholls-Nixon, C.L. 134, 169
“no time for innovation” 62, 64, 65
“No way” group 50–1, 52–3
non-technological innovations 148
Norgren, L. 150
O’Gorman, C. 118, 121
older firms 123–5
Olson, P.D. 118
open innovation 153
opportunities 149; actions and 9–10;
exploration and exploitation 13–14
optimism 37–8, 167–8, 171
organic firms 169
Organization for Economic Cooperation
and Development (OECD) 147–8, 151
organizational culture 58; fit to 94, 108
organizational innovation 148
organizational learning 8; cognitive base of
corporate entrepreneurship 11–14;
corporate entrepreneurship integrated
dialectical framework 14–17; HRM and
90, 92–7, 108, 109; knowledge
management and 91, 92, 105–8;
measurement 98, 101, 102–3, 104;
structural model of relationship with
HRM, knowledge management and
technical innovation 105, 106, 107
organizational memory 99, 100
organizational structure 133–4, 137, 138,
139–45
Orpen, C. 118, 121
Orris, J.B. 117
Orsi, F. 150
Oslo Manual 147, 147–8, 155, 164
outbound position of universities 160
over-optimism 37–8, 167–8, 171
Oviatt, B.M. 72, 77
Parnell, J.A. 116
patents/patenting 154, 156–7, 165; EO and
firm performance 132–3, 137, 138
pay for performance 42–3, 43, 45–51, 54
Pearce, J.A. 119, 121
Pearson, J.N. 115, 120, 121, 122
peer exchange 159
performance 136, 171; entrepreneurial
orientation and 5, 128–45, 170
performance appraisals 95–6, 99
Pichler, J.H. 115, 120
Piest, B. 118
Pitt, L.F. 31
planned economies 55
planning: business 167–8, 171; informal
122; strategic see strategic planning
Pleitner, H.J. 123
policy makers 170; defining innovation
153–4, 161, 164; innovation indicators
154, 161, 164; role in innovation process
149–50, 155–9, 162, 164–5, 166; views on
academics 159, 162, 165; views on
entrepreneurs 155, 162, 164
political dimension of corporate
entrepreneurship 18–23, 23–5
polyvalence 94, 108
Porras, J.I. 8
Porter, M.E. 2, 131, 150
Posner, B.G. 111
Preston, J. 91
primary contradictions 18–19, 21–2, 26
proactiveness: EO and firm performance
128–9, 130, 136, 137, 139–41, 142, 144;
EO and internationalization 74–5, 78–80
probing strategies 33–6
process innovation 90–1, 101, 104; see also
technical innovation
process theory of internationalization
(PTI) 76
product development 35, 38
product innovation 90–1, 101, 104; see also
technical innovation
product range 113
promotion 95, 99
public sector 4, 40–54, 168, 171; fostering
entrepreneurship in 42–3; research
methodology 43–6; research results and
analysis 46–51
 Index 205
Quinn, R.E. 23 Sexton, D.K. 119, 121
Shane, S. 115, 121, 133
radical innovation 34 shaping the future 59–60, 67, 69
Ramanchandran, K. 132 Sharma, A. 9
Ramnarayan, S. 132 Shipton, H. 42, 43
Rasmussen, E. 151 Shrader, C.B. 119, 121
real options 28, 31–2, 33 Shuman, J.C. 119
reconciliation, dialectical 7, 18–23, 24–5, Silicon Valley 59
26–7 Sillanpaa, M. 16
reliability of feedback 36 Silverman, B.S. 132
resource-based theory 76 Simons, R. 134
return on assets (ROA) growth 136, 143 Singh, H. 132
reward/compensation system: HRM and Singhal, A. 92
technical innovation 96, 99; public size see firm size
entrepreneurship 42–3, 43, 45–51, 54 skills 154–5
risk: decision making under vs decision Slevin, D.P. 56, 133, 145
making under uncertainty 28–30; small and medium-sized enterprises
innovation and 154 (SMEs) 168; characteristics of 112–13;
risk taking: EO and firm performance empirical evidence of strategic planning
128–9, 130, 136, 137, 139–41, 142, 144; in 113–22; performance and
EO and internationalization 74–5, 78–80 entrepreneurial orientation 5, 128–45,
Risseeuw, P. 118, 122 170; roles in innovation processes
Roberts, N.C. 41 146–66; scope of strategic planning
Robinson, R.B. 119, 121 114–20; and strategic planning 5, 110–27;
Rogers, E.M. 41, 52–3 strategic planning and success 121;
roles of innovation stakeholders 148–51, strategy development in 111–13; types of
155–60, 162, 164–5 and strategic planning 124–5
Rue, L.W. 119 Soete, L. 147
Russell, R. 133 Souitaris, V. 42
Spanish firms: EO and internationalization
SABI database 97, 135 78–88; EO and performance in SMEs
Sadler, R.J. 43, 51 135–45; knowledge management, HRM
salary see reward/compensation system and technical innovation 97–109
scale of production 32, 33–5, 37–8 specialization 133–4
Scarbrough, H. 91 speed of first international entry 76–7, 81,
Scholes, K. 112 82, 84–6, 88
Scholz, L. 119, 120 spillovers 38–9, 58–9, 148
Schön, D.A. 11 stability 22
Schuler, R.S. 134 Stacey, R.D. 9
Schumpeter, J.A. 1, 148–9 stakeholders 5, 146–66; innovation
Schwenk, C.R. 119, 121 definitions and indicators 152–5, 160–4,
science parks 158 170; roles in innovation process 148–51,
scientific community 153; see also 155–60, 162, 164–5
academics Starbuck, W.H. 11
scope of internationalization 77, 81, 82, 84, Stern, S. 2, 132–3
85, 86, 88, 169 Stevenson, H.H. 149, 169–70
Scott, M. 116, 123 Stopford, J.M. 13
Scott, S.G. 117, 121–2 Storey, D. 33
secondary contradictions 18–19, 21–2, 26 strategic alliances 132, 142, 144
Seeger, J.A. 119 strategic entrepreneurship 15, 16–17, 20,
self-organized transition 12–13 21, 23–5
Selznick, P. 9 strategic management 111; practices and
sequential acts 30–2 competitiveness 4, 55–71; SMEs and 122,
service sectors: internationalization 84–5, 123–4, 126
86; knowledge management and strategic planning 5, 110–27, 169–70, 171;
innovation 3 and company size 121–2; empirical
206 Energizing Management
evidence of in SMEs 113–22; enterprise entrepreneurship 42–3, 43, 45–51, 54
characteristics and 123–6; scope of in transition economies 4, 55–71
SMEs 114–20; entrepreneurial trial period 43–4, 45–51, 54
corporations 59–60, 67, 69; strategic two-step cluster analysis 62–5
management and 111; and success 121
strategy: entrepreneurial probing strategies Ucbasaran, D. 13
33–6; EO and performance 131–3, 137, Ulrich, D. 92
138, 139–45; strategic dimension of uncertainty, decision making under 28–30
corporate entrepreneurship 18–23, 23–5 universities 150–1, 159–60, 164–5; central
structural equations modelling (SEM) 105, technology transfer offices 158–9; liaison
106, 107 offices 158; see also academics
structure, organizational 133–4, 137, 138, university spin-offs (USOs) 155, 159, 165
139–45 unstructured planning 122
success, strategic planning and 121 Vahlne, J. 73, 76
sunk costs 31 value innovation 2
Sussmann, G. 121 values 9
Swan, J. 91 Van Auken, P. 119, 121
Szabó, R.Z. 59 Varela, F. 10
Vera, D. 14
tacit knowledge 30 Verganti, R. 146
taxation 156 Vignali, R. 146, 149, 164
Taylor, S.E. 37 Volberda, H.W. 24
teamwork 93–4, 99 Vozikis, G.S. 119, 121
technical innovation (TI) 89–109, 148;
HRM as antecedent 92–7; knowledge Weick, K. 147
management as antecedent 90–2; Welch, I. 39
measurement 98, 101, 103, 104–5; Welter, F. 122
structural model of relationship with Wheeler, D. 16
HRM, knowledge management and “When do we start?” group 49, 50, 52–3
organizational learning 105, 106, 107 White, R.E. 91
technological strategy 132–3, 137, 138 Wichern, D.W. 48
techology, level of applied 69, 70 Wieselhuber, N. 112, 115
technology transfer 156, 157–9 Wilson, D. 7
Teece, D. 146 Wimmer, A. 60
“Tempt me” group 50, 52–3 Wirth, B. 124
thinking 18–19, 21–2 Wooldridge, B. 56
Thite, M. 90
3M 3 young enterprises 123–4, 125
Timmons, J.A. 8
top management: entrepreneurial 66, 67; Zahra, S.A. 11, 56, 72, 73
tolerance of failure 62, 64 Zampetakis, L.A. 42
training: HRM, organizational learning Zerbinati, S. 42
and technical innovation 94–5, 99; public Ziedonis, R. 132