Firm performance

Firm performance is a multidimensional concept and the relationship between EO and firm performance may depend upon several indicators used to assess performance.

Because businesses with EO may invest heavily in long-term growth and profits, this dissertation examines the conceptual argument of the EO–performance relationship by focusing on following several aspects of firm performance, including subjective (such as competitive advantage and satisfaction) and accounting measures (such as ROA and Tobin’s q).

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Chapter 2

Literature Review and Hypotheses

This chapter reviews the existing literature on entrepreneurship, resource-based view, and external approach: environmental dynamism. Definition of entrepreneurship and EO are first discussed. Next, the related literature on the main two aspects:

resource attributes and environmental dynamism. Finally, the existing research on the relationships between EO, external environment, internal resources, and firm performance is reviewed, thereby developing the strategic logic from inside-out and outside-in.

2.1 Definition of Entrepreneurship

The topic of entrepreneurship has been examined, studied, and developed for more than two hundred years. The term “entrepreneur” itself is derived from the French word and was first used in 1755 by Richard Cantillon, who regarded entrepreneurs as specialists in taking risk. Popular notions of entrepreneurship are based on the view of Schumpeter (1934), who viewed entrepreneurs as innovators who create new industries and pursue a change of the industrial structure. The term

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“entrepreneurship” has been variously explained by different scholars (see Table 2-1), and is described below.

There are many definitions of entrepreneurship in the literature. According to Schumpeter (1934), firms with entrepreneurship combine production factors and facilitate unique resource-capability combinations in dynamic and high-risk environments in manners that distinguish them from other firms by reducing costs or differentiating their products and services. Entrepreneurship is perceived as introducing new combinations (including resource-capability combinations, new goods, and new methods of production) or as exploiting new markets. Schumpeter (1951;

1976) defined entrepreneurship as involving the conducting of operations not routinely conducted in the operation of a business, a phenomenon that falls under the concept of leadership.

Contemporary definitions of entrepreneurship tend to focus on the pursuit of opportunities. The opportunities-based concept of entrepreneurship originates from Stevenson (1986) and focuses on entrepreneurship as the pursuit and exploitation of opportunity without regard for resource controls. Shane and Venkataraman (2000) also define the domain of entrepreneurship in terms of the recognition and exploitation of opportunities. Recently, Kuratko and Hoggetts (2004) have explained entrepreneurship by identifying four key areas that need to be proposed simultaneously: (1) Unique markets—entrepreneurs identify new market segments. (2) Unique people—entrepreneurial ventures are built on the special talents of one or more

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individuals. (3) Unique products—entrepreneurial ventures innovate and create new products or services that capture new or existing markets. (4) Unique resources—entrepreneurs have the ability to exploit resources over long periods of time.

Based on the above-mentioned areas, Curator and Hoggetts (2004) define entrepreneurship as involving entrepreneurs who are capable of recognizing and seizing opportunities and of converting those opportunities into marketable ideas requiring effort to implement, thereby resulting in potential rewards.

During the last decade, management researchers have extended the scope of their interests to encompass entrepreneurship issues. Although Schumpeter (1934) established a link between the entrepreneurial initiatives of individuals and the creation and destruction of industries, organizations are more often able to exploit resources pursuing innovation than individuals are. Entrepreneurship research thus has increasingly transformed the individual level into the organizational level (Brown et al., 2001; Covin & Slevin, 1991; Davidsson & Wiklund, 2001; Stevenson & Jarillo, 1990;

Stopford & Baden-Fuller, 1994).

Studies of entrepreneurship are generally classified into three main categories (Stevenson & Jarillo, 1990). First, there are studies that focus on the results of actions taken by entrepreneurs. Second, there are studies that take a psychological/sociological approach and view entrepreneurship as deriving from individuals, where their

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backgrounds, environments, goals, and motivations are the objects of analysis. Finally, there is research concerned with the characteristics of entrepreneurial management, analyzing how entrepreneurs are able to achieve their objectives. This view of entrepreneurship can subsequently be applied to the firm-level, and proponents propose that entrepreneurial firms pursue opportunities regardless of the resources they control.

For example, Covin and Slevin (1991) outline a model of entrepreneurship as a firm-level phenomenon, which stems from two causes. First, entrepreneurial effectiveness is derived from firm-level operations, which means that entrepreneurial effectiveness can be measured in terms of firm performance. Second, individual-level behavior can impact organizational performance; however, the fact remains that organizational-level behavior is a predictor of entrepreneurial effectiveness.

Indeed, over the past decade, some researchers have changed the level of their analyses of entrepreneurship. Davidsson and Wiklund (2001) review the literature related to entrepreneurship and divide it into five levels: (1) individual-level, (2) firm-level, (3) industry-level, (4) regional-level, and (5) national-level. Table 2-2 shows an increase in the number of firm-level studies, while the number of individual-level studies has gradually declined. Therefore, the apparent trend is towards examining the firm as the level of analysis, including just the firm-level. Compared with 28% of 1988/89 articles, firm-level and individual- and firm-level analysis is conducted in more than 47% of the 1998 articles.

Zahra, Nielsen, & Bogner (1999) suggest that many studies use inconsistent terms

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to refer to various aspects or types of entrepreneurship. Previous scholars have used diverse terms, including entrepreneurship, corporate entrepreneurship, entrepreneurial posture, strategic posture, and entrepreneurial orientation.

In summary, definitions of entrepreneurship in the literature are originated from different scholars. In general, most studies on the related issues of entrepreneurship, entrepreneurial posture, or EO usually regard the firm as the level of analysis. Based on the studies of Schumpeter (1934), Stevenson (1986), and Kuratko and Hoggetts (2004), this study mainly follows the definition of entrepreneurship and employs EO that has been a concept in the domain of entrepreneurship. According to prior studies, this dissertation will develop following argument: a firm with entrepreneurship usually facilitates to combine the resource with the capability in rapidly changing environment.

Table 2-1 Definitions of Entrepreneurship Author Definition

Schumpeter (1934)

Entrepreneurship is seen as the implementation of new combinations, including (1) the introduction of new goods, (2) the introduction of new methods of production, (3) the exploitation of new markets, (4) the exploitation of new sources of supplies, and (5) the creation of new organizations.

Kizner (1973) Entrepreneurship is the ability to perceive new opportunities.

Drucker (1985) Entrepreneurship refers to acts of innovation that involve combining existing resources with new capabilities.

Rumelt (1987) Entrepreneurship is the creation of new businesses; a new business means that existing businesses are not exactly duplicated; there is an element of novelty.

Low & MacMillan Entrepreneurship is defined as the "creation of new enterprises."

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(1988)

Gartner (1988) Entrepreneurship is the creation of organizations and the process by which new organizations come into existence.

Stopford &

Baden-Fuller (1994)

Entrepreneurship is classified into three stages: (1) Individual entrepreneurship: New businesses are usually associated with individual entrepreneurship. (2) Organizational renewal:

Individuals or teams in an organization alter the pattern of resources to respond to threats or opportunities for achieving stronger economic performance. (3) Frame-breaking: Firms change the rules of their competition.

Roberts (2007) Entrepreneurship is the pursuit of opportunities without considering current resources and capabilities.

Morris (1998) Entrepreneurship is the process through which individuals and teams create value by bringing together unique packages of resource inputs to exploit opportunities in the environment.

Ireland et al.

(2001)

Entrepreneurship is defined as having two orientations: (1) A context-dependent social process: Individuals or teams create wealth by gaining access to a variety of resources, enabling them to exploit market opportunities. (2) A business-related phenomenon: An entrepreneurial firm can improve performance by concentrating on innovation, proactiveness, and risk-taking.

Source: Summary of this study

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Table 2-2 A Comparison of the Analysis Level of Entrepreneurship

Level 1988/1989 1998

Micro levels 59.5 % (38) 77.7 % (49)

Individual 26.6 % (17) 20.6 % (13)

Firm 26.6 % (17) 36.5 % (23)

Other (single) micro-level 1.60 % (1) 1.60 % (1)

Individual and firm 1.60 % (1) 11.1 % (7)

Multiple micro-level units 3.10 % (2) 7.90 % (5)

Aggregate levels 21.8 % (14) 11.2 % (7)

Industry 7.80 % (5) 3.20 % (2)

Region 6.20 % (4) 3.20 % (2)

Other single- or multiple-aggregate levels

7.80 % (5) 4.80 % (3)

Micro/aggregate mix 12.5 % (8) 11.1 % (7)

Other/unclassifiable 6.20 % (4) 0.00 % (0)

Total 100 % (63) 100 % (63)

Source: Davidsson and Wiklund (2001)

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2.2 Dimensions of Entrepreneurial Orientation

Although some scholars have defined entrepreneurship based on the individual characteristics of entrepreneurs (Shook, Priem, & McGee, 2003), most studies follow the concept of classic economics, which considers EO to be a firm-level factor.

Lumpking and Dess (1996) make a distinction between the concept of entrepreneurship and EO. Lumpking and Dess suggest that entrepreneurship represents a new entry or business venture and corresponds with strategic content; that is, an entrepreneurial firm poses the question, “What business shall we enter?” The answer to this question determines a firm’s domain or product-market. EO, however, refers to the processes, practices, and decision-making activities that improve the new entry. In other words, entrepreneurship refers to what the factors consist of, while EO indicates how those factors are undertaken. Therefore, EO can be viewed as manipulating the process of entrepreneurship. In summary, entrepreneurship is defined as a new venture entered by a firm, and EO describes how the new venture is undertaken and accomplished.

Dess and Lumpkin (2005) assert that corporate entrepreneurship has two aims: the creation of new ventures and strategic renewal. Although firms can grow through mergers and acquisitions as well as through joint ventures and strategic alliances, corporate entrepreneurship is typically focused on developing internal ventures.

Corporate entrepreneurship yields above-average returns and contributes to sustainable advantages. However, the strategic leaders and the culture of a corporation together

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generate a strong impetus to innovate, take risks, and aggressively pursue new venture opportunities (proactiveness); this concept is referred to as “entrepreneurial orientation”

(Dess & Lumpkin, 2005; Miller, 1983). Covin, Green, and Slevin (2006) assert that EO has increasingly become a central concept in the domain of entrepreneurship and has received a substantial amount of theoretical and empirical attention.

With regard to the dimensions of EO, Lumpkin and Dess (1996) assert that the primary dimensions of EO are proposed by Miller (1983), who suggests that a firm with EO will be capable of engaging in product innovation, undertaking risky ventures (risk-taking), and exercising superiority over other competitors (proactiveness).

2.2.1

Innovation

The first dimension that characterizes a firm with EO is innovation. Schumpeter

(1934) is the first to highlight the role of innovation in the entrepreneurial process and to view innovation as the most critical factor in entrepreneurship. In addition, the

“creative destruction” proposed by Schumpeter refers to the notion that the existing market structures are destroyed by new products or services when firms exploit existing resources and capabilities to create novel products or services; the new market structure then causes these firms to grow.

Innovation is defined as new ideas, novel experimentation, and creative processes supported by firms, which result in new products, services, or technological processes (Covin & Slevin, 1989; Lumpkin & Dess, 1996). Zahra (1996) argues that innovation

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is the commitment of a firm to create and introduce products, processes of production, and organizational systems. In today’s highly competitive business environment, innovation is recognized as the critical source of competitive advantage. Roberts (1999) suggests that a successful firm repeatedly introduces innovations and thus achieves a sustained competitive advantage. Lumpkin and Dess (1996) classify innovation into two categories: product-market innovation and technological innovation.

Product-market innovation refers to product design, market research, and advertising and promotion (Lumpkin & Dess, 1996; Miller, 1983; Miller & Friesen, 1982).

Technological innovation achieves shifts in the competencies surrounding the latest technologies, production methods, and the development of manufacturing processes (Lumpkin & Dess, 1996; Miller & Friesen, 1982).

Miller (1983) focuses on innovation in the technological and product-market, and associates innovation with entrepreneurship. More specifically, Drucker (1985) suggests that innovation is regarded as the specific tool of an entrepreneurial firm, and is the means by which such a firm can exploit change as an opportunity to establish a different business or a different service.

As mentioned above, innovation is the specific function of an entrepreneurial orientation, and innovation in this study refers to the process of engaging in creativity by introducing new products or services and technological leadership in manufacturing processes. Therefore, innovation is an important determinant of an entrepreneurial orientation.

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2.2.2

Proactiveness

The second dimension that characterizes a firm with EO is proactiveness. Penrose (1959) emphasizes that entrepreneurial firms are capable of seeing and imagining future opportunities to promote their growth. Lieberman and Montgomery (1988) argue that the first-mover advantage, which capitalizes upon market opportunities, is the best strategy for firms. By exploiting a first-mover advantage strategy, firms usually obtain abnormal returns from markets and build brand recognition within their customer bases. Thus, firms that take initiative can anticipate new opportunities in emerging markets.

Proactiveness refers to shaping a new business environment that derives profits from new products, technologies, and administrative techniques rather than by following the business practices of competitors (Miller & Friesen, 1978). Proactiveness is also defined as the manner of enterprises that attempt to recognize and seize new opportunities (Lumpkin & Dess, 1996; Miller & Friesen, 1982), implying a forward-looking perspective that might or might not be related to current operations (Lumpkin & Dess, 1996; 2001). Proactiveness also involves tracking changes in customer tastes, new products, and innovative technology (Lumpkin & Dess, 2001).

Based on such manners and information, proactive firms create ideas for novel products that are superior to those of their competitors (Miller, 1983).

Venkatraman (1989) defines the term “proactiveness” as referring to the search

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for market opportunities and an experimental response to environmental changes.

Proactiveness is manifested in the following three ways:

(1) Seeking new opportunities that might or might not relate to the present line of operations.

(2) Introducing new products and brands ahead of the competition.

(3) Strategically eliminating operations that are in the mature or declining stages of the life cycle.

Miller (1983) links the association between entrepreneurship and proactiveness through an empirical study, and refers to proactiveness as a characteristic of an entrepreneurial orientation (Lumpkin & Dess, 1996). Although there is a correlation between proactiveness and innovation, proactiveness emphasizes action and initiative more than innovation (Lumpkin & Dess, 1996). Thus, proactiveness is an important determinant of an entrepreneurial orientation.

2.2.3

Risk-Taking

The third dimension of an entrepreneurial orientation is risk-taking. Miller and Friesen (1978) refer to risk-taking as the degree to which managers are willing to make large and risky resource commitments. More specifically, risk-taking involves a willingness to exploit opportunities that have a probability of failure or poor performance as part of business operations (Morris et al., 2008). Baird and Thomas

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(1985) define three types of risk, as follows:

(1) Venturing into the unknown: a sense of uncertainty, such as personal risk, social risk, or psychological risk.

(2) Committing a relatively large portion of assets: the significant commitment of resources into a venture that carries the possibility of failure.

(3) Borrowing heavily: high leverage as a result of borrowing, such as incurring heavy debt, investment in unexplored technologies, or the bringing of new products into new markets.

However, Druck (1985) argues that a firm with EO does not make decisions recklessly. These firms have a reasonable awareness of risk, including financial, technical, and market risk and they expect that their CEOs and top management will attempt to manage these risks. Successful enterprises do not represent high risk because successful entrepreneurs know how to exploit the opportunities of innovation in relatively low risk business environments.

Based on the above, it follows that firms with EO are often typified by risk-taking behavior (Lumpkin & Dess, 1996). Based on a sample of 52 firms ranging in size from small to large, Miller (1983) finds that there is a significant relationship between entrepreneurship and risk-taking. Thus, risk-taking is not only regarded as an organization-level concept but is also viewed as a determinant of EO.

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In summary, EO has been a central concept in domain of entrepreneurship and viewed as the indication of a firm’s strategic posture. In addition, Miller (1983) regards entrepreneurship as firm-level activities and identifies three main dimensions of EO, including innovation, proactiveness, and risk-taking. Measures for the three dimensions are further developed by Covin and Slevin (1986, 1988, 1989, 1991), and are used in this dissertation.

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2.3 Resource Attributes

Internal analyses of specific organizational strengths and weaknesses have long received great attention in the management literature (Andrews, 1971; Penrose, 1959;

Ricardo, 1817; Selznick, 1957). A century ago, Ricardo (1817) addressed the theory of comparative advantage, which states that each country has a comparative advantage in certain products, which are derived from the specific abundant and idiosyncratic resources within it. For example, when farmers have more distinctive resources or capabilities than their competitors, such as the ability to cultivate new technology or low-cost fertilizer, abnormal returns can be achieved.

Edith Penrose (1959) was one of the first scholars to recognize the importance of resources to a firm’s competitive position. In 1959, she published a book entitled “The

Theory of the Growth of the Firm.” She argues that a firm’s growth is due to the manner

in which its resources are employed, emphasizing that the influence of resources on the degree of competitiveness is important for firms. Penrose makes following contributions to the study of a firm’s advantage: (1) She argues that a firm consists of a collection of productive resources. Different firms may be in the same industry, but each of them still has heterogeneous attributes. (2) She argues that entrepreneurs are more versatile than others; for example, entrepreneurs are more flexible in fundraising than others, and they tend to exercise better judgment.

After the mid-1980s, strategic analyses focused on the “inside-out” analytical model, which primarily emphasized internal resources and was subsequently able to fit

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the external environment. Some scholars argue that a firm can make a profit if it can control its heterogeneous resources or capabilities (Grant, 1991; Penrose, 1959;

Wernerfelt, 1984). The first publication espousing the resource-based view in the field of strategic management was by Wernerfelt (1984), who asserts that firms can be viewed as collections of resources, and emphasizes that resources enable an effective product market strategy.

During the 1990s, the resource-based view was formed by ideas pertaining to the role of resources and capabilities as the principal basis of a firm’s strategy and its primary source of profitability, and an attempt was made to identify standouts in the field of strategic management. Barney (1991) and other scholars (Amit & Schoemaker, 1993; Collis & Montgomery, 1995; Peteraf, 1993) later develop specific criteria for resources which enabled firms to cultivate strategies, thus generating competitive advantage. Barney (1991) provides a framework of RBV which is based upon two fundamental assumptions: resources (capabilities) are heterogeneous among firms and are imperfectly mobile. Based on these assumptions, RBV scholars argue that (1) if a firm possesses resources and capabilities that are both valuable and rare, the competitive advantage will be promoted, (2) if these resources and capabilities are also both inimitable and non-substitutable, the competitive advantage will be sustained (Figure 2-1). These resources can usually be classified into several categories: financial, physical, human, organizational, and intelligent resources, and a firm must know how to deploy them.

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Figure 2-1: Relationship between Resource Heterogeneity, Immobility, Value, Rareness,

Imitability, Substitutability, and Sustained Competitive Advantage.

Source: Barney (1991), “Firm Resources and Sustained Competitive Advantage.”

According to RBV, scholars insist that short-term economic rents are possible (Schoemaker, 1990). A firm’s rents can be achieved by possessing rare and valuable resources and capabilities (Mahoney, 1995). Amit and Schoemaker (1993) also argue that economic rents are derived from asymmetry in the initial resource endowment, resource scarcity, the limited transferability of resources, and imperfect substitutability (see Figure 2-2). Furthermore, they propose that firms must be able to develop selected resources and capabilities when facing exogenous changes, including high uncertainty, complexity, and intra-firm conflict; by doing so, firm profits can be achieved. Collis and Montgomery (1995) similarly suggest that a firm’s competitive advantage is not only derived from the value, inimitability, and non-substitutability of its resources and

According to RBV, scholars insist that short-term economic rents are possible (Schoemaker, 1990). A firm’s rents can be achieved by possessing rare and valuable resources and capabilities (Mahoney, 1995). Amit and Schoemaker (1993) also argue that economic rents are derived from asymmetry in the initial resource endowment, resource scarcity, the limited transferability of resources, and imperfect substitutability (see Figure 2-2). Furthermore, they propose that firms must be able to develop selected resources and capabilities when facing exogenous changes, including high uncertainty, complexity, and intra-firm conflict; by doing so, firm profits can be achieved. Collis and Montgomery (1995) similarly suggest that a firm’s competitive advantage is not only derived from the value, inimitability, and non-substitutability of its resources and

在文檔中 創業導向與公司績效之關聯: 資源特性之中介效果與環境動態之調節效果 (頁 26-0)