Abstract
Entrepreneurial orientation (EO) and its relationship to a firm's performance is a topic of substantial interest among scholars in different contexts. To date, however, literature on the subject has reported conflicting results and inconclusive evidence in studies relating entrepreneurial orientation to a firm's performance. In this sense, the authors have reviewed the literature and found that diverse opinions regarding definitions, scales of measurement and modeling of the construct, and its dimensions have led to conflicts within empirical research. They have also reviewed studies that have highlighted curvilinear relationships between EO and performance. This summary of issues highlighted in previous reviews serves as a guideline when addressing research on EO, contributing to the general discussion in strategic entrepreneurship literature about this important subject.
TopIntroduction
Organizations around the world that operate in a business climate characterized by rapid growth in the number of competitors and an urgent need to develop innovation processes to capture new opportunities - particularly those that produce goods and services with elevated levels of sophistication - have demanded great adaptability capacities and efforts to achieve, preserve and increase their competitive edge (Andrade-Valbuena & Torres, 2018). In this context, both innovation and entrepreneurship have been signaled as key strategic factors for discovering and exploiting new business perspectives. In this regard, Drucker (1985, p. 17) pointed out:
Innovation is the specific tool of entrepreneurs, how they exploit change as an opportunity for a different business or a different service. It is capable of being presented as a discipline, capable of being learned, capable of being practiced. Entrepreneurs need to search purposefully for the sources of innovation, the changes and their symptoms that indicate opportunities for successful innovation.
Valuing the importance and significance of entrepreneurship and innovation in organizations from a managerial perspective, various positions have been proposed to understand and study them, and somehow assess their effects and/or contributions on and to different areas at the organizational level (Covin & Slevin, 1989; Wiklund, 1999; Wiklund & Shepherd, 2005; Andrade-Valbuena, Merigó-Lindahl, Fernández & Alarcón, 2019; Kollmann, Stöckmann, Niemand, Hensellek & de Cruppe, 2021). One of the methods most widely used and recognized by the academic community is based on the construct called Entrepreneurial Orientation (“EO”), which seeks to capture the strategic position of an organization based on the processes, practices, and activities it deploys to conceive, conduct and implement ventures (Wales, Kraus, Filser, Stöckmann& Covin, 2021). The progress made in EO research has led to it being identified as an alternative management strategy that discovers and exploits new business prospects, even in those businesses that are not involved in launching new initiatives. (Lumpkin & Dess, 1996 ; Covin & Miles, 1999 ; Zahra, Nielsen & Bogner, 1999 ; Rauch, Wiklund, Lumpkin & Frese, 2009 ; Wales et al., 2021).
Despite advances in research in different contexts that provide evidence of a positive relationship between EO and high performance in firms (Covin & Slevin, 1991; Lumpkin & Dess, 1996; Wiklund, 1999; Ireland, Hitt & Simon, 2003; Hughes & Morgan, 2007; Madsen, 2007; Anderson, Covin & Slevin, 2009; Rauch et al., 2009); there are also independent studies that suggest that the EO - Performance relationship is only partially positive in some contexts (Lumpkin, Wales & Ensley, 2006; Madsen, 2007), and under certain conditions can even lead to poor performance (Hart, 1992).
Key Terms in this Chapter
Construct: Theoretical construction or abstraction, made to understand a specific problem, or to measure an unobserved phenomenon or latent variable, which discriminates between other variables or elements according to the characteristic that it abstracts.
Innovativeness: Refers to the firm’s participation in and support for new ideas, experimentation, creative processes, and novelty, all of which can create new products, services or technological processes accompanied, in turn, by new competencies in next-generation technologies, production methods and the development of advanced manufacturing processes.
Proactiveness: Represents the firm’s diligence in taking the initiative and anticipating the search for new opportunities, in other words, it refers a) to the search for new opportunities that may or may not be related to the current lines of operation, b) the introduction of new products and brands, c) anticipating the competition, and d) strategically eliminating operations whose life cycles show signs of maturity or decline.
Dimensionality of the Measurement Scales: Psychometric property of constructs, which determines its structure.
Formative Measurement Models: Theoretical and methodological approach of variables where the indicators “cause” the latent variable (construct), such that a change in it is not accompanied by a change in all its indicators.
Reflective Measurement Models: Theoretical and methodological approach of variables that assume the direction of causality from the construct to its measurements, where a change in the latent variable (not observable) will be reflected in a change in all its indicators.
Risk-Taking: Embodies the business unit management’s commitment of resources to audacious projects that involve high risks with a moderate rate of return, employing planning and prediction to reduce uncertainty in the results.
Entrepreneurial-Oriented Firm: An organization that engages in product-market innovation, undertakes somewhat risky ventures, and is first to come up with proactive innovations, beating competitors to the punch.