The Sustainability of the Entrepreneurial Orientation-Performance Relationship

Article excerpt

Entrepreneurial orientation (EO) has become an important and extensively researched topic in the literature. Empirical results suggest that EO may influence firm performance. However, it is important to determine whether the EO-performance relationship is sustainable since EO can be a resource-consuming strategic orientation. This research examines the sustainability of the EO-performance relationship; i.e., whether EO affects performance during an extended period of time or is a "quick fix" where performance is only temporarily affected. Using data from Swedish small firms, the results indicate that there is indeed a positive relationship between EO and performance. This relationship also increases over time. The results show that investments in EO may be worthwhile for small firms since they pay off over an extended period of time.

Entrepreneurship is presently a very popular term and there is a tendency to regard entrepreneurship as something inherently good, something firms should always pursue. This may bias us to favor anecdotal evidence in favor of, rather than against, a positive relationship between entrepreneurial activities and firm performance. Dess, Lumpkin, and Covin (1997) observe a strong normative bias toward the inherent value of entrepreneurship and suggest that the popular press encourages the belief that entrepreneurship is good. As a result, managers may experience considerable pressures to behave more entrepreneurially in order to improve or maintain the performance of their firms.

Before encouraging wholesale adoption of an entrepreneurial strategic orientation (referred to as EO), more solid empirical evidence on the link between entrepreneurship and performance must be presented. One of the major issues in such an assessment is the sustainability of the EO-performance relationship. Currently, we do not know if EO affects performance over an extended period of time or if it is a "quick fix" where performance is temporarily affected. This is an important gap in the literature because EO is claimed to be a resource-consuming strategic orientation requiring extensive investments by the firm (Covin & Slevin, 1991). Firms will benefit from knowing whether EO leads to sustained high performance or only has a short-term effect.

Several authors point to the lack of systematic empirical evidence that EO actually leads to improved firm performance (Covin & Slevin, 1991; Sexton & Bowman-Upton, 1991; Zahra, 1991). Hart (1992) sees possible negative consequences of EO and hypothesizes that entrepreneurial and intrapreneurial strategy-making modes are likely to lead to lower rather than higher performance because of role imbalances between top management and organizational members. More recently, however, empirical evidence for an EO to improve company performance has started to mount (e.g., Brown, 1996; Junehed & Davidsson, 1998; Namen & Slevin, 1993). This evidence is also based on longitudinal evidence (Wiklund, 1998a; Zahra & Covin, 1995). As a result, we may have some confidence in a positive relationship between EO and performance. Still, the sustainability of the relationship remains to be determined.

This study examines the sustainability of the EO-performance relationship. In particular, the study explores the influence of EO on a company using a large, longitudinal data set of small Swedish firms. The study examines this relationship, controlling for company age, size, and industry type. The study also controls for environmental dynamism and capital availability.

THEORY AND HYPOTHESES

The Effect of EO on Company Performance

Although much of the empirical entrepreneurship research has focused on the individual level of analysis, researchers recently have focused on entrepreneurship as firmlevel behavior. Much of this research has been based on Miller's work (1983). Miller suggested that firms' degree of entrepreneurship could be seen as the extent to which they innovate, take risks, and act proactively. …