Academic journal article Journal of Management and Organization

Measuring the Benefits of Entrepreneurship at Different Levels of Analysis

Academic journal article Journal of Management and Organization

Measuring the Benefits of Entrepreneurship at Different Levels of Analysis

Article excerpt

ABSTRACT

This paper presents a suggested framework for future research designs to examine the benefits of entrepreneurship, both non-financial and financial. Based on a review of the literature and using contextual exemplars throughout the paper with an Australia and New Zealand focus, we identify a range of benefits from entrepreneurship at the various levels of analysis (e.g. individual, organizational, national). From a non-financial perspective such benefits include independence, autonomy, competitive advantage, increased market share, employment and increased standards of living. From a financial perspective, entrepreneurship's benefits include enhanced remuneration or rent from revenue, profits, cash flow, return on investment and increases in GDP - specific financial measures to be expressed in clear financial terms. The suggested framework represents both an initial step towards the measurement of entrepreneurship's financial benefits and a valuable starting point for the development of a theory of the non-financial and financial benefits of entrepreneurship.

Keywords: entrepreneurship; non-financial and financial benefits; Australia; New Zealand

Entrepreneurship is a much celebrated phenomenon in many countries and economies, not least in the Australasian context where it is promoted as having wide-ranging benefits. From a non-financial perspective, entrepreneurship has been associated with competitive advantage and increased productivity (Hitt, Ireland, Camp & Sexton 2001). From a financial perspective, entrepreneurship has been linked to increased profits, wealth creation and economic growth (Reynolds et al. 2004). While various studies have focussed on specific and distinct benefits of entrepreneurship, few have considered the range and scope of such benefits collectively, nor have many considered possible losses from entrepreneurship.

With respect to the scope of benefits associated with entrepreneurship, a number of issues arise. First, the distinction between non-financial and financial benefits is often blurred, due to financial benefits being measured in non-financial terms and vice versa. By way of example, economic growth is often measured by the number of new businesses created and changing levels of unemployment. As such, non-financial indicators are used to capture an economic phenomenon. Second, with respect to measurement of financial benefits, several complexities arise with respect to the data sources and methods used. For instance, research in various areas of management (e.g. strategic planning, new business creation and small and medium enterprises [SMEs]) has progressively examined financial performance in clear financial terms such as profitability and return on investment. Research in the area of entrepreneurship, however, has predominantly used non-financial measures as proxies for financial performance. These proxies include new job creation (Glancey & McQuiad 2000) and the entrepreneur's perception regarding the importance of and satisfaction with profit (Covin & Slevin 1989). Given the wide-spread use of nonfinancial proxies for the financial benefits of entrepreneurship, we suggest that findings touting the financial benefits of entrepreneurship be interpreted with caution.

From an Australasian perspective, the association between entrepreneurship and financial gain is particularly interesting. Researchers and policymakers in Australia and New Zealand have acknowledged the importance of entrepreneurial activity and openly promoted it (Hindle & O'Connor 2005; New Zealand Government 2002). International studies such as the Global Entrepreneurship Monitor [GEM] reports show variations between the extent of entrepreneurial activity in both countries (Reynolds et al. 2004); however the relationship between entrepreneurial activity and financial benefit remains unclear. Thus, several issues arise, including the association between entrepreneurship and financial benefit and the research which has been and could be undertaken to support this association. …

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