Entrepreneurial orientation and the business performance of SMEs: a quantitative study from the Netherlands

Review of Managerial Science, Apr 2011

Entrepreneurial Orientation (EO) is often mentioned as an antecedent of growth, competitive advantage and superior performance, and prior empirical research has often shown a positive relationship between EO and performance appears to exist. However, an important question that remains unanswered is what effect EO might have on firm performance during periods of economic crisis, and the severe environmental turbulence that accompany such crises. This research is a first investigation towards the effects of EO on the performance of small and medium sized firms during the current global economic crisis. In this study we use the multidimensional model of EO and test a series of hypotheses pertaining to its performance effects using survey data gathered from 164 Dutch SMEs. The present research shows that proactive firm behavior positively contributes to SME performance during the economic crisis. We further show that innovative SMEs do perform better in turbulent environments, but those innovative SMEs should minimize the level of risk and should take action to avoid projects that are too risky.

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Entrepreneurial orientation and the business performance of SMEs: a quantitative study from the Netherlands

Sascha Kraus 0 1 2 J. P. Coen Rigtering 0 1 2 Mathew Hughes 0 1 2 Vincent Hosman 0 1 2 0 M. Hughes Nottingham University Business School, University of Nottingham , Jubilee Campus, Wollaton Road, Nottingham NG8 1BB, UK 1 S. Kraus University of Liechtenstein , Furst-Franz-Josef-Strasse, 9490 Vaduz, Liechtenstein 2 S. Kraus (&) J. P. C. Rigtering V. Hosman Utrecht University School of Economics (USE) , Chair of Entrepreneurship, Janskerkhof 12, 3512 BL Utrecht, Netherlands Entrepreneurial Orientation (EO) is often mentioned as an antecedent of growth, competitive advantage and superior performance, and prior empirical research has often shown a positive relationship between EO and performance appears to exist. However, an important question that remains unanswered is what effect EO might have on firm performance during periods of economic crisis, and the severe environmental turbulence that accompany such crises. This research is a first investigation towards the effects of EO on the performance of small and medium sized firms during the current global economic crisis. In this study we use the multidimensional model of EO and test a series of hypotheses pertaining to its performance effects using survey data gathered from 164 Dutch SMEs. The present research shows that proactive firm behavior positively contributes to SME performance during the economic crisis. We further show that innovative SMEs do perform better in turbulent environments, but those innovative SMEs should minimize the level of risk and should take action to avoid projects that are too risky. 1 Introduction Entrepreneurial activities are increasingly regarded as important to firms, but in todays complex global economy, entrepreneurship has become even more crucial towards obtaining a sustainable competitive advantage (Wiklund and Shepherd 2003). Due to globalization, small and medium sized enterprises (SMEs) face increasing pressure from competition from across the world. When compounded with the changing sophistication of customers worldwide it becomes apparent that SMEs face increasing difficulty in maintaining and improving business performance in time, unless they can actively manage these pressures. SMEs are encouraged to implement an entrepreneurial mindset to recognize the threats and opportunities in the environment of the firm in order to make sure that the firm will continue to exist in the future (Krueger 2000). In periods of economic and environmental turbulence, it becomes even more apparent that firms face particularly high levels of market instability and complex business uncertainty that obliges firms to act upon such change (Grewal and Tansuhaj 2001; Lin and Carley 2001). A firm level response is therefore needed (Chattopadhyay et al. 2001). Environmental turbulence can have a significant impact on the viability of a firm such that it is critical for managers to understand and effectively manage these events, as well as for scholars to determine what elements might explain the business performance difference between those firms rising and falling in complex environmental conditions (Grewal and Tansuhaj 2001). In scholarly literature (e.g., Zahra 1991; Wiklund and Shepherd 2005; Rauch et al. 2009), politics (e.g., Balkenende 2007; Dalmeijer 2009) and popular science (e.g., Collins 2001), the current school of thought posits that entrepreneurship is an antecedent of growth, sustainable competitive advantage and excellence. This is particularly true for enterprises operating in rapidly changing and competitive environments (e.g., Zahra and Covin 1995; Chandler et al. 2000; Antoncic and Hisrich 2001) and hostile environments (Covin and Slevin 1989). The questions we propose herein are: (1) could entrepreneurship explain superior business performance during a period of considerable market turbulence? And, (2) how might any effects resulting from elements of a firms entrepreneurial orientation change in light of market turbulence? The goal of this article then is to investigate the influence of entrepreneurship on SME business performance when such firms face acute market uncertainty and instability. To achieve this we collected data during 2009, a year that was entrenched in the economic turbulence brought on by the collapse of the global financial sector. We do not seek to address the relative advantages of entrepreneurship in crisis and non-crisis times, rather, we seek to more adequately examine the impact of entrepreneurship on the business performance of SMEs when the skills associated with entrepreneurship (e.g., ability to manage uncertainty; innovate to meet emerging opportunities and threats; tolerate risk) would theoretically be called for. Surprisingly few studies have examined the firm capabilities and conditions necessary for extreme environmental and market turbulence. Grewal and Tansuhaj (2001) in their analysis of the Asian financial and economic crisis from the late 1990s found that firms that could achiev (...truncated)


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Sascha Kraus, J. P. Coen Rigtering, Mathew Hughes, Vincent Hosman. Entrepreneurial orientation and the business performance of SMEs: a quantitative study from the Netherlands, Review of Managerial Science, 2011, pp. 161-182, Volume 6, Issue 2, DOI: 10.1007/s11846-011-0062-9