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The Impact of Corporate Entrepreneurship on Company Growth in a Hostile
Business Environment
Mohamed Zain
College of Business and Economics
Qatar University, Doha, QATAR
Tel: (974) 485 1823
Abdelaziz Elbashir Hassan
BACH, Abu Dhabi, UAE
ABSTRACT
A relationship between corporate entrepreneurship (CE) and company
performance in a hostile business environment of a developing country is examined in
this research using suyvey data obtained from 55 Malaysian construction firms.
Among others, this study found that: (1) CE strongly influenced company growth in a
hostile business environment, and (2) CE exists at more than one level within a
business organization. Given the growing importance of CE in today's businesses it is
important for firms to be able to identify entrepreneurial practices carried out by their
employees so that they can distinguish their entrepreneurially inclined employess from
those who are not within their organizations.
INTRODUCTION
Considerable ancedotal evidence suggests that an entrepreneurial management style is
common to successful companies. According to Drucker (1985) and Stevensen and
Gumbert (1985), large firms like IBM, Sony, Hewlett-Packard and 3M have been able
to sustain high levels of performance by behaving entrepreneurially. Also, in order for
firms to achieve sustained innovation and long-term excellence in the product-market
field organizations they should maintain a culture that supports and encourages
performance improvement. This sort of culture can also be described as a culture that
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promotes corporate entrepreneurship (CE), i.e., a culture that encourages its
employees to be creative and innovative that will enable them to realize and take
advantage of opportunities when ever they arise. Nevertheless, the relationship of CE
and its influences on company growth in a developing countery environment has not
been investigated before.
CE is known universally as intrapreneurship (Chang, 1998). According to
Pinchot (1985), the term refers to the development of internal markets and relatively
small and independent units designed to create internal ventures and expand
innovative staff services, technologies and methods within a large organization.
Selecting an appropriate basis for defining CE and understanding its process is
a real challenge for researchers due to the absence of a universally accepted definition
of corporate entrepreneurship. Based on the literature, the main elements of CE
definitions are innovation, proactivity and risk taking at organization and individual
levels (Table 1).
[Insert Table 1 here]
Therefore, after reviewing the various definitions of CE given in Table 1, for
the purpose of this study CE is defined operationally as a process whereby corporate
entrepreneurs of established business organizations undertake product and service
innovations, act proactively and are willing to take risk through internal and external
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business ventures in order to enhance their company's performance (Miller and
Friesen, 1982; Covin and Slevin, 1989; Brazeal, 1993; Morris, Avila and Allen, 1993;
Zahra, 1993b; Zahra and Covin, 1995; Pearce and Carland, 1995). The literature,
however, shows no consensus about the locus of corporate entrepreneurs within a
business organization (Zahra, 1993b), i.e., whether it should be at all levels of the firm
or at one autonomous business unit led by entrepreneurial worker, manager, or group
of employees (Gibb, 1987; Kao, 1989, Zahra, 1993b). In this connection,
intrapreneurship school focuses on entrepreneurial executives within a complex
organization. The emergence of CE according to this school depends on two main
variables: the existence of entrepreneurial climate inside a business organization and
the presence of entrepreneurial abilities in its participants. One of the first models of
CE is the domain model of CE developed by Guth and Ginsberg (1990) which was
targetted at fitting CE into strategic management of firms. Another model developed
by Covin and Slevin (1991), is a conceptual model of entrepreneurship where a firm's
entrepreneurial
behavior
is
built
on
three-level
variables:
organizational,
entrepreneurial employees’ and environmental levels (Covin and Slevin, 1991). The
model is a general theoretical framework that depicts the causes and consequences of
organizational-level entrepreneurial behavior.
In 1993, Brazeal developed an organizational model of internally developed
ventures which is built on two levels of variables and focuses on two categories of
factors related to long term building and maintenance of CE: (1) motivating factors,
i.e., the reward system and structural arrangements, and (2) broad-base individual
characteristics that describe a corporate entrepreneur including attributes, values and
behavioral orientations. Being the only model that has been tested empirically, its
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empirical findings are somewhat mixed. His findings suggest that separate reward and
structural arrangement are not necessary or even desirable for both entrepreneurial
and non-entrepreneurial managers. In another study, Hornsby, Naffzigar, Kuratko, and
Montagno (1993) developed an interactive model of CE (Brazeal,1993; Covin and
Slevin, 1991) which utilizes theories of the causes of behavior and focuses on the
interactions between an individual’s personality and his environment due to certain
precipitating events. Further, Zahra (1986) and Zahra and Covin (1995) conducted
two studies that addressed this issue where they found a correlation between CE and
performance for firms that emphasize CE as risk taking, product innovation and
proactivity. Covin and Slevin (1986) conducted another study on entrepreneurial
posture and firm performance relationship where they found found zero-order
correlation of r = 0.39 (p < 0.001) between entrepreneurial posture and firm
performance.
In relation to CE in the Asian business culture, Kim and McIntoch, (1997)
found that Korean entrepreneurs possess high need for achievement, are group
oriented, and are motivated by a recognition that brings honor, prestige and respect to
their family, unlike the individualistic entrepreneurs of the Western culture. Also,
autonomy, freedom and innovation are also practiced under management vigilance
and control while benefits and rewards are lower compared to Western and Japanese
firms. Furthermore, Hussin’s (1995, 1997) empirical study about Malay and Chinese
entrepreneurs' personal values, found that Malay and Chinese entrepreneurs are
characterized by high need for achievement, their abilities to create and utilize
opportunities, risk taking, hard working, and being innovative. Additionally, in
another empirical study on Asian entrepreneurs, Ray, Rainer, Arnulfo and Soke
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(1996) found that the entrepreneurs are individuals with opportunity knowing abilities,
willing to take risk, hard working, dedicated and have good business skills.
Attahir (1995) found that the critical factors of success for South Pacific
entrepreneurs are government support, access to resources and possession of
managerial skills in addition to autonomy and smallness of the company size. In
addition to these, management support for CE and their commitment to it are found to
be the main features distinguishing Malaysian entrepreneurial firms from others
(Attahir, 1995). The findings of Siti Maimon’s (1991) study about Peters and
Waterman’s (1982) eight attributes of entrepreneurial firms confirmed the existence of
these attributes in Malaysian firms. Autonomy and freedom, in addition to
productivity through people, were found to be most prevalent among these companies.
The empirical findings from Zain’s (1993, 1995, 1996) study of eight Malaysian
manufacturing firms also show the existence of internal entrepreneurial climate in the
firms that support innovation and creativity.
The common trend in the published research on CE is the predominance of
data from manufacturing companies conducted in particularly in the US market
(Zahra, Jennings and Kuratko, 1999) while companies from other business sectors
received only a modest attention. Thus, the main purpose of this study is to examine
corporate entrepreneurship (CE) and company growth relationship which is moderated
by competitive and hostile business environment. This study departs from the
previously mentioned approach by examining data from a different economic sector,
that is, the construction sector of a developing country of Malaysia. The rivalry among
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the firms within the industry has been intense and therefore the industry's environment
could be considered as hostile.
THEORETICAL FRAMEWORK AND HYPOTHESES
There are many theoretical and empirical studies which examine CE-performance
relationships among firms. In contrast to most of the previous studies found in the
literature which examined the relationships at the organization level (where CE is
represented by only one variable), this study examined theses relationships in a
different way. Specifically, this study enriched the knowledge by examining CEcompany growth relationships at two organizational levels: company and employee
levels. Moreover, this study adopted company growth as a dependent variable, which
is broader and more comprehensive indictor of corporate performance (Zahra and
Covin, 1995; Delmar, 1997). Corporate growth reflects a company’s response to
entrepreneurial change over short, medium and long terms. Improvement in
performance initially will be reflected in the company sales in the short run. In the
medium-term the company will respond to the increase in demand by acquiring more
assets to meet increasing demand for its products and services. The main CE elements
or the independent variables of the theoretical framework of this study are: (1)
innovation, which refers to company’s and individual’s ability inside a business
organization to create new products and services, introducte new markets, processes,
supply of new resources, and new industry organization (Schollhammmer, 1982;
Miller and Friesen, 1982; (2) proactivity, which refers to an ability to act earlier than
others in capturing new markets or introducing new products or tapping new
resources; (3) autonomy, which refers to a perception of self-determination with
respect to work procedures, goals and priorities (Ross 1986; 1987); (4) management
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support, i.e., the extent to which the management encourages and supports CE through
policy orientation and provision of resources (Kuratko et al. 1990); (5) structure,
which is identified as the workflow arrangement, communication across different
managerial layers and authority relationship in an organization (Ross 1986; 1987); and
(6) reward, which means the allocation of specific incentives to motivate individuals
to engage in entrepreneurial and innovative behavior (Miller and Friesen, 1982). Thus,
the proposed model of this research is as shown in Figure 1.
(Insert Figure 1 here)
Company growth represents the growth in the company’s assets, sales, and
number of employees (Delmar, 1997). In theory, the increase in sales over time may
reflect the ability of the company to capture an increase in the market demands, or it
can be due to improvement in quality of products, processes or methods of production
(Delmar, 1997). In the literature there is little conclusive evidence available to support
the belief that there is strong relationship between CE and firm growth (Delmar,
1997). This may be attributed to the fact that most of CE studies examined CE at the
company level alone, where as this study examined CE at company level as well as
the individual level. Thus, our first hypothesis is formulated as follows:
H1: There is a relationship between CE and company growth.
The external environment is identified as the set of forces surrounding an
organization that have potentials to affect the way it operates and access the scarce
resources (Jones, 1998). This study adopts a construct that encompasses general and
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specific environmental factors, i.e., environmental hostility. Environmental hostility
implies the environmental pressure caused by changes in the market place, the
industry, the competition in product quality, price and consumer taste. The importance
of the environment to an entrepreneurial firm’s performance has been documented
extensively in the literature (Zahra, 1993b; Zahra and Covin, 1995; Covin and Slevin,
1989). What is missing in the literature is the moderating effect of environmental
hostility on CE-firm growth and CE-job satisfaction relationships (Tsai, MacMillan
and Low, 1991; Zahra, 1993b; Zahra and Covin, 1995; Covin and Slevin, 1989). This
relationship is examined in our second hypotheses:
H2: There is a relationship between CE and company growth in a hostile
business environment.
METHODOLOGY
The population of the study is the construction industry in Malaysia. In the past, only
a few studies have been published using data from non-US companies (Zahra,
Jennings and Kuratko, 1999). Moreover, the trend in the published research on CE is
the predominance of data collected from the manufacturing sector 85% (Zahra,
Jennings and Kuratko, 1999). The selection of the construction firms was based on the
growing competition among construction companies in Malaysia where 86% (see
Table 2) of the respondents of this research agreed that there is stiff competition in
this business sector where their existence, survival and growth depend on their
competitiveness, industriousness, and entrepreneurial orientation (Brazeal, 1993;
Zahra, and Covin, 1995) in addition to the fact that the construction sector is one of
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the leading economic sectors of the Malaysian economy. Thus, the environment of the
Malaysian construction section could be considered as hostile.
[Insert Table 2 here]
Primary data on CE elements as well as on environmental hostility were
collected using questionnaires addressed to top or senior management of the firms.
The selection of the respondents with position titles such as chief executive officer
(CEO), general manager, senior executive and manager is attributed to the
assumptions that (1) leaders have a prominent role in company growth in Asian
companies (Petzall and Kim, 1996) and these executives may have some unique
opportunities for innovation in their firm (Brazeal, 1993; 1996; Zahra and Covin,
1995); (2) they are the best to tell about the entrepreneurial orientation of their firm
and its inter-workings; (3) top or senior level executives are more likely to complete
the questionnaire (Brazeal, 1993; 1996). On the other hand, a one-level selection of
subjects, i.e. the top or senior executive level is followed because it has a better
control of personal variations arising from work exposure, experience, and education
(Brazeal, 1993; 1996). Data on company growth were collected from the Kuala
Lumpur Stock Exchange (KLSE) Market Handbooks. The SPSS software package
was used to analyze CE and firm performance relationships. To test the identified
hypotheses moderated multivariate regression analysis (MMRA) was utilized.
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A total of 150 questionnaires were mailed to the KLSE companies in Malaysia
where we asked them to reply within 15 days. The first response was very low, i.e.,
only five companies responded, after which a second set of questionnaires were
mailed and were followed by phone calls and a letter to those who did not respond to
the first mailing. In total, 55 companies replied out of which only 45 of them were
useful, thus giving us a 30% response rate. This rate is statistically sufficient to give a
reliable estimation of the population parameters (Hair, Anderson, Tatham, and Black,
1998; Cooper and Emory, 1995). This rate is similar to those reported in this field of
research (Miller and Friesen, 1982; Zahara and Covin, 1995). The respondents came
from most of the Malaysian States, of which 70% were from around the Federal
Capital (Selangor and Kuala Lumpur) while the rest came from Sabah, Sarawak,
Johor, Penang, Kedah, Perak, Melaka, and Terengganu.
The CE measure in the questionnaire is represented by eleven variables which
explain different aspects of CE at two levels: seven variables at company level and
four variables at employee level. The questionnaire also covers environmental
hostility. Data pertaining to the dependent variable (company growth) were collected
from financial reports of the selected companies listed in KLSE Market reports. A
pilot study was first conducted to refine the measurement instrument after which the
questionnaires were mailed to the subjects together with an explanation for conducting
the research in order to enhance, clarify and facilitate the data collection process.
This study used parametric measurement scale because the samples were
selected from a normally distributed population and the primary findings showed a
linear relationship between the independent and dependent variables (Cooper and
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Emory, 1995). The dependent variable (company growth) was regressed with the
independent variables (the CE index) within a hostile business environment. This is a
cross-sectional study which attempts to explain the impact of CE on company growth
at specific point in time. If the regression equations of the CE on company growth and
CE relationship in a hostile business environment were found to be significant, this
would support the relationship between CE and company growth. That is to say, this
relationship was examined under the moderating factor of environmental hostility,
implying that the CE-company growth relationship could explain the outcome of this
relationship within a hostile business environment.
Measurement Instrument
We developed the CE measurement instrument based on previous scales developed by
Khandwala (1977), Miller and Friesen's (1982) CE index, Ross’s (1987)
Intrapreneurial Performance Quotient (IPQ) and Pinchot’s freedom factors. The CE
measurement was modified to measure the CE at two levels (business and individual)
inside a business organization by utilizing 52 items grouped into eleven variables. As
for the dependent variable, Delmar’s (1997) instrument was adopted to measure
company growth, which covers average annual growth rates of sales, assets and
number of employees. The company growth measure is calculated as follows:
Assets growth = (This year’s assets - last year’s assets)/ Last years assets
Sales growth = (This year’s sale - last year’s sales)/ Last years sales
Employees' growth = (This yr's no. of employees – Last yr's no. of
employees)/Last yr's no. of employees
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The CE measure has been widely used in past research (Khandwala 1977;
Miller and Friesen, 1982; Zahra, 1991; Md-Noor, 1991; Zahra and Covin, 1995)
because of its reliability and validity. This measure follows six point Likert-type scale
ranging from 1= highly disagree to 6= highly agree. Scores on the items were
averaged to produce the overall CE index. A low score on the index shows low
involvement in CE activities and vice versa. The respondents were asked to give their
perception about the presence of CE in their companies and their contribition to it.
They were also assured confidentiality of the data gathered. The CE index of this
study, surpassed minimum internal consistency requirements as measured by alpha
coefficient of 0.885.
Scale Reliability
Cronbach’s alpha scores were computed for each construct (CE, environmental
hostility and company growth) to measure the internal consistency and to indicate how
different items can realibly measure the construct. The values of the Cronbach’s alpha
range from zero (no internal consistency) to one (perfect internal consistency). The
scale is sufficiently reliable if Cronbach’s alpha is greater than 0.80 and is most likely
reliable for values greater than 0.70 (Cronbach, 1951). In this research, the Cronbach’s
alpha obtained was 0.96 for overall CE scale and the estimates for company growth
and environmental hostility scales were 0.87 and 0.75, respectively. Research
conducted by Zahra and Covin (1995) found the internal consistency level of CE to be
0.75. Thus, the scales used in this research could be considered as reliable.
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ANALYSIS AND RESULTS
To test the hypotheses the analysis was conducted in two steps:
(1) Testing the effect of CE on company growth and the CE relationship with
company growth which is moderated by environmental hostility. The regression
model used for the analysis is as follows:
Comp. Growth = a+b1 conovate + b2 cotonomy +b3 coproact + b4 mgtsupport+
b5 corisk+b6 orgstruct + b7 reward+ b8 mynovate+ b9 myfreedom+ b10 myrisk
+ b11 myproact
The independent variable, CE, is on the right hand side of the equation and is
represented by eleven independent variables. The intercept “a” is the level of company
growth that is attributed to activities other than CE and bi is the coefficient or the
slope of the independent variables.
(2) To test the effect of the moderating variable (the environmental hostility) on CEperformance relationship we added the interaction factor as follows:
Comp. Growth = a+b1 conovate + b2 cotonomy +b3 coproact + b4 mgtsupport+
b5 corisk+b6 orgstruct + b7 reward+ b8 mynovate+ b9 myfreedom+ b10 myrisk
+ b11 myproact + b12 EH+ b13 EH X CE
To test the hypotheses of this study we utilized sequential search approach and
backward elimination. The adoption of the sequential regression analysis is due to the
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fact that most of the previous researches on CE test the relationship at the aggregate
CE level, i.e., by taking the average of the three CE variables at organizational level
(innovation, risk taking and proactive attitude). As mentioned earlier, this study
examined CE-company growth relationship at the organizational and individual levels.
Therefore, since CE is present at a relatively early stage of a firm's growth, there is a
need to identify the factors that support the presence of CE which then influence
performance. For each hypothesis, this approach allows us to first regress CE against
company growth (H1), and then to regress it against company growth in a hostile
business environment (H2).
Table 3 shows the results of the regression analysis that examined the
relationship between CE and company growth. The finding indicates that the
independent variables explain 72.4% of the variances in company growth. This
indicates that the influence of CE on company growth is highly significant (p<0.001).
Thus, the data provides strong support for the first H1, i.e., CE is significantly
associated with company growth. Thus, the results of this study support the theoretical
and empirical research findings on CE by Brazeal (1993), Zahra (1993a,b), Zahra and
Gravis (2000), and Zahra and Covin (1995). The point of difference is that the CE
variables in this study show higher explanatory power (72.4%) compared to theirs
which showed R2 to be below 30% (Brazeal, 1993; Zahra, 1993a, 1993b; Zahra and
Gravis, 2000; and Zahra and Covin, 1995). Furthermore, the regression coefficients
for two independent variables of CE at the company level, i.e., being proactive
(p<0.003) and being willing to take risk (p<0.001) are positively associated with
company growth. The results indicate that the increase in management efforts at being
proactive via the introduction of new products, new services, and new methods of
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production even if the outcome is uncertain, i.e., being willingness to take risk, might
improve company growth. These findings are in line with previous studies that
examine the relationship between CE and performance, where Zahra and Gravis
(2000), Zahra (1993a, 1993b), and Zahra (1991) in their cross-sectional studies found
positive relationships between the influence of CE on firm’s gross profit growth and
sales growth. Also, in a longitudinal study, Zahra and Covin (1995) found positive
relationship between CE and company profitability and sales growth.
[Insert Table 3 here]
Nevertheless, the regression coefficients for company's desire for autonomy
(p<0.001), company structure (p<0.002) and employees’ desire for freedom (p<0.012)
were negatively associated with company growth. Perhaps, this negative association
could be due to the fact that, among the entrepreneurial firms, resources were depleted
by too much expenditures on new designs and new products in the short run (crosssectional) in order to meet the increasing desire for autonomy, freedom and
entrepreneurial practices (Miller and Friesen, 1982). Furthermore, the coefficient of
entrepreneurial employee’s desire for autonomy and flexibility displays a negative
sign which indicates that those who are entrepreneurially inclined have greater desire
for freedom which is consistent with previous findings (e.g., Koh, 1996).
The result of this study extended the literature further by showing that
companies in a developing country environment could benefit from growth when
pursuing CE. This finding is consistent with the studies conducted by Khandwalla
(1984; 1985), Knight (1997) and Kuratko, Montagno, and Hornsby et. al (1990), and
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Hornsby et al. (1993) who found that the emergence of entrepreneurship inside
business organizations requires a risk taking attitude and proactive managerial
support. Khandwalla (1984; 1985) found that top management’s commitment to CE is
associated with innovation and industriousness of the companies. Kuratko et al.’s
(1990) factors analysis found that management support for entrepreneurial attitude,
autonomy, reward and organization boundaries are the factors that contribute to CE.
Also, Schollhammer (1982) suggests that CE is important for gaining financial
advantage and rewards. In addition, Covin and Slevin’s (1993) argue that the adoption
of CE would improve financial performance while Zahra and Covin’s (1995)
longitudinal non-linear empirical study found that CE improves companies’
profitability over time.
Table 4 presents the results of the regression analysis which shows that the
independent variables explain 80.3% of the variances in company growth within a
hostile business environment. In other words, the influence of CE on company growth
within a hostile business environment is significant at p< 0.001. As can be seen from
Table 4, after the environmental hostility variable was added to the equation there is a
significant change in the explanatory power or the F value and as such, the
introduction of the interaction variable into the equation has produced a meaningful
result. In other words, the introduction of this interaction effect changed the form of
the relationship between the independent variables. As a result, the independent
variables accounted for 80.3% of the variances in company growth within a hostile
business environment compared to 72.4% before the moderating variable was
introduced. Moreover, the level of significance of the relationship (the F value)
improved from 8.9 to 10.62. Thus, the interaction variable is a true moderator since it
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changed the form of the relationship and the influence of the independent variables
resulting in an improvement in the power of the multiple regression analysis (Aguinis,
2002; Sharma et. al., 1981). This means the data provided support for H2; i.e., CE is
significantly associated with company growth in a hostile business environment.
[Insert Table 4 here]
From the regression coefficients for CE at the company level shown in Table
4, we can see that the variables proactive and risk-taking attitudes of the firms display
significant positive relationships with company growth in a hostile business
environment (at p<0.003 and p< 0.01, respectively). Interestingly, certain individual
and organizational factors including a company's desire for autonomy (significant at
p<0.001), an individual's desire for freedom (significant at p<0.007) and
organizational structure (significant at p<0.001) turned out to be negatively related to
company growth in a hostile business environment. Thus, in the short run, increasing
the desire for organizational autonomy and individual freedom and changing the
organization structure of the firms might have a negative impact on their performance
(Abraham, 2000). The results indicate that the association between CE and company
growth is contingent upon perceived competition, market change and environmental
hostility, which is consistent with previous findings (Covin and Slevin, 1989; Zahra
and Covin, 1995).
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The main finding from H2 is the presence of strong, positive and significant
relationship between CE [represented by company's proactive ability (p<0.003) and its
tendency to take risk (p<0.01) in a hostile business environment] and corporate
growth. This implies that an ability of a firm to be proactive and to be a risk-taker may
improve its financial performance under competitive pressure and changing market
environment.
THEORETICAL AND PRACTICAL IMPLICATIONS
A few theoretical implications could be drawn this this research. Firstly, the findings
support the belief that companies that engage in CE activities can realize important
financial benefits from their entrepreneurial practices. The negative association
between CE variables and performance measure could perhaps be due to the fact that,
among the entrepreneurial firms, their resources were depleted by too much
expenditures on new designs and new product introductions in the short run, which is
consistent with Miller and Friesen’s (1982) findings. On the other hand, Jaworski and
Kohli (1993) found no moderating effect from higher market turbulence, higher
competitive intensity, or higher technological turbulence while Slater and Narver
(1994) found little support for the degree of competitor hostility as a moderator of the
marketing orientation-performance relationship. Greenley (1995), on the other hand,
reported that marketing orientation had a positive effect on performance. The presence
of different results necessitates the need for more research to improve the theoretical
development of the area. Secondly, the results show that even when the market
environment is considered hostile, entrepreneurial efforts can enhance the growth and
profitability of a firm. These findings should be tempered with caution because there
is a risk that the financial payoff from excessive CE activities in this environment may
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decline. Finally, this study broadens the factors that influence organizational
performance in an attempt to contribute and to organize the large body of academic
literature on CE. The principal challenge to management researchers is to identify the
entrepreneurial processes that lead to various forms of CE, and then to theoretically
predict and empirically verify the forms of this phenomenon that produce the best
results for firms in various business and industry contexts. Admittedly, this is a tough
challenge.
A number of practical or managerial implications could also be derived from
this study. Firstly, it appeared that CE is an important element for corporate growth.
Therefore, managers of companies should seriously consider adopting CE as an
effective tool for enhancing creation of a long-term favorable work environment
which could improve their firms' performance. Secondly, given the growing
importance of CE in today's businessess there is a practical value for managers in
being able to identify entrepreneurial practices of their employees so that they can
distinguish those who are entrepreneurially inclined from those who are not. Lastly,
the management of business organizations who adopts entrepreneurial programs
should provide an environment that facilitates and supports their employees to be
innovative and creative. Otherwise, it will be very difficult for CE to occur.
CONCLUSION
Most of the studies addressing CE issues focussed on theory building rather than
testing theories empirically. The limited studies that were carried out to examine the
CE-company growth relationships provide inconclusive empirical evidences. Given
the absence of empirical and systematic scholarly work from which to draw
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conclusions, little is known about the CE factors that can influence company
performance. Therefore, this study is an attempt to fill the void in the literature, by
examining more entrepreneurial factors within business organizations at more than
just one level, and also by examining environmental hostility as a moderating variable.
The results show that CE is strongly associated with company growth which
corroborate prior theoretical and empirical CE studies that have documented the
presence of a relationship between CE-company growth (Zahra and Covin, 1995;
Brazeal 1993; Zahra, 1993a and 1993b; Zahra and Gravis, 2000; Zahra and Covin,
1995; Richard and John, 1997; Khandwalla, 1984; 1985, Knight, 1997; and Kuratko,
Montagno, and Hornsby, 1990). However, this research extends prior knowledge by
empirically demonstrating that CE exists at more than just one level within business
organizations and that CE influences the performance of business organizations
significantly. Also, the environment in which entrepreneurial activities are practiced
have strong impact on company performance. Finally, changes in the market in terms
of prices, rules, regulations and emergence of new competitors have a strong and
significant influence on firms' financial performance.
There are a few limitations to this research which need to be mentioned.
Firstly, it should be noted that having small number of respondents (45 subjects out of
150 construction companies) besides our inability to include all the CE factors at
different levels of business organizations might be the reason for the lower coefficient
of determination we obtained. Additionally, this study focused on two levels of CE in
business organizations (corporate and employee levels). Therefore, future researches
need to develop comprehensive predictors of the influence of CE inside business
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organizations, including at multiple levels and dimensions, using not just quantitative
analysis but qualitative as well.
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Figure 1: Proposed model of corporate entrepreneurship
Corporate Entrepreneurial
Factors:
A. ORGANIZATIONAL FACTORS
1. Management support
(Kuratko et al., 1990)
2. Structure
3. Autonomy & freedom
(Ross 1986; 1987)
4. Innovation
5. Reward System
6. Proactiveness
(Miller and Friesen, 1982)
7. Risk taking (Ross, 1987)
1. Company
Growth (Delmar,
1997) (sales,
assets, and no. of
employees
B. INDIVIDUAL FACTORS
8. Innovation
9. Need for Autonomy
10. Risk taking
11. Proactivity
(Ross, 1986; 1987)
Hostility: Market Changes and Competitive Pressures
(Miller and Friesen, 1982)
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Table 1: Definitions of corporate entrepreneurship
Author/s & Yr / Definition
Burgelman (1983)
Corporate entrepreneurship refers to the process whereby the firms engage in
diversification through internal development, which requires new resource combinations
to extend the firm's activities in areas unrelated, or marginally related, to its current
domain of competence and corresponding opportunity set (p. 1349)
Chung & Gibbons (1997)
Corporate entrepreneurship is an organizational process for transforming individual
initiavtive and ideas into actions through the management of uncertainties (p. 14).
Covin & Slevin (1991)
Corporate entrepreneurship involves extending the firm's domain of competence through
internally generated new resource combinations (p. 7).
Guth & Ginsberg (1990)
Corporate entrepreneurship encompasses two types of phenomena and the processes
surrounding them: (1) the birth of new businesses within existing organizations, i.e.,
internal innovation or venturing; and (2) the transformation of organizations through
renewal of the key ideas on which they are built, i.e. strategic renewal (p. 5).
Jennings & Lumpkin (1989)
Corporate entrepreneurship is defined as the extent to which new products and/or new
markets are developed. An organization is entrepreneurial if it develops a higher than
average number of new products and enter into new markets (p. 489).
Schendel (1990)
Corporate entrepreneurship involves the notion of birth of new businesses within ongoing businesses, and the transformation of stagnant, on-going businesses in need of
revival or transformation (p. 2).
Spann, Adams, & Wortman (1988)
Corporate entrepreneurship is the establishment of a separate corporate organization
(often in the form of a profit center, strategic business unit, division, or subsidiary) to
introduce a new product, serve or create a new market, or utilize a new technology (p.
149).
Vesper (1984)
Corporate entrepreneurship involves employee initiative from below in the organization
to undertake something new. An innovation that is created by subordinates without being
asked, expected, or perhaps even given permission by higher management to do so (p.
295).
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Table 1: Definitions of corporate entrepreneurship (cont’d)
Zahra (1993; 1995, 1996)
Corporate entrepreneurship is a process of organizational renewal that has two distinct
but related dimensions: innovation and venturing, and strategic renewal (p. 321). It is the
the sum of a company’s innovation, renewal, and venturing efforts. Innovation involves
creating and introducing products, production processes, and organizational systems.
Renewal means revitalizing the company's operations by changing the scope of its
business, its competitive approaches or both. It also means building or acquiring new
capabilities and then creatively leveraging them to add value for shareholders. Venturing
means that the firm will enter new businesses by expanding operations in existing or new
markets (1995, p. 227; 1996, p. 1715).
Source:
Modified and adopted from Sharma, Pramodita (1999), Toward a
reconciliation of the definitional issues in the field of corporate entrepreneurship.
Entrepreneurship: Theory & Practice, Spring 99, Vol. 23 Issue 3, p11.
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Table 2 Frequency of responses to corporate entrepreneurship and
environmental hostility
Disagree
Agree
Disagree moderatel Disagree Agree moderatel Agree
Item
very much
y
slightly slightly
y
very much
Innovation
0%
0%
2%
58%
34%
6%
Co autonomy
1%
4%
12%
44%
34%
4%
Co proactive
2%
0%
12%
36%
24%
26%
Mgt Support
0%
2%
10%
28%
46%
14%
Co Risk
6%
8%
10%
28%
26%
22%
Org Structure
0%
0%
4%
18%
38%
40%
Reward
6%
4%
4%
16%
36%
34%
CE at Company level
2%
3%
8%
33%
34%
21%
Individual Innovation
0%
0%
0%
12%
48%
40%
Desire for autonomy
0%
0%
0%
4%
66%
30%
Individual Risk
10%
2%
10%
42%
24%
12%
Individual Proactive
0%
0%
6%
30%
34%
30%
CE at Individual
Level
3%
1%
4%
22%
43%
28%
Overall CE
2%
2%
6%
27%
39%
24%
Environment Hostility
2%
2%
10%
54%
24%
8%
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Table 3: Corporate entrepreneurship and company growth (result of regression
analysis)
Method of
the Linear
Models
Model 1
Backward
Regression
Variables Coef
f.
Constant
Cotonomy
Coproact
Corisk
Orgstruct
Myfreedo
m
2.279
-.284
.219
.164
-.228
-.250
t-Test
4.922
-4.859
3.414
4.405
-3.718
-2.796
Partial Regressio p-Value R2
Correlatio n Symbol
n
x0
0.001 0.724
-.763
x1
0.001
.638
x2
0.003
.730
x3
0.001
-.670
x4
0.002
-.561
x5
0.012
The Model gives the following equation:
Y = 2.279-0.284*x1 + 0.219*x2 + 0.164*x3 –0.228 x4-0.250 x5
F overall =
p-value =
8.936
0.001
Where Y is company growth
p value is the level of significance
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(R2 = 0.724)
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Table 4: Corporate entrepreneurship and company growth within a hostile
environment (result of regression analysis)
Method of Variables
the Linear Test
Models
Model 2
Backward
Regression
Coeff
.
Constant
2.408
Cotonomy -0.292
Coproct
0.251
Corisk
0.137
Orgstruct
-0.232
Myfreedom -0.272
t-test
Partial
Correlatio
n
5.821
-5.643 -.830
4.282 .706
4.141 .638
-4.284 -.752
-3.396 -.660
Regressio p-Value R2
n
Symbol
x0
x1
x2
x3
x4
x5
0.001
0.001
0.003
0.010
0.001
0.007
The Model gives the following equation:
Y = 2.408-.292*x1 + 0.251*x2 + 0.137*x3 - 0.232* x4 - 0.272* x5
F overall =
10.615
p value =
0.001
Where Y is employees’ satisfaction about their work condition
p value is the level of significance
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(R2 = 0.803)
0.80
3