1042-2587-99-233$1.50
Copyright 1999 by
Baylor University
Corporate
Entrepreneurship and
!!!!!!!!!!!!!!!!!!!!!! the Pursuit of
Competitive Advantage
Jeffrey G. Covin
Morgan P. Miles
This paper presents a theoretical exploration of the construct of corporate entrepreneurship. Of the various dimensions of firm-level entrepreneurial orientation identified in the
literature, it is argued that innovation, broadly defined, is the single common theme underlying all forms of corporate entrepreneurship. However, the presence of innovation per se is
insufficient to label a firm entrepreneurial. Rather, it is suggested that this label be reserved
for firms that use innovation as a mechanism to redefine or rejuvenate themselves, their
positions within markets and industries, or the competitive arenas in which they compete.
A typology is presented of the forms in which corporate entrepreneurship is often mani·
fested, and the robustness of this typology is assessed using criteria that have been proposed for evaluating classificational schemata. Theoretical linkages are then drawn demonstrating how each of the generic forms of corporate entrepreneurship may be a path to
competitive advantage.
Corporate entrepreneurship has long been recognized as a potentially viable means
for promoting and sustaining corporate competitiveness. Schollhammer (1982), Miller
(1983), Khandwalla (1987), Guth and Ginsberg (1990), Naman and Slevin (1993), and
Lumpkin and Dess (1996), for example, have all noted that corporate entrepreneurship
can be used to improve competitive positioning and transform corporations, their markets, and industries as opportunities for value-creating innovation are developed and
exploited. However, only in recent years has much empirical evidence been provided
which justifies the conventional wisdom that corporate entrepreneurship leads to superior firm performance. Perhaps the best evidence of a strong corporate entrepreneurshipperformance relationship is provided in a study by Zahra and Covin (1995). Their study
examined the longitudinal impact of corporate entrepreneurship on a financial performance index composed of both growth and profitability indicators. Using data collected
from three separate samples and a total of 108 firms, Zahra and Covin (1995) identified
a positive and strengthening linkage between corporate entrepreneurial behavior and
subsequent financial performance.
Assuming that one accepts as valid the espoused and documented utility of corporate
entrepreneurship, the reasons why corporate entrepreneurship "works" still remain something of a mystery. That is, the logic of corporate entrepreneurship has not been adequately explained. Recognized bases for competitive advantage, for example, have not
been explicitly and systematically linked to corporate entrepreneurial actions. Moreover,
the archetypical forms in which corporate entrepreneurial actions are often manifested
have not been consistently or clearly delineated in the literature on this topic. However,
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47
until management scholars provide an adequate answer to the question of how corporate
entrepreneurship creates competitive advantage, prescriptions for the conduct of corporate entrepreneurship will necessarily remain superficial.
Part of the "problem" in trying to infer from the literature why corporate entrepreneurship works is the fact that while there is general agreement that firms per se can be
entrepreneurial (e.g., Miles & Arnold, 1991; Morris, Davis & Allen, 1994; Smart &
Conant, 1994), there is no consensus on what it means for firms to be entrepreneurial.
This situation is exacerbated by the proliferation of labels for entrepreneurial phenomena
in organizations. Thus, when management theorists talk about corporate entrepreneurship, they are often talking about different phenomena. And with ambiguity surrounding
the nature of the corporate entrepreneurship construct, it is not surprising that a general
understanding or theory of why corporate entrepreneurship often creates competitive
advantage has failed to emerge.
This paper seeks to contribute to the literature on corporate entrepreneurship in two
ways. First, this paper will attempt to clarify what it means for firms to be entrepreneurial. In particular, it will be argued that the proliferation in the literature of diverse
and often inconsistent definitions of corporate entrepreneurship has created confusion
over the nature of the construct, and that much of the writing on this topic fails to
recognize what defines the essence of an entrepreneurial firm-level posture. Second, this
paper will propose a typology of the common forms of corporate entrepreneurship. The
forms identified here are presented as "pure" types that reflect the generic manifestations
of the corporate entrepreneurship phenomenon. The robustness of the typology will be
assessed using criteria that have been proposed for evaluating classificational schemata.
The reasons why the various forms of corporate entrepreneurship may be paths to
competitive advantage will then be discussed.
CLARIFICATION OF THE CORPORATE
ENTREPRENEURSHIP CONSTRUCT
The label corporate entrepreneurship has been attached to multiple and sometimes
distinct organizational phenomena. Three of the most common phenomena that are often
viewed as examples of corporate entrepreneurship include situations where (I) an "established" organization enters a new business; (2) an individual or individuals champion
new product ideas within a corporate context; and (3) an "entrepreneurial" philosophy
permeates an entire organization's outlook and operations. These phenomena are not
inherently alternative (i.e., mutually exclusive) constructs, but may co-exist as separate
dimensions of entrepreneurial activity within a single organization.
The first phenomenon, where an "established" organization enters a new business,
has typically been referred to as corporate venturing and is well described in the writings
of, for example, Block and MacMillan (1993), Burgelman (1983), and Venkatraman,
MacMillan, and McGrath (1992). The second phenomenon, where an individual or
individuals champion new product ideas within a corporate context, is perhaps best
known by the label "intrapreneurship," a term popularized by Pinchot (1985). The
process of intrapreneuring is well documented in writings on product and innovation
champions (e.g., Shane, 1994; Kanter, 1982; Jelinek & Schoonhoven, 1990). The third
phenomenon, where an "entrepreneurial" philosophy permeates an entire organization's
outlook and operations, has been discussed using labels such as entrepreneurial management (Stevenson & Jarillo, 1990), entrepreneurial posture (Covin, 1991), entrepreneurial orientation (Ramachandran & Ramnarayan, 1993), firm level entrepreneurship
(Morse, 1996), entrepreneurial strategy making (Dess, Lumpkin, & Covin, 1997), and
pioneering-innovative management (Khandwalla, 1987). This final phenomenon,
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ENTREPRENEURSHIP THEORY and PRACTICE
whereby firms per se act in entrepreneurial manners, is the focus of the current manuscript. That is, the term corporate entrepreneurship is reserved to refer to cases where
entire firms, rather than exclusively individuals or other "parts" of firms, act in ways that
generally would be described as entrepreneurial.
Nonetheless, ambiguities and inconsistencies persist in how corporate entrepreneurship has been operationalized by those who have adopted a firm-level perspective on the
topic. For example, Jennings and Lumpkin (1989) equate firm-level entrepreneurship
with product innovation or market development. Specifically, in their study of corporate
entrepreneurship within the savings and loan industry, Jennings and Lumpkin (1989)
refer to any firm that introduces an above-average number of new products or develops
an above-average number of new markets as an entrepreneurial firm. Additional criteria
are suggested by other researchers before a firm should be referred to as entrepreneurial.
Karagozoglu and Brown (1988), for example, categorized a firm as entrepreneurial only
if it engaged in product innovation and risk-taking behavior. Morris and Paul (1987),
Covin and Slevin (1989,1990), Miles and Arnold (1991), Dean (1993), and Zahra (1991)
have all operationalized corporate entrepreneurship in manners consistent with Miller's
(1983) argument that entrepreneurial firm-level behavior implies the existence of (1)
product or process innovation, (2) a risk-taking propensity by the firm's key decision
makers, and (3) evidence of proactiveness with respect to product-market introductions
or the early adoption of new administrative techniques or process technologies. (In
Miller's earlier research [Miller & Friesen, 1982] this third criterion-proactivenesswas not identified as essential to classifying a firm as entrepreneurial.)
In short, there are significant differences of opinion among corporate entrepreneurship researchers regarding what attributes must be present in order to label a firm
entrepreneurial. Fortunately, a recent and excellent paper by Lumpkin and Dess (1996)
has gone a long way toward helping to define the dimensions of an "entrepreneurial
orientation." In particular, based on a thorough review of the broadly defined corporate
entrepreneurship literature, Lumpkin and Dess (1996) identified five dimensions of
entrepreneurial orientation-namely, autonomy, innovativeness, risk taking, proactiveness, and competitive aggressiveness. They, nonetheless, conclude that it is unclear
whether all five dimensions of entrepreneurial orientation will always be present in
entrepreneurial firms, or whether any of these identified dimensions must always be
present before the existence of an entrepreneurial orientation should be claimed.
The position taken in this paper is that there is a commonality among all firms that
could be reasonably described as entrepreneurial. This commonality is the presence of
innovation. Consistent with the observations of Burgelman, Kosnik, and van den Pol
(1988), innovation, as conceived of here, refers to the introduction of a new product,
process, technology, system, technique, resource, or capability to the firm or its markets.
As noted by Stevenson and Gumpert (1985), innovation is the "heart of entrepreneurship." Likewise, Stopford and Baden-Fuller (1994, p. 522) observed that "most authors
accept that all types of entrepreneurship are based on innovations." Therefore, the label
entrepreneurial should not be applied to firms that are not innovative. Innovation is at the
center of the nomological network that encompasses the construct of corporate entrepreneurship. Certainly it is easy to envision how the other dimensions of entrepreneurial
orientation identified by Lumpkin and Dess (1996) could be antecedents, consequences,
or simple correlates of innovation and, thereby, help to define the domain of corporate
entrepreneurship. Nonetheless, without innovation there is no corporate entrepreneurship
regardless of the presence of these other dimensions.
Still, there appears to be something missing from much of the empirically based as
well as purely conceptual literature that purports to focus on corporate entrepreneurship
as a firm-level phenomenon. As noted above, corporate entrepreneurship necessarily
implies the presence of innovation, but there is more to corporate entrepreneurship than
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49
innovation. For example, firms that replace their core production technologies with
newer technologies that are disseminating throughout their industries may be engaged in
innovations that from an internal, organizational perspective are quite dramatic. However, such innovations will not typically evoke images of corporate entrepreneurship.
Integrated U.S. steel manufacturers-like U.S. Steel, Inland, National, LTV, and Bethlehem-are a good case in point. While several of these firms switched during the 1970s
and 1980s from open-hearth furnace technology to newer oxygen-based furnace technology, few would identify these as entrepreneurial firms within their industry segments.
Moreover, this additional "missing" element is not simply the presence of autonomy,
risk taking, proactiveness, or competitive aggressiveness, although each of these dimensions could easily flourish in entrepreneurial firms. Rather, the element that, we believe,
must exist in conjunction with innovation in order to claim an entrepreneurial orientation
is the presence of the objective of sustaining high performance or improving competitive
standing through actions that radically energize organizations or "shake up" the status
quo in their markets or industries. That is, corporate entrepreneurship is engaged in to
increase competitiveness through efforts aimed at the rejuvenation, renewal, and redefinition of organizations, their markets, or industries. Corporate entrepreneurship revitalizes, reinvigorates, and reinvents. It is the spark and catalyst that is intended to place
firms on the path to competitive superiority or keep them in competitively advantageous
positions.
In fairness, the preceding "missing element" of the literature on corporate entrepreneurship-the objective of rejuvenating or purposefully redefining organizations, markets, or industries in order to create or sustain a position of competitive superiority-is
evident in some definitions and discussions of this phenomenon. Miller (1983, p. 770),
for example, states that corporate entrepreneurship is "the process by which organizations renew themselves and their markets...." Likewise, Zahra (1997) includes a "strategic renewal" element in his empirical operationalization of the construct of corporate
entrepreneurship. Nonetheless, one cannot keep from being struck by the fact that this
recognition, while having strong face validity and intuitive appeal, is not widely reflected
in the corporate entrepreneurship literature.
The importance of recognizing the centrality of this "rejuvenation and redefinition"
element to the corporate entrepreneurship construct can hardly be overstated. Corporate
entrepreneurship is not just the old wine of organizational innovation in new bottles, as
those who are cynical over the constant emergence of new managerial fads might
suggest. Rather, corporate entrepreneurship refers to a distinct, multidimensional, and
empirically verifiable set of organizational phenomena. Importantly, the complete academic and practitioner legitimacy of corporate entrepreneurship will only be realized
when both the innovation and the rejuvenation and redefinition elements are widely
recognized as defining the essence of the construct.
THE FORMS OF CORPORATE ENTREPRENEURSHIP
Having defined corporate entrepreneurship as the presence of innovation plus the
presence of the objective of rejuvenating or purposefully redefining organizations, markets, or industries in order to create or sustain competitive superiority, it is possible to
envision at least four forms of this phenomenon. These forms will be labeled sustained
regeneration, organizational rejuvenation, strategic renewal, and domain redefinition. As
conceptualized here, these forms relate to the organization's ability to regularly introduce
new products or enter new markets, to the organization per se, to the organization's
strategy for navigating its current environment, and to the organization's creation and
exploitation of new product-market arenas, respectively. Significantly, all four corporate
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ENTREPRENEURSHIP THEORY and PRACTICE
entrepreneurship forms are defined by at least one potential basis for competitive advantage, albeit some more clearly than others.
It is important to emphasize that these forms will often concurrently exist in entrepreneurial organizations. However, they will be presented separately here in order to
clarify what we regard as fundamental to each. It is also acknowledged that, in reality,
organizations typically cannot a-priori determine a particular corporate entrepreneurship outcome. As noted by Hamel (1997, p. 80), "innovative strategies [like the forms of
corporate entrepreneurship presented here] are always, and I mean always, the result of
lucky foresight." Thus, the emergence of each of the four forms is not something that is
simply a matter of managerial choice. Since the outcomes of entrepreneurial processes
are uncertain, a form of corporate entrepreneurship cannot be readily enacted as a
deliberate strategy with the expectation that particular outcomes will necessarily be
realized. Nonetheless, the four forms of corporate entrepreneurship are presented below
to elucidate the characteristics of what would seem to be some of the most common
firm-level manifestations of entrepreneurial processes.
Sustained Regeneration
Sustained regeneration is the form of corporate entrepreneurship that is, perhaps,
most widely accepted and recognized as evidence of firm-level entrepreneurial activity.
In particular, firms that engage in sustained regeneration are those that regularly and
continuously introduce new products and services or enter new markets. This ongoing
stream of new products and services or new market introductions is intended to capitalize
on latent or under-exploited market opportunities using the firm's valued innovationproducing competencies. Firms successful at the sustained regeneration form of corporate entrepreneurship tend to have cultures, structures, and systems supportive of innovation. They also tend to be learning organizations that embrace change and willingly
challenge competitors in battles for market share. Moreover, at the same time they are
introducing new products and services or entering new markets, these firms will often be
culling older products and services from their lines in an effort to improve overall
competitiveness through product life cycle management techniques.
Arm & Hammer is a good example of a firm that exhibits both the "new products"
and "new markets" variants of sustained regeneration. Although it is a small, narrow-line
player within its industry, Arm & Hammer has been able to achieve enviable financial
returns through the creative introduction of its core product-baking soda-into new
product-market arenas. For example, through the development and introduction of baking soda-based toothpaste and deodorizing products, Arm & Hammer has been able to
capitalize on emerging product-market opportunities unseen or underappreciated by
competitors in its core industry segment. This strategy is not simply one of product
development or related diversification. Rather, the proactive, competence-expanding
actions of Arm & Hammer reflect conscious decisions to regularly and strategically
expand the business of the company for the purpose of ensuring its long-term competitiveness. This is evidence of sustained regeneration.
Also typical of firms that exhibit evidence of the sustained regeneration form of
corporate entrepreneurship are 3M, Motorola, and Mitsubishi. These firms have reputations as innovation machines. Although each is broadly diversified across multiple
business segments, they share the common attributes of entrepreneurial cultures, flexible
structures, rapid decision making capabilities, and discontent with the status quo. These
firms are constantly striving for a broader market presence or greater market share.
Significantly, they view their capacities for innovation as essential core competencies
that must be protected, nourished, and leveraged through corporate strategies of continual product/service development.
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Organizational Rejuvenation
The label organizational rejuvenation is used to refer to the corporate entrepreneurship phenomenon whereby the organization seeks to sustain or improve its competitive
standing by altering its internal processes, structures, and/or capabilities. This phenomenon is sometimes referred to as organizational renewal (Hurst, Rush, & White, 1989),
corporate renewal (Beer, Eisenstat, & Spector, 1990), or corporate rejuvenation (Stopford & Baden-Fuller, 1990) in the corporate entrepreneurship and competitiveness literatures. However, these latter terms are often used in reference to entrepreneurial
phenomena that entail strategy as well as organizational changes. In contrast, the current
use of the term organizational rejuvenation is intentionally limited to corporate entrepreneurial phenomena for which the focus and target of innovation is the organization
per se. This position is adopted because we believe it is important to recognize that firms
need not change their strategies in order to be entrepreneurial. Rather, corporate entrepreneurship may involve efforts to sustain or increase competitiveness through the
improved execution of particular, pre-existing business strategies. When this is the case,
organizational rejuvenation is the label we would attach to the entrepreneurial phenomenon.
Improved strategy execution via organizational rejuvenation frequently entails actions that reconfigure a firm's value chain (Porter, 1980) or otherwise affect the pattern
of internal resource allocation. For example, Procter and Gamble has been able to greatly
improve its inventory and distribution systems in recent years through the extensive
adoption of bar-coding technology. This technology has not only revolutionized the
entire outbound logistics function within P&G but has enabled the firm to sustain its
position as a leading consumer products company by setting the customer service standard against which competitors are being judged. General Electric has introduced numerous and often radical new administrative techniques, operating policies, and human
resource practices over the past fifteen years. Many of these innovations have been
aimed at transforming the corporation from a change-resistant firm to a continuouslearning organization. The net effect of these internal changes has been to improve GE's
competitiveness across its diversified business portfolio. At Chrysler Corporation, the
entire process through which automobiles are designed and produced has been reconfigured in recent years. Using what is referred to as a "platform" team structure, Chrysler
brings together managers and employees from across the corporation to achieve strong
and effective functional integration. Because of their positive impact on things like
product development cycle time and product quality, the process reengineering principles adopted at Chrysler are often credited with enabling the firm to sustain its position
as a leader in the global automobile industry.
In each of the above cases the firm in question introduced an innovation or innovations that (1) redefined how some major aspect of its operations was conducted, (2)
created value for the firm's customers, and (3) sustained or improved the firm's ability
to effectively implement its chosen strategy. Importantly, identifying each of these
innovations as an example of corporate entrepreneurship would likely meet with minimal
disagreement.
Strategic Renewal
The label strategic renewal is used here to refer to the corporate entrepreneurship
phenomenon whereby the organization seeks to redefine its relationship with its markets
or industry competitors by fundamentally altering how it competes. Whereas the focal
point for organizational rejuvenation is the organization per se, the focal point for
strategic renewal is the firm within its environmental context and, in particular, the
strategy that mediates the organization-environment interface.
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ENTREPRENEURSHIP THEORY and PRACTICE
It should be acknowledged that there is a risk in adopting the label strategic renewal
when referring to this third form of corporate entrepreneurship. Specifically, like the
label corporate entrepreneurship, the label strategic renewal has been used in the past to
refer to different phenomena. For example, Guth and Ginsberg (1990, p. 5) defined
strategic renewal as "the transformation of organizations through renewal of the key
ideas on which they are built." In Guth and Ginsberg's (1990) conceptualization ofthis
phenomenon, strategic renewal does not necessarily relate to organizational strategy and
could conceivably more closely approximate the aforementioned phenomenon of organizational rejuvenation. In contrast, when Simons (1994) uses the term strategic renewal
he is simply referring to the implementation of a "new" business strategy. As conceptualized in the current corporate entrepreneurship typology, the phenomenon of strategic
renewal necessarily implies the implementation of a new business strategy. However, the
label strategic renewal is intentionally limited to the phenomenon in which new business
strategies differ significantly from past practices in ways that better leverage the firm's
resources or more fully exploit available product-market opportunities.
Defined in this manner, strategic renewal can be observed in a variety of business
scenarios. For example, declining firms facing turnaround situations sometimes embrace
new product or process technologies that allow them to redefine how they compete and
their industry positions. After years of decline within the motorcycle industry, HarleyDavidson reinvented itself through strategic renewal. In a sharp departure from its
not-too-distant past, Harley-Davidson is no longer content to let its reputation as an
American company and its production of classically styled motorcycles be its primary
bases for competition. Through major investments in product and process R&D and the
adoption of what is commonly referred to as a marketing orientation (e.g., Miles &
Arnold, 1991; Hills & LaForge, 1992), Harley-Davidson has been able to radically
change the bases on which it competes. While still appropriately characterized as pursuing a niche-differentiation strategy, Harley-Davidson is now differentiated on the
bases of superior quality, excellent service, and responsiveness to customers' product
desires.
The preceding is not meant to imply that only struggling or somehow disadvantaged
firms will benefit from strategic renewal. This form of corporate entrepreneurship may
also facilitate the maintenance of competitive superiority among industry leaders. In fact,
sometimes industry leaders must embrace strategic change to ensure their viability. For
example, when IBM introduced the "System 360" line of mainframe computers in the
mid-1960s it already held over two-thirds of the mainframe market share. Yet the System
360 line represented not just a new product line for the company but a new strategy for
competition in the mainframe computer industry. This new strategy emphasized the
technological compatibility (not just performance) of IBM products, an increasingly
valued basis for advantage that simply could not be matched by IBM's competitors.
According to Maidique and Hayes (1984, p. 21), IBM's System 360 strategy "redefined
the rules of competition for decades to come." Still, given the relative reluctance of
industry leaders to modify or abandon strategic recipes that produced positive results in
the past (see Schwenk & Tang, 1989; Miller, 1990), strategic renewal may not be as
pervasive among industry leaders as among those seeking leadership or, at a minimum,
improved positions.
The preceding examples are offered as cases where the label strategic renewal
applies. These examples are not presented as exhaustive of the specific manifestations of
strategic renewal. More important, however, than delineating the various potential manifestations of strategic renewal is communicating the essence of the phenomenon. In
every case, it is corporate strategy that is viewed as both the key to energizing the firm
and the medium though which long-term competitive advantage is sought. Deliberate
and major repositioning actions characterize these strategies of renewal.
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Domain Redefinition
Finally, domain redefinition is the label used to refer to the corporate entrepreneurship phenomenon whereby the organization proactively creates a new product-market
arena that others have not recognized or actively sought to exploit. By engaging in
domain redefinition the firm, in effect, takes the competition to a new arena where its
first or early mover status is hoped to create some bases for sustainable competitive
advantage. Through domain redefinition firms often seek to imprint the early structure
of an industry. Under such a scenario, the entrepreneurial firm may be able to create the
industry standard or define the benchmark against which later entrants are judged. Thus,
firms that engage in domain redefinition are entrepreneurial by virtue of the fact that they
exploit market opportunities in a preemptive fashion, redefining where and how the
competitive game is played in the process.
Two specific manifestations of the domain redefinition form of corporate entrepreneurship are bypass strategies and product-market pioneering. Fahey (1989) describes
bypass strategies as "attacking by surpassing competitors." This type of business-level
strategy is driven by a firm's desire to (1) avoid competitive confrontation in some
specific product-market arena or (2) move the competitive battle to a new arena where
current or prospective competitors are likely to suffer from later-entrant status. For
example, facing stiff and increasing competition in the financial services industry,
twenty years ago Merrill Lynch introduced the Cash Management Account, an allpurpose brokerage account. Through this introduction Merrill Lynch succeeded in both
decreasing its vulnerability to the hostilities and uncertainties of the financial services
industry and in creating a new product-market arena within this industry. It took competitors well over a decade to catch up. Thus, Merrill Lynch effectively bypassed its
competition and enhanced its profitability and competency base through redefining its
competitive domain.
A similar phenomenon to bypass strategies are product-market pioneering strategies.
In fact, these labels can refer to the same phenomenon. However, whereas bypass
strategies are strongly motivated by a desire to decrease overall vulnerability to adverse,
current competitive conditions, product-market pioneering strategies tend to be more
opportunistic in character. That is, they are pursued not so much to avoid the existing but
to exploit the potential. In either case, however, the desired effect on the organization is
one of increased competitiveness through innovation that positively redefines the firm's
product-market domain.
Golder and Tellis (1993, p. 159) define a pioneer as "the first firm to sell in a new
product category." The term product category refers to a group of products that consumers view as substitutable for one another yet distinct from those in another product
category. Product categories are, in effect, product-market arenas. Established firms that
"pioneer" are, by definition, redefining their domains. A good example of this phenomenon is Sony's creation and exploitation of a new product-market arena within the audio
portion of the consumer electronics industry. Specifically, over a decade ago Sony
introduced the Walkman to a very receptive and enthusiastic public. Numerous competitors have since entered this product-market arena. However, due to Sony's accumulated first-mover advantages (in the areas of, for example, patent protection, channel
access, and reputation), these competitors have yet to achieve anything near Sony's level
of success.
In each of the preceding cases, the exploration of a new product-market arena helped
to energize and reorient the firm. The products introduced were innovative from the
perspective of the firm, the industry, and the market. Proactiveness and at least a moderate amount of risk characterized each of these introductions. In short, the dynamics and
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ENTREPRENEURSHIP THEORY and PRACTICE
dimensions of corporate entrepreneurship are clearly manifested in the phenomenon of
domain redefinition.
A THEORETICAL EVALUATION OF THE PROPOSED TYPOLOGY
While the proposed typology of corporate entrepreneurship forms may have a certain
amount of face validity, it is important to evaluate this typology using criteria suggested
for the development of acceptable classificational schemata. Hunt (1983) offers one such
set of criteria. According to Hunt (1983, p. 355), for a classification schema to be
maximally robust one should be able to answer the majority of the following five
questions in the affirmative:
1) Does the schema adequately specify the phenomenon to be classified?
2) Does the schema adequately specify the properties or characteristics that will be
doing the classifying?
3) Does the schema have categories that are mutually exclusive?
4) Does the schema have categories that are collectively exhaustive?
5) Is the schema useful?
Regarding the current typology, it is possible to answer the first question in the
affirmative because each of the phenomena to be classified-that is, the four forms of
corporate entrepreneurship-meets the definitional criteria of corporate entrepreneurship
as discussed earlier in this paper. The current typology also fairs well in reference to the
second question because the four forms have distinct foci and empirical manifestations
that are identified in the descriptions of these forms.
The criterion of mutual exclusivity, as suggested by question three, is not met by the
current typology. Mutual exclusivity exists, according to Hunt (1983, p. 359), when no
single item will fit into two or more categories. The current typology does not have this
characteristic. The strategic renewal form of corporate entrepreneurship is the source of
difficulty here. Specifically, any time a firm adopts or begins to strongly exhibit an
entrepreneurial behavior pattern that represents a fundamental departure from past strategic behavior for the firm, strategic renewal can be said to exist. The problematic matter
here is that this single manifestation or form of corporate entrepreneurship-that is, the
newly adopted entrepreneurial behavior pattern-s-could be categorized as strategic renewal and whatever other category of corporate entrepreneurship the entrepreneurial
behavior reflects. For example, if a conservative, non-innovative firm were to begin
acting entrepreneurially by regularly introducing new products, this single expression of
entrepreneurial firm-level behavior-that is, the newly adopted strategy of competing
through frequent new product introductions-e-could be viewed as evidence of both
sustained regeneration and strategic renewal. Fortunately, Hunt (1983) notes that the
failure of classificational schemata to meet the mutual exclusivity criterion is not a
"mortal blow" to a schema, and that many commonly used classifications (such as the
distinction between industrial and consumer goods) fall short of this ideal.
Moreover, in defense of the current typology, it might be noted that any of the four
forms of corporate entrepreneurship may exist without any of the others existing, and
that even an "extreme" manifestation of any of the identified forms of corporate entrepreneurship will not inherently include evidence of any of the other forms. Thus, while
sustained regeneration and domain redefinition, for example, may be outcomes of similar
entrepreneurial processes, firms that regularly introduce new products or enter new
markets (evidence of sustained regeneration) may never have an arena-creating new
product-market introduction (evidence of domain redefinition), and firms that achieve
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the latter may not be frequent new product-market innovators. Similar observations
could be made in regard to the other identified forms of corporate entrepreneurship.
The fourth question proposed by Hunt (1983) for assessing the robustness of classificational schemata-Does the schema have categories that are collectively exhaustive?-cannot be definitively answered in the affirmative when applied to the current
corporate entrepreneurship typology. This typology contains categories or forms of
corporate entrepreneurship that should be widely recognizable to those familiar with
firm-level entrepreneurial phenomena. Certainly the typology has content validity. Still,
it would be presumptuous to conclude that such phenomena are necessarily limited to
those identified in the proposed typology.
The fifth question-Is the schema useful?-can be answered in the affirmative on at
least two bases. First, the proposed typology represents a rare attempt to attach some
unambiguous definitions to entrepreneurial phenomena for the purpose of facilitating a
better understanding of the corporate entrepreneurship construct. Second, the proposed
typology can be empirically operationalized for the purpose of theory testing, the results
of which may eventually contribute to the effective practice of corporate entrepreneurship.
Overall, it can be concluded that while the proposed four-forms typology is not
beyond all criticism, it enjoys many of the properties that make a classification schema
theoretically sound and useful. Thus, the current typology represents a reasonable starting point in an attempt to bring some order and concreteness to how the construct of
firm-level entrepreneurship might be depicted in theory and observed in practice.
CORPORATE ENTREPRENEURSHIP AND
COMPETITIVE ADVANTAGE
Significantly, the seeds of competitive advantage are evident in each of the aforementioned forms of corporate entrepreneurship. There are several fundamental bases for
competitive advantage. Porter's writings (1980; 1985) clarified the logic of overall cost
leadership and differentiation as bases for competitive advantage. More recently, strategic management scholars have recognized the importance of speed or quick responsethat is, having a market offering prior to competitors-as a distinct basis for competitive
advantage (e.g., Bhide, 1986, Stalk, 1988). Each of the bases for advantage potentially
could be exploited by firms that engage in sustained regeneration, organizational rejuvenation, strategic renewal, or domain redefinition.
However, overall cost leadership may be the basis for competitive advantage one
would most typically associate with the organizational rejuvenation form of corporate
entrepreneurship. Specifically, it seems plausible that organizational rejuvenation-s-due
to its internal, organizational focus-may most commonly create advantage based on
efficiencies achieved through actions that lower an organization's cost structure.
Differentiation-based advantage will likely be common among firms engaged in the
sustained regeneration form of corporate entrepreneurship. This expectation follows
from at least two rationales. First, a reputational distinction and advantage tends to
become associated with the most innovative companies, like Sharp Corp. and HewlettPackard. This reputational advantage will often positively differentiate the products of
these companies in the minds of prospective consumers. Second, and related to the
preceding point, companies that regularly and continuously introduce new products or
enter new markets often exploit existing brand names that leverage consumer awareness.
Intel Corp., for example, leverages its name recognition in the Pentium line as a basis for
competitive differentiation.
Finally, quick response is the basis for competitive advantage one might most
56
ENTREPRENEURSHIP THEORY and PRACTICE
commonly associate with the domain redefinition form of corporate entrepreneurship.
Domain redefinition implies taking the competitive battle to a new product-market arena.
If competitors have yet to enter this arena, then the quick response basis for advantage
is necessarily being exploited.
Strategic renewal has the weakest inherent link to any of the three bases for competitive advantage. This observation is not meant to suggest that strategic renewal will
likely be weakly linked to some basis or bases for competitive advantage. Rather, there
is simply not an obvious "most likely" basis for advantage one would associate with the
strategic renewal form of corporate entrepreneurship. The particular reasons why strategic renewal could be expected to result in competitive advantage will depend on the
specific manifestation or case of strategic renewal in question.
Table I summarizes the "focus" of each form of corporate entrepreneurship as well
as the "typical basis for competitive advantage" associated with each. This table also
summarizes for each form the "typical frequency of new entrepreneurial acts" and the
"magnitude of negative impact if new entrepreneurial act is unsuccessful."
A "new entrepreneurial act" is a behavior that reflects the focus of the form of
corporate entrepreneurship in question. Thus, as noted in Table I, a new entrepreneurial
act in the context of the sustained regeneration form of corporate entrepreneurship is a
new product introduction or the entrance of a new (to the firm) but existing market; for
organizational rejuvenation it is a major, internally focused innovation aimed at improv-
Table 1
Some Key Attributes of the Four Forms of Corporate
Entrepreneurship
Typical Basis
for Competitive
Advantage
Magnitude of
Typical
Negative Impact
if New
Frequency of New
Entrepreneurial
Entrepreneurial
Act is Unsuccessful
Acts*
Form of
Corporate
Entrep.
Focus of
Corporate
Entrep.
Sustained
Regeneration
New Products or
New Markets
Differentiation
High Frequency
Low
Organizational
Rejuvenation
The Organization
Cost Leadership
Moderate Frequency
Low-to-Moderate
Strategic Renewal
Business Strategy
Less Frequent
Moderate-to-High
Domain
Redefinition
Creation and
Exploitation of
Product-Market
Arenas
Varies with Specific
Form Manifestation
Quick Response
Infrequent
Varies with Specific
Form Manifestation
and Contextual
Considerations
*New Entrepreneurial Acts for
• Sustained Regeneration: A new product introduction or the entrance of a new (to the firm) but existing market.
• Organizational Rejuvenation: A major, internally focused innovation aimed at improving firm functioning or strategy
implementation.
• Strategic Renewal: The pursuit of a new strategic direction.
• Domain Redefinition: The creation and exploitation of a new, previously unoccupied product/market arena.
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ing firm functioning or strategy implementation; for strategic renewal it is the pursuit of
a new strategic direction; and for domain redefinition it is the act of creating and
exploiting a new, previously unoccupied product-market arena.
Table I shows that the frequency of new entrepreneurial acts are high, of moderate
frequency, less frequent, and infrequent for sustained regeneration, organizational rejuvenation, strategic renewal, and domain redefinition, respectively. The assigned frequency levels are intended to reflect the typical ease with which new entrepreneurial acts
are pursued within each form of corporate entrepreneurship. New entrepreneurial acts in
the sustained regeneration form are frequent by definition. For most firms, major internal
innovations will not be so regularly or easily embraced, so new entrepreneurial acts of
organizational rejuvenation are identified as moderate. Changing strategic directions
may be even harder for most firms than implementing major internal innovations. Therefore, new entrepreneurial acts of strategic renewal are likely to be even less frequent.
Finally, finding ways to bypass competitors or pioneer truly new product-market arenas
requires much creativity and marketing savvy, a product like no one else's, and a certain
amount of luck. As such, new entrepreneurial acts of domain redefinition may be the
most rare.
The information on the "magnitude of negative impact if new entrepreneurial act is
unsuccessful" is furnished in Table 1 because of the importance of communicating the
potential down-side to corporate entrepreneurship. As with the pursuit of any innovative
initiative there will be risk to the organization when pursuing the various forms of
corporate entrepreneurship. However, these forms are expected to differ in the extent to
which they may jeopardize firm performance or viability.
Specifically, for sustained regeneration, the magnitude of negative impact on firm
performance if a new entrepreneurial act fails is rated as low. One bad product or one
poor market entry decision will typically not threaten the viability of a highly innovating
firm. The risk to firm performance associated with an unsuccessful major, internal
innovation could be somewhat greater depending upon the centrality of the innovation to
the firm's effective implementation of its business strategy. Considering two of the
aforementioned cases, if P&G had failed to successfully and extensively implement
bar-coding technology, one portion of its value chain would have been disrupted and the
firm may have been rendered temporarily vulnerable to competitor opportunism. Even
so, the negative impact on firm performance would likely have been low. However, if
Chrysler had failed to implement its "platform" team structure initiative, more negative
consequences could have resulted. This is due to the greater relative importance of the
operations function-which the platform team structure mainly affects-to the success
of Chrysler's business strategy.
A negative impact on firm performance of moderate-to-high magnitude would be
expected if new entrepreneurial acts of strategic renewal fail. A failure at strategic
renewal implies that a firm has been unable to successfully execute a strategic redirection. Such failures can be costly in both a resource requirement sense and in an opportunity cost sense. The depletion of resources that accompanies failed strategic renewal
attempts can easily threaten the viability of a firm. On a similar note, strategies take time
to prove themselves, and managers who have committed their firms to new strategies
may be unlikely to admit the failure of these new strategies until much time has elapsed
and other significant resources have been consumed. At the point of admitting failure,
these managers may have sapped so much strength from their businesses that a successful strategic turnaround will be unlikely. Even in the case of a successful firm pursuing
a new strategic direction, the prospects of a full recovery from a failed strategic renewal
initiative may be slim. For example, if IBM's System 360 strategy had failed, competitors would likely have had an opportunity to gain ground on this industry leader as it
struggled to identify yet another new strategy or to reinstitute its past strategy.
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ENTREPRENEURSHIP THEORY and PRACTICE
Generalizing about the likely impact of failed domain redefinition acts on firm
performance is difficult-to-impossible. This is because the percent of total firm resources
gambled in individual domain redefinition initiatives will vary greatly according to such
things as the size of the firm, the cost to the firm of trying to exploit the new productmarket arena, and the firm's confidence in the viability or attractiveness of the new
product-market arena. For example, the risk to Sony in trying to create and exploit a
product-market arena for its Walkman was quite minimal. Sony was so large, and the
resources required so relatively small, that a failure in this new product-market arena
would likely have had minimal negative impact on overall firm performance. In stark
contrast, many small biotechnology firms, like Biodel, have declared bankruptcy or
relinquished involvement in more immediately promising product lines after having
squandered significant resources trying to create and exploit potentially lucrative new
arenas for genetic engineering products. Accordingly, Table 1 notes that the down-side
effect of failed domain redefinition acts on firm performance "varies."
CONCLUSION
This theoretical exploration of the construct of corporate entrepreneurship began
with the observation that there is a poor understanding of the reasons why corporate
entrepreneurship often produces, or at least is assumed to produce, superior firm performance. Based on the preceding discussions, one response to this uncertainty should be
clearer. That is, corporate entrepreneurship has a positive reputation as a generally
effective behavioral phenomenon because the organizational actions associated with this
phenomenon can often be linked to recognized bases of competitive advantage.
A second reason why corporate entrepreneurship may contribute to firm performance is that at least one of the aforementioned forms of corporate entrepreneurship will
represent appropriate, defensible, and value-enhancing behavior in any given firm's
specific competitive context. For example, organizational rejuvenation would seem to fit
particularly well with dominant or otherwise competitively strong firms since these
firms' successful strategies will often not "require" major modification. Rather, an
emphasis on organizational rejuvenation may further improve the firms' implementation
of a strategy that has already led to high performance. On the other hand, strategic
renewal implies some amount of strategic repositioning. Such repositioning may generally be of greater value among weaker or nondominant firms whose current strategies,
by definition, have not resulted in strong competitive positions. The attractiveness of
domain definition would seem to vary in inverse proportion with the attractiveness of an
industry. That is, in industries where the long-term prospects for profitability or growth
are uncertain or bleak, domain redefinition may be an especially desirable form of
corporate entrepreneurship. Finally, sustained regeneration would seem to be particularly
viable among firms operating in the expanding product-market domains of growth industries, or in mature industries where product differentiation and market segmentation
efforts are often associated with the leading firms. In short, it might also be claimed that
corporate entrepreneurship "works" because there will typically be a form of this phenomenon that is a recognized route to success, taking into account the particulars of any
given firm's business strength and industry context.
Yet another reason for corporate entrepreneurship's enviable reputation may relate to
how this phenomenon is manifested in organizations. As emphasized above, the forms
of corporate entrepreneurship are presented here as distinct manifestations of firm-level
entrepreneurship. However, these forms will often concurrently exist in entrepreneurial
organizations. AT&T, for example, can be pointed to as a case where both the sustained
regeneration and the domain redefinition forms of corporate entrepreneurship are clearly
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evident-sustained regeneration because of AT&T's steady stream of new product introductions and domain redefinition because of AT&T's arena-defining technological
pioneering successes. Since the various forms of corporate entrepreneurship may be
associated with different bases on which competitive advantage is being sought, it is
plausible that another reason why corporate entrepreneurship works is that entrepreneurial firms will often be leveraging multiple bases for advantage. As observed by Hamel
and Prahalad (1989), high performance often results when firms are able to "layer"
several bases for competitive advantage. Consistent with this point, recent evidence by
Dess et al. (1997) suggests that firms with entrepreneurial postures are likely to benefit
from engaging in actions that achieve such layering.
The significance to managers of these observations is potentially great. The linkage
between corporate entrepreneurship and firm performance has been empirically documented in methodologically rigorous research. However, it is only after understanding
how and why corporate entrepreneurship produces superior firm performance that reservations regarding the possible spuriousness of this relationship can and should be
discounted. The insights and arguments presented in this paper suggest that corporate
entrepreneurship produces superior firm performance for identifiable, defensible, and
strategically valid reasons. Thus, corporate entrepreneurship should be viewed as more
than simply one of the more recent panaceas in a long string of managerial quick fixes
that have surfaced over the years. The principal challenge to management researchers is
to identify the entrepreneurial processes that lead to various forms of corporate entrepreneurship, 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. However, the pay-off in terms of improved firm performance should be substantial.
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Jeffrey G. Covin is Professor of Strategic Management and the Hal and John Smith Chair of Entrepreneurship and Small Business Management at the Georgia Institute of Technology.
Morgan P. Miles is Professor of Marketing at Georgia Southern University. He is currently visiting the
University of Cambridge as a Senior Research Associate.
The authors wish to thank the two anonymous reviewers, Michael Heeley, Patricia McDougall, and Shaker
Zahra for their helpful comments on earlier versions of this paper.
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