International Journal of Business

Management & Research (IJBMR)

ISSN(P): 2249-6920; ISSN(E): 2249-8036
Vol. 4, Issue 4, Aug 2014, 73-80
TJPRC Pvt. Ltd.

UNDERSTANDING ENTREPRENEURSHIP: RELATIONSHIP THAT EXIST BETWEEN

BUSINESS PERFORMANCE AND ENTREPRENEURIAL ORIENTATION AN ANALYSIS
GOULAP JAGADISH BRAHMA
Assistant Professor, Department of Business Administration, Hawassa University, Hawassa, Ethiopia

ABSTRACT
The main objective of this paper is to offer a review of the literature related to the developments in the theory of
entrepreneurship and the emergence of the EO or Entrepreneurial Orientation Construct. The paper also depicts and
explores the relationship that exists between the performance of the business and orientation of the entrepreneur. In all
there are three models that are identified as the lines of research on the Entrepreneurial Orientation. These include the EO
strategy model, the construct model and the performance model. The purpose of this paper is also to review the full range
of publications showcasing the methodology, alternative approach and findings so as to study the performance model. As
per the paper, high business performance is the result of strong entrepreneurial orientation. Entrepreneurial Orientation can
be seen as a multidimensional construct operational in terms of variables like pro-activeness, competitive aggressiveness,
risk taking and aggressiveness and so on. It is required to use objective and subjective measures of performance in
combination in order to measure the performance accurately.

KEYWORDS: Entrepreneurship, Strategy, Innovation, Risk, Strategies, Performance

INTRODUCTION
As far as the systematic development of the entrepreneurship theory is concerned, the first half of the 20th century
was totally devoted in defining the terminology of entrepreneurship as well as in identifying the entrepreneurship role in
the economic development of the country (Marshall). During the years, 1960s and 1970s, the centre of attraction shifted in
identifying the factors that affect entrepreneurship. It is at this time, entrepreneurship was anyhow related to a number of
individual as well as demographic traits that result in encouraging the individuals towards entrepreneurship. The main
factors that were identified as the past history of behavior of entrepreneur include locus of control, work experience, need
for achievement, the influence of family, self efficacy, educational influence along with the number of other demographic
characteristics (Mintzberg, Lachman, Hagen, Weick). During the years 1980s and 90s the research on entrepreneurs moved
towards identifying the dimensions of the Entrepreneurial Orientation and to fit between the models of EO strategy, that
helps in aligning the level of EO with several strategies. The developments in the area of EO performance relationship as
well as the adoption of the contingency framework got great speed during the last two decades. This was also been
acknowledged that Industrial turbulence and organizational environment greatly affect the EO performance relationship.

ENTREPRENEURIAL ORIENTATION
Entrepreneurial Orientation emerged as a main construct within the entrepreneurship literature and strategic
management over the recent years. It can even be taken as characteristic of organizations that can be measured by
accessing the entrepreneurial style of the top management as witnessed by the strategic decisions of the firms as well as by
the philosophy of operating management. It is important to differentiate between entrepreneurship and EO. The real
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Goulap Jagadish Brahma

meaning of EO depends on how the entrepreneurs are going to implement entrepreneurship in the path of fulfilling the
ambition of their career. As against this, entrepreneurship focuses mainly on the new entry. Here the new entry can be
fulfilled by either entering into the new markets or the established ones. It was argued by Slevin and Covin that EO of an
organization is the summation of the point to which the top level management is forced to take up the business related risks
so as to favour innovation and change to get a competitive advantage. It was proposed that EO needs to be taken as the
strategic dimension that has to be observed from the strategic posture of the firm running to the complete entrepreneurial.
They are of opinion that firms that are in a position to get engaged in risk taking of high levels, proactive and innovative
behaviours have EO, whereas those who are engaged in low levels of these behaviours are said to have conservative
orientation (Slevin and Covin). As per Dess and Lumpkin, EO can be referred to as the practices, decision making
activities and processes that result into the new entry. Further EO is considered as the process construct that is related to
the practices, methods as well as decision making styles that are taken in use by the managers. The term EO however, is
also used to denote personal psychological traits attributes as well as values that are very strongly associated with the
motivation to engage in the entrepreneurial activities. EO can also be seen as a good measure of the manner in which a
firm is organized.
EO is considered very important for the success of any organization. The main 3 types of models that are apparent
in the literature of EO are given as under:

The EO strategy model that helps in aligning the EO levels with a number of strategies (Burgelman, Dess and
Lumpkin, Frese et al, Friese and Miller).

The construct model, where EO is the dependent variable and where the researchers focus mainly on its
antecedents(Toulouse and Miller, Poon et al, Jaillo and Stevenson, Zahra)

The performance model, where the linkage of EO performance is explored, including most of the times not just
the bivariate relationship rather the multivariate relationship as well in consideration of the mediating and
moderating variables that are related to the organizational or external environment and by looking at the main
affect between the interaction affect and two variables with the mediating or moderating variables.
(Garvis and Zahra, Slevin and Covin, Dimitratoset al, Soininen et al, Wiklund, Stam and Elfring)

Entrepreneurial Orientation Dimensions

As identified by Slevin and Covin, there are three dimensions in which EO has been operationalized, taking into
consideration the Khandwallas work and risk taking, innovativeness and proactiveness in order to test and characterize
entrepreneurship. Thereafter, two more dimensions were identified by Dess and Lumpkin, competitive aggressiveness and
autonomy in order to conceptualize EO. Many a times, however it was argued that the entrepreneurships internal driver is
autonomy that impacts the organizational climate for entrepreneurship. It was even claimed by a number of scholars that
Competitiveness Aggressiveness can be seen a part of the proactive dimensions and not at all represent the different
dimension.
The measure of entrepreneurs innovativeness is the propensity with which they are in a position to innovate their
venture; the enthusiasm to take into consideration new methods or ideas for the operation of their business, their readiness
to go for trying new ways that are quite different from the existing ones, and the keenness to implement innovation strategy
in their venture. Basically innovativeness helps in reflecting the tendency of a firm to engage in and support creative
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Understanding Entrepreneurship: Relationship That Exist Between Business

Performance and Entrepreneurial Orientation an Analysis

processes, new ideas, experimentation and novelty that may give birth to new services, technological processes or products
and which may result in taking the organization to heights. It also means considering strange, extraordinary or creative
solutiosn to the problems as well as requirements. It was considered by Schumpeter in the year 1934 that entrepreneurship
is a creative activity and entrepreneur is an innovator who keeps on trying a number of combinations in the area of
machine, men, management and money. As per him, entrepreneur is more like an economic man who attempts to
maximize his profits by experimenting in any of the mentioned fields: new markets, new products, new organization forms
and new production methods. The innovativeness and its degree of an entrepreneur will help in deciding how deep and
how far the innovation is required to go in the business, so as to fulfil the strategic objective formed for the business and to
fulfil the requirements expected from the environment. Basic willingness is represented by innovativeness in order to
depart from the existing practices or technologies as well as venture that is beyond the present state of the art. You can link
the innovative strategic posture to the performance of the firm as it helps in increasing the chances that a firm is going to
realize as first mover merit, obtain a competitive edge over others, take a lead from the competitors and capitalize on the
market opportunities that are emerging, leading to better financial results. (Davis and Kreiser, Kreiser et al, Hult et el).
You can refer risk taking to the tendency to take better actions that can be termed as bold like entering into new
markets and making a commitment of a large part of resources to businesses where the outcomes that are not certain.
As per Cantillon, entrepreneur can be described as a rational decision maker who predicts risk and offer the management to
the business. It was further argued by John Stuart Mill that the paramount characteristic of entrepreneurship is risk taking.
Risk taking here can be implied as willingness by a person to commit a good number of resources to a number of
opportunities that may involve probability of failure. On the other hand, risk handling can be seen as the process wherein
the potential risks for any business are first of all identified, mitigated after analysis and finally prevented with the practice
of making a balance between the cost of safeguarding a company against risk and the cost that is involved as exposure to
that risk. The best way to deal with the risk is to notice risk at its initial level and making a control of it at an early stage. In
reality, entrepreneurs tend to deal with the risks proactively. There is a curvilinear relationship of risk taking with the
entrepreneurial firms performance. A number of researches suggest that the entrepreneurial firms that are showing the
moderate levels of risk taking basically outperform in the market in comparison to the firms showing either very low or
high levels of risk taking. A number of factors including the ability to work under the risky circumstances, process of
making a risk problem, risk taking ability and results of the risk taking in the past affect the entrepreneurs risk raking
ability. Proactiveness on the other hand, can be seen as an opportunity seeking, perspective pertaining to looking forward
while involving the introduction of the new services or products making into consideration the future demand to change,
create and shape the environment. Proactiveness is obvious in the search of the favourable business opportunities by the
organization and the aggressive behavior that is directed at the competitive firms. In simple terms, it is ability to take
initiative, as per the demand of the situation. It was suggested by Porter in the year 1985 that the firms may tend to utilize
the proactive behavior so as to make add on in their competitive position is relation to various other firms. It is concerned
with the first mover as well as other actions that aim in seeking to protect and secure the market share as well as with a
future oriented perspective that is reflected in the actions that are taken taking in view the demands in the future. It reflects
not just in defense but in offence also. It also refers to the number of processes that are aimed at finding out and acting on
the needs of the future by taking in view new opportunities that may or not be related to the operations present line,
eliminating the operations strategically that are in the declining or mature stages, introducing new brands or products ahead
of the competition. Thus, proactiveness can be seen as willingness to start something which competitors then will follow.
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You can refer competitive aggressiveness as the propensity of a firm to intensely and directly challenge its
competitors so as to get entry or to improve position, in order to bring down the industry rivals in the market. It may also
be referred as the firms willingness to be unconventional instead of just relying on the traditional ways of competing.
By this aspect, it is easy to measure the ways by which the entrepreneurial firms deal with the challenges, and it may also
be referred to the responsiveness of the firm to achieve competitive benefit. The terms competitive aggressiveness and
proactiveness in literature are usually used interchangeably, however there lies a good difference between the two.
The competitive aggressiveness may be referred to the ways how the firm relates to the competitors, whereas proactiveness
shows how the market creates opportunities to deal with the demand.
Autonomy can be referred to as an individuals or a teams independent action in bringing forth a vision or idea
and take it along to the process of completion. In general terms, it may be seen as the ability as well as willingness to be
self directed in search of the opportunities. In the context of organizations, you can define it as actions taken freely,
without considering the constraints of organizations, in order to establish and ensure smooth running of the venture. It is
important to note that autonomy in firms may keep on changing as per the organizations size, style of the management as
well as the ownership.
Opinions vary as whether all entrepreneurial orientation dimensions are independent or each other or not. It was
argued by Slevin and Covin that entrepreneurial orientation can be best viewed as concept that is undimensional. As a
contrary to this, Dess and Lumpkin were of the opinion that a number of dimensions of EO may take place in a number of
combinations and so, it can be seen as a multidimensional construct. The main premise supporting this argument is that
every EOs sub dimensions are believed to have different relationship with the outcomes of entrepreneurial actions. For
instance, there exist curvilinear relationship between the risk taking and the performance, though proactiveness and
innovation are said to have direct and positive relationship with performance.
Business Performance
Going through the literature on the performance construct clearly show that there exists no consensus among the
researchers on the business performance indicators appropriate measures. Due to this, a very great diversity of
performance measures, and non financial as well as financial measures were used diagonally studied that leads to good
diversity in the performance relationship of EO. Also misleading results are expected from research that considers narrow
range or single dimension performance indicators. So, now the question arises, which is the most appropriate form for
measuring the performance. Is it financial? Like growth, profitability or growth in the sales or it could be non-financial like
responsive in the positive form in the community, good level of satisfaction of stakeholders or both. Researchers already
accepted that as far as the performance measurement is concerned, objective measures are considered better than the
subjective ones. However it is very difficult to obtain objective data as most of the people are not willing to pass on the
sensitive data to the outsiders. The managers as well as owners on the other hand are inclined to offer subjective evaluation
of the performance of their firm that lacks in the reliability. Performance alternatively can be seen as multidimensional in
nature and hence it is considered important to integrate a number of objective as well as subjective measures for getting the
accurate measurement of performance.
Relationship that Exist between Entrepreneurial Orientation and Performance
Firm performance and entrepreneurship and their relationship has received a very good attention in the

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Understanding Entrepreneurship: Relationship That Exist Between Business

Performance and Entrepreneurial Orientation an Analysis

entrepreneurial and organizational literature. It has been theorized by a number of scholars that the occurrence of the
propensity to engage in the high risk taking levels, proactive and innovative behaviours is associated positively with the
profitability and growth of the organization. It is however important to note that the relationship magnitude tends to vary
across the studies. A number of studies reveal that the venture that holds good EO performs better in comparison to the
firms that do not hold this. Lower correlation is often reported in a number of studies between the performance and EO.
A number of other studies fail to find out important relationship between the performance and EO. A look at other set of
studies also revealed that the straightforward relationship is absent in the relationship and it appears to be in the shape of
inverted U. It simply means it is not desirable to always have high level of EO in a number of structural and market
conditions. The factors responsible for variation can be the differences in the methodology used, difference in the opinion
related to the moderating variables and changes in the scale of moderating variable being used and so on.
The literature also reveals the point that there is no straightforward relationship between performance and EO,
instead it is affected by various factors interference pertaining to the industrial and organizational environment. It was
suggested by Venkatraman that mediating effects, interacting effects and interaction tends to put great impact on the
models for investigating the third variables impact as a way to explore the contingency relationships.

CONCLUSIONS AS WELL AS REMEDIES

EO is considered as an important measure to know how the firm is organized and most of the times it is seen as
the decision making activities as well as process that is taken in use by the managers in order to act entrepreneurially.
By taking into consideration the arguments given by a number of researchers as well as on the basis of literatures
extensive review, it is acknowledges in the paper that EO is a main component in the success of an organization. As per the
review, EO is more a multidimensional construct that is operationalized in risk taking, competitive aggressiveness,
innovativeness and autonomy. It is also revealed in the literature that both subjective and objective measures are studied,
giving results in good level of variation in the relationship of EO performance. It is even observed that objective measures
are better as compared to the subjective ones in measuring the performance. Though, the respondents are not willing to
pass on the sensitive information to those who are not insiders. Hence, a combination of objective as well as subjective
measures of performance is highly recommended for measuring the performance in the accurate manner. As per the paper,
high business performance can be achieved by the strong EO. It is also highlighted in the review that utility of
configuration network as well as contingency in order to understand the relationship of EO performance. The future
research instead of emphasizing on EO performance relation must take into consideration configuration and contingency
approach by introducing a number of environmental as well as organizational elements as mediating and moderating
variables.

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