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Environmental dynamism andentrepreneurial orientation
The moderating role of firm’s capabilities
Marıa Jose Ruiz-Ortega and Gloria Parra-RequenaDepartment of Business Administration, University of Castilla-La Mancha,
Albacete, Spain
Job Rodrigo-AlarconDepartment of Business Administration, University of Castilla-La Mancha,
Cuenca, Spain, and
Pedro M. Garcıa-VillaverdeDepartment of Business Administration, University of Castilla-La Mancha,
Albacete, Spain
Abstract
Purpose – The purpose of this paper is to study the antecedents of entrepreneurial orientation (EO).Specifically, the authors aim to analyze how firms’ capabilities influence the relationship between firmenvironmental dynamism and entrepreneurial orientation. The study seeks to provide a betterunderstanding of antecedents of EO, helping to fill in the gap that exists in the EO literature andexplain how certain internal and external factors, independently and jointly, influence EO.
Design/methodology/approach – The empirical study is conducted on a sample of 253 firms fromthe information and communication technology (ICT) industry. In order to test the proposed model, ahierarchical regression analysis was developed.
Findings – A positive effect of environmental dynamism, technological capabilities and marketingcapabilities on EO was detected and it was possible to observe how technology capabilities improvethe positive effect of environment dynamism on EO.
Originality/value – The most important contribution of this paper is to demonstrate that the directionof the moderating effect of capabilities on environment dynamism changes depending on the capabilitiesthat are analyzed. While the technology capabilities improve the positive effect of environmentdynamism, the marketing capabilities worsen the effect of environment dynamism on EO.
Keywords Entrepreneurialism, Information technology, Communication technologies, Marketing,Entrepreneurial orientation, Dynamism, Technology capabilities, Marketing capabilities,Moderating effect
Paper type Research paper
IntroductionThe literature on entrepreneurial orientation (EO) has been extensive since Miller’s (1983)seminal work. EO research has been strengthened in recent years with the publication ofnumerous empirical studies (e.g. Wiklund and Shepherd, 2003; Hughes and Morgan,2007; George, 2011) and several meta-analysis (e.g. Rauch et al., 2009; Rosenbusch et al.,
The current issue and full text archive of this journal is available at
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The authors are grateful to the Junta de Comunidades de Castilla-La Mancha for researchfunding (Project: PEII10-0332-0679).
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Received 14 October 2012Revised 22 January 2013
Accepted 24 January 2013
Journal of Organizational ChangeManagement
Vol. 26 No. 3, 2013pp. 475-493
q Emerald Group Publishing Limited0953-4814
DOI 10.1108/09534811311328542
2011). However, most of them have addressed the relationship between EO and firmperformance. Rauch et al. (2009) verify through the analysis of 51 empirical studies thatthe correlation of the EO with performance is robust for different operationalizations andcultural context, demanding new ideas in the research of EO. In this sense, severalresearchers highlight the interest and scarcity of those works in the literature analyzingthe antecedents of EO, the aim of which should be to understand its foundation anddevelopment (e.g. Covin and Lumpkin, 2011; Wales et al., 2011). The few studies thathave examined EO as a dependent variable are limited to recognizing direct effects(Sciascia et al., 2006), have analyzed a specific dimension of the EO (Kyrgidou andSpyropoulou, 2012), or have focused on internal or external factors of the firm(Rosenbusch et al., 2011). We propose to go more deeply into the antecedents of EO,analyzing how environmental and organizational factors interact to explain EO.
EO reflects an independent posture which includes the firm’s commitment to takerisks, innovate and be proactive in developing and implementing strategies (Miller,1983; Covin and Lumpkin, 2011). In the literature, a wide-ranging discussion has takenplace about the dimensionality of EO (e.g. Covin et al., 2006; George, 2011). Despite theconflicting views, the issue of construct dimensionality is marked by consistencybetween the way of conceptualizing and the empirical data used (Covin and Lumpkin,2011). Following the approach of Covin et al. (2006), we study EO as an aggregateconstruct that includes innovativeness, proactiveness and risk-taking.
The literature identifies external factors that may affect EO – hostility,munificence, heterogeneity, dynamism, complexity, life-cycle stage of the industry,etc (Covin and Slevin, 1991; Morris and Kuratko, 2002; Aloulou and Fayolle, 2005;Rosenbusch et al., 2011; Wales et al., 2011; among others). Several studies emphasizesthe need for a further study of the role that environment dynamism can have in thedevelopment of EO (Sciascia et al., 2006) and the effectiveness of EO on firmperformance (Rauch et al., 2009). The special interest in the study of dynamism is dueto its link with changes in demand, technological and competitive environment, thatcreate difficulties in predicting future context and its impact on the firm, but also to thenew opportunities arising from EO (Lumpkin and Dess, 2001).
The resource-based view highlights the importance of resources and capabilities todevelop a strategic posture by the firm that will lead to high performance (Wernerfelt,1984; Barney, 1991). Literature indicates that the capabilities, referred to theorganizational process through which resources are obtained, combined and deployed,promote strategic orientation to obtain sustainable competitive advantages (Shamsieet al., 2009). Following a functional approach, we study technological and marketingcapabilities, related to key stages of the value chain, as they are complementary to thesuccessful development of EO (Schoenecker and Cooper, 1998).
The literature establishes that the influence of environmental conditions on strategyorientation will be affected by the firm capabilities (Teece et al., 1997). From thepopulation-ecology view, environmental conditions are the main factor that determinesa firm’s behaviour and performance (Hannan and Freeman, 1977) and acknowledgesthe important role of a firm’s resources and capabilities. We rely here on thepopulation-ecology perspective, which indicates that firms tend to develop rapidlywhen their key capabilities are needed to survive and grow in the environmentalconditions in which they operate (Brittain and Freeman, 1980). From this approach, wetry to overcome the gap in the literature on the interaction of external and internalantecedents of the EO, as it is suggested by Kyrgidou and Spyropoulou (2012). Thus,
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we propose that it is the adequacy of firm’s specific capabilities to face and takeadvantage of a dynamic environment that will encourage the firm to develop an EO.
Following this approach, the aim of this article is to study how firm’s capabilitiesaffect the relationship between environmental dynamism and EO. More specifically,we analyze whether technological and marketing capabilities moderate, improve orworsen, the relationship between environmental dynamism and EO.
Therefore, the main contribution of our study is to improve the understanding of theantecedents of EO from the population-ecology approach, focusing on the adequacy offirm capabilities to respond to environmental dynamism. An important theoreticalcontribution is that the population-ecology approach overcomes and integrates thetheoretical perspectives mainly focused on environmental factors – industrialorganization and evolutionary economy – or internal factors – resource-based view.Following this approach, we contribute to deepen in the antecedents of EO, as it hasbeen demanded in the recent literature (Covin and Lumpkin, 2011; Rosenbusch et al.,2011; Wales et al., 2011; among others).
Furthermore, we propose and contrast new interactions between a keyenvironmental factor – dynamism – and relevant firm’s capabilities - technologicaland marketing – to explain EO. First, we propose a base model that analyzes the directeffects of environmental dynamism and capabilities on EO. Second, we includeinteractive relationships between dynamism and each type of capabilities in a fullmodel. Third, we propose the opposite direction of the moderating effects oftechnological and marketing capabilities basing on the adequacy of the firm’s availablecapabilities to face with a dynamic environment and take advantage of EO. Finally, inthe context of the dimensionality discussion, we contribute to strengthen the empiricalbasis of the definition of EO as one construct.
The following section focuses upon the theory and explains the hypotheses to betested. Subsequently, we explain the research design. Next, we expose the main resultsof the study. Finally, the results obtained are discussed and we illustrate the mainconclusions, highlighting several scientific and managerial implications.
Theory and hypothesesEntrepreneurial orientationThe concept of EO refers to the strategic process by which organizations identify newopportunities and implement entrepreneurial actions (Dess and Lumpkin, 2005). EOinvolves a continuous behavior in order to achieve the identification and generation ofnew business, which will generate in the long term a sustainable competitiveadvantage (Wiklund and Shepherd, 2003).
Miller’s (1983) seminal work suggests that an entrepreneurial firm is one thatengages in product-market innovations, undertakes a risky business and is the first tointroduce proactive innovations in the market. Thus, Miller (1983) highlights three keydimensions that determine EO – innovativeness, proactiveness and risk-taking –which have been studied in depth in the literature of EO (Hughes and Morgan, 2007;Hakala, 2011).
Innovativeness is defined as the firm’s tendency or willingness to participate insupport of new ideas, creativity and experimentation as well as to develop creativeprocesses of technological and R&D leadership which result in new products, servicesor technological processes (Lumpkin and Dess, 1996). Proactiveness represents aforward-looking view, where firms try to develop new products or improvements on
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them, anticipating changes and opportunities that arise in the environment, promotechanges in current tactics and detect future market trends (Hughes and Morgan, 2007).Finally, risk-taking is linked with the firm’s willingness to involve a higher level ofresources in projects where the error cost can be very high or the results are uncertain(Wiklund and Shepherd, 2003).
Reviewing the literature on EO dimensions, we can observe a recurring debateabout whether or not these dimensions vary independently (Wales et al., 2011). Asproposed by Covin et al. (2006), we regard EO as a one-dimensional construct,generated by the aggregation of innovativeness, proactiveness and risk-taking.Previous studies have demonstrated that EO drives the firm to achieve a betterperformance (e.g. Rauch et al., 2009). However, there is a gap in the literature about thefactors that determine EO (Wiklund and Shepherd, 2003). The few studies thatincorporate EO as a dependent variable focus on the direct effects of certainenvironmental conditions or on the firm’s internal factors (e.g. Sciascia et al., 2006;Rutherford and Holt, 2007; Guzman-Alfonso and Guzman-Cuevas, 2012;). We considerthe need for further research on how the capabilities developed by firms affect EOwhen they are faced with uncertain environmental conditions.
Environmental dynamism and entrepreneurial orientationSeveral studies have demonstrated that the environment has a significant influence onthe decisiveness and effectiveness of the firm’s EO (e.g. Covin and Slevin, 1991).Evolutionary economy regards competition as a dynamic process in which firms try toadapt their strategies to market conditions and, at the same time, by means of theirstrategic decisions, to develop actions that allow them to influence environmentalconditions (Nelson and Winter, 1982). Thus, firms often respond to adverseenvironmental conditions by risk-taking, innovating and showing a proactivebehavior, that is, assuming an entrepreneurial posture (Miller, 1983).
The literature determines various external factors which can be antecedents of EO(e.g. Wales et al., 2011). In this line, Morris and Kuratko (2002) identify approximately40 issues that may encourage EO, of which half are environmental factors. Variousstudies suggest that environmental dynamism can be the most conducive factor to thedevelopment of EO, because it tends to create opportunities in markets where the firmoperates (Hakala, 2011). In this article, we focus on environmental dynamism that weunderstand as the volatility of the firm’s market, the continuous changes that occur intechnological conditions and the unpredictable changes of customers and competitors(Aloulou and Fayolle, 2005).
The literature suggests that a dynamic environment requires an innovative behaviorand the adoption of higher levels of risk. Thus, several studies determine that a higherdynamism fosters the implementation of EO in order to be more efficient and effective inthe discovery and exploitation of emerging opportunities (Rauch et al., 2009).
If we focus on innovativeness, we can observe that environmental dynamism forcesfirms to change products and markets to remain competitive (Zhou, 2006). Thistendency to constantly innovate is accentuated for firms that base their competitiveadvantage in technology, because they must anticipate the changes in markets andcompetitors to get a sustainable competitive superiority in time (Ireland et al., 2009).
Furthermore, proactiveness helps firms to minimize the threat of obsolescence, as isusual in dynamic environments (Lumpkin and Dess, 2001). Zahra (1996) suggests thatdynamic environments encourage a firm’s proactiveness in order to have new targetmarket segments ahead of the entry of rivals. In addition, firms that present a more
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proactive behavior will have more likely to identify and seize the opportunities createdby the continuous changes in a dynamic environment (Lumpkin and Dess, 1996).
Finally, an increase in environmental dynamism can push the firm to take morerisks, because it has to undertake actions that are more likely to fail (Zahra, 1991).Thus, in this type of environment, the result of a new technology in the early stages ofproduct development is uncertain, because various alternatives are competing toestablish the industry standard (Meijer et al., 2010). Therefore, environmentaldynamism forces firms to take decisions and undertake actions assuming theuncertainty of their results, and so they are faced with a higher risk. In short, weunderstand that dynamic environments encourage firms to develop an EO. Based onthese arguments, we propose the following hypothesis:
H1. Environmental dynamism positively influences the firm’s EO.
Capabilities and entrepreneurial orientationThe resource-based view suggests that the firm’s resources and capabilities have aninfluence on its strategic behavior (Teece et al., 1997; Wernerfelt, 1984). Against thelimitations of the traditional RBV, several authors point out that, rather than specificresources, the development of capabilities is what drives firms to achieve sustainablecompetitive advantages (Shamsie et al., 2009). From this approach, certain studies havesuggested that the firm’s capability to conduct an EO will largely depend on thedeveloped capabilities (Un and Sanchez-Montoro, 2010; Kyrgidou and Spyropoulou,2012). Thus, the process and success of the EO are conditioned by the capabilitiesdeveloped by the firm (Aloulou and Fayolle, 2005).
In this article, from a functional approach, we focus on technological and marketingcapabilities that are involved in key stages of the value chain (Spanos and Lioukas,2001), which may have an important role in EO. The few studies that address the roleof these types of capabilities focus primarily on their moderating effect on therelationship between EO and firm performance (e.g. Li et al., 2005). However, we cannotfind any study that analyzes the effect of these capabilities on EO (Wales et al., 2011).
Both types of capabilities tend to be interpreted broadly. Technological capabilitiesrefer to the ability of the firm to carry out any relevant technical or technologicalfunction, including the ability to develop new products and processes that facilitate theefficiency of operations (Spanos and Lioukas, 2001). These capabilities includetechnological knowledge, trade secrets, know-how developed by R&D activities andother specific technological intellectual capital (Dollinger, 1995). Marketing capabilitiesare directly linked by obtaining advantages in the relationships between firms andtheir customers (Teece et al., 1997). Day (1994) defined marketing capabilities as thoseskills that help the firm, not only to understand the behavior of the factors thatdetermine their markets, but also to operate more effectively in them.
Several studies have highlighted that organizational factors influence the firm’s EO(e.g. Zahra, 1991; Sciascia et al., 2006). We believe that technological and marketingcapabilities can have a key role as antecedents of EO. Therefore, if the firm hascomplementary capabilities to achieve competitive advantages of EO, it will be morelikely to develop an EO.
Technological capabilities increase the ability of the firm to assess and use theirinternal resources in the development of new products (Zahra and George, 2002), so that,with better technological capabilities, firms can identify new technology threats,experiment with new emerging designs and develop new product innovations (Zhou and
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Wu, 2010). Similarly, we believe that technological capabilities positively influence firmproactiveness, which is reflected in its pioneer orientation (McEvily et al., 2004). Therefore,firms that possess superior technological capabilities will have a greater propensity toenter first with new products in the market (Teece et al., 1997), with the aim of achievingsustainable first-mover advantages. Furthermore, access to and control of superiortechnological capabilities allow firms to accept a higher level of risk when competing inthe market (Zahra, 1999). Therefore, these capabilities lead firms to take actions withhigher risk, related to proactiveness and innovativeness (Hughes and Morgan, 2007).Thus, we consider that the possessing of greater technological capabilities leads firms todevelop an EO. Following these arguments, we establish the next hypothesis:
H2. The availability of technological capabilities positively influences the firm’s EO.
Regarding marketing capabilities, we observe that these capabilities favor the firm’sinnovativeness because the development of customer orientation abilities promotesproduct innovations (Renko et al., 2009). Moreover, marketing capabilities allow firmsto establish strong resource position barriers on the market against competitors(Makadok, 1998), driving firms to innovate.
Furthermore, several studies have linked the availability of these capabilities withan early market entry (e.g. Parra-Requena et al., 2011). Marketing capabilities allow theexploitation of new products developed in the firm, taking advantage of marketopportunities identified (Teece, 1986). As a result, high marketing capabilities,reflected in brand recognition, customer trust and loyalty of distributors, encourage thefirm’s proactiveness, because firms have expectations to achieve a better performancefrom a pioneering entry in the market.
Finally, solid marketing capabilities enable firms to address new customers withnew products, assuming higher levels of uncertainty and, therefore, higher risk (Zahra,1999). Thus, higher marketing capabilities promote EO. Based on these arguments, wepropose the next hypothesis:
H3. The availability of marketing capabilities positively influences the firm’s EO.
The contingent role of capabilitiesFrom the population-ecology view, strategic behavior is the way in which firms withina population exploit the resources and opportunities that exist in a niche (Hannan andFreeman, 1977). Thus, a firm tends to develop rapidly when its key capabilities areneeded to survive in the environmental conditions in which it operates (Brittain andFreeman, 1980). Also, the relationship between environment and capabilities iscomplex. Firms acquire resources and develop capabilities from their environmentalcontext and transform them into products and services, exploring and exploitingopportunities provided by the environment (Rosenbusch et al., 2011). We understandthat the interaction between the firm’s specific capabilities and environmentalconditions will significantly affect its EO (Teece et al., 1997). More specifically, it willbe the adequacy of the firm’s available capabilities – technological or marketing – toface a dynamic environment and take advantage of it, which can promote the firm todevelop an EO.
Firms that operate in dynamic environments are more likely to direct theirtechnological capabilities towards generating new products than those firms thatoperate in stable environments (Perez-Luno et al., 2011). In a technological dynamicenvironment, firms require higher technological capabilities to determine the industry
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technological standard through an innovative and proactive behavior. Therefore,assuming the risks inherent in the generation and development of innovations andtheir exploitation in the market, firms with technological strengths can be successful indynamic environments. We believe that the possession of complementary capabilities,such as technological, may generate expectations of success and promote thedevelopment of an EO to compete in highly dynamic contexts (Teece, 1986). Thus,firms will leverage their technological skills and knowledge to develop new products,enter early in new markets and assume greater levels of risk to face conditions ofstrong dynamism. Following these arguments, we establish the next hypothesis:
H4. The relationship between environmental dynamism and EO is moderated bytechnological capabilities. Technological capabilities improve the positiveinfluence of environmental dynamism on EO.
In environments with high uncertainty, the possession of strong marketing capabilitiesencourages firms to focus more on developing their own markets and the exploitation oftheir current customer base, trying to satisfy their needs to keep their market share.Thus, in very dynamic environments, marketing capabilities can also be imitated byfirms, who then enter as followers in the market, once the signs and the potential marketat which to target their products are known (Zhou, 2006). Furthermore, in contexts ofhigh technological volatility and uncertainty in demand, greater marketing capabilitiescan have less bearing upon EO, to avoid the firm’s cannibalizing its own products withthe introduction of new innovations in the market (Taylor and Anderson, 2001). Weunderstand that in order to adapt to a dynamic environment, firms with strongmarketing capabilities will not reserve them exclusively for the development of EO, butthey will also have a bearing upon their products and markets (Perez-Luno et al., 2011).Thus, firms with high marketing capabilities will be less likely to develop new productsor enter new markets, limiting the risk associated with their decisions to face thedynamic environment. Based on these arguments, we propose the following hypothesis:
H5. The relationship between environmental dynamism and EO is moderated bymarketing capabilities. Marketing capabilities worsen the positive influenceof environmental dynamism on EO.
Sample and methodsSampleThis empirical study was conducted on a sample of firms in the Information andCommunication Technology industry in Spain[1]. According to the report released byASIMELEC (Firms Association of the ICT Industry), this industry provides 7.07 percentof Spanish GDP. In the last years, the ICT Industry in Spain obtained a mean turnover of70 million Euros. We consider especially interesting to analyze this industry because ofits fast clock-speed (Mendelson and Pillai, 1998), high technological and marketuncertainty and short innovation cycles (Rai et al., 2007). There is no question that it is astrategic sector in the Spanish economy. In the present context of economic difficulties,the sector’s capacity to innovate, invest and generate growth and employment, willbecome an essential factor for the development of the Spanish economy.
In order to establish the total number of firms in this sector we have used, first, twoofficial data bases: SABI[2] and Camerdata[3]. To complete the original file and updaterecords, we used the databases ANIEL[4] and the census of exporters[5]. We added anadditional condition, namely, not to include those companies that had fewer than ten
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employees since, in companies of such a small size, characteristics differ substantiallyfrom the considerations raised in the theoretical argumentation, for which a minimaloperative structure and a specific study are required (Spanos and Lioukas, 2001).
Once we had eliminated duplicated cases resulting from the use of differentinformation sources, we were left with a database of 1,847 records. Prior to sending thedefinitive questionnaire, we conducted a pre-test with the CEOs of nine companies inthe analyzed sector. Once we had the final questionnaire, we sent it to the wholepopulation of 1,847 companies. We had a total of 253 valid questionnaires, whichconstitutes a response rate of 13.69 percent, which we can consider acceptable in viewof the low index of response to mail surveys. With regard to the sampling error, for aconfidence level of 95 percent, and the least favorable situation of p ¼ q ¼ 0:5, we havean error of 5.72 percent. We developed a t-test for all the variables included in the studybetween the firms that responded during the first three weeks (176) and the firms thatresponded later (77). No significant differences were found between these two groups.Furthermore, we compared the mean value of the size variable between all firms andthose included in the sample. Similar values were obtained in both cases. Therefore,following Armstrong and Overton (1977), a “non-response bias” was not detected.
MeasurementEntrepreneurial orientation. In relation to the measurement of EO, this is based on thescale proposed by Dess et al. (1997), which in turn was adapted from Hart (1992) withhis proposal of generic modes of strategy making. From this 25-item instrument –related to EO, CEO style, and general management orientation – Dess et al. (1997)obtain a factor, which they check for validity and reliability. This factor ischaracterized by innovation, experimentation risk taking and assertiveness. Weassembled three of Dess et al. (1997) items, which entail a wide focus on the dimensionsof EO, using a five-point Likert scale. The items are the following:
(1) people in this organization are very dynamic and entrepreneurial – overall EO;
(2) people are encouraged to experiment in this organization so as to identify new,innovative approaches or products – proactiveness and innovativeness;
(3) people are willing to take risks – risk-taking – (Cronbach’s alpha of 0.789).
Thus, following Covin et al. (2006), we measured EO as an aggregate construct thatincludes innovativeness, proactiveness and risk-taking (Hakala, 2011). We conducted aprincipal components factor analysis to enhance the one-dimensionality of the scale,verifying that the items analyzed are grouped in a single factor (see Appendix,Tables AI-AIV).
Independent variablesDynamism. Environmental dynamism reflects the difficulty of predicting industrialchanges (Dess and Beard, 1984) and a steady movement of entry and exit in theindustry. The literature highlights that this variable can be a determinant of the EO(Rosenbusch et al., 2011). In this case, after revising several scales, we decided toinclude an adaptation of the scale proposed by Miller (1987). In order to adapt theoriginal scale to the aims of our study, we briefly modified the original items. Theadapted scale gathers the level of change on several variables that are especiallyimportant for the development of an EO. This variable was measured by means of afour-item scale:
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(1) the opportunities of the environment grow strongly;
(2) the technology in my sector changes frequently;
(3) the innovation in processes and products or services grows strongly; and
(4) the research and development activity in my sector grows strongly (Cronbach’salpha of 0.771).
Firm capabilities. In order to measure the firm capabilities and after revising severalstudies, we have included two types of capabilities – technological and marketing –linked to their position in the value chain, as proposed by the Spanos and Lioukas(2001). These scales were discussed with academics and managers during the pre-testphase until it was deemed to be suitable for our study on account of their functionaland broad approach.
Technological capabilities. Technological capabilities refer to the necessary technicaland technological abilities needed to transform inputs into products. The literature hasshowed the influence of this variable on the EO (Kyrgidou and Spyropoulou, 2012). Wedecided to include the scale proposed by Spanos and Lioukas (2001) because itscomprehensive approach reflects the complementary nature of EO required for ourstudy. The construct includes three items in terms of a firm’s strength relative tocompetition. These items are linked to:
(1) technological capabilities and equipment;
(2) economies of scale and technical experience; and
(3) an efficient and effective manufacturing department (Cronbach’s alpha of 0.830).
Marketing capabilities. Marketing capabilities refer to the output-based competences.For measuring these capabilities, we have included the Spanos and Lioukas (2001)scale because it gathers a variety of aspects linked to marketing that can affect thefirm’s propensity to develop an EO (Parra-Requena et al., 2011). This scale comprisesfour items in terms of the firm’s strength relative to competition. These capabilitiesrefer to the output-based competences and are linked to:
(1) advantages in relationships with clients;
(2) customer “installed base”;
(3) control and access to distribution channels; and
(4) market knowledge (Cronbach’s alpha of 0.729).
Control variables. In this study, we included the variables size, age and generalperformance as control variables. Firm size was measured by means of the naturallogarithm of the number of employees. This variable is usually included in marketstudies in order to control its effect on entrepreneurship. The analysed studies haveobtained different results. Thus, Henderson and Clark (1990) proved that large firms donot tend to have an EO because of their structural inertia. On the contrary, Robinson et al.(1992) demonstrated that the largest companies tended to develop an EO. The variableage is usually included in the studies about entrepreneurship (Burton, 1999). Older firmsmay possess greater experience with entrepreneurial practices that favor their EO(Kyrgidou and Spyropoulou, 2012). However, we can also consider firm’s age as a proxyfor structural rigidity (Lee, 2008), having a negative influence on EO. Age was alsomeasured by means of the natural logarithm. In order to measure the performance of the
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company adequately, we have calculated the product of CEOs’ self-reported importanceand satisfaction (Zahra, 1996) for five items – return on investment, profit margin,market share, growth of sales, and general performance – (Chronbach’s alpha of 0.824).
AnalysisIn order to test the proposed model a hierarchical regression analysis was developed.The hierarchical approach is necessary since an interaction effect exists if, and only if,the interaction term gives a significant contribution over and above themain-effects-only model (Cohen and Cohen, 1983). Typically, assessment of howsignificant interactions affect the dependent variable are done by first entering selectedvalues of the interaction terms into the regression equation and then plotting thesevalues against the resulting values of the dependent variable. Such plots show theeffect of one selected variable, given different combinations of values for othervariables. Previously the authors calculated the correlation matrix and the valueinflation factors (VIF’s) to dismiss multi-colinearity problems and descriptive statistics(see Appendix, Tables AI-AIV).
ResultsAs shown in Table I, the control variables of organizational size, age, generalperformance and the independent variables – dynamism, technological capabilitiesand marketing capabilities – were first entered in a base model. This model explains astatistically significant share of the variance of EO (R 2adj ¼ 0:276). The resultsobtained in this model show that dynamism (b ¼ 0:212; p , 0:001), technologicalcapabilities (b ¼ 0:364; p , 0:001) and marketing capabilities (b ¼ 0:145; p , 0:05)have a positive and significant influence on EO, although in the case of marketingcapabilities it is more limited. It is important to highlight that the base model has astrong predictive power. The results obtained provide support for H1, H2 and H3.
In the next step, the double interactive effects were included (dynamism £technological capabilities and dynamism £ marketing capabilities). This modelmakes a significant contribution over and above the base model (DR 2corr ¼ 0:033).The results show once again the positive and significant influence of dynamism
Main-effects-only model Full modelVariables b t-statistics b t-statistics
Size 017 0.284 0.020 0.351Age 20.127 22.156 * * 20.126 22.197 * *
General performance 20.043 20.684 20.036 20.566Dynamism 0.212 3.667 * * * * 0.205 3.636 * * * *
Technological capabilities 0.364 5.250 * * * * 0.372 5.419 * * * *
Marketing capabilities 0.145 2.106 * * 0.116 1.716 *
Dynamism £ Technological capabilities 0.143 1.918 * *
Dynamism £ Marketing capabilities 20.266 23.592 * * * *
ModelR 2 0.294 * * * 0.332 * * * *
Adjusted R 2 0.276 * * * 0.309 * * * *
Change in R 2 0.033 * * *
Notes: *p , 0.1; * *p , 0.05; * * *p , 0.01; * * * *p , 0.001
Table I.Regression analysis:entrepreneurialorientation
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(b ¼ 0:205; p , 0:001) and technological capabilities (b ¼ 0:372; p , 0:001) on EO.However, marketing capabilities are less significant (b ¼ 0:116; p , 0:1). With regardto the interactive effects, the results obtained show that the double interactive effect ofdynamism and technological capabilities (b ¼ 0.143; p , 0.05) has a positive andsignificant influence on EO whereas the double interactive effect of dynamism andmarketing capabilities (b ¼ 20:266; p , 0:001) is negative and significant. Theseeffects provide support for H4. In relation to H5, we found that marketing capabilitiesnot only worsens the positive influence of environmental dynamism on EO, butactually becomes negative.
In order to compare the interactive effects between dynamism and each type ofcapability we have plotted two graphs, shown in Figures 1 and 2. Figure 1 indicatesthat firm EO slightly increases when the firm operates in highly dynamic contexts andthis positive relationship is accentuated with the availability of firm technologicalcapabilities. Figure 2 shows that for low levels of marketing capabilities a positiverelationship is produced between environmental dynamism and EO. However, incontexts of high dynamism EO decreases the greater the firm’s marketing capabilities.
Figure 1.Dynamism-technological
capabilities
Figure 2.Dynamism-marketing
capabilities
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Discussion and conclusionsThe results demonstrate that EO is significantly influenced by environmentaldynamism. Thus, changes in markets, competence and technology encourage firms todevelop EO in order to take advantage of new opportunities (Rosenbusch et al., 2011).The results also show that the availability of technological and marketing capabilitieshas a positive influence on EO. We emphasize the role of technological capabilities,which is the most decisive factor of EO in the obtained results. We note that access toand control of superior technological capabilities drive firms to be more proactive andinnovative, accepting the risk involved. Furthermore, we found that the controlvariables of size and general performance have not significant effect on EO. However,the results highlight the negative influence of firm’s age on the EO. This relationshipmay be explained because older firms develop a structural rigidity which leads them toavoid the inherent risk from the EO. Furthermore, the obtained results allow us toconclude that technological and marketing capabilities moderate the influence ofenvironmental dynamism on EO, but in an opposite direction. Thus, whiletechnological capabilities increase the positive influence of dynamism on EO, wefind that marketing capabilities decrease, and even become negative, the influence ofdynamism on EO. The strong negative effect of marketing capabilities on EO to facedemand uncertainty may be explained because firms with a higher commitment totheir successful products and markets – reflected in the accumulation of specialisedmarketing capabilities, will not have incentives to develop an EO (Taylor andAnderson, 2001).
Our study provides a better understanding of antecedents of EO, helping to fill in thegap that exists in the literature, as several authors require (Wiklund and Shepherd, 2003;Wales et al., 2011). Thus, compared to the extensive literature that analyzes therelationship between EO and firm performance (Covin and Lumpkin, 2011), we try toexplain how certain external and internal factors, independently and jointly influence EO.
With this paper we make a new empirical contribution to the role of dynamism as acrucial element in the environment that drives the firm’s EO. From the evolutionaryeconomy approach, our paper contributes to verify how dynamic contexts are mostconducive for detecting and seizing opportunities that arise with changes in technologyand demand through EO.
Similarly, we stress the importance of the resource-based view, showing how thefirm’s capabilities, especially technological capabilities, increase the firm’sexpectations to achieve sustainable advantages with the development of an EO(Teece et al., 1997). Therefore, the availability of higher technological and marketingcapabilities encourages the firm to continuously develop an innovative, proactive andrisk-taking behavior.
The main contribution of this study is to address, from a population-ecologyviewpoint, how the adequacy of the firm’s capabilities affects how it deals with differentdegrees of environmental dynamism in the development of EO. We provide significantconclusions for the literature on EO, showing that technological capabilities acquire acomplementary character, which induces firms to develop an EO to compete in highlydynamic contexts. In contrast, when firms have relevant marketing capabilities and arefaced with dynamic environments, they tend to direct their strategy towards exploitingtheir products and markets. Thus they avoid the risk of cannibalizing their own productswithout the development and introduction of risky innovations.
In developing this study we recognize various limitations that can affect the extentof the results obtained. First, the empirical study is cross-sectional. However, the
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research design allowed us to obtain solid and relevant information about the factorsanalyzed, which would have been difficult to obtain with a longitudinal analysis.Furthermore, we understand that despite our efforts in the development of scales andvalidated measures, potential biases may still exist. Third, we clearly state thelimitations in conducting only one survey with the manager of each firm in the sample.However, we believe that managers’ perception of their sector and the relativecapabilities of their firms are the main factors that determine their strategic decisionsand, thus, the EO. Finally, the study only focuses on one sector and caution is thereforerequired in extending the results to other sectors.
We also highlight several implications of the obtained results for theory development.First, we consider the theoretical approaches that try to explain the strategic orientationand firm behavior only through external factors – from industrial organization orevolutionary economy- or internal factors – from resource based view – arecomplementary rather than substitutes. The proposed full model and the obtainedresults demonstrate that the population ecology perspective provides a solid theoreticalbase to explain the strategies and performance of firms from the relationships betweenenvironmental factors and resources/capabilities. Furthermore, the obtained resultshighlight the need to analyze in future studies – theoretical and empirical- thecomplementary approach of the strategic orientations proposed by Hakala (2011). Thus,new research should focus on analyzing the coherence and interaction among strategicorientations – entrepreneurial, market, technology and learning.
Among proposals for the development of future research, we emphasize theincorporation of other capabilities as antecedents of EO, such as management,adaptive, exploration, exploitation or absorptive. Yet another proposal could be toanalyze how several aspects of a firm’s contact networks affect EO, such as density,trust or common culture. Finally, we shall go deeper into the specific effects of EOdimensions – innovativeness, proactiveness, risk-taking, competitive aggressivenessand autonomy – using broader measurement scales.
We were conscious of several implications arising from our research formanagement decisions. First, firms must consider the degree of technologicalvolatility and demand uncertainty that they face, to effectively exploit theircapabilities. Managers should analyze whether their firm has the right capabilities todevelop an EO in a context with a high dynamism. Therefore, the analysis of theirenvironment and their own capabilities can help managers to decide about thepotential advantages of developing and introducing innovations in the market,assuming high levels of risk.
Notes
1. The information was gathered between January and March 2003.
2. SABI is a directory of Spanish and Portuguese firms that gathers general information andfinancial data. In the case of Spain, it compiles information on more than 95 percent of thefirms with total yearly revenues of over 360,000-420,000 e from the 17 Spanish regions.
3. The Camerdata database compiles a directory of all Spanish firms from the network of localChambers of Commerce.
4. Spanish Association of the Electronic and Telecommunications Industry.
5. This contains information on Spanish Exporters, classified by sectors, which offer easyaccess and release data to the public.
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Appendix
Initial eigenvaluesSums of squared saturations of the
extractionComponent Total % variance % accumulated Total % variance % accumulated
1 2,091 69,712 69,712 2,091 69,712 69,7122 593 19,783 89,4953 315 10,505 100,000
Note: Extraction method: principal components factor analysis
Table AI.Factor analysis of
entrepreneurialorientation: total variance
explained
Component 1
Item 1 822Item 2 896Item 3 783
Note: Extracted components
Table AII.Factor analysis of EO:
component matrix
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491
Size
Age
Gen.Per.
Dynam
.Tech.C.
Mark.C.
D£
TC
D£
MC
Mean
3.396
21.094
14.023
3.477
3.812
3.903
13.343
13.665
SD
1.556
20.400
4.076
0.620
0.620
0.683
4.143
4.345
Size
1Age
0.287**
1General
perform
ance
0.180**
20.028
1Dynam
ism
20.004
20.195**
0.170**
1Technological
capabilities
0.249**
0.093
0.434**
0.163**
1Marketingcapabilities
0.180**
0.141*
0.411**
0.160**
0.270**
1Dynam
ism
£Tech.capab.
20.043
20.029
0.023
20.052
20.136
20.085
1Dynam
ism
£Mark.capab.
20.023
20.002
0.011
20.048
20.092
20.130
0.390**
1Entrepreneurial
orientation
0.096
20.099
0.214**
0.309**
0.467**
0.347**
20.096
20.203**
Notes:* p
,0.1;
** p
,0.05;*** p
,0.01;**** p
,0.001
Table AIII.Correlations
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492
Corresponding authorJob Rodrigo-Alarcon can be contacted at: [email protected]
Variables Tolerance VIF
Size 0.860 1.162Age 0.865 1.156General performance 0.752 1.329Dynamism 0.488 2.050Technological capabilities 0.610 1.640Marketing capabilities 0.481 2.078Dynamism £ Technological capabilities 0.288 3.472Dynamism £ Marketing capabilities 0.251 3.987
Table AIV.Tolerance and VIF
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493
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