Proposal for an IntegratedCorporate Entrepreneurship Approach: the Picea Model

ir. G.J. van der LeerErasmus University - RotterdamApril 2011

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Content

1 Introduction

2 A proposal for a Corporate Entrepreneurship Paradigm2.1 Analysis of published definitions on Corporate Entrepreneurship2.2 Definition2.3 Proposal for an Integrated Corporate Entrepreneurship Approach: the Picea Model

3 Validation of the Model3.1 Introduction3.2 Resources: a Taxonomy3.3 Internal Resources

3.3.1 Human capital3.3.1.1 Introduction3.3.1.2 Knowledge3.3.1.3 Experience3.3.1.4 Competencies 3.3.1.5 Creativity 3.3.1.6 Relationships

3.3.2 Organizational capital3.3.2.1 Introduction3.3.2.2 Information and Information technology3.3.2.3 Organizational Relationships3.3.2.4 Reputation3.3.2.5 R&D 3.3.2.6 Learning capabilities3.3.2.7 Physical capital

3.3.2.7.1 Introduction3.3.2.7.2 Technology3.3.2.7.3 Geographical location3.3.2.7.4 Financial capital

3.4 External Resources3.5 Innovations, new business and business renewal3.6 Orchestration

3.6.1 Introduction3.6.2 Culture3.6.3 Management

3.6.3.1 Introduction3.6.3.2 Top- and middle management3.6.3.3 Human Resource Management3.6.3.4 Knowledge Management

3.6.4 Organization3.6.5 Strategy

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3.7 Opportunities exploration and exploitation 3.7.1 Definition3.7.2 Processes3.7.3 Conclusion

3.8 Environment

4 Conclusion

Appendix A: DefinitionsAppendix B: Definition AnalysisAppendix C: Overview Model SupportReferences

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1 Introduction

Although the concept of corporate entrepreneurship was already introduced by Schumpeter in 1934 (1, 3, 30), it remains a young and immature research subject. It follows the developments of the more mature research subject of entrepreneurship sec. Corporate entrepreneurship is seen by some authors (2, 3,4) as merely a specific case of entrepreneurship. Some years ago the question arose if the combination of corporate management and entrepreneurship is an oxymoron (3, 25, 26), but at this moment there is consensus in the enterprise and academic world about the concept and value of corporate entrepreneurship. There were early attempts to come to the formulation of a paradigm for the concept (3, 11). Overseeing the current state of the research, we can conclude that these attempts were unsuccessful (350).

Recent studies recognize corporate entrepreneurship as an important factor for a sustainable success of enterprises (13, 15, 16, 27). In the business practice of today there are numerous examples of enterprises in different industries that explicitly utilize corporate entrepreneurship in their business model (7, 9). And there are even more enterprises that only utilize the concept implicitly (11). These enterprises should use the concept more explicitly by taking measures to stimulate its utilisation and thereby gaining more benefits from it (11, 12).

There are already some textbooks around the concept of corporate entrepreneurship (7, 106, 399), but there is still not an all-encompassing, agreed theory (24, 350) around it. The research on the subject is fragmented (46, 350, 371) and the attention is not evenly spread throughout all components of the subject. It follows in that sense the more mature subject of entrepreneurship (30). The number of available definitions of the concept (see appendix A) is a good illustration of this observation. The concept is sometimes approached from a psychological point of view (3), sometimes an organizational (8), sometimes an economic (5), sometimes a behavioural (6), sometimes an instrumental (7,10), sometimes a social (3, 8), sometimes a cultural (8, 10), sometimes an educational (3), sometimes a normative (9, 10) and sometimes even a teleological (3) view.

The availability of a commonly agreed paradigm is in general a basis for a scientific community to co-operate, collaborate and grow (372). It is a necessary condition for a scientific community to find alignment and co-ordination in its efforts. Specifically in the organization sciences it has historically been very difficult to establish commonly agreed paradigms. It was already Pfeffer who in 1993 made the observation that “the fragmentation of research is a serious obstacle to scientific growth in organization sciences”. And the lack of a paradigm based on shared definitions impede collaboration and hampers the growth of a scientific discipline (373). Given the cri-du-coeur of Ireland, Covin and Kuratko in 2009: “Our knowledge of Corporate Entrepreneurship continues to expand. However this knowledge remains quite fragmented and non-cumulative.” (350), it is clear that a commonly agreed paradigm is still lacking. 1

1 The same seems the case for the research on entrepreneurship in general. Davidsson (374) emphasises the need for the entrepreneurial research to be more theory-based, where the theory guides the research efforts and the formulating and empirically testing of hypotheses.

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This study contains four related parts:

An analysis of the development of the definitions of the concept of Corporate Entrepreneurship in time

A proposal for an integrative definition and model for the concept The validation of the model on basis of the currently available research

literature and the managerial experience of the author The proposed model is used to evaluate the progress of the research on

Corporate Entrepreneurship until now and propose future directions

AnalysisAn analyses is made of a significant subset of the proposed definitions of Corporate Entrepreneurship. The presence of common elements is quantified and used to determine the development in time of the research on the subject.

Integrative definition and modelAlthough the analysed subset is divers, there are common elements recognizable. These common elements found in the subset of definitions and the current state of the research are the basis for a proposed definition, in which most analysed definitions can be traced back. This definition will be used to introduce a model which describes the concept of Corporate Entrepreneurship in terms of the processes and interactions that take place within and outside enterprises, which implicitly or explicitly utilize the concept. The literature on the processes and their components was until now very fragmented, incomplete and inconsistent. This study will formulate the basis for a paradigm which can be used to integrate and evaluate the research on the subject until now.

Validation of the modelThe lion’s share of this study will be dedicated to the validation of the proposed model. This on basis of the abundant research literature on the subject of Corporate Entrepreneurship. It will be shown which components are necessary and sufficient for the processes and interactions of the model. The following will be described extensively:

The nature of the components and the impact they have on the processes The external influences and the interactions with the outside world How the processes can be utilized by corporate managers.

The proposed model is meant to be exhaustive in terms of its determining factors. It is founded on the current state of research on this subject and it will be shown that there is both theoretical and empirical support for its existence, structure and content. Next to that the model will integrate and structure the fragmented research on the specific components it recognizes. Extensions on current research are proposed.

The proposed model is based on the resource-based view and dynamic capabilities approach followed in much recent research on corporate entrepreneurship. It will be shown that there is a difference between the resources which an enterprise has at its disposal and the ability to influence and utilize these resources. The ability to influence, organize, develop and manage the resources is defined as the ‘orchestration

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function’. The components of this concept and their characteristics will be extensively described. An important component of the orchestration function is the strategy of an enterprise. Here, the research on Corporate Entrepreneurship touches the more mature subject of Strategy Management. This study will explore and describe the link between the strategic component of Corporate Entrepreneurship and the theory around Strategy Management. All will be done on basis of the rich literature on the subject of Strategy Management, the limited research on its connection to Corporate Entrepreneurship and on the yearlong managerial experience of the author.

The proposed model also elaborates on the distinction which current research makes between exploitation and exploration. In a business and economic environment with rapidly changing economic conditions, technical developments and customer preferences a balanced allocation and utilization of resources between both approaches, is a necessary condition for sustainability and future growth of an enterprise.

The ability to allocate and utilize the resources in line with the environment and the perceived opportunities is seen within the research community as the quintessence of Corporate Entrepreneurship. This observation is modelled as the ‘opportunities exploration and exploitation function’.

Future DirectionsThis study will conclude with an overview and evaluation of the current state of research on Corporate Entrepreneurship structured on basis of the proposed model. Next to that will the relation of the different elements of the model with established theories and frameworks be described.The proposed model will offer a context for further research. It can be used in the spirit of the remarks of Davidsson (374) on entrepreneurship to:

Guide the research efforts: select the areas that need further exploration Deepen the knowledge on parts of the model: its processes and components Formulate hypotheses on corporate entrepreneurship and test their validity

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“The literature is messy and vague. Some authors continually introduce concepts without relating them to established theories and frameworks.”

Shaker A. Zahra, 1993

“Our knowledge of Corporate Entrepreneurship continues to expand. However this knowledge remains quite fragmented and non-cumulative.”

Duane R. Ireland, Jeffrey G. Covin, Donald F. Kuratko, 2009

2 A proposal for a Corporate Entrepreneurship Paradigm

In the first paragraph of this chapter an analyse is made of a significant subset of the proposed definitions of Corporate Entrepreneurship. The number of times specific common elements are mentioned in the subset of proposed definitions is quantified. The development in time of the concept as a research subject is determined on basis of this analysis. There are four different phases in time recognizable, emphasizing different elements of the concept of Corporate Entrepreneurship. On basis of the common elements of the subset of definitions and the current entrepreneurial practice is an integrative definition proposed in the second paragraph.

2.1 Analysis of published definitions on Corporate Entrepreneurship

The first published definition of corporate entrepreneurship dates back to 1934 (1). Since then there multiple definitions have been published. An overview of these definitions can be found in Appendix A. A first attempt was made by Sharma & Chrisman in 1999 (45) to come to a synthesis of the different definitions for corporate entrepreneurship based on the until then published definitions. In this study they paid only attention to the subject of internal corporate venturing2 and the characteristics of Corporate Entrepreneurship mentioned in the definitions, but not to the relationship between these characteristics. Seeing the number of new definitions created after this publication, we can conclude that there is still debate between researchers on the ultimate definition of the subject.

As can be seen from the collection of definitions in Appendix A, corporate entrepreneurship can be described from many different viewpoints (263, 371). Although there are a lot of different approaches recognizable, there are (of course) also a lot of similarities in references to common elements in the definitions. We analysed the development of the definitions in terms of these common elements. Appendix B gives an overview of the development of the common elements in the definitions since 1982 in terms of the number of times that these common aspects are mentioned in the definitions. Analysing this chronologically we see a clear development in a number of common elements and the priority and emphasis given to them. Looking at common denominators, we can chronologically recognize roughly four different phases:

2 Although the authors prefer the usage of broad definitions they limit themselves to the subject of internal corporate venturing

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Innovation and individual behaviour Innovation is seen as the most prominent aspect of Corporate Entrepreneurship (3, 32, 33, 34, 35). It is seen by most authors as the kernel, the quintessence of Corporate Entrepreneurship. The first definitions focused purely at innovations as such and not on the source and ultimate objective of innovations. Corporate Entrepreneurship was primarily seen as (sometimes even spontaneous or conflicting with the business as usual (46)) activities of individuals (33, 34, 35).

Implementation, resources and growthIn the second phase there was more attention for the implementation (34, 35) and the ultimate target of innovations: business growth through competitive advantage (1, 34,36). More attention was given to the implementation skills and the usage of (1, 37, 40, 50) an organization’s (spillover) resources.

Opportunities seekingThe third phase recognized that Corporate Entrepreneurship can become part of the strategy of the organization. It is at least a phenomenon next to the mainstream activities or business as usual of an enterprise (37, 38). Identifying and utilizing opportunities3 is a key competence in the deployment of Corporate Entrepreneurship (3, 31, 38, 39, 43).

New business and new business model (1, 26, 38, 39, 40)In the last phase, the way the ultimate objective can materialize, is emphasized in two aspects:

o New businessNew products, processes, markets etc. within the current business and market model (41, 42, 43, 44)

o New business modelThe result of the corporate entrepreneurial efforts can be a renewal of the way the enterprise is doing business (9, 28, 44). This can lead to new enterprises (ventures, spin-offs, joint ventures) or the complete reformulation of the enterprise strategy (9, 29, 44) or the whole industry.

3 Burgelman describes the process of opportunity identification in evolutionary terms: a variation-selection-retention framework (3, 23)

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2.2 Definition

On basis of the common elements of the subset of definitions and the current entrepreneurial practice is an integrative definition proposed.

The common elements found back in Appendix B are:

Future growth and sustainability is the ultimate objective of Corporate Entrepreneurship

Innovation, new business, business renewal are the most important means to achieve this growth and assure the sustainability

Seeking, recognizing and exploring opportunities is the mechanism determines the direction for change

Resources, individuals, structure and culture of the organization must be focused on the quest for the exploration of opportunities

In the light of the above and the analysis of the different common elements and the underlying literature, we propose the following integrated definition of corporate entrepreneurship:

Corporate entrepreneurship is the activity within an established enterprise, that independent from or as part of the on-going, mainstream activities of the enterprise,based on internal and external resources and capabilities, influenced by the enterprise culture and organization and the changes the enterprise perceives in the competitive environment, tries to identify new opportunities to develop and exploit innovations and/or changes to the business or the existing business model, in order to assure future growth and/or a sustained competitive advantage.

On basis of this definition we will propose a model of Corporate Entrepreneurship in the next paragraph. In chapter 3 we will present the evidence in the research material to support the model.

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2.3 Proposal for an Integrated Corporate Entrepreneurship Approach: the Picea Model

In this paragraph the aforementioned proposed definition will be used to introduce a model which describes the concept of Corporate Entrepreneurship in terms of the processes that take place in enterprises that implicitly or explicitly utilize it. It will be shown which components are necessary and sufficient for the processes and interactions of the model. The following will be described extensively:

The nature of the components and the impact they have on the processes The external influences and the interactions with the outside world How the processes can be utilized by corporate managers.

The proposed model is meant to be exhaustive in terms of its determining factors. It is founded on the current state of research on this subject and it will be shown that there is both theoretical and empirical support for its existence, structure and content. The criterion for the support will be the relationship between the mentioned determining factor and the entrepreneurial orientation: the behaviour of the enterprise and its individuals to utilize opportunities on the basis of some of its resources and the ability to transform these resources in a competitive advantage and the managerial measures to stimulate this. Next to that will the model integrate and structure the fragmented research on the specific components it recognizes. Extensions on current research are proposed.

The proposed model is based on the resource-based view and dynamic capabilities approach followed in much recent research on corporate entrepreneurship. It will be shown that there is a difference between the resources which an enterprise has at its disposal and the ability to influence and utilize these resources. The ability to influence, organize, develop and manage the resources is defined as the ‘orchestration function’. The components of this concept and their characteristics will be extensively described. An important component of the orchestration function is the strategy of an enterprise. Here touches the research on Corporate Entrepreneurship, the more mature subject of Strategy Management. This study will explore and describe the link between the strategic component of Corporate Entrepreneurship and the theory around Strategy Management. All will be done on basis of the rich literature on the subject of Strategy Management, the limited research on its connection to Corporate Entrepreneurship and on the yearlong managerial experience of the author.

The proposed model also elaborates on the distinction which current research makes between exploitation and exploration. In a business and economic environment with rapidly changing economic conditions, technical developments and customer preferences is a balanced allocation and utilization of resources between both approaches a necessary condition for sustainability and future growth of an enterprise.

The ability to allocate and utilize the resources in line with the environment and the perceived opportunities is seen within the research community as the quintessence of Corporate Entrepreneurship. This observation is modelled as the ‘opportunities exploration and exploitation function’.

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From the proposed definition of Corporate Entrepreneurship and the recent literature on the subject it is possible to formulate a model for the concept of Corporate Entrepreneurship, in which we can distinguish:

Innovations, new business and business renewal are the objectives for the corporate entrepreneurial endeavours and are the drivers for future growth and competitive advantage

Internal/external resources and the environment of the enterprise are the sources for opportunities and are necessary for the implementation of selected innovations and/or business model changes

The orchestration function defines the direction, organization and strategy of an enterprise and assures the alignment between and the development of the different components of the model and manages the components to ensure the optimal support of the objectives

The process and the competencies to identify, develop and select opportunities, which are required for the aforementioned innovations and business model changes

The proposal for an all-encompassing model of corporate entrepreneurship (the Picea Model) is visualized in figure 1. The utilization of opportunities is the quintessence of corporate entrepreneurship. The internal and external resources and the environment are the primary sources for the opportunity cycle (identify, develop end select). The culture, strategy, policies and management-style influence the development, allocation and utilisation of the resources and the quality of the opportunity cycle.

Figure 1: Visualisation of the Corporate Entrepreneurship Paradigm

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Growth

Identify Select

Business Renewal

Environment

Develop

Opportunities

Resources

Innovations

Orchestration

New Business

This directed influence is modelled as the ‘orchestration function’. Within this function levers are positioned so that the top-management of an enterprise can utilize them to implement and stimulate the entrepreneurial orientation within the enterprise. The objective is to release innovations in terms of new products, improved processes, improved customer experience, new market entrance or changes to the business or industry model, which all should lead to more and sustained future growth and/or a competitive advantage.

This Corporate Entrepreneurship as a process approach can be found in a more rudimentary form in the work of: Morris, Lewis en Sexton (62) and Zhou, Yim and Tse (206)who focus specifically on the input-output character of the process, without a clear abstract description of the nature of the process’s underlying components, the objectives of the process and the way in which it can be influenced (69). Also the Conceptual Framework of Entrepreneurial Orientation of Lumpkin and Dess (217) can be appreciated as a predecessor of the proposed model, next to the conceptual Framework for Corporate Entrepreneurship of Jauhari (247).4

In the next chapter we will validate the proposed model and elaborate on the different dimensions of the Picea model. Specifically looking at the nature of these dimensions, the progress of the research around it and the direct and indirect theoretical and empirical support it delivers for the Panacea model.

4 Given the evolutionary selection mechanism of modern science, indicated by the number of citations and the lack of ample citation of these first attempts, it is clear that these attempts were not seen as definitive proposals for an broadly accepted approach which delivers added value to the research community.

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3 Validation of the Model

In the first paragraph of this chapter we will propose an exhaustive taxonomy of the resource components of the Picea model. This exhaustive taxonomy is built on the relevant literature on the concept of Corporate Entrepreneurship. In the second paragraph these resources are extensively elaborated: their nature and contribution to the objective of Corporate Entrepreneurship and their mutual relationships. The existence of each resource in the model will be theoretical and/or empirical supported with the help of the abovementioned relevant literature. The third paragraph handles the ultimate objective of corporate entrepreneurship: future growth and sustainability, which can be achieved in different forms: innovation, new business and business renewal. Based on the recent research, a more precise and extended characterization of these different forms is proposed and their existence as part of the model will be theoretically and/or empirically supported from the relevant literature. The fourth paragraph is dedicated to the opportunity exploration and exploitation cycle. Which steps can be distinguished, what is their nature and what is the influence they have on the results of the enterprise that embraces (explicitly or implicitly) the entrepreneurial orientation? The last part of the chapter will be dedicated to the influence of the environment on the entrepreneurial orientation of an enterprise. In the whole chapter we will validate the different processes and components of the model on the basis of the affluent literature on the subject and the practice of the modern enterprise.The criterion for the support of the existence of one of the mentioned components in the model will be the relationship between it and the entrepreneurial orientation: the behaviour of the enterprise and its individuals to utilize opportunities on the basis of some of its resources and the ability to transform these resources in a competitive advantage and the managerial measures to stimulate this.

3.1 Introduction

It was Schumpeter (1) who stressed the importance of the resources of the enterprise or combinations of them for the growth, survival and the renewal of the same enterprises. Although we don’t find it predominantly in the definitions on corporate entrepreneurship (see Appendix B), there is both theoretical (2, 24, 47, 48, 51, 52, 58) and empirical (14, 49, 50) support for the importance of the right utilization and transformation of internally and externally available resources, for the success of enterprises which utilize implicitly or explicitly the concept of corporate entrepreneurship. The resource-advantage theory is built around the optimal utilization of resources for all enterprise activities, be it entrepreneurial and non-entrepreneurial (the business as usual). The fundamental principle of this theory is that the basis for a competitive advantage of a firm lies primarily in the application of the bundle of valuable resources at the enterprise’s disposal (50, 63, 204).

From the perspective of the resource-advantage theory, the entrepreneurial orientation itself is regarded as an organizational resource (40, 72, 102, 217).5 The entrepreneurial orientation is defined as the behavior of the enterprise and its individuals to utilize opportunities on the basis of some of its resources and the ability to transform these resources in a competitive advantage and the managerial measures to stimulate this behavior. This should be distinguished from the resources which are at the disposal of the 5 Beside the question if it is semantically correct (is an ‘orientation’ really a resource?), it is also questionable if this statement is methodologically correct: the notion of entrepreneurial behaviour is described as containing an entrepreneurial orientation as one of its components.

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whole enterprise. The relationship between the different components of the model and the entrepreneurial orientation supports the presence of the component in the model. The rest of this chapter will be devoted to investigate this relationship.

3.2 Resources: a taxonomy

The research on the different forms of resources in the context of corporate entrepreneurship is not abundant, but there is a lot of literature on the resource-based theory of the enterprise (also known as Resource Based View – RBV). Within this theory resources are expected to include “all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc; controlled by a firm that enable the firm to conceive of and implement strategies that improve its efficiency and effectiveness” (53). A subsequent distinction is that between resources sec and capabilities (54). In some literature the distinction between assets and skills is used for resources sec and capabilities (267). Resources are tradable and non-specific to the enterprise, while capabilities are specific to an enterprise and are used to engage, configure and transform the resources within the enterprise. This distinction has been widely adopted throughout the resource-based theory literature (55, 56)6. Combining the resource-based theory (54, 55, 56) with the approach followed by the corporate entrepreneurship research community, we can propose the following exhaustive taxonomy of resources within the context of corporate entrepreneurship (14, 49, 50, 51, 52):

Human capitalo Knowledgeo Experienceo Competencies (managerial, marketing, technological…)o Creativity o Internal and external relationships (networks)

Organizational capitalo Information o Information technologyo Organizational Relationshipso Reputationo R&D results

Physical capitalo Technologyo Production means (equipment)o Geographical location

Financial resources

6 It is interesting to note that the resource-based approach seems to describe better the current strategic focus of enterprises than the Porterian “competitive forces approach” in which five structural industry forces explain the strategic options of an enterprise (202, 204). In paragraph 3.5.5 we will reconcile both approaches on basis of the characteristics of the Paradigms of Strategy as described by Teece, Pisano, Shuen (204).

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This taxonomy will be further elaborated on in paragraph 3.3. Except for the construct of “political capital” (49) is this taxonomy a comprehensive summary of the research in this area. The notions of “intellectual capital” as described by Stewart (118) and “entrepreneurial capital” as described by Audretsch (193) can be seen as combinations of subsets of human capital (e.g. knowledge, experience) and organizational capital (e.g. information – see 3.3.2.2). Knowing that the human capital is connected to the individuals in the enterprise and that individuals are in principle mobile, it can be argued that the human capital is in principle a resource: not specific to the enterprise. To be distinguished from capabilities as defined within the resource-based theory of the enterprise. However seeing (at least in Europe) the limited flexibility and mobility in the work force in general, it is difficult to defend the premise that the human capital is merely a resource, which is easily interchangeable (53, 57, 61, 64). In this sense, the theoretical discussion on homogeneity between enterprises, meaning that they possess the same resources (53), is completely superfluous. This is even more true considering the fact that the organizational, physical and financial resources are certainly not easily and autonomously to be moved, copied, imitated or traded and can in that sense be defined as capabilities7. It is this heterogeneity that enterprises should stimulate and foster to achieve a sustained competitive advantage (49, 50). In this context a valuable resource needs to have four attributes (49, 53, 63, 204)8:

It exploits opportunities or neutralizes threats in an enterprise’s environment It must be rare among the current and future competitors It must be imperfectly imitable There are no strategically equivalent substitutes

Next to the heterogeneity of the resources the governance around the resources is also an important factor for the successful utilisation of resources for the sake of competitive advantage (4, 69). This notion will be extensively discussed in paragraph 3.6 (the Orchestration Function) and deals with the intensity with which the enterprise supports entrepreneurial activities by developing and allocating dedicated resources, funding initiatives and giving senior management attention.

Resources can be seen as the basis for the strategy formulation of the enterprise (3, 63). This applies specifically to internal resources, as they contain the potential for the enterprise to distinguish itself from the competition and achieve a competitive advantage. Although there is ample theoretical support for this observation in the research on corporate entrepreneurship (50), there are practical examples in the area of corporate entrepreneurial initiatives in large enterprises (75). The enterprise’s contingencies like age, size, competition, industry and competitive environment are related to its resources and have a dynamic relationship with the formulation of the strategy of the enterprise. The resources will in their turn be influenced by the strategy in terms of resource utilization and resource development (50).

7 Dollinger (57) suggests that financial resources can be easily converted into other types of resources. This can be the case for a new enterprise, but it is not evident for existing enterprises8 These criteria are known as the VRIO criteria of Barney: Value, Rarity, Imitability and Organization (171)

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3.3 Internal Resources

“Firms do not act, people do”N. Cartwright, 1989

3.3.1 Human capital

In this paragraph the different aspects of human capital are analysed that are influencing or are influenced by, the entrepreneurial orientation. The theoretical and/or empirical support for the impact they have on the successful application of the entrepreneurial orientation will be shown and how this impact is achieved. Given the importance of this resource for the success of the enterprise it is not surprising that there is specific attention for the deliberate and focused management of this valuable resource: human resource management. This important part of the orchestration function is the subject of further analysis in paragraph 3.6.3.3. In this paragraph we will elaborate on the different underlying resources of human capital: knowledge, experience, competences, creativity and relationships. On basis of the current literature on the different resources, a view on the approach followed by enterprises to benefit from it will be shown, next to the theoretical and/or empirical support for the relevance of the resource in the context of the entrepreneurial orientation. This will support their existence in the Picea model.

3.3.1.1 Introduction

Human capital comprises the stock of knowledge, skills and competences that reside within the individuals of an enterprise (59, 61, 74). Based on Human Capital Theory it is commonly accepted that employees with more “human capital” are more productive in an entrepreneurial environment than comparable employees and that this leads to wage differences (59, 60). They have a greater ability to solve problems and can more easily adapt to changes in the environment (60). There is empirical evidence to support the influence of human capital characteristics on the successful utilization of corporate entrepreneurship (50, 58, 74). Human capital can be developed over time and transferred between individuals. In this sense is it to be differentiated from personality traits (60).

3.3.1.2 Knowledge

Knowledge is a necessary component for an enterprise to achieve competitive advantage and sustainable growth (50, 59, 60, 61, 64, 65, 69, 75, 77, 87, 131, 322). Schumpeter offered arguments to suggest that entrepreneurs integrate disparate knowledge in their search for new opportunities (1). Knowledge is the main ingredient for most innovations and offers a foundation for building new competences or revitalizing existing ones (61, 65, 69). Enterprises with more knowledge will be less uncertain regarding their effectiveness and notice changes and opportunities faster than their competitors (61, 65, 131). Enterprises should constantly develop their competences and acquire specific knowledge in order to survive and utilize new opportunities in their industry (65, 131, 322). Empirical evidence of the effect of knowledge in the context of corporate entrepreneurship focuses on one of its aspects:

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Accepting education as an indication of the value of knowledge (58), there is empirical evidence of a positive relationship between it and entrepreneurial achievements (50).

According to the Theory of Knowledge Creation (65), knowledge is created through a spiral process of socialization, externalization, combination and internalization (SECI). The application of this process can be utilized by enterprises to define product innovations and/or process improvements (66). Taking this process as an indicator of the value of knowledge for the enterprise, there is also empirical evidence for the relationship between the knowledge creation process and corporate entrepreneurship orientation (64), especially in key customer alliances (323).

The terms ‘knowledge’ and ‘information’ are used differently in the literature, depending on the theoretical point of view. The Information Processing Theory (139) makes no clear distinction and explains the mentioned spiral process in the following phases:

Acquisition of information Storage of information Transformation of information Transmission of information

Information processing incorporates such concepts as the analysis and transfer of environmental information from the boundary points of an organization to managers inside of the organization, as they attempt to make meaningful decisions and engage in information search activities to eliminate uncertainty (138).

From a micro-economic and epistemological perspective there is a difference between data, information and knowledge (134, 135, 136)9. According to this study knowledge is seen as information with a useful meaning (87, 134). This is to be distinguished from information as an organization’s resource in its own right (see 3.3.2.2). In line with the aforementioned spiral process of knowledge creation there is a theoretical consensus on the existence of a distinction between tacit and explicit knowledge (65, 131). Explicit knowledge can be codified as data and information, while tacit knowledge stays within individuals and is as such not easily imitable and distributable. From the perspective of the Resource Based Theory only tacit knowledge can be defined as a valuable resource for the enterprise (65, 131).

In an economic environment which is characterized by global competition, rapid technology developments and changing customer channels and preferences, knowledge is a resource with a value that can rapidly deteriorate. In a rapidly changing environment it is difficult for an enterprise to be self-sufficient in creating knowledge due to the tremendous risk this entails (217). Utilizing external knowledge makes it much easier and faster to adapt to changing knowledge demands. Enterprises

9 For this study we ignore the concept of ‘wisdom’ mentioned in some of the most accepted epistemological frameworks. Although it is in the senior managerial practice, a necessary characteristic of a successful top-manager, with a lot of consequences in the fields of corporate governance, ethical behaviour, reputation, compliancy, decision-making, motivating and vision forming, it didn’t receive any attention in the research on the subjects mentioned in this study.

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within industries that are characterized by rapid technological change, will find their competitive advantage eroded if they solely rely on internally existing knowledge and capabilities (183). This not only from a theoretical point of view: there is also empirical support for the positive relationship between the entrepreneurial orientation and the usage of external sources of knowledge (334).

3.3.1.3 Experience

According to the Human Capital Theory experience is a specific type of knowledge. But experience has characteristics which differentiate it from knowledge:

It is acquired by doing, not by learning/studying It usually takes more time to acquire It is not transferable, it is individually bound

The Human Capital Theory makes a distinction between general and specific human capital and determines experience as a specie of the first mentioned type of human capital (59, 73). The Human Capital Theory suggests that experienced employees and experienced entrepreneurial teams should be more productive than less experienced individuals and teams (59, 74) and that the wages and incentives are related. There is theoretical (61) and empirical support for the relationship between experience and innovativeness (73) and as such the entrepreneurial orientation (74). Be it (of course) that the experience in question, should fit the strategic goals of the enterprise (61, 74)10. A significant amount of empirical support for the relationship between experience and the entrepreneurial orientation seems to be missing, at least for small firms (50), although there is empirical support for this relationship on the individual entrepreneurial level (76). There is empirical support for the positive relation between experience and return on investment and enterprise growth (80), but the relationship with the entrepreneurial orientation is not supported. This can probably explained by the capability-rigidity paradox as expressed by Leonard-Barton: existing capabilities provide the basis for the enterprise’s innovation, without renewal these same capabilities become rigidities constraining the enterprise’s future ability to compete (81).

Thus, it can be concluded then that experience can influence the successful deployment of the entrepreneurial orientation, but that this is not without constraints and that it can even have a negative influence.

3.3.1.4 Competences

The competences of individual employees are fundamental to an enterprise’s ability to create a competitive advantage through corporate entrepreneurship (58, 69, 74, 78). The European Guide to Good Practice in Knowledge Management defines a competence as an appropriate blend of knowledge, experience and motivational factors (67, 68). In this context it is the ability to perform a task correctly, efficiently

10 The (in principle not very surprisingly) finding that innovation radicalness of technology entrepreneurs is negatively related to former market experience (73) is a striking example underlining this limitation.

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and consistently to a high quality, all under varying conditions (67). From the point of view of applicability there is pervasive support for focus on the management of competencies above mere focus on the management of knowledge. It’s the people’s competence which transforms knowledge into value (67, 69).

A healthy mix of different competences is necessary for the successful deployment of the entrepreneurial orientation. It is not only competences in the product and/or market area where an enterprise operates, but also competences areas, that will support the entrepreneurial orientation: process management, project management, marketing management, cost management etc.

3.3.1.5 Creativity

“The true sign of intelligence is not knowledge but imagination”Albert Einstein

Creativity is essential in an entrepreneurial organization (28). Schumpeter’s original concept of creative destruction is evidence of the recognition of this observation from the origins of the research on the entrepreneurial orientation. There are as many definitions of creativity as there are authors on the subject of creativity (93). A generally accepted definition is: “creativity is any act, idea or product that changes an existing domain, or that transforms an existing domain into a new one” (94). Analyzing this definition of creativity in the context of corporate entrepreneurship, gives an indication of the discussion on the relationship between the two concepts (89, 93). The definition mentions some of the characteristics we described earlier as belonging to the entrepreneurial orientation:

Introducing a new product Changes in an existing domain Create a new domain

Although there are differences in the description and the model used for the explanation of creativity, most of the theoretical research supports the proposition that creativity plays an important role in the “fuzzy front-end of a firm’s innovation process” (89). According to the Investment Theory of Creativity (98) creativity requires a confluence of six distinct but interrelated resources:

Intellectual skills Knowledge Styles of thinking Personality Motivation Environment

In the context of corporate entrepreneurship these resources (environment) are of utmost importance. There is a need for an environment that is supportive and rewarding for creative ideas. One could have all the internal resources needed to think creatively, but without environmental support (such as a forum for proposing these ideas, managerial support and the right incentive structure) available creativity may

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never be displayed or used for non- or even counter-productive ends (97). This and other research in the domain of creativity, supports the observation that creativity is dominantly an individual characteristic, with some generally recognized personality traits (93, 97):

Perseverance Willingness to take sensible risks Willingness to try new things Tolerance of ambiguity Intuitive decision making Defying the crowd (countering the mainstream) Joy and compassion

Next to the individual level, creativity can be utilized on the level of teams, enterprises, networks (89) and recently even on the level of the (customer)community (ideation). The creation of an environment and management attitude that supports the creative behavior of employees of the enterprise, receives nevertheless the most theoretical support (28, 89). The empirical evidence for the supporting role of creativity is limited and only looking at certain specific aspects of creativity (91).

The concept of directed creativity seems to be of particular importance for the entrepreneurial orientation. This approach of “purposeful production of creative ideas in a topic area, followed by deliberate efforts to implement some of the ideas” (95) gives support to the opportunity cycle of the Picea model (see paragraph 3.7). We can interpret the proposed opportunity cycle as a specific manifestation of the directed creativity concept, by which the opportunities can be described as ideas with a commercial potential. Although the manageability of creativity is sometimes doubted (95), there are recent developments that give evidence to the contrary. This can be summarized under the term idea management or ideation. This is the collection, development and selection of business ideas that support enterprise objectives. It describes a more or less formal process, to solicit ideas from the employees, customers and suppliers. With the evolution of the Internet and computers a large portion of the idea generation process can be automated. It forms an inexpensive method of netting ideas and insights from all employees and customers and sometimes even from the community as a whole.11

3.3.1.6 Relationships

Intra-organizational and inter-organizational relationships in terms of networks and alliances are recognized as important for the development of innovations and technologies of enterprises (3, 7, 130, 159). Nevertheless did they receive limited research attention in the context of corporate entrepreneurship (99). Specifically in a turbulent, fast changing environment, like the current competitive economic landscape, flexible, quickly adaptable organization forms are necessary (3, 7, 104, 105, 114, 120). Organizations are more and more experienced as organic

11 Several large enterprises, like Starbucks and Best Buy have opened up this process to their consumers, inviting anyone to raise new ideas for possible new company products using a dedicated idea management website

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structures, highly flexible and with limited hierarchy (105). A fast changing environment, combined with complex, rapidly changing activities support the need for this organic structure (107). Typical characteristics of the organic structure are (7, 104, 120, 131, 133):

Adaptability, flexibility Loosely coupled Authority based on expertise not on function Delegation of responsibilities Empowerment of individuals Cooperative networks and alliances

A formal organization, with hierarchical relationships still exists, but the complex activities around the entrepreneurial orientation ask for a more flexible and contingent approach (7, 106). The so-called order-flexibility and change-preservation paradoxes are in this context non-existent: both organizational approaches (hierarchical and organic) are not mutually exclusive (104). In this organic structure teams and networks are recognized as one of the forms of relationship that adds value to the entrepreneurial enterprise (7, 8, 108). Networks are based on personal relationships and reciprocity. All relationships are based on trust, self-interest and reputation (7, 109). Specifically the utilization of multi-disciplinary teams or networks are of importance for the dissemination and utilization of information. From a theoretical point of view, this observation is supported by the Social Network Theory. This theory distinguishes the following concepts (23):

Weak ties: casual acquaintances which have information that is usually not available within an individual’s dominant social network

Bridging: relationships: connecting otherwise unconnected groups can explain how enterprises extend their existing competencies

Centrality: deals with the authority position of an individual in a network and his ability to influence the network.

There is empirical evidence that friendship and collaboration across departmental boundaries support some of the aspects of the entrepreneurial orientation (101, 110, 214). But the organic structure that optimally facilitates the entrepreneurial orientation, is not for free: it needs management attention and is considered difficult to create and to manage (130):

In a context of continual organizational restructuring, as we see nowadays, is the relation between employee and organization is less and less based on trust and confidence, and commitment to the organization is not automatically obvious. The creation of commitment for the organization requires managerial attention, because commitment is necessary for the formations of internal networks.

Also the recurring process of organizational restructuring means that established ties and relations are undermined or disappeared. The creation of new ties and relations should be encouraged.

It is not only at the intra-organizational level that social networks are conditional for the entrepreneurial orientation. To acquire and mobilize external knowledge,

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competences and opportunities inter-organizational social networks are indispensable (7, 23, 101, 102, 103, 117). The Resource Based Theory predicts that an sustainable competitive advantage is based on the resources an enterprise has at its disposal. The breadth, depth, quality and diversity of the available resources can be improved by mobilizing external resources. There is not only theoretical support for the value of external relationships, there is also some recent empirical support (99, 101, 102, 103, 112). Next to the above mentioned concepts and their relationship with the entrepreneurial orientation there is also attention for:

The forward and backward vertical relationships (with suppliers and customers) and with peers or partners. Also worth mentioning in this context, is the empirically supported, non-existent or even negative effect of customer and supplier relationships on the entrepreneurial orientation (101, 112). On the other hand there is empirical support for the positive relationship with universities and research institutes (101)

The number of external relations. Mentioning worth here is that there is a reverted U-shaped relationship between the number of external relations with some aspects of the entrepreneurial orientation (99)

The diversity of the external relationships. Worth mentioning in this context is the positive link between the diversity of relationships and the entrepreneurial orientation (112, 119).

The density of a social network is described (113) as the ratio of existing ties to a network to the maximum number of possible ties. The empirical support for a relationship between density and the entrepreneurial orientation is only indirect (119).

Bridging ties are described as the connections with networks outside the own context and thus the own industry (103, 158). Worth mentioning here is that there is a positive relationship between the number of bridging ties and the entrepreneurial orientation (103).

With the emergence of information technology, specifically social media on the internet, it is possible to create relationships without face-to-face contact: virtual teams and virtual networks. Although the conventional wisdom within the corporate entrepreneurial literature is that it is not possible to build relationships on basis of virtual teams (7), there are abundant examples of it in the real world and there is also academic empirical support for its added value (87, 111). Both internal and external communities of practice are typical examples of social networks which value and speed of operation are dramatically enhanced by improved communication technology and the internet (130). The pervasive availability of social media and its rapid adoption within society as a whole, indicate that this type of communication will increase in importance, also for the subject of this study (115, 116, 119).

3.3.2 Organizational capital

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In this paragraph we will analyse the different forms of organizational capital that influence or are influenced by the entrepreneurial orientation. The theoretical and empirical support there is for the impact they have on the successful application of the entrepreneurial orientation and how this impact is achieved, is shown. A key objective of the managers of the enterprise is, in line with the importance of these resources for the successful deployment of the entrepreneurial orientation, the deliberate and targeted development of them. This will be the subject of further analysis in paragraph 3.6 (Orchestration Function). In this paragraph we will elaborate on the different underlying resources of organizational capital: information and information technology, organizational relationships, reputation, R&D, learning capabilities and physical capital (technology, geography and financial resources). On the basis of the current literature on the different resources, we will give a view on the approach followed by enterprises to benefit from it and we will give the theoretical and if available, the empirical support for the relevance of the resource in the context of the entrepreneurial orientation and as such the support for their appearance in the Picea model.

3.3.2.1 Introduction

Although they still can play a positive role in the entrepreneurial endeavors of an enterprise (267), tangible goods like equipment, land and financial capital are not anymore the most important resources of the enterprise. The most valuable resources are those resources that cannot easily be moved, copied, imitated or traded (2, 14, 24, 47, 48, 49, 50, 51, 52, 53, 58). These are of course additional to the human capital described in the previous paragraph.

Most valuable in this context is the intangible capital of an organization (69,116, 120, 121, 130, 133, 283, 351). It plays an important role in the investors valuation of an enterprise. Perceived intangible organizational capital contributes significantly to the explanation of market values of enterprises (120, 133, 202). There is empirical support for the preference of investors for intangible organizational resources above tangible resources (267). The following intangible resources are expected to have an influence on the successful deployment of the entrepreneurial orientation (69, 118, 172, 283):

Information and information technology Organizational relationships R&D Reputation Learning capabilities

There are numerous definitions for the concept of organizational capital (53, 116, 120). At this point there is no consensus on how to define it (116). For this study we will follow the enterprise specific approach, distinguishing the organizational capital from the human capital (53, 120). Organizational capital can be defined as “firm-specific capital goods that are jointly produced with output and embodied in the organization itself” (121).12 The existence of a competitive advantage based on the

12 Because this definition is abstract enough to be true, but too abstract to have any practical value, we propose the following definition for Organizational Capital (to be distinguished from a definition of

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organizational capital of an enterprise, is mainly due to the fact that it cannot be codified and thereby transferred to, or imitated by the competition (120): it deals with tacit assets.

3.3.2.2 Information and Information Technology

The value of information and information technology for the growth and sustainability of enterprises is recognized long ago (114, 129, 210). The pivotal role they play in the value chain (129) of an enterprise is widely accepted and present in most textbooks on the subject of information technology and organization design. Due to the lack of direct evidence, we will indirectly assess the relationship of both information and information technology with the entrepreneurial orientation, via their relationship with a sustainable competitive advantage.

As information technology is widely available, it can be seen as an easily imitable resource in terms of the Resource Based Theory. In this sense it is not surprising that there are mixed empirical results on the relationship between information processing and a sustainable competitive advantage (53, 133, 141,142,143, 153, 154, 155). Competitors are expected to be able to imitate the advantage created by an information technology solution and in this way to annihilate the advantage. Taking into account that reacting to a competitive advantage based on information technology takes time, we can only expect first-mover benefits here (142, 149), and even this is debatable (146).

There is less discussion in recent literature on the role of information technology as a major enabler or moderator of other species of organizational and human capital, (130, 153) and there is even theoretical and empirical support for the positive impact of IT investments on the performance of the enterprise (120, 130, 133, 153, 154). More important in the context of this study is the positive impact information technology has on the processes concerning knowledge creation (socialization, externalization, combination and internalization (65, 85, 87, 130)), the processes surrounding organizational learning (153) and R&D (184). In this indirect way will information technology positively support the entrepreneurial orientation of an enterprise.

Next to this enabling role of information technology it is important to recognize that innovative products, new businesses and the entrance to new markets are more and more reliant on, and sometime only consisting of, information technology (130, 152, 157). Therefore, the transformative capacity (14, 144) for deploying information technology solutions is of utmost importance. There is both theoretical and empirical support for the relationship between the availability of competencies (see 3.3.1.4) for deploying information technology successfully and a sustained competitive advantage for the enterprise (133, 145, 146, 147, 148).

In line with the discussion on the difference and the relationship between knowledge and information (see 3.3.1.2 Knowledge), we define information as data that has a

Human Capital): “The historically build up collection of information, processes, procedures, organisation, culture, organization image and relationships within an enterprise, which add future value to the enterprise.”

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(useful or not useful) meaning by way of relational connections (134). A part of the information available in an enterprise can be appreciated as valuable resources in terms of the Resource Based Theory (53, 125, 172). Specifically information on customer behavior, interactions, channel preference, after care support (140), their own operation, markets, competition etc. can fulfill the requirements of the necessary (VRIO) attributes (150):

It offers opportunities to approach new customers or introduce new products

It is based on their own experience and owned by the enterprise It cannot be imitated by the competition There are no strategically equivalent substitutes

There are a number of possible ways in which this type of information can be utilized (140):

New customer acquisition Customer retention Increasing the customer transaction volume Information as a service Improving the enterprise reputation

The emergence of the internet and the web channel dramatically increased the number of opportunities around the utilisation (and the collection) of the enterprise’s information (130). There are numerous examples of enterprises that were able to successfully exploit these opportunities in the recent years (7, 117, 320). Knowing that information is the least well managed internal resource of an enterprise (124, 150), it is to be expected that the full potential of information assets is still to be realized in most enterprises (132, 151). Knowing that most product and services are increasingly dependent on information and that information is constantly available, we can expect that information and the management, the processing and the utilization of it, will be the discriminating factors in the future, for successfully or unsuccessfully deploying the entrepreneurial orientation (115, 320).

3.3.2.3 Organizational relationships

The Social Capital Theory suggests that the enterprise’s external networks deliver a major contribution to its performance (216, 102). It also implies that enterprises should focus on the development of networks with external resource owners. As such is it complementary on the Resource Based Theory and is the proposed synthesis between both theories superfluous (102).

Nowadays enterprises execute nearly every step in the production process, from product development to distribution, through some form of external collaboration (101, 167). In an economy that in terms of production factors, is characterized by specialisation, complexity, co-design, co-production, outsourcing, offshoring, joint-ventures13 it is obvious that the ability of an enterprise to successfully create and

13 A recent interesting production factor specifically for information- and knowledge intensive industries, which emerged on the basis of the ubiquitous availability of the internet, is crowdsourcing:

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utilize alliances with other organizations (be it other enterprises, universities or R&D institutions) is a conditio sine qua non for a sustainable competitive advantage14 (101,114, 119, 130, 190). Specifically in knowledge intensive industries with a short time-to-market, where competition, customer preferences and channels change very rapidly, the collaboration between highly specialized organizations is a necessity (119, 190)15. It is evident that in this environment the forming of alliances with other organizations is a necessary skill for a successful enterprise. An alliance in this context is defined as “any voluntary initiated inter-firm cooperative agreement that involves exchange, sharing or co-development and it can include contributions by partners of capital, technology or firm-specific assets” (160, 348). This means that an alliance is more than a simple relationship: it involves an (usually legal) agreement, which describes the rights but also the liabilities of the partners in the agreement and it can consist of a simple exchange of resources to a complete merger or acquisition. Although there is usually a legal agreement, the trust that partners have in each other is conditional for its success. Trust is defined here as the belief in another partner’s reliability in terms of the fulfilment of its obligations (99, 166).

In the current dynamic, highly specialized economy, an enterprise has usually relationships with more than one partner. These partners will usually also have external relationships. So through the creation of multiple individual (dyadic) alliances, an enterprise will become a member of a network of collaborating organizations16. In terms of the Social Network theory we can distinguish two types of alliances in this network of organizations, on basis of their connection intensity with the network (119):

Weak ties: this refers to non-equity alliances whereby the cooperation is limited to one or more subjects via licensing, long-term supply contracts, marketing and distribution agreements etc.

using the internet to be able to mobilize all globally available resources, without making formal agreements beforehand. An interesting example was introduced by the Netflix Prize. The Netflix Prize sought to substantially improve the accuracy of predictions about how much someone is going to enjoy a movie based on their movie preferences. Instead of developing an algorithm themselves, they offered $ 1 Mln to the team that came up in time with the best improvement of their own prediction algorithms. This open competition ended on 21 September 2009. And the winning team (Bellikor Pragmatic Chaos) received the award. The prediction ratings improved with 10%.14 An interesting example of the fact that alliances are a conditio sine qua none is the history of the PARC research institute, the R&D department of Xerox. An department that was the original source of a lot of innovations that really changed technology (the graphical user interface (later first used for the Apple MacIntosh), the Ethernet protocol, the PostScript printer protocol, web searching and indexing technology, online conferencing and document management systems). None of these ground breaking innovations added any value to the Xerox company itself. Mainly because they wanted to produce and market the innovation on their own, not using any externally available force. The success of the innovations came all through spin-offs of PARC. Where old-PARC employees took the initiative as independent entrepreneurs. In 2001 was the total market value of all these spin-offs twice the market value of Xerox itself (164, 170).15 A typical example is the iPod from Apple: it consist of more than 400 components, from which none is manufactured by Apple itself. The same goes for the GPS equipment of TomTom: this enterprise doesn’t even have its own production facility. 16 In the Japanese industry of the last half of the past century there were a lot of these types of collective networks (keiretsu) of enterprises tied by mutual equity holdings. Aimed at collaborative R&D programs and product development (85). We see more or less the same in South-Korea, where the collective networks (chaebol) consist of conglomerates of powerful families that work together in the same spirit as their Japanese predecessors. (346).

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Strong ties: this refers to alliances where some form of equity ownership is involved. This can be in the form of joint ventures, partial take-overs or other arrangements where partners exchange equity.

The emergence of the improved communication possibilities and specifically the internet makes it easier and more efficient for an enterprise to create and maintain alliances (130). From a point of view of the Transaction Cost Theory increases the number of contractual relationships when the accompanying transaction costs decrease (161) and as such will it influence the boundaries of the enterprise by making them more open. Also from the point of view of the Dynamic Capability View of the enterprise, this openness is important for the innovativeness of an enterprise: it increases its possibilities for sensing and utilizing weak signals and opportunities (163). Naturally enterprises will only enter strategic alliances where they can expect a competitive advantage out of the relationship (101). This can take several different forms:

Risk sharing (101) Obtaining access to new markets and new technologies (223) Resources (production, knowledge, channels, equipment, brand, funding)(223) Competences (101) Acceleration of the time-to-market (130)

This enumeration and the theoretical support behind it, justifies the conclusion that the impact of alliances on the entrepreneurial orientation is evident, at least from a theoretical point of view (169). The research in general on alliances and their relation with the entrepreneurial orientation is scarce (119), but there are some recent empirical results which illustrates the relationship:

There is empirical evidence showing a positive relationship between the entrepreneurial orientation and explicit organizational support for alliances, value congruence between the alliance partners and the number of alliance partners. The last relationship seems to have the form of an inverted U-shape. Theoretically to be expected: the more relationships, the less attention to be given per relationship. While there was no empirical support for a relationship between trust and communication intensity and the entrepreneurial orientation (99).

When looking at radical innovativeness, it seems that only alliances with universities and research institutes pay off. It seems that the alliances with suppliers and customers are generally unsuccessful in relation to radical innovativeness (101).

There is empirical support for the relationship between the number of alliances and the innovation intensity of an enterprise’s strategy (348), suggesting that the entrepreneurial orientation leads to more organizational relationships.

Andrevski made a distinction between innovativeness and pro-activeness (advantage creating tendency) and the ability to improve the current product characteristics and production process (advantage enhancing tendency) (119). Both have separately a positive effect on the performance of the enterprise. 17

17 Andrevski found empirical support for the following interesting hypotheses (119): Enterprises that emphasize advantage creating tendencies are more likely to be embedded in a network with many

structural holes and are less likely to be locked into dense networks and they are more likely to form weak ties.

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The conclusion is that there is at least theoretical support and also (sometimes indirect) empirical evidence for the great importance of alliances for the entrepreneurial orientation. But the success of the utilization of alliances is dependent on the capabilities of the enterprise to integrate the added value of the alliance partners effectively and efficiently into their own processes. Wiklund and Shepherd limit this to the capability to intensify resource combination activities (165). They support empirically the hypothesis that for small enterprises, which intensify their resource combination activities, there is a relationship between:

… a cross border alliance (weak tie) and performance … domestic acquisitions (strong tie) and performance

But next to the resource combination activities there are also other characteristics of enterprises involved in alliances that influence the outcome of the alliance formation:

Cultural differences and differences in management style (165) Trust in and control of the alliance partners (99, 166) Pro-activeness (101) Organizational support (99) Value congruence (99) Number of alliances in which the enterprise is involved (99, 119) Ability to preserve the human capital (101) The willingness to make alliance specific investments (167) Effective governance of the alliance (167) Learning intent (168) Uncertainty and stress for the involved employees (223)

To make a success of an alliance, an enterprise does not only need to select the right partners and create the optimal conditions for the alliance, but it should also manage all dimensions of the integration of the additions, products or support of the alliance partners (83, 165). They should develop plans for the coordination of activities, the integration of the human capital, including the top management team members (165).

Next to the absorptive (external learning and recombination of current and externally acquired resources) and the transformative capacity (opportunity formulation on basis of internal knowledge and/or information) we propose to define the integrative capacity (integrating (the activities and results of ) alliance partners) as a concept that is conditional for enterprises that want to successfully utilize the benefits of the entrepreneurial orientation in case of alliances or acquisitions. Given the growing usage of alliances between enterprises and the limited research in this field, there is a need for this area (and specifically the integrative capacity) to receive more attention from the academic research community. Where Zhara and George specifically extend the absorptive capacity concept with the recombination of the newly acquired resources with the internal resource potential, the integrative capacity is aimed at the

Enterprises with the emphasis on advantage enhancing tendencies are more likely to be part of a dense networks and are less likely to span many structural holes.

Interesting is the finding that the positive effect of pro-activeness on the performance of an enterprise will be stronger is the enterprise is embedded in a sparse network structure. While the effect of innovativeness is insignificant. This suggest that the real innovations are largely dependent on internal processes.

Enterprises with high advantage creating tendencies can improve their performance when they use dense network structures to substitute for advantage enhancing tendencies.

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necessary changes in the capabilities to make optimal use of the alliance or acquisition (83, 119, 165, 223).

3.3.2.4 Reputation

“Fides sanctissimum humani pectoris bonum est” (Trust is the holiest asset of the human heart)

Seneca

Especially in a timeframe where the ubiquitous availability of the internet makes the split second distribution of positive and negative information possible, the concept of reputation is of special interest for enterprises. Positive enterprise reputations have been shown to allow enterprises to (176, 281):

Charge premium prices for their products or services Attract better job applicants Incur lower cost of capital Achieve persistent profitability Enjoy enhanced competitive status

But there is also a risk involved with this concept: reputational loss18. The moment an enterprise does not meet customers’ expectations, launches inadequate products or services etc., a reputation that took years to be build, can vanish in days19 20. In this context the term “reputation society” is already coined (177). This is a society in which participants judge each other on basis of past behavior and anticipation of future behavior.

Early research already identified reputation as an valuable resource (53, 204), which complies to the VRIO criteria. The broadly accepted definition of reputation was formulated by Fombrun: “reputation is a perceptual representation of a company’s past actions and future prospects that describe the firm’s overall appeal to all of its key constituents when compared with leading rivals” (178). Reputation has four identifying characteristics (178):

Credibility Reliability Responsibility Trustworthiness

18 Reputational losses amount on average to 8-15% of the market value of affected enterprises (181)19 The recent emergence and media attention for Wikileaks is an example of this phenomenon which can be described by the term New Transparency (400). Another example is an incident with Dutch ATM’s: via Twitter the news was spread that the machines were malfunctioning and gave away money. Within an hour there were queues of ‘customers’ next to all ATMs in the big cities.20 The internal theft of information also leads to significant reputational risks. In a recent international survey a quarter(!) of the surveyed organizations admitted to have been the victim of theft of information (257).

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A framework for estimating and comparing the reputation of different enterprises is the Reputation Quotient Model (178, 180). The model distinguishes six dimensions that influence the market perception of the reputation of an enterprise:

Emotional Appeal Product & Services Financial Performance Vision & Leadership Workplace Environment Social Responsibility

There is theoretical and empirical support for a positive relationship between reputation and the valuation of an enterprise by the financial market (176), the enterprises’ financial performance (173, 174, 179) and the fact that this relationship even leads to sustainable superior financial performance (175). The relationship between reputation and the entrepreneurial orientation is less evident. There is research support for the assumption that innovation will benefit from a good reputation (182) and that a reputation has more impact on an enterprise’s success than tangible assets (267). Looking at the aforementioned benefits that an enterprise with a good reputation experiences, this should not be a surprise. The speed of mobilizing other resources (people, funding), the quality of these resources, the market entrance and product acceptance, all benefit from a good reputation and all have their impact on the functioning of the entrepreneurial orientation. Next to that there is empirical support for the relation between reputation and the culture of an organization (173) (see 3.6.2). In that sense a reputation can be appreciated as an moderator or enabler for the entrepreneurial orientation.

3.3.2.5 R&D

In paragraph 3.3.2.3 (Organizational relationships) we made the need for the capability to optimally exploit external relationships (integrative capacity) already plausible. This seems specificallly true for a special type of knowledge creation and development: R&D. In an economic environment which is characterized by rapid change in technology and customer preference, a shorter time-to-market and highly dynamic markets an enterprise cannot be completely self-sufficient in creating knowledge (75, 183, 347). The only anecdotally supported Open Innovation paradigm is the academic formulation of this economic and entrepreneurial reality (164) in which enterprises integrate acquired and created knowledge through integrated R&D networks (164) or participation in ventures (75). In general there is empirical support for different forms of external co-operation (with institutions, suppliers, customers and competitors) which shows in most cases a positive relationship between R&D co-operation and innovation performance, intensity or radicalness (347). The success of this type of co-operation is the capacity of the enterprise to integrate the R&D results for optimal usage. There are numerous examples of specific organizational structures (sometimes called corporate incubators) that are set up to optimally integrate and exploit the knowledge coming from different (internal and external) sources (75, 188, 189).

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Empirical support for the value of internal R&D for the entrepreneurial orientation is limited and non-conclusive. There is support for a positive and significant relationship between an internal R&D function and the radicalness of an innovation project (101) and there is theoretical support for the proposition that R&D reduces technological uncertainty (85). On the other hand are there examples of empirical studies which did not find a significant relationships between R&D and indicators of enterprise performance (185, 186) or that the R&D expenditure only leads to efficiency improvements of the internal employees (120). In a recent survey of the most innovative enterprises in 2010 there was no visible relationship found between the R&D budgets of the enterprises and the perceived successful innovation ranking they received from their peers (266).

3.3.2.6 Learning capabilities

“Virtutes discere vitia dediscere est” (Learning virtues, is unlearning vices)

Seneca

The knowledge creation process and the subsequent development of competences and usage of knowledge to create new value for the enterprise (knowledge deployment (69, 204)), are tightly linked to the learning and unlearning processes (206) within the enterprise. All individuals who take part in the entrepreneurial endeavors, need to be explicitly aware of the concept of organizational learning, understand the dynamics of it, appreciate the processes around knowledge creation and the nature of it. This knowledge must be used pro-actively for the creation of new or the improvement of existing competences (69). An important (meta-)competence in this context is mentioned by Hamel & Prahalad: the competence to make knowledge useful throughout the company and develop new competences on its basis (71).

On an organizational level the absorptive capacity of an enterprise is an important concept for the understanding and the stimulation of enterprises’ learning capabilities (84). The absorptive capacity was introduced by Cohen and Levinthal as “the ability to recognize the value of new information, assimilate it and apply it to commercial ends” (82). An appropriate absorptive capacity is a necessary condition for the assimilation and later utilization and exploitation of new, externally available information and knowledge in combination with the internally available information and knowledge. The concept was reformulated and extended by Zhara and George (83). They distinguished two types of absorptive capacities21:

21 More in detail: Potential absorptive capacity

o Knowledge acquisitionThis is an enterprise’s ability to identify and acquire externally generated knowledge and information that is critical for its operation or useful for its entrepreneurial efforts.

o Assimilation capabilitiesThe enterprise’s capabilities and processes to analyze, interpret, understand and internalize the externally obtained knowledge and information.

Realized absorptive capacityo Transformation capabilities

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Potential absorptive capacity Realized absorptive capacity

We can position the absorptive capacity as central in the opportunity process cycle as proposed in 2.3. Absorptive capacity is not only important for the further improvement of the internal knowledge base, but also for the identification, development and selection of new opportunities. We can support this interpretation by the indicators that were suggested to empirically evaluate the different elements of absorptive capacity:

Knowledge acquisition: the number of year experience of an R&D department, R&D investment

Assimilation capabilities: the number of cross-enterprise patent citations, the number of citations of the enterprise’s R&D in publications of others

Transformation capabilities: the number of new product ideas, the number of new research projects. In terms of our proposed model this can be interpreted as opportunity identification and development.

3.3.2.7 Physical capital

3.3.2.7.1 Introduction

The traditional neoclassical economic tradition placed much emphasis on physical capital as well as on human capital as the driving force behind economic growth (192). As already shown in 3.3.1.1 and 3.3.2.1, intangible assets are of much more value for a sustainable growth in the current knowledge and communication intensive economy (193). Physical capital is necessary but not sufficient to generate sustainable growth. Skilled workers, managers, entrepreneurs and social networks are needed to develop new products and new production processes and utilize innovations (192, 194). Seeing the widespread usage of the Cobb-Douglas function (195) in the empirical research on the value of the entrepreneurial orientation and the prominent place of physical capital in this function, there is at least indirect theoretical support for the relationship between the entrepreneurial orientation and physical capital (193)22.

3.3.2.7.2 Technology

Early literature already describes technological assets as valuable for the strategic performance of an enterprise (204). But the ownership of technology as such is not

The enterprise’s capability to develop and refine its ability to combine the newly acquired and assimilated knowledge and information with its existing knowledge to improve its source of opportunities.

o Exploitation capabilityThe enterprise’s capacity to apply the newly acquired, assimilated and combined knowledge for the introduction of new product or services or improvements in the processes of the enterprise, all leading to a competitive advantage.

22 Variations on the Cobb-Douglas function for organizational (120) and entrepreneurial (193) capital are (not surprisingly) also using physical capital as part of the formula.

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sufficient for a competitive advantage, not even in a technology driven industry (213)23. It all depends on the creative, aggressive and innovative market development (213).

Technology is in principle imitable and sometimes substitutes are available. Hence technology doesn’t fulfil per se the VRIO criteria. But internally developed technology, for which there is no open market or which an enterprise is not willing to sell24 can be described as an valuable resource in the terminology of Barney (171, 210). The usage of Intellectual Property Rights instruments (patent, copyright, registered design, trademarks25) is a common mechanism to protect an enterprise’s unique technology (204, 207, 267). From the point of view of an enterprise’s performance there is empirical support for the preference of intellectual property right above tangible assets (267), but a short time-to-market and an extra effort on sales and services seems empirically more appropriate (208).

Next to knowledge and behaviour (see 3.6), the availability of technology (and the knowledge about it) is also an determining factor for the innovativeness of the enterprise (116, 117, 152, 206). There is mixed empirical support for the direct relationship between the entrepreneurial orientation and technology (205, 206). But through an empirically supported positive relationship between the entrepreneurial orientation and technology-based innovation, technology will positively but indirectly influence the entrepreneurial orientation positively. But in practice there is ample support for the parallel between the growth of entrepreneurial behaviour and the emergence of technology based enterprises (211). Putting aside famous examples (Apple, Microsoft, Google, Facebook etc.) an avalanche of evidence suggests that the correlation exists (210). This development, prevalent in the last 15 years, is not expected to slow down in the near future (210).

3.3.2.7.3 Geography

Although we live in a period of ubiquitous availability of electronic and mobile communication, virtual networks, social media and the global distribution of design, development, production and distribution (130, 210), the geographical location of economic activity still influences the entrepreneurial orientation of an enterprise. This specifically is the case for enterprises which accessing knowledge spill overs from geographical proximate resources (14). There are some empirical studies which did not find a significant impact of the geographical dimension (50, 203), but there is theoretical research which suggests otherwise:

The distribution of ideas and knowledge is supposed to be faster in densely populated regions, than in less densely populated regions (197, 198). Next to this it is easier to acquire supportive services and human capital in densely populated regions (197, 198, 199). Both aspects deliver easier and more abundant access to the necessary resources.

23 Tushman, Anderson and O’Reilly (213) call this the Paradox of Success: enterprises that are successful in a certain technology but are outperformed and sometimes annihilated by nimble foresightful competitors. They mention SSIH a Swiss watchmaking enterprise and Otticon a hearing aid firm. Both marketleaders in their domain with all technology knowledge available, but both defeated by smaller competitors and both disappeared from the market in a couple of years.24 Managers often evoke the ‘crown jewels’ metaphor. That is if the technology is released, the kingdom is lost (204).25 In principle can we appreciate all these intellectual property rights also as intangible resources of the enterprise (267)

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But it is not only a quantitative advantage. Especially geographical areas with specialized regional institutions (universities, trade associations, venture capital firms) also offer superior quality-of-live, attracts knowledge, business founders and a skilled labour force (200, 201). As such these aspects improve the quality of the available valuable resources for entrepreneurial activities.

This attractiveness will also lead to social diversity, which can be seen as a proxy for the openness of a society (201). Openness leads to more communication and exchange of new ideas and opportunities and as such again supporting the entrepreneurial orientation in the specific region.

According to the Knowledge Spillover Theory of Entrepreneurship (196) a high level of regional R&D increases the opportunities for start-ups in knowledge based industries and as such stimulates the entrepreneurial activities in the region (212).

We can expect that the growing impact of new communication means, the globalization and virtualization of industrial processes will have impact on the influence of the geographical dimension on the entrepreneurial orientation (130). There is at least empirical support for the significant geographical autocorrelation of resources (199, 201, 212) which are conditional for the entrepreneurial orientation and the expectation that humans like to live in environments which are attractive from an intellectual and quality-of-live point of view (200, 201, 212). This supports the importance of the geographical dimension, also in a timeframe that is characterized by the term ‘global village’ or ‘digital society’.

3.3.2.7.4 Financial capital

It is evident that financial capital does not fulfill the requirements of the necessary (VRIO) attributes (150) of a valuable resource. It has value for the organization and supports opportunities, but it is not rare and can be imitated. This is probably the reason for the very limited attention it receives in the research community on the entrepreneurial orientation. There is at least (not surprisingly) both theoretical and empirical evidence on the important role of financial capital at the start-up phase of an enterprise (102). Apart from investments in R&D (75, 183, 188, 189) there is hardly any attention for this subject in other research literature. Still it is evident that without sufficient funding there is no support for:

Acquiring the best human capital Managerial and executive incentive schemes Development of internal knowledge Acquiring external knowledge, patents Exploring opportunities Introducing new products Developing new markets ….

In short: only with adequate investments in financial terms in all dimensions of corporate entrepreneurship, will the benefits of it materialize.

In paragraph 3.2 we already explained that it is in principle possible to substitute a significant part of the internal resources, given the availability of sufficient financial

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capital and time. Although there is literature suggesting that all resources can be substituted (57), there is enough support for a more moderate position. Specifically in the European countries this seems at least not likely for the internal employees, given the limited mobility of the workforce. But financial capital is necessary for and can improve the availability, quality or adequacy of the other internal resources. Financial capital improves in this indirect manner the value of all other resources.

A specific example of financial investment which did receive attention of the research community is Corporate Venture Capital (CVC) (187, 188, 189, 190, 191). A CVC is defined (190) as a minority investment by an established enterprise in an entrepreneurial venture. It differs from an alliance. In an alliance partners will mutually commit resources, beyond financial capital, to achieve a particular objective. CVC investments entail a clear distinction between investors and users of funds and do not necessarily involve the mutual commitment of other enterprise resources (191). The purpose of the CVC investment is attaining a window on technology and knowledge (189). Usually with an option to take over the knowledge by acquiring the venture or technology completely in a latter phase (191). In practice we see specifically within bigger enterprises in new technologies, that there is a structural tendency to institutionalize the CVC investment process within the own organization through so-called incubators (75). There is both theoretical and empirical support for the relationship between the magnitude of CVC investment and the value creation of an enterprise (189). But next to this direct effect of CVC investments is there an indirect effect that is more important in this context. A CVC relationship can be seen as a specific alliance or organisational relationship as described in paragraph 3.3.2.3, with all mentioned benefits. Thus also with the possibility to enlarge the knowledge base and the innovative capabilities (189). And thus indirectly supporting the entrepreneurial orientation.

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3.4 External resources

As described in 3.1 the Resource Based Theory makes a distinction between resources and capabilities. The last is a specie of resources that is unique to the enterprise and difficult to imitate or substitute. It fulfils Barney’s VRIO criteria. In the modern economy in which knowledge, globalization and digital communication are the most characteristic phenomena (130), the balance between resources and capabilities is shifting. In paragraph 3.3.2.3 (Organizational Relationships) we saw already that enterprises execute nearly every step in the production process, from product development to distribution, through some form of external collaboration (101, 167). Together with the in paragraph 3.3.2.5 (R&D) introduced Open Innovation paradigm (164), the in paragraph 3.3.2.6 (Learning Capabilities) explained role of external networks for knowledge creation and the in paragraph 3.3.2.3 (Organizational Relationships) described growing importance of alliances, makes it clear that external resources are ubiquitous. This also shifts the balance between resources and capabilities. What once a capability was, unique, not imitable, is now just a resource, available on the market. The ownership of resources is not a necessary requirement anymore. Control is sufficient (267).

From the resources with value for the entrepreneurial orientation mentioned in 3.1, are only the internal employees and relationships, the external relationships and reputation, capabilities in terms of the Resource Based Theory. Those four resources need to be internally available, all others can in principle be externally supplied. This observation is also in line with the practice in most modern technology driven industries from the traditional automobile industry to the modern production of smartphones, in which the co-operation with partners spans the life-cycle of a product (101, 167, 267) and the trend of outsourcing of not only non-core, but also core activities (Business Process Outsourcing). From this perspective the ability of an enterprise to manage, exploit and utilize these external resources a necessary and (seeing examples of new enterprises with hardly any resource) at times even a sufficient capability. Given this, the concepts of absorptive and transformative capacity and the integrative capacity, proposed in paragraph 3.3.2.3 (Organizational Relationships), need to be developed, managed and utilized within the modern enterprise.

In the context of this study it is important to note that next to internal resources, also external resources are necessary and sometimes even sufficient, for the entrepreneurial orientation.

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3.5 Innovations, new business and business renewal

“If we want everything to stay the same, then everything should change. Am I clear enough?”

Giuseppe Tomasi di Lampedusa, TheTigercat

The ultimate objective of Corporate Entrepreneurship is sustainability and future growth. The three different approaches to this end are: innovations, new business and business renewal. This paragraph is dedicated to these different approaches. They will be analysed, their presence in the model will be supported and the role in the context of the model will be explained. Next to that is attention paid to the subject “ambidexterity”. This is the successful application within an enterprise of a combination of the entrepreneurial orientation and the business-as-usual.

The modern enterprise is nowadays confronted with a highly dynamic, globalized and competitive economy, where the only certainty is uncertainty (131, 152). Markets shift, customer preferences are volatile, new channels and competitors emerge, old channels and competitors vanish, technologies proliferate, products can become obsolete almost overnight (27, 131, 152, 250). To keep up with these changes to assure sustainability (117, 250), growth and profitability for the future (227, 250), an enterprise needs constantly to adapt itself and its product and processes to cope with the threads of changed circumstances and to profit from the emerging opportunities (206, 252, 253). Corporate entrepreneurship can be described as that part of the established enterprise’s activities that focuses on these adaptations, but should be distinguished from the on-going mainstream business activities (business-as-usual) (4, 213, 250). Existing activities are exploitative in nature and focusing on efficiency, refinement, formalization and implementation of standard processess, while corporate entrepreneurship activities are more linked with experimentation, flexibility and changes in the current products, processes, markets or strategy (251). An organization that is able to successfully combine these two approaches, the on-going mainstream activities aimed at exploitation, with the corporate entrepreneurial activities aimed at exploration and change, is coined by Tushman and O’Reilly (254) as an ambidextrous organization.

There are in principle three appearances of these possible changes (4, 27, 39, 45, 213, 250). All three are based on innovations that require changes in the pattern of resource deployment, the creation of new capabilities to add new possibilities to position in the market and sometimes changes in the on-going mainstream organization and sometimes even changes for the whole industry (4, 10, 39, 250, 259, 263):

Innovations New Business (Corporate venturing) Business Renewal

In the following three sections the mentioned outcomes will be analysed, their presence in the model will be supported and the role in the context of the model will be explained.

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InnovationsInnovation is seen as the most prominent expression of corporate entrepreneurship (3, 4, 32, 33, 34, 35, 92, 259, 263): it is described in most research as the kernel of corporate entrepreneurship. We find this also back in the abundant presence of the subject in the analysis made of the definitions of Corporate Entrepreneurship (see 2.1). On this appreciation is alignment between the research and the corporate community: also CEO’s perceive innovations as the primary driver for growth and adaptation (44, 227). Within the Dynamic Theory of Competition innovation is seen as central to gaining and holding competitive advantage (264). Environments with demand uncertainty, technological turbulence and competitive intensity stimulate the innovativeness of an enterprise (206). Also for innovation we find more than one definition in the literature (7, 92). Most definitions are containing more or less the same components: developing and introducing new products, new services and/or new processes (255) within the current or new markets, which should create substantial new value for the customers (44). It is not limited to technological improved product or services, but it can take many forms (44). Schumpeter describes five types of innovation (256):

The introduction of a new good or service The introduction of a new process The opening up of a new market The identification of new sources of supply of raw materials The creation of new types of industrial organization

Important is to note that successful innovations will impact the on-going mainstream activities and are absorbed within the established enterprise’s structure. This is sometimes described as continuous innovation, by which an enterprise produces incremental improvements in existing product-lines and markets. This is to be distinguished from discontinuous innovation (213, 251): new business in the sense of the next section.

New Business (Corporate venturing)There are situations where an enterprise decides to create a new business (also known as corporate venturing or venturing) within or next to the on-going mainstream organization (7, 10, 39, 45, 213). It is characterized by (213, 258):

Activities new to the organization Initiated and conducted internally Involves higher risk of failure or larger losses then with the on-going

mainstream activities Will be managed separately Is undertaken to increase sales, profit, productivity or quality

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There are a number of reasons why an enterprise can choose for a separate new business:

The field of innovation is not aligned with the on-going mainstream business (206) (it could be even threatening for it)26. This is specifically the case with architectural, breakthrough, discontinuous, radical, disruptive, non-linear, technology based, market based, managerial or high intensity innovations (101, 183)27

The market of the new business is new in terms of approach, customers, geography and/or competences (213)

There are possibilities to make use of external innovation resources (suppliers, customers, universities) (101, 164)

The endeavour needs to be able to manoeuvre quickly, not disturbed by bureaucratic, risk-avoiding decision taking (75)

The risk of failure could have a negative effect on the reputation of the organization (262)

There is both theoretical (92, 213, 250) and empirical (27, 260) support for the separation of the new business endeavour from the on-going mainstream activities. Externally can this materialize in spinoffs, separate ventures, joint ventures, while internally it can be in the form of a new venture division (92) or an incubator (75). There are abundant examples of big enterprises which institutionalize the setup of new ventures (sometimes by the usage of incubators) for their innovative growth (75, 265).

Business RenewalBusiness or strategic renewal is the most drastic reaction to changing, threatening or challenging circumstances (27, 39, 250, 259, 263). In this situation the on-going mainstream organization and activities are also part of the transformation. In its extreme form is it frame breaking: the enterprise changing the rules of competition for its industry. Stopford and Baden-Fuller coined this approach as Schumpetarian entrepreneurship (259). This situation arises specifically in enterprises or industries in which the on-going mainstream product or service mix becomes obsolete, because of extreme technology, customer or market changes. Enterprises need to re-invent itself and formulate and implement a new strategy (263). In an environment, like the current economy, characterized by dynamic, fast and sometimes unpredictably changes, is it not surprisingly that there is empirical evidence that businesses that adapt their business model outperform their competitors that keep the business model unchanged (27, 251).

All three mentioned approaches are dependent on other entrepreneurial activities and processes within the enterprise. And their success is dependent on the internal (73) and external resources, the connections and alliances, the competitive opportunities and threats and the culture and other capabilities of an enterprise. In line with the

26 A typical example of this can be found in the Dutch insurance industry, where the on-going mainstream business model was based on an intermediate broker channel. Some insurance companies started an internet based direct channel insurance venture, with which they run the risk of cannibalizing their existing business channels.27 The further elaboration on these innovation concepts is not complete. The accompanying confusion on the terminology and definitions falls outside of the subject of this study

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approach of Covin and Miles (263) we propose in table 1 to compare the three approaches on a number of dimensions.

 Dimension Innovations New Business Business RenewalFocus New products, markets Unfamiliar products, markets New StrategyTrigger Profitability Sustainability SurvivalImpact Current organization Adapted organization Renewed organizationLevel of change Renew part of operation Renew part of organization Renew strategy & organizationCompetitive basis Differentiation, cost leadership First-mover, market challenger First-mover, market creatorDevelopment Evolutionary Stepwise RevolutionaryFrequency High Moderate LowRisk Low Managed, mitigated High

Table 1- Dimensions of the different forms of entrepreneurial results

In line with the Contingency Theory the approach which is followed will be defined by the history of the enterprise (path-dependency), the availability of resources and capabilities, the life-cycle of the enterprise and the level of hostility, turbulence and uncertainty in the competitive environment of the enterprise.

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3.6 Orchestration

The proposed model introduces an extension on the Resource Based Theory and the Dynamic Capabilities approach followed in much recent research. It will be shown that there is a difference between the resources which an enterprise has at its disposal and the ability to influence and utilize these resources: this ability is described as the ‘orchestration function’. In the introduction we will elaborate on the orchestration function in general, highlighting the theoretical foundations. An important extension of the Resource Based Theory is formulated by the Dynamic Capabilities approach. This approach focuses in the first place on the continuous, deliberate development and deployment of the resources at hand. The proposition in this paragraph is that this approach is a necessary one, but that it is not sufficient. There are other aspects that need orchestration: the strategy, mission, organization, culture, identity, values and policies of the enterprise, the competitive approach to changed market situations, the (re)allocation of resources to initiatives, the development of new resources or unwinding of existing ones, the balance between the entrepreneurial orientation and the on-going mainstream activities, management of external stakeholders and the selection of appropriate routines and processes. Without having a discussion on semanticsis it hardly possible to find these aspects back in the Dynamic Capabilities approach. The orchestration function is meant to give direction and attention to the aforementioned subjects and it gives the management the levers to direct, design and implement the entrepreneurial orientation within the enterprise.

In the rest of this the paragraph on the orchestration function, we will investigate extensively its different dimensions and their characteristics. In this approach we will also investigate the link between the strategic component of corporate entrepreneurship with the theory around Strategy Management. We will propose a reconciliation between both approaches which is more in line with the common management practice than the theoretical mutual exclusion.

3.6.1 Introduction

A basic premise which is not only fundamental to the proposed model of this study, but also to the research on the subject of entrepreneurial orientation as a whole, is “that competitive advantage can flow at a point in time from the ownership of scarce but relevant and difficult to imitate assets, especially know-how” (204, 270, 272). But this link between competitive advantages and a bundle of resources is not guaranteed to last forever (248, 270, 275, 296). Not for resources needed for the entrepreneurial oriented activities (exploration), but also not for on-going mainstream activities (exploitation)(275). There are three reasons for enterprises to focus constantly on the quality, the composition and the sustainability of their bundles of resources:

In the fast changing, knowledge driven economy, open to global competition and characterized by unpredictable, rapidly changing customer preferences and traditional threats and new opportunities, specifically from the ubiquitous availability of new communication means, it is not surprising that the value of “difficult to imitate assets, especially know-how” will deteriorate without

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mitigating measures (14, 204, 270, 272) and can influence the lifetime expectancy of the enterprise28.

Successful enterprises are threatened by the paradox of success (213, 274) or the inertial dynamics of success (272): the success of the on-going mainstream business of an enterprise can prohibit the necessary renewal of products, resources, routines, organization, processes or strategy.

The capability-rigidity paradox as expressed by Leonard-Barton (81, 275) can also threaten the sustainable growth and even the life expectancy of an enterprise. Existing capabilities that provide the basis for the enterprise’s current business and innovation can, without renewal or reconfiguration, become rigidities constraining the enterprise’s future ability to compete (81).

How do enterprises succeed in sustaining a competitive advantage? How do they develop their basis for future success: the resources, the internal processes? What distinguishes the enterprises which successfully assure their future growth from the other enterprises? The Resource Based Theory assumes Adam Smith’s invisible hand, that takes care of the necessary change and development initiatives within the autonomous boundaries of the appropriate resources (296). The necessary change and development of the stock of resources of an enterprise can be managed with specific concepts and tools. Examples of this are Knowledge Management, Human Resource Management, Information Management etc. These change and development initiatives need decision taking, resource allocation, objectives, prioritization, alignment and control. In short: it need to be directed, guided and managed, preferably from a single point or at least from one vision. In the proposed model, the orchestration function takes care of the management and development of the resources. In the literature, the moderating effect of this orchestration function can be seen under the concept of internal or organizational factors that influence, promote (impede) entrepreneurial activities: the company’s incentive and control systems, organizational structure, culture and organizational support (13, 106, 272, 305, 306, 307). Literature sees this internal, organizational factor as only promoting and stimulating, while the real meaning of these factors is that they can be used by management to develop, direct and guide all resources and capabilities in the organization for the common entrepreneurial goal. In the literature on internal factors is one key factor missing: strategy. At the most there is recognition that the success of entrepreneurial teams is partly dependent on their alignment with the strategic targets. Formulating a strategy is an internal activity. Taking into account the (potentially) available resources and capabilities is, next to the analysis of the environment, a necessary condition for the formulation of a successfully deployable strategy.

There is a lot of research (also empirical) on the impact of individual resources on performance or competitive advantage and on the impact of individual resources on each other (moderator or antecedent questions), but little research has been done on the composition of total bundles of resources or the management of the development of these bundles. What becomes clear from the aforementioned three reasons for focus on the quality, composition and appropriateness of the resource bundle, is that sustainability is not for free: it needs constant attention and support. The enterprise must be sensitive to changes in the environment and able to adapt to these perceived

28 A McKinsey study on the lifetime expectancy of S&P 500 firms showed that in 1935 the average expectancy was 90 years. In 1975 it was dropped to 30 years. In 2005 it was only 15 years (273)

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changes in line with the available resources and capabilities of the enterprise and its strategic objectives (272, 296). Within the organizational practice there are distinguishable differences between enterprises and their ability to change. There are even examples of enterprises which showed different abilities to change in different periods (usually with different management, in different circumstances and with different strategies).

In the context of the orchestration function the Dynamic Capabilities framework delivers the necessary theoretical background. The Dynamic Capabilities framework takes as its starting point the premise that an enterprise has the ability to renew and develop its organizational resources based on the perceived and foreseen changes in the environment of the enterprise, to achieve a sustainable competitive advantage (14, 204,270, 272, 275, 277, 296).

Teece (270) disaggregate the dynamic capabilities of an enterprise into the capacity to:

Sense and shape opportunities and threats Seize opportunities Maintain competiveness through enhancing, protecting and when necessary

reconfiguring the enterprise’s tangible and intangible assets

The first two capacities will be further discussed in paragraph 3.7 (Opportunities exploration and exploitation) and paragraph 3.8 (Environment). Both first two necessary entrepreneurial capacities support our proposed model for corporate entrepreneurship, because the model also presumes the existence of these necessary capacities.

A cornerstone of the dynamic capabilities approach is the continuous, deliberate maintenance and management of the resources, targeted to react to changes in the environment and the sustainability of the enterprise. The Dynamic Capabilities approach makes a distinction between first-order and high-order (sometimes called second-order) dynamic capabilities (275):

Within the first order capabilities the literature distinguishes two types: operational and dynamic first-order capabilities (275, 276, 277). Operational first-order capabilities are the routine-based capabilities that form the basis of the on-going mainstream activities of the enterprise (e.g. production, marketing, sales), while the first order dynamic capabilities (re-engineering, R&D, innovation processes) take care of the development of these non-dynamic capabilities.

The high-order dynamic capabilities govern the change of first-order dynamic capabilities. Teece (270) calls this the continuous alignment and realignment of specific tangible and intangible resources.

The high-order dynamic capabilities maintain competiveness through enhancing, protecting and when necessary reconfiguring the enterprise’s tangible and intangible resources, and this is also one of the objectives of the orchestration function in our proposed model. This function needs both tactical and strategical attention and must

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be appropriately resourced and planned. The attention and costs that this function asks from the enterprise is defined as the dynamic adjustment cost (78).

From the point of view of the Picea model it is not only necessary to maintain and sometimes renew part of the enterprise’s resources, but the enterprise need also take sometimes strategic and fundamental decisions on other aspects that influence the entrepreneurial orientation of the enterprise:

The strategy, mission, organization, culture, identity, values, policies of the enterprise (248, 270)

The competitive approach to changed market situations (248, 278) The (re)allocation of resources to initiatives (248, 275) The development of new resources (248, 270) or unwinding of existing ones The balance between the entrepreneurial orientation and the on-going

mainstream activities (275) The selection of appropriate routines and processes (270)

With more and more externally mobilized resources, this orchestration function is of increasing importance. The development-time and development-costs for new resources will be reduced and the diversity of usable resources can be increased. But the selection and integration process (i.e. the integrative capacity) needs to be managed. The ability of an enterprise to benefit from the opportunities of the open economy, will be the discriminating factot between gaining sustainable competitive advantage or entering a difficult and sometimes terminal phase of the enterprise. Teece (270) mentions and describes part of the nature of these orchestration, but the microfoundations he proposes focuses (as can be inferred by the choice of terminology) on the content of a resource area, instead of on the governance and/or management of it.

In the rest of this paragraph we will support the chosen approach from four different angles:

Culture Management Organization Strategy

We will investigate how and demonstrate that, these four areas are involved in directing and orchestrating the different components of the model.

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3.6.2 Culture“It is culture that serves as the conductor and the entrepreneur as the catalyst”

B.Berger, 1991

From the early literature on the entrepreneurial orientation, there is a strong support for the relationship between the subject of the study and culture. Usually it is mentioned in an enumeration of other intangible resources (46, 179, 217, 228, 278, 282, 283, 284), and with some exceptions (173, 283), usually without any further elaboration . While all other intangible resources are subject to further theoretical or empirical research, culture and its effect on the entrepreneurial orientation has been neglected by the research community. Except for the relationship between reputation and culture (281) there is no first-rank, peer reviewed publication devoted to corporate entrepreneurial culture (284).

On the subject of culture in general there is more or less consensus on the definition: “a system of shared values (defining what is important ) and norms (defining appropriate attitudes and behaviour)” (286). More specific is the definition on enterprise culture: “underlying values, beliefs and principles that serve as a foundation for the organization’s management system as well as the set of management practices and behaviours that both exemplify and reinforce those basic principles” (287, 291). A strong enterprise culture will influence the performance positively because of the shared values and norms (288):

Increase behavioural congruence Simplifies organizational coordination and control Improve goal alignment Increases employee efforts Speeds up decision taking

In general there is ample empirical evidence for the relationship of a strong culture with the performance of an enterprise (281).

There is also a downside of a strong culture (8). Specifically for enterprises that want to utilize the entrepreneurial orientation. Basso, Bouchard, Fayolle and Legrain (284) call this the “paradoxical nature of entrepreneurial culture”, which can be linked with other paradoxical inhibitors of entrepreneurial behaviour (the paradox of success and the capability-rigidity paradox (see 3.5)). An enterprise’s culture is in principle a normative frame which aligns and controls (!) behaviour on the basis of past experiences, looking for homogeneity and standardized conduct. Deviations can even be sanctioned and innovativeness and risk-taking will be discouraged (284). Although Basso, Bouchard, Fayolle and Legrain (284) propose four possible approaches for solving the paradox (specific innovation policies, incidental hero’s, non-conforming sub-cultures and weak cultures), they forget the most important one: to position entrepreneurial behaviour as the most prominent aspect of the enterprise culture (269). There are enough examples of young, modern enterprises for which this approach has proven to be very successful, even though risks are involved. Although this also knows its risks.29 The development of the enterprise’s culture, which is

29 “A focus on pure individualism will likely result in strong incentive for entrepreneurship, but will also produce gamesmanship, zero-sum competition, sequestering of information and the chaotic pursuit

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largely dependent on historical elements, is not easy, difficult to direct and time-consuming. Enterprise policies can help here. They have effect on a shorter time-scale and can help to adapt the culture. It is the combination of both elements that determines the level of entrepreneurship in an enterprise, but the culture is the most prominent of both

In this context it is also relevant to pay attention to the effects of national and industry culture on the entrepreneurial orientation. While both are at least theoretically supposed to have influence, not only on each other, but also on the culture of the enterprise (280, 284, 289). The canonical work of Hofstede (290) forms the foundation for the national cultural dimension in all literature. According to Basso, Bouchard, Fayolle and Legrain (284) and Parnell and Kedia (289) four of the six national cultural dimensions that Hofstede distinguishes are relevant for the entrepreneurial orientation:

Power distance indicates the degree of tolerance for hierarchical or unequal relationships. Less power distance has theoretically a positive influence on the entrepreneurial orientation and international competitive advantage.

Uncertainty avoidance underlines the acceptance for uncertainty or the willingness to accept risk. Less uncertainty avoidance has theoretically a positive influence on the entrepreneurial orientation and international competitive advantage.

Individualism is opposed to collectivism and indicates the emphasis placed by a country on individual achievements. A high level of individualism has theoretically a positive influence on the entrepreneurial orientation and international competitive advantage.

Masculinity gives the degree of stress placed on materialism and wealth and preference for achievement, heroism, assertiveness and material success. A high level of masculinity has theoretically a positive influence on the entrepreneurial orientation and international competitive advantage.

In agreement with the above dimensions, Lee and Peterson (280) also add the other two national culture dimensions of Hofstede:

Achievement describes how the power and status is determined, based on achievement or ascription. The more the power and status is determined by achievement, the more positive the influence on the entrepreneurial orientation.

Universalism is the degree in which the norms and expected behaviour is equally applied for all participants in the enterprise or if there are special rights and privileges based on rank or status. The higher the degree of universalism, the more positive the influence on the entrepreneurial orientation.

Basso, Bouchard, Fayolle and Legrain (284) also propose that the culture of the industry in which an enterprise operates influences the entrepreneurial orientation. They distinguish the following dimensions:

of tangential projects, having little fit with the organization’s competencies” (8)

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Industry dynamism in terms of technological changes, competition and demand is expected to be positively related to the entrepreneurial orientation.

Industry heterogeneity implies that there are niches and several sources for competitive differentiation and thus many pathways to success. This is also expected to have a positive correlation with the entrepreneurial orientation.

Customer’s requirements and in particular their expectations on the reliability (reputation) of a firm are expected to have a negative effect on the entrepreneurial orientation.

Global versus (multi)domestic industries. When dealing with global industries it is the industry that is expected to have a dominant impact on the entrepreneurial orientation, while in (multi)domestic industries it is the national culture that is expected to have the highest influence on the entrepreneurial orientation.

Within the research community there is both theoretical and empirical support that the entrepreneurial orientation knows the following dimensions (240):

Innovativeness: the willingness to introduce new products and services combined with a creative, experimental attitude

Proactiveness: the propensity to look for opportunities, take initiative and introduce new products and services ahead of the competition

Risk taking: the inclination to take risky, bold decisions in terms of resource allocation, uncertain results and unknown markets or products.

Lumpkin and Dess (217) proposed the following two additional dimensions30:

Autonomy: allowing teams and/or individuals the possibility to independently work on new products, services and business concepts, from the start of the initiative until the final implementation

Competitive aggressiveness: the efforts of the enterprise to outperform the competition, characterized by a strong offensive posture or aggressive response to competitive threats.

It is evident that the culture of an enterprise should reflect preference in one way or the other for these dimensions. The more the other characteristics of the enterprise culture support these dimensions, the more the entrepreneurial orientation is supported. The limited literature on the theoretical relation between enterprise culture and the entrepreneurial orientation can be summarized as follows (284):

Focus on result achievement is positively related the entrepreneurial orientation

An employee orientation, seeing employees as important resources is expected to have a positive correlation with the entrepreneurial orientation

Tight control mechanisms are expected to have a negative relationship with the entrepreneurial orientation

Open, market driven orientation is expected to have a positive relationship with the entrepreneurial orientation

30 Especially Autonomy, but also Competitive Aggressiveness received limited empirical support

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The empirical support for the role of culture in the entrepreneurial orientation is minimal (291), fragmented and indirect:

Flatt and Kowalczyk (281) found significant empirical support for a positive relationship between culture and the performance of an enterprise and they found also support for the moderating role of culture vis-à-vis corporate reputation.

Moran, Palmer and Borstorff (292) found empirically that enterprises with strong cultures are difficult to imitate and can create a competitive advantage based on that.

Kreiser, Marino, Dickson and Weaver (293) found empirically that both uncertainty avoidance and power distance significantly negatively influence risk-taking behaviour in enterprises and that both individualism and power distance negatively influence pro-active behaviour.

Wang (91) found empirical support for a strong impact of organizational culture and structure on the entrepreneurial behaviour of middle-managers in big Singaporean enterprises.

In this paragraph we investigated how corporate culture and the entrepreneurial orientation are related. There is a lot of theoretical and (very limited) empirical support for this relationship. As such the presence of culture in the model is in a limited way defendable. But in general there is abundant evidence for the impact of corporate culture on the behaviour and the successfulness of an enterprise. Specifically while behavioural aspects such as innovativeness, risk tolerance, pro-activeness, competitive aggressiveness and autonomy are seen as indications of the entrepreneurial orientation and knowing that the corporate culture influences all other aspects and resource utilization of the enterprise, we can conclude that the presence of culture in the orchestration function is justifiable.

3.6.3 Management

3.6.3.1 Introduction All managerial behaviour is critical for the success of an entrepreneurial strategy in an enterprise (305, 308). The managerial capability is an determining factor for the successful application of the entrepreneurial orientation (272), particularly for the orchestration function. In the terminology of Teece (270) this managerial capability is an high-order dynamic capability. It is determining not only because management can prioritize, select, acquire, manage and develop all other first-order capabilities (resources), but also because they impact and influence the other aspects of the orchestration function: the managers define the human resource and knowledge management approach, they (re)define the organization, they formulate the strategy and they influence deliberately the enterprise’s culture. Specifically in this context is management an internal capability. It can only be accumulated within an enterprise internally (78, 295). The link between the growth of an enterprise and the availability of managerial resources is described as the so-called Penrose Effect (70, 293): in general are managerial resources (or more precisely managerial services) growing at a rate somewhat faster than the growth of the size of the firm (293). The Penrose Effect

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should in the context of the entrepreneurial orientation be more interpreted as a qualitative effect and less as a quantitative one. Managerial skills such as planning, budgeting and controlling are less important and can even hinder the entrepreneurial orientation (294) and it is argued that separation between the two managerial focus areas (exploitation vs. exploration) supports the entrepreneurial innovativeness of an enterprise (299). Given the importance of entrepreneurial managerial skills, the organization of the development of these skills, is of key importance. As such the management development function is an important aspect of human resource management.

In the rest of this paragraph we will briefly investigate the nature of managerial aspects in general and then discuss the managerial aspects surrround two specific resources: internal employees and knowledge. This does not mean that other resources or capabilities are not subject to managerial attention. These two areas deserve the most attention, because they differentiate an enterprise from its competition and they are resources that are predominantly internal, at least if they are expected to be responsible for a competitive advantage.

3.6.3.2 Top- and middle management

There is abundant anecdotal evidence concerning the influence that charismatic top-managers have on the performance and entrepreneurial orientation of an enterprise. The performance and the competitive position and advantage sometimes dependent on one legendary top-manager, not only in enterprises that were founded the last twenty years31, but also in longer existing enterprises32 . But most enterprises are more dependent on less charismatic top-managers. For both situations it is clear that the top-manager and the top-management team are not only formally responsible for the strategy, the entrepreneurial orientation and the performance of an enterprise, but they are also practically very involved with the entrepreneurial outcomes mentioned above. This is the basis for the Upper Echelon Theory, which asserts that the key characteristics of top-managers determine partially the organizational outcomes (300). Characteristics as job tenure, age, education, demographics and functional expertise are determining the decision taking and are in this sense the determinants of the strategy, the entrepreneurial orientation and the performance of an enterprise (74, 301, 302). The theory does not limit itself to the top-manager only, but also involves the top-management team (TMT) (74, 302). When specifically regarding the entrepreneurial orientation is the role of the TMT of greater impact on the enterprise outcome than the actions of individual managers (126, 272). Most prominent in the formulation of the necessary strategy (350). Two aspects of TMT’s that influence the results are high-lighted below:

The diversity in a TMT in age, job tenure and education have been associated with organizational innovation, changes in corporate strategy, information use

31 Typical examples are the ‘usual suspects’ of the IT industry that emerged the last twenty years: John Chambers (Cisco), Michael Dell (Dell), Steve Balmer (Microsoft), Larry Ellison (Oracle), Larry Page (Google). And specifically Steve Jobs (Apple) who’s return in 1996 as Apples CEO turned the performance of the organization upside down. His health is of major influence on the market value of Apple.32 Typical examples here are Jack Welch, the legendary CEO of GE and Louis Gerstner the CEO that saved IBM from destruction after a disastrous period in the end of the last century.

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and in the case of gender diversity even with organizational culture and growth orientation (302). The lack of social diversity can lead to “groupthink” (250) and indirectly influences the entrepreneurial orientation negatively (250). Interesting is to see that there is empirical support for the relationship between diversity of the TMT and the number of organizational relationships (348).

The downside of diversity is the possibility of cognitive and affective conflicts (126, 156), respectively personal, emotional conflicts between members of the TMT and differences in cognitive abilities and interpretation between them. Theoretically there is a negative relationship between affective conflict and performance and a positive relationship between cognitive conflicts and performance (156). There is no research available linking the cognitive and affective conflicts with the entrepreneurial orientation (126). But there is at least empirical evidence for a positive relationship between cognitive conflicts with the entrepreneurial orientation (126).

The empirical support for the role of the top-management in the light of the entrepreneurial orientation is limited: there is a small, positive correlation found between top-managers with a transformational leadershipstyle and the successful utilization of the entrepreneurial orientation (310). Next to that is there empirical support for the observation that CEO’s themselves, value the TMT as the most critical part of the enterprise, to achieve higher quality entrepreneurial and strategic actions (227). Next to and within the conditions set by the TMT there is also a stimulating role for the middle-management to play when it comes to an entrepreneurial orientation. There is abundant theoretical support for the importance of the middle management for the entrepreneurial orientation (2, 34, 35, 269, 305, 306). Not only directly by their own endeavours, but also indirectly by influencing and stimulating their subordinates’ commitment to the activities that stimulate and support the entrepreneurial orientation (259, 306). The way in which middle managers support the entrepreneurial orientation differs from the contribution of the TMT. Where the TMT determine the strategy and develop an environment that is conducive to the entrepreneurial behaviour of the rest of the enterprise, are the middle managers working within the context created by the TMT (306). Middle managers are at the intersection of the horizontal and vertical information flows in an enterprise. They align the strategic vision of top-management with the dynamic market reality of the day-to-day operations (131), reconciling top-management perspectives with implementation issues. Their entrepreneurial behaviour and pervasive influence (305) are linked to successful corporate entrepreneurship (308).There is abundant support in the literature on the vital role middle managers play in creating an environment that encourages innovation and entrepreneurship (131, 259, 269, 305, 306, 308). This vital role focuses in principle on two important aspects of the entrepreneurial process: the utilization of opportunities and the management of resources. The thereby involved activities can be summarized as follows (308):

With the endorsement of autonomous entrepreneurial initiatives middle managers are often in an evaluative position vis-à-vis initiatives from lower organizational levels. Induced entrepreneurial initiatives from the top-

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management are endorsed by the middle managers by translating and promoting them to the first level managers that are responsible for the implementation.

Middle managers take care of the refinement of the entrepreneurial opportunities. That means defining and designing the way and the form in which the opportunity needs to be materialized.

The organizational context needs to be mobilized to support (or at least not to obstruct) the entrepreneurial initiative. Through the shepherding function, middle managers champion, protect and nurture the initiative within the organization.

The identification of the appropriate resources is necessary for the implementation of the entrepreneurial initiative. Middle managers tend to have a good view on the available resources and know enough about the initiatives to identify the right resource-mix.

If the necessary resources are not available within the organization the middle manager are able to take care of the acquisition of it.

Empirical evidence shows that for middle managers to support the entrepreneurial activities within an organization, it is necessary that the following conditions are fulfilled (305):

The appropriate use of rewards Top management support Resource availability A supportive organizational structure Risk and failure tolerance

There is hardly any empirical evidence the important role of middle managers for successfully deploying an entrepreneurial strategy (305), despite the broad theoretical support. The only example found underlines the unsurprising finding that management support stimulates corporate entrepreneurship (309).

In this paragraph we investigated the role of top- and middle-management in an entrepreneurial context and the available theoretical and (very limited) empirical support for its importance for an entrepreneurial oriented organization. As such the presence of both management levels in the model is defendable. From a practical point of view the basis for a successful deployment of whichever strategy or change in focus or market-approach of an enterprise is dependent on choices and also on behaviour of its top- and middle-management. In that sense, the absence of one of the two disciplines in the orchestration function of the model is unthinkable.

3.6.3.3 Human Resource Management

As stated in paragraph 3.3.1 (Human Capital) human capital is one of the most valuable resources of the enterprise. The more benefit an enterprise can gain from its human capital, the better the performance. We showed that most of the underlying resources that form the human capital of an organization, are relevant for a successful application of the entrepreneurial orientation. So a careful optimized utilization and a future focused development of this human capital will be of utmost importance. This

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is the primary focus of Human Resource Management (HRM). In this study will we follow the Competence Model of Strategic HRM (53, 314). This interprets HRM as an appropriate mean to contribute to the creation, utilization and retention of strategic resources (314). It is not only theoretically obvious, but also empirically supported that the more the strategic HRM policies and practices are aligned with the corporate strategy, the higher the contribution to the enterprise performance. There is even specific theoretical (311) and empirical support for the relationship between a aligned HRM practice and the entrepreneurial orientation (314, 316, 317, 321). Within the context of this study there is empirical support for the assumption that the following dimensions of HRM policies are supporting the entrepreneurial orientation (311, 315, 316, 317):

Selection and recruitmentIt is of course important to attract candidates to the enterprise with the right

characteristics (innovativeness, creativity, proactive, risk managing) and the right technical, managerial or marketing skills. In terms of attractiveness the reputation of the enterprise is an important asset (see 3.3.2.4). Knowing that diversity is also an important driver of change and innovation, there is also the need to hire people who are not like current staff or bring in external candidates who hold different points of view. In line with the next dimension entrepreneurial organizations are spending more time on introducing and training the new employees and helping them adapt to the enterprise’s culture.

Training and developmentPersonalized development plans should focus on long term career development

and have a broad application horizon. Development plans also emphasize soft skills like communication and co-operation capabilities. Knowing the importance of management for the successful deployment of the entrepreneurial orientation, management development should get separate attention. Focussing on the skills necessary for the entrepreneurial orientation.

Performance AppraisalsAppraisals with a high employee involvement, characterized by a balanced individual-group orientation, tolerance to failure, result orientation instead of process orientation and a long term focus.

Incentives and rewardsThere has been a lot of attention for this area from the outset of the research on the

entrepreneurial orientation (311). In line with the appraisal system there is a tendency to focus also on the long term regarding incentives and rewards and to differentiate between group and individual results. Next to that, an entrepreneurial orientation leads to a lower base pay with higher variable performance-based incentives and a more market conform payment level, at the cost of internal equity.

Job Planning and designAlso in job design and planning there is a tendency for entrepreneurial oriented enterprises to adopt a long term orientation. Job descriptions are integrated, broad in scope, less structured and more result oriented. They are usually described with the optimal involvement of the employees.

The aforementioned HRM policies are assumed to improve the motivation and the entrepreneurial behaviour of the employees within the enterprise. Next to these

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policies are there other phenomena which are assumed to influence the motivation of the workforce. Although it is defendable that they are not all specific HRM phenomena, it is appropriate to influence them from a HRM perspective, i.e. motivating the workforce. There is both theoretical and empirical support for the influence on employee motivation of the following:

Empowerment is defined as involving employees in decision-taking and leaving ample room for the autonomous structuring of their own tasks, which leads in general to improved performance and more motivated employees (318, 319). Although there is no direct research available on the relationship between empowerment and the entrepreneurial orientation, we can expect that, given the (be it limited) support for the positive effect of autonomy, there is also a positive relationship with empowerment. Next to this classical interpretation of empowerment, equipping employees with all necessary digital tooling aimed at the new forms of communication, is also defined as empowerment (320). The motivational effect of this type of empowerment is in the current digital era obvious.33

It is evident that the way management behaves influences the motivation of the employees. There is both theoretical and empirical support for the relationship between managerial behaviour and employee satisfaction and thus also motivation (297)

Managerial support for personal initiative in general and specifically for personal innovative initiatives, leads also to a more motivated workforce (312)

Reinforcement of entrepreneurial behaviour of the employees with bonuses, pay rises, promotions, recognition awards etc.is related to an entrepreneurial culture in an enterprise (335).

In general there is both theoretical and empirical support for a relationship between an entrepreneurial orientation in an enterprise and the job satisfaction of its employees (335, 342).

In this paragraph we investigated the nature and characteristics of HRM in an entrepreneurial context and found theoretical and empirical support for its importance for an entrepreneurial oriented organization. As such the presence of this management discipline in the model justifiable.

3.6.3.4 Knowledge Management

The value of knowledge for a sustainable competitive advantage and the successful deployment of the entrepreneurial orientation was already discussed and explained in 3.3.1.2 (Knowledge). Specifically in the current dynamic, global and mostly knowledge driven economy, is a careful management of this very valuable resource a conditio sine qua non (131, 322, 323). Knowledge Management (KM) is defined as “the management of activities and processes for leveraging knowledge to enhance

33 In this context can we also place the phenomenon ‘Het Nieuwe Werken’, by which employees are equipped with mobile devices which give them the possibility to make their own choices on how, when and where they will deliver their expected contribution. They can create their own personal work-life balance. This does by the way involve more than only a technical IT activity: specifically from the HRM side is an effort necessary to support and change the behaviour and workstyle of the employees.

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competitiveness through a better use and creation of individual or collective knowledge” (330). There is a lot of literature on the subject of Knowledge Management (KM), mostly in a context of ICT and technical tooling to support the concept (328). This literature focuses on knowledge that can be extracted, codified, stored and retrieved with the help of database processing and retrieval technology. This is sufficient for the management of explicit knowledge (65, 131), but insufficient for the more valuable tacit knowledge (see 3.3.1.2) (328). The nature of tacit knowledge is implicit, experience based, interactive, presentable, context-sensitive, non-measurable and personal (65, 131, 328). In this context it is useful to know that there are empirically tested models which enable an enterprise to transfer tacit knowledge into explicit knowledge (331). An appropriate KM approach should especially take these characteristics of tacit knowledge into account34. The following factors, which were first recognized by managers involved in this subject and later acknowledged by an empirical study, influence the results of the application of an explicit KM policy (329): R&D budget, job rotation, information technology, individual commitment and organizational crisis. 35 Technological change and the size of the organization also influence the level and success of KM (329). But we concluded also earlier that the organizational capability for learning (absorptive capacity) (see 3.3.2.6), individual (see 3.3.1.6) and organizational relationships (see 3.3.2.3) and the ability to properly process and utilize information (see 3.3.2.2 ) are also necessary for an optimal use of the available internal and external knowledge. All of these mechanisms involved in knowledge creation and utilization need to be initiated, stimulated, sustained, supported and controlled (332). This is where KM policies, processes, procedures and even more important, a culture of knowledge appreciation and utilization are thus preconditions, where the orchestration of KM is a key success factor (65, 131, 322).

In this paragraph we investigated the nature of KM in an entrepreneurial context and found theoretical and limited empirical support for its importance for an entrepreneurial oriented organization. As such is the presence of this management discipline in the model justifiable.

3.6.4 Organization

As all other aspects of the orchestration function, the structure and the control mechanisms of the organization are also instrumental for entrepreneurial initiatives (337). There are three dimensions of the organization that influence the level of entrepreneurship:

Structure Control mechanisms

34 The fact that an European-wide company survey showed that only 28% of companies mentioned ICT as a key success factor for KM compared with 47% mentioning corporate culture (330) is in line with this conclusion.35 Interesting is that the organizational crisis already was predicted by Nonaka (65) under the term environmental fluctuation that should lead to a creative chaos. Nonaka even suggested that sometimes leaders of organizations generate sometimes intentionally a crises in absence of a real one.

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Exploration vs. exploitation

StructureSpecifically in a turbulent, fast changing environment like the current competitive, global economic landscape, flexible, quickly adaptable organization forms are necessary (3, 7, 104, 105, 114, 120, 337). This in line with the Law of Requisite Variety which states that in a closed system “the faster the environment changes, the faster the system has to respond to stay stable”. It is difficult for people to act entrepreneurially in bureaucratic organizational structures (308, 337). Organizations are increasingly seen as organic, highly flexible structures with limited hierarchy (105). A fast changing environment, combined with complex, rapidly changing activities supports the necessity for this organic structure (107). Typical characteristics of the organic structure are (7, 104, 120, 131, 133):

Adaptability, flexibility Loosely coupled Authority based on expertise not on function Delegation of responsibilities Empowerment of individuals Cooperative networks and alliances

There is a lot of theoretical and also empirical support for the relationship between flexible organization structures and the entrepreneurial orientation (342). This does not mean that there is no central governance or official structure. Preferring relentlessly individual entrepreneurship above central governance leads to uncontrolled developments with catastrophic results (268). 36 There is still the need for a formal governance, a hierarchical organization structure with formal hierarchical relationships and responsibilities. But the complex activities around the entrepreneurial orientation are most of the time less predictable and ask for a more flexible and contingent approach (7, 106). The so-called order-flexibility and change-preservation paradoxes are in this context non-existent: both organization approaches (hierarchical and organic) are not mutually exclusive (104). In this organic structure teams and networks are recognized as one of the forms of relationship that adds value to the entrepreneurial enterprise (7, 8, 108).

Control MechanismsControl mechanisms structure the functioning of an organization and consist of measures, budgets, procedures, systems, documentation. They should bring order, coordination, accountability and efficiency to the enterprise (337). The limited empirical research on the effects of control mechanisms on the entrepreneurial orientation gives support for the relationship of budgetary flexibility and administrative informality and the level of entrepreneurship.

Exploration vs. exploitation

36 Enron, WorldCom and World Online are examples of organizations where the entrepreneurial spirit was not guided within the boundaries of proper and appropriate corporate governance (336, 352)

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As stated earlier, is there a distinction between the explorative and the exploitative activities of an enterprise: the first activities are focused on innovations, new market possibilities and effectiveness, the second are focused on current mainstream business, repeatability and efficiency. In table 2 the differences of both approaches are proposed.

Exploitation ExplorationProduct Diversity reduction VariationBenefits Economy of scale Competitive advantageFocus Improvement RenewalNature Control CreativityOutcome Predictable UnpredictableExternal resources Value chain NetworkingMindset Rationality ImaginationOrganization Hierarchy TeamCompetencies Operational EntrepreneurialGovernance Formal InformalLeadership-style Authoritative VisionaryMeans Production InnovationObjective Turnover Future growthActivities Routinization ExperimentationRisk appreciation Risk averseness Risk toleranceStructure Stable FlexibleAuthorization Top-down Ad hoc

Table 2 – Characteristics of exploitative and explorative activities

For a sustainable growth it is necessary to focus on both: an enterprise needs to engage in sufficient exploitation to ensure its current viability and at the same time devote enough time to exploration to ensure its future viability (338). Enterprises which are able to combine both are described as “ambidextrous” (213). This type of organization, introduced by Duncan in 1976 (339) is able to implement a coherent alignment between competencies, structures and culture focused on exploration, next to a contrasting congruent alignment focused on exploitation. This type of enterprise needs a senior TMT with the appropriate cognitive and behavioral flexibility to implement and retain both (272). Ideally the organization structure should differentiate between the exploitative and the explorative activities (92, 250, 253, 260). This structural differentiation can be expected to have a positive effect on the entrepreneurial orientation (250). There is limited and very specific empirical support for the relationship between ambidexterity and higher sales growth (340) and more innovations (341).

In this paragraph we showed that the organizations structure, control mechanisms and focus on exploration and exploitation deliver the management means to influence the entrepreneurial orientation of the enterprise and as such the presence of the organization component within the orchestration function is justified.

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3.6.5 Strategy

“Gladiatorem in harena capere consilium” (The gladiator formulates his tactics just in the arena)

Seneca

As the strategy of an enterprise is a formulated plan based on its perception of the environmental opportunities and threats and changes therein, that influences the future actions, behaviour and results of the enterprise (353), it is clear that it is also part of the orchestration function. In this paragraph we will give support for this conclusion. First we will investigate the characteristics of strategies in general. We will elaborate on the theoretical and practical dimensions of the recently emerged concept of entrepreneurial strategy (350, 353, 354) and demonstrate support for its key role for a successful deployment of the entrepreneurial orientation. Next to that will we distinguish two approaches: comparing the emergent paradigms of strategic management (content) (204) and the strategy concept approach (nature) (349). Here we will propose an extension to the strategy concept model of Mintzberg: the Purpose of an enterprise’s strategy. We will finish with a description of the intensity with which the concept of entrepreneurial strategy can be applied.

In the light of the current dynamic and turbulent competitive landscape with rapidly changing market configurations and customers preferences, it is not surprising that the lion’s share of enterprises are expecting that they will adapt their strategy, organization or operating model (227, 346, 355). This new competitive landscape delivers increased risk, decreased forecasting ability and fluid firm and industry boundaries and leads not only to a higher strategy adaptation frequency, but also to strategies with another content: taking the powerful forces of change, complexity, chaos and contradiction into account (353). It is not only the structure of the organization that is influenced by the environmental dynamism (see 3.6.4), but also the enterprise strategy. Enterprises can’t ignore the speed and magnitude of change and unpredictability in the competitive environment (130, 351, 353). In this context the recent emergence of the concept of entrepreneurial strategy can be explained. It is described as the integration of entrepreneurial (opportunity seeking, exploration) and strategic (advantage seeking, exploitation) perspectives in an overarching approach to create wealth (351). As already explained above is an entrepreneurial orientation or mind-set, but also the reflection of that in the enterprise’s strategy, is required to be able to compete successfully in the dynamic, unpredictable competitive environment (351).

But what distinguishes an entrepreneurial strategy from a conventional strategy? The research on this concept is still limited and the exact nature of it remains elusive (350, 353). There is even doubt that a strategy (like management (3, 25, 26)) can be labelled as entrepreneurial (350). Ireland, Covin and Kuratko propose to define a entrepreneurial strategy as “an enterprise’s strategic intent to continuously and deliberately leverage entrepreneurial opportunities for growth- and advantage seeking purposes” (350). The key here is that the entrepreneurial initiatives are deliberately and intentionally taken. This can be compared with the distinction of Burgelman’s between induced (deliberate) and autonomous (accidental, ad hoc) strategic initiatives (2, 356). But if the entrepreneurial strategy merely focuses on deliberate and

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intentional initiatives, than it does not take the rapidly changing and unpredictable competitive environment into account. This can lead to a constant adaptation of the strategy and in the end to relative inertia (356): the rate of strategic change that an enterprise can implement will, in the long run, be lower than the rate of change in the environment. The entrepreneurial strategy needs, to overcome this, to be formulated in terms of entrepreneurial vision, conditions, processes, behaviours and outcomes (350). It also needs to be in line with the ultimate purpose of the enterprise: aimed at sustainability by future growth, for the benefit of its stakeholders. Without formulating exactly which markets, competitive model and technology are involved37. Ireland, Covin and Kuratko describe the entrepreneurial strategic vision as the mechanism by which top-level managers paint the picture of the type of organization they hope to lead in the future. An organization that is opportunity focused, innovative and self-renewing (353).

To determine the exact nature of the concept of entrepreneurial strategy we utilize the comparison of Teece, Pisano and Shuen between the current paradigms of strategy (204). They distinguish four different paradigms:

The Competitive Forces strategy as described by Porter (357) is aimed at the position an enterprise wants to achieve vis-à-vis its competitors, taking into account the five industry level forces (entry barriers, threat of substitution, bargaining power of suppliers and that of customers, rivalry among industry incumbents). This approach ignores the internal strengths and resources of the involved enterprises. Strategy is formulated on basis of external phenomena (the environment in the context of the model).

The Strategic Conflict approach as described by Shapiro (358) utilizes the tools of Game Theory. In this approach is the strategy aimed at influencing the actions, behaviour and thus the strategy of the competition, in this way manipulating the market environment. Game Theory doesn’t take competitive advantages into account and the strengths and resources of involved enterprises are also ignored. The strategy does only take external phenomena into account (again: the environment in the context of the model)

The Resource Based Theory is explicitly described above. In this context it is important that from a strategic perspective the involved resources are, at least in the short run, static. Enterprises are stuck with the resources they have and have to live with what they lack. But they are nevertheless seen as the sole basis for a sustained competitive advantage (53).

The Dynamic Capabilities approach is also described above. Here the role of strategic management is significant, in appropriately adapting, integrating and reconfiguring the internal and external skills, resources and competences.

Although the different approaches seem at some points to be competing it is, in the business practice of strategy management of today, necessary to take them all into account. From a point of view of the entrepreneurial orientation the four approaches are necessary, but still not sufficient. As described the quintessence of an entrepreneurial orientation is not only focussing on the competitive landscape, the competitors, the resources at hand or their development in time, but also on the quest

37 Typical examples are: “Google’s mission is to organize the world‘s information and make it universally accessible and useful”, “At Microsoft our mission and values are to help people and businesses throughout the world to realize their full potential”,

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for opportunities (wherever they are) to develop a sustainable competitive advantage that should lead to future growth. This quintessence can be found in the formulated strategies of enterprises that adopt the entrepreneurial orientation. As such we can extend the comparison of Teece, Pisano and Shuen by adding the entrepreneurial strategy on their list of paradigms of strategy. In this entrepreneurial strategy, next to the aforementioned external and internal focused strategic directions, it is also the attention for the recognition and development of opportunities, in the light of expected responses of the competition that is important (138).

To analyse the different strategic approaches further we can utilize Mintzberg’s Strategy Concept (349). In this concept are five different types of strategy distinguished:

Strategy as a PlanThis is the strategy in its most intuitive form: a consciously intended course of actions, a guideline to deal with a situation.

Strategy as a PloyIn case a strategy is merely intended to confuse the competition Mintzberg calls it a Ploy. It is only a communicated intention to threaten the competition without a real intention to accomplish the strategy.

Strategy as a PatternIf an enterprise behaves in realizing a strategy, without actually formulating one, we speak of a pattern. Mintzberg distinguishes here between intended/deliberate parts of a strategy and the emergent (unintended) parts. This is comparable with Burgelman’s distinction between induced and autonomous strategic initiatives (2). In the end the realized strategy (the pattern) is the result of the combination of the intended/realized and the emergent part.

Strategy as a PositionPart of a strategy can be formulated as the position the enterprise would like to achieve in its competitive environment, and this in terms of product-market segment, competitive leadership etc.

Strategy as a PerspectiveThis approach has more to do with the enterprise’s internal ingrained way of perceiving the world and how its acts in relation to the market. It is largely a cultural phenomenon and depends on the perception the enterprise has on its position in the market.

The different dimensions are not mutually exclusive: an strategy can for instance be perceived both as a perspective and a position. Mintzberg gives examples of situations in which a dimensions develops in time within another one. How do these dimensions compare with the entrepreneurial strategy? There is theoretical and limited mixed empirical support for the valuation of the entrepreneurial orientation as a pattern and perspective (350, 359, 360). But if we take the proposed definition of Ireland, Covin and Kuratko as an example (see above), the quintessence of the entrepreneurial strategy gets lost if we only compare it to Mintzberg’s dimensions: an entrepreneurial strategy is not a complete plan of defined actions, definitely not a ploy to confuse the competition, it is deliberate and intended, there is no pre-defined position targeted and neither is a culture sufficient. From this observation we come to the proposal to

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extend Mintzberg’s five P’s with a sixth: Purpose. The strategy formulated as a purpose, an intention which aims to continuously and deliberately leverage entrepreneurial opportunities for growth- and advantage seeking purposes. The necessary actions, competitive moves and intended market (pro)position are to be defined contingently, but the capabilities of the enterprise and its culture need to be adapted to the dynamic environment and the quest for opportunities with competitive advantages is a recognizable component of the strategy. In we evaluate the different strategic approaches with Mintzberg’s Extended Strategy Concept we are able to propose a relationship as shown in Table 3.

Mintzberg's Extended Strategy ConceptParadigms of Strategy Plan Ploy Pattern Perspective Position PurposeCompetitive Forces X X XStrategic Conflict X X X XResource Based X X XDynamic Capabilities X X X XEntrepreneurial Orientation X X X

Table 3 – Evaluating Paradigms of Strategy with Mintzberg’s Extended Strategy Concept

As already mentioned an entrepreneurial strategy should be seen as an integration of explorative and exploitative strategic intentions (351). Already in the discussion on Organization (see 3.6.4) we introduced the concept of ambidexterity. The optimal utilization of a combination of opportunity and advantage seeking. In practice we find this dichotomy in the strategies of enterprises. There are two possible distributions of the differently oriented parts of the strategy:

A horizontal distribution can be defined to exist if there is a distinction between an exploitative and a explorative part in the strategy. We can expect to find the same dichotomy in the organization structure.

A vertical distribution can be defined to exist if the both exploitative and explorative intentions are very closely related. This can be in the form of strategies that emphasize an entrepreneurial behaviour on top of their conventional strategy, or strategies which are completely dedicated to explorative behaviour, for which the exploitative part is subordinate.

In practice both distributions (and sometimes even combinations) are available. Most important is that both strategic directions are positioned deliberately.

In this chapter the concept of entrepreneurial strategy has been explained, its importance for the successful deployment of the entrepreneurial orientation and as such its presence in the model.

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3.7 Opportunities exploration and exploitation

3.7.1 Definition

There is little discussion on the crucial role of opportunity recognition and development in the practice of, and the literature on, entrepreneurship:

Central to the entrepreneurial process is the actual identification of the new market opportunity (375)

Without an opportunity there is no entrepreneurship (376) Opportunity recognition is widely viewed as a key step in the entrepreneurial

process (377) The recognition and development of new opportunities is at the heart of

entrepreneurship (378) The key issue in entrepreneurship is the opportunity recognition process,

which comprises the discovery, evaluation and implementation of business opportunities (379)

It is difficult to overestimate the value of new product development, especially in highly dynamic markets with increasing levels of competition, high technical obsolescence and short product life cycles (380)

The key to innovation lies in creative thinking and the generation of value-creating opportunities (130)

The emergence of new ideas and how they can lead to commercializable opportunities is central to the field of entrepreneurship (378)

To have entrepreneurship, you must first have entrepreneurial opportunities (381)

As with more subjects in the field of entrepreneurial research38 39 the concept of ‘opportunity’ and its related processes are also lacking commonly agreed definitions (371, 376, 382). In our proposed model of corporate entrepreneurship the opportunity utilization process plays a central role. The proposed definition of corporate entrepreneurship (see 2.1), based on the analysis of the literature, focuses also on this role:

Corporate entrepreneurship … tries to identify new opportunities to develop and exploit innovations and/or changes to the business or the existing business model, in order to assure future growth and/or a sustained competitive advantage.

Identifying and utilizing opportunities is a key competence in the deployment of corporate entrepreneurship (3, 31, 38, 39, 43). If we take next to this assumption the research analysis of Hansen, Shrader, Monllor (371), the empirical support of Perks, Steinhauser, Shukla (393) and the anecdotal examples from literature and practice into account, we can propose that an all-encompassing definition of the concept of ‘opportunity’ in this context contains the following elements:38 “Rather than explaining and predicting a unique set of empirical phenomena, entrepreneurship has become a broad label under which a hodgepodge of research is housed” (381)39 Interesting in this context is also that there are multiple examples of research that try to bring alignment in the conceptual and empirical research on specific subjects: ambidexterity (344), definitions of entrepreneurial opportunity (371) or opportunity as a concept (376). This stresses the need for a paradigm (373, 381)

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PossibilityAn opportunity is at least a possibility. It needs to be further explored, developed and evaluated on its feasibility in terms of the underlying assumptions and the expected revenues and risk involved in further exploration and a possible later exploitation.

Inducement (situation, external conditions, market need, demand, problem solving)Short, Ketchen, Shook and Ireland mention ideas and dreams as sources of possible opportunities40. But next to that there are other inducements that can be distinguished:

o Vision (e.g. the vision of Google is to organize the world‘s information and make it universally accessible and useful (384))

o Changed market conditions (e.g. the dramatic fall in the average Belgian movie attendance induced the success of Kinepolis (383))

o Market perception (e.g. Honda’s executive conviction that their automobile models were becoming too familiar (read: dull) (131))

o Economic circumstances (e.g Samsung redefining its business model after the Asian financial crisis (346))

o Observed demographic trend (e.g. the number of people that marry more than once is dramatically increasing (377))

o Observed customer need (e.g. Compaq observing that customers are using only a small portion of server capacity (383))

o Perceived needed technical product characteristic (e.g. Canon envisioned a disposable, easy and cheaply producible photosensitive copier drum (131))

o Technological advancements (e.g. the ubiquitous availability of internet changed the travel services landscape and induced the success of Expedia.com and such like companies (377))

o Finding useful usage (e.g the discovery of a limited adhesive glue that left no stains ended with a new product within the 3M company: the Post-It (7))

o Personal discomfort (e.g. trying to get a handkerchief while driving a car ended with an new product which fitted in the cup-holder of the car)

This list is not intended to be exhaustive. It illustrates at least that there are multiple inducements possible and that the discussion about the question if opportunities are created or discovered (385) seems only to be of philosophical value.

Means (resources, creativity, knowledge, learning, information) In previous chapters much attention has been paid to resources and capabilities and the way these resources influence the possible outcomes of the entrepreneurial orientation. (see 3.2, 3.3)

Outcome (internal value, introducing new product, business or business form, value to the market)

40 Speaking of possible opportunities seems at least a pleonasm

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The ultimate objective of the recognition and development of opportunities is the value they add to corporate results. Specifically on the growth of future sustainability, distinguishing this outcome itself from the outcomes of the (non-entrepreneurial) business as usual activities (see 3.4)

Process (recognition, cognitive connections)The next paragraph (3.7.2) is devoted to this subject.

Using the characteristics mentioned above, which are based on the research analysis of Hansen, Shrader and Monllor (371) and the observations of Baron (377) the following definition for the concept of opportunity is proposed

An opportunity is the formulation of a possibility that can be developed to a business initiative that is new in the market. Based on different inducements and available resources or capabilities, is it expected to have economic value next to the economic value of the business as usual.

3.7.2 Processes

The distinction between opportunity exploration and exploitation is broadly accepted within the research community (376, 386). For the entrepreneurial oriented enterprise the timely transition between the two processes is a key success factor (376). But not all opportunities will end up in an exploitation phase. A timely and thorough orchestrated termination of opportunities in the exploration phase is also of key importance. Otherwise precious resources, management attention and time are lost, that could otherwise be dedicated to other and better opportunities (380). In addition to this there is also abundant support for ‘opportunity recognition’ (377), usually without a clear definition of what it contains. Based on this premise we can define the following chronological steps in the quest from possibility to business initiative (386):

Opportunity recognition or identification Opportunity exploration Opportunity exploitation decision Opportunity termination or de-commitment

Opportunity recognition or identificationBaron (377) defines opportunity recognition as the cognitive process through which

individuals conclude that they have identified an opportunity. The participants in the phase can be all individuals involved in the operation of the enterprise (employees, executives, managers, consultants, customers, suppliers, networks, alliances) (128). Communication in this phase is crucial for a fruitful result (5). Although there are different theories on the nature of the opportunity recognition process (entrepreneurial alertness (387), prior knowledge (388), pattern recognition (377), action learning (376), creative imagination (390) and creative skills (89)), the heterogeneity of the inducements as described above is an indication that the process of the discovery of entrepreneurial opportunities resembles the process of scientific discovery: everything goes (389). The amount of research attention into the act of persuading others within the enterprise of the value of the opportunity has been very limited until now (89, 128, 396). Especially because opportunities can be conflicting with the

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ruling logic of the enterprise. In that sense so-called ‘champions’ can be seen as instrumental for gaining managerial attention and support (128).

Opportunity explorationThe exploration phase or pursuit of opportunity (10) focuses first on the further evaluation of the opportunity’s feasibility (378, 379, 398) and probability of the predicted benefits. In this phase the first claim on resources of the enterprise is possible (308). This means that a choice must be made between the different selected opportunities. Together with the estimated risk and uncertainty, the feasibility and the probability of the predicted benefits can be used for the selection of the opportunities that will be further developed. Risk is defined here as referring to situations where probabilities are quantifiable, while uncertainty refers to situations where probabilities are not quantifiable (391). It is expected that the enterprise tries to limit risk and uncertainty through increased knowledge. Choi, Lévesque and Shepherd define the ‘ignorance threshold’ as the time needed to increase legitimacy and the necessity to act now to minimize competition. In the evaluation opportunity costs (381) and affordable losses are also determining factors (396). During development it is possible to test or experiment the opportunity (8). Also for this the enterprise needs to allocate and dedicate the necessary resources. Testing and experimentation is a viable approach especially in emergent markets (394).

Opportunity exploitation decisionThe recognition of an entrepreneurial opportunity is a necessary condition for a successful entrepreneurship, but not a sufficient condition. The transition from exploration to exploitation is the conditio sine qua non here. The considerations for continuing the development of an opportunity are also relevant here: opportunity costs, affordable loss, risk, uncertainty and the availability of the necessary resources. The exploitation phase is more likely to be entered when the expected demand is large, profit margins are high, technology lifecycle is young, density of competition is low and the cost of capital is low (381).

Opportunity termination or de-commitmentIt is estimated that at least one-third of new initiatives fails (380). To avoid losses it is necessary to follow the progress of the development of opportunities regularly and consciously. A thorough comparison of the original assumptions at the inception of the opportunity with the current situation (398), together with a carefully orchestrated termination of the development, can also be beneficial for the enterprise in terms of organizational learning (397). If the development of an opportunity is terminated too late, then precious resources, management attention and time are lost, which could otherwise have been dedicated to other and better opportunities (380).

3.7.3 Conclusion

In this paragraph we gave theoretical and limited empirical evidence of the key role that opportunities and the related processes play in the enterprises that embrace the entrepreneurial orientation. This justifies the central place that the processes around the opportunities received. All other components of the model are in principle supporting the processes around the opportunities.

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3.8 Environment

“It is not the strongest of species that survive, nor the most intelligent, but the one that is most responsive to change”

Charles Darwin

The characteristics, strategy and behaviour of an enterprise are not only influenced by the internal factors as described above, but are also highly depended on the environment of the enterprise (361, 362). It is the balance or congruence of fit, between the internal capabilities and the external environment that is according to the Contingency Theory critical for a successful enterprise (363). Paraphrasing Duncan (364) we define the environment here as: the economical, market and social factors that influence the decision-making and other behaviour of the individuals in the enterprise and that influences its rate of success. The communis opinio in the traditional research on this subject is that an environment in this context has at least three dimensions (362, 365):

ComplexityThe heterogeneity and the large number and variety of organizations, markets and cultures an enterprise has to consider.

DynamismThe speed of change and the unpredictability of the results of it, bring uncertainty to all individuals in the enterprise.

MunificenceThe availability of resources in an environment to support the enterprises that are acting in it. When resources are scarce, competition is expected to increase and likewise profitability is expected to decrease.

The last dimension is expected to encompass the competitive and market pressures and their consequences on enterprise’s strategy and behaviour. But the focus on munificence as an indicator of the competitive pressure is neglecting the fact that technology, market and economical changes are also influencing (or should influence) the operations and behaviours of enterprises: munificence is only taking the competition for resources into account. That is why there are numerous examples of studies that also mention characteristics of competition and the market (sometimes as extensions to the above mentioned three dimensions) as being environmental influences:

Industry characteristics (217) Competitive threat (362) Competitive intensity (350) Technological change (350) (see also 3.3.2.7.2) Technological uncertainty (367) (see also 3.3.2.7.2) Evolving product-market domains (350, 353) Market attractiveness (367) Market growth speed (362) Market hostility (366) Stage of industry life cycle (366)

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All this delivers abundant support for a theoretical relationship between the different dimensions and/or the intensity of the entrepreneurial orientation as exhibited by enterprises (40, 217, 362, 364, 365, 366, 367, 368). This relationship can be direct or indirect via the moderation of other relationships that support the entrepreneurial orientation. Next to that there is limited empirical support for this relationship:

Dickson (367) finds a relationship for SME’s between some environmental characteristics (market attractiveness and uncertainty, technological uncertainty) and the entrepreneurial orientation.

Lumpkin and Dess (366) found support for the hypotheses that (1) environmental dynamism and (2) stage of industry life cycle moderates the relationship between pro-activeness and performance.

Tripathy (369) finds support for a positive effect on the entrepreneurial orientation and intensity from the perspective of the employees.

Kathuria and Joshi (370) found support for the hypotheses that existing enterprises will embrace corporate entrepreneurship if they perceive a changed environment or a threat to their existence from a start-up due to internet.

This chapter explains the effect of the environmental factor on the entrepreneurial orientation. There are both theoretical and empirical support for the relationship and as such this gives support for its presence in the model.

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4 Conclusion

The research on the subject of Corporate Entrepreneurship is still fragmented, there is no commonly agreed paradigm within the research community and the attention is not evenly spread throughout all components of the subject. On basis of the available research, the current practice of enterprises and the managerial experience of the author, a model for entrepreneurship is proposed, with the objective to describe the subject exhaustively, so it can be used for testing hypotheses, as a basis for the formulation of a commonly agreed paradigm and guide further research on the subject. The model is supported theoretically and empirically on basis of the available research. This support can be direct in case the research found a direct correlation between the proposed components of the model and the entrepreneurial orientation, or it can be indirect in case the components support another part of the model in the relationship with the entrepreneurial orientation. In appendix C the support found and the characteristics of it can be found back. In the appendix an overview is given of the characteristics, the magnitude and if possible the theoretical basis of the support. This overview can as such used to find areas where the support for the model is limited or results are non-conclusive. Both are possible areas for further research aimed at further supporting or improving the model. Next to that can the model be used to more refine the impact its components have on the Corporate Entrepreneurship. At least can it be used as the basis for further research, making it more efficient, because there is no time wasted formulating the model for testing hypotheses and also more effective, because it makes different research results asier to compare.

And not in the last place can the model be used as an explanation vehicle for the audience for which this type of research is meant: the management community. It gives them an easily to communicate picture of the most important levers to stimulate the usage of the concept in their enterprise.

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Appendix A: Definitions

Internal Corporate EntrepreneurshipH.Schollhammer, Encyclopedia of Entrpreneurship, 1982

Internal (or intra-corporate) entrepreneurship refers to all formalized entrepreneurial activities within existing business organizations. Formalized entrepreneurial activities are those which receive explicit organizational sanction and resource commitment for the purpose of innovative corporate endeavours – new product development, product improvements, new methods or procedures.

Corporate Entrepreneurship and strategic Management: insights from a process studyRobert A. Burgelmans, Management Science Vol 29, No12, 1983

Corporate entrepreneurship refers to the process by which firms engage in diversification by internal developments. In Schumpeterian sense is this the corporate analogue of the individual entrepreneurship. Such diversifications require new resource combinations to extend the firm’s activities in areas unrelated to its current domain of competence and corresponding opportunity set.

Three faces of Corporate Entrepreneurship: a pilot studyK.H.Vesper, Frontiers of Entrepreneurship Research, 1984

Corporate Entrepreneurship involves employee initiative from below in the organization to undertake something new. An innovation created by subordinates without being asked, expected or perhaps even given permission by higher management to do so.

IntrapreneurshipG.P.Pinchot III, Harper Row, 1985

Intrapreneurs are “dreamers who do”, those individuals who take hands-on responsibility for creating innovations within an organization. They may be the creators or inventors, but always the dreamers who figure out how to turn an idea into a profitable reality.

Intrapreneuring: Why you don’t have to leave the corporation to become an entrepreneurG.Pichot III/E. Pinchot, 1985

Intrapreneurs are those people within a corporation who turn an idea into a profitable product through assertive risk taking and innovation.

Entrepreneurship trategy for internal markets – Corporate, nonprofit and government institutions casesR.P.Nielson/M.P.Peters/R.D.Hisrich, Strategic Management Journal Vol6, 1985

Intrapreneurship is the development within a large organization of internal markets and relatively small and independent units designed to create, internally test-market and expand improved and/or innovative staff services, technologies or methods within the organization.

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Definitions, dimensions and dilemma’sM.S.Spann/M.Adam/M.Wortman , Proceedings of the US Association for Smal Business Entrepreneurship, 1988

Corporate Entrepreneurship is the establishment of separate corporate organizations (often in the form of a profit center, strategic business unit, division or subsidiary) to introduce a new product, service or create a new market or create a new technology.

Functioning modeling corporate entrepreneurship: an empirical integrative analysisD.F.Jennings/J.E.Butler, Journal of Management, Vol15 1989

Corporate entrepreneurship is defined as the extent to which new products and/or new markets are developed. An organization is entrepreneurial if it develops a higher than average number of new products and/or markets.

New business ventures and the entrepreneurH.H. Stevenson/M.J. Roberts/H.I. Grousbeck, 1989

Corporate Entrepreneurship is the process by which individuals inside organizations pursue opportunities without regard to the resources they currently control.

Introduction to the special issue on Corporate EntrepreneurshipD.Schendel, Strategic Management Journal Vol11, 1990

Corporate Entrepreneurship involves the notion of birth of new businesses within on-going businesses and (..) the transformation of stagnant, on-going businesses in need of revival or transformation.

Guest Editor’s introduction: Corporate EntrepreneurshipW.D.Guth/A.Ginsberg, Strategic Management Journal Vol11, 1990

Corporate Entrepreneurship encompasses two types of phenomena and the processes surrounding them:o The birth of new businesses within existing organizations, i.e internal

innovations or venturingo The transformation of organizations through the renewal of the key ideas

on which they are built. i.e. strategic renewal Strategic renewal involves the creation of new wealth through new

combinations of resources.

A conceptual model of entrepreneurship as firm behaviorJ.G.Covin/D.P.Slevin, Entrepreneurship: Theory and Practice, 1991 Corporate Entrepreneurship involves extending the firm’s domain of competence

and corresponding opportunity set through internally generated new resource combinations.

Predictors and financial outcomes of corporate entrepreneurship: an exploratory studyS.A. Zahra, Journal of business venturing Vol6 1991

A formal or informal activity aimed at creating new business in established firms through product and process innovations and market developments

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Managing internal entrepreneurship: Agency theoryG.R.Jones/J.E.Butler, Journal of Management Vol18, 1992

Internal corporate entrepreneurship refers to entrepreneurial behavior within one firm

Corporate Venturing: creating new business within the firmZ.Block/I.C.MacMillan, Harvard Business School Press 1993

A project is a corporate venture when it o Involves an activity new to the organization\o Is initiated or conducted internallyo Involves significantly higher risk of failure or large losses then the

organization’s base businesso Is characterized by greater uncertainty than the base business o Will be managed separately at some time during its lifeo Is undertaken for the purpose of increasing sales, profit, productivity or

quality

Individualism and the modern corporation: implications for innovation and entrepreneurshipM.H.Morris/R.A.Avilla/J.Allen, Journal of Management (Fall 1993)

The process itself consists of a set of activities necessary to identify an opportunity, develop a business concept, assess and acquire the necessary resources and then manage and harvest the venture.

A conceptual model of entrepreneurship as firm behavior: a critique and extensionS.A.Zahra, Entrepreneurship: Theory and Practice Vol17, 1993

Corporate entrepreneurship is the process of organizational renewal that has two distinct but related dimensions: innovation and venturing and strategic renewal.

Corporate entrepreneurship and financial performance: the case of management leveraged buy-outsS.A.Zahra, Journal of Business Venturing Vol10, 1995

Corporate entrepreneurship is seen as the sum of a company’s innovation, renewal and venturing efforts. Innovation involves creating and introducing products, production processes and organizational systems. Renewal means revitalizing the company’s operations by changing the scope of its business, its competitive approaches or both. It also means building or acquiring new capabilities and then creatively leveraging them to add value for shareholders. Venturing means that the firm will enter new businesses by expanding operations in existing or new markets.

Corporate Entrepreneurship: internal corporate verturing and vicious and virtuous spin-offsTom Elfring/Eva Meeusen –Henniger/Henk W. Volberda, 3rd Int. Product Development Conference, Insead 1996

We view corporate Entrepreneurship as the creation of new business in the existing organization

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Corporate Entrpreneurship: the roles of ideology and social capitalL.Chung/P.T.Gibbons, Group and Organzation Management Vol22, 1997

Corporate Entrepreneurship is an organizational process for transforming individual ideas into collective actions through the management of uncertainties.

Towards a reconciliation of the definitional issues in the field of corporate entrepreneurshipP. Sharma/J.J. Chrisman, Entrepreneurship Theory and practice, Vol22 1999

Entrepreneurship encompasses acts of organizational creation, renewal or innovation that occur within or outside an existing organization.

Entrepreneurship can be seen as a process whereby an individual or a group creates a new venture within an existing organization, revitalizes and renews an organization or innovates.

Corporate Entrepreneurship: a strategic and structural perspectiveJ.Ferreira, International Council for Small Business 47th World Conference, 2002

An entrepreneurial strategy is defined as the frequent and persistent effort to establish competitive advantage through innovation, while corporate entrepreneurship can describe any attempt, even infrequent, to implement innovation. Corporate entrepreneurship is to a great extent a social process in which innovations are socially constructed through a series of trial-and-error learning episode.

Corporate EntrepreneurshipM.H. Morris/D.F.Kuratko, Corporate Entrepreneurship, Harcourt College Publishers 2002

Corporate entrepreneurship is a term used to describe entrepreneurial behavior in mid-sized and large organizations.

Corporate Entrepreneurship: How?K.Ramchandran/T.P.Devarajan/S.Ray, Working Paper Series ISB 2003

The essence of corporate entrepreneurship is innovation leading to wealth creation and sustained growth of corporations.

Corporate Ondernemerschap en VenturingT.Elfring, VU Amsterdam/Wageningen Universiteit, 2003

In aanvulling op de definitie van Stevenson en Jarillo (1990) waarin het najagen van kansen centraal staat, kan corporate ondernemerschap in meer praktische termen gedefinieerd worden als het proces waarin individuen alleen of in samenwerking met anderen nieuwe activiteiten ontwikkelen, die slechts beperkt gerelateerd zijn van een bedrijf in de context van dat bedrijf.

A compentency –based framework for promoting corporate entrepreneurshipJ.C.Hayton/D.J.Kelley, Human Resource Management, 2006

Corporate entrepreneurship is a set of firmwide activities that centers on the pursuit of new opportunities through innovation, new business creation or the introduction of new business models.

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Alliances, Corporate Technological Entrepreneurship and Firm Performance: testing a ModelB.Antoncic.I.Prodan, Frontiersw of Entrepreneurship Research Vol26, 2006

Entrepreneurship within an existing organization, including emerging behavioral intentions and behavior of an organization related to departures from the customary, which can have several characteristic dimensions, such as new business venturing, product/service innovation, process innovation, self-renewal, risk taking, pro-activeness and competitive aggressiveness

The four models of Corporate EntrepreneurshipRobert C. Wolcot/Michael J. Lippitz, MITSloan Management Review, Vol49 nr 1, 2007

The process by which teams within an established company conceive, foster, launch and manage a new business that is distinct from the parent company, but leverages the parent’s assets, market position, capabilities or other resources. Although it involves often external partners, it engages significant resources from the established company and internal teams typically manage the projects.

Corporate EntrepreneurshipP.Burns, Palgrave Macmillan, 2008

Corporate entrepreneurship is the term used to describe entrepreneurial behavior in a larger established organization. The objective is to gain competitive advantage by encouraging innovation at all levels of the organization.

Strategic Corporate Entrepreneurship – A case study on basis of the Configuration ApproachS.Kraus, Monograph if the Inaugural Lecture, 2009

Corporate Entrepreneurship describes an enterprise’s entrepreneurial activities – either formal or informal – that are aimed at innovations and market developments within established/larger enterprises

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Appendix B

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Appendix C T = Theoretic supportE = Empirical supportD = Direct supportI = Indirect support

Type Support Supporting Theory/FrameworkT E D I

Resource 2 2 2 Resource Advantage TheoryHuman Capital 2 2 2 Human Capital TheoryKnowledge (education) 2 2Knowledge (creation proces) 2 2 2 Theory of Knowledge CreationKnowledge (external) 2 2 2 Information Processing TheoryExperience 1 1 2 Mixed

conclusionsCompetencesCreativity 2 0 Investment Theory of CreativityRelationships (intra-org) 1 1 1 Social Network TheoryRelationships (inter-org) 1 1 1 Social Network Theory Mixed

conclusionsInformation Technology 1 1 1 Information Processing TheoryInformation 1 1Organizational Relationships 2 2 1 Social Capital Theory

Social Network TheoryTransaction Cost Theory

Reputation 2 1 1 Reputation Quotient ModelR&D 1 1 1 Open Innovation Paradigm Non-conclusiveLearning Capabilities 1 1 Absorptive CapacityPhysical Capital 1 1 Cobb-Douglas FunctionTechnology 1 1 1 Non-conclusiveGeography 1 1 1 Knowledge Spillover TheoryFinancial Capital 1 1 Only CVCInnovations 1 1 1 Dynamic Theory of Competition

Open Innovation ParadigmNew business 2 2 2 Contingency TheoryBusiness renewal 1 1Orchestration Function 2 2 Dynamic Capabilities ApproachCulture 2 1 2 Hofstede Cultural DimensionsTop Managament Team 2 1 1 Upper Echelon TheoryMiddle Management 2 2HRM 2 2 2 Competence Model of Strategic HRMKnowledge Management 1 1Organization 2 2 2 Law of Requisite VarietyOpportunity Cycle 2 1 1Environment 2 1 1 Contingency Theory

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