ARTICLE 1: ENTREPRENEURIAL LEARNING AND MENTORING
Introduction
This
paper reviews some of the literature on entrepreneurial learning and considers
how the development of learning within small to medium‐sized
enterprises (SMEs) may be supported. In particular the paper investigates how
mentoring support combined with information on the needs of entrepreneurs at
specific times in their development may represent an efficient and effective
support mechanism. In all, if one was to utilise such as the Churchill and
Lewis small firm life‐cycle development approach and use
mentors to deliver the required support, then this may represent a more
effective support mechanism than volume‐driven up‐front
prescriptive training. The paper draws on findings from a programme of ongoing
research conducted under the auspices of Paisley Enterprise Research Centre
(PERC)[1] that highlights the added‐value of mentoring
from both a client entrepreneur and mentor perspective. In order to place this
paper into context it may be useful to outline our current research objectives:
- Identification
of the learning process and implications for current policy.
- Identification
of specific requirements and the stage(s) of enterprise/entrepreneurial
development when these requirements could best be delivered.
- Identification
of mode and timing of appropriate and effective learning
support/provision.
- To
develop a model of entrepreneurial learning based on case study research.
- Development
of appropriate policy recommendations for enterprise/entrepreneur support.
The importance of
learning
The
development of learning in its various guises of individual, team and
organisational learning has been recognised by many as of critical importance
to our economic prosperity. Williams (1998) reports that such as Senge (1990)
and Argyris (1992) believe that organisations require effective learning
capability if they are to succeed in a complex, competitive and challenging
world. Amin and Wilkinson (1999) state that “the ability of firms and business
systems to sustain learning and adaptation has become a matter of crucial
importance for competitive survival”, while authors such as Dosi and Malerba
(1996) discuss the importance of an organisation’s “capability to learn”. In
all, the ability to learn on a continuous basis is now viewed as a key
determinant of competitive success.
Having
briefly discussed the importance of “learning” it is important to develop a
greater understanding of the concept both in theory and practice if we are to
make comment on how best it could be supported within the context of SMEs. It
could be argued, for instance, that much of the learning that takes place is
experiential; if so, this has major implications for the mode and timing of
enterprise support. It may be that a “just‐in‐time”
approach (where specific assistance is offered in response to critical
incidents) to delivery of assistance is more effective than a prescribed or
“expert” approach where experts deliver a pre‐set often “up front”
menu of training to all programme participants. In such “up front” and
prescribed programmes it is possible that some of the material covered may not
be relevant to any particular venture at that time. Unfortunately, such a
situation dilutes the possibility of “learning by doing” and of consolidating
learning at that time.
Entrepreneurial
learning
As
discussed earlier, the understanding of the learning process relating to
entrepreneurs is of great importance. This and the need for further research
are outlined by such as Deakins (1996, pp. 21‐22) who states that
“We do not understand how entrepreneurs learn, yet it is accepted that there is
a learning experience from merely establishing a new enterprise. The learning
process that is involved in business and enterprise development is poorly understood,
yet programmes have been devised and interventions are made in business
development ... There is now a need for re‐focusing research away
from the emphasis on picking successful entrepreneurs or picking winners, to
identifying key issues in the learning and developmental processes of
entrepreneurship”. Having accepted that entrepreneurial learning is of
significance, we now move on to define what we mean by this term.
While
the very notion of learning is difficult to define it is generally agreed that
the definition of Beach (1980) is fairly comprehensive; namely, that learning
“is the human process by which skills, knowledge, habit and attitudes are
acquired and altered in such a way that behaviour is modified”. Perhaps most
crucially, this definition highlights learning as achieved only where it
becomes or leads to some intention to behave in a modified way. Another view
comes from Kolb (1984) who stated that learning was experiential, “a process
whereby concepts are derived from and continuously modified by experience ...
an emergent process whose outcomes represent only historical record not
knowledge of the future”. This concept of “emergence” or continuous development
is one that sits well with contemporary thought and the “ideology” of such as total
quality management and organisational learning. As reported in Rae and Carswell
(1999), Watson and Harris (1999) believe that the notion of emergence can help
us explore how people learn continually through changing, doing, experimenting
and redefining their sense of how they work in a whole‐life
process of development.
It
may also be argued that learning entails “not only a process of adaptive
learning in order to cope with change and survive, but also what has been
deemed as ‘generative’ learning which embodies the capacity to create and ‘bring
forward’ experience, rather than wait for (and learn from) it”. This process
may also include bringing forward the learning of the customer and other
stakeholders (Hamel and Prahalad, 1994).
Usefully,
Williams (1998) developed a process model of organisational learning that
incorporates four common characteristics of individual and organisational
learning, namely:
1. goal directed –
organisational learning occurs within the context of the mission and strategic
goals of the organisation;
2. based on experience –
consisting of the confirming/disconfirming experiences of decision‐making
agents, e.g. top management teams;
3. impacts behaviour and
cognition – beliefs of the decision‐making agents,
particularly beliefs relating to powerful stakeholders, are formed, strengthened,
or weakened as a result of these experiences; and
4. changes are relatively
stable – once beliefs are commonly held they become embedded in the culture of
the organisation through associated artefacts. Such beliefs and their
associated artefacts become a force for stability within the organisation and
are evidence of organisational learning having taken place. Organisational
culture is, therefore, an input as well as an output of learning experiences.
Having
briefly defined what is meant by the term “learning” we are in a position to
consider how learning can be supported in the context of new‐start
businesses or entrepreneurs. For the purpose of this paper we focus on the
added value derived from business “mentors” supporting new‐start
entrepreneurs.
Mentoring
takes place in a variety of socio‐economic contexts and
as such its precise role may change dependent on the environment and the
objectives of that mentoring relationship. In this paper we are specifically
interested in mentoring as a means of supporting new‐start
entrepreneurs through the provision of “expert” help and assistance in
overcoming problems. In all, we are interested in whether a mentor gives the
new‐start entrepreneur a useful insight into
running a small business, perhaps through learning from the mentor’s previous
experience.
While
a mentor cannot effectively “lecture” to an individual entrepreneur’s prior
experience, they may be in a position to give meaning to or aid understanding
of that experience. The role of the mentor is to enable the entrepreneur to
reflect on actions and, perhaps, to modify future actions as a result; it is
about enabling behavioural and attitudinal change. In all, it is about
facilitation that enables the entrepreneur to dissect, reflect and learn from
what could be termed “critical incidents”. This type of approach is supported
by work undertaken by Deakins and Freel (1996) that revealed that the
entrepreneur acquires the ability to learn through experience and that the
learning process appeared to be the result of critical incidents in which the
entrepreneur is required to make strategic and/or operational decisions. Such
an approach (of experiential learning) is evident in the thoughts of Williams,
1998, p. 63) – “learning is goal directed; experiences are the substance from
which learning emerges; beliefs – i.e. norms and values, and through them
behaviour – reflect achieved learning ...” Perhaps of greater importance, in
this context, is the view of entrepreneurs who, when asked by Choueke and
Armstrong (1992) to identify which format of learning was influential in their
personal development, responded: past experience (95 per cent of the sample),
learning from “colleagues” (61 per cent) and self‐learning (54 per
cent). Again such a view was supported through earlier work by Armstrong (1990)
that also found “experience” to be the major source of learning. If we accept
such findings then we need to find ways to help entrepreneurs to reflect on any
learning from critical incidents; in other words we need to encourage and
facilitate double‐loop learning.
It
is, therefore, not only the content and delivery mode of enterprise support and
advice that is important but also the background, attitude and skills of those
who provide advice. Atterton (1995) draws attention to the fact that frequently
it is such as bank managers who act as small business advisers, yet they tend
to have different attitudes, values and beliefs from the entrepreneurs. As
such, their advisory potential, outside of shaping the small business customer
to their own requirements, is limited. While there is some recognition that
what we teach and who teaches it is of importance, the central problem relating
to all of the above situations is that too little is known of how the learning
of stakeholders and SME owners actually takes place.
The nature and timing
of support
Assuming
that entrepreneurial learning is largely experiential then one must consider
the notion that entrepreneurs may demand specific skills and encounter specific
incidents at certain times in their “career”. In particular, we would wish to
support entrepreneurs as and when they have experienced a critical incident in
order to facilitate double‐loop learning. The question, therefore,
is whether training, education and mentoring could be tailored to meet the
needs of individual entrepreneurs’ development. Of course, the discussion then
becomes complex, as this is dependent on many variables such as the
availability of resources, entrepreneurial experience, experience of working in
that or related fields, the question of whether the experience is defined by
quantity (time) or quality (number of or importance of a given event(s)) and
indeed the specific skill and knowledge requirements of that industrial sector
or opportunity.
A
life‐cycle approach
In
attempting to recognise the evolution of entrepreneurs and their enterprises a
“life‐cycle approach or model” would usefully
reflect the types of challenges businesses encounter as they mature. One such
model is the Churchill Phases of Management model; essentially, Churchill
portrayed small business as moving through a life‐cycle over which the
managerial needs and, therefore, the nature of support required would alter.
The phase of management and the challenges likely to be encountered in each
phase are detailed in Table I.
In
response to meeting such challenges, Churchill’s work identified the management
and leadership skills that entrepreneurs perceived as being of most importance
during each particular phase (Table II).
The
original Churchill‐Lewis model (1983) was revalidated and
updated as the result of additional research. This research found that, while
there are distinctive and predictable stages in growth, these do not
necessarily happen sequentially. It was, therefore, felt proper to rename
stages as “phases” to highlight the non‐sequential nature of
the model. Such a change to the model may help it “fit” with that of learning
in SMEs; case study research conducted by Deakins and Freel (1998), for
example, found that “learning and ability progress in a series of disconnected
‘jumps’ which depend on the experience of the entrepreneur”.
It
would, therefore, be interesting to note the skills that our new‐start
entrepreneurs believe they require as they and their enterprises evolve and
grow. In addition, if support is to be effective and is provided “just‐in‐time”
as opposed to delivered in a pre‐set and prescribed
manner, then such a “model” would prove to be somewhat convenient for planning
and resourcing purposes. In other words, if we are attempting to support
entrepreneurs through the conception and survival phases then we require to
facilitate learning in those skill areas identified as important at that time.
We
are hopeful that our research, because of its longitudinal nature and the rich
source matter, may aid our understanding of what entrepreneurs need to know,
how they learn, whether this is dependent on the stage of evolution of the
enterprise and how best any support can be delivered. The fact that the
mentoring support provided to our “core sample” is from experienced
entrepreneurs introduces another interesting dimension.
The
research undertaken was part of our research into the First Business
Programme[2], a new‐start support programme operated by the
Local Enterprise Company, Renfrewshire Enterprise. In general terms our
findings with regard to mentoring are akin to those of Moran and Sear (1997)
who looked at the after‐care support provided to PSYBT clients
in Scotland. Their research looked at PSYBT support in general, but of specific
interest to our research are their findings in relation to the role and
perceived value of the PSYBT after‐care counsellor. Like
the First Business research, they established that an after‐care
counsellor “needs to combine a general understanding of small business, and
empathy with the owner‐manager” (p. 141). This supports our
findings that one must consider not only the content of any support but also
such as the interpersonal skills and attitudes of the delivery agents (mentors).
In
addition, their research shows that “The added value of counsellors (mentors)
is longer‐term” and that the ability to provide
help “just‐in‐time” is the key
factor in providing greatest added value.
Value
placed on different mentor impacts in the First Business Programme
As
outlined in Table III,
our research (Deakins et al., 1998) has found that the significance
of intervention is thought, by clients, to be greatest in terms of achieving
objectives, ability to learn and the ability to cope with problems. It is
interesting that the transference of skills or “ability” is rated highly as
opposed to the act of “doing for” or of being more directive. In addition, a
number of the key impacts of the mentors closely match the top ten management
skills in the conception and survival phases of the Churchill and Lewis
“model”. It could, therefore, be argued that it appears that the First Business
mentoring programme is successful in terms of giving new‐start
entrepreneurs the “tools” necessary to succeed or to cope and learn from
critical incidents during the early phases of development.
Learning and the
impact of the adviser
We
argue that it is the ability to reflect on incidents and to become engaged in
“double‐loop” learning that is of prime
importance in this context and that the key role of the mentor is to facilitate
and encourage this. Interestingly, reflection on the business and critical
incidents that have occurred was mentioned by a number of our new‐start
entrepreneurs as being of great importance.
A
number of those we interviewed expressed a view that they have had to change
direction or to reflect on their business. The ability to “stand back” from the
business and reflect on learning that has taken place has been seen as
important by those interviewed. In effect some of those interviewed indicated
that their business had faced “critical incidents” in some cases that could
potentially have led to cessation and that this forced them to learn about factoring,
VAT, exporting, business premises and so on.
Comments
from client entrepreneurs that indicated some form of learning taking place
included:
Before starting the business I went to a
course to encourage women into management that led on to a certificate in
management. I then started the business and as part of the course I analysed my
business using tools like SWOT analysis and debated the results in my class.
This ability to stand back has helped a lot and led to some expansion. I
believe that this ability to look at your own business in this way is so
important as you hit hurdles and need to revisit your business plan.
This
entrepreneur believes that the underpinning knowledge gained in taking part in
theoretical management courses has been critical when faced with “real life”
incidents and, importantly, believes that this enabled them to reflect on the
incidents and intellectualise any learning that took place. In other words the
ability to dissect, reflect, learn and act on a critical incident was seen as
of great importance.
Another
client entrepreneur who had previously worked in a large public sector
organisation commented:
The management training I went through
with my previous employer has been invaluable. I’ve had to change the business
a lot (out of necessity) and the courses helped me do this without losing the
focus of the business. In terms of the mentor our contacts have become less
frequent as I now feel more able to cope myself. I now tend to make decisions
myself and tell them about it just for some comfort that my decision is valid.
To
summarise, many of the entrepreneurs we are tracking have seen their businesses
evolve and have found their own previous experience and knowledge to be
helpful. In all, the entrepreneurs involved in the programme are facing
“critical incidents”, applying prior learning to them, reflecting and learning
from those incidents. As our research develops it will be interesting to note
if the skills required by entrepreneurs does indeed follow some form of “life‐cycle”
such as that put forward by Churchill and Lewis (1983) and also the impact that
the mentoring programme has had directly or indirectly on their performance.
Everyone
needs a mentor
Effective
interventions to assist entrepreneurs to grow and develop must help them to
learn rather than simply impose prescribed solutions as is the case through the
provision of “expert” consultancy. Research by Cox and Jennings (1995, p. 9)
suggests that it is this ability to learn from mistakes that makes successful entrepreneurs.
Importantly, this research also investigated the role, or existence, of a
mentor in successful enterprises. While they found that entrepreneurs who had
started their own businesses and built them into large corporations did not
appear to identify any one individual that had acted as a “mentor”, they
nonetheless could relate to the importance of learning from experience from
critical incidents. They were, in fact, “individuals who had to make their own
way in the world, the process (of becoming innovative) seems to start early in
their childhood. Successfully coping with extreme difficulties while very young
seems to set a pattern of resilience and ability not only to cope with, but
also to learn from, adversity. It is this ability to learn from their
experience which is, we suspect, the key attribute of these successful
individuals.”
Thus,
to summarise the research of Cox and Jennings, élite (self‐made)
entrepreneurs do not see themselves as having a specific mentor. Those from
family firms see the family as providing support and the intrapreneurs who
worked their way up through an organisation do indeed acknowledge the support
of mentors or senior colleagues in the organisation. This research supports the
need for some support, the notion that experiential learning is critical and
that some form of “mentoring” appears to have a positive impact on performance
in most, if not all, entrepreneurs.
Thus
we believe that the ability to undertake reflective or “double‐loop”
learning, to draw on experience and to be in a position to utilise the
experiences of others (mentors) is indeed a valuable combination.
Definitions
of mentoring
As
it appears that “mentoring” does add value, it is important that we define and
discuss mentoring in order that we can understand its importance as a learning
tool.
It
is difficult to find a universally accepted definition of mentoring; indeed
Gibb (1994) argues that “explaining mentoring through a single, universal and
prescriptive definition or ‘type’ is inadequate”. While it is accepted that
mentoring takes on various guises, it is, for the purposes of this paper,
enough to consider some working definitions and to have an appreciation as to
the complexity of mentoring. Some definitions of mentoring include:
The process in which an experienced
veteran helps to shape or guide a newcomer ... true mentoring is an extended,
confidential relationship between two people who have mutual personal growth
and corporate success – as common goals (Brown, 1990).
Graham
and O’Neill (1997) argue that:
the definition of Collin (1979) is best
suited to the mentor in the context of support to “new” entrepreneurs, that
being “a protected relationship in which learning and experimentation can
occur, potential skills can be developed, and in which results can be measured
in terms of competencies gained, rather than curricular territory covered.
Having
defined mentoring we now look briefly at the role of mentoring.
Role
of mentoring
Developmental
functions provided by mentoring fall into two categories; namely, career
functions that enhance learning of skills and knowledge including the political
and social skills required to succeed in an organisation (or own business) and
psychosocial functions. Psychosocial functions are those aspects of the
relationship that enhance a sense of competence, clarity of identity and
effectiveness in a professional role.
Clutterbuck
(1991) outlined five key roles played by the mentor; namely, coach, co‐ordinator,
supporter, monitor, and organiser. Clutterbuck sees the role as a changing role
dependent on the needs of the protégé. Such a “staged” approach to the mentor
role fits well with the work of Churchill and Lewis (1983) that suggests that
the needs of entrepreneurs change, move through phases, as they grow and
develop.
Mentor/client
matching
One
area that our research has touched on is that of matching the mentor and client
or protégé. Indeed, Deakins et al. (1997) found that, while 69
per cent of participant entrepreneurs reported a very good relationship with
their mentors, some put forward a view that there may be scope for greater
matching of mentors to clients based on the mentors’ sectoral experience or
indeed that of, say, gender.
Anecdotal
evidence from our research indicates that interpersonal relationships with
advisers have changed as time progressed, perhaps an indication that as the
entrepreneur develops they require different skills or assistance from the
mentor, the Clutterbuck and Churchill and Lewis argument. In such a scenario
the needs of the client and indeed the “personal chemistry” required in the
relationship may alter as the entrepreneur and the enterprise develop.
In
all, there appears to be an argument for matching, on the one hand, but, on the
other, it could be argued that since the personal chemistry between the two
individuals is so important then any attempt to pre‐select
or force a mentor/client relationship is likely to be unsuccessful. Such a view
is taken by Kram (1986 ) who states that: “Assigned relationships through
formal programmes were found to be problematical”.
The
debate as to the need to match clients with specific mentors is also touched on
from a learning styles perspective. Mumford (1995) discusses the relationship
between learning styles and mentoring and some of his points actually bear a
strong resemblance to some views that have come forward as part of our research
into mentoring. Essentially, Mumford identifies four learning styles (activist,
reflector, theorist and pragmatist), each associated with stages in the
learning cycle (having an experience, reviewing the experience, concluding from
the experience and planning the next steps). He goes on to argue that, since
individuals, both client and mentor, may have either the same or differing
approaches to learning, this could affect the effectiveness of the
relationship. It is, on the one hand, possible that the two different learning
styles will be complementary, bringing forth different responses and
opportunities but, on the other hand, these differences may be destructive in
terms of the relationship.
One
school of thought suggests that entrepreneurs are by definition “activist”,
while the mentoring relationship may require someone who is able to assist the
client in reviewing the process, concluding from the experience and planning
the next step. Mumford suggests that “the presumption behind most
mentor/learner relationships, especially in formally constructed schemes, is
that the effective mentor is guiding the learner through a process of
reflection on the experiences that the learner is undergoing” (p. 6). He
(Mumford) also states: “In my experience and in my research, strong activist
mentors are more inclined to leap in with statements about their own
experience, and to offer ‘solutions’, than they are carefully to review with
the learner what the experience of the learner is and what it means”. This
questions the supposition that entrepreneurs may be the “best match” for new‐start
entrepreneurs and may answer the question of why in the Enterprise Allowance
scheme those who most valued the advice of other self‐employed
people appeared to have suffered greater attrition rates. A three‐year
progress survey of participants who had participated in the UK Government
Enterprise Allowance scheme interestingly found that “Survivors said that the
most useful source of advice had come from accountants, while non‐survivors
had found other self‐employed people the most helpful” (Employment
Gazette, October 1986, p. 507); the same situation was reported in a survey
reported in Employment Gazette, May 1988. This could indicate that
new entrepreneurs with relationships with existing entrepreneurs are “directed”
rather than guided and that they do not benefit from the process of trial‐and‐error
or reflective learning. Such challenges were recognised by First Business who
ensured that mentors were trained in the type of skills needed to be an
effective mentor and proactively attempted to have a programme where the
mentors acted as “guides’ rather than as directors; they aimed at providing non‐directive
counselling. There are, therefore, conflicting views as to whether any attempt
should be made to match the mentor and client in a formal sense or whether the
mentor and client should to an extent “self‐seek”.
From
a business support perspective, an understanding of how entrepreneurs learn is
important if we wish to reduce the attrition rate of new‐start
businesses and improve their growth rates. The desire to assist new‐start
businesses by supporting them through the “learning curve” while they gain
experience is not new, indeed it was one of the objectives of the Enterprise
Allowance Scheme (EAS). “To compensate for the lack of business experience,
likely in EAS participants, information and guidance in running a business are
provided ... by the DTI Small Firms Service and their counselling services are
subsequently available” (Employment Gazette, August 1984, p. 374).
Having
accepted that an approach that facilitates learning is likely to bring
benefits, it is interesting to look briefly at the ways in which most business
support programmes operate today. It is true to say that much of the public
assistance to new‐start business currently takes the form
of creating a business plan (Gibb and Haas, 1995). While knowledge of such as
business planning is helpful it is also recognised that the business will
develop differently from the business plan and that entrepreneurs must not see
the plan as rigid or inflexible. Indeed, to place too much emphasis on the
business plan may lead to an environment where entrepreneurs fear change and
are unable or unwilling to be flexible in the face of a dynamic environment.
Thus the content of many enterprise support courses may be criticised as not
providing “added value” to entrepreneurs in terms of personal development and
particularly in improving their ability to learn. Such programmes could be said
to “teach” about issues that are normally of short‐term
benefit but fail to develop the skills, attributes and behaviours necessary if
entrepreneurs are to survive and prosper. One must, of course, consider that
the provision of “up front”, prescribed training in such as business planning
may be less costly than the provision of counselling or mentoring services.
Perhaps further consideration needs to be given to the cost‐effectiveness
of alternative support mechanisms and the possibility of sponsorship or indeed
of some payment from participant entrepreneurs at some stage in the programme.
Conclusion and policy
implications
The
importance of learning to small business survival and growth is beyond
reasonable doubt in ever‐changing dynamic marketplaces. We
believe that effective learning is well served through a mentoring relationship
where clients are encouraged to engage in reflective learning and where “just‐in‐time”
support is available, often to consolidate earlier knowledge and learning.
Many
volume‐driven small business training
programmes deliver up‐front prescriptive training that may not
be of immediate relevance to participants and as such the added‐value
of such provision could be brought into question. In all, it would be most
useful if knowledge, skills and reflective learning could be facilitated as and
when required by the entrepreneur. We believe that the support of a mentor with
suitable skills, knowledge and experience together with access to appropriate
expertise elsewhere represents an effective support system.
Such
as the Churchill and Lewis life‐cycle development
approach could prove useful in identifying the skills and knowledge likely to
be required at developmental phases, but the point at which specific
entrepreneurs and businesses reach those phases is likely to differ. In
addition, one could argue that development is not sequential and linear and as
such a life‐cycle model, while useful, may not
provide the whole picture. It is advisers or mentors who could provide a useful
service in identifying when specific entrepreneurs reach a point in their
development where knowledge and skills are required and give support in
accessing the appropriate training or other provision to meet identified needs.
Having
accepted that mentors appear to be an effective support mechanism, we require
to consider issues of client‐mentor matching and
this is a complex area that requires additional research in the context of
entrepreneurial support programmes.
To
conclude, we believe that entrepreneurial learning is of critical importance to
the survival and growth of SMEs in most marketplaces. Our research has
demonstrated that mentors provide added value interventions that are likely to
bring long‐term benefits to clients and therefore
society. Life‐cycle approaches may assist in planning
the provision of training and other support but ultimately support requires to
be responsive and flexible to individual needs at any given point in time.
In
the “new economy” of the Internet era the ability to continuously learn and
acquire knowledge in an ever‐changing dynamic
environment will be of fundamental importance to all organisations. In
particular, if SMEs are to compete in competitive marketplaces they must be
more responsive, flexible and customer‐focused than larger
organisations. As organisations move from planned prescriptive management
strategies towards a more emergent and flexible strategic vision then so too
must those who support them.
Thus
from a policy perspective, those responsible for supporting new‐start
programmes require to engage in some analysis as to the effectiveness of
alternative programmes of support.
Additional
research is required particularly on the issue of mentor‐client
matching and whether alternative systems or methods could be devised to
encourage double‐loop learning and facilitate access to
further support for the new‐start businesses
involved in any programme.
To
conclude, we believe that a mentoring programme may deliver effective support
to entrepreneurs when they require it, as they move through a development life‐cycle,
and that it may be more cost‐effective than up‐front
prescribed training in the long run.
This
suggests a need for a fundamental look at the way in which support is currently
organised by the majority of Training and Enterprise Councils and Local
Enterprise Companies.
There
is, however, a need for additional longitudinal research into the long‐term
impact of mentoring relations vis‐Ã ‐vis other support
mechanisms and, of course, cost‐benefit analysis of
various options over the longer term.
ARTICLE
2: THE MOTIVATION TO BECOME AN ENTREPRENEUR
Introduction
Herron and Sapienza (1992, p. 49) stated,
“Because motivation plays an important part in the creation of new
organizations, theories of organizational creation that fail to address this
notion are incomplete”. More recently, Kuratko et
al. (1997) reported that the lack of empirical
research into entrepreneurial motivation was still evident.
Being
an entrepreneur, one who is self‐employed and who
starts, organizes, manages, and assumes responsibility for a business, offers a
personal challenge that many individuals prefer over being an employee working
for someone else. Entrepreneurs accept the personal financial risks that go
with owning a business but also benefit directly from the potential success of
the business. Being an entrepreneur is often viewed as an aversive career
choice where one is faced with everyday life and work situations that are
fraught with increased uncertainty, impediments, failures, and frustrations
associated with the process of new firm creation (Campbell, 1992).
Not surprisingly, many researchers have investigated the motivation to become
self‐employed. What is it about certain
people that drives them to take on the risk, the uncertainty and the
independent structure of business ownership?
In
this paper we examine key components of motivation that may contribute to the
decision to become self‐employed. We begin with a review of the
evolution of research on entrepreneurial motivation starting with content‐based
theories of motivation. We then explore the current state of the more recent
process‐oriented research on the motivation to
become an entrepreneur. Three constructs that play an important role in the
intention to become self‐employed are proposed as part of our
model of entrepreneurial motivation. To test the model, four hypotheses are
suggested. An exploratory research study is then presented utilizing a survey
instrument that was presented to 112 undergraduate business students. The
findings of our hypothesis testing are discussed with attention given to the
limitations and implications of this study.
Motivation and
entrepreneurship
The
topic of motivation in the entrepreneurship literature has evolved along a path
similar to that of the organizational psychology field. From an organizational
psychology perspective, theories of motivation have progressed from static,
content‐oriented theories to dynamic, process‐oriented
theories, a framework suggested by Campbell et
al. (1970). Content theories search for the specific things
within individuals that initiate, direct, sustain, and stop behavior. Process
theories explain how behavior is initiated, directed, sustained, and stopped.
Organizational
psychology research focused on developing and testing content (i.e. need)
theories of motivation during the 1950s and early 1960s. According to Landy (1989, p. 379), “data supportive of need
theories have been infrequent. Damaging data are commonplace.” In a general
sense, focusing on personality profiles of people to explain behaviors, the
personological perspective, has fallen out of favor. For over 30 years,
psychologists have accepted Mischel's (1968) explanation
that behavior results from the interaction between the person and the
situation, a dynamic process (Shaver and
Scott, 1991).
Early
entrepreneurial research followed a similar path, focusing on identifying
traits and characteristics that distinguished entrepreneurs from the general
population, rather than developing process‐based models.
Beginning with McClelland (1961), who
argued that a high need for achievement was a personality trait common to
entrepreneurs, a great deal of research has focused on characteristics of
entrepreneurs (Churchill and Lewis, 1986; Shaver and Scott, 1991).
Being innovators and idiosyncratic,
entrepreneurs tend to defy aggregation. They tend to reside at the tails of
personality distributions, and though they may be expected to differ from the
mean, the nature of these differences are not predictable. It seems that any
attempt to profile the typical entrepreneur is inherently futile.
Gilad and Levine (1986) proposed two
closely‐related explanations of entrepreneurial
motivation, the “push” theory and the “pull” theory. The “push” theory argues
that individuals are pushed into entrepreneurship by negative external forces,
such as job dissatisfaction, difficulty finding employment, insufficient
salary, or inflexible work schedule. The “pull” theory contends that
individuals are attracted into entrepreneurial activities seeking independence,
self‐fulfillment, wealth, and other desirable
outcomes. Research (Keeble et al., 1992; Orhan and Scott, 2001) indicates that
individuals become entrepreneurs primarily due to “pull” factors, rather than
“push” factors.
Entrepreneurship
research has also attempted to identify the situational and environmental
factors that predict entrepreneurial activity, such as job displacement,
previous work experience, availability of various resources, and governmental
influences. However, these empirical studies of contextual factors have found
low explanatory power and predictive ability (Krueger et
al., 2000).
Logically,
there is no reason to expect a direct relationship between these external
forces and entrepreneurial activity. For example, job displacement may be a
triggering event leading to entrepreneurship. However, displaced workers will
not pursue this career unless there is a more direct, process‐oriented
linkage. Although external forces may provide a more conducive environment
supporting entrepreneurship, it may be just as likely that other career option
may be pursued.
Sexton (1987) stated that much of the then‐current
research was fragmented and unrelated. He felt that the transfer of up‐to‐date
research findings from other areas was needed to contribute to the development
of paradigms and constructs that lead to the development of convergent
theories. Bird and Jelinek (1988) mentioned
the need for a behavioral, process‐oriented model of
entrepreneurship. Calls for frameworks grounded in well‐established
theory are regularly echoed (Jelinek and
Litterer, 1994;MacMillan and Kartz, 1992).
As
a result, many of the entrepreneurship models advanced in recent years are
process‐oriented cognitive models, focusing on
attitudes and beliefs and how they can predict intentions and behaviors. Human
endeavors, especially complex activities such as new venture initiation, are a
result of people's cognitive processes. Humans are able to think about possible
future outcomes, decide which of these are most desirable, and whether it is
feasible to pursue attaining these outcomes. It is not reasonable to expect
people to pursue outcomes that they perceive to be either undesirable or
unfeasible.
Many
cognitive models explaining the motivation to found a new enterprise are analogous
to Vroom's (1964) expectancy framework.
Although these models use different terminology and build on different theory
bases, Vroom's expectancy model can be used to demonstrate the commonalities
between these disparate models.
The
Vroom model explains that an individual will choose among alternative behaviors
by considering which behavior will lead to the most desirable outcome.
Motivation is conceptualized as the product of expectancy, instrumentality, and
valence. Expectancy is analogous to measures such as perceived feasibility and
self‐efficacy used in other models predicting
entrepreneurial intentions. Despite subtle, technical differences in these
constructs, they are frequently operationalized in similar ways. For example,
expectancy, self‐efficacy, and perceived feasibility have
all been measured by responding to the question: How confident are you that you
can perform the task?’ by circling the appropriate percentage range on a
survey.
Mone (1994) discussed two measures of self‐efficacy,
process and outcome. The former refers to people's confidence to successfully
perform a task, whereas the latter refers to people's confidence to achieve an
outcome. The first measure would be analogous to expectancy; the latter would
be analogous to the product of expectancy and instrumentality. The product of
instrumentality and valence is analogous to a wide variety of measures used in
various organizational psychology or economic decision models predicting
entrepreneurial intentions, such as perceived desirability, outcome
expectations, net benefits, and perceived utility.
Vroom's (1964) expectancy model
establishes a common thread connecting many process‐oriented
explanations of entrepreneurial motivation. Current process models are
implicitly or explicitly grounded in this basic conception: an individual's
intentions to become an entrepreneur are predicted by these two questions:
1. is entrepreneurship
desirable to me? (i.e. does it lead to desired outcomes?); and
2. is entrepreneurship
feasible for me? (i.e. do I have what it takes to succeed as an entrepreneur?).
Current
process models of entrepreneurial motivation
Baumol (1990) suggested that entrepreneurs
are motivated by the reward structure in the economy. This economic perspective
on new venture initiation focuses on the usefulness, utility, or desirability
of an entrepreneurial career. Campbell's
(1992) economic decision model compares the expected net
present benefits of entrepreneurship relative to the expected gains from wage
labor. For both entrepreneurship and wage labor, Campbell multiplied
probability of success times average income to determine expected benefits.
Praag and Cramer (2001) found that people
would become entrepreneurs if the expected rewards surpass the wages of
employment. Because expected rewards depended on assessments of individual
ability and attitudes towards risk, perceptions of entrepreneurial feasibility
were included. Thus the model, like expectancy theory, finds entrepreneurial
activity to be a function of feasibility and desirability. Levesque et al. (2002) examined
the choice between employment and self‐employment in a
utility‐maximizing model that changes according
to the individual's age (i.e. stage of life).
These
economics‐based models (Campbell, 1992; Praag and Cramer, 2001; Levesque et al., 2002) explicitly
consider the role of risk in the decision to become an entrepreneur. Rees and Shah (1986) found that the
variance of earnings for self‐employed individuals
was triple that of individuals working for others, leading to the conclusion
that risk‐averse individuals are less likely to
pursue self‐employment. Douglas and Shepherd (1999, p. 231), using
anticipated risk as a predictor, stated “The more tolerant one is of risk
bearing, the greater incentive to be self‐employed.”
Other
recent research is based on an organizational psychological framework. Bird (1988), stressing the importance of entrepreneurial
intentions as a precursor to new venture creation, called for development of a
behavioral, process‐oriented model of entrepreneurship.
In
a theoretical discussion of the psychology of new venture creation, Shaver and Scott (1991) emphasized that
new ventures emerge because of deliberate choices made by individuals. They
then examined the immediate antecedents of choice:
- Can I
make a difference? (i.e. feasibility).
- Do I
want to? (i.e. desirability).
Arguably
the most widely and successfully applied theories for predicting behavioral
intention are the theories of reasoned action (Ajzen and
Fishbein, 1980; Fishbein and
Ajzen, 1975) and planned behavior (Ajzen, 1988, 1991). The theory of planned behavior (TPB) is
essentially an extension of the theory of reasoned action (TRA) that includes
measures of control belief and perceived behavioral control. The theory of
planned behavior (Ajzen, 1985) was developed
to account for the process by which individuals decide on, and engage in, a
particular course of action. Kolvereid (1996) demonstrated
that the Ajzen (1991) framework
is a solid model for explaining or predicting entrepreneurial intentions. Ajzen (1991) states that a person's intention
is the immediate antecedent of behavior. Intent to perform a behavior, in turn,
is a function of three variables:
1. attitude toward the
behavior, which refers to the degree to which individuals perceive the
attractiveness of the behavior in question. In general, a person who believes
that the performance of a given behavior will, with high probability, lead to
mostly positive outcomes will possess a favorable attitude toward that
behavior;
2. subjective norm, which
refers to the perceived social pressure to perform the behavior in question.
Perceived social norms is a measure of social support of the behavior by
significant others, such as family, friends, and other role models and mentors;
and
3. perceived behavioral
control (i.e. a self‐evaluation of one's own competence with
regard to the task or behavior). Perceived feasibility is a measure of
behavioral control, similar to Bandura's (1986) self‐efficacy
construct.
Thus,
the TPB provides an account of the way in which attitudes, subjective norms,
perceived behavioral control, and behavioral intentions combine to predict
behavioral performance. Depending on the difficulty of engaging in the
behavior, perceived behavioral control may also exert a direct effect on
behavioral performance. Ajzen's theory of planned behavior has wide acceptance
in many behavioral science disciplines and has been used empirically in a
variety of settings to predict and understand behavioral intentions (Bansal, 2002; King, 2003; Masalu and Astrom, 2001; Rhodes, 2002).
Individuals'
behavioral intentions are, according to Shapero's (1982) model
of the entrepreneurial event, also dependent on two main factors: perceived
credibility (perceived feasibility) and perceived desirability. Shapero and Sokol (1982) conceptualized
perceived desirability as the personal attractiveness of starting a business,
and perceived feasibility as a perceptual measure of personal capability with
regard to new venture creation. In addition, Shapero adds a third predictor
variable, propensity to act. This measure of volition or proactiveness is
closely related to locus of control. Both Shapero and
Sokol (1982) and Krueger (1993) argued
that perceived desirability, perceived feasibility, and propensity to act are
associated with entrepreneurial behavioral intentions. Moreover, Erikson (2001) found that the model
explained entrepreneurial intentions quite well.
The
Azjen and Shapero models consider self‐efficacy, a proxy for
feasibility, an important predictor. Chen et
al. (1998) found entrepreneurial self‐efficacy
a reliable measure to differentiate between business founders and non‐founders.
Krueger et al. (2000) compared
the predictive validity of the Ajzen and Shapero‐Krueger models, using
a sample of 97 senior university business students. Regression analysis using
perceived desirability, subjective norms, and perceived feasibility to predict
intentions supported Ajzen's theory of planned behavior, with adjusted R2 of
0.350 (P<0.0001) for the overall model. However, the subjective norms
predictor variable was not significant in the regression. Regression analysis
using perceived desirability, propensity to act, and perceived feasibility to
predict intentions fully supported the Shapero‐Krueger model, with
adjusted R2 of 0.408 (p<0.0001). The
Shapero‐Krueger model used Seligman's (1990) learned optimism
construct to measure propensity to act.
Our
proposed model of entrepreneurial motivation
We
started with the Shapero‐Krueger framework, as described in Krueger et al. (2000), also
using self‐efficacy as a proxy for perceived
feasibility. Borrowing from the previously discussed economic models (Campbell, 1992; Praag and Cramer, 2001;Levesque et al., 2002), we
substituted perceived net desirability for perceived desirability, believing
that people may be motivated to become entrepreneurs if they believe self‐employment
is more likely than working for others to lead to valued outcomes. It seemed to
us that the motivation to become an entrepreneur is driven by the difference
between the desirability of self‐employment and the
desirability of working for others.
We
also operationalized Shapero and Krueger's propensity to act differently. We
felt that an individual's willingness to accept a moderate, calculated risk
would be the best indicator of this propensity. We recognized that not all
people viewing themselves as efficacious, and seeing self‐employment
as a path to acquiring desirable outcomes, intend to become self‐employed.
To act on their perceptions of feasibility and net desirability, people must be
willing to bear the moderate, calculated risk intrinsic to self‐employment.
This is consistent with the economics‐based models discussed
above (Campbell, 1992; Douglas and Shepherd, 1999,Praag and Cramer, 2001; Levesque et al., 2002), which all
included risk as a predictor.
We
view the decision between a career of self‐employment or working
for others as a rational three‐part process in which:
1. Individuals compare
the desirability of self‐employment with the desirability of
working for others.
2. Individuals assess
whether they possess the requisite knowledge, skills, and abilities to perform
the tasks and activities necessary to become an entrepreneur.
3. Individuals determine
whether they are willing to accept the inherent risk of entrepreneurial
activity.
People
with a sense of entrepreneurial self‐efficacy may be drawn
to self‐employment's desirable opportunities and
benefits, compared to the availability of these benefits obtained through
working for others. If they also can accept the intrinsic risk of self‐employment,
they are likely to act on these perceptions by forming intentions and goals for
self‐employment.
The
current study therefore represents a new paradigm for process‐oriented
entrepreneurial motivation research drawing upon well‐grounded
theory. It facilitates a needed convergence of frameworks on the motivational
intention to become an entrepreneur. This model of entrepreneurship motivation
introduces new constructs and uniquely combines them in specifying that the
intention to become an entrepreneur is a function of these three variables: the
perceived net desirability of self‐employment (NDSE), the
perceived feasibility (self‐efficacy) of self‐employment
(SE), and tolerance for risk (TR). Our model is depicted graphically in Figure 1. Our model
addresses a long‐standing call in the entrepreneurial
literature for the development of behavioral, process‐oriented
models of entrepreneurship that are well‐grounded and transfer
up‐to‐date research findings
(Jelinek and Litterer, 1994; MacMillan and Kartz, 1992; Sexton, 1987).
To
test our model, we hypothesize as follows:H1. There is a positive
relationship between an individual's entrepreneurial self‐efficacy
(SE) and his or her intention to become an entrepreneur. H2. There
is a positive relationship between an individual's tolerance for risk (TR) and
his or her intention to become an entrepreneur. H3. There is a
positive relationship between an individual's net desirability for self‐employment
(NDSE) and his or her intention to become an entrepreneur. H4.
There is a positive relationship between an individual's net desirability for
self‐employment (NDSE), entrepreneurial self‐efficacy
(SE) and tolerance for risk (TR) and his or her intention to become an
entrepreneur. H1 through H3 suggest that each
of the three independent variables in the model separately explain an
individual's entrepreneurial intentions. H4 suggests that all
three independent variables together (our model) significantly explain an
individual's intention to become an entrepreneur.
This
section examines the methodology used in the present study, including sample
data and variable measures, and research design.
Sample
data and variable measures
Sample
data. We
began this research with a survey instrument consisting of 100 questions, many
of which dealt with parameters outside the scope of the present research. We
administered this survey to 112 junior and senior undergraduate business
students at Florida Gulf Coast University (FGCU). Later, the survey was
reformulated to be more focused, reducing the total number of questions from
100 to 26. The final sample for this study consisted of the responses to the 26‐question
survey by 115 junior and senior undergraduate business students at FGCU, and
was administered in January 2001. Surveys were completed anonymously during
regular class time, with a response rate of 100 percent. Student respondents
were close enough to graduation to contemplate important career choices, such
as that of self‐employment versus working for others.
Dependent
variable. The
dependent variable in our model is entrepreneurial intentions. The survey
instrument defined entrepreneurship as “being self‐employed
in your own business.” Chen et
al. (1998) established six measures of entrepreneurial
intentions using the questions listed below:Q1. How interested are you
in becoming an entrepreneur? Q2. How much have you considered
becoming an entrepreneur? Q3. How much have you already prepared to
become an entrepreneur? Q4. How likely are you to become an
entrepreneur? Q5. How likely are you to work very hard at becoming
an entrepreneur? Q6. How soon are you going to become an
entrepreneur? We included all six measures of intentions in our initial test of
the model. Later, we reduced the length of the survey instrument. We
accomplished this reduction in length in part by reducing the number of
questions designed to measure entrepreneurial intentions from six to one. This
reduction was justified based on the results of Cronbach Alpha analysis.
Cronbach Alpha is a model of internal consistency, based on the average inter‐item
correlation. Crano and Brewer (1986) suggest
that the degree of internal consistency is considered acceptable if the Alpha
coefficient is 0.75 or better.
Table I shows the
impact on reliability (Alpha) of removing each of the questions, 1 through 6,
one at a time. It is clear from this analysis that question 6 is not internally
consistent with questions 1 through 5. The overall Alpha increases to an
acceptable level, 0.9175 when questions 1 through 5 are included and question 6
is removed.
These
results suggest that questions 1 through 5 create a unitary construct that
measures entrepreneurial intentions. Based on these results, and our desire to
reduce the length of our survey to improve the accuracy of subject responses,
we selected question 4 (How likely are you to become an entrepreneur?) as our
measure of the dependent variable entrepreneurial intentions.
Independent
variables.
The model includes three independent variables. The first independent variable
is entrepreneurial self‐efficacy, which was measured by one
question designed to assess an individual's self‐confidence in his or
her ability to perform the tasks and activities necessary to become an
entrepreneur. The second independent variable was an entrepreneur's tolerance
for risk (TR). Tolerance for risk was determined by asking pointedly “To what
extent are you willing to take a moderate, calculated risk to get ahead?” The
third independent variable in the model is net desirability to become self‐employed
(NDSE). The computation and significance of this variable deserves special
attention.
The
variable net desirability to become self‐employed (NDSE) was
calculated as shown in Figure 2. The decision between a career of self‐employment
or working for others may be viewed as a rational process in which individuals
compare the relative desirability of each option. If an individual believes
self‐employment is more likely than working
for others to lead to valued outcomes, then he or she is more likely to be
drawn to self‐employment.
A
review of the literature revealed five outcomes emphasized as criteria in the
decision between self‐employment or being employed by others:
income potential; financial security; independence; need for achievement; and
escape from corporate bureaucracy. Using an expectancy (Vroom, 1964) framework, we hypothesized that
the desirability of self‐employment (DSE) is related to the product
of, first, importance of desired outcomes and second, the probability of
attaining these outcomes through self‐employment. In a
similar vein, desirability of working for others is obtained by multiplying
importance of desired outcomes by the probability of attaining these outcomes
through working for others (DWO). Net desirability to become self‐employed
(NDSE) was then obtained by subtracting desirability of working for others
(DWO) from desirability of self‐employment (DSE).
After
identifying and computing variables necessary for evaluating the efficacy of
the model, we tested the model, as previously described in Figure 1. We used
regression analysis to assess the ability of the model to explain self‐employment
intentions, the dependent variable. As we test the model using regression, the
appropriate comparative diagnostic is the Adjusted R2.
Model
results
Results
are presented in Figure 3 and Table II. Figure 3 shows
significant and complete support for the model. The Adjusted R2 for
the regression was 0.528 (p<0.001). A discussion of the findings of
each of the four model hypotheses follows.H1. There is a positive
relationship between an individual's entrepreneurial self‐efficacy
(SE) and his or her intention to become an entrepreneur. It is apparent
from Table II that
the dependent variable intentions was significantly positively correlated with
the independent variable self‐efficacy with a
significant (0.001) Pearson correlation coefficient of 0.669. Higher
entrepreneurial self‐efficacy was associated with a higher
intention to engage in entrepreneurial activity. In addition, the model's link
between self‐efficacy and intentions possessed
significant explanatory power, with a t‐statistic
of 7.116 (p<0.001).H2. There is a positive relationship
between an individual's tolerance for risk (TR) and his or her intention to
become an entrepreneur. An individual's intention to become an entrepreneur was
significantly positively correlated with the independent variable tolerance for
risk (TR). A higher entrepreneurial TR was associated with a higher likelihood
to become an entrepreneur with a significant Pearson correlation coefficient of
0.480 (p < 0.001). In addition, the model's link between TR and
intentions possessed significant explanatory power, with a t‐statistic
of 2.476 (p= 0.015), demonstrating that higher TR led to a higher
likelihood that an individual would engage in entrepreneurial activity.H3.
There is a positive relationship between an individual's net desirability for
self‐employment (NDSE) and his or her
intention to become an entrepreneur. An individual's intention to become an
entrepreneur was significantly positively correlated with the independent
variable net desirability for self‐employment (NDSE).
Higher NDSE was associated with a higher likelihood to become an entrepreneur
with a significant Pearson correlation coefficient of 0.488 (p<0.001).
In addition, the model's link between NDSE and intentions possessed significant
explanatory power, with a t‐statistic of 3.032 (p =
0.003), demonstrating that higher NDSE led to higher aspirations toward
entrepreneurial activity.H4. There is a positive relationship between an
individual's net desirability for self‐employment (NDSE),
entrepreneurial self‐efficacy (SE) and tolerance for risk
(TR) and his or her intention to become an entrepreneur. Figure 3 summarizes
the overall findings of our model. The test of the overall model resulted in an
adjusted R2 of 0.528 (p<0.001) indicating
strong support for the overall model.
Discussion
We
can understand why the intentions construct validated by Chen et al. (1998) failed
to form a unitary construct in our study. The first five questions asked
students whether they had plans, aspirations, or intentions to eventually
become entrepreneurs, and these were highly correlated with each other. The
sixth question focused instead on how soon they would act on those plans.
Clearly, the respondents saw the eventual intention of entrepreneurship as an
issue separate and unrelated to their timing to initiate this action. For these
students, questions regarding whether they had entrepreneurial intentions were
addressing a quite different issue than the question addressing their time
frame for taking such an action.
One
of the most significant findings of this study was the statistical support for
the variable net desirability for self‐employment (NDSE).
Previous organizational psychology‐based research based
has investigated the usefulness of the perceived desirability of self‐employment
on the intention to engage in entrepreneurial activity. These studies, however,
did not use a “net” variable to focus on the difference between the
desirability of self‐employment and the desirability of
working for others.
As
hypothesized, the respondents in this study formed entrepreneurial intentions
if they considered themselves to be efficacious and they anticipated positive
outcomes from entrepreneurship. We also found that an individual's tolerance
for risk (TR) had a significant influence on his or her intention to engage in
entrepreneurial activity. Even though an individual might find engagement in
entrepreneurial activity desirable and has the self‐confidence
to do so, it was also important that that person have a relatively high
tolerance for risk to engage in such activity.
The R2 for
this model was 0.528; such strong explanatory power is rare in the literature
explaining entrepreneurial behavior. Kruegeret al. (2000) found R2 of
0.350 for the Ajzen theory of planned behavior and R2 of
0.408 for the Shapero‐Krueger model. In comparison it should
be noted that trait or attitude measures typically measure 10 percent of
variance in behavior (Ajzen, 1987).
Our
sample consisted entirely of undergraduate business students. However, other
research (Audet, 2000; Krueger et al., 2000) has also
relied on student surveys to measure entrepreneurial intentions. Our primary
goal was to better understand these students' decisions to become self‐employed
or work for others. This study was not a simulation using students to predict
the behavior of managers or other non‐student populations.
Rather, this was a study of people actually beginning to face career decisions.
However, they are students – we cannot be certain that their intentions are
durable and clear. Also, our findings may not be generalizable to non‐student
populations.
This
research did not examine the role of negative motivations, or “push” factors.
As mentioned above, “push” factors appear to be less important than “pull”
factors in explaining the motivation to become an entrepreneur. Also, we
believe “push” factors are less significant to our sample of young college
students than to the general population. Because of the students' lack of prior
work experience, dissatisfaction or involuntary separation from previous
employment would not have been an important issue. Accordingly, our findings
may not generalize to non‐student populations with greater levels
of work experience.
The
cross‐sectional rather than longitudinal
design of the study raises the usual caveats regarding lack of causal evidence.
However, cross‐sectional research designs are
frequently used and considered acceptable in this type of research (Ajzen, 1987).
Finally,
a limitation of any survey research is the inability to ask follow‐up
questions and explore in more depth the reasoning behind any finding. The
inclusion of qualitative interviews and/or focus group sessions could therefore
provide rich explanatory information that could add value to the survey data.
According
to Timmons (1999), America has created over
34 million new jobs since 1980, while the Fortune 500 lost
over 5 million jobs. Timmons further reported that, since 1980, entrepreneurs
have created over 95 percent of the wealth that exists in America today. For
these reasons, understanding why people make intentions to become entrepreneurs
is becoming increasingly important for educators and policy makers.
This
research proposed a new model of entrepreneurship motivation. Introduced was
the construct net desirability for self‐employment, which was
operationalized as the difference between the desirability of self‐employment
compared to the desirability of working with others. Tolerance for risk was
also operationalized uniquely in the model as an indicator of the propensity to
act. Together with the construct of perceived feasibility (self‐efficacy)
a new model of motivational intentions was proposed. The results indicate that
tolerance for risk, self‐efficacy and perceived net desirability
significantly predict self‐employment intentions. Further, the
findings illustrated that when combined these three variables provide a
stronger indication for the intention to become an entrepreneur.
This
research study furthers our understanding of what motivates someone to become
an entrepreneur by expanding on the process models of motivation that have been
offered by Ajzen (1991), Shapero (1982) and others that have
explored entrepreneurial intentions. The results have important implications
for those who have the opportunity to guide and influence career choices and
provide career preparation.
We
suggest educators, policy makers, and other wishing to enhance entrepreneurial
activity focus first on increasing entrepreneurial self‐efficacy.
According to Bandura (1986), self‐efficacy
in an activity such as entrepreneurship develops through four processes:
1. enactive mastery or
repeated performance accomplishments;
2. vicarious experience
or modeling;
3. verbal persuasion; and
4. autonomic or
physiological arousal.
Educators
may also point out the relative merits of self‐employment versus
working for others. A common misconception is that the vast majority of small
businesses fail within their first few years. This has a chilling effect on
perceptions of outcome expectations. Yet, a large‐scale study of the
eight‐year destiny of small firms (Kirchhoff, 1994) found that only 18 percent of
all new venture initiations resulted in business failures with losses to
creditors. In contrast, 28 percent survived under their original ownership and
another 26 percent continued under ownership changes. To stimulate
entrepreneurship, perhaps educators should remind students of the high earnings
potential an entrepreneurial career makes possible. The best‐selling
book: The Millionaire Next Door (Stanley and
Danko, 1999) reported that two‐thirds of America's
3.5 million millionaires were self‐employed.
Finally
we suggest educators and policy makers highlight the advantages of taking
moderate, calculated risks to get ahead. Examples of the rewards that can
result from risking an entrepreneurial endeavor abound. Many of our most
successful executives, including Bill Gates, Michael Dell, and many others
achieved their success by taking the risk of launching their own ventures.
As
the foregoing discussion suggests, many educational practices may be modified
to increase entrepreneurial self‐efficacy, highlight
the advantages of self‐employment, and encourage judicious risk
taking. Further research is planned to recommend specific pedagogical methods
and interventions, based on our model, that entrepreneurship educators may use
to stimulate entrepreneurial intentions.
ARTICLE
3: THE ENTREPRENEUR IN THEORY AND PRACTICE
Introduction
The
objective of this article is to advocate that economists devote more attention
to factors concerning the supply of entrepreneurs both over time and across
industries. The article has four main sections which reflect the structure of
our case. First we follow the well‐trodden track in
pursuit of the entrepreneur within economic theory. Like others, we find a
degree of definitional flexibility but also some indications that the track
itself may be circular. However, the main point we wish to establish is that
the emphasis has been on the entrepreneurial function and not on availability.
The second section of the article acknowledges the plethora of empirical
studies, couched in the neo‐classical tradition,
which equate the entrepreneurial function with the act of achieving entry to an
industry. On balance we conclude that such studies have been rather
unsuccessful in explaining new entry in part because they presume an unlimited
supply of omniscient entry candidates. In the next section we develop the
notion of the supply of entrepreneurs by considering the rather sporadic
attempts to develop the microeconomics of entrepreneurial supply. The
penultimate section adopts a different tack by going beyond the economics
literature. Unlike the situation in economics, psychology and sociology have
tended to concentrate on the supply of entrepreneurs. Consequently, we address
the issue of what, if anything, economists can learn from psychological and
sociological studies of entrepreneurship. Our conclusions outline an agenda for
future research into the supply of entrepreneurs and pose practical questions
which economists may wish to include in the work that they do.
The Theoretical Entrepreneur
The
term “entrepreneur” goes back to 1755 and Cantillon. Here the function of the
entrepreneur was, quite explicitly, “...[to] buy the country produce from those
who bring it or to order it to be brought on their account. They pay a certain
price...to resell wholesale or retail at an uncertain price” (Cantillon, 1931, p. 51). In short, the
entrepreneur at the outset was essentially an independent commodity speculator.
As the eighteenth century progressed, so the notion of profit maximization
emerged as the motive for entrepreneurial action (Long, 1983, p.
49). But it was at the height of the Industrial Revolution in
Britain that what was expected of the entrepreneur began to adjust to the new
demands of rapid industrial development. According to Say (1964; first published in 1803), the
entrepreneur now had to be sufficiently multifaceted to ensure the proper co‐ordination
of a range of activities such as the raising of capital, the organization of
production, and the distribution of the product: the entrepreneurs were their
own managers.
With
the continued growth of individual businesses, a process facilitated by the
limited liability provisions enacted for the UK in the Companies Act of 1856, a
distinct class of professional middle‐level managers began
to appear. This is of course the milieu in which Alfred Marshall was developing
the “principles” which formed the basis of modern microeconomics. It is quite
clear that Marshall recognized this emerging division of labour in his
connotation of the entrepreneur. He comments thus:
In the greater part of the business of
the modern world the task...has to be broken up into the hands of a specialised
body of men. They adventure or undertake its risks; they bring together the
capital and the labour required for the work; they arrange or engineer its
general plan and superintend its minor details (Marshall, 1962,
p. 244).
Thus
the function of the entrepreneur incorporates an ability to manage things
through other people and, notwithstanding the static decisionless equilibrium
analysis usually attributed to Marshall, to be able to do this in an
environment in which adventure and risk are inherent. It is also important to
remember that, given this division of labour, Marshall was also aware of the
importance of whatLoasby (1982) aptly
describes as the “supply of business enterprise”, and of the factors involved
in helping individuals rise from the working classes (see Marshall, 1962, pp. 257‐9).
The
Marshallian entrepreneur is but one of very many, each moving ahead incrementally
and contributing their successes and their failures to economic development.
Moreover the entrepreneurial function here, while taking place within firms,
does not have to be associated with the creation of new firms. This is all in
some contrast to the radical entrepreneurial function at the heart of the
Schumpeterian model. Here the function of the entrepreneur is...
...to reform or revolutionize the
pattern of production by exploiting an invention or, more generally, an untried
technological possibility for producing a new commodity or producing an old one
in a new way, by opening up a new source of supply of materials or a new outlet
for products, by reorganising an industry and so on (Schumpeter, 1976, p. 132).
Schumpeter
follows this up with several instances of his entrepreneurs in action, ranging
in scale from railroad construction through electrical power generation and the
motor car, down to being successful with a new sausage or novel toothbrush.
Unfortunately, to the extent that Schumpeter addresses the question of
availability or supply, this is only to become convinced of the inevitable
demise of such entrepreneurs as his capitalist engine falters and the
entrepreneurial function usurped by bureaucracies and committees.
Although
economics has adopted Schumpeter′s work as part of its intellectual capital,
the increasing emphasis in modern microeconomics on theory consistency served
to remove the entrepreneur from the theory. This process has been summed up
thus:
The entrepreneur is shorthand for
uncertainty, imperfect information, and the unknown. He operates in the shadowy
world of intuition, ignorance, and disequilibrium. As a functional agent, he is
completely outside the scope of modern orthodox economic analysis because
entrepreneurial issues are irrelevant and, more important, inadmissible, in the
deterministic, tightly interlocking theoretical environment that is modern
microeconomic theory. The entrepreneur cannot be introduced into the modern
theory of the firm because he directly clashes with consistency – this is a
battle the entrepreneur has not won (Barreto, 1989,
p. 137).
One
remaining sanctuary for the entrepreneur in economic theory is in the revived
Austrian economics and particularly in the work ofKirzner (1973).
The function of Kirzner′s entrepreneur is to engage in profitable arbitrage
based on discrepant information. A key weakness in this model, one identified
by Loasby (1982, pp. 243‐4), is that such
entrepreneurship will be self‐exhausting in the
sense that the consequences of commercial adventures based on apparent
knowledge differences will serve ultimately to eliminate such differences.
Finally, Niman (1991) seeks to
recreate a new entrepreneurial function within what Barreto refers to as the
modern theory of the firm. But, as Niman concedes, his contribution is very
much within the Marshallian schema and we have passed this way already.
Despite
the disappearance of the entrepreneur from mainstream economic theory, the
actions of entrepreneurs in terms of business formation and industrial entry
have remained the focus of empirical research. The purpose of this work has
been to account for changes over fairly short periods of time (typically three
to five years) in the number of firms in an industry. Entrepreneurs as new
entrants are assumed to respond to the perceived profit opportunities of
different industries within the barriers to entry framework set by Bain (1956). The first and probably best‐known
work of this genre is contained in Mansfield (1962).
Here entry is measured as the number of entrants over a specific time period
which survived to the end of the period, as a proportion of
the original number of firms. Thus we have a net measure of entry, one which
fails to reflect the actions of failed entrepreneurs. Mansfield displays a
certain reluctance with this:
...perhaps the most obvious measure of
the amount of entry into the i th industry during the t th
period is the number of firms that entered during the period as a proportion of
the number of firms in the industry at the beginning of the period. But the
available data force us to use the number of firms that entered during the
period and survived until the end as a proportion of the original number of
firms (Mansfield, 1962, p. 1024).
Mansfield
estimated his model on sparse data (12 observations) drawn from only four US
industries (steel, petroleum, tyres, and autos) as follows: Equation 1 where, Eit
is net entry, as discussed above, IIit is the average ratio of the
rate of return of industry i to that for all manufacturing
industries, and Cit is the investment required to
establish a firm of minimum efficient size in industry i.
The
coefficients have the expected signs and are statistically significant at the
95 per cent level. Thus, following Mansfield, the net rate of entry to an
industry would rise by at least 60 per cent on a doubling of its relative
profitability and fall by around 7 per cent if the absolute entry costs were to
double.
The
defects of this model as a representation of entrepreneurial activity are
rather obvious but also useful as a basis for understanding the motivation for
all the work that was to follow in this vein. These have typically employed
much larger cross‐sections of industries, including those
in which small‐scale entry would be the norm.
Researchers have also been able to distinguish different types of entrant,
i.e., to identify more closely the independent entrepreneur, and overcome the
resort to net measures of entry (see Baldwin and
Gorecki, 1987; Hamilton, 1985; Macdonald, 1986).
Nevertheless
the accomplishments of all this endeavour have been modest and in our view the
field is now offering diminishing returns. Its findings were reasonably summed
up by Schmalensee in this way:
Estimates of the market share of a plant
of minimum efficient scale and the capital cost of such a plant tend to be
negatively related to observed entry, as does advertising intensity.
Profitability is not generally strongly correlated with subsequent entry, but
it is unclear whether this reflects expectations that significant entry would
lower profits or the difficulty of measuring profitability (Schmalensee, 1988, p. 669).
Given
our focus in this article, the major criticism we have of this treatment of
entrepreneurial actions is that it pays no heed to the availability of the
actors. In other words, in empirical studies – as in the theoretical works
which largely preceded them – the supply of entrepreneurs has been sadly and
crucially neglected. All that can be taken from these studies is that there
exists an exogenous and inexhaustible pool of versatile and omniscient
prospective entrepreneurs, willing and able to enter those industries which
appear to offer the best prospects for profit. On a different level, we would
also support the point made in Brock and Evans
(1989) that such studies remain unable to account for the fact
that, in most industries, there is a strong positive association between
contemporaneous levels of entry and exit: to explain one is just to be
confounded by the other.
Supply of Entrepreneurs: An Economic
Perspective
It
might be as well for us to make clear our own position on these matters. In
fact, this is well stated for us by Ronen:
Perhaps complementing in the insightful
demand perspective with determinants of supply is of greater importance than
the rather exhausting debate as to whether entrepreneurship constitutes a
moving away from equilibrium (Ã laSchumpeter) or whether it is moving toward
equilibrium (Ã la Kirzner) (Ronen, 1987, pp.
211‐12).
Sporadic
concern with the supply of entrepreneurs has been evident in different ways and
at different times during this century. As we have seen, only Marshall had the
social awareness to incorporate supply‐side factors in his
theory of how economies progress. It is then hardly surprising that, as far as
we can discover, the earliest empirical study of entrepreneurial supply was
carried out in Marshall′s time “...to discover the degree in which the
employing classes are recruited from the wage‐earning classes in the
Lancashire Cotton Industry” (Chapman and
Marquis, 1912, p. 293), and very much in the Marshallian framework
“...as it has been truly said, an industry with its businesses is like a forest
in which old trees are dying and new ones are growing up to take their place” (Chapman and Marquis, 1912, p. 306).
However,
there would appear to have been no follow‐up to this pioneering
study of the sources of entrepreneurs. Perhaps the next most significant study
was that by Oxenfeldt (1943). When
Oxenfeldt examined the entry flows into certain US industries he reached
conclusions which remain antithetical to the neoclassical paradigm. In the
first place he argues that business founders do not have the information to
assess the relative profitability of different activities (Oxenfeldt, 1943, p. 106), an argument which he
seeks to support by pointing to the frequency with which entrepreneurs
establish themselves in trades which he (but not they) knows to be unprofitable
(Oxenfeldt, 1943, pp. 109‐10). It could also be
argued that the positive association between entry and exit is a plausible
consequence of entrepreneurs being so poorly informed, i.e. those exiting are
failed entrants. Moreover, if one assumes imperfect knowledge rather than unexploited
opportunities, one might think of real entrepreneurs making Popperian
conjectures, many of which are expected to fail: to a considerable extent,
failures may therefore be a sign that the economic system is working
successfully. Oxenfeldt also points out that real entrepreneurs usually confine
their adventures to those lines of business in which they were previously
engaged as either an employer or employee. Thus, the theoretical entrepreneur –
omniscient, profit‐oriented, opportunistic, and versatile –
is almost as far removed as he or she could be from those real entrepreneurs
engaged in building up one of the largest and most advanced of the Western
economies. In our terms, what Oxenfeldt began to discern was in fact a supply‐side
theory of entrepreneurship although he appears not to have regarded it as such
at the time.
The
conversion of Oxenfeldt′s early insights – and indeed those of Chapman and
Marquis – into a supply‐oriented theory of entrepreneurship was begun
by Johnson and Darnell in 1976. Commenting on
the treatment of new entry in the applied economics literature, their views are
very much in the tradition of Oxenfeldt:
...little attempt has been made to
examine why new firms are formed: even where barriers are high, new firms may
still attempt to enter, perhaps managing to survive for a short period after
entry. ...However the major shortcoming of the entry literature for our
purposes is that it has given little consideration to the fact that usually a
founder will (eventually) move from an existing position of paid employment (or
unemployment) (Johnson and Darnell, 1976, p. 9).
From
a starting point within the labour force, latent entrepreneurs will move into
their own businesses when they reckon the pay‐off from self‐employment
(Ps) to be greater than that afforded by their present
position (Pe). This condition can arise either when Ps rises
relative to Pe and entrepreneurs are “pulled” from
the labour force, or vice versa, when founders are “pushed” out of either
employment or unemployment as the case may be. Johnson and Darnell develop a
quarterly time‐series model with capacity utilization (Ct)
representing Ps; unemployment rates (Ut)
as the proxy for Pe; and new UK company registrations (Yt)
as the dependent variable. The estimated equation is as follows: Equation 2
On
the theoretical front, it is also worth discussing Casson′s (1982) attempt to use a
neoclassical framework for analysing the crucial variables which determine the
supply of entrepreneurship. (Indeed, his treatment of entrepreneurial supply is
part of a more general attempt to apply the equilibrium method to an analysis
of entrepreneurship.) His supply curve relates the number of “active” entrepreneurs
(who are willing to supply their co‐ordination services)
to “the expected reward per entrepreneur”.
The
supply curve has an infinitely elastic portion at the prevailing real wage for
non‐entrepreneurial labour, and it is upward
sloping above the real wage, indicating that more will be supplied at a higher
expected return to entrepreneurship (Casson 1982, p.
336). In his analysis, Casson distinguishes between two groups of
entrepreneurs: those who value their leisure at less than the prevailing real
wage and those who value it more. The supply of entrepreneurs from the first
group is infinitely elastic at the prevailing wage. Not one of them will decide
to become an entrepreneur if the expected return to entrepreneurship is less
than the reward to the best alternative use of their time, i.e. the prevailing
wage for non‐entrepreneurial work. (It is assumed
that due allowance is made for different levels of risk of alternative
activities.) When the expected return to entrepreneurship equals their
opportunity costs of becoming an entrepreneur, however, they are all prepared
to switch from manual work and routine management to entrepreneurship. The
supply of entrepreneurs from the second group will only emerge once the
expected return rises above the real wage rate. Of this group, those who value
their leisure least will be the first to be induced into entrepreneurship,
whereas those who value it more highly will become entrepreneurs as the
expected reward rises higher and higher.
It
should be noted that Casson′s supply schedule is the supply curve of qualified entrepreneurs.
Individuals with entrepreneurial ability are qualified if they have access to
resources for backing their judgements. Such control over resources may be
gained through personal wealth, good social contacts with wealthy people, or
financing from venture capitalists. A person with entrepreneurial ability but
no access to capital is “unqualified”.
In
Casson′s model, therefore, the position of the supply curve for entrepreneurship
depends on: the number of able entrepreneurs in the economic system (i.e.
the stock and distribution of entrepreneurial
ability among the population); and the proportion of able
entrepreneurs who are qualified. The latter is in turn determined by the
distribution of personal wealth, the organization of education, the social
structure, the degree of social mobility between entrepreneurial and non‐entrepreneurial
groups, and the institutional framework, including the effectiveness of
mechanisms used by large firms and financial intermediaries for screening for
entrepreneurial talent. The supply curve will shift with changes in any of the
above parameters (Casson, 1982, pp. 338, 346).
In
line with his neoclassical predilections, it is clear that Casson is relying on
the idea of entrepreneurship as a resource which can be allocated like any
other factor of production. (This feature of Casson′s theory is shared by other
neo‐classical treatments of entrepreneurial
supply: e.g. Murphy et al., 1991; Schultz, 1975.) Accordingly, he claims that the
decision‐making services of entrepreneurs are
scarce and that they have a positive opportunity cost (Casson, 1982, p. 29). Such a conception of
entrepreneurship stands in stark contrast to that of Kirzner (1973, 1979)
and other modern Austrians, who regard entrepreneurship as non‐deployable
and costless.
A
more recent and rather distinctive contribution bearing on the supply of
entrepreneurs has come from Leibenstein
(1987). Leibenstein is concerned here with both re‐introducing
the entrepreneur into modern microeconomic theory and the selection and
training of individual entrepreneurs. A key aspect of his theoretical initiative
is the notion of “...a loose inert area of equilibrium range of costs...” (Leibenstein, 1987, p. 201), i.e. one in which
not all established firms are cost minimizers. In this situation, motivation
coupled with little more than average capabilities can form the basis for
successful entry. The flow of exists would contain the weaker incumbents rather
than failed entrants per se. The wider implications of such “loose”
equilibria for both the definition of the set of entrepreneurial opportunities
and the supply of candidate entrepreneurs are profound though difficult to
quantify. What prevents all or most of us from augmenting the supply of
entrepreneurs is a lack of appropriate motivation. The essential
motivation is the need for achievement as identified and taught by David
McClelland and his associates (we shall have more to say on this motivational
variable in the next section). Leibenstein calls on economists to consider the
possibility of becoming directly involved in this activity with a view to
boosting the supply of entrepreneurs.
Psychological and Sociological
Perspectives on Entrepreneurship
In
this section we examine various psychological, sociological and cultural
factors which are predicted by different theories to influence the supply of
entrepreneurship. To provide a useful focus for our discussion, we shall
address the following question: what, if anything, have economists to learn
from psychological and sociological studies of the entrepreneur?
Hypotheses
about the principal determinants of entrepreneurial performance are strongly
conditioned by the particular set of disciplinary spectacles through which one
looks. By and large, economists have tended to concentrate on the nature of the
entrepreneurial function, neglecting the unique set of personal qualities which
characterize the entrepreneurial type and emphasizing the demand‐side
determinants of entrepreneurial activity. Contrary to form, they have
surrendered the subject of entrepreneurial supply to psychologists and
sociologists (all the more unusual given economists′ propensity to venture into
areas traditionally regarded as the preserve of other social sciences).
Unlike
mainstream economists who view the supply of entrepreneurship as highly
elastic, psychologists and sociologists recognize that the supply of the unique
personal qualities required for entrepreneurship may be limited in the short‐and
medium‐term, with the result that the supply of
entrepreneurial services is not significantly affected by the structure of
economic incentives (i.e. supply is assumed to be inelastic). They reject the
neoclassical view that the supply of entrepreneurship can be induced
systematically and frictionlessly by the conditions of the market. Hence,
factors on the supply side are predicted to be possible prime determinants of
entrepreneurial activity – a lack of vigour in entrepreneurial response being
attributed to supply factors (not enough potential entrepreneurs in the
society) rather than demand‐side factors (such as
lack of opportunities or rewards for entrepreneurial endeavour).
One
of the early psychological studies of entrepreneurship is that of McClelland (1961). His objective is to identify
and to analyse the psychological factors which produce entrepreneurial
personalities. In particular, he focuses on the motivational variables
affecting the supply of entrepreneurship: namely, the psychological drives
underlying the individual′s “need for achievement” (or n Ach).
Individuals with a high n Ach are depicted as preferring to be
responsible for solving problems and for setting goals to be reached by their
own efforts as well as having a strong desire to receive feedback on their task
accomplishment. McClelland hypothesizes that entrepreneurs will have high n
Ach because they seem to possess the same characteristics. Thus,
according to McClelland (1961, pp. 233‐7),
the supply of entrepreneurship depends on individuals′ psychic needs for
achievement rather than on the desire for money (but monetary rewards may still
constitute a symbol of achievement for entrepreneurs).
McClelland
identifies specific child‐rearing patterns as crucial to the
development of high n Ach and hence as essential to the
emergence of entrepreneurship[1].
Among other things, child‐rearing practices conducive to
entrepreneurship emphasize reasonably high standards of excellence, self‐reliance
training and mastery, maternal warmth and low father dominance. Furthermore, it
is argued that these practices are in turn primarily determined by parents′
religious and ideological values. Although McClelland′s theory does not
increase economists′ understanding of the essence of the entrepreneurial
function, it does yield some new insights into the factors influencing
entrepreneurial supply. Included here is its explanation of the effects of
family socialization (and other aspects of the social and cultural environment)
on the development of n Ach and hence on the subsequent
emergence of entrepreneurs. In addition, McClelland′s approach rejects the
naive and oversimplified psychology of the “profit motive” (with which some
economists have endowed entrepreneurs) and replaces it with a novel emphasis on
an intrinsic motivational variable affecting entrepreneurial supply – namely,
the achievement motive.
Another
psychological theory of entrepreneurial supply with some similarity to
McClelland′s is that of Hagen (1962).
He examines the causal interplay among society, personality and economic
change. The crux of his argument centres on how certain psychological changes
can result from certain social changes. In the course of his argument, he
constructs a taxonomy of personality types (namely, the authoritarian‐creative
personality dichotomy). Like McClelland, he sees the entrepreneur as a
“creative personality” driven by a high need for achievement. However, his
analysis is more comprehensive than McClelland′s in that it incorporates both
the social and the psychological drives which produce the entrepreneurial
personality.
In
Hagen′s theoretical system, the supply of entrepreneurship depends on two sets
of variables: withdrawal of status respect (or group subordination) and
relative social blockage. Status withdrawal occurs when members of a previously
accepted social group perceive that their value system is no longer recognized
by other social groups whose respect they seek. Such a loss of social
recognition is the initial disturbance which sets in motion a sequence of
changes over many decades in child‐rearing practices and
personality formation, and which gradually gives rise to technological
innovation. According to Hagen, entrepreneurship is supplied disproportionately
more by subordinated groups which are alienated from society and which thus
attempt to assert themselves through enterprise. Men in these groups feel
discriminated against and because of relative social blockage, they compensate
in the best, and often the only, way open to them – by succeeding in business.
The existence of relative social blockage is crucial in determining the channel
into which their creative and entrepreneurial energies flow. The implication is
that they are “pushed” rather than “pulled” into entrepreneurship.
Thus,
Hagen′s theory is of significance for economists because it draws attention to
loss of status recognition and barriers to entry to specific social networks as
possibly important determinants of the supply of entrepreneurship. It also
offers insights on the mechanisms by which individuals can be directed into
entrepreneurial pursuits. The efficacy of such mechanisms will affect the
position and elasticity of Casson′s entrepreneurial supply curve (discussed
above).
The
final psychological approach to be considered is Gilad (1982, 1986).
He successfully links Rotter′s psychological theory of locus of control (LOC)
with Kirzner′s economic concept of entrepreneurial alertness. According to LOC
theory, individuals believe that the outcomes of events in their lives are
either within or beyond their personal control. People with internal LOC
believe that the environment can be controlled by their own actions and that
they are, therefore, responsible for their own destiny. In contrast, a person
with external LOC interprets events as the result of outside factors that they
cannot influence, such as luck, chance, fate, or “powerful others”.
From
his survey of empirical psychological studies of the entrepreneur, Gilad
concludes that an individual′s locus of control is a major factor determining
his or her level of entrepreneurial alertness[2].
In particular, internal LOC gives rise to heightened alertness which is
necessary for incidental learning (i.e. the recognition of profit opportunities
once they are encountered). Spontaneous learning in turn ultimately results in
entrepreneurial behaviour.
Of
great relevance for economists is Gilad′s argument that people′s LOC beliefs
are endogenous to the model. The hypothesis is that the internality of economic
agents is dependent, among other things, on the institutional‐constitutional
framework, the degree of decentralization in the economy and the character of
regulatory constraints. A society based on decentralized control seems more
likely than a centralized society to produce citizens who believe in internal
LOC and who are entrepreneurial (Gilad 1982, p.
157;1986, p. 201).
It
would appear that economists have been unduly cautious in incorporating
psychological elements – i.e. internal states of mind, private motivations and
cognitive processes of economic actors – into their analysis. They have much to
learn from psychologists′ attempts to explain entrepreneurial behaviour by
recourse to personality and behavioural characteristics which individualize
entrepreneurs. Psychological theories can give economists useful hints about
the inner motivational and cognitive variables which can affect the supply of
entrepreneurship. (Economic theories may then in turn explain how these
psychological variables can be shaped by economic factors.) Moreover, as Gilad
has shown, they can help explain the determinants of individual differences in
entrepreneurial ability, and hence they can improve economists′ understanding
of the factors affecting the distribution of entrepreneurial talent within a
society.
Economic
theories of entrepreneurship tend also to ignore sociological and cultural
factors in additional to psychological ones. The distinction is important since
sociology is, as Kuhn once stated, “a field quite different from individual
psychology reiterated n times” (1970, p. 240).
The inadequate treatment of society‐wide and group‐level
phenomena results from the fact that economic theories (e.g. Casson, 1982; Kirzner, 1973; Schumpeter, 1934) usually take the individual
entrepreneur as the unit of analysis. They do not deny the independent
existence of group phenomena, such as entrepreneurial teams and networks.
Rather they make one of three different types of assumptions: they assume that
social groups can be ignored because their effects on entrepreneurial activity
are actually negligible (negligibility assumption); they assume that social
groups would have significant effects, so that the respective theory will only
apply to situations where social groups are absent (domain assumption); or as a
first approximation, they abstract from the effects of social groups in order
to simplify the development of the respective theory, with the intention of
taking account of group‐level variables at a later stage
(heuristic assumption) (Musgrave, 1981)[3].
In
the following discussion we examine two theories of entrepreneurship which
invoke sociological and cultural factors. The first is Weber′s sociological
theory. In Weber′s system (1930), the
supply of entrepreneurship is a function of exogenously supplied religious and
social values. “Weber wanted to show how certain types of Protestantism became
a fountainhead of incentives that favoured rational pursuit of economic gain” (Bendix, 1977, p. 57). In particular, Weber
argues that the religious imperatives of Calvinism provide the motives behind
entrepreneurship – they generate the moral energy and drive of capitalist
entrepreneurs.
The
theological doctrines of Calvinism have direct consequences for how people are
to conduct themselves in day‐to‐day
affairs. They spur individuals to produce tangible signs that they have been
preselected by God for salvation from damnation (the so‐called
doctrine of predestination). Calvinism emphasizes intense commitment to an
occupational calling, rationality in the allocation of means to ends and a
“this‐worldly” asceticism (which is
nevertheless combined with a drive to the accumulation of assets). Taken
together, these imperatives comprise the Protestant ethic. According to Weber,
the Calvinist notion of demonstrating one′s faith through the performance of
good works in worldly activity enhanced the choice of business as an occupation,
thereby increasing entrepreneurial supply.
Weber′s
sociological theory has had a pervasive influence on non‐economic
theories of entrepreneurial supply, including those of Cochran (1960, 1965)
and McClelland. According to Kilby (1971, p.
7), it still commands at least as much respect as its more elaborate
successors. Its significance lies in the fact that it was the first theory to
explain in detail the casual sequences linking ideological and religious values
to the supply of entrepreneurship.
Indeed,
most economists would concur with Baumol′s contention that the determinants of
the supply of entrepreneurship are “to a very considerable extent matters of
social psychology, of social arrangements, of cultural developments and the
like” (Baumol, 1968, p. 69). In addition, they
would concede that, in the last analysis, such factors as “cultural
circumstances are far more potent in their effects than taxes or regulatory
constraints” (Baumol, 1983, p. 31).
Nevertheless,
social and cultural influences are typically regarded by economists as
“intractable determinants” and are usually treated (if they are mentioned at
all) as exogenous variables in the economic analysis of entrepreneurship, since
it is not immediately clear how public policy can easily affect them. (As a
result, economists have favoured limiting their analyses of entrepreneurship to
secondary variables whose magnitudes are more amenable to governmental
control.)
More
recently, however, Casson (1990a), has shown
that the cultural determinants of entrepreneurial supply may not be so uninteresting,
inexplicable or intractable analytically to economists after all. Casson
develops an analytical framework which combines cultural and economic
determinants of entrepreneurship. (Interestingly, this framework is not related
either implicitly or explicitly to his earlier neoclassical treatment of
entrepreneurial supply.)
Though
he does not make any explicit reference, Casson′s approach too has a Weberian
flavour: “The economic content of a culture is...related to implicit scientific
and religious attitudes which are transmitted through education, the media, and
personal contact within social groups” (Casson, 1990a,
p. viii)[4]. According to Casson,
culture comprises a number of elements, the most significant of which for our
purposes are the moral aspects of culture. The moral dimension of culture
legitimates general principles of business behaviour and motivates
entrepreneurs to make commitments of various kinds. Important types of moral
commitments include commitments to tell the truth, to respect other people′s
property and interests and to honour the legal process. A culture which
encourages a high degree of moral commitment among its members will engender
mutual trust, reciprocity and honesty, will limit opportunistic behaviour on
the part of contracting partners, and will thereby reduce a wide range of
transaction costs within that society. By enhancing transactional efficiency,
the moral dimension of culture is likely to increase the supply of
entrepreneurship in a nation: “some moral attitudes are far more
entrepreneurial than others, and so are more conducive to the process of
economic development” (Casson, 1990a, p. 92).
Thus,
cultural explanations, including the direction of Casson′s most recent
research, are of value to economists because they highlight the importance of
co‐operation, supportive relationships and
reciprocity in the economic sphere: “...a successful entrepreneurial culture
must support both competitive and co‐operative behaviour...” (Casson, 1990a, p. 93; emphasis added). To bring
their ideas to fruition, entrepreneurs must be able to develop widespread
networks of co‐operation with capitalists, customers,
suppliers, employees and other entrepreneurs. It is important not to equate
entrepreneurial culture with a climate of the aggressive and narrow pursuit of
short‐term private interests. A cultural
approach to entrepreneurship can therefore serve to broaden economists′
interpretation of self‐interested and rational behaviour.
Before
closing our discussion at this stage, it is necessary to make a few remarks
which qualify our hitherto enthusiastic claims about the usefulness for economists
of psychological and sociological theories of entrepreneurial supply.
The
first and most general point is that economists must not let the introduction
of extra‐economic elements into their theories
undermine what they have identified as the crucial features of entrepreneurship
(e.g. its tendency to bring market transactions into closer, though not
necessarily strict, co‐ordination) (cf. Kirzner, 1982, p. 155). Consequently,
economists should prefer those psychological and sociological theories (such as
Rotter′s theory of locus of control) which can be usefully linked to economic
notions of entrepreneurship. In accordance with this directive, Gilad (1982), for instance, has initiated an
important line of research which analyses the psychological factors accounting
for individual differences in entrepreneurial alertness (Kirzner′s economic
concept).
This
point is especially important given that many non‐economic studies of
entrepreneurial supply have unfortunately not excelled in conceptual clarity
and rigour. Definitions of the entrepreneur have often been vague and do not
correspond directly to the precise notions of entrepreneurship in economic
theory (Kets de Vries, 1977, p. 38). The
entrepreneur is often defined loosely as an individual who sets up a business
venture, usually a firm (i.e. the unit of analysis is “enterprisers” rather
than entrepreneurs). The distinction between entrepreneurship and management is
also often blurred (as with samples in McClelland′s studies which seem to be
directed at the managerial function).
The
next point is that economists must be wary of relying on untested and
uncorroborated psychological and sociological constructs. Where possible they
should use the better corroborated non‐economic theories of
entrepreneurial supply: ideally, they should choose the theories which have
survived severe empirical tests. With reference to the psychology of
entrepreneurial supply, for example, Rotter′s concept of internal locus of
control is to be preferred to McClelland′s notion of need for achievement
because it is a better predictor of entrepreneurial intentions (Borland, 1974). In addition, lack of
testability is often a general shortcoming of sociological theories. Thus, it
is unwise to generalize uncritically about what economists can gain from
psychological and sociological studies of factors affecting the supply of
entrepreneurship.
Before
developing our conclusions in terms of the issues economists may or may not
wish to address in this area, we should stress the importance of the supply of
entrepreneurs to economic development. Entrepreneurs know what to do even
though they have not read or even heard of the works of the likes of Marshall
or Schumpeter. The key then is to have enough of them together in the same
place at the same time. The clearest example of how this works is from
observing the vital economic contribution which particular minority groups have
made to a range of societies e.g., contemporary Japan, France and Brazil[5].
So,
what practically might economists do? They might take up Leibenstein′s
suggestion and move into teaching achievement motivation to aspiring
entrepreneurs. Then again, they might not. In any case a very large number of
economists would have to teach an even larger number of entrepreneurs before
this would have any perceptible effect on economic development. Alternatively
they might begin to focus some of their research activity in the areas
identified by Ronen (1987). More
specifically, they may be able to increase our understanding in three areas.
First, how does entrepreneurial activity vary among the OECD countries given
comparable levels of development but different national policies towards
fostering enterprise? Second, using the observations of Oxenfeldt and others,
it would be of interest to develop industry‐level models in which
the supply of potential entrepreneurs was itself an industry variable. Third,
it would be fascinating to investigate the extent to which the entrepreneur′s
availability contributed to the spatial variation in business formation within
an industry.
We
would also add a fourth item to the agenda of future research. We recommend
that economists should pay closer attention to the fertile psychological and
sociological literatures on entrepreneurial supply (mindful, however, of the
methodological and definitional problems that they entail). This would enable
economists to widen the scope of their analyses of the supply of
entrepreneurship by incorporating psychological and cultural dynamics. It would
enable them to endogenize, and hence explain, variables which have usually been
treated as exogenous, and hence as unexplained. (Casson′s 1991 analysis
of the social dimension of morality is an example of this.) Economists must try
to avoid making the mistake that Hayek warned against: namely, the error of
ignoring crucial variables simply because they are difficult to measure or to
quantify (or, we might add, simply because they are not obviously amenable to
influence by public policy). It appears that there is little justification for
economists to claim hegemony regarding the topic of entrepreneurial supply, to
the exclusion of other social sciences. There is much to be gained from a cross‐fertilization
of ideas.
ARTICLE
4: PERSONAL CHARACTERISTICS AND STRATEGIC ORIENTATION: ENTREPRENEURS IN
CANADIAN MANUFACTURING COMPANIES
The
success of small businesses heavily depends on the human capital of their owner‐managers
(Jones et al., 2007).
When an entrepreneur starts a business, they bring a unique set of human
capital to their business as a part of resource endowment to the firm,
including, but not limited to, their skills, experience, and personality. As
such, the business becomes an extension of the entrepreneur as an individual (Hambrick and Mason, 1984).
The
resource‐based view of the firm (RBV) posits that
each organization is endowed with a finite amount of resources. Some of these
resources are rare, valuable, and difficult for competitors to copy, and
therefore provide the firm with opportunities to gain sustainable competitive
advantages (Peteraf,
1993; Barney,
1991; Hunt
and Morgan, 1995; Penrose, 1959). Penrose (1959) maintains
that human capital, such as the entrepreneur's skills, experience, and other
personal characteristics, are key resource endowments. This paper investigates
how entrepreneurs utilize their skills and experiences to influence their
firm's performance. More specifically, we will demonstrate that the
entrepreneur's personal characteristics influence their strategic choices,
which in turn influence the firm's performance.
Many
researchers have investigated entrepreneurial characteristics by applying Hambrick and Mason's
(1984) upper echelon theory, which regards a firm as a
reflection and extension of its owner. Research has revealed, for example, the
firm's strategic choices, behaviors, and performances are to a large extent
influenced by the demographic characteristics of its owners or top managers (Smith et al., 1996),
their social connections (Geletkanycz and Hambrick, 1997), their perceptions of the
environment (Kiesler
and Sproull, 1982), and their decision‐making styles (Eisenhardt, 1999).
Essentially, the upper echelon theory, a special case of RBV, enriches the
strategy formulation and resource allocation processes described by Child and Francis (1977) by
considering the influence of entrepreneurial characteristics. Recent empirical
evidence supports the view that entrepreneurs' and top managers' personal
characteristics have a substantial direct impact on firm performance (Switzer and Huang, 2007; Adams et al., 2005),
and an indirect impact on performance, mediated by decision‐making
speed, decision type, and strategy formulation (Karamiet al., 2006).
Seymour (2006) critiques
classic approaches in business research, arguing that making direct links
between factors such as resources and performance, or environment and strategy,
is overly objective and lacks subjectivity. Ketchen et al. (2007) argue that resource endowment
alone may not automatically lead to superior firm performance. Instead, they
propose that entrepreneurs and managers must deploy resources wisely to
maximize potential benefits. In other words, they argue that the resource‐performance
link is mediated by a firm's strategic choices. Macpherson and Holt
(2007) further highlight the complexity of interactions among
human capital, organizational systems, and firm growth.
Commenting
on knowledge utilization in organizations, Tsoukas (2002, p. 420) draws our
attention to “developing a distinctive way of utilizing resources” and the
“inherently creative potential of human action”. Evidence suggests that even
under seemingly similar external environmental conditions, some firms might opt
to place greater emphasis on understanding the market, while others might focus
on innovation (Atuahene‐Gima and Ko, 2001). Grinstein (2008) argues
that research should shift away from assessing the efficacy of a singular
strategy to examining strategic options and potentially combination strategies.
In this paper, we examine how entrepreneurs consider both market and
entrepreneurial orientations when developing strategic decisions.
According
to Ketchen et al.'s (2007) propositions,
the RBV should be extended to include strategic choices that mediate the
relationship between resource endowment and firm performance. Macpherson and Holt
(2007) clearly favor holistic studies, as well. For practical
purposes, we have limited the scope of our study to include a small number of
variables in each category of constructs. Considered as human capital resource
endowment, we investigate a sample of personal characteristics: internal locus
of control, need for cognition, and need for achievement. Considered as
organizational strategic choices, we examine whether the organization is more
market‐oriented or entrepreneurial‐oriented.
For firm performance, we consider a multitude of finance‐based
indicators including revenue, return on investment, and return on assets. In
the course of this paper, we review and summarize the literature on market
orientation, entrepreneurial orientation, and various relevant personal
characteristics. We then hypothesize their relationships and describe our
empirical study designed to test these relationships. Finally, we discuss the
implications of our findings.
1. Literature review
Considerable
effort has been invested in identifying the set of desirable personal
characteristics for starting or effectively managing businesses. For example,
researchers have identified that achievement motivation positively affects an
entrepreneur's speed of decision‐making (Kauer et al., 2007),
risk‐taking attitudes influence an
entrepreneur's strategic decisions whether to form alliances with other
businesses (Pansiri,
2007), professional experience and education are likely to lead and
enable an entrepreneur to develop formal strategic plans (Karami et al., 2006),
and intuition leads an entrepreneur to prefer a prospector strategy (Gallen, 2006).
Although
researchers have uncovered a host of personal characteristics that are critical
antecedents to firm performance, as Dobbs and Hamilton (2007) observe,
knowledge about the relationship among the characteristics of entrepreneurs,
their strategic decisions, and the performance of their firms is still
fragmented, and that no research to date has produced a coherent theory. The
following discussion elucidates these prior findings and attempts to join them
together.
1.1
Market orientation
Market
orientation (MO) is the organization‐wide concerted effort
in generating market intelligence pertaining to current and future customer
needs, disseminating intelligence across departments, and responding to such
intelligence (Kohli
and Jaworski, 1990). Market‐oriented firms embrace
a collection of special behaviors that place primary emphasis on customers. It
has also been argued that an organization's ability to respond to the market
depends on the extent of its knowledge of both customers and competitors (Narver and Slater, 1990).
That is, a market‐oriented firm must have an
organizational culture that encourages and facilitates all activities involved
in both acquiring information about customers and competitors in the target
market and disseminating the information throughout the business. Hence, MO is
a composite construct that encompasses three distinct components: customer
orientation, competitor orientation, and inter‐functional
coordination. Both Narver
and Slater's (1990) and Kohli and Jaworski's (1990)conceptualizations
of market orientation have been extensively employed in the stream of research
that followed their work. Empirical findings from both perspectives generally
converge to support the conclusion that MO has a robust positive influence on
firm performance (Kirca et al., 2005; Cano et al., 2004).
Notwithstanding
the solid impact of MO on performance, other strategic options are available
for managers to consider. For example,Sin et al. (2002) have shown that relationship
marketing orientation (RMO), which focuses on cultivating a mutually beneficial
long‐term relationship between buyers and
sellers, also has positive effects on firm performance. These researchers have
also demonstrated that, depending on industry and economic ideology, RMO may be
more effective than MO in some cases (Sin et al., 2005).
A
notable shortcoming of MO is its reliance on entities external to the firm
(e.g., customers and competitors) to guide its actions.Jaworski et al. (2000) have
warned that firms should avoid being market‐driven and, instead,
should attempt to drive the market. In order to achieve such goals, some have
identified innovation, proactivity, and risk‐taking as
complementary elements to MO. For example, Atuahene‐Gima and Ko (2001) demonstrate that
entrepreneurial orientation (EO) is an alternative to MO. When a firm aligns
both MO and EO it would have superior performance in the commercialization of
new products. Zhou et al. (2005) also
consider EO as an alternative strategic orientation to MO.
1.2
Entrepreneurial orientation
EO
relates to the processes, practices, and decision‐making activities that
lead to a new entry (Lumpkin
and Dess, 1996). EO involves not only the intentions but also the
actions of key players in a dynamic generative process aimed at new venture
creation. The fundamental dimensions that characterize EO, Lumpkin and Dess
assert, include a propensity to act autonomously, a willingness to innovate and
take risks, a tendency to be aggressive toward competitors, and proactively
pursuing market opportunities. Covin and Slevin (1991) maintain that, in
addition to influencing new venture creation, EO also influences a firm's on‐going
performance. Therefore, EO is an important strategic orientation for existing
firms as well. Empirical evidence suggests that firms with a high level of EO
are much more likely to engage in innovation (Manimala, 1992) and enjoy better overall
organizational performance (Smart and Conant, 1994). The positive
influence of EO on performance is extensive, and the strength of this influence
increases over time. Therefore, researchers argue that investment in EO is
financially worthwhile as it will pay off over an extended period of time (Wiklund, 1999).
Atuahene‐Gima and Ko (2001) demonstrate
that firms adopt various combinations of strategic orientation. Some place
their emphasis more heavily on either MO or EO. Those that integrate both MO
and EO, however, achieve the strongest performances in the commercialization of
innovation. Zhang et al. (2007) further
demonstrate that, while both MO and EO have unique and significant positive
influences on firm performance, these two strategic orientations influence
performance via different paths. Entrepreneurial‐oriented firms are
more likely to concentrate on direct links to financial performance, whereas
market‐oriented firms are more likely to focus
on customers and gaining long‐term financial return
through improved satisfaction and loyalty.
Environmental
factors have typically been conceptualized as moderators for both MO (Kohli and Jaworski, 1990)
and EO (Lumpkin and
Dess, 1996). Only a few studies have examined the factors that lead
managers to choose either strategic orientation. Zhang et al. (2007) suggest
that certain market environmental factors, such as munificence, competitive
intensity, and market turbulence, might affect managers' selection of strategic
orientations. Kohli
and Jaworski (1990) have stipulated that the top manager's
emphasis is an important antecedent to MO. We suspect that it could also be the
case in EO. In the following subsection, we seek to identify what type of
entrepreneurs is more likely to adopt MO or EO.
1.3
Managerial characteristics in management literature
There
is a rich body of management literature that seeks to identify certain sets of
desirable personal characteristics for entrepreneurs starting new businesses
and for managers running companies effectively. A large number of managerial
characteristics have been examined in the management literature. For example,
prior research has shown that managers with higher levels of achievement
motivation make decisions faster (Kauer et al., 2007), owner‐manager's personal
visions correlate with above average annual sales levels (Mazzarol et al., 2009),
managers with higher levels of education are more likely to develop formal
strategic plans (Karami et al., 2006),
managerial cognition plays a vital role in managerial conduct and performance (Panagiotou, 2006),
and managers with an internal locus of control tend to be more innovative (Miller and Toulouse,
1986) and effective (Govindarajan, 1989). Prior research has
considered achievement motivation and internal locus of control as critical
characteristics of successful entrepreneurs (Littenen, 2000; Hansemark, 1998).
However, extant knowledge on this topic is fragmented (Dobbs and Hamilton, 2007).
More research is needed to provide a holistic picture of entrepreneurial
behaviors (Macpherson
and Holt, 2007).
In
our study, we take a resource‐based view and
consider the entrepreneur's personal characteristics as human capital resource
endowments, and examine them in the context of strategy and performance. In
terms of variables, we examine three frequently investigated personal
characteristics in the entrepreneurship research: need for achievement, need
for cognition, and internal locus of control.
Need
for achievement
The
need for achievement (NFA) construct has a long history in psychology. It
generally refers to a stable, learned characteristic in which satisfaction is
obtained by striving for and attaining higher levels of excellence (Feldman, 1999).
Although NFA was originally conceptualized as a stable personal trait, more
recent studies have demonstrated that it can evolve over time, particularly
through the acquisition of advanced education, such as an MBA programme. One
study found that students substantially increased their achievement needs after
enrolling in an MBA programme (Hansemark, 1998). Prior research also
indicates that there is a positive relationship between NFA and
entrepreneurship (Johnson,
1990). Research also suggests that angel investors typically have a
higher NFA (Duxbury et al., 1996);
entrepreneurs with a higher NFA are more likely to be successful (Johnson and Ma, 1995).
In some cases, NFA is one of the selection criteria for entering
entrepreneurship training programmes (Gupta, 1989). There seems to be a consensus on
the positive relationship between managerial NFA and successful performance.
Several
studies have examined NFA's influence on firm strategies. For example, it was
found that a CEO's NFA affects the rationality of the strategic decision‐making
processes by increasing organizational formalization and integration (Miller et al., 1988).
When a CEO has a high level of NFA, they are more likely to adopt broadly
focused strategies and be proactive (Miller and Toulouse, 1986). Being proactive is
one of the key elements of entrepreneurial orientation (Lumpkin and Dess, 1996).
Therefore, we suspect that entrepreneurs with higher levels of NFA are likely
to adopt entrepreneurial‐oriented strategies.
Lumpkin and Dess (1996) have
also theorized a positive relationship between NFA and EO. They predict that
entrepreneurs and managers with higher levels of NFA are more likely to adopt
EO, which in turn contributes to superior firm performance. The literature,
however, is relatively silent on the relationship between NFA and MO. In
summary, extant literature supports the idea that entrepreneurs with higher
levels of NFA are more likely to cultivate an organizational culture that is
more competitive and proactive. We hypothesize that an entrepreneur's NFA has a
significant direct impact on the firm's strategy and an indirect on
performance:
H1. An entrepreneur
with a higher level of NFA is likely to adopt entrepreneurial orientation to
achieve superior firm performance.
Internal
locus of control
According
to Rotter (1966),
internal locus of control (ILOC) versus external locus of control
conceptualizes how individuals see their own actions affecting events that
surround their lives. Individuals with ILOC tend to believe that events are the
results of their own actions (Rotter, 1966), while individuals with external
locus of control tend to attribute events to external environmental factors,
such as powerful others or chance (Levenson, 1973).
If
we put the concept of ILOC in the context of an entrepreneur running their
business in a competitive environment, we can imagine that an entrepreneur with
a strong ILOC would believe that they can make things happen, and that the
success or failure of their business is the result of their own actions. In
contrast, an entrepreneur with an external locus of control might consider that
the external environment is the main reason for their business success or
failure.
Market‐oriented
organizational culture requires that a firm be attuned to its customers, and
design and deliver products and services that fulfill customer needs and wants.
In other words, a market orientation assumes the customers as the locus of
control. An entrepreneur with a high level of ILOC may not be willing to
surrender the control of their organizations and seek directions from
customers, competitors, or other external entities. They would rather take
matters into their own hands and formulate a competitive organizational culture
that is internally driven by their own innovative and creative ideas.
ILOC
is a signature characteristic of angel investors and entrepreneurs (Johnson and Ma, 1995).
Entrepreneurs with high levels of ILOC tend to perceive themselves as having
more managerial discretion and power (Carpenter and Golden, 1997). Managers and
entrepreneurs with ILOC also tend to be more innovative (Miller and Toulouse,
1986) and effective (Govindarajan, 1989). Prior research have also
indicated that the positive impact of ILOC on firm performance is mediated by
the entrepreneur's risk‐taking behaviors (Boone et al., 1996).
The extant literature clearly indicates a positive relationship between ILOC
and entrepreneurial behaviors. Consistent with prior findings, we hypothesize
that an entrepreneur's ILOC has direct and indirect positive impacts on the
firm's performance, and the entrepreneur with a high level of ILOC is more
likely to adopt EO:
H2. An entrepreneur
with a high level of ILOC is likely to adopt entrepreneurial orientation to
achieve superior firm performance.
Need
for cognition
A
need for cognition (NFC) is a tendency to engage in and enjoy
thinking (Cacioppo
and Petty, 1982). The psychology literature suggests that
individuals naturally differ in their levels of NFC (Cacioppo et al., 1996).
Those with higher levels of NFC possess positive attitudes toward complex
stimuli that require thinking (Cacioppo et al., 1986). Individuals with higher levels of NFC
also favor extensive information searches, whereas those with lower levels of
NFC prefer interpersonal sources of information and are more likely to act upon
perceptions and gut feelings (Mourali et al., 2005).
Although
the NFC construct was originally developed in psychology, it has been widely
applied in the marketing field, particularly in consumer behavior and
advertising research. For example, in the context of assessing the effects of
reference group opinions, it has been found that individuals with high levels
of NFC place greater emphasis on the logical evaluation of topic‐relevant
arguments, while individuals with low levels of NFC make their decisions based
on affective attitudes toward the information (Areni et al., 2000).Campbell and Kirmani (2000) have found
that consumers with higher levels of NFC and cognitive capacity are more
capable of activating their knowledge base. Those with higher levels of formal
education are thought to have more cognitive capacity and higher NFC, and are
more likely to engage in rational reasoning (Cacioppo et al., 1986). In an advertising context,
researchers have found that individuals with higher levels of NFC are more
capable of understanding complex advertisements (Putrevu et al., 2004).
While
NFC has not been extensively examined in the domains of strategic management
and entrepreneurship, evidence shows that managers and entrepreneurs with
higher NFC are more successful at adaptive decision‐making
(Levin et al., 2000).
If individuals with higher levels of NFC behave in certain patterns, it would
be reasonable to deduce that entrepreneurs with higher levels of NFC would
behave similarly. We would expect that an entrepreneur with a higher level of
NFC would place greater emphasis on logical arguments and make their strategic
decisions based on extensive market research rather than on intuition. MO
encourages the entrepreneur to generate extensive market intelligence. The
market intelligence can be complex, and it requires a high level of cognitive
capacity to effectively analyze and respond. We hypothesize, therefore, that an
entrepreneur's NFC has a significant impact on a firm's strategy and
performance, and the entrepreneur with a high level of NFC is likely to be
market‐oriented:
H3. An entrepreneur
with a higher level of NFC is likely to adopt market orientation to achieve
superior firm performance.
Essentially,
we propose a contextual model based on the extended resource‐based
view (Ketchen et al., 2007).
We believe an entrepreneur's personal characteristics will influence their
strategic orientations, which ultimately leads to business performance (seeFigure
1).
2.1
Procedure
We
have hypothesized several relationships among entrepreneurs' personal
characteristics, their firm's strategic orientations, and performances. A cross‐sectional
survey‐based method is suitable for testing the
study hypotheses because data on a large number of organizations can be
collected systematically via this method (Babbie, 1973). The survey method is the least
susceptible to researcher bias in data collection, analysis, and interpretation
(Busha and Harter,
1980).
A
mail survey was administered to small to medium sized enterprises (SMEs) in
Canadian manufacturing industry. A sample of 2,200 companies was selected from
approximately 100,000 Canadian companies listed in Profile Canada's database.
This selection was a compromise between a wide cross‐industry
sample and a focused sample. The companies in our sample are all in the
manufacturing industry but they produce a wide variety of products, including
processed food, clothing, furniture, and industrial equipments. A cross‐industry
sampling approach would allow broader generalization but errors may occur
because each industry has its unique competitive environment. A focused sample
would limit the influence of industry factors but limit the generalizability of
the findings. We have chosen to sample the highly populated and relatively
diverse manufacturing industry in order to allow our results to be generalized
to a larger population, yet at the same time keep the environmental factors
relatively comparable. Our sample does not include, for example, companies in
financial services or oil and gas sectors where competitive behaviors are
considerably different because of oligopoly and government regulations. The
manufacturing industry has been a favorite sample frame for many prior studies
of a similar nature (Pelham,
1999; Menguc
and Auh, 2006; Matsuno and Mentzer, 2000; Knight, 2000;Avlonitis and Gounaris,
1999).
The
business owners or general managers of the selected companies were contacted by
mail, informed of the nature of our study, and asked to complete a survey
questionnaire. Follow‐up reminder postcards were sent two
weeks after the initial mail‐out. Of the 2,200
packets mailed, 198 were returned as undeliverable. One hundred and sixty‐three
respondents returned the completed survey questionnaires. Two of these were
deleted due to a large amount of missing data. The survey, therefore, yielded
161 usable responses, representing an 8 percent response rate.
The
descriptive statistics of the companies that responded to our survey are
reported in Table I. These companies, on average, have
been in business for 32 years, with 72 employees, and have approximately $27
million dollars in annual revenue. These statistics will be used to As
suggested by Armstrong
and Overton (1977), we conducted a t‐test
to compare the early respondents (those who responded within the first three
weeks of mailing) and the late respondents along a number of major variables,
including MO and EO. This did not reveal any statistically significant
difference between the two groups (see Table II).
We
know very little about the companies that did not respond to our survey except
for their approximate number of employees and estimated revenue. We were unable
to compare revenue between responding and non‐responding companies
because of a large percentage of missing data. Therefore, we compared
respondents' number of employees with that of the overall sample; no
significant difference was found. Hence, we believe that non‐response
bias is not a As a preventative measure to potential common method bias, which
refers to the artificially high correlation among constructs due to a single
measurement method (Podsakoff et al., 2003),
we rigorously followed the recommendations made by methodologists such as Busha and Harter (1980), Podsakoff et al.(2003),
and Klein (2007).
For example, we used previously published scales with demonstrated validity and
reliability wherever possible, and we did not mix the measurement items. We
also inserted several open‐ended questions and varied question
types among Likert scales and semantic differential scales. While these
techniques reduce common method bias, they do not eliminate it. We tested common
method bias post hoc using Harman's single‐factor test (Podsakoff and Organ,
1986). The test revealed 27 factors with Eigen values greater than
1.00, suggesting that common method bias is not a major concern in our data.
2.2
Construct measurement
Market
Orientation (MO)
Kohli et al. (1993) and Narver and Slater (1990) developed
two different measurement scales to capture the MO construct. Both scales have
been used extensively. Over the years, several scholars have extended,
shortened, and modified these scales to suit their respective research context
(Gainer and Padanyi,
2005; Mavondo et al., 2005; Hult et al., 2005; Zhou et al., 2005).
Particularly,Matsuno et al. (2005) have
demonstrated that Narver and Slater's scale captures MO slightly better. Hence,
we used a 12‐item, seven‐point
Likert scale, originally developed by Narver and Slater, to capture each
respondent's perceptions of his/her company's customer orientation, competitor
orientation, and inter‐functional coordination (see the
Appendix (Figure A1) for items included in our
questionnaire). These 12 items demonstrated good reliability, with a Conbach's
alpha of 0.847. We averaged these 12 items to create a MO composite index.
Entrepreneurial
Orientation (EO)
This
was measured with a nine‐item, seven‐point
semantic differential scale based on the work of Naman and Slevin (1993).
The items were designed to capture a firm's innovativeness, pro‐activeness,
and risk‐taking behavior. These items also
demonstrated good reliability, with a Cronbach's alpha of 0.841. These items
were subsequently averaged into a single EO composite index.
Need
for Achievement (NFA)
The
NFA was measured with a five‐item, seven‐point
Likert scale. The items were selected from the need for achievement subscale of
Needs Assessment Questionnaire (Heckert et al., 1999). These items demonstrated good scale
reliability, with a Cronbach's alpha of 0.886. We averaged these five items to
create an index score for NFA.
Internal
Locus of Control (ILOC)
This
was measured with a seven‐item, seven‐point
Likert scale. Three items, measuring internal locus of control, were based on
the work of Rotter
(1966), and the remaining four, measuring external locus of control,
were based on the work of Levenson (1973). In order to test their
loading, we conducted an exploratory factor analysis with varimax rotation,
which revealed that one single factor underlies the seven items measured.
Accordingly, we reverse‐coded the four items that were designed
to capture external locus of control. The resulting seven items demonstrated
good reliability, with a Cronbach's alpha of 0.801. We then averaged these
seven items into one ILOC composite index.
Need
for Cognition (NFC)
Cacioppo et al. (1984) developed
two versions of a scale to measure NFC: a 34‐item long scale and an
18‐item shorter version. A recent study
reported that NFC consists of four key components: enjoyment of cognitive
stimulation, preference for complexity, commitment of cognitive effort, and
desire for understanding
ARTICLE
5: GROWING A BUSINESS AND BECOMING MORE ENTREPRENEURIAL: THE FIVE TRAITS OF
SUCCESS
In
today's current economic environment the barriers to growth are even more
apparent than normal and there is little appetite for risk taking and minimal
room for mistake making. So growing a business and becoming more
entrepreneurial would seem to be a very tall order indeed!
However,
despite this, we are seeing some impressive players succeeding. When analyzed,
they have five core traits or skills. The first is an ability to foster an
entrepreneurial culture.
The culture
In
a recent survey[1], we asked a group of
entrepreneurs from where they expected the next major phase of growth to come.
Over 30 percent said that expansion in the UK, a further 8 percent from
expansion overseas. This can be seen in Figure 1.
Nearly
25 percent of respondents said they expected growth to come from
entrepreneurial activities such as a new product or service. Others are
harnessing new distribution channels.
In
the same survey, we asked how many genuinely new ideas they had. Over 55
percent said they had between two to three ideas for their businesses. So the
businesses are clearly succeeding in terms of trait no: 1. They are creating an
environment within which innovation is encouraged and ideas can flourish.
An ability to model
However,
it is not enough to have ideas. The second core skill is being able to filter
out the ideas that are unlikely to be more than “just ideas” from those that
can be developed into a profitable business. Businesses that want to grow and
be more entrepreneurial must be capable of building a robust business model by
which all ideas can be screened and analyzed. This ensures that the right ideas
come off the drawing board and that time and resources are not wasted.
Not being blocked by the basics
Some
of the main barriers to growth include lack of finance for investment, lack of
business confidence or too little time in the working day. These are the basic
barriers cited by almost every CEO whose business is not growing as fast as
they would like.
However,
successful entrepreneurs manage to sidestep or overcome them. They do this by
developing a detailed business plan, having a clearly defined strategic
direction, a strong team that they can delegate to and tight cash flow
management. Steve Jobs is as proud of the things Apple does not do as the thing
it does. A clearly defined focus ensures the business is not sidetracked and
time and talent are optimized.
Interestingly
– the detailed plan, a clear strategic direction, strong team and tight cash
flow are all areas which instill confidence among potential investors too, thus
helping our entrepreneurs tackle that other perennial barrier, a lack of
finance.
Can you calculate when
opportunity knocks?
It
is not enough to provide an environment within which innovation is fostered. An
ability to spot and respond to an opportunity is also critical if your business
is to grow and be more entrepreneurial (see Figure 2).
Indeed,
nearly half the respondents in our survey said the “ability to spot an
opportunity” was one of the most important criteria. The other most important
criterion being a willingness to take risks.
However
in the successful entrepreneurial businesses, this eye for an opportunity is
balanced by an ability to calculate and assess the risk. They conduct frequent
and thorough risk assessments of ideas and opportunities and take appropriate
action accordingly. They minimize the risks within their control, and
understand the probability and impact of the risks they cannot control.
This
ability to calculate and assess removes the gamble – and again makes the
business and its ideas more backable when it comes to seeking finance.
Catering for Gen Y
Entrepreneurship
and growth today also mean being able to tap into the next generation, their
mind set, energy and drive to achieve.Fortune magazine claimed that
this next generation will be the highest achieving generation in history (Hira, 2007). They will be the most technically
knowledgeable people of our time. They will respond well to challenges and be
motivated by success. As they will have grown up in a constantly and rapidly
changing world, this will be the environment in which they will want to work.
So they will often be thinking of the next idea or spotting the next
opportunity. Perfect entrepreneurial material!
Companies
that want to be entrepreneurial need to know how to encourage, reward and
motivate this generation. But be aware that may involve an organizational re‐think
to ensure the structure allows the ideas from the company's newest employees to
reach the boardroom where decisions are made.
Personal
If
you can tick the boxes when it comes to the above critical areas you will be
well on the way to having a growing, entrepreneurial business. However, in
addition to these “corporate traits or skills” there are some personal ones
which the leaders driving such businesses should ideally have if business is to
really fly:
- Have
confidence in yourself and your business. Self belief is a great way to
get others to believe in you.
- Be good
with the written word and a good public speaker. This enables you to voice
the strategy to your employees and the outside world to inspire people to
support your vision of the business.
- Learn
to think on your feet, be able to quickly assess the situation, understand
the facts and make quick decisions when under pressure. This will instill
confidence from all around you and inspire your team accordingly.
- Think
positively as this will help engage others around you to act positively
too.
- Make sure
you keep on top of the numbers, analyze the business model, keep tight
control of the cash flow and ensure you really understand what is going on
in your business.
- Make
objective decisions at all times. Although it will sometimes appear that
someone is making a decision off the cuff, behind the scenes they will
have assessed the situation and calculated the risks before making an
informed decision based on hard facts, intuition and experience.
- Have
passion in your business. It can be a hard up hill struggle if you are not
truly in love with what you are doing. Many of today's successful
entrepreneurs say they have got where they are today because they had
passion in what they were doing, they put their heart and soul and
listened to their intuition. The passion will give you the energy to
persevere and follow through your plan with conviction.
- Be
creative. This does not have to be in the design sense of the word, but in
your thinking. Listen to your employees who are coming up with ideas and
think how they might be turned into real businesses. Think creatively
around the challenges to see if they can be overcome. Keep probing with
questions until the right answer is found.
- Understand
your limitations. You may not have all of the above traits, but if you can
understand where your strengths and weaknesses lie, then the relevant
expertise can be pulled in where required. Find yourself a business mentor
to give you objective feedback and from whom you can learn.
Conclusion
While
running a growing, successful entrepreneurial business looks like a talent you
either do or do not have, the reality is there are some core aptitudes which
are quite definable and which can be instilled in an organization.
They
include ensuring: the culture is right, opportunities are identified and
assessed, risks are always analyzed, talent is optimized and the people heading
up these businesses demonstrate some of the characteristics of an entrepreneur.
This
list might sound a challenge, but trust me, it is a lot easier growing a
business that has these traits than trying to drive forward one that has not.
