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Relationship between entrepreneurial orientation and firm performance in large organizations over time

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Abstract

The purpose of this study is to understand the longitudinal relationship between entrepreneurial orientation and firm performance. The authors obtain objective performance measures from archival sources and construct 10-year panel data from large, publicly traded German firms using letters to shareholders to derive entrepreneurial orientation (EO) information. Unlike prior research, this study measures all variables every year for the sample period. Analyses indicate that EO has a strong initial effect on firm performance and that this effect gradually declines with time. Competitive intensity and demand volatility influence the effect of EO on performance in both the short term and the long term. Implications for research and practice are discussed.

abstrakt

Der Zweck dieser Studie ist, die Längsschnittbeziehung zwischen unternehmerischer Ausrichtung (entrepreneurial orientation, kurz EO) und Unternehmensleistung zu verstehen. Die Autoren gewinnen objektive Leistungsmessung aus Archivquellen und erstellen anhand von Briefen an Aktienhabern Paneldaten von vergangen zehn Jahren aus großen, börsennotierten deutschen Unternehmen, um EO-Informationen zu gewinnen. Im Gegensatz zur bisherigen Forschung misst diese Studie alle Variablen jedes Jahr für die Probenzeit. Die Analysen indizieren, dass EO einen starken anfänglichen Einfluss auf die Unternehmensleistung hat und dass sich dieser Effekt allmählich abnimmt. Wettbewerbsintensität und Nachfrageschwankungen beeinflussen die Wirkung von EO auf die Leistung sowohl kurzfristig als auch langfristig. Konsequenzen dessen für Forschung und Praxis werden hier diskutiert.

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Acknowledgments

We thank Editor-in-Chief Hamid Etemad and two anonymous reviewers for feedback and suggestions, which considerably strengthened the manuscript. Previous versions of this manuscript were presented at the 2013 Babson College Entrepreneurship Research Conference and the 2011 RENT Conference, where it benefited from comments provided by the session attendees. Editorial assistance provided by Rupesh Bhardwaj, Lucas Koczian, Elif Yoney, and Nicholas Dorr-Hanss is appreciated. All omissions remain our own.

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Authors and Affiliations

  1. School of Management, Binghamton University, State University of New York, Vestal, NY, 13850, USA

    Vishal K. Gupta

  2. Lynchburg College, Lynchburg, VA, USA

    Alka Gupta

Authors
  1. Vishal K. Gupta
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  2. Alka Gupta
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Correspondence to Vishal K. Gupta.

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Summary Highlights

Research questions/purpose: The purpose of the present study is to conduct a longitudinal examination of the EO-performance relationship and understand the contingent influence of competitive intensity and demand volatility on this relationship.

Results/findings: Results reveal that EO is associated with positive performance benefits in both the short run and the long run, although the strong performance benefits in the short term gradually decline over time. The performance benefits of EO decline faster over time in highly competitive industries and in environments characterized by high levels of demand volatility.

Limitations (if there is any): The sample for the present study is limited to German firms, so one cannot simply assume generalizability to other countries where the institutional environment for entrepreneurship differs from that of economies like Germany.

Theoretical implications and recommendations: Non-longitudinal studies may have mis-estimated the strength of the EO-performance relationship because they do not capture the effects of EO over time. Relying only on the cross-sectional effects of EO provides an incomplete picture of firm performance; a more complete understanding arises from longitudinally studying both EO and performance.

Practical implications and recommendations: Attention to the performance consequences of EO over the long term is an important issue because adopting and embracing EO is a time-consuming strategic investment. This is especially so for top managers at the helm of large corporations as they are continuously challenged to deal with evolving business landscapes. The results of this study provide useful guidance to managers and shareholders who may consider investing in EO.

Appendices

Appendix

List of items used to measure entrepreneurial orientation (from Gupta and Dutta (2010) based on Morgan and Strong (2003), Hughes and Morgan (2007))

Innovativeness

  • Have a strong proclivity for innovation

  • Be willing to engage in new innovations

  • Improve and innovate its way of doing business

  • Look for new ways to do things

Proactiveness

  • Proactively introduce new products and services

  • Have a strong tendency to be ahead of others

  • Take initiative rather than being a follower

Risk taking

  • Be willing to take risks

  • Have a tendency to take bold and aggressive decisions

  • Be open to pursuing risky projects

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Gupta, V.K., Gupta, A. Relationship between entrepreneurial orientation and firm performance in large organizations over time. J Int Entrep 13, 7–27 (2015). https://doi.org/10.1007/s10843-014-0138-0

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