Jawad Hussain, Assistant Professor, Department of Management Studies,
University of Malakand. Email: jawadhussina79@gmail.com
Abid Khan, PhD student, Department of Management Sciences, Qurtaba University of Science & Information Technology, Peshawar.
Fayaz Ali Shah, Assistant Professor, Department of Management
Sciences, Islamia College, Peshawar. Email: akhoon47@yahoo.com
Abstract
Entrepreneurial
orientation has been the area of interest by many researchers in the field of
entrepreneurship and management. However, empirical evidences reveal that most
of these studies have been conducted in developed countries and have reported
mixed results. Analyses on the subject in developing countries are lacking.
This study investigates the role of entrepreneurial orientation on firm
performance. This study used survey data from a random sample of 213 small and
medium sized enterprises (SMEs) located in Sialkot region, Province of Punjab
Pakistan. The findings support the hypothesis that entrepreneurial orientation
associates with firm performance. This study contributes to the body of
knowledge by taking EO as five dimensional construct (innovativeness, risk
taking, proactiveness, competitive aggressiveness, autonomy) rather three
dimensional construct. and organizational performance comprising of non
financial indicators such as customer satisfaction, employees satisfaction,
service quality, innovation and growth. The study offers suggestions to policy
makers and future directions.
Key Words: Entrepreneurship,
management, orientation, development, SMEs performance, innovativeness,
proactiveness.
Introduction
Small and Medium Enterprises (SMES) has been the main
source of employment creation, economic growth and prosperity in both developed
and developing countries (Akhtar et al.,
2015; Aziz et al., 2014; Ismail et al.,
2014). SMEs represent more than 90 percent of the
total number of firms worldwide, with employment of approximately around 70
percent and contribution of about 60 percent to GDP (Ayyagari et al., 2011). Pakistans economy is largely SME driven economy where
these SMEs represent almost 93 percent of all the enterprises, employing nearly
80 percent of the non-agricultural labour force (Malik et al., 2011). However the
contribution of SMEs to gross domestic product (GDP) towards Pakistans economy
is only 30 percent, which seems to be insignificant (Khalique et al., 2011; Kureshi et al., 2009; Mirani and Shah,
2012; Subhan et al., 2014). This is despite
various policies, measures and support programs which the government of
Pakistan has initiated and implemented in order to stimulate the growth and
improve the competitiveness of the SME sector (Hafeez et al., 2012). Since SMEs
represent the major portion of the industrial sector in most of the developed
and developing countries, it is more important to study the behavior of this
important sector and practice such strategies that facilitate the achievement
of growth and greater performance the sustainable economic growth (Jabeen and Mahmood, 2014). Entrepreneurial orientation is key strategic
orientation that when adopted and practiced leads the organization towards
greater organizational performance and sustainable competitive advantage (Hakala, 2013; Wiklund and Shepherd, 2005). It entails specific organizational-level behavior
inclined towards risk-taking, self- directing activities, engaging in
innovation and reacting proactively and aggressively to out-perform the
competitors in the marketplace and improve the firm performance (Hakala, 2011; Lumpkin and Dess, 1996; Olaniran, 2016). Entrepreneurial
orientation is a viable strategy that ensures the firm survival and enable an
organization to make effective responses to the external competitive and
challenging business environment. Previous researches have highlighted that
firms that adopt entrepreneurial oriented strategy are better able to leverage
the market opportunities and ensure their long term survival and growth (Lumpkin and Dess, 1996; Zhao et al., 2011).
Dynamic, strong and
efficient SMEs are acknowledged to play their key role in creating competitive
advantage and facilitating the process of economic development (Batool and Zulfiqar,
2013). Being key drivers
to economic growth, there is a need to study the behaviour of SMEs in order to
provide insight on ways to enhance competitiveness and improve performance
(Hafeez et al. 2012). Also, there is
a need to focus on the
manufacturing sector of the SMEs, since this sector has the potential to
promote economic development and competitiveness. The share of manufacturing
sector to GDP rose in the last 10 years from 14.7% in 1999-2000 to 18.7% in
2010-11 (Hafeez et al., 2012; Khan and
Khalique, 2014). In the rapidly
changing business environment, firms need to adopt entrepreneurial approach
is necessary (Aziz et al., 2014), as it helps firms
to prosper and grow in competitive and uncertain environments and facilitate
the deployment of knowledge-based resources in discovering and
exploiting the market opportunities prior to the competitors (Olaniran, 2016). Previous researches
have highlighted that higher levels of
entrepreneurial orientation enable firms to better identify and grab
business opportunities in a way
that differentiates them
from non-entrepreneurial firms (Covin et al.,
2006; Gathungu et al.,
2014; Rauch et al., 2009). Ahmad et al.
(2013) suggested adopting
entrepreneurial oriented approach by SMEs to exploit the potential and benefits
of this sector to compete in national and international markets. While a
number of studies have investigated the EOperformance relationship,
there is a dearth
of research investigating the
EOperformance relationship within the
context of SMEs in
developing countries. Thus, the
main objective of this study is to investigate the relationship of
entrepreneurial orientation and business performance in SMEs operating in a
developing economy, like Pakistan. The rest of the paper has been structured as
follows; the second section presents a review of the theoretical framework,
previous empirical researches and formulation of the research hypotheses. The
third section discusses the research methodology, sample and the variables used
in the study. The fourth section analyzes the results obtained, while the final
section summarizes the main conclusions and discussion of the findings.
Literature
Review
Entrepreneurial
orientation
Entrepreneurial orientation (EO) is the process of
creating strategy that provides the basis for entrepreneurial decisions and
actions for the organization (Rauch et al.,
2009). Lumpkin and Dess (1996) define EO as the policies
and practices which enable a firm to adopt an entrepreneurial position when
facing new business opportunities. Miller
(1983) argued that entrepreneurial organizations are engaged
in product/market innovation, and are
concerned with risky
ventures and are
the first to
come up with proactive innovations beating the
competitors to the bushes. Miller (1983) proposed three dimensions of EO:
innovativeness, risk taking, proactiveness. Innovativeness refers to the
ability of the organizations willingness
to support and
engage in new
ideas, novelty, experimentation and creative processes that may possible
result in new products, services or processes (Lumpkin and Dess, 2001). Risk taking refers to the degree to which managers
are willing to make large and risky resource commitments
in the interest of
obtaining high returns by seizing opportunities in the marketplace (Lumpkin
and Dess, 2001, p. 144). Proactiveness is the ability of a firm to take the
initiative and reach the unexplored market, exploit the emerging opportunity
and shape the environment of a firm conveniently (Rauch et al.,
2009). Lumpkin and Dess (1996) added two new dimensions
that also characterize EO, namely competitive aggressiveness and autonomy. According to Lumpkin and Dess (1996) competitive aggressiveness
refers to a firm's propensity to directly and intensely challenge its
competitors to achieve entry or improve position, that is, to outperform
industry rivals in the market-place. Autonomy refers to the
extent to which individuals or
team enjoy freedom and able to
perusue market opportunities from the initial idea to completion (Lumpkin and Dess, 1996; Lumpkin and Dess, 2001).
Entrepreneurial
orientation and business performance
Researchers have developed consensus that
entrepreneurial orientation contributes to a firms performance (Kajalo and Lindblom, 2015; Lumpkin and Dess, 2001; Rauch et al., 2009). Organizations that act entrepreneurially are better
able to respond to the challenges posed by external environment and adjust
their operations in the cut throat competitive environments (Covin and Slevin, 1989; Hakala, 2013). Entrepreneurial orientation facilitates a firm to
proactively scan the external environment and take the benefit of emerging
opportunities in the marketplace (Kwak et al.,
2013; Wang, 2008).
Previous researches on the investigation on
entrepreneurial orientation and performance relationship have highlighted that
entrepreneurial orientation is crucial for the long term survival and growth of
the organization. As such, the empirical research (Wiklund and Shepherd, 2005) about entrepreneurial orientation reported that
entrepreneurial orientation contributes to organizational performances. Mahmood
and Ibrahim (2016) conducted their study in Nigeria and found a
significant and positive relationship between entrepreneurial orientation and
SMEs performance. Hussain et al. (2015) analyzed study on the relationship between
entrepreneurial oientation and firm performance on Malaysia SMEs and concluded
that entrepreneurial orientation is the key driver of firm performance. Eggers et al (2013) reported based a study on 660 SMEs in Austria and
found that entrepreneurial orientation is positively related to the SME growth.
They argue that if an SME desires to grow, entrepreneurial orientation is
needed to fuel these growth aspirations. Likewise, the crucial role of
entrepreneurial orientation has
been reported in
facilitating the attainment of
firm performance (González-Benito et al., 2009). Rauch et al.
(2009) performed a meta-analysis of the relationship between
entrepreneurial orientation and business performance. Their study included 51
articles and reported a significant positive relationship between
entrepreneurial orientation and organizational performance.
However, entrepreneurial orientation
has been reported to
have no positive
impact on firm performance at all (Slater and Narver, 2000). Walter et al. (2006) found that EO is not directly related with business
performance. Runyan et al. (2008) reported no effect of entrepreneurial orientation on
firml performance due to the effect of other independent variables. Swierczek
and Ha (2003) found only a partial positive relationship between
entrepreneurial orientation and business performance. Kreiser et al. (2013) highlighted that the relationship between
entrepreneurial orientation and firm performance is non-linear. Some studies
posited even a curvilinear entrepreneurial orientation- performance
relationship (Dai et al., 2014; Su et al., 2011; Wales et al., 2013). Despite the increasing number of researches investigating
the impact of entrepreneurial orientation on organizational performance, the
results are inconclusive (Faiz and Ahmad, 2015), depending on the type of performance measure used (Hakala, 2013; Rauch et al., 2009) and difference in the context where the study is
investigated (Lumpkin and Dess, 1996). Based on the foregoing discussion, the following
hypothesis is proposed:
H1: Entrepreneurial orientation has a
significant effect on organizational performance.
Entrepreneurial Orientation Customer Satisfaction Employee Satisfaction Innovation Service Quality Growth Organizational Performance Innovativeness Proactiveness Competitive aggressiveness Risk taking Autonomy
Fig 1: Research
Framework
Methodology
Sampling and
data collection procedures
The present study is conducted in Sialkot region,
Province of Punjab Pakistan, which is
considered to be
the hub of
entrepreneurial activity in
Pakistan (Hussain et al.,
2012; Khan et al., 2010).
According to an estimate, there are more than 7000
entrepreneurs in the region (Akhtar et al.,
2015). These entrepreneurs are involved mostly in the
manufacturing sector belonging to small
electrical appliances like fans and related components, garments and apparel,
leather goods, earthen ware, sports, silver ware and surgical goods.
Sample of 367 owners/managers of these enterprises
were part of the
study. In case,
if owner or manager was
not available, the his/her
proxy was used
to represent the enterprise. These SMEs were registered with Sialkot
Chamber of Commerce and Industry (SCCI). Majority of the businesses were owned
and operated by families (57.3 %). Out
of the total questionnaires mailed to SME owner/managers, 239 questionnaires
were collected, 26 questionnaires were found to be incomplete and were thus eliminated
because of incomplete information. Thus total of 213 questionnaires were
accepted and used for further analysis.
Measures
This study adopted the five dimensions of
entrepreneurial orientation, including risk taking, innovativeness, competitive
aggressiveness, proactiveness and autonomy, as proposed by Lumpkin and Dess (1996). Several studies followed five dimensional approach
in relation to different performance indicators (Hughes and Morgan, 2007; Lee et al., 2011; Lee and Lim, 2009; Li et al., 2009; Pearce et al.,
2010; Zhang et al., 2014). For this study, four dimensions of entrepreneurial
orientation namely, risk taking, innovativeness, competitive aggressiveness
were measured adapting the scales developed by Lumpkin and Dess (1996) and Lee
and Lim (2009). Proactiveness dimension of entrepreneurial
orientation was measured adapting the scale developed by Miller (1983). The scale for proactiveness has been validated by
Wang and Altinay (2012). The measurement scale for the present study used
5-point Likert scale where 1 was strongly disagree and 5 was strongly agree to
measure the perceptions of the respondents on these five dimensions. There were
total 17 items in the scale divided as follows: proactiveness (04 items), risk
taking (03 items) innovativeness (03 items) competitive aggressiveness (04
items) and autonomy (03 items). For example, our
business undertakes market research in order to identify market
opportunities,we enjoy facing a difficult task from which other people
want to keep away, we always try to develop new products /services which are
not offered by competitors, We watch competitors business strategies to
react against them promptly, and so forth.
Firm performance was measured through a subjective
approach. Non-financial measures
like employee satisfaction, innovation, customer satisfaction, service quality,
human resource practices etc are used for measuring performance of an
organization. For the study and to manage the scope of the study, non-financial
measures of organizational performance like customer satisfaction, employee
satisfaction, innovation, quality of service and growth were taken. Growth is
normally measured in financial terms but for the current study subjective
measure of growth was taken. Subjective
approach for data collection was used as generally owner/managers are
not willing to provide the information concerning to financial data to
outsiders (Aziz et al.,
2014; Jabeen and Mahmood, 2014). The
perceptions of the respondents were taken on a 5 point Likert scale in which 1
denoted strong disagreement and 5 denoted strong agreement.
Data
Analysis and Findings
Reliability
Reliability
of an instrument indicates that the internal consistency of items used to
measure constructs. It is commonly measured through Cronbach alpha reliability
test. If the value of Cronbach alpha is more than 0.6, it is considered good
and all items of a construct can be analyzed by summing them up as one
measurement (Hair, 2003; Nunnally, 1978). For the present
study, reliability of the survey questionnaire has been calculated. The results
of the reliability analysis indicate that the Cronbach
Alpha achieved for both the construct i.e. entrepreneurial orientation and
performance are greater than 0.6 thus
making the instrument reliable for further statistical analysis.
Table 1: Reliability
Scores for Variables
|
Variables |
No. of
Items |
Cronbach
Alpha |
|
Entrepreneurial Orientation |
17 |
0.899 |
|
Organizational Performance |
20 |
0.926 |
Sample characteristics
The results of the demographic analysis indicate that majority of the businesses are
owned and operated by males (87.3%), while only handful of respondents were
found to be females (12.7%). This shows that the manufacturing sector is male
dominated. The education level of respondents indicate that majority of them
are bachelor degree holders (54.9%). This is followed by respondents who have
attained masters degrees (22.5%) and intermediate or high secondary certificate
(18.8%). Respondents who had either attained their high school certificate
(matriculate) or below were found to be 3.8%. Business ownership was found to
be dominated by families (49.3%) as compared to self ownership (36.2%) or
partnerships (14.6%). In response to line of business, majority of the
respondents were involved in the manufacturing of small electrical appliances
like fans and related components etc. (23.5%). This line of business was
closely followed by garments and apparel (22.1%) and leather goods (20.2%).
Further analysis of business lines indicate that earthen ware (12.2%), sports
(8.5%), silver ware (8%) and surgical goods (5.6%) categories were on lower
side of spectrum.
Table 2 Sample
Profile
|
Item |
Count |
Percent |
|
|
Gender |
Male |
188 |
87.3 |
|
Female |
27 |
12.7 |
|
|
Total |
213 |
100 |
|
|
Education |
less than matriculate |
1 |
.5 |
|
Matriculate |
7 |
3.3 |
|
|
Intermediate |
40 |
18.8 |
|
|
Bachelor |
117 |
54.9 |
|
|
Masters |
48 |
22.5 |
|
|
Total |
213 |
100.0 |
|
|
Business Ownership |
Self |
77 |
36.2 |
|
Family |
105 |
49.3 |
|
|
Partnership |
31 |
14.6 |
|
|
Total |
213 |
100.0 |
|
|
Line of Business |
Surgical Goods |
12 |
5.6 |
|
Leather Goods |
43 |
20.2 |
|
|
Electrical Appliances |
50 |
23.5 |
|
|
Earthen Ware |
26 |
12.2 |
|
|
Silver Ware |
17 |
8.0 |
|
|
Garments and Apparels |
47 |
22.1 |
|
Testing of
hypothesis
Regression analysis was performed
to check the effect of predicting variable (IV) Entrepreneurial Orientation
(EO) on the criterion variable (DV) that is organizational performance. The
results indicate that EO (β=0.645, t=11.359, p<0.001) is positively and
significantly associated to business performance. Hence, this result supports
H1. The result of the study is in line with the previous studies that have
reported positive association between entrepreneurial orientation and
organizational performance.
Table 3 Regression Of
Entrepreneurial Orientation
|
Variables |
Adjusted R-
square |
Beta |
F- value |
Sig. |
|
Entrepreneurial
Orientation |
0.577 |
0.645 |
85.45 |
.000* |
Sig p <
0.001
Discussion
and Conclusion
Entrepreneurial
orientation is a strategic construct indicating the inclination and behaviours
of organizations towards opportunity recognition and exploitation. Researchers
have indicated that entrepreneurial orientation is a multi-dimensional
construct whose dimensions though interlinked vary independently with varying
degrees of influence on performance (Fairoz et al., 2010; Kreiser et al., 2002; Lumpkin and Dess,
2001). Further, it has
been highlighted that entrepreneurial orientation as a composite variable and
its individual dimensions would impact performance differently in different
cultural environments and contexts (Kellermanns et al., 2008; Lumpkin and Dess,
1996; Zahra, 2008).
This study
examines that how entrepreneurial orientation
can affect the business
performance of small
and medium enterprises in
Pakistan. It means
that as the entrepreneurial orientation
level increases, the
degree of business performance
also increases. The results of the present study indicate that there
exists a strong influence of entrepreneurial orientation of the top management
on organizational performance (β = 0.645, p = 0.000). This study is in line with the previous studies that
reported significant impact of entrepreneurial orientation on organizational
perfor- mance (Alegre and Chiva,
2013; Covin et al., 2006; Hakala, 2013; Lumpkin and Dess,
1996; Shirokova et al., 2016; Wiklund and Shepherd,
2005; Zhao et al., 2011). All these studies
have reported that stronger entrepreneurial orientation of the firms enhances
organizational innovation and performance. It means that
as the level of entrepreneurial orientation increases, the degree of
organizational performance also increases.
The present study only looked
into strategic orientations from the SMEs perspective. Research that targets
not only business companies but also government departments or organizations
and non-profit organizations is suggested to be conducted since strategic
orientations result in competitive advantage. Also this study analyzed
strategic orientation of SMEs without analyzing the role of government policies
and departments involved in developing the framework for SMEs development in
the country. It is advised that future research may analyze the role of
government policies along with strategic orientations of the SMEs to gather a
more in-depth information and knowledge on the SMEs behavior and their
competitiveness. It is further advised that other strategic process variables
such as human resources and organizational structure be taken into account for
analyzing the role of entrepreneurial orientation towards performance.
Furthermore this study concentrated on SMEs in one city of Pakistan. The
entrepreneurial small and medium organizations are clustered in other cities as
well. Therefore, it is suggested that future studies should also include SMEs
from other industrial hubs of the country to overcome this limitation. Seventh,
the study focused on single informant for data collection. It is highly
recommended that multiple respondents from a single organization be selected
for data collection to gauge the true nature and effect of entrepreneurial
orientation on organizational performance.
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