1993 environment, corporate entrepreneurship, and financial performance a taxonomic approach 1

ENVIRONMENT, CORPORATE

ENTREPRENEURSHIP, AND

FINANCIAL PERFORMANCE:

A TAXONOMIC APPROACH

Shaker A. Zahra Georgia State University

This study examined the association between a firm’s external environ-

EXECUTIVE ment, corporate entrepreneurship, and financial performance. The study

SUMMARY emphasized three propositions: (1) perceive&ather than objective- characteristics of the environment significantly influenced entrepre-

neurship activities: (2) a multidimensional definition of a firm’s environment was essential to unravel the interplay between the environment,

corporate entrepreneurship activities, and financial performance; and (3) a taxonomic approach had the advantage of accounting for the interrelationships among the dimensions of the environment in

classifring jrms. Using data from 102 companies in six I-digit industrial classification codes (SIC), cluster analysis

was used to distinguish four environmental settings: “dynamic growth,” “hostile and rivalrous but

technologically rich.” “hospitable, product-driven growth,” and “static and impoverished” environments. These four environments varied in their characteristics.

The four empirically derived environment clusters were then used to examine variations in

corporate entrepreneurship-operationalized as corporate innovation and venturing, and corporate renewal activities. Thefirst dimensiorr-corporate innovation and venturing-had four components: new business creation, new product introduction, percent of revenue from new products, and technological entrepreneurship. The renewal dimension had three components: mission reformulation, reorganization, and system-wide change. The data were used to test six hypotheses:

HI: In dynamic or growth environments, companies will emphasize new business creation and

innovation.

Address correspondence to Professor Shaker A. Zahra, Department of Management, College of Business Administration, Georgia State University, Atlanta, GA 30303.

The author is grateful to the Management Department Research Fund at George Mason University for its financial support for data collection for this project. He acknowledges with appreciation the excellent comments and suggestions offered by Marilyn Brazier, Jeff Covin, Evelyn Heitman, William D. Schulte, Jr., Patricia H. Zahra, and two JBV reviewers.

Journal of Business Venturing 8,319-340 0 1993 Elsevier Science Publishing Co., Inc., 655 Avenue of the America$, New York, NY 10010

319

320 S. A. ZAI-RA

H2: Environmental hostility is positively associated with the redefinition of business through venturing activities.

H3: Hospitable business environments are positively associated with business venturing and renewal

activities.

H4: Static environments are inversely associated with corporate venturing and renewal activities.

HS: Corporate entrepreneurship activities are positively associated with company financial

performance.

H6: Corporate entrepreneurship activities emphasized in HI through H4 will be significantly and

positively associated with company financial performance in their respective environmental

clusters.

The results provided general support for the six hypotheses. They showed that: (I) each

environmental cluster had a distinct combination of activities relating to corporate innovation and

venturing, and renewal: (2) corporate entrepreneurship activities varied in their associations with

measures of company growth and profitability: and (3) the associations between corporate

entrepreneurship and company financial performance varied among the four environment clusters. The

results from this study can help executives in selecting specific entrepreneurial activities that match the demands of success in their business environment to improve their company’s performance.

INTRODUCTION The relationship between a firm’s external environment and corporate entrepreneurship activities has been the subject of interest in the literature (Zahra 1991, 1993). Whereas there is consensus that the external environment is an important antecedent of corporate entrepreneurship (Guth and Ginsberg 1990), there has been little empirical research on the patterns of the specific associations between these two variables. Also, previous studies have focused on only a few environmental dimensions as the predictors of corporate entrepreneurship, offering only a fragmented view of their potential associations. It is also unclear how entrepreneurship influences company financial performance in different environments (Covin and Slevin 1991, 1993).

This paper reports an empirical study that exami res the association among the external environment, corporate entrepreneurship, and financial performance. The study adopts a taxonomic approach that simultaneously considers multiple dimensions of a firm’s environment. These dimensions are used as input into cluster analysis to identify distinct environmental settings. These empirically derived settings are then used to clarify variations in corporate entrepreneurship activities. Finally, the associations between corporate entrepreneurship and company financial performance- within different environmental settings-are explored.

The remainder of this paper consists of six sections. The first presents the concept and dimensions of corporate entrepreneurship. The second focuses on the role of executives’ perceptions of their firms’ environments in making decisions on corporate entrepreneurship, giving special attention to the concepts of environmental munificence and hostility. The third section introduces the study’s six hypotheses. The fourth discusses the research method and measures. The fifth explains the statistical analyses used in the study and reports the results. The sixth, and final, section offers a discussion of the results and their implications for executive action and future research in this area.

ENVIRONMENT AND FINANCIAL PERFORMANCE 321

CORPORATE ENTREPRENEURSHIP

Corporate entrepreneurship is a process of organizational renewal (Sathe 1989) that has two distinct but related dimensions: innovation and venturing, and strategic renewal (Guth and Ginsberg 1990). Innovation and venturing activities stress creating new business through market developments or by undertaking product, process, technological and administrative innovations. Venturing can occur throughout the firm, with the goal of improving company profitability and competitive position.

The second dimension of corporate entrepreneurship embodies renewal activities that enhance a firm’s ability to compete and take risks (Miller 1983). Renewal has many facets, including the redefinition of the business concept, reorganization, and the introduction of system-wide changes for innovation. Typically, renewal activities relate to the concept of a firm’s business and its competitive approach. Renewal is achieved through the redefinition of a firm’s mission through the creative redeployment of resources, leading to new combinations of products and technologies (Guth and Ginsberg 1990).

Renewal also requires developing or adopting new organizational structures that spur innovation and venturing (Zahra and Zahra 1992). Often, this requires the reorganization of a firm’s procedures to improve communications, and to crate the internal systems that are conducive to innovation (Hitt, Hoskisson, and Harrison 1991; Hitt, Hoskisson, and Ireland 1990; Kanter 1989). Reorganization induces the adoption of organic organizational structures essential for successful corporate entrepreneurship (Covin and Slevin 1989).

Renewal entails system-wide changes that enhance creative organization learning and problem solving. These changes energize a firm, make it attentive to its external environment, and increase its ability to discern threats and opportunities and respond to them creatively. These changes refocus a company’s basic values. Because these views and values determine a firm’s proactiveness and competitive posture, system-wide changes are an integral part of renewal processes (Guth and Ginsberg 1990).

Researchers have attempted to understand the factors that stimulate or impede corporation entrepreneurship (Sexton and Bowman-Upton 1991). They examined the effect of a company’s strategy, organization and external environment. It appears that the environment plays a profound role in influencing corporate entrepreneurship (Zahra 1991, 1993). Focusing on the environment, the literature highlights two research questions that deserve examination. First, how do companies that compete in different environments vary in the corporate entrepreneurship activities mentioned above? Second, which corporate entrepreneurship activities are conducive to superior financial performance in different environments? The following section develops the theoretical foundation of these questions.

THE LINK BETWEEN ENVIRONMENT AND CORPORATE ENTREPRENEURSHIP This study emphasizes three propositions. First, the characteristics of the environment play an important role in executives’ pursuits of corporate entrepreneurship. In particular, executives’ perceptions of the environment frame their definitions of the issues facing their company and the actions it takes (Zahra and Pearce 1990). To understand variations in corporate entrepreneurship, executives’ perceptions of the external environment should be recognized. Second, environments within and across industries are heterogeneous. These perceived “environments” arise from the variations in companies’ definitions of their industry’s boundaries and business domain, and from the differences in senior executives’ perceptions of the institutional and competitive forces that shape their industry. Third, there is a need to

322 S. A. ZAHRA

use multiple dimensions to capture a company’s perceptions of their environments (Miller and Friesen 1982; Zahra and Pearce 1990). The selection of environmental dimensions should be tied to the goals of the research.

Capturing executives’ perceptions of the environment is a challenging task because the literature highlights a multitude of classifications of environmental dimensions (Dess and Rasheed 1991). Three such dimensions, in particular, may influence corporate entrepreneurship: munificence, hostility, and heterogeneity (Tsai, MacMillan, and Low 1991). However, because this study focuses on single or dominant business units (Rumelt 1989) that may not exhibit significant variations in their markets or production processes or procedures (i.e., low heterogeneity), only environmental munificence and hostility and their association to corporate entrepreneurship are examined in this research.

Environmental Munificence and Corporate Entrepreneurship Environmental munificence reflects the richness of opportunities for corporate venturing and renewal in an industry (Aldrich 1979). As a multidimensional concept, it embodies the dynamism, the abundance of technological opportunities, industry growth, and the demand for new products in the environment.

Dynamism

This dimension refers to the continuity of changes in a firm’s environment, arising from technological progress, competitive rivalry, regulatory developments, and similar forces. Following Miller and Friesen (1982), this definition emphasizes the persistence of change in the environment, rather than the stability of rate of change per se. Dynamism creates opportunities for a firm within its existing markets or in adjacent fields. A firm may locate a new niche in its existing market and respond to it by modifying its products and processes. Or the firm may locate an attractive niche outside its traditional markets by expanding the scope of its markets or by embarking on new product or process ventures. Dynamism prompts a company to exploit opportunities in current or new markets (Zahra and Ellor 1993).

Dynamism also pressures companies to renew themselves through innovation. Consider, for example, the dynamic competitive environment introduced by the deregulation of the telecommunications, trucking, and airline industries. Companies in these industries had to reexamine their approach to competition and to discover a set of enduring competitive competencies, revising their business mission. Other firms have embarked on major programs to reshape their culture and values either by altering their structure or by revising their internal processes. These changes have led to increased innovation and speedy decision-making processes. Thus, as companies perceive their environments as dynamic, their emphasis on self-renewal and corporate venturing activities will rise.

Technological Opportunities

This dimension refers to the perceived availability of new pockets of demand for new or existing technologies. These opportunities arise from a “technological push,” where new advances stimulate new demand in existing or new markets (Scherer 1980). The existence, or lack of opportunities, may, therefore, stimulate or impede corporate entrepreneurship.

Technological opportunities differ from one industry to another because of differences in their stages of evolution. For instance, technological opportunities are currently more abundant in the young biological products than in the mature steel or fabricated metals


industries. Moreover, even within an industry, companies may vary greatly in their perceptions of these opportunities. Whereas one company may see its industry as ripe with opportunities for new technological advances, another may view the same industry as being dominated with forces that lead to obsolescence. These differences arise from companies’ experiences with a particular technology or with the forces that govern the market.

Differences in perceived technological opportunities are likely to influence corporate entrepreneurial activities. When such opportunities are abundant, technological innovation is emphasized. Alternatively, companies may license the use of their technology to other companies within the industry, thus crating new business and enhancing their revenue and profits. Therefore, technological opportunities in an industry are associated positively with increased corporate entrepreneurship.

Perceived Industry Growth

This dimension refers to a firm’s perception of the demand for industry products (Harrigan 1985). Although data on the industry may be readily available, companies still differ in their interpretations of data. These differences result from asymmetry of access to environmental data, idiosyncratic organizational qualities, differential market position, and variations in the cognitive abilities and styles of senior executives.

The relevance of the perceived industry growth pattern for corporate entrepreneurship has been discussed in past studies. Harrigan (1985) has observed that the rate of industry growth shapes the self-renewal strategies companies use to survive in declining industries. Also, Hambrick and Schecter (1983) have emphasized this variable in explaining turnaround strategies. Thus, a perceived pattern of declining industry growth leads companies to embark on renewal initiatives, including changing their concept of business and altering their competitive posture.

Importance of New Products

This final component of environmental munificence refers to the weight that an industry assigns to the value of new products for creating and retaining a competitive position. In industries where new products are valued as a source of competitive advantage, firms will invest heavily in stimulating demand. Demand for new products will compel companies to increase their investment in new product development and introduction. Product, technological, and administrative innovations are inseparable; to increase its product innovation, a company must also develop appropriate technological and administrative structures. Thus, a “demand pull” by the market for a new product is an antecedent of corporate venturing activities, achieved through product, technological, and administrative innovations.

Demand pull for a new product may also force companies to emphasize self-renewal. Demand pull makes investing in redefining a company’s business concept worthwhile to delineate appropriate arenas for entrepreneurial activities. Companies must define their business portfolio, create effective scanning systems to monitor market changes, and develop appropriate structures for new ventures. A strong demand pull will force executives to change the reward and communication systems to speed the introduction of new products to the market (Zahra and Ellor 1993); these changes increase self-renewal activities.

324 S. A. ZAHRA

Hostility and Corporate Entrepreneurship Besides munificence, environmental hostility is another major source of variation in corporate entrepreneurship. Hostility shows the unfavorability of environmental forces for a company’s business. This unfavorability results from radical changes in the industry or the intensity of rivalry in the industry.

Unfavorability of Change

This dimension refers to the extent to which the environment is perceived as unfavorable to a company’s goals and mission. Hostility arises from several sources, including declining demand or radically changing innovations that render a firm’s technology obsolete.

When environmental hostility rises, companies usually proceed to redefine their business, decide their new domain, and undertake significant alignments in their operations through divestments, retrenchment, or restructuring (Zahra 1991). For example, as the canned food industry became increasingly hostile, some firms (e.g., Campbell Soup) abandoned expansion activities and, instead, divested some of their divisions. Another firm, Larsen Co. of Wisconsin, expanded its sales by venturing into the frozen food segment, taking advantage of its rivals’ concerns over shrinking margins. Increased hostility forces executives to find innovative ways to reduce or manage the sources of hostility. Another option is to initiate self-renewal programs that redefine their business concept, reduce waste within the existing business, enhance agile responses to change, or insulate current markets from the adversity introduced by rising environmental hostility. These renewal activities may entail adopting organic organizational structures (Covin and Slevin 1989) or increasing environmental scanning. Thus, as the environment becomes more hostile, a firm will become more involved in corporate entrepreneurial activities. However, the association between both hostility and dynamism and corporate entrepreneurship may be nonlinear (Fombrun and Ginsberg 1990).

Competitive Rivalry

This dimension of a firm’s environment refers to the intensity of competition in a market or segment. Although rivalry can cause dynamism and hostility, it is theoretically distinct from both variables. Dynamism and hostility arise from many sources, of which rivalry is only one possible cause. Moreover, rivalry reflects the specific nature of competitive dynamics in an industry (Porter 1980) and the number of competitors in an industry (Oster 1990).

When rivalry is fierce, companies must innovate in both products and processes, explore new markets, find novel ways to compete, and examine how they will differentiate themselves from competitors. These actions have become common among successful companies in such diverse competitive environments as microcomputers, hospitals, and fabricated metals. Past research suggests that intensive competitive rivalry is conducive to companies’ venturing, especially through innovation (Adler 1989). Caution is necessary in generalizing these findings because fiercely intensive rivalry may force some companies to exit rather than undertake risky corporate innovation and ventures. Alternatively, increased rivalry may raise environmental hostility and force companies to conserve resources, rather than innovate.

Increased rivalry is also conducive to corporate renewal efforts. Witness, for example, the effect of successful entry by foreign producers into the U.S. textile and tool machinery industries. This entry has forced companies to redefine their business by redeploying their resources and changing their business portfolio. Divestments, spinoffs, and turnarounds are


included in these companies’ current strategic actions. Similar examples of corporate renewal can be found in other industries, as well. Besides changing their mission and competitive approach, companies may reorganize in response to growing competition. In the biological product segment, for instance, Upjohn has reorganized its drug research, testing and treatment division. It also merged the research and medical affairs divisions in an effort to reduce overlap and inefficiency, speed product development, and improve company performance. These actions help to revise a company’s concept of business, spur its innovativeness, and enable it to compete more vigorously. One must be cautious, however. Although rivalry may be conducive to increased corporate entrepreneurship activities, this relationship may be nonlinear (Fombrun and Ginsberg 1990). Moreover, increased corporate entrepreneurship may intensify the level of rivalry, as companies attempt to reposition themselves in their market. This suggests that rivalry and entrepreneurship may influence each other over time. This longitudinal, dynamic interplay between these two variables should be examined in future studies. The following section presents the study’s hypotheses.

HYPOTHESES

This study is based on the premise that the perceived characteristics of a firm’s external environment are an important “antecedent” of corporate entrepreneurship. In particular, the dimensions of the environmental munificence and hostility deserve attention. Although discussed separately above, these dimensions are interrelated. For instance, technological progress causes change (“dynamism”) that may be viewed by some companies as unfavorable (“increased hostility”); such technological changes invite new competitors, altering the dynamics of competitive rivalry in the industry. This environmental interconnectedness suggests that a taxonomic approach is necessary to understand variations in corporate entrepreneurship.

Research suggests that companies stress different strategic choices within different environments (e.g., Aldrich 1979; Hambrick 1983a, b). That is, in seizing opportunities or avoiding threats, companies are expected to emphasize certain venturing and self-renewal activities within their environments. Companies cannot devote the resources needed for all promising ventures. And some ventures are simply more interesting-intellectually, politically and financially-than others. These ventures will receive support (Burgelman and Sayles 1986). Finally, inertial forces are a source of selective attention to venturing and self- renewal activities (Ginsberg and Buchhohz 1990). Inertial forces combine both tangible and intangible qualities and cognition in an organization. Although these forces retain companies’ commitments to existing procedures and projects, they sometimes blind firms to emerging opportunities. Consequently, inertial forces can influence the fate of a new venture idea or a self-renewal program.

Inertial forces develop over time, depending on a firm’s interaction with its environment. As an organization learns successful patterns of competition in an environment, inertial forces evolve to ensure that it pursues those actions that will maximize company survival (Hannan and Freeman 1984). Inertial forces reflect, to some extent, the demands of success in given environments. This means that some new ventures and self-renewal activities will be favored in some environments and ignored in others; entrepreneurship activities will vary from one environment to another. This suggests that companies may pursue distinct combinations of entrepreneurship activities in different environmental settings, as follows:

HI: In dynamic or growth environments, companies will emphasize new business creation and innovation.

326 S. A. ZAHRA

H2: Environmental hostility is positively associated with the redefinition of business through venturing activities.

H3: Hospitable (high munificence) environments are positively associated with both business venturing and renewal activities.

H4: Static environments are inversely associated with corporate venturing and renewal activities.

Normative theory also suggests that not all corporate entrepreneurship activities are useful in all environments. Only venturing and renewal activities that match the demands of the environment would pay off by improving competitive position, financial performance, or both. Thus, corporate innovation and self-renewal activities will exhibit different associations with the same measures of company performance in different environments. The discussion suggests two additional hypotheses:

HS: Corporate entrepreneurship activities are positively associated with company financial performance.

H6: Corporate entrepreneurship activities emphasized in Hl through H4 will be significantly and positively associated with company financial performance in their respective environmental settings.

Clearly, the above six hypotheses represent a modest start toward unraveling the complex links among the environment, entrepreneurship, and company performance. As empirical findings accumulate, more advanced hypotheses can be postulated and tested. To establish these empirical links, the current study empirically tested six hypotheses, as reported in the following section.

METHOD

Data Collection and Sample A questionnaire was mailed to the presidents (or the highest ranking executives) of manufacturing firms, representing six Cdigit standard industrial classification (SIC), consumer and industrial goods groups in the USA. To reduce the confounding effect of diversification, companies had to generate at least 70% of their revenue from a given industry, corresponding to Rumelt’s (1989) definition of a “single” or “dominant” business. Two hundred ninety-one U.S.-based firms qualified and were contacted by mail.

Two mailings--one month apart-were used, resulting in 102 valid responses, for a response rate of 35.5%. Responding firms averaged $678.6 million in annual sales, with a range from $200 million to $2.286 billion. Industries included canned specialties, canned fruits and vegetables, dehydrated fruits, vegetables and soups, biological products, fabricated metal products, and food product machinery. They were identified from Porter’s (1980) list of fragmented industries.

Using the r-test, responding and nonresponding firms were compared using average sales, size, number of full-time employees, and SIC. No significant differences were found regarding sales, assets, or employees. Responding firms were more prevalent in consumer than industrial goods sectors.

To minimize source bias, executives completed the section on their environment and, then, forwarded the questionnaire to a second senior manager who was familiar with entrepreneurial activities.

ENVIRONMENTANDFINANCIALPERFORMANCE 327

Measures Consistent with the literature cited earlier, multiple items gauged respondents’ perceptions of the external environment. As the Appendix shows, measures of corporate entrepreneurship focused on venturing and innovation and self-renewal activities. The scores of multiple items were summed to produce indexes, whose reliability was assessed through Cronbach coefficient alpha (a), as presented in the Appendix.

Two criteria were employed to gauge company financial performance over a three-year period: return on sales (ROS) and growth in sales. These measures reflected how well a company related to its external environment through expansion via innovation-a major source or profits and sales. Thus, innovation and renewal activities can influence both the return on sales and growth in sales measures.

ANALYSIS

Testing the hypotheses required four steps. The first entailed adjusting all data for inter-industry variations. The second focused on using cluster analysis to create discrete environmental settings. The third examined variations among environmental settings in their corporate entrepreneurship activities. The final step focused on examining the associations between corporate entrepreneurship and company performance, using simple correlations and stepwise regression analyses.

Adjusting for Interindustry Variations The first step in the analysis required adjusting the data for interindustry variations in the characteristics of their environments and financial performance. For all measures, the mean industry score was subtracted from company performance, then divided by the mean industry score; then the product was multiplied by 100. The adjusted data were then used in the analyses.

Creating Environmental Settings The second step of the analysis focused on creating homogeneous environmental settings, by using cluster analysis. Correlations among the six measures of the environment were significant, ranging between .I8 and .38, thus supporting the independence of these dimensions.

Ward’s method of hierarchial agglomeration was used because of its reputed ability to create meaningful clusters. Two factors guided the selection of the final cluster solution. First, Lehmann (1979) has suggested that, for a given sample of companies (N), the number of reliable clusters was in the N/30 to N/50 region; i.e., within the two- to four-cluster range in the present sample. Second, Hambrick (I 983a, b; 1984) has suggested examining variations in clustering coefficients as radical changes in these coefficients would show any instability in the results. These two factors suggested that a four-cluster solution was the most appropriate classification for this sample. To understand these clusters, multivariate analysis (MANOVA), analysis of variance (ANOVA), and Scheffe tests of differences in group means were conducted.

MANOVA showed that the four clusters were significantly different (F - 31.39, p c 0.001). Variations in dimensions of the environment among the four clusters were gleaned from ANOVA, as summarized in Table I. Scheffe tests also highlighted the distinguishing

328 S. A. ZAHRA

TABLE 1 Standardized Means of the Four Environmental Clusters: Results of ANOVA

Environmental Variables

Dynamism Hostility Rivalry Technological opportunities Growth opportunities Demand for new products

Cluster’

(1) (2) (3) (4)

I .23 .83 .76 .23 .37 .88 .41 -.24 52 .96 .28 -.76 .47 .64 .38 .08

.73 .23 .7s .I1

.87 -.I2 .63 -.25

Scheffe Results F

1>2;1>3;1>4;2>4;3>4 9.55’ 2>1;2>4;3>4 22.90’

l>3; 1>4;2>3;2>4;3>4 26.84’ I >4;2>4;3>421.98’

1>2;1>4;3>2;3>410.96’ 1>2; 1>4,3>2;3>4 17.62’

qualities of the four environmental settings. In reviewing the profiles of the four clusters (summarized below), the reader should note that because the number and content of clusters were inseparable from the classification criteria used, the results of ANOVA were presented only to illustrate where the greatest differences existed among the clusters.

Cluster I: Dynamic Growth Environment (N = 34)

Companies in this cluster viewed their environments as dynamic and growth-oriented. They saw many opportunities for product and, to a lesser extent, technological development. While rivalry was considered intense, the environment was viewed as favorable (“low hostility”) for a company’s operations.

Cluster 2: Hostile and Rivalrous but Technologically Rich Environment (N = 20)

These companies viewed their environments as fiercely rivalrous, dynamic, and full of opportunities for technological progress. The environment had few opportunities for growth through new product development.

Cluster 3: Hospitable, Product-Driven Growth Environment (N = 30)

Companies saw their environments as rich in opportunities for growth, especially through new product innovation. They shared similar perceptions of those firms in cluster 1. However, there was one significant difference between clusters 1 and 3 in terms of dynamism. The third cluster exhibited significantly lower levels of dynamism but higher levels of rivalry than the first (,D < 0.05). This did not mean that cluster 3 lacked dynamism; this cluster tended to be more static but more rivalrous than firms in the first cluster. Still, although the first and third clusters differed only in dynamism and rivalry, the meaning of the clusters cannot be determined solely based on these two variables; other dimensions should also be considered.

Cluster 4: Static and Impoverished Environment (N = 18)

Companies in this cluster saw their environment as stable, offering very few new opportunities for future growth through new product development and technological advances. It was the least rivalrous and hostile of the four clusters.


TABLE 2 Variations in Corporate Entrepreneurship by Environmental Setting

Corporate Entrepreneurship Indicators

Corporate Venturing New business creation New product innovation % Revenue from new

business

Technological

entrepreneurship

Corporate Renewal Mission reformulation Reorganization System-wide change

Environmental Clusters’

(1) (2) (3) (4) Scheffe Results F

.38 .21 .29 -.24 1>2,3,4;2>4;3>4 5.11”

.50 .30 .43 -.I8 1>2,3,4;3>2;3>4 3.81’

.36 .I8 .28 .lO 1 z-2; 1>4;3>4 2.87’

.29 .45 .I2 .I7 1>3,4;2>1,3,4 6.12”’

.I9 .41 -.02 -.27 1>3,4;2>3,4 5.01”

.08 -.06 .48 -.50 3>1,2; I>4 4.53”’

.47 .23 .33 -.46 1>2.3,4;2>4;3>4 4.06”

’ Cluster luhels: (I) = dynrrmic growth: (2) = hostilr und riwtlrous hut techttolo&dly rich; (3) = hospittthle, new pro&t-tlrivtvt; md (4) = smtic und impoverished emGwvmvtt. ‘p < 0.05. l *p <O.Ol. “‘pco.001.

Corporate Entrepreneurship in the Four Environmental Settings: Hl through H4 Having defined appropriate environmental clusters, three additional analyses were performed

to test Hl to H4: MANOVA, ANOVA, and Scheffe. The four environmental clusters were used as the “independent” variables while corporate entrepreneurship measures served as the “dependent” variable in MANOVA. The results were significant (F-33.16, p < O.OOl), suggesting that the four environments varied significantly in their corporate entrepreneurship activities.

The ANOVA test was used after MANOVA to pinpoint differences among the means of environmental settings in corporate entrepreneurship. When ANOVA results were significant @ < 0.05), the Scheffe test was then used to identify significant differences among pairs of environmental clusters, as summarized in Table 2. The following discussion emphasizes the patterns of corporate entrepreneurship in different clusters, as they pertain to the study’s first four hypotheses.

Companies in the dynamic growth environment (cluster 1) focused primarily on new business creation, new product introduction, and system-wide changes in their organization to enhance venturing and innovation. These activities are consistent with Miller’s (1983) research which found that dynamic environments induced product innovation and encouraged business creation. Thus, Hl was supported.

Companies in cluster 2, the hostile and rivalrous but technologically rich environment, pursued technological entrepreneurship as their most important means of venturing and innovation activities, perhaps because of the perceived richness of opportunities for technological advances in the environment. Companies also embarked on significant reformulation of their missions, possibly to protect themselves in this environment (Guth and Ginsberg 1990). These results supported the study’s H2. Note that the results were different from those typically found in the literature; cluster 2 was dominated by hostility but also combined other environmental faciors. The results showed that this cluster focused on the business redefinition aspect of venturing. This suggested a need for future research to examine the specific association between hostility and particular dimensions of corporate

330 S. A. ZAHRA

entrepreneurship. Overall indices of hostility and corporate entrepreneurship used in past research might have obscured such fine-grained analyses.

Companies in the hospitable and product-driven, growth environment had a different set of corporate entrepreneurship activities from the other clusters. These companies aggressively pursued business creation and product innovation; they had the second highest scores among the four clusters. Unlike companies in cluster 2, however, they strongly deemphasized technological entrepreneurship, possibly because of the richness of opportunities for product development. Companies in cluster 3 also stressed the reorganization of their structures and systems to promote entrepreneurship more than firms in the other clusters. These choices were consistent with the literature (Oster 1990). Thus, H3 was partly supported.

Companies in the “static and impoverished” cluster had the lowest scores on six of the seven measures of corporate entrepreneurship. The exception was that these companies’ moderate attention to technological entrepreneurship, which was exceeded only by companies in cluster 3. These results supported H4. This low emphasis on corporate entrepreneurship was caused by the absence of strong rivalry that spurred technological innovation or because of environmental scarcity.

Briefly, the four environmental clusters differed significantly in the type and intensity of their entrepreneurship activities. The first cluster differed in six cases from the second, in six cases from the third, and in seven cases from the fourth. The second cluster differed in three (of seven) cases from the third, and in four cases from the fourth. Finally, the third cluster differed from the fourth in four cases. The following section shows how these intercluster variations relate to company financial performance.

Corporate Entrepreneurship and.Financial Performance Within Environmental Clusters (H5 and H6) Simple correlations and regression analyses were used to test H5 and H6. Table 3 reports Pearson’s correlations between corporate entrepreneurship and performance criteria.

Sample-wide Patterns (HS).

The correlations among the measures of corporate entrepreneurship and performance ranged between .I9 @ < 0.05) to .45 @ < 0.001). Corporate entrepreneurship activities were associated with company financial performance, thus supporting H5.

Patterns within Clusters (H6).

In cluster 1, “dynamic growth environment,” the seven indicators of corporate entrepreneurship were positively associated with return on sales (ROS) and growth in sales in 12 of the 14 cases. The two exceptions were the nonsignificant association between technological entrepreneurship and system-wide change with ROS. There was the possibility that business creation, production innovation, mission reformulation, and reorganization activities were more consistently associated with superior financial performance than were technological entrepreneurship and system-wide change. These activities might disrupt the organization, and cause temporary declines in profitability. Technological entrepreneurship and system- wide change were positively associated with sales growth.


TABLE 3 Associations Between Corporate Entrepreneurship and Financial Performance

Environmental Clusters1

Corporate I (N-34) 2 (N-20) 3 (N-30) 4 (N-l 8)

Entrepreneurship Sales Sales Sales Sales Sales lndicatiors ROS Growth ROS Growth ROS Growth ROS Growth ROS Growth

Corporate Venturing New business creation New product innovation I of Revenue from new business

Technological entrepreneurship Corporate Renewal Mission refonulation Reorganization System-wide change

.38’ .47” S3” ho**

.38* .36’ .43’ .50’

44’ 48’ .28 .14*

(N-25)

.29 40’

40’ 4’

.49” .36*

.I3 .38’

(N-l 3)

.47’ S8”

.54* S-l’

.56’ .36

.45’ .52’

.45’ .38*

..54” .46*

.62”* .39*

(N-28)

48’ -.21

-.I2 -.23

.l9’ .w*

-.I4 -.27

.47’ .42’ .45*** .43”’

-.21 -.I6 .42**’ .38**’

-.40 .I6 .36” .32”

(N-l 2)

.52’ .57’ .43”’ .40”

.5l’ .54’ .36”’ .43**’

-.I3 .26 .44” .43”’

.l5” .l8” .l9’ .34**

I Cluster labels: (I) = dytwmic growth; (2) = hostile utul riwlrous. but technologicully rich: (3) = hospitable, new

product-driven; und (4) = stutic uml impoverished mvironment.

l p < 0.05.

**p<o.o1.

“‘p<O.o01.

A different pattern of association was observed in the “hostile and rivalrous but technologically rich environment.” In this cluster 12 out of the 14 correlations were significant @ c 0.05). Neither new product introduction nor revenue from such new products was associated with performance. These activities might take a long time to payoff in terms of improved financial performance.

In the “hospitable, product-driven” growth cluster, nine out of 14 correlations were significant. Mission reformulation and system-wide changes were not associated with the two performance criteria. Moreover, technological entrepreneurship was not significantly associated with sales growth. Overall, corporate venturing was associated with successful performance whereas renewal efforts were not.

Finally, in the “static and impoverished environment” cluster, three of the seven corporate entrepreneurship indicators were associated significantly with performance: new business creation, technical entrepreneurship, and mission reformulation. This cluster appeared to reward companies that pursued new business opportunities and undertook major changes in their business mission. By creating new business and refocusing their business concepts, some of these companies improved their performance. These results are consistent with Porter’s (1980) observations on industries that are “stuck;” these industries greatly resemble companies in cluster 4. These “stuck” industries have very few opportunities for future profitability and growth. Without creative leadership, companies in these environments may fail. Porter’s observations pose a challenge for firms in this environment: If they become aggressive, they may cause fundamental changes in their environments, creating hostility that

332 S. A. ZAHRA

may undermine their existence. Yet, if they accept the status quo, they may eventually fail. Fortunately, the results suggest that there were three options that were positively associated with company performance: creating new business, pursing technological entrepreneurship, and reformulating the company’s mission. These activities would enable companies in the “static and impoverished” environment to revitalize themselves and achieve higher performance. Whether and how companies undertake these actions is a question for future studies. However, the results suggest that some entrepreneurial activities are associated with financial performance even in this environment.

The results on the relationship between corporate entrepreneurship and company performance (ROS and sales growth) may signal the possibility that the MacMillan and Day (1987) “dynamic” is at play. That is, the current data suggest the possibility that companies may achieve both profits and growth through corporate entrepreneurship activities, without presuming a potential tradeoff between these two variables. However, the present sample precludes a direct comparison between the established firms studied and the new ventures examined by MacMillan and Day (1987). Still, it appears that corporate entrepreneurship activities might have a “double” positive effect on company performance, which is another reason for encouraging companies to engage in entrepreneurial activities.

Regression Analysis

Stepwise regression was used to isolate the major correlates of company performance in different cluster and validate the results of correlational analysis. A stepwise procedure was used because of the small ratio of observations to variables in the clusters which may render the results unstable. This possibility urges readers to exercise caution in analyzing the data in Table 4.

Regression results were consistent with Pearson’s correlations, thus supporting H5 and H6. Entrepreneurship explained .31 and .28 of ROS and sales growth, respectively, in the overall sample. Focusing on cluster 1, the results supported the hypothesized positive association between business venturing activities and performance. In cluster 2 (hostile but rivalrous), mission reformulation and technological entrepreneurship were associated with performance. In cluster 3, reorganization and new product innovation were significant “predictors” of performance. Finally, three aspects of corporate entrepreneurship were particularly negatively associated with performance: technological entrepreneurship, mission reformulation and system-wide change. Only reorganization was positively associated with growth in sales. Overall, H6 was supported because different dimensions of corporate entrepreneurship activities were related differently to measures of company performance in different environmental clusters.

DISCUSSION

This empirical study examined the association between a firm’s external environment, corporate entrepreneurship and financial performance. One must recognize the limitations of the study when interpreting its results. The cross-sectional data do not allow causal inferences about the longitudinal interplay between the environment, corporate entrepreneurship, and financial performance. Thus, although the study has focused on the environment as an antecedent of corporate entrepreneurship, it does not refute the opposite possibility. Corporate entrepreneurship has been depicted also as an antecedent of company performance; the opposite relationship cannot be dismissed. The interplay between these


TABLE 4 Stepwise Regression Analysis

Cluster

Overall 1 2 3 4

Corporate Sales Sales Sales Sales Sales

Entrepreneurship ROS Growth ROS Growth ROS Growth ROS Growth ROS Growth

New business .28” .19’ .29” .21*

creation

New product .18’ .22’ .23’ .22’ .23’ .32’

innovation

8 Revenue .31** .19’ .20’

from new

business

Technological .25** .28” .35** -.28’

entrepreneurship

Mission .l9’ .28” .26* .23’ -.31*

reformulation

Reorganization .21* .24’ .30’ .28’ .33**

System-wide .20’ -.24’

change

R2 .3l .28 .22 .I9 .20 .I2 .I8 .I4 .I0 .08

P’ l .* a*. l * l l l * l * l

l pco.o5. “p<O.Ol. ***p<0.001.

variables is dynamic in nature; longitudinal designs are necessary to detect any lag effects. Finally, the focus of this study was on the combined effect of environmental variables on corporate entrepreneurship. This focus may have resulted in overlooking any non-linear associations between rivalry and hostility and entrepreneurship. These nonlinear associations deserve attention in future studies.

The results show the usefulness of the taxonomic approach to studying the links between a firm’s external environment, corporate entrepreneurship and financial performance. This approach enables researchers to evaluate the association between the overall environmental setting and the types of corporate entrepreneurship. It provides a realistic means of understanding tradeoffs among corporate entrepreneurship activities, helping to identify companies’ viable choices in different environments.

The study also shows that most corporate entrepreneurship activities are associated with company performance, for the sample (see Table 3). Although the data support H5, as mentioned, one must be careful in interpreting the results because they do not suggest a cause-effect relationship, and because the reverse relationship (that performance induces corporate entrepreneurship) is plausible as well. Also, there is evidence that corporate entrepreneurship activities take time before they improve performance (Biggadike 1979; Miller and Camp 1985). Still, the current results suggest that corporate entrepreneurship is positively associated with financial performance which is consistent with other findings (Zahra 1991). Further, these associations are contingent upon the firm’s environmental setting (thus supporting H6), emphasizing the need to select the types of entrepreneurship activities that companies undertake. Thus understanding the nature of the environment represents an important first step in selecting corporate entrepreneurship activities.

334 S. A. ZAHRA

IMPLICATIONS AND FUTURE DIRECTIONS

Managerial Implications

The results have three implications for senior executives. The first is the need to recognize the importance of the external environment for the pursuit of corporate entrepreneurship. Because perceptions of the external environment are so crucial in this respect, executives should ensure that an effective system of environmental scanning is in place. This system should be comprehensive in scope, covering the factors that influence the munificence and hostility of the environment. The system should help executives to interpret environmental changes and what they might mean for corporate venturing activities.

Besides conducting effective environmental scanning, executives should recognize the importance of their own perceptions of the environment for entrepreneurship. These perceptions shape organizational choices of appropriate ventures. Senior executives should validate their assumptions, data, and interpretations by using multiple sources of information. Data generated from environmental scanning often suggest multiple options; effective executives should probe the assumptions behind these options before initiating or approving new ventures.

A second implication is the desirability of achieving match (fit) between the type of environmental setting (as seen by executives) and corporate entrepreneurship activities. Without match, these activities will be unfocused and perhaps unproductive. Of course, this match must be engineered by matching the environment and the types of ventures being explored. Achieving this fit requires that executives promote and manage the firm’s strategic and administrative contexts (Burgelman and Sayles 1986). Whereas the former focuses on the generation of new enterprise ideas for innovation or renewal, the latter provides a forum within which the ideas are evaluated and implemented. To achieve a profitable fit between the environment and corporate entrepreneurship, executives should be visibly engaged in shaping both the strategic and administrative contexts. Shaping the strategic context requires setting the “vision” by sharing information about environmental conditions and articulating the types of enterprise that might be of interest. Managing the administrative context requires, among other things, applying the acid test to each new venture: Does the venture match the environmental challenges the company is expected to face?

Executives should adopt a long-term view of the effect of corporate entrepreneurship. Although there may be some short-term performance implications from their activities, as reported in Tables 3 and 4, the magnitude of the relationships is relatively low. The present results urge executives to champion promising ideas for corporate venturing for improving financial performance. Equally important, executives should view these projects as long-term investments in the company’s future. This means that innovative ventures need financial, organizational and political support from senior executives (Hitt et al. 1990; Zahra and Fescina 1991). They also need to be evaluated differently from existing, well-established units.

Research Implications

The results urge scholars to consider multidimensional conceptualizations of corporate entrepreneurship. Such conceptualizations are necessary to understand the commonalities and any tradeoffs in managerial responses to environmental forces. While using overall indices of corporate entrepreneurship is understandable at this stage of scholarship in this area, these measures may not fully capture the domain of corporate entrepreneurship. As research


matures, there is a need for studies that map the domain of corporate entrepreneurship and empirically establish the link among its dimensions. This will set the stage for examinations that thoroughly document the financial implications of companies’ engagement in corporate entrepreneurship. It will also encourage future research by offering a unifying framework for the topic.

This study also suggests a need to revise long-held assumptions about possible tradeoffs between growth and profitability because of corporate entrepreneurship. The current results-along with those of MacMillan and Day (1987) and Zahra (1991)-show that some corporate entrepreneurship activities may enrich both company profitability and growth simultaneously. We should not always assume that tradeoffs will exist between profitability and growth measures; future researchers should use measures of both variables to establish the validity of the current study’s findings.

There are three additional issues that deserve future empirical attention in research in this area. (1) There is a need to explore how other relevant environmental dimensions (e.g., heterogeneity) may influence corporate entrepreneurship. (2) Corporate entrepreneurship is both a pattern of corporate choices and a process or revitalizing the organization. This paper has emphasized some actions companies may undertake. Future scholars should explore the processes associated with implementing these choices. Differences in corporate ventures and strategic renewal activities may influence these variables’ association with company financial performance. (3) Whereas generic environmental settings transcend industry boundaries, future studies may also benefit from focusing on single industries, thus capturing their distinct features and their particular patterns of corporate entrepreneurship. Studies along these lines will help set the stage for offering advanced hypotheses that consider the complex links among the environment, entrepreneurship and performance.

The results of this study-showing that companies in different environments emphasize different corporate entrepreneurship activities, and that these activities are associated differently with indicators of financial performance-invite replications and extensions. The results also invite additional taxonomic studies to understand the intricate links between the environment and corporate entrepreneurship, and to understand how these links may influence company financial performance.

REFERENCES

Adler, P. 1989. Technology Strategy: Guide to the Literature. In Research on Technological Innovafion, Management and Policy, R.S. Rosenbloom and R. Burgelman, eds. Greenwich, CT: JAI Press, pp. l-25.

Aldrich, H.W 1979. Organizations and Environment. Englewood Cliffs, NJ: Prentice-Hall.

Biggadike, R. 1979. The risky business of diversification. Harvard Business Review 57: 103-l I 1.

Burgelman, R., and Sayles, L. 1986. Inside Corporate Innovation. New York, NY: Free Press.

Covin, J.G., and Slevin, D.P. 1991. A conceptual model of entrepreneurship as firm behavior. Entrepreneurship: Theory and Practice l6( l):7-25.

Covin, J.G., and Slevin, D.P. 1989. Strategic management of small firms in hostile and benign environments. Strategic Management Journal lO:75-87.

Dess, G., and Rasheed, A. 199 I. Conceptualizing and measuring organization environments: A critique and suggestions. Journal of Management l7:70 I-7 IO.

Fombrun, C., and Ginsberg, A. 1990. Shifting gears: Enabling and disabling forces on change in corporate aggressiveness. Strategic Management Journal I 1:297-308.

Ginsberg, A., and Buchholtz, A. 1990. Converting to for-profit status: Corporation responsiveness to radical change. Academy of Management Journal 33~445-477.

336 S. A. ZAHRA

Guth, W.D., and Ginsberg, A. 1990. Guest editors’ introduction: Corporate entrepreneurship. Straregic Management Journal 11 (special issue):S-I 5.

Hambrick, D.C. 1983a. An empirical typology of mature industrial-product environments. Academy of Management Journal 26:687-707.

Hambrick, D.C. 1983b. High profit strategies in mature capital goods industries: A contingency approach. Academy of Management Journal 26687-707.

Hambrick, DC. 1984. Taxonomic approaches to studying strategy: Some conceptual and methodologi- cal issues. Journal of Management 10:27-42.

Hambrick, D.C., and Schecter, S.M. 1983. Turnaround strategies for mature industrial product business units. Academy of Management Journal 261231-248.

Hannan, M., and Freeman, J. 1984. Structural inertia and organizational change. American Sociological Review 29: 149-l 64.

Hatrigan, K.R. 1985. Strategic Flexibility: A Management Guide for Changing Times Lexington, MA: Heath.

Hitt, M., Hoskisson, R., and Harrison, J. 199 1. Strategic competitiveness in the 1990s: Challenges and opportunities for the U.S. executives. Academy of Management Executive 52~7-22.

Hitt, M., Hoskisson, R., and Ireland, R. 1990. Mergers and acquisitions and managerial commitment to innovation in M-form firms. Strategic Management Journal 1 I(special issue):29-47.

Kanter, R.M. 1989. When Giants Learn to Dance New York, NY: Simon & Schuster.

Lehmann, D.R. 1979. Market Research and Analysis. Homewood, II: Richard D. Irwin.

MacMillan, I., and Day, D. 1987. Corporate ventures into industrial markets: Dynamics of aggressive entry. Journal of Business Venturing 2:29-39.

Miller, A., and Camp, B. 1985. Exploring determinants of success in corporate ventures. Journal of Business Venturing 1:87-105.

Miller, D. 1983. The correlates of entrepreneurship in three types of firms. Management Science 29:770-79 1.

Miller, D., and Friesen, P. 1982. Innovation in conservative and entrepreneurial firms: Two models of strategic momentum. Strategic Management Journal 3: l-25.

Oster, S.M. 1990. Modern Competitive Analysis. New York, NY: Oxford University Press.

Porter, M.E. 1980. Competitive Strategy. New York, NY: Free Press.

Rumelt, R.P. 1989. Strategy-Structure Database. Los Angeles, CA: University of California-Los Angeles.

Sathe, V. 1989. Fostering entrepreneurship in the large, diversified firm. Organizational Dynamics 18( 1):20-32.

Scherer, F. 1980. Industrial Market Structure and Economic Performance, 2nd ed. Chicago, IL: Rand.

Sexton, D., and Bowman-Upton, N. 1991. Entrepreneurship: Creativity and Growth. New York, NY:MacMillan Publishing.

Tsai, W.M., MacMillan, I.C., and Low, M. 1991 Effects of strategy and environment on corporate venture success in industrial markets. Journal of Business Venturing 6: 12-28.

Zahra, S.A. 199 1. Predictors and outcomes of corporate entrepreneurship: An exploratory study. Journal of Business Venturing 6:259-285.

Zahra, S.A. 1993. A Conceptual model of entrepreneurship as firm behavior: A critique and extension. Entrepreneurship: Theory & Practice, in press.

Zahra, S.A., and Ellor, D. 1993. Accelerating new product development and successful market introduction. S.A.M.Advanced Management Journal, in press.

Zahra, S.A., and Fescina, M. 1991. Will leveraged buyouts kill corporate research and development? Academy of Management Executive 4(4):7-22.

Zahra, S.A., and Pearce, J. II 1990. Research evidence on the Miles-Snow typology. Journal of Management 16:751-768.

Zahra, S.A., and Zahra, P.H. 1992. Organizational structure and corporate entrepreneurship. Paper presented at the Academy of Management.


Appendix Study Measures

Multi-item indexes were constructed for the environment and corporate entrepreneurship. All scaled-items followed

a 5-point response format. In all cases, executives were asked to circle a number that best described their opinion,

covering their company’s position over the past three years.

Munificence

I. Dynamism (a - X3). Rate the extent of changes that might have occurred in your company’s environment,

following the scale below.

I 2 3 4 5

Minor Major

Change Change

changes in technology I 2 3 4 5

changes in consumer demographics I 2 3 4 5

government regulation in the industry I 2 3 4 5

number of domestic competitors has I 2 3 4 5

number of foreign competitors has I 2 3 4 5

industry-wide spending on advertising has I 2 3 4 5

2. Technological Opportunities (a a. 80). Indicated how true or untrue are the following statements of your

company’s situation, using the scale below.

I 2 3 4 5

Very Very

Untrue True

our industry offers many opportunities for technological innovation I 2 3 4 5

demand for new technology in our industry is growing I 2 3 4 5

new technology is needed for growth in this industry I 2 3 4 5

3. Perceived lndusrry Growth (a - .76). Indicate how true or untrue are the following statements of your

company’s situation, using the scale below.

I 2 3 4 5

Very Very

Untrue True

there are very few opportunities for growth in this industry (reversed) I 2 3 4 5

this industry offers many attractive opportunities for future growth I 2 3 4 5

growth opportunities in this industry are abundant 1 2 3 4 5

4. Demandfir New Producfs (a - .7 I). Indicate how true or untrue are the following statements of your company’s

situation, using the scale below.

I

Very Untrue

2 3 4 5

Very True

In this industry . . .

there are many opportunities for new product introduction I 2 3 4 5

consumer demand for new products is growing I 2 3 4 5

market demand for new products is growing I 2 3 4 5

Hostility

I. Unjkwability of Change (a - .74). Rate the changes that might have taken place in your industry on the

following scale. Have they been favorable for (or conducive to) the success of your company?

338 S. A. ZAHRA

1 2 4 5

Unfavorable Favorable

changes in government regulations 1 2 3 4 5

changes in demographics 1 2 3 4 5

technological changes I 2 3 4 5

changes in the number of foreign competitors I 2 3 4 5

changes in the number of domestic competitors I 2 3 4 5

changes in industry-wide spending on advertising I 2 3 4 5

2. Competitive Rivalry (a - .72). Rate the intensity of competition your company has faced from the following

groups over the past three years.

I 2

Low

Competition from . .

established domestic producers

established foreign producers

new domestic producers

new foreign producers

3 4 5

High

I 2 3 4 5

1 2 3 4 5

I 2 3 4 5

1 2 3 4 5

Corporate Entrepreneurship: Venturing and Innovation

1. New Business Creation (a - .80). Indicate the extent to which your company has emphasized each of the

following items.

1 2 3 4 5

Minor Major

Emphasis Emphasis

stimulating your new demand on your existing products in your current I 2 3 4 5

markets through aggressive advertising and marketing

broadening your business lines in your current industries 1 2 3 4 5

pursuing new businesses in new industries that are related to your current I 2 3 4 5

business

finding new niches for your products in your current markets 1 2 3 4 5

entering new businesses by offering new lines and products I 2 3 4 5

2. Producr innovation (a - X0). Indicate the extent of changes that might have taken place in your company over

the past three years.

1 2 3 4 5

Decreased Increased

Significantly Significantly

your company’s emphasis on developing new products 1 2 3 4 5

rate of your new product introduction into the market 1 2 3 4 5

your company’s spending on new product development activities 1 2 3 4 5

the number of new products added by your company 1 2 3 4 5

the number of new products introduced by your company I 2 3 4 5

3. Percent ofRevenue Generatedfrom New Business. Executives estimated the percent of their company’s revenue

generated from products that did not exist three years earlier. Only 78 companies provided data on this variable.


4. Techtwlo~ical Entrepreneurship (a - .63). Indicate the extent of changes that may have taken place in your

company over the past three years.

I 2 3 4 5

Decreased Increased

Significantly Significantly

your investment in developing proprietary technologies 1 2 3 4 5

your emphasis on creating proprietary technology I 2 3 4 5

your adoption of technologies developed by other companies or industries 1 2 3 4 5

your company’s emphasis on technological innovation

your company’s emphasis on pioneering technological developments in I 2 3 4 5

your industry

Corporate Entrepreneurship: Self-Renewal Activities

1. Mission Rejkudarion (a - .86). Indicate the extent to which your company has emphasized each of the

following items.

I 2 3 4 5

Minor Major

Emphasis Emphasis

defining your company’s mission I 2 3 4 5

revising your business concept I 2 3 4 5

redefining the industries in which your company will compete 1 2 3 4 5

2. Reorganization (a - .70). Indicate the extent to which your company has emphasized each of the following

items.

I

Minor

Emphasis

2 3 4

reorganizing units and divisions to increase innovation I

coordinated activities among units to enhance company innovation I

increasing the autonomy (independence) of different units to enhance their I

innovation

adopting flexible organizational structures to increase innovation 1

3. System-Wide Changes (a - .74)

1

Minor

Emphasis

2 3 4

training employees in creativity techniques I

rewarding employees for creativity and innovation 1 establishing procedures to solicit employee ideas for innovations I

establishing procedures to examine new innovation ideas I

designating formal idea (project or venture) champions I

making resources available for experimental projects I

2

2

2

2

2

2

2

2

2

2

5

Major

Emphasis

3 4 5

3 4 5

3 4 5

3 4 5

5

Major

Emphasis

3 4 5

3 4 5

3 4 5

3 4 5

3 4 5

3 4 5

Company Performance. As mentioned, two criteria were used to gauge company financial performance over a

three-year period: return on sales (ROS) and growth in sales. Executives provided data on their SBUs’ (units or

divisions) return on sales (ROS) and growth in sales. Each criterion was defined in the survey instrument to minimize

misinterpretations. For each criterion, executives were asked to provide data for the most recent three-year period, and

340 S. A. ZAHRA

the data were then averaged. In addition, data from COMPUSTAT and corporate documents (such as the 10-K

reports) were used to validate the accuracy of executives’ responses. Secondary financial data on the subset of 32

firms from COMPUSTAT were correlated with survey data. The average correlation was .74 @ c O.Ol), thus

supporting the reliability of the survey data.

1993 environment, corporate entrepreneurship, and financial performance a taxonomic approach 1

Documents