entrepreneurial orientation and small business performance: a configurational approach

Entrepreneurial Orientation and Small Business Performance 1

Entrepreneurial Orientation and Small Business Performance: The Role of Emergent Strategy

*Louise Kelly

Professor of Strategy

Alliant School of Management

Alliant International University

San Diego, CA 92131

[email protected]

Phone: (619) 523-4869

Mahmud Zaman

Alliant School of Management

Alliant International University

San Diego, CA 92131

[email protected]

ABSTRACT

The research on entrepreneurial orientation (EO) is undecided as to whether a specific EO improves firm performance. We

considered EO in a different light by examining the role of emergent strategy. By considering entrepreneurial orientation as

it is effected by emergent strategy, we found a positive relationship between entrepreneurial orientation and performance.

Using Mintzberg's theory of emergent strategy, we investigated and found a negative moderating effect of emergent

strategy on the relationship between entrepreneurial orientation and performance. We tested these hypotheses using data of

small and medium enterprises (SMEs) from Mexico.


INTRODUCTION

Some studies show that entrepreneurial orientation (EO) has a strong positive effect on performance (Ireland, Hitt,

& Sirmon, 2003), while others demonstrate a less significant relationship (George, Wood, & Khan, 2001). This lack of

agreement suggests that there are mitigating factors that work in conjunction with EO that determine firm performance.

EO is a strategic orientation, so this research considers other strategic choices that affect the EO performance dynamic.

Specifically, we considered the role of Mintzberg’s (1985) concept of emergent strategy as factor that may influence

performance.

In most developing countries the majority of businesses are small and medium-sized enterprises (SMEs) (Tybout,

2000; Acs, Morck, Shaver, & Yeung, 1997). Some literature suggests that for SMEs to be a source of sustainable growth

for a developing economy, they need a strong entrepreneurial orientation (Rauch, & Frese, 2000). However, there has been

little research on the effect of entrepreneurial orientation (EO) on firm performance in developing countries (Manev,

Gyoshev, & Manolova, 2005; Alexandrova, 2004). Studies of entrepreneurial firms in developing countries usually focus

on other strategic determinants of performance, such as leadership, family business succession, and board and top-

management composition (Sapienza & Grimm, 1997).

Entrepreneurship studies in developing countries have focused on the two dimensions of the EO construct -

innovativeness and proactiveness (Kreiser, Marino, & Weaver, 2002). Several studies found that EO has had positive

effects on SME performance. (Bhuiana, Menguc, & Bell, 2005; Hult, Snow & Kandemir, 2003; Lee, Lee, & Pennings,

2001; Wiklund & Shepherd, 2003; Tajeddini, K. & Trueman, M., 2008). Others conclude that innovative firms perform

better than their less innovative counterparts (Hult; Hurley, & Knight, 2004). There has been some research suggesting a

cultural component to the effects of EO in some countries (Steensma, Marino, Weaver, & Dickson, 2000). However, there

has been little study of how the strategy process adds to or detracts from the effects of EO on performance (Zahra & Covin,

1993).


Lumpkin and Dess (1996) in their original conceptual model considered that there were certain internal and

external factors that moderated the relationship between EO and performance. There has been some research that suggests

that different kinds of environments, such as hostile vs. benign, may be a key external factor that could moderate the

relationship. In addition, there are some literatures that demonstrate that an abundance of internal financial resources may

be necessary for successful pursuit of an entrepreneurial orientation. However, additional insights may be gained from

looking at the effect of other elements of the strategy process, beyond EO. Specifically, in this study we ask whether

emergent strategy negatively moderates the EO performance relationship.

Strategy process, as outlined by Mintzberg (1973), describes where firms are situated along a continuum from a

formal approach to strategy to an emergent or trial-and-error approach. Strategy process is a “lever” that is more quickly

and easily adjusted through training than EO. This could have a significant impact for entrepreneurial training in

developing countries such as Mexico. If the emergent approach is found to negatively impact performance, the focus may

shift to developing entrepreneurial skills through training entrepreneurs in formal strategy process. Recent research

(Klinger, & Schundeln, 2007) shows that entrepreneurial training in developing countries can help improve entrepreneurial

skills and foster entrepreneurial activities – a 9 to 11 percentage point higher probability of opening a business and a 23 to

26 percentage point higher probability of expanding a business. Additional research by Karlan and Valdivia (2007) also

supports the idea of entrepreneurial training for people living in informal economies of developing countries. The research

shows that programs designed to teach activities such as separating money between business and household, reinvesting

profits in the business, maintaining records of sales and expense, and thinking proactively about new markets and

opportunities led to better business practices and increased revenues and profits. Therefore, this study looks at the

relationship of EO to performance in the context of a developing country, to determine to what degree emergent strategy

process might be a negative moderating influence.

The goal of this paper is to integrate existing theoretical and culture-based explanations of EO in developing

countries with Mintzberg's theory of emergent strategy (1973). It hypothesizes that the relationship between EO and

performance is more complex than previous models have suggested, and that more attention should be paid to the strategy-

process dimensions.


Specifically, we have extended the analysis beyond simple relationships of EO to performance, and investigated

the potential moderating effect of emergent strategy on EO and performance. This research adds to existing research on EO

among firms in developing economies by comparing the effects of an emergent strategy approach with those of a more

formal one. The study uses a firm-level analysis, examining how the interplay of EO and emergent strategy in management

decision-making affects firm performance in Mexican SMEs.

THEORETICAL DEVELOPMENT AND REFINEMENT

Entrepreneurial Orientation

Entrepreneurial orientation has been studied in many settings. A firm with an entrepreneurial orientation has a

propensity to act innovatively and proactively and to take risks (Lumpkin & Dess 1996). In field studies, there has been a

clear indication that EO increases the performance of small and medium-sized firms (Covin and Slevin, 1989; Lumpkin &

Dess, 1996). Other more recent studies focusing on EO have also shown a positive impact on performance (Lyon, Lumpkin,

& Dess, 2000).

Entrepreneurial orientation is a firm-level construct that has been closely linked to entrepreneurial success through

strategic decision-making (Birkinshaw, 1997; Burgelman, 1983; Kanter, 1982; Lumpkin & Dess, 1996; Naman & Slevin,

1993). EO is a concept that expanded our understanding of entrepreneurship, moving it from a strictly individual level of

analysis to the level of the firm. There is a significant stream of leadership literature that looks at the question of

entrepreneurship as it relates to starting a new business. At this stage, there are questions such as what product market

segment to focus on and how to proceed to pursue this product market. However, we can distinguish a more nuanced view

as captured in entrepreneurial orientation concept, where there is a focus on the strategic decisions and the strategic posture

that informs the ongoing running of an entrepreneurial firm.

Entrepreneurial orientation is very much a strategic concept, as it deals with the choices and the strategic posture

of the firm. As the firm grows, this posture is no longer solely embodied in the personality and disposition of the

founder/owner. In fact, EO needs to be diffused throughout the firm. Although the founder/owner may be the original


source of the tendency toward risk taking, proactiveness, innovation, and aggressiveness, these qualities need to be infused

in all levels of management in the entrepreneurial firm.

Entrepreneurial orientation has been used in a number of studies with a number of different dimensions. Some

studies have used an EO index that encompasses multiple dimensions of the construct (Manev, Gyoshev, & Manolova,

2005). Other studies have arrived at a two-factor solution through a confirmatory factor analysis (CFA) (Richard, Barnett,

Dwyer, & Chadwick, 2004). EO is a widely used construct in entrepreneurship literature and investigation, and the number

of dimensions in different studies varies from one to five. This requires continuing use of factor analysis to verify which

dimensions are most relevant.

In this research, we focused on the two most commonly cited EO dimensions: innovativeness and proactiveness.

We hypothesized that these two dimensions would interact with emergent strategy, and have a moderating effect on the

relationship between entrepreneurial orientation and performance.

Although the Mexican context is significantly different in cultural terms from the United States context, we

hypothesized that the positive relationship found between innovativeness and proactiveness with respect to performance in

the U.S. would also be evident in Mexico. In Mexico, the social constructs that encourage entrepreneurship in the U.S. do

not occur as commonly. Recently, when teaching a group of doctoral students at CETYS University in Baja California, we

discussed the notion of the entrepreneur and entrepreneurship in Mexico. While I (the author) gave the example that Bill

Gates is a role model for an aggressive and competitive approach to an entrepreneurship, and suggested he was at least

somewhat admired by the American population, my Mexican students gave the example of Carlos Slim, who is the richest

person in the world today. Carlos Slim could be considered one of the most famous Mexican entrepreneurs. However, the

students did not admire his entrepreneurship, but rather they felt he was given generous and preferential treatment by the

Mexican government. So, when we speak of entrepreneurial orientation in this paper, we are considering a firm-level

construct that defines the qualities embodied by these entrepreneurs as qualities of the firm itself.

Does this mean that entrepreneurial firms in Mexico may not evidence the same level of innovativeness and

proactiveness that we see in countries like the United States? The United States is a highly individualistic country with a


strongly entrepreneurial culture that reinforces the role of the entrepreneur as a hero. This study did not do a comparative

analysis of the level of innovativeness and proactiveness in the United States and Mexico. However, it does hypothesize

that the relationship between innovativeness and proactiveness and their positive effect on performance would also hold

true in the Mexican economy.

Thomas and Mueller (2000) measured cultural distances between the United States and eight other developed and

developing countries using four cultural indices (power distance, uncertainty avoidance, individualism, and masculinity).

The authors then used logistic regression analysis to regress cultural distance independently on each of the four EO traits:

innovativeness, internal locus of control, risk-taking, and energy level. The result showed no statistically significant

difference between innovativeness as cultural distance from the United States increases. However, other EO traits such as

internal locus of control, risk-taking, and energy level decreases with cultural distance from the United States. Since these

three EO traits are more related to proactiveness, we can make a reasonable assumption that for Mexican economy

proactiveness will have weaker (compared to US) impact on organizational performance than innovativeness.

Even if it could be argued that in Mexico the level of innovativeness and proactiveness may, in fact, be less than

the US, we maintain that whatever level of innovativeness and proactiveness does appear in Mexican entrepreneurial firms

would have the predicted positive relationship to performance. Although there are many problems with infrastructure and

access to capital in the Mexican economy, there are still many opportunities for entrepreneurial orientation in firms to bring

about success. This is particularly true in the area where the study was conducted, Baja California, which is close to the

border with the United States. This border region has a unique culture that is a mix of the classic Mexican and American

traditions. Thus, we expect to find the same confirmed relationship between entrepreneurial orientation dimensions such as

proactiveness, innovativeness and firm performance on the Mexican side of the border region as occurs on the American

side.

Hypothesis 1a. Proactiveness in firms will be positively related to performance.

Hypothesis 1b. Innovativeness in firms will be positively related to performance.


Strategy Process: Emergent versus Formal

According to Fredrickson (1983), there are two ends of a continuum: (1) Strategy is planned and decisions are

based on a systematic method to solve an entire problem, and (2) decision makers adopting the emergent strategy approach

break the entire problem down into sub-problems that are solved sequentially. Determination of the most common or

effective method for SMEs has not been the subject of extensive empirical investigation, although the literature has

acknowledged the effect of the external environment on a company’s decision making (Boyd, Dess, & Rasheed, 1993).

The impact of the environment on the type of strategy formulation, emergent versus formal, has never been

definitively established (Brews & Hunt, 1999). Ansoff (1965) has been a proponent of an approach to strategy process that

has been referred to in the literature as planning: variously described as synoptic, formal, or rational. On the other hand,

Mintzberg's (1973) perspectives are often referred to as incremental adaptive or emergent.

For the purpose of this study, we will use the term formal strategy process to refer to an approach to strategy that

relies heavily on planning, analysis, formal strategic plans, and a systematic planning process. We will designate an

emergent strategy process as one that emphasizes trial and error actions, one that initiates competitive actions without

extensive formal analysis, and one that emphasizes the adjustment of the planning process rapidly and sensitively to new

information and the environment.

Although a more emergent process may be what is actually being practiced, entrepreneurial firms often report a

more rational approach to the strategy process. A more accurate definition of the emergent strategy process would not to

polarize it from the planning process, rather to portray it as a more flexible approach to planning. This is not exactly how

Mintzberg (1985) portrays the emergent strategy process.

Mintzberg et al. (1998) made a clear distinction between formal and emergent strategy - the emergent strategy is

about how strategies form within an organization and not about formulating strategies. According to Mintzberg et al. (1998)

strategy making takes the form of a process of learning over time and the strategic initiative is taken by whoever has the

capacity and resources to be able to learn. Throughout the organization many individual actions are taken, feedbacks for


those actions are received and the process continues until the organization converges on the pattern that becomes its

strategy. So, the role of the leadership is only to manage the process of strategic learning and not to preconceive deliberate

strategies. However, for our study we have taken a narrower approach to the definition of emergent strategy. We are

proposing that emergent strategy is only an extension to the formal strategy process that takes a more flexible approach to

planning. So there is deep planning, and yet the feedback mechanism to the environment allows for quicker and more

meaningful adjustment to salient information from the environment.

The emergent strategy process also poses a dilemma for any entrepreneurial firm. Often the operational demands

of an entrepreneurial firm are so significant on a small management team that there is little time for the open-ended

planning, analysis and future orientation that the emergent strategy process requires. The entrepreneur is almost inexorably

pulled toward the cause of operational effectiveness, which Porter (1996) reminds us is not strategy. In addition, Mintzberg

(1985) pointed out that the proactive nature and the strategic vision of the entrepreneurial leaders inevitably make the

strategy process deliberate rather than emergent. Deliberate strategy is referred as a sense of long-term direction that

resides in the mind of the leader and the leader promotes the vision single-mindedly. Therefore, the strategy can only

emerge as the entrepreneurial vision unfolds or changes. In other words, the deliberate nature (realized as intended) of the

entrepreneurial strategy makes it harder for any strategic learning which is the main premise of emergent strategy.

The emergent strategy process is also analogous to the organizational learning theory known as double-loop

learning (Argyris, 2002 & 2003). The theory proposes that when there is a mismatch between an organizational strategy

and its outcome, the organization learns from its mistakes and changes the strategy to achieve the desired outcome (single-

loop learning). On the other hand, double-loop learning occurs when organizations correct the errors by changing its

governing values. The double-loop learning process questions the very basis upon which a strategy has been constructed.

So, we can see why emergent strategy may not be a practical option for a fast-paced entrepreneurial firm. Therefore, the

entrepreneurial firm will probably benefit from some sort of structured planning and training that forces the management to

make the time to consider the open-ended strategic questions and issues.

It is reasonable to assume that the entrepreneurial firms by their nature would be likely to engage in the emergent

strategy process. However, as discussed earlier, a predominantly emergent strategy process in an entrepreneurial firm does

not allow for sufficient management attention to the strategic questions. In other words, if the strategy process is too

unstructured, it may not get done, because the entrepreneurial firm is in a desperate race against the clock, attempting to


deal with operational issues such as getting the product or service out to the client and managing the growth of the firm. So

for these reasons, it is hypothesized in this study that an emergent strategy approach will have a negative moderating effect

on the relationship between entrepreneurial orientation (considered in its dimensions proactiveness and innovativeness) and

firm performance.

This hypothesis could be true in both developed and developing countries. The nature of the entrepreneurial task

in developing countries, which lack infrastructure, venture capitalists, and a developed banking system to discipline the

entrepreneur, could exaggerate the disruptive effect of an emergent strategy process to a greater degree than in a developed

country. Mexico is a highly creative and artisan culture. But it is not known for its extensive use of innovation as an engine

for economic growth. The difference between creativity and innovation lies in the discipline of the commercialization

process, which brings to bear business skills along with the inspiration of the entrepreneur to allow for successful

commercialization of the product or service. For these reasons as well, we hypothesized a negative moderating impact of

the emergent strategy process on the relationship of entrepreneurial orientation (considered in its dimensions proactiveness

and innovativeness) to firm performance.

Hypothesis 2a. Implementation of an emergent strategy process will negatively moderate the positive relationship

between proactiveness and firm performance.

Hypothesis 2b. Implementation of an emergent strategy process will negatively moderate the positive relationship

between innovativeness and firm performance.

METHODOLOGY

Sample

We sent the questionnaire to a population of 700 small and medium-sized enterprises (SMEs) in the Tijuana area of

Mexico’s Baja California Norte state. The entrepreneurial companies were members of a local branch of the national

Chamber of Commerce, La Cámara Nacional de la Industria, Electrónica, de Telecomunicaciones y Tecnologías de la


Información (CANIETI), which is an organization of electronics, telecommunications and information-technology

enterprises. Criteria for choosing companies were specified as follows: (i) the company should have a product/service in

the market, (ii) should have been in operation for 3-4 years, (iii) should be classified as a small or medium sector company

in the Mexican economy, (iv) should have more than 10 employees.

The sample was based on the membership list of 341 firms for CANIETI and questionnaires were sent to the

entire roster of the local chapter of the National Chamber of Commerce. The actual respondents were targeted as being in

upper management, preferably in an overseer capacity, rather than in one function such as finance, marketing or sales.

Respondents were to complete all items relating to their firm’s entrepreneurial orientation, their strategy process, and their

performance, in addition to some other items not used in this study. We obtained a sample consisting of 205 respondents,

with 200 providing usable data, resulting in a response rate of 28.57%. The average company age for the respondent

sample was 5.2 years. The companies in the sample had an average of 154 employees, with average annual sales revenue

of US $100,250. The data was collected in 2004.

Measures

Entrepreneurial Orientation. To measure dimensions of entrepreneurial orientation, we used an extension of Covin and

Slevin’s (1989) nine-item entrepreneurial scale. Covin and Slevin’s scale is intended to assess three components of

entrepreneurial orientation studied in literature: innovativeness, risk taking, and proactiveness. We added two items related

to aspects of aggressiveness in entrepreneurial orientation, based on several studies in this area (Lee & Peterson, 2000;

Lumpkin & Dess, 1997; Lumpkin & Dess, 1996). Several other researchers have reported on the reliability and validity of

the Covin and Slevin entrepreneurial scale (Naman & Slevin, 1993).

To confirm the dimensionality of the measure and of the eleven-item scale, we conducted a confirmatory factor

analysis (CFA) with AMOS, using responses on the 11 items from our 200 respondents. The CFA confirmed that a two-

factor solution fit better (GFI=0.942) than either a one-factor solution (GFI =0.925) or a three-factor (GFI=0.929). In view

of the results of the factor analysis, we focused on the established factors of innovativeness and proactiveness of managers

for respondents in the current study by summing the items comprising each factor and dividing by the number of items.

This calculation resulted in manager scores ranging from one to seven, with higher scores indicating a stronger propensity


to engage in either proactive or innovative behaviors. The Cronbach’s alpha (α) for proactiveness and innovativeness were

0.54 and 0.42 respectively, with all corrected item-correlations exceeding the 0.40 threshold.

Emergent Strategy Process. A number of writers on strategy, first and foremost Henry Mintzberg, have argued that the

strategy process is often less ordered and planned than previously assumed (Mintzberg, 1994). Mintzberg argues that

strategy often emerges as a cumulative pattern of actions that is only retrospectively rationalized and organized as a plan.

This is most common when organizations face a turbulent, fast-changing environment and they may need to respond to

events and information more quickly than a formal strategic planning cycle allows. Various authors (Wooldridge, & Floyd,

1990; Wooldridge, & Floyd, 1992; Harris, & Ruth, 2000) tested this emergent strategy concept empirically, and our scale

was derived from their work (see appendix).

Firm Performance. Our sample of firms was from the SME sector in Mexico, a developing economy. The firms belonged

to various industries within the larger electronics and computer-related segment and represented manufacturers, resellers,

and service firms. For this research, we decided we would be more interested in the entrepreneurs’ perceptions of their

performance vis-à-vis their competitors rather than actual figures of return on investment or net income per employees. An

additional consideration was that in Mexico it is difficult to obtain accurate financial performance figures for either public

or private firms, because accounting practices are not always transparently applied. There are also many tax-related issues

that discourage firms from sharing financial performance information. Mexican society can also be characterized as one in

which there is a low level of trust; this does not lend itself to open sharing of financial data with researchers who are not

part of the firm or part of the family, in the case of family businesses. Strategic management and entrepreneurship literature

contain examples of perception of performance as a reasonable proxy for actual financial performance figures (Kelly,

Athanassiou, & Crittenden, 2000). Accordingly, our questionnaire asked respondents to rate their firm’s performance over

the last year relative to their competitors on a scale of 1 to 5. These five items were added up and divided by five to come

up with a performance Index.

The respondents were asked to respond as follows: Given the current stage of development of your firm in its

market, please assess, to the best of your knowledge, your firm's performance over the last three years relative to your


competitors in the following areas: sales growth rate, return on sales (net profit margin), gross profit, net profit after taxes,

financial strength (liquidity and ability to raise capital), and overall performance.

Control variables. Since the number of employees in our sample firms ranged from 25 to 250, and annual revenues from

US$25,000 to US$400,300, we controlled for firm size by taking the logarithm of annual revenue.

RESULTS

Table 1 provides the means, standard deviations, and correlations for the study variables. Regression results for

the hypotheses are presented in Table 2.

------------------------------ Insert Table 1 Here

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------------------------------ Insert Table 2 Here

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Hypothesis 1a states that proactiveness in the firm will have a positive relationship to firm performance. To test

this hypothesis, we ran a stepwise regression with the control variable of firm size and the proactiveness variable. Model 1

in Table 2 reports the results for the control variable, along with proactiveness and its effect on performance. In Model 1,

proactiveness was positively related to firm performance (β = 0.21, p = 0.006). Model 2 looks at the similar relationship of

innovativeness to firm performance (β = 0.22, p =0.02).

Model 3 adds the hypothesized moderator and interaction term. In this regression, the significant effect of the

emergent strategy was negative (β = -0.282, p = 0.001) with a negative effect of the interaction (β = -0.023, p =0.96)

though this interaction term data was not statistically significant. Similarly, Model 4 looks at the moderating effect of

emergent strategy process on innovativeness (β = 0.13, p = 0.058) with the interaction term (β = 0.15, p =0.16). So

emergent strategy was found to have a significant and negative moderating effect on the relationship of both

innovativeness and proactiveness to firm performance.


DISCUSSION

Overview

The intent of this study was to provide a fresh perspective on the study of entrepreneurial orientation, its role in

the strategy process, and its relationship to performance. By introducing emergent strategy theory into the discussions of

entrepreneurial orientation, this study attempted to provide a new layer of strategic management insight and theory with

respect to the relationship between entrepreneurial orientation and firm performance. This approach further develops the

entrepreneurial orientation construct as an element in the strategic management process, emphasizing the roles of

managerial choice and strategic posture on entrepreneurial success. This extension of the firm-level focus of

entrepreneurial literature enhances our previous understanding of the role of the entrepreneur and augments the strategic

management understanding of the entrepreneurial firm.

The results showing the negative moderating influence of the emergent strategy process on the relationship of

entrepreneurial orientation to firm performance is particularly significant in the context of developing countries such as

Mexico. Entrepreneurship can be a powerful engine for creating jobs, and driving economic growth in both developed and

developing countries. The situation in Mexico, where it has been reported that 75% of the labor market would be willing to

cross the border illegally to seek employment in the US, even if they already have a job in Mexico, needs to be addressed.

One way of addressing this is to focus on the productivity and growth of the Mexican economy and to augment its ability

to provide jobs that produce adequate income for its citizens and thereby to allow them to stay in Mexico.

The implication of this research for management training in entrepreneurship is significant (Klinger & Schundeln,

2007; Karlan & Valdivia, 2007). Mexican entrepreneurs would do well to focus on acquiring the basic skills of the formal

approach to strategic planning, because the emergent approach seems to have a negative impact on firm success,

decreasing the positive impacts of proactiveness and innovativeness. Some of the skills that could be taught to Mexican

entrepreneurs would be spreadsheet analysis, competitor analysis, business strategy formulation, and design of strategic

plans, as a way to diminish the use of purely emergent strategy processes. Mexico is a dynamic environment, therefore it


will be necessary to adjust these formal strategy processes to both the Mexican culture and to changes in the external

environment.

In addition, it is significant to see that the proactiveness and innovativeness dimensions of the entrepreneurial

orientation construct still hold as strong a positive impact on firm performance in Mexico as you would see in the United

States and other countries. This reinforces the concept that proactiveness and innovativeness need to be encouraged among

Mexican entrepreneurs. So, urging and training Mexican entrepreneurs to engage in experimental and original approaches

to problem solving, to respond to actions which competitors initiate, to introduce new products and services, and to use

new administrative techniques would be very critical to increasing entrepreneurial success in Mexico.

Limitation and Cautions

Although our results suggest that the relationship of innovativeness/proactiveness to performance is strongly

positive in some strategic contexts, we need to be cautious in evaluating the conclusions drawn from these results due to

fact that we used a convenience sample of firms from a Mexican Chamber of Commerce, CANIETI. Ideally, this study

could be replicated using a larger and more random sample of Mexican firms. However, there is little research done in

Mexico and access to data can be quite difficult. In view of these limitations, we believe this study still makes a significant

contribution to the application of the concepts such as entrepreneurial orientation and emergent strategy in the context of

Mexican and other developing countries. In addition, given that the firms in the sample were in the electronics and high-

tech industries, caution should be used in generalizing beyond this industry sector. It is our hope that subsequent research

will look at a number of industries in the Mexican economy, and will also compare border regions with regions in the

interior of the country.

IMPLICATIONS FOR FUTURE STUDY

Since the emergent strategy process and its effect on the relationship of entrepreneurial orientation to performance

has not been studied in the United States, a next step would be to see if the negative moderating effect found in Mexico

also holds true in the United States. It is possible, since the US economy has a strong entrepreneurial culture, coupled with


a sophisticated and flexible financial capital market that includes both banks and venture capitalist networks; that these

influences may provide the discipline necessary in the entrepreneurial firm to mitigate the negative impacts of the emergent

strategy process. If this is true, the emergent strategy process would have a significantly less negative moderating effect on

the relationship of entrepreneurial orientation to performance in the United States. However, we do not know the answer at

this point because the topic has not been studied. Consequently, the next step in this research agenda would be to gather

data in the US on the influence of strategy process.

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TABLE 1

Descriptive Statistics and Correlations

Variables Mean s.d. n 1 2

3 4

1.Size 12.98 2.45 200

2. Proactiveness 3.64 .72 200 -.03

3. Innovativeness 3.51 .61 200 .01 .04***

4. Emergent Strategy 2.79 .67 200 -.03 -.17* -.16*

5. Performance Index 2.95 .79 200 -.07 .19** .17* -.27*** +p<.10, *p<.05, **p<.01, ***p<.001

TABLE 2

Results of Regression Analysis

Variables Model 1 : Proact.

and performance

Model 2 : Innov.

and performance

Model 3 : Moderator

effect of emergent on

Proact. and

performance

Model 4 :

Moderator effect

of emergent on

Innov. and

performance

Control

Intercept 2.172*** (.283) 2.174***(.323) 3.117***(.387) 3.814***(.231)

Size .072 .065

Proactiveness .212** (.076) .169*(.075)

Innovativeness .220**(.091) .13*

Emergent Strategy -.28**(.081) -.31***(.081)

Proactiveness x Emergent Strategy -.02

Innovativeness x Emergent Strategy .15

R2/ AdjustedR

2 .4 (.33) .3(.24) .9(.8) .7(.7)

Model total 200 200 200 200

F 7.72** 5.85* 10.135 14.97***

Standard error in parentheses +p<.10, *p<.05, **p<.01, ***p<.001


APPENDIX

Please circle the numbers in the following scales that best describe the approach to decision making and strategic

management that is used by your firm.

In dealing with competitors, my firm . . .

9. Typically seeks to avoid

competitive clashes, preferring a

“live and let live” posture

1 2 3 4 5

Typically adopts a very

competitive “undo the

competitors” posture

10. A strong emphasis on

marketing tried-and -true

products or services

1 2 3 4 5

A strong emphasis on R&D,

technological leadership, and

innovations

11. Experimental and original

approaches to problem solving 1 2 3 4 5

Imitating methods other firms

have used for solving their

problems

Please circle the numbers in the following scales that best describe how strategy is formed within your organization. The

following scale applies to questions 36 – 40.

Strongly Disagree=1 2 3 4 5=Strongly Agree

Neutral

36. We typically don’t know what the content of our

business strategy should be until we engage in some

trial and error actions.

37. My organization’s strategy is carefully planned

and well understood before any significant

competitive actions are taken.

38. Formal strategic plans serve as the basis for our

competitive actions.

39. My organization’s strategy is typically not

planned in advance but rather emerges over time as

the best means for achieving our objectives become

clearer.

40. Competitive strategy for my organization

typically results from a formal business planning

process (i.e. formal plan precedes the action).

1 2 3 4 5

1 2 3 4 5

1 2 3 4 5

1 2 3 4 5

1 2 3 4 5


In general, the top managers of my firm have . . .

41. A strong tendency to “follow the

leader” in introducing new

products or ideas

A strong tendency to be ahead of other

competitors in introducing novel ideas or

products

1 2 3 4 5

42. A strong proclivity for low risk

projects (with normal and certain rates

of return)

A strong proclivity for high risk projects

(with chances of very high returns)

1 2 3 4 5

In dealing with competitors, my firm . . .

43. Typically responds to action

which competitors initiate

Typically initiates actions which

competitors then respond to

1 2 3 4 5

44. Is very seldom the first business

to introduce new

products/services, administrative

techniques, operating

technologies, etc.

Is very often the first business to introduce

new products/services, administrative

techniques, operating technologies, etc.

1 2 3 4 5

45. Are quick to seize opportunities

that we think will give us a good

payoff

Prefer to explore a new opportunity as

carefully as possible before leaping into it

1 2 3 4 5

46. Are very aggressive and intensely

competitive

Make no special effort to take business

from the competition

1 2 3 4 5

How many new lines of products or services has your firm marketed in past three years?

47. No new lines of products or

services

Many new lines of products or services


1 2 3 4 5

48. Changes in products or service

lines have been mostly of a minor

nature

Changes in product or service lines have

usually been quite dramatic

1 2 3 4 5

entrepreneurial orientation and small business performance: a configurational approach

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