Entrepreneurial orientation of SMEs, product ... - CiteSeerX

Journal of Business Research 60 (2007) 566 – 575

Entrepreneurial orientation of SMEs, product innovativeness, and performance ☆ George J. Avlonitis a,⁎, Helen E. Salavou b a

b

Athens University of Economics and Business, 76 Patission Str., 104 34 Athens, Greece Athens University of Economics and Business, 12 Kodrigtonos Str., 4th floor, 112 57 Athens, Greece Received 1 November 2003; received in revised form 1 November 2006; accepted 1 January 2007

Abstract This paper looks beyond the entrepreneurial orientation (EO)-performance link and focuses on identifying EO profiles of SMEs to suggest variations in product innovativeness dimensions of different performance potential. Based upon a sample of 149 manufacturing companies, the study identifies two opposite groups with the help of a cluster analysis, namely the active entrepreneurs and the passive entrepreneurs. The particular results verify the viewpoints stated by industry experts in Greece, but also facilitate further understanding of firms following a similar duality observed in other studies. Taking a step further, subsequent analysis of variance demonstrates that these groups consist of product innovators, who take equal care of reducing customers' burden (e.g. time, effort, purchase risk) in adopting new products. However, the entrepreneurial attitude instilled in active entrepreneurs as compared with passive entrepreneurs is primarily mirrored in new products, which embody in their characteristics higher uniqueness; an ingredient found to act as an important contributor to product performance. This article, apart from its contribution to the entrepreneurship research, has meaningful implications for managers and policy-makers. © 2007 Elsevier Inc. All rights reserved. Keywords: Entrepreneurial orientation; Product innovativeness; Product performance; SMEs; Cluster analysis

1. Introduction The concept of an entrepreneurial orientation (EO) to explain the mindset of firms engaged in pursuing new ventures provides a useful framework for researching entrepreneurial activity (Lumpkin and Dess, 2001). Based on the extant literature, organizations can show divergent EOs, which array on opposite ends of a spectrum. Since innovation is a condition inherent in the domain of entrepreneurship, a company's ability to launch successful product innovations should be considered in parallel. Hence, EO profiles of firms suggesting variations in product innovativeness dimensions of different performance potential may be crucial to become subject of investigation, in order to provide additional explanations of how the firms adapt to a state

☆ The authors thank Hans Mühlbacher and the anonymous reviewers of the JBR for their constructive comments and helpful suggestions. ⁎ Corresponding author. E-mail addresses: [email protected] (G.J. Avlonitis), [email protected] (H.E. Salavou).

0148-2963/$ - see front matter © 2007 Elsevier Inc. All rights reserved. doi:10.1016/j.jbusres.2007.01.001

of flux where the very basis of competition within the corporate environment is constantly and globally redefined. Adaptation to shifting landscapes through aspects of entrepreneurship and successful product innovation is of major concern for all enterprises, especially for small and medium-sized (SMEs) that are dominant in most European economies. This paper explores two research questions in the area of SMEs: Are EO profiles of SMEs identifiable? Do these profiles differ in product innovativeness, and if yes how and what this would possibly suggest in terms of performance? To answer these questions, SMEs are clustered on the basis of the EO construct. After validating the clusters, an analysis of variance is performed to detect differences, if any, across product innovativeness dimensions on EO profiles of SMEs. In a rather supportive way, multiple linear regression analysis is run to detect possible effects of product innovativeness dimensions on product performance. This study contributes to entrepreneurship research in three respects. First, unlike the numerous studies, which place a major emphasis on explaining the complexity in the EO-performance link (Wiklund and Shepherd, 2005), this study focuses

G.J. Avlonitis, H.E. Salavou / Journal of Business Research 60 (2007) 566–575

exclusively on EO by classifying firms according to its dimensions. Such a focus follows the suggestion of Lumpkin and Dess (2001) to direct further empirical research at this important construct. Second, this study attempts to provide more in-depth understanding of how specific dimensions of product innovativeness along with performance potential connect to EO profiles of firms. The evidence reported here goes beyond the knowledge base built primarily around either the effect of EO on product innovativeness (e.g., Salavou and Lioukas, 2003; Zhou et al., 2005) or the effect of product innovativeness on product performance (e.g., Danneels and Kleinschmidt, 2001). Third, this study focuses on SMEs. Despite the widely acknowledged importance of EO in small business research (e.g., Naman and Slevin, 1993; Wiklund and Shepherd, 2005), the empirical literature lacks evidence regarding the way SMEs are classified according to EO and approach product innovativeness for responding to expectations of better performance. The present study could serve as a starting point to this important issue, drawing data from two traditional industries of a country, such as Greece, endued with unique capabilities in the entrepreneurial act. This country represents an interesting case given the dominance of SMEs under the integration processes within the Euro Zone, which are underway. The article has the following structure. After this introductory section, the article presents the research framework taking into consideration the specific Greek context. Section 3 is a brief presentation of the research method and the empirical findings. Finally, a Concluding section summarizes the results along with their implications. 2. Research framework The focal point of this research is on SMEs, which constitute the vast majority of enterprises in Greece, as in most European countries. In particular, the SMEs under analysis come from two traditional, though dynamic, manufacturing industries, those of food and beverages and textile. Both industries account for the 39% of the total sales and 35% of the total net profits in the Greek manufacturing sector while constituting approximately 44% of the total number of manufacturing enterprises (ICAP, 1997). The following points also dictate their choice: (1) the importance of these industries for the Greek economy in terms of (a) manufacturing employment (51%), (b) manufacturing production (50%), and (c) contribution to GDP (39%); and, (2) the opportunity they provide for studying how SMEs, faced with heightened global competition, shape EO profiles along with aspects of product innovativeness and performance. Qualitative data were also collected through semi-structured interviews with industry experts in order to help the development of the research framework and explain the empirical results of this study. In particular, experts from two industry-specific, research and technological development support organizations of the Ministry of Development, that is ETAT S.A. for food and beverages and CLOTEFI S.A. for textile, were asked to express their opinions concerning Greek SMEs' EO, product-related innovative activity and performance

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expectations. Although these viewpoints are confined to the context of Greece, they nevertheless are useful in understanding the prevailing conditions concerning SMEs' behavior. 2.1. Entrepreneurial orientation profiles The expectation is that as the entrepreneurship paradigm expands, organizations, per se, behave in entrepreneurial manners (Jennings and Lumpkin, 1989). EO reflects these manners (Lumpkin and Dess, 1996), which is a salient strategymaking and decision-making process (Dess et al., 1997; Lyon et al., 2000). EO constitutes an organizational phenomenon that reflects a managerial capability by which firms embark on proactive and aggressive initiatives to alter the competitive scene to their advantage (Atuahene-Gima and Ko, 2001). However, the extant literature suggests that organizations can display divergent EOs, which array on opposite ends of a spectrum. For example, firms with a more defensive orientation in terms of risk-taking, experimentation, opportunity seeking, initiating actions are labeled as defenders, conservative firms, followers and reactive entrepreneurial firms whereas firms with an opposite orientation (i.e., more aggressive) as prospectors, entrepreneurial/entrepreneurship firms, pioneers and proactive entrepreneurial firms (Atuahene-Gima and Ko, 2001; Covin et al., 1999; Miles and Snow, 1978; Miller and Friesen, 1982; Mintzberg, 1973). Qualitative information concerning the viewpoints of industry experts in the context of Greece is indicative of a similar duality in the EO of SMEs that helps to highlight the focus of this investigation. When interviewed, they argued that entrepreneurial flair is salient in Greek SMEs. Nevertheless, they believe that top management displays opposite EOs. At the one end lie SMEs characterized by “traditional cultures”, where top management lacks the will to undertake activities either of high risk or before competition. This posture is indicative of the large extent to which these firms a) rely on government protectionism to ensure subsidies for business growth; and, b) engage in defensive actions, such as selectively imitating competitors' moves. At the opposite end lie SMEs with intrapreneurial cultures, where top management is keen on implementing advanced management practices and sets a high value on risk-taking and proactive behavior. These firms are most probably placed among those that underwent significant changes in their management practices during 1980s and 1990s and moved towards managerial modernization and professionalism (Bourantas and Papadakis, 1997), especially as a new generation of well-educated owners-managers took responsibility (Makridakis et al., 1997; Spanos et al., 2001). Consequently, the first question we address attempts to identify EO profiles of SMEs, thus verifying or otherwise the input from industry experts. 2.2. Entrepreneurial orientation and product innovativeness Moving a step further from the previous research question, great importance has also been assigned to entrepreneurship research on innovation. Since innovation is an inherent

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condition in the domain of entrepreneurship, a company's ability to introduce new products, which are also successful, should be considered in parallel. The importance of new products has recently been overemphasized, given the large extent to which companies focus their efforts on them for survival (Dyer and Song, 1998), profitability (Ali et al., 1993), growth and expansion into new areas (Danneels and Kleinschmidt, 2001). Product innovativeness is a concept of emerging attention to both researchers and practitioners, since it refers to the level of innovativeness embodied in each new product (Balachandra and Friar, 1997). A significant part of research uses product innovativeness to explore its relationship with product performance. Existing empirical evidence, although inconsistent (Song and Montoya-Weiss, 1998), concludes in part that both high and low levels of product innovativeness are characterized by higher product performance (e.g., Kleinschmidt and Cooper, 1991). Surprisingly, few entrepreneurship research studies focus on combining the key concepts of EO and product innovativeness. For example, Miller and Friesen (1982) argue that entrepreneurial firms, unlike conservative firms, innovate boldly and regularly while taking considerable risks in their productmarket strategies. In a similar vein, Miller, Kets de Vries, and Toulouse (1982) suggest that substantial product innovations require greater amount of risk-taking and proactiveness from companies. Likewise, Khan and Manopichetwattana (1989) empirically support that innovative group of firms, labeled as Young Turks and Blue Chips, demonstrate a far greater willingness for risk-taking and proactive market leadership than non-innovative groups. A Greek study focusing on SMEs to investigate strategic drivers of radical product innovation adoptions provides support of a positive effect of EO on product innovativeness (Salavou and Lioukas, 2003). Further to this line of evidence, Zhou, Yim, and Tse (2005) find that EO positively affects breakthrough innovations, which is in line with the work of Hamel and Prahalad (1994) posing a high priority on entrepreneurial foresight in competing in the future, and with the work of Tellis and Golder (2001) emphasizing the role of vision in generating breakthroughs. Nevertheless, explicit research evidence that could verify or otherwise the viewpoints of industry experts is what is still missing. When interviewed, they argued that duality in SMEs' EO (as already mentioned) most probably accounts for inclination to new product introductions featuring different degrees of innovativeness. More specifically, they claim that new products of a lower degree of innovativeness – the majority of which are me too products (i.e., products already introduced by competitors) – are launched by SMEs characterized by oldfashioned cultures, and vice versa. Stated differently, industry experts imply that lower product innovativeness comes from weaker EO, whereas higher product innovativeness from stronger EO. Additionally, they believe that less innovative products are less successful while the opposite holds true for more innovative products. To the best of our knowledge, there is no study addressing specifically the question of how product innovativeness dimensions may vary among divergent entrepreneurial postures of SMEs and how they may be related to

product performance. This paper attempts to narrow this gap, at least partially, by extending the first research question to include this investigation. Taken overall, the present study would make a worthy contribution especially to smaller firms, which are generally considered to have a strong potential in entrepreneurship and innovation based on their areas of strength (e.g., flexibility, nimbleness, adaptability). Thus, identifying EO profiles of SMEs to suggest variations in product innovativeness dimensions of different performance potential, could help top managers to calibrate the overall strategic philosophy that clarifies how existing firms should operate on particular tactical manifestations, including the basis on which they compete (e.g., proactive vs. reactive, risk-taking vs. risk-aversion, me-too-ism vs. product differentiation). At a national level, this identification could also direct the efforts of policy-makers in providing support to SMEs that lag behind in exploiting future prospects. Supportive actions would be in line with the wider EU entrepreneurship programs (see sources of relative information, such as www.europa.eu.int/comm/enterprise/enterprise_policy/ mult_entr_programme/overview.htm, www.europa.eu.int/ comm/enterprise/index_en.htm, www.oecd.org/department/ 0,2688,en_2649_34197_1_1_1_1_1,00.html) and innovation policy initiatives (see sources of relative information, such as www.cordis.lu/innovation-smes and www.eubusiness.com/ topics/SMEs), attempting to advance the standing of these firms in all European regions. 3. Research method 3.1. Sample and data collection The relevant population in this study is all independent firms with 10 to 250 employees and with less than 40 million Euro annual turnover, thus being in accordance with the widely accepted guidelines stipulated by the EU (published by the Official Newspaper of the European Communities on 30 April, 1996). More specially, according to the ICAP database (Gallup's subsidiary), this population consists of 1614 Greek SMEs, from which a random sample of 143 firms suffices (see Appendix A). All firms in the sample fulfill an additional criterion, which is necessary for measuring the main constructs, namely EO, product innovativeness and product performance. They should have introduced at least one new product or new product category during the last 3 years. Since this kind of information requires the direct contact of all firms in the population and the cost of this process is very high, we initially extracted a random sample of 300 firms. These firms were contacted through phone calls in order to confirm whether the criterion in question was met. After confirming that 223 firms met this criterion, letters referring to the scope of the research study were sent, asking for participation. Finally, 150 firms agreed to cooperate (67% response rate), which is close to the required sample of 143 firms. Data were collected by a structured questionnaire through in depth personal interviews with the top management (managing directors 58%, marketing and sales managers 17%,


financial managers 15%, others 10%). Only 1 questionnaire was deemed unusable due to missing data on key constructs. All questions relating to the product innovativeness and product performance measures are based on the most important single new product or new product category that each SME considered in terms of sales turnover. Respondents (top managers) were asked to identify the new product or new product category introduced by their firms in the last 3 years with the highest contribution to their overall sales turnover. Of the 149 SMEs under analysis, 128 refer to new product categories whereas 21 to single new products. However, the contribution of the new products or new product categories to the sales turnover of SMEs is on average 22%. With reference to the industries under examination, 68 SMEs belong to the food while beverages industry while 81 SMEs to the textile industry. On average, these firms are in operation for 24 years. However, some of them are newly established (e.g., 1996) while others are far older (e.g., 1861). In addition, the sampled firms, which can be characterized as labor intensive, employ on average 66 people, from which about 19 are administrative while 47 are production or technical employees. These firms report an average return on assets and an average sales growth of 8% and 12% respectively during the last 3 years. The choice to use the single respondent approach is based on both the size of the firms as well as the respondent's familiarity with the research topic and the information sought. More specifically, in the case of SMEs the views of a single respondent may, in fact, reflect those of the firm (Lyon et al., 2000). In addition, data were collected by personal interviews to secure that the single respondent, who was appointed by each SME, would be the most knowledgeable top manager. The Harman's one-factor test is used, to test for evidence suggesting the presence or absence of common method bias in this dataset (Podsakoff and Organ, 1986). Results of the Exploratory Factor Analysis (EFA) using all the items of EO and product innovativeness variables do not indicate a single-factor structure that accounts for most of the covariance in these variables. These results suggest that common method bias is not a cause of major concern in this sample. In addition, ANOVA is employed to test whether or not it is acceptable to combine questionnaires from different types of respondents. More specifically, the four types of respondents are used as independent variables, whereas all variables under analysis as dependent ones. As no significant differences across the four types of respondents on all variables are found, the sample is pooled for analysis. 3.2. Measurement of variables Three dimensions measure product innovativeness in the present study. These dimensions are based on the perceived assessments of the respondents that capture both the firm's and the customer's perspective (Danneels and Kleinschmidt, 2001; De Brentani, 2001; Olson et al., 1995). More specifically, the first dimension (i.e., product newness to customers) is measured in this study by a four-item, 7-point Likert-type scale adapted

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from Atuahene-Gima (1995). According to this dimension, the innovativeness level of a new product is reflected in a continuum from less to more innovative for the customers, who either use or consume it. The second dimension (i.e., new product uniqueness) is measured in this study by a six-item, 7point Likert-type scale adapted from Cooper (1979). As such, it depicts the innovativeness level of a new product on a continuum from less to more unique for the market in terms of characteristics as compared to similar products. Finally, the third dimension (i.e., product newness to the firm) is measured by a continuous variable derived from the transformation of a dichotomous variable following the guidelines Dellaportas (1998) suggests. In this binary construct, which is adopted from Song and Montoya-Weiss (1998), 1 represents radical product innovations (see Appendix B) while 0 refers to incremental product innovations. This dimension ascribes the innovativeness level of a new product to a continuum from less to more innovative in terms of radicalness for the firm, which produces it. EO is measured by a nine-item, 7-point semantic differentialtype scale developed by Covin and Slevin (1986, 1988), based on the work of Miller and Friesen (1982), and Khandwalla (1976/77). In the present study, this variable reflects top management's behavior in taking strategic decisions and operating management philosophies, that two dimensions capture, namely proactiveness and risk-taking. A seven-item, 7-point Likert-type scale that the authors developed measures product performance. This measure is based on perceived assessments of the respondents. More specifically, they were asked to assess the performance of the new product or new product category under analysis on a threeyear basis as compared with main competitors in terms of sales volume, growth in revenues, gross profit margin, net income, market share, change in market share, entry to new markets (from − 3: much weaker to 3: much stronger). 3.3. Construct validation results To test the construct validity of the measures, this study employs confirmatory factor analysis (CFA) using EQS (Bentler and Wu, 1995). Unlike the traditional and more commonly used EFA, CFA contains inferential statistics that allow for a stricter and more objective interpretation of validity (Gerbing and Anderson, 1988). More specifically, unidimensionality, convergent and discriminant validity tests are assessed. Two sets of statistics are used for the verification of unidimensionality and convergent validity (Venkatraman, 1989): i) the significance of the factor loadings (z-values N ± 1.96 and p b 0.05), that is the estimated correlation between a particular item and the latent construct it represents; and, ii) the overall acceptability of the measurement model in terms of its fit to the data using a χ2 test and adjunct fit indexes (CFI and Robust CFI) which should exceed the cut-off point of 0.90. Tables 1–3 report the results in support of unidimensionality and convergent validity of the EO, product innovativeness and product performance measures respectively. Discriminant validity is assessed by comparing two models: one in which

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Table 1 Entrepreneurial orientation: unidimensionality and convergent validity tests Factor loadings Proactiveness More new products as compared with main competitors. Changes in products have usually been radical as compared with main competitors. There exists a very strong emphasis on the development of new and innovative products. Typically we initiate actions to which competitors then respond. We are very often the first business to introduce new products. We typically adopt a very competitive, undo-the-competitors posture.

0.57a 0.72 0.65 0.61 0.74 0.48

Risk-taking There is a strong proclivity for high-risk projects (with chances of 0.56a very high return). Owning to the nature of the environment, bold, wide-ranging acts are 0.64 necessary to achieve the firm's objectives. Typically we adopt a bold, aggressive posture in order to maximize 0.54 the probability of exploiting potential opportunities. Model summary statistics: χ2(26) = 46.89, p = 0.01, CFI = 0.93, robust CFI = 0.96. All factor loadings are significant at p b 0.05. aLoading fixed to 1 for identification purposes.

the correlation between two constructs pertaining to the same conceptual domain is constrained to equal one, and another in which the correlation is free to vary. A significantly lower χ2 value for the unconstrained model provides support for discriminant validity (Venkatraman, 1989). As shown in Tables 4 and 5 model comparisons confirm discriminant validity of the EO and product innovativeness measures respectively. Finally, the inter-item reliability coefficients of the multiitem scales measuring EO, product newness to customers, new product uniqueness and product performance are 0.78, 0.73, 0.86 and 0.90 respectively, which are acceptable according to the organizational attribute reliability standards Van de Ven and Ferry (1980) suggest. Thus, all analyses provide reasonable

Table 2 Product innovativeness: unidimensionality and convergent validity tests Factor loadings Product newness to customers It required a major learning effort by customers It took a long time before customers could understand its full advantages The product concept was difficult for customers to understand The product was not known and tried in the marketb

0.68 0.19

New product uniqueness The product offers more possibilities to customers The product offers unique, innovative features to customers The product covers more customer needs The product has more uses The product is of higher quality The product is superior in technology

0.60a 0.80 0.81 0.78 0.59 0.68

0.76a 0.89

Model summary statistics: χ2(34) = 54.39, p = 0.02, CFI = 0.96, robust CFI = 0.97. All factor loadings are significant at p b 0.05. aLoading fixed to 1 for identification purposes. bReverse item.

Table 3 Product performance: unidimensionality and convergent validity tests Factor loadings Sales volume Growth in revenues Gross profit margin Net income Market share Change in market share Entry to new markets

0.62a 0.77 0.66 0.74 0.82 0.90 0.64

Model summary statistics: χ2 (13) = 66.69, p = 0.01, CFI = 0.91, robust CFI = 0.90. All factor loadings are significant at p b 0.05. aLoading fixed to 1 for identification purposes.

confidence that the measures of this study are both valid and reliable. 4. Analysis and results Following the confirmation of the construct validity of the measures, averages of items pertaining to factors extracted are used to form the variables for further statistical analysis. Table 6 presents descriptive statistics together with the correlation coefficients among all variables. In order to explore the possibility that SMEs adopt divergent EO profiles, a cluster analysis is performed using the two EO dimensions as independent variables. To eliminate the potential effects of scale differences among variables and allow them to contribute equally to the definition of clusters (Ketchen and Shook, 1996), the two composite variables measuring the EO dimensions are standardized. The K-Means cluster analysis, which adopts the quick cluster routine of SPSS for Windows/ Release 12, is used for the clustering of the data. Quick cluster is an alternative to the more common hierarchical clustering that offers efficient use of computer resources while identifying clear and distinct clusters (Avlonitis and Gounaris, 1999). After examining the two-, three- and four-cluster solution, the choice of the two-cluster solution is considered as the most acceptable one based on i) maximum external isolation and internal cohesion, and parsimony of explanation (Klastorin, 1983); and, ii) comparison with prior theory-based typologies (Ketchen et al., 1993). Note that the same clusters are found within each of the two industries after conducting separate analysis. To further assure that this is a meaningful and useful set of clusters, reliability and validity are evaluated. First, the sample is randomly split and the two halves are independently analyzed (Hambrick, 1983). Consistency across sample halves indicates reliability, as Hair et al. (1992) suggest. Second, criterionrelated validity is assessed through significance tests (i.e., one-

Table 4 Entrepreneurial orientation: discriminant validity test Entrepreneurial orientation

χ2(df = 27)

Proactiveness vs. risk-takinga Base model (unconstrained)

70.69, pb b 0.01 46.89 (26)

Notes: a(Φ = 0.53). bDenotes the significance of χ2 difference between the constrained and the unconstrained model.

G.J. Avlonitis, H.E. Salavou / Journal of Business Research 60 (2007) 566–575 Table 5 Product innovativeness: discriminant validity test

Table 7 SMEs profiles based on entrepreneurial orientation — analysis of variance χ2(df = 35)

Product innovativeness a

Product newness to customers vs. new product uniqueness Base Model (unconstrained)

197.68, pb b 0.01 54.39 (34)

Notes: a(Φ = 0.16). bDenotes the significance of χ2 difference between the constrained and the unconstrained model.

way ANOVAs), relating cluster membership to external variables, which are theoretically related to the clusters, but not used in defining them, as Ketchen and Shook (1996) suggest. In particular, the measures of product performance and average return on assets are used, since the external variables in strategy research are often performance measures (e.g., Miller, 1988; Robinson and Pearce, 1988). The F-statistic of the nonclustering variables confirms the validity of this cluster solution (i.e., average return on assets: F = 3.63, p = 0.05; product performance: F = 10.27, p = 0.00). In addition, a multiple discriminant analysis (Klastorin, 1983) is used with cluster membership as the grouping variable and the two dimensions of EO as the independent variables. This analysis reveals that 100% of the cases are correctly classified, lending further support to the appropriateness of the two-cluster solution. Table 7 reports the results of significant tests (i.e., one-way ANOVAs) relating cluster membership to the original nine EO items (i.e., the items comprising the two EO variables). Cluster means are significantly different on all the original EO items at the 0.00 level. Note that this analysis provides the basis for the interpretation of each cluster. As such, the two clusters of SMEs verify the viewpoints of industry experts and can be described in detail as follows:

These 71 SMEs do not encourage actions before competitors neither projects of high-risk. Although entrepreneurial in their business pursuits, they appear not to endorse the components of the contemporary entrepreneurial identity, such as the spirit of proactive initiative and the risk-propensity (Ray, 1993). Conservative top managers running these firms are rather

Table 6 Descriptive statistics and Pearson correlations among variables Mean S.D. Variable 1.

% of companies, n = 149 More new products as compared with main competitors Changes in products have usually been radical as compared with main competitors There exists a very strong emphasis on the development of new and innovative products Typically we initiate actions to which competitors then respond We are very often the first business to introduce new products We typically adopt a very competitive, undo-thecompetitors posture There is a strong proclivity for high-risk projects (with chances of very high return) Owning to the nature of the environment, bold, wideranging acts are necessary to achieve the firm's objectives Typically we adopt a bold, aggressive posture in order to maximize the probability of exploiting potential opportunities

pvalueb

48% 4.6

52% 5.6

30.98 0.00

4.5

5.6

44.18 0.00

3.6

5.3

55.67 0.00

4.3

5.4

24.61 0.00

4.1

5.5

40.21 0.00

4.0

5.4

30.63 0.00

2.7

4.4

52.25 0.00

2.7

4.5

72.16 0.00

3.8

5.5

54.75 0.00

b

Significance level

passive or reactive and decidedly risk-averse. They most probably approach business matters by playing it safe [do not use air quotes], since they appear more reluctant to experiment and exploit potential opportunities. Characteristics of this group could facilitate further understanding of firms labeled in the extant literature as defenders, conservative firms, followers, or reactive entrepreneurial firms (Atuahene-Gima and Ko, 2001; Miles and Snow, 1978; Miller and Friesen, 1982; Mintzberg, 1973). 4.2. Active entrepreneurs

2.

3.

4.

5.

4.8 4.0 3.3

1.00 1.21 0.41⁎⁎ 1.37 0.19⁎ − 0.00

4.8

1.07 0.33⁎⁎

0.37⁎⁎ 0.11

0.3a

0.93 0.19⁎

0.03

0.04 0.15

1.0

0.96 0.39⁎⁎

0.16

0.09 0.28⁎⁎ 0.11

Notes: Values range from − 2.45 to +2.21, ⁎⁎ Correlation is significant at the 0.01 level (2-tailed), ⁎ Correlation is significant at the 0.05 level (2-tailed). a

Items measuring entrepreneurial Passive Active F orientation dimensions entrepreneursa entrepreneursa

Notes: a Figures represent mean values in each cluster, (p-value) is based on one-way analysis of variance.

4.1. Passive entrepreneurs

1. Proactiveness 2. Risk-taking 3. Product newness to customers 4. New product uniqueness 5. Product newness to the firm 6. Product Performance

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This group of 78 SMEs is first to initiate actions in the market and is inclined to projects of higher levels of risk. Strong entrepreneurial firm-level behavior is demonstrated through experimentation and inclination to take both proactive and bold actions in pursuing opportunities. Top management style of these firms appears to engage in pioneering by virtue of the fact that it exploits market opportunities in a pre-emptive and aggressive fashion, redefining where and how the competitive game is played in the process. Characteristics of this group could facilitate further understanding of firms labeled in the

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Table 8 Characteristics of passive and active entrepreneurs

Table 10 Results of multiple linear regression analysis (n = 117)

Passive Active entrepreneurs entrepreneurs Mean value Age in years Number of employees Number of administrative employees Number of production or technical employees Number of new products (or new product categories) introduced in the last 3 years Average return on assets (on a three-year basis) Average sales growth (on a three-year basis) Number of firms in the food and beverages industry Number of firms in the textile industry

S.D. Mean value

25 65 18 47 4

22 48 21 36 4

23 66 19 47 10

6% 12% 32

6% 10% 26% 12% 36

39

42

S.D. 22 49 21 39 12 14% 22%

extant literature as prospectors entrepreneurial/entrepreneurship firms, pioneers or proactive entrepreneurial firms (AtuaheneGima and Ko, 2001; Covin et al., 1999; Miles and Snow, 1978; Miller and Friesen, 1982; Mintzberg, 1973). To provide further understanding of which type of firms are within each group, additional characteristics are presented in Table 8. Overall, demographics, such as age, size and personnel structure, are similar in both groups. Likewise, passive and active entrepreneurs do not differ in their growth potential according to the average sales growth indicator. Recent empirical evidence from the Greek context shows that highand low-growth SMEs do not differ in their EO consisting of two opposite postures, active and passive (Salavou et al., 2005). As such, the growth level of an SME does not indicate its choice of an EO. On the contrary, characteristics more indicative of the firm’s entrepreneurial identity, such as new product activities and return on assets, make the difference. In particular, firms labeled as active entrepreneurs are more active in product innovation introductions and more efficient in asset exploitation according to the average ROA indicator. The analysis includes investigating potential relationships between EO and product innovativeness. For this purpose, oneway ANOVA is performed using the two EO profiles of SMEs derived from the previous stage of the analysis as independent variables and the dimensions of product innovativeness as dependent ones. Table 9 reports the findings, which indicate statistically significant differences across the clusters on two Table 9 Differences between product innovativeness and entrepreneurial orientation profiles-analysis of variance

New product uniqueness Product newness to customers Product newness to the firm

Passive entrepreneursa

Active entrepreneursa

F

p-valueb

4.3

5.1

21.70

0.00

3.3

3.4

0.25

0.62

0.1

0.5

7.51

0.07

Notes: a Figures represent mean values in each cluster. (p-value) is based on one-way analysis of variance.

b

Variables

Significance level

Constant New product uniqueness Product newness to customers Product newness to the firm Proactiveness Risk-taking Cluster membership Model F R2

Product performance (1st model)

Product performance (2nd model)

b

S.E.

b

0.42 0.08 0.06 0.09

− 0.91⁎ 0.51 0.14⁎⁎ 0.08 −0.01 0.06 0.07 0.08 0.29⁎⁎⁎ 0.10 − 0.01 0.10 0.17⁎⁎ 0.27 4.05 (p = 0.00) 14%

− 0.28 0.15⁎⁎ 0.01 0.08

0.33⁎⁎ 0.18 3.47 (p = 0.01) 11%

S.E.

Notes: Unstandardized regression coefficients are displayed in the table. Cluster membership is a binary construct, where 1 refers to the cluster of active entrepreneurs while 2 to the cluster of passive entrepreneurs. ⁎p b 0.10, ⁎⁎p b 0.05, ⁎⁎⁎p b 0.01.

dimensions of product innovativeness. In a rather supportive way, two multiple linear regression models are run (see Table 10), one investigating the effect of product innovativeness dimensions on product performance (1st model) and the other the effect of all product innovativeness and EO dimensions on product performance (2nd model). In both models, the effects are examined while controlling for cluster membership. This supplementary analysis confirms that the conclusions and implications derived from the main analysis are sound. Since the results of both models are the same regarding the impact of product innovativeness dimensions on product performance, comments on the results of the second model follow. More specifically, one product innovativeness dimension (i.e., new product uniqueness) and one EO dimension (i.e., proactivness) have statistically significant relationships to product performance. The positive sign of the cluster dummy suggests that active entrepreneurs tend to have a better new product performance than passive entrepreneurs. Tables 9 and 10 in combination reveal interesting results. First, active entrepreneurs differ significantly from passive entrepreneurs in the new product uniqueness dimension, suggesting that the proactive and risk-seeking orientation of active entrepreneurs is demonstrated by product innovations featuring more unique characteristics for the market and leading to higher performance. This finding is in line with existing evidence that delivering a differentiated product with unique customer benefits and superior value for the user is one of the most critical success factors (e.g. Cooper, 1999; Cooper and Kleinschmidt, 1987; Song and Parry, 1996) while offers greater potential for customer satisfaction and loyalty (Day and Wensley, 1988). The apparent emphasis of active entrepreneurs in pursuing this vital ingredient, unlike passive entrepreneurs, could be seen as the right thing to do, based also on higher product performance. In this context, SMEs labeled as active entrepreneurs follow at least partially the track of hidden champions Simon (1996) mentions while consider innovation as the specific instrument of entrepreneurship, which the literature suggests characterize the really innovating entrepreneurs (Drucker, 1985). Second, active entrepreneurs differ


only marginally (at the 7% significance level) from passive entrepreneurs in the product newness to the firm dimension, which does not affect product performance. Additionally, new products of both groups are on average of medium radicalness for the firm (see mean value on Table 6). Third, the results also suggest the apparent lack of statistically significant difference in the product newness to customers dimension between passive entrepreneurs and active entrepreneurs. One possible explanation is that, both groups put the same emphasis on how new products are perceived in the eyes of customers, in the sense that they try to reduce their burden (e.g. effort, time, purchase risk) in adopting them. No matter how much emphasis is put on this activity, product newness to the customers has no impact on product performance. Finally, proactiveness, as opposed to risktaking, is an important product performance contributor. In this context, the more SMEs enhance this EO component, the higher the performance of their new products is. 5. Conclusions and implications This paper explores two research questions focusing on the identification of SMEs' EO profiles to suggest variations in product innovativeness dimensions of different performance potential. Regarding the first research question pertaining to EO profiles, the evidence shows two opposite groups of SMEs according to the EO construct, namely the active and the passive entrepreneurs, verifying the viewpoints stated by industry experts in the context of Greece. The findings suggest that active entrepreneurs unlike passive entrepreneurs adopt a more aggressive orientation characterized by willingness to undertake action of high risk and before that of competition. Nonetheless, proactiveness contrary to risk-taking is found to be an important contributor to the performance of new products introduced by both groups. Regarding the second research question pertaining to differences across product innovativeness dimensions on EO profiles, the evidence shows that active and passive entrepreneurs differ significantly in one dimension of product innovativeness, namely new product uniqueness. In particular, entrepreneurial attitude instilled in active entrepreneurs as compared with passive entrepreneurs is mirrored in new product introductions, which embody in their characteristics higher uniqueness; an ingredient found to act as an important contributor to product performance. Given the lack of evidence on the second research question, the specific results help to streamline the viewpoints of industry experts posing a simple positive relationship between EO and product innovativeness in the case of Greek SMEs. The findings of this study make three worthy contributions to the entrepreneurship research. First, the evidence based on the approach to classify firms in terms of EO allows for a deeper understanding of this important construct and contributes to the enhancement of empirical literature, beyond that stemming from the intensively explored EO-performance link. Second, the specific results build on previous work related to either the effect of EO on product innovativeness or the effect of product innovativeness on product performance, advancing thus the knowledge base concerning EO, product innovative-

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ness and product performance. By combining these concepts, this study sheds some new light on how specific dimensions of product innovativeness with different performance potential are pursued by divergent EO profiles of firms. Third, by focusing on SMEs, the findings of this study provide new insights in small business research concerning the widely acknowledged value of EO. Indeed, these findings could serve as a starting point to build evidence regarding the way SMEs are classified according to EO and approach product innovativeness to pursue better performance. From a practical perspective, this study provides meaningful implications for top managers, who are most often identical with family ownership in Greek SMEs (Lioukas and Makridakis, 1999). These firms seem to acknowledge the importance of incorporating both entrepreneurial values and product innovation in the way of doing business (e.g., Salavou and Lioukas, 2003). No matter in which entrepreneurial end they are positioned (based on the duality observed), they are product innovators taking equal care of reducing customers' burden (e.g. effort, time, purchase risk) in adopting new products. However, only active entrepreneurs share a common philosophy with hidden champions (Simon, 1996) and really innovative entrepreneurs (Drucker, 1985). Characterized by the potential to introduce new products featuring more differentiated characteristics for the market, these firms seem to take full advantage of their areas of strength (e.g., flexibility, nimbleness, adaptability) in responding to customers constantly calling for unique benefits and superior value. This rather up-to-dated entrepreneurial attitude enables SMEs to escape the myopia of me-too-ism (just imitating product recipes of competitors), and instead deliver new products of higher uniqueness, that allows for better performance. The ingredient of uniqueness in new products is also evident in previous studies as one of the most critical success factors (e.g., Cooper, 1999; Cooper and Kleinschmidt, 1987; Song and Parry, 1996) offering greater customer satisfaction and loyalty (Day and Wensley, 1988). Overall, the adoption of this EO profile could be not only a challenge but also an appropriate opportunity-focused response by firms facing fierce competition by larger competitors (domestic or from distant parts of the world). Apart from its managerial implications, the empirical evidence reported here, could be used nationwide by policy-makers to design support programs and initiatives of entrepreneurship and innovation for SMEs that widen these key concepts beyond the notions of R&D and Hi-tech. In addition, mechanisms that equip more and more Greek SMEs to sustain a more proactive orientation along with relevant training on enhancing uniqueness in new product offerings could be set up. Except for performance benefits, these mechanisms may be pivotal for SMEs not only as a powerful protection shield from established giants but also as a means to advance their standing within the European region. Taking it further, they would lend support to paving the road for establishing a more knowledge-based society, where entrepreneurship is seen as a key intellectual capital element in any firm (Granstrand, 1999). Within the international literature, the present study helps to project a view from a national context other than those of large

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countries (such as United States, UK, Japan, Germany, etc.), which dominate the literature. Any generalizations drawn from this study should, however, be regarded as tentative, pending further confirmation. Drawing a sample of SMEs from a single national context, notably Greece, has its limitations. Further empirical evidence on how EO profiles of SMEs are related to product innovativeness dimensions of different performance potential in similar national settings would help to confirm and generalize the conclusions. Finally, the sample is confined to the manufacturing sector. Future studies should consider the relationships that this study explores in industries beyond the manufacturing sector. Appendix A

Appendix B (continued ) Examples of radical product innovations Food and beverages industry 2. A Greek firm producing fresh mushrooms has exclusively introduced a radical product innovation into the market, namely frozen mushroom nuggets. These are small pieces of mushroom that can be fried (i.e., cooked in hot fat or oil). 3. A Greek firm producing pasta has introduced a radical product innovation into the market, namely KONKAROTI. This is a unique kind of pasta with carrot ingredients.

To determine the size of the random sample, this study uses the following equation (Newbold, 1995): n¼

N dpð1−pÞ ; ðN −1Þr2p̂x þ pð1−pÞ

References

where n is the sample, N is the population, p is the proportion of firms in a population possessing a certain attribute, Pˆx is the random variable representing the sample proportion and σpˆx2 is the desired variance of the sample proportion. The objective is to determine a random sample from the population (i.e., 1614 firms). The attribute determining the random sample size is the proportion that the new product or new product category under analysis suggests an incremental or a radical product innovation. Given that the proportion of firms in the population possessing this particular attribute (p) is not known, this study follows a more conservative approach of substituting the p(1 − p) with the largest possible value, which is 0.25. This approach ensures that whatever the true proportion, a 95% confidence interval extends no further than 0.04 on each side of the sample proportion. Hence, according to the following equation, a random sample of 143 firms suffices. 1:96r̂p ¼ 0:08 x

r̂p ¼ 0:04 x

n¼

ð1614Þdð0:25Þ ð1613Þdð0:04Þ2 þ 0:25

Textile industry 2. A Greek firm producing woolen socks has introduced a radical product innovation into the market, namely SUPERWASH socks. These socks are unique because they are composed of fibers that are moth protection-free. 3. A Greek firm producing cotton material has introduced a radical product innovation into the market, namely net material. This material is composed of net and can be used to produce unique designs of clothing, for example pants, blouses, underwear.

¼ 143

Appendix B Examples of radical product innovations Food and beverages industry 1. A Greek firm producing packaged honey products has introduced a radical product innovation into the market, namely semolina with honey. Plain semolina is a typical Greek sweet that is mainly consumed 40 days before Easter Sunday. The honey ingredient gives semolina a unique flavor that can be consumed throughout the year.

Textile industry 1. A Greek firm producing pillows and mattresses has introduced a radical product innovation into the market, namely VIVADOR pillow. This pillow is unique due to its special anatomic composition.

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