Wednesday, September 15, 2010

Theoretical Underpinnings

Theoretical Underpinnings

Entrepreneurship is a driving force of change and innovation by introducing new services, products, programs. systems, techniques and processes in order to achieve efficient, effective performance in both public and private sectors. Entrepreneurial attempts can address stagnation. revenue scarcity. and uncertain service performance (Bellone & Goerl, 1992), because they are able to respond to changes in the external environmental turbulence more promptly and more effectively (Cornwall & Penman, 1990; Miller & Friesen, 1983; Covin & Slevin, 1989). Discontinuities in the environment and a level of uncertainty generate numerous opportunities for innovative behavior, but also threaten existing manners of operation (Morris & Jones. 1999). Overall, entrepreneurship creates positive externalities in benefits that accrue beyond the spatial. temporal, and popular contexts in which it occurs” (Sarasvathy. 2004, p. 708).

The term entrepreneurship is historically related to individual characteristics and efforts to improve economic activities. Attention to the concept of entrepreneurship dates back to 1755, when Richard Cantillon described the entrepreneurial function as facilitating an exchange of goods. He defined an entrepreneur as a rational decision maker. The Industrial Revolution of the 1800s changed market economy conditions, which demanded new ways of thinking in order to maintain rapid industrial development. Jean-Baptiste Say in 1803 expanded Cantillon’s definition of the entrepreneurial function. He asserted that a successful entrepreneur is a skilled planner and problem solver using existing resource in new ways (Carlock, 1994). Entrepreneurs should be prepared to risk their reputations and to devote time and energy to the realization of ideas based on future outcomes (Fisher. 1981).

Later, John Stuart Mill elaborated on the functions of the entrepreneur in its direction, supervision, control, and risk taking in the mid-1800s (Stone, 1992). Mill held that the distinguishing characteristic of entrepreneurs is that they are more than capitalists. With the growth of small business, owners need to manage an increased division of labor and overall organizational development in the rnid-1800s. Marshall 1920) incorporated this condition into his interpretation of the entrepreneurial function, which provides innovations for efficiency and progress. He argued that an entrepreneur should have the capabilities to manage with and through other people and should be constantly aware of opportunities in order to minimize costs and make progress. Max Weber stimulated new thinking about the function of entrepreneurship by providing a transition between classic economic thought of the nineteenth century and the emerging twentieth century social science (Carlock. 1994). Weber considered entrepreneurs as innovators and independent individuals who exercise formal authority.

Modem scholarly interest in entrepreneurship has been enriched by Joseph Schumpeter, who is considered the father of modern entrepreneurial thought (Salazer, 1992). Schumpeter (1934) argued that entrepreneurship indicates the capability for carrying out innovations by means of leadership. The Schumpeterian model identifies an entrepreneur as the major agent of economic development and an innovator for creating new products as well as new organizations. Kirzner (1973) suggested that the role of entrepreneur is an arbitrageur who can create incremental-continuous innovations by identifying potential opportunities.

Drucker (1985) focused on innovation as the basis of entrepreneurship. Researchers have continuously fine-tuned the entrepreneurship field, focusing on the concepts of entrepreneurial orientation and opportunity (e.g., Shanc & Venkataraman, 2000; Kirzner, 1979), economic growth (e.g., Baumol. 1990), firm performance (e.g., Covin & Slevin, 1989; Lumpkin & Dess, 1996), new venture strategy (e.g.. Porter, 1980; Vesper, 1980; Gartner, 1985; Low & MacMillian, 1988), institutional change (e.g., North, 1990; Baumol, 1993), psychological characteristics of entrepreneurs (e.g., McClelland, 1961; Collins & Moore, 1964; Shapero, 1975; Boyett, 1996; Gartner, 1985), and social network (e.g., Aldrich & Zimmer, 1986).

A theory of entrepreneurship has been researched from various disciplines such as psychology, sociology, economics, business, political science, public administration, and even ecology. This multidisciplinary research has been diverse, ranging from the functions of entrepreneurship in economic development to the psychological, social. and cultural characteristics of entrepreneurs across different sectors.

2.2 Main Streams of Research

Entrepreneurship research has been characterized as diverse and fragmented (Gartner 2001; Shane & Venkataraman, 2000; Davidsson ci al,, 2001: Schildt et al., 2006) due to its multidimensional approaches. Various theories have been postulated regarding all aspects of entrepreneurship. As a result, there is a less widely accepted categorization and legitimacy of entrepreneurship research (Schildt. Zahra & Sillanpaa. 2006). Fragmentation prevents the full advance of knowledge, because it makes parts without wholes and disciplines without cores (Johnston. 1991).

When entrepreneurship research was emerging in the early 1 980s, it centered on psychology. In the late I 980s, the field became broader before focusing on economic theories (Grégoire ci at.. 2006). Research from the late 1990s deals with a wider array of conceptual perspectives, including organizational sociology, organization theory, ecology, and network configurations.

Stevenson & Jarillo (1990) divided the field of entrepreneurship into three main research streams: what happens when entrepreneurs act, why they act, and how they act. The first stream is focused not on the entrepreneurs, but on the outcomes favoured by economists. The second stream refers to the psychological and sociological approaches to explain the reasons for entrepreneurs’ actions. The third stream analyzes entrepreneurial management to clarify the ways an entrepreneur acts.

The broadly defined domains of entrepreneurship are enterprise entrepreneurship for independent enterprises, social entrepreneurship for not-for-profit organizations in search of alternative finding strategies to create social value, corporate entrepreneurship for private sector companies in encouraging corporate entrepreneurial activities to create profits, and intrapreneurship within existing organizations; and public entrepreneurship for government entities.

Social entrepreneurship develops and implements initiatives that influence social change. Social entrepreneurs are as change agents in the social sector by ‘adopting a mission to create and sustain social value (not just private value); recognizing and relentlessly pursuing new opportunities to serve that mission; engaging in a process of continuous innovation. adaptation, and learning; acting boldly without being limited by resources currently in hand; and exhibiting heightened accountability to the constituencies served and for the outcomes created” (Dees, 1998).

Corporate entrepreneurship is associated with two dimensions: creating new businesses via market developments, and reorganizing businesses and introducing system-wide changes for innovation. Corporate entrepreneurship mainly examines strategies for gaining competitive advantages and increased firm performance. Intrapreneurship, which is similar to the venturing aspect of corporate entrepreneurship. has four dimensions: new business venturing, innovativeness. self-renewal, and proactivcness. Public entrepreneurship stresses launching innovations, managing effective programs. and improving organizational performance.

This study groups entrepreneurship research into three main streams of orientation: economic orientation exploring value creation, human behaviour orientation investigating individual activities, and organizational orientation examining organizational behaviours.

2.2.1 Economic Orientation

The entrepreneurship literature, from the economic standpoint, highlights the relationship between entrepreneurial opportunities and economic growth in incomplete market conditions. This economic window considers entrepreneurship as an economic decision to produce higher productivity at a firm level through adopting Schumpeter’s analysis (Baumol. 1983). Schumpeter (1942) stated that the success of markets depends on the spirits of entrepreneurs who develop new products and technology through a process of’creative destruction” — recognition of the necessity to change and the commitment to positively create a future. He observes that entrepreneurs attempt to break the market’s equilibrium by introducing innovation in the market system (Cornelius et al., 2006) and that these functions are perceived as a series of business cycles and economic development (Schumpeter, 1934).

Low & MacMillan (1988) suggested that the purpose of entrepreneurship research should be to “explain and facilitate the role of new enterprise in furthering economic progress” (p. 141). because entrepreneurship is the creation of new enterprise. Shane & Venkataraman (2000) addressed the creation of new firms and the sale of opportunities to existing firms for the development of opportunities in the economy. Kirtner (1997) regarded the entrepreneurial discovery process as critical to the effectiveness of markets for profit opportunities.

Recently, some research has rediscovered the conceptual link between entrepreneurship and economic growth (Kreft & Sobel. 2005). As economic and social effects on a new enterprise grow in importance, the environmental determinants become critical to understanding economic growth. Mimiiti (1999) noted that entrepreneurs are the catalysts for economic growth by creating a networking externality. Gartner (1985) posited five capacities of entrepreneurs in new venture creation: locate a business opportunity, accumulate resources: produce market products and services, create an organization, and respond to government and society. The economic perspective views entrepreneurs as hunters for business opportunities. creators of enterprises, and risk- takers for economic development. Ucbasaran, Westhead & (2001) identified the following types of entrepreneurs: nascent novice — individuals with no experience as a business founder; habitual individuals with past business ownership experience; serial

after selling their original business; and portfolio — individuals who continuously create another business while still holding their original business.

As large corporations began to dominate industrial society, Schumpeter’s entrepreneurial scope changed from the achievement of an individual to innovative activities of organizations (Cornelius ci aL 2006). however, after major economic crises in the mid-1970s, promoting small business and entrepreneurship was a critical issue to adjust to new market conditions. Economic orientation research at the organizational level focuses on outcome (i.e., profits, power, prestige, and satisfaction), the customer focus, marketing activity, and strategy (Moon. 1998). Drucker (1985) noted that entrepreneurial management is promoting the openness to innovation, the willingness to change, and the creation of practices of performance measurement.

2.2.2 Human Behaviour Orientation

Entrepreneurs’ personalities and traits became a major topic of discussion in the early 1980s. The entrepreneurship literature has mainly investigated individual traits and characteristics to discover vital components of entrepreneurship in the process of growth and productivity (Mintzberg, 1973; Covin & Slevin, 1988; Drueker, 1985; Schneider, Teske & Mintrom, 1995). Collins & Moore (1964) identified the desire for independence as the core of entrepreneurship. McC!elland (1961) focused on the motivation traits that explain an individual’s decision to engage in entrepreneurial pursuits. He explains that entrepreneurs’ psychic need for achievement is more significant than making profits.

Defining an entrepreneur as a founder of new business is first suggested by Say. The early definition of entrepreneurship is overshadowed by trait theories that emphasize a concept of intentionality of organizational actors (Carlock, 1994). Vesper (1982) argued that entrepreneurship is the creation of new business enterprises by individuals. He reexamined the relationship between the entrepreneurial actor and the organization being created in order to confirm his argument. Gartner (1985) further studied the relationship between entrepreneur’s efforts and organization’s existence.

In the last decade the focus of entrepreneurship research shifted from personality characteristics toward behavioral (Lumpkin & Dess, 1996; Ucbasaran, Westhead & Wright, 2001) and cognitive issues (Stevenson & Jarillo, 1990; Venkataraman, 1997; Baron, 1998). Entrepreneurial cognition refers to the preferred way of entrepreneurs’ thinking and the individual decision-making processes. Entrepreneurs can gain new insights from interpreting new combinations of information for maximizing the potential impact of various heuristics (Baron, 1998).

In the entrepreneurial process. entrepreneurs first recognize opportunities by being “alert” to and “noticing” them (Kirzer, 1973). The process of search and Defining an entrepreneur as a founder of new business is first suggested by Say. The early definition of entrepreneurship is overshadowed by trait theories that emphasize a concept of intentionality of organizational actors (Carlock. 1994). Vesper (1982) argued that entrepreneurship is the creation of new business enterprises by individuals. He reexamined the relationship between the entrepreneurial actor and the organization being created in order to confirm his argument. Gartner (1985) further studied the relationship between entrepreneur’ s efforts and organization’s existence.

In the last decade the focus of entrepreneurship research shifted from personality characteristics toward behavioral (Lumpkin & Dess, 1996; Ucbasaran, Westhead & Wright, 2001) and cognitive issues (Stevenson & Jarillo, 1990; Venkataraman, 1997; Baron, 1998). Entrepreneurial cognition refers to the preferred way of entrepreneurs’ thinking and the individual decision-making processes. Entrepreneurs can gain new insights from interpreting new combinations of’ information for maximizing the potential impact of various heuristics (Baron, 1998).

In the entrepreneurial process, entrepreneurs first recognize opportunities by being ‘alert” to and “noticing” them (Kirzer, 1973). The process of search and opportunity recognition can be influenced by knowledge, cognition, and behavior (Shane & Venkataraman, 2000). 1he ability to connect specific knowledge with a commercial opportunity requires a set of skills. insights, and unique circumstances (Venkatararnan, 1997). Search behavior can be limited by the individual’s knowledge of how to process the skill to gather information. In addition, Low & MacMillan (1998) added networks as an important aspect of the process of entrepreneurship. Networking enables entrepreneurs to expand their knowledge of opportunities, to obtain access to critical resources, and to manage business problems (Llcbasaran et al., 2001).

After obtaining the opportunity and relevant information, entrepreneurs attempt to acquire new resources or effectively manage existing resources in order to utilize the opportunity (Uchasaran Ct al., 2001). While resources are critical to any venture, they are not sufficient to achieve sustainable performance. Entrepreneurs must also develop skills and select strategies for the best use of resources.

North (1990) argued that an institution is incrementally changed as a result of entrepreneurs’ perceptions. since those organizations perform better by changing the existing institutional framework. Such political or economic entrepreneurs may contribute their talents or tacit knowledge to searching for the possibility of success and risking the organization’s resources for potential gains (North, 1990).

Psychology applies the cognition approach to studying individuals’ risk-taking personalities to recognize the nature of entrepreneurial actions and innovative behaviors (McClclland. 1961; Moon. 1998). This approach contributes to understanding how individual public administrators perform entrepreneurial action in public settings (Doig & llargrove, 1987; Moon, 1998). Political science has applied the concept to policy setting, wherein a policy entrepreneur recombines existing factors of policy making (Teske & Mintrom, 1995). Kingdon (1995) emphasized the conceptual role of policy entrepreneurs as advocates for proposals or for the prominence of an idea.

Schneider et al. (1995) identified three fundamental functions of the entrepreneur across public and private sectors: alertness to opportunities for unfulfilled needs, willingness to take risks, and ability to coordinate teams or networks of individuals and organizations. The first function enables entrepreneurs to discover unfulfilled needs and select appropriate prescriptions. The second indicates that entrepreneurs are willing to endure the reputational, emotional, and financial risks in pursuing a course of action with uncertain consequences. The third function allows entrepreneurs to coordinate teams or networks of individuals and organizations that are needed to change.

2.2.3 Organizational Orientation

The overemphasis on personal traits and behaviours was impeding an understanding of how entrepreneurial organizations behave. In the mid-1980s. entrepreneurship research began to move beyond the individual characteristics of entrepreneurs (Grégoire et al., 2006). The field of entrepreneurship has paid attention to corporate ventures and new-venture performance in general. The organizational-level entrepreneurship researches both entrepreneurial orientation and entrepreneurial management (Fox. 2005).

The term entrepreneurial orientation has been used to describe a consistent set of dynamic organizational-level activities or processes. Entrepreneurial orientation is broadly defined as an organization’s commitment to the intensity of entrepreneurial actions. Entrepreneurial intensity is measured by entrepreneurial frequency and the degree of entrepreneurship. Entrepreneurial frequency is the number of entrepreneurial events that are involved in introducing new products, services, and processes (Jennings & Seaman, 1990). The degree of entrepreneurship means the extent to which an event involves risk-taking, innovation, and proactivity (Miller, 1983; Morris & Jones, 1990; Slevin & Covin, 1990; Ramamurti, 1986).

The organizational orientation approach proposes that entrepreneurial organizations tend to take more risks than do other types of organizations and that they proactively search for new business opportunities (Mintzherg, 1973). Entrepreneurial organizations place an emphasis on new product innovation. Those organizations are characterized by having “a willingness to innovate boldly and regularly while taking considerable risks in their product-market strategies” (Miller & Friesen, 1982, p. 5).

Entrepreneurial management focuses on the pursuit and development of opportunity. The field of management perceives entrepreneurship as an organizational process that promotes innovation, risk-taking, and proactivity (Miller & Friesen. 1982). The entrepreneurial process is related to the functions, activities, and actions of perceiving opportunities. Barrett et al. (2003) noted three behaviors of entrepreneurial organizations: being proactive in gaining intelligence on customers and competitors, being innovative by reconfiguring resources to arrange strategic responses. and being involved in some degree of risk and uncertainty.

Other critical elements of the entrepreneurial process include a changing environment, decision making, and organizational change. The changing environment consists of both internal and external factors. The internal environment examines decentralization, formalization, and inter- functional coordination (Fox, 2005). The external environment includes a myriad of forces that involve opportunities as well as threats. Entrepreneurial organizations face a constant stream of complex decisions. Decision-making at the organization level is a multi-stage and multi-criteria process for revealing expectations about future risk and reward (Fox, 2005). In terms of organizational change, organizations continuously seek changes toward reengineering for efficiency, restructuring for improvement, renewal for immediate results, and reorienting for an organizational long-term commitment.

Covin & Slevin (1991) and Lumpkin & Dess (1996) have connected the entrepreneurship concept to firm-level behaviors and orientations in existing organizations. The firm-level aspect focuses on firm-level survival and financial performance. The organization’s entrepreneurial behavior is crucial to develop and redefine the entrepreneurial process. Organizational structures, systems, and cultures can be changed to improve an organization’s entrepreneurial effectiveness (Tarabishy, 2006). Entrepreneurial effectiveness at the organization level is measured by organizational performance, and organizational performance is the best predictor of the key aspects of entrepreneurial effectiveness (Covin & SIevin, 1991).

The strategic literature, typified Andrews (1971) and Porter (1980), mainly explores the effects of industry growth and strategic breadth on new venture performance. The importance of entrepreneurship to the organization’s strategy is that it enables the organization to extend its boundaries and capacities. Covin & Slevin (1988) indicated that the organization’s entrepreneurial strategy can he measured by three dimensions: the risk-taking dimension — to take business-related risks; the innovation dimension — to favor change and innovation; and the proactivity dimension — to compete aggressively with other organizations.

2.3 Theory of Entrepreneurship

Although the current state of the entrepreneurship field is considered to be growing faster than most, entrepreneurship research dates back the eighteenth century. Some of scholars address entrepreneurship research is somewhere between a young and a mature approach to knowledge development (Cornelius et al., 2006).

The phenomenon of entrepreneurship is intertwined with a multifaceted set of overlapping constructs such as management of change, innovation, technological and environmental turbulence, and new product development (Low, 2001). Therefore, the notion of entrepreneurship encompasses different disciplines, different ideology researches, different theoretical frameworks, and different levels of analyses and methodological traditions (Stone, 1992; Cornelius et al., 2006). The lack of theory in entrepreneurship research is in part due to the variety of research disciplines involved.

Entrepreneurship research has different units of analysis — ranging from individuals and teams to organizations and communities. Much entrepreneurship research does not clearly specify a level of analysis (Chandler & Lyon, 2001; Low & MacMillan, 1988) because entrepreneurship can be viewed in the context of all factors. The use of the individual level of analysis has remained solid, but has shifted to the firm level.

2.3.1 Definition of Entrepreneurship

Defining the term entrepreneurship is a challenge due to the lack of the theoretical consolidation, various disciplinary approaches. and an ambiguous unit of analysis. Adopting individuals’ own definitions of entrepreneurship within a discipline causes the lack of consensus on a definition. Bull & Willard (1995) defined five broad categories of entrepreneurial definitions focused on a definition of the word “entrepreneur,” the psychological trait approach: success strategies. the formation of new ventures, and the effect of environmental factors.

In general, the concept of entrepreneurship represents both individual behaviours and organizational activities. Each perspective employs its own concepts and operates within its own interpretation of entrepreneurship. With reference to the individual lens, enLrepreneurship generally refers to the economic functions of business start-ups where an innovative individual develops an invention or market niche to produce a new product or service (Mitchell & Scott. 1987). Researchers from this point of view define entrepreneurship in the context of the entrepreneur’s relationship to an organization, personal goals, role in creating an organization, and management of growth and transitions (Carlock, 1994). Entrepreneurs tend to have market-orientation, risk-taking. and autonomy. Table 2.1 summaries roles of entrepreneurs as described in the literature.

Table 2.1 Roles of Entrepreneurs

Sources Descriptions of Entrepreneurs

Cantillon (1775) A rational decision maker.

Say (1803) A planner and problem solver.

Schumpeter (1934) i’he major agent of economic development and an innovator for creating new products and new organizations.

Marshall (1920) A manager and industrial leader.

Kirzner(1973) An arbitrageur for creating incremental-continuous innovations.

The other side of entrepreneurship research field has studied on entrepreneurial organizations, focusing on organizational attitudes and behaviors (Covin & Slevin, 1989:

Luxnpkin & Dess. 1996. Morris & Jones, 1999; Miller, 1983). At the organizational level, entrepreneurship is considered as the initiation of services that signify a potential for increased organizational cfficicncy, resource utilization, and profit (Stone, 1992). Entrepreneurial organizations seek competency such as opportunity recognition, organizational flexibility, and the other innovative behaviors. Entrepreneurial management is appropriate to all types of organizations, whether the organization is a private business, non-profit institution, or public entity. Lumpkin & Dess (1996) suggested a distinction between entrepreneurial orientation and entrepreneurship. Entrepreneurial orientation focuses on entrepreneurial processes by answering how new ventures are undertaken, whereas entrepreneurship refers to the content of entrepreneurial decisions by addressing what is accepted.

Table 2.2 Definitions of Entrepreneurship

Source Definition

Drucker (1985) “Perceptiveness to change” (p. 25).

Gartner (1985) ‘The creation of new organizations” (p. 697).

l.ow& MacMillan (1988) “Creation of new enterprise” (p. 141).

Miller (1983) “Engages in product market innovation, undertakes somewhat risky ventures and is first to come up with ‘proactive’ innovations,

and beating competitors to the punch” (p. 770)

Moon (1998) “Entrepreneurial role behaviour” (p. 52).

Shane & Venkataraman (2000) “Discovery and exploitation of profitable opportunities” (p. 217).

Stevenson & Jarillo (1990) “A process by which individuals-either on their own or inside organizations-pursue opportunities without regard to the resources

they currently control” (p. 23).

Zahra (1995) “The sum of a company’s innovation, renewal, and venturing activities” (p. 227).

Contemporary definitions of entrepreneurship account for the pursuit of opportunity (Venkatararnan, 1997; Shane & Venkataraman, 2000). The opportunity- based concept of entrepreneurship was first defined by Kirzner (1973). 1-Ic labels entrepreneurship as the alertness to new opportunities. An entrepreneurial opportunity is composed of ideas, beliefs, and actions that allow the creation of potential goods and services (Venkataraman, 1997). An entrepreneurial opportunity can be viewed from an allocative perspective (opportunity recognition) or a market perspective (opportunity creation). Measures of entrepreneurial opportunity re fleet innovation, proactivity, and risk-taking.

Swierczek (1990) proposed six different orientations of an entrepreneurial belief system that mediate between characteristics of entrepreneurs and entrepreneurial behaviors: (1) personality orientation: entrepreneurs arc by nature risk-taking, tolerant of ambiguity, and achievement orientated: (2) decision-making style: entrepreneurs make the big decisions rather quickly; (3) enterprise directed: entrepreneurs want to be influential, to be in charge through the establishment of a new enterprise, product, service or process; (4) innovation directed: entrepreneurs want to see their ideas accomplished in working products, programs, services or processes; (5) motivation directed: entrepreneurs like challenge, opportunity, and independence and are frustrated with the limitations inherent to their existing career standing; and (6) opportunity directed: entrepreneurs have a good understanding of the environment which is viewed as a source of opportunity with potential for new products, services and processes.

2.3.2 Boundaries of Entrepreneurship

In the entrepreneurship literature, several dimensions of entrepreneurial orientation are suggested. Entrepreneurship consists of two or even three or four sub-constructs. Cantillon and Say provide the modern characteristics of the entrepreneurship as risk taking, securing capital, and creating new values. Harbison (1956) characterized the modern entrepreneurial organization, whether privately or publicly owned, to four functions comprising the undertaking or managing of risk as well as the handling of

economic uncertainty, planning and innovation, coordination, administration and control.

and routine supervision.

Table 2.3 Dimensions of Entrepreneurship


Covin & Slevin (1988)

Davis el cii. (1988) Edwards el a!. (2002)

Gore (1993)

l-larwood (1982)

Lumpkin & Dess


Miller & Friesen (1982)

Miller (1983)

Mintzberg (1973)

Morris & Jones (1990)

Ramamurti (1986)

Roberts & King(199l)

Schneider ci a!. (1995)

Slevin & Covin (1990)


• Innovation, pro-activity, risk-taking.

• Innovation, risk-taking, pro-activeness.

• Risk-orientation in certain areas of public service, innovation in service delivery, leveraging of resources, the use of partnerships to create added value, problem-solving for finding and satist’ing unmet needs.

• Reduction of red tape, promotion of customer satisfaction, empowerment of employees, promotion of cost-efficient performance.

• Taking initiatives, securing autonomy, taking risks, internalizing uncertainly, conducting innovation.

• Autonomy, innovativeness, risk taking. proactiveness, competitive aggressiveness.

• Innovation, risk-taking.

• Innovation, risk-taking, pro-activity.

• Risk-taking, pro-activity, centralization, growth.

• Innovativeness. risk-taking, proactiveness.

• Innovation, risk-taking, pro-activeness.

• Risk-taking, pro-activity, innovation.

• The sense of opportunity, willingness of risk-taking, managerial

commitment and capacity.

• Risk-taking, pro-activity, innovation.

Harwood (1982) expanded the nature of entrepreneurship to five categories:

taking initiatives, securing considerable autonomy in the organization and management

of resources, taking risks, internalizing uncertainty in decision-making, and conducting innovation in more than an incremental way. Lumpkin & Dess (1996) suggested five dimensions of entrepreneurial orientation — autonomy, innovativeness, risk taking, proactiven ess, and competitive aggressiveness. The dimension competitive aggressiveness refers to the intensity of a firm’s efforts to outperform industry competitors.

The entrepreneurship literature commonly characterizes entrepreneurship into three dimensions: risk-taking, innovativeness, and proactiveness. Risk-taking refers to a willingness of having a reasonable chance of failure in order to obtain significant resources. Innovativeness represents an emphasis on reorganizing existing resources and the application of ideas. Proactiveness indicates finding novel ways both to bring an entrepreneurial concept to implementation. Slevin & Covin (1990) defined entrepreneurial orientation within these three characteristics:

Risk-taking is defined as the preference for high-risk projects with chances of very high returns over low risk projects with lower and more predictable rates of return. The willingness of risk taking pursues opportunities boldly and aggressively.

Innovation is described as the willingness to place emphasis on research and development, new products, new services, improved product lines, and general technological improvement in the industry.

Proactivity is the willingness to initiate actions to which competitors then respond. The proactive firm attempts to be first in the introduction of new products, services and administrative technologies, rather than merely responding to competitors.


One of important characteristics of entrepreneurship is risk-taking. Risk-taking is denoted as “a tendency to take bold actions such as venturing into unknown new markets, committing a large portion of resources to ventures with uncertain outcomes, and/or borrowing heavily” (Lumpkin & Dess, 2001, p. 431). Entrepreneurial risk taking is the conscious decision to assume new ventures, products, or processes under conditions of uncertainties.

Risk refers to a lack of predictability about outcome in a decision making process. Dickson & Giglicrano (1986) indicated two types of risk: sinking the boat risk and missing the boat risk. “Sinking the boat” risks are consequences of poorly though-out concepts, bad timing, an already-satisfied market, inadequate marketing and distribution approaches. and inappropriate pricing. “Missing the boat” risks result from being too cautious overlooking or dismissing opportunities, not pursing a course of action, or delaying action. In financial analysis, risk can be a probability of a loss or undesirable outcomes (Lumpkin & Dess, 1996). Risk propensity means the perceived probability of receiving rewards related to a desirable outcome of the risky situation (Tarabishy, 2006). Thus, risk-taking has the potential for both significant gains and significant losses (Cornwall & Perlman, 1990).


Innovation refers to “the seeking of creative, unusual or novel solutions to problems and needs” (Davis et al., 1988, p. 45). Innovation indicates the organization’s tendency to engage in the development of new ideas through creative processes. The notion of innovation is used in different ways in the entrepreneurial context. Drucker (1985), for example, defined entrepreneurial innovation as “the specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or a different service” (p. 19). Focusing on the creation side, Lumpkin & Dess (2001) refer to entrepreneurial innovation as “a willingness to support creativity and experimentation in introducing new products/services, and novelty, tcchnological leadership and R&D in developing new processes” (p. 431).

In general, the focus of entrepreneurial innovation is not just on invention or creation, but on different combinations of existing services and products (Salazar, 1992). Entrepreneurial innovation includes the adoption of internally or externally generated new product or process, revitalization of the organization’s business concept and structure, the introduction of system-wide changes, and developing new businesses and markets (Zahra, 1995). Schumpeter (1936) identified various forms of innovation as following: the introduction of new good or a new quality of a good, the introduction of a new method of production, the opening of a new market; and the conquest of a new source of supply of raw materials or half-manufactured good.

Innovation can be categorized into discontinuous breakthrough innovation, dynamically continuous innovation, continuous incremental innovation, and imitation of prior innovation (Fox, 2005). Kanter (1983) suggested three steps of advancing innovation: eliminating structural and practical barriers to the flexibility and prompt action for innovation, providing tools and incentives for entrepreneurial projects, and developing an entrepreneurial climate.

Rogers (1995) categorized innovations by the rate of adoption: relative advantage is the degree to which an innovation is perceived as better than the idea it supersedes; compatibility is the degree to which an innovation is perceived as being consistent with the existing values, past experiences, and needs of potential adopters; complexity is the degree to which an innovation is perceived as difficult to understand and use; trialability is the degree to which an innovation is experimented with on a limited basis; and observability is the degree to which the results of an innovation are visibic to others. He argued that having greater relative advantages, compatibility, trialability, observahility, and less complexity will speed the adoption of an innovation.


Proactivity is simply defined as the “initiation of action or engagement in action, rather than activity as a reaction to an event or occurrence” (Salazar, 1992, p. 29). More comprehensively it is viewed as “an opportunity-seeking, forward-looking perspective involving introducing new products or services ahead of the competition and acting in anticipation of future demand to create change and shape the environment” (Lumpkin & Dess. 2001, p. 431). Pro-activity focuses on the future through assuming responsibility, anticipating and preventing problems. communicating effectively with internal and external environments, and preserving implementation of the new process or new product (Morris & Kuratko. 2002).

The notion of proactivity has two common attributes: aggressive behaviour and the organizational pursuit of favourable business opportunities (Stevenson & Jarillo, 1990; Lumpkin & Dess, 2001). Based on these attributes, Venkataraman & Van de Ven (1998) identified the processes of proactivity: anticipating and acting on future needs by seeking new opportunities, introducing new products ahead of competition. and eliminating operations in the declining stages of their life cycles.

Organizations can utilize pro-active behaviours in order to have more competitive positioning than others, because proactiveness involves seizing the initiative in an effort to shape the environment to one’s own advantage (Lumpkin & Dess, 2001). A proactive organization attempts to be first in the introduction of new products, services, and administrative technology, rather than simply responding to other market movements (Borkowski & Gordon. 2006). Competition fosters proactivity in introducing new products, services and managerial techniques. Problems placed in inefficient organizational settings can be overcome by proactivity to introduce innovative ways and thinking, rather than reaction.

2.4 Summary

This chapter reviews the entrepreneurship literature. The field of entrepreneurship is a growing academic area incorporating various theoretical backgrounds, research orientations, and disciplines. Early studies mainly focus on entrepreneurs’ traits and behaviours in creating an organization, while later research has examined entrepreneurship more broadly. Each discipline has developed its OWfl frame of references and its own unit of analysis (Lynskey, 2002).

This chapter attempts to group multidisplinary research approaches into three mainstreams: economic, human behaviour, and organizational orientation. The economic research stream focuses on the relationship between entrepreneurial opportunities and economic growth. While the human behaviour orientation mainly discusses an individual entrepreneur’s traits and behaviours for new organizational creation and economic growth, the organizational orientation focuses on entrepreneurial opportunities and organizational performance. Although the classification of entrepreneurship research into three streams may not represent all features of the entrepreneurship field, they cover the most important issues.

Derived from various entrepreneurship research, the identification of entrepreneurship is largely bound up with three aspects: risk-taking, innovativeness, and proactiveness. It has been emphasized that entrepreneurship is associated with all three propensities. Risk taking is a willingness to take risky opportunities, and innovativeness refers to seeking new, creative opportunities. Proactiveness means the initiation and implementation of actions.

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