Understanding entrepreneurial orientation
Entrepreneurship has been faced with an age-old debate…are entrepreneurs born or made? While there are limited academic studies that support the notion that successful entrepreneurs are born, there is far more research that suggest theories between the similarities that successful entrepreneurs share in their decision-making. One of the most robust theories in the academic literature that explains differences in performance between entrepreneurs is the Entrepreneurial Orientation (EO) construct. Based on the decisions and actions of the strategy making process, the EO construct attempts to explain the how of entrepreneurial activity.
One of the first scholars to put forward the EO theory was Danny Miller, who in 1983 wrote that an entrepreneur is one that engages in product-market innovation, undertakes somewhat risky ventures, and is first to come up with ‘proactive’ innovations, beating competitors to the punch. Therefore, we can view entrepreneurship as a composite weighting of these variables. In short, the greater the tendency of an entrepreneur to engage in innovativeness, risk-taking and proactiveness the more likely he or she is to perform at a higher level than their competitors.
Scholars as far back as Joseph Schumpeter in 1942 recognised the importance of innovation as being a part of the entrepreneurial process. He states, “The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers’ goods, the new methods of production or transportation, the new markets, the new forms of industrial organisation that capitalist enterprise creates.” Having derived a form of newness as described from innovation, the entrepreneur can utilise this temporary monopoly position to earn additional economic rents.
Risk-taking is the willingness to engage in calculated business risks or in other words the perceived probability of receiving rewards based on entrepreneurial action. This has been supported empirically, as it has been shown that entrepreneurs are more likely to engage in risky activities than the corporate manager, increasing the likelihood of the exploitation of an opportunity in a relatively short time frame. Here, successful entrepreneurs venture into the unknown, commit a relatively large portion of resources to an endeavor and can further leverage these resources through borrowing.
Proactiveness as defined by Tom Lumpkin and Gregory Dess is “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.” Through proactive behaviour, entrepreneurs can find success by establishing a first mover advantage and build new market segments or the capture existing market share from established firms.
Culturally, Trinidad and Tobago also offers an interesting scenario as it relates to the EO construct. A Global Entrepreneurship Monitor (GEM) report for Trinidad and Tobago assessed the perceptions of national experts on three cultural and social norms that closely mirror the dimensions of the EO construct. Participants were asked to rate their perception of the following statements: “The national culture encourages creativity and innovativeness”, “The national culture encourages entrepreneurial risk-taking” and “The national culture emphasises self-sufficiency, autonomy and personal initiative.” Sadly, only 22 per cent of respondents believed that the national culture encouraged creativity and innovation, 11 per cent that the national culture encouraged risk-taking and 19 per cent that the culture encouraged self-sufficiency, autonomy and personal initiative.
With studies suggesting that the dimensions of EO can account for over 30 per cent of the differences in performance between entrepreneurial firms, the EO of an entrepreneur may be the largest contributor to the success of failure of his or her business. Local entrepreneurs therefore should make a conscientious effort to increase their levels of innovativeness, risk-taking and proactiveness within their firms. Doing so could be the difference between success and failure.
The Trinidad and Tobago Chamber of Industry and Commerce thanks Christian Stone, Ph.D, for contributing this article.
"Understanding entrepreneurial orientation"