The Effect of Entrepreneurial Intensity on Innovation Strategy in Uncertain Environment

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1 The Effect of Entrepreneurial Intensity on Innovation Strategy in Uncertain Environment GE Baoshan 1 TANG Haohan 2 1.The Entrepreneurial Centre of JiLin University;2.Management School of JiLin Univeristy, P.R.China mahongjia@sina.com Abstract This study tests the relationship between entrepreneurial intensity and innovation strategy, and examines the moderating role of environmental uncertainty. We find there is a positive relationship between Entrepreneurial intensity and incremental innovation, and entrepreneurial intensity is also related with radical innovation. The result also implies that environmental uncertainty negatively moderated the relationship between Entrepreneurial intensity and incremental innovation. However, the moderating role of environmental uncertainty on the relationship between entrepreneurial intensity and radical innovation is not significant. The further discussion will be given at last. Keywords Entrepreneurial Intensity; Innovation Strategy; Environmental Uncertainty 1. Introduction Most extant researches have argued entrepreneurship as a means to economic growth and global competitiveness. The main agents of economic growth are the entrepreneurs who introduce new products, new methods of production, and other innovations that stimulate economic activity. Similarly, entrepreneurial attitudes and behaviors are a key determinant of the ability of large firms to survive and prosper in the turbulent environments confronting many industries today. Although Schumpeter s writings focused primarily on the activities of the individual entrepreneur, in many settings the conceptualization of entrepreneurship is viewed as a firm-level phenomenon. The degree and frequency of corporate entrepreneurship will significant influence the competitive advantage. Innovation strategy is the critical strategy for a firm acquiring the competitive advantage, while it presents more complicate in uncertain environment. This study tries to build a linkage between EI and innovation strategy in an uncertain environment. In next section, we will review the theory and built the hypotheses. The method including sample and measures will be given in section 3. Section 4 will give the result of analysis and the discussion and conclusion will be given at final section. 2. Theory and Hypotheses 2.1 Entrepreneurial intensity and innovation strategy Corporate entrepreneurship (CE), generally, refers to the development of new business ideas and opportunities within large and established corporations (Bickenshaw, 2003 [1] ). For measuring the behavior of entrepreneurship, Morris and Sexton (1996) [2] defined entrepreneurial intensity (EI) as a function of the degree, which is the extent to which any one event is innovative, risky, and proactive, and frequency of entrepreneurship, which refer to number of times organizations act entrepreneurially (e.g. develop new products, services, processes or businesses). Firms can be assessed on entrepreneurial intensity and the assumption that underlying the notion of corporate entrepreneurship is that it is a behavioral phenomenon and all firms fall along a conceptual continuum that ranges from highly conservative to highly entrepreneurial (Barringer and Bluedorn, 1999 [3] ). Entrepreneurial firms (vs. Conservative firm) are risk-taking, innovative, and proactive (Covin and Slevin, 1989 [4] ; Miles and Arnold, 1991 [5] ; Morris and Paul, 1987 [6] ). The first dimension, innovativeness, refers to the creation of new products, services and technologies. The second dimension, risk-taking, involves the willingness to commit significant resources to opportunities which have an uncertain outcome and return on the 953

2 investment. The third dimension of entrepreneurship, proactiveness, is concerned with implementation-with doing whatever- is necessary to bring an entrepreneurial concept to fruition (Morris and Sexton, 1996). Innovation is the commercialization of an invention by a firm (Hitt, Ireland, and Hoskisson, 2001 [7] ; Schumpeter, 1934 [8] ). It encompasses multiple types, ranging form innovations in an organization s control systems, allocation of resources, technology, and structure to changes in a firm s strategy, rather than a single type of change (Tushman, Newman, & Romanelli, 1986 [9] ). Over the past twenty years, several innovation strategies have emerged in both the academic as well as the business literature. This paper addresses the two different types of innovations: incremental and radical innovations. Most innovations simply build on what is already there, requiring modifications to existing functions and practices, but some innovations change the entire order of things, making obsolete the old ways (Van de Ven et al., 1999 [10] ). Focused on the intensity level, the strategic dimension of innovation, innovations can be incremental or more radical in their ambition (Deschamps, 2005 [11] ). Radical innovations encompass higher order innovations that serve to create new industries, products, or markets (Herbig, 1994 [12] ; Meyer, Brooks, & Goes, 1990 [13] ). Koberg, Detienne, & Heppard (2002) [14] defined radical innovation as strategic changes in product/services, markets served, and technological breakthroughs used to produce a product or render a service based on significant innovation. Incremental innovations are low in breadth of impact and comprising the broad categories (procedural, personnel-related, process, and structural), and minor improvements or simple adjustments in current technology (Munson and Pelz, 1979 [15] ). Tidd, Pavitt and Bessant (2001) and Mole and Elliot (1987) distinguish between radical innovations and incremental innovation. They describe incremental innovation as those that encourage ongoing improvement to product, process, and service, whereas radical innovations are those characterized by advancement in knowledge and consequent development of new products and processes (Bhaskaran, 2006 [16] ). In the research of corporate entrepreneurship and innovation, Johan Maes (2007) [17] suggests that innovation and new business development can be initiated by independent individuals or by existing enterprises, the latter is referred to as corporate entrepreneurship. Élisabeth Lefebvre and Louis A. Lefebvre (1993) [18] explored the relation between entrepreneurial intensity and the degree of process innovativeness of the small firm, indicated that CEOs organizational status strongly influences this link. This study, therefore, further tests the hypotheses on the relationship between the intensity of corporate entrepreneurial and the intensity of innovation. From the observations above, the following hypotheses will be tested: H1: Entrepreneurial intensity is positive associated with incremental innovation and radical innovation. 2.3 Moderating effect of environmental uncertainty Over the years many theoretical and empirical studies have considered the relationship between the firm and its environment (Yusuf, 2002) [19].The current article focuses on the moderating effect of environmental uncertainty (EU) on the EI-innovation strategy relationship. EU is defined by Pfeffer and Salancik as the degree to which future states of the competitive enviroment cannot be anticipated or accurately predicted (Pfeffer and Salancik, 1978 [20] ). It is conceptualized as environmental complexity (Galbraith, 1973 [21] ), turbulence (Emery and Trist, 1965), heterogeneity (Aldrich, 1979)and munificence (Dess and Beard, 1984 [22] ). Past studies examined the relationship between EU and EI (Yusuf, 2002). Environmental uncertainty is found to increase the propensity of business firms to become more entrepreneurial through increased innovativeness, proactivity and acceptance of risky measures (Khandawalla, 1977; Foxall, 1984; Covin and Slevin, 1989; Zahra and Bogner, 1999 [23] ). Scholars have tested the notion that environmental uncertainty will lead to increased entrepreneurship among firms as a survival strategy (Miller, 1983 [24] ; Zahra & Covin, 1995 [25] ; Yusuf, 2002). While EU certainly seems relevant to a firm's need to innovate overall, it does not seem directly relevant to the question of what innovation strategy it should use (Hull, 2003 [26] ). We expected that EU would moderate the effect of entrepreneurial intensity 954

3 on innovation strategy. Under highly certain environments when a company is targeting a currently served market with mature technologies, the customers are well defined and are typically well known as is the technology. The pursuit of corporate entrepreneurship in such settings may represent an unnecessary risk, the appropriate innovation strategy is straight forward and based on being market-based and process-based. There are usually few surprises with these types of incremental innovations (Lynn & Akgun, 1998 [27] ). Thus, the following hypothesis will be tested: H2a: Environmental uncertainty moderates the relationship between entrepreneurial intensity and incremental innovation. Under high levels of environmental uncertainty, frequent external change results in organizations that are more accustomed to adjusting to turbulence, more oriented toward the future, and more aware of external innovations and cues (Gatignon and Robertson, 1989; Ettlie, 1983; Pierce and Delbecq, 1977). Hence, a corporate will exhibit the high levels of EI (Yusuf, 2002; Morris & Sexton, 1996) for creating and exploiting opportunities that result in competitive superiority (Covin and Slevin, 1989). Similarly, external shocks make organizations more amenable to radical innovations (Hage, 1980 [28] ). Lynn & Akgun (1998) also focus on a learning-based strategy because experimenting becomes an essential component under high market and technology uncertainties. Companies which have been able to successfully develop and commercialize radical innovations perform a series of market or technical experiments, learn from them and refine the product. Thus, the following hypothesis will be tested. H2b: Environmental uncertainty moderates the relationship between entrepreneurial intensity and radical innovation. 3. Method 3.1 Sample To test the hypotheses in this paper, we collected data from new venture firms in China utilizing a questionnaire-survey approach. Based on firm-age, economic development level, technology commercialization practices of firms, population and geographic regions, the primary sampling frame was as 200 from Siping City of Jilin Province. There are 115 samples (57.5%) used in this study. 3.2 Measure Entrepreneurial intensity. Based on Morris and Lewis (1995), we use number of events and degree of entrepreneurship as the sub-dimensions of entrepreneurial intensity. A seven-point scale was used to measure the item. The cronbach s alpha is Incremental innovation. Adapted from Song and Montoya-Weiss (1998), incremental innovation was measured using three items. A seven-point scale was used to measure the item. The cronbach s alpha is Radical innovation. The measures of radical innovation were based on Gatignon, et al. (2002) were composed of three items. A seven-point scale was used to measure the item. The cronbach s alpha is Environment uncertainty. We use the four items based on Dess and Beard (1984). A seven-point scale was used to measure the item. The cronbach s alpha is Table 1 Descriptive Statistics and Correlation Matrix Mean S.D Entrepreneurial Intensity Incremental Innovation Ridical Innovation ** Environment Uncertainty **.318** 1 5.EI Uncertainty **.431**.454**.801** ** Correlation is significant at the 0.01 level (2-tailed). 4. Results To capture the theoretical interdependencies between entrepreneurial orientation and the 955

4 configuration model, we analyzed the data using hierarchical regression modeling (SPSS statistical package). The results imply that there is a positive relationship between Entrepreneurial intensity and incremental innovation (β=1.869, p 0.1), and entrepreneurial intensity is also related with radical innovation (β=0.325, p 0.001). These suggest that Hypothesis 1 is supported. The result imply that environmental uncertainty negatively moderated (β=-2.945, p 0.1) the relationship between Entrepreneurial intensity and incremental innovation. It is opposite with Hypothesis 2a predicted. However, the moderating role of environmental uncertainty on the relationship between entrepreneurial intensity and radical innovation is not significant, which shows Hypothesis 2b is not supported. Table 2 Result of Hierarchical Regression Model Incremental innovation Radical innovation Step 1 Step 2 Step 1 Step 2 EI *** Uncertainty 0.459*** 2.729*.302*** EI Uncertainty R Adjusted R R F-value *** *** ***, p 0.001; ***, p 0.01; *, p 0.05;, p Discussion and Conclusion In this study we find entrepreneurial intensity plays a positive influence on radical and incremental innovation strategy. This suggests that the increasing of entrepreneurial intensity will promote the innovation strategy to pursue a competitive advantage. However, in a more uncertain environment, the positive role of EI on innovation strategies will be weakened. In uncertain environment, the EI will be negative related with incremental innovation, while the relationship between EI and radical innovation is not significant. This implies an entrepreneurial firm should develop a radical innovation strategy for the threatening in uncertain environment. The article review the related theory about EI, innovation strategy and environmental uncertainty, built a framework linking these three elements about strategy process. Our finding makes more sense in theoretical development and management practices. The future research need to do more endeavor in empirical research about the relationship between EI and innovation strategy in more complicated environment. References [1] Birkinshaw, J, The paradox of corporate entrepreneurship. Strategy & Business. [Accessed: 22 January 2004]. [2] Morris, Michael H., Sexton, Donald L.. The concept of entrepreneurial intensity: implications for company performance, Journal of Business Research, 1996, 36: [3] Barringer, B.R. and Bluedorn, A.C.. The relationship between corporate entrepreneurship and strategic management. Strategic Management Journal, 1999, 20: [4] Covin, J. G., and Slevin, D. P., Strategic Management of Small Firms in Hostile and Benign Environments. Strategic Management Journal. 1989, 10 (1): [5] Miles, M. P., and Arnold, D. R., The Relationship between Marketing Orientation and Entrepreneurial Orientation. Entrepreneurship Theory and Practice, 1991, 15 (4): [6] Morris, M. H., and Paul, G. W., The Relationship between Entrepreneurship and Marketing in Established Firms. Journal of Business Venturing, 1987, 2: [7] Hitt, Ireland and Hoskisson, Strategic Management: Competitiveness and Globalization(5th ed.) Cincinnati: International Thomson Publishing, [8] Schumpeter, J. A., The theory of economic development: An inquiry into profits, capital, credit, 956

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