Prospecting for Strategic Advantage: The Proactive Entrepreneurial Personality and Small Firm Innovation

Transcription

1 Journal of Small Business Management (2), pp Prospecting for Strategic Advantage: The Proactive Entrepreneurial Personality and Small Firm Innovation by Jill Kickul and Lisa K. Gundry Our study proposed and tested an entrepreneurial process model that examined the interrelationships among a small firm owner s personality, strategic orientation, and innovation. In the first part of the model, it was posited that a proactive personality would directly influence a prospector strategic orientation. This type of strategic orientation would then be a key factor in determining the type of innovations introduced and implemented within the business. Using a sample of 107 small business owners, results revealed that the prospector strategy orientation mediated the relationship between proactive personality and three types of innovations: innovative targeting processes, innovative organizational systems, and innovative boundary supports. Implications for small business managers as well as future research directions are discussed. In recent years, models of the entrepreneurship process have evolved to depict the interactive nature of key variables influencing new venture success. Researchers have proposed that entrepreneurship can only be understood when the individual elements of the phenomenon are combined. Gartner (1985) was one of the first to propose that four major dimensions of entrepreneurship be integrated: the founder s characteristics, the organization s characteristics, the environment surrounding the firm, and the process by which the new venture is started. The attempt to form a more complex, multi-dimensional theory of the new venture process is not new. Historically, researchers have examined the individual traits of entrepreneurs, including the need for achievement (McClelland 1961), autonomy (Hornaday and Aboud 1971), tolerance for ambiguity (Sexton and Bowman 1984), and risk-taking propensity (Begley and Boyd 1986; Brockhaus 1980). A turning point occurred in the late 1980s, when Gartner (1989) defined entrepreneurship as a set of activities involved in the creation of an organization. Dr. Kickul is assistant professor of management in the Charles H. Kellstadt Graduate School of Business at DePaul University in Chicago, Illinois. Her research interests include entrepreneurial intentions and behavior, intrapraneurship and innovation, and entrepreneurial strategy and growth. Dr. Gundry is associate professor of management in the Charles H. Kellstadt Graduate School of Business at DePaul University in Chicago, Illinois. Her research focuses on the creative process leading to innovations, and entrepreneurship strategy and growth. KICKUL AND GUNDRY 85

2 Subsequently, research attention was redirected towards identifying the behaviors towards further understanding the influence of entrepreneurs perceptions (Cooper, Woo, and Dunkelberg 1988) and their intentions (Bird 1988) on their behavior (Shaver and Scott 1991). Several behaviors have been found to influence small firm performance. One of these behaviors is opportunity recognition, defined by Christensen, Masden, and Peterson (1989) as perceiving the possibility to create a new business or to significantly change or improve an existing business. Stevenson and Jarillo-Mossi (1986) suggested that entrepreneurs create value by combining resources to exploit an opportunity. Koller (1988) extended this by suggesting that most entrepreneurs recognize (as opposed to seeking) opportunities. Bhave (1994) distinguished between entrepreneurial behavior that was externally stimulated (cases in which the decision to launch the venture preceded opportunity recognition) and behavior that was internally stimulated (when individuals engaged in problem-solving and needs assessment prior to deciding to start a business). Externally stimulated opportunity recognition is the opportunistic search characterized by Cypert and March (1963). Recently, Hills and Shrader (1998) uncovered fundamental opportunity recognition behaviors, including founding companies, starting a major new part of the business, and acquiring any new type of business. Considerable attention has also been paid to the risk-taking behavior of entrepreneurs. Mullins and Forlani (1998) found that entrepreneurs exhibit their most risk-averse behavior when they are either in control of their venture but lack market skill, or without control of the venture but have technical skill. This corroborates Timmons (1994) assertion that entrepreneurs are prudent managers of risk. Das and Teng (1997) introduced and tested a temporal framework for analyzing entrepreneurs risk-taking behavior. This contingency approach to entrepreneurials risk behavior proposed developing different entrepreneurial types (for example, craftsman or opportunistic) by employing their distinct risk-taking behavior in the short- and long-term. The cognitionoriented approach to analyzing entrepreneurial risk behavior has been used by Palich and Bagby (1995), who reported that entrepreneurs do not necessarily embrace risk-taking more than nonentrepreneurs; rather, they tend to view risks more optimistically and are thereby more willing to undertake entrepreneurial efforts. Other behaviors that impact firm performance include strategic planning, harnessing resources, and innovation (Stearns and Hills 1996). Entrepreneurial behavior has also been described as vision focused on innovations that meet market needs more effectively (Gardner 1994). Kirzner (1973) advocated a theory of entrepreneurial alertness, describing entrepreneurs ability to see, to discover and exploit opportunities that others miss. More recently, Busenitz (1996) suggested that measures of entrepreneurial alertness are of research interest and need further development. This integration of the key dimensions of the entrepreneurship process has resulted in an interactionist perspective, providing a framework for examining the ways in which an entrepreneur s personal attributes interact with other variables to ultimately affect the organization s actions and performance. As early as 1986, Miller and Toulouse found that the personality of the CEO had a strong influence on the strategies and structure of the firm. Among the personality dimensions studied, CEO flexibility had the most positive consequences for small firm performance. Nicholson (1998) identified several distinctive features of the entrepreneurial leadership personality, including a single-minded focus and resilience. 86 JOURNAL OF SMALL BUSINESS MANAGEMENT

3 The purpose of the present study is to examine the entrepreneur s disposition toward proactive behavior, known as proactive personality (Bateman and Crant 1993), and its relationship to the firm s strategy and innovative posture. We postulate that the proactive entrepreneurial personality will be associated with a particular strategic orientation, which mediates the personality innovation relationship for the small firms sampled (see Figure 1). Given the recent emphasis on process models of entrepreneurship, as discussed above, it is important to determine how psychological factors influence the outcomes of strategic thinking in small organizations (Stewart et al. 1998). TheProactiveEntrepreneur and the Small Firm The proactive personality is defined by Bateman and Crant (1993) as the personality of one who takes action to influence environmental change. Proactive personalities scan for opportunities, show initiative, take action, and persevere until they reach closure by bringing about change (Bateman and Crant 1993, p.105). According to these researchers, the proactive personality consistently exhibits these kinds of behavior and is relatively unconstrained by situational forces in the daily environment. The scale Bateman and Crant used to measure proactive personality demonstrated convergent, discriminant, and criterion validity. Their personality construct was found to be unrelated to measures of social desirability, locus of control, and mental ability (Bateman and Crant 1993; Crant 1995), whereas proactivity has been shown to be positively associated with entrepreneurial intentions (Crant 1996) and transformational leadership (Bateman and Crant 1993). Studies are needed, however, to determine the link between proactivity and entrepreneurial behaviors, which is the focus of the present study. Becherer and Maurer (1999) found that company presidents who exhibited a proactive disposition were inclined to move their organizations to scan for more business opportunities. In addition, Bateman and Crant (1993) contend that proactive individuals exhibit an array of behaviors including problem-finding, idea championing, and strategic prospecting. They also have the ability to take it upon themselves to direct the goals and direction of their organization in order to influence the overall mission and strategic orientation of the business (Bateman and Crant 1993). Thus, the effects of these entrepreneurs personalities and dispositions on their behaviors and actions are demonstrated in their strategic choices for operating their businesses and competing within their industries. The Mediating Role of Strategic Orientation As asserted by Hettema (1989) and Buss and Craik (1980), personal dispositions are summary labels of behavior rather than intrapsychic causes. By initiating changes in the organization and its strategies, proactive entrepreneurs are behaviorally acting upon their overall attitudes and beliefs. In particular, the type of strategy that is consistent with their attitudes and beliefs is the prospector strategy (Miles and Snow 1978). Firms that adopt this type of strategy continually search the marketplace for new products, services, and technologies. Organizations with a prospector strategy are the creators of change in their industries and businesses. Prospectors rely on high levels of environmental scanning and long-range forecasting to identify new opportunities that are critical to their success (Miles and Snow 1978). Research on organizations that follow a prospector strategy has found that these types of businesses tend to invest more heavily in research and development as well as in marketing and promotion (Hambrick 1983). Additionally, McDaniel and Kolari KICKUL AND GUNDRY 87

4 Figure 1 Model of the Consequences of Proactive Personality 88 JOURNAL OF SMALL BUSINESS MANAGEMENT

5 (1987) found that prospectors tend to focus more on new product development and market research. Finally, prospectors also tend to place emphasis on forecast data and budgetary goals and to closely monitor business outcomes (Simons 1987). More research, however, is needed to examine the prospector strategy and its influence on small business innovation. Since prospector organizations are constantly searching for new ideas and processes, they would be inclined to introduce innovations that improve and enhance their product or service, their operation and production methods, marketing tactics, organizational structure, information technology, and financing methods. This study will focus on these multiple types of innovation to determine how a small firm with a prospector strategy can affect change and integrate novel ideas and processes within its competitive operating environment. Methodology Sample The sample for this study consisted of 107 small business owners located in the U.S. Midwest. Names were obtained through contact information collected by a state agency that gives technical and managerial assistance to owners and their respective ventures. Approximately 52 percent of the businesses were womenowned and 26 percent were minorityowned. Over 45 percent of the owners held a college degree and 30 percent had previously owned or managed a business before launching their venture. The businesses surveyed came from a variety of industries: 15 percent from retailing, 14 percent from general services, 12 percent from professional services, 11 percent from manufacturing, four percent from construction, and three percent from finance, insurance, and real estate. The businesses had average revenues of $267,000, with an average of four employees. Seven percent of the firms also utilized independent contractors. Overview and Procedure All information was gathered over a three-month period through telephone interviews with the small business owners. Participants were told that we were conducting research to better understand some of the factors associated with starting and growing a business. In addition to answering a series of demographic questions on personal (educational level, prior business experience, ethnicity, etc.) and business (employment, sales revenue, etc.) characteristics, the owners were asked to provide information regarding their personality, the types of innovations implemented in their organization, and the overall business strategy and goals of their venture. Measures Proactive Personality. To assess proactive personality, we used five items from Bateman and Crant s (1993) scale: (1) I enjoy facing and overcoming obstacles to my ideas ; (2) Nothing is more exciting than seeing my ideas turn into reality ; (3) I excel at identifying opportunities ; (4) I love to challenge the status quo ; and (5) I can spot a good opportunity long before others can. Participants rated these items on a seven-point Likert scale, with 1 = strongly disagree to 7 = strongly agree. Bateman and Crant (1993) report internal reliabilities (Cronbach s alpha) ranging from.87 to.89 for their 17-item scale. The five items selected for this study had some of the highest factor loadings as indicated in Bateman and Crant s scale development and validation research. The internal reliability of these items on our sample was.95. To demonstrate that we were measuring proactive personality, we also examined the correlation between our short form and the original scale on a separate sample of 322 employees from a variety of organizational settings. The correlation between the two forms was.90, thereby KICKUL AND GUNDRY 89

6 providing support that the five items are indeed measuring the proactive personality construct. Strategic Orientation. Inordertodetermine the strategic orientation of the small business, we asked the participants to describe their business strategy and goals. Each description was then content- analyzed and the firm was classified as being either prospector or non- prospector, based on Miles and Snow s (1978) depiction of a prospector strategy. Because this study is interested in examining the role of the prospector strategy as a mediator in determining small business innovations, Miles and Snow s three other business strategy categories (defenders, analyzers, and reactors) were not used. The authors and a research assistant coded each of the strategy descriptions, and then assessed the inter-rater reliability. From the 107 respondents business strategy descriptions that were analyzed, the inter-rater reliability was computed to be 82 percent. In cases where complete agreement was not reached, discussion ensued regarding how each rater had determined the type of strategy, and a decision was reached. The 82 percent reliability rate was calculated by dividing the number of agreements by the total number of agreements plus disagreements (Miles and Huberman 1984). Miles and Huberman note that one should not expect greater than 70 percent inter-rater reliability at first. Based on this criterion, our inter-rater reliability is quite high. Innovation Scales. We developed 10 items to investigate the different types of innovations implemented by the business owners. Some of these innovations included the introduction of new or improved products, new channels of distribution, new information technology, and new methods of organization. Participants were asked to indicate which of these innovations they had incorporated into their organizations. The data were submitted to factor analysis using principal components extraction and varimax rotation. A threefactor solution resulted, as indicated through our interpretation of the scree plot and the eigenvalues greater than 1.0. Although the first factor accounted for 47.7 percent of the variance, the remaining two factors accounted for an additional 25.8 percent. As shown in Table 1, Factor 1 (five items) was labeled innovative targeting processes; it measures those innovations related to having new or improved products, venturing into new markets, or utilizing new channels of distribution. Factor 2 (two items) was innovative organizational systems; it assesses internal changes within the organization such as new methods of organization or new methods of management. Finally, Factor 3 (three items), innovative boundary supports, measures whether new methods of financing or new information technology have been integrated into the organization. Cronbach s alpha scores (internal reliability) of these three factors were:.78,.95, and.74, respectively. Statistical Analyses The mediated regression approach recommended by Baron and Kenny (1986) was used to test our proposed model. In this approach, three separate regression equations are estimated. First, the mediator (prospector strategy) is regressed on the independent variable (proactive personality). Second, the dependent variable (separate innovation processes) is regressed on the independent variable. In the last equation, the dependent variable is regressed simultaneously on both the independent and mediational variable. Mediation is indicated when the following conditions are met: 1) the independent variable affects the mediator in the first equation; 2) the independent variable affects the dependent variable in the second equation; 3) the mediator affects the dependent variable in the third equation; and 4) assuming that all of 90 JOURNAL OF SMALL BUSINESS MANAGEMENT

7 Table 1 Results of Factor Analysis with Varimax Rotation Items Innovative Innovative Innovative Targeting Organizational Boundary Processes Systems Supports New or improved products.79 New production methods.77 New markets.73 New marketing or sales methods.61 New channels of distributionion.49 New methods of organization.93 New methods of management.92 New or improved services.84 New methods of financing.74 New information technology.74 Eigenvalue Percentage of Variance these conditions are in the proper direction, the effect of the independent variable on the dependent variable is less in the third equation than in the second equation. Full or perfect mediation is supported when the independent variable has no significant effect when the mediator is controlled, while partial mediation is indicated if the effect of the independent variable is reduced in magnitude but still significant when the mediator is controlled (Baron and Kenny 1986). Results Descriptive Statistics The means, standard deviations, zeroorder correlations, and reliabilities for our constructs are reported in Table 2. The reliabilities of the measures used were all at or over the.70 minimum established by Nunnally (1978). Proactive personality was related to prospector strategy as well as to the three innovation processes. Prospector strategy was also associated with the innovation processes identified in this study. Tests were also conducted to determine whether the assumptions for the multiple regression analyses were met. Residuals were examined for magnitude, linearity, independence, normality, and homogeneity of variance (Cohen and Cohen 1983). No violations of these assumptions were identified. Analysis of the Proposed Model Table 3 presents the results for the mediated regression analysis for each of the three dependent variables (innovative targeting processes, innovative organizational systems, and innovative boundary supports). In the first equation, the mediator prospector strategy was regressed on the independent variable proactive personality and produced significant results. In the second equation, each dependent variable was regressed on the independent variable (proactive personality); this also yielded significant results for each of the dependent variables. Finally, the dependent variable was simultaneously regressed on both proactive personality and prospector strategy. In this last equation, prospector KICKUL AND GUNDRY 91

8 Table 2 Descriptive Statistics, Correlations, and Reliabilities Variable Mean SD Proactive Personality (.95) 2. Innovative Targeting Processes * (.78) 3. Innovative Organizational Systems *.47*** (.95) 4. Innovative Boundary Supports ^.44***.32** (.74) 5. Prospector Strategy *.39***.26**.31** (.82) Note: Internal consistency reliabilities are provided along the diagonal in parentheses. ***p <.001 **p <.01 *p <.05 ^p <.10 Table 3 Mediated Regression Analysis Equation Summary Dependent Variables Innovative Innovative Innovative Targeting Organizational Boundary Processes (β) Systems (β) Supports (β) (1) Proactive Personality.21*.21*.21* Prospector Strategy (2) Proactive Personality.23*.19*.18^ Dependent Variable (3) Proactive Personality Dependent Variable, Prospector Strategy.35***.23**.29** Dependent Variable R F 10.15*** 4.77** 6.05** Note: The R 2 and F value results are for the last equation in the test for mediation. ***p <.001 **p <.01 *p <.05 ^p < JOURNAL OF SMALL BUSINESS MANAGEMENT

9 strategy was significant, while proactive personality was no longer significant. The results in this last step indicate full not partial mediation. Thus, prospector strategy mediates the relationship between proactive personality and each of our three innovation processes. This type of strategic orientation functions as a critical link among small business owners proactive personalities and the ways they engage in innovative targeting processes, develop innovative organizational systems, and import innovative boundary supports. Discussion and Conclusions Overall, the empirical results of our study demonstrate that a small business owner s proactive personality is linked to a strategic orientation for the small firm that permits flexibility and change in response to surrounding business conditions. By employing a prospector strategy, these proactive owners have a direct impact on the goals and direction of their organizations. Moreover, this strategic orientation can also influence the types of innovations developed and implemented within the internal and external framework of the small business environment. Our research suggests that organizations with a prospector strategy are not only more likely to identify opportunities for developing new products or markets, but are also willing to make internal changes and transformations within their organizational structure that facilitate further growth and success. Instead of merely reacting to changes within the market and industry, these proactive owners employ a strategy consistent with many of their beliefs and behavioral intentions in seeking out new opportunities and engaging in new business processes and innovations (see Figure 2). This research builds on previous work related to the opportunity recognition behaviors of entrepreneurs (Bhave 1994; Christensen, Madsen, and Peterson 1989; and Hills and Shrader 1998) by delineating the strategic innovations and organizational transformations that entrepreneurs consequently undertake. Proactive owners are opportunistic, as characterized by previous research. However, more research is needed to further investigate the link between proactive personality and opportunity recognition behaviors. Busenitz (1996) has noted that more empirical work should be undertaken to develop measures of entrepreneurial alertness (Kirzner 1973). Are proactive entrepreneurs more alert to opportunities, and therefore more likely to recognize them? And if so, what is the impact on the number of successful business launchings, as well as on the effectiveness of their innovative behaviors? Many of the new processes and innovations undertaken may be essential to the future growth and sustainability of the small firm. The ability to arrive at new methods to target customers through new promotional and distribution channels as well as developing boundary supports may allow the business to add value by increasing brand awareness and levels of efficiency. The implementation of a teambased design, for example, can help a venture sustain its flexibility to create as the business grows and matures. Although more work is required to refine and validate our innovation factors, we believe that we have made an important first step in identifying specific dimensions of innovative behavior associated with and found inside small firms. While this study was able to uncover multiple dimensions of innovations implemented by small firms, future research should investigate the effects of these ideas and solutions on the long-term growth and profitability of the business. More specifically, the introduction of new products or marketing methods may assist the organization in fulfilling many of its short-term goals and objectives. The reorganization of its internal structure and changes in its boundary support services, however, may become more salient as the KICKUL AND GUNDRY 93

10 Figure 2 Final Model of the Consequences of Proactive Personality 94 JOURNAL OF SMALL BUSINESS MANAGEMENT

11 business matures and tries to maintain its entrepreneurial spirit and enthusiasm. Additional longitudinal work is needed to assess how innovations, over time, can affect the performance of the small firm as it progresses through the entrepreneurial life cycle. Although identifying opportunities in the market is a key component and first step towards innovation, future research should examine how small businesses garner the resources and capabilities necessary to turn their ideas into actual solutions. Research should address the various types of investments and resources these businesses have used to stimulate creativity and innovation. In summary, more research is needed to investigate the link between proactive personality and entrepreneurial behaviors such as opportunity recognition, resource allocation, and the subsequent implementation of creative and innovative ideas aligned with the firm s strategy. One of the limitations of this study is that the relationship among the predictor (proactive personality), the mediator (strategic orientation), and outcomes (innovation processes) included common method variance. The measures used to tap each of these constructs were taken from one source (the small business owner). These associations could, therefore, be attributed to a response bias. Moreover, although the study was cross-sectional, the hypothesized model and relationships suggest causal direction. Causal inferences made from cross-sectional designs are only inferences (Spector 1981). Future research should examine many of the same relationships in our study with longitudinal data to assess causality. As small business owners carve out their competitive niche in their industries, it is important to investigate how their attitudes and beliefs influence major changes in their organization s mission, objectives, and strategies. It is also necessary to examine how the organization s strategic orientation can affect the advancement and implementation of creative solutions essential to small business success. This study offers support for the process by which proactivity can serve as a critical antecedent of strategy development and demonstrates how the direction of the small firm can serve as a motivating force in determining a broad array of organizational and market innovations. As more small businesses strive for a measurable strategic advantage in their industries, one of the keys to success may reside in the entrepreneur s visionary focus in aligning the firm s strategy with its innovative prowess, thereby introducing revolutionary new ideas into the venture itself and into the marketplace. References Bateman, T. S., and J. M. Crant (1993). The Proactive Component of Organizational Behavior: A Measure and Correlates, Journal of Organizational Behavior 14, Begley, T.M., and D.P. Boyd (1986). Psychological Characteristics Associated with Entrepreneurial Performance, Frontiers of Entrepreneurship Research. Ed. R. Ronstadt, J. Hornaday, R. Peterson, and K. Vesper. Wellesley, Mass.: Babson College Center for Entrepreneurial Studies. Becherer, R.C., and J.G. Maurer (1999). The Proactive Personality Disposition and Entrepreneurial Behavior among Small Company Presidents, Journal of Small Business Management 37(1), Baron, R.M., and D.A. Kenny (1986). The Moderator-Mediator Variable Distinction in Social Psychological Research: Conceptual, Strategic, and Statistical Considerations, Journal of Personality and Social Psychology 51, Bhave, M.P. (1994). A Process Model of Entrepreneurial Venture Creation, Journal of Business Venturing 9(3), KICKUL AND GUNDRY 95

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