Corporate Entrepreneurship, Core Competence and Market Performance

Transcription

1 Corporate Entrepreneurship, Core Competence and Market Performance Yonggui Wang, Zhongyi Gao Dept. of Marketing, Business School, Nanjing University, P.R.China, Abstract This study is to examine the relationship between corporate entrepreneurship, dynamic capabilities and market performance. A large survey of China firms finds that corporate entrepreneurship exerts differentiated influences on each dimension of dynamic capabilities and dynamic capabilities play the mediating roles in the relationship between corporate entrepreneurship and market performance Key words Corporate entrepreneurship, core competence, mediator, business performance 1 Introduction Both corporate entrepreneurship (hereafter abbreviated as CE) and core competence are attracting much attention from business managers all over the world in their respective fields (Covin and Slevin, 1991; Zahra, 1993), and constitute a major part of successful organizations (Pinchot, 1985). However, fewer efforts have been paid to integrate them together in one model to provide a more comprehensive understanding of how superior market performance can be achieved. Furthermore, most of relevant studies are based on the context of western economies (e.g., Zahra and Covin, 1995; Knight, 1997; Peng, 2001; McDougall and Oviatt, 2000; Ireland, et al, 2001; Daily, et al., 2002; Gartner and Birley, 2002), and few are in the context of emerging economies (e.g., Antoncic and Hisrich, 2001; Luo, Zhou and Liu, 2005), for example, China. Besides, such question as why some firms with similar CE or dynamic capabilities achieve different market performance is still unresolved. Remarkably, this fundamental issue has not been addressed in a systematic way with some of the extant research focusing on only part of the whole picture (e.g., Luo, Zhou and Liu, 2005; Barrett, Balloun and Weinstein, 2000). In addition, it seems that most of studies of dynamic capabilties tend to neglect the role of CE in achieving superior market performance. This paper aims to address the voids in knowledge noted above. Specifically, a sample from a transitional economy, China, is investigated to (1) determine the differentiated effect CE exerts on each dimension of dynamic capabilities, (2) explain why some firms with similar CE have different market performance and, (3) identify and examine systematically the capability based factors that play important roles in the relationship between CE and market performance. This research sheds light on the relative importance of CE and each dimension of dynamic capabilties. Such an elaboration process can always lead to richer theoretical models with which researchers and managers are able to explain or specify relationships with greater accuracy (Lumpkin and Dess, 2001). In addition to enriching and testing theory, the research findings are useful to managers for undertaking efforts with corporate entrepreneurship for superior market performance. Furthermore, this research empirically addresses the issue of whether all businesses should focus on CE only in practice. This is an important consideration, because devoting resources to CE only potentially may be wasteful if CE does not lead to superior market performance directly. Therefore, such a conceptual and empirical analysis in the context of China will not only help overcome the limitations of extant studies of CE and dynamic capabilities, but also will reinforce attempts to test the generalizability of relevant research findings in a transitional economy given the cultural difference between China and western counties. First, a brief review of the literature on CE and dynamic capabilities will be provided, and hypotheses pertaining to the relationship between CE, dynamic capabilties and market performance will be discussed. Next, investigations undertaken to test these hypotheses are described, followed by a discussion of the research results. The paper will conclude with a discussion of the managerial relevance of the findings and future research directions. 2 Literature Review and Conceptual Framework 2.1 Corporate Entrepreneurship and its Influence on Market Performance 1439

2 As a firm-level phenomenon, CE evolved from many fields such as innovation, strategic change, etc (McDougall and Oviatt, 2000). From a resource-based perspective, CE is a key means of accumulating, converting, and leveraging resources for competitive purposes (Floyd and Wooldridge, 1999) such as developing and using product, process, and administrative innovations to rejuvenate and redefine the firm and its markets or industries (Covin and Miles, 1999). Churchill (1992) defines entrepreneurship as the process of uncovering and developing an opportunity to create value through innovation and seizing that opportunity without regard to either resources (human and capital) or the location of the entrepreneur in a new or existing company. Similarly, Sharma and Chrisman (1999) also define CE as the process whereby an individual or a group of individuals, in association with an existing organization, create a new organization, or instigate renewal or innovation within that organization. Thus in the process of deployment of corporate entrepreneurship for superior market performance, core competence, which is defined as firm-specific skills and cognitive traits directed towards the attainment of the highest possible levels of customer satisfaction vis-à-vis competitors (Bogner and Thomas, 1994), is of necessity. May studies conclude that CE is positively associated with a company s growth and profitability (Covin and Slevin, 1991; Zahra and Covin, 1995), and argue that CE is a good predictor of growth of small firms (Covin, 1991). However, the empirical results are mixed (Wiklund and Shepherd, 2005). Antoncic and Hisrich (2001) find that CE is related to the growth of Slovenian and US established firms of various sizes, and to profitability of Slovenian, but not American firms. Morris and Sexton (1996) discover that there is a significant positive relationship between entrepreneurial intensity and increased growth, but not increased profitability of US firms. Other studies suggest that entrepreneurship tends to have long-term effects on growth and financial performance, but not short-term effects (Zahra and Covin, 1995). One important reason for different empirical results may be that researchers choose difference measurement of firm performance (Covin and Slevin, 1991; Zahra and Covin, 1995; Luo, Zhou and Liu, 2005). However, no matter what constitute the measurement of firm performance, market performance must not be overlooked since it is the market from which revenue of a firm come. Therefore, it is of significance to choose market performance. So in this paper, as Zhang and Wang et al. (2006), we propose as follows: Hypothesis 1 There is positive relationship between corporate entrepreneurship and market performance. 2.2 Core Competence and its Role Core competence is a combined skills that enable a firm to deliver a fundamental customer benefits (Hamel et al., 1994) by enabling the firm to establish, enhance, upgrade and utilize proprietary access to those resources that lead to a stream of sustainable competitive advantages. It may be comprised of complex bundles of constituent skills and technologies, collective learning, and both tacit and explicit knowledge, contributing to competitiveness through organizational process that ensures superior coordination of functional activities (Prahalad and Hamel, 1990). Today, there are hundreds of different ways to see core competences with different emphasis trends. For example, Meyer and Utterback (1992) emphasize the special role of technology and identified R&D competence, production & manufacturing competence and marketing competence. Dosi and Teece (1993) define core competences as allocative competence, transactional competence, administrative competence and technical competence. Barton (1992) emphasizes the importance of knowledge and considered core competence as a complex knowledge system that included skills and learning of employees, technology system of the firm, managerial system of the firm and the value system of the firm. Hamel et al. (1994) distinguish market-access competences, integrity-related competences and functionality-related competences. Bogner and Thomas (1994) argue that core competence was comprised of three fundamental components: shared value systems, recipes and routines and tacit understanding of interaction. In this study, since core competences often go beyond traditional boundary of functions and result from capabilities integrating across functional lines and are deployed across multiple product-markets to leverage the firm-specific value-added activities and processes, we can classify all these competences into three broad types of competences, i.e., technological competences, marketing competences and integrative competences, which corresponds to the classification of Fowler et al. (2000) since integration 1440

3 competence represents exactly the match and combination of technological competence and market competence. Evidence shows that each of them has different contribution to business performance. Such a classification also corresponds to that of Wang and Lo (2004). Generally speaking, technological competences determine which kinds of products or service can be provided technically at one time, marketing competences determine the possible identification of which kinds of products or services are demanded by targeted customers and integrative competences reflect the degree of fitness between the above two competences and the effectiveness and efficiency of delivering offerings with superior customer value. So we can propose as follows: Hypothesis 2.1 Technological competence is positively associated with market performance Hypothesis 2.2 Marketing competence is positively associated with market performance Hypothesis 2.3 Integrative competence is positively associated with market performance As argued by previous studies, competence and entrepreneurial orientation usually complement to each other (Slater and Narver, 1995). For example, entrepreneurially oriented firms may be more inclined to implement anticipatory and responsive marketing strategies (Morris and Paul, 1987; Dess, Lumpkin and Covin, 1997) and thus may strengthen their core competence. Similarly, entrepreneurially oriented firms may be more inclined to detect the new development of technologies and implement a responsive or even proactive technology strategy. And those firms may also focus on integrative competence so as to make innovation much more effective and efficient. Hence, we propose the following hypothesis: Hypothesis 3.1: CE is positively associated with technological competence Hypothesis 3.2: CE is positively associated with marketing competence Hypothesis 3.3: CE is positively associated with integrative competence 3 Data Collection and Construct Validation 3.1 Data Collection In order to collect enough data to test our hypotheses, a business survey is conducted face-to-face after a pilot study of identifying and refining measurement items used in this study. Totally senior managers of 131 small and medium sized firms in China reached and interviewed. 3.2 Measurement Instrument Corporate entrepreneurship, core competence and market performance were measured through scales previously used by other researchers. The scales were checked for convergent and discriminant validity. Because the study was conducted in China, the Chinese version was developed by translation and back-translation (Brislin 1976) of the American version into the Chinese language. Corporate entrepreneurship were measured by items on semantic differential type Corporate entrepreneurship scales from the ENTRESCALE (Knight 1997) and by items on Likert-type scales from the corporate entrepreneurship scale (Zahra 1993). Similarly, items for core competence were adapted from Wang et al. (2004). Almost the measurement items used in this study are indicated in Table 1At the same time, control variables were also developed. Respondents checked appropriate boxes for age and size for their organization. 3.3 Construct Validation All the scales were checked for their convergent and discriminant validity using exploratory and confirmatory factor analysis (Floyd and Widaman 1995). For each construct, exploratory factor analysis was conducted using the number of factors that were expected by theory, the principal components extraction method, and Varimax rotation. When comparing the construct items group together to expected grouping by dimension, poorly fitting items were excluded. Exploratory factor analysis and then confirmatory factor analysis was conducted for each dimension of each construct checking for the convergence of items. PLS-Graph 3.0 was used for conducting confirmatory factor analysis as a special case of path analysis. Items that had high, positive, and significant coefficients were retained. Totally four dimensions of corporate entrepreneurship are identified. The confirmatory factor analysis results and relevant composite reliability are shown in table 1. Following a two-step approach, the adequacy of each multi-item scale in capturing its construct is assessed using the measurement model of all constructs by checking internal consistency reliability, convergent validity and discriminant validity before testing the propositions via the causal models. First, 1441

4 the composite reliability for internal consistency is demonstrated, since values for all constructs are above the suggested threshold of 0.70, with a minimum of 0.84, as indicated in table. Second, the standardized factor loadings for all items are above the suggested cut-off of 0.60 (Hatcher, 1994), with a minimum of , and are all significant with strong evidence of convergent validity. At the same time, the average variance extracted (AVE) of each construct in our model is more than 0.50, which meets the criterion that a construct s AVE should be at least higher than 50% to guarantee more valid variance explained than error in its measurement ( Fornell and Larcker, 1981). Third, apart from the above-mentioned convergent validity, the constructs should also show high discriminant validity. According to Fornell and Larcker (1981), this can be evidenced by the fact that the square root of AVE of each construct is generally higher than the correlations between it and any other constructs in the model, as indicated in table 2.That is, the constructs are both conceptually and empirically distinct from each other. Besides, the R 2 for the endogenous variable, market performance, is 0.46, which indicate a strong predictive power of our structural equation model. table 1 Confirmatory Factor Analysis Results and Relevant Composite Reliability(see below) table 2 Correlation Matrix and Square Roots of Average Variance Extracted (1) (2) (3) (4) (5) Market performance (1) 0.90 Technological competence (2) Integrative competence (3) Marketing competence (4) Corporate entrepreneurship (5) Notes: Correlation coefficients are included in the lower triangle of the matrix, and the square root of AVE is on the diagonal. 4 Data Analysis and Structural Equation Model Building Based on the results of both exploratory and confirmatory factor analysis, most of hypothesis are supported. 4.1 The Direct Impact of CE First, a direct-effect model is developed to examine the direct influences of CE on market performance, and it is found that CE has a positive and significant impact on market performance. This indicates that hypothesis is supported. However, when the whole model are built and tested, the direct impact of CE becomes insignificant. 4.2 The Mediating Role of Core Competence Then a mediated model is developed to test the mediating role of core competence between the relationship of CE and market performance. Based on the R square change, we find that the increment of R 2 is significantly attributed to the influence of core competences. As shown in table 3, a full mediating role of core competence is detected, and CE exerts its impact on market performance by way of impacting core competence. As shown in table 3, CE has positive and significant effect on each dimension of core competence, technological competence, integrative competence and marketing competence, and the path coefficients are 0.58, 0.58 and 0.57 respectively. This table also shows that technological competence, integrative competence and marketing competence have positive and significant effects on market performance, and the path coefficients are 0.23, 0.22, 0.22 respectively. table 3 Pls Path Analysis Results Proposed Relationships Path coefficient Market performance < Corporate entrepreneurship Market performance < Technological competence * Market performance < Integrative competence * Market performance < Marketing competence * Technological competence < Corporate entrepreneurship ** t-test 1442

5 Integrative competence < Corporate entrepreneurship ** Marketing competence < Corporate entrepreneurship ** * Note: P<0.05; ** P<0.01 (two-tails); R 2 of market performance is Conclusion and Implications This study developed a comprehensive model for CE and its impact on market performance and examining the mediating role of core competence by taking a disaggregated approach Based on exploratory and confirmatory factor analysis, we witness the reliability and validity of our measurement model. Furthermore, the mediating role of core competence is also supported, and CE can influence market performance only through core competence. All of these findings are very useful both in future academic research and practical world. For example, managers must build and strengthen core competence if they hope to activate CE and realize the potential contribution of CE on market performance. 6 Limitations and Future Directions Although this study lays a solid foundation for future research, caution has to be given in interpreting and applying these research findings. For example, common method variance may exist since the key informant approach is adopted in data collection process although it has been found this is not a significant problem by Harman s one factor test. Second, although our sample has acceptable representativeness, it will be helpful to take the random sampling technique in future studies. As far as the exploratory nature of this study, replication and extension studies are needed to produce more reliable and generalized results. Furthermore, studies focusing on one specific industry may be also useful since it will provide more specific suggestions for firms to cultivate and make full use of CE. Finally, a cross-culture comparison is needed to generalize the relationship between market performance and each dimension of CE. 7 Acknowledgment The author want to acknowledge the financial support by National Natural Science Foundation of China ( , , )and the Research Center for economic transition and development, Nanjing University, one of the National Key innovation Centers for Philosophy and Social Science Disciplines of Ministry of Education of China. Furthermore, we would like to thank Dr. Xiao Zhang, Business School, Nanjing University, for his work in data collection. Biographical Sketches Yonggui Wang, PhD and Professor of Dept. of Marketing, Business School, Nanjing University, China with more than 60 journal papers in China and more than 10 publications in international Journals such as Journal of Engineering and Technology Management, International Journal of Managing Service Quality, Competitiveness Review, Information System Frontiers, etc. ygwang@esd.nankai.edu.cn. 1443

6 Constructs and Items Loading T-Value Composite Reliability Corporate entrepreneurship Broadening business lines in current industries Pursuing new businesses in new industries that are related to current business Finding new niches for products in current markets Entering new businesses by offering new lines and products Company s spending on new product development activities The number of new products added by the company Investment in developing proprietary technologies Company s emphasis on technological innovation Company s emphasis on pioneering technological developments in its industry Percent of revenue generated from products that did not exist three years earlier Reorganizing units and divisions to increase innovation Coordinated activities among units to enhance company innovation Increasing the autonomy of different units to enhance their innovation Establishing procedures to examine new innovation ideas Designating formal idea (project or venture) champions New techniques (first to introduce new/products services, administrative techniques, operating technologies, etc.) Competitive posture ( undo-the-competitors posture) Decision-making style (bold, aggressive posture) Market performance The increment of sales in comparison with the major competitors The increment of market share in comparison with the major competitors The improvement of customer satisfaction in comparison with the major competitors Marketing competence Interact with customers through multiple channels Strong capability in forming positive word of mouth Collecting real-time information about customers Rapid response to customers requirement of just-in-time delivery Collecting real-time information about major competitors Strong channel networks Superior in customer relationship management Technological competence R&D investment Technological accumulation Attraction and motivation of talented experts Problem-solving by application of new technology Establishment and upgrading of technology standard Leading technology innovation of the industry Integrative competence Communication among different functions in process of product and service design Information and knowledge sharing among different functions about marketing Information and knowledge sharing among different functions products and services Company-wide information sharing about competing strategies of major competitors Coordination and integration of functions in strategy Effective coordination among departments in the implementation of corporate strategy table 1 Confirmatory Factor Analysis Results and Relevant Composite Reliability

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