Linking Two Dimensions of Entrepreneurial Orientation to Firm Performance: The Moderating Role of Environment and Industry Life Cycle

Abstract

Both scholarly literature and the popular press havestressed the importance of entrepreneurial activities, often assuming positive relations between entrepreneurship and performance outcomes. The author ssuggest that entrepreneurial processes may not always be associated with strong performance. A popular model of entrepreneurial orientation (EO) consisting offive dimensions is presented: autonomy, innovativeness, risk-taking, proactiveness, and competitive aggressiveness. Proactiveness and competitive aggressiveness are particularly examined: how they are related to each other, how they are related to performance, and how their function differs in theenvironments in which firms use these approaches. Drawing on prior theory and empirical research into these two dimensions of EO and examples from business practice, the authors explore three relatedresearch questions: (1) the independence of the proactiveness and competitive aggressiveness dimensions; (2) their relation to firm performance; and (3) theextent to which their relation to performance is contingent on the businessprocess. The field study involves 124 executives from 94 non-diversified,non-affiliated firms, selected from the Business Marketing Source, a commercialdatabase of a large southwestern metropolitan area in the US. The overall firm-level response rate is 41%. The findings suggest that these two approaches to entrepreneurial decision-making may have different effects on firm performance. On the onehand, proactiveness (a response to opportunities) is an appropriate mode for firms in dynamic environments or in growth stage industries, where conditions change rapidly and the opportunities for advancement are abundant. On the other hand, firms in hostile environments, or in mature industries where competitionfor customers and resources is harsh, are more likely to respond to competitive aggressiveness (a response to threats). Competitive aggressiveness and proactiveness are distinct dimensions of an entrepreneurial orientation, making important contributions to firms' performance. Further research should considerother EO dimensions, such as risk-taking and innovativeness.(CBS)

Keywords: Management decisions, Individual traits, Market competition