Entrepreneurial orientation and growth of SMEs: a causal model.

The literature existing on entrepreneurship implicitly assumes that entrepreneurial orientation (EO) and growth orientation are positively related with each other. However, few studies, whether theoretical or empirical, analyze such relation in an explicit manner. Instead, most previous works have focused on the EO-performance relation, even though growth and profitability do not always correlate positively. This work has been carried out on a sample of 434 SMEs, and contributes two novelties with regard to previous research: (1) the analysis focuses on the EO-growth relation; and (2) it uses a flexible method (Partial Least Squares) which allows the study of several simultaneous relationships. The results reveal the complexity of the relationships between EO, strategy, environment, resources and growth.

Introduction

Recent years have brought an increased interest in better understanding the phenomenon of firm growth (Brown, Davidsson, & Wildund, 2001; Correa, Acosta, Gonzalez, & Medina, 2003; Littunen & Tohmo, 2003; Delmar, Davidsson, & Gartner, 2003). There are many reasons for this expanding interest. From the economic and social point of view, there is the fact that firms that grow more are the ones that generate more new jobs (Birch, Haggerty, & Parsons, 1994; Littunen & Tohmo, 2003). Also, from the academic point of view, growth constitutes one of the least studied dimensions of performance within the field of management, as compared to other variables such as profitability (Porter, 1980, 1985; Rumelt, 1991).

High growth tends to be associated with a firm's entrepreneurial behavior (Brown et al., 2001; Stevenson & Jarillo, 1990). Thus, growth tends to be considered a logical consequence of innovative, proactive and risk-taking behavior on the part of the firm, as these are the dimensions which define an entrepreneurial orientation (EO). The relationship between the EO of the firm and its performance has been thoroughly investigated, from both a conceptual (Covin & Slevin, 1991; Lumpkin & Dess, 1996) and an empirical point of view (Covin & Slevin, 1989; Lumpkin & Dess, 2001; Wiklund & Shepherd, 2005). However, many questions remain unanswered. The existing literature has two important limitations.

First of all, the empirical research undertaken thus far has examined the relationship between EO and firm performance, despite the multidimensionality of the latter concept. The performance averages combine indicators associated with profitability and growth, although both of these dimensions are sometimes contradictory (Delmar et al., 2002). Therefore, it is worthwhile to ask the following question: Is there a positive relation between the firm's EO and its growth? Second, most authors emphasize the complexity of the relations between EO and performance (Wiklund & Shepherd, 2005). Such complexity involves a confluence of direct, mediating, and moderating relations among external and internal dimensions. Thus, the following question arises: Which variables influence such relation? What kind of effect do they have?

This study seeks to take an important step toward an overall understanding of the influence of a firm's EO on its growth, making progress in the two directions discussed earlier. The analysis concentrates only on the study of growth and does not examine other dimensions of firm performance. The design of the research project also attempts to capture the complexity of the phenomenon being studied. Instead of analysis methodologies based on regression, we have used a structural-equations model of an exploratory nature. Said model attempts to integrate, through causal relations, the influence of the environment, firm resources, and firm strategy on the relation between EO and the growth of the firm.

The article is structured as follows: After the introduction is a section that summarizes the most relevant literature upon which the conceptual model and hypotheses are based. Then comes a description of the methodology used in the empirical research. In the following section, the main findings are set forth, with the discussion of such results being left for the sixth section. The article ends with a brief sketch of the implications for scholars and practitioners, the limitations and future lines of research and final conclusions.

Review of Literature, Conceptual Model, and Hypotheses

EO and Firm Growth

The literature on the relation between the EO of a firm and performance, although quite extensive, is dominated by two types of work. On the one hand, there are studies that set forth general models describing the nature of said relation, identifying the moderating and mediating variables and attempting to establish wide-reaching propositions (Covin & Slevin, 1991; Dess, Lumpkin, & McGee, 1999; Lumpkin & Dess, 1996). On the other hand, a broad range of studies have attempted to empirically verify partial models of said relation. This line of work incorporates, in an isolated and independent manner, some of the moderating variables, those related either to the environment (Lumpkin & Dess, 2001) or to the firm's internal dimensions (Wiklund & Shepherd, 2005).

Parting from an analysis of both of these lines of research, our work takes on the analysis framework set forth in Figure 1. Such a model, which is of configurational orientation, understands the growth of a firm to be derived from a certain strategic behavior, which is influenced by the degree to which the firm maintains an entrepreneurial style of management. This process of relations is moderated by both external and internal factors.

[FIGURE 1 OMITTED]

Strategy and Firm Growth

The few projects undertaken on the role strategy plays in the relation between EO and firm performance have produced quite a confusing situation. This confusion can be attributed to different aspects: (1) the strategy typology used and (2) the type of influence the strategy has on the relation between the EO and performance.

Types of Strategy and Growth. Regarding the first aspect, no consensus exists as to which of the numerous strategy typologies found in the literature is the most appropriate for influencing the relationship between the two dimensions. Thus, various studies use the Porter (1980) typology, which distinguishes between leadership in costs and leadership in differentiation (Dess, Lumpkin, & Covin, 1997; Baum, Locke, & Smith, 2001). However, Durand and Coeurderoy (2001) prefer to use the Miller (1986) typology, a variation of Porter's strategies, which distinguishes between the strategies of differentiation in marketing and differentiation in innovation. But, along with these authors, others working in this field consider entrepreneurial behavior itself to be a strategy (Botch, Huse, & Senneseth, 1999; Covin & Slevin, 1989). In our opinion these typologies are not the most suitable for the case at hand, for the following reasons.

First, the well-known strategies of Porter (1980) and Miller (1986) are business-level strategies and not corporate-level strategies, while decision making on questions of growth is mainly situated at the corporate level. Second, the strategies of leadership in cost and differentiation are strategies that seek to obtain a sustainable competitive advantage, which will allow the business unit to obtain exceptional levels of profitability. In other words, they are strategies more oriented toward the objective of profitability than toward that of growth.

Compared to these strategy typologies, two others seem to us to be more suited to the objective set for this study. We are referring to the strategic patterns of Miles and Snow (1978) and to the growth strategies of Ansoff (1965). The typology of the former is based upon Child's (1972) vision of strategic choices (the strategic-choice approach), according to which the main decisions made by the directors define the relationship of the organization with its environment. This type of approach can be fully integrated in the literature on the subject of the relationship between EO and performance (Lumpkin & Dess, 1996). Miles and Snow (1978, p. 29) differentiate among four strategic patterns: (1) prospector strategy; (2) defender strategy; (3) analyzer strategy; and (4) reactor strategy.

The other relevant typology, given the aim of this study, is that established by Igor Ansoff (1965), who proposes various types of corporate-level strategies aimed at explaining the growth of the firm. Ansoff (1965) understands corporate strategy to be the set of rules and guidelines for decision making that are concerned with guiding the expansion of the enterprise. Although corporate strategy typically refers to diversification, mergers and acquisitions, alliances, joint ventures, and so forth, it is also associated with the sort of strategic decision that most organizations face when considering the widening of a range of products or services or a move in geographical area (Johnson & Scholles, 1984, p. 9). Corporate strategy is not only applicable to large conglomerates, but it is also useful, when appropriate, to describe the expansion processes in the case of small and medium enterprises (Burgelman, 1984; Gibbons & O'Connor, 2005; Miller & Toulouse, 1986; Mitchell, 1988). Such strategies are based on two different dimensions Ansoff (1965): (1) growth through new products or new technologies; and (2) growth through attention to new needs or new markets.