The Role Played by Entrepreneurial Ventures in Society - Literature review Example

Entrepreneurial Orientation and Organizational Learning on SMEs’ Innovation Entrepreneurship is best studied through a thorough understanding of its key elements such as originality, proactiveness and daring attitudes. Organizational learning has further impact on the entrepreneurial orientation of firms especially SMEs innovation. Strategic management of SMEs, especially that which can lead to improved and mobilized resources, is a factor that has been hardly recognized or studied. Significant research has been conducted on the aspects of entrepreneurial orientation that SMEs must embrace. This includes originality, risk-taking behaviour and proactiveness (Keh et al., 2007; Soriano & Dobon, 2009; Cruz, 2012). These key elements integrate to represent an entrepreneurial directional approach which shows a firm’s inclination to connect with entrepreneurial behaviour for attaining its calculated goals (Lumpkin & Dess, 2001; Dess et al., 2011; Wiklund & Shepherd, 2003; Rauch et al., 2009). The study undertakes an analytical approach towards existing literature in this regard and deduces a new definition of entrepreneurial orientation and tries to develop a concise yet universal definition of entrepreneurship on the whole as an amalgamation of the key aspects of innovativeness, proactiveness and risk-taking in making market breakthroughs. Introduction: The role played by entrepreneurial ventures in society is crucial to the development of the country that they originate in. Not only that there is huge amount of literature on how to define or understand entrepreneurial orientation and not stick to the definition of entrepreneurs alone. With an overall dependence on innovativeness, risk-taking and proactiveness (Hughes & Morgan, 2007), entrepreneurial orientation is defined through this study. The organizational learning of the firm is another aspect that plays a vital part in defining and creating the right balance between each of these aspects related to entrepreneurial orientation on SMEs’ innovation. We begin with a systematic study of the existing literature in each of these aspects and then deduce our conclusion after thorough discussion of conclusions from the studies. With the number of entrepreneurs growing steadily over the years, a topic of discussion that has always made it to coffee tables and thinker’s panels, is the topic of entrepreneurship. Widely discussed and endlessly researched, entrepreneurship is a word that has no fixed definition till now (Lumpkin & Dess, 1996, 2001; Dess et al., 2011, Tang et al., 2013). Earlier days had entrepreneurship being regarded as the ability for gifted individuals to bring in new ideas and combinations in the market to create breakthroughs in terms of returns and sales (Schumpter, 1934). Subsequent studies and research have not been able to create a definition since their main focus was pertaining to the study of entrepreneurial business development behavior and organization processes (Begley & Boyd, 1987). Gartner (1988) points out that in our study of entrepreneurship the focus should be on the work culture and approach to strategy that entrepreneurs use within the organization and not on what or who they actually are in their personal lives. This gave rise to a new term which concentrates on the strategy building process and capabilities of the firm that is run by the entrepreneur, namely ‘entrepreneurial orientation’ (Lumpkin & Dess, 1996, 2001). According to Miller (1983) an entrepreneurial firm actively engages in risky ventures, undertakes product market innovation, and develops proactive innovations in the industry they are active in beating competition to the race to patents and fame. Being first in the line up to innovative practices is a must for a promising entrepreneur. Numerous scholars have agreed to the concept propounded by Miller and therefore, ‘entrepreneurial orientation’ is today, a term that is used to denote a common set of related actions and processes (Ginsberg, 1985; Morris & Paul, 1987). To make things clearer, Lumpkin and Dess (1996) attributed five dimensions to the concept of entrepreneurial orientation, which has been refuted by other scholars of research in this field who agree that there are three core dimensions to the concept. These three cores have been understood to be innovativeness, risk-taking and proactiveness (Hughes & Morgan, 2007; Wiklund & Shepherd, 2005; Lumpkin & Dess, 2001). In view of the previous research conducted by scholars in this field, the present study focuses to define entrepreneurial orientation in SMEs and will try to find how entrepreneurial orientation is a keep player in a firm’s strategic orientation and has essential characteristics that are unique in the form of decision making styles and operations practices. Many agree that these three core dimensions vary from firm to firm and are independent of one another in all scenarios (Lumpkin & Dess, 2001; Wiklund & Shepherd, 2005, Hughes & Morgan, 2007; Rauch et al., 2009). In our study, entrepreneurial orientation is being regarded as a grouping of originality, venturesome approach and proactiveness. The purpose is to find out the impact or indication of performance of a firm’s general entrepreneurial direction. Literature Review and Propositions Development (Must follow the listed headings) (1) Entrepreneurial Orientation and SMEs’ Innovation The concept of entrepreneurial orientation although welcome and established, has immense scope of differentiation into key aspects. The change or make-over of the concept of entrepreneurial orientation begins with a definition that is universally applicable. SMEs are the best places of studying specific trends in entrepreneurship and offer excellent scope of innovation. Therefore, the main connection between entrepreneurial orientation and SME strategy building studies is the level of innovativeness in both, which later shows that entrepreneurial orientation as a concept is entirely dependent upon the level of innovativeness in the firm. (a) Innovativeness and SMEs’ Innovation With respect to entrepreneurial innovation, innovativeness is defined as the ability to do something new when all known techniques fail. According to McAdam and Armstrong (2001), innovativeness for individuals and employees is the ability to harness creative abilities, how they do it, and how they out it to use in facing challenges while deciding to improve their processes, procedures, and products. This is a conclusive definition that has the reports from other similar studies combined in it. As outlined in the definition, innovativeness is a crucial process that comes to play when the decision making time of upgrading existing practices is on. For many authors though, upgrading and innovativeness are different aspects of business development. For example, Kaplinsky and Morris (2003) considered innovation as the process through which a company ensures that the product and processes in use are subjected to continuous improvement. According to them upgrading can also be equated as innovation only when it is present in a relevant context. Giuliani et al. (2003) has alternatively described upgrading as a function of innovativeness that is used to increase value to the firm or brand, often achieved by entering new markets, sectors and niches and generating new product/service functions. The new market niches that the brand enters are essentially of a higher unit-value. According to Tidd et al. (1997) a practical agenda for understanding innovation types assumed by firms is a clever way to understand innovativeness in SMEs. The present a practical study which understands that decision to go for innovation is often based on the calculated extent of variation and the factor that brings about the variation in products, services and processes. While this is clear on the practical front, the explanation lacks the theoretical and logical consistency that seekers of a better understanding of innovativeness in SNEs require. Kaplinsky and Morris (2003) and Humphrey and Schmitz (2004) recognised four different directions that are available to firms to follow while upgrading their processes. These include process, product, chain or functional upgrading. Humphrey and Schmitz have gone on to say that these categories are important contributions to the international debate over on innovativeness and have gained recognition in the international sphere rapidly. Companies can therefore, follow a hierarchy in upgradations which has been best proposed by Gereffi (1999). Many researchers have believed that technological innovation is equivalent to upgradation within a firm. In this context, Habaradas (2008) makes an important note stating that technological innovativeness is one that consists of many steps. The main steps include technological, scientific and commercial steps. Organizational and financial aspects are also counted as steps and are crucial in leading the firm to adopting innovative processes and generating enhanced products. Notably, the most important activities involved in this criterion is procurement of equipment and machinery, procurement of knowledge and all other arrangements for production delivery namely research and development, training of staff, setting up of tooling, sales and marketing. In 2003, Gudmundson et al. came up with the idea that the process of innovativeness was intricate and this was supported by many experts in innovation like Tidd et al. (1997, p.127). Tidd went on to state that technological threats and opportunities are difficult to identify, strategies of innovation are often difficult to define and outcomes of the strategy are often difficult to predict. Paradi et al. (2012) and Humphrey et al. (2005) have provided numerous contingents in relation to these aspects of innovation in their respective papers. Innovation can be described as creative application of traits held suitable in action to business development (Lyons et al. 2007). To generate a definition of innovation, it would therefore be safe to say that innovativeness is the process of generating original concepts by using methodologies that are generally used to place creative ideas in action. Roberts (1999) has proved a direct correlation between innovation and profitability and it has been demonstrated that the early and fast introduction of innovation in the enterprise brings in highest possible market returns since the firm becomes the first one to introduce a product or good into the market (Hutt et al. 2001). Innovation is therefore important for SMEs to earn monopoly profit, although it is for a short term duration and is valid only till a competitor arrives in the scene. Competitive advantage is a direct outcome of innovation between competitor brands and hence, innovativeness is close to being the lifeline of a firm’s strategy and therefore, an integral part of entrepreneurial orientation (Hamel, 2000). Proposition 1: In lieu of the above literature review we come up with the proposition that innovativeness is positively related to SMEs’ Innovation. Companies can hit the jackpot if their entrepreneurial orientation is driven by a thrust to innovate at each and every step of the work. It has positive effect on not only the market performance but also on the brand’s long term reputation helping firms to retain customers after the initial product breakthrough. (b) Risk-taking and SMEs’ Innovation Entrepreneurial risk taking has many aspects to it and the charting of studies in this field helps us analyse a huge chunk of the factors that increase or decrease the level of risk in a decision and the role played by risk taking in entrepreneurial orientation. Risk taking is ideally a combination of bold steps that a brand takes to improve its business returns. These steps include venturing into unknown markets, investments in ventures that have uncertain outcomes and borrowing large quantities from the market (Lumpkin & Dess, 2001; Wiklund & Shepherd, 2005; Keh et al., 2007; Baker & Sinkula, 2009). In an alternative definition it is said that risk-taking is the readiness to commit huge amounts of resources (monetary, human) to projects which may have high probability of failure (Miller & Friesen, 1978; Eggers et al., 2013). Generally firms in the market which are built on entrepreneurial orientation are often classified or characterized by their risk taking potentials or strategies. These would include going under large debts or making large commitments of resources towards projects that secure high market returns by making the most of opportunities i8n the marketplace. In short, risk taking is a measure of the firm’s ability to venture into the unknown and break away from the conventional path. Hughes & Morgan (2007) have shown that entrepreneurial orientations undertake risks in order to secure good performance. McGrath (2001) established through his study that following conventional paths leads to high mean performance while risk taking have variable outcomes for businesses and have potential for long term profitability. Dess et al. (2011) and Tang et al. (2013) have noted that entrepreneurial risk taking has a positive influence on organization and business growth. Risk taking and innovation are relatable aspects of entrepreneurial orientation as they have a positive impact on the growth of a business by virtue of improved brand awareness in the market and introduction of competition in the processes. Important factors in innovation that receive a boost through risk taking are product innovation and services innovation which according to Hoonsopon and Ruenrom (2012) have a positive impact on the competitive advantage of the firm. Such firms provide superior benefits to their customers (Zhou et al. 2005) and enhance their cost advantage over competitors by offering same services and products at low costs (Hoonsopon & Ruenrom, 2012). Proposition 2: In lieu of the above literature review it is very clear that risk-taking is positively related to SMEs’ Innovation. It helps brands stay ahead of their competitors and provides them with new markets to enjoy competitive advantage in. Long term insolvency is therefore best driven by risk taking and innovativeness going hand in hand (Chang and Hughes 2012; Mbizi et al. 2013; Bigliardi 2013). Schumpeter (1942) studied that innovativeness and risk taking isles in small companies than in lare companies which are more capable of leveraging economies of scale in their research and development, production and distribution processes. (c) Proactiveness and SMEs’ Innovation The level of proactiveness in a company often decides the extent to which it will survive the changes in the market. Proactiveness is often defined as the tendency of the company to anticipate and understand and act upon potential needs that will originate in the marketplace, thus leaving behind present competition and establishing a favourable first mover benefit amongst competitors (Lumpkin & Dess, 2001; Eggers et al. 2013). Basically, proactiveness is a multi-dimensional tool that can be issued in relation to innovativeness or without it. Often, a forward looking approach and a positive mindset helps the company use existing or old techniques to overcome an on-coming change in the market place. However, a firm has maximum chances of enjoying first mover benefits when it combines proactiveness with innovativeness and come up with a new solution that is brand new to the market place and therefore, accepted as a breakthrough. Entrepreneurial orientation rests on the capability of a firm to use its existing resources to introduce new products or services in the marketplace or redefine its investments and develop processes and products that are completely new to the marketplace. Proactiveness has the capacity to not just project the company into the forward market but also shape the environment in the market and give new edge to existing competition. Therefore, in all ways, constructive proactiveness is a healthy supplement to competition since it propels the both. Capitalizing in emerging markets is the main requisite of the spirit of proactiveness (Keh et al., 2007; Tang & Hull, 2012). Baker and Sinkula announced in 2009 that proactiveness is expected to be important in securing superior company performance. This has been supported by similar studies undertaken by Lumpkin & Dess (2001) and Hughes & Morgan (2007). It is easier for them to target premium markets and take pleasure in the first entrant advantages like skimming the market much ahead of their competitors. (Tang & Tang, 2012; Lumpkin & Dess, 2001). Conventionally, innovations are classified as radical or incremental, depending upon the degree of novelty in their applications (Neito et al. 2013). Studies on innovation management and the amount of proactiveness show that companies which succeed in balancing their existing expertise to create improved incremental innovations by using proactiveness are more prone to experiencing market success, while they are required to simultaneously develop new technologies to bring about major breakthroughs (Chang et al. 2011). Needless to say that in order to fulfil this requisite, a company must be able to balance internal dilemmas between innovation pathways against challenges related to demands of contradictory nature on the company by the external market environment that creates external pressure on the firm (Jansen et al. 2006). Thus, these studies show us that, a company is able to learn the art of striking the balance between radical and incremental innovative actions to accomplish superior sustainable performances. A company that is unable to strike this balance will end up becoming mediocre and uncompetitive in the market (Chang et al. 2011). Radical innovativeness is more akin to proactiveness since they are derived on a tandem to existing innovation protocols and are designed to meet the emerging customers or market needs (Benner and Tushman 2003). The approach utilises original designs, new markets creation, and new channels of distribution which are developed through due diligence and proactiveness (Abernathy and Clark 1985). Alternatively, incremental innovations are to be derived by exploiting current capabilities alongside seeking continuous upgradationss that generate consistent and positive returns (Neito et al. 2013). The firms expand on skills and the knowledge which exists currently. They also enhance the recognised designs and expand on the existing products and associated services, which increase the efficiency of existing distribution channels (Chang and Hughes 2012). Hence, it is only natural that incremental innovations build on existing knowledge and organization learning frameworks and bring into focus existing skills, structures and processes (Jansen et al. 2006). It is important to note here that product and service innovations are normally categorised by a closeness to novel or existing technologies, functions and product features; customers, market segments and the market routes (Fauchart and Keilbach 2009; Chang and Hughes 2012). Therefore, enhancing product and service innovations must be focused upon original and emerging customer needs in new, creative or rising markets through the use of novel technologies, features and functions which are significantly separate from existing processes and products. Also, incremental innovations of both products and services meet current market needs and those of customers with enhancements in modern technologies. This approach also meets up to customer needs through the feature sets and functions. It is important to note here that these sets and functions incrementally differentiate them from the competitors’ products (Chang and Hughes 2012). As noted earlier, radical innovations completely rely on using an inventive and proactive approach that is considered through prototyping, tests, research and discovery. Also, we must not forget that, incremental innovations enhance existing facts through serial augmentation and an iterative approach (Li et al. 2008). Firms that are known to introduce radical innovations also need to substantially bring in a change in the ways of operating by entry into unknown markets or by introducing new services and products using new technologies and have a critical impact in improving the total performance of the firm (Neito et al. 2013). This type of proactive innovation is undoubtedly competence destroying for the firm using it. Radical innovation with all the proactiveness, in this regard, represents a high-risk strategy. Proposition 3: In lieu of the above literature review we come up with the proposition that proactiveness is positively related to SMEs’ Innovation. Therefore, it has a key role to play in the entrepreneurial orientation of the firm and sets a standard to its workable history. The firm has to use proactiveness to survive competition and market changes and needless to say, the use of SMEs innovation will only help the firm enjoy more of the first mover advantage in the market. Also, proactiveness allows more scope for the third major aspect of entrepreneurial orientation namely risk taking. A firm which is more proactive is sure to be capable of taking higher risks and emerging victorious. (2) Innovativeness, Organizational Learning and SMEs’ Innovation Innovativeness can be a huge plus with the organization if there is a steady amount of organizational learning in the firm that is following an entrepreneurial orientation. It is important to know here that organizational learning is a function of proactiveness and goes a long way in allowing the firm to make strategic moves in the market. In the context of entrepreneurial orientation, organizational learning can be studied using two approaches. They are: (a) Organizational Learning and Innovative Entrepreneurship Organizational learning and innovative entrepreneurship have a thin relationship mainly because organizational learning often eats away at the roots of innovativeness and entrepreneurial ventures are more a copy of existing protocols or based on stereotypical literature and theory (Avlonitis & Salavou, 2007). There is also reason to believe that entrepreneurial orientation can have positive performance implications that are universal while organizational learning can have either positive or negative impact on innovative entrepreneurship (Renko et al, 2009). It has been evidential that there is a general propensity of restricting lifecycles in both product and business structure in modern business setting (Hamel, 2000). Innovative entrepreneurship therefore does not need to depend upon organizational learning entirely, although after a certain amount of processing, organizational learning (Thoumrungroje & Racela, 2012) becomes innately embedded in the structure of R&D in the entrepreneurship since it becomes an ongoing and enriching experience which means that the innovative entrepreneurship gains from organizational learning a little after the set up of the firm and not from before it (Wang, 2008). It is important to note here that, future profit streams in innovative entrepreneurships from existing operations are uncertain and businesses need to use organizational earning to maintain a search for new opportunities. Empirical studies undertaken in this regard are supported in the view that entrepreneurial orientation has a positive impact on performance (Rauch et al., 2009; Dess et al., 2011; Eggers et al., 2013), while organizational learning has a positive impact on the quality of performance and anecdotal evidence supporting the value of innovative entrepreneurship abounds (Hamel, 2000; Tang & Hull, 2012). In other words, entrepreneurial orientation is important in organizational success and leads to better firm performance, while the reverse is always not true. The intensification of pioneering entrepreneurship is a significant purpose for any new enterprise that increases its receptiveness to a global and varying market setting. Today’s enterprises cannot survive fast change and novelty which they are compelled to experience if they fail to uphold entrepreneur’s skill (Aloulou & Fayolle, 2005; Kreiser et al. 2010). SMEs invariably lack the competence, market control and resources of other big firms. To a great extent, their success depends on their proactiveness and the ability to formulate competitive strategies, implement them and respond to the market challenges posed by the changes (Soriano & Dobon, 2009; Mbizi et al., 2013). (b) Organizational Learning and SMEs’ Innovation Organizational learning from SMEs point of view is pretty direct and impactful since, there is less focus on innovation and more focus on expansion and enhancement of services in these businesses. From an SME perspective, internationalisation is an entrepreneurial activity and entering new geographic markets on a large scale is to be regarded as equivalent to adopting new practices, upgradations and implementing organizational learning (Cheng & Yu, 2008; Knight, 2001; Johnson Jr. et al. 2013). In other words, entrepreneurial orientation acts as the fundamental corporate poise of the firm which till now very few SMEs have been actually been able to adopt well. The entrepreneurial ventures that are created based on organizational learning contribute very strongly to the international performance of these SMEs. This approach requires risk-taking as in the case of radical innovation, a highly proactive strategy to doing business in new and foreign markets and a very dynamic managerial strategy in place (Knight, 2001; Merlo & Auh, 2009; Tang et al., 2007). There is a key relationship between organizational learning and radical innovativeness powered by proactiveness (Alexander and Knippenberg, 2014). In the context of SMEs, prior research suggests that SMEs differ from larger companies because of difference in their leadership styles, internal operations, organisational structures, existing assets, and environment reaction (Mbizi et al. 2013). SMEs often understand and try to emphasize upon the radical innovation phase in order to achieve greater growth rates with exciting variances in a given period of time. The results are however, found to be with a high failure rate as the radical innovative phase is highly uncertain, risk taking and chaotic (Fauchart and Keilbach, 2009). Organizational learning helps secure the risk factor and keeps movements under control, although the product or services launch phase is that of extreme importance in this regard. SMEs are most likely to become out of the market when the company increasingly focuses on radical innovation over incremental innovation (Cao et al. 2009). Radical innovations devoid of back-up through organizational learning have high potential for failure due to lack of fit in the dominant environments of current strategies, and acknowledgement of the high risk that they hold (Neito et al. 2013). Organizational learning has an important role to play in the success of incremental innovations. In support of this contention, Oke et al. (2007) have found that SMEs choose more number of incremental innovations over radical ones, and that they are also more engaged in creating product and service innovations basing upon important lessons in organizational learning and previous radical innovation drives (Saki et al, 2013). As is well known, incremental innovations are aimed at the creation and commercialisation of improved products and services, in a way so as to meet demands of current customers and markets (Mueller et al. 2013). Such innovations have successful outcomes which are known to customers and firm builders and therefore have a low risk capability. Organisational learning is known to travel on a trajectory: organizational strategists build upon previous experience, core competencies, organizational learning, linkages in the market and field knowledge (Kollman & Stockmann, 2012; Mueller et al. 2013). There is no doubt that in SMEs operating today, economies of scale and those of scope increase the company’s profit margins greatly, and directly affect operational efficiency and profitability. Existing portfolios and products allow the easy synergy of strategy with profitability (Auh and Menguc 2005). SMEs are known to hold the gift of experience over new entrepreneurs and as they apply their prior experience and bring in product line extensions from present product lines, they must keep in mind that they might greatly benefit from organizational learning curve effects. In addition, incremental innovations are presumed to enhance the life cycle of the SME’s offerings as too many resources are not required and profit gains are observed within a very short duration of time (Mueller et al. 2013; Morgan and Berthon 2008). Proposition 4: In lieu of the above literature review it is evident that organizational learning restrains the association between Proactiveness and SMEs’ Innovation. Therefore, while proactiveness is an important aspect of entrepreneurial orientation, organizational learning fine tunes the role played by it in the entire process. In addition, organizational learning also has a constructive role in downplaying discrepancies between the three major aspects of entrepreneurial orientation, namely innovativeness, risk-taking and proactiveness. Discussion and Conclusion From existing studies it can be concluded that a great chunk of entrepreneurship is defined by the entrepreneurial orientation in the firm. It is clear that entrepreneurial orientation is a construct that essentially differs from entrepreneurship in theory but not always in practice. Entrepreneurship may generally refer to new market entries or new ventures (Zhao et al., 2011; Tang & Hull, 2012). Entrepreneurial orientation is related to the entrepreneurial process but is focused on concerns and issues related to entrepreneurial course of action and decide the extent to which the firm will succeed. Furthermore, entrepreneurial orientation is a process that results in destruction of old business practices and stereotypes and leads to the establishment of new, innovative, risk-tolerating patterns of business development that secures a firm’s economic behavior (Alegre & Chiva, 2013). The entrepreneurial strategy used by every entrepreneurship is a combination of internal and external factors that are influencing the business at a certain point of time (Wang, 2008). External factors that affect companies and decide their individual entrepreneurship strategies include competition, technological turbulence and demand uncertainty. Due to these changing external factors, companies must constantly react to build competitive advantages and sustain their business for the future without paying much heed to old patterns of organizational learning, and rely solely on new patterns experienced in the business development of the entrepreneurship/SME. SMEs take in a new perspective to business development and the process of innovative entrepreneurship only develops into a new dimension in these companies (Zahra, 2010). It has been noticed that there has been a reduction in the economies of scale in SMEs. To add to the chagrin, the role of SMEs in innovation and economic development has grown. This has resulted from an increase in higher discretionary incomes, individual tastes, and demands for variety. Firms which choose to provide old and un-upgraded products tend to fall behind in competition. This can be attributed to the fact that they did not allow the existence of innovation within the core entrepreneurial strategy. Conclusion: Since innovation plays an important role in entrepreneurial orientation and organizational learning in SMEs’ innovations, numerous original products and services have come into the market. Entrepreneurial orientation that is common to all ventures selling these new products and services show unique marketing approaches and adjustments in business organisation. The extent to which entrepreneurs and SMEs utilise innovation determines the extent to which they will succeed or fail. The SMEs that embrace innovation raise their productivity and survival odds. 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