Entrepreneurial Orientation, Firm Growth and Performance in SMEs: Testing the Scale of EO in SME Context

Abstract

Abstract The aim of this study is to test how different dimensions of entrepreneurial orientation (EO) affect the growth and performance of SMEs in the short term in a rapidly changing business environment. In addition, a scale for measuring EO is tested in the SME context. The data (n = 260) was gathered from Finnish SMEs, and analyzed with structural equation modelling. The results show that EO has two dimensions in SMEs: innovativeness and risk-taking. Proactiveness and innovativeness measure the same phenomenon. Results show that innovativeness has a significant and positive effect on SME performance but not on SME growth. Risk-taking, in turn, has a positive effect on SME growth but not on performance. However, the relationship depends on how growth and performance are defined. Further, the results showed that EO should be seen as multidimensional and be measured by two lower-order dimensions reflecting managerial behaviors and attitudes. This study contributes to theory formation by showing EO as a two-dimensional construct among SMEs and suggests managerial implications by showing the effects of innovativeness and risk-taking on SME growth and SME performance. Further, the results show the importance of EO in the short term, as the current business environment can be described as a time of rapid and unpredictable change, when strategic decision-making requires quick decisions to seize opportunities and counter threats.