THE ROLE OF ENTREPRENEURIAL ORIENTATION ON FIRM PERFORMANCE AND THE POTENTIAL INFLUENCE OF RELATIONAL DYNAMISM

Abstract

ABSTRACT A review of four Australian industry studies that used Lumpkin and Dess' (1996) Entrepreneurial Orientation (EO) construct identified variations in importance of each EO dimension. All studies showed a positive correlation between performance and the dimensions of innovation and proactiveness. However, the dimensions competitive aggression, risk taking and autonomy varied in importance and over time. The variation in results was partly attributed to different definitions of EO dimensions and some industry based contextual bias. All projects identified limitations in using EO to explain business performance and highlighted issues outside the current dimensions. This review found incidental factors influencing performance could be categorised as in nature and defined under a construct titled Relational Dynamism. A new model is outlined which demonstrates how this construct can act as the conduit between EO and the firm's internal and external environments, assisting in identifying and exploiting opportunities that can improve performance. INTRODUCTION This study looked at four previous research projects to ascertain any themes that might arise in the use of the Entrepreneurial Orientation (EO) construct in measuring business performance. The analysis of these past projects raised several issues and their possible implications are discussed. It was also identified that the current entrepreneurial orientation dimensions could be influenced by a range of relationship based factors and that these may impact on business performance. These factors appeared best described as relational dynamism covered the impact of changing internal and external relationships or as often described in the literature as networking. The internal relationships included characteristics such as trust building, commitment to values, open communication channels and individual support systems leading to improved firm performance. The external relationships identified related to links with customers, suppliers, and alliances and their impact on enhancing supply chain efficiency. This paper explores the path which led to the consideration of this potential conduit between EO the internal and external environments and how that relationship might impact on firm performance. LITERATURE REVIEW A major development in the literature has been on the conceptual model of entrepreneurship as firm behaviour. Miller (1983) saw a firm's Entrepreneurial Orientation (EO) as a combination of the firm's risktaking, innovation andproactiveness. Covin and Slevin (1991) clarified the role of these dimensions (postures), and linked them clearly to enhancing firm performance. Lumpkin and Dess (1996) expanded the EO framework by adding the dimensions: autonomy and competitive aggressiveness. Although there is general agreement that EO does impact on firm performance (Lyon, Lumpkin and Dess, 2000), the affect of each EO dimension on firm performance remains a matter of debate. Innovation: Covin and Miles (1999) suggested that entrepreneurship would not exist without innovation. They defined innovation as the firm's tendency to support new ideas, experimentation and creative processes earlier than competitors. Peters (1990) said that innovation requires creativity, and an obsession to see it through. Neely and Hu (1998), considered research and development (RD introducing new products and brands ahead of competition; strategically eliminating operations which are in the mature or declining stages of product life cycle; participating in emerging markets; and by anticipating and pursuing new opportunities. …