Unobserved heterogeneity in firm performance: The alignment of entrepreneurial orientation and organizational error management culture

Abstract

Most prior research has focused on the positive relationship between a firm’s entrepreneurial orientation (EO) and its performance. However, errors in entrepreneurial strategies are inevitable. We argue that entrepreneurial firms benefit from an organizational error management culture. Drawing on data from 208 German family businesses, we combined partial least squares structural modeling with finite mixture partial least squares (FIMIX-PLS) segmentation to capture unobserved heterogeneity in firm performance. Our results show that firms align organizational error management culture with the behavioral or attitudinal dimensions of EO. The two identified segments indicate that firms align one at the cost of the other. Error communication emerged as a central link in both segments, mediating EO and firm performance. Overall, the results highlight the importance of aligning cultural practices, particularly the dialogue about errors within firms, with entrepreneurial behaviors and attitudes across managerial and firm levels.