Revisiting the Mediating Effect of Entrepreneurial Behaviour on Proactiveness – Performance Relationship: The Role of Business Ties and Competitive Intensity

• Date: 01 December 2016
• Author: Volkan Yeniaras,Suheyl Unver
• Published date: 01 December 2016
• DOI: http://doi.org/10.1111/emre.12084

Revisiting the Mediating Effect of

Entrepreneurial Behaviour on Proactiveness –

Performance Relationship: The Role of

Business Ties and Competitive Intensity

VOLKAN YENIARAS

1

and SUHEYL UNVER

2

1

Department of Management, University of Sharjah, Sharjah, United ArabEmirates

2

Business School, Istanbul Bilgi University, Istanbul, Turkey

Drawing on previous literature proposing that entrepreneurial orientation (EO) –performance relationship is

mediated by entrepreneurial activity, we examine the mediating role that exploratory and exploitative innovation

plays in proactiveness-new product performance association. We complement the literature concerning the

EO-performancerelationship with the introduction of businessties and competitive intensity thatthe mediation effect

is conditionedto. While data from 344 small-medium enterprises indicate themediation effects, we provideempirical

evidence that these mediation effects are conditional to the strategic resources and external stimuli. In this context,

whereas the mediation effect of exploratory innovation in the proactiveness-new product performance relationship

is not conditional to either business ties or competitive intensity, we show that exploitative innovation mediates this

relationship only in the presence of business ties irrespective of competitive intensity level.

Keywords: proactiveness; exploratory innovation;exploitative innovation; business ties; competitive intensity;new

product performance

Introduction

Entrepreneurial orientation (henceforth; EO), which is a

widely accepted instrument that assesses a firm’s

inclination towards entrepreneurship (Covin and Wales

2012; Rauch et al., 2009) has been a focus of scholarly

interest (see Rauch et al., 2009 for details). Contradictory

theoretical assertions and mixed empirical results point

towards a theoretical hiatus in the EO-performance

relationship where they may exist more than a simple

direct link (Kollmann and Stöckmann, 2014). Previous

research examined the moderating effect of the external

environment (e.g., Karagozoglu and Brown, 1988;

Eisenhardt and Schoonhoven, 1990; Zahra and Covin,

1995; Kreiseret al., 2002) and organizationallevel factors

(e.g., Gupta and Govindarajan, 1984; Covin and Slevin,

1988; Stam and Elfring, 2008) on the EO-performance

relationship. Although the aforementioned studies link

EO to performance while simultaneously examining the

effect of contingency variables on this association, it

should be noted that EO is the disposition towards

entrepreneurial activity rather than the actual behaviour

(e.g., Zahra, 1991; Lumpkin and Dess 1996; Wiklund

and Shepherd, 2003).

To fill the orientation-behaviour gap in the scrutiny of

EO-performance relationship, Kollmann and Stöckmann

(2014) departed from a combination of resource-based

view (henceforth, RBV) and organizational learning

theory where they treated innovation capabilities

(exploratory and exploitative innovation) as firm level

entrepreneurial behaviour. On one hand, March (1991)

conceptualizes exploration as a learning mechanism

which mainlyrelates to challenging the existingideas with

an innovative and entrepreneurial approach. On the other

hand, exploitation is chiefly concerned with capitalizing

on the existing set of skills and capabilities (March,

1991). Kollmann and Stöckmann (2014) show that

exploratory and exploitative innovation capabilities

positively mediated the relationship between

proactiveness and firm performance. The reason that this

Correspondence Volkan Yeniaras, University of Sharjah, College of

Business Administration, Department of Management, P.O.Box 27272,

Sharjah, UAE. Tel: +971 6 5050546, Fax: +971 6 505010. E-mail

vyeniaras82@gmail.com

European Management Review, Vol. 13, 291–306, (2016)

DOI: 10.1111/emre.12084

©2016 European Academy of Management

study employs exploratory and exploitative innovation as

interceding variables between proactiveness and firm

performance relationship is twofold. First, innovation as

mediators is considered the essence of entrepreneurship

(Covin and Miles, 1999). Second, although there may

exist a normative bias towards assuming that

entrepreneurial firms would be leaning more towards

exploratory innovation (Kollmann and Stöckmann,

2014), both exploratory and exploitative innovation

capabilities are consequences of EO (Levinthal, March,

1993; Shane and Venkataraman, 2000). This study,

adopting RBV of the firm and following Lumpkin and

Dess (2001), suggests that EO is linked to both

explorationand exploitation. Accordingly,consistent with

the RBV literature and subscribing to Kollmann and

Stöckmann (2014), we acknowledge innovation

capabilities as the glue that binds EO to performance.

Nevertheless, the effect of contingency variables on the

EO-performancerelationship mediated by entrepreneurial

behaviour is yet to be discovered.

The literature widely suggests that a balanced

combination of exploration and exploitation are

essential for a successful organization (March, 1991;

Levinthal and March, 1993). That is because an

excessive concent ration on exploration without

complementary exploitation may place a continuous

drain on the firm without any short-term financial

rewards (Levinthal, March, 1993), too great reliance

on exploitation may sway the firm away from

potentially profitable endeavours which are distant

and uncertain (March, 1991). Taking the apparent

differences of exploration and exploitation into

consideration this study further investigates whether

balancing exploratory and exploitative innovation binds

the resources and new product performance

irrespective of contextual factors. This study focuses

on the proactiveness-new product performance

relationship because the success of the new products

is the driver of superior firm performance and

competitive advantage (Bettis and Mahajan, 1985;

Danneels and Kleinschmidt, 2001; Danneels and Sethi,

2011). Considering that introducing the products ahead

of competition is a characteristic of proactive firms

(Miles et al., 1978; Shan et al., 2016), this study

investigates whether the success of the new product

introductions depend not only on proactiveness but

also on entreprene urial behaviour. Approach ing the

organizational learning from a contingency perspective,

the literature highlights the contingency effects of the

environmental factors on exploratory-exploitative

innovation and firm performance (e.g., Simsek, 2009).

Nonetheless, the effects of the contextual conditions

on firm’s entrepreneurial behaviour to transform EO

into firm performance remain scant despite exploratory

and exploitative learning may have different effects on

firm performance given varying external stimuli (e.g.,

Atuahene-Gima and Murray, 2007; Li et al., 2008).

In our attempt to fill this gap, we depart from the fact

that small and medium-size enterprises (SMEs) are as

innovative as larger firms despite their relatively limited

resources (e.g., Acs and Audretsch, 1990) due to their

greater ability to use network relationships through

knowledge transfer and resource sharing (e.g., Lipparini

and Sobrero, 1994). Nevertheless, what seems to be

lacking in the literature is the very fact that whether the

strength of firms’informal social connections with

business organizations (Sheng et al., 2011) affects the

exploration/exploitation balance. Moreover, we arguethat

SMEs strength lies in their ability to regulate their

entrepreneurial and innovative activities in uncertain

environments. Under intense competition, firms will have

to respond to such adverse conditions by acting

proactively to differentiate themselves from competitors

(Zahra, 1993; Auh and Menguc, 2005). The extant

literature posits that firms operating in competitively

intense environments must complement their exploration

activities with exploitative behaviour for effective firm

performance (Zahra, 1993; Zahra and Covin, 1995; Auh

and Menguc, 2005). Nevertheless, maintaining

performance and competitive advantage may not be

possible by solely relying on firm’s own resources,

especially in uncertain environments (Madhok, 2002;

Wu, 2008). While the predictability and certainty

diminishes under intensifying market conditions, having

strong relationships with managers at other firms

minimize the uncertainties (Rindfleisch and Moorman,

2003) by facilit ating possible interfirm co llaborations

(Dong et al., 2013).Accordingly, we identifybusiness ties

and competitive intensity as two contingency factors that

the mediated effectsof proactiveness on firm performance

are conditional to.

In addressing the limitations of previous research, this

study makes a two-fold attempt. First, we provide

empirical evidence of the explanatory power of the twin

concepts of exploratory and exploitative innovation on

EO-performance relationship. Second, and most

importantly, we develop a contingency model that tests

the moderating role of business ties and competitive

intensity on the mediated relationship in SMEs. In the

following sections, we provide the theoretical framework

for the web of relationships that we test in this study.

Theory and hypothesis development

RBV examines the processes through which competitive

advantage is achieved and sustained over time (Penrose,

1959; Wernerfelt, 1984). RBV posits that firms

comprise a persistent bundle of resources (Penrose,

1959; Amit and Schoemaker, 1993) which may reduce

292 V. Y e n i a ra s a n d S . U n v e r

©2016 European Academy of Management