Dissertation: Entrepreneurial orientation does not guarantee the success of a firm

Instead of systematically generating commercially successful new products and services, increase in entrepreneurial orientation may lead to greater outcome variance, that is increased probability to both huge success and huge failure.

– When companies commit large portion of resources to search for new market opportunities, welcome increasingly unconventional ideas and make bold experiments under high uncertainty, it can lead to highly successful new product or market entries, but it can also lead to high failure costs, which can have direct effect on firm performance such as profitability, Heimonen explains.

Entrepreneurial orientation alone is not enough

According to Heimonen, the variance in innovation outcomes may be managed with the help of different resources and capabilities.

– My research examines how absorptive capacity, that is firm’s ability to acquire, assimilate, transform and exploit knowledge, can help an entrepreneurial organization to increase the quality of the decision making and control the risks. Further, the results indicate that financial slack resources can facilitate entrepreneurial experimentations and firm sales growth, Heimonen describes.

One should clearly define what is meant by success

Dissertation states that entrepreneurial orientation may have varying implications on different performance outcomes and therefore it is good to understand of which performance indicator one is interested in.

– We teachers and researchers love to tell stories about different things that we believe to drive high firm performance, and talk about performance as if it was a single dimension phenomenon.  In practice we often use term performance when explaining firm sales growth, profitability or return on investment. However, these three are quite different from each other and phenomenon such as entrepreneurial orientation may even have contradictory impact on these performance indicators, Heimonen explains.

– In addition, the research on entrepreneurial orientation but also organization studies in more general have often utilized so called subjective measures, which means asking the executives their opinions on firm’s success. The issue with these measures is that they tend to bundle different dimensions of financial performance and the general opinions of a firm’s management team about their satisfaction on performance. Where these measures may provide an indication of how a certain phenomenon may affect the overall performance, it makes it nearly impossible to say to which dimension of the performance the phenomenon actually affected, Heimonen continues.

The appropriate level of the entrepreneurial orientation

The role and the optimal level of entrepreneurial orientation appears to be dependent on the strategic goals of the firm.

– It is worth of mentioning that increased level of entrepreneurial orientation steers the people inside the organization into certain behavior. If an organization seeks to grow by introducing new innovative products or services, high level of entrepreneurial orientation appears to be beneficial.

– However, if an organization is willing to grow by upscaling its existing business, the entrepreneurial orientation may not be equally required. In some occasions slight increase in entrepreneurial behavior may even hinder the sales growth, but may simultaneously positively affect the profitability dimension of performance. These effects may be caused by incremental improvements in existing products, services or processes affecting the competitiveness of the firm for example through differentiation.

– The results of my dissertation are based on survey, interview and financial database data, which is collected from Finnish food manufacturing industry. Even though, food manufacturing may be seen as very traditional industry, these companies are not anymore competing only with singular products but increasingly with the combination of products and services. One can see this trend in manufacturing industries in general. The results of my research indicates that entrepreneurial orientation may have positive impact on firm competitiveness also in this setting where firms compete at the total value delivered level.

Public defence

The public examination of M.Sc. Jesse Heimonen’s doctoral dissertation Growth, profitability, and innovation performance of a firm: The enabling role of entrepreneurial orientation will be held on Friday 15 December at 2pm in auditorium Nissi, University of Vaasa. The field of Heimonen’s dissertation is Management.

Associate professor Teemu Kautonen (Aalto University School of Business) will act as opponent and Professor Marko Kohtamäki (University of Vaasa) as custos.

Further information

Jesse Heimonen, tel. 358 50 364 2581, e-mail: jesse.heimonen(at)uwasa.fi

Heimonen, Jesse (2017) “Growth, profitability, and innovation performance of a firm: The enabling role of entrepreneurial orientation” Acta Wasaensia 394.

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