Entrepreneurial intensity
Michael Morris
‘‘Entrepreneurial’’ is an adjective increasingly applied to people, projects, organizations, geo graphic regions, and countries. Considerable re search has been done at the organizational level. Terms such as entrepreneurial intensity, entrepreneurial orientation, entrepreneurial posture, organic emphasis, entrepreneurship level, and entrepreneurial aggressiveness have been employed to describe levels of entrepreneurship in established organizations. The present discussion is an exploration of the concept of entrepreneurial intensity (EI).
Underlying Dimensions of Entrepreneurship
What does it mean to characterize an organization as entrepreneurial? While one might be tempted to think in either–or terms, entre preneurship is a variable. There is some level of entrepreneurship in every organization. Even within the largest, highly conservative company or the most bureaucratic government organization, elements of entrepreneurial behavior can be found. The question becomes one of determin ing in the aggregate how entrepreneurial a given organization is.
It has been argued that entrepreneurship has three underlying dimensions: innovativeness, risk taking, and proactiveness (Covin and Slevin, 1989; Krieser, Marino, and Weaver, 2002; Wik lund, 1999). Innovativeness is concerned with the relative emphasis on novel or unique prod ucts, services, and processes. Product and ser vice innovations can range from radical breakthroughs that address a need not previ ously addressed, to minor enhancements of existing products. Process innovations can in clude new production techniques, distribution approaches, selling methods, procurement programs, or administrative systems, among others.
Risk concerns the likelihood that actual results will differ from expectations. Risk taking in volves a willingness to pursue opportunities that have a reasonable likelihood of producing major losses or significant performance dis crepancies. Entrepreneurship does not entail reckless decisions and extreme risks, but instead involves calculated risk taking. ‘‘Calculated’’ implies a reasonable awareness of the risks in volved and an attempt to mitigate and manage these risks.
Proactiveness has been associated with assert iveness and action. Miller (1987) sees entrepren eurial firms as acting on rather than reacting to their environments, by leading rather than following competitors in innovation; favoring growth, innovation, and development over the tried and true; and attempting to undo competi tors. Bateman and Grant (1993) speak of a dis position to take action to influence one’s environment. Venkatraman (1989) refers to con tinuous experimentation. Behaviorally, proac tiveness is concerned with doing what is necessary to bring an entrepreneurial concept to fruition, and typically entails considerable perseverance, adaptability, and a willingness to assume responsibility for failure.
Although these three dimensions have re ceived the greatest amount of attention from researchers, Lumpkin and Dess (2001) suggest autonomy and competitive aggressiveness are also dimensions of entrepreneurship. Autonomy refers to independent action by a team or indi vidual aimed at developing and implementing a new business concept or vision. Competitive aggressiveness involves a combative posture vis a` vis the firm’s competitors. While the em pirical evidence regarding autonomy is scant, these authors found support for distinguishing entrepreneurial intensity 91 competitive aggressiveness from proactiveness, although the latter has a much clearer impact on company performance than the former.
Entrepreneurial Intensity: Combining Degree and Frequency
A given entrepreneurial event (new product, service, or process) might be characterized as being higher or lower on each of these three dimensions. Accordingly, ‘‘degree of entre preneurship’’ refers to the extent to which events are more innovative, risky, and proactive. Just as important is the question of how many entrepreneurial events take place within a com pany over a given period of time. This number of events can be referred to as the frequency of entrepreneurship. Some companies produce a steady stream of new products, services, and processes over time, while others very rarely introduce something new or different.
This brings us to the concept of entrepreneur ial intensity. To assess the overall level of entre preneurship in an organization, the concepts of degree and frequency must be considered to gether. Any number of combinations can result. Thus, a firm may be engaging in many entrepreneurial initiatives (high on frequency), but perhaps none of them are all that innovative, risky, or proactive (low on degree). Another company may pursue a path that emphasizes breakthrough developments (high degree) that are done every four or five years (low frequency). To better understand the EI concept, consider figure 1. Here, a two dimensional matrix pre sents the number, or frequency, of entre preneurial events on the vertical axis, and the extent or degree to which these events are in novative, risky, and proactive on the horizontal axis. This matrix can be termed the entre preneurial grid. For illustration purposes, five sample scenarios have been identified in figure 1, and these have been labeled Periodic/incremen tal, Continuous/incremental, Periodic/discon tinuous, Dynamic, and Revolutionary. For example, where few entrepreneurial events are produced, and these events are only nominally innovative, risky, and proactive, the organization can be described as periodic/incremental in terms of its (modest) level of EI. Similarly, an organization that is responsible for numerous entrepreneurial events that are highly innova tive, risky, or proactive will fit into the revolu tionary segment of the grid, reflecting the highest levels of EI.
Figure 1 The entrepreneurial grid
Measurement Approaches Reliable and valid scales have long
Reliable and valid scales have long existed for the measurement of entrepreneurship’s underlying dimensions, and these have been employed to address a wide range of research questions, as discussed below. Criticisms have been raised, however, in that most of the published work relies on managerial perceptions (Lumpkin and Dess, 2001). Another approach involves relying on measures of actual firm behavior, such as new product or process introduction. A third meas urement approach examines how the firm allo cates resources, such that a firm that is more financially leveraged is taking higher risks, and one with a higher proportion of R&D expend itures is more innovative.
Measurement of EI also has important man agerial implications. For instance, Morris and Kuratko (2002) have reported on a measure that illustrates where a given company falls in the grid presented in figure 1. Relying on both perceptual data averaged across multiple re spondents and behavioral data on new products, services, and processes, their entrepreneurial performance index has been applied to hundreds of companies. These firms (and divisions within) are able to first benchmark their overall perform ance, and then track it over time and compare it to other firms in their industry. Management can determine where the firm falls in the entre preneurial grid, the relative importance of fre quency and degree, and the specific types of innovation, risk taking, and proactive behaviors that are consistent with the firm’s strategic dir ection.
Things We Know and Don’t Know About Entrepreneurial Intensity
Where a company falls on the entrepreneurial grid will vary depending on a number of internal and external factors. Internally, entrepreneur ship is more evidenced where company struc tures are flatter, control systems contain a measure of slack, appraisal systems include in novation and risk taking criteria, jobs are broader in scope, reward systems encourage in dividual achievement, and cultures emphasize a balance of individualism and group orientation (Morris and Jones, 1993; Morris, Davis, and Allen, 1994; Zahra and Covin, 1995). Another stream of research has demonstrated a strong positive correlation between the level of entre preneurial intensity demonstrated by a firm and its market orientation (Miles and Arnold, 1991).
Externally, where industries are highly con centrated, competitors are cooperative, demand is fairly captive and homogeneous, technologies rarely change, economic conditions are stable, and margins are comfortable, companies will demonstrate lower EI scores (Davis, Morris, and Allen, 1991; Dickson and Weaver, 1997). One possibility may be that frequency of entre preneurship is directly related to the intensity of competition and amount of market heterogen eity, while degree of entrepreneurship is more a function of the rate of technological change in an industry and amount of product heterogeneity.
Perhaps the most significant research finding to date concerns this question: ‘‘Do companies with stronger entrepreneurial orientations per form better?’’ The answer is generally ‘‘yes,’’ with some exceptions. Researchers have found significant relationships between EI and mul tiple indicators of company performance (e.g., Miller and Friesen, 1983; Zahra and Covin, 1995). Examples of such indicators include profits, the income to sales ratio, rates of growth in revenue, assets, and employment, and a com posite measure of financial and non financial criteria. Morris and Sexton (1996) found the relationship was strongest where weights of .7 and .3 were applied respectively to degree and frequency. This linkage between EI and per formance appears to be especially strong for firms that operate in highly turbulent environ ments, but is also modified by the fit between company strategy, structure, and the external environment (Naman and Slevin, 1993). The linkage also gets stronger over time (Wiklund, 1999).
This does not mean that more entrepreneur ship is inherently better. There are industry norms for entrepreneurial intensity. Such norms suggest there is no best place to be in the entrepreneurial grid – the ideal point is in dustry , market , and time specific. Better per forming firms are those that demonstrate a stronger entrepreneurial orientation than their counterparts in the same industry. But norms for industries vary widely. One might expect a grocery retail chain to be higher on frequency, entrepreneurial intensity 93 lower on degree, with a heavier emphasis on process innovation. Alternatively, leading pharmaceutical companies will likely approach the dynamic sector of the grid, with high fre quency of new products, and a portfolio of in novations that includes both incremental advances and breakthrough products.
How do the dimensions relate to one another? Although most studies have shown innovative ness, risk taking, and proactiveness to be correl ated, the relationships can be quite complex, and each dimension can vary independently. A firm could be quite proactive without being very in novative, or proactive behavior could only in volve a modicum of risk. One might assume that doing more innovative things means taking higher risks, when the relationship actually may be curvilinear. Risk is high when the com pany engages in little to no innovation, but also when the company pursues breakthrough innov ations that create new markets. Risk is lower and more manageable in between these two end points, where the firm manages a balanced portfolio of innovation projects. The combin ations of the dimensions that are optimal in terms of company performance will likely vary depending on the environment in which a firm operates.
Within companies, entrepreneurial orienta tions can be expected to differ significantly among various divisions, units, departments, and areas. No patterns exist such that marketing departments in companies are relatively more entrepreneurial, or procurement departments are always less entrepreneurial. Not only will it differ by company, but also an entrepreneurial manager can guide a staid, conservative unit of any kind towards a more entrepreneurial profile. At the same time, the more a given unit must operate under turbulent or threatening condi tions, the more one would expect it to have a higher entrepreneurial profile.
Finally, it is not clear that high levels of EI are sustainable. It may be that there are patterns to a company’s entrepreneurial performance over time. One theory is that companies alternate, or ‘‘cycle,’’ between fairly dynamic periods of higher entrepreneurial intensity, and periods where innovations are more incremental and intensity is lower (Slevin and Covin, 1990). During these less intense periods, the focus is more on consolidation and administrative con trol.
Conclusions
While progress has been made, our understand ing of entrepreneurial intensity in organizations is in its infancy. Yet, it is a concept that holds immense potential for researchers and managers alike. Researchers can use measures of EI to better determine the types of work environments that induce more innovative, risk taking, and proactive behaviors on the part of managers. EI can help in calibrating the appropriate fit be tween external variables such as competitive in tensity or technological turbulence and internal variables including strategy, structure, culture, controls, and human resource management practices. As a case in point, firms experiencing higher levels of environmental turbulence may require higher levels of EI to survive and grow, which in turn generate corporate strategies that are more aggressive (e.g., focusing on new prod uct and market development), as well as struc tures that are more flexible, decentralized, and open.
For executives, EI can become a key activity ratio that is monitored on an ongoing basis within organizations. Assessment at the level of the organization can be used to benchmark levels of entrepreneurship, establish norms and draw industry comparisons, establish entrepreneur ship goals, develop strategies, and assess relationships between EI and company perform ance variables over time. Assessments can be useful in helping managers and others to exam ine and refine their own leadership styles. Ultimately, entrepreneurial intensity can serve as an integral component of the dominant logic of a company.
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