The Impact of entrepreneurial behavior on the potential for growth and development of an organization

“Enterprising people translate what is possible into reality” (Kao, 1989)

Entrepreneurship is commonly viewed as the process of establishing a new business firm. Thus the study of entrepreneurship relates to the individuals behind such formation. Many studies apply a trait theory approach to assess the personal characteristics of an entrepreneur (Casson, 1982, Caird, 1988, Timmons, 1994). These evaluations include some form of innovativeness and the will to act. Schumpeter (1934) defines innovativeness as the essence of entrepreneurship and Wickham (2001) describes it as the “exploitation of innovation”. However, since a person does not become an entrepreneur by virtue of the possession of some combination of these characteristics, Littunen (2000) disregards of this notion and takes a contingency approach to entrepreneurship. Similar to the contingency models of leadership theory, where the leader is required to adapt his style to the structural moments of the leadership situation (Buelens, 2002, Bolden, 2004), Littunen views entrepreneurial activity as a reaction to environmental factors.

Entrepreneurial activity is often related to the motivations behind such activity. Reynolds (2003) distinguishes between “opportunity entrepreneurship” that is based on the seizure of an opportunity and “necessity entrepreneurship” that originates from the lack of economic alternatives. Wickham (2001) writes that many people become entrepreneurs due to their failure to fit into an established firm and to rectify a repressed desire for control. This is consistent with Evens’ and Leighton’s (1989) findings that the prospensity to become self-employed is relatively higher amongst the unemployed, low wage workers and persons who have experienced frequent change of jobs. Mochrie, Galloway and Donnelly (2006) identify a further category of entrepreneurs who are purely motivated by its lifestyle implications.

Once a firm is established, it needs to be considered that in order to survive in the long-term, any organization needs to make a profit (Mullins, 2002). These profits can only be maintained in the long run if there is a demand for the company’s products and it has a competitive advantage to other firms in the same market and industry and it can supply according to the demands (Ahuja and Lampert, 2001). The competitive advantage may, for instance, be in terms of the product itself, its price or the customer relationships of the organization. Since the business environment in which the company operates is constantly changing, at least the first two of these aspects are affected externally. The company therefore needs to implement changes itself in order to avoid becoming obsolete. Similar to the study of entrepreneurial motivation, this can be either by acting upon a perceived opportunity or by necessity, where external changes force an action. Thus, if change is already needed in order to maintain the organization, it can be argued that it is essential for its growth and development and therefore the basis for this growth (Wickham, 2001). Any change is based on an idea of how to do something differently and thereby better. Given its significance, it is therefore important to evaluate the source of such innovativeness.

This is a preview of the whole essay

With a view to new firm creation or the operation of a small firm, it is very feasible to identify the person behind the business, the entrepreneur himself, as the person that will identify and exploit opportunities, implement changes and thus cause growth. Sometimes this growth is limited by the entrepreneur’s deliberate decision (Irwin, 2000, Lau and Snell, 1996, Mochrie, Galloway and Donnelly, 2006) However, once the firm is established and has reached a certain size, other factors need to be considered. Primarily the set-up in a larger organization is different in that ownership and control are more dispersed. Wickham (2001) views entrepreneurship as a style of management, which considers entrepreneurial behavior of managers within an organization and thus already extends the previous definition. Further, in a large organization, management is removed from both the customer base and the processes. As argued above any change is preceded by the perception of either an opportunity or a need. Management is in a position to evaluate the organization as a whole and in context to developments in its market (Mullins, 2002). It is therefore able to identify inefficiencies, as well as the relative success of its products. If management acts upon these perceptions and finds ways to improve its output, then this can be viewed as entrepreneurial behavior. However, this is still limited to the actions of those in control of the organization. Perception is largely based on experiences (Littunen, 2000). Thus, it is people using certain processes on a daily basis that are most likely to identify any shortcomings of such processes. Similarly, the persons closest to the customer base often hold valuable information as to the customer preferences, expectations and desires. However, this information is often lost due to communication barriers. Lau and Snell (1996) identify that a firm is more likely to grow if it has a flat structure and Barnett and Storey (2000) state that small to medium size businesses are more likely to innovate. This confirms that a reduction of communication barriers has a positive impact on organizational growth. The importance of this finding becomes apparent when considering that most innovations coming from people at the bottom line become obsolete before they can be successfully implemented or are simply not acted upon. Due to this experience, many potential ideas are simply not communicated in the first place.

Some organizations offer some form of financial reward for innovations that they implement, however, since this is not likely to be significant, other motivations need to apply. McClelland’s (1961) theory suggests that people with a strong need to achieve are more likely to pro-actively solve problems. Rotter (1966) suggets that entrepreneurs have a high internal locus of control, that is they believe in their ability to change their environment. These factors can be applicable to any employee of an organization and imply that in the absence of significant financial rewards, personal or job satisfaction may be sufficient for some to take ownership of their idea and champion it.

If the study of entrepreneurship is to be extended to include other members of the established organization and taken broadly as the implementation of a major change within that organization (Wickham, 2001), then it can be followed that the motivation for change is broadly consistent with Reynold’s (2003) classification of motivation for entrepreneurship. A change out of necessity is a reactive move, brought about due to external influences. Thus, a change of this type is more likely to be implemented in order to sustain the organization’s status quo. Where a change is based on opportunity it is more likely to lead to actual growth. As argued above, innovation and the willingness to take risks are the essential to entrepreneurship. Thus entrepreneurship within an organization has a positive impact on organizational growth and development. The extent of this impact depends on the extent the organization chooses to use its human capital and is influenced by the organizational structure. As there is no economic need for an employee to innovate, these innovations are likely to fall under the opportunity or lifestyle categories identified earlier. Thus they occur before developments in the organization’s external environment put pressure on the organization to change. Thus, for a larger organization to grow, it is helpful if employees are able to communicate their ideas and these are not lost through communication barriers. Thus, for an established organization to remain entrepreneurial and thereby retain growth, not only the entrepreneurial behaviors of the person who initially started the company or the people who run the company is significant, but also the display of such behaviors by the people working within that organization. In order to access employees innovations, communication barriers need to be avoided. This is most likely where the organization has a flat or hybrid structure. This means that organizational structure and management style have a moderator effect on the impact of entrepreneurial behavior on organizational growth and development.

Bibliography

Ahuja and Lampert (2001), Entrepreneurship in the large corporation: a longitudinal study of how established firms create breakthrough invention, Strategic Management Journal (33), pp 521 – 543

Barnett and Storey (2000), Managers’ accounts of innovation processes in small and medium-sized enterprises, Journal of Small Business and Enterprise Development (7:4), pp 315 – 324

Beaver and Prince (2002), Innovation, entrepreneurship and competitive advantage in the entrepreneurial venture, Journal of Small Business and Enterprise Development (9:1), pp28 – 37

Buelens (2002), Organizational Behaviour (2nd ed), Maidenhead, McGraw – Hill

Ebben and Johnson (2005), Efficiency, flexibility or both? Evidence linking strategy to performance in small firms, Strategic Management Journal (26), pp 1249 – 1259

Ennis (1999), Growth and the small firm: using causal mapping to assess the decision-making process – a case study, Qualitative Market Research: An international Journal (2:2), pp. 147 – 160

Evans and Leighton (1989), Some Empirical Aspects of Entrepreneurship, The American Economic Review (79:3), pp 519 – 535

Irwin (2000), Seven ages of entrepreneurship, Journal of Small Business and Enterprise Development (7:3), pp 255 – 260

Lau and Snell (1996), Structure and Growth in small Hong Kong enterprises, International Journal of Entrepreneurial Behaviour & Research (2:3), pp 29 – 47

Lee and Venkataraman (2005), Aspirations, market offerings, and the pursuit of entrepreneurial opportunities, Journal of Business Venturing (21), pp 107 – 123

Littunen (2000), Entrepreneurship and the characteristics of the entrepreneurial personality, International Journal of Entrepreneurial Behaviour & Research (6:6), pp295 – 309

Michelacci (2003), Low returns in R&D due to the lack of entrepreneurial skills, The Economic Journal (113), pp 207 – 225

Mochrie, Galloway and Donnelly (2006), Attitudes to growth and experience of growth among Scottish SMEs, International Journal of Entrepreneurial Behaviour & Research (12:1), pp 7 – 20

Mullins (2002), Management and Organisational Behaviour (6th ed), Essex, Prentice Hall

Piazza – Georgi (2002), The role of human and social capital in growth: extending our understanding, Cambridge Journal of Economics (26), pp 461 – 479

Rotter (1966), Generalized expectations for internal versus external locus of control of reinforcement, Psychological Monographs: General and Applied (80:1) pp 1 – 27

Schumpeter (1934), The Theory of Economic Development, Cambridge, M.A., Harvard University Press

Selart (2005), Understanding the role of locus of control in consultative decision-making: a case study, Management Decision (43:3), pp 397 – 412

Wickham (2001), Strategic Entrepreneurship (2nd ed), Essex, Prentice Hall