Corporate Entrepreneurship. What do Companies require from Entrepreneurs?

von: Kim Julian Nestel, Elena Trost

GRIN Verlag , 2016

ISBN: 9783668256170 , 87 Seiten

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Corporate Entrepreneurship. What do Companies require from Entrepreneurs?


 

2.0 THE IMPORTANCE OF ENTREPRENEURSHIP


 

Emerging global markets and rapid technological development have strong demands on a firm´s ability to be innovative in order to compete effectively (Huse, Neubaum & Gabrielsson, 2005). Hence, new ideas, which challenge the current situation, are crucial drivers for an organizations’ change and improvement (Simon, 2009). Entrepreneurship has gained increased research attention within different areas, including the importance of enhancing entrepreneurial spirit within companies to improve their performance (Carrier, 1996; Valerio et al., 2014).

 

2.1 Corporate Entrepreneurship


 

As a stimulus of innovation, CE is a critical factor for firms to be successful in today’s business environment (Carrier, 1996; Zahra et al., 1999). Sharma and Chrisman (1999, p. 18) define CE as “the process whereby an individual or a group of individuals, in association with an existing organization, create new organization or instigate renewal or innovation within that organization”. Additionally to the two dimensions of new business venturing and innovativeness, CE also offers a strategic option to renew a firms´ business concept (Guth & Ginsberg, 1990). Therefore, CE is seen as a “set of company-wide activities that centers on the discovering and pursuing new opportunities through innovation, creating new business, or introducing new business models” (Schmelter et al., 2010, p. 717).

 

According to empirical studies, CE has positive impacts on the organizational performance (Zahra, 1991, 1993, Zahra & Covin, 1995; Lumpkin & Dess, 1996; Zahra et al., 1999; Özdemirci, 2011). For instance, Zahra and Covin (1995) state, that in order to enhance a company´s financial performance, managers should consider CE activities seriously. As these activities may take years to fully pay off, it is crucial that managers adopt a long-term perspective in developing, managing, and evaluating CE (Zahra & Covin, 1995). Another example of the positive impact on companies’ performance is that CE activities improve the overall organizational learning and drive the wide range of knowledge creation, which sets the foundation of new organizational competencies (Zahra et al., 1999).

 

Hence, CE demands that an organization constantly acquires and develops resources, which can be a source of sustainable competitive advantage when they are rare, have value, and provide barriers to duplication (Schmelter et al., 2010; Castrogiovanni, Urbano & Loras, 2011; Paauwe, Guest & Wright, 2013). These resources include physical, organizational, and human dimensions (Castrogiovanni et al., 2011). One major source of a sustained competitive advantage is a firms´ human capital (Wright, McMahan & McWilliams, 1994). The management of these resources refers to the organizational practices that are aimed at managing a companies´ employees and guaranteeing that these resources are employed towards the accomplishment of the organizational goals (Wright et al., 1994). Therefore, it is clear that the role of Human Resource Management is of critical importance in the process of establishing CE.

 

2.2 The Role of Human Resource Management in Corporate Entrepreneurship


 

HRM can build competitive advantages through creating and sustaining superior human resource contributions for firms by developing employees who are skilled and motivated to deliver high quality products and services (Lado & Wilson, 1994; Wright et al., 1994; Barney & Wright, 1998). Regarding HRM practices, most studies in the literature distinguish between four areas: 1) Recruitment and Selection, 2) Training and Development, 3) Compensation, and 4) Appraisal (Formbrun, Tichy & Devanna, 1984; Sanz-Valle, Sabater-Sánchez & Arragón-Sánchez, 1999; Van De Voorde & Paauwe, 2012).

 

HRM policies and the design of HRM practices also impact the level of entrepreneurship within an organization (Morris & Jones, 1993). According to Hayton (2003), HRM practices enhance knowledge creation and exchange, which promotes organizational learning and risk-taking. A vital role in the HRM system is dedicated to selective hiring, which should provide firms with skillful and talented employees, who can enhance entrepreneurial insights (Kaya, 2006). Companies that employ people, who can initiate and take appropriate decisions, can react quickly against unexpected opportunities and change (Kaya, 2006). Thus, several studies illustrate that the selection criteria should match the dimensions of Entrepreneurship Orientation (EO), namely 1) Innovativeness, 2) Risk-taking, and 3) Proactiveness (Roberts, 1977; Kaya, 2006; Schmelter et al., 2010).

 

In order to apply HRM practices in an effective and efficient way to foster CE, it is of high importance to understand the roots of Entrepreneurship and apply a systematic framework for identifying, recruiting, and retaining entrepreneurial employees. One fundamental model that has come to assume a central position in the field of entrepreneurial studies is the Entrepreneurship Orientation model (EO-model). This model provides a relevant framework to connect entrepreneurial characteristics and HRM practices.

 

2.3 Entrepreneurship Orientation


 

As HRM practices are important for organizational competitiveness, the following question arises: What are the characteristics HR-managers are looking for when recruiting entrepreneurial people?

 

One of the central concepts in this respect refers to EO, whereby a significant amount of both theoretical and empirical research developed this model into a core framework within entrepreneurship. The concept of EO reflects the methods, practices and decision-making activities that provide an organization with a basis for entrepreneurial actions (Lumpkin & Dess, 1996; Wiklund & Shepherd, 2003; Rauch, Wiklund, Lumpkin & Frese, 2009; Vij & Bedi, 2012). According to Wiklund & Shepherd (2003, p. 74), EO illustrates “how a firm operates rather than what it does” (Lumpkin & Dess, 1996; Covin, Green & Slevin, 2006).

 

The character of an entrepreneurial firm is summarized by Miller (1983, p. 771) as “one that engages in product-market innovation, undertakes somewhat risky ventures, and is first to come up with "proactive" innovations, beating competitors to the punch”. It has therefore been agreed by several researchers that EO focuses on three key dimensions, namely

1) Innovativeness, 2) Proactiveness, and 3) Risk-taking. Thus, EO implicates the motivation and willingness of an organization to innovate, the courage to take risks and test uncertain services, products and, markets as well as the behavior to act proactively. This enables a company to outperform competitors and obtain a competitive advantage (Miller, 1983; Covin & Slevin, 1989; Lumpkin & Dess, 1996; Wiklund & Shepherd, 2003; Vij & Bedi, 2012).

 

While research on EO has highlighted the three key parameters, there is also a body of literature that includes aspects of further important skills as being relevant for entrepreneurial people such as communicating, networking or the ability to execute new ideas (Baron & Tang, 2009; Barringer & Ireland 2012; Mortan, et al., 2014). In order to take those characteristics into consideration, this research has extended the EO-model to the dimensions of 4) Soft skills and 5) Management skills (Figure 2).

 

 

Figure 2: The Five Dimensions of Entrepreneurship Orientation

 

Source: Based on Wiklund & Shepherd, 2003

 

A company that represents these highlighted characteristics within its practices is considered as having a high degree of EO, while organizations engaging in a relatively low level of EO present a rather conservative orientation. Thus, EO is a crucial indicator of the way a firm is organized in entrepreneurial terms (Covin & Slevin, 1991; Vij & Bedi, 2012).

 

According to Covin and Slevin (1991), EO can therefore be considerd as a strategic dimension, “which can be observed from the firms’ strategic posture running along a continuum from a fully conservative orientation to a completely entrepreneurial one” (Vij & Bedi, 2012, p. 18). As “entrepreneurial activity represents one of the major engines of economic growth” and “an essential feature of high-performing firms“ (Lumpkin & Dess, 1996, p. 1), it can be summarized that “EO is a key ingredient for organizational success” (Vij & Bedi, 2012, p. 19). In the following, each of the five dimensions will be examined in further detail.

 

2.3.1 Innovativeness


 

The role of innovation within the entrepreneurial process derived from Schumpeter (1934), who first emphasized the importance of the so called ‘creative destruction’ (Innovativeness). Hereby, wealth is created by disrupting existing market structures through the introduction of new products, services, or technological solutions. This predisposition to engage in creativity and experimentation through introducing new processes is referred to as...