The impact of entrepreneurial orientation on business performance of small and medium enterprises.
In order to exploit this topic, you need to understand that entrepreneurial orientation is one of two foundational components.
These components help in understanding entrepreneurship. The other component is entrepreneurial behaviour.
Both of these concepts would be defined briefly before the article goes on to explore the impact of entrepreneurial orientation on business performance.
What is entrepreneurial orientation?
Entrepreneurial orientation is the willingness of an individual or organisation to embrace new opportunities and to take the responsibility for bringing about creative change.
Entrepreneurship is basically an orientation towards seeing opportunities.
Therefore, another way to understand entrepreneurial orientation is to think about it as the process and decision-making activities used by entrepreneurs.
It leads to the discovery of new opportunities and to the support of business activities.
Therefore, entrepreneurial orientation is a significant factor for a successful business performance of small and medium enterprises.
What is entrepreneurial behaviour?
Entrepreneurial behaviour is concerned with the set of activities required to move a concept or idea through the key entrepreneurial stages.
That is, from discovering and exploiting opportunities to value-creation.
In addition, entrepreneurial behaviour is about how tangible products and services that meet the needs and wants of consumers are created.
It is about how opportunities are acted upon and brought to life.
Aspects of entrepreneurial orientation on business performance. In addition to the definition of entrepreneurial orientation, you also need to know the three aspects of entrepreneurial orientation.
The three aspects of entrepreneurial orientation are:
- Risk taking
Collectively, these three dimensions represent the overall level of entrepreneurial orientation of a small and medium business.
This is an aspect of entrepreneurial orientation that is about seeking creative or unusual solutions to problems and needs.
For example, it can involve developing new product, new market development and new processes or technologies for carrying out business activities.
It enhances the small and medium businesses’ commitment to open-mindedness and receptivity in regard to new information.
This is another aspect of entrepreneurial orientation.
It is about the willingness of the business owner/manager to commit significant resources to opportunities in the face of uncertainty.
For example, the decison to investment in a foreign market is a high-risk and uncertain decision in comparison to a domestic one.
This aspect of entrepreneurial orientation describes the pursuit of new business opportunities through a wide variety of entrepreneurial activity.
This opportunity-seeking dimension of entrepreneurial orientation involves strategic moves and investment in resources.
It is about doing what is necessary to bring the pursuit of an entrepreneurial opportunity to completion
Small and medium enterprises are always looking for ways to maximize the benefits derived from their entrepreneurial orientation.
Such benefits include:
- Entrepreneurial orientation helps an entrepreneur to proactively develop and pursue business in an attractive niche.
- Furthermore, entrepreneurial orientation of a small and medium enterprise owner or manager can be a source of competitive advantage for their businesses over their competitors.
- It facilitates knowledge creation and combination. That is, helps small and medium enterprises in expanding their knowledge base from outside resources. The acquired knowledge is then exploited using internal resources to their benefit.
- As a result, entrepreneurial orientation helps in improving the competence of small and medium enterprises.
- Entrepreneurial orientation helps small and medium businesses; to view more possibilities for value creation as resulting from the acquisition of knowledge-based resources.
- This is, entrepreneurial orientation enhances the value creation and motivational aspects of the exchange process.
- Entrepreneurial orientation is useful for business owners in taking independent strategic actions.
- The strength of connections of the founding team of a business in addition to their level of entrepreneurial orientation help in generating referrals.
- Small and medium enterprises that are more entrepreneurially oriented make use of their ability to access resources in order to ensure their survival.
- It leads to experimental learning. For example, a pharmaceutical company that acquires technical knowledge related to its new potential drug offering. Entrepreneurial orientation will help such a business take the necessary steps to bring the product to market.
Measuring on business performance of small and medium enterprises.
Entrepreneurial activity results in different performance measures.
For example, you can measure the impact of entrepreneurial orientation on business performance through growth and financial performance measures.
Such as growth in sales, growth in profits, growth in employment, overall performance, and additional facilities/offices.
Acs, Z.J. and Audretsch, D.B. (eds.). Handbook of entrepreneurship research: An interdisciplinary survey and introduction (international handbook series on entrepreneurship). New York, NY: Springer, pp. 595–637.
Lumpkin, G. T., and Dess, G. G. (1996). Clarifying the entrepreneurial orientation construct and linking it to performance. Academy of Management Review, 21: 135–172.