The influence of

Entrepreneurial Orientation

on the Innovation Process:

An empirical research on manufacturing SMEs

I. Bleeker

Master thesis – University of Twente

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Title

The influence of Entrepreneurial Orientation on the Innovation Process: An empirical research on

manufacturing SMEs

Author

Ian Bleeker
Student number: 0063002

Master thesis Business Administration, specialization track Innovation & Entrepreneurship

University of Twente

Supervisors

Dr. M.L. Ehrenhard

Dutch Institute for Knowledge Intensive Entrepreneurship School of Management and Governance
University of Twente

Dr. J.M.J. Heuven

Dutch Institute for Knowledge Intensive Entrepreneurship School of Management and Governance
University of Twente

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Abstract

Many scholars have investigated the relationship between entrepreneurial orientation and
organizational performance. However, the influence of entrepreneurial orientation on performance is
not always immediately apparent. Some scholars have therefore introduced a mediating variable which
causes entrepreneurial orientation to influence performance indirectly. Previous research has shown
that one such variable is innovation performance. However, little is known about the underlying
processes that link entrepreneurial orientation to innovation. Therefore, the focus of this research is to
obtain a better understanding of how entrepreneurial orientation influences the innovation process. We
have therefore conducted a quantitative research among 41 manufacturing SMEs in the Netherlands.
Our findings suggest that when entrepreneurial orientation is considered as a unidimensional
construct, it influences both the innovation process as a whole and all its individual steps. However,
when we consider entrepreneurial orientation as a multidimensional construct, the only dimension that
influences the innovation process and its steps is proactiveness.

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Preface

This master thesis is the last assignment to complete my master Business Administration with
specialization track innovation and entrepreneurship. I started with this assignment because it gave me
the opportunity to apply my statistical skills in a quantitative research. I was able to participate in all
the steps from collecting and processing the data to making the analysis that resulted in this thesis.
Although I learned a lot from the whole process, at the beginning it was difficult to get good results
because the response was lower than expected. This made some research plans that I actually had
impossible to carry out. However, I am glad that I was able to carry out an analysis with some good
results. This was not possible without the help of some persons, who I would like to thank here.

First of all Dries Faems, who gave me the opportunity to participate in this project and helped me
through the first statistical steps that I had to take. My supervisors Michel Ehrenhard and Joris
Heuven, for their help and support in the final stage of my thesis. We had some good discussions and
they always gave me good comments and support in a constructive manner which really helped me to
complete my thesis.

Last but not least I want to thank my family and friends for having interest in my project and
supporting me when I needed it. Thank you very much!

Enschede, August 2011

Ian Bleeker

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Contents

1. Introduction ..................................................................................................................................... 1
1.1 Entrepreneurial Orientation ..................................................................................................... 1
1.2 Entrepreneurial Orientation and the Innovation Process ......................................................... 2
1.3 Research objective and central question.................................................................................. 3
1.4 Research questions .................................................................................................................. 3
1.5 Research strategy ..................................................................................................................... 3
2 Theoretical framework .................................................................................................................... 4
2.1 Entrepreneurial Orientation ..................................................................................................... 4
2.1.1 Innovativeness ................................................................................................................. 5

2.1.2 Risk taking ....................................................................................................................... 6

2.1.3 Proactiveness ................................................................................................................... 6

2.1.4 Competitive aggressiveness............................................................................................. 7

2.1.5 Autonomy ........................................................................................................................ 8

2.1.6 Dimensionality of the EO construct and the contingency framework ............................. 8

2.2 Innovation process ................................................................................................................... 9

2.2.1 Search ............................................................................................................................ 11

2.2.2 Select ............................................................................................................................. 11

2.2.3 Implement ...................................................................................................................... 11

2.2.4 Capture .......................................................................................................................... 12

2.3 The relationship between EO and the innovation process ..................................................... 13

2.3.1 Innovativeness ............................................................................................................... 13

2.3.2 Risk taking ..................................................................................................................... 14

2.3.3 Proactiveness ................................................................................................................. 14

2.3.4 Competitive aggressiveness........................................................................................... 15

2.3.5 Autonomy ...................................................................................................................... 15

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3 Methodology ................................................................................................................................. 16
3.1 The Sample ............................................................................................................................ 16
3.2 The Measures ........................................................................................................................ 17
3.2.1 Entrepreneurial Orientation ........................................................................................... 17

3.2.2 Innovation process ......................................................................................................... 19

3.2.3 Control variables ........................................................................................................... 19

3.3 Analysis ................................................................................................................................. 20

4 Results ........................................................................................................................................... 21
4.1 Relationship EO – Innovation Process .................................................................................. 21
4.2 The EO dimensions and the Innovation Process steps .......................................................... 24
4.2.1 The relationship between the EO dimensions and the innovation process steps ........... 24

4.2.2 The influence of the EO dimensions on the innovation process steps .......................... 26

5 Conclusion and discussion ............................................................................................................ 28

5.1 Conclusion ............................................................................................................................. 28
5.2 Limitations and future research ............................................................................................. 32
6 References ..................................................................................................................................... 34
Appendix A – Relevant items questionnaire ......................................................................................... 39
Appendix B – Factor analysis EO ......................................................................................................... 40
Appendix C – EO and the innovation process – control variables ........................................................ 41
Appendix D – EO and the innovation process steps – control variables ............................................... 42
Appendix E – The EO dimensions and the innovation process steps – control variables ..................... 43

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List of figures
Figure 1: The innovation process .......................................................................................................... 10

List of tables

Table 1: Improvement item reliability................................................................................................... 18

Table 2: ANCOVA analysis on the effect of EO on the innovation process ........................................ 21
Table 3: Correlation analysis EO and innovation process steps ............................................................ 22
Table 4: Descriptive statistics, correlations and reliabilities ................................................................. 25
Table 5: Effect of EO on the innovation process - MANCOVA analysis ............................................. 26
Table 6: Rotated factor loading on all EO items ................................................................................... 40
Table 7: Rotated factor loadings on a selection of EO items ................................................................ 40
Table 8: Influence EO on the innovation process - controlled for organizational age .......................... 41
Table 9: Influence EO on the innovation process - controlled for organizational size ......................... 41
Table 10: Influence EO on the innovation process - controlled for industry type ................................ 41
Table 11: Influence EO on the innovation process steps - controlled for age, size and industry .......... 42
Table 12: Influence of the control variables on the innovation process steps ....................................... 42
Table 13: Influence of the EO dimensions on the innovation process, controlled for age, size and
industry .................................................................................................................................................. 43
Table 14: Influence of the EO dimensions on the innovation process steps, controlled for age, size and
industry .................................................................................................................................................. 44

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1. Introduction

1.1 Entrepreneurial Orientation

Entrepreneurial orientation (EO) has its roots in strategy-making process literature (e.g.
Mintzberg, 1973). The construct, as it is commonly defined today, is first discussed by Miller
(1983) who described an entrepreneurial organization, a multidimensional concept, 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" (1983, p. 771). According to
Miller (1983) an organization only shows an EO when these three dimensions are simultaneously
present within an organization.

Based on Miller’s (1983) definition, Lumpkin and Dess (1996) have extended the EO construct
with two dimensions, competitive aggressiveness and autonomy. They further emphasize that
these dimensions may vary independently in a given context, which is confirmed by Hughes
(2007) in a study on the effect of EO on performance of organizations in an embryonic growth
stage. Lumpkin and Dess (1996) go on further to state that, “an EO refers to the processes,
practices, and decision-making activities that lead to new entry” (p. 136).

Based on Miller’s (1983) study, many scholars have examined entrepreneurial orientation in
relation with performance (e.g. Wiklund and Shepherd, 2003; Rauch, 2009; Slater and Narver,
2000). Lumpkin and Dess (1996) have emphasized that the extent to which an organization shows
an EO is dependent on the context in which it operates. They have therefore introduced a
contingency framework in which the relationship is extended with environmental and
organizational factors.

Based on an analysis of 53 samples from 51 studies, including 41,259 companies, Rauch (2009)
indicated that EO has a medium effect on performance, namely a correlation coefficient of 0.242.
The studies that were used in this article, examined different operationalizations of key constructs
and different cultural contexts, which makes the EO-performance relationship robust.

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1.2 Entrepreneurial Orientation and the Innovation Process
In the preceding paragraph we argued that there is a relationship between EO and organizational
performance. Though, Covin et al. (2006, p. 58) emphasize that ‘the effect of internal
organizational processes on the relationship between a firm’s EO and its performance is an
underexplored topic within the EO research realm.’ In addition to this, some scholars (e.g. Alegre
and Chiva, 2009; Baker, 2009) suggest that EO does not have a direct effect on organizational
performance and introduce therefore an extra variable to the relationship, innovation performance,
which captures an indirect effect on organizational performance. Although Baker (2009) has
shown that EO indirectly influences organizational performance via innovation performance,
there is little known on the internal organizational processes that link EO to innovation (Harms et
al., 2010). Investigating the underlying processes between EO and innovation will help to
understand this relationship better.

Innovation is the process of growing good ideas in practical use. Therefore the basic idea
underlying each definition of innovation is the need to complete the development of and
exploitation aspects of new knowledge, not just its invention (Tidd and Bessant, 2009).
Innovation refers therefore to a process. Tidd and Bessant (2009) describe the process of
innovation by four steps: search, select, implement and capture. This research will focus on the
relationship between EO and the innovation process and its steps.

To summarize, some scholars suggest that innovation performance has a mediating effect on the
EO performance relationship. However, there is little known on the underlying processes between
EO and innovation performance. The overall purpose of this study is hence to examine a part of
the mediating effect, the relationship between EO and the innovation process and its steps. Most
research on innovation management in manufacturing organizations has focused on large
organizations, however manufacturing small and mid-sized enterprises (SMEs) make a significant
contribution to economic growth (Terziovski, 2010). Therefore, we put a special focus on
manufacturing SMEs.

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1.3 Research objective and central question
From the preliminary sections can be derived that many scholars have focused the relationship
between EO and performance. However, still little research is conducted on the link between
organizational processes, EO and innovation. Therefore this research aims at investigating how
EO influences the innovation process and its steps. First, we investigate to what extent EO and the
innovation process and its steps have a relationship. Secondly, the strength of these relationships
will be investigated. Thus, to what degree EO influences the presence of the innovation process
(steps) in an organization. The following research objective is formulated:

To obtain a better understanding on the degree to which EO influences the innovation process
and its steps in manufacturing SMEs.

This research objective leads to the following research question:

To what degree does entrepreneurial orientation influence the innovation process and its steps in
manufacturing SMEs?

1.4 Research questions

To be able to answer the central question, some research questions are formulated.

1. To what extent does a relationship exist between EO and the innovation process?
2. Which innovation process steps are influenced by EO?
3. Which EO dimensions influence the innovation process?
4. Which EO dimensions influence the innovation process steps?

1.5 Research strategy

This research paper is structured as follows. Chapter Two describes the concept of entrepreneurial
orientation as well as the concept of the innovation process. This description leads to a more
thorough understanding of the concepts and will analyze which elements are relevant to
investigate the relationship between both. To do so, we first describe each concept individually.
Subsequently, the concepts are linked to each other. Chapter Three describes the methodology
that is used for this study. It will emphasize on the sample that is used to measure the relationship,
the operationalisation of both concepts and it will introduce control variables. In Chapter Four the
empirical results of the analysis will be presented. Chapter Five discusses the results and will
present conclusions and recommendations for further research.

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2 Theoretical framework
This chapter gives a description of EO and the innovation process and it will link both constructs.
First, EO, its dimensions, its place in the contingency framework and the dimensionality of the
EO construct are described in paragraph 2.1. Second, the underlying idea of the innovation
process and its steps are described in paragraph 2.2. Third, the relationship between EO and the
innovation process is described in paragraph 2.3.

2.1 Entrepreneurial Orientation

Miller (1983) has introduced the EO construct and thereafter it is further developed by Covin and
Slevin (1989, 1990) into a commonly accepted conceptualization of what it means for an
organization to be ‘entrepreneurial’ (George and Marino, 2011). According to Miller (1983) an
organization has an EO when it is simultaneously risk taking, innovative and proactive. Covin and
Slevin (1988, p. 218) further refined Miller’s definition by stating that, “the entrepreneurial
orientation of a firm is demonstrated by the extent to which the top managers are inclined to take
business-related risks (the risk-taking dimension), to favour change and innovation in order to
obtain a competitive advantage for their firm (the innovation dimension), and to compete
aggressively with other firms (the proactiveness dimension) (Miller, 1983).”

Many authors have adopted EO definitions similar to that of Miller (1983) and Covin and Slevin
(1989, 1990), but others have made changes that alter the meaning of the construct. The most
common deviations from Miller’s (1983) conceptualization are the use of more or less dimensions
or the application of the EO construct in a different context (George and Marino, 2011). For
example, Merz and Sauber (1995) and Knight (1997) have limited the construct by focusing only
on proactiveness and innovation and therefore exclude risk taking. Furthermore, Merz and Sauber
(1995) only focus on the actions of business units and to innovations that result in new offerings,
instead of for example process improvements. By contrast, Lumpkin and Dess (1996) have
extended the construct by including two dimensions. The EO construct consists therefore of the
dimensions innovativeness, risk taking, proactiveness, competitive aggressiveness and autonomy.
Further, Lumpkin and Dess (1996) have extended the domain by suggesting that “an EO refers to
the processes, practices and decision-making activities that lead to new-entry” (p. 136). This is in
contrast with Covin and Slevin (1988) who suggest that EO is a strategic attitude reflecting the
decisions and processes of the firm, but not explicitly limited to those that lead to new entry, but
rather representative of an overall gestalt within an organization. Since Lumpkin and Dess’ (1996)
conceptualization there have been no significant or widely acknowledged adoptions to how the
EO construct can or should be conceptualized (Covin and Wales, 2011).

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Constructs, such as EO, are used to represent unobservable phenomena as a way of organizing
knowledge and providing a framework for developing and testing theory. Key to this process is
the consistent use of clearly defined focal concepts that are measured and tested with a high
degree of construct validity in order to ensure the correspondence between the unobservable
construct and our means of measuring the construct (Peter, 1981). To determine whether
measures represent the theoretical constructs, we must understand what it is we are trying to
measure. The heart of the construct validity lies in a clear definition of the focal construct.
However, when each researcher defines the construct differently it is hard to enhance the
knowledge base (George and Marino, 2011).

The EO construct has suffered from such a problem. As a result, a number of debates are found in
literature with regard to the nature of the construct, its dimensionality (Knight, 1997; Lumpkin
and Dess, 1996; Zahra, 1993), the interdependence of the dimensions (Dess, Lumpkin and
McGee, 1999; Lumpkin and Dess, 1996) the nature of the dimensions (Morris and Paul, 1987)
and the theoretical relationship between the construct and the its antecedent and consequent
construct (George, 2011).

Although these problems exist in the EO research realm, we will adopt the EO construct and
definition of Lumpkin and Dess (1996) because it focuses on new entry and is not context
specific. Based on this definition, the following paragraphs are aimed at giving a thorough
understanding of each dimension and their importance in the EO construct. It will conclude by
giving a brief description of the contingency framework, as introduced by Lumpkin and Dess
(1996) and the dimensionality of the EO construct.

2.1.1 Innovativeness
Innovativeness refers to a willingness to support creativity and experimentation to introduce new
products or services, technological leadership and research and development in developing new
processes (Lumpkin and Dess, 2001). Schumpeter (1942) was the first who linked innovation to
entrepreneurship. He described an economic process of “creative destruction”, which refers to the
creation of wealth by the introduction of new goods and services to the market which shifted the
resources away from existing firms and caused other firms to grow. The factor that caused this
introduction is entrepreneurship, described as the competitive entry of innovative new
combinations. According to Lumpkin and Dess (1996) innovativeness is an important dimension
of EO, because it describes an important means by which organizations pursue new opportunities.

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2.1.2 Risk taking
Risk taking refers to a tendency to take bold actions, such as entering unknown new markets,
committing a large portion of resources to ventures with uncertain outcomes or borrowing heavily
(Lumpkin and Dess, 2001). Miller and Friesen (1978) described risk taking as part of the strategy
making process of an organization. EO is a strategic attitude and therefore risk taking should be
part of it. However, scholars are not able to find consistent patterns when investigating risk taking
in relationship with entrepreneurship. Naldi et al. (2007) suggest therefore that the context in
which the organization operates influences the amount of risk it takes. Furthermore most studies
have focused individual risk taking on new entry instead of considering the firm level (Lumpkin
and Dess, 1996).

2.1.3 Proactiveness
To capitalize a market opportunity it is important to be the first mover. This will usually result in
high profits and the first mover will get a head start in establishing brand recognition. Therefore
taking initiative in taking advantage of new markets and opportunities is associated with
entrepreneurship (Lumpkin and Dess, 1996). This is referred to as proactiveness, it is an
opportunity seeking, forward-looking perspective which involves the introduction of new
products or services ahead of the competition and acting in anticipation of future demand to create
change and shape the environment (Lumpkin and Dess, 2001).

Dess and Lumpkin (2005a) describe the importance of structural capital that is associated with
proactiveness. Structural capital, such as structures and processes, enables organizations to create
resources more quickly and at cheaper rates than competitors. Therefore, proactiveness enhances
both the reception and operations that make organizations stay ahead of competitors.

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2.1.4 Competitive aggressiveness
Covin and Covin (1990) have studied competitive aggressiveness, environmental context and
small firm performance, and defined competitive aggressiveness as follows:

“The current study viewed aggressiveness as a more general managerial disposition

reflected in a firm's willingness to take on and desire to dominate competitors through a
combination of proactive moves and innovative efforts. As conceptualized and
operationalized here, firms are aggressive if they typically initiate actions to which
competitors then respond; are often first to introduce new products, administrative
techniques, operating technologies, etc.; and typically adopt a very competitive, "undo-
the-competitors" posture. More passive firms, on the other hand, typically respond to
actions which competitors initiate; are seldom first to introduce new products,
administrative techniques, operating technologies, etc.; and typically seek to avoid
competitive clashes, preferring a "live-and-let-live" posture.” (Covin and Covin, 1990, p.
36).

This definition implies that competitive aggressiveness and proactiveness are two variables that
cannot be separated. However, Lumpkin and Dess (2001) have shown that both dimensions are
independent and make a unique contribution to performance. This distinction can be described on
the hand of the resource based view which describes how firms create, acquire and leverage
resources to achieve a sustainable advantage (Barney, 1991). According to Lumpkin and Dess
(2001) the creation of resources refers to proactiveness, but when these resources are created
organizations are more likely to defend them by a competitive aggressive attitude. Therefore
Lumpkin and Dess (2001) define competitive aggressiveness as the intensity of a firm’s efforts to
outperform industry rivals, characterized by a combative attitude and a forceful response to
competitor’s actions.

To endorse the importance of competitive aggressiveness as an EO dimension, Dean (1993)

shows a high correlation of competitive aggressiveness with entrepreneurship on all levels of risk
in a study that compares companies in low- and high risk environments. Furthermore competitive
aggressiveness explained more variance (37 percent) in corporate entrepreneurship than did any
other strategy or structural variable analyzed.

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2.1.5 Autonomy
Autonomy refers to an independent spirit which is important for new-entry activity. In an
organizational context it refers to action taken free from any organizational constraints. In an
individual or team context it can be described as taking independent action or the ability and will
to be self-directed in the pursuit of opportunities (Lumpkin and Dess, 1996). Autonomy can be
defined as independent action by an individual or team aimed at bringing forth a business concept
or vision and carrying it through completion (Lumpkin and Dess, 2001). There are different levels
of autonomy, depending on the types of actions or decisions a group can control (Gulowsen,
1972). There are two levels of autonomy, structural and strategic. Structural autonomy enables a
team to solve a problem with self-determined means. Strategic autonomy refers to the extent to
which a team has control over ends, i.e. its goals. Strategic autonomy enables a team to operate
outside normal organizational constraints in addressing what it will accomplish and how it will
achieve its objectives. Autonomy from an EO perspective refers to strategic autonomy (Lumpkin
et al., 2009). This level of autonomy enables teams not only to solve problems, but actually to
define the problem and goals that will be met in order to solve the problem.

2.1.6 Dimensionality of the EO construct and the contingency framework

According to Miller (1983) an organization has an EO when it is concurrently risk taking,
innovative and proactive. In this respect, entrepreneurship is a unidimensional construct. After
adding the dimensions competitive aggressiveness and autonomy Lumpkin and Dess (1996) have
proposed that EO is a multidimensional construct. This means that the EO dimensions may vary
independently, depending on the environmental and organizational context. Therefore an
organization has an EO when it scores high on some of the EO dimensions, not on a particular
dimension or combination of dimensions. Furthermore, the influence of EO on performance is
also context specific. Although only focusing on the dimensions by Miller (1983), Stetz et al
(2002) and Kreiser et al. (2002) have shown that the EO dimensions show high correlations and
each having their own influence on performance. They have therefore shown that the EO
construct is in fact multidimensional.

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Lumpkin and Dess (1996) have, based on the independence of the EO-dimensions and the
dependence of the context, introduced a contingency model on the EO-performance relationship.
Contingency theory holds that the relationship between two variables depends on the level of a
third variable. Introducing moderators in two variable relationships helps to reduce the potential
for misleading inferences and permits a more precise understanding of contingency relationships
(Rosenberg, 1968, p. 100). Lumpkin and Dess (1996) have introduced internal and external
environmental factors of the organization as contingency variables to describe the context in
which the organization operates which will help to get a better understanding the influence of the
organizational context on the EO –performance relationship. For this research the research
context is manufacturing SMEs. Furthermore we will take the effect organizational age, size and
industry type into account.

2.2 Innovation process

Innovation is the process of growing good ideas in practical use. Therefore the basic idea
underlying each definition of innovation is the need to complete the development of and
exploitation aspects of new knowledge, not just its invention (Tidd and Bessant, 2009).
Innovation refers therefore to a process. There are many conceptualizations of the innovation
process (e.g. Van de Ven et al., 1999; Tidd and Bessant, 2009; Cormican and O’Sullivan, 2004).
Each of these authors distinguishes the innovation process in different steps. Van de Ven et al.
(1990) distinguish the steps in an initiation period, a development period and an implementation
and termination period. Tidd and Bessant (2009) distinguish the steps search, select, implement
and capture. Cormican and O’Sullivan (2004) describe the same steps, except for capture.
Although the scholars focus more or less on the same steps, the context of their process is
different. This research focuses on manufacturing SMEs. All scholars focus on both product and
process innovation. However, Van de Ven et al (1990) and Cormican and O’Sullivan focus
mainly on large organizations, while Tidd and Bessant (2009) focus on both small and large
organizations. The innovation process described by Tidd and Bessant (2009) seems therefore
most appropriate to use in this research.

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Another perspective on innovation is that of entrepreneurship, because it involves the
identification of market opportunity and the combinations of resources to pursue it (Guth and
Ginsburg, 1990). Shane and Venkataraman (2000, p. 218) argue that the field of entrepreneurship
is defined by the study of “how, by whom and with what consequences opportunities to produce
future goods and services are discovered, evaluated and exploited”. According to Lumpkin and
Dess (1996) entrepreneurship describes new entry by introduction of new products or services on
new or existing markets. However, new entry can also be described by new ventures that enter the
market with existing goods. Entrepreneurship is therefore not necessarily associated with
innovation. Furthermore, entrepreneurship describes more roles than just that of innovation
(Wennekers and Thurik, 1999). Therefore, entrepreneurship will not be used to describe
innovation in this research.

According to Tidd and Bessant (2009) innovation is the core renewal process within an
organization, refreshing what it offers the world and how it creates and delivers that option.
Innovation is therefore more than simply coming up with good ideas; it is the process of growing
them into practical use. To describe this process Tidd and Bessant (2009) have developed a
framework that involves searching, selecting, implementing and capturing. This process is
represented by the following model:

Search

Capture Select

Implement

Figure 1: The innovation process

In short, the process consists of searching and selecting relevant and achievable signals.
Thereafter these signals are transformed in some kind of innovation. The final stage is to capture
benefits from the innovation, such as market share or learning. For each step follows a
description, based on Tidd and Bessant (2009), on how it can be managed successfully.

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2.2.1 Search
The first phase of the innovation process involves the detection of signals in the environment that
have potential for change. There are many sources of which these signals can be obtained, it is
therefore necessary for an organization to have well developed mechanisms for identifying,
processing and selecting information from their environment.

2.2.2 Select
The purpose of this stage is to resolve the inputs from the organization into an innovation concept
which can be progressed into further development. However, innovation is inherently risky. It is
therefore necessary to make a selection of markets and technological opportunities. Furthermore
there must be a fit with the overall business strategy of the organization and an organization must
build on existing technical and marketing competencies. A selection based on these requirements
increases the probability that the inputs of the organizations will result in a successful innovation.

2.2.3 Implement
When relevant signals are found and strategically selected, the next phase is to transform them in
an actual innovation. The implementation phase can be seen as one that gradually pulls together
different pieces of knowledge and weaves them into an innovation. At the early stages there is
high uncertainty, such as technological feasibility, but over the implementation phase this
uncertainty is replaced by knowledge acquired through various routes. The implementation phase
can be described more thoroughly by considering three core elements: acquiring knowledge,
executing the project and launching and sustaining the innovation. Acquiring knowledge involves
combining new and existing knowledge. It results in a first draft of the solution and is likely to
change considerably in its development. Executing the project forms the heart of the innovation
process. Its inputs are a clear strategic concept and some initial ideas for realizing the concept. Its
outputs are both a developed innovation and a prepared market, ready for final launch. The final
stage involves the preparation of the market. Buyers must adopt the new product and therefore
peoples must be made aware of the market through marketing. Further knowledge about the
adoption of the innovation can help to refine it. For all the stages cooperation among the divisions
that are responsible for the development of the innovation is important. For example there must be
demand for the innovation and the innovation must technically feasible. If marketing and R&D
don’t cooperate the innovation will not succeed.

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2.2.4 Capture
The purpose of innovating is not only to create innovation for their own sake but rather to capture
some kind of value from them, such as commercial success or market share. Another outcome of
the launch of an innovation is the creation of stimuli for restarting the cycle. Based on experiences
with failed or successful innovations, organizations can improve their next generation innovation.
A main requirement in this stage is the willingness to learn from completed projects. This can be
achieved by capturing all learned lessons, from both success and failure, and feed these through
the next generation. Therefore organizations need to set up routines to evaluate their current
innovation process, capture lessons, and distribute these lessons learned through the organization.
The capture stage can therefore be distinguished in an evaluation and learning stage.

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2.3 The relationship between EO and the innovation process
Organizations with an EO are able to continuously identify and exploit opportunities that arise
from asymmetries of market and technological knowledge (Hayton, 2005). EO can also help to
explain which managerial processes lead to the early recognition of these signals which will likely
lead to better performance than that of competitors. Furthermore, EO reflects the priority that
firms place on the process of identifying and exploiting market opportunities (Baker, 2009).
Underlying an EO is a tendency to pursue the creation and acquisition of new knowledge and the
integration of new knowledge and capabilities with existing resources in the form of new
combinations (Hayton, 2005). Therefore, EO stimulates the innovative potential of an
organization.

Although the EO dimension innovativeness seems to have potential to describe whether an

organization is innovative, it actually describes the willingness to support creativity and
experimentation in new product development, technology adaption and internal processes and
procedures (Baker, 2009). However, EO stimulates an organizations’ creativity, creates a
proactive stance towards innovation, has an aggressive attitude towards competitors, encourages
autonomy and stimulates innovation. We therefore expect that EO has influence on the innovation
process and all its steps. Therefore, we suggest:

H1a: EO influences the innovation process.

H1b: EO influences all the innovation process steps.

The relationship between each EO dimension with each of the innovation process steps is
described in the following paragraphs.

2.3.1 Innovativeness
Innovativeness stimulates creativity and experimentation in an organization. Such attitude is
necessary for organizations that want to explore opportunities that may result in organizational
development (Dess and Lumpkin, 2005b). Furthermore innovativeness contributes in renewing
the presence of the organization in existing markets and businesses (Kollmann and Stöckmann,
2010). According to Baker (2009) innovativeness describes creativity and experimentation in new
product development, technology adaption and internal processes and procedures. Innovativeness
implies a willingness to depart from existing practices in an organization (Özsomer et al., 1997).
We expect that the willingness to be innovative has influence on the innovation process steps
searching, selecting and implementing to come up with new products and/or services but also in
the steps evaluating and learning because an organization must learn from its practices to provide
an input for future innovation. Therefore, we suggest:

H2: Innovativeness influences all the innovation process steps.

13
2.3.2 Risk taking
Organizations engaging in radical innovations must be willing to take financial and business risks
to be successful (Kollmann and Stöckmann, 2010). When organizations face uncertainty, risk
taking may give the organization bias to take action (Dess and Lumpkin, 2005b). However, when
considering exploitative innovation, the fast decision making that is associated with risk taking
contradicts the in-depth analysis and negotiations that are needed to identify weaknesses and
potentials of existing technologies and products (Kollmann and Stöckmann, 2010). The amount of
risk that an organization takes is therefore, depending on the organizational context, important
when it comes to innovation success.

During the innovation process steps searching and selecting an organization faces uncertainty.
This uncertainty reduces while the innovation is implemented (Tidd and Bessant, 2009).
According to Hitt et al. (2001) organizations with a strong EO have the ability to make
environmental uncertainty work to their benefit. Although the amount of risk may differ, risk is
inevitable during the innovation process because the exact outcome of the process cannot be
known beforehand. We expect that risk taking is involved until the innovation is completed and is
therefore related to the innovation process steps searching, selecting and risk taking. Therefore,
we suggest:

H3: Risk taking influences the innovation process steps searching, selecting and
implementing in an organization.

2.3.3 Proactiveness
Proactiveness is an opportunity seeking, forward-looking perspective (Lumpkin and Dess, 2001).
A proactive attitude facilitates an organization with the introduction of new products or services
ahead of competition, because it is more receptive for trends in customer demands (Kollmann and
Stöckmann, 2010 and it enhances processes and operations that make operations stay ahead of
competitors (Dess and Lumpkin, 2005a). To stay ahead of competitors, a proactive attitude is
necessary during all innovation process steps. An organization must not only be the first to come
up with a new innovation to the market, but must also be proactive in evaluating and learning to
keep advantage over competitors. Therefore, we suggest:

H4: Proactiveness influences all the innovation process steps in an organization.

14
2.3.4 Competitive aggressiveness
Competitive aggressiveness requires intense action that is aimed at outperforming industry rivals.
This can either be done by improving current products as well as doing things differently.
Organizations can therefore find a new niche for themselves or target at the competitors’
weaknesses by developing superior products or services (Kollmann and Stöckmann, 2010).
Furthermore organizations can respond aggressively and quickly with innovation when it faces
creative and disruptive actions of rivals (Smith et al., 2001). Competitive aggressiveness
mobilizes continuous competitor assessment and thus the deconstruction of the value packages of
the rivals to generate superior offerings (Hughes and Morgan, 2007). The input about the strength
and weaknesses of the competitors serve for both the adjustments of existing offerings and for
radical new products and services (Kollmann and Stöckmann, 2010). Therefore competitive
aggressiveness is involved in searching the environment for competitor’s characteristics, select
where to aim and implement a new product offering. Competitive aggressiveness is more
focussed on the external environment of the organization because it aims at competitors. It does
therefore not affect the innovation process steps evaluating and selecting. Therefore, we suggest:

H5: Competitive aggressiveness influences the innovation process steps searching, selecting
and implementing.

2.3.5 Autonomy
Autonomy encourages innovation as it is a source for creativity and initiative. Entrepreneurial
initiatives are transformed in entrepreneurial outcomes by autonomous efforts of key individuals
acting outside the chain of command (Lumpkin and Dess, 2001; Lumpkin et al., 2009). Such
individuals are often referred to as champions (Green et al, 1999). Organizations that wish to
explore venture opportunities often must create environments where innovation team members
are free to explore possibilities without the influence of strategic norms or organizational
traditions that may impede the discovery process (Burgelman, 1983). We therefore expect that
autonomy influences the innovation process steps searching and implementing because these
stages involve looking for opportunities and creative combination of resources. The selecting
stage should be conducted in line with the strategy of the organization and is therefore not
associated with autonomy. The evaluating and learning stages must both be conducted in an
organized manner to be successful. Therefore, we suggest:

H6: Autonomy influences the innovation process steps searching and implementing.

15
3 Methodology
This chapter describes the methodology for this study. It focuses on the used sample and data
collection in paragraph 3.1, the measurement of the research variables in paragraph 3.2 and the
used analytical techniques in paragraph 3.3.

3.1 The Sample

The Verenigde Maakindustrie Oost (VMO) has asked the University of Twente to conduct a
research on the innovativeness of this industry. Therefore a survey “Innovatiescan” was send to
all the 170 members of the VMO. The survey is addressed to the owner or general manager of
each organization. Scholars have argued that an organizations owner or general manager is the
key decision maker and thus sets the strategic orientation of the organization (Lumpkin and Dess,
1996; Miller, 1983). The survey measures managerial perceptions of the firm-level variables and
has the advantage that it poses questions that address directly the underlying nature of a construct
which enhances the validity (Lyon, 2000). This has advantages for small organizations, because
the view of the respondent may reflect that of the organization and the respondent is most likely
the most knowledgeable person of the organization (Glick et al., 1990). To ensure a response as
high as possible, first a reminder by e-mail was send and secondly the firms that had not
responded yet - where asked by phone to send their response. This resulted in a response of 63
organizations, approximately forty percent of all members. Of the 63 organizations, 41
organizations provided data which could be used to measure EO. The organizations have an
average age of 42.8 (SD = 33.45) years and average size of 115.47 (SD = 255.58) full time
employees.

16
3.2 The Measures
This paragraph describes the operationalization and measurement of the research variables,
namely: (1) EO and its dimensions; (2) the innovation process; and (3) the control variables.

3.2.1 Entrepreneurial Orientation

To measure the EO dimensions, questions from Lumpkin and Dess (2001) were adopted in the
Innovatiescan. The used scales are developed and tested by Khandwalla (1977), Miller (1983),
Covin and Slevin (1986, 1989), and Covin and Covin (1990). Lumpkin and Dess (2001) have
extended the scale by adding two items to capture aspects of the subconstructs that were not
included in the previous used scales. According to Covin and Wales (2011) the Miller (1983)
scale measures entrepreneurial orientation as an underlying construct, instead of the individual
influence of the EO dimensions. The addition of the two items by Lumpkin and Dess (2001)
enhances the measurement of the independent dimensions which is in line with the proposed
multidimensional construct by Lumpkin and Dess (1996). Autonomy is not included in the
Innovatiescan because the scales that were available for strategic autonomy during the
development of the Innovatiescan showed a number of shortcomings. The scales lack
generalizability across contexts, are sometimes indistinct from measures of (de)centralization, and
are often limited to measurement of structural autonomy without regard to strategic autonomy
(Lumpkin et al., 2009).

Appendix A shows that the measurement of each dimension is conducted with multiple questions.
Question P2 and P3 have been recoded as both questions ask the opposite of question P1, i.e.
answering ‘agree’ to P1 means something different then answering ‘agree’ to P2, recoding solves
this problem. These reverse-phrased questions are important to reduce response bias (Field,
2009).

All the EO items are measured on a five-point Likert scale, ranging from ‘totally agree’ to ‘totally
disagree’. Technically speaking, a Likert scale has an ordinal distribution. However in academic
research it is common practice to treat a Likert scale as if its data is distributed on an interval
scale. It is therefore a continuous variable. This implies that most statistical techniques can be
used (Jamieson, 2004).

17
Each EO dimension is measured with multiple items. Combining these items improves the
reliability of measurement. However, if one wants to obtain meaningful scores the items must all
be indicators of some common underlying construct, i.e. all items should share common variance.
This phenomenon is also described as unidimensionality. A common misunderstanding exists
between unidimensionality and internal consistency. The former assumes that all items share
common variance whilst the latter assumes that an item shares common variance with some other
items. Factor analysis provides the strongest line of evidence to support a claim that a scale is
unidimensional (Gardner, 1995). Therefore a factor analysis, with varimax rotation, is conducted.
Varimax rotation attempts to maximize the dispersion of loadings within factors. Therefore, it
tries to load a smaller number of variables highly onto each factor resulting in more interpretable
clusters of factors (Field, 2009). A factor analysis with all EO items (Table 6, appendix B)
identifies four underlying components. It is troublesome to typify the components as individual
EO dimensions. However, the analysis shows that EO is a multidimensional construct.

Since the factor analysis is inconclusive, a Cronbach alpha analysis is conducted on all the EO
dimensions to identify their reliability. The dimensions innovativeness and proactiveness have a
low reliability, as shown in Table one. Further analysis shows that the innovativeness item I2 has
low or negative correlation with the other two innovativeness items. For proactiveness, item P3
has a negative correlation with item P1 and a significant correlation with item P2. Because the
improvement of alpha is high after deleting these items, we will not bring them in further analysis.
The improvement of alpha of both dimensions is shown in Table one. All the other dimensions
could not be further improved. The Cronbach alphas are reported in Table four and indicate that
the EO items have a high to average reliability. The average of each EO dimension items is taken
for further analysis.

Table 1: Improvement item reliability

Item Old alpha New alpha Item deleted

Innovativeness .49 .88 I2
Proactiveness .53 .65 P3

After removing item I2 and P3 another factor analysis is conducted (Table 7, appendix B). This
analysis results in two remaining factors and shows that one factor consists mostly of the items of
the innovativeness and proactiveness dimensions and that the other factor consists of the items of
the risk taking and competitive aggressiveness dimensions. Although we were not able to identify
four separate EO dimensions, the factor analysis supports Lumpkin and Dess’s (1996) claim that
EO is a multidimensional construct.

18
3.2.2 Innovation process
The innovation process is measured on its five steps: searching, planning, implementing,
evaluating and learning. These steps are based on the innovation process described by Tidd and
Bessant (2009). As mentioned before the capture step can be distinguished in an evaluating and
learning step. Tidd and Bessant (2009) have developed a self-assessment tool that focuses on the
important areas of innovation management. This tool consists of multiple statements which are
included in the “Innovatiescan”. Each statement is measured on a five point Likert scale, ranging
from ‘totally agree’ to ‘totally disagree’. A Cronbach alpha analysis is conducted on the items to
identify and improve their reliability. The results shown in Table six indicate that the innovation
process steps have a high reliability (α > .79). The item IP implementation has a low reliability. It
is improved from α = .25 to α = .52 by deleting one question.

3.2.3 Control variables

Businesses of different size and age may exhibit different organizational and environmental
characteristics. The same is true for organizations in different industries (Wiklund and Shepherd,
2005). With respect to innovation, large organizations may devote more resources to innovative
processes, but may lack the flexibility needed to pursue innovation (Kollmann and Stöckmann,
2010). Second, the firms’ age may have a positive effect due to increased experience and
produces more innovations or have a negative effect due to the fact that an organization may lose
sight of external developments and produces fewer innovations (Sørensen and Stuart, 2000).
Therefore, firm age, size and industry type are included as control variables for possible
confounding effects. The participants of the survey are all manufacturing organizations. To
determine the industry type, the organizations were asked after their position in the value chain of
the product. Therefore the following supplier types could be selected: original equipment
manufacturer, generic system supplier, application system supplier / system developer, process
supplier, and part supplier. Respondents were also asked in which year their firms were founded,
which was used to calculate firm age. Finally, the respondents were asked how many full time
employees work in the organization at the present time. The number of employees was used to
control for firm size.

19
3.3 Analysis
The purpose of this study is to investigate the influence of EO on the innovation process and its
steps. A correlation analysis is conducted to determine whether there exists a relationship between
EO and the innovation process. Subsequently the influence of EO on the innovation process and
its steps is investigated.

Before we describe the analytical technique, we first have to consider the dimensionality of both
constructs. EO is a multidimensional construct (Lumpkin and Dess, 1996). Furthermore the
innovation process consists of several different steps and is therefore also multidimensional.
Therefore, the measurement of the effect EO on the innovation process includes more than one
independent variable and more than one dependent variable. A standard ANOVA model is
therefore inadequate. Instead an extension of this technique, known as the multivariate analysis of
variance (MANOVA), is used. This technique measures the interaction effect of several
dependent and independent variables, but is also measures the main effect between two variables.
However, in addition to the continuous variables that are measured the relationship we also
control for the industry type in which an organization operates. This is a variable with categorical
data, therefore the Multivariate analysis of covariance (MANCOVA) suits best (Field, 2009).
When relationships with one dependent variable are tested, ANCOVA analysis is used.
(M)ANCOVA analysis takes into account the differences of variance of the independent
variables. By doing so, adding an additional variable to the analysis will affect the investigated
relationships to some extent (Field, 2009). We can therefore control for age, size and industry by
adding them to the initial analysis.

20
4 Results
This chapter describes the results that are obtained from the analysis on the relationship between
EO and the innovation process. Both constructs are first examined in a unidimensional level in
order to determine whether there exists a relationship. Then the influence of EO on the innovation
process steps is investigated. These analyses will test hypothesis 1a and 1b and are presented in
paragraph 4.1. Subsequently the influence of EO, as a multidimensional construct, on the
innovation process steps is investigated to test hypothesis two, three, four and five. The results of
this analysis are presented in paragraph 4.2. Hypothesis six is not tested, because autonomy is not
included in the Innovatiescan.

4.1 Relationship EO – Innovation Process

Hypothesis 1a suggests that EO influences the innovation process in an organization. A
correlation analysis between EO and the innovation process shows that there exists a strong and
significant relationship between both constructs, namely r = .65, p < .01. Although the test-
statistic is significant, it doesn’t give insight in the strength of the relationship or if the measured
effect is important or meaningful. Therefore a standardized way to measure the size of the effect
that we are testing is developed, known as the effect size. An effect size is an objective and
standardized measure of the magnitude of observed effect (Field, 2009). Cohen (1992) has made
some widely used suggestions about what constitutes a large or small effect for correlation
coefficients: r = .1 is a small effect; r = .3 is a medium effect and r = .5 is a large effect. Therefore
EO has a large effect on the innovation process (r > .5).

Although the previous analysis has shown that the effect of EO on the innovation process is large,
it does not give insight on the influence of EO on the innovation process. Therefore an ANCOVA
analysis is conducted with the innovation process steps as dependent variables and EO as
independent variable. Table two reports the ANCOVA analysis on the influence of EO on the
innovation process. Using Wilks’s statistic, the analysis indicates that EO does have a significant
influence on the innovation process: Λ = .610, F (5, 29) = 3.704, p < .01.

Table 2: ANCOVA analysis on the effect of EO on the innovation process

Effect Value F Hypothesis df Error df Sig.

Intercept .595 3.946 5.000 29.000 .008
EO .610 3.704 5.000 29.000 .010

21
When we control for age, size and industry the effect of EO on the innovation process remains
significant. The results are shown in appendix C, Table eight, nine and ten. For age it is p < .1, for
size p < .01 and for industry p < .1. Furthermore the control variables do not have a significant
effect on the innovation process. This analysis has shown that EO does have an influence on the
innovation process. Therefore we accept hypothesis 1a.

Hypothesis 1b suggests that EO also influences all the individual innovation process steps. Table
three reports the results of the correlation analysis on the relationship of the EO construct with
each of the innovation process steps. It is worthwhile to mention that EO has a significant
relationship, p < .01, with all the innovation process steps. According to Cohen (1992), EO has a
medium effect on IP searching (r > .3) and has a large effect (r > .5) on the other innovation
process steps. Furthermore the innovation process steps do all have a large effect on each other.
Based on the results shown in Table three, we conclude that EO has a strong and significant
relationship with the innovation process steps.

Table 3: Correlation analysis EO and innovation process steps

Variable 1 2 3 4 5
1. EO
2. IP Searching .454**
3. IP Selecting .631** .545**
4. IP Implementing .548** .533** .696**
5. IP Evaluating .531** .678** .730** .586**
6. IP Learning .581** .693** .713** .643** .784**
Notes: * p < 0.05; ** p < 0.01.

The correlation analysis has shown that there exists a strong relationship between EO and the
innovation process steps. However this test does not explain whether changes of EO have an
effect on the innovation process steps. Therefore an MANCOVA analysis is conducted. This
analysis indicates that EO does have significant effect on all the individual innovation process
steps. The following results are obtained:

• IP Searching: F (1, 33) = 3.561, p < .01;

• IP Selecting: F (1, 33) = 9.397, p < .01;
• IP Implementing: F (1, 33) = 4.234, p < .01;
• IP Evaluating: F (1, 33) = 5.925, p < .01;
• IP Learning: F (1, 33) = 10.918, p < .01.

22
When we control for age and size the influence of EO on the innovation process steps remains
significant and is respectively p < .05 and p < .01, see Table 11 Appendix D. For industry the
influence of EO on searching is significant on p < .1, for implementing p < .05 and for selecting,
evaluating and learning it is p < .01. Table 12 (Appendix D) shows that the control variables do
not have a significant effect on the innovation process steps.

Hypothesis 1a tested the influence of EO on the innovation process as a whole. A correlation

analysis has shown that EO has a strong positive relationship with the innovation process.
Furthermore an ANCOVA analysis has shown that EO influences the innovation process.
Hypothesis 1b suggests that EO has influence on all the innovation process steps. A correlations
analysis has shown that EO has a medium to strong positive relationship with all the innovation
process steps. A MANCOVA analysis has shown that EO has a significant effect on all the
innovation process steps. Because EO does have influence on the innovation process and its steps
and this relationship is not influenced by the control variables, we accept hypotheses 1a and 1b.
We can therefore conclude that EO influences both the innovation process as a whole and all its
individual steps.

23
4.2 The EO dimensions and the Innovation Process steps
The preceding analyses have indicated that EO as a unidimensional construct influences both the
innovation process and its steps in an organization. Hypothesis two, three, four and five suggest
that each EO dimension, in varying extent, influences the innovation process steps in an
organization. To investigate the relationship and the influence of each dimension a correlation
analysis is conducted in paragraph 4.2.1. Paragraph 4.2.2 reports the results of a MANCOVA
analysis which measures the influence of each EO dimension on the innovation process steps.

4.2.1 The relationship between the EO dimensions and the innovation process
steps
To investigate the existence of a relationship between EO and the innovation process steps, a
correlation analysis is conducted. Table four reports the correlation, the descriptive statistics and
the Cronbach alpha’s for the multi-item scales. On average the organizations show a low to
neutral EO. This is in line with Kemelgor (2002) who showed that organizations in the
Netherlands demonstrated a significantly lower EO than did organizations from the United States.
The Cronbach alpha is high for most items, except for risk taking, competitive aggressiveness and
the innovation process implementing. The Cronbach alpha analysis has shown that these items
could not further be improved.

It is worthwhile to note that all the EO dimensions show moderate (r > .3) to high (r > .5)
correlations. The innovation process steps also show high (r > .5) correlations. The Pearson’s
correlation coefficients indicate that proactiveness has a consistently strong (r > .48) relationship
with all the innovation process steps (all p < .01). By contrast, risk taking has only a moderately
strong significant relationship with IP learning (r = .35; p < .05). Innovativeness shows high to
moderately strong relationships with IP planning (r = .50; p < .01), IP implementing (r = .45; p <
.01) and IP evaluating (r = .40; p < .05). Competitive aggressiveness shows moderately strong
relationships with IP searching (r = .42; p < .05), IP planning (r = .40; p < .05) and IP learning (r
= .39; p < .05).

24
Table 4: Descriptive statistics, correlations and reliabilities

Variables Means s.d. 1 2 3 4 5 6 7 8 9

1. Innovativeness 2.31 1.19 (0.88)

2. Risk Taking 1.96 .78 .33* (0.48)

3. Proactiveness 2.15 1.07 .69** .51** (0.65)

4. Competitive 1.52 .82 .59** .57** .61** (0.56)

Aggressiveness
5. IP Searching 2.16 .68 .25 .24 .48** .42* (0.79)

6. IP Selecting 2.22 .94 .50** .31 .62** .40* .55** (0.79)

7. IP Implementing 2.83 .79 .45** .22 .63** .21 .53** .70** (0.52)

8. IP Evaluating 2.02 .80 .40* .15 .66** .31 .68** .73** .59** (0.89)

9. IP Learning 2.15 .97 .32 .35* .65** .39* .69** .71** .64** .78** (0.90)

Notes: * p < 0.05; ** p < 0.01. Reliabilities (Cronbach alphas) are in parentheses.

25
4.2.2 The influence of the EO dimensions on the innovation process steps
This paragraph forms a description of the results of the MANCOVA analysis that is conducted to
investigate the influence of the EO dimensions on the innovation process steps.

Table five shows the results of the MANCOVA analysis on the effect of the EO dimensions on
the innovation process. Using Wilks’s statistic, there is a significant effect of proactiveness on the
innovation process, Λ = .583, F (5, 24) = 3.433, p < .05. The other EO dimensions do not have a
significant effect on the innovation process (Table five). When the relationship between
proactiveness and the innovation process is controlled for age, size and industry, the effect
remains significant (Appendix E, Table 13). The control variables do not have a significant effect
on the innovation process. Although they slightly affect on the influence of the other EO
dimensions on the innovation process, these influences do not become significant.

Table 5: Effect of EO on the innovation process - MANCOVA analysis

Effect Value F Hypothesis df Error df Sig.

Intercept .525 4.337 5.000 24.000 .006
Innovativeness .922 .407 5.000 24.000 .839
Risk taking .850 .850 5.000 24.000 .528
Proactiveness .583 3.433 5.000 24.000 .018
Competitive
.858 .792 5.000 24.000 .566
Aggressiveness

The analysis on the individual effect of the EO dimensions on the innovation process steps shows
that proactiveness is the only EO dimension that has an effect on the innovation process. It has a
significant effect on all the innovation process steps. The following results are obtained:

• Searching: F (1, 28) = 2.026, p < .05;

• Selecting: F (1, 28) = 2.809, p < .05;
• Implementing: F (1, 28) = 3.947, p < .01;
• Evaluating: F (1, 28) = 5.598, p < .01;
• Learning: F (1, 28) = 7.205, p < .01.

The influence of the other EO dimensions is shown in Appendix E, Table 14. When we control
for age, size and industry, proactiveness shows only a significant effect on the innovation process
steps implementing, evaluating and learning. The control variables themselves do not have a
significant effect on the innovation process steps (Appendix E, Table 14).

26
The EO construct consists of five dimensions of which four are examined in this research,
innovativeness, risk taking, proactiveness and competitive aggressiveness. Hypothesis two, three,
four and five suggest that each dimension predicts the presence of the innovation process to some
extent. We will discuss the results of this study with respect to these hypotheses.

Hypothesis two suggests that the EO dimensions innovativeness influences all the innovation
process steps. A correlation analysis has shown that innovativeness has a positive relationship
with the innovation process steps selecting, implementing and evaluating. Surprisingly we did not
find evidence that innovativeness has an effect on the innovation process steps. We therefore do
not accept hypothesis two.

Hypothesis three suggests that risk taking influences the innovation process steps selecting and
implementing. The correlation analysis has shown that risk taking has, in contrast what we
expected, a significant positive relationship with the innovation process step learning. However,
the MANCOVA analysis has shown that risk taking does not influence any of the innovation
process steps. We therefore do not accept hypothesis three.

Hypothesis four suggests that proactiveness influences all the innovation process steps. The
correlation analysis has shown that proactiveness has a strong, significant and positive
relationship with all the innovation process steps. Furthermore the MANCOVA analysis has
shown that proactiveness both influences the innovation process as a whole, but also all its
individual steps. We therefore accept hypothesis four.

Hypothesis five suggests that competitive aggressiveness influences the innovation process steps
searching, selecting and implementing. The correlation analysis has shown that competitive
aggressiveness has a significant and positive relationship with the innovation process steps
searching, selecting and learning. For learning we did not expect an effect. However, the
MANCOVA analysis has shown that competitive aggressiveness does not influence any of the
innovation process steps. Therefore we do not accept hypothesis five.

27
5 Conclusion and discussion
This chapter describes the conclusion of this research by giving an answer to the research
question in paragraph 5.1. Subsequently the limitations of this research are discussed, with some
suggestions for further research in paragraph 5.2.

5.1 Conclusion
Some scholars (e.g. Alegre and Chiva, 2009; Baker, 2009) suggest that EO does not have a direct
effect on organizational performance. They have therefore introduced a mediating variable,
innovation performance. Although Baker (2009) has shown that EO indirectly influences
organizational performance via innovation performance, there is little known on the internal
organizational processes that link EO to innovation (Harms et al., 2010). We have therefore
focused on the influence of EO on the innovation process of an organization. In so doing we have
put a special focus on manufacturing SMEs. To accomplish this goal the following research
question is formulated:

To what degree does entrepreneurial orientation influence the innovation process and its steps in
manufacturing SMEs?

The theoretical framework described that EO stimulates an organizations’ creativity, creates a

proactive stance towards innovation, has an aggressive attitude towards competitors, encourages
autonomy and stimulates innovation. Therefore each EO dimension stimulates the innovation
process of an organization and it is expected that EO as a construct influences the innovation
process (H1a) and all its individual steps (H1b) in an organization. A correlation and MANCOVA
analysis has shown that EO influences both the innovation process and all its individual steps.
With respect to research question one and two, we can conclude that EO and the innovation
process have a strong, positive and significant relationship and that all innovation process steps
are influenced by EO.

Hypotheses two, three, four and five all suggested that each EO dimension influences the
innovation process and its steps to varying extent. We have accepted hypothesis four
(proactiveness) and did not accept hypotheses two, three and five (respectively innovativeness,
risk taking and competitive aggressiveness. Although the EO dimensions innovativeness, risk
taking and competitive aggressiveness do not have an effect on the innovation process and its
steps there were some unexpected relationships which we will discuss here.

28
Hypothesis two suggested that innovativeness influences all the innovation process steps. The
analysis showed that innovativeness does not influence the innovation process steps. This is
remarkable because it seems logical that an innovative attitude influences the innovation process
in an organization positively. However, there exists a positive relationship with the innovation
process steps selecting, implementing and evaluating. There is however no relationship with the
innovation process steps searching and learning. For searching we expected that an organization
with an innovative attitude would be more receptive for signals from its environment. However,
the possibility exists that organizations have standard mechanisms for this and start to be
innovative in the remaining steps. The lack of a relationship between innovativeness and learning
could be caused by an inability to from the evaluation. Furthermore, if an organization is not
sensitive for signals from the external environment, it is probably also not sensitive for signals
from the internal environment. It does therefore not see the need to produce these signals by
learning from their own process.

Hypothesis three suggested that risk taking influences the innovation process steps searching,
selecting and implementing. Although risk taking has no influence on all the innovation process
steps, it has a positive relationship with the innovation process step learning. This is unexpected
because learning involves routines within an organization whilst risk taking involves breaking
away from routines. This relationship could be explained because the risk taking attitude for the
organizations is quite low, namely a mean of 1.92. Naldi et al. (2007) suggested that the amount
of risk that an organization takes is dependent on the environment in which it operates. Low risk
taking implies that an organization follows routines instead of breaking away of it. It is therefore
possible that the members of the VMO operate in a stable environment in which risk taking is not
necessary to gain advantage. Another explanation could be that organizations try to do things
differently during the learning process to gain advantage over competitors.

Hypothesis five suggested that competitive aggressiveness influences the innovation process steps
searching, selecting and implementing. As mentioned before we did not find evidence to support
this hypothesis. However, competitive aggressiveness does have a positive relationship with the
innovation process steps searching, selecting and learning. We did not expect a relationship with
the innovation process step learning. There are two possible explanations for the existence of this
relationship. First, the same as risk taking, the organizations have a low competitive
aggressiveness attitude. This implies that the focus of the organizations lies more on internal
processes such as learning than for instance beating the competitor to the punch. However, if the
competitive aggressive attitude is low one would expect that there would be a relationship with
searching and selecting. We have no explanation for this contradiction. Second, it could be
possible that organizations might want to use the input from the learning step to take competitive
advantage over competitors.

29
With respect to research question three and four we can conclude that the only EO dimension that
influences the innovation process and all its steps is proactiveness. The other dimensions show to
some extent significant relationships with the innovation process and its steps, but do not
influence them.

Based on the answers of the research questions, we can give an answer on the central question.
When EO is considered as a unidimensional construct, it influences the innovation process and its
individual steps. However, when EO is considered as a multidimensional construct the only
dimension that has influence on the innovation process and its steps is proactiveness.

This research has some theoretical and practical implications which we will discuss here. Current
EO research focuses mainly on the influence of EO on organizational performance. However, the
presence of this relationship or the influence of EO on performance is not always self-evident.
Therefore, some scholars have introduced innovation performance as a mediating variable and
have shown that EO affects performance via this variable. However, little is known on the
underlying processes of this relationship. This research has therefore focused on a part of this
mediating relationship, namely EO and the innovation process. We have shown that EO as a
unidimensional construct influences the innovation process and its individual steps. Furthermore,
as a multidimensional construct the only EO dimension that influences the innovation process is
proactiveness. We have thereby contributed to a better understanding of how EO influences
innovation within an organization. It surprised us that the other EO dimensions do not influence
the innovation process and its steps. According to Lumpkin and Dess (1996) EO is a
multidimensional construct and suggested that when an organization scores high on some EO
dimensions, it will lead to high organizational performance. We could extent this suggestion by
stating that organizations should score high on some EO dimensions to influence other constructs
positively as well. The organizations of the VMO showed a low EO attitude. It is likely that
because the EO of the organizations is low, they do only slightly influence the innovation process
in the organizations. However, future research must confirm this statement.

Furthermore this research has contributed to the discussion on the dimensionality of the EO
construct, by showing that EO is multidimensional in this context. This was not only apparent by
the factor analyses, but also because the EO dimensions all showed their own influence on the
innovation process and its steps. Further, this research has contributed by answering Lumpkin and
Dess’ (1996) call to investigate the EO construct in different contexts. We have investigated EO
for manufacturing SMEs in the Netherlands and have shown that organizations in this context
show a low EO attitude.

30
With respect to the discussion on the interdependence of the dimensions, we argue that the EO
dimensions are independent. Although the correlation analysis has shown that the EO dimensions
all show high and significant correlations, further analysis on the influence of EO on the
innovation process and its steps has shown that each EO dimension has its own influence on the
innovation process steps. In this respect the dimensions are not dependent of each other.
Therefore the EO dimensions show interdependence in this context.

For the innovation process we have shown that the members of the VMO put a moderate focus on
their innovation process. Their main focus is on the implementing step, where they transform their
concepts in an actual new product or service offering. With respect to other literature on
innovation management we expect the same results, because the innovation process as described
by other scholars consists mainly of the same steps. These models are mostly developed for large
organizations and it would be interesting to know to what degree EO would have influence in
such a context. Large organizations may devote more resources to innovative processes, but may
lack the flexibility needed to pursue innovation (Kollmann and Stöckmann, 2010).

With respect to practical implications, organizations should take into account that the adoption of
an EO has a positive influence on the innovation process in their organization. They should
enhance the proactive attitude of their organization to influence the innovation process positively.

31
5.2 Limitations and future research
Several limitations that provide meaningful directions for future directions merit discussion. First
the group of respondents is small. This may lead to sampling error because the group of
respondents is only a small part of the whole population and might therefore not present the whole
population (Shadish, Cook and Campbell, 2002, p. 34).

Second, this research has focused on a specific industry, manufacturing SMEs, in the Netherlands.
External validity describes to what extent a causal relationship observed during the experiment
holds over variation in persons, settings, treatment and measurement variables (Shadish, Cook
and Campbell, 2002, p. 20). It is therefore arguable to what extent the results of this analysis
remain valid in other situations. Therefore we recommend testing the influence of EO on the
innovation process in other industries and countries.

Third, Lumpkin and Dess (1996) have proposed that EO is multidimensional construct that
consists of five dimensions. This research has only taken four EO dimensions into account,
because during the development of the survey there was no scale available that measures
autonomy in a strategic manner. Lumpkin and Dess (2009) have developed such a scale and we
therefore recommend including this scale in further EO research. This will result in a better
understanding of the individual effect of each EO dimension on other constructs, such as the
innovation process. Furthermore, Lumpkin and Dess (1996) suggested that the impact of the EO
dimensions varies based on the internal and external environmental context in which the
organization operates. Future research should incorporate these contingency variables to obtain a
better understanding of the dimensionality of the EO construct and the influence of different
contexts on the relationship with other constructs.

Fourth, the survey measured managerial perceptions of business owners and entrepreneurial
executives. Although measuring with multi-item scales has a high level of construct validity, a
disadvantage is that a managerial perception is self-reporting which results in an analysis with
subjective data (Lyon, 2000). In this study each organization had only one respondent, this can
increase the possibility of common method variance problems, which can artificially amplify
relationships (Campbell and Fiske, 1959). However, there is high like hood that the most
knowledgeable person in the organization may fill in the report which leads to valuable data
(Lyon, 2000). These characteristics should be taken into account for future research. One method
to overcome this limitation is the use of triangulation (Covin and Wales, 2011) which we suggest
to use for further research.

32
Fifth, the relationship between EO and performance is not always immediately apparent (Dess et
al, 2003) and is directly influenced by internal and external organizational contingencies and
variables (Thoumrungroje and Tansuhaj, 2005). There are other variables that are more sensitive
to the influence of EO and may therefore mediate the EO-performance relationship. Alegre and
Chiva (2009) and Baker (2009) have suggested that innovation performance is such a variable.
This research has investigated how EO affects the innovation process. Future research should
investigate how the innovation process functions as a mediating variable. This will result in a
better understanding of the proposed model by Alegre and Chiva (2009) and Baker (2009).

Sixth, were suprised that item I2 from the questionaire showed a negative correlation with the
other two items from the questionaire. The original question, adopted from Lumpkin and Dess
(2001), is formulated as follows: “Changes in product or service lines have usually been quite
dramatic”. When we translate the Dutch question into English, the question is formulated as
follows: “In our company, changes in product lines or services are asually very radical”. Both
questions ask about the same, so the explanation cannot be found in translation problems.
Futhermore this question has not led to any problem in other studies (e.g. Lumpkin and Dess,
2001; Kreiser, 2002). However, translation should be taken into account. We therefore suggest a
“double back-translation" procudure as employed by Kreiser (2002) to ensure that the questions
mean the same in both languages.

Seventh, we have adopted the EO construct as defined by Lumpkin and Dess (1996) because it is
not context specific and focuses on new entry. However, many scholars have used the EO
construct as defined by Covin and Slevin (1989) had Miller (1983). Next to these scholars, there
are many other definitions and configuration of the EO construct (George and Marino, 2011;
Rauch, 2009). Because the focal construct of EO is not clearly defined it is hard to enhance the
knowledge base (George and Marino, 2011). Before the current knowledge base of the EO
construct and its influence on the innovation process could be further enhanced, it is necessary to
come up with a uniform EO definition. This implies that future research should focus on the
dimensionality of the construct, the interdependence of its dimensions, the nature of its
dimensions and the relationship between the construct and its antecedent and consequent
construct.

33
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Appendix A – Relevant items questionnaire

Entrepreneurial Orienation

For each EO dimensions the relevant items of the questionnaire are given.

Risk taking items

R1. Vanwege de omgeving waarin wij opereren zijn er ingrijpende en risicovolle

acties nodig om de doelstellingen van ons bedrijf te halen.

R2. In onzekere situaties zetten wij alles op alles om er zeker van te zijn dat we
kansen benutten.

R3. Ons bedrijf heeft de voorkeur voor risicovolle projecten.

Innovativeness items

I1. Over het algemeen legt de directie een sterke nadruk op innovatie.

I2. In ons bedrijf zijn veranderingen in productlijnen of dienstensoorten meestal erg

ingrijpend.

I3. Ons bedrijf heeft de afgelopen 5 jaar heel veel innovaties op de markt gezet.

Proactiveness items

P1. Typerend voor ons bedrijf is dat wij acties initiëren waarop de concurrentie
reageert.

P2. Ons bedrijf is zelden de eerste die innovaties introduceert.

P3. Wat betreft de introductie van nieuwe producten of ideeën heeft onze directie de
neiging om de marktleider te volgen.

Competitive aggressiveness items

C1. In vergelijking met onze concurrenten is ons bedrijf uiterst agressief en intens
competitief.

C2. Ons bedrijf heeft als doelstelling (impliciet of expliciet) om de concurrentie hard
aan te pakken.

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Appendix B – Factor analysis EO

Table 6: Rotated factor loading on all EO items

Component
1 2 3 4
Innovativeness (3) .894
Innovativeness (1) .889
Risk taking (2) .787
Proactiveness (1) .646 .511
Competitive aggressiveness (1) .637 .431
Proactiveness (2) .589 .428
Risk taking (1) .852
Competitive aggressiveness (2) .793
Risk taking (3) .630
Innovativeness (2) -.924
Proactiveness (3) .949
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization.

Table 7: Rotated factor loadings on a selection of EO items

Component
1 2
Innovativeness (3) .880
Innovativeness (1) .852
Risk taking (2) .778
Proactiveness (1) .761
Competitive aggressiveness (1) .621 .414
Proactiveness_2 .619
Risk taking (1) .851
Competitive aggressiveness (2) .812
Risk taking (3) .642
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser
Normalization.

40
Appendix C – EO and the innovation process – control variables

Table 8: Influence EO on the innovation process - controlled for organizational age

Effect Value F Hypothesis df Error df Sig.

Intercept .550 3.771 5.000 23.000 .012

EO .659 2.378 5.000 23.000 .071

Organizational age .836 .904 5.000 23.000 .496

Table 9: Influence EO on the innovation process - controlled for organizational size

Effect Value F Hypothesis df Error df Sig.

Intercept .783 1.548 5.000 28.000 .207

EO .578 4.089 5.000 28.000 .007

Organizational Size .881 .756 5.000 28.000 .589

Table 10: Influence EO on the innovation process - controlled for industry type

Effect Value F Hypothesis df Error df Sig.

Intercept .636 2.403 5.000 21.000 .071

EO .620 2.578 5.000 21.000 .057

Industry type .498 .827 20.000 70.599 .674

41
Appendix D – EO and the innovation process steps – control variables

Table 11: Influence EO on the innovation process steps - controlled for age, size and industry

Organizational age Organizational size Industry type

Source Dependent variable F (1, 27) Sig. F (1, 32) Sig. F (1, 25) Sig.
EO IP Searching 4.564 .042 9.925 .004 3.504 .073
IP Selecting 10.138 .004 15.923 .000 9.418 .005
IP Implementing 5.901 .022 10.567 .003 7.552 .011
IP Evaluating 7.850 .009 15.335 .000 11.353 .002
IP Learning 11.337 .002 19.180 .000 9.852 .004

Table 12: Influence of the control variables on the innovation process steps

Source Organizational age Organizational size Industry type

Dependent variable F (1, 27) Sig. F (1, 32) Sig. F (4, 25) Sig.
IP Searching .275 .604 1.508 .228 .047 .996
IP Selecting .124 .727 .337 .565 .140 .966
IP Implementing 1.794 .192 2.185 .149 .830 .519
IP Evaluating .171 .682 2.387 .132 1.077 .389
IP Learning .572 .456 2.062 .161 .905 .476

42
Appendix E – The EO dimensions and the innovation process steps –
control variables

Table 13: Influence of the EO dimensions on the innovation process, controlled for age, size and industry

Control Variable Organizational age Organizational size Industry type

Effect Value F (5, 18) Sig. Value F (5, 23) Sig Value F (5, 16) Sig.
Intercept .380 5.875 .002 .698 1.991 .118 .539 2.733 .057
Innovativeness .966 .128 .984 .932 .336 .886 .854 .549 .737
Risk taking .713 1.447 .256 .851 .802 .559 .698 1.387 .281
Proactiveness .466 4.121 .011 .630 2.705 .046 .473 3.564 .023
Competitive .759 1.143 .374 .858 .763 .585 .771 .951 .475
Aggressiveness
Organizational age .784 .989 .452 - - - - - -
Organizational size - - - .960 .191 .963 - - -
Industry type - - - - - - .369 .947 .535

43
Table 14: Influence of the EO dimensions on the innovation process steps, controlled for age, size and industry

Control variables Org. age Org. size Industry type

Source Dependent Mean F (1, 28) Sig. Mean F (1, 22) Sig. Mean F (1, 27) Sig. Mean F (1, 20) Sig.
variable square square square square
Intercept IP Searching 2.384 5.630 .025 2.253 4.258 .051 .632 1.464 .237 1.647 2.933 .102
IP Selecting .705 1.102 .303 .638 .843 .369 .285 .431 .517 .411 .496 .490
IP Implementing 7.111 15.046 .001 8.283 22.750 .000 2.730 5.636 .025 4.005 10.328 .004
IP Evaluating .597 1.665 .207 1.094 3.056 .094 .136 .367 .550 .003 .007 .936
IP Learning .011 .018 .893 .205 .311 .583 .144 .240 .628 .023 .033 .858
Innovativeness IP Searching .039 .092 .764 .007 .013 .909 .010 .023 .880 .199 .355 .558
IP Selecting .262 .410 .527 9.988E-5 .000 .991 .272 .411 .527 .088 .106 .748
IP Implementing .000 .001 .978 .057 .155 .697 .010 .020 .889 .107 .275 .606
IP Evaluating .290 .809 .376 .051 .141 .710 .339 .920 .346 .193 .489 .492
IP Learning .017 .029 .865 .096 .145 .707 1.686E-5 .000 .996 .195 .286 .599
Risk taking IP Searching .100 .236 .631 .081 .152 .700 .031 .072 .790 .180 .320 .578
IP Selecting .044 .069 .795 .110 .145 .707 .030 .045 .833 .005 .006 .938
IP Implementing .053 .113 .739 .256 .702 .411 .013 .027 .871 .583 1.503 .234
IP Evaluating .466 1.299 .264 .424 1.185 .288 .337 .913 .348 .344 .870 .362
IP Learning .190 .320 .576 .231 .350 .560 .361 .601 .445 .590 .864 .364

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Control variables Org. age Org. size Industry type
Source Dependent Mean F (1, 28) Sig. Mean F (1, 22) Sig. Mean F (1, 27) Sig. Mean F (1, 20) Sig.
variable square square square square
Proactiveness IP Searching 2.026 4.784 .037 1.819 3.438 .077 1.458 3.380 .077 2.183 3.886 .063
IP Selecting 2.809 4.395 .045 2.207 2.916 .102 2.432 3.671 .066 2.038 2.456 .133
IP Implementing 3.947 8.352 .007 2.884 7.921 .010 3.113 6.425 .017 2.235 5.763 .026
IP Evaluating 5.598 15.609 .000 5.704 15.932 .001 4.671 12.653 .001 6.004 15.181 .001
IP Learning 7.205 12.109 .002 5.198 7.886 .010 5.489 9.133 .005 5.359 7.846 .011
Competitive IP Searching 1.134 2.679 .113 .538 1.018 .324 1.234 2.862 .102 1.101 1.960 .177
aggressiveness IP Selecting .957 1.497 .231 .382 .505 .485 .967 1.460 .237 .530 .639 .434
IP Implementing .004 .009 .927 .419 1.152 .295 .012 .024 .878 .070 .180 .676
IP Evaluating .196 .546 .466 .086 .240 .629 .222 .601 .445 .660 1.669 .211
IP Learning .235 .395 .535 .020 .030 .864 .311 .517 .478 .039 .057 .814
Control IP Searching - - - .190 .359 .555 .211 .490 .490 .058 .103 .980
variables IP Selecting - - - .004 .005 .943 .011 .016 .901 .045 .054 .994
Age / Size / IP Implementing - - - 1.037 2.848 .106 .152 .314 .580 .538 1.388 .274
Industry IP Evaluating - - - .187 .523 .477 .074 .202 .657 .380 .960 .451
IP Learning - - - .890 1.350 .258 .432 .719 .404 .319 .466 .760

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