Entrepreneurship Mgt (2006) 2: 21–38

DOI 10.1007/s11365-006-7087-6

Market orientation as determinant of entrepreneurship:

An empirical investigation on SMEs

Salvatore Sciascia · Lucia Naldi · Erik Hunter


C Springer Science + Business Media, Inc. 2006

Abstract Entrepreneurial Orientation (EO) and Market Orientation (MO) are considered
key factors in ensuring firm longevity in the new competitive landscape. Despite extensive
research during the past decade, most of the studies use samples that exclude small and
medium enterprises (SMEs), which represent the majority of economic activity worldwide.
Some studies do investigate this relationship in small companies but place little importance
on the subtle differences between SMEs and large companies when measuring MO. This
study empirically investigates the relationship between MO and EO on a sample of 2500
Swedish SMEs. A new measure of MO that takes into consideration SMEs specific conditions
has been developed and used. Findings suggest that MO is the main determinant of EO in
SMEs.

Keywords Market orientation . Entrepreneurial orientation . SMEs

Today companies must operate in environments characterized by increased risk, decreased

ability to forecast, and fluid firm and industry boundaries; in other words, there is a new com-
petitive landscape ruled by forces of uncertainty (Hitt and Reed, 2000). Surviving such harsh
conditions entails coping with rather than dealing with or managing complexity. Although
entrepreneurship is an old concept, research interest during the past 15 years has gained mo-
mentum (Kuratko, 2003). Not least since entrepreneurship is considered the essential lever
to cope with the new competitive landscape (Dess et al., 1997; Hitt and Reed, 2000). Uncer-
tainty also rears itself and impacts markets and marketing practices. Markets shift, overlap
and fragment as boundaries blur. Distribution channels reshape, reconfigure, and circumvent

S. Sciascia ()
ERDC—Entrepreneurship and Regional Development Center, Università Carlo Cattaneo
Castellanza—LIUC, Corso Matteotti, 22, I—21053 Castellanza, Italy
e-mail: ssciascia@liuc.it

L. Naldi · E. Hunter
Jönköping International Business School, Jönköping University, Box 1026, 551 11 Jönköping,
Gjuterigatan 5, Sweden
e-mail: {Lucia.Naldi, Erik.Hunter}@ihh.hj.se
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22 Entrepreneurship Mgt (2006) 2: 21–38

the status quo. Firms interact, compete, and collaborate for consumers whose demand is
rapidly changing. Day and Montgomery (1999), Kinnear (1999) Tackling these challenges
in a complex environment has fallen largely on the shoulders of marketers. Hence, parallel
to the growing attention found in entrepreneurship we register an increasing interest in the
field of marketing.
Scholars of both fields realized that more research attention should be paid to the in-
terface between Marketing and Entrepreneurship. In 1987 an international conference was
commenced as a common arena for debate, study, and theory building: the Symposium on
Marketing and Entrepreneurship, at the University of Chicago (Hills, 1987). The main model
representing the domain of the so-called Marketing/Entrepreneurship Interface (MEI) was
developed by Hills and LaForge (1992) and expresses how entrepreneurship and marketing
management interface throughout their core concepts. Within this stream of research much
attention is given to the relationship between Entrepreneurial Orientation (EO) and Mar-
ket Orientation (MO). The manner in which companies choose to orient themselves when
confronted with complex, uncertain landscapes is paramount to their existence. Fittingly,
pursuing and maintaining entrepreneurial and market orientations are key factors in ensuring
longevity (Miles and Arnold, 1991; Barret and Weinstein, 1998). Strangely, the linkage be-
tween these variables is not well understood despite extensive research during the past decade.
Studies measuring the effect of entrepreneurial and market orientation on business per-
formance, in isolation or in interaction, have been carried out recently (e.g. Becherer and
Maurer, 1997; Barret and Weinstein, 1998; Atuahene-Gima and Ko, 2001; Hult and Ketchen,
2001; George and Zahra, 2002; Matsuno et al., 2002; Vitale et al., 2003). These studies do not
discuss the direction of causality in the relationship between the two constructs; including
the seminal research done by Morris and Paul (1987) and Miles and Arnold (1991), which
was entirely dedicated to the link between entrepreneurial and market orientation. Moreover,
these studies use samples comprised of large firms to the exclusion of SMEs that at present
represent the majority of economic activity around the world (Karmel and Bryon, 2002).
Recent studies do investigate this relationship in small companies (e.g. Becherer and Mau-
rer, 1997; Vitale et al., 2003; Verhees and Meulenberg, 2004) but place little importance on
the subtle differences between the SMEs and large companies when operationalizing and
measuring MO.
This paper is organized into four sections. First, a theoretical model on the antecedents of
EO is developed: here MO is discussed as a determinant of EO. The second section reports
the method employed: hypotheses are tested on a sample of 2500 small and medium sized
enterprises and MO is measured by a scale specifically developed for this study. In the third
section results are presented and discussed. The final section explores the contributions and
limitation of the present study.

Theory and hypotheses development

EO and MO are two organizational orientations that in turn can be defined as “social learning
and selection mechanisms that aim to maintain coherence between management’s strategic
intent and organizational activities” (Atuahene-Gima and Ko, 2001, p. 56). Organizational
orientations are underlying philosophies that support the overall decision making process
and create an internal environment in which desired behaviors are supported and encouraged
(Miles and Arnold, 1991).
This section introduces the concept of EO and develops hypotheses on its determinants
(hypotheses #1–#7). Following this, the concept of MO is introduced along with a hypothesis
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Entrepreneurship Mgt (2006) 2: 21–38 23

concerning the relationship between EO and MO (hypothesis #8). The former set of hypothe-
ses will receive less attention, given that hypothesized relationships, as well as their causality
direction, have been largely tested by previous entrepreneurship research. Hypotheses #1–
#7 are labeled “secondary hypotheses”. The final hypothesis (#8) is labeled the “primary
hypothesis” since it forms the core of this study.

Entrepreneurial orientation

The construct EO is receiving increased attention in the field of entrepreneurship, as it is

believed to be at the heart of entrepreneurial strategy making (Dess et al., 1997). When
looking at what makes a firm entrepreneurial, scholars tend to agree with Miller (1983) that it
is their EO, a multidimensional construct encompassing firm innovativeness, proactiveness
and risk taking. Innovativeness refers to the supportive tendency towards new ideas, novelty,
experimentation, and creative processes, while departing from established practice (Lumpkin
and Dess, 1996); proactiveness is the propensity to anticipate and act on future market needs
(Lumpkin and Dess, 1996); while risk-taking is the willingness to commit large amounts of
resources to projects characterized by highly uncertain outcomes (Miller and Friesen, 1982).
The study of a firm’s EO mirrors Stevenson and Jarillo’s (1990) concept of entrepreneurial
management, as “it reflects the organizational processes, methods and styles that firms use
to act entrepreneurially” (Lumpkin and Dess, 1996, p. 139). Perhaps the most recurrent
theme among those interested in EO concerns the positive implications that entrepreneurial
processes have on firm growth and performance (Dess et al., 1997; Wiklund, 1998; Zahra
et al., 1999). Indeed, EO is regarded as the sine qua non of firms that seek to succeed
in today’s volatile and extremely dynamic business environment (Wiklund and Shepherd,
2003). Innovativeness, in its double form of product-market innovation and technological
innovation, is an important component of firm competitiveness and success, as it represents
a fundamental way for firms to pursue new opportunities (Lumpkin and Dess, 1996). The
firms’ ability to seize and act on opportunities (proactiveness) has positive performance
implications, i.e. first mover advantage (Barringer and Bluedorn, 1999). In today’s uncertain
environment, managerial support for risk taking strategies has proven successful, especially
in the long run (Wiklund and Shepherd, 2003).

Determinants of entrepreneurial orientation (secondary hypotheses)

Several studies have also focused on the relationship between EO and its determinants (Zahra
et al., 1999). These consist of a vast array of factors which range from the environment in
which the firm operates to organizational and individual variables.

Environment-related factors

EO is influenced by the environment where the company operates in several ways. First of
all, as Lee and Peterson (2000) stress, EO has strong cultural determinants. The propen-
sity for innovativeness, proactiveness and risk-taking is influenced by the national cultural
foundation, whereas economic, political/legal and social factors act as moderators in this
relationship. As Zahra (1991) explains “an environment poses challenges and offers new
opportunities to which the firms must respond [. . . ] (it) also serves as a rich source of ideas
for new product development” (p. 263). Empirically, several studies have investigated the
role of the environment in entrepreneurship. The environmental characteristics most often
considered are environmental dynamism and environmental heterogeneity (Saly, 2001).
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Environmental dynamism refers to the instability of a firm’s market due to continuous

changes in the markets for products or factor markets. As Zahra (1991) points out, dynamic
environments are loci for the emergence of new opportunities: “changes in the external mar-
kets create new windows of opportunity” (p. 263). Opportunities mainly stem from changes
in the social, political, technological, and economic environment (Drucker, 1985); innova-
tive strategies are often the response to environmental dynamics (Stevenson and Gumpert,
1985) since dynamism forces companies to change products and market or market seg-
ments to remain competitive (Davis et al., 1991). To the extent that the relationship between
environmental dynamism and EO has been tested, a positive relationship has been estab-
lished (Miller, 1983; Zahra, 1991; Wiklund, 1998). Wiklund’s (1998) study on a sample
of Swedish small firms reveals that dynamism is the most important determinant of EO.
Hence,

HP#1: Environmental dynamism is positively related to entrepreneurial orientation.

The second characteristic of the environment, heterogeneity, refers to the diversity and
variations in customers’ needs and buying behaviours (Saly, 2001). Specifically, hetero-
geneity indicates the existence of multiple segments and diversity of customers’ needs and
expectations in those different segments (Zahra, 1991). Also, in heterogeneous markets en-
trepreneurial opportunities are more likely to arise, since: “developments in one market
create new pockets of demand for a firm’s products in related areas” (Zahra, 1991, p. 263).
Market heterogeneity may produce opportunities, where developments in one market seg-
ment create demand for a product in hitherto unrelated segments (Saly, 2001). Heteroge-
neous markets induce entrepreneurship as new innovations are introduced to satisfy diverse
needs (Zahra, 1991). Empirically, support has been found for the positive relationship be-
tween environmental heterogeneity and EO (Miller, 1983; Zahra, 1991; Wiklund, 1998).
Hence,

HP#2: Environmental heterogeneity is positively related to entrepreneurial orientation.

Organization-related factors

As Zahra (1991) points out, previous studies have also demonstrated that several orga-
nizational factors have an influence on a firm’s entrepreneurial behavior. They provide
the context where opportunities might be identified, evaluated and successively exploited.
Zahra (1991) distinguishes between intangible and tangible organizational factors. In-
tangible factors mainly refer to the organization’s set of values. In the words of Zahra
(1991) “organizational values embody managerial philosophies and ideals and the for-
mal norms that guide employee behavior” (p. 267). Tangible factors relate to the for-
mal organizational structure and include features such as centralization, integration and
control.
Entrepreneurship scholars (Stevenson and Gumpert, 1985; Covin and Slevin, 1991; Zahra,
1993) believe that a lower degree of formalization spurs the emergence of new ideas. Com-
panies where operations and procedures are organized by formal rules are less likely to
facilitate innovation, since they are more oriented towards realizing processes than goals
(Barringer and Bluedorn, 1999). Experimentation and novel ideas are more likely to flow if
organizational citizens are empowered to solve problems. With low formalization, employees
are engaged in the planning process, thereby decreasing the likelihood that good ideas are
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Entrepreneurship Mgt (2006) 2: 21–38 25

neglected (Burgelman, 1983). Moreover, as employees enter a planning process free of for-
mal constraints, the willingness to express different viewpoints leads to innovation (Dutton
and Duncan, 1987). Similarly, Covin and Slevin (1988) discuss the importance of structural
organicity in entrepreneurial firms and Salvato’s (2002) study on family firms shows that the
degree of delegation and informality is positively related with EO. Hence,

HP#3: Organizational informalization is positively related to entrepreneurial orientation.

Compensation systems based on value added by employees is positively related to EO

(Salvato, 2002). Rewarding people for performance rather than responsibility or tasks incents
them to adopt a long-range perspective for their actions (Stevenson and Gumpert, 1985);
entrepreneurship has its own domain in the long term, not in the short run. Value-based
compensation leads people to communicate more, both internally and externally, and to better
scanning for opportunities that increase company value, making the whole organization more
adaptive (Miller, 1983). Hence,

HP#4: The extent to which employees are rewarded on the basis of the value added to the
company is positively related to entrepreneurial orientation.

Among organizational factors, the possession of organizational resources, as the resource-

based view suggests, enables a firm to obtain economic rents from the stock of resources
it has, and from the ability to actively exploit them in different business settings instead of
passively meeting environmental pressures (Wernerfelt, 1984; Barney, 1986). Resources can
be defined as those specific physical, human, and organizational assets that can be used to
implement value-creating strategies (Eisenhardt and Martin, 2000). It is argued that they are
at the heart of entrepreneurship: studies by e.g., Galunic and Rodan (1998), Grant (1996); and
Teece et al. (1997) investigate how resources may be recombined in determining strategic
innovation. Innovation “consists to a substantial extent of recombinations of conceptual
and physical materials that were previously in existence” (Nelson and Winter, 1982, 130).
Thus, entrepreneurship can be seen as the result of combining existing and new resources
(Schumpeter, 1934). Empirically, it has been shown that firms with abundant resources or
access to resources are more likely to have more of an EO (Covin and Slevin, 1991; Brown,
1997; Wiklund, 1998). Hence,

HP#5: Access to resources is positively related to entrepreneurial orientation.

Individual-related factors

A positive relationship has been found between individual related factors and EO (Wiklund,
1998). For instance, Miller’s (1983) investigation indicates that the entrepreneur and his/her
education have an influence on EO especially in small companies competing in homogenous
environments. Salvato’s (2002) study shows that in small family firms, where the operations
are highly controlled by the founder-owner, the background of the CEO has a strong influence
on EO.
Zahra (1993) notes that a CEO’s background and experience may be important antecedents
of a firm’s EO. For instance, industry knowledge, managerial experience and length of tenure
have been recognized as important factors in previous research (Macrae, 1992; Birley and
Westhead, 1994). Relevant experience is thought to increase the familiarity with various
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work-tasks, thus making it easier to solve problems and finding new and effective solutions.
(cf. Gustafsson, 2004). Hence,

HP#6: CEO’s experience is positively related to entrepreneurial orientation.

Empirical support for the positive impact of education on entrepreneurship and en-
trepreneurial success is scant (Storey, 1994). The effect of training and education on small
firm performance, during their development, is difficult to identify and not well understood.
Reasons for this can be found in the often inadequate, poor quality and quantity of training
provided. Siding with Drucker (1985), it is said that entrepreneurship is not magic, but a
discipline. Like any discipline, it can be learned. Better educated CEOs are more likely to
run faster-growing firms with a higher EO, relative to those who are not educated (Storey,
1994, Wiklund, 1998). Education can be seen as a source of prior knowledge that can be
crucial in identifying entrepreneurial opportunities (Shane, 2000), In addition, education will
change cognitive processes within the individual, which may provide new skills for solving
complex problems (Gustafsson, 2004). Hence,

HP#7: CEO’s education is positively related to entrepreneurial orientation.

Market orientation

Two influential contributions by Naver and Slater (1990) and Kohli and Jaworski (1990)
introduced the concept of MO. Both contributions identify MO as a key determinant of firm
success.
Narver and Slater (1990) define MO as “the organization culture that most effectively
and efficiently creates the necessary behaviors of the creation of superior value for buyers
and, thus, continuous superior performance for the business” (p. 21). Here, MO con-
sists of three dimensions: customer orientation, competitor orientation, and inter-functional
coordination.
According to Kohli and Jaworski (1990) MO describes a firm’s orientation toward the
promotion and support for the collection, dissemination, and responsiveness of market intel-
ligence to serve customer needs. Three years later, Jaworski and Kohli (1993) identified three
main elements composing MO: generation of market intelligence, sharing of this knowledge
throughout the firm, and development of a marketing response mechanism. According to
Verhees and Meulenberg (2004), this definition reflects the behavioral perspective on market
orientation. Indeed, its three constituent elements express the degree of emphasis posed by
an organization on marketing activities.
As in the case of EO, several determinants of MO have been identified. For instance,
Jaworski and Kohli (1993) found a number of internal factors positively associated with MO:
e.g. top management emphasis on risk aversion, interdepartmental conflict and contracted-
ness, centralization, and reward system orientation. Interestingly, they found the relationship
between MO and performance to be robust across different environmental characteristics,
such as dynamic markets, competitive intensity and technological turbulence.

Linking entrepreneurial orientation and market orientation

As previously mentioned, the link between EO and MO is not clearly understood. Some schol-
ars even stress that the two concepts conflict: Christensen (1997) argues that well-managed
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companies have difficulties innovating because they are rightfully preoccupied with the mar-
ket they know. Baker and Sinkula (1999) suggest that although the two orientations imply
organizational learning, EO leads to more generative learning (learning from exploration)
whereas MO leads to a more adaptive learning (learning from exploitation). In other words,
MO encourages the refinement and adaptation of incremental innovations to meet current
needs; EO supports instead the development of new products targeted at emerging needs
(Christensen and Bower, 1996). Foxall (1984) sees MO as engendering a reactive response
to customers’ needs and competitors’ actions, while EO is considered a proactive strategic
orientation that leads to the initiation of real innovation.
Moving away from these positions, the two concepts can be seen as more related than con-
flicting. Such a conviction is based on the fact that both market- and entrepreneurial-oriented
companies share the same attitude in acquiring and sharing knowledge within the organiza-
tion. According to Barringer and Bluedorn (1999) entrepreneurial firms tend to engage in
a greater level of information-scanning activities that allow them to recognize and exploit
new opportunities. Menon and Varadarajan (1992) also argue that an entrepreneurial culture
promotes knowledge sharing and utilization, a substantial part of MO. Day (1994) argues
that MO reflects a systemic effort to acquire information about customers and competitors
and to integrate this knowledge into the strategic planning process. By doing so, firms can
recognize market changes and capitalize upon emerging opportunities (Day, 1999; Slater and
Narver, 2000). Therefore, it can be stated that:
HP#8: Market orientation is positively related to entrepreneurial orientation.

The direction of causality in the relationship between EO and MO was not analyzed
in previous studies. This paper aims at clarifying this aspect with support from a theoreti-
cal framework that conceives MO as an antecedent to EO. A convincing theoretical rational
within the field of marketing is the Resource-Advantage theory of competition. Introduced by
Hunt and Morgan in 1996 and borrowing heavily from the Austrian School, it was utilized by
Morris, Schindeutte and LaForge (2002) for giving a theoretical basis to their Entrepreneurial
Marketing construct. Their theory states that the traditional economists’ perfect competition
model does not reflect the real-world dynamics recognized by the Austrian School: mar-
kets are in continuous disequilibrium; demand is heterogeneous and dynamic; resources are
heterogeneous and imperfectly mobile; information is imperfect and costly. Competition is
an ongoing struggle among firms to achieve a comparative advantage in resources that will
ultimately produce a sustainable competitive advantage in the market. The source of advan-
tage is derived from innovation, which is therefore seen as endogenous to competition. More
specifically, successful firms will be those able to either create value more efficiently or to
efficiently create more value for customers; this represents the link to entrepreneurial behav-
ior. Entrepreneurship is the conduit by which firms discover, create, or assemble resource
assortments that allow them to produce valued market offerings (Morris et al., 2002).
Such a theory considers competition as an evolutionary process and conceives firms as
unique entities in time and space, resulting from their history (Hunt and Morgan, 1996). Mar-
keting can facilitate the ability of the firm to create new resources, enhance the productivity of
current resources, and by championing innovation that leads to new resource combinations.
Resources are broadly conceived, including culture, knowledge and competencies: these
categories of resources are the most valuable, since they are more difficult to transfer than
physical ones. Competition is considered as a knowledge discovery process, where knowl-
edge is the main category of resources whose combination results in innovation. Building on
these theoretical grounds, we see MO as a determinant of EO.
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Research method

Sample

The hypotheses were tested on a stratified probability sample of 2455 firms, designed to
represent privately owned small and medium sized firms (up to 250 employees) in Sweden.
Micro-firms (with less than 10 employees) are not included in the sample. According to
Brown, Davidsson and Wiklund (2001), they are not suitable for studies on firm-level en-
trepreneurship, since their EO is extremely influenced by individual-related factors, thus
introducing noise into the study of the effects of organization-related factors such as MO.
The sample was framed and selected by Statistics Sweden (the Bureau of Census) on behalf of
Jönköping International Business School (JIBS). The sample was stratified according to the
following criteria: a) industrial sector based on ISIC codes (manufacturing, whole-sale/retail,
and services): b) employment size class (10–49, 50–249, following the European Union’s
cut-off for small and medium-sized enterprises, respectively); and c) corporate governance
(independent firms, members of company groups with fewer than 250 employees, and mem-
bers of company groups with 250 employees or more. The data collection was carried out
by JIBS between March and April 1997. The target respondent was the CEO. Two survey
instruments were used to collect information from respondents: a phone interview and a mail
questionnaire. Out of the 2455 firms selected for the initial sample, 2034 were interviewed
by phone in March 1997, yielding a response rate of 82.9%. Reasons for non-response are
known: 121 companies were excluded for technical reasons (i.e. the same person was the CEO
for more than one company, the CEO was foreigner or could not answer the questionnaire
in Swedish); 30 companies had suspended their operations or changed their legal status; 166
refused the interview and 103 could not be reached by any means. A chi squared test, com-
paring responding and non-responding ventures by size class was performed to determine
the absence of response bias. This test was not significant, ( p = .73), indicating no signif-
icant relationship between the participation in the study and the size class (10–19; 20–49;
50–99, and 100–250 employees). The phone interview served primarily as a source of gen-
eral information on a given respondent: i.e., the CEO’s age, gender, background and level of
education, firm ownership structure, and financial performance. A month later, in April 1997,
a follow up questionnaire was sent by mail. The questionnaire was specifically developed to
gather information about respondent behavior, practice and orientation. The mail question-
naire was returned by 1283 respondents. The overall response rate was 52.2%. Using a t-test,
responding companies were compared to non-responding ventures on two known attributes:
age (t = 0.52, p = .60) and sales (t = 0.35, p = .72). Additionally, to examine the response
bias by size class a chi squared test was conducted ( p = .83), but was not significant. These
results suggest that responding and non-responding firms were not significantly different in
terms of known, key attributes. From this sample a sub-sample of 1671 firms was extracted
consisting of independent firms. Out of these 1671 firms, 1304 responded to the phone ques-
tionnaire and 1123 returned the mail questionnaire. Also in this case, tests were performed
to compare responding and non-responding ventures. A chi square test was used to compare
responding and non- responding independent firms to the phone interview by size class (10–
19; 20–49; 50–99, and 100–250 employees). This test was insignificant ( p = .73) indicating
no significant relationship between participation in the phone interview and size class. Next,
t-tests were performed to compare responding and non-responding independent firms to
the mail questionnaire. These tests indicate that responding and non-responding inde-
pendent firms did not differ significantly in their age ( p = .61) and sales ( p = .71).
Additionally, to examine the response bias by class size to the mail questionnaire a chi squared
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Table 1 Samples used in previous studies

Study Sample size Companies size

Atuahene-Gima and Ko, 2001 181 Any

Barret and Weinstein, 1998 142 Medium and large (employees > 25)
Becherer and Maurer, 1997 215 Small (employees = 15 on average)
George and Zahra, 2002 457 Any
Hult and Ketchen, 2001 181 Large (turnover > 100 Million Dollars)
Matsuno, et al., 2002 1000 Large (no other information)
Miles and Arnold, 1991 69 Any
Morris and Paul, 1987 116 Medium and large (employees > 110)
Verhees and Meulenberg, 2004 152 Small (turnover = 450.000 Euros on average)
Vitale et al., 2003 89 Any

test was conducted ( p = .83), but was not significant ( p = .83). These results indicate that
there are no significant differences between responding and non-responding independent
firms in terms of several attributes. The decision to consider only independent companies
was taken because it was determined that EO would be easier to isolate in this context, thereby
reducing noise from companies that were strongly influenced by their portfolio.
As shown in Table 1, the sample is considerably larger than others used for studying the
EO/MO relationship and includes both small and medium enterprises. Still, the selection
of independent firms suggests caution in making generalizations to independent small and
medium sized firms located outside Sweden.
This database was originally created for a research program at JIBS. Entrepreneurship
issues and governance features were the primary focus of the data collection. This database
is therefore suitable for the current purpose. Some of the measures used have been tested
before. For instance, the reliability of all multiple item scales have been tested and validated.
However, it is acknowledged that since it was not specifically developed for the purpose of
this study, it could be a limitation.

Research techniques

In order to test the hypotheses a regression analysis was conducted where EO is the dependent
variable and MO is one of the independent variables, along with the most commonly used
independent variables adopted in the entrepreneurship literature: environment-related vari-
ables; organization-related variables; and individual-related variables. Figure 1 represents
the regression model tested. A correlation analysis between EO and MO was performed to
compare the current findings with those of previous studies.

Measures

Market orientation: A new measure.

Market Orientation is measured with an index of five items (α = 0.80). Each item on a seven
point Likert scale measures the position of the company compared to its competitors in terms
of marketing expertise. The questions utilized for measuring MO are as follows:
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30 Entrepreneurship Mgt (2006) 2: 21–38

Fig. 1 The regression model

How strong is the position of your company compared to the competitors regarding:

r Expertise in marketing?
r Special expertise in customer service?
r Innovative marketers?
r Staff educated in giving superior customer service?
r Staff capable of marketing your products/services well?

This measure was originally developed in order to overcome a methodological pitfall

that characterizes previous research. After the seminal study by Morris and Paul (1987)
MO was measured as an index of items including: the presence and scope of the marketing
research function; the use of customer surveys prior to new product development; the placing
of responsibility for new product development in the marketing department; the percentage
of management level personnel with marketing experience; the identity of the departments
responsible for various marketing activities; and the title, organizational status and committee
membership of the senior marketing executive. Further revision of MO was done by Kohli,
Jaworski and Kumar (1993) and their measure has been further adopted by marketing and
entrepreneurship scholars.
A deliberate decision was made to exclude these measures in this study since they build
on the assumption that the investigated companies are big enough to have a marketing depart-
ment. These measures are therefore not suitable for samples that include small firms: here
the marketing activity is not assumed to be a specialized activity requiring its own marketing
department.
It is generally accepted that marketing practices differ between small and large firms
(Carson et al., 1995), mainly because small firms have limited resources specifically dedicated
to marketing activities (Schollhammer and Kuriloff, 1979). Moreover they are characterized
by less rigid and sophisticated organizational structures (Carrier, 1994) and by a larger
involvement of the owner/entrepreneur (Carson et al., 1995). On the basis of this evidence,
scholars have often concluded that small companies fail in embracing the marketing concept,
lacking not only a market orientation, but a more general strategic orientation (Weinrauch
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et al., 1991). Siding with Coviello et al., (2000), it is argued that these reflections cannot be
accepted when marketing is considered under a new perspective.
In the past 15 years, the relational perspective on marketing has overshadowed the transac-
tional perspective. Considered in a traditional sense, marketing is the process of planning and
executing the conception, pricing, promotion and distribution of ideas, goods and services
to create and satisfy individual and organizational objectives (AMA, 1985). The relationship
paradigm instead conceives marketing as the process of identifying, establishing, maintain-
ing and enhancing relationships with customers and other stakeholders, so that the objectives
of all parties involved are met (Gronroos, 1990). Under this new perspective, marketing and
market orientation are not constrained by the functional boundaries of the marketing depart-
ment, but cross all functions and levels within the firm (Coviello et al., 2000). Marketing
goes beyond the formalization of organizational departments, especially in small firms. This
means that having no marketing department or gathering marketing information without
formal processes does not imply having a low market orientation. It is plausible that many
businesses are implementing the marketing concept and have a market orientation unawares
(Mezious, 1991). Most SMEs are doing marketing, albeit according to their own terms and
requirements, not according to the traditional theoretical approach (Siu and Kirby, 1998). It is
therefore prudent to move away from traditional measures of MO in order to capture informal
elements of MO, especially in companies that do not have a formal marketing function.

Other variables.

Entrepreneurial Orientation is measured by a slightly modified version of the nine items,

seven point Likert scale measure (α = 0.75) developed by Covin and Slevin (1989). Lyon
et al., (2000) classify EO measures into three types: managerial perceptions, firm behaviors,
and resource allocations. This study embraces the first type by investigating managerial per-
ceptions on three types of organizational behaviors: risk taking in the face of uncertainty;
extensiveness and frequency of product innovation; firm’s propensity to proactively com-
pete with other industry rivals. For each type of organizational behavior, respondents are
provided with a set of forced choice scales and asked to mark the position in a seven point
continuum that best represents their firm’s behavior. Following Brockmann and Simmonds
(1997), CEO’s experience was operationalized using the age of the CEO. The CEO educa-
tion variable measures to what extent the company CEO had formal education in business
administration (Ruokolainen, 2005). Access to resources is measured by a seven point Likert
scale where the respondents value the access to resources of their firm in terms of plants and
equipment, compared with other competitors in the same industry. Of course, this measure
appears reductive, since it assesses only the access to physical resources and ignores the in-
tangibles. Nevertheless, some scholars (Foss, 1997; Andersen and Kheam, 1998) argue that
there are several examples where physical assets—tangible resources—are extremely impor-
tant for firm development. Recent empirical investigations show that tangible resources are
key determinants of firm success (Fahy, 2002; Galbreath, 2005). Following Salvato (2002),
informalization is constructed on a five-item index. Each item is a bipolar rating scale along a
ten point continuum asking opposite questions on organizational systems for control and for-
malization (α = 0.78). Adhering to Salvato (2002), Value-based Compensation is measured
on a three-item index. Each item consists of a bipolar rating scale along a ten point continuum
asking opposite questions regarding rewards for entrepreneurial behaviors (α = 0.59). The
measures of perceived environment, dynamism and heterogeneity, were taken from Miller and
Friesen (1982). Specifically, in measuring Environmental Dynamism a four-item index was
developed. Each item, used a 5-point Likert scale and measured the respondent’s perception
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32 Entrepreneurship Mgt (2006) 2: 21–38

of industry growth rate (α = 0.69). Environmental Heterogeneity is measured by a three-item

index. Each item records the respondent’s perception of differences in customers’ needs and
expectations on a seven point Likert scale (α = 0.85).

Analysis

Regression analysis was used to test hypotheses. A condition for applying such a technique is
not to have multi-collinearity among variables. A preliminary check was performed, starting
with analyzing the correlation among the control variables. Multi-collinearity was not a
serious problem because the correlation coefficients ranged from −0.08 to 0.38. Table 2
reports results from the hierarchical regression analysis. Missing data have been deleted
stepwise.
Steps 1, 2, 3 and 4 relate to those variables considered in secondary hypotheses. In step
1 individual-related variables were entered; organization-related variables in steps 2 and 3;
environment-related variables in step 4. F changes are all significant in each step, as well as
each regression coefficient ( p < 0.001). MO was introduced in step 5. The adjusted R square
value after this last step was 0.255, with a significant F value ( p < 0.001): this expresses
that the overall model is meaningful.
All but one of the regression coefficients are positive and significant ( p < 0.001), thus
confirming all hypotheses except for hypothesis #6. The regression coefficient for MO is
both positive and significant ( p < 0.001). Thus: Market Orientation is positively related to
Entrepreneurial Orientation. Correlation analysis confirms this result: the Pearson coefficient
is 0.3, and significant at the 0.01 level. It should be noted that the regression coefficient for
MO was the highest of all regression coefficients: this suggests that MO, within this model,
is the most relevant determinant of EO.

Findings and discussion

The secondary hypotheses (#1–#7), confirm results of previous research already discussed in
the theoretical section, and as such require no further discussion. Specifically, environmen-
tal dynamism (#1), environmental heterogeneity (#2), organizational informalization (#3),
employees’ reward on the basis of the value added to the company (#4), access to resources
(#5) and CEO education (#7) are significant predictors of EO. However hypothesis #6, on

Table 2 Results of regression

analysis Step Variable Standardized coefficient

1 CEO experience −0.071***

CEO education 0.046***
2 Resources 0.162***
3 Organizational Informalization 0.135***
Value-based Compensation 0.117***
4 Environmental dynamism 0.187***
Environmental heterogeneity 0.131***
∗ p < .05. 5 Market Orientation 0.209***
∗ ∗ p < .01. R Square = 0.255***
∗ ∗ ∗ p < .001.
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Entrepreneurship Mgt (2006) 2: 21–38 33

the association of CEO’s age and EO, could not be confirmed by this study. The lack of a
confirmatory result might be explained by the measurement used: CEO’s age used a proxy
of CEO’s experience. Although experience increases with age, age per se might negatively
influence EO (Wiklund, 1998). Motivation may decrease with age, thus reducing the pro-
clivity for innovation. In addition to this, growth-orientation decreases with age (Cragg and
King, 1988). Similarly, although hypothesis #7, is confirmed, CEO’s education is not strongly
correlated to EO. In summary, it seems that individual-related variables cannot be consid-
ered as main determinants of EO. These results confirm Wiklund’s (1998) findings, which
also indicate that the resources and capabilities of the entrepreneur have the least impact
on EO.
With a primary focus on hypothesis #8, this study illustrates how two core concepts within
the disciplines of marketing and entrepreneurship, EO and MO, are related. Empirical evi-
dence was found to suggest a positive correlation between MO and EO (Pearson’s coefficient
.3 at a .01 significance level); this corroborates the findings of Miles and Arnold (1991, p.
59) who found EO to be significantly correlated with MO (Pearson’s coefficient .518 at .01
significance level) and Morris and Paul’s (1987, p. 256) study that found a correlation of .238
at a .028 significance level.
According to the tested regression model in this study, individual-related, organization—
related and environment-related factors are relevant predictors of EO, confirming the results of
current research on EO. Nevertheless, MO—which can be considered an organization-related
variable—appears to be relatively more important than any other variable in explaining EO.
It can therefore be stated that MO is the core determinant of EO. This implies that managers
concerned with maintaining or imbuing an entrepreneurial spirit within their company may
find it appropriate to begin by examining the firm’s market orientation and marketing oper-
ations. Developing a MO seems to be the first move in sustaining entrepreneurship within
companies.
After MO, environment-related variables are relatively more influential than others in
explaining EO. This is in line with conceiving dynamic, hostile and complex environments
as the source of entrepreneurial opportunities. The other organization-related factors con-
sidered are relatively influential, confirming the need for informalization and value-based
compensation systems in enhancing entrepreneurial processes within companies.
These findings are in line with those expected from Resource-Advantage theory. It is
argued that the new competitive landscape calls for strategies driven by an entrepreneurial
way of thinking (Morris and Kuratko, 2002). Companies compete on resources and com-
bine them in innovative ways to enhance prospects (Hunt and Morgan, 1996; Hunt, 2000).
A Market Orientation, consisting of scanning the environment with a particular con-
cern for customers, enhances the possibility of discovering entrepreneurial opportunities.
It permits a faster and more intimate understanding of those resources that are critical
for success while also providing a heuristic for choosing the main ‘ingredients’ of new
combinations.
These results have clear implications for small business managers. Even though many
entrepreneurial opportunities are located in a firm’s environment, they can be captured if
companies are led according to certain organizational principles. It can be helpful to have
a flexible organization, that can change shape in time of need, and to reward employees on
the basis of their results in the value-creation process. Nevertheless, the main organizational
lever to use is the development of a MO. This means that entrepreneurial opportunities can be
spotted if the company is market-oriented, which in turn facilitates understanding of market
needs. Fundamentally, this understanding of market needs through a MO is akin to continuous
scanning of the environment, which generates opportunities.
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34 Entrepreneurship Mgt (2006) 2: 21–38

The essence of opportunity is knowledge: external knowledge is at the heart of the en-
trepreneurial process (Shane, 2000) and MO maximizes the probability that a firm acquires
useful knowledge for developing innovation. External knowledge has a two-fold role in the
entrepreneurial process: on the one hand, once internalized it can be used as a resource to
be combined with others; on the other, it could be a tool for understanding which resources
should be acquired and/or used for new combinations. A market-oriented company, contin-
uously scanning the environment for the acquisition of external knowledge, is more likely
to survive and prosper in the new competitive scenario. Continuously looking for market-
related knowledge could make opportunity discovery and exploitation easier: market-related
know-what is a necessary condition for spotting opportunities; market-related know-how is
a condition for their effective pursuit.
How to develop MO within companies then? This is a challenge for business leaders re-
sponsible for the survival and prosperity of firms. Such a challenge is even more pronounced
for those who run the smallest companies. In these companies, the common lack of organi-
zational formalizations should be used as a lever for permitting marketers to form the core of
the organization. In addition to performing market analyses, advertising, and sales, marketers
should also integrate with those organizational units responsible for the development of new
products. In conjunction with their added responsibility, they should be trained, evaluated,
and rewarded on the basis of their capacity to develop a MO throughout the organization. At
the same time, every employee should be treated as a marketer. People should be considered
as potential receptors of valuable information and should be explicitly encouraged to acquire
external know-what and know-how.

Concluding remarks

The contribution of this study to research on EO and MO is threefold. First, the relationship
between EO and MO was discussed and tested. Building on Resource Advantage theory the
relationship and direction of causality between these two concepts was suggested. Second,
due to a wide sample of about 2500 firms that included SMEs, the results provide researchers
and practitioners a high degree of generalizabilty.
Third, in order to run the study on a sample that includes SMEs a new operationaliza-
tion of MO is provided that goes beyond the presence of a formal marketing department in
the investigated companies. Whereas previous studies have operationalized MO to include
measurements of formal functions such as cooperation between divisions, the current oper-
ationalization of MO isolates individual actors and their behavior in companies that may or
may not have formalized marketing functions, such as SMEs.
This paper shows that within the field of marketing we can borrow both theories and tools to
better understand and implement entrepreneurship. Entrepreneurship scholars can learn from
theories and methodologies employed in other disciplines (Shane and Venkataraman, 2000),
and this can contribute to the development and legitimization of the field. The authors of this
paper share the sentiment with Low (2001) that erecting barriers between entrepreneurship
and other disciplines is not desirable nor is it even possible for the complex characteristics of
the phenomenon it studies: entrepreneurship is multidisciplinary in nature and an integrative
area of inquiry. This consideration is even more reasonable if we ponder the relationship
with the field of marketing: the two fields share concepts and interests and therefore are in
a position to cross-fertilize successfully. Indeed, the field of marketing is already realizing
the benefits of adopting entrepreneurship concepts (e.g. the development of Entrepreneurial
Marketing).
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Entrepreneurship Mgt (2006) 2: 21–38 35

This study is not without its limitations. First of all, the hypotheses have been tested only
in Sweden; moreover, data were collected in 1997 and may not portray the current situation
of Swedish SMEs. Second, it builds on the assumption that EO implies higher performance,
which of course is not understood. Third, according to Kreiser et al., (2002) using an aggregate
measure of EO, although commonplace in Entrepreneurship research, is not recommended
in many research situations and settings, including cross cultural and international settings
(Kreiser et al., 2002; Marino et al., 2002). Fourth, the relationship between EO and MO
has been investigated in its simplest configuration (linear dependence). Finally, the main
limitation of this study consists in the cross-sectional nature of data. Testing the hypotheses
on longitudinal data would increase the reliability of these results. This would enable the
authors to complement the theoretical discussion on the direction of causality between EO
and MO.
On the basis of these reflections, further research should:
1. Test the hypotheses on different samples, embracing not only Swedish companies;
2. Test the hypotheses on longitudinal data;
3. Include performance in the analysis;
4. Assess the interaction between the three sub-dimensions of EO and eventually account
for cross-cultural variances;
5. Develop more complex ways of studying the relationship: as suggested by Barrett et al.,
(2000) marketing-related variables could exert a moderating role between entrepreneurship
and performance.

Acknowledgments The present paper benefited from a grant by Fondazione Banca del Monte di Lombardia.
We also kindly express our deepest gratitude to the Knut and Alice Wallenberg Foundation, without which
an empirical study of this magnitude would not have been possible. We are indebted to Gerald Hills, Morgan
Miles, Guido Corbetta, Carlo Salvato, Massimiliano Serati, and Domingo Ribeiro for their insightful comments
and to the two anonymous reviewers who provided invaluable feedback.

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