1991 Predictors and Financial Outcomes of Corporate Entrepreneurship An Exploratory Study

PREDICTORS AND
FINANCIAL OUTCOMES
OF CORPORATE
ENTREPRENEURSHIP=
AN EXPLORATORY STUDY
SHAKER A. ZAHRA
George Mason University
To&y, there is considerable scholarly and managerial interest in corporate

EXECUTIVE entreureneurshiu; that is. those activities that enhance a comoanv’s
. , abilitv
~,
SUMMARY to innovate, take risk, and seize opportunities in its markets. Corporate
entrepreneurship centers on creating new business by penetrating new
markets, pursuing new business, or both.
Despite the growing recognition and use of corporate entrepre-
neurship, little empirical research has been done on its antecedents and potential association with
company financial pe~ormance. To fill this gap in the literature, this study proposes a model that
identifiespotential environmental, strategic, and organization&factors that may spur or sttfle corporate
entrepreneurship. The model also highlights the potential associations between corporate entrepre-
neurship and corporate financial performance.
Building on the existing literature, the study advances jve hypotheses that operationalize the
model. The hypotheses are tested using data from I19 of the Fortune 500 industrial firms, covering
the period 1986 to 1989. This exploratory study’s results indicate that: (I) environmental dyna-
mism, hostility, and heterogeneity (multiplicity and complexity of environmental components) inten-
sify corporate entrepreneurship; (2) growth-oriented strategies are associated with increased cor-
porate entrepreneurship, whereas a strategy of stability is not conducive to corporate entrepreneurship;
(3) the scanning, formal communication, and integration components of formal organizational structure
are positively related to corporate entrepreneurship-increased dtferentiation and extensive con-
trols stifle corporate entrepreneurship; (4) clearly defined organizational values, whether relating
to competitors or employees, are positively associated with corporate entrepreneurship; and (5)
Address correspondence to Prof. Shaker A. Zahra, Department of Management, School of Business Admin-
istration, George Mason University, Fairfax, VA 22030.
I acknowledge with appreciation the helpful comments by Jeff Covin, Ari Ginsberg, Dan Jennings, William
Schulte, Jr., and two anonymous reviewers on earlier drafts of this paper. Katherine Swenson, Jaideep Puri, and
Patricia H. Zahra’s editorial suggestions have also improved this manuscript significantly. I gratefully acknowledge
the financial support from George Mason University and its School of Business Administration.
Journal of Business Venturing 6, 259-285

0 1991 Elsevier Science Publishing Co., Inc., 655 Avenue of the Americas, New York, NY I0010
259
260 S.A. ZAHRA
corporate entrepreneurship activities are associated with company financial performance and re-
duced systematic risk.
INTRODUCTION
The 1980s witnessed the emergence of corporate entrepreneurship as a centerpiece in or-
ganizational efforts aimed at enhancing product innovativeness, risk-taking, and proactive
responses to environmental changes (Covin and Slevin 1988; Miller 1983; Pinchot 1985;
Slevin and Covin 1989; Wortman 1987). Corporate entrepreneurship offered a means of
revitalizing large corporations’ ability to innovate and compete effectively, improve employee
morale and productivity, enhance financial performance, and reduce business risk (Serpa
1987). However, despite the proliferation of writings on the topic, only a few studies have
systematically examined the effect of corporate entrepreneurship on company performance
(e.g., Biggadike 1979; Block 1989; Miller and Camp 1985; Zahra 1986). As a result,
evidence on the utility of corporate entrepreneurship has been tentative and largely testimonial
in nature. This has raised concern that corporate entrepreneurship was fast becoming a
managerial fad (Duncan et al. 1988). Also, this absence of credible evidence on the utility
of corporate entrepreneurship has been compounded by a lack of attention to identifying its
antecedents. Thus, conditions under which corporate entrepreneurship becomes viable are
unclear. For this reason, executives looking to the literature for guidance on corporate
entrepreneurship will find it replete with case studies and illustrative examples that lack a
unifying framework. Such a framework is essential to set the stage for research on corporate
entrepreneurship, and for guiding executive actions to stimulate corporate entrepreneurship.
OBJECTIVE AND FOCUS

This exploratory study addresses two questions: (1) what are the antecedents of corporate
entrepreneurship? and (2) what is the association between corporate entrepreneurship and
company performance? To answer these questions, this study presents and empirically tests
a model of the precursors and effects of corporate entrepreneurship in large, well-established
organizations. The model posits that a combination of environmental, strategic, and com-
pany-related variables jointly influences corporate entrepreneurship efforts. Therefore, whereas
each variable may independently influence corporate entrepreneurship, only by examining
their simultaneous effects can corporate entrepreneurship’s major precursors be reliably
understood. A second proposition underlying the model is that pursuit of corporate entre-
preneurship is positively associated with superior corporate financial performance. To set
the stage for this research, and appreciate the value of the proposed model and this study’s
empirical findings, corporate entrepreneurship must first be defined.
CORPORATE ENTREPRENEURSHIP
Today, there is no universally acceptable definition of corporate entrepreneurship (Jennings
and Lumpkin 1989; Wortman 1987). Authors use many terms to refer to different aspects
of corporate entrepreneurship; intrapreneurship (Pinchot 1985), internal corporate entrepre-
neurship (Schollhammer 1982), corporate venture (Ellis and Taylor 1987), and internal
corporate venture (Burgelman and Sayles 1986). Regardless of the label, corporate entre-
preneurship refers to the process of creating new business within established firms to improve
CORPORATE ENTREPRENEURSHIP STUDY 261
organizational profitability and enhance a company’s competitive position (for a review, see
Ronen 1988) or the strategic renewal of existing business.
Corporate entrepreneurship entails creating new business by redefining the firm’s prod-
ucts (or services) or by developing markets. Redefinition of a firm’s products involves revising
the concept of the existing business by developing or introducing new products, services,
or technologies (Rule and Irwin 1988). Revising the business occurs through adding new
business to a firm’s portfolio through acquisitions and joint ventures, or internal develop-
ments, product introductions, and market development, or both. For instance, Boeing has
recently established a joint venture (with two other companies) to market the financial
packages Boeing offers its customers.
Within the context of corporate entrepreneurship, market development can occur by
locating new markets for existing products (MacMillan and Day 1987). An example is
Heinz’s recent emphasis on the institutional market, such as prisons, to increase ketchup
sales (Kotler 1989). Market development can also occur through creating markets for products
newly developed by the firm, as in Rubbetmaid’s recently formed joint venture with a Dutch
chemical group, DSM, to produce and market housewares and plastic furniture in Europe,
the Middle East, and North Africa. The same principle underlies McDonnel Douglas’ venture,
which will sell IBM products to its customers, thereby providing additional services to
Douglas’ existing markets (Kanter 1990).
Creation of a new business through market and product developments requires risk-
taking and careful articulation of the firm’s competitive posture or altering the rules of the
competitive game (Murray 1985). Therefore, corporate entrepreneurship also embodies ad-
ministrative processes aiming to seize opportunities in the firm’s competitive environment
(Ellis and Taylor 1987; Zahra 1989). These innovative managerial practices can take place
at almost every functional area within the corporation, with the intent of creating momentum
to increase innovations in products or markets (Morris et al. 1988). Thus, corporate entre-
preneurship takes place at the corporate, division (business) or project levels in a company
(Morris and Gordon 1987). A noteworthy example of such functional corporate entrepre-
neurship is Zenith Electronic’s marketing venture with Hewlett-Packard, whereby Zenith
has expanded its laptop market presence.
Corporate entrepreneurship activities can be internally or externally oriented
(MacMillan et al. 1986). Internal activities are typified as “the development within a large
organization of internal markets and relatively small and independent units designed to
create internal test-markets or expand improved or innovative staff services, technologies,
or production methods within the organization” (Nielson et al. 1985, p. 181). These ac-
tivities may cover product, process, and administrative innovations at various levels of
the company (Burgelman and Sayles 1986; Kanter 1989; Zahra 1989). External efforts
entail mergers, joint ventures, or acquisitions. For example, in 1984, Rubbermaid entered
the toy industry by acquiring Little Tikes, a successful toymaker. Even though internal
and external corporate entrepreneurship complement each other, the factors that lead to
their pursuit are not well understood.
Whether internal or external in focus, corporate entrepreneurship activities can be
formal or informal (Burgelman and Sayles 1986). Although some firms designate a unit
to spearhead corporate entrepreneurship activities, not all initiatives originate from these
units. Informal efforts occur autonomously, with or without the blessing of the official
organization (Ronen 1988). Such informal activities can result from individual creativity
or pursuit of self-interest, and some of these efforts eventually receive the firm’s formal
recognition and thus become an integral part of the business concept (Burgelman and Sayles
262 S.A. ZAHRA
1986). Because informal projects are so pervasive, a comprehensive definition of corpo-

rate entrepreneurship must incorporate both formal and informal aspects of corporate ven-
turing, as follows:
Corporate entrepreneurship refers to formal and informal activities aimed at creating new
business in established companies through product and process innovations and market
developments. These activities may take place at the corporate, division (business),
functional, or project levels, with the unifying objective of improving a company’s
competitive position and financial performance. Corporate entrepreneurship also entails
the strategic renewal of an existing business.
CORPORATE ENTREPRENEURSHIP CORRELATES

Building on the literature, Figure 1 suggests that a firm’s external environment, corporate
strategy, and internal organizational factors may influence the intensity of corporate entre-
preneurship activities. Each of these sets has multiple components that vary in their potential
association with corporate entrepreneurship. An understanding of these potential antecedents
would require attention to their joint effect.
Environment
Companies innovate and venture in anticipation of, or response to, their external environment
(Zahra 1986). An environment poses challenges and offers new opportunities to which firms
0 Dynamism -B
l Hostility
a Heterogeneity
Corporate
Grand Strategy
Financial
Performance
l Accounting
0 Market
Organization
structure
0 Communication
0 Scanning
l Integration
l Differentiation
0 Control
Values
FIGURE 1. A model of predictors and financial outcomes of corporate entrepreneurship.

must respond creatively through corporate entrepreneurship. An environment also serves as

a rich source of ideas for new product developments. Suppliers, buyers, and competitors
provide incentives for companies’ innovation and venturing.
Dynamism refers to the perceived instability of a firm’s market because of continuing
changes (Keats and Hitt 1988). Opportunities emerge from the dynamism of an industry
where social, political, technological, and economic changes bring about new developments
that can enrich a company’s niche.
Increased dynamism is hypothesized to be conducive to the pursuit of corporate en-
trepreneurship, because dynamism creates opportunities in a firm’s markets, as in the pack-
aged-goods industry which introduced over 10,000 new products in 1988 alone (Fannin
1989). Changes in the external environment open many new windows of opportunity, thus
spurring a company’s quest for new innovative ventures to benefit from these developments.
Dynamism also intensifies rivalry by encouraging entry into the market. This entry is usually
supported by newer technologies and innovative marketing practices than those already in
the industry (Oster 1990). When entry occurs and competition intensifies, the environment
becomes volatile, thereby increasing the risk of failure for companies (Keats and Hitt 1988).
To cope with this volatility, companies may diversify into new fields, thereby altering their
concept of business. Still, others may emphasize internal developments (new products) for
existing markets, or engage in new marketing, production, or administrative processes to
control cost and expedite response to the environment (Haskins and Petit 1988). Corporate
entrepreneurship helps to respond to these new competitive forces, either through innovations
or imitating competitors’ practices. As a result, companies that view their environments as
dynamic will emphasize corporate entrepreneurship, as depicted in Figure 1.
A hostile environment creates threats to a firm’s mission, through increasing rivalry
in the industry or depressing demand for a firm’s products (or services), thereby threatening
the very survival of the firm. Hostility denotes the perceived adverseness of an environment
for a firm’s mission (Miller and Friesen 1984).
Environmental hostility is also expected to stimulate the pursuit of corporate entre-
preneurship. Faced with unfavorable environmental conditions, a company may opt to dif-
ferentiate its products through intensive marketing and advertising activities in order to
sustain customer loyalty or increase penetration of existing segments. And, if hostility
continues to intensify in the firm’s principal markets, these companies consider novel business
ideas to replace or supplement their additional business core through internal developments,
external joint venturing, or diversification (Keats and Hitt 1988). Heinz offers a case in
point. Known for its ketchup business, Heinz also had a baby food division. With rising
concern over health and slowing birth rates, Heinz’s two primary divisions were experiencing
declining sales and profits. To reverse this trend, Heinz has embarked on a dual program
of internal developments and acquisitions. Schmid (1989), Heinz’s CEO, summarizes the
thrust of internal development as being “Our low-cost operator programs, marketing of big
brands, and development of new products . . .” (p. 17). Acquisitions involved Weight
Watchers, Friteco, Inc. (later expanded into Ore-Ida Vended Products, Inc.), and a number
of acquisitions in the pet food market (e.g., g-Lives). The company has used these acqui-
sitions to strengthen its position in the USA and abroad. Overall, as depicted in Figure 1,
increased environmental hostility in a firm’s primary industry is predicted to be associated
with increased pursuit of corporate entrepreneurship.
Opportunities also emerge from the heterogeneity of the environment, where devel-
opments in one market create new pockets of demand for a firm’s products in related areas.
Heterogeneity indicates the existence of multiple segments, with varied characteristics and
264 S.A. ZAHRA
needs, that are being served by the firm. Hence, a heterogeneous environment is perceived
to be complex because of the multiplicity of the needs with which the company must contend
(Dess and Beard 1984). In particular, “This dimension refers to the number of different
organizationally relevant attributes or components of the environment” (Miles 1980, p. 223).
For instance, two companies may compete in the same industry and serve the same customer
groups but will perceive the environment quite differently. One firm may perceive the
environment as manageable (simple); the other views it as complex and uncontrollable.
These perceptual differences arise from the experience of companies with the external
environment.
Increased environmental heterogeneity is predicted to be associated with greater use
of corporate entrepreneurship. Heterogeneity means diversity of customer needs and expec-
tations among the different segments served by the firm (Miller and Friesen 1984, p. 157).
This diversity offers a company many opportunities for additional innovation and market
development, aids a firm in adopting successful entrepreneurial ventures from one line of
business to another, and enables it to learn from competitors (Keats and Hitt 1988). In
addition, because perceived heterogeneity is interpreted to mean increased complexity of a
firm’s environment, companies may undertake ventures to reduce this uncertainty. Some
companies may use joint ventures, and others may use administrative innovations to develop
creative ways to manage environmental complexity. Thus, according to Peterson and Berger
(197 1) and Wilson (1966), greater environmental heterogeneity is associated with increased
organizational innovations, hence corporate entrepreneurship. This discussion leads to the
study’s first hypothesis:
Hl: Environmental dynamism, hostility, and heterogeneity are associated positively with
corporate entrepreneurship.
Grand Corporate Strategy

Figure 1 suggests that, in addition to the characteristics of the firm’s environment, grand
corporate strategy is an important predictor of corporate entrepreneurship activities. A number
of authors have highlighted the importance of fit between corporate entrepreneurship activities
and corporate strategy as a prerequisite for their success and improved company performance
(Burgelman and Sayles 1986; MacMillan et al. 1986). When a venture is congruent with
the strategy, the probability of its adoption increases (MacMillan et al. 1986) because it will
be viewed as a means of actualizing a company’s mission. Conversely, when a venture does
not match the thrust of strategy, it will be viewed as risky because it falls beyond the firm’s
areas of expertise and grand strategy.
Grand corporate strategy is the persistent theme that dominates organizational mission
and goals and guides the deployment of a company’s resources. Operationally, there are
four such strategies: internal growth, external growth, stability, and retrenchment (Hitt et
al. 1982). Because of their different orientations, Figure 1 suggest that these strategies are
expected to vary in their associations with corporate entrepreneurship.
Specifically, growth strategies are predicted to stimulate corporate entrepreneurship.
An internal growth strategy calls for extensive “in-house” innovation and venturing, in almost
every functional area within a corporation. These innovations aim to strengthen a company’s
position in existing markets by offering novel, product-improving service, or reducing cost.
It also means initiating ventures to expand the scope of the market through product intro-
duction.
Firms that follow an external-growth strategy are also expected to support corporate
entrepreneurship. An external-growth strategy calls for aggressive expansion by broadening
the scope of business and markets. Corporate entrepreneurship offers a means of revising
the firm’s business concept through imitating competitors’ ventures or by purchasing new
technologies whether they were developed inside or outside the industry, or by acquiring
entrepreneurial firms (Betz 1987).
In contrast to growth-oriented firms, corporations that follow a stability strategy will
be less disposed to pursue corporate entrepreneurship. A strategy of stability usually requires
making only incremental increases in the scope of business and focuses on maintaining past
rates of financial performance without making significant changes in the firm’s competitive
posture or patterns of resource allocations (Hitt et al. 1982). Consequently, firms that follow
the stability option are expected to implement only a few corporate entrepreneurship projects.
Retrenchment strategies call for drastic measures-such as reduction in corporate
assets, scope of operations, or the labor force-for companies to regain their competitive
strengths. Because firms undergo this strategy in response to severe performance problems
and because of the temporary nature of this strategy, no hypothesis on the relation of corporate
entrepreneurship and retrenchment is offered in this article. This discussion leads to the
second hypothesis:
H2: Growth-oriented grand corporate strategies will be positively associated with pursuit
of corporate entrepreneurship. In contrast, a stability strategy will be negatively associated
with corporate entrepreneurship.
Organizational Factors
The !iterature highlights the importance of organizational factors for the pursuit of corporate
entrepreneurial activities (Burgelman and Sayles 1986; Jennings and Lumpkin 1989; Kanter
1986; Slevin and Covin 1989). These variables form the context within which employees
and executives perceive opportunities for new ventures. Organizational variables also con-
stitute the context within which corporate entrepreneurship ventures are evaluated, accepted,
or rejected (Zahra 1986).
Organizational correlates of corporate entrepreneurship fall into two broad categories:
tangible and intangible. Tangible variables pertain to the properties of the formal organi-
zational structure and its receptivity to the emergence and adoption of corporate entrepre-
neurship. Intangible variables include dominant organizational values, primarily a company’s
persistent belief system. These values determine how a firm views itself and the world at
large, and define appropriate ways of relating to competitors (Hall and Zahra 1990; Schein
1985; Zahra et al. 1987). Both tangible and intangible organizational variables can enhance
or impede corporate entrepreneurship, as presented in Figure 1 and discussed below.
Tangible organizational variables center on the properties of a company’s formal
organizational structure, especially: communication, scanning, integration, differentiation,
and control. As presented in Figure 1, these properties may influence corporate entrepre-
neurship in different ways.
Communication. The quality and amount of communication are of crucial importance
to the successful initiation and implementation of corporate entrepreneurship (Peters and
266 S.A. ZAHRA
Waterman 1982). Communication helps in introducing new ideas to the firm and in fami-
liarizing company employees with recent industry trends. Communication exposes employees
and executives to new ideas and focuses their attention on the opportunities and threats in
the external environment, thereby creating a basis for exploring novel ventures. Commu-
nication also promotes interdisciplinary cooperation, which is essential for the success of
these initiatives (Kanter 1986). These projects often require attention to complex financial,
technical, and administrative issues that cross departmental boundaries: communication brings
together different units in pursuit of viable corporate entrepreneurship activities. Conse-
quently, some companies have implemented new organizational designs that promote formal
communications among departments associated with a new venture (Kanter 1989). Finally,
formal communication is necessary to promote awareness of a company’s progress in ve._-
turing activities. As formal communication increases, the pursuit of corporate entrepre-
neurship is expected to intensify, as depicted in Figure 1.
Organizational communication can be formal and informal, and both are invaluable
to successful corporate entrepreneurship (Pinchot 1985). However, in this preliminary effort,
emphasis is on formal communication, which is more observable and easier to measure than
informal communication. Future research should explore the important association between
informal communication and corporate entrepreneurship.
Scanning refers to formal efforts to collect, analyze, and interpret data about the firm’s
external environment and the competition (Daft et al. 1988). Scanning facilitates the timely
acquisition of relevant data on industry trends and changes, thereby permitting the accu-
mulation of information on new ventures initiated in the industry that may be of interest to
the firm. Scanning also alerts senior executives to threats and opportunities in their firms’
environment. As a result, it is predicted that increased scanning will be positively associated
with increased corporate entrepreneurship activities.
Integration is a third structural component that influences corporate venturing and
innovation. It refers to formal organizational activities that aim to tie different units or levels
within the hierarchy, through exchange of information among different units (Kanter 1986).
This integration helps to disseminate corporate entrepreneurship ideas, and generate support
among different units and levels in the firm for certain ventures. Yet, as in the case of
differentiation, excessive integration requires extensive use of rigid controls which, in turn,
may impede corporate entrepreneurship activities. In fact, two studies (Covin and Slevin
1988; Jennings and Lumpkin 1989) suggest that extensive reliance on integration may hinder
venturing activities. As a result, a negative association is hypothesized to exist between
excessive integration and corporate entrepreneurship.
Differentiation reflects the division of labor within the organization. Differentiation is
associated with corporate entrepreneurship because it helps to promote a strong identification
with the mission of organizational units and commitment to their formal goals (Daft 1988;
Kantcr 1989). This differentiation builds commitment to areas of expertise and profession.
Through specialization and commitment, employees develop a thorough familiarity with the
goals and objectives of their units and companies. In turn, this usually manifests itself in
the employees’ desire to ensure the success of their units. These committed employees may
contribute ideas for new ventures for the corporation. In addition, as differentiation increases,
organizational efforts to facilitate communication among units will intensify. These efforts
foster exchange of creative venturing or innovation ideas. Finally, as Keats and Hitt (1988)
observe, this differentiation also results in increased specialization among personnel in certain
products (or markets). These expert employees are, thus, in a position to examine new trends
in their industry, evaluate their relevance to the firm’s mission, and develop novel solutions
or projects that take advantage of these trends. Overall, increased differentiation is predicted
to be positively associated with corporate entrepreneurship.
A caveat about the predicted positive association between differentiation and corporate
entrepreneurship is in order. Increased differentiation can stifle formal communication. And,
if carried to an extreme, it must be counterbalanced with extensive, formal controls to ensure
coordination among units that may stifle venturing and innovation initiatives.
Conrrols. Some formal controls are essential to the selection of corporate entrepre-
neurship projects (Kanter 1989). These controls enable a company to separate promising
corporate entrepreneurship ventures from less valuable projects. However, tbe excessive use
of formal controls may stifle the pursuit of corporate entrepreneurship (MacMillan et al.
1986). Champions of corporate entrepreneurship projects may become frustrated because of
the red tape or the need to “go through channels” to receive formal support for their ideas.
Increased reliance on formal controls is, therefore, predicted to be negatively associated
The above discussion on structure leads to a third hypothesis:
H3: Formal communication, scanning, and differentiation will be positively associated

with corporate entrepreneurship. Formal controls and integration will be negatively associated
Values
Specific organizational values are also predicted to be positively associated with corporate
entrepreneurship (Kanter 1989; Peters and Waterman 1982). Organizational values embody
managerial philosophies and ideals and the formal norms that guide employee behavior.
Two aspects of company values are recognizable: individual-centered and competition-
focused (Deal and Kennedy 1982; Schein 1985). Individual-centered values focus on the
way a company views and treats its employees (Bettinger 1989; Kanter 1986, 1989). Positive
individual-centered values held by a firm often promote individual creativity and encourage
risk taking (Zahra et al. 1987). These values center on creating an internal climate that
enhances integration of employee and company goals, and intensifies the level of employees’
commitment to the company. These factors encourage employees to explore viable means
to ensure successful organizational performance because employees will be disposed to
contribute new ideas or take on new ventures to ensure company success. Merck, Hewlett-
Packard, Kodak, and 3M are well known for their strong commitment to their employees,
and for encouraging them to experiment and take risks.
Competitive values reflect a firm’s assumptions about the appropriate approaches that
executives and employees should follow in pursuing company goals (Hall and Zahra 1990;
Schein 1985). In firms that encourage agile and aggressive responses to environmental moves
as the modus operandi, corporate entrepreneurship efforts will flourish. In these companies,
employees and executives will be disposed to monitor industry trends, to experiment with
new ideas, and to initiate new corporate ventures to capitalize on emerging opportunities in
the marketplace, and as a result, venturing activities will intensify. Thus:
H4: Clearly articulated organizational values that are employee (person)-supportive and
competition-oriented are positively associated with corporate entrepreneurship.
268 S.A. ZAHRA
Corporate Entrepreneurship and Financial Performance

Companies embark on corporate entrepreneurship for a variety of reasons: to seize oppor-
tunities that complement or extend their existing business, to better utilize resources, to
excite employees and improve morale, or to retain managerial talent (Burgelman and Sayles
1986; Kanter 1989; Pinchot 1985). Collectively, these factors may enhance a company’s
productivity and enhance its competitive position. Hence, as depicted in Figure 1, corporate
entrepreneurship is expected to be positively associated with corporate financial performance.
Organizational performance has two components: accounting and market-based. The
accounting component refers to a firm’s ability to generate above the “going market” profits.
This is usually evidenced in a firm’s earnings per share (EPS), net income-to-sales, growth
in revenue, and similar measures.
The market-based performance component relates to the level of risk associated with
a firm’s stock portfolio. Because systematic risk is assumed to be common to all market
participants, attention usually centers on unsystematic risk, i.e., the portion that is distinct
to a firm’s portfolio (Franks et al. 1985). Unsystematic risk reflects the stock market appraisal
of corporate actions, including those that pertain to corporate entrepreneurship. When cor-
porate entrepreneurial projects are emphasized, capital markets are likely to respond. Once
approved, new venture activities are usually publicized in corporate ceremonies and docu-
ments, press releases, and trade publications. If judged positively by external markets, the
unsystematic portion of risk declines, showing confidence in these initiatives-an indication
of a successful market performance. These ventures help to stabilize or improve corporate
earnings, thereby reducing a company’s non-diversifiable risk. Thus:
H5: Corporate entrepreneurship is positively associated with corporate financial perfor-

mance; that is, positively with accounting measures and negatively with market-based cri-
teria.
This study’s hypothesized association between corporate entrepreneurship and subsequent

financial performance does not preclude the possibility that a reverse relationship exists
between these variables. Indeed, some financially successful companies (e.g., 3M and
Hewlett-Packard) have been actively engaged in corporate entrepreneurship. Future exam-
inations may explore the interactive link between past performance and pursuit of corporate
entrepreneurship.
Summary
Corporate entrepreneurship represents an important development in the quest for improved
corporate performance. A proposed model suggests that three sets of variables influence the
pursuit of corporate entrepreneurship: environment, strategy, and internal organization. As
the above discussion indicates, this exploratory study focuses primarily on the direct effect
of these three sets of variables on corporate entrepreneurship. Finally, future studies may
explore the associations of interactions (or joint) of these variables with corporate entrepre-
neurship. The model also suggests that corporate entrepreneurship will be associated with
company performance. These two propositions provide a basis for an exploratory study that
is reported below.
METHOD
Data Cokction
Sample
Data were collected using mailed questionnaires and secondary financial sources. The ques-
tionnaires were sent to 450 companies that appeared on the Fortune 500 list of U.S. industrial
corporations. (The remaining 50 companies were excluded because they participated in a
pretest study by the author that resulted in the current survey instrument.) The questionnaire
was directed to the companies’ CEOs (or highest-ranking executives). Although only one
mailing was used due to cost constraints, 119 valid responses were received, for a 26.4%
response rate. Response rates for academic research from the Fortune 500 typically fall
within the 20 to 30% range (Tootelian and Gadeake 1987).
This study emphasized the Fortune 500 manufacturing population because of its ac-
knowledged importance to the U.S. national economy, and the fact that these companies
are usually on the cutting edge in developing corporate entrepreneurship because of rising
international competition and the maturity of many of their primary industries.
Non-Response Bias
Firms that participated in this study were compared with others in their industries (by the
two-digit Fortune classification) on four dimensions: company size (measured by both total
number of full-time employees and total assets); growth in EPS over the past 10 years;
Fortune’s estimated growth in return to investors (ROI) over the past 10 years; and dividends
per share for the three years that preceded data collection. Using the t test, no significant
differences were found between responding and non-responding firms on these four variables.
This suggested the absence of systematic differences in corporate size and financial status
between respondents and non-respondents on the four chosen dimensions. Still, generali-
zations of the results to other Fortune 500 should be made with caution because they may
differ from respondents on other variables that have not been examined here. Also, because
Fortune 500 are among the largest U.S. companies, the results may not apply to other
sectors of the economy.
Respondents
As mentioned, the survey targeted the CEOs (or the highest-ranking corporate officers)
because of their positions, which give them a unique and comprehensive view of corporate
entrepreneurship activities. These individuals typically have an appreciation of a company’s
“total picture,” and are intimately familiar with the firm’s environment, strategy, structure,
and performance (Hambrick 198 I). These executives are also frequently called upon to
evaluate major new ventures, to approve financial support for these projects, and are involved
in evaluating ongoing activities. Still, because some researchers contend that other senior
executives and managers at different levels of the hierarchy are usually involved in corporate
entrepreneurship initiation and implementation (e.g., Burgelman and Sayles 1986; Kanter
1989; Pinchot 1985), future research may benefit from collecting additional data from these
individuals to minimize potential source bias.
270 S.A. ZAHRA
Variables and Measures

Both secondary and primary data sources were used to gauge the variables in Figure 1. The
“Appendix” presents the variables, measures, and relevant Cronbach alpha-coefficient, which
is an index of scale internal consistency (reliability).
Environment
Dynamism, hostility, and heterogeneity were measured using multi-item indices, which
appear in the “Appendix.” Two observations on these measures are essential. First, some
of the scale items (“Appendix”) refer to the firm’s “industry.” This is done in keeping with
the literature. Whereas the majority of Fortune 500 corporations are diversified, prior research
suggests that the “environment of a firm’s core business becomes the dominant focus or
frame of reference for most corporate-level decisions” (Keats and Hitt 1988). This view has
been supported in a number of sound empirical studies (e.g., Dess and Beard 1984; Hill
and Hoskisson 1987; Hitt and Ireland 1985; Prahalad and Bettis 1986) and conceptual models
(Dess et al. 1990; Porter 1980). Accordingly, emphasis on the firm’s primary industry in
examining its environment provides a basis for understanding corporate entrepreneurship;
changes in the firm’s primary industry are important to understanding corporate entrepre-
neurship.
Second, an extensive body of research suggests that executives’ perceptions of their
firms’s core (major) business play a most crucial role in mapping corporate responses to
opportunities and threats (Dess et al. 1990; Hitt et al. 1982; Weick 1979). Therefore, data
were collected from senior executives about their perceptions of their environment. These
measures of the environment were correlated with objective data in order to ensure their
validity. Data on R&D were collected from Business Week and Forbes. Data on hostility
and heterogeneity were collected from Fortune 500; all for the 1986-1989 period.
Dynamism was correlated with average change in corporate R&D expenditure for a
three-year period. R&D was emphasized because it was an important source of environmental
dynamism (Daft 1988). For each of the three years, change in R&D was calculated by
subtracting the percent of corporate sales allocated to R&D in a given year from the preceding
year’s allocation and then dividing the result by the past year’s spending. The product of
this process was then divided by three to determine average change in R&D allocation. This
average was then correlated with the dynamism score, using Pearson’s simple correlation.
The two measures were significantly associated at p < 0.001 (r = 0.40, n = 103). This
suggested that while the dynamism and R&D measures were distinct, they converged in
gauging “dynamism.”
In order to validate the hostility scale, it was correlated with data on the rate of growth
in industry-wide sales (using two-digit standard industrial classifications; SIC) for a period
of three years. The inverse ratio (l/growth) was used to indicate hostility; it showed lower
growth in industry sales. Correlation between objective and subjective scale data was positive
(n = 110, r = 0.32, p < 0.001). This moderate association showed that hostility was
associated with lower growth rates in industry sales. Other factors may have caused an
industry’s environment to be hostile, including radical technological changes, influx of new
competitors, and new regulatory actions by the government. Thus, the moderate association
between subjective and objective indicators of hostility reflected the inlluence of only one
factor. Overall, then, this moderate association indicated that the subjective (survey-based)
hostility scales captured environmental unfavorability (Daft 1988).
The heterogeneity scale was validated using the approach suggested by Grossack (1965)
and Keats and Hitt ( 1988). Grossack ( 1965) emphasized the notion of dynamic concentration
where industries moved toward or away from dominance of sales by large firms. To derive
this index, market shares (defined as company sales/industry sales) in the data collection
year (to) were divided by shares 3 years earlier. A high score on the index implied increasing
heterogeneity. The objective and subjective (see “Appendix”) indices were correlated pos-
itively (n = 112, r = 0.37, p < 0.001).
The overall results supported the construct validity of the environmental measures. In
addition, coefficient alpha (see “Appendix”) reaffirmed the measures’ reliability.
Strategy and Organization

The “Appendix” presents the measures of strategy, structure, and values.
Financial Performance
Performance data were collected for three periods: same year, one-year lag, and a two-year
lag. This allowed comparison of contemporaneous and lagged correlations between corporate
entrepreneurship and performance.
Four accounting performance criteria were used: EPS, Fortune’s estimate of the lo-
year ROI, net income-to-sales, and the standard deviations of return on assets (RA). The
ROI and net income-to-sales measures gauged corporate entrepreneurship’s contribution to
superior company performance. Profits from corporate entrepreneurship contribute to overall
corporate revenues. The standard deviation of RA indicated the volatility of corporate eam-
ings. This volatility arose from many sources, including erosion of a firm’s competitive
position in traditional markets. New corporate entrepreneurship ventures were believed to
reverse such an erosion by generating new income, thereby stabilizing earnings. EPS reflected
corporate entrepreneurship’s contribution to shareholders’ wealth.
Risk was measured by the average Value Line beta values. The beta value reflected
an external assessment of company stock and performance by an independent venerable
financial institution, Value Line.
Entrepreneurship
Measuring corporate entrepreneurship proved to be a most challenging task because of the
complexity of the concept and the limited empirical research in this area. As noted by other
researchers, a psychometrically valid measure of corporate entrepreneurship did not exist
(Covin and Slevin 1988; Jennings and Lumpkin 1989; Morris et al 1988; Morris and Gordon
1987). To ensure accuracy and comprehensiveness, this study employed four indicators of
corporate entrepreneurship, as follows:
(1) An index of corporate entrepreneurship was developed based on CEOs’ responses
to nine items (0~ = 0.86), as reported in the “Appendix.” The index covered formal and
informal aspects of corporate entrepreneurship. It was based on the theoretical and empirical
studies by Burgelman (reviewed in Burgelman and Sayles 1986), Miller (1983), and Morris
and Gordon (1987). The corporate entrepreneurship index was validated by correlating it
with the measure developed by Miller (1983). Miller’s index (9 items, o = 0.81) covered
three areas: product innovation, risk-taking, and proactiveness. The simple correlation be-
tween Miller’s index and the new corporate entrepreneurship scale was significant (r =
0.49, p < 0.001). This coefficient supported the validity of the new scale and, at the same
272 S.A. ZAHRA
time, its distinctiveness from the Miller index. This latter measure only gauged a firm’s
disposition toward, rather than actual engagement in, corporate entrepreneurship activities-
and covered the formal aspects of corporate entrepreneurship, thereby ignoring less for-
malized corporate entrepreneurship efforts. In contrast, the new scale incorporated items
that covered these informal aspects.
(2) Percentage of sales derived from new lines of business was used as a second
measure of corporate entrepreneurship. It was defined as the percentage of sales derived
from new business divisions that did not exist five years earlier. This measure defined
corporate entrepreneurship as creating new business within established companies (Murray
1985).
(3) Percentage of sales derived from new products or brands was the third indicator
of corporate entrepreneurship. Data emphasized products or brands that did not exist five
years earlier.
(4) Externally oriented corporate entrepreneurship was measured in two ways: by the
number of joint ventures in which the firm participated over the past three years, and by
the number of SIC added to the firm’s business over the past three years. Executives provided
data about joint ventures, whereas secondary sources (e.g., annual and 10K reports, Fortune,
Forbes, and the Wall Street Journal, 1985-1989) were used to collect data on new SIC
business.
Data on sales from new business (measure #2 above), sales from new products
(measure #3), and joint ventures (measure #4 above) were cross-validated using data from
20 vice presidents, each representing one firm. Correlations between survey and vice pres-
idents’ responses averaged 0.78. This was interpreted as indicating the reliability of senior
executives’ data on sales from new businesses, new products, and the number of joint
ventures.
ANALYSIS AND RESULTS

Preliminary Analyses
Table 1 presents Pearson’s correlations among the four corporate entrepreneurship indicators
and the variables relating to the environment, strategy, and organization. To calculate these
correlations, dummy coding of the categorical strategy measure was necessary. This meant
that the retrenchment strategy was dropped in order to retain growth and stability strategies,
emphasized in HI. Table 1 shows the means, standard deviations, and intercorrelations
among the variables.
Data in Table 1 suggested that measures of the environment, strategy, and organization
might be interdependent. To determine the absence of extreme multicolinearity, the sample
was split into two, then three, groups to determine if the pattern of correlations would
change. In addition, a series of analyses suggested by Berry and Feldman (1985) were
conducted. Collectively, these analyses indicated that a serious multicolinearity problem did
not exist.
Precursors of Corporate Entrepreneurship

The correlations in Table 1 suggested that measures of corporate entrepreneurship were
interrelated, as would be expected. Therefore, canonical analysis was considered the ap-
propriate analytical tool because it produced combinations of criteria and predictors such
TABLE 1 Means, Standard Deviations, and Intercorrelations Among the Study’s Variables
(iv = 119)
Variables
Variables Means SD 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
1. Dynamism 13.4 6.4 -

2. Hostility 38.6 11.6 31 -
3. Heterogeneity 18.4 9.6 07 23 -
4. Internal growth 0.3 0.6 10 08 -17 -
5. External 0.5 0.4 21 03 34 06 -
growth
6. Stability 0.4 0.3 -23 -08 05 -08 -12 -
7. Communication 45.3 12.4 17 24 33 29 16 18 -
8. Person value 17.7 5.4 -18 22 27 16 12 25 28 -
9. Competition 41.6 4.8 23 19 28 12 26 21 24 29 -
value
10. Scanning 18.7 5.4 26 32 26 17 36 13 39 12 26 -
11. Differentiation 16.2 4.4 09 28 19 28 28 18 24 14 18 31 -
12. Integration 39.6 15.0 12 19 17 26 12 14 16 17 -10 29 13 -
13. Control 16.1 6.1 -17 23 24 31 -17 28 23 19 26 38 06 36 -
14. CE (overall) 47.3 11.6 21 34 40 23 34 09 43 42 19 40 27 18 -21 -
15. New business 11.2 10.3 19 23 26 19 30 07 17 21 28 09 18 42 23 49 -
16. New products 23.7 14.3 23 19 18 26 27 04 28 19 21 24 20 27 28 43 46 -
17. Joint venture 3.1 3.7 30 26 29 -14 23 12 11 08 02 19 -13 -04 08 29 31 27 -
*Intercorrelations are two decimal points; correlation should be at least 0.16 to be significant at p < 0.05
that the linear composites were maximally associated. Hair et al. (1987) provided an extensive
discussion of canonical analysis procedures and limitations. The results from canonical
analysis appear in Table 2.
Overall Patterns
The results of canonical analysis in Table 2 suggested the following three points:
(1) Although canonical analysis produced canonical (linear) composites equal to the
number of variables in the smaller function (in this case, five), only two functions were
significant (p < 0.05) and were shown in Table 2. The other three were ignored because
they were not meaningful.
(2) Redundancy analysis was conducted in order to determine the shared variance
between predictors (environment, strategy, and organization) and criterion variables (the
four corporate entrepreneurship indicators) in each function. This index was the multivariate
analog of R2 in multiple regression analysis. It indicated the amount of variance in corporate
entrepreneurship that was explained by the predictor set. A redundancy index was calculated
by multiplying the root (eigenvalue) by the average square of loadings. For instance, in the
first function, the root was the square of the canonical correlation, (0.89)2 = 0.79. For the
criterion set (still, function #l), average square loadings was calculated as follows: [(0.89)’
+ (0.52)2 + (0.76)* + (0.44)*] = 0.434. The redundancy index was calculated by mul-
tiplying 0.79 by 0.434, producing 0.34. The same procedure was followed for the second
function (redundancy = 0.16). This meant that predictors explained 34 and 16% of the
variations in the four corporate entrepreneurship indicators in the first and second function,
respectively.
(3) The structure coefficients (loadings) indicated that the first function was dominated
274 S.A. ZAHRA
TABLE 2 Canonical Results of Associations of Environment Characteristics, Strategy, and

Structure with Corporate Entrepreneurship
Functions
#1 #2
Standardized structure Standardized Structure

Variables coefficient coefficient coefficient coefficient
Criterion set
Index (overall) 0.46 0.89 0.31 0.54
New business sales 0.30 0.52 0.44 0.86
New product sales 0.43 0.76 0.30 0.62
No. of joint ventures 0.31 0.44 0.46 0.89
Predictor set
Dynamism 0.28 0.49 0.18 0.42
Hostility 0.51 0.42 0.33 0.31
Heterogeneity 0.44 0.50 0.19 0.59
Growth strategy 0.21 0.40 0.09 0.33
Stability -0.39 -0.20 -0.40 -0.18
Communication 0.41 0.53 0.14 0.68
Scanning 0.39 0.44 0.60 0.56
Differentiation -0.28 -0.42 0.26 0.50
Integration -0.28 0.37 -0.13 -0.30
Control 0.13 -0.26 - 0.28 -0.41
Person values 0.31 0.56 0.23 0.32
Competition values 0.46 0.30 0.47 0.49
P< 0.001 0.01

Canonical correlations (CR) 0.89 0.54
Root (CR’) 0.79 0.29
by internal, formal corporate entrepreneurship activities directed at increasing new product

sales. This was evidenced by the significant large loadings of 0.89 and 0.76 for the corporate
entrepreneurship index and new product sales, respectively (function 1, column 2).
The second function manifested corporate entrepreneurship activities pertaining to new
business creation and pursuit of joint ventures. This was evidenced by the high coefficients
for new business sales (loading = 0.86) and joint ventures (loading = 0.89). These results
suggested that function 2 was dominated by externally oriented corporate entrepreneurship.
Testing Hypotheses I to 4
The results on hypotheses 1 to 4 are summarized below:
Hypothesis 1 suggested that environmental characteristics of dynamism and hetero-
geneity and hostility were associated positively with corporate entrepreneurship. Canonical
analysis supported this prediction. As reported in Table 2, the loadings associated with
dynamism, hostility, and heterogeneity were positive, exceeding the suggested cutoff point
of 0.30 (Hair et al. 1987). Overall, the results indicated that companies emphasized corporate
entrepreneurship as they perceived their environment as becoming increasingly dynamic,
hostile, and heterogeneous.
CORPORATEENTREPRENEURSHIPSTUDY 275
Hypothesis 2 suggested that growth-oriented strategies were positively associated with

corporate entrepreneurship, whereas stability strategies were negatively related to corporate
enterpreneurship. The hypothesis was generally supported; growth strategies had positive
and significant loadings on the two functions. Stability strategy had negative loadings on
both functions. However, the loadings were below 0.30, thereby indicating that a stability
strategy lacked association with corporate entrepreneurship.
Hypothesis 3 covered five dimensions of the formal organizational structure as they
related to corporate entrepreneurship. The results regarding this multifaceted hypothesis were
mixed, as follows: (1) As predicted, communication was significantly and positively asso-
ciated with corporate entrepreneurship (with loadings of 0.53 and 0.68) on the two functions;
(2) the postulated positive association between scanning and corporate entrepreneurship was
supported (with loadings of 0.44 and 0.56) on the two functions; (3) the results on differ-
entiation and integration were mixed-the two variables varied in their association with
corporate entrepreneurship; these two variables were associated in opposite directions with
external and internal corporate entrepreneurship; and finally (4) control was negatively
associated with corporate entrepreneurship on the two functions. The loadings (of -0.26
and - 0.41, respectively) implied that increased formal controls were associated with lower
corporate entrepreneurship, especially the externally oriented type. Care must be exercised
in interpreting the results of the control variable because its loading on the first function
was below 0.30, and the control measure itself was not comprehensive in its coverage. Still,
increased formal controls were associated negatively with corporate entrepreneurship activ-
ities.
Hypothesis 4 suggested that person-related and competition-oriented values were pos-
itively associated with corporate entrepreneurship. The four loadings relating to these vari-
ables were significant and positive, thereby supporting hypothesis 4. The loadings suggested
that person-related values were especially germane in the case of internal corporate entre-
preneurship. Conversely, competition-oriented values were especially relevant in the case
of externally oriented corporate entrepreneurship ventures.
The results on Hl to H4 raised an important question: What was the effect of the joint
association of environment, strategy, and organizational variables on corporate entrepre-
neurship? (Unfortunately, the large number of interactions (3 environmental x 3 strategies
X 7 organizational scales) relative to the sample size (n = 119) made it impossible to
examine these joint effects. Had such an analysis been performed, it would have rendered
the results of canonical analysis unstable, if not meaningless. Future research should consider
these joint effects.
Testing Hypothesis 5
A positive association was posited between corporate entrepreneurship activities and company
financial performance. Simple contemporaneous and lagged correlations were used to test
this hypothesis. Contemporaneous correlations showed the associations between corporate
entrepreneurship and performance criteria at the same time period (to). Lagged correlations
reflected one- and two-year gaps between the time corporate entrepreneurship measures and
performance criteria were collected. Using lagged correlations was desirable because cor-
porate entrepreneurship took time to pay off (Biggadike 1979; Block 1989). Given the dearth
of empirical studies, there was no a priori length for this time lag. This problem was
compounded by the fact that data on actual company performance were available only for
two years after the survey data were collected. As a result, analyses were conducted for
276 S.A. ZAI-IRA
TABLE 3 Associations between Corporate Entrepreneurship and Corporate Financial Performance
Overall Index New Business Sales New Product Sales Joint Ventures
Contemporaneous
EPS 0.16* 0.29*+* 0.17* 0.16*
ROI 0.26* 0.14 0.21* 0.12
New income to sales 0.22* 0.17* 0.14 0.17*
RA -0.19* 0.25* 0.20* 0.19*
Beta -0.26* - 0.22* -0.27* 0.10
One-year lag
EPS 0.20* 0.30** 0.17* 0.14
ROI 0.26** 0.16* 0.22* 0.14
Net income to sales 0.26** 0.17* 0.11 0.13
RA -0.20* 0.24** 0.22* 0.18*
Beta -0.31*** - 0.22* -0.19* 0.17*
Two-year lag
EPS 0.33*** 0.28** 0.19* 0.19*
ROI 0.29*** 0.14 0.25* 0.14
Net income to sales 0.27** 0.17* 0.17* 0.11
RA -0.28** 0.25** 0.22* 0.18*
Beta -0.33*** - 0.29* -0.23* - 0.20*
*p < 0.05.
**p < 0.01.
***p < 0.001.
one- and two-year lags, as reported in Table 3. Future studies may examine longer time
frames.
Table 3 shows that 50 of the 60 possible correlations between corporate entrepre-
neurship and performance measures (83.3%) were significant at p < 0.05. Corporate en-
trepreneurship measures were also positively associated with accounting performance criteria,
with the exception of the negative associations between the overall corporate entrepreneurship
index and standard deviations of return on assets (FM). This meant that corporate entrepre-
neurship was positively associated with accounting performance measures. The magnitude
of correlations was stable within the contemporaneous and lagged analyses, thereby indicating
that short-term improvements in financial performance through corporate entrepreneurship
were incremental.
Table 3 also showed that the associations between the four corporate entrepreneurship
measures and beta values were negative in 11 of the 12 cases, with the exception of the
insignificant association with joint ventures.
Overall, the results from accounting and risk-related measures supported Hypothesis
5, which suggested positive association between corporate entrepreneurship and company
performance.
DISCUSSION
This exploratory study has advanced a model of the potential antecedents of corporate
entrepreneurship (environment, strategy, and organization), and the association between
corporate entrepreneurship and company financial performance. Four observations emerge

from this study’s data and results.
(1) The study highlights two components of corporate entrepreneurship: internal and
external. Internal entrepreneurship centers on reviving the existing business through inno-
vation and venturing. External entrepreneurship centers on broadening and, sometimes,
revising the concept of the business. This suggects a need to simultaneously explore internal
and external corporate entrepreneurship that enhances product and business development as
a means of improving company performance. That is, future studies need to incorporate
measures of both internal and external corporate entrepreneurship.
(2) The results supported the model presented in Figure 1. In particular, the results
were consistent with theory on the association of environment and strategy with corporate
entrepreneurship. High environmental dynamism, hostility, and heterogeneity were con-
ductive to the pursuit of entrepreneurship. Likewise, even though growth-oriented strategies
were associated positively with entrepreneurship, the relationship between a stability strategy
and corporate entrepreneurship was negative. The results were also consistent with theory
on organizational values; well-articulated values (centering on the employees as individuals
and competition) were conducive to corporate entrepreneurship.
The results on organizational structure were not universally consistent with predictions.
Although communication and scanning were associated positively with corporate entrepre-
neurship, tbe results on differentiation, integration, and control were mixed. Associations
varied according to the two corporate entrepreneurship dimensions: differentiation was neg-
atively associated with internal, but positively with external, corporate entrepreneurship.
The negative association might have resulted from the fragmentation of effort associated
with corporate entrepreneurship when differentiation was carried to an extreme. Conversely,
the positive association between differentiation and external corporate entrepreneurship might
have resulted from the increased access to innovation and venturing ideas from outside
sources because of the increased specialization and professional contacts of a firm’s staff.
The opposite situation was observed in the case of integration: it was positively as-
sociated with internal corporate entrepreneurship, perhaps because of unity of effort resulting
from increased coordination. However, integration was associated negatively with external
corporate entrepreneurship, perhaps because of a lack of focus and poor coordination. These
differences in associations with the internal and external components of corporate entrepre-
neurship were consistent with the findings of Jennings and Lumpkin (1989).
The results about control need to be interpreted with caution. Although a reliable index
was used in this study, it might not have fully captured the effect of control on corporate
entrepreneurship ventures. Nevertheless, as predicted, control was negatively associated
with both internal and external corporate entrepreneurship activities, perhaps because in-
creased controls added rigidity to the structure, thereby stifling initiative and, ultimately,
(3) Although the internal and external dimensions of corporate entrepreneurship were
interrelated, they varied in their associations with different antecedents, as summarized in
Table 4. Table 4 emphasized the canonical results (in Table 2), particularly the size of
loadings. Although there were no formal tests of differences in loadings in constructing
Table 4, a difference of 0.10 between two loadings was considered significant. This intuitive
cutoff point was conservative.
Table 4 shows that many of the same environmental, strategic, organizational variables
were associated with the internal and external dimensions of corporate entrepreneurship.
278 S.A. ZAHRA
TABLE 4 Summary of Predictors of Internal and External Corporate Entrepreneurship
Types
Predictors Internal External
Environment
Dynamism + +
Hostility ++ +
Heterogeneity + +
Strategy
Growth + +
Stability X X
Organization
Structure
Communication ++
Scanning ++
Differentiation _
Integration _
Control ++
Values
Person ++ +
Competition + ++
+ , Positive association between a variableand a component of corporate entrepreneurship.
+ + , Stronger positive association between a variable and this corporate entrepreneurship type than the other type.
- , Negative association behveen a variable and a component of corporate entrepreneurship.
~ - , Negative association between a variable and this corporate entrepreneurship type than the other type.
x , Not significant.
Still, these two dimensions varied in the magnitude of their associations with antecedent
variables. For instance, hostility and person-centered values were more germane to internal
than external entrepreneurship. On the other hand, scanning, communication, competition-
based values and controls were more relevant to the external than internal ventures. By
delineating variables associated with internal and external dimensions of corporate entre-
preneurship, this study offered a basis for further theory building. Again, scholars need to
recognize these differences as they construct future models or theories of corporate entre-
preneurship.
(4) Corporate entrepreneurship was associated positively with measures of financial
performance. Although causal inferences could not be made about the direction of this
relationship because of the cross-sectional design of the study, the current results offered
preliminary evidence that corporate entrepreneurship activities were positively associated
with company performance (Biggadike 1979; Miller and Camp 1985). And, even though
some previous research has shown that it took corporate ventures seven or eight years to
pay off, the current results indicated that the associations between the intensity of corporate
entrepreneurship and financial performance criteria were almost instantaneous and grew,
albeit incrementally, over time. Hence, there might be short- and long-term financial benefits
from pursuing corporate entrepreneurship activities. This finding should be viewed as ten-
tative. The current study focused on the corporate level of analysis whereas previous research
by Biggadike (1979) and Miller and Camp (1985) stressed the business level of the analysis.
In addition, these previous studies employed longitudinal designs, thereby making it feasible
to discern patterns of association between corporate entrepreneurship and financial perfor-

mance .
The above encouraging results on the association between corporate entrepreneurship
and company performance should be interpreted with caution because the correlations were
moderate in size. These moderate coefficients reflected a number of corporate realities. Some
corporate entrepreneurship ventures were in their infancy; it would take several years before
they would pay off. In addition, a number of researchers (Block 1989; Kanter 1989; Sykes
1986) have reported a number of corporate entrepreneurship failures. These cases of failure
might have depressed the magnitude of the correlations between corporate entrepreneurship
and company performance. A third explanation was that corporate entrepreneurship activities
might influence profitability only on a limited scale. For instance, short-term profitability
may suffer as a result of corporate entrepreneurship, whether internal or external. However,
companies were willing to accept this reality because entrepreneurial ventures stimulated
long-term growth which would compensate for the reduction in short-term profitability returns
from these projects. Unfortunately, a shortcoming of this study was the absence of a measure
of growth. Thus, the potential tradeoff between short-term profitability and long-term growth
could not be tested in this study. This theoretically appealing tradeoff should be examined
in future studies, by using indicators of both profitability and growth as a consequence of
The implications of corporate entrepreneurship for short-term profitability can be under-
stood within the context of organizational financial slack. When this slack is high, companies
are willing to innovate and venture, thereby rejuvenating their business and improving their
revenue. When this slack is low, companies will be constrained in investing in corporate
entrepreneurship activities, and their profitability may not improve as is the case when slack
is high. This argument suggests that the association between corporate entrepreneurship and
financial performance may be bi-directional: past high performance (and high slack) are
conducive to pursuit of corporate entrepreneurship and subsequent high performance. This
interactive, bi-directional association between corporate entrepreneurship and financial per-
formance needs to be examined in a longitudinal framework. This means that the current
results on this study’s hypothesis (H5) only look into one part of the interactive interplay
between corporate entrepreneurship and financial performance.
IMPLICATIONS
The study has five implications for scholars and future researchers, as follows:
(1) Conceptual and field work is necessary in order to articulate the domain of corporate
entrepreneurship. As recent comprehensive reviews suggest, definitional problems continue
to plague this young area of research (Low and MacMillan 1988; Wortman 1987). Of
particular interest is whether corporate entrepreneurship is a multidimensional or unitary
concept. Whereas researchers recognize the multiplicity of corporate entrepreneurship com-
ponents (Covin and Slevin 1988; Miller 1983; Miller and Camp 1985; Slevin and Covin
1989; Zahra 1986), little effort has been made to identify each of these dimensions and show
how they relate to one another. Defining different corporate entrepreneurship dimensions
would expedite progress in the field by enabling researchers to study the correlates and
effects of each on company performance. In turn, this would encourage the development of
theories that prescribe effective executive actions that spur particular types of corporate
entrepreneurship.
(2) There is a need to develop a comprehensive framework for studying the predictors
280 S.A. ZAHRA
and outcomes of corporate entrepreneurship. For instance, do we need to add additional

variables to the proposed model of corporate entrepreneurship (Figure l)? This exploratory
study has examined the association of environment, strategy, and organization with corporate
entrepreneurship. A related issue involves the nature of links among these variables; some
researchers have suggested that a causal chain exists among them (Keats and Hitt 1988).
Does such a causal order among the antecedent variables accentuate their collective impact
on corporate entrepreneurship? If such a causal chain is identified, their effect on corporate
entrepreneurship can be understood by using path analysis. Future studies may also explore
the effect of interaction among the environment, strategy, and organizational predictors on
the pursuit of corporate entrepreneurship (Kanter 1989).
Scholars may examine the association between each of the antecedent sets (environ-
ment, strategy, and organization) and corporate entrepreneurship. Each of these sets has
been the subject of interest and extensive studies in the literature. Integrative studies that
tie together multiple dimensions of these sets and their association with corporate entrepre-
neurship are necessary. For instance, successful internal and external corporate entrepre-
neurship activities in different environmental settings need to be isolated. Likewise, the
potential bi-directional interplay between strategy and corporate entrepreneurship (e.g., a
growth strategy encourages entrepreneurship, which further accelerates growth) deserves
investigation. The present study examines only one aspect of these interactive, dynamic
relationships. Future integrative efforts would enrich the field by developing fine-grained
models and theories of how “antecedent” variables affect corporate entrepreneurship.
(3) The results invite replications, using data from Fortune 500 or other populations,
employing the same or different measures. For example, as the present study has focused
specifically on the intensity of corporate entrepreneurship activities, future researchers may
examine the effect of certain corporate entrepreneurship types (e.g., marketing, administra-
tive, and technological) on financial performance. Alternatively, replications may contrast
the predictors and effect of corporate entrepreneurship activities at the overall corporate,
versus business, levels of the analysis. These refinements are necessary to better evaluate
the contribution of corporate entrepreneurship at different organizational levels.
(4) The study has stressed the association between corporate entrepreneurship and
company financial performance. Although consistent with the spirit of past findings, the
results should be corroborated using alternative measures of risk or by exploring the effect
of corporate entrepreneurship on non-financial performance criteria. As mentioned, com-
panies often pursue corporate entrepreneurship for reasons other than stimulating performance
improvements. These effects should be studied longitudinally to determine the time frame
within which corporate entrepreneurship pays off optimally; to determine if a causal chain
exists among predictors; and to examine the alternative plausible hypothesis that past, high
company-performance (hence slack) may spur future corporate entrepreneurship activities.
Past profitability may generate high financial slack, which encourages corporate venturing.
Future empirical studies would help in refining this potential interactive link between cor-
porate entrepreneurship and financial performance.
Future studies on the performance consequences of corporate entrepreneurship need
to incorporate growth measures. Such studies will help in examining the potential tradeoffs
between the short-term profitability and long-term growth objectives of corporate venturing.
(5) There is a growing body of empirical research on the processes associated with
corporate entrepreneurship activities, but it consists primarily of case studies (Ellis and
Taylor 1987). Scholars may employ different research approaches to document the processes
and problems associated with the implementation of corporate entrepreneurship.
In conclusion, over the past decade corporate entrepreneurship has become a center-
piece in corporate efforts to improve financial performance, and to compete domestically

and globally. The present study has presented a model of corporate entrepreneurship ante-
cedents and the potential financial association of these ventures with financial performance.
The study’s encouraging results show that corporate entrepreneurship contributes to superior
corporate financial performance.
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APPENDIX: STUDY MEASURES

Measures are based on data collected through a mail survey and from secondary financial
sources, as reported below.
Environment
Perceived environmental dynamism, hostility, and heterogeneity were measured as follows:
(1) Dynamism (3 items; cx = 0.79). The items were: The rate of product obsolescence
in our industry is high; In our industry. methods of production change often and in major
ways; and Our firm must change its marketing practices frequently.
(2) Hostility (6 items, (Y = 0.82). Items were: In our industry, actions of competitors
are unpredictable; In our industry, demand and customer tastes are unpredictable; Declining
markets for products are a major challenge in our industry; Tough price competition is a
major challenge in our industry; Government interference is a major challenge in our industry;
and Our business environment causes a great deal of threat to the survival of our company.
(3) Heterogeneity (3 items; a = 0.85). Items were: We are a highly diversified
conglomerate and operate in unrelated industries; Customers’ buying habits vary a great deal
from one line of our business to the other; and Market dynamism and uncertainty vary a
great deal from one line of our business to the other.
All items relating to the environment were taken from Miller and Friesen (1984), and
followed a seven-point Likert-type response format (1 = “strongly disagree” vs. 7 =
“strongly agree”).
Grand Strategy Types

The nominal scale developed by Hitt et al. (1982) was used. These authors have provided
convincing evidence of the reliability of the scale.
284 S.A. ZAHRA
Organization
The following dimensions were measured.
(1) Communication (10 items; cx = 0.86). The items followed a seven-point scale (7
= high vs. 1 = low.
Items Quality Frequency
Upward Communication
a. Between middle management & senior management
b. Between employees & senior management
c. Between employees & middle management
Downward Communication
a. Between middle management & senior management
b. Between employees & middle management employees
c. Between employees & senior management employees
Past research does not specify whether a summative (quality plus frequency) or mul-
tiplicative (quality X frequency) index of communication is a better predictor of corporate
entrepreneurship. Therefore, two canonical analyses were run, one with the multiplicative
and the second with the additive index. No differences were found between the two runs.
Therefore, the results for the additive index are reported in this paper.
(2) Scanning (4 items; cx = 0.81). An example item was, “We routinely track the
policies and tactics of competitors.”
(3) DifSerentiution (3 items; a = 0.64). An example item was, “The markets we
participate in are very similar in terms of the required marketing, types of customers, pricing,
etc.”
(4) Integration (8 items, cx = 0.68). An example item was, “We use task forces to
facilitate interdepartmental collaboration on specific new projects.”
The scanning, differentiation, and integration variables were measured using the items
developed and validated by Miller and Friesen (1984), and followed a seven-point scale (1
= strongly disagree vs. 7 = strongly agree).
(5) Control (6 items; cx = 0.70). Executives were asked to rate the extent to which
several control devices were used to monitor progress in venturing activities and collect
information on the performance of the projects. The items followed a seven-point Likert-
type scale (1 = strongly disagree vs. 7 = strongly agree). Items were: All new ventures
are subject to extensive review to determine their financial feasibility; Managers associated
with a venture project must formally report its financial progress several times a year; Senior
executives monitor different ventures closely to evaluate their performance; We conduct
extensive reviews of the progress of different ventures; Our ventures are tightly controlled
by top management; and There are many policies and procedures with which our employees
must comply in initiating or maintaining a new venture.
(6) Organizational Values. Items followed seven-point semantic differentials, as fol-

lows:
(a) Person-centered (4 items, a = 0.73): reward versus punishment; positive versus negative;
person versus task; and participatory versus autocratic.
(b) Competition-related (8 items, 01 = 0.86): open versus closed; aggressive versus passive;
proactive versus reactive; leader versus follower; dominant versus submissive; quick versus
slow; top versus bottom; and cooperative versus non-cooperative.
Organizational Performance
Four accounting measures were used: (1) average ROI; net income-to-sales ratio, EPS; and
the standard deviations of RA. And risk was measured by the average beta estimates from
Value Line. The rationale for these measures is discussed in the text.
Entrepreneurship
A scale consisting of nine items (cx = 0.86) was used to gauge corporate entrepreneurship.
Responses followed a seven-point scale (1 = little emphasis to 7 = major emphasis). The
items were: Implementing new programs to enhance innovation throughout the company
over the past three years; Encouraging employee creativity and innovation; Soliciting em-
ployee ideas for new products and processes; Rewarding employees for creativity and in-
novation; Establishing a unit or department responsible for innovation and corporate devel-
opment; Pursuing business opportunities developed outside your company; Training supervisors
and managers in creativity and innovation techniques; Designating managers as champions
of new ideas or innovations; and Emphasis on innovation in your company compared to
your competitors.

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PREDICTORS AND

To&y, there is considerable scholarly and managerial interest in corporate

Journal of Business Venturing 6, 259-285

OBJECTIVE AND FOCUS

1986). Because informal projects are so pervasive, a comprehensive definition of corpo-

CORPORATE ENTREPRENEURSHIP CORRELATES

FIGURE 1. A model of predictors and financial outcomes of corporate entrepreneurship.

must respond creatively through corporate entrepreneurship. An environment also serves as

Grand Corporate Strategy

H3: Formal communication, scanning, and differentiation will be positively associated

Corporate Entrepreneurship and Financial Performance

H5: Corporate entrepreneurship is positively associated with corporate financial perfor-

This study’s hypothesized association between corporate entrepreneurship and subsequent

Variables and Measures

Strategy and Organization

ANALYSIS AND RESULTS

Precursors of Corporate Entrepreneurship

1. Dynamism 13.4 6.4 -

TABLE 2 Canonical Results of Associations of Environment Characteristics, Strategy, and

Standardized structure Standardized Structure

P< 0.001 0.01

by internal, formal corporate entrepreneurship activities directed at increasing new product

Hypothesis 2 suggested that growth-oriented strategies were positively associated with

TABLE 3 Associations between Corporate Entrepreneurship and Corporate Financial Performance

corporate entrepreneurship and company financial performance. Four observations emerge

TABLE 4 Summary of Predictors of Internal and External Corporate Entrepreneurship

Predictors Internal External

to discern patterns of association between corporate entrepreneurship and financial perfor-

and outcomes of corporate entrepreneurship. For instance, do we need to add additional

piece in corporate efforts to improve financial performance, and to compete domestically

APPENDIX: STUDY MEASURES

Grand Strategy Types

Items Quality Frequency

b. Between employees & senior management

c. Between employees & middle management

b. Between employees & middle management employees

c. Between employees & senior management employees

(6) Organizational Values. Items followed seven-point semantic differentials, as fol-

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