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ENTREPRENEURSHIP, AND
FINANCIAL PERFORMANCE:
A TAXONOMIC APPROACH
Shaker A. Zahra
Georgia State University
HI: In dynamic or growth environments, companies will emphasize new business creation and
innovation.
319
320 S. A. ZAI-RA
H2: Environmental hostility is positively associated with the redefinition of business through
venturing activities.
H3: Hospitable business environments are positively associated with business venturing and renewal
activities.
H4: Static environments are inversely associated with corporate venturing and renewal activities.
HS: Corporate entrepreneurship activities are positively associated with company financial
performance.
H6: Corporate entrepreneurship activities emphasized in HI through H4 will be significantly and
positively associated with company financial performance in their respective environmental
clusters.
The results provided general support for the six hypotheses. They showed that: (I) each
environmental cluster had a distinct combination of activities relating to corporate innovation and
venturing, and renewal: (2) corporate entrepreneurship activities varied in their associations with
measures of company growth and profitability: and (3) the associations between corporate
entrepreneurship and company financial performance varied among the four environment clusters. The
results from this study can help executives in selecting specific entrepreneurial activities that match the
demands of success in their business environment to improve their company’s performance.
INTRODUCTION
The relationship between a firm’s external environment and corporate entrepreneurship
activities has been the subject of interest in the literature (Zahra 1991, 1993). Whereas there
is consensus that the external environment is an important antecedent of corporate
entrepreneurship (Guth and Ginsberg 1990), there has been little empirical research on the
patterns of the specific associations between these two variables. Also, previous studies have
focused on only a few environmental dimensions as the predictors of corporate
entrepreneurship, offering only a fragmented view of their potential associations. It is also
unclear how entrepreneurship influences company financial performance in different
environments (Covin and Slevin 1991, 1993).
This paper reports an empirical study that exami res the association among the external
environment, corporate entrepreneurship, and financial performance. The study adopts a
taxonomic approach that simultaneously considers multiple dimensions of a firm’s
environment. These dimensions are used as input into cluster analysis to identify distinct
environmental settings. These empirically derived settings are then used to clarify variations
in corporate entrepreneurship activities. Finally, the associations between corporate
entrepreneurship and company financial performance- within different environmental
settings-are explored.
The remainder of this paper consists of six sections. The first presents the concept and
dimensions of corporate entrepreneurship. The second focuses on the role of executives’
perceptions of their firms’ environments in making decisions on corporate entrepreneurship,
giving special attention to the concepts of environmental munificence and hostility. The third
section introduces the study’s six hypotheses. The fourth discusses the research method and
measures. The fifth explains the statistical analyses used in the study and reports the results.
The sixth, and final, section offers a discussion of the results and their implications for
executive action and future research in this area.
ENVIRONMENT AND FINANCIAL PERFORMANCE 321
CORPORATE ENTREPRENEURSHIP
Corporate entrepreneurship is a process of organizational renewal (Sathe 1989) that has two
distinct but related dimensions: innovation and venturing, and strategic renewal (Guth and
Ginsberg 1990). Innovation and venturing activities stress creating new business through
market developments or by undertaking product, process, technological and administrative
innovations. Venturing can occur throughout the firm, with the goal of improving company
profitability and competitive position.
The second dimension of corporate entrepreneurship embodies renewal activities that
enhance a firm’s ability to compete and take risks (Miller 1983). Renewal has many facets,
including the redefinition of the business concept, reorganization, and the introduction of
system-wide changes for innovation. Typically, renewal activities relate to the concept of a
firm’s business and its competitive approach. Renewal is achieved through the redefinition of
a firm’s mission through the creative redeployment of resources, leading to new combinations
of products and technologies (Guth and Ginsberg 1990).
Renewal also requires developing or adopting new organizational structures that spur
innovation and venturing (Zahra and Zahra 1992). Often, this requires the reorganization of
a firm’s procedures to improve communications, and to crate the internal systems that are
conducive to innovation (Hitt, Hoskisson, and Harrison 1991; Hitt, Hoskisson, and Ireland
1990; Kanter 1989). Reorganization induces the adoption of organic organizational structures
essential for successful corporate entrepreneurship (Covin and Slevin 1989).
Renewal entails system-wide changes that enhance creative organization learning and
problem solving. These changes energize a firm, make it attentive to its external environment,
and increase its ability to discern threats and opportunities and respond to them creatively.
These changes refocus a company’s basic values. Because these views and values determine
a firm’s proactiveness and competitive posture, system-wide changes are an integral part of
renewal processes (Guth and Ginsberg 1990).
Researchers have attempted to understand the factors that stimulate or impede
corporation entrepreneurship (Sexton and Bowman-Upton 1991). They examined the effect
of a company’s strategy, organization and external environment. It appears that the
environment plays a profound role in influencing corporate entrepreneurship (Zahra 1991,
1993). Focusing on the environment, the literature highlights two research questions that
deserve examination. First, how do companies that compete in different environments vary in
the corporate entrepreneurship activities mentioned above? Second, which corporate
entrepreneurship activities are conducive to superior financial performance in different
environments? The following section develops the theoretical foundation of these questions.
Dynamism
This dimension refers to the continuity of changes in a firm’s environment, arising from
technological progress, competitive rivalry, regulatory developments, and similar forces.
Following Miller and Friesen (1982), this definition emphasizes the persistence of change in
the environment, rather than the stability of rate of change per se. Dynamism creates
opportunities for a firm within its existing markets or in adjacent fields. A firm may locate a
new niche in its existing market and respond to it by modifying its products and processes. Or
the firm may locate an attractive niche outside its traditional markets by expanding the scope
of its markets or by embarking on new product or process ventures. Dynamism prompts a
company to exploit opportunities in current or new markets (Zahra and Ellor 1993).
Dynamism also pressures companies to renew themselves through innovation. Consider,
for example, the dynamic competitive environment introduced by the deregulation of the
telecommunications, trucking, and airline industries. Companies in these industries had to
reexamine their approach to competition and to discover a set of enduring competitive
competencies, revising their business mission. Other firms have embarked on major programs
to reshape their culture and values either by altering their structure or by revising their internal
processes. These changes have led to increased innovation and speedy decision-making
processes. Thus, as companies perceive their environments as dynamic, their emphasis on
self-renewal and corporate venturing activities will rise.
Technological Opportunities
This dimension refers to the perceived availability of new pockets of demand for new or
existing technologies. These opportunities arise from a “technological push,” where new
advances stimulate new demand in existing or new markets (Scherer 1980). The existence, or
lack of opportunities, may, therefore, stimulate or impede corporate entrepreneurship.
Technological opportunities differ from one industry to another because of differences
in their stages of evolution. For instance, technological opportunities are currently more
abundant in the young biological products than in the mature steel or fabricated metals
ENVIRONMENT AND FINANCIAL PERFORMANCE 323
industries. Moreover, even within an industry, companies may vary greatly in their
perceptions of these opportunities. Whereas one company may see its industry as ripe with
opportunities for new technological advances, another may view the same industry as being
dominated with forces that lead to obsolescence. These differences arise from companies’
experiences with a particular technology or with the forces that govern the market.
Differences in perceived technological opportunities are likely to influence corporate
entrepreneurial activities. When such opportunities are abundant, technological innovation is
emphasized. Alternatively, companies may license the use of their technology to other
companies within the industry, thus crating new business and enhancing their revenue and
profits. Therefore, technological opportunities in an industry are associated positively with
increased corporate entrepreneurship.
Unfavorability of Change
This dimension refers to the extent to which the environment is perceived as unfavorable to
a company’s goals and mission. Hostility arises from several sources, including declining
demand or radically changing innovations that render a firm’s technology obsolete.
When environmental hostility rises, companies usually proceed to redefine their
business, decide their new domain, and undertake significant alignments in their operations
through divestments, retrenchment, or restructuring (Zahra 1991). For example, as the canned
food industry became increasingly hostile, some firms (e.g., Campbell Soup) abandoned
expansion activities and, instead, divested some of their divisions. Another firm, Larsen Co.
of Wisconsin, expanded its sales by venturing into the frozen food segment, taking advantage
of its rivals’ concerns over shrinking margins. Increased hostility forces executives to find
innovative ways to reduce or manage the sources of hostility. Another option is to initiate
self-renewal programs that redefine their business concept, reduce waste within the existing
business, enhance agile responses to change, or insulate current markets from the adversity
introduced by rising environmental hostility. These renewal activities may entail adopting
organic organizational structures (Covin and Slevin 1989) or increasing environmental
scanning. Thus, as the environment becomes more hostile, a firm will become more involved
in corporate entrepreneurial activities. However, the association between both hostility and
dynamism and corporate entrepreneurship may be nonlinear (Fombrun and Ginsberg 1990).
Competitive Rivalry
This dimension of a firm’s environment refers to the intensity of competition in a market or
segment. Although rivalry can cause dynamism and hostility, it is theoretically distinct from
both variables. Dynamism and hostility arise from many sources, of which rivalry is only one
possible cause. Moreover, rivalry reflects the specific nature of competitive dynamics in an
industry (Porter 1980) and the number of competitors in an industry (Oster 1990).
When rivalry is fierce, companies must innovate in both products and processes,
explore new markets, find novel ways to compete, and examine how they will differentiate
themselves from competitors. These actions have become common among successful
companies in such diverse competitive environments as microcomputers, hospitals, and
fabricated metals. Past research suggests that intensive competitive rivalry is conducive to
companies’ venturing, especially through innovation (Adler 1989). Caution is necessary in
generalizing these findings because fiercely intensive rivalry may force some companies to
exit rather than undertake risky corporate innovation and ventures. Alternatively, increased
rivalry may raise environmental hostility and force companies to conserve resources, rather
than innovate.
Increased rivalry is also conducive to corporate renewal efforts. Witness, for example,
the effect of successful entry by foreign producers into the U.S. textile and tool machinery
industries. This entry has forced companies to redefine their business by redeploying their
resources and changing their business portfolio. Divestments, spinoffs, and turnarounds are
ENVIRONMENT AND FINANCIAL PERFORMANCE 325
included in these companies’ current strategic actions. Similar examples of corporate renewal
can be found in other industries, as well. Besides changing their mission and competitive
approach, companies may reorganize in response to growing competition. In the biological
product segment, for instance, Upjohn has reorganized its drug research, testing and treatment
division. It also merged the research and medical affairs divisions in an effort to reduce
overlap and inefficiency, speed product development, and improve company performance.
These actions help to revise a company’s concept of business, spur its innovativeness, and
enable it to compete more vigorously. One must be cautious, however. Although rivalry may
be conducive to increased corporate entrepreneurship activities, this relationship may be
nonlinear (Fombrun and Ginsberg 1990). Moreover, increased corporate entrepreneurship
may intensify the level of rivalry, as companies attempt to reposition themselves in their
market. This suggests that rivalry and entrepreneurship may influence each other over time.
This longitudinal, dynamic interplay between these two variables should be examined in
future studies. The following section presents the study’s hypotheses.
HYPOTHESES
This study is based on the premise that the perceived characteristics of a firm’s external
environment are an important “antecedent” of corporate entrepreneurship. In particular, the
dimensions of the environmental munificence and hostility deserve attention. Although
discussed separately above, these dimensions are interrelated. For instance, technological
progress causes change (“dynamism”) that may be viewed by some companies as
unfavorable (“increased hostility”); such technological changes invite new competitors,
altering the dynamics of competitive rivalry in the industry. This environmental
interconnectedness suggests that a taxonomic approach is necessary to understand variations
in corporate entrepreneurship.
Research suggests that companies stress different strategic choices within different
environments (e.g., Aldrich 1979; Hambrick 1983a, b). That is, in seizing opportunities or
avoiding threats, companies are expected to emphasize certain venturing and self-renewal
activities within their environments. Companies cannot devote the resources needed for all
promising ventures. And some ventures are simply more interesting-intellectually,
politically and financially-than others. These ventures will receive support (Burgelman and
Sayles 1986). Finally, inertial forces are a source of selective attention to venturing and self-
renewal activities (Ginsberg and Buchhohz 1990). Inertial forces combine both tangible and
intangible qualities and cognition in an organization. Although these forces retain companies’
commitments to existing procedures and projects, they sometimes blind firms to emerging
opportunities. Consequently, inertial forces can influence the fate of a new venture idea or a
self-renewal program.
Inertial forces develop over time, depending on a firm’s interaction with its environment.
As an organization learns successful patterns of competition in an environment, inertial forces
evolve to ensure that it pursues those actions that will maximize company survival (Hannan
and Freeman 1984). Inertial forces reflect, to some extent, the demands of success in given
environments. This means that some new ventures and self-renewal activities will be favored
in some environments and ignored in others; entrepreneurship activities will vary from one
environment to another. This suggests that companies may pursue distinct combinations of
entrepreneurship activities in different environmental settings, as follows:
HI: In dynamic or growth environments, companies will emphasize new business creation
and innovation.
326 S.A. ZAHRA
METHOD
Data Collection and Sample
A questionnaire was mailed to the presidents (or the highest ranking executives) of
manufacturing firms, representing six Cdigit standard industrial classification (SIC),
consumer and industrial goods groups in the USA. To reduce the confounding effect of
diversification, companies had to generate at least 70% of their revenue from a given industry,
corresponding to Rumelt’s (1989) definition of a “single” or “dominant” business. Two
hundred ninety-one U.S.-based firms qualified and were contacted by mail.
Two mailings--one month apart-were used, resulting in 102 valid responses, for a
response rate of 35.5%. Responding firms averaged $678.6 million in annual sales, with a
range from $200 million to $2.286 billion. Industries included canned specialties, canned
fruits and vegetables, dehydrated fruits, vegetables and soups, biological products, fabricated
metal products, and food product machinery. They were identified from Porter’s (1980) list
of fragmented industries.
Using the r-test, responding and nonresponding firms were compared using average
sales, size, number of full-time employees, and SIC. No significant differences were found
regarding sales, assets, or employees. Responding firms were more prevalent in consumer
than industrial goods sectors.
To minimize source bias, executives completed the section on their environment and,
then, forwarded the questionnaire to a second senior manager who was familiar with
entrepreneurial activities.
ENVIRONMENTANDFINANCIALPERFORMANCE 327
Measures
Consistent with the literature cited earlier, multiple items gauged respondents’ perceptions of
the external environment. As the Appendix shows, measures of corporate entrepreneurship
focused on venturing and innovation and self-renewal activities. The scores of multiple items
were summed to produce indexes, whose reliability was assessed through Cronbach
coefficient alpha (a), as presented in the Appendix.
Two criteria were employed to gauge company financial performance over a three-year
period: return on sales (ROS) and growth in sales. These measures reflected how well a
company related to its external environment through expansion via innovation-a major
source or profits and sales. Thus, innovation and renewal activities can influence both the
return on sales and growth in sales measures.
ANALYSIS
Testing the hypotheses required four steps. The first entailed adjusting all data for
inter-industry variations. The second focused on using cluster analysis to create discrete
environmental settings. The third examined variations among environmental settings in their
corporate entrepreneurship activities. The final step focused on examining the associations
between corporate entrepreneurship and company performance, using simple correlations and
stepwise regression analyses.
Cluster’
qualities of the four environmental settings. In reviewing the profiles of the four clusters
(summarized below), the reader should note that because the number and content of clusters
were inseparable from the classification criteria used, the results of ANOVA were presented
only to illustrate where the greatest differences existed among the clusters.
’ Cluster luhels: (I) = dynrrmicgrowth: (2) = hostilr und riwtlrous hut techttolo&dly rich; (3) = hospittthle,newpro&t-tlrivtvt;
md (4) = smtic und impoverishedemGwvmvtt.
‘p < 0.05.
l*p <O.Ol.
“‘pco.001.
I Cluster labels: (I) = dytwmic growth; (2) = hostile utul riwlrous. but technologicully rich: (3) = hospitable, new
product-driven; und (4) = stutic uml impoverished mvironment.
lp < 0.05.
**p<o.o1.
“‘p<O.o01.
A different pattern of association was observed in the “hostile and rivalrous but
technologically rich environment.” In this cluster 12 out of the 14 correlations were
significant @ c 0.05). Neither new product introduction nor revenue from such new products
was associated with performance. These activities might take a long time to payoff in terms
of improved financial performance.
In the “hospitable, product-driven” growth cluster, nine out of 14 correlations were
significant. Mission reformulation and system-wide changes were not associated with the two
performance criteria. Moreover, technological entrepreneurship was not significantly
associated with sales growth. Overall, corporate venturing was associated with successful
performance whereas renewal efforts were not.
Finally, in the “static and impoverished environment” cluster, three of the seven
corporate entrepreneurship indicators were associated significantly with performance: new
business creation, technical entrepreneurship, and mission reformulation. This cluster
appeared to reward companies that pursued new business opportunities and undertook major
changes in their business mission. By creating new business and refocusing their business
concepts, some of these companies improved their performance. These results are consistent
with Porter’s (1980) observations on industries that are “stuck;” these industries greatly
resemble companies in cluster 4. These “stuck” industries have very few opportunities for
future profitability and growth. Without creative leadership, companies in these environments
may fail. Porter’s observations pose a challenge for firms in this environment: If they become
aggressive, they may cause fundamental changes in their environments, creating hostility that
332 S. A. ZAHRA
may undermine their existence. Yet, if they accept the status quo, they may eventually fail.
Fortunately, the results suggest that there were three options that were positively associated
with company performance: creating new business, pursing technological entrepreneurship,
and reformulating the company’s mission. These activities would enable companies in the
“static and impoverished” environment to revitalize themselves and achieve higher
performance. Whether and how companies undertake these actions is a question for future
studies. However, the results suggest that some entrepreneurial activities are associated with
financial performance even in this environment.
The results on the relationship between corporate entrepreneurship and company
performance (ROS and sales growth) may signal the possibility that the MacMillan and Day
(1987) “dynamic” is at play. That is, the current data suggest the possibility that companies
may achieve both profits and growth through corporate entrepreneurship activities, without
presuming a potential tradeoff between these two variables. However, the present sample
precludes a direct comparison between the established firms studied and the new ventures
examined by MacMillan and Day (1987). Still, it appears that corporate entrepreneurship
activities might have a “double” positive effect on company performance, which is another
reason for encouraging companies to engage in entrepreneurial activities.
Regression Analysis
Stepwise regression was used to isolate the major correlates of company performance in
different cluster and validate the results of correlational analysis. A stepwise procedure was
used because of the small ratio of observations to variables in the clusters which may render
the results unstable. This possibility urges readers to exercise caution in analyzing the data in
Table 4.
Regression results were consistent with Pearson’s correlations, thus supporting H5 and
H6. Entrepreneurship explained .31 and .28 of ROS and sales growth, respectively, in the
overall sample. Focusing on cluster 1, the results supported the hypothesized positive
association between business venturing activities and performance. In cluster 2 (hostile but
rivalrous), mission reformulation and technological entrepreneurship were associated with
performance. In cluster 3, reorganization and new product innovation were significant
“predictors” of performance. Finally, three aspects of corporate entrepreneurship were
particularly negatively associated with performance: technological entrepreneurship, mission
reformulation and system-wide change. Only reorganization was positively associated with
growth in sales. Overall, H6 was supported because different dimensions of corporate
entrepreneurship activities were related differently to measures of company performance in
different environmental clusters.
DISCUSSION
This empirical study examined the association between a firm’s external environment,
corporate entrepreneurship and financial performance. One must recognize the limitations
of the study when interpreting its results. The cross-sectional data do not allow causal
inferences about the longitudinal interplay between the environment, corporate entrepre-
neurship, and financial performance. Thus, although the study has focused on the
environment as an antecedent of corporate entrepreneurship, it does not refute the opposite
possibility. Corporate entrepreneurship has been depicted also as an antecedent of company
performance; the opposite relationship cannot be dismissed. The interplay between these
ENVIRONMENT AND FINANCIAL PERFORMANCE 333
Cluster
Overall 1 2 3 4
P’
lpco.o5.
“p<O.Ol.
***p<0.001.
variables is dynamic in nature; longitudinal designs are necessary to detect any lag effects.
Finally, the focus of this study was on the combined effect of environmental variables on
corporate entrepreneurship. This focus may have resulted in overlooking any non-linear
associations between rivalry and hostility and entrepreneurship. These nonlinear associa-
tions deserve attention in future studies.
The results show the usefulness of the taxonomic approach to studying the links between
a firm’s external environment, corporate entrepreneurship and financial performance. This
approach enables researchers to evaluate the association between the overall environmental
setting and the types of corporate entrepreneurship. It provides a realistic means of
understanding tradeoffs among corporate entrepreneurship activities, helping to identify
companies’ viable choices in different environments.
The study also shows that most corporate entrepreneurship activities are associated with
company performance, for the sample (see Table 3). Although the data support H5, as
mentioned, one must be careful in interpreting the results because they do not suggest a
cause-effect relationship, and because the reverse relationship (that performance induces
corporate entrepreneurship) is plausible as well. Also, there is evidence that corporate
entrepreneurship activities take time before they improve performance (Biggadike 1979;
Miller and Camp 1985). Still, the current results suggest that corporate entrepreneurship is
positively associated with financial performance which is consistent with other findings
(Zahra 1991). Further, these associations are contingent upon the firm’s environmental setting
(thus supporting H6), emphasizing the need to select the types of entrepreneurship activities
that companies undertake. Thus understanding the nature of the environment represents an
important first step in selecting corporate entrepreneurship activities.
334 S. A. ZAHRA
Managerial Implications
The results have three implications for senior executives. The first is the need to recognize the
importance of the external environment for the pursuit of corporate entrepreneurship. Because
perceptions of the external environment are so crucial in this respect, executives should
ensure that an effective system of environmental scanning is in place. This system should be
comprehensive in scope, covering the factors that influence the munificence and hostility of
the environment. The system should help executives to interpret environmental changes and
what they might mean for corporate venturing activities.
Besides conducting effective environmental scanning, executives should recognize the
importance of their own perceptions of the environment for entrepreneurship. These
perceptions shape organizational choices of appropriate ventures. Senior executives should
validate their assumptions, data, and interpretations by using multiple sources of information.
Data generated from environmental scanning often suggest multiple options; effective
executives should probe the assumptions behind these options before initiating or approving
new ventures.
A second implication is the desirability of achieving match (fit) between the type of
environmental setting (as seen by executives) and corporate entrepreneurship activities.
Without match, these activities will be unfocused and perhaps unproductive. Of course, this
match must be engineered by matching the environment and the types of ventures being
explored. Achieving this fit requires that executives promote and manage the firm’s strategic
and administrative contexts (Burgelman and Sayles 1986). Whereas the former focuses on the
generation of new enterprise ideas for innovation or renewal, the latter provides a forum
within which the ideas are evaluated and implemented. To achieve a profitable fit between the
environment and corporate entrepreneurship, executives should be visibly engaged in shaping
both the strategic and administrative contexts. Shaping the strategic context requires setting
the “vision” by sharing information about environmental conditions and articulating the
types of enterprise that might be of interest. Managing the administrative context requires,
among other things, applying the acid test to each new venture: Does the venture match the
environmental challenges the company is expected to face?
Executives should adopt a long-term view of the effect of corporate entrepreneurship.
Although there may be some short-term performance implications from their activities, as
reported in Tables 3 and 4, the magnitude of the relationships is relatively low. The present
results urge executives to champion promising ideas for corporate venturing for improving
financial performance. Equally important, executives should view these projects as long-term
investments in the company’s future. This means that innovative ventures need financial,
organizational and political support from senior executives (Hitt et al. 1990; Zahra and Fescina
1991). They also need to be evaluated differently from existing, well-established units.
Research Implications
The results urge scholars to consider multidimensional conceptualizations of corporate
entrepreneurship. Such conceptualizations are necessary to understand the commonalities and
any tradeoffs in managerial responses to environmental forces. While using overall indices of
corporate entrepreneurship is understandable at this stage of scholarship in this area, these
measures may not fully capture the domain of corporate entrepreneurship. As research
ENVIRONMENT AND FINANCIAL PERFORMANCE 335
matures, there is a need for studies that map the domain of corporate entrepreneurship and
empirically establish the link among its dimensions. This will set the stage for examinations
that thoroughly document the financial implications of companies’ engagement in corporate
entrepreneurship. It will also encourage future research by offering a unifying framework for
the topic.
This study also suggests a need to revise long-held assumptions about possible tradeoffs
between growth and profitability because of corporate entrepreneurship. The current
results-along with those of MacMillan and Day (1987) and Zahra (1991)-show that some
corporate entrepreneurship activities may enrich both company profitability and growth
simultaneously. We should not always assume that tradeoffs will exist between profitability
and growth measures; future researchers should use measures of both variables to establish
the validity of the current study’s findings.
There are three additional issues that deserve future empirical attention in research in this
area. (1) There is a need to explore how other relevant environmental dimensions (e.g.,
heterogeneity) may influence corporate entrepreneurship. (2) Corporate entrepreneurship is
both a pattern of corporate choices and a process or revitalizing the organization. This paper
has emphasized some actions companies may undertake. Future scholars should explore the
processes associated with implementing these choices. Differences in corporate ventures and
strategic renewal activities may influence these variables’ association with company financial
performance. (3) Whereas generic environmental settings transcend industry boundaries,
future studies may also benefit from focusing on single industries, thus capturing their distinct
features and their particular patterns of corporate entrepreneurship. Studies along these lines
will help set the stage for offering advanced hypotheses that consider the complex links
among the environment, entrepreneurship and performance.
The results of this study-showing that companies in different environments emphasize
different corporate entrepreneurship activities, and that these activities are associated
differently with indicators of financial performance-invite replications and extensions. The
results also invite additional taxonomic studies to understand the intricate links between the
environment and corporate entrepreneurship, and to understand how these links may
influence company financial performance.
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ENVIRONMENT AND FINANCIAL PERFORMANCE 337
Munificence
I. Dynamism
(a - X3). Rate the extent of changes that might have occurred in your company’s environment,
following the scale below.
I 2 3 4 5
Minor Major
Change Change
changes in technology I 2 3 4 5
changes in consumer demographics I 2 3 4 5
government regulation in the industry I 2 3 4 5
number of domestic competitors has I 2 3 4 5
number of foreign competitors has I 2 3 4 5
industry-wide spending on advertising has I 2 3 4 5
2. Technological Opportunities (a a. 80). Indicated how true or untrue are the following statements of your
company’s situation, using the scale below.
I 2 3 4 5
Very Very
Untrue True
3. Perceived lndusrry Growth (a - .76). Indicate how true or untrue are the following statements of your
company’s situation, using the scale below.
I 2 3 4 5
Very Very
Untrue True
there are very few opportunities for growth in this industry (reversed) I 2 3 4 5
this industry offers many attractive opportunities for future growth I 2 3 4 5
growth opportunities in this industry are abundant 1 2 3 4 5
4. Demandfir New Producfs (a - .7 I). Indicate how true or untrue are the following statements of your company’s
situation, using the scale below.
I 2 3 4 5
Very Very
Untrue True
In this industry . . .
Hostility
I. Unjkwability of Change(a - .74). Rate the changes that might have taken place in your industry on the
following scale. Have they been favorable for (or conducive to) the success of your company?
338 S. A. ZAHRA
1 2 4 5
Unfavorable Favorable
2. Competitive Rivalry (a - .72). Rate the intensity of competition your company has faced from the following
groups over the past three years.
I 2 3 4 5
Low High
Competition from ..
established domestic producers I 2 3 4 5
established foreign producers 1 2 3 4 5
new domestic producers I 2 3 4 5
new foreign producers 1 2 3 4 5
1. New Business Creation (a - .80). Indicate the extent to which your company has emphasized each of the
following items.
1 2 3 4 5
Minor Major
Emphasis Emphasis
2. Producr innovation (a - X0). Indicate the extent of changes that might have taken place in your company over
the past three years.
1 2 3 4 5
Decreased Increased
Significantly Significantly
3. Percent ofRevenue Generatedfrom New Business. Executives estimated the percent of their company’s revenue
generated from products that did not exist three years earlier. Only 78 companies provided data on this variable.
ENVIRONMENT AND FINANCIAL PERFORMANCE 339
4. Techtwlo~ical Entrepreneurship (a - .63). Indicate the extent of changes that may have taken place in your
company over the past three years.
I 2 3 4 5
Decreased Increased
Significantly Significantly
1. Mission Rejkudarion (a - .86). Indicate the extent to which your company has emphasized each of the
following items.
I 2 3 4 5
Minor Major
Emphasis Emphasis
2. Reorganization (a - .70). Indicate the extent to which your company has emphasized each of the following
items.
I 2 3 4 5
Minor Major
Emphasis Emphasis
1 2 3 4 5
Minor Major
Emphasis Emphasis
Company Performance. As mentioned, two criteria were used to gauge company financial performance over a
three-year period: return on sales (ROS) and growth in sales. Executives provided data on their SBUs’ (units or
divisions) return on sales (ROS) and growth in sales. Each criterion was defined in the survey instrument to minimize
misinterpretations. For each criterion, executives were asked to provide data for the most recent three-year period, and
340 S. A. ZAHRA
the data were then averaged. In addition, data from COMPUSTAT and corporate documents (such as the 10-K
reports) were used to validate the accuracy of executives’ responses. Secondary financial data on the subset of 32
firms from COMPUSTAT were correlated with survey data. The average correlation was .74 @ c O.Ol), thus
supporting the reliability of the survey data.