Nonlinear Effects of Entrepreneurial Orientation on Small Firm Performance: The Moderating Role of Resource Orchestration Capabilities

• Author: William J. Wales,Vinit Parida,Patrick M. Kreiser,Pankaj C. Patel
• DOI: http://doi.org/10.1002/sej.1153
• Published date: 01 June 2013
• Date: 01 June 2013

NONLINEAR EFFECTS OF ENTREPRENEURIAL

ORIENTATION ON SMALL FIRM PERFORMANCE:

THE MODERATING ROLE OF RESOURCE

ORCHESTRATION CAPABILITIES

WILLIAM J. WALES,1* PANKAJ C. PATEL,2VINIT PARIDA,3,4 and

PATRICK M. KREISER5

1Department of Management, James Madison University, Harrisonburg,

Virginia, U.S.A.

2Miller College of Business, Ball State University, Muncie, Indiana, U.S.A.

3Entrepreneurship and Innovation, Luleå University of Technology, Luleå,

Sweden

4Department of Management, University of Vaasa, Vasa, Finland

5College of Business, Ohio University, Athens, Ohio, U.S.A.

This research examines the natureof the relationship between entrepreneurial orientation (EO)

and small firm performance. The results from a sample of 258 Swedish small firms indicate an

inverted U-shaped relationship between EO and small firm performance. Drawing upon

resource orchestration theory, we theorize that information and communication technology

capability and network capability help small firms overcome their resource-related ‘liabilities

of smallness’ and observe these capabilities to increase the optimal levels and performance-

related returns fromEO. In the absence of these capabilities, returns to firm performance from

increasing EO were observed to reach harmful levels. The study implications are discussed.

Copyright © 2013 Strategic Management Society.

INTRODUCTION

During the last three decades, entrepreneurial orien-

tation (EO) has become one of the most extensively

researched topics in the entrepreneurship and strate-

gic management literature, with more than 100

studies exploring the concept (Lumpkin, 2011;

Rauch et al., 2009). Prior studies define EO as

‘strategy-making practices, management philoso-

phies, and firm-level behaviors that are entrepreneur-

ial in nature’ (Anderson, Covin, and Slevin, 2009:

220) and suggest that EO is evidenced through the

simultaneous manifestation of innovative, risk-

taking, and proactive firm behaviors (Covin and

Slevin, 1989; Miller, 1983). As entrepreneurial

behaviors contribute to new product market entry,

a principal focus of prior research has been the

relationship between EO and firm performance

(Lumpkin and Dess, 1996). In this regard, most

studies generally suggest a positive effect of EO on

firm performance (Rauch et al., 2009). Nonetheless,

key knowledge voids remain concerning the

EO-performance relationship, particularly in the

context of small firms (i.e., firms with fewer than 50

employees1) that may have difficulty in consistently

accessing and making use of the resources necessary

to successfully employ an EO-focused strategic

approach (Su et al., 2011b). Previous research has

yet to consider the potential for nonlinearity within

Keywords: entrepreneurial orientation; small firms; curvilinear-

ity; firm performance; firm capabilities; resource orchestration

*Correspondence to: William J.Wales, Department of Manage-

ment, James Madison University, Harrisonburg, VA 22801,

U.S.A. E-mail: waleswj@jmu.edu

1Firms with fewer than 50 employees havealso been referred to

as ‘microfirms’ by Rauch et al. (2009). Their meta-analysis

suggests that a shared understanding of the EO-performance

linkage remains elusive in this firm context.

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Strategic Entrepreneurship Journal

Strat. Entrepreneurship J., 7: 93–121 (2013)

Published online in Wiley Online Library (wileyonlinelibrary.com). DOI: 10.1002/sej.1153

Copyright © 2013 Strategic Management Society

the EO-performance relationship in small firms.

Advancing understanding of this relationship prom-

ises to provide important theoretical insights into

how this strategic orientation can be effectively

managed in resource-constrained firm contexts.

Small firms are subject to several size-related

liabilities, which may hinder their efforts to translate

EO into new or renewed growth trajectories

(Freeman, Carroll, and Hannan, 1983). These firms

suffer from lower levels of slack resources,

decreased efficiency when using their resources, and

inferior legitimacy associated with the products their

resources produce (Stinchcombe, 1965; Thornhill

and Amit, 2003). Therefore, it is not surprising that

Thornhill and Amit (2003) observed higher failure

rates of small firms to frequently result from a lack

of key resources and capabilities. For these reasons,

achieving high levels of growth becomes a primary

objective of small firms, as growth affords firms the

organizational slack necessary to potentially buffer

resource-related liabilities (Agarwal and Audretsch,

2001; Sirmon et al., 2011). The dilemma for small

firms becomes how they can leverage and support

EO to best facilitate this growth in spite of their

resource limitations.

An emerging stream of research suggests that

‘what a firm does with its resources is at least as

important as which resources it possesses’ (Hansen,

Perry, and Reese, 2004: 1280) and the ability of a

firm to ‘orchestrate’ its resources facilitates the

achievement of its strategic objectives(Sirmon et al.,

2011). Foundational work in this area suggests that

components of effective firm resource management

include ‘structuring the firm’s resource portfolio,

bundling the resources to build capabilities, and

leveraging those capabilities with the purpose of

creating and maintaining value for customers

and owners’ (Sirmon, Hitt, and Ireland, 2007: 273).

Moreover, EO plays an important role in the

resource orchestration process, as it ‘provides the

mobilizing vision to use firm resources. By directing

the use of resources, EO not only provides an objec-

tive, but also helps identify the resources necessary

to support the objective’ (Chirico et al., 2011: 311).

Yet, given the resource limitations faced by small

firms, it is paramount that these firms make the most

out of the firm-level capabilities that may help them

realize the potential benefits of EO. Firm-level capa-

bilities represent the glue that binds together a firm’s

resources and configures these resources to perform

a value-producing task or activity (Grant, 1991). As

small firms may be prevented from releasing the full

potential of their EO due to resource limitations,

capabilities that support either gaining access to

external resources or making use of the entrepre-

neurial potential latent within extant resources are

vital to the success of small firms (Gulati, 1999).

We extend ‘resource orchestration’ arguments by

theorizing that the ability of small firms to translate

EO into heightened performance is dependent on

their capacity to develop and leverage critical firm-

level capabilities that can be effectively utilized in

conjunction with EO. Specifically, we propose that a

small firm’s information and communication tech-

nology (ICT) capability and network capability (NC)

may enable it to more efficiently and effectively

orchestrate its resources and, thereby, enhance the

efficacy of its EO efforts. ICT capability refers to the

extent to which a firm is able to utilize information

and communication technologies to improve its

overall business processes (Johannessen, Olaisen,

and Olsen, 1999; Tippins and Sohi, 2003) and NC

refers to a firm’s ability to use relationships to

procure resources held by other actors (Kale, Dyer,

and Singh, 2002). These moderating influences

explore important aspects of resource orchestration.

Although both NC and ICT capability affect a firm’s

ability to bundle its resources into capabilities, NC

also strongly influences the structuring of the firm’s

resource portfolio, while ICT capability enables the

firm to better leverage its extant resources and capa-

bilities to foster firm performance. Together, they

provide a more complete perspective concerning the

role of synchronized resource orchestration-based

mechanisms in the EO-small firm performance rela-

tionship. We posit that ICT capability and NC serve

to mitigate the resource constraints that hinder the

effective utilization of EO in small firms and,

thereby, alter the nature of the EO-small firm perfor-

mance relationship.

This study offers several contributions to the

entrepreneurship and strategic management litera-

ture. Weextend existing theories of EO by offering a

rationale as to why EO may possess a curvilinear

relationship with firm performance in small firms.

While low to moderate levels of EO may enhance

performance, we argue that the combination of the

resource constraints faced by small firms and the

resource-intensive nature of EO (Su et al., 2011b)

may limit these performance effects at elevated

levels of EO and may eventurn these effects negative

to the point where they are actually harmful (i.e.,

result in below zero returns to performance). Thus,

we seek to provide insight to the questions of

94 W. J. Wales et al.

Copyright © 2013 Strategic Management Society Strat. Entrepreneurship J.,7: 93–121 (2013)

DOI: 10.1002/sej