THE IMPACT OF BEHAVIORAL COMPLEXITY ON EXPLOITATIVE AND EXPLORATIVE BEHAVIOR AMONG OWNER-MANAGERS OF SMES IN MALAYSIA.

Author:Chuen, Poon Wai
Position:Small and medium enterprises - Report - Statistical data
 
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INTRODUCTION

Worldwide, SMEs has revolutionized business environment and often depicted as the main driver of the economy by creating wealth and providing jobs to the local community that they are situated in. SMEs should be viewed main contributor in stimulating long-term development of economy in many nations as SMEs accounts for more than 90 locally (Hashim, 2005; Tung & Aycan, 2008). Based on 2011 Malaysia economic census, SMEs in Malaysia consist of 97.3% from 662,939 units of total business establishment in the country (Department of Statistic Malaysia, 2017). SMEs in Malaysia recorded a significant double digit growth of 13.6% for 2014 and the share of SMEs to GDP raise significantly from 33.5% in 2014 to 36% for year 2014 (SME Annual Report 2014/2015). However, the contribution rate of SMEs to GDP of in Malaysia is relatively low as compared other nations. SMEs in Korea and Singapore contributes a total of 53% and 49% respectively, meanwhile in Thailand, SMEs contributes a total of 38% to the nation's GDP (SME Annual Report 2009/2010). This indicates that the growth potential among Malaysian SMEs need to be further refine to enable for a larger contribution to the nation.

A growing number of researches highlighted the benefits of being exploitative and explorative both on the organization level and individual level (Junni et al., 2013). Such capabilities are extremely beneficial for SMEs as they often face multiple constraints from both internal and external resources. A shortage of resource forces owner-managers to be ambidextrous in managing challenges faced by the organization. Hence SMEs are more likely to be both exploitative and explorative (Cao et al., 2009) in order to address and overcome these shortcomings. March (1991) first introduced these two concepts exploitative and explorative behaviors. Exploitative relate behaviors in the refinement of existing competencies while explorative relate behaviors in searching for new knowledge or opportunity (March, 1991). These behaviors are seen as integral to a firm's profitability and long-term sustainable (Cao et al., 2009). These contradictions have been positively linked to firm's performance, innovation, sales growth and firm survival (Junni et al., 2013; O'Reilly & Tushman, 2013). Thus the development of exploitative and explorative behaviors is expected positively contribute to SMEs.

Individual of SMEs need to actively reconfigure available resources and capabilities, through new patterns of integration in producing new value to sustain growth and profit. Such complexity of organizing and managing resources demands owner-managers to be competent and capable in sensing and seizing new opportunities in a dynamic business environment (Teece et al., 2014). However, the reconfiguration of available resources and capabilities remains vague among SMEs, even more so on an individual level. The contradiction between exploitative and explorative behaviors compels owner-managers to behave erratically. These erratic behaviors force the individual to be competent in multiple skills. Therefore, to foster these dynamic behaviors, owner-managers must address the notion of behavioral complexity to inculcate the explorative and exploitative behaviors. In short, the purpose of this paper is to explore the relationship between behavioral complexity with explorative and exploitative behavior.

LITERATURE REVIEW

Behavioral Complexity

Denison et al. (1995) define behavior complexity as the ability for someone to "perform the multiple roles and behaviors that circumscribe the requisite variety implied by an organizational or environmental context. The notion of behavioral complexity traces back to Competing Value Framework (CVF). The framework attempts to measure organizational effectiveness. CVF is defined by two competing values: Flexible versus Stable structures and Internal versus external focus. Cameron et al. (2006) simplified the framework to compete, control, create and collaborate for easier adoption on organizational and individual level. The framework is often assumed to be mutually exclusive and neglect the dynamic context of an organization (Lawrence et al., 2009). As the internal and external environment rapidly changes, individuals who are able to manage opposing tensions are likely to retain greater adaptability and capacity (Weick, 2003) to manage multiple competing needs of the organization (Lawrence et al., 2009). Individual's ability to integrate competing needs is best indicated by the performance of each role. Researchers argued that leaders who can balance or diversify their behaviors across the competing values dimensions are likely to have a high degree of behavioral complexity and better suited to different organizational demands (Hooijberg & Quinn, 1992).

Behavioral complexity represents a wide range of behaviors that a leader is capable of performing and these behaviors are summarized into four roles-compete, control, collaborate and create (Lawrence et al., 2009) (Table 1). Compete roles refer to planning, goal setting and productivity, that is characterized by an external focus (e.g., benchmarking to competitor performance and profitability) and structural controls (e.g., goal setting and process monitoring) (Quinn & Rohrbaugh, 1983; Lawrence et al., 2009). Collaborate roles refer to cohesion, morale and training, that is characterized by an internal focus (development of internal capability, specifically, human resource development) and a flexible management approach characterized by participative decision making, empathic relationships (Quinn & Rohrbaugh, 1983; Lawrence et al., 2009). Control roles refer to information management, stability and control, that is characterized by an internal focus (e.g., establishing routine, buffering against external disruption) and hierarchical control (e.g., having in place clear and immutable lines for reporting, approval and communication) (Quinn & Rohrbaugh, 1983). Create roles refer to adaptation and growth that is characterized by an external focus (e.g., market growth and competition) and flexible organizational structures (e.g., flat hierarchies, cross-functional teams) (Quinn & Rohrbaugh, 1983; Lawrence et al., 2009).

Individuals must be able to engage multiple behavioral roles in addressing the dynamic changes in the business environment (Tsui, 1984). Behavioral complexity demand individuals to be loose and strict, creative and routine and formal and informal at the same time. Smith & Lewis (2011) suggested that managing paradoxical tensions helps individuals, groups and firms to be flexible and resilient, fostering more dynamic decision making. Researchers observe that individuals with balance competing roles have a higher likelihood to be more effective and achieve better performance (Bullis et al., 1992; Denison et al., 1995; Hooijberg, 1996; Hooijberg & Quinn, 1992) however what remains unclear, though, is 'the degree to which behaviors from all quadrants need to be equally available' (Lawrence et al., 2009).

Ambidexterity: Exploitative and Explorative Behaviors

Ambidexterity refers to the ability to explore new opportunities while simultaneously exploiting existing competencies (Kauppila & Tempelaar, 2016; Cao et al., 2009; Tushman & O'Reilly, 1996). The two concepts that embody ambidexterity are exploitation and exploration behaviors. The theory of dynamic capability stresses on the urgency to reconfigure existing competencies and establish new competencies in response to dynamic business environment. Implied in the theory is that owner-managers who form the backbone of the firm must be able to seamlessly carry out both exploitative and explorative behaviors. Both behaviors are not only distinct dimensional behaviors but are also mutually enabling (Farjoun, 2010; Holmqvist, 2004). When an individual explores, he/she simultaneously creates new opportunities to exploit, while when an individual is exploiting, he/she simultaneously refines their knowledge and expertise that contribute to exploration (Kauppila & Tempelaar, 2016).

Explorative behaviors increases the breadth of knowledge, thus creating prospects for radical changes, while exploitative behaviors increases the depth of knowledge, which typically leads to incremental development and enhanced reliability (Benner & Tushman, 2003). Exploitative...

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