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7th Global Conference on Business & Economics ISBN : 978-0-9742114-9-7

The Impact of Corporate Entrepreneurship on Company Growth in a Hostile Business Environment

Mohamed ZainCollege of Business and Economics

Qatar University, Doha, QATARTel: (974) 485 1823

Abdelaziz Elbashir HassanBACH, Abu Dhabi, UAE

ABSTRACT

A relationship between corporate entrepreneurship (CE) and company

performance in a hostile business environment of a developing country is examined in

this research using suyvey data obtained from 55 Malaysian construction firms.

Among others, this study found that: (1) CE strongly influenced company growth in a

hostile business environment, and (2) CE exists at more than one level within a

business organization. Given the growing importance of CE in today's businesses it is

important for firms to be able to identify entrepreneurial practices carried out by their

employees so that they can distinguish their entrepreneurially inclined employess from

those who are not within their organizations.

INTRODUCTION

Considerable ancedotal evidence suggests that an entrepreneurial management style is

common to successful companies. According to Drucker (1985) and Stevensen and

Gumbert (1985), large firms like IBM, Sony, Hewlett-Packard and 3M have been able

to sustain high levels of performance by behaving entrepreneurially. Also, in order for

firms to achieve sustained innovation and long-term excellence in the product-market

field organizations they should maintain a culture that supports and encourages

performance improvement. This sort of culture can also be described as a culture that

October 13-14, 2007Rome, Italy

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promotes corporate entrepreneurship (CE), i.e., a culture that encourages its

employees to be creative and innovative that will enable them to realize and take

advantage of opportunities when ever they arise. Nevertheless, the relationship of CE

and its influences on company growth in a developing countery environment has not

been investigated before.

CE is known universally as intrapreneurship (Chang, 1998). According to

Pinchot (1985), the term refers to the development of internal markets and relatively

small and independent units designed to create internal ventures and expand

innovative staff services, technologies and methods within a large organization.

Selecting an appropriate basis for defining CE and understanding its process is

a real challenge for researchers due to the absence of a universally accepted definition

of corporate entrepreneurship. Based on the literature, the main elements of CE

definitions are innovation, proactivity and risk taking at organization and individual

levels (Table 1).

[Insert Table 1 here]

Therefore, after reviewing the various definitions of CE given in Table 1, for

the purpose of this study CE is defined operationally as a process whereby corporate

entrepreneurs of established business organizations undertake product and service

innovations, act proactively and are willing to take risk through internal and external


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business ventures in order to enhance their company's performance (Miller and

Friesen, 1982; Covin and Slevin, 1989; Brazeal, 1993; Morris, Avila and Allen, 1993;

Zahra, 1993b; Zahra and Covin, 1995; Pearce and Carland, 1995). The literature,

however, shows no consensus about the locus of corporate entrepreneurs within a

business organization (Zahra, 1993b), i.e., whether it should be at all levels of the firm

or at one autonomous business unit led by entrepreneurial worker, manager, or group

of employees (Gibb, 1987; Kao, 1989, Zahra, 1993b). In this connection,

intrapreneurship school focuses on entrepreneurial executives within a complex

organization. The emergence of CE according to this school depends on two main

variables: the existence of entrepreneurial climate inside a business organization and

the presence of entrepreneurial abilities in its participants. One of the first models of

CE is the domain model of CE developed by Guth and Ginsberg (1990) which was

targetted at fitting CE into strategic management of firms. Another model developed

by Covin and Slevin (1991), is a conceptual model of entrepreneurship where a firm's

entrepreneurial behavior is built on three-level variables: organizational,

entrepreneurial employees’ and environmental levels (Covin and Slevin, 1991). The

model is a general theoretical framework that depicts the causes and consequences of

organizational-level entrepreneurial behavior.

In 1993, Brazeal developed an organizational model of internally developed

ventures which is built on two levels of variables and focuses on two categories of

factors related to long term building and maintenance of CE: (1) motivating factors,

i.e., the reward system and structural arrangements, and (2) broad-base individual

characteristics that describe a corporate entrepreneur including attributes, values and

behavioral orientations. Being the only model that has been tested empirically, its


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empirical findings are somewhat mixed. His findings suggest that separate reward and

structural arrangement are not necessary or even desirable for both entrepreneurial

and non-entrepreneurial managers. In another study, Hornsby, Naffzigar, Kuratko, and

Montagno (1993) developed an interactive model of CE (Brazeal,1993; Covin and

Slevin, 1991) which utilizes theories of the causes of behavior and focuses on the

interactions between an individual’s personality and his environment due to certain

precipitating events. Further, Zahra (1986) and Zahra and Covin (1995) conducted

two studies that addressed this issue where they found a correlation between CE and

performance for firms that emphasize CE as risk taking, product innovation and

proactivity. Covin and Slevin (1986) conducted another study on entrepreneurial

posture and firm performance relationship where they found found zero-order

correlation of r = 0.39 (p < 0.001) between entrepreneurial posture and firm

performance.

In relation to CE in the Asian business culture, Kim and McIntoch, (1997)

found that Korean entrepreneurs possess high need for achievement, are group

oriented, and are motivated by a recognition that brings honor, prestige and respect to

their family, unlike the individualistic entrepreneurs of the Western culture. Also,

autonomy, freedom and innovation are also practiced under management vigilance

and control while benefits and rewards are lower compared to Western and Japanese

firms. Furthermore, Hussin’s (1995, 1997) empirical study about Malay and Chinese

entrepreneurs' personal values, found that Malay and Chinese entrepreneurs are

characterized by high need for achievement, their abilities to create and utilize

opportunities, risk taking, hard working, and being innovative. Additionally, in

another empirical study on Asian entrepreneurs, Ray, Rainer, Arnulfo and Soke


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(1996) found that the entrepreneurs are individuals with opportunity knowing abilities,

willing to take risk, hard working, dedicated and have good business skills.

Attahir (1995) found that the critical factors of success for South Pacific

entrepreneurs are government support, access to resources and possession of

managerial skills in addition to autonomy and smallness of the company size. In

addition to these, management support for CE and their commitment to it are found to

be the main features distinguishing Malaysian entrepreneurial firms from others

(Attahir, 1995). The findings of Siti Maimon’s (1991) study about Peters and

Waterman’s (1982) eight attributes of entrepreneurial firms confirmed the existence of

these attributes in Malaysian firms. Autonomy and freedom, in addition to

productivity through people, were found to be most prevalent among these companies.

The empirical findings from Zain’s (1993, 1995, 1996) study of eight Malaysian

manufacturing firms also show the existence of internal entrepreneurial climate in the

firms that support innovation and creativity.

The common trend in the published research on CE is the predominance of

data from manufacturing companies conducted in particularly in the US market

(Zahra, Jennings and Kuratko, 1999) while companies from other business sectors

received only a modest attention. Thus, the main purpose of this study is to examine

corporate entrepreneurship (CE) and company growth relationship which is moderated

by competitive and hostile business environment. This study departs from the

previously mentioned approach by examining data from a different economic sector,

that is, the construction sector of a developing country of Malaysia. The rivalry among


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the firms within the industry has been intense and therefore the industry's environment

could be considered as hostile.

THEORETICAL FRAMEWORK AND HYPOTHESES

There are many theoretical and empirical studies which examine CE-performance

relationships among firms. In contrast to most of the previous studies found in the

literature which examined the relationships at the organization level (where CE is

represented by only one variable), this study examined theses relationships in a

different way. Specifically, this study enriched the knowledge by examining CE-

company growth relationships at two organizational levels: company and employee

levels. Moreover, this study adopted company growth as a dependent variable, which

is broader and more comprehensive indictor of corporate performance (Zahra and

Covin, 1995; Delmar, 1997). Corporate growth reflects a company’s response to

entrepreneurial change over short, medium and long terms. Improvement in

performance initially will be reflected in the company sales in the short run. In the

medium-term the company will respond to the increase in demand by acquiring more

assets to meet increasing demand for its products and services. The main CE elements

or the independent variables of the theoretical framework of this study are: (1)

innovation, which refers to company’s and individual’s ability inside a business

organization to create new products and services, introducte new markets, processes,

supply of new resources, and new industry organization (Schollhammmer, 1982;

Miller and Friesen, 1982; (2) proactivity, which refers to an ability to act earlier than

others in capturing new markets or introducing new products or tapping new

resources; (3) autonomy, which refers to a perception of self-determination with

respect to work procedures, goals and priorities (Ross 1986; 1987); (4) management


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support, i.e., the extent to which the management encourages and supports CE through

policy orientation and provision of resources (Kuratko et al. 1990); (5) structure,

which is identified as the workflow arrangement, communication across different

managerial layers and authority relationship in an organization (Ross 1986; 1987); and

(6) reward, which means the allocation of specific incentives to motivate individuals

to engage in entrepreneurial and innovative behavior (Miller and Friesen, 1982). Thus,

the proposed model of this research is as shown in Figure 1.

(Insert Figure 1 here)

Company growth represents the growth in the company’s assets, sales, and

number of employees (Delmar, 1997). In theory, the increase in sales over time may

reflect the ability of the company to capture an increase in the market demands, or it

can be due to improvement in quality of products, processes or methods of production

(Delmar, 1997). In the literature there is little conclusive evidence available to support

the belief that there is strong relationship between CE and firm growth (Delmar,

1997). This may be attributed to the fact that most of CE studies examined CE at the

company level alone, where as this study examined CE at company level as well as

the individual level. Thus, our first hypothesis is formulated as follows:

H1: There is a relationship between CE and company growth.

The external environment is identified as the set of forces surrounding an

organization that have potentials to affect the way it operates and access the scarce

resources (Jones, 1998). This study adopts a construct that encompasses general and


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specific environmental factors, i.e., environmental hostility. Environmental hostility

implies the environmental pressure caused by changes in the market place, the

industry, the competition in product quality, price and consumer taste. The importance

of the environment to an entrepreneurial firm’s performance has been documented

extensively in the literature (Zahra, 1993b; Zahra and Covin, 1995; Covin and Slevin,

1989). What is missing in the literature is the moderating effect of environmental

hostility on CE-firm growth and CE-job satisfaction relationships (Tsai, MacMillan

and Low, 1991; Zahra, 1993b; Zahra and Covin, 1995; Covin and Slevin, 1989). This

relationship is examined in our second hypotheses:

H2: There is a relationship between CE and company growth in a hostile

business environment.

METHODOLOGY

The population of the study is the construction industry in Malaysia. In the past, only

a few studies have been published using data from non-US companies (Zahra,

Jennings and Kuratko, 1999). Moreover, the trend in the published research on CE is

the predominance of data collected from the manufacturing sector 85% (Zahra,

Jennings and Kuratko, 1999). The selection of the construction firms was based on the

growing competition among construction companies in Malaysia where 86% (see

Table 2) of the respondents of this research agreed that there is stiff competition in

this business sector where their existence, survival and growth depend on their

competitiveness, industriousness, and entrepreneurial orientation (Brazeal, 1993;

Zahra, and Covin, 1995) in addition to the fact that the construction sector is one of


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the leading economic sectors of the Malaysian economy. Thus, the environment of the

Malaysian construction section could be considered as hostile.


Primary data on CE elements as well as on environmental hostility were

collected using questionnaires addressed to top or senior management of the firms.

The selection of the respondents with position titles such as chief executive officer

(CEO), general manager, senior executive and manager is attributed to the

assumptions that (1) leaders have a prominent role in company growth in Asian

companies (Petzall and Kim, 1996) and these executives may have some unique

opportunities for innovation in their firm (Brazeal, 1993; 1996; Zahra and Covin,

1995); (2) they are the best to tell about the entrepreneurial orientation of their firm

and its inter-workings; (3) top or senior level executives are more likely to complete

the questionnaire (Brazeal, 1993; 1996). On the other hand, a one-level selection of

subjects, i.e. the top or senior executive level is followed because it has a better

control of personal variations arising from work exposure, experience, and education

(Brazeal, 1993; 1996). Data on company growth were collected from the Kuala

Lumpur Stock Exchange (KLSE) Market Handbooks. The SPSS software package

was used to analyze CE and firm performance relationships. To test the identified

hypotheses moderated multivariate regression analysis (MMRA) was utilized.


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A total of 150 questionnaires were mailed to the KLSE companies in Malaysia

where we asked them to reply within 15 days. The first response was very low, i.e.,

only five companies responded, after which a second set of questionnaires were

mailed and were followed by phone calls and a letter to those who did not respond to

the first mailing. In total, 55 companies replied out of which only 45 of them were

useful, thus giving us a 30% response rate. This rate is statistically sufficient to give a

reliable estimation of the population parameters (Hair, Anderson, Tatham, and Black,

1998; Cooper and Emory, 1995). This rate is similar to those reported in this field of

research (Miller and Friesen, 1982; Zahara and Covin, 1995). The respondents came

from most of the Malaysian States, of which 70% were from around the Federal

Capital (Selangor and Kuala Lumpur) while the rest came from Sabah, Sarawak,

Johor, Penang, Kedah, Perak, Melaka, and Terengganu.

The CE measure in the questionnaire is represented by eleven variables which

explain different aspects of CE at two levels: seven variables at company level and

four variables at employee level. The questionnaire also covers environmental

hostility. Data pertaining to the dependent variable (company growth) were collected

from financial reports of the selected companies listed in KLSE Market reports. A

pilot study was first conducted to refine the measurement instrument after which the

questionnaires were mailed to the subjects together with an explanation for conducting

the research in order to enhance, clarify and facilitate the data collection process.

This study used parametric measurement scale because the samples were

selected from a normally distributed population and the primary findings showed a

linear relationship between the independent and dependent variables (Cooper and


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Emory, 1995). The dependent variable (company growth) was regressed with the

independent variables (the CE index) within a hostile business environment. This is a

cross-sectional study which attempts to explain the impact of CE on company growth

at specific point in time. If the regression equations of the CE on company growth and

CE relationship in a hostile business environment were found to be significant, this

would support the relationship between CE and company growth. That is to say, this

relationship was examined under the moderating factor of environmental hostility,

implying that the CE-company growth relationship could explain the outcome of this

relationship within a hostile business environment.

Measurement Instrument

We developed the CE measurement instrument based on previous scales developed by

Khandwala (1977), Miller and Friesen's (1982) CE index, Ross’s (1987)

Intrapreneurial Performance Quotient (IPQ) and Pinchot’s freedom factors. The CE

measurement was modified to measure the CE at two levels (business and individual)

inside a business organization by utilizing 52 items grouped into eleven variables. As

for the dependent variable, Delmar’s (1997) instrument was adopted to measure

company growth, which covers average annual growth rates of sales, assets and

number of employees. The company growth measure is calculated as follows:

Assets growth = (This year’s assets - last year’s assets)/ Last years assets

Sales growth = (This year’s sale - last year’s sales)/ Last years sales

Employees' growth = (This yr's no. of employees – Last yr's no. of

employees)/Last yr's no. of employees


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The CE measure has been widely used in past research (Khandwala 1977;

Miller and Friesen, 1982; Zahra, 1991; Md-Noor, 1991; Zahra and Covin, 1995)

because of its reliability and validity. This measure follows six point Likert-type scale

ranging from 1= highly disagree to 6= highly agree. Scores on the items were

averaged to produce the overall CE index. A low score on the index shows low

involvement in CE activities and vice versa. The respondents were asked to give their

perception about the presence of CE in their companies and their contribition to it.

They were also assured confidentiality of the data gathered. The CE index of this

study, surpassed minimum internal consistency requirements as measured by alpha

coefficient of 0.885.

Scale Reliability

Cronbach’s alpha scores were computed for each construct (CE, environmental

hostility and company growth) to measure the internal consistency and to indicate how

different items can realibly measure the construct. The values of the Cronbach’s alpha

range from zero (no internal consistency) to one (perfect internal consistency). The

scale is sufficiently reliable if Cronbach’s alpha is greater than 0.80 and is most likely

reliable for values greater than 0.70 (Cronbach, 1951). In this research, the Cronbach’s

alpha obtained was 0.96 for overall CE scale and the estimates for company growth

and environmental hostility scales were 0.87 and 0.75, respectively. Research

conducted by Zahra and Covin (1995) found the internal consistency level of CE to be

0.75. Thus, the scales used in this research could be considered as reliable.


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ANALYSIS AND RESULTS

To test the hypotheses the analysis was conducted in two steps:

(1) Testing the effect of CE on company growth and the CE relationship with

company growth which is moderated by environmental hostility. The regression

model used for the analysis is as follows:

Comp. Growth = a+b1 conovate + b2 cotonomy +b3 coproact + b4 mgtsupport+

b5 corisk+b6 orgstruct + b7 reward+ b8 mynovate+ b9 myfreedom+ b10 myrisk +

b11 myproact

The independent variable, CE, is on the right hand side of the equation and is

represented by eleven independent variables. The intercept “a” is the level of company

growth that is attributed to activities other than CE and bi is the coefficient or the slope

of the independent variables.

(2) To test the effect of the moderating variable (the environmental hostility) on CE-

performance relationship we added the interaction factor as follows:

Comp. Growth = a+b1 conovate + b2 cotonomy +b3 coproact + b4 mgtsupport+

b5 corisk+b6 orgstruct + b7 reward+ b8 mynovate+ b9 myfreedom+ b10 myrisk

+ b11 myproact + b12 EH+ b13 EH X CE

To test the hypotheses of this study we utilized sequential search approach and

backward elimination. The adoption of the sequential regression analysis is due to the


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fact that most of the previous researches on CE test the relationship at the aggregate

CE level, i.e., by taking the average of the three CE variables at organizational level

(innovation, risk taking and proactive attitude). As mentioned earlier, this study

examined CE-company growth relationship at the organizational and individual levels.

Therefore, since CE is present at a relatively early stage of a firm's growth, there is a

need to identify the factors that support the presence of CE which then influence

performance. For each hypothesis, this approach allows us to first regress CE against

company growth (H1), and then to regress it against company growth in a hostile

business environment (H2).

Table 3 shows the results of the regression analysis that examined the

relationship between CE and company growth. The finding indicates that the

independent variables explain 72.4% of the variances in company growth. This

indicates that the influence of CE on company growth is highly significant (p<0.001).

Thus, the data provides strong support for the first H1, i.e., CE is significantly

associated with company growth. Thus, the results of this study support the theoretical

and empirical research findings on CE by Brazeal (1993), Zahra (1993a,b), Zahra and

Gravis (2000), and Zahra and Covin (1995). The point of difference is that the CE

variables in this study show higher explanatory power (72.4%) compared to theirs

which showed R2 to be below 30% (Brazeal, 1993; Zahra, 1993a, 1993b; Zahra and

Gravis, 2000; and Zahra and Covin, 1995). Furthermore, the regression coefficients

for two independent variables of CE at the company level, i.e., being proactive

(p<0.003) and being willing to take risk (p<0.001) are positively associated with

company growth. The results indicate that the increase in management efforts at being

proactive via the introduction of new products, new services, and new methods of


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production even if the outcome is uncertain, i.e., being willingness to take risk, might

improve company growth. These findings are in line with previous studies that

examine the relationship between CE and performance, where Zahra and Gravis

(2000), Zahra (1993a, 1993b), and Zahra (1991) in their cross-sectional studies found

positive relationships between the influence of CE on firm’s gross profit growth and

sales growth. Also, in a longitudinal study, Zahra and Covin (1995) found positive

relationship between CE and company profitability and sales growth.


Nevertheless, the regression coefficients for company's desire for autonomy

(p<0.001), company structure (p<0.002) and employees’ desire for freedom (p<0.012)

were negatively associated with company growth. Perhaps, this negative association

could be due to the fact that, among the entrepreneurial firms, resources were depleted

by too much expenditures on new designs and new products in the short run (cross-

sectional) in order to meet the increasing desire for autonomy, freedom and

entrepreneurial practices (Miller and Friesen, 1982). Furthermore, the coefficient of

entrepreneurial employee’s desire for autonomy and flexibility displays a negative

sign which indicates that those who are entrepreneurially inclined have greater desire

for freedom which is consistent with previous findings (e.g., Koh, 1996).

The result of this study extended the literature further by showing that

companies in a developing country environment could benefit from growth when

pursuing CE. This finding is consistent with the studies conducted by Khandwalla

(1984; 1985), Knight (1997) and Kuratko, Montagno, and Hornsby et. al (1990), and


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Hornsby et al. (1993) who found that the emergence of entrepreneurship inside

business organizations requires a risk taking attitude and proactive managerial

support. Khandwalla (1984; 1985) found that top management’s commitment to CE is

associated with innovation and industriousness of the companies. Kuratko et al.’s

(1990) factors analysis found that management support for entrepreneurial attitude,

autonomy, reward and organization boundaries are the factors that contribute to CE.

Also, Schollhammer (1982) suggests that CE is important for gaining financial

advantage and rewards. In addition, Covin and Slevin’s (1993) argue that the adoption

of CE would improve financial performance while Zahra and Covin’s (1995)

longitudinal non-linear empirical study found that CE improves companies’

profitability over time.

Table 4 presents the results of the regression analysis which shows that the

independent variables explain 80.3% of the variances in company growth within a

hostile business environment. In other words, the influence of CE on company growth

within a hostile business environment is significant at p< 0.001. As can be seen from

Table 4, after the environmental hostility variable was added to the equation there is a

significant change in the explanatory power or the F value and as such, the

introduction of the interaction variable into the equation has produced a meaningful

result. In other words, the introduction of this interaction effect changed the form of

the relationship between the independent variables. As a result, the independent

variables accounted for 80.3% of the variances in company growth within a hostile

business environment compared to 72.4% before the moderating variable was

introduced. Moreover, the level of significance of the relationship (the F value)

improved from 8.9 to 10.62. Thus, the interaction variable is a true moderator since it


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changed the form of the relationship and the influence of the independent variables

resulting in an improvement in the power of the multiple regression analysis (Aguinis,

2002; Sharma et. al., 1981). This means the data provided support for H2; i.e., CE is

significantly associated with company growth in a hostile business environment.


From the regression coefficients for CE at the company level shown in Table

4, we can see that the variables proactive and risk-taking attitudes of the firms display

significant positive relationships with company growth in a hostile business

environment (at p<0.003 and p< 0.01, respectively). Interestingly, certain individual

and organizational factors including a company's desire for autonomy (significant at

p<0.001), an individual's desire for freedom (significant at p<0.007) and

organizational structure (significant at p<0.001) turned out to be negatively related to

company growth in a hostile business environment. Thus, in the short run, increasing

the desire for organizational autonomy and individual freedom and changing the

organization structure of the firms might have a negative impact on their performance

(Abraham, 2000). The results indicate that the association between CE and company

growth is contingent upon perceived competition, market change and environmental

hostility, which is consistent with previous findings (Covin and Slevin, 1989; Zahra

and Covin, 1995).


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The main finding from H2 is the presence of strong, positive and significant

relationship between CE [represented by company's proactive ability (p<0.003) and its

tendency to take risk (p<0.01) in a hostile business environment] and corporate

growth. This implies that an ability of a firm to be proactive and to be a risk-taker may

improve its financial performance under competitive pressure and changing market

environment.

THEORETICAL AND PRACTICAL IMPLICATIONS

A few theoretical implications could be drawn this this research. Firstly, the findings

support the belief that companies that engage in CE activities can realize important

financial benefits from their entrepreneurial practices. The negative association between

CE variables and performance measure could perhaps be due to the fact that, among the

entrepreneurial firms, their resources were depleted by too much expenditures on new

designs and new product introductions in the short run, which is consistent with Miller

and Friesen’s (1982) findings. On the other hand, Jaworski and Kohli (1993) found no

moderating effect from higher market turbulence, higher competitive intensity, or higher

technological turbulence while Slater and Narver (1994) found little support for the

degree of competitor hostility as a moderator of the marketing orientation-performance

relationship. Greenley (1995), on the other hand, reported that marketing orientation had

a positive effect on performance. The presence of different results necessitates the need

for more research to improve the theoretical development of the area. Secondly, the

results show that even when the market environment is considered hostile,

entrepreneurial efforts can enhance the growth and profitability of a firm. These findings

should be tempered with caution because there is a risk that the financial payoff from

excessive CE activities in this environment may decline. Finally, this study broadens the


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factors that influence organizational performance in an attempt to contribute and to

organize the large body of academic literature on CE. The principal challenge to

management researchers is to identify the entrepreneurial processes that lead to various

forms of CE, and then to theoretically predict and empirically verify the forms of this

phenomenon that produce the best results for firms in various business and industry

contexts. Admittedly, this is a tough challenge.

A number of practical or managerial implications could also be derived from

this study. Firstly, it appeared that CE is an important element for corporate growth.

Therefore, managers of companies should seriously consider adopting CE as an

effective tool for enhancing creation of a long-term favorable work environment

which could improve their firms' performance. Secondly, given the growing

importance of CE in today's businessess there is a practical value for managers in

being able to identify entrepreneurial practices of their employees so that they can

distinguish those who are entrepreneurially inclined from those who are not. Lastly,

the management of business organizations who adopts entrepreneurial programs

should provide an environment that facilitates and supports their employees to be

innovative and creative. Otherwise, it will be very difficult for CE to occur.

CONCLUSION

Most of the studies addressing CE issues focussed on theory building rather than

testing theories empirically. The limited studies that were carried out to examine the

CE-company growth relationships provide inconclusive empirical evidences. Given

the absence of empirical and systematic scholarly work from which to draw

conclusions, little is known about the CE factors that can influence company


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performance. Therefore, this study is an attempt to fill the void in the literature, by

examining more entrepreneurial factors within business organizations at more than

just one level, and also by examining environmental hostility as a moderating variable.

The results show that CE is strongly associated with company growth which

corroborate prior theoretical and empirical CE studies that have documented the

presence of a relationship between CE-company growth (Zahra and Covin, 1995;

Brazeal 1993; Zahra, 1993a and 1993b; Zahra and Gravis, 2000; Zahra and Covin,

1995; Richard and John, 1997; Khandwalla, 1984; 1985, Knight, 1997; and Kuratko,

Montagno, and Hornsby, 1990). However, this research extends prior knowledge by

empirically demonstrating that CE exists at more than just one level within business

organizations and that CE influences the performance of business organizations

significantly. Also, the environment in which entrepreneurial activities are practiced

have strong impact on company performance. Finally, changes in the market in terms

of prices, rules, regulations and emergence of new competitors have a strong and

significant influence on firms' financial performance.

There are a few limitations to this research which need to be mentioned.

Firstly, it should be noted that having small number of respondents (45 subjects out of

150 construction companies) besides our inability to include all the CE factors at

different levels of business organizations might be the reason for the lower coefficient

of determination we obtained. Additionally, this study focused on two levels of CE in

business organizations (corporate and employee levels). Therefore, future researches

need to develop comprehensive predictors of the influence of CE inside business

organizations, including at multiple levels and dimensions, using not just quantitative

analysis but qualitative as well.


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Figure 1: Proposed model of corporate entrepreneurship


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Hostility: Market Changes and Competitive Pressures (Miller and Friesen, 1982)

Corporate Entrepreneurial Factors:

A. ORGANIZATIONAL FACTORS 1. Management support (Kuratko et al., 1990) 2. Structure 3. Autonomy & freedom (Ross 1986; 1987) 4. Innovation 5. Reward System 6. Proactiveness (Miller and Friesen, 1982) 7. Risk taking (Ross, 1987)

B. INDIVIDUAL FACTORS 8. Innovation 9. Need for Autonomy 10. Risk taking 11. Proactivity (Ross, 1986; 1987)

1. Company Growth (Delmar, 1997) (sales, assets, and no. of employees


Table 1: Definitions of corporate entrepreneurship

Author/s & Yr / DefinitionBurgelman (1983)Corporate entrepreneurship refers to the process whereby the firms engage in diversification through internal development, which requires new resource combinations to extend the firm's activities in areas unrelated, or marginally related, to its current domain of competence and corresponding opportunity set (p. 1349)

Chung & Gibbons (1997)Corporate entrepreneurship is an organizational process for transforming individual initiavtive and ideas into actions through the management of uncertainties (p. 14).

Covin & Slevin (1991)Corporate entrepreneurship involves extending the firm's domain of competence through internally generated new resource combinations (p. 7).

Guth & Ginsberg (1990) Corporate entrepreneurship encompasses two types of phenomena and the processes surrounding them: (1) the birth of new businesses within existing organizations, i.e., internal innovation or venturing; and (2) the transformation of organizations through renewal of the key ideas on which they are built, i.e. strategic renewal (p. 5).

Jennings & Lumpkin (1989)Corporate entrepreneurship is defined as the extent to which new products and/or new markets are developed. An organization is entrepreneurial if it develops a higher than average number of new products and enter into new markets (p. 489).

Schendel (1990)Corporate entrepreneurship involves the notion of birth of new businesses within on-going businesses, and the transformation of stagnant, on-going businesses in need of revival or transformation (p. 2).

Spann, Adams, & Wortman (1988) Corporate entrepreneurship is the establishment of a separate corporate organization (often in the form of a profit center, strategic business unit, division, or subsidiary) to introduce a new product, serve or create a new market, or utilize a new technology (p. 149).

Vesper (1984)Corporate entrepreneurship involves employee initiative from below in the organization to undertake something new. An innovation that is created by subordinates without being asked, expected, or perhaps even given permission by higher management to do so (p. 295).


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Table 1: Definitions of corporate entrepreneurship (cont’d)

Zahra (1993; 1995, 1996) Corporate entrepreneurship is a process of organizational renewal that has two distinct but related dimensions: innovation and venturing, and strategic renewal (p. 321). It is the the sum of a company’s innovation, renewal, and venturing efforts. Innovation involves creating and introducing products, production processes, and organizational systems. Renewal means revitalizing the company's operations by changing the scope of its business, its competitive approaches or both. It also means building or acquiring new capabilities and then creatively leveraging them to add value for shareholders. Venturing means that the firm will enter new businesses by expanding operations in existing or new markets (1995, p. 227; 1996, p. 1715).

Source: Modified and adopted from Sharma, Pramodita (1999), Toward a reconciliation of the definitional issues in the field of corporate entrepreneurship. Entrepreneurship: Theory & Practice, Spring 99, Vol. 23 Issue 3, p11.


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Table 2 Frequency of responses to corporate entrepreneurship and environmental hostility

ItemDisagree

very much

Disagree moderatel

yDisagree slightly

Agree slightly

Agree moderatel

yAgree

very muchInnovation 0% 0% 2% 58% 34% 6%Co autonomy 1% 4% 12% 44% 34% 4%Co proactive 2% 0% 12% 36% 24% 26%Mgt Support 0% 2% 10% 28% 46% 14%Co Risk 6% 8% 10% 28% 26% 22%Org Structure 0% 0% 4% 18% 38% 40%Reward 6% 4% 4% 16% 36% 34%CE at Company level 2% 3% 8% 33% 34% 21%Individual Innovation 0% 0% 0% 12% 48% 40%Desire for autonomy 0% 0% 0% 4% 66% 30%Individual Risk 10% 2% 10% 42% 24% 12%Individual Proactive 0% 0% 6% 30% 34% 30%CE at Individual Level 3% 1% 4% 22% 43% 28%Overall CE 2% 2% 6% 27% 39% 24%Environment Hostility 2% 2% 10% 54% 24% 8%


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Table 3: Corporate entrepreneurship and company growth (result of regression analysis)

Method of the Linear Models

Variables Coeff.

t-Test PartialCorrelatio

n

Regression Symbol

p-Value R2

Model 1BackwardRegression

ConstantCotonomyCoproactCorisk

OrgstructMyfreedo

m

2.279-.284.219.164-.228-.250

4.922-4.8593.4144.405-3.718-2.796

-.763.638.730-.670-.561

x0

x1

x2

x3

x4

x5

0.0010.0010.0030.0010.0020.012

0.724

The Model gives the following equation:

Y = 2.279-0.284*x1 + 0.219*x2 + 0.164*x3 –0.228 x4-0.250 x5 (R2 = 0.724)

F overall = 8.936p-value = 0.001

Where Y is company growthp value is the level of significance


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Table 4: Corporate entrepreneurship and company growth within a hostile environment (result of regression analysis)

Method of the Linear Models

VariablesTest

Coeff.

t-test PartialCorrelation

RegressionSymbol

p-Value R2

Model 2BackwardRegression

ConstantCotonomyCoproctCorisk OrgstructMyfreedom

2.408-0.292 0.251 0.137-0.232-0.272

5.821 -5.643 4.282 4.141 -4.284 -3.396

-.830 .706 .638 -.752 -.660

x0

x1

x2

x3

x4

x5

0.0010.0010.0030.0100.0010.007

0.803

The Model gives the following equation:

Y = 2.408-.292*x1 + 0.251*x2 + 0.137*x3 - 0.232* x4 - 0.272* x5 (R2 = 0.803) F overall = 10.615p value = 0.001

Where Y is employees’ satisfaction about their work conditionp value is the level of significance


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