Entrepreneurial Orientation Capability and Firm Performance under Conditions of Organizational Learning

Abstract

After more than fifteen years of research, scholars are still trying to understand effects and consequences of dynamic capabilities, particularly in regard to firm performance and competitive advantage (Vogel and Guttel, 2013). In their seminal article, Teece et at. (1997) contend that dynamic capabilities are key to competitive Ten years later, Teece (2007: 1341) reiterated that dynamic capabilities are an important ingredient for gaining superior performance, calling them the foundation of enterprise-level competitive advantage. Critics of dynamic capabilities perspective, however, observe that this literature lacks sufficient empirical testing, does not predict ex-ante which capabilities are likely to be effective, and fails to articulate a clear trail of logic from capabilities to performance outcomes (Easterby-Smith et at., 2009; Lockett et at., 2009; Wang and Ahmed, 2007). In defining dynamic capabilities as ... abilities to reconfigure a firm's resources and routines in manner envisioned and deemed appropriate by its principal decision-makers, Zahra et al. (2006: 918) point to role of firm's entrepreneurial orientation (EO) as a pre-eminent dynamic capability. By infusing firm with EO, senior management prepares organization to seize emerging business opportunities and achieve competitive Further, in investigating linkage between dynamic capabilities and performance, other authors suggest firm's organizational learning (OL) mechanisms could also play a critical role, not only in evolution of capabilities themselves but also in supporting their performance benefits (see Easterby-Smith and Prieto, 2008 for a review). The purpose of present study is to systematically examine effects of EO capability on firm performance in large organizations, and under different conditions of OL. Prior research has highlighted interface of EO and OL as ripe for knowledge creation (Hakala, 2013; Hakala and Kohtamaki, 2011; Wang, 2008). The present research seeks to make three contributions to literature. First, few studies have investigated benefits of EO as a capability in large publicly traded firms (for an exception, see Short et al., 2010), and almost nothing has been published on this relationship using longitudinal data. This is an important gap because as a strategic capability, EO is believed to be of value to both small and large firms (Dess and Lumpkin, 2005). In contrast with small firms, large organizations have a more complex stakeholder structure, provide more discretion to top managers for capital allocation and change leadership, and are at an advanced stage in their life cycles (Peterson et al., 2003), making them an interesting organizational context in which to study impact of dynamic capabilities such as EO. Second, by integrating two distinct but related bodies of literatures on EO and OL, attention is drawn to an important construct that can alter EO-performance relationship. Finally, moving beyond retrospective measures of EO by employing a novel methodology allows for examining EO through strategic posture reflected in public communications of top executives. Taken as a whole, findings of this study provide general support for argument that managerial capabilities matter and have a significant impact on firm performance (Castanias and Helfat, 1991; Wang and Ahmed, 2007). THEORY AND HYPOTHESES The emphasis on role of managerial capabilities in facilitating superior firm performance can be traced back to work of Penrose (1958) who noted that managers initiate and lead alignment and recombination of organizational assets in order to remain competitive in their chosen industry (Hansen et al., 2004). The upper echelons literature (Hambrick and Mason, 1984) also endorses idea that top management must possess unique and hard-to-imitate capabilities to outperform competitors (Hambrick, 2007). …