Proactive entrepreneurial behaviour, market orientation, and innovation outcomes: a study of small- and medium-sized manufacturing firms in the UK

TL;DR: In this paper, a cross-sectional questionnaire survey of 401 UK-based SMEs in the manufacturing sector was conducted to identify an upward curvilinear relationship between PEB and new product development performance.

Abstract: Drawing from resource-based theory, the authors aim to study how and under what conditions small- and medium-sized enterprises (SMEs) capitalise on their proactive entrepreneurial behaviour (PEB) to achieve new product development (NPD) performance.,The authors’ data were drawn from a cross-sectional questionnaire survey of 401 UK-based SMEs in the manufacturing sector.,The authors identify an upward curvilinear relationship between PEB and NPD performance. Taking a step further, the authors propose and confirm that this curvilinear association arises from, in part, SMEs’ innovation capability, which in turn translates into NPD performance. The authors also find that this upward curvilinear relationship between PEB and innovation capability flips to a downward curvilinear relationship when firms pursue a customer and competitor orientation.,This paper looks beyond the linear relationship that exists among entrepreneurial behaviour, market orientation and innovation outcomes.

Summary

Introduction

• This research aims to extend this literature stream by addressing three important gaps.
• Further to explore how a specific type of entrepreneurial behavior actually affects innovation outcomes (See Table 1).
• The authors propose that innovation capability acts as a mediator in the PEB-NPD performance relationship.

Literature Review

• Many studies have specifically examined the impacts of the E-MO interface on innovation outcomes.
• The authors categorise their research foci into three general themes.
• The second research theme explores the intermediate mechanisms whereby the E-MO interface affects innovation (e.g. Baker and Sinkula, 2009; Li et al., 2006; Yu et al., 2016).
• The third research theme shifts the focus to the interaction effects of entrepreneurial behaviour and market orientation on innovation outcomes (e.g. Nasution et al., 2011; Thoumrungroje and Racela, 2013; Verhees and Meulenberg, 2004).
• Building on the resource-based theory, the authors develop a framework .

Direct Effect of PEB on New Product Development Performance

• Resource-based theory posits that firms’ unique resources are the key drivers of superior performance (Barney et al., 2011).
• PEB refers to an array of strategic actions includes initiation of competitive actions, introduction of new products, and proactive operating techniques (Covin and Slevin, 1989; Nasution et al., 2011).
• The positive relationship between PEB and NPD performance may not be linear.
• They are more likely to introduce new products with highly innovative features, which in turn increase the likelihood of achieving strong NPD performance.

Mediating Role of Innovation Capability

• The authors propose that innovation capability serves as a mediator between PEB and NPD performance.
• Innovation capability describes firms’ capacity to perform innovative activities (Calantone et al., 2002; Ngo and O'Cass, 2012).
• In contrast, highly proactive SMEs are more likely to invest substantial resources in supporting innovation-related activities to enable them to introduce new products to the marketplace frequently and so are more likely to accumulate significant innovation-related experience.
• According to resource-based theory scholars, firms’ resources can be used to support the development of their capacity to perform value-creating tasks to improve performance (Amit and Schoemaker, 1993; Murray et al., 2011).
• Innovation capability mediates the relationship between PEB and NPD performance, whereas PEB has an upward curvilinear effect on innovation capability, and innovation capability has a positive linear effect on NPD performance within the SME context, also known as Hypothesis 2.

Contingent Role of Market Orientation

• Prior work on the resource-capability-performance framework also shows that a range of contingency factors may influence the relationship between resources and capability (Murray et al., 2011; Zhou et al., 2008).
• This is because pursuing customer orientation helps less proactive SMEs to gain more customer insights (Gonzalez-Benito et al., 2009; Schindehutte et al., 2008), which in turn reveals the importance of addressing customers’ needs through innovation (Song et al., 2000; Zhou et al., 2005).
• Such movements will enable proactive SMEs to accumulate significant experience about innovation, which in turn fosters the enhancement of innovation capability.
• Less proactive SMEs already engage in fewer innovation-related activities, because they do not consider actively seeking to redefine their market a high strategic priority (Lumpkin and Dess, 1996; Mueller et al., 2012).
• Competitor orientation also weakens the relationship between PEB and innovation capability when SMEs’ PEB is relatively strong.

Measurement and Data Collection

• The authors data were drawn from a cross-sectional questionnaire survey of UK-based SMEs in the manufacturing sector.
• First, it is very difficult for SME manufacturing firms to compete with large manufacturing firms in the mature marketplace due to their limited resources, so pursuing an innovation strategy is one way to overcome this challenge (Li and Atuahene-Gima, 2001; O'Cass and Weerawardena, 2009).
• Finally, based on the prior literature (Gatignon and Xuereb, 1997; Schultz et al., 2013; Spanjol et al., 2012), six control variables are included in the model: firm size (based on revenue), age, employee number, product type (within the manufacturing sector), competitive intensity, market turbulence, and technology turbulence in the model.
• Finally, the authors used three items to assess market turbulence and two items to assess technological turbulence from Schultz et al. (2013).
• The authors asked them to verify the relevance and completeness of their measurement by answering all of the survey items and provided feedbacks.

Validity and Reliability

• Because the authors measured all of the constructs based on self-reports, they follow the suggestion to use multiple statistical remedies to rule out potential common method bias (Podsakoff et al., 2003; Podsakoff et al., 2012).
• Finally, the authors calculated the variance inflation factors (VIFs) to assess the possibility of multicollinearity.
• Based on all of the above points, the authors argue that their research possesses both reliability and validity.
• In particular, there is an upward curvilinear relationship between PEB and innovation capability, and a linear positive relationship between innovation capability and NPD performance.
• Previous research indicates that the simultaneous inclusion of multiple interaction terms that share common variables may prevent the detection of moderating effects, due to the complex constellation of factors caused by such simultaneity (De Clercq et al., 2016).

Academic Contribution

• As a first contribution, the authors demonstrate an upward curvilinear relationship between PEB and NPD performance.
• More specifically, the positive effect of PEB on NPD performance is stronger when SMEs are more proactive and weaker when SMEs are less proactive.
• SMEs may not only suffer as a result of accumulating less new experience about innovation (due to their narrower product range), but also need to invest more resources in analysing and monitoring their competitors’ movements when pursuing high levels of competitor orientation.
• The findings of their research support Morgan et al. (2015)’s suggestions that market orientation can sometime reduce the positive effects of entrepreneurial behaviour on innovation outcomes.
• More specifically, the authors find that, when SMEs pursue PEB and customer (or competitor) orientation simultaneously, the upward curvilinear effect of PEB on innovation capability will flip to a downward effect.

Limitations and Future Research Opportunities

• First, their research design may restrict us from drawing any definite conclusions about the causation effect among the variables over time.
• Therefore, the generalisability of their findings remains limited to firms within a specific industry, company size, and country context.
• While the authors have gone through the necessary procedures to ensure the face validity, and statistical validity and reliability of their scales, however they may still not capture PEB sufficiently as the nature of (all types of) entrepreneurial behaviors is complex (Boso et al., 2012; Kreiser et al., 2013; Lumpkin and Dess, 1996).
• To begin with, the curvilinear relationship (PEB NPD performance and PEB innovation capability) suggests some research opportunities.

Figures

Figure 1: Conceptual Framework

Table 2: Information of Samples

Table 4: Findings

Figure 2: Graphical Representation - Moderating Effects

Table 1: Entrepreneurial Behaviors and Innovation Outcomes in E-MO interface Literature

Full text

Open Research Online
The Open University’s repository of research publications
and other research outputs
Proactive Entrepreneurial Behaviour, Market
Orientation, and Innovation Outcomes: A Study of
Small- and Medium-sized Manufacturing Firms in the
UK
Journal Item
How to cite:
Liu, Gordon; Ko, Wai Wai Joyce; Ngugi, Isaac and Takeda, Sachiko (2017). Proactive Entrepreneurial Behaviour,
Market Orientation, and Innovation Outcomes: A Study of Small- and Medium-sized Manufacturing Firms in the UK.
European Journal of Marketing, 51(11/12) pp. 1980–2001.
For guidance on citations see FAQs.
c
 [not recorded]
https://creativecommons.org/licenses/by-nc-nd/4.0/
Version: Accepted Manuscript
Link(s) to article on publisher’s website:
http://dx.doi.org/doi:10.1108/EJM-11-2016-0663
Copyright and Moral Rights for the articles on this site are retained by the individual authors and/or other copyright
owners. For more information on Open Research Online’s data policy on reuse of materials please consult the policies
page.
oro.open.ac.uk

1
Proactive Entrepreneurial Behaviour, Market Orientation, and Innovation Outcomes:
A Study of Small- and Medium-sized Manufacturing Firms in the UK
ABSTRACT
Purpose:
Drawing from resource-based theory, we study how and under what conditions small- and
medium-sized firms (SMEs) capitalise on their proactive entrepreneurial behaviour (PEB) to
achieve new product development (NPD) performance.
Methodology:
Our data were drawn from a cross-sectional questionnaire survey of 401 UK-based SMEs in
the manufacturing sector.
Findings:
We identify an upward curvilinear relationship between PEB and NPD performance. Taking
a step further, we propose and confirm that this curvilinear association arises from, in part,
SMEs’ innovation capability, which in turn translates into NPD performance. We also find
that this upward curvilinear relationship between PEB and innovation capability flips to a
downward curvilinear relationship when firms pursue a customer and competitor orientation.
Originality:
This paper looks beyond the linear relationship that exists among entrepreneurial behaviour,
market orientation and innovation outcomes.
Keywords: Proactive entrepreneurial behaviour; Innovation capability; New product
development; Customer orientation; Competitor orientation

2
Introduction
The pursuit of innovation is an important tactic that firms employ to compete in an
increasingly dynamic and complex global marketplace (Baker and Sinkula, 2009; Hong et al.,
2013; Zhou et al., 2005). This is particularly true for small- and medium-sized firms (SMEs)
that lack of resource abundance to compete in mature product markets (Li and Atuahene-
Gima, 2001). Thus, researchers have devoted significant attention to identifying the drivers of
innovation outcomes (e.g. Laforet, 2009; O'Cass and Weerawardena, 2009). A stream of
literature focusses specifically on understanding the role of the entrepreneurial behaviour-
market orientation interface (E-MO interface) in facilitating innovation outcomes. At the firm
level, both entrepreneurial behaviour and market orientation reflect an organisation’s deeply-
rooted beliefs and values in relation to resource allocation to achieve strategic objectives.
Entrepreneurial behavior
1
is manifested through an organisation’s strategic posture to pursue
business opportunities, while market orientation is demonstrated by an organisation’s
strategic behaviour of identifying and responding to market demands (Atuahene-Gima and
Ko, 2001; Rhee et al., 2010; Schindehutte et al., 2008). This research aims to extend this
literature stream by addressing three important gaps.
First, the extant literature highlights the positive relationship between entrepreneurial
behaviour and innovation outcomes (see Table 1). Despite recognising that different types of
entrepreneurial behaviour place emphasis on different strategic actions (Covin and Slevin,
1989; Lumpkin and Dess, 1996), most studies still focus on examining the impact of a
collection of entrepreneurial behaviours, (which together form a unidimensional
entrepreneurial strategic posture) on innovation outcomes. Few studies have taken a step
1
It should be noted that a relationship exists between entrepreneurial orientation and entrepreneurial behaviour.
Entrepreneurial behaviour reflects different individual salient characteristics that are entrepreneurial in nature
(autonomy, risk-taking, etc.). An entrepreneurial orientation comprises various types of independent
entrepreneurial behaviour (Atuahene-Gima and Ko, 2001; Covin and Slevin, 1989; Mueller et al., 2012). The
most popular form of entrepreneurial orientation embraces three types of entrepreneurial behaviour –
proactiveness, innovativeness and risk-taking (Li et al., 2006; Renko et al., 2009).

3
further to explore how a specific type of entrepreneurial behavior actually affects innovation
outcomes (See Table 1). Furthermore, recent work shows that the impact of entrepreneurial
behaviour on firms’ business performance may not be linear in nature (Kreiser et al., 2013).
Thus, the issue of whether entrepreneurial behaviour displays a nonlinear relationship with
innovation outcomes requires examination. Our study fills this important gap by investigating
the relationship between proactive entrepreneurial behaviour (PEB) – a specific type of
entrepreneurial behaviour – and new product development (NPD) performance – an ultimate
innovation outcome.
“Insert Table 1 about Here”
Second, prior studies suggest that firms’ entrepreneurial behaviour may not
automatically lead to innovation outcomes (e.g. Baker and Sinkula, 2009; Hong et al., 2013).
This raises the necessity of identifying and examining potential mediators that can direct the
curvilinear impact of entrepreneurial behaviour towards innovation outcomes. In this research,
we propose that innovation capability acts as a mediator in the PEB-NPD performance
relationship. We argue that the curvilinear impact of PEB is due to innovation capability,
which in turn contributes to NPD performance. This is the first study to offer and test the
indirect curvilinear relationship among PEB, innovation capability, and NPD performance.
Finally, previous studies suggest that market orientation plays a complementary role in
strengthening the impact of entrepreneurial behaviour on innovation outcomes (e.g.
Atuahene-Gima and Ko, 2001; Boso et al., 2012; Schindehutte et al., 2008). However, the
question of whether this positive moderation effect also occurs if the impact of
entrepreneurial behaviour is nonlinear in nature remains unexplored. To fill this gap, we
differentiate between customer orientation and competitor orientation that reflects firms’
market orientation, and examine their moderating influence on the relationship between PEB
and innovation capability.

4
Theoretical Background and Hypotheses
Literature Review
Many studies have specifically examined the impacts of the E-MO interface on
innovation outcomes. We categorise their research foci into three general themes. The first
theme focuses on understanding the direct impacts of both entrepreneurial behaviour and
market orientation on innovation outcomes (e.g. Frishammar and Åke Hörte, 2007; González-
Benito et al., 2015; Tajeddini, 2010). The second research theme explores the intermediate
mechanisms whereby the E-MO interface affects innovation (e.g. Baker and Sinkula, 2009;
Li et al., 2006; Yu et al., 2016). For example, Hong et al. (2013) show that market orientation
affects NPD performance via new product development proficiency and product
meaningfulness, while entrepreneurial behaviour orientation affects NPD performance via
proficient intellectual property management and product novelty.
The third research theme shifts the focus to the interaction effects of entrepreneurial
behaviour and market orientation on innovation outcomes (e.g. Nasution et al., 2011;
Thoumrungroje and Racela, 2013; Verhees and Meulenberg, 2004). The findings regarding
whether or not the interaction between entrepreneurial behaviour and market orientation have
a desirable, positive effect on innovation outcomes are subject to controversy. For example,
Boso et al. (2012) suggest that entrepreneurial behaviour is more likely to be a driver of
innovation success when the market-oriented behaviour is strong. In contrast, Morgan et al.
(2015) find that entrepreneurial orientation has a positive impact on NPD performance, but
that occurs to a lesser degree when firms simultaneously implement market orientation. To
extend these three themes, we look beyond the linear relationship between E-MO interface
and innovation outcomes. Building on the resource-based theory, we develop a framework
(see Figure 1). We elaborate our discussions below.

Frequently asked questions

Q1. What contributions have the authors mentioned in the paper "Proactive entrepreneurial behaviour, market orientation, and innovation outcomes: a study of small- and medium-sized manufacturing firms in the uk" ?

Purpose: Drawing from resource-based theory, the authors study how and under what conditions smalland medium-sized firms ( SMEs ) capitalise on their proactive entrepreneurial behaviour ( PEB ) to achieve new product development ( NPD ) performance. The authors identify an upward curvilinear relationship between PEB and NPD performance. Taking a step further, the authors propose and confirm that this curvilinear association arises from, in part, SMEs ’ innovation capability, which in turn translates into NPD performance. This paper looks beyond the linear relationship that exists among entrepreneurial behaviour, market orientation and innovation outcomes. 

Q2. What are the future works in "Proactive entrepreneurial behaviour, market orientation, and innovation outcomes: a study of small- and medium-sized manufacturing firms in the uk" ?

Researchers in the future might employ a longitudinal research design in order to confirm this causality empirically or use data collected from multiple respondents in each firm to combat this limitation. Future studies on different industries, company sizes, or countries would help to generalize their findings and expand the boundary conditions. Future research should attempt to capture the domain of PEB construct with much richer and more detailed scales. Fourth, although the authors requested in their cover letter that the general manager ( or CEO ) of the firm should complete the questionnaire on behalf of his/her organisation, due to the anonymity and confidentiality of the responses, they can not eliminate the possibility that the respondent is not the general manager ( or CEO ) of the firm.