Entrepreneurship in Company-Owned Retail Units: The Individual Entrepreneurial Orientation-Performance Relation and the Mediating Role of Entrepreneurial Behavior

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Entrepreneurship in Company-Owned Retail Units:

The Individual Entrepreneurial Orientation-Performance Relation and the

Mediating Role of Entrepreneurial Behavior

By

Jurrit van der Waal

University of Groningen Faculty of Economics and Business

Master of Science – Business Administration Small Business & Entrepreneurship

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Abstract

Entrepreneurship in Company-Owned Retail Units: The Individual Entrepreneurial Orientation-Performance Relation and the Mediating Role of Entrepreneurial Behavior.

Jurrit van der Waal University of Groningen

Managers of company-owned retail units should behave in a way that’s beneficial for unit performance. In non-retailing sectors, the entrepreneurial orientation-performance link has been subjected to many academic research projects. Overall conclusion: entrepreneurial orientation is positively related to performance. This study uses the individual entrepreneurial orientation (IEO) of unit managers as a predictor of unit performance with entrepreneurial behavior as a mediating variable. IEO consist of the innovativeness, risk-taking propensity and proactiveness constructs. The proposed model was empirically tested with a mediated regression analysis. The outcomes of the tests showed that entrepreneurial behavior did not mediate the IEO-performance relation and that, as predicted, the proactiveness construct was the only construct that had a direct effect on unit performance. These outcomes imply that entrepreneurial behavior does not contribute to firm performance. Retail firms can discourage their store managers to act entrepreneurially; to reach better performance, their managers should behave proactive instead.

Keywords Individual Entrepreneurial Orientation Entrepreneurial Behavior

Retail Unit Performance Research Themes Entrepreneurship

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Foreword and Acknowledgements

This thesis is written as the end product of the Master of Science in Business Administration with a specialization in Small Business & Entrepreneurship at University of Groningen. The focus of this master program is on the internal organization of businesses and it takes an academic approach to entrepreneurship. The intent of this thesis is to determine the relation between the individual entrepreneurial orientation of a store manager and the performance of his or her unit, with entrepreneurial behavior as a mediating variable. The thesis is written under the supervision of Dr. Evelien Croonen and Dr. Eelko Huizingh.

To determine the relation, data were collected at a Dutch super market retailer. I would like to thank my contacts at the headquarters for their support. Their names will not be mentioned in order not to reveal the identity of the firm. Next to them, I would like to thank the store managers for participating in the online survey.

This thesis has been a long lasting and time-consuming project; it took me longer than expected. During the project, my primary supervisor, Dr. Evelien Croonen, has always showed dedication to her role. Her valuable insights and directions resulted in the guidance that was necessary for the completion of this project. For this, my sincere thanks.

Ede, 31 August 2013

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List of Tables

Table 1 – Corporate Entrepreneurship Definitions p.15

Table 2 – Characteristics of Sample p.25

Table 3 – IEO Operationalization p.26

Table 4 – Cronbach’s Alphas IEO p.27

Table 5 – Performance Variables p.28

Table 6 – 1-Point Scores p.29

Table 7 – Descriptives and Correlations p.30

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List of Figures

Figure 1 – Conceptual Framework p.10

Figure 2 – Retail Governance Structures p.11

Figure 3 – Company-Owned vs. Franchised Structures p.12

Figure 4 – Types of Entrepreneurship p.14

Figure 5 – Mediated Regression Model p.32

Figure 6 – Mediated Regression Submodel A p.32

Figure 7 – Mediated Regression Submodel B p.32

Figure 8 – Mediated Regression Submodel C p.32

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1. Introduction

Entrepreneurship is witnessed in many sectors, the retail sector being one of them. In retailing, two common governance structures used for creating and operating units are company ownership—i.e. units managed by salaried managers—and franchising—i.e. units ran by franchisees that invested their own financial resources. Yin & Zajac (2004) define a governance structure as “an organization design that incorporates systems of decision making, operational control, and incentives” (p. 367). Whether the individuals running franchised units are entrepreneurs is an ongoing discussion (e.g. Ketchen, Short & Combs, 2011). A probably more interesting question is if the individuals running the units should behave entrepreneurially or not. Studies that focused on this subject (e.g. Fenwick & Strombom, 1998; Kaufmann & Eroglu, 1998; Sorenson & Sørensen, 2001) resulted in mixed conclusions. To determine whether store managers of company owned outlets should behave entrepreneurially or not, this study’s focus is on individual-level entrepreneurial orientation in relation to unit performance. This study is unique because extant studies mainly focus on the franchising context, whereas this study focuses on company-owned units.

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corporate entrepreneurship, defined as entrepreneurship initiated by a single person, will be the focal area.

The impact of corporate entrepreneurship on retail system performance can be both positive and negative. Kaufmann and Eroglu (1998) performed conceptual research on the standardization and adaptation of franchise systems. They found that some franchisee-initiated entrepreneurship resulted in an increased fit with the local market, but, next to that, found that entrepreneurship might result in negative outcomes as well. These results indicate that local adaption of the system, which can be seen as innovations, can have important performance implications. This is in line with Dada and Watson (2013) and Grünhagen et al. (2012) who both found a positive relation between entrepreneurial orientation (EO) and firm performance in franchise systems. Fenwick & Strombom (1998) presented opposing results. However, can all these findings be projected on this study non-franchise context as well?

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A result of an IEO is entrepreneurial behavior. Company managers might be bound by their headquarters, but this does not mean they cannot assert any kind of entrepreneurship. It is this entrepreneurial behavior that boosts performance in many businesses (e.g. Kanter, 1985; Keh et al., 2008; Wiklund, 1999). As mentioned above, entrepreneurial behavior, being one of the pillars of corporate entrepreneurship (Kuratko et al, 2005), can have both positive and negative consequences in a retail environment. For this reason, it is interesting to understand what the role of entrepreneurial behavior is in relation to retail unit performance. Since the influence of the manager’s behavior on performance is scrutinized, the manager has to be able to influence the performance variables. This led to the choice for performance variables (e.g. turnover index and customer satisfaction) that managers are generally evaluated upon. To understand the role of this certain type of behavior, its mediation effect between IEO en retail unit performance will be scrutinized. This leads to the following research question:

What is the mediating effect of entrepreneurial behavior between individual entrepreneurial orientation and retail unit performance?

Based on the research question, a conceptual framework is proposed (Figure 1, next page). An addition to the model is the direct effect of proactiveness on unit performance. The underlying reasoning is that proactiveness has been linked to increased performance (Barrick & Mount, 1991/1993; Crant, 1995). The model will be discussed extensively in section 2.

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Innovativeness Risk-‐Taking Propensity Proactiveness Individual Entrepreneurial Orientation Entrepreneurial

Behavior Unit Performance

Figure 1 – Conceptual Framework

This study contributes to both academic literature and the professional world since— to our knowledge—no research has yet been conducted on the role of IEO and entrepreneurial behavior in relation to performance of company-owned retail units. By determining the role of IEO and entrepreneurial behavior for these units, retailers can be more effective by either encouraging or discouraging entrepreneurial behavior. Furthermore, academically, it is valuable to know how entrepreneurship influences unit-level performance in a retail environment that is characterized by high unit-levels of standardization and control. The findings can be compared to comparable literature on this topic.

The knowledge gap will be addressed both theoretically and empirically. First, through a literature review, the key concepts will be defined and the performance impact of entrepreneurial activities in a retail firm will be determined. Second, through empirical testing, the mediating role of entrepreneurial behavior on the relation between individual entrepreneurial orientation and unit performance will be determined.

2. Literature Review and Hypotheses Development

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about retail systems and their types of governance structures. Second, a section is contributed to the different types and forms of entrepreneurship and its performance implications.

2.1 Retail Organizations and Governance Structures

Retailing occurs through a variety of channels that all of their own characteristics. Levy and Weitz (2012) distinguish between the store channel, the Internet channel, the catalog channel, and direct selling. Every channel has its own advantages and disadvantages. This study’s focus is on the store channel, also known as the traditional or brick-and-mortar channel. A dominant organizational form in the traditional retail channel is the multiunit organization. A multiunit organization is an organization that operates “in multiple markets through several distinct units” (Vroom & Gimeno, 2007, p. 902). A multiunit organization enables a retailer to reach a vast amount of geographically dispersed customers and potential customers. The creation of new units within a multiunit organization is often done through replication, a commonly used expansion strategy among retailers. According to Winter and Szulanski (2001) replication “entails […] the creation and operation of a large number of similar outlets that deliver a product or perform a service” (p. 730). When an organization decides to market its products through a multiunit organization it has to make the crucial decision what type of governance structure to use. There are two governance stuctures for multi-unit retail organizations; franchised structures and company-owned stuctures, and a plural form, which is a sytem in which both company-owned and franchised units operate.

Plural

Franchise Company-‐_Owned

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A franchise system is a system where the franchisee often pays the franchisor an initial and peridocial fee for the use of the franchisor’s brandname and business plan (Vroom & Gimeno, 2007). In a company-owned structure, the retailer assigns manager to run a unit. These two governance structures differ fundamentally along three important dimension: decision rights, operational flexibility and financial incentives (Yin & Zajac, 2004). A recuring incentive-related problem is the agency problem. The agency problem can be defined as follows: “A principal/agent relationship, or agency relationship, occurs when one party (the agent) is hired by another party (the principal) to take actions or make decisions that affect the payoff to the principal.” (Besanko et al., 2010, p. 73). Ways to mitigate the agency problem are monitoring, performance-based incentives, and bureaucracy (Besanko et al., 2010). Since franchisees have invested their own money and their pay depends on their peformance, they have more financial incentive as company managers. Firms with company-owned units are often more centralized—i.e. the decision rights are held by a central office—and bureacratic—i.e. less operation flexibility. Figure 3 visualizes the differences.

Decision Rights Operational Flexibility Financial Incentives

Franchised Governance Structure Company-Owned Governance Structure

Centralized Low Low

Decentralized High High

Figure 3 – Company-Owned vs. Franchised Structure

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entrepreneurship are the organizational factors. Decision rights, operational flexibility and financial incentives can all be seen as organizational factors. These factors are most controllable of all antecedents. The more these factors favor innovative practices, the more receptive the situation will be for corporate entrepreneurship (Antoncic & Hirsch, 2004; Hornsby et al., 2002).

An in depth literature review on entrepreneurship can be found in the next section.

2.2 Entrepreneurship

Entrepreneurship is a centuries-long existing concept. Sharma & Chrisman (1999) found a definition by Richard Cantillon stemming from the year 1734. Definitions of entrepreneurship changed during the years and it is a multidimensional term that occurs on different levels (Davidsson & Wiklund, 2001). For Schumpeter (1934), entrepreneurship was closely related to innovation, which he named “development”. Schumpeter defined this developments as “new combinations”. He distinguished between five possible developments: (1) the introduction of a good; (2) the introduction of a new production method; (3) the opening of a new market; (4) the conquest of a new source of supply of raw materials or half-manufactured goods; and (5) the carrying out of a new organization of any industry. Sharma and Chrisman (1999) synthesized a vast amount of dated and recent entrepreneurship literature and state that “entrepreneurship encompasses acts of organizational creation, renewal, or innovation that occur within or outside an existing organization” (p. 17).

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Entrepreneurship and Entrepreneurial Behavior are both part of Practice; and, finally, Performance is—surprisingly—associated with unit performance.

A literature review resulted in the identification of two main streams. The first focuses on the different forms and outcomes of entrepreneurship and the second on the entrepreneur as a person. Both streams will be elaborated further. For the first stream—the one that focuses the forms and outcomes of entrepreneurship—Figure 4 is used as guidance. As Figure 4 shows, Sharma and Chrisman (1999) distinguish between independent and corporate entrepreneurship. Unit-level independent entrepreneurship is not applicable to the company-owned retail governance structure, but corporate entrepreneurship is. For that reason, the focus will be solely on the latter, and specifically on innovation. An important addition for this research is that innovation is a factor that occurs on a unit-level as well (Kaufmann & Eroglu, 1998).

The second stream, which is of equal importance, is elaborated afterwards.

Entrepreneurship Corporate Entrepreneurship Independent Entrepreneurship Innovation Corporate Venturing Strategic Renewal Internal Coporate Venturing External Corporate Venturing

Figure 4 -Types of Entrepreneurship (Sharma and Chrisman, 1999)

2.2.1. Corporate Entrepreneurship

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weaknesses in traditional corporate management methods; and (3) turnover, resulting in more innovative-minded employees who challenge existing practices. Corporate entrepreneurship enables firms to gain a competitive advantage, which—in turn—leads to improved performance (Antoncic & Hirsch, 2004; Covin & Miles, 1999; Zahra & Covin, 1995). The term “corporate entrepreneurship” has been defined by many researchers. Table 1 gives an overview of some of these definitions.

Table 1 - Corporate Entrepreneurship Definitions

Source(s) Definition Dimensions

Zahra, Neubaum & Huse (2000) Guth & Ginsberg (1990)

Innovation Activities Venturing Activities Organizational Renewal

Hornsby, Kuratko & Zahra (2002) Development of New Ideas

Implementation of New Ideas

Sathe (1989) Process of Organizational Renewal

Vesper (1984) New Strategic Direction

Innovation Proactiveness

Guth & Ginsberg (1990) Covin & Slevin (1989, 1991) Zahra (1991)

Risk-taking Innovation Proactiveness

Kuratko, Ireland & Hornsby (2001) Creation

Renewal Innovation

Thornberry (2001) Entrepreneurship Turned Inward

Corporate Venturing Intrapreneuring

Organizational Transformation Industry Rule-breaking

Source: Davis (2006)

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Some of the definitions, e.g. Guth & Ginsberg (1990), Covin & Slevin (1989, 1991) and Zahra (1991), show clear linkages with entrepreneurial orientation. This is line with work of Miller (1983), who suggested that a firm’s degree of corporate entrepreneurship depends on the firm’s entrepreneurial orientation.

Next, firm-level entrepreneurial orientation and its performance implications are discussed. Afterwards, the focus will shift from firm-level to individual-level entrepreneurial orientation.

2.2.2. Firm-‐Level Entrepreneurial Orientation1

This section will first define EO and its constructs. Afterwards, an explanation will be given of the performance implications EO has on retail unit performance.

An Explanation of Entrepreneurial Orientation

EO “is evidenced through visible entrepreneurial tendencies toward innovativeness, proactiveness and risk taking” (Runyan et al., 2008, p. 569). Miller (1983) underpins this by stating that an “entrepreneurial firm is one that engages in product-market innovation, undertakes somewhat risky ventures, and is first to come up with "proactive" innovations, beating competitors to the punch” (p. 771). Lumpkin & Dess (1996) added two additional constructs: autonomy and competitive aggressiveness. These latter two constructs are not widely accepted, though, and for that reason, this study will focus on the former three: innovativeness, proactiveness, and risk-taking. EO has often been measured as an aggregated mean of the constructs, a method that has been questioned by more than one study (e.g. Dess et al., 1999; Zahra et al., 1999). These studies suggest a uniqueness of constructs; the constructs may vary independently and have their own, unique effects. Kreiser et al. (2002) supports these suggestions; EO is indeed a multi-construct dimension. In this research, the EO constructs will be treated as independent dimensions as well.

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When necessary, the EO constructs, which are elaborated in the next sections, will be mentioned separately; if not, it will be just “EO”.

Innovation. One of the first writers to mention and emphasize the importance of innovation as a part of entrepreneurship was Schumpeter in his 1934 book The Theory of Economic Development (Lumpkin and Dess, 1996). As mentioned before, Schumpeter (1934) used the word “development” instead of innovation and defined it as “new combinations” and his definition has been elaborated upon in the previous section. In their operationalization of innovativeness, Runyan et al. (2008) mention terms as R&D, new lines of products, and changes in product or service lines as characteristics of innovativeness. Especially these changes in product or service lines are interesting forms of innovations in retail environments.

Lumpkin and Dess (1996) state that the most useful distinction between types of innovation is that between product-market innovation and technological innovation. Technological innovation is characterized by e.g. product and process development and engineering, and has an emphasis on innovating technical expertise and the industry knowledge. On the other hand, product-market innovation focuses on e.g. market research, product design, advertising, and promotion. Both these types of innovation are applicable to the retail sector. On a unit-level, for example, company managers generally have the responsibility to signal changes and developments in their market area and translate these signals into actions for the particular unit (see Appendix A for a company manager’s job description). These changes can be both product-market innovations—a new, local marketing campaign—and technological innovations—a delivery service for elderly people in a nearby retirement home.

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organization reacts to trends in the environment. The question is whether the organization shapes the environment by introducing new products, technologies, administrative techniques, or that it merely reacts. Another usable definition is that of Venkatraman (1989, p. 949) who states that proactive behavior “is expected to be manifested in terms of seeking new opportunities which may or may not be related to the present line of operations, introduction of new products and brands ahead of competition, strategically eliminating operations which are in the mature or declining stages of life cycle.” This is supported by Keh et al. (2007).

Risk-taking. Miller and Friesen (1978, p. 923) define risk-taking propensity as “the degree to which managers are willing to make large and risky resource commitments”. These commitments might have a reasonable chance of failure (Keh et al., 2007). Baird and Thomas (1985) distinguish between three types of strategic risk. They describe the three types as “venturing into the unknown”, “committing a relatively large portion of assets”, and “borrowing heavily”. Next to this strategic risk, risk-taking propensity might occur in social, personal, and psychological areas as well (Runyan et al., 2008). Since a company manager’s organizational climate is characterized by low operational flexibility, low financial incentives and a centralized decision-making structure (Yin & Zajac, 2004), company managers are not stimulated to engage in high-risk activities. This raises the presumption that the company-owned governance structure does not leave much room for risky actions.

The Effect of Entrepreneurial Orientation on Performance

To determine the effect of EO on retail-unit performance the general impact of EO on firm performance is clarified, and, afterwards, the impact of EO on performance is specified for retail systems and finally for retail units.

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long-term correlations being stronger as short-long-term correlations (Zahra & Covin, 1995; Wiklund, 1999). The influence of EO on firm performance is related to first-mover advantages and the tendency to economize emerging opportunities (Wiklund, 1999). Firms need to seek for and economize these emerging opportunities due to uncertainty stemming from the changes in product and business model lifecycles (Rauch et al., 2009). Zahra and Covin (1995) contend in a similar vein that companies can achieve superior financial performance by the introduction of new products or technologies. This enables them to “target premium market segments and charge correspondingly high prices, control access to the market by dominating distribution channels, and establish their products as the industry's standard” (Zahra & Covin, 1995, p. 46). As a result these firms can acquire and sustain high market shares and achieve profitability. Next to that, under hostile environmental conditions these advantages often strengthen a firm’s competitive posture (Zahra & Das, 1993).

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especially sales volume and growth in profits.” They argue that franchising is about replicating a successful small business format and adjustments to such a system might harm performance. This notion is supported by Kaufmann and Eroglu (1998). Nevertheless, according to Kaufman and Eroglu (1998): “It is frequently the franchisees who, through their local adaptation attempts, develop new offerings, modify existing ones, and find solutions to system-wide problems” (p. 70).

This study takes another—new—perspective and focuses on individual-level EO in relation to the non-franchise, company-owned governance structures. The tasks performed by company managers closely resemble those performed by retail franchisees. Differences between the company-owned and franchise governance structure exist, as already mentioned, with respect to centralization, operational flexibility and incentives (Yin & Zajac, 2004). That these factors result in an entrepreneurially more stimulating environment for franchisees does not mean that they have unlimited entrepreneurial possibilities. This is supported by Dant and Gundlach (1998), who state that: “Though franchises are frequently promoted on the platform of be your own boss by franchisors, in reality few departures from the standard franchise contract are tolerated by franchisors” (p. 36). Elango and Fried (1997) underpin this by stating that decision-making authority over many issues that are critical to a franchise unit’s success are centralized. This raises the assumption that both franchisees and company managers lack the authority for making critical, high-impact decision.

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2.2.3. Individual-‐Level Entrepreneurial Orientation

Not everybody acts entrepreneurially—i.e. not everybody is an entrepreneur. Individual characteristics have been related to the entrepreneur as a person. For instance, Carter and Jones-Evans (2006) summarized risk-taking propensity, need for achievement, locus of control, over-optimism, and desire for autonomy from literature as individual characteristics of entrepreneurs. Stopford and Baden-Fuller (1994) explored extant literature for commonalities among attributes related to entrepreneurship. They identified the following five bundles:

− Proactiveness;

− Aspiration beyond current capability; − Team orientation;

− Capability to resolve dilemmas; and − Learning capability.

These attributes enable an individual to act entrepreneurially. The items mentioned above are all psychological concepts. These psychological concepts can result in a certain orientation. Just like firms, individuals can have an EO as well.

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corporation and every individual unit has its own manager (or a franchisee, but this research’ focus is on company managers). The manager of the unit can oversee the operations and influence his personnel to act in a certain way. For this reason, entrepreneurial behavior of the store manager can influence the unit’s operations and, hence, it performance. This is supported by Krauss et al. (2005) who empirically tested the relation between psychological characteristics of the manager and firm performance and found a positive correlation.

Bolton and Lane (2012) developed an individual entrepreneurial orientation (IEO) scale based on the work of Lumpkin and Dess (1996). They transformed the five firm-level EO constructs—innovativeness, risk-taking, proactiveness, competitive aggressiveness and autonomy—into individual-level EO constructs. After a reliability analysis and internal and external validity testing, a ten-item scale remained, comprising the three commonly used constructs: innovativeness, risk-taking and proactiveness.

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The following hypotheses are proposed:

H1: The degree of a store manager’s proactiveness is positively related to unit performance and this relation is partially mediated by entrepreneurial behavior.

H2: The degree of a store manager’s innovativeness is positively related to unit performance and this relation is fully mediated by entrepreneurial behavior. H3: The degree of a store manager’s risk-taking propensity is positively related to

unit performance and this relation is fully mediated by entrepreneurial behavior.

2.2.4. Entrepreneurial Behavior

Entrepreneurial behavior is constituted by entrepreneurial actions through which organizations seek to exploit entrepreneurial opportunities like moving into new markets, seizing new customers, and/or combining new or existing resources in innovative ways (Kuratko et al., 2005). Kuratko et al. (2005) quantify entrepreneurial behavior as the number of ideas suggested and implemented; both are applicable to a retail unit. Innovativeness, risk-taking and proactiveness are the dimensions that underlie entrepreneurial behavior (Covin & Slevin, 1991; Lumpkin & Dess, 1996). These constructs have been positively linked to firm performance in many instances (e.g. Lumpkin & Dess, 1996; Keh et al, 2007; Wiklund, 1999) but in a retail environment, linkages have also been negative (Fenwick & Strombom, 1998). That entrepreneurial behavior plays a role in performance issues seems likely; it are the innovations that thrive a business’ performance (e.g. Zahra & Covin, 1995).

The majority of literature showed positive relations between entrepreneurial behavior and firm performance and for that reason, the following hypothesis is formulated. Please note that “IEO” represent the separate constructs.

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3. Research Design and Methodology

In this section, the research method is discussed. The goal of this study is to determine the relation between IEO and unit performance and the mediating role of entrepreneurial behavior. The data were collected at a Dutch supermarket retailer that operates approximately 100 stores throughout the country. This chapter contains two paragraphs. The first one elaborates on the sample and data collection procedures. The variables and measures are described afterwards.

3.1 Sample and Data Collection

Selection of Participants. The population from which the sample is drawn has to meet one criterion: the units could not be too large. The underlying reason for this criterion is that in general the person in charge of a small entity in general is able to influence all aspects of the business due to the direct influence he or she has (e.g. Wiklund, 1999). Hence, it is assumed that an entrepreneurially oriented manager can influence his or her unit to act entrepreneurially as well.

Participants. To answer the research questions, an online survey among the store managers of a Dutch super market retailer has been conducted. Due to privacy related matters, the name of the retail organization will not be mentioned. The firm is the employer of 15.000 to 20.000 employees and has a turnover (2012) of between EUR 1.5 billion and EUR 2 billion and is one of the larger organizations in the Dutch super marketing retailing sector. It operates as an umbrella organization for multiple chains. The focus of this research is on a cluster of three chains that operate together under the umbrella of the firm. The chains are exactly the same except for their name and have an aggregated total of approximately 100 stores throughout the country, but there is a strong geographical focus on certain regional areas.

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In order to reach a high response rate, an announcement was placed in the retailer’s monthly bulletin two weeks before the survey was launched. One week later, the headquarters sent out an email to all the store managers in which another announcement was made. One week after the survey was launched the total response counted 42 cases. One more mail was sent in order to boost the response rate, which resulted in another 30 response, bringing the total to 72 responses (75% response rate).

The data on the dependent variable were collected by manually building a database with all the available data of two years based on evaluation forms. The data collection efforts resulted in a database with performance data over either one or two years during the period 2011-2012 of 84 cases. The survey and performance data were combined into one dataset that, after deletion of incomplete cases, counted an N of 54. The characteristics of the sample can be found in Table 2.

Table 2 – Characteristics of Sample

Characteristic Mean/Frequency Percentage

Gender Manager Male: 50

Female: 4

92,6% 7,4%

Education of Manager HAVO/VWO: 5

MBO: 6 HBO: 40 Academic: 2 Other: 1 9,3% 11,1% 74,1% 3,7% 1,9%

Age of Manager 43,4 years

Years of Experience 10,1 years

N=54

3.2. Variables and Measures

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Independent variable. The independent variable of this study is individual entrepreneurial orientation. Bolton and Lane (2012) developed the IEO scale that is applied in this study. Their IEO scale is based on the work of Lumpkin and Dess (1996) and comprises the innovativeness, proactiveness and risk-taking constructs. Their operationalization—these items were used in this study as well—of IEO is shown in Table 3 (see Appendix B for the Dutch translation). Since Risk-Taking and Innovativeness both comprised only three items, it was decided to add two additional items.

Table 3 – IEO Operationalization

Construct Item Additional item

Risk-Taking I like to take bold action by venturing into the unknown I am willing to invest a lot of time and/or money on something that might yield a high return

I tend to act “boldly” in situations where risk is involved I prefer low-risk situations

I dare to take risk if this can yield high returns

x x

Innovation I often like to try new and unusual activities that are not typical but not necessarily risky

In general, I prefer a strong emphasis in projects on unique, one-of-a-kind approaches rather than revisiting tried and true approaches used before

I prefer to try my own unique way when learning new things rather than doing it like everyone else does

I favor experimentation and original approaches to problem solving rather than using methods others generally use for solving their problems

Proactiveness I usually act in anticipation of future problems, needs or

changes

I tend to plan ahead on projects

I prefer to “step-up” and get things going on projects rather than sit and wait for someone else to do it

I’m someone who takes initiative I prefer a wait-and-see posture

x x Source: Bolton and Lane (2012)

Bolton (2012) further investigated the scale and concluded that “it is a reliable and valid measure of entrepreneurial orientation at the individual-level” (p. 219).

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Table 4 – Cronbach’s Alphas IEO Construct Cronbach’s Alpha Items Total/Deleted Mean Standard Deviation Risk-Taking .687 5/2 3.87 0.53 Innovation .706 5/0 3.33 0.60 Proactiveness .669 5/1 3.84 0.54 N=54

Mediating variable. The mediating variable of this study is entrepreneurial behavior. Entrepreneurial behavior is operationalized using the items of Kuratko et al. (2005). Their operationalization comprised three items:

1. The number of new ideas suggested. 2. The number of new ideas implemented.

3. The number of ideas implemented without official organizational approval.

They asked their respondents to indicate to how many instances in the last six months the three items were applicable. For this research, it was decided to focus on the latter two items for the reason that suggested ideas would not influence unit performance. Hornsby et al. (2009) applied a similar approach. Instead of asking to how many instances in the last six months the items were applicable, an indication was asked for the last two years. This two-year time span corresponds with the period over which the performance data were collected. The two-year sum of these strongly correlating variables (r=.806, p<.001) was taken as an indicator for entrepreneurial behavior.

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manager measures all variables and, based on the outcomes, evaluates the unit manager’s performance after the end of each year (a year ranging from January 1 to December 31). A regional manager has ten to fifteen subsidiary unit managers. The objective nature of the evaluation variables makes it unnecessary to control for who the regional manager is.

The fact that the store managers are evaluated on these performance variables implies that they can influence them significantly—this justifies the choice for inclusion of these variables.

Table 5 – Performance Variables

Variable Description Performance Indicator

Turnover Index Indexed number that reflects the

turnover of the unit

Index number

Cost of Labor Total cost of labor for the store’s

personnel

Percentage of turnover

Leakage and Registered Loss

Products that, due to e.g. theft and damage, no money was received for

Percentage of turnover

HACCP Analysis Hazard Analysis and Critical

Control Points; a risk-related analysis for food safety

Number of analyses passed

Customer Satisfaction An indication of how satisfied the customer is with the offered products and services

Scale from 1 (very unsatisfied) to 10 (very satisfied)

Absenteeism A reflection of the absenteeism

among the store personnel

Percentage of total worked hours

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Table 6 – 1-Point Scores

Variable Criterion

Turnover Index Not achieved but a negative deviation

equal to or smaller than 1%

Cost of Labor Not achieved but a negative deviation

Leakage and Registered Loss Not achieved but a negative deviation equal to or smaller than 6%

HACCP Analysis Four of six measurements passed in a

year

Customer Satisfaction Last year’s score is equal to the

current year’s score

Absenteeism Not achieved but a negative deviation

In this analysis, the store manager’s performance will be determined based on his mean total score on the evaluation criteria over the last two years. This score gives an indication of how well the store performed on the performance variable while controlling for environmental variables. A high score—the maximum score is 18 points—indicates high performance, where a low score—the minimum score is 0 points—indicates poor performance.

4. Analyses and Results

In this chapter, the types of test and the outcomes are elaborated. In the first section, the descriptive statistics are analyzed. The second section describes the mediated regression analysis. Finally, the outcomes of the tests are treated.

4.1. Descriptive Statistics

In contrast with the expectations, some of the measures were not significantly intercorrelated. The descriptives and correlations are presented in Table 7.

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second interesting finding is that both risk-taking and proactiveness are correlated with entrepreneurial behavior, but that innovativeness is not. A possible explanation, one that is in line with Sorenson & Sørensen (2001), is that managers, instead of innovating intensely, engage more in evolutionary improvements. The innovative nature of these evolutionary improvements is low; corresponding with the innovation-entrepreneurial behavior correlation findings. The third and last interesting finding is that the data do not show a significant correlation between entrepreneurial behavior and unit performance. This might be an indication that entrepreneurial behavior does not have important performance implications.

The following section is dedicated to testing the hypotheses through a mediated regression analysis.

4.2. Mediated Regression Analysis

To test the model, a mediated regression analysis was conducted. This type of analysis is suitable for this purpose because it explains the relation between the dependent and independent interval variables and shows whether mediation occurs (Baron and Kenny, 1986). Prior to the test, it was checked whether the data met the required conditions for the proposed analyses. To test for multicolinearity between the variables, the variance inflation factors were analyzed. With a maximum score of 1.492, none exceeded the recommended maximum of 4 (Rogerson, 2001). This low score implies a non-existence of multicolinearity among the variable used in this study.

Table 7 – Descriptives and Correlations

M. St.Dev. Min. Max. 1 2 3 4 5

IEO Innovation 3.33 .533 2.20 4.00 1

IEO Proactiveness 3.84 .543 2.75 5.00 .458** 1

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Keller (2008) specified the following required conditions for the use of regression analyses:

1. The probability distribution of the error variable is normal. 2. The mean of the error is variable is 0.

3. The standard deviation of the error variable is a constant. 4. The errors are independent.

Based on histograms and residual statistics, it was concluded that Requirements 1 and 2 were both met. An in-depth analysis of Requirement 3 resulted in the detection of a small amount heteroscedasticity. Heteroscedasticity occurs when the error variable’s variance is not constant and is a potential source of low p-values but it does not affect the regression coefficients. The fourth requirement is applies to time-series data only, which in this particular research is not the case. Based on this, with the possibility of low p-values taken into account, it was determined that the data was suitable for a regression analysis.

The hypotheses were tested by using four-step approach proposed by Judd and Kenny (1981). For these four steps, three linear regression models have been used. According to Baron and Kenny (1986), these three models are necessary to test for mediation effects of a variable on a relation (see Figure 5 for a visualization of the relations). In this case the mediating variable is entrepreneurial behavior, the independent variable is IEO and the dependent variable is unit performance. The following conditions have to be met (Baron & Kenny, 1986)]:

1. IEO has to affect entrepreneurial behavior.

2. Entrepreneurial behavior has to affect unit performance. 3. IEO has to affect unit performance.

4. The effect of entrepreneurial behavior on unit performance has to be less than the effect of IEO on unit performance.

The regression models are presented in Figure 6, Figure 7, Figure 8 and Figure 9. Model A regressed IEO on entrepreneurial behavior, Model B regressed entrepreneurial behavior on unit performance, Model C regressed IEO on unit performance, and Model C’ regressed both IEO and entrepreneurial behavior on unit performance.

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occurs when the effect of the independent variable decreases after adding the mediator, but still remains significant. When all the effect of the independent variable on the dependent variable occurs through the mediating variable, full mediation occurs.

X Y

M a

c’

b

Figure 5 – Mediated Regression Model (Kenny, 2013)

Individual Entrepreneurial Orientation Entrepreneurial Behavior Figure 6 – Mediated Regression Submodel A

Unit Performance Entrepreneurial

Behavior

Figure 7 – Mediated Regression Submodel B

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Unit Performance Individual Entrepreneurial Orientation Entrepreneurial Behavior

Figure 9 – Mediated Regression Submodel C’

In the following sections, all the models described above are elaborated. Table 8, the table in which test results are presented, can be found on page 35.

Submodel A: Individual Entrepreneurial Orientation and Entrepreneurial Behavior Model A predicts that a relation between IEO and entrepreneurial behavior. The results of the multiple regression analysis, which are presented in Table 8, indicate that the two variables in Model A—IEO and Entrepreneurial Behavior—are indeed significantly related (p<0.05). Of the variance in Entrepreneurial Behavior, 16,2% is explained by IEO.

Submodel B: Entrepreneurial Behavior and Unit Performance

Model B predicts a relation between entrepreneurial behavior and unit performance. The regression test, of which the results are presented in Table 8, did now show any significant relations. The entrepreneurial behavior measure was used in multiple ways. The two variables that together form the entrepreneurial behavior measure were tested as a whole and as separate variables. The different tests resulted in the same non-significant results. A possible explanation is that the high degree of centralization and standardization left too little room for significant, performance enhancing innovation. The standardized coefficients show that proactiveness and risk-taking have the strongest impact on entrepreneurial behavior. These findings are also slightly insignificant, though.

Submodel C: Individual Entrepreneurial Orientation and Unit Performance

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IEO, has a significant standardized coefficient (β=0.427; p<0.01), implying that a change of one standard deviation in the Proactiveness variable, while holding the other variables constant, would result in a change of 0.427 standard deviations in Retail Unit Performance. This is in support of H1. The other two IEO variables—innovativeness and risk-taking propensity—had negative standardized coefficients, but these were slightly insignificant. They were assumed to have a positive influence on unit performance, therefore H2 and H3 are rejected. Their negative values indicate that both innovativeness and risk-taking propensity are detrimental to unit performance, but, as already stressed, these findings were slightly insignificant.

Table 8 – Test Results

Model 1 Model 2 Model 3 Model 4

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Submodel C’: Comparison of Model 2 and Model 3

The fact that Model B did no show any significant relations makes the results of the Model C’ analysis obsolete; according to Judd and Kenny (1986) Entrepreneurial Behavior cannot be seen as a mediating variable. This leads to rejection of H2, H3 and H4.

4.3. Reconsideration of Data

Table 8 shows that the R2_{s and Adjusted R}2_{s values are low. Similar low-level values} are witnessed at the majority of the β-coefficients and their corresponding p-values. This led to reconsideration of the required conditions for initially suitable-appearing regression model’s error variables and other requirements.

Two of three Cronbach’s alphas (.669, .687 and .706) of the IEO construct were just below the widely accepted and often used level of .700. The difference between the widely accepted .700 and IEO’s alphas is that small that they seem negligible in comparison to the high p-values and low Adjusted R2_{’s of Table 8.}

A method to cope with heteroscedasticity—heteroscedasticity can cause high p-values—is by using weighted least squares in the regression analysis instead of ordinary least squares. The use of weighted least squares did not result in higher p-values.

The reconsideration did not result in the identification of sources that might have caused the values that have been presented.

5. Discussion and Conclusion

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behavior, one to determine the relation between entrepreneurial behavior and retail unit performance, and one to determine the direct relation between IEO and retail unit performance. According to the hypotheses, all models should show positive relations.

Entrepreneurial behavior, which was measured by the two-year total of implemented ideas, is partially caused by a store manager’s IEO. To be specific, 16,2% of entrepreneurial behavior is caused by the joint effect of the constructs underlying IEO: innovativeness, risk-taking propensity and proactiveness. This percentage seems somewhat low in comparison to allegedly obvious connection between IEO and entrepreneurial behavior. A possible explanation for this low score can be that the antecedents of entrepreneurship— commonly considered categories are organizational factors, the external environment, and strategy (Antoncic & Hirsch, 2004; Zahra, 1991)—might have a strong influence on entrepreneurial behavior. Company-owned governance structures are characterized by centralized decision rights and operational conformity (Yin & Zajac, 2004). Hence, even though being entrepreneurially orientated, store managers of company-owned stores are given little room for entrepreneurial behavior.

What is of at least equal importance is whether entrepreneurial behavior leads to improved unit performance. The analyses have not shown any significant regression between the two variables. When comparing this to extant literature, it reflects the mixed findings. On the one hand, positive relations were found between entrepreneurial behavior and firm or unit performance (Dada & Watson, 2012; Grünhagen et al, 2013; Lumpkin & Dess, 1996; Wiklund, 1999) and on the other hand, negative relations have been found as well (Fenwick & Strombom, 1998; Kaufmann & Eroglu, 1999). In this particular situation, it is not possible to say whether entrepreneurial behavior is positively or negatively related to unit performance.

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to unit performance, though slightly insignificant. This can be explained by Kaufman and Eroglu’s (1998) who stated that adaptations to retail systems might result in negative outcomes. For adaptations to occur one must take risks and innovate; two actions that are closely connected to the risk-taking propensity and innovativeness constructs. Proactiveness is different. The individual coefficient of proactiveness was positive and significant. This implies that proactive behavior is related to higher retail unit performance. What can be concluded is that proactive behavior is the only performance-enhancing construct of IEO in retail unit performance.

The second research question of this paper was: What is the mediating effect of entrepreneurial behavior between individual entrepreneurial orientation and retail unit performance? The tests did not point out any mediating effects of entrepreneurial behavior. The reason for this is that no significant regression relation was found between entrepreneurial behavior and unit performance. Without this relation, mediation is not possible.

Overall, it can be concluded that unit-level entrepreneurship plays a minor role in a company-owned retail unit’s performance. A possible explanation for this is that organizational-level actions diminish the importance of unit-level entrepreneurship. Eventually, all stores are replicates of a successful business format that has proven its performance potential. If the business format already performance well, entrepreneurial behavior might have less influence. Next to that, as Yin and Zajac (2004) point out: managers of company owned units have less decision rights and less operational flexibility. Hence, innovations by managers are assumed to be of small scale. These small-scale improvements are not likely to influence performance significantly.

6. Implications and Limitations

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6.1. Theoretical implications

This study has several theoretical implications. The EO-performance relation has been scrutinized for a long period of time and in many sectors. The overall conclusion is that there is moderately strong (r=.242) relation between the variables (Rauch et al., 2009). EO is traditionally used as a firm-level measure but the influence of the individual is visible in multiple ways (Krauss et al., 2005; Wiklund, 1999). Converting the firm-level EO measure into an individual-level EO measure and relating it to performance did not yield similar results. Entrepreneurial behavior, which is closely related to EO (Kuratko, 2005), didn’t show any positive significant relations with unit performance either. These findings contradict the aforementioned and broadly accepted positive EO-performance relation. A possible explanation for this is that high levels of centralization and bureaucracy in retail environments exist (Yin and Zajac, 2004). These characteristics limit a manager’s room for innovation; innovations tend to be small and tend to have low impact.

Next to the abovementioned, the existence of two extant relations has been reconfirmed and extended to a retail context: 1) The relation between proactiveness and performance; and 2) The relation between IEO and entrepreneurial behavior. To our knowledge, these relations were not tested in a retail environment yet.

6.2. Practical Implications

Retail organizations that operate their own stores can use this study’s findings in their HR-policies. This study shows that entrepreneurial behavior does not add to unit performance. What does add to unit performance is proactiveness, a finding that is supported by psychology literature (e.g. Barrick & Mount, 1991/1993; Crant, 1995). Innovativeness and risk-taking, the other two IEO constructs, do not add to unit performance: they are detrimental to performance. For this reason, unit-level entrepreneurial behavior, which is mainly constituted by innovation (Kuratko, 2005), is an activity that can be seen as unwanted behavior. Entrepreneurial store managers might allocate their time inefficiently by focusing on innovations, with less time remaining for performance enhancing activities as a result.

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and proactive behavior empowers them to efficiently fulfill these tasks. For current store managers, proactive behavior should be encouraged and entrepreneurial behavior should, in contrast, be discouraged.

6.3. Limitations and Future Research

The data were collected at a single retailer. This resulted in a rather small dataset that focused on a single business. The generalizability of this study can therefore be questioned. Future research should focus on multiple firms in order to infer relations that are more suitable to extend to the whole retail sector. The size of the dataset might have influenced the significance of the findings.

In this research, no franchise units were included. As mentioned above, a possible explanation for the findings is that the small and evolutionary nature of the innovations result in low performance implications. The nature of the implications might be due to high levels of centralization and bureaucracy; two characteristics where franchise and company-owned governance structures oppose eachother (Yin and Zajac, 2004). These differences enable franchisees to innovate more intensively. These “more intense” innovations can have larger performance implications. Extending the conceptual framework to a franchised context can give valuable insights in this proposition.

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Entrepreneurship in Company-Owned Retail Units: The Individual Entrepreneurial Orientation-Performance Relation and the Mediating Role of Entrepreneurial Behavior