T H E E N T R E P R E N E U R I A L M E T H O D O F
E F F E C T U A T I O N I N B U S I N E S S M O D E L
I N N O V A T I O N :
W H E R E C A N W E D R A W T H E L I N E B E T W E E N S T R A T E G Y A N D E N T R E P R E N E U R S H I P ? Author: Student number: Date submission: Supervisor: Subject: Version: Course: Institution: Zoë Schaeffer 10868607 29-06-2015 Sebastian Kortmann Master thesis 1.0MSc. Business Administration -Strategy Track University of Amsterdam
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TABLE OF CONTENTS
1.
Introduction _________________________________________________ 6
2.
Theoretical background _______________________________________ 9
2.1 Business Model Innovation ____________________________________________ 9 2.2 Effectuation and Business Model Innovation ______________________________ 12 2.3 Corporate Entrepreneurship and Business Model Innovation _________________ 17 2.4 Orientations and Business Model Innovation ______________________________ 20
3.
Research framework _________________________________________ 23
4.
Methodology _______________________________________________ 30
4.1 Research Design ____________________________________________________ 30 4.2 Sample ___________________________________________________________ 32 4.3 Measurement of Variables ____________________________________________ 33 4.4 Statistical Procedure _________________________________________________ 395.
Results & findings ___________________________________________ 41
5.1 Correlations _______________________________________________________ 41 5.2 Analysis __________________________________________________________ 41
6.
Discussion & conclusions _____________________________________ 49
6.1 Implications _______________________________________________________ 49 6.2 Limitations ________________________________________________________ 57 6.3 Future Research ____________________________________________________ 58
References ____________________________________________________ 61
Appendices ____________________________________________________ 65
Appendix 1 Survey _______________________________________________________ 65 Appendix 2 Classifications of corporate entrepreneurship _________________________ 72 Appendix 3 Kinds of control ________________________________________________ 73 Appendix 4 CE measurement _______________________________________________ 74 Appendix 5 Variables measurement __________________________________________ 75 Appendix 6 Cover letter ___________________________________________________ 77List of figures
Figure 1: Causal vs. effectual reasoning ... 14
Figure 2: Conceptual Model ... 29
Figure 3: Effectuation and Causation Related to BMI ... 43
Figure 4: Path model ... 47
Abstract
By looking into enablers of business model innovation this study shows that, in line with theory, entrepreneurial firms mainly use effectuation logic in innovating their business model whereas mainstream strategy primarily employs causational logic. As an interdisciplinary topic, business model innovation allowed for a detailed comparison between the field of entrepreneurship and strategy. From this comparison, this study argued that the
entrepreneurial logic of effectuation would be capable of explaining higher levels of business model innovation. From a sample group of 197 surveyed firms, this study arranged these according to the different categories of ventures related to the corporate entrepreneurship spectrum. The results indicated that in between mainstream strategy and the entrepreneurial firm the category of corporate venturing processes had access to both forms of logic. Not only did this category make use of both types of logic, but it also displayed a significantly
increased level of business model innovation. Furthermore, causation was shown to have a negative relationship with BMI, whereas effectuation was positively related to BMI. Additionally entrepreneurial- and market orientation were added to the analysis in order to further understand a possible connection between the fields of strategy and entrepreneurship. The adaptable framework of entrepreneurial orientation seemed to provide a connective function, i.e. it was found to be able to connect entrepreneurial aspects such as effectuation and strategic aspects such as market orientation. Market orientation on its own however was primarily found to be a strategic concept showing no signs of connection to the effectuation logic.
Key words: Business model innovation; effectuation; causation; corporate entrepreneurship; entrepreneurial orientation and market orientation
1. INTRODUCTION
‘’If opportunity doesn’t knock, build a door.’’ Milton Berle
In our global society change is ever more increasing its pace. Especially trends such as information technology (IT), advancement of capital markets and globalization seem to catalyze overall economic growth (Brune & Garrett, 2005; Montgomery, 1994; Schneider & Spieth, 2013). In general business research tend to often speak of only one constant in economics, which is called the constant of ‘’change’’. With change comes more or less uncertainty; walk into any boardroom and chances are meetings revolve around some kind of decision to be made in situations of more or less uncertainty. Uncertainty refers to the
situation in which no historical data exists to help the decision maker (Knight, 2012; Read, Sarasvathy, Dew, Wiltbank, & Ohlsson, 2010). Mostly, all of these management decisions revolve around the assumptions of existing contexts and artifacts such as market positions and R&D budgets. A more fundamental customer centric focus related to the creation of new artifacts such as markets and even economies is often absent in these kinds of decisions because of causal reasoning approach. As a result of increasing change rates, the business models of firms in general also tend to become obsolete more often. Entrepreneurs especially seem to be at ease in such situations of uncertainty and ambiguity. With no existing contexts or artifacts, entrepreneurs seem to be able to generate business models that not only capture value, but more importantly create value from multiple and an unset amount of resources (Chesbrough, 2010; Sarasvathy, 2009). Therefore, a new technology on its own cannot provide economic value. In order to create economic value, a firm must commercialize its latent technology or service through its so called business model. It may come as no surprise that the same new technology enacted in two different ways most certainly yields different results (Chesbrough, 2010).
Academic research, is not solely focusing on technological- or service innovation as the only initiator of economic value creation anymore. Business model innovation represents an upcoming stream of literature and is considered equally important (Schneider & Spieth, 2013). Although there may be an increasing amount of empirical work on the topic, findings are gathered through various academic fields. Literature on strategy, for example, found that strategic- flexibility and agility enable business model innovation, whereas the main barrier of
business model innovation was labeled “the established way” of doing (Bettis & Prahalad, 1995; Bock, Opsahl, George, & Gann, 2012; Chesbrough, 2010; Christiansen, 1997). In another stream of literature the psychological science field has identified cognitive factors, such as the decision making processes of managers, to significantly influence innovation of business models (Casadesus-Masanell & Ricart, 2010). However, business model innovation related to entrepreneurial factors such as entrepreneurial orientation and effectuation is still lacking theoretical ground in business research. Several authors have suggested that the interdisciplinary topic of business models can benefit from an entrepreneurial perspective. Effectuation is especially opted as a form of underlying logic that may reveal insights in explaining competitive advantage (Chesbrough, 2010; Chesbrough & Rosenbloom, 2002).
This study argues that effectuation can explain for differences in business model innovation. Entrepreneurs seem to be able to generate value-creating activities in highly uncertain environments. Insight into the logic of effectuation related to differing degrees of business model innovation could contribute to more effective applications of improved business models, which in turn creates more economic value (Dew, Read, Sarasvathy, & Wiltbank, 2009). On the contrary, current theoretical contributions have only considered causality to be the dominant logic behind explaining relationships between variables in management studies. Causation is considered the opposite of effectuation and the relationship between these two can be seen as a continuum with either logic at the other end of a
continuum (Sarasvathy, 2001). As in any innovation literature, there still remains “white spaces” that cannot be explained for in terms of competitive advantage (Colquitt & George, 2011). Traditional causational approaches seem not to provide a full picture explaining this competitive advantage. Therefore, a better understanding of the alternative heuristics logic of effectuation, which may enable business model innovation, would be a welcome addition to this interdisciplinary research field (Chesbrough, 2010). Theoretically, this study has potential to contribute to the micro-foundational (socio-economical) view by identifying relevant enablers of business model innovation. In order to compare firms from an entrepreneurial perspective, a categorization from the literature on corporate entrepreneurship provides a solution (Vesper, 1984). This allows for an adequate comparison of types of firms related to entrepreneurial aspects. This synthesis is stated in the following research question:
“To what extent can effectuation explain differences in degree of business model innovation related to different categories of corporate entrepreneurship?”
Due to the lack of research on enablers of business model innovation, this encourages this study to further explore and contribute to this field of research and propose a framework for doing so. In presenting our answer to the research question this paper is organized as follows: first, the topic of business model innovation is placed within its theoretical context and provide a conceptual framework from which the research question is formulated (see result above). Second, this study will explain and elaborate on the alternative logic of effectuation and its possible effects on business model innovation. Third, the concept of corporate
entrepreneurship is introduced allowing for a possible refinement and categorization of types of firms related to entrepreneurship. Fourth, market- and entrepreneurial orientation are introduced because of their expected mediating influence on the relationship between
effectuation and BMI. This leads us to the hypotheses, from which the research design and the applied methodology will be presented. Subsequently, findings, discussion and conclusions are discussed.
2. THEORETICAL BACKGROUND
Building off of from the latest state of research on business model innovation, the following chapter focuses on literature that provides main insights into the topic of business model innovation. The literature can be distinguished between enablers -, process/elements- and effects of business model innovation (Schneider & Spieth, 2013). Enablers are especially researched and are discussed in the first section of this chapter. Second, -the entrepreneurial logic of effectuation is identified as a possible enabling factor of BMI and is subsequently discussed in the light of business model innovation. Third, corporate entrepreneurship is examined in order to provide comparable categories of firms in terms of effectuation’s effect on business model innovation. Finally, entrepreneurial orientation and market orientation are also examined because of the expected mediating influence between the relationship of effectuation on business model innovation.
2.1 Business Model Innovation
Over the relatively short development of its course the topic of business model innovation has left its infancy and, after paucity in its development, reached a juvenile state of research. In short, business model innovation is understood as a framework that transforms inputs such as technological characteristics and/or potential into economic value through customers and markets (Chesbrough & Rosenbloom, 2002). In entering its juvenile state, consensus exists in literature in regards to what criteria determines a solid business model, namely: the “customer value proposition” which, in turn, is related to the “value creating insight on which the firm runs” (Amit & Zott, 2010; Chesbrough & Rosenbloom, 2002; Schneider & Spieth, 2013; Teece, 2010). Elaborating on this consensus, it can be inferred that 1) the “value proposition” must be compelling to customers; 2) the firm must have an “advantageous cost and risk structure”; and 3) have a “significant enabling power in capturing value” on the business that delivers and generates products and services. When looking at the above- mentioned criteria, it suggests that a system-level thinking aimed at mapping all the organizations processes and relationships is required. However, despite the consensus on which criteria to use, no unified definition is found in the literature. In attempt to find a suitable definition, Magretta (2002) defines it as follows: “Business models are stories that explain how enterprises work” (p.4). This definition, however, does not incorporate the value proposition. Another definition by Casadesus-Masanell and Ricart (2010) “A business model is a reflection of the firm's realized
system-level thinking. Amit and Zott (2010) argue this system- level thinking strives for recombining existing resources of a firm and or its partners without significant investments in R&D. Therefore, this paper will use the definition of Amit and Zott (2001), which is
formulated as follows: “the business model depicts the content, structure, and governance of transactions designed so as to create value through the exploitation of business
opportunities” (p.511). Taking this definition into account, it serves as an advantage of business model innovation, which is a relatively low-cost application in order to generate value. Like product and service innovation, business models also tend to shorten product life cycles as current applications are continuously improved (Chesbrough, 2007). The question then arises as to what extent mechanisms underlie this form of innovation, especially since IBM consultants found that financial outperformers put at least twice as much effort in innovating their business model (Donofrio, 2006; Giesen, Berman, Bell, & Blitz, 2007).
Doz and Kosonen (2010) propose three meta-capabilities as crucial to strategic agility and developed this into a framework for business model innovation. However, -as Teece (2010) argues, the business model is a conceptual model of the business rather than a model focused on only financial or strategic aspects. Therefore, Teece (2010) argues that a business model is more generic than a business strategy, since coupling the competitive strategic analysis to business model design requires the following steps to be taken: 1) segmenting the market (including a value proposition for each market); 2) determining the mechanism(s) for delivering value; and 3) figuring out isolating mechanisms that impede imitation by
competitors and disintermediation by customers. Teece’s argument may explain why this topic lacks a common theoretical ground and is considered interdisciplinary throughout various academic fields. Additionally, these papers do agree that more frequent, rapid, and far-reaching -innovation in business models is a necessity in the ever more volatile-becoming environments (Schneider & Spieth, 2013). Idea generation is especially proposed as a
solution, of which an example can be found in the notion of “open innovation” which is mainly discussed in strategic literature (Enkel, Gassmann et al. 2009).
Today, the concept of the “business model” is considered interdisciplinary throughout various business research fields such as strategy, marketing and the field of entrepreneurship, which is especially important for this paper (Amit & Zott, 2010; Chesbrough, 2010). During the process of identifying enablers of business model innovation, diverse enablers from independent fields of research have been identified. In strategy, literature networked markets were identified to influence BMI, in these markets various players were found to influence
overall value creation (Amit & Zott, 2010); this finding emphasizes the importance of a firm’s connection with its environment including its capability to differentiate from its competitors. Furthermore, Amit and Zott (2001) recognize key factors of business model innovation, namely: novelty, efficiency and lock-in complementarities. Chesbrough (2010) further
explores this notion of Amit and Zott (2001) and identifies barriers to BMI. These barriers can be categorized into obstruction and confusion; for example, traditional configurations of managers may resist experimentations that threatens ongoing value creation of the existing business. A similar link, from another perspective, can be found in the concept of “disruptive technology”: this indicates that a conflict between established way of doing business and the innovation as a disruptive factor of this established way exists (Christiansen 1997). In addition this barrier of “the established way” can also been seen as a synonym for the more popular used notion of the “dominant logic” of the organization (Bettis & Prahalad, 1995). Contrary to the notion of innovation, these papers each consider business models to be relatively stable, particularly in times of success and when actions have proven themselves well. In terms of strategic management, these factors of stability can lead to inertia, posing as a significant barrier in overcoming the status -quo (Doz and Kosonen 2010). Additionally, regarding the low- and high church resource based view, Chesbrough (2010) argues that business model innovation is a core capability and imitation is a considerable threat. This is explained further by Teece (2010) who argues that the replication of system- processes and assets, level of opacity and possible cannibalization of existing sales, would impede business model copycat behavior.
Related to the literature field of cognitive psychology, Casadesus-Masanell and Ricart (2010) argue that the logic in considering location of facilities, procurement contracts and employment of assets resemble how the organization operates due to effects of managerial choices. As a consequence of these choices, derivations such as low- cost orientation or frugality of culture resemble yet another component of the business model. As one may infer these choice are strongly related to the “logic of the firm”. As a result one can see that the level of analysis is complicated between the organizational and individual. Individual
managers/CEOs and/or entrepreneurial minds in the organization are often catalysts for either innovation or, on the other hand, can also pose barriers for innovation; this is further
supported by Malhotra (2000), who recognizes a conceptualization of knowledge
management on the organizational level and the later amendment of Aspara et al. (2012), who recognizes the roles of individual managers in the transformation process. Furthermore, the
above-mentioned qualitative methods related to different levels of analysis are backed by a quantitative study of Bjork 2012, who found that individuals from different knowledge domains in the business are important for processing external information into viable ideas of business model innovation.
Less research has been conducted in the entrepreneurial field. Chesbrough (2010) states that effectuation in business model experimentation and identification of leaders for these changes are necessary for overcoming the earlier-mentioned barriers of business model innovation. Later, in this same paper, Chesbrough (2010) argues that in order for a business model to become successful, a heuristic logic (note effectuation is a heuristic logic) is required, which allows for leveraging economic value from technological innovation. Such latent value recognition is unlocked by the role of business model innovation but, in turn, often limits the search for alternative models later on. Therefore, entrepreneurs locked into large enterprises may experience little incentives to innovate (Chesbrough and Rosenbloom 2002). To further understand a possible link to business model innovation effectuation’s theoretical contribution needs to be identified.
2.2 Effectuation and Business Model Innovation
Effectuation originates in the research field of entrepreneurship and begets continuous discussions about the conceptual inclusions of this field (Stam & Elfring, 2008). Today, entrepreneurship is considered to be a research field where the management and business field intercept. Because of its widely used application, entrepreneurship is defined in various ways, thus leaving room for different interpretations. Ahmad and Seymour (2008), in their study referred an elaborated on the first general definition of entrepreneurship, developed by Schumpeter in 1934, defining it as follows: “innovators who implement entrepreneurial change within markets, where entrepreneurial change has 5 manifestations: 1) the introduction of a new (or improved) good; 2) the introduction of a new method of
production; 3) the opening of a new market; 4) the exploitation of a new source of supply; and 5) the re-engineering/organization of business management processes”(p.2). This definition is built upon a synthesis of other literate definitions from which the notion of innovation seems most significant (Bolton & Thompson, 2004; Hisrich, 1990; Knight, 2012).
As noted in the previous paragraph, business model innovation includes multiple fields of research, which may allow for revealing boundary conditions and interceptions of these
fields. Next to the alternative logic of effectuation, which is primarily associated with
entrepreneurs, the logic of causation is considered to be the dominant logic used in society as a whole. More specifically, causation is predominantly associated with mainstream strategy and is considered to increase with company size (Chandler, DeTienne, McKelvie, &
Mumford, 2011; Sarasvathy, 2009). Delineating this research, it may be interesting to conduct additional research on if it is possible that interfaces, or even tensions, between these two forms of logic exist. In order to do so, the field of strategy needs to be defined in order to make the comparison possible. Likewise, the entrepreneurship field several definitions exist in strategy literature each building upon their timely perception of strategy. Keeping the scope on the right abstraction level, definitions are widely spread in literature (Mintzberg,
Ahlstrand, Ahlstrand, & Lampel, 2005; Porter, 1986). In order to create a link to the type of reasoning used in strategy, Mckeown (2012) argues that “strategy is about shaping the future and is the human attempt to get to desirable ends with available means” (p.34). Getting desirable ends through available means is an especially important notion as it is further elaborated on in the following sections, which is focused on contrasting causation to effectuation.
Effectuation is considered a form of logic reasoning; this chapter puts a large emphasis on explaining the foundations of this form of logic as this is crucial in comparing and
contrasting possible boundary conditions with other fields of research. Effectuation has been defined by Sarasvathy (2001) as “processes that take a set of means as given and focus on selecting between possible effects that can be created with that set of means” (p.245). Before the establishment of this definition, Busenitz and Barney (1997) found substantive evidence of entrepreneurs by using heuristics and bias more often in their decision- making processes than managers. Taking a leap forward in time, towards the establishment of the effectuation logic and in research within the fields cognitive psychology and entrepreneurship, Dew et al. (2009) discovered that experienced entrepreneurs tend to frame decisions using an effectual logic. Whereas novice entrepreneurs use a more predictive frame, such as causation.
Causational logic is defined by Sarasvathy (2001) as “processes that take a particular effect as given and focus on selecting between means to create that effect” (p.245).Additionally figure 1, below this paragraph, visualizes these two different kind of logic used in business. Causal problems are problems of decision, whereas effectual problems are problems of
design. To better illustrate this contradiction, consider the following example of a cook who is planning to prepare a meal: in causal reasoning, a cook would draw up a list of ingredients in
order to make a predetermined dish and would than go to the grocery to get the ingredients missing in his kitchen. On the other hand, a more effectual cook would not bother writing up such a list but would just go to the kitchen, look at the present ingredients, and come up with a creative way of combining these ingredients then work this into a dish not knowing its
outcome beforehand.
Figure 1: Causal vs. effectual reasoning
Looking at the relationship between effectuation and causation, some dispersed propositions are stated in the recent literature. Chandler et al. (2011) argue that effectuation is the opposite of causation and that these two forms of logic cannot tolerate each other. On the other hand, Sarasvathy (2009) states that effectuation can draw upon causation so that entrepreneurs are more readily able to switch between these two kind of logics. A more nuanced proposition comes from Read and Sarasvathy (2005) who state that the larger the firm- and the less experienced the entrepreneur is, the more a causational approach is used. On a spectrum with large firms on one end, considered to only use causational logic, and entrepreneurs at the other end, considered to only use effectuation, these authors argue that a transition is going on between these two kinds of logics. More specifically they argue that that either logic decreases in its magnitude moving toward the other end of the spectrum. As one may infer this proposition thus allows for both kind of logics to be present in the middle parts of the spectrum. It may come as no surprise that these dispersed and contradictory
propositions can have different implications for the outcomes of innovation processes. Further researching their exact roles may therefore shed light on the fundamental strategic question of: how we can explain competitive advantage?
The question at hand then is: can effectuation explain differences in performance? The answer to this question is more complex than initially thought. The outcome of effectuation is
based on non-predictive control from which the outcome may be disappointing but also better than expected. Therefore, performance should be disentangled from the effectual process since outcomes are unpredictable (Sarasvathy, 2001). However, Read, Song, and Smit (2009) found that some dimensions of effectuation are significantly related to performance by making use of an impressive sample size. However, one main limitation of this approach was not including the population of unsuccessful firms. Without including this often hidden population of unsuccessful firms real inferences from such populations cannot be drawn as it is not representable for the total population. Thus, in light of competitive dynamics, the assumptions of predictability do not hold and the notions of equibilirium and dis-equibilirium seem to have in-betweens. Therefore, success/failure is no Boolean variable and should disentangle the entrepreneur from success/failure of the firm.
Instead of focusing on psychological characteristics or environmental aspects such as social networks, entrepreneurship is increasingly considered to be a form of skill, expertise and process that can be acquired (Read & Sarasvathy, 2005). As Sarasvathy (2009) further argues, effectuation is not specific just personality traits, but it is learnable and very creative in nature. Since dealing with the future of the unknowable unknown, opportunity cost are often not considered by effectual entrepreneurs (Knight, 2012; Sarasvathy, 2009). Therefore entrepreneurs often exercise control over their means rather than making a prediction of the future. This kind of control is depicted as the transformative non-predictive control, which is shown in the bottom right quadrant in appendix 3 kinds of control, note that the other
quadrants represent approaches that are used in mainstream strategy (Wiltbank, Dew, Read, & Sarasvathy, 2006).
As a theory of behavioral economics, effectuation is also getting attention in other fields of research such as marketing. In marketing, Vargo and Lusch (2004) link effectuation to knowledge and other intangibles such as skills and information. Despite these connections, these studies are more focused on the processes underlying effectuation and are often related to the field psychological cognitive research. However, this suggests that effectuation should not be limited to the entrepreneurial field alone. And as indicated by Chesbrough (2010), no link of effectuation to business model innovation has been researched yet. Since an initiator of business model innovation cannot guaranty its profitability, uncertainty is an especially
important indicator of the entrepreneurial influence (Sosna, Trevinyo-Rodríguez, & Velamuri, 2010). Environmental isotropy, which states it is not clear a priori which pieces of
(Sarasvathy, 2009). In this process, particularly commitment is an important factor as well, and compared to larger organizations, entrepreneurial settings allow for swift asset
reconfiguration and acceptance of new business models.
From the inside out, four dimensions make up effectuation. Together these dimensions determine the degree of effectuation in a person’s reasoning (Chandler et al., 2011). First, Sarasvathy (2001) speaks of entrepreneurs trying different approaches before settling on one business concept.From option theory Chandler et al. (2011) turns this notion into the concrete dimension of experimentation defined as: “a series of trial and error changes pursued along various dimensions of strategy, over a relatively short period of time, in an effort to identify and establish a viable basis for competing” (p.380). Second, rather than determining the expected returns entrepreneurs think of loss that is affordable to them. Developed by
(Sarasvathy, 2001) affordable loss is defined as “Effectuation predetermines how much loss is affordable and focuses on experimenting with as many strategies as possible” (p.252). This dimension can be easily related to the previous dimension of experiments stating that ongoing options, which require more than the entrepreneur can afford, are rejected. Thus, losses are constrained whereas success would allow for amendment of resources to successful
experiments. Third, contingent opportunities determine the structure of the organization and commitment of investors. Efficacy of this dimension therefore requires a certain level of flexibility, defined as “the need for prediction is greatly reduced” (Sarasvathy, 2001) p.252.
These first two dimensions usually distinguish small start-up firms from the larger
organization, since unfruitful experiments can be abandoned more easily whereas larger firms are limited by their routines, procedures and policies (Chandler et al., 2011). Fourth and finally, uncertainty is reduced by engaging in pre-commitments with stakeholders, such as customers and suppliers (Sarasvathy, 2001). By (partially) dividing responsibility to stakeholders, entrepreneurs can exercise control over the future without having the need to predict. For example pre-commitments from customers can limit risk by securing a steady stream of revenue, therefore potential loss is often constrained by this dimension. On the contrary, causation is based upon prediction of the future through maximizing expected returns, competitive analysis, planning, envisioning the end and exploiting existing
knowledge (Sarasvathy, 2001; Wiltbank et al., 2006). Despite this contradictory effect pre-commitment was, however, found to be strongly related to causation as well (Chandler et al., 2011). Therefore this dimension seems not to stand on its own leaving room for collinearity issues with different concepts. No exact definition of pre-commitments has been used in
literature. Together with causation, the dimensions of effectuation have proved high face- and content validity throughout various studies (Chandler et al., 2011).
It is significant then that business model innovation can occur in different varying degrees; as Trimi and Berbegal-Mirabent (2012) found: business model innovation is a unique opportunity in unlocking the entrepreneurial process. This can happen through three
approaches: 1) improvement of efficiency of the model itself without altering the
product/service; 2) the technology-push approach as a first mover with a new technology; and 3) demand-pull approach which implies reconfiguration of the model to changed customer needs and/or environments (Trimi & Berbegal-Mirabent, 2012). The starting point for these approaches is of relevance since looking at the degree of sustainability of business models Boons, Montalvo, Quist, and Wagner (2013) split the outcomes of this kind of innovation into incremental and radical. In other words initial motivation in type of BMI and the extent to which BMI relative to its environment should take place are of importance in determining its effects.
2.3 Corporate Entrepreneurship and Business Model
Innovation
By comparing firms in terms of entrepreneurship several organizational structural forms seem to lie at its basis. Read and Sarasvathy (2005) proposed that there might be differences in use of causation and effectuation between large- and entrepreneurial firms. However, this
argument seems to limit generalization capability since, for example, a larger organization may also consist of subsidiaries that are primarily focused on entrepreneurial purposes such as market creation and innovation. By simply considering organizational size, in the relationship between effectuation ad BMI, these subsidiaries would just be added up to make a total of company employees instead of focusing on the (entrepreneurial) purpose of these business units. Alternatively, to company size the concept of corporate entrepreneurship may explain for differences in entrepreneurial focus of firms by looking at their organizational structure. CE builds on many streams of literature from both strategy and entrepreneurship, its specific components and scientific contribution is discussed below.
Corporate entrepreneurship is a multi-conceptual construct, which incorporates many theories such as exploration/exploitation, intra-preneurship and entrepreneurial start-up. Sambrook and Roberts (2005) define corporate entrepreneurship as: “start-up
entrepreneurship turned inwards” (p.142). It is remarkable that some authors write anecdotal stories and even books about the application of effectuation in corporate settings without relating to empirical evidence (Blekman, 2011). Fact is, that very little is known about entrepreneurship’s effect in corporate organizations. Zahra and Covin (1995) have found that especially in volatile environments CE can significantly boost financial performance. In an earlier widely acknowledged paper, Burgelman (1983) already referred to autonomous strategic behavior as a means of unlocking the CE process. Since then, various studies have been conducted by researchers are interested in the relationship between CE and strategic management (Barringer & Bluedorn, 1999; Zahra, 1996). These papers provide interesting insights but are beyond the scope of this research. A central tenet from all these papers is CE’s attempt to rejuvenate or even redefine the firm in order to create the necessary
competitive advantage. Therefore, it can be inferred see that innovation is often contingent of nature and as such also contingently used in CE literature.
In the ordinal arrangement of CE, Thornberry (2001) argues that the larger a firm gets the more bureaucracy, complex processes and hierarchies will limit the firm’s ability to react quickly, take risk and innovate. Therefore, the level of analysis is complicated as interactions are occurring between the individual, team and organizational level (Sambrook & Roberts, 2005). Wiltbank, Dew et al. (2006) acknowledge that multiple actors can influence effectual logic and they argue that this is a more adaptive form of strategy rather than a predictive one. Stakeholder commitment is particularly argued to be a key driver upon the dynamics of effectuation. Busenitz and Barney (1997) did find a strong support of biases in the form of a heuristic logic used by entrepreneurs more strongly than managers in large firms. This does presume differences between strategic business units from larger firms, not to forget different kinds of SBUs, and entrepreneurial firms will exist. Unfortunately, interaction going on between the group and team level remains latent in both business model innovation- as well effectuation research. This interaction between different levels of analysis can be illustrated by the notion of the corporate entrepreneur, who encounters limitations from both the
organizational- as well as from the team level, as compared to the ordinary entrepreneur who is often in charge of a small enterprise (Jones-Evans, 2000; Sambrook & Roberts, 2005).
Throughout the course of CE’s development various authors have proposed multiple classifications. Six CE of these classifications were comprehensively ordered in an overview by Sambrook and Roberts (2005), these are depicted in appendix 2 classification of corporate entrepreneurship. Note that the different classifications employ varying nomenclature but are
all part of the same spectrum. It suggests that when the unit of analysis scores toward the independent spin-off side of the spectrum, then more initiative seems to stem from below in the organization (Sambrook & Roberts, 2005); in other words individuals can gain more influence in the innovation process when the business unit is located toward the right side of the CE spectrum. The central question arising from these papers is: where do the boundaries of business models in multi-business organizations intercept and/or collide? A possible answer to this question would provide insight to interdependence and even dependence of business models. Schneider and Spieth (2013) already attempted to conceptualize this in a distinction between strategic entrepreneurship -related to business model innovation and strategic resource based view/dynamic capabilities, referred to as only business model development.
Several other factors were also found to be relevant in CE as well, however, there are much too many for this literature review to discuss. Therefore, only the most relevant findings are discussed.As far as which CE mode is best applicable to inspire innovation, Govindarajan (1986) argues that decentralization plays a central role here due to the decision making
authority scope being delegated to strategic business units. This author further argues that decentralization depends on factors such as firm size, type of technology and the
environmental uncertainty that is related to the type of strategy pursued. Furthermore, factors of decentralized decision making and creative culture were positively influencing strategic flexibility during periods of business model innovation (Bock et al., 2012). From this
founding, it can be inferred that decentralization is a relevant component of CE. Logically one might expect physical distance of strategic business units to be of importance in
decentralization as well. Related to effectuation in large corporations, Brettel, Mauer, Engelen, and Küpper (2012) found that effectuation positively influences R&D projects in corporate organizations. The dimensions affordable loss and pre-commitments are especially positively related to innovation, whereas causation primarily seems to be a performance driver for projects with low levels of innovativeness (Brettel et al., 2012). From this, it can be
inferred that effectuation can also be generalized to corporate contexts such as R&D and may, therefore, be key in driving other corporate innovation capabilities as well.
2.4 Orientations and Business Model Innovation
Staying within the realm of entrepreneurship- and strategy literature, two strategic orientations may further reveal commonalities or differences between these two fields of research. Both market- and entrepreneurial orientation are ought to be adoptable by firms. EO particularly emphasizes that entrepreneurial characteristics can be adopted by organizations that implemented a strategy (Wiklund & Shepherd, 2005). MO is considered to be adaptable by firms as well but is solely related to strategic aspects (Kirca, Jayachandran, & Bearden, 2005). It seems that entrepreneurship can build on strategy but not the other way around, as further discussed by elaborating on these two concepts below.Entrepreneurial orientation was defined by Wiklund and Shepherd (2003) as “A firm’s strategic orientation, capturing specific entrepreneurial aspects of decision-making styles, methods and practices.” (p.74). In research this concept is often related- and used to measure CE since it disentangles entrepreneurship from the start-up context and applies it to existing, often corporate, organizations. Therefore, the concept of EO originated in strategy literature and is seen as an entrepreneurial strategy-making process (Rauch, Wiklund, Lumpkin, & Frese, 2009). EO is often related to performance but with mixed result. Like with almost any performance measure in strategy, Rauch et al. (2009) also found only moderate levels of EO influencing performance. These findings are supported by other studies which, by adding mediators and moderators, were able to explain small bits of the puzzle (G Tom Lumpkin & Dess, 1996; Wiklund & Shepherd, 2005). In a meta-analysis on literature related to EO, small firm sizes and dynamic industries were found to positively moderate the relationship between EO and financial performance (Rauch et al., 2009). A full and clear understanding however of how to use EO’s dimensions in relation with performance remains inconclusive in the
literature and yields dispersed results.
Wiklund and Shepherd (2003) speak of three main primary dimensions of EO, namely: 1) Innovativeness, which reflects the tendency to engage in new ideas, experiments and creative processes; 2) Pro-activeness, which refers to anticipating on future market needs & wants by creating first mover advantages and 3) Risk taking, where there exists a
willingness to commit more resources to projects where the cost of failure may be high. Two other dimensions developed by G Tom Lumpkin and Dess (1996) named competitive
aggressiveness and autonomy are also mentioned in the literature, however, their role is considered to be more salient and produced different and ambiguous relationships with
performance. Therefore, the first three dimensions are considered to be the core of EO and strong support exists of EO being a one-dimensional concept consisting out of these three dimensions, i.e. most studies reported singular factor loading of the main three dimensions (Rauch et al., 2009).
It seems like effectuation and EO would go hand in hand, but research into this relationship is still somewhat lacking. Only one example from Mthanti and Urban (2014) shows that a positive relationship exist between these two concepts. Furthermore, EO is thought of as an entrepreneurial construct, however, as Hughes and Morgan (2007) found that entrepreneurial firms at an embryonic stage of development were not at all strongly related to performance. An explanation of this was found in the limitation of resources and weak endowments. This was later confirmed by Wiklund and Shepherd (2005), who found that financial support improves EO’s effect on performance. This suggests the RBV plays an important role here since resources can contribute to the actual deployment of EO. Note that in the comparison of these studies performance can and is not a uniform measure, which thus strongly depends on the indicators used to measure it. The above-mentioned studies are all related to financial performance measures. Overall, it seems like a disagreement on what constitutes entrepreneurship exists; this translates itself in dispersed findings in literature. EO is related to the creation of dis-equibilirium by finding new opportunities that differentiates firms from each other by creating a competitive advantage. Therefore, it may come as no surprise that EO was found to be related to many kinds of innovations (Pérez-Luño, Wiklund, & Cabrera, 2011; Zhou, Yim, & Tse, 2005). Another related orientation could also be found in literature, this orientation is related to existing markets. This is elaborated on in the next section.
Market orientation has been extensively researched and has shown to have a positive effect on various performance measures (Kirca et al., 2005; Narver & Slater, 1990). MO was defined by Deshpandé and Farley (1998) as “The set of cross functional processes and
activities directed at creating and satisfying customers through continuous
needs-assessment” (p.226). Revenue- and cost-based measures have particularly been found to be significantly related to MO (Kirca et al., 2005). In relation to BMI, this may indicate that a possible connection exists with MO, since as discussed earlier the business model places a large emphasis on revenue models and cost structures. From a strategic point of view, MO is then aimed at providing superior customer value and not at innovation as EO does.
However, as MO is having an impact on the revenue and cost structure of an organization, the relationship with innovation has found to be more limited. Atuahene-Gima (1996) found that MO improves marketing, product advantage and teamwork but does not improve product newness and product innovation. They further argue that MO can provide a significant impact on the innovation development but does not contribute to its market
success. This is interesting since it suggests that MO is pervasive throughout the organization and that newish more entrepreneurial developments can draw upon its knowledge. This is further supported by Zhou et al. (2005) who researched technology based firms; they found that MO improves already-used advanced technology benefits for mainstream customers, but inhibits targeting new market segments. They also found that EO improves both types of development. The three core components of MO are 1) customer orientation; 2) competitor orientation; and 3) inter-functional coordination. From these three components, Lukas and Ferrell (2000) found that the first component was related to product innovation but that the other two were not. A necessary condition for MO to be effective is that organizations need to be centralized, formalized and interconnected (Kirca et al., 2005). Thus, MO is conducive in providing effective measures in the organization but cannot, or limitedly so, initiate
innovation in itself by creating dis-equibilirium.
In literature, MO and EO are often correlated but perform different functions. In MO, strategic market planning is driven by competitor- and customer intelligence, whereas EO is focused on tapping into new market opportunities (Baker & Sinkula, 2009). As noted in the previous section, MO does impede innovation. However, Baker and Sinkula (2009) have found that in small business MO & EO can complement each other with regards to successful innovations. This is further supported by Atuahene-Gima and Ko (2001), who distinguish four categories of firms, ranging from 1) conservative firms; 2) only EO oriented firms; 3) only MO oriented firms and finally 4) both EO and MO oriented firms. In further support of these findings is Matsuno, Mentzer, and Özsomer (2002), show that EO is positively related to MO; moreover, this connection even increases with higher levels of departmentalization. The direct effect of EO on performance was even found to be negative here, but when mediated by MO it revealed a significant positive relationship. An important founding through these studies is that the fourth category by Atuahene-Gima and Ko (2001) of firms having both EO and MO proved to be more effective in product innovation processes. Therefore, evidence exists that these two orientations are separate measures but can complement each other if they are both present within an organization.
3. RESEARCH FRAMEWORK
This paper works onward from lacking research into understanding business model innovation. More specifically through the entrepreneurial lens this study aims to further develop this understanding by empirically testing effectuation as a possible enabling factor of business model innovation.
Every for-profit business has some sort of business model underlying its daily
operations. This may even be argued for non-profit organizations where the value creation is often considered non-monetary. Nonetheless, this research only takes for-profit organizations into account. The business model allows for commercialization of (new) technologies and services (Chesbrough & Rosenbloom, 2002). In this process, entrepreneurs often find ways to combine existing resources into new combinations (Read & Sarasvathy, 2005). These new combinations are not sparsely successfully commercialized and entrepreneurs are generally considered to be thrives of economic development (Storey, 1994). Therefore, this study expects that entrepreneurship, and especially the entrepreneurial method called effectuation, is a significant constituent in the development of business models.
The method or logical reasoning of effectuation has already been found to explain various performance indicators in entrepreneurship literature but has not yet been related to the concept of business model innovation (Chesbrough, 2010; Sarasvathy, 2009). Independent of commercializing new technologies, services or re-combining existing resources, this study expects that effectuation-logic tends to concede business model innovation (Amit & Zott, 2010). In other words, it is in the nature of the entrepreneurial mind to always look for new ways to create value. Counter to Trimi and Berbegal-Mirabent (2012), this study does not argue that business model innovation unlocks the entrepreneurial process but does, however, believe that the reverse is true: the entrepreneurial mindset can unlock the process of business model(s) innovation. Additionally, some authors argue that more frequent, rapid and far-reaching innovation in business models is a necessity in the ever more volatile becoming environments (Schneider & Spieth, 2013). In these environments, effectuation’s dimensions of experimentation and flexibility may particularly leverage BMI processes. Furthermore, experimentation may allow for experimenting with multiple viable business opportunities, whereas flexibility may allow for leveraging contingencies, i.e. lessening the need for
abandoning unviable business concepts in early stages of development reducing significant losses. Therefore, in hypothesis 1a this study predicts that effectuation will have a positive effect on business model innovation.
From entrepreneurship literature, the underlying logic of effectuation may reveal
explanatory power in the white spaces of innovation as it was predicted above. The literature review revealed that current literature on strategy is mainly focused on the causation logic. The predictive framework of causation is considered to be the opposite of effectuation according to Chandler et al. (2011), these authors thus state that these two forms of logic will not correlate. On the other hand, the originator of effectuation theory, Sarasvathy (2001), states that effectuation is additive of- and can be combined with causation; moreover, she continues to argue that entrepreneurs can more easily differentiate between these two kind of logics. As a result of this proposed additive relationship, entrepreneurs may have more means to solve certain problems and/or develop more means along the way, which can then be readily implemented in these processes of innovation. In relation to these two propositions, this study expects that, in line with Chesbrough (2010), larger organizations will tend to inhibit the entrepreneurial spirit. This effect may occur due to the dominance of causational reasons within the organization and not so much the contradictory effect of the two logics as argued by Chandler et al. (2011); more precisely, due to the predictive framework of
causational reasoning, a particular effect is taken as given (Sarasvathy, 2009). Therefore, it makes sense that effectuations dimension of experimentation and flexibility may be
particularly activated in situations of uncertainty. These two dimensions may allow for multiple experiments and staying flexible to future contingencies. Similarly, of the previous hypothesis, affordable loss is closely tied to experimentation and contributes by abandoning unviable business concepts early on in their life cycle. As a result, these dimensions can complement predictive strategies when the situation asks for it, thus allowing for switching between these two kinds of logics. Furthermore expanding on firm size, one may be inclined to infer that in small entrepreneurial settings the entrepreneur’s logic of effectuation is more dominantly present and will be added to the causational logic to a greater degree. Affordable loss may especially be more present here as smaller firms are often constrained by limited financial resources as opposed to larger organizations. Overall, this additive function of the two logics may allow for higher levels of business model innovation to be explained for. However, this distinction between firms sizes is not accounted for in this hypothesis as the next sections introduces the categorization of CE, which is more likely to provide a more
adequate comparison between types of firms. Keeping the analysis on the firm level, this study therefore predicts that causation covariates with effectuation and will have an additive positive effect on business model innovation, this is stated in hypothesis 1b.
Hypothesis 1a: The higher a venture scores on effectuation the more this will result in a positive effect on business model innovation.
Hypothesis 1b: Effectuation covariates with causation such that more of the variance within business model innovation can be explained for.
Different levels of BMI are present within the total population of firms. Some firms are able to rejuvenate their business model and create continuity whereas others die out over time. The question then arises as to which firms are more likely to achieve BMI and are able to create this continuity? Of equal importance is which firms cannot establish BMI and especially why, despite sometimes all efforts, were they not able to create the necessary BMI. Placing these questions within their strategic context, this adheres to the main underlying question of: what are the sources of competitive advantage? The strategy literature streams of the resource-based view and evolutionary perspectives provided small pieces of the puzzle, however additional explanatory pieces are still missing (Stoelhorst, 2008; Stoelhorst & Bridoux, 2006). The Austrian- and entrepreneurial views seem to be able to provide an additional piece of the puzzle since this stream is focused on creating dis-equibilirium or exploiting dis-equibilirium based on entrepreneurial factors (Jacobson, 1992; Schumpeter, 1934). Their exact role however is still undetermined and the underlying mechanisms are obscure. This latter stream of research also joints the entrepreneurship- and strategy field and opened the door for joint constructs such as CE.
In order to provide a comparison, CE may be able in providing categories of firms which may explain the differences in BMI. For example, strategy literature showed that inertia and the “established way” of doing impede the organization’s ability to adapt to its environment (Bettis & Prahalad, 1995; Doz & Kosonen, 2010), whereas on the other hand, in particular expert entrepreneurs, seem to be able to generate innovation by (re)combining existing and/new resources (Sarasvathy, 2009). In order to mitigate inertia, entrepreneurship can be incorporated in larger organizations for the purpose of rejuvenating the business. CE elaborates on this and is seen as a way to integrate entrepreneurship into corporate
literature review, the CE concept provided a spectrum on which a SBU or firm is, in
organizational structural terms, moved away from a corporate parent organization (Sambrook & Roberts, 2005). The spin-off and entrepreneurial venture are located on the far right side of the CE scale and are totally cut loose from a parent corporate organization (Sambrook & Roberts, 2005; Vesper, 1984). Additionally, Bock et al. (2012) argue, decentralized decision-making and a creative culture positively influence business model innovation. Logically one may expect that this latter category produces the highest levels of BMI as they are not constrained by the corporate unit anymore in terms of causational logic and decision making authority scope. As a result this study expects that the further an SBU or corporate venture is located away from the parent corporate organization, i.e. from the far left side of the CE spectrum, the more it will be able to accomplish BMI. By stating this relationship, this study thus assumes that the primary motivation for a corporate organization to engage in CE is to rejuvenate or redesign the business and that, according to Govindarajan (1986) the decision making authority scope is delegated to strategic business units/corporate ventures the further it is located on the right side of the CE spectrum. For comparability issues, this study will only focus on firms and not on autonomous or independent SBUs as is proposed by the CE spectrum (Vesper, 1984). Therefore, autonomous business units and R&D departments are excluded. Furthermore, keeping the level of analysis on the firm-level and the scope of this research clear this study will only distinguish between three of the CE categories. First, the far left category of corporate organizations, which is called mainstream strategy in this study; second, the middle category of corporate venturing, which is called corporate venture; and last, the far right independent entrepreneurial firm/spin-off, which is called entrepreneurial firm. This way, dissemination is greatest providing increased probability of revealing differences in BMI scores. The proposed relationship is stated in hypothesis 2a.
As one may wonder now: are larger and smaller firms comparable with regard to effectuation? As noted, the business model is applicable to all businesses and the literature stream on CE attempts to explain the connection between strategy and entrepreneurship. Like the previous hypothesis, considering all options it makes sense to expect that the reduced categorization of CE may also prove to be relevant in explaining differences in effectuations effect on BMI (Vesper, 1984). Large corporate organizations are known for their inertia which often limits innovative capabilities. Doz and Kosonen (2010) argued that inertia leads to stability of business models, limiting exploration by putting a too large emphasis on exploitation (Thornberry, 2001). Sambrook and Roberts (2005) argued that multilevel forces
from the team- and organizational level would mitigate possible effects of entrepreneurship in large organizations. By looking at these arguments and relating these to the two logics
discussed in this study, it may well be that any effect of effectuation will be inhibited the more the ratio of causational relative to effectual reasoners increases. On top of that, one may be inclined to say that effectual reasoners do not feel at home in larger organization as levels of causation rise, therefore they often choose to be employed in smaller companies so that they can literally effectuate their initiatives and ideas. As a result of this induced ratio- and selective effect, this study expects that effectuation will not have any effect in larger corporate organizations consisting of multiple departments and/or businesses but will increase in effect the more a unit of analysis moves toward the right side of the CE spectrum.Furthermore, instead of some, this study expects that all dimensions of effectuation will be increasingly present the more a unit of analysis moves toward the right side of the CE spectrum. Like the previous hypothesis 2a, the same (reduced) categorization of CE is used here. Related to this categorization, it is predicted that the corporate organization will show no signs of
effectuation, whereas the corporate venture will contain mediocre levels of effectuation since they are still constrained and connected to the corporate organization in terms of causation and centralized decision-making authority. Entrepreneurial firms have no ties to corporate organizations; therefore this study expects that effectuations effect on BMI will be highest in this latter CE category. The proposed effect is shown in hypothesis 2b.
Hypothesis 2a: The more a firm is located towards the right side of the of the CE spectrum the higher its level of BMI will be.
Hypothesis 2b: The effect of effectuation on business model innovation will be higher the more a venture is located towards the right side of the CE spectrum.
An organization can obtain different strategic, orientations; EO and MO have particularly been found relevant in providing answers for higher levels of innovation and performance (Stam & Elfring, 2008). The notion of orientation is important here since an orientation does not act on its own, but rather provides the framework for doing so. As a result, orientations shape the way information is processed and provide guidance on how to react to the environment. As several authors demonstrated, organizations can even maintain different orientations at once (Atuahene-Gima & Ko, 2001; Baker & Sinkula, 2009; Matsuno et al., 2002). The different orientations of MO and EO were found to strengthen each other so that
achieved (Atuahene-Gima & Ko, 2001). Since the orientations provide a framework for acting and can complement each other, it makes sense to infer that these orientations may positively mediate the entrepreneurial method of effectuation’s effect on BMI. EO was found to be related to many kinds of innovations and therefore, this may also be applicable to BMI (Pérez-Luño et al., 2011; Zhou et al., 2005). Furthermore, since every innovation also needs a corresponding business model in order to realize commercialization, this study expects that effectuation can be positively but partially exercised through EO. In other words, EO may explain why effectuation leads to BMI. Note the addition of partial mediation here since EO has only been able to explain small, however important, pieces of the puzzle (Rauch et al., 2009; Wiklund & Shepherd, 2005). In the cohesion of factors related to any dependent variable, no relationship of variables seems to stand on its own. If this were true, the problem of “why some firms achieve competitive advantage” would not have been so hard to solve (Stam & Elfring, 2008). By looking at the facilitative nature of orientations, this study therefore expects that effectuation will have a direct, as well as an indirect effect, on BMI. More specifically, EO may mediate effectuations dimension of experimentation and flexibility to a greater extent since EO’s tendency to innovate may increase propensity for
experimentation and EO’s pro-activeness may allow for flexibility in terms of being open to leveraging contingencies. On the other hand, effectuations dimension of affordable loss is expected not to be mediated by EO, as this concept speaks of risk with increased committed resources to projects where cost of failure are high; affordable loss is at odds with this explanation by stating that it will pull the plug early on in the experimentations life cycle if results fail to bear fruit. The predicted relationship is stated in hypothesis 3a.
The literature review showed that EO, in combination with MO could allow for even greater innovation capability. Although this was previously not related to business models, this may be applicable to BMI as well. More specifically, as a result of MO clear
understanding of customers, competitors and/or inter-functional coordination allows for organizations to better adapt to their environments when EO is part of the equation as well (Lukas & Ferrell, 2000). In other words, one may be inclined to infer that a clear
understanding of customer needs can complement EO and allow for effectuation to explain more variance in BMI. Various revenue and cost-based measures were found to be related to MO (Kirca et al., 2005). This may be linked to BMI’s focus on the revenue- and cost structure of the organization.(Amit & Zott, 2010). Therefore, building onward from the previous
benefit from increased levels of MO, but only when EO is part of the equation. This predicted relationship is stated in hypothesis 3b
As noted in the literature review, when EO is not part of the equation, MO does not or only very limitedly so lead to discovery of new market segments and/or innovation
(Atuahene-Gima & Ko, 2001; Zhou et al., 2005). MO is a strategic concept often used in marketing literature, as it provides ways to discover new potential in existing markets. This study expects that MO will have no influence on the relationship between effectuation and BMI since it is the entrepreneurial nature to create dis-equibilirium through discovery of new segments and innovations. I.e. MO is used as a strategic orientation focused on further exploitation of existing markets, therefore it will not be related to innovative aspects of effectuations independent dimension. More generally and related to the previous hypothesis, results are indicating that entrepreneurial concepts can build on strategic concepts however not vice versa. As a result, the independent dimensions of effectuation cannot be mediated by MO as this concept is not focused on dis-equibilirium. This prediction is stated in hypothesis 3c.
Hypothesis 3a: Entrepreneurial orientation positively and partially mediates the relationship between effectuation and business model innovation.
Hypothesis 3b: Entrepreneurial orientation and market orientation both positively mediate the relationship between effectuation and business model innovation. Hypothesis 3c: Market orientation does not mediate the relationship between effectuation and business model innovation.
4. METHODOLOGY
In answering the research question, the following chapter discusses the research approach and research design. In the first section, the research instrument of the questionnaire is discussed. Second, the targeted sample together with the data collection is described. Third, a detailed operationalization of the variables is outlined from which the fourth section describes a detailed overview of additional decisions made regarding the collected data and analysis. Finally, the statistical procedures is discussed.
4.1 Research Design
The research technique used in this paper is the questionnaire, aimed at a cross-sectional analysis of the relationship between effectuation and business model innovation. This cross-sectional design took into account a time frame of the last five years of a company’s
development. This is, however, also a limitation since extraneous factors can influence
measures of longitudinal nature; and significantly influence this process. For example, change in personnel may have altered the level of effectuation in these five years, not allowing for an adequate measurement of the relationship. The scales used in this research were all validated in prior literature, making application to this research well suited; this is discussed in more detail in the third section. Since the questions from the variables originate in the English language the translation into Dutch was translated back in English by a third person. This back translation was conducted in order to make sure content and meaning of the variables remained unaltered. Furthermore, an English and Dutch specialist was consulted for checking the translation. After checking the language trails with 13 respondents were conducted in order to pre-test the survey. From the feedback of the respondents, some questions were adapted and the overall length of the survey was reduced by cutting one of the dimensions from effectuation, namely: pre-commitments. Additionally the self-development measurement of corporate entrepreneurship was further adjusted after feedback; the changes and final result of this measure are described in the third section of this chapter.
The questionnaire was distributed electronically via multi-channel approaches such as social media and e-mail. Every ascription was personalized in order to gain an as large as possible response rate. The electronic survey distribution software of Qualtrics was used in order to maximize efficacy and increase visual appeal to possible respondents (Qualtrics, 2015). In order to gather an as large as possible number of respondents, this approach allowed
for flexible and efficient use of time; however, limitations can be found in the fact that the questionnaire was distributed electronically (web-based). This can have led to issues with computer illiteracy, crashes, spam filters (not allowing everybody to participate) and perhaps of greatest importance, but not necessarily solely related to electronically based surveys, the adhering to different perceptions of respondents.
In attempt to maximize response rates the social exchange theory’s “Total design method” was used. This method is aimed at improving quality and quantity of survey
response (Hoddinott & Bass, 1986). With the help of this approach, besides a cover letter and a very detailed precision of the lay-out and content of the questionnaire, an additional return mechanism was used. In this case, this study offered to give insight of the degree of business model innovation respondents’ own venture. By offering a comparison between degrees of business model innovation and level of entrepreneurial reasoning within the organization, this study hopes this incentivized completing the questionnaire. Of course this was done
anonymously, as each respondent who was interested will receive a personal mail without compromising personal details; this latter was also communicated in the cover letter, which is shown in appendix 6 cover letter. This cover letter is in Dutch since only Dutch firms were targeted. On April the 1st 2015, the first round was evicted, after which follow-ups were sent after; one-week on April the 8th, thanking respondents for their returns and reminding others to complete the online questionnaire; three weeks April the 15th, sending a new questionnaire
to non-respondents with inclusion of the cover letter repeating the basic appeal of the original letter; and finally after five weeks again, on the 6th of May, repeating the procedure from
week three.
In order to further maximize response, a joint survey with other students was created. With four students a joint survey was created by using similar kinds of constructs in order to reduce length. Overall, the length of the survey was longer than average and after a pre-test average time to complete the survey was around 15 minutes. This resulted in a larger than normal drop-out rate once respondents started the survey (around 50%). On the upside, a larger target group was reached, thus increasing the total number of responses.
