Research paper

Research paper

The influence of EO and MO

on the perceived effectiveness

of a change strategy

Name: Kay de Wolff

Student number: 426204

Course: Research paper for PreMsc

Tutor: Janita Vos

Date: 27-06-2010

Research question

What is the effect of entrepreneurial orientation and market orientation on the perceived effectiveness of a change strategy?

Key words

Research theme:

Abstract

Changes in organizations become more common due to the new economy. Research shows that entrepreneurial orientation and market orientation are the two most important factors that influence change management. Not much literature about this topic is known for small business and therefore it is important that this topic gain on research. Both orientations have positive effects on for example performance, innovation and competitive advantage of a firm. What has been left out in the research is the influence of both orientations on the perceived effectiveness of a change strategy. The research findings will provide the small business managers and

Introduction

In the new economy more and more managers must deal with a lot of internal and external factors that forces companies to change to survive in the market. There is much literature of change management in large firms but research for small business remains off. The theory of big companies cannot be applied to small companies because they are different from each other in many ways. Therefore it is important that this topic gain on research.

Change management in companies is influenced by a lot of factors. Two factors that are discussed the most in literature are entrepreneurial orientation (EO) and market orientation (MO). According to Atuahene- Gima and Ko (2001) organizations that have a good balance between MO and EO, are better in creating a sustainable competitive advantage. Market

orientation is needed to know needs of customers and entrepreneurial orientation is important to know the unknown needs. Baker and Sinkula (2009) describe MO and EO as learning

constructs. When firms learn effective they have the ability to make rapid improvements that can lead to a competitive advantage with new product success and profitability.

It is clear that both orientations are important for an organization. Lumpkin and Dess (1996) did research on the influence of MO on performance of a firm and Baker and Sinkula (1999) on both orientations. The outcome was that both orientations indeed have a positive influence on the performance. Baker and Sinkula (2009) found out that EO and MO have a positive influence on the profitability of small firms. Market orientation has a direct effect and entrepreneurial

orientation has an indirect effect that is mediated with innovation success. Maatoofi and

Tajeddini (2011) concluded that EO and MO have a positive influence on innovation. However, support for innovation in entrepreneurial oriented firms is greater than in market orientated firms. What is been left out in the research is the effect of EO and MO on the perceived effectiveness of a change strategy in small business. When a high EO and/or MO of the change agent is

correlated with a high perceived effectiveness of the change, this would suggest that

entrepreneurial orientation and market orientation will have a positive influence on the success of a change. Therefore, the goal of this thesis is to give an answer to the following research question:

Theoretical framework

Change strategy

A change strategy is very important in the process of change. It is determinant in the success or failure of a change. A change strategy is a “set of measures, activities and interventions adopted to achieve the (intended) change, of which it is assumed that this contributes to achieving the intended state (by change agent, change agency)” (Buitenwerf, 2010). To request a change to succeed, it is important to use the right measures to ensure this. It will give a positive perceived effectiveness of the change strategy when this is done properly. In other words, there exist a relation between the change strategy and the perceived effectiveness.

The taxonomy of Chin and Benne (1969) describes three planned change and one emergent change. Empirical-rational is the first planned change. When people see the benefits of the change and they want to change, they are more likely to change. Normative reeducative is about the involvement of people in the change. When people are involved and they feel responsibility, they want to participate in the change. The last planned change is power-coercive. In this

strategy power is needed to implement the change. The emergent change has the characteristic that it has continuity. It has no beginning or no end. This change is unpredictable because it is not planned.

Perceived effectiveness

In the literature there is no clear definition about what perceived effectiveness is. It is also not a hot topic at the moment and therefore there are no recent researches to be found. The

organizational effectiveness is „not a tangible, singular attribute but a theory about the

performance of the organization‟ (Quinn and Rohrbaugh, 1981). Perceived effectiveness refers to the perceived achieved goals and missions. It is about how the change agent rates the outcome of the change and if he is satisfied with the result. The change agent has a high level of

Entrepreneurial orientation

Entrepreneurship is an important feature of the success of a business. The interest of researchers in entrepreneurship has grown in the last two decades and a lot of literature about this topic can be found. Literature stated that entrepreneurship and entrepreneurial orientation are two different topics from each other and may not be confused (Chiles, Bluedom and Gupta, 2007).

Entrepreneurship is often related to new entry. New entry implies the startup of a new venture. New entry can be accomplished by entering a new market and/or with new goods or services (Lumpkin and Dess, 1996). The most important component of entrepreneurship is also stated by a lot of researchers as the pursuit of opportunity. It is about exploration and exploitation of opportunities (Aloulou and Fayolle, 2005).

The famous definition of Schumpeter (1934) is often found in research papers and books. He sees entrepreneurship as a disequilibrium phenomenon, in which innovative entrepreneurs

occasionally disrupt the existing market equilibrium to create disequilibrium. New ideas compete with the old ideas of competitors and that destroys the existing equilibrium. The profit of a new product or service invites imitators, who eventually compete away the innovators gain and establish a new equilibrium.

Entrepreneurial orientation on the other hand, is about the entrepreneurial behavior of a company that is used to achieve its strategic goals. The orientation consist about three constructs:

innovativeness, proactiveness and risk-taking (Aloulou and Foyelle, 2005; Baker and Sinkula, 2009; Lumpkin and Dess, 1996). These constructs represent the entrepreneurial orientation strategy. To achieve the strategic objectives the entrepreneurial behavior should be applied. Innovativeness is defined in several ways by researcher but in all these definitions there are similarities to notice. Shumpeter(1934) was the first that stated that innovativeness is an important construct of EO and thus important for organizations to develop new products or services in new markets. Innovativeness will help organizations in creative processes to come up with new ideas that may results in new products or services (Lumpkin and Dess, 1996).

Innovation is the willingness to experiment with the purpose to create something new like products, services or processes (Baker and Sinkula, 2009).

process of new entry. A company accomplished proactiveness by taking initiatives and acting as being one of the first (Lumpkin and Dess, 1996). Lumpkin and Dess (1996) also divide

proactiveness by aggressive competitive behavior and the organizational pursuit of favorable business opportunities. Aggressive competitive behavior is about how companies react and act on trends that already exist.

Risk-taking refers to the willingness of entrepreneurs to take part in a risk that affects the business (Aloulou and Fayolle, 2005). Risk-taking is about involving in a risky, uncertain business opportunity but with good business prospects. It is the ability and willingness of an entrepreneur to use a large part of a firm‟s resources for the pursuit of the opportunity. The three constructs of entrepreneurial orientation influence each other and are all part of the entrepreneurial orientation. For instance, without being innovativeness you cannot be proactive in an innovative way. Entrepreneurial orientation could have an effect on the perceived

effectiveness of a change strategy. Research point out that entrepreneurial orientation is important for the success of a company and in most studies it has a positive influence on for example the performance of the company. (Lumpkin and Dess, 1996). Because a perceived change can be seen as a performance of a company, this might suggest that entrepreneurial orientation also has a positive influence on the perceived effectiveness of a change strategy.

H1: Entrepreneurial orientation has a positive influence on the perceived effectiveness of a change strategy.

Market orientation

Market orientation is an important factor for organizations because with this factor organizations become adjusted to the environment. They develop their comparative advantages and it will eventually help the ability of a firm to reach his goals. It is about being orientated to the market so the information can be used for marketing actions.

about the needs and wants of the customer, including an analysis of the external factors that influence the demand of the customer. One of the factors could be the always changing conditions in the industry and the impact of that on the favor of the customer. Market

intelligence is also important to estimate the future needs of the customers. A company has to know this before the market is already developed.

The second element of MO is intelligence dissemination. The intelligence generation has to be communicated, disseminated, in the organization. This is important for the adaption of the customer‟s wants and needs. The dissemination has to be facilitated. It is important because it gives “a shared basis for concerted actions by different departments” (Kohli and Jaworski, 1990). The mouth-to-mouth talk in an organization is also important for the dissemination of the

intelligence generation. Employees will talk in an informal way about the needs of the customer. Responsiveness is also a very important element of market orientation. Despite intelligence generation and intelligence dissemination, responsiveness to these elements is needed. Responding to what the market need is crucial to keep the customers satisfied.

The perceived effectiveness of a change strategy can also be influenced by market orientation. As with EO, the three constructs of MO influence each other and are all part of the market orientation. For instance, the intelligence generation has to be disseminated. Research point out that market orientation is important for the organization to be profitable and to create sustainable competitive advantages. (Baker and Sinkula, 2009; Atuahene- Gima and Ko, 2001). A high MO suggests also an effective learning to make rapid improvements or changes (Baker and Sinkula, 2009). This suggests that market orientation could also have a positive influence on the

perceived effectiveness of a change strategy.

H2: Market orientation has a positive influence the perceived effectiveness of a change strategy.

Method

Respondents

The questionnaire is conducted by 98 SMEs in the Netherlands. The change agents of these SMEs have completed the survey. A change agent is someone that conducted the change and thus was very involved in the change. The SME had to have at least ten employees and the change had to take place in the last three years.

Measures

The variable change strategy was operationalized by asking questions about four constructs: three planned change (empirical rational, normative reeducative and power coercive) and the emergent change. These questions are concerning the way the change is addressed. Literature stated that EO consists of three constructs: innovativeness, proactive and risk taking. Therefore, questions about these three constructs are asked to the change agent. MO consists of three constructs: responsiveness, market intelligence and information dissemination. Questions about these three constructs are asked to the change agent. Concerning the perceived effectiveness questions are asked about the success and the satisfaction of the change. Appendix 1 gives an overview of the type and amount of questions that are asked. The scale of the questions is from one till seven; from fully agree to completely disagree. Because the constructs of the variables EO influence each other, they will be tested together. This includes also for market orientation.

Analysis

Results

The results of the Cronbach‟s alpha test are shown in table 1. The variable change strategy, perceived effectiveness, entrepreneurial orientation and market orientation are tested on internal consistency.

Cronbach Alpha test

Variable Number of items Cronbach’s Alpha Possible deleted question Outcome if certain question is deleted Question that is reversed

Change strategy 20 0,657 Emer1 0,687 PO_Co4

Perceived

effectiveness 6 0,863 Suc_Pr_2 0,877 -

Entrepreneurial

orientation 14 0,635 EO_Pro_2 0,714 EO_Pro_2

Market orientation 11 0,687 MO_R_4 0,73 MO_R_4

Table 1 Overview of the results of the Cronbach Alpha test

The Cronbach Alpha of the variable change strategy is 0,657. This can be higher when the question Emer1 will be deleted. The question is about that the change was conducted without making plans for it. This question is not correct because almost all changes are made with plans or certain thoughts about how the change has to be conducted. Therefore this question will be deleted and the Cronbach Alpha is without that question 0,687 which is close to 0.70. This implies that the questions are quit reliable.

The Cronbach Alpha of the variable entrepreneurial orientation is 0,635. When the question Eo_Pro_2 is deleted the alpha becomes 0,714. This question stated that the company waits for business opportunities in the market and then reacts on these opportunities. This is not a

characteristic of entrepreneurial orientation and therefore this question was reversed. Maybe the respondents have not noticed that this was a reversed question and therefore this question is not reliable. The question is deleted and the alpha becomes 0,714.

Market orientation has a Cronbach Alpha of 0,687. MO_R_4 was also a reversed question. This question stated that the company reacts slowly on price changes of the competitors. It could be that the respondents also not have noticed that it was a reversed question. Therefore this question will be deleted. Without that question the alpha is 0,730 which is above 0,70 and thus reliable.

The variables are tested on normality. The variable has a normal distribution if the Sig. is higher than 0.05. The outcome is shown in the table 2. Entrepreneurial orientation, market orientation and change strategy have a normal distribution because Sig. is higher than 0.05. The data of the perceived effectiveness significantly deviate from a normal distribution because the outcome is lower than 0,05. Because the data is interval and perceived effectiveness is not normally the Spearman Rank Correlation Coefficient was applied to test if an association between the two variables exists. With this test the hypotheses can be answered. A good correlation occurs when the outcome is +one or -one. A positive value for the correlation implies a positive association. A negative value for the correlation implies a negative or inverse association

Normality Statistic df Sig. Change strategy 0,973 94 0,053 Perceived effectiveness 0,906 94 0 Entrepreneurial orientation 0,986 94 0,441 Market orientation 0,976 94 0,081

To test the first hypotheses, the influence of EO on perceived effectiveness of a change strategy, the Spearman rank correlation coefficient is conducted. The results of the test are shown in table 3. The correlation between perceived effectiveness and entrepreneurial orientation is 0,305 and it is significant. Therefore, the first hypothesis is accepted.

Correlation Perceived effectiveness Entrepreneurial orientation Perceived effectiveness Correlation Coefficient Sig. (2-tailed) N 1,000 98 ,305** ,002 98 Entrepreneurial orientation Correlation Coefficient Sig. (2-tailed) N ,305** ,002 98 1,000 98

**. Correlation is significant at the 0.01 level (2-tailed).

Table 3 Correlations between perceived effectiveness and EO

To test the second hypotheses, the influence of MO on perceived effectiveness of a change strategy, the Spearman rank correlation coefficient is conducted. The results of the test are shown in table 4. The correlation between perceived effectiveness and market orientation is 0,183 and it is not significant. The value lies very close to the 0. Because of these reasons the second

hypothesis is rejected. Correlations Perceived effectiveness Market orientation Perceived effectiveness Correlation Coefficient Sig. (2-tailed) N 1,000 96 ,183 ,075 96 Market orientation Correlation Coefficient Sig. (2-tailed) N ,183 ,075 96 1,000 96

Conclusion

The purpose of this research was to gain on research about change management in small business. Entrepreneurial orientation and market orientation were described as the most important factors that influence change management. What was been left out in the existing literature was the effect of EO and MO on the perceived effectiveness of a change strategy in small business. Two hypotheses were formed to perceive an answer to this question.

The first hypothesis, the influence of EO on the perceived effectiveness of a change strategy, is accepted. The test results show a correlation, although this correlation is not very strong. Being innovative, proactive and risk-taking can help to have a successful implemented change. This is also in line with the literature research of for example, Lumpkin and Dess (1996). Their

literature research shows that EO has a positive influence on the performance of a firm. The success of a change strategy can also be seen as a performance of a firm. It is remarkable that EO does not have a higher positive effect on the perceived success of a change strategy because several literature researches show a positive influence on a lot of variables like innovation and profitability of a firm. Therefore you might suggest that EO also has a high influence on the perceived effectiveness. On the other hand, other factors can also have an influence on the perceived effectiveness, like the scope of change. Not only EO will provide the success of a change and this might suggest the weak influence. Another reason could be that the most

changes that have taken place are planned changes. To perform a successful planned change it is not required to be for example innovative because the change is already planned. Another reason could be a difference in the way a small business owner or an entrepreneur conducts a change. Small business owners do have often imposed changes and entrepreneurs can choose what and how they want to change.

company it is good to be market orientated because the customer is the reason for existence. The changes that are made in an organization should aim to make the customers more satisfied, to generate more customers or to help them in a better way.

For change agents of small firms this conclusion means that EO will help to provide the ability to perceive an effective change strategy. EO has slightly a positive influence on the perceived effectiveness of a change strategy. Change agents that have this orientation are more likely to perceive an effective change than change agents who lack on EO.

MO is not needed to perceive an effective change strategy that concerns a change inside the company. Further research is needed to know if this orientation has a positive effect on the perceived effectiveness of changes concerning the external environment.

Further research

Entrepreneurial orientation has little effect on the perceived effectiveness of a change strategy. It might be interesting to know what other factors provide this success. Another interesting

research will be to divide the information of the small business owners and the entrepreneurs. Small business owners do get often restrictions from the head office while entrepreneurs have much more freedom to, for example, innovate.

As earlier mentioned, further research of market orientation has to be conducted on changes that effect the external environment. MO could have a positive influence on changes concerning the external environment. Then it would be valuable for change agents to possess this orientation. It also might be interesting to investigate the factors of firm environment. For example, different industries can conduct a change in a different way due to their environments. This research would be valuable to generalize the results of this study.

Limitations

References

Atuahene-Gima, K., & Ko, A. (2001). An Empirical Investigation of the Effect of Market Orientation and Entrepreneurship Orientation Alignment on Product Innovation. Organization Science, Vol.12, p54-74

Baker, W. E., & Sinkula, J. M. (1999). The Synergistic Effect of Market Orientation and Learning Orientation on Organizational Performance. Journal of the Academy of Marketing Science, Vol. 27, p411–427.

Baker, W. E., & Sinkula, J. M. (2009). The Complementary Effects of Market orientation and Entrepreneurial orientation on Profitability in Small business. Journal of Small Business Management, Vol.47, p443-464

Buitenwerf, K. (2010). The Development of a Research Instrument on SME Leadership Strategies of change. University of Groningen Faculty of Economics and business Chiles, T.H., Bluedom, A.C., & Gupta, V.K. (2007). Beyond Creative Destruction and Entrepreneurial Discovery: A radical Austiran approach to Entrepreneurship. Organization Studies, Vol. 28, 467-493

Friedlander, F., & Pickle, H. (1968). Components of effectiviness in Small organizations. Administrative Science Quarterly, Vo. 13, p289-304

Kohli, A. K., Jaworski, B. J., & Kumar, A. (1990). Market Orientation: The Construct, Research Propositions, and Managerial Implications. Journal of Marketing, Vol. 54, p1-18

Kohli, A. K., Jaworski, B. J., & Kumar, A. (1993). MARKOR: A Measure of Market Orientation. Journal of Marketing Research Vol. 30, p467–477.

Lumpkin, G. T., & Dess, G. G. (1996). Clarifying the Entrepreneurial Orientation Construct and Linking it to Performance. Academy of Management Review, Vol. 21, p135–172.

Maatoofie, A.R., & Tajeddfini, K. (2010). Effect of market Orientation and Entrepreneurial Orientation on Innovation. Evidence from Ayto Parts Manufacturing in India. Journal of Management Research, Vol. 11, p20-30

Quinn, R.E. & Rohrbaugh, J. (1981). A competing value approach to organizational effectiveness. Public productivity review, vol.5, p122-140

Appendix

Appendix 1 Overview of the questionnaire

Change strategy Empirical-rational

Em_Ra_1 – Em-Ra_5 Normative reeductive No_Re_1 – No_Ra_5 Power-coercive Po_Co_1 – Po_Co_5 Emergent Emer1 – Emer5 Als leidinggevende van de verandering was ik nauw verbonden met de werknemers die de verandering moesten doorvoeren. Werknemers hadden veel bevoegdheden om zelf beslissingen over de verandering te nemen. De noodzaak voor deze verandering werd alleen gerechtvaardigd door de leiding van het bedrijf (en dus niet vanuit andere lagen in het bedrijf).

Deze verandering kwam tot stand zonder dat er vooraf plannen waren gemaakt. Als leidinggevende van de verandering richtte ik mij op de feiten en „promootte‟ ik de voordelen van de verandering. Als leidinggevende van de verandering besteedde ik er veel tijd aan „een gevoel te krijgen‟ voor de manier waarop de verandering door werknemers zou worden geaccepteerd. Om werknemers te laten veranderen, gebruikte ik mijn positie als leidinggevende om de verandering doorgevoerd te krijgen. Om werknemers te laten veranderen, was het enige dat ik deed ze stimuleren en de ruimte geven om het bedrijf te verbeteren. De noodzaak voor

deze verandering was gerechtvaardigd door experts die verstand hebben van deze verandering.

De beslissingen over deze verandering werden genomen door werknemers uit veel verschillende lagen van het bedrijf.

Als leidinggevende van de verandering speelde ik de rol van opdrachtgever. Als leidinggevende van de verandering speelde ik de rol van aanmoediger. Om werknemers te laten veranderen, gebruikte ik als leidinggevende van de verandering logische argumenten en feitelijk bewijs om de verandering uitgevoerd te krijgen. Om werknemers te laten veranderen, liet ik werknemers uit veel verschillende lagen van het bedrijf participeren in de aanpak van het veranderingsproces. Als leidinggevende van de verandering was ik er niet op gericht dat de werknemers de verandering zouden accepteren. Ik was erop gericht dat werknemers zelf een verandering creëerden waar ze enthousiast over zouden zijn. Beslissingen over

Perceived effectiveness Perceived success result

Suc_re_1 – Suc_re_3

Perceived success process

Suc_Pr_1 – Suc_Pr_3

Over het functioneren van het bedrijf na en door de verandering ben ik…

Over de mate waarin we de doelen hebben

gerealiseerd die we met de verandering hoopten te bereiken ben ik... Over hoe we met het

betrokken personeel zijn omgegaan tijdens de verandering ben ik…

In het geheel genomen ben ik over het resultaat van de verandering…

Veranderen neemt middelen in beslag (zoals geld en menskracht), maar over de middelen die de verandering heeft gekost ben ik…

Veranderen kost tijd, maar over de tijd die we nodig hadden om de verandering te realiseren ben ik…

Entrepreneurial orientation Innovativeness EO_Inn_1 – EO_Inn_4 Proactiviness EO_Pro_1 – EO_Pro_4 Risk-taking EO_Ris_1 – EO_Ris_4

Ik beschouw innovatie als het meest belangrijke speerpunt van onze strategie.

Ik beschouw het bedrijf als proactief, wij proberen kansen te creëren in de markt waarin we actief zijn.

Het nemen van risico‟s is voor het bedrijf een absolute vereiste om te kunnen overleven. Met name door innovatie

behaalt het bedrijf concurrentievoordeel.

Het bedrijf wacht kansen en veranderingen in de markt af en reageert hier vervolgens op.

Het komt binnen ons bedrijf vaak voor dat risico‟s worden genomen zonder grondige analyse. Ik ben altijd op zoek naar

nieuwe en betere manieren om de prestaties van het bedrijf te verhogen.

Het bedrijf streeft er naar om als „first-mover‟ voordeel te behalen op de concurrentie.

De beslissingen die ik als eindverantwoordelijke voor veranderingen (in het algemeen) neem zijn veelal intuïtief. De innovaties binnen het

bedrijf zijn gebaseerd op wat wij bij onze

concurrenten en collega‟s zien.

Als eindverantwoordelijke voor veranderingen (in het algemeen) sta ik open voor nieuwe ideeën van anderen (zoals van werknemers).

Market orientation Market intelligence MO_Mi_1 – MO_Mi_4 Dissemination MO_d_1 – MO_d_3 Responsiveness MO_r_1 – MO_r_4

Onze bedrijf heeft regelmatig contact met klanten om te

inventariseren welke producten/diensten ze nodig hebben.

Er wordt binnen het bedrijf vaak gediscussieerd over de toekomstige behoefte van de klant.

After-sales speelt een belangrijke rol in het bedrijf.

We informeren regelmatig bij onze klanten wat ze van de kwaliteit van onze producten/diensten vinden

Binnen het bedrijf worden regelmatig bijeenkomsten georganiseerd over trends en ontwikkelingen in de branche.

Regelmatig evalueren we of onze producten/diensten nog op één lijn liggen met de behoeften van onze klanten.

Individuele werknemers uit ons bedrijf hebben direct contact met klanten om hun wensen beter te inventariseren.

Als iemand in het bedrijf iets belangrijks te weten komt over een

klant(groep) dan weet het hele bedrijf het binnen kort tijdsbestek.

Als we erachter komen dat klanten niet tevreden zijn over een bepaald product dan wordt er meteen actie ondernomen.

Ons bedrijf kijkt periodiek of er veranderingen gaande zijn in de omgeving die gevolgen hebben voor onze klanten.