A Systematic Comparison of the Effect of
Effectuation, Lean Start-Up and Bricolage on
Firm Performance in Dutch and Flemish SMEs
Written by:
Brian Jacobs
s1980211
Keywords: SMEs, entrepreneurship, effectuation, lean start-up, bricolage, resources, goal orientation, stakeholder interaction, feedback, firm innovativeness, firm growth.
Word count: 32.603
University of Groningen
Faculty of Economics and Business
Small Business and Entrepreneurship
June 2015
First supervisor: Dr. Ir. J. Kraaijenbrink
Second supervisor: Dr. Ir. H. Zhou
ABSTRACT
The last decades there is an increasing attention in scientific literature
towards several approaches to entrepreneurship. This thesis compares three
types: effectuation, lean start-up and bricolage. The comparison is based on
four leading dimensions: (1) use of resources, (2) level of goal orientation
(3), level of stakeholder interaction and (4) the use of feedback. The
dimensions are related to firm innovativeness and firm growth. The results
suggests that the extent of reusing and combining resources for new
II
Preface
This master thesis is the final project for my master Small Business and Entrepreneurship at the University of Groningen. The goal of this thesis is to provide insight in three approaches to entrepreneurship: effectuation, bricolage and lean start-up. With help of several dimensions a comparison between the approaches is made. Next to the comparison, there is made a connection between four dimensions and their relation with firm innovativeness and firm growth.
There are several persons I would like to thank. First of all, I would like to thank the MSc SB&E coordinator Mrs. E. Croonen, the other lecturers and my fellow students of this Master for their support. I would specially thank my supervisor Mr. J. Kraaijenbrink for his constructive feedback during this project. Lastly, I would like to thank my family, girlfriend and close friends in supporting and helping me finalising this thesis.
Brian Jacobs
Table of Content
Preface... II List of tables ... V List of figures ... VI 1. INTRODUCTION ... 1 2. THEORETICAL FRAMEWORK ... 32.1 Three approaches to entrepreneurship ... 3
2.1.1 Effectuation ... 3
2.1.2 Lean start-up ... 5
2.1.3 Bricolage ... 7
2.2 Comparing the approaches ... 8
2.2.1 Dimensions ... 8
2.2.2 Framework for comparing the approaches... 10
2.3 Dependent variables ... 14 2.3.1 Firm growth ... 14 2.3.2 Innovativeness ... 14 2.4 Hypotheses ... 15 2.4.1 Resources ... 16 2.4.2 Goal orientation ... 18
2.4.3 Interaction with stakeholders ... 19
2.4.4 Feedback ... 22 3. METHODOLOGY ... 24 3.1 Sample ... 24 3.2 Data collection ... 24 3.3 Data quality ... 27 3.4 Control variables ... 29 4. RESULTS ... 29 4.1 Correlation analysis ... 29
4.2 Multiple regression analysis ... 32
4.2.1 Innovativeness ... 32 4.2.2 Firm growth ... 33 4.3 Curvilinear effects ... 34 4.4 Control variables ... 36 4.4.1 Employee size ... 36 4.4.2 Company age ... 37 4.4.3 Country ... 37 4.5 Additional findings ... 38 4.6 Overview of hypotheses ... 39
5. DISCUSSION and CONCLUSION ... 40
IV
5.1.1 Innovativeness ... 41
5.1.2 Firm growth ... 43
5.1.3 Three approaches to entrepreneurship ... 44
5.1.4 Practical and theoretical contributions ... 44
5.2 Limitations and further research ... 45
5.3 Conclusion ... 47
6. REFERENCES ... 49
6.1 Articles ... 49
6.2 Books ... 54
7. APPENDIX ... 55
Appendix A: Questionnaire (English) ... 55
Appendix B: Justification questionnaire ... 58
Appendix C: Questionnaire (Dutch) ... 66
Appendix D: Translation table ... 70
Appendix E: Email sent to companies (Dutch) ... 73
Appendix F: List of different industries involved (Dutch) ... 74
Appendix G: Factor analysis... 77
Appendix H: Curvilinear effect firm growth ... 78
Appendix I: Control variables ... 79
List of tables
Table 2.1 – Comparison of effectuation, lean start-up and bricolage……… 11
Table 3.1 – Firm characteristics ……… 26
Table 3.2 – Factor analysis and Cronbach’s Alpha ……….. 27
Table 4.1 – Pearson correlation analysis ……….. 31
Table 4.2 – Multiple regression analysis: Innovativeness ……… 33
Table 4.3 – Multiple regression analysis: Firm Growth ………... 34
Table 4.4 – Multiple regression analysis with curvilinear effects: Innovativeness ……….. 35
Table 4.5 – Overview of hypotheses ……… 39
Table 7.1 – Justification questionnaire ………. 58
Table 7.2 – Translation table ………..….. 70
Table 7.3 – Industries involved ………..……….. 74
Table 7.4 – Factor analysis ………..………. 77
Table 7.5 – Multiple regression analysis with curvilinear effects: Firm Growth …..………...… 78
Table 7.6 – Multiple regression analysis: Firm Innovativeness with low employee size ……..…….. 79
Table 7.7 – Multiple regression analysis: Firm Innovativeness with high employee size...…………. 79
Table 7.8 – Multiple regression analysis: Firm Growth with low employee size ……..……….. 80
Table 7.9 – Multiple regression analysis: Firm Growth with high employee size ..………. 80
Table 7.10 – Multiple regression analysis: Firm Innovativeness with younger companies ……..…... 81
Table 7.11 – Multiple regression analysis: Firm Innovativeness with older companies ……..……… 81
Table 7.12 – Multiple regression analysis: Firm Growth with younger companies ………. 82
Table 7.13 – Multiple regression analysis: Firm Growth with older companies ………...…………... 82
Table 7.14 – Multiple regression analysis: Firm Innovativeness with Flemish companies ……..…... 83
Table 7.15 – Multiple regression analysis: Firm Innovativeness with Dutch companies ………….... 83
Table 7.16 – Multiple regression analysis: Firm Growth with Flemish companies ………... 84
Table 7.17 – Multiple regression analysis: Firm Growth with Dutch companies ………..….. 84
Table 7.18 – Multiple regression analysis with curvilinear effects: Firm Innovativeness with low employee size ……… 85
Table 7.19 – Multiple regression analysis with curvilinear effects: Firm Innovativeness with high employee size ……… 86
Table 7.20 – Multiple regression analysis with curvilinear effects: Firm Growth with low employee size ……… 87
VI Table 7.22 – Multiple regression analysis with curvilinear effects: Firm Innovativeness with younger companies ………...…….. 89 Table 7.23 – Multiple regression analysis with curvilinear effects: Firm Innovativeness with older companies………..…... 90 Table 7.24 – Multiple regression analysis with curvilinear effects: Firm Growth with younger companies ……….…… 91 Table 7.25 – Multiple regression analysis with curvilinear effects: Firm Growth with older companies ………... 92 Table 7.26 – Multiple regression analysis with curvilinear effects: Firm Innovativeness with Flemish companies ………... 93 Table 7.27 – Multiple regression analysis with curvilinear effects: Firm Innovativeness with Dutch companies ………...….. 94 Table 7.28 – Multiple regression analysis with curvilinear effects: Firm Growth with Flemish companies ………... 95 Table 7.29 – Multiple regression analysis with curvilinear effects: Firm Growth with Dutch companies ………... 96
List of figures
1. INTRODUCTION
Entrepreneurship has been gaining increasing respect from the research community as a field of scholarly study as well as practical application worldwide as a means to achieve wealth creation and personal fulfilment (Ma & Tan, 2006). Entrepreneurship involves the discovery, creation and exploitation of opportunities (Shane & Venkataraman, 2000). It is the process of creating value by putting together a unique package of resources to exploit an opportunity (Morris et al., 2001). There are several literature streams about how to carry out entrepreneurship. For example, an extensive debate between two types of strategy schools received much attention in scientific literature: planning school and the learning school. The planning school proposes that formal planning is beneficial in both stable and unstable environments, while the learning school favours logical incrementalism, especially in unstable environments (Brews & Hunt, 1999). A comparable discussion in literature is made in the understanding of the entrepreneurial process; there is made a distinction between causation and effectuation (Sarasvathy, 2001). Causation is consistent with planned strategy approaches, including activities as business plan development. Effectuation processes are consistent with learning strategies and are based on flexibility and experimentation (Chandler et al., 2009).
Organizations are likely to emerge very different from one case to another. Literature found no evident logical pattern to how organizations emerge. Carter et al. (1996) and Reynolds and Miller, (1992) found that the emergence of businesses showed substantial differences in length and in the pattern of ‘organizational emergence’. Sarasvathy (2001) argued that organizational emergence is not always a causal, logical process, which suggests that organizations make use of different unplanned approaches to entrepreneurship. These approaches state that opportunities are created, rather than being discovered (Alvarez & Barney, 2007). There are several kinds of non-planned approaches to entrepreneurship and three of them are compared in this thesis. Next, there is made a connection with the firm performance of Dutch and Flemish small and medium-sized enterprises (SMEs).
2 performance of a SME. In this thesis firm performance is defined in two ways. The first is as firm growth in terms of employees and sales. Secondly, innovativeness is used as indicator of firm performance. Several papers tried to make comparisons between the approaches, but none did compare these three approaches at the same time and after this making a connection with the performance of a SME. Due to the relative newness not all consequences of the approaches are researched. For lean start-up there has been very little if any systematic analysis done (York & Danes, 2015). With help of the comparison a company can more clearly decide which approach is relevant for their company. A comparison can be interesting nowadays, due to the fact that these approaches are especially relevant in times of crisis where it is hard to keep a firm performing well (Cunha, 2005). In uncertain contexts, decision-making needs to be adaptive over time and responsive to the change and instability inherent in such contexts. In contrary to causation, the ‘newer’ non-planned approaches appear to better fit with these uncertain environments (Reymena et al., 2015).
To conclude, this thesis tries to widen the literature with a systematic comparison between these approaches to gain a more complete picture of how and when to use these approaches and try to see which effects these three approaches have on the performance in small and-medium sized enterprises. The results of this thesis can provide a starting point for entrepreneurs and managers to decide how to manage their company in uncertain environments. The research question of this thesis can be formulated as:
What is the effect of non-planned approaches to entrepreneurship on the performance of Dutch and Flemish small and medium-sized enterprises?
The comparison of the three approaches is done with help of several dimensions. In the theoretical framework there is further elaborated on these dimensions. The main focus of this thesis is towards three dimensions: (1) use of resource ((a) existing resources and (b) reuse and combination of resources for new purposes), (2) goal orientation and (3) stakeholder interaction ((a) network of stakeholders and (b) use of existing stakeholders). Each aspect of the three dimensions is linked to firm performance. An extra dimension about the use of feedback is added, due to the common use of feedback in each approach.
2. THEORETICAL FRAMEWORK
The theoretical framework consists of three parts. The first part elaborates on the three approaches to entrepreneurship. The second part of the theoretical framework describes the several dimensions which are used to compare the three approaches and the final part describes the dependent variables.
The focus of this thesis is towards small and medium-sized enterprises (SME). SMEs are important to the economy, the European Commission and Eurostat (2001) calculated that SMEs account for more than 95% of the total number of firms and provide approximately two-thirds of jobs and half of the turnover in Europe. The size of a SME in terms of employees is according to Storey and Greene (2010) between 10 and 250 employees and SMEs have an annual turnover not exceeding €50 million, and/or an annual balance sheet total not exceeding €43 million (European Union, 2003).
2.1 Three approaches to entrepreneurship
In literature much attention is paid to several forms of non-planned approaches to entrepreneurship. There is chosen to elaborate on three approaches. Effectuation is chosen because this approach serves as a basic approach in the non-planned entrepreneurship and is the opposite of the planned entrepreneurship in the form of causation and has gained much attention in literature (Sarasvathy, 2001). Lean start-up is chosen because of the importance this approach could have according to literature. Blank (2013) suggests that ‘we yet have to feel its full impact’. Bricolage is gaining more and more attention nowadays. A main reason is that bricolage aims at working with resources ‘on hand’ and this is particularly of interest in times of economic crisis (Cunha, 2005).
2.1.1 Effectuation
Cognitive psychologist Neisser (1967) writes that a pure cognitive approach does not allow for prediction of human thinking, claiming that a theory of higher mental process can be created only through a combination of theories motivation, personality and social interaction. Entrepreneurship has moved in this direction, towards effectuation as a concept of thinking different (Baker & Welter, 2014). Core to effectuation is the idea that rather than discover and exploit opportunities that pre-exist in the world, the effectual entrepreneur is one who ‘fabricates’ opportunities from the realities of her life and value systems (Sarasvathy, 2008). This indicates that entrepreneurial opportunities are subjective, socially constructed, and created through a process of enactment (Fisher, 2012).
4 The effectuation process starts without a predefined goal, but with an individual/organization asking himself the means of what he is doing; Who am I? What do I know? Who do I know? With that knowledge it is possible to set goals: What can I do? To further elaborate on the idea it is important to interact with people to search for opportunities. Next, there needs to be interaction with relevant stakeholders to gain their commitment. When there is no stakeholder commitment then the opportunity has no chance of surviving. If there is stakeholder commitment then there will possibly come new goals and new means for the entrepreneur. These goals and means could eventually lead to new products, firms, markets or changes in the environment (Read et al., 2009). New goals and means can also be created through interaction with others by alliances and other cooperative strategies (Fisher, 2012; Sarasvathy, 2001).
Because entrepreneurial environments are often highly dynamic, unpredictable, and ambiguous, there is not always enough information for entrepreneurs to readily recognize and evaluate opportunities prior to explanation (Fisher, 2012). This leads to an uncertain environment where the future is unknowable and not measureable. Sarasvathy (2001) argued that with an unpredictable future it is important to keep focus on the controllable aspects.
To wrap up, effectuation is about identifying and exploiting opportunities in new markets with high levels of uncertainty (Fisher, 2012). Effectuation can be embodied in the following four principles that form the core of the effectuation theory (Fisher, 2012; Sarasvathy, 2001).
Starting with means: Describes how entrepreneurs make important decisions by focussing on the resources under their control, rather than focussing on a predefined end goal (Fisher, 2012). This leads to the fact that decision-making is very actor dependent: given specific means, choice of effect is driven by characteristics of the entrepreneur and his/her ability to discover and use contingencies (Sarasvathy, 2001).
Affordable loss: This principle states that entrepreneurs using effectuation predefines how much loss is affordable and focuses on experimenting, with as many strategies as possible (Sarasvathy, 2001). Affordable loss becomes an important criterion on which to base start-up decisions (Chandler et al., 2011).
Leveraging strategic relationships: Suggests that entrepreneurs can focus their attention on building partnerships rather than doing systematic competitive analysis (Fisher, 2012). It is important to consider which stakeholders the entrepreneur knows (networking) and think about the possibilities they can provide the entrepreneur. Entrepreneurs following an effectual approach enter into agreements with customers, suppliers, and other organizations. They negotiate with other parties prior to having a fully developed product (Fisher, 2012).
Exploiting contingencies: Entails embracing unexpected events and turning them into profitable opportunities, thereby getting unanticipated outcomes as opposed to achieving a predefined goal (Fisher, 2012).
There also is critique on the effectuation process in a sense that it is not clear when to ‘hedge a bet’ (Moroz & Hindle, 2012). In other words, it is not clear when to jump into an opportunity when it arises. In comparison with causation there is no predefined plan and therefore effectuation leads to a lot of uncertainty for the entrepreneur.
2.1.2 Lean start-up
Most start-ups fail because they waste too much time and money building the wrong product before realizing, too late, what the right product have been (Nobel, 2012). One of the approaches that try to make the start-up of a company less uncertain is lean start-up. According to Ries (2011), the rationale behind the lean start-up approach is ‘to optimize the utilization of scarce resources by using smaller and faster iterations for testing a vision continuously so as to get a desired product to customers’ hands faster’. A consequence of this is that a company can potentially capitalize a first-mover advantage (Moogk, 2012). To accomplish this goal, lean start-ups strive to minimize the expenditure of resources for anything but the creation of value for the customer (Ries, 2011). By using short and frequent cycles for tests and corrections, this approach aims at changing the way firms are built and products are designed, helping companies to succeed in a business landscape riddled with risk (Trimi, 2012).
6 improvement; therefore there is some form of co-creation with the customer. Ries (2011) summarized in his book the five principles of lean start-up:
Entrepreneurs are everywhere: The concept of entrepreneurship includes anyone who has a human institution designed to create new products and services under conditions of extreme uncertainty. This means that entrepreneurs are everywhere and that lean start-up can be used everywhere (Ries, 2011).
Entrepreneurship is management: A start-up requires a kind of management specifically geared to its context of extreme uncertainty.
Validated learning: Start-ups exist to learn how to build a sustainable business, not just to make products or earn money. This learning can be validated scientifically by experimenting to test their vision.
Build-measure-learn: The fundamental activity of a start-up is to turn ideas into products (build), measure how customers respond, and learn whether to pivot or persevere. This process is an ongoing process where feedback is necessary.
Innovation accounting: To improve entrepreneurial outcomes, there has to be focus on measuring progress, milestones and prioritizing of work. People have to accountable for their actions.
2.1.3 Bricolage
Most new firms imitate countless other firms by following similar approaches to providing similar products and services (Aldrich, 1999). Lacking distinctive competitive advantages, they attract no outside investment and depend instead on what are, in general, the very limited resources their founders invest (Senyard et al., 2014). This idea serves as a starting point for bricolage. The approach can be summarised as ‘creating something from nothing’ (Baker & Nelson, 2005) and serves as a mechanism for overcoming resource constraints due to creativity and innovation (Baker & Welter, 2014).
Bricolage is a concept which has received attention with help of the work of Baker and Nelson (2005) and has its origin in the book of Lévi-Strauss (1966). The definition resulting from Baker and Nelson (2005) is: ‘Making do by applying combinations of the resources at hand to new problems and opportunities’. In entrepreneurial terms, bricolage means that individuals use the resources to which they have access in a creative way to uncover and exploit new business opportunities (Jones, 2014). By definition, creative work requires experimenting with different combinations and processes. The very nature of creating and being creative requires a person to test boundaries and challenge perceived limitations (Valliere & Gegenhuber, 2014). The notion of ‘resources at hand’ (or in the close environment) is critical to distinguishing bricolage from other forms of creativity and improvisation. Many of these resources may be perceived by others as having little or no value: they may be partial, redundant, broken, obsolete or in some other way no longer useful, particularly with respect to their original intended purpose (Baker & Welter, 2014). This can lead to resource repackaging, transposing, and recombining can be considered as ‘creative reinvention’ (Fisher, 2012). Bricoleurs (persons applying bricolage)have a bias for action; they try something out and see what happens (Hindle & Senderovitz, 2010). Bricoleurs mostly serve the local market and therefore few information available from the outside world. Bricolage may be thought of as an unorganized form of practical intelligence,
8 in the sense that it manifests itself in how people organize their everyday activities to accomplish their goals and how they reorganize to adapt when something goes unexpected (Wagner, 2000). They use the customer sometimes in problem solving, which sometimes is as far as emergent co-shaping the product (Garud & Karnøe, 2003). Designers and producers incorporate inputs of actors involved and users (customers) offer continuously feedback to let the bricoleur succeed the project. If bricoleurs try to solve their problems or create solutions, they (almost) always use their existing contacts. Bricoleurs involve customers, suppliers in projects and regularly interact with other stakeholders (Fisher, 2012).
People facing difficult and uncertain situation, may have to use whatever resources they have at hand to reach their goals and this suggests that bricolage tends to be used in critical situations (Cunha, 2005). In these situations people are urged towards ‘using the world, obtaining what they need, doing what they have to do’, or according Cunha (2005) use their skills of bricolage. For bricoleurs, integration of resources was never for aesthetic, traditional, or even efficiency purposes but rather for strictly finding a workable solution. Thus, their sense of limits was nearly nonexistent (Stinchfield et al., 2013).
Criticism about bricolage is given by Baker and Nelson in a way that bricolage is not a panacea (‘not solving all illnesses’); this is mainly due to the resource constraints. Although entrepreneurs are often proud on this approach, the constant application of this approach to problem solving tends not to lead to organizational development and growth, but rather to a day-after-day bricolage approach of solving each new problem that comes along (Baker & Welter, 2014). This means that there also is no structural learning, due to the fact that each problem is a loose project. High levels of bricolage may create too many stop gap solutions that require repetitive tweaking and too strong reliance on improvisation; take too much time and resources (Senyard et al., 2014). Senyard et al. (2014) further mentioned that through their refusal or inability to engage with innovative suppliers, firms may miss out on supplier innovations that could enable their motivations; which results in that they may only be able to sell to less demanding customers. This also implies that bricoleurs often engage only in local markets and are therefore socially constructed in their environment (Fisher, 2012).
2.2 Comparing the approaches
The comparison of the three approaches is done with the help of several dimensions. For the comparison there is made use of the model of Buelens et al. (2006). The other dimensions are derived from the papers of Fisher (2012) and Sarasvathy (2001) and their models are treated first. After the description of the models a framework follows, which serves as comparison between the approaches.
2.2.1 Dimensions
approach (dimension: factors of explanation). The second dimension element concerns the ‘how’ question: how is the relation between the different factors? (Dimension: relation between factors). The last dimension of Fisher (2012) this thesis is using is the combination of the ‘who, where and when’ questions, and act as conditions that place boundaries and limitations on the approaches (dimension: boundary conditions).
The second paper is the comparison of effectuation and causation written by Sarasvathy (2001). Three dimensions of this paper are used. The first dimension is the givens, this dimension describes how many is known in front, what is given to make a certain decision. The second dimension relates to the process of decision making, in a way that there is searched for the differences between the approaches to see what affects to choice of making a certain decision. The third dimension aims at the nature of the unknowns, which compares which information is missing for each approach when making a decision.
The model of Buelens et al. (2006) describes four dimensions of which three are used to compare the approaches. The dimension ‘internal processes’ is not taken into account, while this has many comparisons with the previous dimensions ‘relations between factors’ and ‘decision making’. The model looks a lot on the model of competing values of Quinn and Rohrbaugh (1983) and therefore this model is used as supporting model. Quinn and Rohrbaugh (1983) made a distinction between human relations, open systems model, internal processes and rational goal.
The first dimension is goal accomplishment (goal orientation). This dimension involves how an organization achieves its stated goals and how it is achieved. Katz and Gartner (1988) discuss a comparable dimension in their paper, which they call organizational intentionality. Organizational intentionality at the time of creation reflects the goals of the agents or founding entrepreneurs. There are many differences between companies in how goals are set. Goals can be predefined in early stages due to scanning of the environment or goals can be created by the company itself.
The second dimension of the model is resource acquisition (use of resources). One of the most important drivers for success for companies are the resources they possess or can easily achieve. Resources form an important aspect for entrepreneurship (Morris et al., 2001) and are the building blocks of most organizations (Katz & Gartner, 1988). This dimension elaborates on how there is made use of resources and how are they obtained. Barney (1991) defines resources as ‘all assets, capabilities, organizational processes, firm attributes, information, knowledge etc. controlled by a firm that enable it to implement strategies to improve its efficiency and effectiveness’.
10 implies that there are competing and conflicting interests per stakeholder and it is important for an organization how to address these conflicts. This dimension discusses how each approach is dealing with its stakeholders.
2.2.2 Framework for comparing the approaches
Dimensions Effectuation Lean start-up Bricolage
Factors of explanation
1. Starting with given means (who am I, what I know, who I know)
2. Applying the affordable loss principle 3. Establishing and leveraging strategic
relationships
4. Leveraging contingencies (Fisher, 2012; Sarasvathy, 2001)
‘The application of lean thinking to the process of innovation’ (Ries, 2011)
- Entrepreneurs are everywhere - Entrepreneurship is management - Validated learning
- Build-measure-learn - Innovation accounting
- Create something from nothing by: 1. Making do
2. Combing resources for new purposes 3. Using resources at hand
Relation between factors
- Rather than assuming a pre-defined goal, effectuation takes available means as its point of departure to identify potential outcomes that might be realized from those means - Identifying and exploiting opportunities in new markets with high levels of uncertainty (Fisher, 2012)
- By using short and frequent cycles for tests and corrections, this approach aims at changing the way firms are built and products are designed, helping companies to succeed in a business landscape riddled with risk (Trimi, 2012)
- Optimize the utilization of scarce resources by using smaller and faster iterations for testing a vision continuously so as to get a desired product to customers’ hands faster
- Create ‘something’ combing resources at hand for new purposes
- ‘Making it work’ by any means or timeframe
(Stinchfield et al., 2013)
Boundary conditions
- Applicable in dynamic, non-linear, and ecological environments.
- Future is unknown and not measurable - Entrepreneurial opportunities are
subjective, socially constructed, and
- Minimum viable products only available for ‘early adopters’
- Unclear customer problems (Müller & Thoring, 2012)
- Entrepreneurs confront situations of significant resource constraint (Nelson & Baker, 2005)
12
created through a process of enactment (Fisher, 2012)
problem that comes along (Baker & Welter, 2014) - Create too many stop gap solutions that require
repetitive tweaking and too strong reliance on improvisation; take too much time and resources (Senyard et al., 2014)
Givens Only some means or tools of the entrepreneur are given. This givens can be defined when asking questions about yourself: Who am I? What do I know? Who do I know? (Sarasvathy, 2001)
Start with initial hypotheses about the market and then work with the feedback given by consumers to make iterative adjustments
The resources at hand. This could be materials or ideas that are already present in the own company or in the close environment
Decision-making selection criteria
- Help choose between possible effects that can be created with given means - Selection criteria based on affordable
loss or acceptable risk
- Given specific means, choice of effect is driven by characteristics of the entrepreneur and its ability to discover/use contingencies (Sarasvathy, 2001)
- Based on consumer feedback of the early adopters
- Use the ‘build-measure-learn’ loop to make iterative decisions
- Decisions are based on the resources at hand. Bricoleurs have the goal to solve every problem with the use of the available resources
- There is a bias towards action; trying it out and see what happens (Hindle & Senderovitz, 2010)
Nature of unknowns
Focus on the controllable aspects of an unpredictable future (Sarasvathy, 2001)
- Reaction of the majority of consumers (instead of early adopters)
- Learning to gain knowledge
Often only serves local market, less information from the outside world available
Use of resources
- Based on affordable loss: predetermines how much loss is affordable and focus on experimenting with as many strategies as possible
- Start with minimum viable product
- Product with as few resources as possible to make it viable
- Try to minimize waste (resources) by
- ‘Make do with what is at hand’ - ‘Creative reinvention’
- Additional resources would be added only as justified by results (Sarasvathy, 2001)
- First focus on own means and resources
starting with low production 2005)
- Often make use of previously discarded or used resources
Goal orientation
- No predefined end result, but results based on the means and givens you possess (Sarasvathy, 2001)
- Also possible to develop new goals due to the loop in the effectuation process (Moroz & Hindle, 2011)
- Improving a minimum viable product into a well-developed product
- Goal is more fixed than with effectuation, because there is started with an initial idea and this is further iteratively adjusted
- ‘Making it work’ by any means or timeframe
(Stinchfield et al., 2013)
- Mechanism for overcoming resource constraints due to creativity and innovation (Baker & Welter, 2014)
- The bricoleur usually works to a (pre)existing goal (Hindle & Senderovitz, 2010)
Stakeholder interaction
Important to consider which stakeholders the entrepreneur knows and think about the possibilities they could provide the entrepreneur
- Networking is important/interaction with other actors
- Without stakeholder commitment the opportunity has no chance to survive - Enters into agreements with customers,
suppliers, and other organizations: negotiates with other parties prior to having a fully developed product (Fisher, 2012)
Most important stakeholder is the customer: - He/she gives comments on the product and
gives directions for improvement. - Co-creation with customer
Emergent co-shaping (Garud & Karnøe, 2003):
- Designers and producers incorporate inputs of actors involved
- Users offering continuously feedback
- Bricoleurs use their existing contacts to create solutions to solve problems (Fisher, 2012)
- Involves customers, suppliers in projects: regularly interacts with other stakeholders (Fisher, 2012)
14 Table 2.1 provided the differences and similarities between the three approaches to entrepreneurship. The dimensions serve as input for the hypotheses to test the different effects of each approach on firm performance. First, it is necessary to define what firm performance is and which definition is used in this thesis. Section 2.3 elaborates on this aspect.
2.3 Dependent variables
In this thesis two ways are used to measure firm performance: (1) firm growth and (2) firm innovativeness. In the next sections there is elaborated on both indicators.
2.3.1 Firm growth
A lot of research is done to the performance of SMEs. There are several ways to define firm performance. In many definitions ‘growth’ plays a major role. For small business there is a possibility that grow plays a less important role, some small business decide not to grow because that is not their goal (Storey & Greene, 2010). However, Storey and Greene (2010) also stated that businesses that grow – even at a modest level – are more likely to survive. Growth can be measured in a lot of different ways; examples are growth in sales/revenue, profit, financial ratios, employment, and market share (Storey & Greene, 2010). In this thesis there is chosen to use growth in sales and employees. The advantage of this choice is that it is applicable on virtual all companies and the information is relatively simply to obtain. Sales would appear to be used as a growth measure by entrepreneurs themselves (Barkham et al. 1996). Employment data are also favoured by researchers because they give an indication of the resource base of the company (Storey and Greene, 2010). The reason that there is not chosen to measure growth in terms of profit is that entrepreneurs may withhold data (confidential) or that profit is open to interpretation (e.g. gross profits, after tax) (Storey & Greene, 2010). Disadvantages of using growth in employees are that this is rarely a goal of entrepreneurs and it is sector specific. The choice for sales and employees is supported by the fact that these two variables are often used in comparable research papers.
2.3.2 Innovativeness
track of competitors and new businesses come to life by individuals who see opportunities
and develop concepts and capitalize on these opportunities (Morris et al., 2001). As is stated
by Zhao (2005): “entrepreneurship and innovation are complementary, and a combination of
the two is vital to organizational success and sustainability in today’s dynamic and changing
environment”.
Innovativeness can therefore be an important variable for defining firm performance and therefore is important to research. Innovativeness can be classified in several typologies (Garcia & Calantone, 2002). In this thesis the distinction between radical and incremental innovations is used. Radical innovations are defined as innovations that embody a new technology that results in a new market infrastructure. Incremental are defined as products that provide new features, benefits, or improvements to existing technology in the existing market (Garcia & Calantone, 2002).2.4 Hypotheses
Table 2.1 serves as a clarification of the differences between the three approaches. From now on there is focussed on three dimensions of the table: use of resources, goal orientation and stakeholder interaction. There is chosen to specify on only three dimensions to get more precise and accurate results. These three dimensions are chosen while they achieve a lot of attention in literature and that there can be found explicit differences between the approaches.
The use resources is relevant for entrepreneurship, due to the fact that entrepreneurial opportunities exist primarily because different agents have different beliefs about the relative value of resources when they are converted from inputs onto outputs (Alvarez & Busenitz, 2001). Next, the extent of having a predefined goal highlights an important difference between the traditional use causal logic and effectual logic. Sarasvathy (2001) argued that organizational emergence is not always a causal, logical process, which suggests that organizations make use of different unplanned approaches to entrepreneurship. The shift towards more flexible organizations (Christopher, 2000) makes it relevant for entrepreneurs to research the level of goal orientated that is necessary for a company. Lastly, a company has a lot of different stakeholders. The benefits of managing stakeholders include a stronger commitment by stakeholders to the firm, increased firm legitimacy, greater potential for value creation and competitive advantage (Tantalo & Priem, 2014). Therefore, there can gained benefits for the entrepreneur by correctly using his stakeholders.
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2.4.1 Resources
The majority of new firms begin with very limited resources. Even the very small proportion of new firms that experience growth often find it difficult to attract specific human, financial, or other resources when needed (Penrose, 1959). Many entrepreneurs try to obtain new challenges despite the problems with resource constraints. Sometimes firms survive and even flourish, solving problems and exploiting opportunities despite resource constraints (Baker & Nelson, 2005).
Effectuation: This approach is based on affordable loss, which implies that entrepreneurs predetermine how much loss is affordable and focuses on experimenting with as many strategies as possible. Additional resources would be added only as justified by results (Sarasvathy, 2001). Effectual logic implies that entrepreneurs start with its resources under their control. The entrepreneur asks questions ‘Who am I?’, ‘What do I know?’ and ‘Whom do I know?’ to derive resources (Fisher, 2012).
Lean start-up: Entrepreneurs who use lean start-up start with a minimum viable product (MVP), which serves a prototype for the development of the final product. Due to the fact that lean start-up uses MVP the product is brought on the market with as few resources as possible to make it viable. Main aspect of lean start-up is that it tries to minimize waste; this tried to be achieved by starting with low production sizes (Ries, 2011).
Bricolage: Most research has investigated bricolage as a response to resource constraints, largely as a coping mechanism for asset-poor and otherwise seemingly disadvantaged firms. Steffens et al. (2010) stated that for resource poor firms, bricolage can create a degree of decoupling between resources and outcomes that sometimes permits them to do better than their resource levels would predict. A key principle of bricolage is to use the ‘resources at hand’, which is defined by Baker and Nelson (2005) as ‘resources that are available very cheaply or for free, often because others judge them to be useless or substandard’. Bricoleurs use resources in ways for which they were not originally designed (Baker & Nelson, 2005); this resource repackaging, transposing, and recombining can be considered as ‘creative reinvention’ (Fisher, 2012).
somehow out of the resources and routines at hand. According to Baron and Tang (2011) creativity leads to more innovativeness, they state that creativity is a starting point for innovation and that creativity – as ideas, principles, concepts – serves as ‘raw material’. Due to the higher implied creativity in situations with resource constraints hypothesis 1a is formulated as:
H1a: The extent of using existing and available resources at hand has a positive effect on firm innovativeness.
Hypothesis 1b focuses on the relation between the use resources and firm growth. Rosenbusch et al. (2011) researched the relation between innovativeness and SME performance and found that innovativeness had a positive effect on their performance (innovative ideas may create demand, which leads to growth). Fisher (2012) indicates that working with the resources at hand have a positive influence on firm growth, and also indicates the positive impact due to increased creativity. Literature suggests that creativity leads to innovation (Baron & Tang, 2011) and innovation is related to firm growth (Rosenbusch et al., 2011). Exploitation of existing resources is less risky than exploration of new resources (Lumpkin & Dess, 2001). Furthermore, companies are familiar with their existing resources and therefore they know what they can do with these resources. Companies can have advantages due to the existence of a learning curve when working with existing resources and procedures or working a long time with the same products (Jaber & Bonney, 1996). This learning curve decreases the direct hours it takes to produce a unit and therefore a learning curve can lead to lower future costs (Spence, 1981). Therefore, H1b is stated as:
H1b: The extent of using existing and available resources at hand has a positive effect on firm growth.
The following hypotheses are related to the previous hypotheses. Hypothesis 1c and hypothesis 1d refer the reuse of resources for other purposes, rather than only focussing on a single application of a specific resource. It is about the combination and reuse of resources for different applications than those for which they were originally intended or used. In other words, entrepreneurs do not start from scratch, but rather apply the resources that they already have in new ways (Phillips & Tracey, 2007). Literature showed examples (Lévi-Strauss, 1966; Garud & Karnøe, 2003) about how entrepreneurs combined resources at hand to solve a variety of problems and exploit new opportunities. The process of combining resources for new purposes sometimes serves as a mechanism driving the discovery of innovations in the form of new ‘services’ from existing resources (Baker & Nelson, 2005). Therefore, there can be expected a positive effect on innovativeness. H1c is as follows:
18 Entrepreneurs focussing on the reuse of existing resources collect ‘bits and pieces’ that may come in handy at some future point. Often they also seek out resources that can be acquired freely or very cheaply (often because those that possess them believe that they have little value) (Phillips & Tracey, 2007). Literature did not pay much attention to the relation of the reuse of resources for new purposes and firm growth. Based on the increased creativity and the fact that reusing resources can have cost advantages a positive effect on firm growth is proposed:
H1d: The extent of the reuse of resources for new purposes has a positive effect on firm growth.
2.4.2 Goal orientation
The second dimension elaborates on the extent of goal orientation. There are several differences in how each approach aims to reach their goals.
Effectuation: This approach uses no predefined end result, but results are based on the means and givens possessed by the entrepreneur. The process leading to an end result is cyclical and it is possible to develop new goals due to the loop in the process (Moroz & Hindle, 2011). Goals change, are shaped and constructed over time, and are sometimes formed by chance (Fisher, 2012). A key element of effectuation is exploiting contingencies, which entails embracing unexpected events and turning them into profitable opportunities, thereby getting unanticipated outcomes as opposed to achieving a predefined goal (Fisher, 2012).
Lean start-up: Lean start-up has the goal to develop a final product with the help of the introduction of the MVP. The goal is to keep improving a MVP into a well-developed product. There is started with an initial idea and this is iteratively adjusted with help of the feedback received (Ries, 2011). All the entrepreneurs have on day one is a series of untested guesses about the market. They go out and ask potential users, purchasers and partners for feedback on all elements of the business model. With using customers’ input to revise their assumptions, the cycle starts over again.
Bricolage: The goal of bricolage is ‘making it work’ by any means or timeframe (Stinchfield et al., 2013). The bricoleur usually works towards a (pre)existing goal. The goal is tried to be reached only with the resources at hand and with help of creativity and innovation (Baker & Welter, 2014).
Bricolage does have a predefined goal to solve a specific problem and also keeps focus on this goal to succeed.
Starting with a predefined goal implies that decisions are taken after scanning environmental conditions, changes and opportunities; a plan of action is then formulated and implemented (Håkansson & Snehota, 1989). This can be done by researching and selecting target markets and doing meaningful analysis (Harms & Schiele, 2012). With help of this research administrative and product/market industries can be explicitly conceptualized (Miller & Friesen, 1982). A goal orientation approach is suggested due to the high chances of failure in innovativeness; it is important that team members not become discouraged by failures and keep focusing on a predefined goal (Alexander & Van Knippenberg, 2014). However, a specific focus on a goal may imply that employees do not deviate from the predefined goal. This leads to less creativity and therefore less chance on innovative actions. Therefore, a negative relation between the extent of having a predefined goal and firm innovativeness is proposed:
H2a: The extent to which an entrepreneur makes use of a predefined goal has a negative effect on firm innovativeness.
Hypothesis 2b tries to uncover the relationship between the extent of having a predefined goal and firm growth. Locke and Latham (1990) demonstrated that specific and challenging goals have a positive effect on firm performance, but also state that goal specificity alone does not necessarily lead to higher firm performance. However, goal specificity does reduce variation in performance by reducing the ambiguity about is to be attained (Locke & Latham, 2002; Locke et al. 1989). Locke et al. (1989) found one experiment which leaded to a positive relation between goal specificity and firm performance, but this was rather the exception than the rule. Locke and Latham (2002) argued that goals serve as a directive function; they direct attention toward goal-relevant activities and away from goal-irrelevant activities. Miller and Cardinal (1994) show in their study that planning has a positive effect on firm growth. Similarly, Ansoff (1991) argued that planning generally produced better alignment and financial results than trial-and-error learning does. Most literature suggests that goal orientation in terms of planning has a positive influence on performance, and therefore H2b can be stated as:
H2b: The extent to which an entrepreneur makes use of a predefined goal has a positive effect on firm growth.
20 stakeholders and its network. A network is defined as a connected set of social actors (individuals, roles, or groups) exchanging socially relevant material (Miles, 1977).
Effectuation: In the start-up phase it is important for the entrepreneur to consider who the entrepreneur knows and think about the possibilities these players can provide. Without stakeholder commitment the opportunity has no chance to survive. Sarasvathy (2008) argued that a key aspect of effectuation is to leverage relationships instead of competitive analysis when assessing relationship with other individuals and organizations. Entrepreneurs establish early relationships with customers, suppliers, and other strategic partners to reduce uncertainty and spread responsibility to other stakeholders (Fisher, 2012). Fisher (2012) indicates that target customers can only be defined ex post through whoever buys a product or service.
Lean start-up: The most important stakeholder for lean start-up is the customer. The customer gives feedback and directions for improvement of the product. In this sense, the product is co-created with the customer. Lean start-up is a customer-orientated approach and adapts to customer needs (Müller & Thoring, 2012). The aim of lean start-up is to build a continuous feedback loop with customers during product development cycles (Maurya, 2012).
Bricolage: Bricoleurs use their existing contacts to create solutions to solve problems (Fisher, 2012). The entrepreneur tries to reach his goal at all costs and uses the resources at hand and therefore the entrepreneur uses his stakeholders to incorporate their input. The collaborative nature of much creative work contributes to opportunities for participants to share and combine talents to work together and inspire each other’s creativity (De Klerk, 2015). The bricoleur regularly interacts with stakeholders (customers, suppliers and other stakeholders) in projects (Fisher, 2012).
There can be stated that the approaches encounter stakeholders in a different way. Effectuation and bricolage use their strong and weak ties (Granovetter, 1973) in their network for input of information and materials. Both strong and weak ties can facilitate innovation (Granovetter, 1973). Strong ties are important in the start-up phase, where these ties provide trust and support. Weak ties have of positive effect on the propensity for innovation (Ruef, 2002). Weak ties provide the bridges over which innovations cross the boundaries of social groups and therefore weak ties can provide new insights outside the own network. Granovetter (1973) argues that large and diverse social circles can facilitate innovation. Through interacting with others and engaging with stakeholders, the entrepreneur discovers new means and establishes new goals (Sarasvathy & Dew, 2005).
which has found to be positively related to innovativeness. A difference in focus lies in the fact if an entrepreneur focusses on its own operations and ideas as his mean, or that the entrepreneur takes all environmental information (from all stakeholders) into account in his decision-making. There is expected that a broader network with both strong ties (trust, reliability) and weak ties (who deliver heterogeneous information) have a positive influence on creativeness (Granovetter, 1973) and therefore on innovativeness. Therefore, using as many inputs from stakeholders as possible is expected to have a positive effect on the innovativeness of a company:
H3a: The extent of involving a broad network of stakeholders has a positive effect on firm innovativeness.
Among strategy and entrepreneurship scholars a consensus has emerged that networks play a central role in successful firm emergence and growth (Hite & Hesterly, 2001). Watson (2007) suggests that networking appears to be significantly positively associated with firm survival and, to a lesser extent, growth. A smaller and more focused network with a lot of strong ties can have a positive influence in the start-up phase of a company. These relationships are based on trust and motivation, which is important for a growing company. A broader network with more weak ties is more important in later phases of company growth, this is due to new information available for the focal company (Granovetter, 1973). To keep developing as a company, the company should stay dynamic and listen to more stakeholders to form bridges and to not become inert. Therefore, H3b is proposed as:
H3b: The extent of involving a broad network of stakeholders has a positive effect on firm growth.
The last difference on network level is about the use of existing stakeholders. Bricolage (and to a lesser extent effectuation) makes use of existing stakeholders to reach a goal, whereas other approaches also try to seek information outside the familiar network. There is expected that if an entrepreneur keeps focussing on his current network the company will become more inert, due to the homogeneous actors (Zaheer et al., 2010). Focussing on weak ties (e.g. business acquaintances or strangers), which not belong to the stakeholders can provide great new access to information (Granovetter, 1973) and new opportunities. Therefore, there is argued that a focus on existing stakeholders has a negative influence on innovativeness and on firm growth:
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2.4.4 Feedback
The last two hypotheses combine all three approaches in that they all make use of a form of feedback. Feedback is defined as the information that tells performers what and how well they are doing (Rummler & Brache, 1995). The positive effect of a feedback loop on innovativeness is supported by Kline and Rosenberg (1986) who suggest that effective innovation demands rapid, accurate feedback with appropriate follow-on actions. This feedback can lead to new insights about the product. Hypothesis 4b about firm growth is supported by the fact that feedback secures the wishes and advice of the consumer and other players are processed in the product, which can lead to more demand of the customers (Ries, 2011). Feedback is strongly related with the pivoting concept of lean start-up. Pivot experiments are attempts to validate a part of the business model and gain valuable new understanding of it (Trimi & Berbegal-Mirabent, 2012). The measures obtained may help entrepreneurs test hypotheses about the product, strategy, and engine of growth, align business and product efforts, prioritize objectives, and eventually improve the entrepreneurial outcomes (Trimi & Berbegal-Mirabent, 2012). This feedback is important to make a product successful, to make sure that consumers really want the product. Feedback has been assumed to increase performance by providing useful information for assessing current strategies and behaviors, and to directly influence the choice of specific courses of actions in order to accomplish work-related goals (Battistelli et al., 2013). Therefore, there is hypothesized that integrating a feedback loop has a positive influence on both innovativeness (due to new insights) and firm growth (successful adaption of consumer demand):
H4a: The extent of using feedback has a positive effect on firm innovativeness. H4b: The extent of using feedback has a positive effect on firm growth.
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3. METHODOLOGY
The following chapter describes the research methodology that is used to test the hypotheses. This research adopts a theory testing approach. There is chosen for a theory testing approach because there can be found enough relevant literature to get a clear understanding about the different approaches and dimensions. Further, it is possible to use literature to make comparisons and use this as a starting point for the hypotheses which are later linked to SME performance (in terms of firm innovativeness and firm growth). The methodology starts with explaining the sample, followed with the data collection and a discussion about the quality of the data. Lastly, the control variables are introduced.
3.1 Sample
The population of this research are all Dutch and Flemish SMEs who are founded at least three years ago. To increase the sample size there is made use of the data from the Netherlands and of the data of the Dutch-speaking part of Belgium (Flanders). A company must be founded at least three years ago to get a more comprehensive view on firm growth. The companies are selected with help of the database Orbis. There is selected on SMEs with more than 10, but less than 250 employees and on companies that have a known e-mail address at Orbis. The last criterion is that they have to be founded at least three years ago. The general definition of a SME contains, besides number of employees, a maximum turnover of €50 million and a maximum balance sheet of €43 million. There is chosen not to incorporate the last two criteria, because this halves the number of available firms. Lastly, some individual companies are skipped out of the sample due to several individual reasons. With help of Orbis there can be found 1.812 Dutch companies and 8.079 Flemish companies. This makes a total sample of 9.891 companies.
3.2 Data collection
the answers are rank-ordered at an ordinal level. Advantage of using a likert scale is that it is common use in questionnaires and that respondents therefore are familiar with this type of questions. Furthermore, all questions are scaled on the same manner and this increases the ease of answering the questions. Lastly, all questions are asked in the present tense. This is done to increase the readability and to be consistent in all questions.
There has been made used of several papers to generate this questionnaire (see appendix B), which can imply difficulties. To make sure the questionnaire is understandable, the questionnaire is pre-tested with help of three students of the RUG and Hanze Hogeschool and adjusted afterwards. The questionnaire is available in English and in Dutch (appendix C), there is tried to be as correct as possible to secure that there cannot be problems with the interpretation of the questions. The translation is checked by two persons with a good understanding of both English and Dutch (appendix D). The questionnaire has been provided in Dutch to make it more attractive and understandable for Dutch speaking firms to fill in the questionnaire.
The expected response rate was low and therefore many companies were contacted. To increase the response rate, a reminder was sent after ten days. However, there were some problems with sending the mails that has led to the fact that not all companies received a reminder.
After the selection procedure and pre-testing the email is sent to the companies with the question to fill in the online questionnaire. The (Dutch) email can be found in appendix E. There were 1739 companies with an invalid mail address, which leaves a total of 8152 companies with a valid address. The questionnaire was opened for 20 days. At the end of the data collection period there were 241 returned questionnaires, from which 4 questionnaires were not filled in at all. This resulted in 237 filled in questionnaires, which means a response rate of 2,91%. There were deleted 23 more companies, due to the fact that these companies had less than 10 or more than 250 employees. The distribution in terms of employees and company age can be found in table 3.1. From the total of 214 companies, 77 of them were Dutch companies, 131 were Flemish companies, and 6 companies indicated that they operated in both countries. The data analysis was completed with the remaining 214 companies. Some of the companies did not completely fill in the questionnaire, but filled in most of the questions and were therefore included in the analysis. To increase the response rate, there was added an option for the respondent to leave their e-mail address and receive a summary of the results of this research when it is finished. There were 76 respondents who made use of this option and received a summary of the results after the research.
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# Employees # Company age
10-19 15,42% 3-10 2,34% 20-49 36,45% 11-25 22,43% 50-99 25,70% 26-50 41,12% 100-199 18,22% 51-100 26,64% 200-250 4,21% 101+ 5,14% Missing 0% Missing 2,34%
Table 3.1: Firm characteristics
Making use of questionnaires implies advantages and disadvantages. Advantages are that questionnaires can be filled in relatively quickly and anonymously. Another advantage is that there can be reached a relatively large sample in a relatively short period of time. A disadvantage is that some questions can be misinterpreted and no immediate clarification by the interviewee can be given. With help of pre-testing there is tried to minimalize this disadvantage. Another disadvantage is the self-selection of respondents to fill in the questionnaire and that the questionnaire is based on one moment in time.
To secure the reliability of the questionnaire there has paid attention to four types of biases as presented by Van Aken et al. (2012). The methodological literature recognizes four potential sources of bias: the researcher, the instrument, the respondents and the situation. Research results should be independent of the researcher who conducted the study, the respondents, the measuring instrument employed and the specific situation in which the study was carried out (Van Aken et al., 2012).
The first bias mentioned was the respondents’ bias. This bias is tackled by making use of random respondents for sending the questionnaire. Everybody has the same chance of being selected, and if a sufficient amount of respondents is chosen, chances are low that the particular sample will yield a distorted picture. Instruments bias has been tackled by the use of different questions to measure the same variable with the help of different wording. Researcher bias is prevented, due to the fact that the researcher is independent from the company and there always has been made use of the same, standardized, questionnaire. The last bias is the circumstances bias, which is relatively hard to exclude. The questionnaire can be filled in at every moment with different circumstances; therefore it is hard to control this for the researcher. With help of multiple filled in questionnaires there is tried to increase the reliability.
validity refers to the generalizability of the research, which is secured due to the fact that the research involved enough respondents. Finally, internal validity concerns conclusions about the relationship between phenomena. Internal validity is secured by firstly investigating existing literature and based on this formulate hypotheses. However, there are, presumably, more unmentioned variables that explain the variance of the dependent variables.
3.3 Data quality
To measure the effect of the independent variables on the dependent variables there is made use of SPSS. Each question (item) was given a name according to the variable and the question number (appendix B), for example the first question about resources is called RESOURCES1. After there is checked for outliners, the first step was to conduct a factor analysis to view if the items measure the same variable and can be combined into one factor. Factor analysis is a technique to achieve parsimony through the identification of the smallest number of descriptive terms to explain the maximum amount of common variance in a component matrix (Petty, 1995). Varimax with Kaiser Normalisation was applied prior to factor rotation, thus keeping factors with an eigenvalue of 1.0 or greater. This procedure was chosen to eliminate error variance (Rasli, 2006).
The factor analysis was conducted and factor loadings below 0.50 were deleted directly. This resulted in a reduction of the items used. The items RESOURCES4 (loaded with ResourcesExisting, but low Cronbach Alpha when RESOURCES4 is loaded), RESOURCES8, RESOURCES9, GOAL3, GOAL5 (Cross-loadings), GOAL6 GOAL7, GOAL8, STAKEHOLDER2 and STAKEHOLDER10 were deleted. The complete factor analysis can be found in appendix G. The loadings of the relevant items can be found in table 3.2. Each variable is given a name to make it easier to read, this name can also be found in table 3.2. From here on this variable name is used in this thesis. The high value of 0.802 for the Kaiser-Meyer-Olkin measure of sampling adequacy indicates that the proportion of variance in the variables is caused by underlying factors, thus it allows for the application of a factor analysis. This is supported by the Bartlett’s test of Sphericity value of p = .00, which proves that the analysis is significant (Rasli, 2006).
The factor analysis resulted in eight variables. For all these variables the Cronbach’s Alpha α is calculated. A minimum value α of .70 is regarded as satisfactory (Bland & Altman, 1997). Not all the Cronbach’s Alphas were above this limit, as is shown in table 3.2. A Cronbach Alpha of .67 and .69 is not above the limit of .70, but due to the small distraction these variables were kept in this research.
Variable hypothesis
Variable name Items Loadings Cronbach’s
28 Reuse of
resources for new purposes ResourcesNewPurpose RESOURCES6 RESOURCES5 RESOURCES7 .818 .817 .793 .81 Use of a predefined goal GoalOrientation GOAL1 GOAL4 GOAL2 .721 .655 .571 .67 Involving a broad network of stakeholders StakeholderNetwork STAKEHOLDER4 STAKEHOLDER6 STAKEHOLDER5 STAKEHOLDER1 STAKEHOLDER3 .698 .639 .632 .549 .545 .69 Focussing on existing stakeholders StakeholderExisting STAKEHOLDER8 STAKEHOLDER7 STAKEHOLDER9 .828 .806 .794 .74
Use of feedback Feedback FEEDBACK4
FEEDBACK2 FEEDBACK5 FEEDBACK1 FEEDBACK6 FEEDBACK3 .828 .821 .819 .779 .713 .712 .90 Extent of innovativeness Innovativeness INNOVATIVE6 INNOVATIVE5 INNOVATIVE2 INNOVATIVE7 INNOVATIVE1 INNOVATIVE3 INNOVATIVE4 .845 .829 .772 .742 .739 .726 .572 .88 Extent of firm growth FirmGrowth GROWTH1 GROWTH2 .900 .883 .82
Table 3.2: Factor analysis and Cronbach’s Alpha
