1042-2587-99-233$1.50Copyright 1999 byBaylor University

Linking CorporateEntrepreneurship toStrategy, Structure, andProcess: SuggestedResearch DirectionsGregory G. DessG. T. LumpkinJeffrey E. McGee

We endeavor to propose counterintuitive ideas or, alternatively, deny the "assumptionbases" (Davis, 1971) of ETP's readers. Major sections of the paper suggest research ques-tions concerning strategies, structures, and processes in the context of corporate entre-preneurship (CE). The issues we propose inciude: Are cost leadership strategies and cor-porate entrepreneurship inherently at odds? Are contemporary organizationai forms alwaysmore compatibie with CE than traditionai structures? and; How can the normative guidancethat permeates the popuiar press on entrepreneuriai processes iead managers astray?Corporate entrepreneurship's unique relationship to strategy, structure, and process issuesand future research questions are discussed.

Xntensifying global competition, corporate downsizing and delayering, rapid tech-nological progress, and many other factors have heightened the need for organizations tobecome more entrepreneurial in order to survive and prosper. Few firms are exempt.Rather, virtually all organizations—new start-ups, major corporations, and alliancesamong global partners^—are striving to exploit product-market opportunities throughinnovative and proactive behavior. Understanding entrepreneurial processes has been acentral theme in a good deal of both the strategic management (e.g.. Miller, 1983; Miles& Snow, 1978) and entrepreneurship (e.g., Covin & Slevin, 1991; Sandberg & Hofer,1987) literatures.

Although the concept of entrepreneurship has been limited to new venture creationby some scholars (e.g.. Vesper, 1985), corporate entrepreneurship (CE) may be viewedmore broadly as consisting of two types of phenomena and processes: (1) the birth ofnew businesses within existing organizations, whether through internal innovation orjoint ventures/alliances; and (2) the transformation of organizations through strategicrenewal, i.e., the creation of new wealth through the combination of resources (Guth &Ginsberg, 1990).

Bringing about strategic renewal requires both sound corporate-level strategies, i.e.,addressing product-market scope, and business-level strategies, i.e., identifying sourcesof sustainable competitive advantage. But, in a sense, this is only a starting point. Weconcur with Paul Allaire, CEO of Xerox, that a firm must also have a good fit among thethree components of an organization's "architecture": hardware, people, and software(Howard, 1992). Elements of each component are depicted in Table 1.

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Table 1

Components of an Organization's Architecture^

H;irdware Organization StruclureBusiness Planning SystemsControl MechanismsMeasuremcnl SyslemsReporting RelationshipsReward Systems

People Skills Managers NeedPersonalityCharacter

Software Informal Neiworks and PracticesValue SystemCulture

'Source: Howard. 1992

The attributes in Table 1 roughly parallel Banlett and Ghosal's (1990) essentialorganizational challenges for strategic innovation including developing the organiza-tion's anatomy (goals, formal structure), physiology (systems and relationships thatallow the lifeblood of information to flow through the organization), and psychology (theshared norms, values, beliefs that shape the way individual managers think and act).

Although such concepts are highly interrelated and interdependent, we feel that theycapture the salient attributes inherent in successful corporate entrepreneurship. Also,given the virtue of parsimony, they provide a framework for how we have decided todivide our paper. In the three paragraphs below, we summarize the major sections of ourpaper that address what we believe are some important research questions associatedwith strategies, structures, and processes in the context of corporate entrepreneurship.These three domains are also consistent with what strategic management researchershave considered to be the essence of organization form and content (Hambrick, 1989;Miles & Snow, 1978).

Strategic issues associated with corporate entrepreneurship are addressed in the firstsection. In particular, we ask whether Porter's (1980) "traditional" strategies—low-costleadership, differentiation, and focus—remain valid in the context of corporate entre-preneurship. The demands of global competition have heightened the need for cost-basedstrategies at the same time that advances in technology are requiring firms to update anddifferentiate by innovating and reengineering. Thus, we suggest that successful corporateentrepreneurship may hinge on a firm's ability to combine structural approaches thatfocus on efficiencies, processes, and 'tit" with strategic approaches that emphasizequality and effectiveness. We also take a close look at the usefulness of cost cutting andcontrol techniques as a means to achieve competitive advantage and posit a curvilinearreiationship between cost-based strategies and performance.

The second section addresses the difficulties of fostering corporate entrepreneurshipin traditional, hierarchy-driven organizational models, The central premise is that suchmodels impede entrepreneurial behavior because their emphasis on clearly definedboundaries tends to limit fiexibility and choke communications. We suggest that toovercome this impediment, firms need to embrace the concept of "boundarylessness" byadopting innovative organizational configurations. We present three such configura-tions—the modular firm, the virtual firm, and the barrier-free firm—and discuss theirusefulness in enhancing performance by reducing or even eliminating the conventionalboundaries found within firms and between firms.

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The third major section addresses process issues associated with CE. In it, we buildon the authors' previous work on the concept of "entrepreneurial orientation" (Lumpkin& Dess, 1996). An underlying theme is our position that much of the normative literatureon entrepreneurial processes is overly simplistic and may be counterproductive to mana-gerial practice. We suggest how an appreciation of the multidimensionality and inde-pendence of the subdimensions of an "entrepreneurial orientation" (e.g., risk taking,proactiveness, innovativeness) can enhance normative and descriptive theory building.We draw on examples from John Deere & Company and ADP.

In developing our ideas, we have adopted Murray Davis's guidance from histhought-provoking article That's Interesting! (Davis, 1971) as our intellectual compass(summarized in Rosenzweig, 1980). That is, we have tried to pose research questions andpropositions that we believe "[deny] some aspect of the assumption ground of (our)audience . . . it tells them some truth they already knew was wrong" (Davis 1971, p. 329).We have also attempted to avoid the three traps that Davis claims give rise to uninter-esting propositions:

1. It affirms some aspect of their assumption-ground. . . . The proposition is sayingto its audience: "What seems to be the ca.se is in fact the case." "What you alwaysthought was true is really true. . . ." The audience's response to propositions ofthis type will be: "That's obvious!"

2. It does not speak to any aspect of their assumption-ground at all. . . . The propo-sition is saying to its audience: "What is really true has no connection with whatyou always thought was true. . . ." The audience's response to propositions of thistype will be: "That's irrelevant!"

3. It denies their whole assumption-ground.... The proposition is saying to itsaudience: "Everything you always thought was true is really false. . . ." Theaudience's response to propositions of this type will be: 'That's absurd!" (1971,p. 329).

Thus, in the following sections, we have tried to raise some "interesting" ideas. (And, onthe downside, we sincerely hope that we have not been overly "obvious," "irrelevant,"or "absurd"!) We will gauge our overall success by the extent to which we are able toencourage critique, debate, and the further exchange and development of ideas.

One caveat: We believe that the ideas in this paper are largely "context-free." Thatis, we feel they are relevant for the entrepreneurial processes of strategic renewal or newventure development within existing corporations, but also in strategic alliances betweenfirms and within smaller firms including, in many cases, start-ups. Thus, in manyinstances, the modifier in the term "corporate entrepreneurship" has been omitted.

NEW STRATEGIC COMBINATIONS EOR SUCCESSFULCORPORATE ENTREPRENEURSHIP

Does corporate entrepreneurship (CE) require new approaches to strategy or will"traditional" methods of competitive positioning, resource deployment, and industryadaptation still be effective? For example, are cost-based approaches useful to corporateentrepreneurs? Strategies that emphasize innovation and new product introductions aregenerally associated with an entrepreneurial approach to competitive advantage whereasstrategies based on cost control and incremental process improvements tend to be in thedomain of established firms seeking to sustain advantage by erecting scale economybarriers. Can firms pursuing CB successfully use low-cost strategies as well as differ-entiation strategies? In this section, we will consider the strategic implications of cor-porate entrepreneurship. We will first revisit Porter's (1980) framework in terms of its

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applicability to corporate entrepreneurship and then discuss how contemporary tech-niques such as "reengineering" and "core process redesign" are being used to further CEin a highly cost-conscious fashion. Finally, we will examine how, in the context ofcorporate entrepreneurship, too much or too little cost control may be damaging tosuccessful new entry.

The strategic prescriptions suggested by Porter's (1980) concept of generic strategiestend to link entrepreneurial-type activities much more closely with differentiation strat-egies than with low-cost leadership strategies. To be successful, differentiators rely onstrong marketing abilities, creative flair, product engineering skills, and effective coor-dination across functional areas, whereas low-cost leaders emphasize tight cost controls,process engineering skills, efficient distribution systems, and structured sets of organi-zational responsibilities (Porter, 1980. pp. 40-4!). These distinctions suggest that firmsseeking to renew or strengthen themselves by being more entrepreneurial should adoptdifferentiation-type strategies rather than cost leadership strategies. This reasoning ledDess, Lumpkin. and Covin (1997) to hypothesize that entrepreneurial firms employingcost leadership strategies will have relatively lower performance. In a study of 96managers from 32 firms, however, the opposite finding was statistically significant: costleadership strategies were associated with higher performance in firms where managersused an entrepreneurial approach to decision making (Dess, Lumpkin, & Covin, 1997).In another study, Zahra and Covin (1993) hypothesized that cost leadership strategieswould not be positively related to new product development because new products tendto be the domain of differentiators whereas cost leadership is usually associated withimprovements to existing product lines (Porter, 1980; Dess & Davis, 1984). Here again,contrary to their expectations, cost leadership was positively associated with new productdevelopment (Zahra & Covin, 1993).

What accounts for these findings that appear to challenge Porter's widely acceptedframework? First, it may be that our conceptualization of entrepreneurial strategies is toonarrow. Scholars have tended to focus on innovative new combinations (Schumpeter,1934), first-mover advantages (Lieberman & Montgomery, 1988) and new venture cre-ation (Vesper, 1985) as keys to entrepreneurial success. Stevenson and Jarillo (1990),however, referred to corporate entrepreneurship broadly as the "the process of . . .pursuing opportunities" (1990, p. 23), and Lumpkin and Dess (1996) defined entrepre-neurship as "new entry," that is, entering, for the first time, "new or established marketswith new or existing goods or services" (1996, p. 136). Numerous means of achievingcompetitive advantage can be employed in the pursuit of new entry, including all of thetypes (differentiation, overall cost leadership, and focus) suggested by Porter's (1980)original framework. Thus, we may need to embrace a more inclusive concept of how tostrategize in the context of corporate entrepreneurship.

A second possible explanation relates to the current climate of competition in whichmanagers are faced with "discontinuities created by an interdependent global economy,heightened volatility, hypercompetition, demographic changes, knowledge-based com-petition, and demassification of some sectors accompanied by enormous growth inothers" (Daft & Lewin, 1993, p. i). These conditions challenge managers to look beyondthe traditional distinctions used to characterize strategic choices in order to find newstrategic combinations. Figure 1 depicts a conventional schema for distinguishing be-tween management approaches to achieving strategic advantage.

According to the first approach, efficiency and productivity issues are achievedthrough process improvements that are typically incremental and induced by a structuralapproach implemented by top management in a top-down fashion (Burgelman, 1984).This is contrasted with the second method in which effectiveness and quality issues arehighlighted and addressed by autonomous organizational members acting outside anorganization's existing strategy by introducing new, often more radical, products or

88 ENTREPRENEURSHIP THEORY and PRACTICE

Figure 1

Structural Versus Strategic Approaches to AchievingCompetitive AdvantageStructuralApproach Efficiency Competitiveness Structure Process Induced

StrategicApproach Efiectiveness Quality Strategy Product/Service Autonomous

services (Burgelman. 1983, 1984). It is the latter approach that is typically associatedwith both corporate entrepreneurship and differentiation-type strategies (whereas cost-based approaches are often identified with dominant firms seeking to maintain theirstrong position). However, a new business climate dominated by issues of global com-petitiveness and world-class quality is requiring managers to break down the presumeddichotomies between efficiency versus effectiveness, structure versus strategy, and in-duced versus autonomous methods of management and compete on all fronts In order tosurvive and prosper.

Can CE firms capitalize on these dichotomies? The evidence suggests that firms areachieving advantage by combining elements of strategy described in Porter's {1980}framework. In fact, a growing body of literature suggests that adding value and sustain-ing advantage by combining differentiation and eost leadership approaches is an increas-ingly important strategic approach (Miller & Dess. 1996). Management scholars haveprovided both theoretieal (Murray, 1988; Hill. 1988; Jones & Butler. 1988) and empirical(Wright. Kroll. Tu. & Helms. 1991) support for combining strategies.

Corporate entrepreneurship may benefit from new or unique strategic combinationsbecause of emerging trends that suggest potentially greater applicability to CE firms.This is the idea behind efforts to use corporate entrepreneurship as a means of corporaterenewal (Guth & Ginsberg. 1990). Among these are efforts to use overall low-costapproaches to compete in an entrepreneurial context. Using Figure 1 above, this suggestscombining a strategic approaeh with a structural approach to achieve competitive ad-vantage. For example, by encouraging the use of state-of-the-art technologies and thelatest techniques for eost-effective inventory control and information system manage-ment, firms can address both efficient productivity and quality-enhancement issues.Recently, management practices such as these have become rather common amongseveral leading-edge organizations. Under names such as "eore process redesign," "busi-ness process improvement," and "reengineering" (Hammer & Champy, 1993). theseaetivities not only exploit the latest technologies and innovations, but also serve todramatically enhance a firm's cost position relative to its competitors. Pioneering firmshave also found that by empowering autonomous employees at lower organizationallevels, they not only improve access to fresh ideas and first-hand knowledge of eustom-ers, but also reduee eosts previously associated with induced, top-down methods ofmanagement (Kanter. 1983, 1985). Thus, firms can use structural approaches such assystem or proeess improvements, and organizational redesign to improve strategic po-sition.

This analysis suggests that controlling costs is an increasingly important aspect ofsuccessful strategies in the context of corporate entrepreneurship. CE firms cannot ex-pect to rely exclusively on differentiation approaches to achieve advantage in a climatewhere eombining strategic approaches is "taken for granted" (Miller & Dess. 1996).Even among activities as differentiation-oriented as new product innovation, cost con-Spring, 1999 89

tainment may make an essential contribution to success. However, an exeessive preoc-cupation with controlling costs may also be detrimental. Firms intent on launehing newproducts, services, or enterprises at the lowest possible eost may sacrifice quality, con-strain inventories, or limit their opportunities for accessing distribution channels. Simi-larly, in the context of new entry, where additional expenses may be required to launcha product and effectively market it in its early stages, excessive cost cutting may be animpediment to success.

This suggests that, in the context of corporate entrepreneurship. the relationshipbetween cost-based strategies and perfonnance may be eurvilinear. That is. firms that areoverly eost-eonscious as well as firms that are too lax in controlling costs are both likelyto be low performers relative to firms that manage costs as a key element, but not the soleeoneern. of their overall strategy. Figure 2 depicts this relationship: high performance isassociated with firms that take a moderate approach to controlling cost; low performanceoccurs at the extremes where firms are either obsessive about cost or pay iittle or noattention to cost containment.

This forms an interesting contrast to Porter's (1980) original formulation of overalllow cost in which success is achieved by beating the competition in all aspects of costin order to be the low-cost leader. Here, we are suggesting that a firm that is preoeeupiedwith cost control to the exclusion of other factors that may be associated with CE—promotions and product introductions, quality testing and assurance, establishing chan-nels and supplier relationships—may suffer from low performance leading to failure.Thus, for firms engaged in CE, a new understanding of cost leadership and new ap-proaehes to achieving strategic advantage may be required. In terms of value chainanalysis (Porter, 1985) this suggests that eosts must be managed at every stage of the

Figure 2

Proposed Curvilinear Relationship Between Cost-basedStrategies and Performance,

Performance

increasing cost cutting and control •>

COST-BASED STRATEGIES

90 ENTREPRENEURSHIP THEORY and PRACTICE

value ehain, but not constrained to sueh an extent that value is lost or destroyed ratherthan added. Thus, a key benefit of corporate entrepreneurship may be to push organi-zations to employ a range of strategies, often in unique combinations, and strive to be astrong performer in all of them. By doing so. successful CE firms can "build layers ofadvantage" by combining distinct bases for competitive superiority (Hamel & Prahalad,1989).

CHANGES IN STRUCTURE THAT REFLECT NEW DIRECTIONSIN ENTREPRENEURSHIP

Are contemporary organizational forms always more compatible with corporateentrepreneurship than traditional structures? Judging from the widespread restructuringactivities of an increasing number of firms, the answer would seem to be "yes." Tradi-tional organizational models, built around rigid hierarehies and clearly defmed bound-aries, are thought to be poorly suited for today's entrepreneurial eorporations. Suehmodels, with their inherent bureaucracies, have been criticized for their tendency to limitflexibility and stifle communications (Kanter, 1983; Kao, 1989). In response, manycompanies are experimenting with innovative organization designs that embrace theconcept of boundarylessness (Devanna & Tichy, 1990). This concept is centered on adeliberate effort to replace the boundaries delineated in the traditional model with bound-aries that are more porous and permeable. But do these new organizational designs leadto stronger performance? In this section, we will examine how ehanges in organizationalstmcture are contributing to, or detracting from, tbe success of corporate entrepreneur-ship.

Three organization designs, in particular, have emerged that seem effective in re-ducing boundaries—the modular type, the virtual type, and the barrier-free type (Dess.Rasheed. MeLaughlln, & Priem, 1995). While the modular and the virtual types areespecially well-suited for reducing boundaries between firms (extemal). the barrier-freetype offers a means of reducing all organizational boundaries (both extemal and inter-nal). Although these three structural types are discussed separately in the followingparagraphs, they should not be viewed as being mutually exclusive. Instead, they may beused in a variety of combinations to achieve boundaryless designs that fit an organiza-tion's eontext and style.

The modular company describes a firm that focuses on its core functional aetivitiesand outsources its component and business services requirements to outside specialists(Quinn & Hilmer, 1994). Such a design offers the dual advantages of reduced overallcosts and improved flexibility by contracting with vendors who possess superior talentand resources, reducing inventory carrying eosts. and avoiding exeessive reliance onrapidly changing technologies. In other words, modularity allows a company to eoneen-trate on its distinctive eompetencies while gathering efficiencies from other firms that areconcentrating on their respective areas of expertise. In its purest form, the modularstrueture allows a company to become an entrepreneurial hub. with full strategie control,surrounded by other entrepreneurial firms (Tully, 1993).

The modular company is not a recent phenomenon. For years, the Polaroid Corpo-rations has purchased its film medium from Eastman Kodak, its electronic componentsfrom Texas Instruments, and its cameras from Timex and other companies, while itconcentrated its corporate resources on developing and producing patented self-developing film and designing its next generation of products. Nor is the modular designuncommon. In fact, sueh organizational configurations have become the norm in theelectronic sector since IBM first outsourced the components for its PC in 1981.

A more recent and perhaps more radical deviation from the modular organization

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type is the virtual organization. This configuration describes a company that is part of acontinually evolving network of independent businesses—suppliers, customers, andeven competitors—that share skills, costs, and aecess to each other's markets (Byrne,1993). Unlike the modular type, in which the focal firm retains full strategic control, thevirtual company is characterized by alliances in which participants share responsibilities,relinquish part of their strategic control and accept interdependent destinies (Dess et a!.,1995). This configuration allows companies aligned in the network to exploit comple-mentary skills to achieve common objectives and gain access to more capabilities thanthey currently possess.

Innovation, in particular, is enhanced through the use of such collective strategiesbeeause the virtual firm has access to the technology and know-how of other networkparticipants. Hewlett-Packard's (H-P) dramatic resurgence in the late 1980s and early199()s. for instanee, was due in part to the company's ability to reduee its new productdevelopment time by collaborating with other companies. H-P's successful KittyhawkPersonal Storage Module, for example, was brought to market in a mere 10 months,thanks largely to the collaborative nature of their product development efforts: AT&Tdeveloped the mierocircuitry. Read-Rite, Inc. contributed the read-write head, and Citi-zen Wateh provided the manufacturing capabilities (Rothwell. 1992).

The growing popularity of the modular and virtual firms is well-documented and has.sparked considerable interest among management scholars (e.g., Hamel, 1991; Quinn &Hilmer. 1995). To date, much of the theoretical development of this literature has beendriven by transaetion cost theory (Williamson, 1985). According to this well-diffusedparadigm, organizational boundaries are delineated by which activities are conductedwithin a firm's hierarchy and which activities are conducted outside the hierarchythrough various types of market transactions. The theory's central premise is that firmsshould adopt the model of organization that minimizes transaction costs. Surprisingly,there is little systematic empirical research from a transaetion eost perspective thatexamines whether organizational boundaries influence a firm's economie performance.Anecdotal evidence, however, suggests that this influence may be significant (Tully.1993).

Perhaps more germane to the current discussion is the question of whether theentrepreneurial behavior/firm performanee relationship is influenced by the use of dif-ferent boundary-reducing organizational configurations. That is, does the adoption of themodular or virtual organization structure foster successful corporate entrepreneurship?To answer this question, however, scholars have begun to consider alternative theoretiealframeworks sinee transaction cost theory is largely devoid of behavioral considerations.Jarillo (1989). for example, has argued that the transaction cost perspective greatlyunderemphasizes the conscious actions of a firm's management in determining theeffectiveness of various organizational eonfigurations. Jarillo notes that if managers canlower overall eosts through inter-firm activities relative to competitors, then a firm canbe more profitable even though individual transaction costs are higher than the eosts ofbuilding an intemal hierarchy.

Strategie behavior theory (Kogut, 1988) may provide sueh an alternative perspectivein which to examine the effectiveness of the two boundary-redueing organizationtypes—modular and virtual firms. Unlike transaction cost models that focus on costminimization, strategic behavior models posit that firms select the organizational eon-figurations that most improve competitive position and best achieve firm objeetives.regardless of the effect on specific transaetion eosts (Kogut, 1988). In other words,strategic behavior theory acknowledges that the most profitable route is not neeessarilythe least costly, and visa*versa. More importantly, it acknowledges that managers knowthis!

The strategie behavior perspective also promises to provide a useful lens through

92 ENTREPRENEURSHIP THEORY and PRACTICE

which to view bow firms identify, select, and manage the various inter-firm relationshipsinherent in the modular and virtual companies. Management authorities generally agreethat companies run the risk of becoming "hollow" if too great an emphasis is placed oncontrolling short-term transaction eosts (Davidow & Malone, 1992). Since a eompany'smost valuable capabilities typically involve integration across different technologies andknowledge bases, the eompany's know-how becomes narrower as more activities areoutsourced (Bettis, Bradley. & Hamel, 1992). The ri.sk is that incremental outsourcingactions can be justified on the basis of eost effieieneies. but eompanies may lose theirability to innovate and develop over the long run. If companies inereasingly outsourceand are reduced to the role of assemblers and marketers, their long-term competitivenessbecomes increasingly jeopardized (Prahalad & Hamel, 1990). Better integration of stra-tegie behavior models in future research will enhance our understanding of how firmscan avoid this fate. A more comprehensive framework, containing elements of bothtransaetion cost and strategie behavior theory, is needed to address the often contradie-tory objeetives of efficiency and effectiveness. Transaction cost models are well suitedfor examining relatively short-term eost minimization concerns. Strategic behavior mod-els, on the other hand, are much more appropriate for identifying why managers engagein inter-firm relationships and what they expect to gain from such relationships in thelong term.

Our discussion, thus far, has centered on organization types that reduce a firm'sextemal boundaries. Designing organizations that reduee internal boundaries, however,is an equally critical element for successful corporate entrepreneurship. A barrier-freephilosophy has been touted as critical in the building of an entrepreneurial organizationalenvironment (Hisrieh & Peters. 1986; Knight. 1986: Sievin & Covin. 1990: Sykes,1986). Such a philosophy is thought to be indicative of management's willingness toseek close integration and coordination, both within the organization and with its sup-pliers, customers, and other elo.sely involved extemal stakeholders, by encouraginginter-divisional coordination and resource sharing. The internal structures of barrier-freeorganizations are often characterized by fluid, ambiguous, and deliberately ill-designedtasks and roles (Hirsehhorn & Gilmore, 1992). Barrier-free organization also typicallyfeature fewer layers of management, smaller-scale business units, and advocate thecreation of process teams and interdisciplinary work groups, empowerment of first-linesupervisors and nonmanagement personnel, open communications vertieally and later-ally, and accountability for results rather than an emphasis on activity (Dess et al., 1995).

The process surrounding the development of Boeing's latest-generation aircraft, the777, illustrates the barrier-free philosophy in action. Boeing, like many other largeeompanies. had evolved into an overly structured bureaucratic organization during it80-year history. Deeision making was highly centralized and eommunieation betweenfunctional areas was nearly nonexistent, creating costly production delays. Realizing thatreducing costs and improving delivery times would be critical for the "triple seven's"success, Phillip Condit, Boeing's CEO, broke down the old-fashioned procedural wallswithin the company and organized hundreds of flexible, interdisciplinary "design-build"teams that work together in identifying and avoiding potential inefficiencies. The tradi-tional hierarchy was reduced by aggressive outsoureing activities and through the elimi-nation of nearly 30% of its middle management and staff personnel (Lubove. 1996).

The results of Boeing's experimentation with a barrier-free philosophy are remark-able. Management estimates that its aggressive outsourcing saves the company $600million annually. More impressive still, the elimination of intemal boundaries has im-proved morale and increased produetion delivery times. The 777. the most sophisticatedpassenger airline ever produeed. ean now be delivered within 10 months of the order,compared with 18 months previously.

Making bureaucratic organizations more flexible and efficient via corporate entre-

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preneurship and using CE as a means of strategic renewal is one of the most promisingareas for future research. Implementation of a barrier-free philosophy, for example, eanbe problematic beeause it typically requires a massive structural overhaul of the existingsystem. Some organizations have difficulty dealing witb the changes that sueh an ap-proach entails. It is analogous to the problem encountered when an organization en-deavors to adjust its strategy from one that reflects stability to one that denotes vision andenergy {Cooper. Willard. & Woo, 1986). We do not fully understand, however, whysome finns can make the transition rather easily while others have greater difficulty. Thisis an attractive area for future research because such difficulties eneountered when tryingto change may lead to organizational inertia or stagnation, making it difficult for firmsto remain competitive. CE may provide a clue as to how to avoid such inertia.

ENTREPRENEURIAL PROCESSES AND PEREORMANCE:REMOVING THE NORMATIVE BIAS

Much of the praetitioner-oriented literature on entrepreneurial processes and relatedconcepts has claimed that such activities are inherently linked to higher firm perfor-manee (e.g., Peters & Waterman. 1982). We are also bombarded by articles in thepopular press with titles such as "Hooray for risk" (Postrel. 1995) and "Innovate or die"(Young, 1994). This type of normative bias is also found in the academic literature.Schuler, for example, argues:

. . . other things being equal, the greater the rate of product innovation, the greaterthe level of effectiveness, particularly higher profitability and growth as well asenhanced ability to survive and be competitive (1986. p. 607).

We believe, however, that the relationship between entrepreneurial processes and per-formance is an important empirical question. Otherwise, one implicitly assumes thatfirms that are first-movers, incur the greatest business and financial risk, and spend themost on innovative activities, would always be rewarded in the marketplace. However,many firms that, for example, aggressively pursue eost leadership strategies and de-emphasize innovation and risk taking (such as Emerson Eleetrie and Lincoln Electric)are also stellar performers. Additionally, research has indieated that firms may enjoy agreater long-term benefit from imitation strategies than from high levels of innovative-ness (Nelson & Winter. 1982).

We believe an important antecedent activity—prior to addressing the relationshipbetween entrepreneurship and performance, as well as other contingent relationships^—involves clarifying and defining key concepts. Accordingly, our distinction between theconcepts of "entrepreneurship" and "entrepreneurial orientation" (Lumpkin & Dess.1996) parallels the one in the strategie management literature between content andprocess (Bourgeois. 1980). Entrepreneurship refers to the content of strategy, which wedefine as new entry, that is, the act of undertaking a new venture. This can be achievedby entering new or established markets with new or existing goods or services, and maybe undertaken by a start-up tlrm, an existing firm, or via "internal corporate venturing"(Burgelman. 1983). Such a distinction is consistent with others in the entrepreneurshipliterature, ineluding Vesper (1988). who equated entrepreneurship with "new indepen-dent business creation." In the context of corporate entrepreneurship. new entry refers toentering into a market for the first time, as opposed to introducing new or existinggoods/services into a familiar market, that is, one where the firm is already doingbusiness.

The strategy literature has also identified many dimensions or attributes that ean be

94 ENTREPRENEURSHIP THEORY and PRACTICE

characterized as entrepreneurial processes, what we call a firm's "entrepreneurial ori-entation", i.e., "the methods, practices, and decision-making styles managers use to actentrepreneurially" (Lumpkin & Dess. 1996). Drawing on a vast body of literatures, fivedimensions were identified, ineluding autonomy, innovativeness, risk taking, proactive-ness. and competitive aggressiveness (e.g.. Kanter, 1983; Miller, 1983; MacMillan &Day. 1987).

A central issue becomes: are these "subdimensions" of an entrepreneurial orientation(EO) independent of each other or do they covary. In an earlier study of 32 firms. Dess,Lumpkin. and Covin (1997) found that items that tapped several subdimensions of theentrepreneurial orientation construct loaded on a single factor that was independent ofother strategy-making process (SMP) constructs, i.e., participative SMP, adaptive SMP.and simplistic SMP. However, in a separate study of 52 firms. Lumpkin (1996) foundthat subdimensions of an entrepreneurial orientation—innovativeness. risk taking, pro-activeness. and competitive aggressiveness—were independent of each other, that is,loaded on separate factors. Here, multiple items were used to operationalize only the EOsubdimensions and no other process constructs were operationalized. Thus, although theresults may, to some extent, be an artifact of the research method and operationalizations,we feel it raises two important researeh questions: (1) is the EO construet independentof other process constructs, and (2) are the subdimensions of the EO eonstmet indepen-dent of each other? Although there has been limited theoretical (Mintzberg, 1973) andempirical (Miller. 1983) research addressed at the first issue, we believe that the secondreseareh question has been assumed away. That is. several researehers have developeda unidimensional EO scale by summing items which, typically, operationalize the con-cepts of risk taking, proaetiveness, and innovation (e.g., Covin & Sievin, 1989). How-ever, common observations of business practice would lead one to conclude that thesubdimensions may. in fact, covary. Consider, for example, John Deere & Co.'

With long term demand for farm equipment weakening and competition intensify-ing, John Deere's 1991 sales declined by 11% to $6 billion and Deere had a smallloss versus 1990 profits of $411 million (Kelley. 1994; Siegel. 1996). Deere CEOHans W. Beeherer felt that the quickest way to adapt to the tougher environment wasto reach out to his workforce. Beeherer got them involved in a number of nontra-ditional ways. John Soliz, a 26-year veteran, spent 1993 traveling throughout theMidwest as a Deere pitchman, logging over 7,000 miles speaking to groups offarmers. David Rowe was on the road three weeks out of four, visiting eustomers anddealers, and instmcting them in maintenanee procedures.

Deere has also gotten its workers involved in cost reduction. At its Davenport,Iowa plant, cost reduction teams meet weekly to simplify assembly processes andeliminate production problems. Worker participation has helped Deere cut eosts andreduee design times by 33% over a three-year period. Empowerment has reapedbenefits for Deere, whose financial performance has shown dramatic improvement,with 1995 sales up 42% over 1991 and record earnings of over $700 million.

Referring back to the subdimensions of EO, does a high level of autonomy, innovative-ness, risk taking, proaetiveness. and competitive aggressiveness characterize John Deere& Co.? Probably not! Although most would agree that Deere's human resource practices,especially empowerment, are highly innovative, there is, perhaps, littie evidenee tosuggest a preponderance of EO. Perhaps its successful experiment with empowerment

I. Some of the examples in this section draw on J. Picken and G. Dess. 1997. Mission critical: The sevencommon strategic mistakes lhal can derail even the smartest companies. Burr Ridge, IL: Irwin ProfessionalPublishing.

Spring, 1999 95

actually reduced its need to be more competitively aggressive (e.g., through intensifiedprice competition) or its propensity to take risks (e.g., through more long-term debt tofinance weakened operations).

Next, consider the innovative control mechanisms used at Automatic Data Process-ing (ADP):

Josh Weston, ADP's CEO, believes that his firm's long-term success can be attrib-uted to decentralization, motivation, and "strong cuhural awareness" (Nulty. 1993;Weston, 1992). He fosters what he calls a "relatively apolitical atmosphere" in orderto minimize turt guarding and secrecy, as well as to promote candor. All of its 20.000employees are ealled "associates" for good reason—more than half own ADP stock.They clearly have a vested interest in the firm's success, and culture and rewardsplay a significant role in ADP's model of strategic control. Boundaries are alsoimportant.

Weston backs up decentralization and empowerment with effective controis anda hawkish eye for detail. Approximately one-fifth of the 250-member corporate staffare aecountants, who carefully monitor performance in the company's 50 data pro-cessing locations around the U.S. and Europe. Once a month, Weston directs one ofthe accountants to give him a batch of 40 to 50 randomly chosen ADP accountspayable receipts, which he examines for ways to cut costs. Weston also visits all 50locations at least once a year and requires all senior executives to do likewise. "Youcan't be aware sitting behind a desk."

As with the John Deere example, innovativeness in one aspect of an organization'soperation—in the ADP case, personal and impersonal monitoring—can serve to reduceoverall risk, especially with regard to unanticipated variance in performance across anorganization's activities. It also enhances top management's ability to anticipate prob-lems, thus, in a sense, lessening the need for proactive behavior.

The examples of John Deere & Company and ADP also demonstrate the need toconsider a firm's entrepreneurial orientation in the context of its value chain (refer toPorter, 1985; Quinn, 1992). That is, for a given firm, what activities (either primary orsupport) can be characterized as entrepreneurial, how are they related to other activities,and do they enable a firm to sustain competitive advantages (Barney. 1991)? Such anapproach will not only ease the identification of sources of entrepreneurial activity, butalso provide a stronger impetus for descriptive and normative theory building. Theintegration of resource-based theory can also provide additional insights by investigatinghow socially complex intraorganlzational behavior (Mahoney & Pandian, 1992; Barney.1992) can enhance a firm's competitive position through entrepreneurial activities. Tbeinnovative control mechanisms used by Josh Weston at ADP, for example, should haveimportant implications for the firm's leadership and culture. Such monitoring wouldlikely strengthen employees' desire to excel and the infusion of employee stock own-ership should lessen agency problems and lower transaction costs.

Closely related to the need to view entrepreneurial process constructs as multidi-mensional is the corresponding imperative for researchers to explicitly address tradeoffsassociated with generalizability, accuracy, and simplicity (Weick. 1976) in the devel-opment and measurement of the constructs. Eor example, prior research suggests that theinnovativeness component of an entrepreneurial orientation can be broken down intoadministrative and technological innovation (Ibarra. 1993). Does the additional accuracythat might be achieved by incorporating "subdimensions" of innovativeness into ananalysis more than offset the loss of parsimony? Another example is the distinctionbetween business and financial risk. That is, do performance implications and relation-ships among key variables differ when risk taking is operationalized as entry into

96 ENTREPRENEURSHIP THEORY and PRACTICE

untested new product-markets versus viewing risk taking as financial leveraging? An-other issue is the extent to which other process variables may contribute to or detractfrom entrepreneurial processes. Eor example, empowering employees may be vital tocorporate innovativeness by encouraging openness and creativity in problem solving.However, an empowered work force may be detrimental to efforts to respond quickly oraggressively to competitors" moves if its outspokenness or participative processes evoketoo much debate.

A final process issue is that the interdependent roles of formulation and implemen-tation must be recognized and integrated into research and practice. This may be espe-cially important in a CE setting where strategic planning often occurs outside the normalcourse of business activity. Thus, the method by which an innovative concept or astrategic renewal project is introduced in a corporate setting is likely to influence thesuccess of its implementation. In this respect, the extent to which the culture andleadership of an organization rationalizes the link between innovative or risky new"formulas for success" and the means by which new ideas are integrated into the workflow may be critical for the effectiveness of entrepreneurial endeavors. The extent towhich a firm's processes and style are entrepreneurial may also vary along the formu-lation-implementation continuum. Eor example, a firm may be relatively low in inno-vativeness and proactiveness in its approach to new entry, but incur significant risksthrough large investments in plant, equipment, and human capital during the implemen-tation phase of a new venture. Thus, process subdimensions must be viewed not only asmultidimensional and independent, but temporal as well. As these few examples suggest,entrepreneurial processes are among the most important areas for future research and arevery likely to have significant implications for corporate managers.

CONCLUSION

In this paper, we have suggested research avenues for investigating CE by drawingon the literature from three separate conceptual domains: strategy, structure, and process.Additional insights can be gleaned through the exploration of how such constructs maybe combined or uniquely configured with elements of corporate entrepreneurship toaffect organizational functioning. The strongest test of such new combinations involvesevaluating how they will contribute to firm performance and success. Indeed, priorresearch suggests that multivariate combinations of strategy, structure, and process vari-ables may be better predictors of firm perfonnance than bivariate combinations (Miller,1988; Dess, Lumpkin, & Covin, 1997). Future research needs to consider the linksbetween these concepts, corporate entrepreneurship. and performance.

Measuring the efficiency and effectiveness of different entrepreneurial strategies,structures, and processes will be critical in developing normative theory and usefulprescriptions for practicing managers. The relationship between corporate entrepreneur-ship and performance is complex, however, due to the multidimensional nature of theperformance construct (Lumpkin & Dess. 1996). Researchers need to recognize thatentrepreneurial activities or processes may lead to favorable outcomes on one perfor-mance dimension and unfavorable outcomes on different performance dimensions. Eorexample, heavy investment in the joint development of a new technology may enable afirm to achieve a competitive advantage and sales growth over the long term but theresource commitment that such an investment requires may detract from short-termprofitability.

Euture research should attempt to capture the temporal aspects of corporate entre-preneurship by including multiple measures of the same performance or outcome con-struct (e.g.. multiple indicators of profitability). The literature generally supports the

Spring. 1999 97

notion that corporate entrepreneurship is related to performance but the relationship maynot be immediately apparent. In fact, recent empirical research suggests that the benefitsof corporate entrepreneurial activities and processes often take many years to come tofruition (Zahra & Covin, 1995). Thus, research focusing only on short-term outcomesmay produce misleading results and confound the descriptive and normative theory-building process.

Two innovative measures of firm performance, economic value added (EVA) andmarket value added (MVA). have recently received considerable attention. Unlike con-ventional accounting measures of profitability. EVA and MVA attempt to measure "thedifference between the value of a firm's output and the cost of the firm's inputs" (Kay,1993). EVA and MVA may be superior to conventional accounting profitability mea-sures (e.g., ROI) because they recognize the cost of capital and the riskiness of a firm'soperations (Lehn & Makhija, 1996). Market value added appears to be especially well-suited for the study of corporate entrepreneurial activities because it represents thedifference between the market value of a firm and the economic value of the capital itemploys. MVA measures the stock market's estimate of the net present value of a firm'spast and expected capital investment projects. Thus, it should provide a useful estimateof future returns on current entrepreneurial activities.

Additional research incorporating non-financial criteria is also needed to betterevaluate the outcomes of corporate entrepreneurial activities or processes for at least twoprimary reasons. Eirst. non-financial outcome measures such as employee retention andsatisfaction, public image, and reputation may be insightful in accessing near-termoutcomes. Second, non-financial outcome measures could be used with longer-termfinancial measurements to assess potential causal relationships. Eor example, a compa-ny's efforts to successfully adopt the modular organizational form may be hindered byits employees' sense of insecurity and dissatisfaction due to aggressive outsourcingactions. There is still much to be leamed about how non-financial outcomes of corporateentrepreneurship affect overall organizational performance.

Einally, the effectiveness and efficiency of different entrepreneuriai strategies, struc-tures, and processes is best addressed through longitudinal studies rather than cross-sectional studies. Detailed field work is needed to help ensure that researchers avoidmaking overly simplistic assumptions about corporate entrepreneurial activities. Suchresearch should entail fme-grained (Harrigan. 1983) methodologies including extensivefield research and case studies. Such approaches could help researchers examine stra-tegic objectives and their role in entrepreneurial behavior. Eield research would also helpimprove the quality of outcome measures. Eor example. longevity may serve as a usefulperformance measure for joint venturing activities in many situations. This proxy isseverely undermined, however, if the strategic objectives of the partners were best servedby a relatively quick end to their joint venture.

As noted in our introductory section, our goal in suggesting future avenues forresearch inquiry has been to stimulate debate and critiques. With Murray Davis (1971)as our guide, we have endeavored to "deny the assumption base" of previous strategy,structure, and process literatures by looking at how these issues might uniquely relate tocorporate entrepreneurship. The result, we believe, is a "full plate" of research questionsand many fruitful areas of future inquiry.

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Gregory G. Dess is the Carol Martin Gatton Professor of Leadership and Strategic Management at theUniversity of Kentucky.

G. T. Lumpkin is Assistant Professor of Management at the University of Illinois at Chicago.

Jeffrey E. McGee is Associate Professor of Management at the University of Texas at Arlington.

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