Linking firm capabilities to entrepreneurial orientation and firm performance : evidence from small Swedish technological firms

• Numerous small technological firms are today operating in an uncertain and challenging environment. It can be argued that in such environment, the firm's capability to better utilizing their limited resources can be a source of better performance. This study focuses on two such firm capabilities, namely dynamic capability (DC) and ICT (Information and Communication Technology) capability. However, as Wang and Ahmed (2007) suggest, this link might not be direct but instead mediated through the firm's strategy. We will therefore also include entrepreneurial orientation (EO) as a possible mediator in our study.DC is seen as firm's ability to achieve competitive advantage especially in a turbulent environment (Teece et al., 1997). The research on DC has indicated a number of challenges. First, it has been difficult for scholars to clearly conceptualize DC and relate it to competitive advantage (Eisenhardt & Martin, 2000) and secondly, the research on DC has resulted in inconsistent and unrelated results (Zahra et al., 2006). During the literature review of DC, we identified three sub-parts of DC, namely absorptive capability, adaptive capability, and networking capability. Firms with higher degrees of absorptive capability are better able to identify and utilize external knowledge for commercial purpose (Cohen & Levinthal, 1990), firms with adaptive capability are able to quickly "identify and capitalize on emerging market opportunity" (Oktemgil & Greenley, 1996) and finally, firms with high degrees of networking capability are able to utilize inter-organizational relationships for own competitiveness. Using sub-facets (or specific constructs) to capture dynamic capabilities is consistent with prior research. For example, a recent study by Ahmed & Wang (2007), reviewed DC and suggested that it consists two or our three concepts as part of dynamic capability similar as those defined above. For technological firms ICT capability also seems indispensable and it may also produce competitive advantage (Venkatraman, 1994; Johannessen, 1999). We define ICT capability as a firm's ability to use a wide array of technology ranging from e-mails to local area networks for business purposes (Matlay & Addis, 2003). As both these concepts are a possible source for a firm's competitive advantage, we expect them to influence firm performance. However, as stated above, the influence from capabilities on performance may not be direct, but rather work through the firm's strategy and therefore EO can be a crucial link between capabilities and performance. EO is considered the small firm's strategic orientation and the relations between EO and performance is well established in the literature (Wiklund, 1999). So, if capabilities have a positive influence on EO, it could lead to better performance. The overall purpose for this paper is thus to investigate the effects dynamic capabilities and ICT capabilities have on EO and firm performance.Method:This study is mainly exploratory and to reach our purpose, we conducted a survey on 1471 small technological firms in Sweden. Technological firms are the frontrunners for global economy, and are likely to need the capabilities we discuss above. The firms we targeted were to have less then 50 employees (i.e. be small firms according to EU definition), have more then 1 million SEK in sales (to ensure an active firm) and doing business with IT related products or services. The questionnaire was sent out in Swedish during summer 2007 and resulted in 277 usable replies (20% response rate). Our key measurements were based on well established scales in literature and the questionnaire was pre-tested using small firm managers in similar industries as the targeted. Firm performance is multi-dimensional and includes three aspects (customer, sales and innovation). We control for environment factors (dynamism, hostility and heterogeneity.) and firms size (number of employees). During exploratory and confirmatory factor analysis, we did not observe any unexpected cross-loading or irregularity and the alpha value were satisfactory (between 0.67 - 0.88). Structural equation modeling (SEM) was used for the analysis.Results and Implications:Preliminary results from the SEM analysis show interesting results. If we look at ICT capability first, we find a strong link to dynamic capability for both the collaboration and communication facet. This supports thoughts of scholars that use of ICT influences firm capabilities (DC) by enhancing the firm's communication and information flow (Venkatraman, 1994). ICT capability is also weakly linked to EO (communication facet), but not at all to firm performance. Thus, ICT capability is not directly linked to better performance, but it enhances other capabilities (DC) which can be used for better performance (Porter, 2001; Mata et al., 1995). However, when looking at dynamic capabilities there are strong significant results both to EO and directly to firm performance. When looking closer at the results it becomes clear that all three aspects of DC show strong significance. Absorptive and adaptive capability is linked to EO and adaptive and networking capability is linked directly to firm performance (which also is the case for EO). Based on this, it seems dynamic capabilities is key to achieve completive advantage both in terms of EO and firm performance. Building and maintaining these capabilities should therefore be a priority for small firms, especially in a technological context, where constant change is likely to be a factor.Finally, since we tested the link between EO and performance with rather strong rival constructs (i.e. DC), we add strong further evidence for the EO - performance link (Wiklund, 1999).

Subject headings

TEKNIK OCH TEKNOLOGIER  -- Annan teknik -- Övrig annan teknik (hsv//swe)

ENGINEERING AND TECHNOLOGY  -- Other Engineering and Technologies -- Other Engineering and Technologies not elsewhere specified (hsv//eng)

Keyword

fasteass

Entreprenörskap och innovation

Entrepreneurship and Innovation

Centre - The Faste Laboratory

Centrumbildning - Fastelaboratoriet

Publication and Content Type

vet (subject category)

kon (subject category)