07 April, 2015

Entrepreneurship and family owned business.

Entrepreneurship is building a dream more than building a business. A great sense of achievement is the reward which is dear to an entrepreneur more than the financial reward which business gives. Family managed business The micro, small and medium enterprise sector is crucial to India's economy. MSME finance in India are 29.8 million enterprises in various industries, employing 69 million people. This sector accounts for 45 per cent of Indian industrial output and 40 per cent of exports. Although 94 per cent of micro, small and medium firms are unregistered, the contribution of the sector to India's GDP has been growing consistently at 11.5 per cent annually, which is higher than the overall GDP growth of 8 per cent (this is 2013 data). MSME sector is synonymous to family managed business in India but do you know only less than four per cent of family businesses last up to the fifth generation, most families are unable to sustain the entrepreneurial spirit of the first generation promoter. So what is it that is important for sustainability of family run business. To sustain the entrepreneurial spirit of the first generation promoter is the most important task which a small business must undertake. The first generation of business has the enthusiasm which sustain the entrepreneurial spirit but the later generations are more involved in operations and running of exiting business that the entrepreneurship orientation.



Now, What is entrepreneurship orientation? And how important is it for a family owned business? Simply - Entrepreneurial orientation (EO) is a firm-level strategic orientation which captures an organization's strategy-making practices, managerial philosophies, and firm behaviors that are entrepreneurial in nature[i]. It represents the policies and practices that provide a basis for entrepreneurial decisions and actions. Thus, EO may be viewed as the entrepreneurial strategy-making processes that key decision makers use to enact their firm’s organizational purpose, sustain its vision, and create competitive advantage(s)[ii].

Sandra Schillo in article - Entrepreneurial Orientation and Company Performance: Can the Academic Literature Guide Managers?[iii] Explains components of EO –

The most widely used definition of EO is based on work by Miller[iv] (1983), developed further by Covin and Slevin[v] (1989) and many others, and augmented by Lumpkin and Dess[vi] (1996). This conceptualization has been used in over 200 studies focusing not only on entrepreneurship, but ranging from management and marketing to healthcare (George and Marino, 2011)[vii]. The five components of EO in this stream of research are:

1. Risk-taking was historically a key characteristic associated with entrepreneurship. It originally referred to the risks individuals take by working for themselves rather than being employed, but has since been widely applied to companies, for example, when managers make decisions that commit large amounts of resources to projects with uncertain outcomes.

2. Proactiveness describes the characteristic of entrepreneurial actions to anticipate future opportunities, both in terms of products or technologies and in terms of markets and consumer demand. This characteristic was at the centre of early economic thinking in this field: the entrepreneur was thought of as someone who identifies opportunities in the marketplace and proactively pursues them (Lumpkin and Dess, 1996). Translated to the level of the firm, proactive companies are leaders in the market, rather than followers.

3. Innovativeness relates to the types of products and services a company has introduced to the market. For some theorists, innovativeness is intrinsically linked to entrepreneurship in that entrepreneurs create new combinations of resources by the very fact of their entry into the market. In the context of EO, innovativeness is defined more narrowly, emphasizing the importance of technological leadership to the company, as well as changes in its product lines.

4. Competitive aggressiveness refers to the company’s way of engaging with its competitors, distinguishing between companies that shy away from direct competition with other companies and those that aggressively pursue their competitors’ target markets.

5. Autonomy “refers to the independent action of an individual or a team in bringing forth an idea or a vision and carrying it through to completion” (Lumpkin and Dess, 1996) without being held back by overly stringent organizational constraints.  Although this component seems to primarily have “face validity” in the context of large organizations, many researchers have applied it to the context of small companies and obtained statistically significant findings.

The components have typically been measured using questionnaire items with Likert-type scales (i.e. from 1-5 or 1-7), as shown in Table 1. Some researchers have anchored the items of both sides of the scale (i.e., they provided explanations of both the 1 and the 7), while others have only provided a single statement to be ranked (e.g., as shown in Table 1). There is some evidence (Miller, 2011) that suggests that the scale remains robust even with slight variations in the wording of questions or other minor measurement variations.







[i]  Anderson, Brian; Covin, Jeffrey; Slevin, Dennis (2009). 
[ii] Rauch, Wiklund, Lumpkin, Frese (2004) Entrepreneurial orientation and business performance: an assessment of past research and suggestions for the future
[iii] http://timreview.ca/article/497
[iv] http://www.jstor.org/discover/10.2307/2630968?sid=21106375518283&uid=4&uid=2&uid=3737496
[v] http://onlinelibrary.wiley.com/doi/10.1002/smj.4250100107/abstract
[vi] http://www.jstor.org/discover/10.2307/258632?sid=21106375518283&uid=4&uid=3737496&uid=2
[vii] http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6520.2011.00455.x/abstract

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