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With limited resources and the need for constant innovation, entrepreneurship is perceived as an important factor for assuring economic growth and development at the venture and national levels. In this conceptual paper, we focus our analysis to corporate entrepreneurship as it contributes to the innovative processes within a venture. Though corporate entrepreneurship is a quite well explored phenomenon, few efforts have been made to elaborate on the antecedents and cohesion between dynamic capabilities and corporate entrepreneurship especially for high growth economies. This paper aims to explore the role of the dynamic capabilities as the antecedent of corporate entrepreneurship and the nature of the cohesion between them. The authors model the cohesion between dynamic capabilities and corporate entrepreneurship and argue that it generates business innovations that in turn generate aggregate demand and growth of the economy.
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Modeling Dynamic Capabilities and Corporate Entrepreneurship for innovation
focused growth economies
Ruta AidisSenior Fellow, George Mason University
Senior Researcher, Kaunas University of TechnologyAsta Pundziene, Vice Rector of Research, KTU
Solveiga Buoziute-Rafanaviciene, Assoc. Professor, KTU Monika Petraite, Dean, Social Science Faculty, KTU
Sigita Neverauskaite, PhD CandidateEvelina Meiliene, Head, Development Project Center
Center for Entrepreneurship and Public Policy (CEPP)
R. Aidis - RENT XXVII - Vilnius - 2013 2
Objectives
• Explore how entrepreneurship and dynamic capabilities have been quantified
• Identify the essential components • Introduce a model and framework
Goal: To create a quantitative measurement tool for dynamic capabilities and corporate entrepreneurship at the firm level
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Outline
1. Introduction2. Quantifying Entrepreneurship for cross-
country comparison3. Quantifying Dynamic Capabilities for cross-
country comparison4. Assessment, Essential Components,
Framework and Model
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I. Introduction
• no clear conceptual model for the interrelationships among dynamic capabilities, corporate entrepreneurship, innovation and economic growth.
• Some suggest that entrepreneurial activities are antecedents of dynamic capabilities (Lei-Yu 2007)
• Others identify dynamic capabilities as a moderating variable for developing innovations (Zahra, Sapienza and Davidsson 2006)
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Our perspective
Dynamic capabilities (DC) = creating the conditions for the implementation of innovative practices as well as new knowledge and concept development through learning
Entrepreneurship = impetus to apply new knowledge and concepts through experimentation and institutionalization of innovations
• Within firms, dynamic capabilities are the foundations for corporate entrepreneurship
• Which creates a double loop for organizational learning.
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Our working model
Economic growth
Tech and innovation based business
Corporate entrepreneurship
Dynamic capabilities
Antecedent Input Output Consequent
Growth in GDP, jobs, demand& supply
Innovation level: Innovations in model; product; services, investment in R&D etc.
Opportunity search; recognition; exploitation.
Analytical system; organizational settings for; Learning & knowledge management
Antecedent Co
nseq
uent
Learning loop
Back loop
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2) Quantifying entrepreneurship: Suitable conditions
Institutions matter for entrepreneurship development
(Baumol, North, and others)
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Quantifying Entrepreneurship: individuals
• Global Entrepreneurship Monitor (GEM)– Total Entrepreneurship Activity (TEA)– Entrepreneurial attitudes, activity and aspirations
• Global Entrepreneurship and Development Index (GEDI)- Institutional and Individual Variables combined- Penalty for Bottleneck methodology- Brings in data from the World Bank’s Ease of Doing business Index- World Economic Forum’s Global Competitiveness Index
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Quantifying Entrepreneurship within firms: Corporate entrepreneurship
Entrepreneurial Employee Activity (EEA) – GEM• 54 countries in 2011• EEA characteristics
– Similar to TEA: skills, opportunity, fof, know entrepreneur
– Less exposed to financial risk– Access to additional resources
• EEA not very widespread – 5% of employees• Most prevalent in innovation driven economies
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EEA in selected countriesCountry Entrepreneurial Employee
Activity (EEA)Total Entrepreneurship Activity (TEA)
Lithuania 3.4 11.3
Poland 2.3 9.0
Slovakia 2.7 14.2
Latvia 2.2 11.9
Denmark 9.2 4.6
Sweden 13.5 5.8
Finland 8.0 6.3
US 5.3 12.3
Germany 3.5 5.6
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EEA explained
• Countries with high rates of EEA tend to– Highly educated employees– High level economic freedom– High level of social security– ‘perceived employer support’ – National cultural that supports job autonomy
• Supportive internal organizational culture• EEA is most prevalent in the private sector (2/3)
but also takes place in the public sector (1/3)
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Conceptualizing DC:Teece et al (1997, 2007)
Adapting, integrating and reconfiguring internal and external organizational skills, resources and functional competences to match the requirements of the changing environment
Three stages of building DC:• Sensing• Seizing• Transforming
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Conceptualizing DC
In terms of organizational learning (March 1991)
Exploring vs. Exploiting resources
Exploring: search, variation, risk-taking, experimentation, play, flexibility, discovery and innovation
Exploitation: refinement, choice, productions, efficiency, selection, implementation and execution
Are inter-related activities (Zollo & Winter 2002)
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Quantifying Dynamic Capabilities 1• Deeds et al (1999) 94 biotech company IPOs – firm, environment,
quality of team
• Alvarez and Merino (2003) Savings and Loans institutions in Spain – firm & environment
• Lei-Yu Wei (2007) 200 Taiwanese high-tech firms - managing resources, ability to respond, cooperative teams
• MacInerney-May (2012) 265 business units from 179 large companies in Germany – knowledge & capabilityflexible/decentralized/formalization supports DC
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Quantifying Dynamic Capabilities 2Alsos, Borch, Ljunggren and Madsen (2008)
Empirically test the validity of DC conceptualized as 4 types of activities: Internal Exploration/ ExploitationExternal Exploration/ Exploration
677 innovative firms in Norway
Renamed categories:1. External observation and evaluation2. External resource acquisition3. Internal resource reconfiguration4. Internal resource renewal
Dutch study (Leliveld & Smeitink, 2013)- 99 SMEs also found that age, education and international focus effects firm performance
16
Entrepreneurship, Innovation and Dynamic Capabilities Model
“Transforming”
Institutional Environment
Macro-level factors
External Incentives
•Regulatory Environment
•R&D Environment
•Macro-Stability
“Seizing”
Managerial practices
Firm-level factors
Internal Incentives
•Resources
• Decentralization
•Strategic Alliances
•Capabilities
“Sensing”
Individual-level responses
Entrepreneurial action (EEA)
•Opportunity Recognition
•Willingness to fail
•Skill & Capabilities
•Developing & innovative activity
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Measurement dimensions
Transforming : Institutional Environment
• R&D expenditure• Globalization• Business Risk• Regulatory environment• Social Security • National culture (Hofstede)• National values (World
Values Survey)• Economic Freedom
Seizing: Organizational Culture• Decentralization• Flexibility• Formalization • Exporting/Globalization• Internal/External
Exploring/Exploitation
Sensing: Entrepreneurial Employee characteristics
• Opportunity Recognition• Skills• Willingness to Fail• Age• Education
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Conclusions• Dynamic Capabilities are measurable• The overall institutional environment matters
and affects DC development which in turn affects corporate entrepreneurship
• Entrepreneurs and Entrepreneurial employees share many similar characteristics but may also be affected by different incentives
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Further steps
• Identify firm sample• Pilot dynamic capabilities measurements• Model development/testing/refining
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