Corporate entrepreneurship, operations core competency and innovation in emerging economies

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Corporate entrepreneurship, operations corecompetency and innovation in emerging economiesChin-Chun Hsua, Keah Choon Tana, Jayanth Jayaramb & Tritos Laosirihongthongc

a Lee Business School, University of Nevada Las Vegas, Las Vegas, NV, USAb Department of Management Science, Moore School of Business, University of SouthCarolina, Columbia, SC, USAc Faculty of Engineering, Department of Industrial Engineering, Thammasat University,Klong Luang, ThailandPublished online: 08 May 2014.

To cite this article: Chin-Chun Hsu, Keah Choon Tan, Jayanth Jayaram & Tritos Laosirihongthong (2014) Corporateentrepreneurship, operations core competency and innovation in emerging economies, International Journal of ProductionResearch, 52:18, 5467-5483, DOI: 10.1080/00207543.2014.915069

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Corporate entrepreneurship, operations core competency and innovation inemerging economies

Chin-Chun Hsua, Keah Choon Tana, Jayanth Jayaramb and Tritos Laosirihongthongc*

aLee Business School, University of Nevada Las Vegas, Las Vegas, NV, USA; bDepartment of Management Science, Moore School ofBusiness, University of South Carolina, Columbia, SC, USA; cFaculty of Engineering, Department of Industrial Engineering,

Thammasat University, Klong Luang, Thailand

(Received 27 October 2013; accepted 30 March 2014)

This study used a blended view of corporate entrepreneurship and operations core capability as enablers of innovation.Survey data collected from automotive OEM suppliers in five emerging countries in South-east Asia are used to examinethe relationships among corporate entrepreneurship, operations core competency and innovation. We measured corporateentrepreneurship by its corporate culture and leadership, whereas operations core competency was operationalised by afirm’s knowledge management, technology management and process management. Finally, innovation is measured byprocess innovation and product innovation. Our analyses show that in the context of Asia, corporate entrepreneurshipaffects a firm’s operations core competency, which in turn affects innovation. Our findings provide valuable insightsabout the enablers of a firm’s operations core competency and innovation.

Keywords: entrepreneurship; knowledge management; technology management; process management; core competency;process innovation; product innovation

1. Introduction

In recent scholarly and managerial writings, there is considerable evidence that innovation is vital in shaping the long-term success of a firm in today’s competitive markets. The Austrian economist Joseph Schumpeter in the 1930s startedstudying how the capitalist system was affected by innovations. Schumpeter (1934) examined the type of companies thatwould excel in innovation and he introduced the notion of so-called ‘new combinations’. These new combinations referto the introduction of a new product or a new quality of an existing product, a new method of production, a new mar-ket, a new source of raw material or semi-manufactured goods or implementing a new organisation structure in anindustry (Schumpeter 1934, 66, 1939, 84–85). Schumpeter, later on, defined innovation ‘as the setting up of a new pro-duction function’ (Schumpeter 1939, 87, 1954). Innovation relies on the operations core competency of a firm (Ahmedand Wang 2007). Teece, Pisano, and Shuen (1997) and Teece (2007) defined innovation as the ‘firm’s ability to inte-grate, build, and reconfigure internal and external competences’. Broadly speaking, innovation is the development ofnew values through more efficient and effective products and processes. Product innovation focuses on the creation ofnew products and services or improvement of existing products and services. Process innovation focuses on the imple-mentation of new production or delivery methods, or substantially improved production or delivery methods.

The Schumpeterian perspective offers a rich theoretical foundation for understanding how firms pursue and sustaininnovation activities. According to this perspective, there are two primary drivers behind innovation: entrepreneurshipand core capabilities. Schumpeter (1954) argued that the innovation of a nation comes from entrepreneurs whom hecalled as ‘wild spirits’. He further asserted that the actors that drive innovation and the economy are companies thathave the resources and the capital to invest in research and development. Second, he saw firms as an idiosyncratic bun-dle of core capabilities that need to be tapped and deployed to enhance innovation prowess. For example, the operationscore competency approach incorporates Schumpeterian rents to explain sustainable competitive advantage for innovativefirms. Specifically, operations core competency is inimitable and can be defined as the ability to build, integrate andreconfigure internal and external competencies to address rapidly changing environments (Teece, Pisano, and Shuen1997; Teece 2007).

Despite the vast innovation literature base, evidence of the application of Schumpeterian perspective in operationsmanagement is rather limited. For example, we know little about how corporate entrepreneurship and operations core

*Corresponding author. Email: [email protected]

© 2014 Taylor & Francis

International Journal of Production Research, 2014Vol. 52, No. 18, 5467–5483, http://dx.doi.org/10.1080/00207543.2014.915069

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mailto:[email protected]

http://dx.doi.org/10.1080/00207543.2014.915069

competency influence innovation (Villa and Bruno 2013). Considering the role of corporate entrepreneurship mayprompt a paradigm shift and a fresh research perspective for understanding how firms develop their operations corecompetency through their entrepreneurial behaviour, as well as how entrepreneurial firms can leverage this operationscore competency to implement innovation practices efficiently.

Although considerable theories have been proposed to describe various aspects of operations management over thelast two decades, no single theory can adequately address the complexities of innovation (Wiengarten et al. 2013), espe-cially in the context of a developing nation. An integrated framework that draws upon Schumpeterian theoretical viewsto conceptualise a multifaceted antecedent of innovation efforts is needed for theory building and empirical testing. Inthis article, we utilise Schumpeterian theories to develop an integrated framework with which we analyse the influencesof corporate entrepreneurship and operations core competency as antecedents to innovation development in firms. Weexamine the role of specific drivers that engender success in innovation development. Prior literature considered innova-tion as it pertained to organisational strategy and performance (Akgün et al. 2014), but very little empirical researchhave attempted to uncover bundles of drivers or motivators that may precede the adoption of innovation. We attempt tocontribute to the literature by addressing the key motivators that drive innovation. Also, the benefits of corporate entre-preneurship and operations core competency are not well understood. Therefore, we conceptualise three new constructsthat were selected based on a series of interviews with academics and practitioners, and examine these constructs toexplore the motivation to implement innovation. On the basis of our initial findings, we propose a research model toempirically test the premise that several factors collectively drive innovation among manufacturing firms in emergingeconomies.

The motivation for conducting this research in emerging economies, specifically in South-east Asia, is fourfold.First, this research was funded by the Thailand Research Fund and the Higher Education Commission of Thailand toenhance the ASEAN countries’ automotive manufacturers’ competitiveness (Hsu et al. 2011). Second, the ASEAN Sec-retariat facilitated and coordinated the data collection process from automotive OEM suppliers in the five ASEAN coun-tries of Indonesia, Malaysia, the Philippines, Vietnam and Thailand. Third, these automotive OEM suppliers are primarysuppliers to the world’s major automotive manufacturers such as Ford, General Motors, Chrysler, Toyota, Honda andNissan (Li 2013). Fourth, South-east Asia is an important manufacturing hub for Western manufacturing firms that seekto outsource important component parts and other requirements. In particular, these countries represent alternative sourc-ing opportunities for OEMs in developed countries over and above China and India.

2. Theoretical background

The Schumpeterian school elaborates on the nature of innovation and addresses the economic-based and behaviour-based drivers of innovation. The operations core competency perspective provides an economic explanation of innova-tion, whereas the corporate entrepreneurship perspective provides a behaviour explanation of innovation.

2.1 Behaviour-based explanation of innovation (corporate entrepreneurship)

The Schumpeterian scholars see innovation as organisational behaviour to shape organisational identity and Schumpeter(1911) called ‘entrepreneur’ as ‘the agent of innovation’ and ‘the pivot on which everything turns’ in the first ever the-ory of entrepreneurship in his famous book Theory of Economic Development. Schumpeter (1934) defined entrepreneuras one who recombines existing factors or carries out new combinations in a business. This includes new products, pro-cesses and markets. The Schumpeterian followers advanced the relationship between innovation and entrepreneurship.Peters and Waterman (1982) found that ‘autonomy and entrepreneurship’ were crucial to innovation. Unlike executivesin large firms that are laden with bureaucracy, corporate entrepreneurs enjoy their autonomy to avoid formal proceduresand routines. Innovation resides in the autonomous strategic impetus of individuals at the operational levels (Burgelman1983) and is self-initiated (Kanter 1983).

Corporate entrepreneurship has turned into a growing phenomenon as entrepreneurial firms leveraged the opportunityto innovate. Corporate entrepreneurship refers to a process of opportunity recognition and pursuit that leads to growth,including opportunistic activities that create value and bear risk. Thus, it is strongly associated with innovation. Miller(1983) defined firms with corporate entrepreneurship as ones that engage in product-market innovation and undertakesomewhat risky ventures. These firms are typically the first ones to come up with proactive innovations, beating compet-itors to the punch. Non-entrepreneurial firms are ones that innovate very little, are highly risk averse, and imitate themoves of competitors instead of leading the way. Corporate entrepreneurship studies, which generally appear in strategicmanagement literature, concur that their conceptual domain consists of a major component: innovativeness. Firms with astrong entrepreneurial orientation tend to possess distinctive competencies and innovative outlooks, and are characterised

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by a managerial vision and innovative organisational culture that aims at achieving the firm’s goals through operations(Calantone, Gonzalez-Padron, and Hult 2008). Operations managers need an entrepreneurial orientation for active explo-ration of new businesses throughout the supply chain. Firms with limited tangible resources that want to pursue opera-tions strategies may need a strong innovative posture to take the initiative to pursue new opportunities in complex andrisky markets. An entrepreneurial orientation also should give rise to processes, practices and decision-making activitiesassociated with operations management activities and, thus, may contribute to firm innovation (Collier, Shin, and Wilson2000).

2.2 Economic-based explanation of innovation (operations core competency)

The Schumpeterian scholars see innovation as an organisational capability to infuse technological changes in productsor processes. Organisational capabilities emerge from routines, which are the so-called ‘genes’ in innovation (Nelsonand Winter 1982, 134). Routines are ‘most of what is regular and predictable about business behaviour’ (Nelson andWinter 1982, 15). By this definition, there are three classes of routines that are relevant to innovation: (1) the operatingroutine, (2) the investment routine and (3) the search routine (Nelson and Winter 1982, 17). The operating routine refersto daily activities, for example, in production within firms. The investment routine highlights an organisation’s long-timecommitment to financing the development of new technologies. The search routine furthers innovation efforts andresides within the research and development (R&D) department.

In the operations management contexts, the operating routine innovation is the one that called for most academicattention. Jelinek (1979) argued that operating routine innovation means codifying programme innovation. The purposeof operating routine innovation is to render a previously ad hoc innovation into a routine, which is a repeatable eco-nomic event. Organisational capabilities on operating systems or routines generate innovation.

The key notion behind operations core competency is a firm’s ability to respond to external market changes effi-ciently and promptly. Teece, Pisano, and Shuen (1997) showed that resources by themselves cannot be a direct sourceof competitive advantage; they must be translated into operations core competency to achieve competitive advantages.Operations core competency is a set of specific and identifiable corporate activities in response to technological changes.Through these activities, managers integrate and utilise resources to generate value-creating strategies (Wernerfelt 1984).Hence, they are the drivers behind the creation, evolution and combination of existing resources into innovative productsand processes. Business activities are the mechanisms through which resources and capabilities are exposed to marketprocesses, allowing their ultimate value to be realised, and their ability to respond efficiently and quickly to marketchanges to be enhanced.

To integrate the literature on Schumpeterian innovation and operations core competency within the operations litera-ture, we define operations core competency as the responsiveness and efficiency of cross-functional business activitiesfor creating and delivering innovative products and processes in response to technological changes (Brown andBlackmon 2005). It is, this focus on innovation development that distinguishes operations core competency from corecompetency in general. First, operations core competency can be measured by the speed with which an organisation’scross-functional activities of creating and delivering innovation respond to technological changes (Teece and Pisano1994, 542). Indeed, the innovation literature has long suggested that responsiveness to market changes, especially tech-nological changes, is critical for an organisation to achieve innovation (Scherer 1984). However, operations core compe-tency is different from general core competency. General core competency is related to a firm’s overall value andbusiness philosophy about the importance of survival (Prahalad and Hamel 1990), and can be reflected by total qualitymanagement (TQM), inventory control system and cross-functional coordination, or by the firm’s activities in humancapital generation, marketing responsiveness and effective financial planning. In contrast, operations core competency asconceptualised here is about an organisation’s capabilities in specific functional areas of operations to respond to techno-logical changes, and is reflected through the innovation of the firm’s cross-functional business activities (Hill 1995). Anoperationally superior firm may or may not possess operations core competency because the efficiency and responsive-ness of the firm’s cross-functional business activities are idiosyncratic and difficult for others to imitate.

3. Hypotheses development

We, therefore, propose that operations core competency and corporate entrepreneurship play distinct roles in contributingto a firm’s innovation. To guide the subsequent discussion, we depict the key constructs of this study in Figure 1. Fromour literature review and interviews, we propose that operations core competency and corporate entrepreneurship areantecedents to innovation and they play different roles in contributing to innovation. Using the Schumpeterian eco-nomic-based perspective, we propose that operations core competency antecedents pertain to knowledge management,

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technology management and process management which positively influence innovation activity. We further propose, onthe basis of the Schumpeterian behaviour-based perspective that corporate entrepreneurship enhances operations corecompetency which then positively affects innovation activity. The central theme of our proposed model, therefore, sug-gests that understanding the relationship among corporate entrepreneurship, operations core competency and innovationcan lead to a better understanding of the drivers of innovation.

3.1 Corporate entrepreneurship and innovation

The Schumpeterian school innovation literature shows that corporate entrepreneurship assumes an important role in thecreation of organisational innovation integration (Millson and Wilemon 2002), the intra-organisational diffusion of tech-nological innovation (Pae, Samiee, and Tai 2002), and its overall contribution to new product success (Souder andJenssen 1999). Covin and Slevin (1989) suggested that a corporate entrepreneurial posture was reflected in an aggressivecompetitive nature, innovation and a strong risk-taking propensity. The influence of corporate entrepreneurship on busi-ness can be explained by two mechanisms: corporate culture and leadership. Corporate culture is the normative influenceof top management on employee’s behaviours (Tichy, Fombrun, and Devanna 1982) while leadership is the belief ofemployees in top management (Kuhnert and Lewis 1987).

Corporate culture of an organisation must be able to support its business mission. It is broadly defined as the way inwhich things are done in an organisation (Schein 1999; Deal and Kennedy 2000). Kanter (1985) has emphasised thefundamental role corporate culture plays in motivating and shaping entrepreneurial behaviour in organisations. Establish-ing and nurturing entrepreneurial behaviour and practices so they become part of an organisation’s culture and ethos canprovide the opportunity to initiate renewal and create innovation. Entrepreneurial culture is centred squarely on accept-ing and managing the forces of change and creating new possibilities. In order to be creative and take risks, however,intrapreneurs need an environment of safety and freedom to experiment without fear of reprisal when initiatives do notlead to desired results.

Many of today’s innovation leaders intentionally create work environments that attempt to stimulate creativity andinnovation (Laurin 2010, 26). Balsano et al. (2008) proposed that leadership can increase innovation value potential bynurturing aspects of their corporate culture and environment that support innovative behaviour. It is also well acceptedthat hierarchical organisational structures are less supportive of innovation because creating an innovative environmentinvolves giving up some authority usually associated with leadership and even some ownership, whether legal orpsychological, in the organisation.

Top managers’ commitment to the innovation of their company is very important to the success of an organisation.Damanpour (1991) found that innovative corporate entrepreneurship was related to the attitudes of their leaders. Corpo-rate leaders, who show entrepreneurial behaviour, generally, have a positive impact on their employees (Pearce andKramer 1997). Also, researchers found that a visionary leader can inspire entrepreneurship in their organisation. In thecase of innovative behaviour, direct management support is a relevant and important aspect (De Jong 2007). Corporateinnovation efforts are triggered by the provision of top management verbal support (Krause 2004), recognition ofinnovative efforts (Dooley, Gryxell, and Judge 1997) and by enacted support, that is, providing resources to implementinnovations (Dooley, Gryxell, and Judge 1997; Krabbendam, Looise, and Nijhof 2002).

H1: Corporate entrepreneurship, which consists of (1) corporate culture and (2) leadership, positively affects innovation.

Figure 1. Theoretical framework.


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3.2 Corporate entrepreneurship and operations core competency

Corporate entrepreneurship means organisations discover, create, define and exploit opportunities – frequently wellahead of their rivals (Miller 1983; Hamel and Prahalad 1994; Sathe 2003). Kirzner (1997) stated that corporate entrepre-neurial attitude involves alertness to discoveries and the ability to seize opportunities. Denrell, Fang, and Winter (2003)argued that success in recognising strategic opportunities or options is an outcome of effort and luck combined withalertness and flexibility. A high level of corporate entrepreneurship supports the firm’s ability to recognise opportunitiesat an early phase. Firms often have to reconfigure their resources or capabilities in order to take advantage of theseopportunities. The active and effective implementation of corporate entrepreneurship strategies and practices improvesproductivity and enables firms to develop capabilities and match their assets to the requirements of a competitive busi-ness environment. Teece, Pisano, and Shuen (1997) proposed that the entrepreneurial firm’s ability to build, transformand reconfigure its capabilities in order to achieve new valuable resource combinations is crucial for sustaining competi-tiveness. Thus, firms that are active in implementing new or entrepreneurial strategies, methods and processes are betterprepared for developing operations core competency. Firms with advanced reconfiguration capabilities are expected tobe able to seize opportunities through new resource combinations and well-organised processes and structures. Hence,we propose that corporate entrepreneurship is reflected in the development of operations core competency.

H2: Corporate entrepreneurship, which consists of (1) corporate culture and (2) leadership, positively affects operations corecompetency.

3.3 Operations core competency and innovation

Operations core competency is a multidimensional construct. Based on our discussion in the theory section, we contendthat three cross-functional business activities – knowledge management, technology management and process manage-ment – are the key components of operations core competency.

Knowledge management is the cross-functional operations core competency of identifying, creating, representing,distributing and enabling adoption of insights and experiences to satisfy market needs and develop firm’s competitive-ness (Grant 2001). The operations literature has reported positive relationships between knowledge management andinnovation. For example, Autry and Griffis (2008) proposed a positive relationship between knowledge (supply chainknowledge development) and innovation; Chapman, Soosay, and Kandampully (2003) stated that knowledge is impera-tive in the quest for innovation; and Flint, Larsson, and Gammelgaard (2008) showed a direct positive relationshipbetween supply chain knowledge and innovation. Knowledge management has the potential to significantly reduce thecycle-time of developing new technologies. Such insights and experiences comprise knowledge, either embodied in indi-viduals or embedded in organisational processes or practice. For example, in the context of developed economies, thelate co-founder of Apple Inc, Steve Jobs, revolutionised the consumer electronic industry through his unique knowledgeof consumer electronics and the market. Similar patterns can be introduced in the context of developing economies aswell. For instance, Proton, the first Malaysian automobile manufacturer, was established in 1983 to produce cars forMitsubishi. In order to design its own new model, Proton used knowledge management system to capture the knowl-edge and skill from Mitsubishi Motors. Tacit knowledge which is embedded in Mitsubishi car manufacturing processeshas to be converted to explicit knowledge for Proton’s technicians to learn. In 2001, Proton’s first internally designedcar was launched.

Technology management is defined as the cross-functional operations core competency of designing, managing andintegrating the firm’s technological fundamentals to create competitive advantage (Utterback 1971). It typically includesthe integrated planning, design, operation and control of technological processes. For example, Foxconn, an Asian sup-plier, manufactures most of Apple’s products and has built a reputation to become the world’s largest electronics con-tract manufacturer. Technology management has forced innovation in business as they must adapt to new technologytools (Chapman, Soosay, and Kandampully 2003). Daugherty, Genchev, and Richey (2005) used resource-advantage the-ory to propose that technological management has a positive impact on innovation. Technology management plays thekey role of accumulating firm’s competitiveness because innovation in the global automotive industry has intensified. Ina large-scale survey, the Boston Consulting Group (BCG) reports that from 1995 through 2011, the number of patentapplications filed by major automakers increased by only 3% annually, while the number of filings by tier-one suppliersrose to 6% a year. Major global automakers have invested significantly on R&D. This pattern has persisted in Asia. Forinstance, in Indonesia, Astra Daihatsu Motor, the biggest car manufacturer in South-east Asia, announced $64 millioninvestment to build its R&D centre in July 2012. In Thailand, Nissan opens its first overseas vehicle-testing facility inthe ASEAN region to strengthen Nissan’s R&D capabilities in the region in September 2013.


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Process management is the cross-functional operations core competency of exploiting techniques, skills, tools andmethods that are used to control and manage a business process within a firm (Davenport, Jarvenpaa, and Beers 1996).It includes activities to clearly identify and document all the steps and actions taken to complete firm’s operation (Zhanget al. 2013). It also requires a great attention to detail, excellent written communication skills, analysis skills and theability to objectively meet the requirements of the project (Ayhan et al. 2013). Process management is the shared under-lying component of a series of quality-related initiatives, including TQM. Collaborative processes have been shown tolead to innovation (Håkansson and Persson 2004). This pattern is also prevalent in the context of Asia. For instance,Ingress Corporation Berhad started as a small automotive module manufacturing plant to serve Malaysian national car-makers: Proton and Perodua. Through successful implementation of process management initiatives such as ISO 9000,QS 9000, Kaizen and lean production system, the company has enjoyed significant quality, delivery, cost and moralimprovement throughout the organisation. The company has expanded its business to serve major global automakers,like Toyota, Suzuki, GM and Ford. It was selected for the Japan-ASEAN TQM project as a first generation of TQMModel Company in Malaysia.

Browning, Sitkin, and Sutcliffe (2000) proposed that the question of how process management affects innovation isincreasingly important, as the influence of process-focused activities increasingly spreads to areas of exploration or vari-ation creation in organisations. Process management is often related to new product development processes (Cole andScott 2000; Repenning and Sterman 2002). Process management activities can influence technological innovation byaffecting an organisation’s tendencies to build on familiar knowledge in its innovation efforts (Benner and Tushman2002). Utterback (1971) proposed a model of process management to demonstrate the driving force of customer needsand technical means leading to innovation and eventual delivery of new offerings to the marketplace (Revilla, Sáenz,and Knoppen 2013). The author further identified three sub-processes: (1) idea generation (2) problem-solving and (3)implementation and diffusion.

The rationale for our focus on these three innovation-related cross-functional operations core competency is three-fold. First, they comprise specific functions that serve as mechanisms for resource combination, integration and deploy-ment. Second, they are critical to the creation and delivery of innovation. Third, they are interrelated, in that theyjointly affect the competitive advantage and innovation performance of a firm engaged in supply chains. Therefore,based on the above discussion, we propose:

H3: Operations core competency, which consists of (1) knowledge management, (2) technology management, and (3) processmanagement, positively affects innovation.

We depicted our hypothesised model in Figure 2 and summarised the literature in support of our hypotheses in Table 1.

4. Methodology

4.1 Questionnaire and data collection

A set of survey data collected from automotive OEM suppliers in five ASEAN countries (Indonesia, Malaysia, thePhilippines, Vietnam and Thailand) was used to test the research model. The data collection effort was a part of a largerfunded initiative called the ‘Proposed ASEAN Policy Blueprint for small and medium manufacturing enterprise (SME)Development 2004–2014’ to improve competitiveness and enhance capabilities of ASEAN automotive OEM suppliers(Hsu et al. 2011). The ASEAN Secretariat assisted with the design of the survey instrument and coordinated data collec-tion effort that targeted toward senior and mid-level production, purchasing and quality assurance managers of tier

Figure 2. Research hypotheses.


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automotive-OEM suppliers in the five countries. A total of 165 usable responses were received. Response rates rangefrom 32% in Indonesia to 74% in the Philippines. Most respondents worked for tier-1 suppliers, and about half of themwere employed by joint ventures or foreign direct invested firms.

Table 1. Summary of hypotheses and supporting literature.

Hypotheses Past literature Findings/descriptions

H1: Corporate entrepreneurshippositively affects innovation

Drucker (1985) First scholar suggests co-relation between entrepreneurship andinnovation

Thurik andWennekers(1999)

Entrepreneurship and Innovation are synonymous and are positivelyco-related to each other

Fromholtz et al.(2004)

Leadership is a key attribute in entrepreneurship and it helps directactivities within an organisation. To identify if entrepreneurship is akey contributor to organisational innovation, leadership identificationis critical

Lewin, Lippit,and White (1939)

A potential duality between entrepreneurship and innovation ishypothesised, ecology explored and strategy addressed

Autio et al.(2005)

Entrepreneurship, if cultural and environmental conditions are met, isone of the most logical sources for organisational innovation whichbest influences economic growth

Zhao (2005) Entrepreneurship may also be categorised as a naturally occurringeconomic phenomenon, one that leads to new development. Thus,entrepreneurship potentially incubates innovation

Scherer (2003) Corporate entrepreneurship suggests a process of utility of knowledgethat results in a new process, technique and even product

McAdam andMcConvery(2004)

Since innovation is user-produced, users need to be democratised tosupport not only entrepreneurial spontaneity, a known source ofinnovation in organisations, but also to make such spontaneitypossible

H2: Corporate entrepreneurshippositively affects operations corecompetency

Shane andVenkataraman(2000)

Entrepreneurship deals with issues like identifying opportunity,mobilising resources and organising the institution

Kirzner (1973) Through the entrepreneur who coordinates supply and demand andproves to be a more efficient and effective resource allocation

Liu, Luo, and Shi(2002)

Entrepreneurship is a business culture that might foster a firm toactively enter new markets and to introduce new products

O’Cass andWeerawardena(2004)

Entrepreneurship might be a very important influence factor for afirm’s sustained competitive advantage

Jeffrey andMorgan (1999)

Corporate entrepreneurship leads to firm’s competitive advantages

Villa and Bruno(2013)

Corporate entrepreneurship in SMEs promotes cooperativeaggregations and leads to competitive advantages

H3: Operations core competencypositively affects innovation

Fitriah and Wafa(2006)

Empirical evidence from Malaysian manufacturing firms confirmedthat capability affects innovation

Venkataraman(2004)

Resources have been identified as an important dimension forinnovation development efforts

Mathews (2006) The recombination of resources and capabilities within the firm is theimplementation of the strategic choice and it leads to innovation

Chao and Murray(2005)

It was also argued that resources and capabilities affect firm’s newproduct innovation in foreign markets

Charnov andMontana (2000)

Production process as resources are the ultimate tools that is used bythe firms to improve innovation

Wiengarten et al.(2013)

Process management leads to a company’s innovativeness

Ayhan et al.(2013)

Case studies to show how to develop innovation through processmanagement


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4.2 Measured items and measurement scales

To test the proposed model, we designated SMEs as our sampling frame. We used existing scale in the literature andfeedbacks from in-depth interviews with real-world managers to design the questionnaire. An extensive literature reviewhelped us to locate measurement scales and information for each construct. These in-depth interviews helped us ininvestigating emergent phenomena and derive appropriate constructs and explanations, as well as uncover key constructsand associated relationships. Insights and input from the interviews guided the survey instrument development. By doingso, we provide grounded and qualitative evidence regarding the validity of the constructs used in the survey.

Measures of leadership and corporate culture were adopted from Cooper et al. (2005), Homburg and Pflesser (2000),and Kivipõld and Vadi (2010). Four items were used to measure leadership, and four other items were used to measurecorporate culture. The knowledge management construct ensures items meet the firm’s learning objectives, knowledgecreation and knowledge sharing. It consists of seven items adapted from Ahmed, Lim, and Zairi (1999), Chin and Lo(2009), Chong and Chong (2009), and Khatibian, Pour, and Jafari (2010). The six items that measure technology man-agement pertain to company-wide conscious designs to technology advancement, R&D and penetration, and wereadapted from Goodhue (1998), McCullough, Sarker, and Zhang (2008), and Prieto, Revilla, and Rodríguez-Prado(2009). Finally, the process management construct, which includes the standardisation, documentation and certificationof production process, consists of five measured items adapted from González et al. (2010). For process innovation, weused four items that ask respondents to rate their firm’s relative performance of the technological innovation in processesrelative to major competitors in our industry. For product innovation, we used four items that ask respondents to ratetheir firm’s relative performance of new product development and introduction to market relative to major competitorsin our industry. Both innovation constructs were adapted from Bodell and Earle (2004), Alegre, Lapiedra, and Chiva(2006), Ming (2009), Belkahla and Triki (2011), and Saunila and Ukko (2012).

5. Statistical analyses

5.1 Measurement model

The measurement model specifies the relations between latent constructs and indicator variables. Taken separately fromthe structural model, the measurement model represents confirmatory factor analysis of the seven latent constructs in ourresearch model. Table 2 shows that the Cronbach’s α statistics for the constructs range from 0.805 for processmanagement to 0.929 for process innovation, which suggests that the scales are sufficiently reliable. The compositereliability (CR) and average variance extracted (AVE) statistics in Table 2 reaffirm that all the constructs are sufficientlyreliable. We also tested the measurement models for convergent validity, the degree of association between measures ofa construct. In Table 2, each measure (λ) was loaded significantly on the expected constructs, which demonstratesconvergent validity. For all measurement models in Table 2, the ratio of χ2 to degrees of freedom (df) is less than therecommended threshold value of three, which suggests that the data fit the hypothesised models well. Indeed, the largestχ2/df value is 1.740. In Table 3, all correlations are significant, and most are less than 0.50, suggesting that discriminantvalidity.

5.2 Second-order model

In Table 4, we assessed the validity of the corporate entrepreneurship construct as a second-order factor. Corporateculture (γ = 0.82, t = 13.09) and leadership (γ = 0.67, t = 9.88) are all significant first-order factors (p < 0.01) of thesecond-order construct, in support of excellent convergent validity. The CR and AVE statistics of 0.941 and 0.889,respectively, show that this construct attains strong construct validity. The model fit indexes (χ2/df = 1.569 < 3 andRMSEA = 0.059 < 0.10) show that the model fits the data well. In Table 5, we reported the validity of the operationscore competency construct as a second-order factor. Knowledge management (γ = 0.89, t = 10.61), technology manage-ment (γ = 0.73, t = 10.77) and process management (γ = 0.64, t = 10.06) are all significant first-order factors (p < 0.01) ofthe second-order construct, in support of excellent convergent validity. The CR and AVE statistics of 0.932 and 0.824,respectively, show that this construct attains strong construct validity. The model fit indexes (χ2/df = 1.928 < 3 andRMSEA = 0.075 < 0.10) show that the model fits the data well. In Table 6, we assessed the validity of the innovationconstruct as a second-order factor. Product innovation (γ = 0.71, t = 10.89) and process innovation (γ = 0.86, t = 14.00)are all significant first-order factors (p < 0.01) of the second-order construct, in support of excellent convergent validity.The CR and AVE statistics of 0.918 and 0.850, respectively, show that this construct attains strong construct validity.The model fit indexes (χ2/df = 1.184 < 3 and RMSEA = 0.033 < 0.10) show that our model fits the data.


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Table 2. Measurement scale.

Constructs and measurement itemsStandardisedloadings (λ)

(A) Leadership (Cronbach’s α = 0.866, CR = 0.856, AVE = 0.598)(1) Senior executives share similar beliefs about the future direction of this organisation 0.69(2) Senior Managers actively encourage change and implement a culture of improvement, learning, andinnovation in moving towards ‘excellence’

0.82

(3) Employees have the opportunity to share in and are encouraged to help the organisation implementchange

0.82

(4) Here is a high degree of unity of purpose throughout our company, and we have eliminated barriersbetween individuals and/or departments

0.76

χ2/df = 0.460, p-value = 0.498, NNFI = 1.00, CFI = 1.00, IFI = 1.00, AGFI = 0.99

(B) Corporate Culture (Cronbach’s α = 0.867, CR = 0.858, AVE = 0.603)(1) We have a mission statement which has been communicated throughout the company and is supportedby our employees

0.69

(2) We have a comprehensive and structured planning process which regularly sets and reviews short andlong-term goals

0.78

(3) When we develop our plans, policies and goals we incorporate customer requirements, suppliercapabilities, and needs of other stakeholders, including the community

0.79

(4) We have a written statement of strategy covering all business operations which is clearly articulated andagreed by our Senior Manager

0.84


(C) Knowledge Management (Cronbach’s α = 0.872, CR = 0.869, AVE = 0.491)(1) The build-up of intellectual capital is of strategic importance to management to gain competitiveadvantage

0.68

(2) We always upgrade employees’ knowledge and skills profiles 0.73(3) Our company builds and maintains virtual and physical channels for sharing and disseminatinginformation

0.75

(4) Our company manages its own intellectual assets, e.g. special techniques, patents, copyrights, licences 0.66(5) We provide time and resources for employees to generate, share/exchange and experiment innovativewith ideas/solutions

0.86

(6) Customer needs and expectations are effectively disseminated and understood throughout the workforce 0.63(7) Suppliers are actively involved in our new product, component, module and system developmentprocess

0.55


(D) Technology Management (Cronbach’s α = 0.904, CR = 0.894, AVE = 0.588)(1) Our firm always attempts to stay on the leading edge of new technology in our industry 0.74(2) We make an effort to anticipate the full potential of new practices and technologies 0.82(3) We pursue long-range programmes in order to acquire technological capabilities in advance of our needs 0.90(4) We are constantly thinking of the next generation of technology 0.80(5) We have excellent communication processes between R&D and other departments 0.63(6) Our R&D pursues truly innovative and leading-edge research 0.69


(E) Process Management (Cronbach’s α = 0.805, CR = 0.807, AVE = 0.464)(1) The concept of the ‘internal customer’ is well understood in our company 0.71(2)We designed the ISO9001 or ISO/TS16949 QMS around its business processes 0.69(3) We have clear, standardised and documented process instructions which are well understood by ouremployees

0.83

(4) We make an extensive use of statistical techniques to improve the processes and to reduce variation 0.66(5) We are engaged in an active competitive benchmarking programme to measure our performance againstthe ‘best practice’ in the industry

0.46


(F) Process innovation (Cronbach’s α = 0.929, CR = 0.920, AVE = 0.743)The relative performance of the followings relative to major competitors in our industry(1) The technological competitiveness of our company 0.82(2) The speed with which we adopt the latest technological innovations in our processes 0.86

(Continued)


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5.3 Structural equation model

To evaluate the relations among corporate entrepreneurship, operations core competency and innovation, we used a two-step structural equation modelling approach to assess the fit of the structural model, independently of the measurementmodels (James, Mulaik, and Brett 1982; Anderson and Gerbing 1988; Byrne 1988). The measurement models assess theconvergent and discriminant validity while the structural model provides an assessment of predictive validity. The struc-tural equation model in Table 7 shows that results support an excellent model fit (χ2/df = 1.497, nonormed fit index[NNFI] = 0.98, confirmatory fit index [CFI] = 0.98, root mean squared error of approximation [RMSEA] = 0.055). Also,

Table 2. (Continued)

Constructs and measurement itemsStandardisedloadings (λ)

(3) The novelty of the technology used in our processes 0.89(4) The rate of change in our processes, techniques and technology 0.88


(G) Product Innovation (Cronbach’s α = 0.879, CR = 0.881, AVE = 0.651)The relative performance of the followings relative to major competitors in our industry(1) The level of newness (novelty) of our firm’s new products 0.73(2) The speed of our new product development 0.80(3) The number of new products our firm has introduced to the market 0.90(4) The number of our new products that is first-to-market (early market entrants) 0.79


Note: CR = composite reliability, AVE = average variance extracted.

Table 3. Correlation of the constructs.

1 2 3 4 5 6 7

(1) Leadership 1.000(2) Corporate culture 0.546 1.000(3) Knowledge management 0.526 0.506 1.000(4) Technology management 0.414 0.393 0.589 1.000(5) Process management 0.493 0.553 0.542 0.460 1.000(6) Process innovation 0.302 0.296 0.356 0.439 0.293 1.000(7) Product innovation 0.323 0.317 0.377 0.370 0.286 0.565 1.000

Mean 3.983 3.879 3.517 3.454 3.667 3.523 3.518Standard deviation 0.804 0.829 0.783 0.851 0.752 0.845 0.840

All correlations are significant at α = 5% (two-tailed, n = 165).

Table 4. Second-order corporate entrepreneurship.

Reliability measuresComposite reliability 0.941Average variance extracted 0.889

Second-order model fit indicesχ2/degrees of freedom 1.569RMSEA 0.059NNFI 0.99CFI 0.99IFI 0.99


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Table 5. Second-order operations core competency construct.



Table 6. Second-order innovation construct.



Table 7. Structural equation model results.

Structural equation model fit indicesχ2/degrees of freedom = 1.497 RMSEA = 0.055 NNFI = 0.98 CFI = 0.98 IFI = 0.98


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the first-order factors are all loaded significantly on the second-order constructs: corporate culture and leadership on cor-porate entrepreneurship; knowledge management, technology management and process management on operations corecompetency; process innovation and product innovation on innovation. The path parameter estimates provide results forour hypotheses testing. The t-value of the coefficient between corporate entrepreneurship and innovation is statisticallyinsignificant (β = −0.21, t = 0.83), so H1 is not supported. However, t-values of the coefficients between corporate entre-preneurship and operations core competency (β = 0.90, t = 6.51), and between operations core competency and innova-tion (β = 0.84, t = 3.23) are statistically significant; thus, supporting H2 and H3.

6. Discussion

In this paper, we propose a blended view of corporate entrepreneurship and operations core capability as enablers ofinnovation. Our results make important contributions to the body of knowledge of innovation. First, our research showsthat even in the context of developing nations in South-east Asia, investing in corporate entrepreneurship represents animportant initial structural mechanism that promotes product and process innovation in firms. Specifically, creating theright corporate culture of promoting entrepreneurship is important. Just as important is the corporate leadership thatencourages risk-taking and entrepreneurial activities. Also, corporate entrepreneurship had a positive effect on operationscore competency. This suggests that entrepreneurship enhances the operations core competency of knowledge manage-ment, technology management and process management. This common driver affecting all three core operations capabil-ities constitutes an important finding in the context of developing economies. Moreover, the role of corporateentrepreneurship was so strong that it not only had an influence on core operations competency but also had a directand positive influence on innovation. While, these relationships have been examined in the Western corporate strategyliterature (Collier, Shin, and Wilson 2000; Calantone, Gonzalez-Padron, and Hult 2008; Laurin 2010), this is one of thefew studies that examines the key role of this structural mechanism in promoting and contributing to innovation inSouth-east Asia. Thus, this relationship adds to the body of knowledge of how initial structural conditions play a vitalrole even in the context of emerging economies.

Second, our research shows that operations core competency can be defined in terms of three sub-facets of knowl-edge management, technology management and process management. Using robust statistical diagnostics, we show thisconceptual structure to be valid. Again, the context of emerging economies and the validity of this conceptual structuremake for a key contribution. We show that these three sub-facets which constitute operations core competency are vitaleven in the emerging context of South-east Asia. Prior studies have explored the positive relationships between innova-tion and individual facets of operations core competency, such as technology management (Daugherty, Genchev, andRichey 2005), knowledge management (Chapman, Soosay, and Kandampully 2003; Autry and Griffis 2008; Flint,Larsson, and Gammelgaard 2008) and process management (Benner and Tushman 2002; Håkansson and Persson 2004).In contrast, this research augments the literature by asserting that these three sub-facets of operations core competencyare not isolated but are connected via a common higher order facet that has similar nomological content. Moreover, wedemonstrate that these facets positively influence innovation performance which is in contrast to prior studies that haveonly examined the influence of individual facets of operations core competency on manufacturing performance and notinnovation performance.

Third, our paper makes a unique theoretical contribution by bridging disciplinary gaps in operations management,entrepreneurship and strategic management. Specifically, we argue that a behavioural lens blended with a technical lenscontributes to successful innovation activity. Such inquiries were carried out separately in the prior literature. Theliterature base that comes closest to our mode of inquiry is the socio-technical systems theory which has argued for asocial core to be considered simultaneously with the technical core in explaining overall system outcomes. For instance,such a blended inquiry has been examined in the study of advanced manufacturing technology literature (Das andJayaram 2007). Yet, even within such inquiries, there have been variations in what constitutes the social core and whatconstitutes the technical core. In the literature base, the social core has been predominantly dependent on the relationalcapital within and across firms. In contrast, our study explicitly looks at entrepreneurial activity (in line with Schumpete-rian views) within firms as the glue that constitutes the social core. Similarly, the literature base has predominantlylooked at hard assets such as investments in technology assets to form the technical core. Our study, in contrast, arguesfor recipes that govern operations core competency in knowledge, technology and process management to comprise thetechnical core. While the purpose of the tenets of socio-technical systems theory and our blended theory of entrepre-neurship and operations core competency are similar, our operationalisation differs in their constituting elements.Moreover, we seek to explain one facet of overall systems performance, that is, innovation performance. In that regard,our inquiry is more precise in nature. Also, it might be noted that studies within the emerging context that take ourblended view approach are relatively rare. With the growing importance of emerging economies in South-east Asia and


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with the reliance that US firms places on these economies for business process and knowledge process outsourcing, it isimperative that researchers and managers understand the key driving mechanisms that drive innovation performance inthose economies. As a tertiary benefit, innovative manufacturers in emerging economies can contribute to the globalinnovation expertise of US firms by supporting key technology and innovation programmes on a worldwide basis.

Finally, this study makes an important methodological contribution by showing the robust validity of three second-order constructs – corporate entrepreneurship, operations core competency and innovation. Such an examination is rareeven in the developed country context. The fact that these three constructs have been shown to be structurally and statis-tically robust in the emerging economy context is a key contribution. In particular, the argument that what are under-stood as separate and independent activities are indeed connected via a common base at a higher level reveals keyinsights into the measurement literature of key concepts.

7. Managerial implications

To the managerial audience, our findings suggest that firms will be better off in investing the right organisational culturethat fosters entrepreneurial activities. Such activities should not only be properly cultivated via the right leadershipinvolvement but also via setting the right internal culture. Also, our study suggests that knowledge management, processmanagement and technology management should be put into a common umbrella to foster innovation. In other words,the different efforts in these areas across the firm should be integrated for the powerful potential of influencing bothproduct and process innovation. Some of these activities might seem obvious at the outset. For example, how processmanagement enhances process innovation might be known, but the fact that this can lead to future product innovationsis a powerful competency. For instance, in the context of developed economies, innovations in tracking which is a pro-cess capability allows firms like UPS to offer new products and services such as inventory management to SMEs thatconduct business with firms in South-east Asia. Although, the locus of innovation as in this example is in the developedeconomy context, it has important implications of process alignment for firms in South-east Asia as well, as they maybe suppliers or customer to clients that UPS serves. Similarly, knowledge management might at the outset be predomi-nantly within the domain of product knowledge which can lead to product innovations. However, the design knowledgeof these new products could lead to process innovations as well. For example, packaging and its eventual impact onprocess delivery innovations such as packages with lower weights that lead to lower fuel consumption. Taken together,these three core competencies of operations – knowledge management, technology management and process manage-ment could lead to crossover effects in their influence on both product and process innovations. The storyline appears tobe that setting the right structure followed by integration of operations core competency enhances innovation perfor-mance. The variables that constitute our key constructs can be used by managers to benchmark current performanceagainst industry exemplars to create improvement projects. For example, knowledge management variables can be self-audited to identify gaps in current practices. This could lead to a search of exemplars of knowledge management forcreating improvement targets along with timelines for closing the gaps.

8. Limitations and future research

Although, this study provided important insights to the antecedents of innovation performance, it is not without limita-tions. Our data is a cross-sectional view of inherently dynamic variables and phenomena. Thus, one aspect of futureresearch can close this gap by proposing feedback loops and investigating long-term effects of our framework. Giventhat our context was developing economies, it is conceivable that the notion of what constitutes product or process inno-vation may vary with the Western view of product or process innovation. Given the differential modes of development,it may be safe to assume that the innovations in question are for the most part, incremental in nature, taken from a Wes-tern view. Although it is possible that a particular product or process innovation may be radical from the South-eastAsia and Western point of view, given the nature of our inquiry, we take a conservative view and make inferences onlywith respect to incremental product and process innovation. Future studies can specifically examine radical product andprocess innovations. For example, innovations directed at the base of the pyramid (Jayaram and Avitathur 2012) couldbe radical for the emerging country as well as the developed country. For example, Siemens may introduce an afford-able pacemaker in emerging economies that is radical in nature in comparison to the most low-end comparable productsintroduced in Germany. Finally, we did not explicitly explore the role of national culture on innovation. There have beensome prior studies on the topic (Nakata and Sivakumar 2001), but very few have looked at the comparisons of emergingvs. Western countries with respect to innovation patterns. This could be a fruitful area of future study.


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Acknowledgement

The authors would like to thank Dr Daniel I. Prajogo, who assisted in drafting an initial version of the surveyinstrument and ASEAN Secretariat in facilitating the data collection.

Funding

This work was supported by the Higher Education Research Promotion and National Research University Project ofThailand, Office of Higher Education Commission and Thammasat University.

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Documents

Corporate entrepreneurship, operations core competency and innovation in emerging economies