Essay: Entrepreneurial Orientation has a positive impact on competitive advantage

Understanding the sustainability of competitive advantage is central to strategy and management literature (Barney, 1991; Porter, 1985; Schendel, 1994) and comprehending sources of sustained high performance for firms is one of the most researched aspect in the domain of strategic management (Wenerfelt, 1984; Barney, 1991; Grant, 1991). Research scholars have claimed that competitive advantages are exceedingly difficult, if not impossible, to sustain in dynamic markets (Brown and Eisenhardt, 1998; D’Aveni, 1994; Lei, Hitt, and Bettis, 1996; Teece et al, 1997). Organization and strategy scholars emphasize several types of competitive moves that firms use to defend or strengthen their position relative to competitors (Chen and Hambrick, 1995; Ferrier, Smith, and Grimm, 1999; Katila and Chen, 2008). The fundamental premise is that engaging rivals through competitive moves generates a series of temporary advantages that lead to superior performance. There can be dual inferences by this; normative insights claim that making more moves, more complex moves, and more aggressive and faster moves (i.e., sooner) leads to higher performance (Young,Smith, and Grimm, 1996; Grimm, Lee, and Smith, 2006; Ozcan and Eisenhardt, 2009). Whereas other insight suggest that firms are more likely to enact moves if they have knowledge that their competitors are unlikely or unable to respond with impairing countermoves (Gimeno, 1999). In both the cases it is what is of significance is highlight the mechanism by which the capacity to compete is generated and regularly upgraded.
It is believed by strategy scholars worldwide that some firms consistently outperform others, and there is some reliable evidence underlying this belief (Rumelt, 1991; McGahan and Porter, 1997). This poses challenges for many economists, who are inclined to assess persistent differences in performance as a function of underlying ‘unobserved heterogeneity’ (Mundlak, 1961; Griliches, 1986). The theoretical base of the paper is derived from three fundamental paradigms of marketing and strategy domain: Market based view of the firm (MBV) and the Resource based view of firm (RBV) and Schumpeterian view of entrepreneurship. MBV implies that firm’s sources of market power explain its relative competitive advantage. However it was researched that market power and market knowledge alone cannot explain firm’s superior advantage. (Caves & Porter 1977; Porter 1980, 1985, 1996; Peteraf & Bergen 2003). Market based view (market orientation) and the resource based view (firm market capabilities) may be strong correlates but cannot on its own explain firm competitive advantage. What the firm needs is the optimum interaction effect of both which has propensity to bestow sustainable competitive advantage to the firms (Bruni and Verona 2009; Cavusgil et al. 2007; Dacko et al. 2008; Fang and Zou 2009; Morgan 2012) have introduced and explained the term ‘dynamic marketing capabilities’ (DMCs) and identified various marketing mechanisms that contribute to sustainable competitive advantage. However in case of highly uncertain environments, the predictive power of even dynamic marketing capabilities on sustaining competitive advantage and holding market leadership positions is challenged. In turbulent as well as hypercompetitive environments the entrepreneurial proclivity of the firm provides augmented momentum thus providing ability to amplify and sustain firms’ competitive advantage. To capture the above ideas following model has been proposed by authors in the form multi-layered capability structure and its effect on sustainability of competitive advantage.
Table 1: Integrative model displaying amplification of competitive advantage with three layers of capability formation
Management researchers have conferred paramount importance to the fundamental understanding of the key role of marketing function in enabling firms to create and sustain competitive advantage (Kozlenkova et al. 2013; Morgan 2012). To conceptualize a product/service offering that will provide customers with superior value, a manager must be knowledgeable of the market they intend to serve (Narver and Slater, 1994). Along with market knowledge the firm also needs to be endowed with stock of or have access to a broad array of resources (Mahmoud and Kastner, 2010).
Evidence from the marketing literature has shown that marketing capabilities are important drivers of firm competitive advantage (Krasnikov and Jayachandran 2008). Capabilities are found at different levels in the firm, quite a few of which are from cross functional areas (e.g., Eisenhardt and Martin, 2000). However, capabilities relating to market resource deployment are usually associated with the marketing function (e.g., Danneels, 2007; Dutta, Zbaracki, and Bergen, 2003).
Marketing capabilities are specific type of organizational capability is which could be defined as the integrative process of applying and linking shared organizational knowledge, skills, and resources to market-related needs (Vohries and Harker, 2000, Tsai &Shih 2004). Marketing capability is a key to the market-related deployment mechanism that helps an organization to acquire, combine, and transform its market-based resources to assist it to achieve its desired performance (Day, 1994; Morgan, Vorhies, & Mason, 2009). The present study focuses on the value of a set of specific marketing capabilities like product development capabilities, customer relationship management capabilities and channel building. These capabilities enables the firm to become more effective through applying marketing concepts and leveraging market-based resources which are necessary elements. These capabilities may be rare, valuable, Non-substitutable, and inimitable sources of competitive advantage and provide superior firm performance ( Dutta et al., 2003; Vorhies and Morgan, 2005). Marketing capability enables a firm to provide value to its products and meet the competition challenges (Day, 1994; Vorhies et al., 1999; Vorhies & Morgan, 2005), and plays a critical role in the deployment of market-based resources to sense respond to the dynamic market environment (Morgan et al., 2009; Murray et al., 2011). Thus summing up the above it is suggested that marketing capabilities forms the core layer in the firm for generating competitive advantage. The literature also notifies that firms possessing marketing capabilities, report superior competitive advantage across various industries Thus, the following hypotheses have been presented:
H1: The relationship between market capabilities of firms and its competitive advantage is significant
h 1a: Product development as marketing capability positively affects firm competitive advantage
h 1b: Channel Management as marketing capability positively affects firm competitive advantage
h 1c : Customer relationship management as marketing capability positively affects firm competitive advantage
The core purpose of marketing which is to preserve and protect customer value implies the ability to continuously augment the value (attributes, benefits, attitudes, and network effects) and to foster and renew the market based assets and capabilities. (Srivastava et.al 2001). The ability of marketing capabilities to generate advantage is uncontested in case of stable environments its capacity to however to sustain the advantage is challenged by increasing complexity and uncertainty of market environment. In dynamic markets, here is a widening gap between accelerating complexity of markets and the ability of firms to comprehend and manage with this gap and this makes the firms competitive advantage vulnerable(Day, 2011) There is limited utility of marketing capabilities protect and generate competitive advantage against market evolution and non- linear market disruptions. To address this limitation the research proposes the second layer of variable in the form of market orientation. Market orientation along with marketing capabilities forms a distinctive bundled capability called dynamic marketing capability which provides growth momentum to the firm by renewing its advantage in the light of changing environments.
The construct of marketing orientation has been extensively researched in marketing and strategy literatures (Kohli and Jaworski 1990). Strategic management (e.g., Dobni and Luffman, 2003; Hult and Ketchen, 2001) and marketing ( Jaworski and Kohli, 1993) researchers posit that market orientation (MO) gives a source of competitive advantage to the firms. It is a well-grounded central concept of marketing discipline (Gebhardt et al. 2006; Kotler 2000). As far as this research is concerned; the concept of market orientation of firms is essentially the extent to which a firm is involved in the generation, dissemination, and response to market intelligence in relation to ongoing and prospective customer needs, competitor strategies and actions, channel management etc. In short it deals with the broad spectrum of broader business landscape (e.g., Kohli and Jaworski, 1990, Hult and Ketchen, 2001; Jaworski and Kohli, 1993). It provides the scope for the drivers of competitive advantage to act. Firms with superior MO achieve superior business performance because they boast a ‘know-what’ advantage by which the decision makers choose the most productive accessible resource combinations to match fluid market conditions (Slater and Narver, 1995).
Many studies have conducted research on relationship between market orientation and performance ( Pelham 2000; Slater and Narver 1994), with general empirical backing that market orientation enhances competitive advantage and hence firm performance. (c.f.,Kirca et al. 2005). For the purpose of this research as per the operationalization of the construct by Jaworski and Kohli, 1993, market orientation (MO) is considered as a reflective construct comprising of market intelligence generation capability, market intelligence dissemination capability, and responsiveness to market intelligence
Based on the above discussion the following hypothesis has been made:
H2: The relationship between market orientation of firms and its competitive advantage is significant
h 2 a: Market Intelligence generation capability positively affects firm competitive advantage
h 2 b: Market Intelligence dissemination capability positively affects firm competitive advantage
h 2 c Responsiveness to market intelligence positively affects firm competitive advantage
Dynamic Marketing capabilities -Interaction effect of Market Orientation and Competitive advantage
Extant research scholars have generated much debate on the exact role of market orientation and the mechanism through which it influences firm competitive advantage and performance and the key question remains as to “How does market orientation (actually) contribute to firm competitive advantage?” (Hult et al. 2005). An advanced understanding of customer needs, competitive actions (i.e., industry structure and positional advantages), and market trends enables a market-oriented firm to identify and develop capabilities that are necessary for long-term performance (Day 1994). The competitive advantage of Tesla motors stems from it being a market oriented firm. Tesla uses sensor data, customer contact and analytics appears higher to Apple’s. Tesla captures real-time information about its customers, and it does more with that information at an executive level. This highlights the importance of market orientation of a firm.
The firms with high market orientation firms provides a good base for its capabilities to instantly adapt to customers’ noticeable and latent needs, and has propensity to deliver superior product/market success, profitability, market share and competitive advantage. (Baker and Sinkula, 2005). The capacity of firm to create generate, maintain as well as create new sources of competitive advantage is fostered by the interaction effect of market orientation and marketing capabilities. The interaction of the MO and MC concepts has given rise to the concept of Dynamic marketing capabilities (Barrales‐Molina et.al, 2014) .This combination creates unique asset/resource recombination which is not imitable by the competitors. If these are rare, valuable, inimitable, and non-substitutable, it results into sustainable competitive advantage over time (Barney, 1991) as firms “grow isolating mechanisms or resources position barriers that secure economic rent” (Lavie, 2006, p. 640). DMC’s are robust and can be used in different ways to speed the firm\’s adaption to environmental change and hence provide momemtun to organizations. The DMS’s are bestowed with the characteristic of ‘asset interconnectedness’ (Teece et al., 1997). This produces causal ambiguity that makes it generally difficult for competitors to extricate the source of a firm’s observed performance advantage (Reed and Defillipi, 1990).Thus the second layer of market orientation and its interaction with the first layer of marketing capabilities products the second order construct of dynamic marketing capabilities and provides momentum to the firm by sustaining the advantage in dynamic markets.
Based on the above the following hypotheses have been presented:
H4: The interaction effect of Market orientation and Market Capabilities (MO*MC) has a positive impact on firm competitive advantage
H5: The relationship of Interaction effect of Market Orientation and Marketing Capabilities
(MO*MC) has stronger impact on competitive advantage than the individual effect of the constructs.
Firms like 3M, Google are intensely entrepreneurial and hypercompetitive where the quest for new sources of competitive advantage moves at a super speed. Hence the predictive power of dynamic marketing capabilities is rendered limited and short lived as there is continuous innovation or instance of disruptive innovation in terms of products, process and business models. High performing established firms need to tap new sources of advantage from exploring uncharted turfs of the external environment and quickly deliver new products/ services/ business models by converting the novel opportunities to distinctive competencies. Entrepreneurial Orientation and its dimensions of proactiveness, innovativeness and risk taking ability form a third layer of our integrative model for such adaptive and innovative enterprises and provides augmented momentum to the firm thus amplifying its ability to compete to the maximum. Combining all the three layers firms develop entrepreneurial dynamic marketing capability by which competitive advantage is not only sustained but also regenerated.
Literature recognizes entrepreneurship as the core of the dynamics of capitalism (Baumol, 1993) and entrepreneur becomes the ‘the driving force of the whole market system’ (Mises, 1949: 249). To compete successfully, ahead of the competitors, entrepreneurial firms continuously create, discover, and exploit opportunities (Hamel & Prahalad, 1994; Sathe, 2003; Ucbasaran West head, Wright, 2009).
The redesigning of the value chain and reconceptualization of customer value is obtained by a system of identification, evaluation and exploitation of opportunities and by genesis of new ideas through the collection and dissemination of market information. Covin and Miles (1999) define entrepreneurship as the exploitation of opportunities in order to renew and rejuvenate the firm. Entrepreneurship acts as a mechanism that stimulates the identification of competitive advantages through product, process and market innovation. . This competitive advantage is obtained by making the competition irrelevant and thereby providing a new and superior value in existing markets.
The concept of an EO determines the mindset of firms engaged in pursuing new ventures or growth of existing ventures and aims to provide a credible framework for researching entrepreneurial activity. The comprehensive literature on the relationship between EO and firm performance suggest a uncontested general positive link (Baker and Sinkula 2009; Rauch et al. 2009; Sadler-Smith et al. 2003 😉 By using EO firms meet the new and latent needs of market. Several studies demonstrate the positive influence of EO on firm performance (Madsen, 2007; Wiklund & Shepherd, 2005; Zahra & Covin, 1995), although the empirical results are of contrasting nature, EO acts as a credible antecedent to growth and performance differences in firms, in both domestic and foreign markets (Kuivalainen et al., 2007
The entrepreneurial layer improves the strategic posture of firm to deliver competitive advantage. The pro activeness develops firm’s willingness and ability to sense and anticipate new developments earlier than competitions imparting a “first mover” advantage over reactively identifying development and trends. This gives the firm a competitive edge and improves market performance by increasing market share.
The risk-taking dimension develops firm’s willingness and ability to commit resources to projects whose outcome is uncertain. If strategies are sound, the firm has strong chances to reap higher returns inherent in risky initiatives leading to higher performance.
Based on the above discussions, the following hypotheses is formulated:
H6- Entrepreneurial Orientation has a positive impact on competitive advantage
Moderation effects of entrepreneurial orientation on the relationship between dynamic marketing capabilities and competitive advantage
EO helps firms to survive and generate value for firms and their owners. In the competitive and dynamic environment firms possessing high EO develop new market orientations and business platforms based on new opportunities in the market. EO creates a mindset for acquiring or mobilizing right resources and a firm properly endowed with dynamic marketing capabilities guides the evolution of a firm`s resource configuration by leveraging on extant marketing capabilities and linking it to the newly shaped market orientation. This leads to heightened competitive advantage. (Teece et al. 1997, Winter 2000).
Entrepreneurial orientation moderates the relationship between DMC and competitive advantage by providing context and mechanism to develop new forms of competitive advantage. Certain innovative responses are required when time to market and timing are critical, the rate of technological change is rapid, and the nature of future competition and markets is difficult to determine. Firms with higher entrepreneurial orientation will have stronger relationship between their dynamic marketing capabilities and competitive advantage. Based on the above discussions the following hypotheses is proposed:
H7: Entrepreneurial Orientation moderates the relationship between dynamic marketing capabilities (DMC) i.e (the interaction effect of MO and MC) and firm competitive advantage