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International Accounting and Finance Master Thesis No 2001:12

Performance Measurement in Entrepreneurial Organisations

-An Empirical Study of Swedish Manufacturing Firms

Per Mattila & Mikael Åhlqvist

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Graduate Business School

School of Economics and Commercial Law Göteborg University

ISSN 1403-851x

Printed by Elanders Novum AB

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Abstract

The concept of entrepreneurship has attracted increased interest in recent years - within the field of business as well as in society as a whole. However, our knowledge of how management accounting - including the branch of performance measurement - is used in the entrepreneurial context is practically non-existent. The aim of this study is to enhance our understanding of how systems of performance measurement are designed and used in entrepreneurial organisations.

A survey was conducted on the design and use of performance measurement systems in twelve Swedish manufacturing firms, all of which had experienced high organic growth. The findings show that performance measurement systems play a significant role in entrepreneurial organisations. This is reflected in the use of a large number of measures, a frequent reporting of the measures, and a relatively high variety of business aspects measured. In contrast with the normative literature, the different uses of performance measurement are mainly confined to operative and internal areas of business. The performance measurement was also studied in relation to five firm characteristics:

entrepreneurial orientation, firm performance, firm size, firm age, and firm ownership. The findings indicate that the variables have, in some aspects, an effect on the performance measurement systems used by the firms.

Key Words: performance measurement, performance measurement systems,

entrepreneurship, entrepreneurial organisations, manufacturing industry

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Acknowledgements

First of all we would like to thank our tutor, Christian Ax, who has shown great patience and been a major source of inspiration. Thank you for challenging us and helping us to bring our work to a higher academic level.

We would also like to show our gratitude to Johan Hammar who has been a great source of knowledge in the area of entrepreneurship. This thesis would not have been the same without your initial help.

We also owe a great deal of gratitude to Seraj Agahi who designed the web questionnaire and provided us with space on a server. Thank you for the help you have given us, you saved us a lot of time.

Also many thanks to all the firms, the Managing Directors and Financial Managers that have sacrificed their valuable time for interviews and answered the web questionnaires. Your time and sacrifices have been invaluable to us.

Gothenburg, 7 December 2001

Per Mattila & Mikael Åhlqvist

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Table of Contents

1 INTRODUCTION ...1

1.1 B ACKGROUND ...1

1.2 R ESEARCH I SSUE AND O BJECTIVES OF THE S TUDY ...2

1.3 P OTENTIAL C ONTRIBUTIONS OF THE S TUDY ...4

1.4 S COPE AND L IMITATIONS ...4

1.5 D EFINITION OF K EY C ONCEPTS ...5

2 METHODOLOGY ...7

2.1 R ESEARCH A PPROACH ...7

2.2 D ATA C OLLECTION ...8

2.2.1 Literature Review...8

2.2.2 Choice of Data Collection Method ...8

2.2.3 Choice of Survey Population ...11

2.2.4 Choice of Survey Questions ...11

2.2.4.1 Questions for the Telephone Interviews ...11

2.2.4.2 Questions in the Web Questionnaire ...12

2.2.5 Test of Survey Questions...13

2.2.6 Sample of Studied Firms...14

2.2.7 The Selection Criteria...16

2.2.8 Choice of Respondents...19

2.2.9 Conduct of the Telephone Survey and Web Survey ...20

2.3 M EASURES OF F IRM C HARACTERISTICS ...21

2.4 R ESEARCH E VALUATION ...22

2.4.1 Validity...22

2.4.2 Reliability...22

3 FRAME OF REFERENCE...24

3.1 E NTREPRENEURSHIP ...24

3.2 O RGANISATIONAL E NTREPRENEURSHIP ...25

3.2.1 Entrepreneurial Strategy ...26

3.2.2 Entrepreneurial Orientation...27

3.3 P ERFORMANCE M EASUREMENT ...28

3.3.1 Introduction ...28

3.3.2 Normative Literature on the Design and Use of Performance Measurement 29 3.3.3 Empirical Literature on the Design and Use of Performance Measurement .33 4 THE DESCRIPTIVE STUDY – RESULTS AND ANALYSIS...37

4.1 T HE D ESIGN OF P ERFORMANCE M EASUREMENT S YSTEMS ...37

4.1.1 Categories of Performance Measures and Their Importance ...37

4.1.2 Performance Measures Used...40

4.1.3 The Frequency of Use...41

4.2 T HE U SE OF P ERFORMANCE M EASUREMENT S YSTEMS ...42

4.2.1 Different Uses of Performance Measurement ...42

4.2.2 Measures and Different Uses...44

4.2.3 Users of Performance Measurement ...45

4.2.4 Performance Measures Used by Different Actors ...46

4.3 P ERFORMANCE T ARGETS ...46

4.4 T HE U SE OF ‘N EW ’ M ODELS IN M ANAGEMENT A CCOUNTING ...47

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5 THE EXPLANATORY STUDY – RESULTS AND ANALYSIS ... 49

5.1 E NTREPRENEURIAL O RIENTATION ... 49

5.1.1 Depiction of the Population... 49

5.1.2 Survey Results and Analysis ... 50

5.2 F IRM P ERFORMANCE ... 51

5.2.1 Depiction of the Population... 52

5.2.2 Survey Results and Analysis ... 52

5.3 F IRM S IZE ... 53

5.3.1 Depiction of the Population... 54

5.3.2 Survey Results and Analysis ... 55

5.4 F IRM A GE ... 56

5.4.1 Depiction of the Population... 56

5.4.2 Survey Results and Analysis ... 57

5.5 F IRM O WNERSHIP ... 58

5.5.1 Depiction of the Population... 59

5.5.2 Survey Results and Analysis ... 59

5.6 S UMMARY OF R ESULTS AND A NALYSIS ... 61

6 CONCLUSIONS... 63

6.1 T HE D ESCRIPTIVE S TUDY ... 63

6.2 T HE E XPLANATORY S TUDY ... 65

6.3 S UGGESTIONS FOR F UTURE R ESEARCH ... 66

REFERENCES ... 68 APPENDIX 1 - SEARCH STRINGS

APPENDIX 2 - TRANSLATION OF QUESTIONS ABOUT PERFORMANCE MEASUREMENT

APPENDIX 3 – TRANSLATION OF THE COVER LETTER IN THE E-MAIL WITH WEB QUESTIONNAIRE

APPENDIX 4 – TRANSLATION OF WEB QUESTIONNAIRE

APPENDIX 5 - THE BRANCHES USED IN THE SAMPLE POPULATION APPENDIX 6 – THE SIZE OF THE SAMPLE POPULATION

APPENDIX 7 – FREQUENCY OF PERFORMANCE MEASURES

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Tables

T ABLE 2.1. D ISTRIBUTION AND NUMBER OF CONDUCTED INTERVIEWS AND ANALYSED FIRMS 16

T ABLE 5.1. A VERAGE NUMBER OF MEASURES USED ...50

T ABLE 5.2. A VERAGE NUMBER OF MEASURES REPORTED PER PERIOD ...51

T ABLE 5.3. A VERAGE NUMBER OF MEASURES USED ON EACH LEVEL ...51

T ABLE 5.4. A VERAGE NUMBER OF MEASURES USED ...52

T ABLE 5.5. A VERAGE NUMBER OF MEASURES REPORTED PER PERIOD ...53

T ABLE 5.6. A VERAGE NUMBER OF MEASURES USED ON EACH LEVEL ...53

T ABLE 5.7. A VERAGE NUMBER OF MEASURES USED ...55

T ABLE 5.8. A VERAGE NUMBER OF MEASURES REPORTED PER PERIOD ...55

T ABLE 5.9. A VERAGE NUMBER OF MEASURES USED ON EACH LEVEL ...56

T ABLE 5.10. A VERAGE NUMBER OF MEASURES USED ...57

T ABLE 5.11. A VERAGE NUMBER OF MEASURES REPORTED PER PERIOD ...58

T ABLE 5.12. A VERAGE NUMBER OF MEASURES USED ON EACH LEVEL ...58

T ABLE 5.13. A VERAGE NUMBER OF MEASURES USED ...59

T ABLE 5.14. A VERAGE NUMBER OF MEASURES REPORTED PER PERIOD ...60

T ABLE 5.15. A VERAGE NUMBER OF MEASURES USED ON EACH LEVEL ...60

Figures F IGURE 4.1. C ATEGORIES OF P ERFORMANCE M EASURES AND T HEIR I MPORTANCE ...38

F IGURE 4.2. D IFFERENT U SES OF P ERFORMANCE M EASUREMENT ...43

F IGURE 4.3. T HE U SERS OF P ERFORMANCE M EASUREMENT ...45

F IGURE 5.1. T HE ENTREPRENEURIAL ORIENTATION OF THE FIRMS ...50

F IGURE 5.2. T HE PERFORMANCE OF THE FIRMS ...52

F IGURE 5.3. T HE SIZE OF THE FIRMS ...54

F IGURE 5.4. T HE AGE OF THE FIRMS ...57

F IGURE 5.5. T HE OWNERSHIP STRUCTURE OF THE FIRMS ...59

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1 Introduction

1.1 Background

Renewal is a presumption for economic development (Johannisson &

Lindmark, 1996). The notion of renewal deals with the break-up of old routines and thinking in order to create new ways of acting. Schumpeter (1934) introduced the concept of ‘creative destruction’ to describe the process that consists of both destructive as well as creative activities that lead to economic development. This process of renewal is the very essence of entrepreneurship.

By introducing innovations in the form of new products, production processes, and markets, entrepreneurial activities may as a result lead to the creation of new industries and firms (Wiklund, 1998). Entrepreneurship has therefore been described as the fuel for the economy (Cornwall & Perlman, 1990).

The concept of entrepreneurship has undoubtedly attracted increased interest in recent years from politicians, business people, and academics. During the past decade, entrepreneurship has been exalted as a necessity for society as a whole, as well as for specific organisations and industries. It appears as if entrepreneurship, as well as entrepreneurs, has an important role to play in today’s society (Czarniawska-Joerges & Wolff, 1991; Spilling, 1998;

Landström, 1999). In a time when unemployment rates are high, when market globalisation is increasing and when environmental changes are escalating, the need for entrepreneurship becomes understandable. Politicians struggling with unemployment ask for and try to stimulate increased entrepreneurship - mainly with the aim of increasing the number of start-ups. Businesses, on the other hand, confronted with fierce global competition tend to regard entrepreneurship as a way of staying competitive and alert (Lövstål, 2001).

The interest in entrepreneurship has also been reflected in the academic debate

(Johannisson & Landström, 1999). Within the field of business, an increasing

number of studies have been presented focusing on either the achievement of

entrepreneurial processes (Gaddefors, 1996; Hjorth, 1995) or the conditions for

entrepreneurship in different contexts, such as education (Johannisson et al.,

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entrepreneurship within existing organisations and not only individuals has, during the past decades, increased (Landström, 1999). Moreover, there have been several attempts to conceptually develop a general theory of entrepreneurship (Bull & Willard, 1993; Bygrave & Hofer, 1991; Gartner, 1988).

Although discussed in a number of different settings, there are contexts in which the issue of entrepreneurship has not been addressed. One of these contexts is the field of accounting. As a matter of fact, it seems to exist an avoidance of entrepreneurship in the accounting literature while, at the same time, accounting seems to be avoided in the entrepreneurship literature (Olson et al., 2000). The need to understand the role and function of accounting within organisational processes has, since the 1980s, been stressed by several accounting researchers. For example, Roberts & Scapens (1985) argues that in order to understand how accounting is integrated in different organisational and societal processes, accounting should be studied in the environment in which it functions. Similarly, in a comment on the reinforcement and development of existing research directions, Scapens & Bromwich (2001) argue that there is a need for more research on management accounting for new organisational forms - hereby highlighting the opportunity for studying accounting in a context such as the entrepreneurial.

1.2 Research Issue and Objectives of the Study

Since the initial criticisms were levelled at management accounting in the early 1980s, the methods of management accounting have undergone substantial changes (Bromwich & Bhimani, 1994). Within the field of management accounting, the branch of performance measurement 1 has been given special attention in this respect. During the past decade, both academics and practitioners have stressed the importance of a well functioning system of performance measurement in order for firms to thrive, or maybe even survive, in an increasingly competitive environment (Brimson, 1991; Euske et al., 1993;

Johnson & Kaplan, 1987). Much criticism has been directed at the traditional systems of performance measurement and their sole focus on financial results

1 For a definition of ‘performance measurement’ and other related concepts, see section 1.5

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and inability to consider the strategic aspects of business (e.g., Dixon et al., 1990; Kaplan & Norton, 1996). The debate on the subject comprises a large number of books and articles on how performance measurement should really be designed and used, including several ‘new’ concepts such as Balanced Scorecard, Performance Pyramid, and Value-Based Management (Kaplan &

Norton, 1996; McNair et al., 1990).

Subsequently, there have been several studies with the purpose of empirically determining whether the new competitive situation has affected the design and use of systems for measuring performance (Kald & Nilsson, 2000). These studies show, for example, that performance measurement has broadened its earlier focus to include non-financial measures (e.g., Bromwich & Bhimani, 1994; Fitzgerald et al., 1992). However, much of the interest has been directed at larger and well-established firms (e.g., Johansson et al., 1997; Kald &

Nilsson, 2000; Stivers et al., 1999). As mentioned above, our understanding of how accounting information is used within the entrepreneurial context is practically non-existant (Olson et al., 2000). Hence, no systematic information or mapping is to be found on the role of performance measurement in connection with entrepreneurship.

Bearing in mind the previous discussion, the objective of this study is to illustrate the prevailing practice of performance measurement in entrepreneurial organisations 2 . The aim is to enhance our knowledge and understanding of how systems of performance measurement are designed and used in organisations characterised as entrepreneurial. This is concretised in the following research objectives:

What systems of performance measurement are used by entrepreneurial organisations?

Why are these systems used, i.e. for what purposes are the performance measurement systems used?

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Are there relationships between the design and use of performance measurement systems and firm characteristics such as entrepreneurial orientation, firm performance, firm size, firm age, and firm ownership?

1.3 Potential Contributions of the Study

The aim of this study is to provide ‘new’ knowledge of performance measurement in the context of entrepreneurship. Since this is the first study focusing on the design and use of performance measurement systems in entrepreneurial organisations, one major contribution will therefore be the creation of knowledge of management accounting in a ‘new’ organisational context - the entrepreneurial context. Moreover, the findings may be used as input for future research, for example as a basis for developing hypotheses to be tested on, for example, a larger sample of firms, or firms in other industries or organisational contexts.

1.4 Scope and Limitations

The study is limited to formal systems of performance measurement - that is, measurements that are extracted continuously according to a pre-determined plan. Consequently, the study of the informal use of performance measurement systems is left outside the scope of this thesis. This limitation is made due to the nature of the research objectives of the study and the following methodological considerations. For example, the complex nature of the informal use of performance measurement could be expected to be hard to capture by the use of telephone interviews, which is the choice of method for data collection in this study.

The study is further limited to a single industry - the manufacturing industry.

This restriction is mainly due to time limitations, but also with the argument that it makes it possible to avoid an overly heterogeneous population. The importance of working with a population of firms that have similar industry characteristics is stressed by several academics (e.g., Ask & Ax, 1997; Miles &

Snow, 1978; Samuelson, 1990). Another motive for studying the

manufacturing industry is that there exists a current interest and public concern

over the competitive status of manufacturing firms (Zahra et al., 1999).

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The study is also limited to small and medium sized firms. Some researchers argue that high growth firms that are growing organically, which is an important factor for identifying entrepreneurial organisations, are most likely found in these classes of size (Davidsson & Wiklund, 2000). Moreover, most studies in management accounting to date have been focused on large firms, and the published work concerning smaller ones has been somewhat sporadic (Mitchell & Reid, 2000). It should further be noted that the focus of the study is on the design and use of performance measurement systems in organisations characterised as entrepreneurial. Consequently, the individual entrepreneur(s) as such is left outside the scope of this study and therefore will not be discussed.

1.5 Definition of Key Concepts

Entrepreneurial organisations, entrepreneurial orientation and performance measurement, are essential concepts of this study and need to be clearly defined. It may be helpful to define these concepts at the outset to avoid the risk of confusing the concepts and in order to make the text more easily understandable.

Entrepreneurial organisation relates to firm actions of innovation, risk taking and proactiveness, which are considered as crucial dimensions of entrepreneurship. In this study the term entrepreneurial organisations is defined as “An entrepreneurial firm is one that engages in product- market innovation, undertakes somewhat risky ventures, and is first to come up with ‘proactive’ innovations, beating competitors to the punch".

(Miller, 1983)

Entrepreneurial orientation (abbreviated EO) is an empirical term that is operationalised and measured. Entrepreneurial orientation refers to the

“Managing Directors’ strategic orientation reflecting the willingness of a

firm to engage in entrepreneurial behaviour”. The term is best described

as the strategic orientation or outlook of the firm. (Wiklund, 1998) EO is

further discussed in chapter 3.2.2.

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Performance measurement refers to the measurement of performance of an activity or part of a firm, for example operating income, product quality, or customer satisfaction (Ax et al., 2001). Consequently, this study focuses on a wide use of performance measurement, including measurements of both financial and non-financial nature.

Performance measures are the specific numbers or quantities used to present concentrated information about firm performance received from the measurement of activities or parts of the firm (Mossberg, 1977).

Performance measurement systems involve a number of performance measures used to systematically measure the performance of the firm.

The systems are the formal, information based routines and procedures

used to maintain or alter patterns in organisational activities (Simons,

1995).

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2 Methodology

The creation of knowledge is a process (Johansson Lindfors, 1993) and the method is a tool, a way of solving problems and developing new knowledge (Holme & Solvang, 1997). For the knowledge to be considered as scientific, it has to be created in accordance with methods for scientific work (Ask & Ax, 1997). Consequently, the method is a tool used by the researcher in the process of developing new scientific knowledge. This chapter deals with methodological considerations related to the study. The chapter includes the research approach, the complete data collection method, and research evaluation.

2.1 Research Approach

This thesis consists of a descriptive and an explanatory study related to the research objectives presented in the introductory section. The descriptive approach is primarily used when the researcher is interested in describing the characteristics of a specified problem area (Lekvall & Wahlbin, 1993). As the knowledge in the area of performance measurement in entrepreneurial organisations is practically non-existent (Olson et al., 2000), the main objective of this study is to describe the design and use of performance measurement systems in entrepreneurial organisations.

The explanatory approach is primarily used when the researcher wants to

establish correlations between a number of variables, such as the relationship

between a firm’s entrepreneurial orientation and its performance measurement

systems (Lekvall & Wahlbin, 1993). The explanatory part of the thesis intends

to investigate possible relationships between a number of variables related to

firm characteristics and the performance measurement systems used by the

firms. The variables used were entrepreneurial orientation, firm performance,

firm size, firm age, and firm ownership. In section 2.3 the measures of firm

characteristics are discussed. These firm characteristics are defined and

operationalised in the explanatory result and analysis chapter (Chapter 6).

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2.2 Data Collection

Data collection refers to the way data is collected for the purposes of scientific research (Lekvall & Wahlbin, 1993). This section contains a description of the complete data collection method utilised in the study.

2.2.1 Literature Review

The study started with the collection of secondary data. The literature review,

“Accounting and Entrepreneurship – A Review and Discussion of the Scientific Literature in the 80s and 90s” by Olson et al. (2000), was the starting point for the collection of secondary sources. Several other literature reviews in the area of accounting (e.g., Langfield-Smith, 1997; Otley et al., 1995; Shields, 1997) and entrepreneurship (e.g., Landström & Johannisson, 2001; Zahra et al, 1999) were thoroughly studied to further our understanding of the research issue. The secondary sources had to be critically examined as the material may have been gathered to address a different problem in the field of management accounting.

Moreover, many secondary sources did not clearly describe features such as:

the objective of the studies, the data collection method used, and the analysis and interpretation of the data, which made it difficult to assess their usefulness.

This problem has been addressed by triangulating the secondary data by the use of a number of independent sources. These sources were collected from academic journals through database searches (ABI/Inform, General Business File and IDEAL) and from other literature (doctoral theses, licentiate theses, etc.) through searches in LIBRIS and GUNDA at Gothenburg University. The searches were mainly made on entrepreneurship and management accounting/performance measurement and combinations of these. The search strings used can be found in Appendix 1.

2.2.2 Choice of Data Collection Method

There are a number of different data collection methods at hand and when deciding on which method to use in a study a number of various factors have to be considered (Yin, 1994). Each method has its own advantages and disadvantages. Therefore, it is of importance to evaluate the methods’

appropriateness in regard to the research problem and the presumptions in each

case (Ask & Ax, 1997). The advantages and disadvantages of the data

collection methods were evaluated with regard to the objectives of the study,

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the research issue, the time frame, the availability of data, and the characteristics of the respondents.

For this study, surveys such as postal questionnaires, web questionnaires, telephone interviews and site visits were evaluated as these seemed to be viable methodological options. From this evaluation two methods were considered appropriate with regard to the characteristics of the study – namely, telephone interviews and the use of a web questionnaire. The respondents in the study were mainly Managing Directors in small and medium sized firms, which had grown rapidly during the last three years and where their level of knowledge of performance measurement was not known. It is common knowledge that the loss of respondents is high for postal questionnaires (Lekvall & Wahlbin, 1993), and the risk for an even higher loss of respondents was imminent, as these (being mainly Managing Directors of small and medium sized firms) may not understand the meaning of all the questions. Therefore, postal questionnaires were considered inappropriate. It was of great importance that the repondents understood the questions, and potential explanations are best given in a discussion-like situation.

As stated above, the studied population consisted of firms that have grown rapidly during the last three years. These firms had to fulfil an extensive number of criteria to qualify for the study as entrepreneurial organisations (see section 2.2.7 ‘The Selection Criteria’). A case study of one or a few objects by the use of site visits would provide a too narrow picture of the design and use of the performance measurement systems in the firms. Another reason for not conducting site visits was the aim to include a ‘larger’ number of firms, and bearing in mind that there are a limited number of rapidly growing firms in Sweden in various geographic locations, the site visit approach would not pass the cost/benefit criteria. Hence, the site visit approach was rejected in favour of the telephone survey method.

Surveys are commonly used for research that is based on either a descriptive or

explanatory research approach (Lekvall & Wahlbin, 1993) and favours

questions such as what, who, where, how many and how much (Yin, 1994). The

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opportunity to explain complex and unstructured issues to the respondents, making sure that they have understood the meaning of the questions. A disadvantage is that it may be time consuming to contact the firms and book the interviews.

Other aspects considered for the choice of telephone survey as data collection method as follows:

• There was a need to ‘control’ the interview situation as the study focused on small- and medium sized firms. There were questions about concepts of performance measurement that may not be common knowledge among this group of respondents. Hence, the possibility to explain the meaning of these concepts and questions was of great importance.

• It was possible to follow up on the respondent’s answers and make them explain what they really meant by their answers.

• The higher frequency of answers as compared to a postal questionnaire.

• Long travel distances and high travel expenses could be minimised.

Primary data was also collected through the use of a web questionnaire. This questionnaire contained questions about the firm’s market behaviour/

entrepreneurial orientation, and performance (see Appendix 3). These

questions, in total 32, used rating scales of the Likert type where the respondent

were asked to rate his/her answers. As mentioned, the sample population

consisted of firms that have grown rapidly, which indicated that the

respondents might have a lack of available time. Therefore, sending the

respondents a questionnaire to answer whenever they had the time shortened

the telephone interview. The choice of a web questionnaire was mainly based

on the fact that the administration is lower compared to postal questionnaires,

and it is also easier and less time consuming for the respondents to answer the

questions and send them back. It was also easy to remind the respondents if

they had not answered the questions. A disadvantage may be that the

respondent’s computer literacy could be low. If the respondents indicated that

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there were problems answering the questions over the Internet, the questionnaire was sent via ordinary mail. In the explanatory part of the thesis, the size and age of the firms were two out of five variables analysed in relation to the firms performance measurement systems. The database ‘Affärsdata’ was used to collect the information on these two variables.

2.2.3 Choice of Survey Population

The survey population consisted of Swedish manufacturing firms in the engineering industry according to Statistics Sweden (SCB), and SNI92, the Swedish standard industry classification. A motive for studying a part of the manufacturing industry is that there is a current interest and public concern over the competitive status of manufacturing firms (Zahra et al., 1999). There was also an opportunity to make comparisons with an earlier study from the UK on small and medium sized firms and their use of performance measurement (Bhimani, 1993, 1994; CIMA, 1993). This industry has also been used as a survey population in a great deal of research in management accounting. Normally, the research has been conducted in several sub- industries of the manufacturing industry (Ask & Ax, 1997; Greve, 1999). By limiting the study to the manufacturing industry, it was possible to avoid an overly heterogeneous population. Moreover, it was of great importance to work with a population of firms that had similar industry characteristics (Ask & Ax, 1997; Miles & Snow, 1978) and were working under similar institutional conditions, as the industry factor could have an affect on the result (Samuelson, 1990). Despite these limitations, it is possible to generalise the results to the manufacturing industry by studying several sub-industries within that industry (Greve, 1999).

2.2.4 Choice of Survey Questions

The study consists of two separate parts of survey questions; namely, the questions discussed during the telephone interviews and the questions in the web questionnaire.

2.2.4.1 Questions for the Telephone Interviews

These questions focused on the performance measurement of the firm (see

Appendix 2) and the point of departure for the selection of these was the

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objective of the study and available knowledge in the studied area. As the knowledge of performance measurement among the respondents was expected to be of varying degrees, it was considered appropriate to develop a well- structured interview guide with a number of questions with fixed answers. This was also supported by the fact that the respondent group was working under constant time constraints. Hence, they would receive an interview guide, which partly comprised questions with fixed answers. However, the interview guide also consisted of a number of broad-ended questions, which were aimed at encouraging discussion.

The questions focused mainly on two areas, the design and the use of performance measurement. The structure of the interview guide and several of the questions was, to some extent, drawn from earlier studies in performance measurement (e.g., Kald & Nilsson, 2000). The questions have been reworked, and the literature mainly used for the reformulation of the questions was Ax et al. (2001). The fact that most of the questions and concepts had been validated in earlier studies, provides a more solid base for the interviews and the overall study.

2.2.4.2 Questions in the Web Questionnaire

The web questionnaire (see Appendix 3 and 4) was divided into three sections, treating different types of questions. The first section involved questions about market behaviour and the entrepreneurial orientation of the firm. These questions have been developed, used and validated in earlier studies (e.g., Covin & Slevin, 1989; Miller & Friesen, 1982; Wiklund, 1998). Using rating scales graded 1-7, the respondent rated how the firm acts within its market in each of eight dimensions. The eight dimensions assess a firm’s tendency toward product innovation, proactiveness vis-à-vis competitors, and risk taking.

The seven-graded scales were added up to an overall entrepreneurial index for the firm 3 . The index provides an indication of the entrepreneurial orientation of the firm and is, in this study, used to determine whether the firms could be considered as entrepreneurial or not. Firms ending up on the lower end of the

3 Definition of the calculation; (1) Add the numbers for the eight dimensions from the rating

scale 1-7 to a total sum. (2) Divide the sum in (1) with eight (the eight questions). The

answer equals the firm’s entrepreneurial orientation.

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scale are considered as non-entrepreneurial. The index is also used to identify firms as more or less entrepreneurial, the higher the score, the more entrepreneurial the firm’s orientation. This is discussed further in the explanatory part of the study (Chapter 6).

The questions in section two and three were used to measure the performance (effectiveness) of the firm. The researchers have for a longer period been sceptical to the use of objective indicators for the measurement of a firm’s performance. Therefore, this study measures performance in a subjective way by two questions adapted from Greve (1999), which were originally constructed by Govindarajan (1984). Using rating scales of the Likert-type (graded 1-7) the respondent rated how well the firm had succeeded in each of twelve dimensions: sales growth rate, market share, cash flow, operating profit, profit margin, return on investment, new product development, new market development, personnel development, research and development, level of costs, and political/public affairs. Another twelve rating scales (graded 1-5) were used to measure how important it was for the firm to succeed in each respective dimension. The scores from the five-graded scales were used as weights when the scores from the seven-graded scales were added up to an overall performance index for the firm 4 . The performance index was used to indicate whether the firm had a higher or lower performance. This is further discussed in the explanatory part of the study (Chapter 6).

2.2.5 Test of Survey Questions

Before the actual interviews were conducted, the survey questions were tested on one firm within the survey population. At the test interview, the relevance of the questions was tested along with the disposition of the interview guide and the web questionnaire, as well as the formulations and the answers from the respondent. This test led to a number of changes in the interview guide and the web questionnaire regarding the choice of questions and formulations. An

4 Definition of the calculation; (1) Add the numbers for the twelve dimensions from the

rating scale 1-5 together to a total sum. (2) Each rate on the scale 1-7 is multiplied by each

rate on the scale 1-5 resulting in a number for each of the twelve dimensions. (3) Add these

twelve numbers together to a total sum. (4) Divide the sum in (3) with the total weight from

calculation (1). The answer equals the total performance index for the firm. (J. Greve,

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experienced researcher at the School of Economics and Commercial Law at Gothenburg University also examined and commented on the questions.

2.2.6 Sample of Studied Firms

In order to gain credibility, it is important that the sample of interviewed firms is representative of the studied population. This could also lead to conclusions representative for the total population. However, it has to be noted that the studied firms rely on specific manufacturing methods and each firm has a managerial culture of their own, making it difficult to generalise across firms.

Nevertheless, there exists an opportunity to identify aspects common to many organisations.

The sample population consisted of active limited Swedish manufacturing firms in the engineering industry, collected from the Swedish database

‘Affärsdata’. It has to be noted that there is a limitation in the database. For the last financial year (2000) approximately 75-80% of the limited firms had registered their annual reports with the Swedish Patent- and Registration Office (PRV) at the date of the data retrieval (Affärsdata, personal communication, 26 October 2001).

A population may be viewed as comprising different groups where elements in

each group are similar to each other in some way. In those cases, sampling

precision may be gained by treating the different groups separately (Aczel,

1996). This study focuses on the engineering industry, which was defined as

seven separate sub-industries using the Swedish Industrial Standard

Classification Codes (SNI). These sub-industries are: SNI 28 metal; SNI 29

machinery; SNI 30 office and computing machinery; SNI 31 electrical

machinery; SNI 32 radio, television and communication equipment; SNI 33

medical and optical instruments; and SNI 34 transport equipment (see

Appendix 5). Similar branch selections have been made in earlier research in

the area of management accounting (e.g., Ask & Ax, 1997). The sample

population was divided into seven groups based on the different classification

codes (SNI). By looking at the total number of active limited firms in each of

the seven groups, an approximate distribution of the number of firms to be

interviewed was made.

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The aim of the empirical study was to interview fifteen companies in total within the seven groups. It should be noted that this is not a statistical study and the aim was not to reach an acceptable level of statistical inference. Rather, the purpose is to address the research problem and reach a high level of quality on the empirical data with the limited resources at hand. Each of the seven sub- industries in the sample was divided into two sub-groups by the size of the firms. The study focuses on small and medium sized firms using the European Unions quantitative definition. Small firms have 10-49 employees and an annual sale of not more than ECU 7 million 5 . Medium sized firms have 50-249 employees and not more than ECU 27 million in annual sales. The limitation of the study to small- and medium sized firms was mainly due to the fact that high growth firms that are growing organically, an important factor of entrepreneurship, are most likely found in these classes of size (Davidsson &

Wiklund, 2000). The very small firms, or micro firms, with 0-9 employees were excluded from the study due to the fact that there is a notable shift in the formality regarding organisation and customers at around 10 employees, which makes micro firms different from small firms (Storey, 1994).

The sample was selected by looking at every tenth firm in each sub-group in the database. The firms had to fulfil a number of criteria to be selected (see section 2.2.7, ‘The Selection Criteria’, below). This procedure was performed until the sample population was considered large enough. The total size of the sample was 84 firms (see Appendix 6). The firms in the sample population were contacted over the telephone and a number of questions were asked to determine whether the firm corresponded to additional selection criterion, on which there was no information available in the database. A great number of firms did not correspond to these criteria and a major part were constrained to do an interview due to lack of time. As a result 17 firms were booked for interviews. Out of these 17 booked interviews, 14 were conducted whereas the other three were cancelled due to the respondent’s lack of time. Twelve of these 14 firms were included in the analysis. The other two firms were excluded since they ended up on the lower end of the entrepreneurial index and, thus,

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were not considered to be entrepreneurial. The sample selection and the interview booking also aimed at reaching an even distribution between small- and medium sized firms. For the distribution of interviews see table 2.1.

Branch No. of active limited firms

Total no. of interviews

No. of interviews (10-49)

No. of interviews (50-249)

SNI 28 1695 5 3 2

SNI 29 1117 2 0 2

SNI 30 51 1 1 0

SNI 31 306 2 1 1

SNI 32 128 1 1 0

SNI 33 247 0 0 0

SNI 34 239 1 0 1

Total 3783 12 6 6

T ABLE 2.1. D ISTRIBUTION AND NUMBER OF CONDUCTED INTERVIEWS AND ANALYSED FIRMS

As can be seen from table 2.1, no interviews were conducted with firms in SNI 33, the manufacture of medical, precision and optical instruments, watches and clocks. All firms corresponding to the selection criteria were selected from the database and contacted, but a major part did not pass the additional selection criteria and the rest were not able to participate in the study. As a result no interviews were conducted with firms in SNI 33.

2.2.7 The Selection Criteria

The main objective of the study was to describe how the performance measurement systems of entrepreneurial organisations are designed and used.

To be able to do that, the entrepreneurial organisations had to be identified.

Growth is sometimes assumed to be synonymous with entrepreneurial

behaviour; meaning that firms that grow are entrepreneurial firms (Wiklund,

1998). Several researchers state that growth can be seen as a direct proxy for

entrepreneurial behaviour (Davidsson, 1989; Naffziger et al., 1994). Wiklund

(1998), in his doctoral thesis, concludes that growing firms are also, in most

cases, entrepreneurial firms. Therefore, growth was one of the major criteria

when selecting the sample population.

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In 1998 NUTEK 6 presented an investigation of Swedish growth firms for the period 1993-1996. To select the firms for the investigation, a number of criteria were used and these criteria have been adapted and utilised in this study. Some of the criteria have been changed to better suit the objectives and problem of the study. The following criteria have been used:

• The firm has to be a part of at least one of the selected sub-industries, SNI 28-SNI 34. The firm cannot, however, be a part of any other industry. A firm registered both within for example SNI 28 and SNI 25 was excluded from the study.

• The firm has to be a limited firm and have employed at least ten employees during the last financial year (2000).

• The firm must have managed its operations during all four financial years (1997-2000) and the revenue must not have fallen below 0.5 million SEK during any of these four financial years.

• Firms experiencing growth due to trade in shares and other financial instruments were not included.

• The last financial year should end between 2000-06 and 2000-12. The length of the financial year should be a normal calendar year (365 days) and firms that have changed their financial year some time between 1997 and 2000 are excluded to avoid misleading effects on the calculated growth.

• The firm should at least have doubled its revenue during the last four financial years (1997-2000), meaning a yearly average revenue increase of at least 25% 7 .

6 NUTEK is The Swedish Business Development Agency.

7 The studied firms have during the past four years filed four annual accounts to the proper

authorities (Patent- och registreringsverket). This means that the revenue growth has

occurred in three periods, 1997 to 1998, 1998 to 1999 and 1999 to 2000. If the firm grow

with an average of 25% a year the total increase will be (1 + 0.25) * (1 + 0.25) * (1 + 0.25) –

1 = 0.953 meaning 95.3% which is an approximate equivalent of a doubling of the revenue

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Growth is, in this study, operationalised by an average revenue increase of at least 25% a year. According to Hoy et al. (1992), revenue is the best way of operationalising growth and is also a measure that many academics use. It is also argued that revenue is a measure commonly used by practitioners (Barkham et al., 1996; Hoy et al., 1992). Another important reason for using revenue instead of the number of employees is that firms often grow without hiring additional employees in proportion with to the overall growth (NUTEK, 1998). The reason for the choice of an average annual growth of 25% a year over a three-year period is that it is an established definition used in several investigations. It is also considered as a proof of growing power within the firm. (NUTEK, 1998)

• The growth of the firm during the period (1997-2000) must have been organic. That is, the firm cannot have grown through reorganisations, mergers, acquisitions, or through other similar actions.

• The growth must be due to the actions of the firm, such as entering new markets or offering a new product mix, and not due to changes in the environment/market, such as an overall increase in demand.

As stated earlier, growth can be seen as a direct proxy for entrepreneurial behaviour and, thus, growing firms are to be seen as entrepreneurial firms.

However, Wiklund (1998) argues that entrepreneurial behaviour and growth are

not completely one and the same. He also suggests that researchers aiming at

defining entrepreneurial behaviour should recognise this, and use a multi-item

measurement of entrepreneurial behaviour. Therefore, the last question above

was asked to determine whether the firms fulfil other criteria indicating

entrepreneurial behaviour, such as entering new markets or developing new

products. Wiklund’s (1998) study shows that growth and other manifestations

of entrepreneurial behaviour accompany each other, meaning that firms that are

considered to be entrepreneurial along one dimension also tend to be

entrepreneurial along other dimensions. By asking the firms this question, the

possibilities for determining whether the firms are entrepreneurial should

increase. Furthermore:

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• Firms ending up on the lower end of the entrepreneurial index, based on the questions on market behaviour and the entrepreneurial orientation of the firm in the web questionnaire, were excluded from the study. These firms were considered as having a conservative strategic posture and were characterised by low technological and product innovation, a cautious competitive orientation, and a weak risk-taking propensity by the top management (Covin & Slevin, 1989).

• The Managing Director of the firm should have held his/her position during at least one year and consider him-/herself as having the knowledge to answer the questions about market behaviour and performance during the last three years (1998-2000). The respondent should also consider him- /herself as having the necessary knowledge to answer the questions about the design and use of performance measurement systems within the firm.

The main part of the criteria outlined above was available in the database, but three additional questions had to be asked at the first contact with the firms.

These questions were whether the firm had grown organically, whether the growth of the firm could be due to the actions of the firm and not only changes in the environment/market, and how long the Managing Director of the firm had held his/her position. It was also asked whether he/she considered him- /herself as having the knowledge to answer the questions about market behaviour and performance during the last three years, as well as the questions about the performance measurement in the firm. The firms that fulfilled all the above criteria and felt positively about the study were interviewed.

2.2.8 Choice of Respondents

Apart from selecting the right firms, it was also of great importance to select the right respondents. A number of demands were set to identify the suitable respondents for the telephone interviews, as well as for answering the web questionnaire.

The questions about performance measurement asked in the telephone

interviews was answered by a respondent who:

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• Has good knowledge about the design and use of the performance measurement systems in their firm.

• Has good knowledge of the firms overall operations.

The questions on performance measurement were answered by the Managing Director in seven of the twelve interviews, by the Financial Manager in four interviews, and by the Controller in one of the interviews.

The questions in the web questionnaire dealt with the market behaviour/

entrepreneurial orientation and the performance of the firm - areas in which the Managing Director of the firm ought to have the best knowledge. Moreover, the measurement scales in the questions about the market behaviour/entrepreneurial orientation are related to the respondents’ self- perception of the firms’ strategy. The Managing Director is, in most cases, involved in developing these strategic questions within the firm and, as a result, is the most suitable respondent of the web questionnaire.

Therefore, the respondent of the web questionnaire should:

• Consider him-/herself as having the knowledge to answer the questions about market behaviour/entrepreneurial orientation and performance during the last three years (1998-2000).

The Managing Director answered the web questionnaire in all cases but one, where the Financial Manager answered the questions. This was acceptable since the Financial Manager claimed he had the same knowledge as the Managing Director regarding these questions.

2.2.9 Conduct of the Telephone Survey and Web Survey

The questions on performance measurement that were discussed during the

telephone interviews were sent to the respondents via the ordinary mail at least

a week ahead of the interview. This provided the respondents with an

opportunity to prepare themselves for the interview. After the first contact was

made with the firms and the interviews were booked, a shortcut to the web

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questionnaire with an explaining text was e-mailed to the Managing Director (see Appendix 3 and 4).

Each interview took between 25 to 60 minutes and was recorded with the respondent’s permission. The recording was necessary as the amount of information from the interviews was high and it was impossible for the interviewer to make all the necessary notes throughout the interview. The recorded interviews were typed up immediately after the interviews and questions that stemmed from the later interview analysis, were followed up by asking the necessary questions via e-mail or telephone. The web survey was followed up by e-mail reminding the respondent’s that had not answered the web questionnaire.

2.3 Measures of Firm Characteristics

The explanatory study intended to investigate the possible relationships between a number of variables and the design and use of performance measurement systems. In the literature, a great number of various variables of firm characteristics exist (Ask & Ax, 1997). The variables chosen in this study were entrepreneurial orientation, firm performance, firm size, firm age, and firm ownership. The objective of the analysis was to investigate whether there were differences between firms in relation to these variables, and if the variables affected the design and use of the performance measurement systems.

The variables of firm characteristics can be described as dependent variables, while the performance measurement system is the independent variable. To be efficient, a firm has to adapt its structure to its environment; for example, the larger a firm is, the more developed its performance measurement system.

However, different variables of firm characteristics could have an effect on the

shaping of the performance measurement system. The variables of firm

characteristics are used as a means (proxy variable) for investigating the real

area of interest (Ask & Ax, 1997), in this case, the design and use of

performance measurement systems. The operationalisation of the measures and

other methodological issues related to the explanatory study are further

discussed in Chapter 5, ‘The Explanatory Study – Results and Analysis’.

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2.4 Research Evaluation

There are various sources of mistakes affecting the quality of the study in terms of validity and reliability. To be able to achieve a high level of credibility for the study and the following conclusions, it is important to demonstrate that it is conducted in such a way that it accurately identifies and describes the studied phenomenon.

2.4.1 Validity

Validity is an expression of how well the adopted measurement instrument measures the issues actually meant to be measured in the study. However, it should be noted that there is no objective way of determining to what extent the measurement instrument is valid or not, meaning that the level of validity has to be determined on a subjective basis. (Lekvall & Wahlbin, 1993)

If a number of knowledgeable people study the questions in a questionnaire and determine them to be ‘good’ in relation to the purpose of the questions, it is reasonable to assume that there is a degree of validity (Lekvall & Wahlbin, 1993). In this study, a test interview was conducted with one company within the survey population, and an experienced researcher at the School of Economics and Commercial Law at the Gothenburg University also examined and commented on the questions. Moreover, the questions in the web questionnaire have been used and validated in earlier studies (e.g., Govindarajan, 1984; Greve, 1999). This indicates a high face validity, which is an expression for external validity (Ask & Ax, 1997). Internal validity is the logical relationship between an investigation and the available theory in the studied area (Ask & Ax, 1997). This relationship between existing theory and the empirical study was established by a thorough review of the literature in the area. The theoretical framework established throughout that review was used as the basis for the research questions in the two questionnaires, as well as when analysing the results.

2.4.2 Reliability

Reliability is an expression for a measurement instrument’s capability to

withstand random effects. A measurement instrument that generates the same

or similar results on multiple occasions has high reliability (Lekvall &

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Wahlbin, 1993). It should be noted that it is practically impossible to make several completely consistent investigations, as there will always be a certain level of random effect in all investigations (Ask & Ax, 1997).

The use of clearly defined questions in the telephone survey, as well as in the web questionnaire, increases the probability of replicating this study.

Moreover, the research method is clearly defined and described in the thesis,

and the reliability is also positively affected by the fact that the questions were

tested in a test-interview. In general, it could be concluded that the clearer and

more stringent the questions are, and the more standardised the measurement

method is, the higher the reliability (Ask & Ax, 1997).

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3 Frame of Reference

The frame of reference for this study consists of two main sections. The first section discusses entrepreneurship, entrepreneurial organisations and other related concepts that are of importance for the study. This is followed by a section on performance measurement, which reviews the situation in both the normative and empirical literature.

3.1 Entrepreneurship

There does not exist any unitary definition of the concept of entrepreneurship in the research literature (Bygrave, 1989; Cunningham & Lischeron, 1991;

Landström, 1999). In fact, the concept has been used to define a wide range of activities, such as creation, founding, adapting, and managing a venture. Hence, entrepreneurship takes many forms and it is not surprising that a consensus has not been reached on the definition of entrepreneurship (Cunningham &

Lischeron, 1991).

The research in entrepreneurship has a very long history with its roots in economics but has developed into a multidisciplinary field. As a result, entrepreneurship has been viewed from many different perspectives (Cunningham & Lischeron, 1991; Landström, 1999). Stevenson & Jarillo (1990), in a review of the literature on entrepreneurship, divided the research into three main categories: what happens when entrepreneurs act; why they act;

and how they act. The first question concerned economists, such as Joseph Schumpeter (1934), and is focused on the effects of entrepreneurship on economic development. The psychological/sociological approach promoted by behavioural scientists is concerned with the second question why, while the last question how has mainly been developed within the area of ‘management studies’ (ibid). As the interest in entrepreneurship increased among management researchers in the 1970s, the focus of the studies turned from the individual to the process of establishment and growth (Landström, 1999).

Olson et al. (2000) states that the existing definitions of entrepreneurship have,

to a large extent, argued that entrepreneurship is about exploration and

exploitation of opportunities (see also Shane & Venkataraman, 2000).

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Exploration is about the process of discovering and exploring business opportunities and may take place in an existing organisation, as well as outside existing organisations in the form of private exploration projects. Exploration projects are assumed to generate organisational growth and, as a result, growth in the society. However, the exploration does not in-itself generate growth; the exploitation generates growth. Entrepreneurship is about growth whether it is caused by innovation of new products or by increased demand on existing products. It is also possible to find entrepreneurial action in the exploitation of new products, as well as of old products. Consequently, the process of defining entrepreneurship becomes a question of defining exploitation. (ibid)

As some researchers shifted their focus from the individual to the process, new alternative definitions of entrepreneurship were established. Bygrave & Hofer (1991) define the entrepreneurial process as “all the functions, activities and actions related to the discovery of opportunities and the creation of organisations for the purpose of exploiting the aforementioned opportunities”.

In a more recent definition, Shane & Venkataraman (2000) state that entrepreneurship is about “how opportunities to create future goods and services are discovered, evaluated and exploited”.

The classic definition of entrepreneurship by Schumpeter (1934) stresses that entrepreneurship has to do with combining resources in new ways that create disequilibrium in the economic system. This means that entrepreneurial firms are innovative to such an extent that they have an impact on the market (Wiklund, 1998). Stevenson (1984) advocates that pursuit of opportunity is the most important component of entrepreneurship (see also Stevenson & Jarillo, 1990). Wiklund (1998) argue, however, that these two definitions complement each other, and when combined define entrepreneurship as “taking advantage of opportunity by novel combinations of resources in ways which have impact on the market”.

3.2 Organisational Entrepreneurship

As mentioned above, the research in entrepreneurship has historically focused

on the entrepreneur but has in the past decades turned from the individual

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(Landström, 1999). The early work of Schumpeter (1934) suggests that entrepreneurship could arise from different settings. Individuals who work in organisations have the potential for being as entrepreneurial as those working independently to start their own business. An organisation can create an environment where the members can contribute to the entrepreneurial function.

The organisation that is able to create such an environment is an entrepreneurial organisation (Cornwall & Perlman, 1990). The starting point for the research on firm-level entrepreneurial activities is identified as Peterson and Berger’s seminal study in 1972. This was later followed in the 1980s by a number of trends emerging that distinguished between individual entrepreneurship and corporate entrepreneurship (Zahra et al., 1999).

3.2.1 Entrepreneurial Strategy

Miller & Friesen (1982) argue that entrepreneurial organisations try to obtain a competitive advantage by routinely making dramatic innovations and taking challenging risks. The central elements of this ‘entrepreneurial strategy’ are the organisation’s actions regarding innovation, risk taking, and proactiveness (Miller, 1983). One of the most important contributions in this field was made by Miller (1983) with his theory and research instruments for the examination of the key linkages between environmental and strategic variables, and a firm’s entrepreneurial activities. A measurement instrument was created to measure the level of entrepreneurial strategy within an organisation. Miller’s conceptualisation has since become the instrument of choice in examining firm-level entrepreneurship (Zahra et al., 1999). Miller (1983) further concludes that: “An entrepreneurial firm is one that engages in product-market innovation, undertakes somewhat risky ventures, and is first to come up with

‘proactive’ innovations, beating competitors to the punch” (p. 771).

The non-entrepreneurial firm, on the other hand, is one that innovates very

little, is highly averse to risk, and imitates the moves of the competitors instead

of leading the way (ibid). The three dimensions that constitute entrepreneurship

- innovation, risk taking, and proactiveness – are the entrepreneurial

dimensions of strategy. They appear in Miller & Friesen’s study (1978) as three

out of eleven dimensions of the strategy making process, meaning that Miller

takes a strategic approach to entrepreneurship (Wiklund, 1998). Moreover,

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Miller’s (1983) definition of the characteristics of entrepreneurial strategy puts the focus on the process of entrepreneurship rather than the individual behind it, the entrepreneur (Wiklund, 1998). However, a closer study of Miller’s measurement instrument shows that it actually measures accomplished activities and present attitudes rather than actual behaviour. The scale measures the strategic orientation and the concept, entrepreneurial orientation, seems to be more correct than entrepreneurial strategy. (ibid)

3.2.2 Entrepreneurial Orientation

The researchers in the field of entrepreneurship have not been consistent in labelling the phenomenon studied (Lövstål, 2001; Zahra et al., 1999). A number of labels have been used, such as entrepreneurship (Miller, 1983), organisational entrepreneurship (Jelinek & Litterer, 1995), corporate entrepreneurship (Dess et al., 1999; Zahra, 1993), intrapreneurship (Carrier, 1996; Kuratko et al., 1990), entrepreneurial posture (Covin & Slevin, 1991), strategic posture (Covin & Slevin, 1988), and entrepreneurial orientation (Dess et al., 1997; Wiklund, 1998). Despite the differences in the labels used, most researchers have utilised Miller & Friesen’s (1982) measure of firm-level entrepreneurship or a modified version of the instrument (Zahra et al., 1999).

Throughout these studies, different interpretations of the measurement instrument have been suggested but, in spite of that, it is still a viable instrument for the measurement of important aspects of entrepreneurial strategy (Wiklund, 1998).

In his doctoral dissertation, Wiklund (1998) makes a review of the studies that have used Miller’s (1983) measurement instrument and concludes that all questions in the measurement scale related to the respondent’s self-perception of the firm’s strategy. Wiklund (1998) uses the findings from Merz et al. (1994) and Brown (1996) to put his label on the construct of entrepreneurial orientation as: “The CEO’s strategic orientation reflecting the willingness of a firm to engage in entrepreneurial behaviour”.

This definition is also utilised in this study and entrepreneurial orientation is

the concept that will be used here to characterise the entrepreneurial

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conceptualisation of entrepreneurship, including the dimensions of innovation, risk taking, and proactiveness, as in a majority of previous studies (e.g., Covin

& Slevin, 1989; Naman & Slevin, 1993; Wiklund, 1998). Since this study deals with entrepreneurship within a business context, or more precisely within established firms, it discusses some of the questions and aspects related to entrepreneurial orientation.

Entrepreneurial orientation has been shown to be a good predictor of the outcomes of entrepreneurial behaviour (Covin & Slevin, 1990; Merz et al., 1994). Wiklund (1998) finds that there is a strong link between entrepreneurial orientation and entrepreneurial behaviour. This means that an entrepreneurial strategic orientation also leads to actual entrepreneurial behaviour, for example entering new markets, manufacturing new products and so on. An organisation with an entrepreneurial orientation could, thus, be defined as an entrepreneurial organisation.

3.3 Performance Measurement

3.3.1 Introduction

The system used by management to control the activities of an organisation is commonly referred to as the management control system (e.g., Anthony et al., 2001). A management control system typically comprises several different types of control tools or sub-systems. Whereas some of these control tools could be characterised as ‘soft’, such as corporate culture and type of leadership, there are others that could be described as ‘hard’, such as budgeting and costing (Ax et al., 2001). Samuelsson (1996) classifies the different types of control systems into three main categories: formal control systems, organisational structure, and less formalised control systems. According to Ax et al. (2001), the branch of performance measurement should be considered a

‘hard’ and formal control tool and may therefore be grouped along control tools with similar characteristics, such as budgeting, target costing, and benchmarking.

As with the concept of entreprenurship, the literature does not provide any

unitary definition of performance measurement. Ax et al. (2001) states that the

References

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