The Relationship between Top Managers’ Strategic Thinking Capability and Firm’s Entrepreneurial Orientation
Nader Seyed Kalali*
PhD. of Strategic Management, Faculty of Management, University of Tehran, Iran
PhD.Candidate, Faculty of Management & Accounting, Allameh Tabataba’i
Nowadays, managers need different capabilities in order to gain success in the competitive markets. Strategic thinking capability is among cognitive capabilities that can have positive effects on the individuals’ and firms’ performance. This capability is different among different managers, and organizations in which managers have high levels of this capability enjoy a rare resource that can have positive effects on their performance. One of the desired organizational orientations is entrepreneurial orientation. Innovativeness, proactiveness and risk-taking comprise dimensions of entrepreneurial orientation. Previous studies show that entrepreneurial orientation has a powerful impact on firms’ performance. In the present research, it has been attempted to find a relationship between strategic thinking capability at the individual level and entrepreneurial orientation at the organizational level; that is, it has been argued that if top managers have high strategic thinking capability, organizational entrepreneurial orientation will be reinforced.
Keywords: Entrepreneurial Orientation, Strategic Thinking, Top Managers.
Firms can fluctuate between the two extremes of entrepreneurship and conservatism (Covin & Slevin, 1998). Covin & Slevin (1989) believe that entrepreneurial firms are those in which the managers have entrepreneurial management style. So far two major viewpoints have been presented regarding the concept of entrepreneurial orientation. On the one hand, Miller (1983) defines entrepreneurial orientation as concurrent exhibition of three behaviors, namely, innovativeness, proactiveness and risk-taking. Therefore, a firm can be considered as entrepreneurial only when the average level of these three components is high. On the other hand, Lumpkin and Dess (1996) consider entrepreneurial orientation to include five dimensions: innovativeness, proactiveness, risk-taking, competitive aggressiveness, and autonomy. From their viewpoint, in order to be entrepreneurial, a firm does not need to have good scores in all these five dimensions. If a firm gains high scores only in one or more of these dimensions, then it could be concluded that it has entrepreneurial behavior(s).
To date, several studies have been conducted on the consequences of entrepreneurial orientation. These studies indicate that entrepreneurial orientation leads to positive performance consequences. Increasing firm profitability (Lee & Chu, 2013) and growth (Anderson & Eshima, 2013) are among these consequences. Therefore, firms are interested in increasing their entrepreneurial orientation, because it can enhance their performance. Compared to the studies conducted on the consequences of entrepreneurial orientation, there are few studies conducted on the antecedents of entrepreneurial orientation (Simsek, Heavey & Veiga., 2010).
Cognitive capabilities can affect the development of organizational capabilities and strategic orientations. Top managers’ strategic thinking capability is one of these cognitive capabilities. In the present paper, the researchers have tried to develop a conceptual model that shows the effect of top managers’ strategic thinking capability on organizational entrepreneurial orientation. In the following, first the concept of strategic thinking and its elements are delineated; then, organizational entrepreneurial orientation is explained, and finally, the developed conceptual model is introduced and the relationships among model elements are described.
Strategic thinking is not such a clear concept. Despite the fact that this concept is frequently used, academic research regarding this concept is scarce. In fact, many equate strategic thinking with strategy, strategic management and similar concepts and consider research in this regard to be unnecessary. Some others actually mean strategic management or strategic planning when they write about strategic thinking. However, it seems that it is possible to further develop this concept, especially from the perspective of behavioral and psychological theories. One of the areas of research in the literature on strategic thinking is the elements comprising the strategic thinking construct at the individual level. In other words, what do we mean when we say that a manager thinks strategically? In this regard, various opinions have been expressed which occasionally even contradict each other (Seyed Kalali, Momeni & Heydari, 2015).
Mintzberg (1987) argues that strategy can be conceived as five Ps: plan, ploy, pattern, position, and perspective. He places the concepts of plan and pattern at each end of the continuum of strategy formation (Graetz, 2002). In other words, Mintzberg (1984) differentiates between strategic planning and strategic thinking. In his viewpoint, strategic planning must follow strategic thinking. He argues that strategic planning focuses on analysis and formalization, whereas strategic thinking is based on synthesis, intuition and creativity (Seyed Kalali et al., 2015).
Bonn (2001) demonstrated that most executive managers in Australia have considered weakness in strategic thinking to be their organization’s biggest problem. Bonn (2005) defines strategic thinking as a method of solving strategic problems which combines a rational and convergent approach with divergent and creative thinking processes. He believes that people create meaning and understand subjects through construction of mental representations. Thus, he claims that decision-makers with high strategic thinking capabilities exhibit higher diversity in their representation systems (Seyed Kalali et al., 2015).
Other researchers have also tried to clarify the concept of strategic thinking. Among them Liedtka (1998), Gallimore (2010), and Casey and Goldman (2010) can be mentioned (Seyed Kalali et al., 2015):
Liedtka (1998) mentions five characteristics of strategic thinking: systems perspective, intent focused, thinking in time, hypothesis driven and intelligent opportunism. Gallimore (2010) names twenty characteristics of strategic thinking as follows: creative, vision of the future, holistic, complex or systems thinking, rational and analytic, longer time perspective, questioning taken for granted assumptions, divergent, synthetic, broader context, intuitive, connecting past, present and future, problem solving, intent focused, abstract or conceptual, tolerant of risk or ambiguity, curious, experimental or exploratory, active in shaping circumstances, focusing on most significant forces, involving values. Casey and Goldman (2010) believe that the development of an individual’s ability to think strategically is a dynamic, interactive, and iterative experiential learning process. Strategy development activities consist of scanning, questioning, conceptualizing, and testing (Casey & Goldman, 2010).
One of the viewpoints presented regarding strategic thinking which has attracted attention over the recent years is that of Pisapia, Reyes-Guerra, & Coukos-Semmel (2005). They consider the strategic thinking construct to be comprised of three main dimensions: systems thinking capability, reflecting capability, and reframing capability. The questionnaire designed based on this conceptualization has been used in various industries and countries (Jelenc & Pisapia, 2015). In the present research, strategic thinking has been regarded as a cognitive capability compatible with the viewpoint presented by Pisapia et al. (2005).
Covin and Slevin (1989) have divided firms into the two groups of entrepreneurial and conservative. Based on their viewpoint: “Entrepreneurial firms are those in which the top managers have entrepreneurial management styles, as evidenced by the firms’ strategic decisions and operating management philosophies. Non-entrepreneurial or conservative firms are those in which the top management style is decidedly risk-averse, non-innovative, and passive or reactive.” A firm can be referred to as entrepreneurial only when it simultaneously exhibits high levels of risk taking, innovativeness, and proactiveness.
Unlike Covin and Slevin (1989), Lumpkin and Dess (1996) believed that “EO refers to the processes, practices, and decision-making activities that lead to new entry.” According to them, a firm is entrepreneurial only when it exhibits one or several of five behavioral characteristics: risk-taking, innovativeness, proactiveness, autonomy and competitive aggressiveness.
Due to broader application of the viewpoint of Covin and Slevin (1989) in entrepreneurship studies, in the present research, entrepreneurial orientation has been considered as concurrent exhibition of risk-taking, innovative and proactive behavior.
Innovativeness is the predisposition to engage in creativity and experimentation through the introduction of new products/services as well as technological leadership via R&D in new processes. Risk taking involves taking bold actions by venturing into the unknown, borrowing heavily, and/or committing significant resources to ventures in uncertain environments. Proactiveness is an opportunity-seeking, forward-looking perspective characterized by the introduction of new products and services ahead of the competition and acting in anticipation of future demand (Rauch, Wiklund, Lumpkin, Frese, 2009).
So far numerous studies have been conducted on antecedents and consequences of EO, yet the number of studies conducted on performance consequences of EO (e.g., Wiklund & Shepherd, 2003; Richard, Barnett, Dwyer & Chadwick, 2004) has been more than those conducted on determinants of EO (e.g., Poon, Ainuddin, & Junit, 2006; Becherer & Maurer, 199). Strategic thinking capability can be considered as an important antecedent of EO.
In what follows, the relationship between the dimensions of top managers’ strategic thinking capability and firm’s entrepreneurial orientation has been explained and a number of hypotheses have been developed:
1- Strategic thinking and innovativeness
From the viewpoint of Pisapia et al. (2005), strategic thinking is comprised of three main dimensions: systems thinking capability, reflecting capability, and reframing capability.
Systems thinking refers to the entrepreneur’s ability to see systems holistically, by understanding the properties, forces, patterns and interrelationships that shape the behavior of the system, which hence provides options for action. Reflecting refers to the entrepreneur’s ability to weave logical and rational thinking, through the use of perceptions, experience and information, to make judgments on what has happened, and the creation of intuitive principles that guide future actions. Reframing refers to the entrepreneur’s ability to switch attention across multiple perspectives, frames, mental models, and paradigms to generate new insights and options for actions (Pisapia et al., 2005).
Considering the above, it seems that top managers who have stronger systems thinking capability can come up with more solutions for the problems. New solutions can indicate the presence of innovativeness in the organization. Innovativeness can occur in developing new products, new services, new processes or new business models (Anderson, & Eshima, 2014). In order to succeed in innovative activities, managers should have a holistic view and be able to make relationships between various parts of the organization.
Nowadays, only those organizations succeed in innovation that can create necessary systems, processes, and capabilities for innovativeness. To this end, the presence of top managers with high analytical capabilities is essential. In addition, intuitive thinking can lead to technical and scientific breakthroughs and enhance the level of organizational innovativeness (Sadler-Smith, 2008). Therefore, the presence of top managers with high levels of reflecting capability can strengthen organizational innovativeness.
Approaching the issues and challenges from various, and occasionally contradictory, perspectives and paradigms can put new solutions before people. Basically, innovativeness occurs through creativity and experimentation (Rauch et al., 2009); therefore, top managers’ reframing capability can improve and accelerate development of new products and services in the organization by strengthening R&D. Thus, given the positive effect of all three dimensions of strategic thinking capability on innovativeness, it could be concluded that:
H1. There is a positive relationship between top managers’ strategic thinking capability and firm’s innovativeness.
2- Strategic thinking and proactiveness
Proactive firms are opportunity-seeking and forward-looking and try to be always ahead of the competition (Rauch et al., 2009). By introducing new products and services to the market, proactive firms can shape their environment and establish themselves as market leaders. Search for achieving market leadership is the behavior of proactive firms (Anderson et al., 2014).
It appears that managers who have a holistic view of the issues before them and use logic and intuition simultaneously to solve them, will be able to find suitable solutions faster than their competitors. In particular, using intuition helps them to have a futuristic approach to new technologies and emerging environmental opportunities. Moreover, top managers who see issues from different viewpoints will create different firms. Evidently, those firms can become market leaders that are not similar to others and exhibit a different behavior than their competitors. Therefore, given the positive effect of all three dimensions of strategic thinking capability on proactiveness, it could be concluded that:
H2. There is a positive relationship between top managers’ strategic thinking capability and firm’s proactivity.
3- Strategic thinking and risk-taking
Risk-taking means taking bold decisions in order to enter new business areas. Naturally, managers who weigh all the issues, assess the mutual effects of various factors on each other, and listen to different viewpoints before making a decision, will be able to make better decisions. Thus, there is a possibility that the outcome of meticulous and collaborative analysis of weaknesses and strengths of organization and environmental opportunities and threats, lead managers to the conclusion that under certain circumstances, it is necessary to enter a new and risky business. On the other hand, considering all issues and over-assessment may reduce decision-making speed and tends to make managers conservative. As a result, systems thinking and reframing capability can increase firms’ risk-taking in one way and decrease it in another way. While top managers who can engage their logic and intuition simultaneously, are more prone to take risks. Stronger reflecting capability helps managers to both take advantage of available opportunities and gain the necessary boldness to enter unknown markets and new technologies, which are manifestations of risk-taking (Baird and Thomas, 1985).
Thus, given the positive effect of the dimensions of strategic thinking capability on risk-taking, it could be concluded that:
H3. There is a positive relationship between top managers’ strategic thinking capability and firm’s risk-taking.
Considering the previous three hypotheses as well as the fact that entrepreneurial orientation (according to the viewpoint of Covin & Slevin (1989)) refers to concurrent exhibition of risk-taking, innovative and proactive behavior, the following final hypothesis could be developed:
H4. There is a positive relationship between top managers’ strategic thinking capability and firm’s entrepreneurial orientation.
The conceptual model of the proposed hypotheses is presented in the below figure:
|Top Managers’ Strategic Thinking Capability|
|Firm’s Entrepreneurial Orientation|
Figure 1. The conceptual model of the effect of top managers’ strategic thinking capability on firm’s entrepreneurial orientation
In the present paper, it was shown that by increasing the level of top managers’ strategic thinking capability, entrepreneurial orientation in a firm increases. Therefore, it is essential that firms pay special attention to improving their managers’ strategic thinking capability, because this capability can affect the firms’ performance and improve it by increasing entrepreneurial orientation. Future researchers can empirically examine the hypotheses proposed here. Studying the role of moderating variables in the relationship between strategic thinking capability and entrepreneurial orientation can also be considered in future.
Anderson, B. S. & Eshima, Y. (2013). The influence of firm age and intangible resources on the relationship between entrepreneurial orientation and firm growth among Japanese SMEs. Journal of Business Venturing, 28(3), 413-429.
Anderson, B. S., Kreiser, P. M., Kuratko, D. F., Hornsby, J. S., Eshima, Y. (2014). Reconceptualizing entrepreneurial orientation. Strategic Management Journal, 36: 1579–1596.
Baird, I. S., & Thomas, H. (1985). Toward a contingency model of strategic risk taking. Academy of Management Review, 10: 230–43.
Becherer, R. C. & Maurer, J. G. (1997). The moderating effect of environmental variables on the entrepreneurial and marketing orientation of entrepreneur-led firms. Entrepreneurship Theory and Practice, 22(1), 47–58.
Bonn, I. (2001). Developing strategic thinking as a core competency. Management Decision, 39, 63-71.
Bonn, I. (2005). Improving strategic thinking: A multilevel approach. Leadership & Organizational Development Journal, 26, 336-354.
Casey, A., & Goldman, E. (2010). Enhancing the ability to think strategically: A learning model. Management Learning, 41, 167-185.
Covin, J. G. & Slevin, D. P. (1989). Strategic management of small firms in hostile and benign environments. Strategic Management Journal, 10, 75–87.
Covin, J. G. & Slevin, D. P. (1998). The influence of organization structure on the utility of an entrepreneurial top management style. Journal of Management Studies, 25(3), 217–234.
Gallimore, K. (2010). Developing a Tentative Framework for Strategic Thinking. British Academy of Management Conference. Sheffield.
Graetz, F. (2002) Strategic thinking versus strategic planning: towards understanding the complementarities. Management Decision, 40(5/6): 456–63.
Jelenc, L., & Pisapia, J. (2015). Individual Entrepreneurial Behavior in Croatian IT Firms: The Contribution of Strategic Thinking Skills. Journal of Information and Organizational Sciences, 39(2), 163-182.
Lee T., and Chu, W. (2013). How entrepreneurial orientation, environmental dynamism, and resource rareness influence firm performance. Journal of Management & Organization, 19, 167-187.
Liedtka, J. (1998). Strategic Thinking; Can It Be Taught? Long Range Planning, 31, pp. 120–129.
Lumpkin, G. T., Brigham, K. H., & Moss, T. W. (2010). Long-term orientation: Implications for the entrepreneurial orientation and performance of family businesses. Entrepreneurship & Regional Development, 22(3), 1-24.
Miller, D. (1983). The correlates of entrepreneurship in three types of firms. Management Science, 29, 770–791.
Mintzberg, H. (1994). The fall and rise of strategic planning. Harvard Business Review, 72(January/February): 107-114.
Mintzberg, H., (1987). The strategy concept I: five Ps for strategy, California Management Review, 30, pp. 11-23.
Pisapia, J., Reyes-Guerra, D., & Coukos-Semmel, E. (2005). Developing the leader’s strategic mindset: Establishing the measures. Leadership Review, 5(1), 41-68.
Poon, J. M. L., Ainuddin, R. H., & Junit, S. A. (2006). Effects of self-concept traits and entrepreneurial orientation on firm performance. International Small Business Journal, 24(1), 61–82.
Rauch, A., Wiklund, J., Lumpkin, G. T., Frese, M. (2009). Entrepreneurial orientation and business performance: an assessment of research and suggestions for the future. Entrepreneurship Theory and Practice, 33, 761–787.
Richard, O. C., Barnett, T., Dwyer, S., & Chadwick, K. (2004). Cultural diversity in management, firm performance and the moderating role of entrepreneurial orientation dimensions. Academy of Management Journal, 47(2), 255–266.
Sadler-Smith, E. (2008). Inside intuition. Abingdon, UK: Routledge.
Seyed Kalali, N., Momeni, M., & Heydari, E. (2015). The key elements of thinking strategically. International Journal of Management, Accounting, and Economics, 2(8), 801-809.
Simsek, Z., Heavey, C., & Veiga, J. F. (2010). The impact of CEO core self-evaluation on the firm’s entrepreneurial orientation. Strategic Management Journal, 31(1), 110–119.
Wiklund, J. & Shepherd, D. (2003). Knowledge-based resources, entrepreneurial orientation, and the performance of small and medium-sized businesses. Strategic Management Journal, 24(13), 1307–1314.