Contents



Chapter 6 **Business Intelligence: An Innovative Technological Way to Influence Corporate Entrepreneurship 113** Reyes Giménez-Figueroa, Rodrigo Martín-Rojas and Víctor Jesús García-Morales

Chapter 7 **Entrepreneurship and Sustainability as Key Elements for Innovation: A Brazilian Dilemma 133**

> Eric Charles Henri Dorion, Pelayo Munhoz Olea, François Coallier, Cleber Cristiano Prodanov, Eliana Andrea Severo, Julio Cesar Ferro Guimarães, Cristine Hermann Nodari, Ana Cristina Fachinelli, Vânia Beatriz Merlotti Heredia, Fernando Fantoni Bencke, Nilson Varella Rubenich, Paula Patricia Ganzer, Claudio Baltazar Corrêa De Mello, Adrieli Alves Pereira Radaelli, Cassiane Chais, Oberdan Teles Da Silva, Luana Folchini Da Costa, Vanessa Machado, Joel Tshibamba Mukendi and Vandoir Welchen


Contents **VII**

Chapter 7 **Entrepreneurship and Sustainability as Key Elements for Innovation: A Brazilian Dilemma 133**

Mukendi and Vandoir Welchen

Eva Hanuláková and Ferdinand Daňo

Vojtěch Koráb and Anastasia Murinova

Cecilia Mark-Herbert and Brita Prejer

Chapter 12 **Entrepreneurship with Social Responsibility 229**

**Behaviour of Enterprises 247**

**Entrepreneurship 267**

**Enterprises: Case Study 269** Darja Holátová and Monika Březinová

**Section 3 Current Trends in Family Bussiness, Social Entrepreneurship**

Chapter 9 **Family Business: Experience from the Czech Republic 185**

**Evidence from Social Business Project 205** Farhana Ferdousi and Parveen Mahmud

Chapter 10 **Investment in Microenterprises for Scaling up Business Growth:**

Chapter 11 **Social Entrepreneurship in an Inclusive Business Model: A New Business Model for Sustainable Agroforestry 215**

Chapter 13 **Importance of Corporate Governance in Socially Responsible**

**Section 4 The Role of Human Resources, Education and Gender in**

Hussam Musa, Zdenka Musová and Lenka Debnárová

Chapter 14 **Management of Human Resource in Small and Medium-Sized**

Anna Križanová, Katarína Moravčíková and Jana Klieštiková

Chapter 8 **Entrepreneurship and Consulting 159**

**and Responsibility 183**

Eric Charles Henri Dorion, Pelayo Munhoz Olea, François Coallier, Cleber Cristiano Prodanov, Eliana Andrea Severo, Julio Cesar Ferro Guimarães, Cristine Hermann Nodari, Ana Cristina Fachinelli, Vânia Beatriz Merlotti Heredia, Fernando Fantoni Bencke, Nilson Varella Rubenich, Paula Patricia Ganzer, Claudio Baltazar Corrêa De Mello, Adrieli Alves Pereira Radaelli, Cassiane Chais, Oberdan Teles Da Silva, Luana Folchini Da Costa, Vanessa Machado, Joel Tshibamba

Chapter 15 **Understanding the Motivation that Shapes Entrepreneurship Career Intention 291**

Ng Kim-Soon, Abdul Rahman Ahmad and Nurul Nadia Ibrahim


Sandra Filipa Moreira Fernandes, Amélia Maria Pinto da Cunha Brandão and Carlos Henrique Figueiredo e Melo de Brito

Chapter 21 **Does Gender Matter in Strategies Adopted to Face the Economic Crisis? A Comparison Between Men and Women Entrepreneurs 393** Andrea Buratti, Francesca Maria Cesaroni and Annalisa Sentuti

Chapter 22 **Testing Gender Productivity Difference with Informal Enterprises Data: A Case Study of Burkina Faso 413** Akouwerabou Babikigalaga Dénis, Legala-Keud Genesquin Guibert

and Bayala Balibié Auguste Serge

Preface

Dear Readers

tent high quality.

techniques in business practice.

This book was motivated by a desire of a team of well-known authors. We are grateful to the publisher InTech for initiating and publishing this interesting piece of work. The challenge of working as a team, co-operation to prepare and select material for this book was faced by professionals with academic and practical experience from many countries. The book con‐ sists of 23 closely related thematic contributions, which fall into 4 separate sections: Interac‐ tions between Economy and Entrepreneurship; Innovation in Entrepreneurship and Economic Growth; Current Trends in Family Business, Social Entrepreneurship and Respon‐ sibility; and The Role of Human Resource Management, Education and Gender in Entrepre‐ neurship. This book is a result of a demanding and challenging work of authorscontributors. They have submitted the results of their recent research and presented essential findings about the decision-making process of entrepreneurs in order to maintain their businesses competitive. It is important to thank and express gratitude to the editor, for providing support and feedback to find, develop and publish this material of such consis‐

The reader can get an insight into the selection of the best scientific contributions that have been reviewed and ready for debate. The success and benefits of companies are determined by the quality of work of enthusiastic employees. Motivated employees can successfully contribute to the development and benefits of the company. Our book, *Entrepreneurship - Development Tendencies and Empirical Approach*, has interdisciplinary features. The authors' focus is on the introduction of innovations in business; examining the relation between en‐ trepreneurship and economic growth; entrepreneurship in transit countries; entrepreneur‐ ship in creative economies; human resource management in small and medium-sized enterprises; motivational factors in human resource management; leadership and charisma; social enterprises; social entrepreneurship and inclusion; family business; gender issues in business; business intelligence; introduction of business models; entrepreneurship and sus‐ tainability; entrepreneurship with responsibility; business consulting; and education and business communication. This work by authors from different countries - Finland, Germany, Czech Republic, Slovakia, Italy, Spain, Turkey and Malaysia - is dedicated to reader provid‐ ing up-to-date research data and background to further research as well as implementation

**Associate Professor Dr. Ing. Ladislav Mura, PhD.**

Head of Department of International Entrepreneurship,

Pan-European University in Bratislava, Faculty of Economics and Business,

Bratislava, Slovakia

### Chapter 23 **Deinstitutionalization through Business Model Evolution: Women Entrepreneurs in the Middle East and North Africa 431**

Richard A. Hunt and Lauren L. Ortiz-Hunt

## Preface

Contents **IX**

Chapter 23 **Deinstitutionalization through Business Model Evolution: Women Entrepreneurs in the Middle East and**

Richard A. Hunt and Lauren L. Ortiz-Hunt

**North Africa 431**

#### Dear Readers

This book was motivated by a desire of a team of well-known authors. We are grateful to the publisher InTech for initiating and publishing this interesting piece of work. The challenge of working as a team, co-operation to prepare and select material for this book was faced by professionals with academic and practical experience from many countries. The book con‐ sists of 23 closely related thematic contributions, which fall into 4 separate sections: Interac‐ tions between Economy and Entrepreneurship; Innovation in Entrepreneurship and Economic Growth; Current Trends in Family Business, Social Entrepreneurship and Respon‐ sibility; and The Role of Human Resource Management, Education and Gender in Entrepre‐ neurship. This book is a result of a demanding and challenging work of authorscontributors. They have submitted the results of their recent research and presented essential findings about the decision-making process of entrepreneurs in order to maintain their businesses competitive. It is important to thank and express gratitude to the editor, for providing support and feedback to find, develop and publish this material of such consis‐ tent high quality.

The reader can get an insight into the selection of the best scientific contributions that have been reviewed and ready for debate. The success and benefits of companies are determined by the quality of work of enthusiastic employees. Motivated employees can successfully contribute to the development and benefits of the company. Our book, *Entrepreneurship - Development Tendencies and Empirical Approach*, has interdisciplinary features. The authors' focus is on the introduction of innovations in business; examining the relation between en‐ trepreneurship and economic growth; entrepreneurship in transit countries; entrepreneur‐ ship in creative economies; human resource management in small and medium-sized enterprises; motivational factors in human resource management; leadership and charisma; social enterprises; social entrepreneurship and inclusion; family business; gender issues in business; business intelligence; introduction of business models; entrepreneurship and sus‐ tainability; entrepreneurship with responsibility; business consulting; and education and business communication. This work by authors from different countries - Finland, Germany, Czech Republic, Slovakia, Italy, Spain, Turkey and Malaysia - is dedicated to reader provid‐ ing up-to-date research data and background to further research as well as implementation techniques in business practice.

> **Associate Professor Dr. Ing. Ladislav Mura, PhD.** Pan-European University in Bratislava, Faculty of Economics and Business, Head of Department of International Entrepreneurship, Bratislava, Slovakia

**Section 1**

**Interactions Between Economy and**

**Entrepreneurship**

**Interactions Between Economy and Entrepreneurship**

**Chapter 1**

Provisional chapter

**Entrepreneurs and Growth: An Option, Obligation or**

DOI: 10.5772/intechopen.70527

"Growth" as a word carries a positive tone in it; human beings grow and mature, gaining new knowledge and resources, and so do companies. Growth, however, has never been for all. In competitive markets, some grow and others do not—or grow at slower pace than others. Furthermore, growth is a process that strains the capabilities and resources of an individual, company, and its acting entrepreneurs to their extreme. Growth means also learning and leaving behind something learned of possessed before. Growth disrupts the history and path of a single company and its entrepreneur. The text synthetizes the scattered literature in growth and entrepreneurship. A case study shows how growth is viewed in an entrepreneurial company. The author shows how companies can be categorized to different sub-segments based on their growth opportunities, urge to grow, and growth aspirations. The typical enablers and hindrances of growth hindrances get introduced. The chapter underlines that for some companies, growth is one of the strategic options, whereas to some, it is more of an internal and external obligation. Despite the existence of multiple stage-based models, growth is an individ-

Entrepreneurs and Growth: An Option, Obligation

**Obsession**

Juha Saukkonen

Juha Saukkonen

Abstract

1. Introduction

or Obsession

Additional information is available at the end of the chapter

Additional information is available at the end of the chapter

ual path and no model should be taken in a law-like manner.

Keywords: entrepreneurship, growth, opportunity, evolution, disruption

Growth and growth entrepreneurship are current buzzwords of business development. They have made their way recently also to political vocabulary. National, regional, and local authorities and organs create and maintain programs and policies that aim at fostering growth among the enterprises they support and regulate. Also, the word "startup" is well known and actively used by all type of actors in business and policy arena. The name of startup itself

> © The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and eproduction in any medium, provided the original work is properly cited.

© 2018 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

http://dx.doi.org/10.5772/intechopen.70527

Provisional chapter

### **Entrepreneurs and Growth: An Option, Obligation or Obsession** Entrepreneurs and Growth: An Option, Obligation

DOI: 10.5772/intechopen.70527

Juha Saukkonen

or Obsession

Additional information is available at the end of the chapter Juha Saukkonen

http://dx.doi.org/10.5772/intechopen.70527 Additional information is available at the end of the chapter

#### Abstract

"Growth" as a word carries a positive tone in it; human beings grow and mature, gaining new knowledge and resources, and so do companies. Growth, however, has never been for all. In competitive markets, some grow and others do not—or grow at slower pace than others. Furthermore, growth is a process that strains the capabilities and resources of an individual, company, and its acting entrepreneurs to their extreme. Growth means also learning and leaving behind something learned of possessed before. Growth disrupts the history and path of a single company and its entrepreneur. The text synthetizes the scattered literature in growth and entrepreneurship. A case study shows how growth is viewed in an entrepreneurial company. The author shows how companies can be categorized to different sub-segments based on their growth opportunities, urge to grow, and growth aspirations. The typical enablers and hindrances of growth hindrances get introduced. The chapter underlines that for some companies, growth is one of the strategic options, whereas to some, it is more of an internal and external obligation. Despite the existence of multiple stage-based models, growth is an individual path and no model should be taken in a law-like manner.

Keywords: entrepreneurship, growth, opportunity, evolution, disruption

### 1. Introduction

Growth and growth entrepreneurship are current buzzwords of business development. They have made their way recently also to political vocabulary. National, regional, and local authorities and organs create and maintain programs and policies that aim at fostering growth among the enterprises they support and regulate. Also, the word "startup" is well known and actively used by all type of actors in business and policy arena. The name of startup itself

© 2018 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

© The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and eproduction in any medium, provided the original work is properly cited.

implies that it is started from scratch, with the only option to grow (or die) soon. This topical area deserves a treatment also when entrepreneurship get pictures and investigated.

would then serve as basis for model creation. The process also included critically reviewing the identified issues against conceptual and process models of prior research and proposing improvements or modifications. As it goes for inductive approach, models and concepts presented in the literature review can affect but neither decide nor limit what the researchers will find when collecting primary data [2]. Single case study was selected, since the case study method is well suited to the aim of understanding new and evolving phenomenon [3, 4].

Entrepreneurs and Growth: An Option, Obligation or Obsession

http://dx.doi.org/10.5772/intechopen.70527

5

Qualitative research method was chosen due to the opportunities it gives to the researcher to develop a complex, holistic picture of the target [5]. The data were collected using semi-structured interviews. There were pre-planned themes to ensure the interviewers covered the essential topics emerging from the framework creation and to guide the interviews so that they allow summaries and comparisons between individual respondents. The informants were informed of the key themes—but not exact questions—when agreeing the time and place for the interviews. Choice of respondents plays a crucial role for data quality and affects the ability of the researchers to come up with concise conclusions. Altogether four respondents from the target company were interviewed. To balance and mirror the internal view and in order to have a wider and more neutral view to the case company, three external experts of the industry in question and growth company management were added to the respondent pool. The final

• Founder-Owner-Manager—later in this paper referred as FOM—the person behind

• Owner-Manager—OM—works in business development, experience in environmental/energy business also from a large corporation, has an equity stake in X

• Sales & Marketing Personnel—two respondents; SMP1, SMP2—work in the commer-

• External Industry Expert (EIE): an expert in energy and environmental technology

• Business Development Expert (BDE): an experienced start-up business coach and

• Venture Capital Expert (VCE): over 15 years of experience in VC and private equity

The researcher team for the case study consisted of two researchers with different educational and background and researcher experience. In order to avoid biases in conducting interviews, a joint semi-structured frame was created in advance. In the interviews, the frameworks of earlier research were shown to respondents on a schematic level in order to spark and steer the discussion. All interviews were recorded and loosely transcribed after which the researchers first analyzed the data independently. Next, the individual findings by the two researchers

the core innovations of X acts as CEO and is the biggest shareholder in X

cial activities of X in different markets areas, no equity stakes in X

pool consisted of following types of respondents as listed below:

1. In-house resources in company X

2. External experts

business.

investments

board member in start-ups

In this chapter, the aims are:


We look at growth from processual, dynamic, and individual points of view. Elements of growth get discussed, and also, some taxonomies of companies in relation to growth are introduced. In the latter part of the chapter, recent studies of the growth companies across continents, their growth enablers, and hindrances are presented. In order to mirror entrepreneurial reality against the models and theories of the literature, a portrait of a growth trajectory of a fast-growing environmental technology individual firm gets presented. To conclude, the future of growth as a phenomenon is discussed.

### 2. Methodology

This chapter combines the practices of conceptual research in the literature review and qualitatively oriented case study research in the empirical part. As Ravitch and Riggan [1] put it, the conceptual framework includes not only the relevant theoretical literature but also aims at fitting into it the findings of prior research as well as the researching authors own experience-based knowledge and commitments. Furthermore, they define conceptual framework as "an argument about why the topic one wishes to study matters, and why the means proposed to study it are appropriate and rigorous" [1], also pointing out that they tend to and even should change along the study process, as the knowledge of the researcher changes in volume, content, and direction. From this methodological viewpoint, this chapter should be seen as a journey in the vast supply of frameworks and research findings related to the chapter topic. The author aims at creating a certain level of synthesis of the scattered literature. The wide treatment of different angles related to the phenomena of growth and entrepreneurship serves as a basis for students and researchers of the topic to choose the areas from within the big picture to drill into.

The exploratory approach to scan, compare, and synthetize (where possible) represents the "reason" element of the framework building, following the ideas of Ravitch and Riggan [1]. The other element "rigor" means choosing a method and using it with rigor to create knowledge out of data gathered. In this chapter, the rigor is represented by the use of case study method to link the conceptual framework into the trajectory of growth of an individual firm.

The research approach used in the case study (Chapter 3) was inductive. The research project proceeded from collecting the primary data of the object of study to recognize patterns that would then serve as basis for model creation. The process also included critically reviewing the identified issues against conceptual and process models of prior research and proposing improvements or modifications. As it goes for inductive approach, models and concepts presented in the literature review can affect but neither decide nor limit what the researchers will find when collecting primary data [2]. Single case study was selected, since the case study method is well suited to the aim of understanding new and evolving phenomenon [3, 4].

Qualitative research method was chosen due to the opportunities it gives to the researcher to develop a complex, holistic picture of the target [5]. The data were collected using semi-structured interviews. There were pre-planned themes to ensure the interviewers covered the essential topics emerging from the framework creation and to guide the interviews so that they allow summaries and comparisons between individual respondents. The informants were informed of the key themes—but not exact questions—when agreeing the time and place for the interviews.

Choice of respondents plays a crucial role for data quality and affects the ability of the researchers to come up with concise conclusions. Altogether four respondents from the target company were interviewed. To balance and mirror the internal view and in order to have a wider and more neutral view to the case company, three external experts of the industry in question and growth company management were added to the respondent pool. The final pool consisted of following types of respondents as listed below:

	- Founder-Owner-Manager—later in this paper referred as FOM—the person behind the core innovations of X acts as CEO and is the biggest shareholder in X
	- Owner-Manager—OM—works in business development, experience in environmental/energy business also from a large corporation, has an equity stake in X
	- Sales & Marketing Personnel—two respondents; SMP1, SMP2—work in the commercial activities of X in different markets areas, no equity stakes in X

implies that it is started from scratch, with the only option to grow (or die) soon. This topical

• How growth as a concept and process could be understood is a wide yet concise manner

• Introduce methodological and conceptual models that can be used as models when researching growth in the field of entrepreneurship as well as practical tools to analyze

We look at growth from processual, dynamic, and individual points of view. Elements of growth get discussed, and also, some taxonomies of companies in relation to growth are introduced. In the latter part of the chapter, recent studies of the growth companies across continents, their growth enablers, and hindrances are presented. In order to mirror entrepreneurial reality against the models and theories of the literature, a portrait of a growth trajectory of a fast-growing environmental technology individual firm gets presented. To conclude, the

This chapter combines the practices of conceptual research in the literature review and qualitatively oriented case study research in the empirical part. As Ravitch and Riggan [1] put it, the conceptual framework includes not only the relevant theoretical literature but also aims at fitting into it the findings of prior research as well as the researching authors own experience-based knowledge and commitments. Furthermore, they define conceptual framework as "an argument about why the topic one wishes to study matters, and why the means proposed to study it are appropriate and rigorous" [1], also pointing out that they tend to and even should change along the study process, as the knowledge of the researcher changes in volume, content, and direction. From this methodological viewpoint, this chapter should be seen as a journey in the vast supply of frameworks and research findings related to the chapter topic. The author aims at creating a certain level of synthesis of the scattered literature. The wide treatment of different angles related to the phenomena of growth and entrepreneurship serves as a basis for students and researchers

The exploratory approach to scan, compare, and synthetize (where possible) represents the "reason" element of the framework building, following the ideas of Ravitch and Riggan [1]. The other element "rigor" means choosing a method and using it with rigor to create knowledge out of data gathered. In this chapter, the rigor is represented by the use of case study method to link the conceptual framework into the trajectory of growth of an individual firm. The research approach used in the case study (Chapter 3) was inductive. The research project proceeded from collecting the primary data of the object of study to recognize patterns that

area deserves a treatment also when entrepreneurship get pictures and investigated.

• To understand what we mean with the concept of "growth" itself;

growth opportunities and obstacles within a firm and act on it.

of the topic to choose the areas from within the big picture to drill into.

In this chapter, the aims are:

2. Methodology

inside the field of entrepreneurship;

4 Entrepreneurship - Development Tendencies and Empirical Approach

future of growth as a phenomenon is discussed.


The researcher team for the case study consisted of two researchers with different educational and background and researcher experience. In order to avoid biases in conducting interviews, a joint semi-structured frame was created in advance. In the interviews, the frameworks of earlier research were shown to respondents on a schematic level in order to spark and steer the discussion. All interviews were recorded and loosely transcribed after which the researchers first analyzed the data independently. Next, the individual findings by the two researchers were compared and fused for a joint view. All interviews took place within 3 weeks timeframe, so the contextual factors were the same for all interviews.

These vary between "(invested) money back 10-fold in 5 years—via IPO or trade sale exit" to "3-fold in 10 years—that most of other companies would see as a failure". The National Bureau of Economic Research has found out the average return in reality to be 25%, but occasionally even up to 700% returns have materialized. It is not likely any VC firm would be satisfied being average or would state publicly industry average is sufficient for them. Putting the figures given above to the IRR conversion table (Table 1), we see what kind of multiples to original investments and exit times are needed to high end (10-fold return in 5 years), average

Entrepreneurs and Growth: An Option, Obligation or Obsession

http://dx.doi.org/10.5772/intechopen.70527

7

Naturally, the IRR also is dependent on the ownership stake that the VC firm takes in the company into which they invest. Using the high-end IRR demand (10-fold return in 5 years), we see that if a VC company takes a 25% stake in the company—rather typical practice in VC operations—the company value has to grow aggressively (Table 2). If the stake that the entrepreneur sells out to investors is just 10%, the growth needs to be even more spectacular

In today's economy, the valuations of companies are rarely based on asset value. An often used basis in the pricing of the company at exit is the multiple on the net sales. A multiple of 2

(25% return), and low end (3-fold in 5 years).

to satisfy the return needs of the investor.

Table 1. Return on investment vs. exit time and multiple on original investment.

Table 2. Stake sold to investors and its impact of growth demand in value.

### 3. Literature review

#### 3.1. Growth in business: definition and its relativity

Is 1.0% growth per annum really growth? In the economic downturn that started in the latter half of 2000s, we have learned that even this type of growth on the society level is a good sign for many economies. Doubling it to 2% will prove the economy is back on growth track. Naturally, the same scales should not be applied to individual entrepreneurial firms. Compared to societies that have a lot of inbuilt inertia, force of slowness, a firm, and entrepreneur (s) in it can move in a much more agile way, grasp the opportunities, and find new markets. Yet, growth in business is not nearly as common a phenomenon as the popularity of the term and research on it would suggest.

An often and officially used definition for a growth company is the one by EU and OECD that claim that: "A growth company is a firm that at the starting point of the follow-up period employs at minimum 10 people, and for the next 3 years, the average growth in the employment is at min. 20% annually" [6]. This may sound like a modest demand in the world where there are companies that mushroom, go global, and get funded heftily in a short few years' time. Widely published stories of unicorns (whose market capitalization is 1 billion USD or more) are however just the top of the iceberg, growth is taking place in all segments of business and most often outside the radar of the mass media and public recognition. As an example, in the timespan of 2006–2009 in Finland (an advanced economy in terms technological level, education and GDP), this country with 5.5 million population only had 665 true growth companies, out of 280,000 total number of companies registered. This means that a mere 0.2% of companies are growth companies. However, at the same interval, the growth in these companies was a major vehicle of employment and net job creation in the economy.

The abovementioned definition focusing on the company's headcount as the measurement of growth has been criticized. In the era of networking, outsourcing and digitalization sales revenues can scale up fast with minor impact to the number of people in the payroll. Shifting the measuring stick to average 20% sales revenue for 3 years in a row does not change the big picture. In the Finnish context, the amount of "growth companies" doubles. However, growth companies of this kind still represent 0.5% fraction of companies!

There are also whole industries and markets, where the 20% annual grow definitely is not enough and not a satisfactory achievement. Entrepreneurs funded by professional Venture Capital companies (VC) are posed to high expectations and demands for growth. The Venture Capitalists´ agenda is straightforward: Invest ! help to grow (during Holding Period) ! Exit ! Invest to next target. Venture Capital firms differ in their IIR (Investment Rate of Return) demands and do not share their targets on IRR publicly. Journal articles and start up training programs have introduced some "typical demands" from the VC community [7, 8]. These vary between "(invested) money back 10-fold in 5 years—via IPO or trade sale exit" to "3-fold in 10 years—that most of other companies would see as a failure". The National Bureau of Economic Research has found out the average return in reality to be 25%, but occasionally even up to 700% returns have materialized. It is not likely any VC firm would be satisfied being average or would state publicly industry average is sufficient for them. Putting the figures given above to the IRR conversion table (Table 1), we see what kind of multiples to original investments and exit times are needed to high end (10-fold return in 5 years), average (25% return), and low end (3-fold in 5 years).

were compared and fused for a joint view. All interviews took place within 3 weeks timeframe,

Is 1.0% growth per annum really growth? In the economic downturn that started in the latter half of 2000s, we have learned that even this type of growth on the society level is a good sign for many economies. Doubling it to 2% will prove the economy is back on growth track. Naturally, the same scales should not be applied to individual entrepreneurial firms. Compared to societies that have a lot of inbuilt inertia, force of slowness, a firm, and entrepreneur (s) in it can move in a much more agile way, grasp the opportunities, and find new markets. Yet, growth in business is not nearly as common a phenomenon as the popularity of the term

An often and officially used definition for a growth company is the one by EU and OECD that claim that: "A growth company is a firm that at the starting point of the follow-up period employs at minimum 10 people, and for the next 3 years, the average growth in the employment is at min. 20% annually" [6]. This may sound like a modest demand in the world where there are companies that mushroom, go global, and get funded heftily in a short few years' time. Widely published stories of unicorns (whose market capitalization is 1 billion USD or more) are however just the top of the iceberg, growth is taking place in all segments of business and most often outside the radar of the mass media and public recognition. As an example, in the timespan of 2006–2009 in Finland (an advanced economy in terms technological level, education and GDP), this country with 5.5 million population only had 665 true growth companies, out of 280,000 total number of companies registered. This means that a mere 0.2% of companies are growth companies. However, at the same interval, the growth in these companies was a major vehicle of employment and net job creation in the

The abovementioned definition focusing on the company's headcount as the measurement of growth has been criticized. In the era of networking, outsourcing and digitalization sales revenues can scale up fast with minor impact to the number of people in the payroll. Shifting the measuring stick to average 20% sales revenue for 3 years in a row does not change the big picture. In the Finnish context, the amount of "growth companies" doubles. However, growth

There are also whole industries and markets, where the 20% annual grow definitely is not enough and not a satisfactory achievement. Entrepreneurs funded by professional Venture Capital companies (VC) are posed to high expectations and demands for growth. The Venture Capitalists´ agenda is straightforward: Invest ! help to grow (during Holding Period) ! Exit ! Invest to next target. Venture Capital firms differ in their IIR (Investment Rate of Return) demands and do not share their targets on IRR publicly. Journal articles and start up training programs have introduced some "typical demands" from the VC community [7, 8].

companies of this kind still represent 0.5% fraction of companies!

so the contextual factors were the same for all interviews.

6 Entrepreneurship - Development Tendencies and Empirical Approach

3.1. Growth in business: definition and its relativity

3. Literature review

and research on it would suggest.

economy.

Naturally, the IRR also is dependent on the ownership stake that the VC firm takes in the company into which they invest. Using the high-end IRR demand (10-fold return in 5 years), we see that if a VC company takes a 25% stake in the company—rather typical practice in VC operations—the company value has to grow aggressively (Table 2). If the stake that the entrepreneur sells out to investors is just 10%, the growth needs to be even more spectacular to satisfy the return needs of the investor.

In today's economy, the valuations of companies are rarely based on asset value. An often used basis in the pricing of the company at exit is the multiple on the net sales. A multiple of 2


Table 1. Return on investment vs. exit time and multiple on original investment.


Table 2. Stake sold to investors and its impact of growth demand in value.

means company sale value being net sales of the last fiscal year multiplied by 2. In the above examples, the net sales have to reach either 20 or 50 million a year. The multiple of 2 is on the mid-range of typical valuations for enterprise value [8]. If the year of investment the net sales were 5 million, the official demand of 20% annual growth would lead them in 5 years to just over 10 million, which would not satisfy the investors.

The questions that have interested numerous researchers of gazelles have been: Why and how the entrepreneurial firms then end up into one category in the continuum—e.g., how and why they become gazelles? Are there some practices that can be learned to foster growth or practices to avoid that are hindering growth? Numerous researchers (e.g., Calvo [11] on Spanish manufacturing SMEs; Parker et al. [12]) have been drawn to test the classical Law by Gibrat [13] that says in its simplified format that firm growth is independent to its size. So understanding growth is not a SME and entrepreneurial phenomenon, but growth can occur in any size of a company. Gibrat's inputs propose that if firm growth do is a random variable, three outcomes would be excluded: (1) firms of a given size will grow faster (or slower) than other sized firms; (2) firms that grow faster (or slower) in one time period will grow faster (or slower) than in a later time period; (3) there will be factors that powerfully and consistently

Entrepreneurs and Growth: An Option, Obligation or Obsession

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Parker et al. [12] used British data set on more than 100 Gazelles. They state that the Gibrat's law does not generally hold. They also add that "best practice learning", i.e., routine application of strategies adopted by successful companies is unlikely to foster firm growth in a changing economic environment. Calvo [11] analyzed whether small, young, and innovating firms have experienced a greater employment growth than other Spanish firms over the period. His results show that old firms grow less than young ones, and high level of process and product innovating activity is a strong positive factor in the firm's survival and its employment growth. Conclusion is that small size of a company is a potential set up for growth. The key variables for growth are still the deeds, strategies, and action suitable to the dynamic environment. These deeds are to a certain extent individual to each company.

In addition to the academic research, the consulting company Deloitte has acted in adding knowledge and understanding of high-growth companies. For more than a decade, Deloitte has surveyed growth companies across markets. The reports published on growth companies by identify them and present the enablers of the growth that has already taken place as well as enablers and obstacles for future growth. Deloitte lists on a yearly basis top 500 growth technology companies, separately for EMEA, Americas, and Asia regions [14]. Findings support the earlier studies in showing that the environmental factors affect firm growth. According to Deloitte, the innovation and growth context also referred as entrepreneurial "ecosystem" impact the growth. Large domestic market does not seem to that important a variable for growth, at least not in the technology business that is the overarching theme for the Deloitte study, as Table 3 shows. For example, countries of Northern Europe are overrepresented in the listing compared to population. Germany as the biggest single economy in

The other environmental factor affecting growth is the industry and the nongeographical marketplace in which companies operate. Industries vary in opportunities of scalability and resource demands (capital, capacity, and assets) for growth. Certain industries (see Table 4) seem to offer a more fertile growth for hypergrowth than others. In software business, the threshold or "barrier of entry" for high growth seems to be the lowest one (highest number of companies listed), whereas the growth opportunities in hardware, media, and cleantech are the highest for those who can surpass the threshold (highest average growth in the sector).

explain firm growth performance.

EMEA falls short in the presence of growth companies.

As a summary it can be stated that


Logically, the findings above propose that we should approach growth in the entrepreneurial context from multiple angles. We want to shed knowledge on what growth is made of, how and why does it happen, and what is the role of entrepreneur or entrepreneurial team in the growth. We also need to see if there are foreseeable profound changes in economics, societies, and technology affecting entrepreneurial growth both in its chances to flourish as well as in the way, it is executed.

#### 3.2. Growers, hypergrowers, and non-growers

The literature on SMEs and entrepreneurship does not fall short in presenting options for taxonomies of companies in relation their growth. Based on the views of Birch and Hagerty [9] and Storey [10], one can come up with the following hierarchy that divides companies into five categories:


The research intensity on company growth has been understandably placed to the high end of the growth continuum. An appealing research objective has been the cohort of Gazelle companies, a category with widely accepted definition. A Gazelle company has increased by at least 20% annually for 4 years or more starting from a revenue base of at least \$1 million. This pace means that the company is able to double its revenues over a 4-year period. A gazelle company acts like an animal chosen to its symbol—it runs fast and, when needed, jumps.

The questions that have interested numerous researchers of gazelles have been: Why and how the entrepreneurial firms then end up into one category in the continuum—e.g., how and why they become gazelles? Are there some practices that can be learned to foster growth or practices to avoid that are hindering growth? Numerous researchers (e.g., Calvo [11] on Spanish manufacturing SMEs; Parker et al. [12]) have been drawn to test the classical Law by Gibrat [13] that says in its simplified format that firm growth is independent to its size. So understanding growth is not a SME and entrepreneurial phenomenon, but growth can occur in any size of a company. Gibrat's inputs propose that if firm growth do is a random variable, three outcomes would be excluded: (1) firms of a given size will grow faster (or slower) than other sized firms; (2) firms that grow faster (or slower) in one time period will grow faster (or slower) than in a later time period; (3) there will be factors that powerfully and consistently explain firm growth performance.

means company sale value being net sales of the last fiscal year multiplied by 2. In the above examples, the net sales have to reach either 20 or 50 million a year. The multiple of 2 is on the mid-range of typical valuations for enterprise value [8]. If the year of investment the net sales were 5 million, the official demand of 20% annual growth would lead them in 5 years to just

• Growth is needed for advancements in economy and society, on an aggregate level;

• True growth in business is not as a common phenomenon as assumed and wished, huge majority of the companies fail in fulfilling the official growth company criteria;

• Growth does not bear the same meaning and urge for all companies, industries, and

Logically, the findings above propose that we should approach growth in the entrepreneurial context from multiple angles. We want to shed knowledge on what growth is made of, how and why does it happen, and what is the role of entrepreneur or entrepreneurial team in the growth. We also need to see if there are foreseeable profound changes in economics, societies, and technology affecting entrepreneurial growth both in its chances to flourish as well as in the

The literature on SMEs and entrepreneurship does not fall short in presenting options for taxonomies of companies in relation their growth. Based on the views of Birch and Hagerty [9] and Storey [10], one can come up with the following hierarchy that divides companies into

1. Shrinkers: Negative growth, the ones that are going down in size of business subcategories: (1) passive shrinkers; (2) deliberate shrinkers (e.g., family firms not having succes-

The research intensity on company growth has been understandably placed to the high end of the growth continuum. An appealing research objective has been the cohort of Gazelle companies, a category with widely accepted definition. A Gazelle company has increased by at least 20% annually for 4 years or more starting from a revenue base of at least \$1 million. This pace means that the company is able to double its revenues over a 4-year period. A gazelle company acts like an animal chosen to its symbol—it runs fast and, when needed,

sor to take over or a self-employed person gradually retiring) 2. Trundlers: No growth, e.g., mature firms with nongrowing market

3. Triers: Some growth and some aspiration to grow

5. Hypergrowers: Exponential (and today: viral) growth

over 10 million, which would not satisfy the investors.

8 Entrepreneurship - Development Tendencies and Empirical Approach

3.2. Growers, hypergrowers, and non-growers

As a summary it can be stated that

stakeholders.

way, it is executed.

five categories:

jumps.

4. Fliers: Rapid growth

Parker et al. [12] used British data set on more than 100 Gazelles. They state that the Gibrat's law does not generally hold. They also add that "best practice learning", i.e., routine application of strategies adopted by successful companies is unlikely to foster firm growth in a changing economic environment. Calvo [11] analyzed whether small, young, and innovating firms have experienced a greater employment growth than other Spanish firms over the period. His results show that old firms grow less than young ones, and high level of process and product innovating activity is a strong positive factor in the firm's survival and its employment growth. Conclusion is that small size of a company is a potential set up for growth. The key variables for growth are still the deeds, strategies, and action suitable to the dynamic environment. These deeds are to a certain extent individual to each company.

In addition to the academic research, the consulting company Deloitte has acted in adding knowledge and understanding of high-growth companies. For more than a decade, Deloitte has surveyed growth companies across markets. The reports published on growth companies by identify them and present the enablers of the growth that has already taken place as well as enablers and obstacles for future growth. Deloitte lists on a yearly basis top 500 growth technology companies, separately for EMEA, Americas, and Asia regions [14]. Findings support the earlier studies in showing that the environmental factors affect firm growth. According to Deloitte, the innovation and growth context also referred as entrepreneurial "ecosystem" impact the growth. Large domestic market does not seem to that important a variable for growth, at least not in the technology business that is the overarching theme for the Deloitte study, as Table 3 shows. For example, countries of Northern Europe are overrepresented in the listing compared to population. Germany as the biggest single economy in EMEA falls short in the presence of growth companies.

The other environmental factor affecting growth is the industry and the nongeographical marketplace in which companies operate. Industries vary in opportunities of scalability and resource demands (capital, capacity, and assets) for growth. Certain industries (see Table 4) seem to offer a more fertile growth for hypergrowth than others. In software business, the threshold or "barrier of entry" for high growth seems to be the lowest one (highest number of companies listed), whereas the growth opportunities in hardware, media, and cleantech are the highest for those who can surpass the threshold (highest average growth in the sector).

#### Top 10 countries with the greatest number of winners


misleading in the sense that (1) they see the growth as an end rather than means; (2) they fail in understanding the multifaceted nature of growth; and (3) they assume all aspects of grow are

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The analysis of the nature of growth and elements making the totality of it by Wickham [16]

Example: Good performance accumulates resources that can be used to build/acquire assets or alternatively: Organizational growth helps the company to define and find

Example: Resources allow acquisitions of assets that, when properly used, allow the

Example: Growing an organization is not a value per se. Organizational growth only makes strategic sense when connected to the assets and direction to move forward

Example: Without proper strategic direction, the Wickham's cycle of growth is "broken": Sometimes a direction means a temporary de-growth as some products/services or customer segments are abandoned in order to make room for new ones. The impact on numbers in employment and revenue can even take a backslash but impact positively on

• Some elements of growth do not get an immediate manifestation in numbers available

direction that leads to better performance that strengthens financial position etc.

demonstrated in the numerical data with a relatively short lead time.

• There is not a sequential order of growth elements to occur

• There are iterations and loops

long-term success

Figure 1. Nature of growth adapted from Wickham [16].

• Every elements acts in an interplay with others

shows what a wide look at the phenomenon called growth may be (Figure 1):

organization to grow and perform, adding again the resources etc.

from official and public data like income statements and balance sheets

When analyzing and acting upon Wickham's framework, it is worth noticing that

Table 3. Fast 500 growth companies according to country of origin: EMEA region.


Table 4. Fats 500 growers by sector and growth rates per sector: EMEA region.

Average growth rate of Deloitte EMEA 2016 awardees is 967%, ranging from 212% up to 28,000+ %. Despite the obvious support from the context surrounding the company, growing companies of total 28 countries were awarded as top 500 growers. This underlines the fact that growth is still to an extent of an independent entrepreneurial effort that can be born in numerous contexts. This phenomenon has also been recognized by Mahroum [15]. The title of his book reveals well a certain context independent of modern growth businesses: "Black Swan startups: Understanding the Rise of Successful Technology Business in Unlikely Places".

#### 3.3. Elements of growth

Researchers, statisticians, investors and policy makers, and evaluators alike need and produce numerical proofs and measurements of growth. However, these statistician views may be misleading in the sense that (1) they see the growth as an end rather than means; (2) they fail in understanding the multifaceted nature of growth; and (3) they assume all aspects of grow are demonstrated in the numerical data with a relatively short lead time.

The analysis of the nature of growth and elements making the totality of it by Wickham [16] shows what a wide look at the phenomenon called growth may be (Figure 1):

When analyzing and acting upon Wickham's framework, it is worth noticing that

• There is not a sequential order of growth elements to occur

Example: Good performance accumulates resources that can be used to build/acquire assets or alternatively: Organizational growth helps the company to define and find direction that leads to better performance that strengthens financial position etc.

• There are iterations and loops

Example: Resources allow acquisitions of assets that, when properly used, allow the organization to grow and perform, adding again the resources etc.

• Every elements acts in an interplay with others

Example: Growing an organization is not a value per se. Organizational growth only makes strategic sense when connected to the assets and direction to move forward

• Some elements of growth do not get an immediate manifestation in numbers available from official and public data like income statements and balance sheets

Example: Without proper strategic direction, the Wickham's cycle of growth is "broken": Sometimes a direction means a temporary de-growth as some products/services or customer segments are abandoned in order to make room for new ones. The impact on numbers in employment and revenue can even take a backslash but impact positively on long-term success

Figure 1. Nature of growth adapted from Wickham [16].

Average growth rate of Deloitte EMEA 2016 awardees is 967%, ranging from 212% up to 28,000+ %. Despite the obvious support from the context surrounding the company, growing companies of total 28 countries were awarded as top 500 growers. This underlines the fact that growth is still to an extent of an independent entrepreneurial effort that can be born in numerous contexts. This phenomenon has also been recognized by Mahroum [15]. The title of his book reveals well a certain context independent of modern growth businesses: "Black Swan startups: Understanding the Rise of Successful Technology Business in Unlikely Places".

Sector Number of ranked companies Average growth per sector (%)

Country Number of ranked companies

France 94 United Kingdom 70 The Netherlands 54 Norway 50 Sweden 50 Israel 27 Finland 23 Germany 23 Belgium 22 Turkey 21

Table 3. Fast 500 growth companies according to country of origin: EMEA region.

Clean Technology 20 471 Communications 61 345 Hardware 49 962 Life Science 29 347 Media 70 644 Software 271 362

Table 4. Fats 500 growers by sector and growth rates per sector: EMEA region.

Researchers, statisticians, investors and policy makers, and evaluators alike need and produce numerical proofs and measurements of growth. However, these statistician views may be

3.3. Elements of growth

Companies and growth by sector

Top 10 countries with the greatest number of winners

10 Entrepreneurship - Development Tendencies and Empirical Approach

• The model does not state that all elements need to be internal to the company

Example: Structural and Organizational Growth—elements can be also partnerships and networks in which the company and entrepreneurs become part of.

entrepreneurs. When in crisis, the entrepreneurs can learn new ways of thinking and acting. According to Greiner "…these periods of tension provide the pressure, ideas and awareness that afford a platform for change and practices" [26]. Greiner's model (Figure 2) shows the

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A new stage-based model is the one introduced in the start-up genome report [27] by Marmer et al. The researchers state that at start, they saw "describing the repeating patterns of startups an impossible task or even a disgraceful reduction of the artistry of entrepreneurship to numbers and graphs". Marmer et al. claim to have gained understanding of success and failure factors over growth stages. The project started with basic assumptions held by many earlier

1. Startups evolve through stages of development. Stages can be measured with specific

3. Learning is a fundamental to progress for startups. More learning increases chances of

With point 2 above, Marmer et al. mean different types of Internet start-ups. So it is industry

specific and based on their own sample. Points 1 and 3 provide wider applicability.

Figure 2. Sources of growth and crises in a growth trajectory of a firm (based on Greiner [26]).

2. There are different types of startups. Each type evolves through the stages differently.

sources of growth through the stages of growth and likely sources of crises.

researchers:

success.

milestones and thresholds.

Typical for a growth pattern of entrepreneurial companies is that the elements of growth at one point of time do not take place at same pace and magnitude. There are developmental stages where one element is weighted over the others. The key knowledge for a growth-aspiring entrepreneur is to recognize what is the "bottleneck element" hindering the growth. Logically, the next managerial step is to figure out how that element could be "fed" to reach a level that allows growth cycle to spin.

Wickham's model is not a sole one that describes the dimensions of growth. For example, Hanks and Chandler [17] propose the dimensions of age, size, value, sophistication, and complexity. As can be seen, some of the dimensions offer a clear-cut measurability, whereas some are more open to relativity and subjective/qualitative judgment. Building on that, e.g., Laukkanen [18] and Muhos et al. [19] have utilized a dichotomy of qualitative and quantitative dimensions for SME growth. Independent of the dimensional framework used, all authors seem to agree on the complex and multifaceted nature of growth. This view requires both wide and deep study into the actions as well as causes and consequences of that action.

#### 3.4. Growth as a sequential process

Researchers have been fascinated in building process models of entrepreneurship and growth of entrepreneurial companies. These stage-based models have varied in naming the stages, but the overall philosophy has remained the same—growth starts at some point of the company journey and stops or stagnates as some later point. These stages bear importantly different issues, opportunities, and obstacles for growth between them. In their large study, Levie and Liechtenstein [20] identified and analyzed 100+ stage-based models of growth. One of those models often cited is the one by Scott and Bruce, where they presented a trajectory consisting of stages of (1) Inception, (2) Survival, (3) Growth, (4) Expansion, and (5) Maturity [21]. Interestingly, growth is separated to be stage of its own right and separated from other three early stages. Stage sequences between three to six stages can be commonly found across scholarly literature, models going down to two stages and seven or up are more rare but existing. The validity of staged-based models has been often defended by the observation that entrepreneurs have been well able to place themselves into some of stages presented in the models, e.g., Eggers et al. [22].

The stage-to-stage movement is not linear and not happening at a constant pace. Numerous scholars have stressed the important role of discontinuities and crises in the development. Some like Kazanjian [23] use terms like "developmental problems" or "developmental hurdles" [24], instead of "crises." Dodge et al. state that there is a consensus of different problems occurring at during different stages of growth, and they are of sequential nature [25]. According to Scott and Bruce [21], the "crisis" stages are more likely to cause the organization to fail than other phases of development, if the company fails in solving the development obstacles. The crises and hurdles are negative to the development of a start-up company and entrepreneurs. When in crisis, the entrepreneurs can learn new ways of thinking and acting. According to Greiner "…these periods of tension provide the pressure, ideas and awareness that afford a platform for change and practices" [26]. Greiner's model (Figure 2) shows the sources of growth through the stages of growth and likely sources of crises.

• The model does not state that all elements need to be internal to the company

networks in which the company and entrepreneurs become part of.

12 Entrepreneurship - Development Tendencies and Empirical Approach

allows growth cycle to spin.

3.4. Growth as a sequential process

models, e.g., Eggers et al. [22].

Example: Structural and Organizational Growth—elements can be also partnerships and

Typical for a growth pattern of entrepreneurial companies is that the elements of growth at one point of time do not take place at same pace and magnitude. There are developmental stages where one element is weighted over the others. The key knowledge for a growth-aspiring entrepreneur is to recognize what is the "bottleneck element" hindering the growth. Logically, the next managerial step is to figure out how that element could be "fed" to reach a level that

Wickham's model is not a sole one that describes the dimensions of growth. For example, Hanks and Chandler [17] propose the dimensions of age, size, value, sophistication, and complexity. As can be seen, some of the dimensions offer a clear-cut measurability, whereas some are more open to relativity and subjective/qualitative judgment. Building on that, e.g., Laukkanen [18] and Muhos et al. [19] have utilized a dichotomy of qualitative and quantitative dimensions for SME growth. Independent of the dimensional framework used, all authors seem to agree on the complex and multifaceted nature of growth. This view requires both wide

Researchers have been fascinated in building process models of entrepreneurship and growth of entrepreneurial companies. These stage-based models have varied in naming the stages, but the overall philosophy has remained the same—growth starts at some point of the company journey and stops or stagnates as some later point. These stages bear importantly different issues, opportunities, and obstacles for growth between them. In their large study, Levie and Liechtenstein [20] identified and analyzed 100+ stage-based models of growth. One of those models often cited is the one by Scott and Bruce, where they presented a trajectory consisting of stages of (1) Inception, (2) Survival, (3) Growth, (4) Expansion, and (5) Maturity [21]. Interestingly, growth is separated to be stage of its own right and separated from other three early stages. Stage sequences between three to six stages can be commonly found across scholarly literature, models going down to two stages and seven or up are more rare but existing. The validity of staged-based models has been often defended by the observation that entrepreneurs have been well able to place themselves into some of stages presented in the

The stage-to-stage movement is not linear and not happening at a constant pace. Numerous scholars have stressed the important role of discontinuities and crises in the development. Some like Kazanjian [23] use terms like "developmental problems" or "developmental hurdles" [24], instead of "crises." Dodge et al. state that there is a consensus of different problems occurring at during different stages of growth, and they are of sequential nature [25]. According to Scott and Bruce [21], the "crisis" stages are more likely to cause the organization to fail than other phases of development, if the company fails in solving the development obstacles. The crises and hurdles are negative to the development of a start-up company and

and deep study into the actions as well as causes and consequences of that action.

A new stage-based model is the one introduced in the start-up genome report [27] by Marmer et al. The researchers state that at start, they saw "describing the repeating patterns of startups an impossible task or even a disgraceful reduction of the artistry of entrepreneurship to numbers and graphs". Marmer et al. claim to have gained understanding of success and failure factors over growth stages. The project started with basic assumptions held by many earlier researchers:


With point 2 above, Marmer et al. mean different types of Internet start-ups. So it is industry specific and based on their own sample. Points 1 and 3 provide wider applicability.

Figure 2. Sources of growth and crises in a growth trajectory of a firm (based on Greiner [26]).

The four stages identified—"Marmer stages"—are Discovery, Validation, Efficiency, and Scaling. As a conclusion, it is stated that:


In their research, Marmer et al. observed a specific phenomenon of Premature Scaling [28]—a development trajectory that jumps over a stage or overspeeds through it has a high correlation with a later failure of a start-up. Opposite to "growth obstacle," this phenomenon can be called "wrongly directed growth" that consumes and misdirects the growth resources of the company. In their data originating of 600+ Internet-based businesses, Marmer et al. found that 70% of startups which they studied scaled prematurely and thus were not able to exploit their growth potential.

> awareness, ventures can endure far longer and in much greater variety than has ever been predicted by stages theory. Further, the dynamic states approach shows that it is normal for a firm to survive and maintain fitness by continual change…" This idea of never-ending development is studied more closely in the empirical case part (Growth trajectory of an environmental technology startup) of this chapter based on research by Saukkonen and Vänttinen [34].

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There is a consensus view that the development of an entrepreneurial company should not be (fully) separated from the personality and development of people running it. These intervening factors include the personality traits and life stage of the owner/manager (see Figures 4 and 5).

3.6. Growth as a personal path of an entrepreneur

Figure 4. Factors affecting growth: Compiled from multiple sources.

Figure 3. The elements of dynamic change [20].

#### 3.5. An alternative look: growth as a dynamic movement

The key theme of previous chapter: stage-based models of entrepreneurial growth have not been popular only in doing. The models have been tested for validation and improvement in numerous contexts and set-ups. A summary made by Muhos and Kess [29] proposes that "The empirically based stage framework seems to be an effective tool for reflecting on and predicting the challenges faced during the early development of a company". Moreover, their study revealed specific viewpoints contradictory to the framework: companies in different contexts face culture-and context-specific issues in their early growth, allowing the following statement to surge: "Growth is a multidimensional phenomenon, and each and every early technologyintensive company is unique to an extent."

Levie and Lichtenstein [30] state that the stage-based models fail as they suggest a certain level of determinism. There too are cases where the entrepreneurial firms and entrepreneurs in them can retrospectively see their development to have followed closely one growth model. This does not yet give justification to call them models of growth. Since there is a supply of 100+ models, it is statistically speaking logical to make a good match with one or many of the models. The suggestion of Levie and Lichtenstein is to see growth rather consisting of dynamic states between which the firm moves. This approach gives space to discontinuities and iterations. Various researchers like Cope and Watts [31] have shown interest to understand growth paths as a series of critical incidents that trigger actions affecting growth and adaptability and action learning [32]). According to Evers [33], even the entrepreneurial capabilities should be considered dynamic. They vary in content and value, as the firm and entrepreneurs move along their trajectory.

Figure 3 shows a schematic model of the dynamic state model, where the entrepreneurs action and reasoning have an effect on and are effected by its resources and interactions with other stakeholders, creating a cycle of continuous change.

As Levie and Lichtenstein (ibid.) summarize, "not only is the dynamic states approach more accurate than stages theory, it is also more optimistic for entrepreneurs. With flexibility and

Figure 3. The elements of dynamic change [20].

The four stages identified—"Marmer stages"—are Discovery, Validation, Efficiency, and Scal-

2. The startups do not move through the stages (called non-consistent growth) in order show

In their research, Marmer et al. observed a specific phenomenon of Premature Scaling [28]—a development trajectory that jumps over a stage or overspeeds through it has a high correlation with a later failure of a start-up. Opposite to "growth obstacle," this phenomenon can be called "wrongly directed growth" that consumes and misdirects the growth resources of the company. In their data originating of 600+ Internet-based businesses, Marmer et al. found that 70% of startups which they studied scaled prematurely and thus were not able to exploit their

The key theme of previous chapter: stage-based models of entrepreneurial growth have not been popular only in doing. The models have been tested for validation and improvement in numerous contexts and set-ups. A summary made by Muhos and Kess [29] proposes that "The empirically based stage framework seems to be an effective tool for reflecting on and predicting the challenges faced during the early development of a company". Moreover, their study revealed specific viewpoints contradictory to the framework: companies in different contexts face culture-and context-specific issues in their early growth, allowing the following statement to surge: "Growth is a multidimensional phenomenon, and each and every early technology-

Levie and Lichtenstein [30] state that the stage-based models fail as they suggest a certain level of determinism. There too are cases where the entrepreneurial firms and entrepreneurs in them can retrospectively see their development to have followed closely one growth model. This does not yet give justification to call them models of growth. Since there is a supply of 100+ models, it is statistically speaking logical to make a good match with one or many of the models. The suggestion of Levie and Lichtenstein is to see growth rather consisting of dynamic states between which the firm moves. This approach gives space to discontinuities and iterations. Various researchers like Cope and Watts [31] have shown interest to understand growth paths as a series of critical incidents that trigger actions affecting growth and adaptability and action learning [32]). According to Evers [33], even the entrepreneurial capabilities should be considered dynamic. They vary in content and value, as the firm and entrepreneurs move

Figure 3 shows a schematic model of the dynamic state model, where the entrepreneurs action and reasoning have an effect on and are effected by its resources and interactions with other

As Levie and Lichtenstein (ibid.) summarize, "not only is the dynamic states approach more accurate than stages theory, it is also more optimistic for entrepreneurs. With flexibility and

1. The Marmer stages correlate with traditional indicators of progress.

3.5. An alternative look: growth as a dynamic movement

intensive company is unique to an extent."

stakeholders, creating a cycle of continuous change.

along their trajectory.

ing. As a conclusion, it is stated that:

14 Entrepreneurship - Development Tendencies and Empirical Approach

less progress.

growth potential.

awareness, ventures can endure far longer and in much greater variety than has ever been predicted by stages theory. Further, the dynamic states approach shows that it is normal for a firm to survive and maintain fitness by continual change…" This idea of never-ending development is studied more closely in the empirical case part (Growth trajectory of an environmental technology startup) of this chapter based on research by Saukkonen and Vänttinen [34].

#### 3.6. Growth as a personal path of an entrepreneur

There is a consensus view that the development of an entrepreneurial company should not be (fully) separated from the personality and development of people running it. These intervening factors include the personality traits and life stage of the owner/manager (see Figures 4 and 5).

Figure 4. Factors affecting growth: Compiled from multiple sources.

cannot be realized unless the actual and potential capacity of small business are encouraged

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If and when we believe the statements of US Small Business Act and also Friedman, entrepreneurs grow because they want to earn more than their nongrowing business would yield. Hampden-Turner and Trompenaars [36] interestingly prove that to be a false assessment. In his study and book, the nation whose "culture of capitalism" was primarily based on "creating personal wealth" was UK. The driving force in American capitalistic culture was "creating something new." And often the creation of new products, services, and markets requires additional resources, and the way to attract resources is to grow. This view suggests the process of growth is of a value per se, the growth is not solely driven by the target of increasing

There has been a wide array of studies focusing on the entrepreneurial cohort of people as a collection of different persons, personalities, and behaviors. This school of entrepreneurship studied is called cognitive perspective to entrepreneurship. The basic thought of this view is that individual characteristics, interpretations, and directions affect (1) the likelihood and action in starting a new business and (2) the way, the path of entrepreneurship will continue. In a study by Kelley et al. [38] based on large data derived from 2010 to 2011 US Survey for GEM (Global Entrepreneurship Monitor), researchers found support to their hypotheses that individuals with (1) high income orientation, (2) high independence orientation, and (3) high selfefficacy (self-assessed ability) are more likely to engage into high job growth intentions. Also, the perceptions of opportunities (market newness, competitive uniqueness and international intensity) that vary between individuals in same circumstances play a significant role [38].

Naturally, some of these variables may not be stable indicators. The independence variable and self-efficacy had not significant correlation to growth intentions in a data collected 2 years earlier. The prolonged economic downturn may have caused that despite entrepreneurs´ ability, the perspectives of growth were not in sight. So the motivation to give an extra effort for growth was missing. Also in the economic doldrums, the risks in seeking growth may

As an overarching summary of relation of entrepreneur as person and growth, it can be stated that studying growth path of an entrepreneurial company without looking also at its owner/ managers is missing a critical element. But as shown, in addition to individual characteristics, also cultural and situational contexts affect growth and aspirations for it. Churchill and Lewis [39] claimed that evolution of an entrepreneurial company will lead to changes and revalua-

Findings by Churchill and Lewis point out the necessity of the entrepreneur to renew and redefine his/her role along the trajectory of the firm. Just like when raising a child, growth means also letting go. This alone might be one hindering factor of growth: Do I want to manage an organization or am I more on my own turf running a stable business that I can

A real-life question posed to Finnish SME companies (the survey panel for of the 2016 National SME barometer of an OECD-wide study "Financing SMEs and entrepreneurs 2017," and this

overweight the desire for independency, as Kelley et al. speculate.

tions of the role and core capabilities of founders (see Figure 6).

and developed [37].

steer independently.

size of the business and resulting wealth.

Figure 5. Categorized model of factors affecting growth adapted from Farrokh et al. [35].

More structured view of these individual factors has been presented, e.g., by Farrokh et al. [35] with a trichotomy to Internal, External, and Societal factors. Internal factors refer to the organization and resources inside the firm. External factors are societal and business network based. Personal factors include owner-manager's drive and capabilities. These are needed to be present for growth to take place.

Just like personal life, goals and situations can affect either way (positively and negatively) to growth aspirations and willingness, the dynamics can also act in a reversed direction. Growth can lead an entrepreneur to situations and conditions that serve another purpose than the growth itself. In this view, growth is a means of getting somewhere, not a value or target per se. This view got support in the classical volume by Hampden-Turner and Trompenaars named "Seven cultures of capitalism." In their work [36], it gets shown how there were deep and important underlying basic motivations of people working in these different capitalism-driven systems.

Capitalism is too a major extent based and dependent on free enterprise. The free enterprise is made of individuals engaging into entrepreneurial activity to reach their goals. They are the backbone of all capitalistic systems. That much so, that the US Small Business Act from 1953 boldly opens by stating (Paragraph 1): The essence of the American Economic System of private enterprise is free competition and (Paragraph 3) Security and wellbeing of the society cannot be realized unless the actual and potential capacity of small business are encouraged and developed [37].

If and when we believe the statements of US Small Business Act and also Friedman, entrepreneurs grow because they want to earn more than their nongrowing business would yield. Hampden-Turner and Trompenaars [36] interestingly prove that to be a false assessment. In his study and book, the nation whose "culture of capitalism" was primarily based on "creating personal wealth" was UK. The driving force in American capitalistic culture was "creating something new." And often the creation of new products, services, and markets requires additional resources, and the way to attract resources is to grow. This view suggests the process of growth is of a value per se, the growth is not solely driven by the target of increasing size of the business and resulting wealth.

There has been a wide array of studies focusing on the entrepreneurial cohort of people as a collection of different persons, personalities, and behaviors. This school of entrepreneurship studied is called cognitive perspective to entrepreneurship. The basic thought of this view is that individual characteristics, interpretations, and directions affect (1) the likelihood and action in starting a new business and (2) the way, the path of entrepreneurship will continue. In a study by Kelley et al. [38] based on large data derived from 2010 to 2011 US Survey for GEM (Global Entrepreneurship Monitor), researchers found support to their hypotheses that individuals with (1) high income orientation, (2) high independence orientation, and (3) high selfefficacy (self-assessed ability) are more likely to engage into high job growth intentions. Also, the perceptions of opportunities (market newness, competitive uniqueness and international intensity) that vary between individuals in same circumstances play a significant role [38].

Naturally, some of these variables may not be stable indicators. The independence variable and self-efficacy had not significant correlation to growth intentions in a data collected 2 years earlier. The prolonged economic downturn may have caused that despite entrepreneurs´ ability, the perspectives of growth were not in sight. So the motivation to give an extra effort for growth was missing. Also in the economic doldrums, the risks in seeking growth may overweight the desire for independency, as Kelley et al. speculate.

More structured view of these individual factors has been presented, e.g., by Farrokh et al. [35] with a trichotomy to Internal, External, and Societal factors. Internal factors refer to the organization and resources inside the firm. External factors are societal and business network based. Personal factors include owner-manager's drive and capabilities. These are needed to be

Figure 5. Categorized model of factors affecting growth adapted from Farrokh et al. [35].

16 Entrepreneurship - Development Tendencies and Empirical Approach

Just like personal life, goals and situations can affect either way (positively and negatively) to growth aspirations and willingness, the dynamics can also act in a reversed direction. Growth can lead an entrepreneur to situations and conditions that serve another purpose than the growth itself. In this view, growth is a means of getting somewhere, not a value or target per se. This view got support in the classical volume by Hampden-Turner and Trompenaars named "Seven cultures of capitalism." In their work [36], it gets shown how there were deep and important underlying basic motivations of people working in these different capitalism-driven

Capitalism is too a major extent based and dependent on free enterprise. The free enterprise is made of individuals engaging into entrepreneurial activity to reach their goals. They are the backbone of all capitalistic systems. That much so, that the US Small Business Act from 1953 boldly opens by stating (Paragraph 1): The essence of the American Economic System of private enterprise is free competition and (Paragraph 3) Security and wellbeing of the society

present for growth to take place.

systems.

As an overarching summary of relation of entrepreneur as person and growth, it can be stated that studying growth path of an entrepreneurial company without looking also at its owner/ managers is missing a critical element. But as shown, in addition to individual characteristics, also cultural and situational contexts affect growth and aspirations for it. Churchill and Lewis [39] claimed that evolution of an entrepreneurial company will lead to changes and revaluations of the role and core capabilities of founders (see Figure 6).

Findings by Churchill and Lewis point out the necessity of the entrepreneur to renew and redefine his/her role along the trajectory of the firm. Just like when raising a child, growth means also letting go. This alone might be one hindering factor of growth: Do I want to manage an organization or am I more on my own turf running a stable business that I can steer independently.

A real-life question posed to Finnish SME companies (the survey panel for of the 2016 National SME barometer of an OECD-wide study "Financing SMEs and entrepreneurs 2017," and this

questions) to be strongly growth aspiring. They would (1) Invest, (2) Innovate, and only (3)

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The last conclusion of the study in question is that companies and entrepreneurs do differ in their aspiration and willingness to grow. This may link to the markets they operate in and opportunities in there, but it may also be a personal value statement by the entrepreneurs in relation to growth. This view suggests that growth is not just a phenomenon; it is also a mindset. How are those "entrepreneurial mindset" and "growth mindset" then born and developed? In a study among the students (Business Administration, undergraduate level) that have participated in a specialization program of technology business and entrepreneurship and later engaged to a start-up activity as business owners of employees, Saukkonen [41] observed a gradual conversion into entrepreneurial activity through identifiable stages instead of a sudden decision to embark on an entrepreneurial journey. The key learnings and actions on this path were all related in mingling with entrepreneurs or other entrepreneurs-to-be via networking, trying, and learning. These findings hint that here might be more social elements in entrepreneurship development than in the traditional view concentrating on individuals

Learning from the best seems at surface a natural and recommended way for an entrepreneur to grow from growth aspiration to growth that really happens. In the opening words of "Deloitte Fast 500 EMEA" report on high-growth tech companies. Bucaille points out that the four elements of growth capital, labor, knowledge/creativity and energy/resources are not enough to explain the difference between fast and slow growers [42]. High-growth companies [42] have created out of these a unique combination of value, often referred as business model.

This opportunity of agile entrepreneurial firms of the new breed to take over the market from traditional players with a superior new value offering is not new. Harvard professor Clayton M Christensen made already at 1990s an interesting finding: When key technologies in an industry change, the dominants' firms in the "new world" are not the ones they used to be [43]. The industry originally under Christensen's study was external computer memories: disk and diskettes from 5.25 inch floppy disks to 3.5 inches, and then to hard disks, etc. Why do the best firms of their breed tend to miss the train of change, then? Christensen had altogether five complementary explanations for this. One of them states that capabilities of an organization define its incapabilities. Very few companies are brave enough to admit that a big part of their legacy in knowledge, practices, facilities, machinery etc. are not asset in the new landscape, but rather a burden that brings with them inertia—force of slowness. An entrepreneur starting from a clean

The same plot can be found in the early writings of the forefather of innovation theorists and researchers Joseph Schumpeter [44], who proposed at 1930s that at times every industry is shaken by waves of creative disruption that rearrange competitive positions and rewrite "the rules of the game" [39]. Mark Jenkins from the Cranfield University in England made a corresponding observation when studying the different eras of technical regulation and

In addition, they have added a person-based flavor as a fifth element: leadership.

3.7. Growth companies of today: Why and how do they grow?

slate has then an upper hand to react, adapt, and proact.

keep in reserve.

alone.

Figure 6. Change of managerial factors over time [39].

question was proposed to be included to the survey by the Association of Finnish Entrepreneurs!) was: "If your company suddenly got a sum of money that corresponds your last years sales revenue, what would you do?" [40] What was then the most popular answer?

Nr 1 (most popular) option: "We would keep most of it as a reserve for future needs."

The cause-effect or reasoning for such an answer was not conducted, but one can speculate with a few alternative reasons: (1) the 10-year economic downturn had consumed the earlier reserves and new buffers for bad times were really needed; (2) the companies do not find appealing opportunities to invest the money to and (3) the companies have no ideas that would need developmental investment into?

Nr 2 (second most popular) option: "We would increase our investments."

Nr 3 options (a draw between two options): "We would pay back some of the debt we have" and "We would increase our innovation activity".

But there are entrepreneurs: and then there are growth-oriented entrepreneurs. Whereas the aforementioned choices of action were the ones surging among the whole sample of 500 SMEs participating, the action plans of the subset of companies identified (by their answers to other questions) to be strongly growth aspiring. They would (1) Invest, (2) Innovate, and only (3) keep in reserve.

The last conclusion of the study in question is that companies and entrepreneurs do differ in their aspiration and willingness to grow. This may link to the markets they operate in and opportunities in there, but it may also be a personal value statement by the entrepreneurs in relation to growth. This view suggests that growth is not just a phenomenon; it is also a mindset. How are those "entrepreneurial mindset" and "growth mindset" then born and developed? In a study among the students (Business Administration, undergraduate level) that have participated in a specialization program of technology business and entrepreneurship and later engaged to a start-up activity as business owners of employees, Saukkonen [41] observed a gradual conversion into entrepreneurial activity through identifiable stages instead of a sudden decision to embark on an entrepreneurial journey. The key learnings and actions on this path were all related in mingling with entrepreneurs or other entrepreneurs-to-be via networking, trying, and learning. These findings hint that here might be more social elements in entrepreneurship development than in the traditional view concentrating on individuals alone.

#### 3.7. Growth companies of today: Why and how do they grow?

question was proposed to be included to the survey by the Association of Finnish Entrepreneurs!) was: "If your company suddenly got a sum of money that corresponds your last years

The cause-effect or reasoning for such an answer was not conducted, but one can speculate with a few alternative reasons: (1) the 10-year economic downturn had consumed the earlier reserves and new buffers for bad times were really needed; (2) the companies do not find appealing opportunities to invest the money to and (3) the companies have no ideas that

Nr 3 options (a draw between two options): "We would pay back some of the debt we have" and

But there are entrepreneurs: and then there are growth-oriented entrepreneurs. Whereas the aforementioned choices of action were the ones surging among the whole sample of 500 SMEs participating, the action plans of the subset of companies identified (by their answers to other

sales revenue, what would you do?" [40] What was then the most popular answer?

Nr 1 (most popular) option: "We would keep most of it as a reserve for future needs."

Nr 2 (second most popular) option: "We would increase our investments."

would need developmental investment into?

Figure 6. Change of managerial factors over time [39].

18 Entrepreneurship - Development Tendencies and Empirical Approach

"We would increase our innovation activity".

Learning from the best seems at surface a natural and recommended way for an entrepreneur to grow from growth aspiration to growth that really happens. In the opening words of "Deloitte Fast 500 EMEA" report on high-growth tech companies. Bucaille points out that the four elements of growth capital, labor, knowledge/creativity and energy/resources are not enough to explain the difference between fast and slow growers [42]. High-growth companies [42] have created out of these a unique combination of value, often referred as business model. In addition, they have added a person-based flavor as a fifth element: leadership.

This opportunity of agile entrepreneurial firms of the new breed to take over the market from traditional players with a superior new value offering is not new. Harvard professor Clayton M Christensen made already at 1990s an interesting finding: When key technologies in an industry change, the dominants' firms in the "new world" are not the ones they used to be [43]. The industry originally under Christensen's study was external computer memories: disk and diskettes from 5.25 inch floppy disks to 3.5 inches, and then to hard disks, etc. Why do the best firms of their breed tend to miss the train of change, then? Christensen had altogether five complementary explanations for this. One of them states that capabilities of an organization define its incapabilities. Very few companies are brave enough to admit that a big part of their legacy in knowledge, practices, facilities, machinery etc. are not asset in the new landscape, but rather a burden that brings with them inertia—force of slowness. An entrepreneur starting from a clean slate has then an upper hand to react, adapt, and proact.

The same plot can be found in the early writings of the forefather of innovation theorists and researchers Joseph Schumpeter [44], who proposed at 1930s that at times every industry is shaken by waves of creative disruption that rearrange competitive positions and rewrite "the rules of the game" [39]. Mark Jenkins from the Cranfield University in England made a corresponding observation when studying the different eras of technical regulation and competitive success between companies in Formula 1 car racing; technological evolution often means competitive revolution [45].

The finding gives support to the statement that growth is still even in the technology business sphere based on individuals. First, entrepreneurs are willing to explore, create, and take risk, and subsequently, growth is continued in the talented individuals that the entrepreneur is able

Entrepreneurs and Growth: An Option, Obligation or Obsession

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21

4. Case study: future growth of an entrepreneurial start-up and its impact

In a single case study, Saukkonen and Vänttinen [34, 47] assessed the suitability of models of growth dimensions, sources, and obstacles proposed by earlier research and literature to a case company: an entrepreneurial start-up company providing environmental technology for global business-to-business markets. Researchers used method of qualitative, interview-based data collection among the company's internal stakeholders and external business experts. Through an analysis of the obtained data, researchers drew conclusions of the compatibility

4.1. How do prior-art models of growth suit true start-ups, specifically one operating in

As a reflection of results vs. earlier models of venture growth, it seems defendable to state that the dimensions in Wickham model can be pictured from the research data, even in a certain sequential order: First, a strategic choice of (first) solutions to be completed is done. Second, the funding for the implementation needs to be secured, after which the (minimum) organization to accomplish the task is put together. Structural and organizational dimensions of growth combine the internal and external resources: The mission-critical parts are kept in the control of the company and complementary, but less strategic or innovative capabilities are extracted

The four first stages of the model by Marmer et al. were all referred to, but the events did not follow the sequential order. The studied startup company had simultaneous and parallel growth processes. The Greiner model-based discussion of crises stages and sources did not bring up relevant information. The sources of growth from the model by Greiner were clearly easier to discuss: "Customers are currently most important element for company growth"

Despite the avoidance of the usage of expressions like "environmental technology" or "cleantech" in the spontaneous discussion, the special characteristics of the business segment were well

1. The unavoidable role of regulatory framework, or frameworks, when the company acts in multiple markets and many solution areas. The role of regulations and other interventions by governments and other public authorities serves both as enablers as well as obstacles

to attract, motivate, and lead on the growth trajectory.

of (some) earlier models to the unique case of new company growth.

on entrepreneurs

environmental technology business?

from the partner network.

(Owner-Manager OM).

for growth

visible. The specific context contained issues such as:

In the era of ubiquitous technology, these rules of the game change more often than ever before, so unforeseen entry and growth opportunities are available but so are the opportunities for sharp decline and death. Following the ideas of Cinzia Parolini [46], entrepreneurial opportunities can arise in various forms of value system re-engineering: Creating new activities into a value system or making some traditional activities is obsolete. In both cases, business model works, if it helps the whole value systems to reduce cost and/or increase the end customer value.

Deloitte [42] also makes a remark based on their reports and research that has spun over a decade: The quality of the high growers is largely based on the quality of their environment. Partners provide talent, expertise, revenue, research, and capital that are needed to fuel growth. Understanding growth of an entrepreneurial company should not forget the entrepreneur as an individual or the individual company that has set a goal to grow, but it should not stop there but look also around them.

To support their listings and aggregate figures of the selected growth awardees, Deloitte has at constant intervals looked at the root causes and affecting factors to grow by surveying the highest management (CEOs) of the high-growth companies.

The listings and company analyses are done by Deloitte in a yearly basis and available over the Internet to all parties interested. CEO surveys do not happen on a yearly basis for all major regions (Americas, Asia, EMEA), but in country level, there are unbroken time series in various countries. To highlight some main contents, here are some excerpts for the 2016 results: Growth continuum, sources, and hindrances of growth among the management of Turkey's Fast 50 technology business growers [43]:


The finding gives support to the statement that growth is still even in the technology business sphere based on individuals. First, entrepreneurs are willing to explore, create, and take risk, and subsequently, growth is continued in the talented individuals that the entrepreneur is able to attract, motivate, and lead on the growth trajectory.

competitive success between companies in Formula 1 car racing; technological evolution often

In the era of ubiquitous technology, these rules of the game change more often than ever before, so unforeseen entry and growth opportunities are available but so are the opportunities for sharp decline and death. Following the ideas of Cinzia Parolini [46], entrepreneurial opportunities can arise in various forms of value system re-engineering: Creating new activities into a value system or making some traditional activities is obsolete. In both cases, business model works, if it helps the whole value systems to reduce cost and/or increase the

Deloitte [42] also makes a remark based on their reports and research that has spun over a decade: The quality of the high growers is largely based on the quality of their environment. Partners provide talent, expertise, revenue, research, and capital that are needed to fuel growth. Understanding growth of an entrepreneurial company should not forget the entrepreneur as an individual or the individual company that has set a goal to grow, but it should not

To support their listings and aggregate figures of the selected growth awardees, Deloitte has at constant intervals looked at the root causes and affecting factors to grow by surveying the

The listings and company analyses are done by Deloitte in a yearly basis and available over the Internet to all parties interested. CEO surveys do not happen on a yearly basis for all major regions (Americas, Asia, EMEA), but in country level, there are unbroken time series in various countries. To highlight some main contents, here are some excerpts for the 2016 results: Growth continuum, sources, and hindrances of growth among the management of Turkey's

• 85% of the CEOs believed they will maintain the high rate of growth (even though only 42% believed the economy in general will grow and only 9% that economy will grow

• 70% believed the growth can be continued organically, not by structural arrangements

• the biggest single contributors to the past growth have been high-quality employees and

• 61% believed they will grow their personnel between 1 and 25% - obviously in the

• 39% mention as the top personal challenge raising and delegating responsibility—moving from entrepreneurial management more toward an organization; the second one being reaching profitability—supporting the notion that growth is resource-demanding, and it

• 64% list HR issues (finding, hiring, and retaining talent) as major challenge to growth

means competitive revolution [45].

20 Entrepreneurship - Development Tendencies and Empirical Approach

stop there but look also around them.

Fast 50 technology business growers [43]:

exceptional/unique products created by them

digitalized world the growth and employment curves differ

fires back on profits that will follow only later on, so it is risky.

substantially)

such as acquisitions

highest management (CEOs) of the high-growth companies.

end customer value.

### 4. Case study: future growth of an entrepreneurial start-up and its impact on entrepreneurs

In a single case study, Saukkonen and Vänttinen [34, 47] assessed the suitability of models of growth dimensions, sources, and obstacles proposed by earlier research and literature to a case company: an entrepreneurial start-up company providing environmental technology for global business-to-business markets. Researchers used method of qualitative, interview-based data collection among the company's internal stakeholders and external business experts. Through an analysis of the obtained data, researchers drew conclusions of the compatibility of (some) earlier models to the unique case of new company growth.

#### 4.1. How do prior-art models of growth suit true start-ups, specifically one operating in environmental technology business?

As a reflection of results vs. earlier models of venture growth, it seems defendable to state that the dimensions in Wickham model can be pictured from the research data, even in a certain sequential order: First, a strategic choice of (first) solutions to be completed is done. Second, the funding for the implementation needs to be secured, after which the (minimum) organization to accomplish the task is put together. Structural and organizational dimensions of growth combine the internal and external resources: The mission-critical parts are kept in the control of the company and complementary, but less strategic or innovative capabilities are extracted from the partner network.

The four first stages of the model by Marmer et al. were all referred to, but the events did not follow the sequential order. The studied startup company had simultaneous and parallel growth processes. The Greiner model-based discussion of crises stages and sources did not bring up relevant information. The sources of growth from the model by Greiner were clearly easier to discuss: "Customers are currently most important element for company growth" (Owner-Manager OM).

Despite the avoidance of the usage of expressions like "environmental technology" or "cleantech" in the spontaneous discussion, the special characteristics of the business segment were well visible. The specific context contained issues such as:

1. The unavoidable role of regulatory framework, or frameworks, when the company acts in multiple markets and many solution areas. The role of regulations and other interventions by governments and other public authorities serves both as enablers as well as obstacles for growth

2. A company operating in this segment has long lasting and tight connections with their stakeholder network. "You need have customer side for speakers for promoting your technology" (External Industry Expert, EIE).

predictability. And the purchase threshold for services is lower than that of buying hardware the latter one has a life cycle of 30 years" (Founder-Owner-Manager FOM). This means that growth models should avoid labeling the firms studied to product or service companies but

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One difficulty to adopting Wickham's model was the networked in which today's companies operate. Talking of growth only within company boundaries felt falling short: "Ecosystem is needed for real size unit: sustainable production, sustainable fuel supply security, logistics, maintenance … you cannot do it yourself" (EIE). In manufacturing companies, the trend of outsourcing the manufacturing and thus reducing capital needs has been a long prevailing trend. Based on the case study, outsourcing without holding a control over operations grows the risk. "Own manufacturing is not a red flag to an investor, if that is needed to control the entire process in its critical parts" (VCE). The views of the internal and external interviewees matched in this respect. "Own manufacturing is a strategic choice. I want to reduce the risk by having a clear and firm view on what is happening, I know and can promise the delivery times we can do. This may change over time, but at this point we do want to have a tight grip on the process" (FOM). The usage of subcontractors and many of them may seem a good riskaversion policy, but it may contain a strain to company resources: "The wider the network, the higher risk of quality issues and delays. And truly managing a supply chain of networked

The external experts in the sample put more emphasis on the traditional management skills process and systems management—from early on than in-house respondents. That gives support to Start-Up Genome Report [27] findings that if processes are not efficient and the scaling up occurs, the phenomenon Premature Scaling is a potential misstep on the growth path. A remark made underlined that the processes should not be seen from only engineering angle but instead "There must be a sales process from early on, who sells and how. If I do not get that I cannot invest" (VCE, Venture capital expert). The later decline of the importance of mastering processes and systems (as seen by external experts) should be looked at in conjunc-

Figures 8 and 9 show how the interviewees—internal vs. external—saw the role of the entrepreneurs to change over different development stages. There were some surprising findings between the two groups (internal vs. external) as well as when compared to the original model

The external experts clearly expressed that the ability to delegate has to start early on and owners' own ability to do starts diminishing also at an early stage. The need to delegate is also a concern of entrepreneurs in the case company: "It's a dilemma that too much is in our hands and we don't have enough time to handle everything … we really in the process how to delegate and to whom, it's the huge challenge for us" (OM). Ability to delegate is also a part of process management capability, and it also touches the network partners of the company:

tion with their views of the changing role of the entrepreneur (Figure 7).

"To delegate is to co-operate" (Business Development Expert).

rather see how those two basic business types can be combined.

companies is rare and demanding skill" (VCE).

by Churchill and Lewis.

4.3. Entrepreneur's changing roles and capabilities


#### 4.2. How are dimensions, sources, and challenges of growth interpreted and prioritized?

Despite the findings presented in the Chapter 3.1, where a clear order of the growth dimensions emerged from the data, separating the dimensions from each other seemed artificial to the interviewees. The different fields of the growth are intertwined, and the order of priorities was dependent on the financial status of the company. A single capital injection would have changed both the order and speed in which different dimensions develop. The volatility of a growth pattern is therefore clear.

Strategic decision-making was seen as the key foundation for all other areas of growth across the respondent pool, but views on what makes "growth" in strategic terms differed a lot. For some respondents, growth in strategic dimension was a synonym to having a wider offering, whereas to some, it was more of narrowing and focusing. In enhancing the value of the company to its owners and customers, the innovativeness acts in controversial manners. To attract a portfolio of customers and fulfill multiple needs, strategic choice of having one main solution to offer was regarded as a risky option. "To me having different solutions for different end-users gives more options to customers to choose from" (Sales and Marketing Professional SMP2). On the other hand, limited resources must be well addressed to limited number of directions, as there is a need for efficiency from early on. Investor view preferred a clear focus: "In early stage, the way you should have a fairly limited portfolio. You better be somewhat single-minded. But all products and services have a life-cycle, so the portfolio needs to grow and renew over time. However, the portfolio growth should not kick in before break-even" (VCE).

One way to impact the business portfolio and also the structure of the revenue streams would be to move from mere product supplies to product-service system (PSS) bundling services to the technology supply and thus allow the company to better fund its development organically: "By adding services like operating the plants on behalf of the customers is a future way of improving the constant cash flow. The margins are different to tech supplies but so is the predictability. And the purchase threshold for services is lower than that of buying hardware the latter one has a life cycle of 30 years" (Founder-Owner-Manager FOM). This means that growth models should avoid labeling the firms studied to product or service companies but rather see how those two basic business types can be combined.

One difficulty to adopting Wickham's model was the networked in which today's companies operate. Talking of growth only within company boundaries felt falling short: "Ecosystem is needed for real size unit: sustainable production, sustainable fuel supply security, logistics, maintenance … you cannot do it yourself" (EIE). In manufacturing companies, the trend of outsourcing the manufacturing and thus reducing capital needs has been a long prevailing trend. Based on the case study, outsourcing without holding a control over operations grows the risk. "Own manufacturing is not a red flag to an investor, if that is needed to control the entire process in its critical parts" (VCE). The views of the internal and external interviewees matched in this respect. "Own manufacturing is a strategic choice. I want to reduce the risk by having a clear and firm view on what is happening, I know and can promise the delivery times we can do. This may change over time, but at this point we do want to have a tight grip on the process" (FOM). The usage of subcontractors and many of them may seem a good riskaversion policy, but it may contain a strain to company resources: "The wider the network, the higher risk of quality issues and delays. And truly managing a supply chain of networked companies is rare and demanding skill" (VCE).

#### 4.3. Entrepreneur's changing roles and capabilities

2. A company operating in this segment has long lasting and tight connections with their stakeholder network. "You need have customer side for speakers for promoting your

3. The clock speed in environmental technology business differs from many other fields. The long development time of regulations (that affects the decision-making ability of the firms, suppliers and customers alike) was mentioned earlier as a source of slow clock speed. Other factors are related to the depth and volume of R&D before sales can be done. "Unit cost is pretty high when you are environmental and energy business. You need a real life demonstration, which is working … then pilot1, pilot2, ½ scaled unit and full scaled unit"

4. The specific nature of the financial dynamics in this industry. The capital injections are needed early on, long before the sales revenue starts to act as a source of financial resource but "If we go in as an investor early on, the risks are humongous but so are the potential rewards. If later, the company value has gone up already, so the risk is lower but so is the

4.2. How are dimensions, sources, and challenges of growth interpreted and prioritized?

Despite the findings presented in the Chapter 3.1, where a clear order of the growth dimensions emerged from the data, separating the dimensions from each other seemed artificial to the interviewees. The different fields of the growth are intertwined, and the order of priorities was dependent on the financial status of the company. A single capital injection would have changed both the order and speed in which different dimensions develop. The volatility of a

Strategic decision-making was seen as the key foundation for all other areas of growth across the respondent pool, but views on what makes "growth" in strategic terms differed a lot. For some respondents, growth in strategic dimension was a synonym to having a wider offering, whereas to some, it was more of narrowing and focusing. In enhancing the value of the company to its owners and customers, the innovativeness acts in controversial manners. To attract a portfolio of customers and fulfill multiple needs, strategic choice of having one main solution to offer was regarded as a risky option. "To me having different solutions for different end-users gives more options to customers to choose from" (Sales and Marketing Professional SMP2). On the other hand, limited resources must be well addressed to limited number of directions, as there is a need for efficiency from early on. Investor view preferred a clear focus: "In early stage, the way you should have a fairly limited portfolio. You better be somewhat single-minded. But all products and services have a life-cycle, so the portfolio needs to grow and renew over time. However, the portfolio growth should not kick in before break-even" (VCE). One way to impact the business portfolio and also the structure of the revenue streams would be to move from mere product supplies to product-service system (PSS) bundling services to the technology supply and thus allow the company to better fund its development organically: "By adding services like operating the plants on behalf of the customers is a future way of improving the constant cash flow. The margins are different to tech supplies but so is the

potential multiple to your investment" (Venture Capital Expert VCE).

technology" (External Industry Expert, EIE).

22 Entrepreneurship - Development Tendencies and Empirical Approach

(EIE).

growth pattern is therefore clear.

The external experts in the sample put more emphasis on the traditional management skills process and systems management—from early on than in-house respondents. That gives support to Start-Up Genome Report [27] findings that if processes are not efficient and the scaling up occurs, the phenomenon Premature Scaling is a potential misstep on the growth path. A remark made underlined that the processes should not be seen from only engineering angle but instead "There must be a sales process from early on, who sells and how. If I do not get that I cannot invest" (VCE, Venture capital expert). The later decline of the importance of mastering processes and systems (as seen by external experts) should be looked at in conjunction with their views of the changing role of the entrepreneur (Figure 7).

Figures 8 and 9 show how the interviewees—internal vs. external—saw the role of the entrepreneurs to change over different development stages. There were some surprising findings between the two groups (internal vs. external) as well as when compared to the original model by Churchill and Lewis.

The external experts clearly expressed that the ability to delegate has to start early on and owners' own ability to do starts diminishing also at an early stage. The need to delegate is also a concern of entrepreneurs in the case company: "It's a dilemma that too much is in our hands and we don't have enough time to handle everything … we really in the process how to delegate and to whom, it's the huge challenge for us" (OM). Ability to delegate is also a part of process management capability, and it also touches the network partners of the company: "To delegate is to co-operate" (Business Development Expert).

Figure 7. The changing criticality of skills in process, people and systems management following the model by Churchill and Lewis—averages of the graphs drawn by informants in the interview sessions.

An important challenge for the entrepreneurs seems to arrive, when the company reaches some level of maturity. Managing company at that stage differs from start-up management. New skills are needed, and new angles to look at the company must be established. In addition to funding rounds, there should be management upgrading rounds: "Management and funding should update many times in growth company … management and funding are the sources of crises. Aspiration to company growth is of high criticality to company growth" (Business Development Expert, BDE). If the aspiration diminishes, the company can start to stagnate. Both respondents that have an entrepreneur role in the case company wanted to keep us a start-up mentality in the firm they manage: "I want to see this as an eternal start-up but the term can perhaps not be used for a very long time" (Founder-Owner-Manager FOM). "I don't want to be in mature company, I want to develop" (Owner-Manager OM). Their views were supported by the VCE "Thing to keep as long as possible from start-up is the entrepreneurship spirit, but it must be combined with growth in leadership skills" and BDE: "renewal is needed in growth company … is it synonym for continuous start-up".

#### 4.4. Can the growth be maintained?

One of the iconic figures in 1990s–2010s corporate management and leadership Steve jobs has been quoted to describe Apple Inc. as an "eternal start-up". Being the member of the original founding team, Jobs enjoyed and kept up an entrepreneurial relation to Apple despite its growth into a global corporation.

Figure 9. The changing role of the entrepreneur across the development stages (2) following model by Churchill and

Figure 8. The changing role of the entrepreneur across the development stages (1) following model by Churchill and

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Lewis—averages of the graphs drawn by informants in the interview sessions.

Lewis—averages of the graphs drawn by informants in the interview sessions.

Figure 8. The changing role of the entrepreneur across the development stages (1) following model by Churchill and Lewis—averages of the graphs drawn by informants in the interview sessions.

An important challenge for the entrepreneurs seems to arrive, when the company reaches some level of maturity. Managing company at that stage differs from start-up management. New skills are needed, and new angles to look at the company must be established. In addition to funding rounds, there should be management upgrading rounds: "Management and funding should update many times in growth company … management and funding are the sources of crises. Aspiration to company growth is of high criticality to company growth" (Business Development Expert, BDE). If the aspiration diminishes, the company can start to stagnate. Both respondents that have an entrepreneur role in the case company wanted to keep us a start-up mentality in the firm they manage: "I want to see this as an eternal start-up but the term can perhaps not be used for a very long time" (Founder-Owner-Manager FOM). "I don't want to be in mature company, I want to develop" (Owner-Manager OM). Their views were supported by the VCE "Thing to keep as long as possible from start-up is the entrepreneurship spirit, but it must be combined with growth in leadership skills" and BDE: "renewal

Figure 7. The changing criticality of skills in process, people and systems management following the model by Churchill

One of the iconic figures in 1990s–2010s corporate management and leadership Steve jobs has been quoted to describe Apple Inc. as an "eternal start-up". Being the member of the original founding team, Jobs enjoyed and kept up an entrepreneurial relation to Apple despite its

is needed in growth company … is it synonym for continuous start-up".

and Lewis—averages of the graphs drawn by informants in the interview sessions.

24 Entrepreneurship - Development Tendencies and Empirical Approach

4.4. Can the growth be maintained?

growth into a global corporation.

Figure 9. The changing role of the entrepreneur across the development stages (2) following model by Churchill and Lewis—averages of the graphs drawn by informants in the interview sessions.

as well as the context in which the companies operate. Industries have their specific

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features that should be woven into the models for company growth in that sector.

result of both internal reasons as well as external feedback.

point out that growth is better available for all than we are used to.

result of action.

value network.

serve as an agent for future growth.

• The models of growth do have their role: the phenomenon is better understood and acted upon by having a wide and versatile supply of models that contribute to the understanding of the phenomenon and individual cases. The research findings and the proposed new cyclical model of start-up growth in environmental technology business developed give support to the view presented by Levie and Lichtenstein [20]. Stage-based models have clarity and structure but reflect poorly growth business reality that is made of uncertainty, loops, and flexibility. Newer models such as the one by Marmer et al. acknowledge the importance to pivot when necessary and to find new directions by revisiting the work done in earlier phases when the development stagnates. The growth stagnating can be a

• Growth should be seen as a vehicle of reaching something by action rather than as an end

• Companies in the growth mode identify the sources, enablers, and obstacles to growth largely in a same manner, giving support to views that studying growth companies can

In addition, it is not enough for companies to recognize the developmental phase they are in but also to develop and implement strategies to tackle the challenges viable to the industrial context they live in and taking in account the resources of the company, its entrepreneurs, and

Various megatrends suggested to act as drivers of global change such as Globalization, Digitalization, Acceleration and Network organizing [47, 48] can be seen to offer wider and faster opportunities for growth than the past periods of time. New industries and markets are developed to a remarkable size at higher and higher speed. In the world of virtual goods memes, network externalities, low (capital) barriers to entry and viral spreading all seem to

An example of such a mushrooming market is mobile gaming, which in the first quarter of 2017 showed 53% growth to previous year [49, 50]. The global yearly revenue at the sector globally was predicted to reach 46 billion USD for 2017 and to grow to 64 billion by 2020 [51]. The other side of the coin of hypergrowth is the hypercompetition. It can be estimated that the supply of the games available at this moment (mid-2017) exceeds 1200 new games per day coming to the market via the two main platforms iStore and Google Play. This means a monthly growth in supply of approx. 40,000 new options for customer to choose from on top of the existing ones. Naturally new products and companies can only succeed, if the customers abandon earlier games they played. Major trends in the future of growth might be polarization and volatility of growth. The new world may give an unprecedented opportunity to grow for some, leaving a very minor role for the rest. Ideas of reaching massive consumer bases with low-cost pricing strategy applied, e.g., by Spotify for streamed music leaves very limited opportunities for profitability to nonhypergrowers.

Technological advancement is another Janus-faced force that affects firms aspiring to grow. The global availability of digital technologies and the opportunities they give to spread the

Figure 10. The cyclical two-loop model of growth and development Saukkonen & Vänttinen, [34].

Interestingly, the same echo of never ending growth was heard in the young and small aspiring company studied in the case. Based on the case study findings, it can propose a replacement of linear or at least sequential growth construct model with a more cyclical model (Figure 10). The model highlights the finding that an innovation-based company needs to simultaneously run processes leading to scalable and optimized processes ("growth loop") and keep on a new venture-type search of novel ideas ("start-up loop").

#### 5. Conclusions and discussion: future of growth

The conclusions of this full chapter are:


as well as the context in which the companies operate. Industries have their specific features that should be woven into the models for company growth in that sector.


In addition, it is not enough for companies to recognize the developmental phase they are in but also to develop and implement strategies to tackle the challenges viable to the industrial context they live in and taking in account the resources of the company, its entrepreneurs, and value network.

Various megatrends suggested to act as drivers of global change such as Globalization, Digitalization, Acceleration and Network organizing [47, 48] can be seen to offer wider and faster opportunities for growth than the past periods of time. New industries and markets are developed to a remarkable size at higher and higher speed. In the world of virtual goods memes, network externalities, low (capital) barriers to entry and viral spreading all seem to point out that growth is better available for all than we are used to.

Interestingly, the same echo of never ending growth was heard in the young and small aspiring company studied in the case. Based on the case study findings, it can propose a replacement of linear or at least sequential growth construct model with a more cyclical model (Figure 10). The model highlights the finding that an innovation-based company needs to simultaneously run processes leading to scalable and optimized processes ("growth loop") and keep on a new

Figure 10. The cyclical two-loop model of growth and development Saukkonen & Vänttinen, [34].

• Growth in an entrepreneurial company is a relative, context—and stakeholders´ expecta-

• Factors in the resources, market opportunities, and personal aspirations affect the stance taken toward growth as well as its directions and speed of growth. No single model to describe growth in an entrepreneurial firm can be found, the growth has individuality in it. Based on the case research findings, it can be also stated that search for one best model of growth for a single start-up venture is not a viable effort. Instead, various models should be studied and utilized. Researchers as well as business developers aiming at growth should identify the most relevant elements of these models to the case in question

venture-type search of novel ideas ("start-up loop").

26 Entrepreneurship - Development Tendencies and Empirical Approach

The conclusions of this full chapter are:

tion—based phenomenon.

5. Conclusions and discussion: future of growth

An example of such a mushrooming market is mobile gaming, which in the first quarter of 2017 showed 53% growth to previous year [49, 50]. The global yearly revenue at the sector globally was predicted to reach 46 billion USD for 2017 and to grow to 64 billion by 2020 [51]. The other side of the coin of hypergrowth is the hypercompetition. It can be estimated that the supply of the games available at this moment (mid-2017) exceeds 1200 new games per day coming to the market via the two main platforms iStore and Google Play. This means a monthly growth in supply of approx. 40,000 new options for customer to choose from on top of the existing ones. Naturally new products and companies can only succeed, if the customers abandon earlier games they played. Major trends in the future of growth might be polarization and volatility of growth. The new world may give an unprecedented opportunity to grow for some, leaving a very minor role for the rest. Ideas of reaching massive consumer bases with low-cost pricing strategy applied, e.g., by Spotify for streamed music leaves very limited opportunities for profitability to nonhypergrowers.

Technological advancement is another Janus-faced force that affects firms aspiring to grow. The global availability of digital technologies and the opportunities they give to spread the new solutions seem to favor growth. Simultaneously, the abundance of technologies is making the right choices regarding technologies both complicated, risky, and short lived. The megatrend of acceleration means the birth and growth happen at faster pace but so do decline and death. The accelerating pace of change referred as "increased clockspeed" by Fine from [52], and the increase in the sheer amount of potentially transformative and often intertwined technologies has made technology anticipation more complex. Global ICT consultancy firm Gartner publishes their "Hype Cycle curves" of emerging technology areas and particular technologies. As the representative of Gartner, J. Fenn coined the purpose of them: "Hype Cycle for Emerging Technologies targets strategic planning, innovation and emerging technology professionals by highlighting a set of technologies that will have broad-ranging impact across the business" [48]. Gartner publishes both broad and more specific Hype Cycles. There are close to 2000 individual technologies under Gartner's radar [53].

however require an opportunity for a longitudinal study with close involvement to the

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Perhaps, growth has never been democratic but in the future perhaps even less so. The shortened life cycle of products may also lead to short-living companies. We all know "firefly products" that shine bright and short. Will the business climate of future be apt for firefly

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decision-making process of the studied growth companies.

Address all correspondence to: juha.saukkonen@jamk.fi JAMK University of Applied Sciences, Jyväskylä, Finland

Thousand Oaks, California: Sage Publications; 2016

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21 May, 2017]

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companies as well?

Author details

Juha Saukkonen

References

Investing money and effort to technologies in their early stage sounds a risky choice. But it is also risk baring for a company to wait until a technology reaches the more predictable development stage. Acting first in a stage where more and more insights of how the technology can benefit the company start to crystallize, and the whole value chain and customer-base means the competitive advantage potential for a company has vastly diminished. One interesting line of research could be studying the means entrepreneurs are trying to balance the growth of business value and the risk that growth bears. One approach to this direction is the framework by Skok [54] based on his view that increasing of the value and reduction of the risk are key targets for any start-up management. He linked some key events or artifacts (Figure 11) that lead to success in relation to these two targets. Empirical research on that framework would

Figure 11. Key artifacts and events in risk/value framework across development stages (Skok [54]).

however require an opportunity for a longitudinal study with close involvement to the decision-making process of the studied growth companies.

Perhaps, growth has never been democratic but in the future perhaps even less so. The shortened life cycle of products may also lead to short-living companies. We all know "firefly products" that shine bright and short. Will the business climate of future be apt for firefly companies as well?

### Author details

new solutions seem to favor growth. Simultaneously, the abundance of technologies is making the right choices regarding technologies both complicated, risky, and short lived. The megatrend of acceleration means the birth and growth happen at faster pace but so do decline and death. The accelerating pace of change referred as "increased clockspeed" by Fine from [52], and the increase in the sheer amount of potentially transformative and often intertwined technologies has made technology anticipation more complex. Global ICT consultancy firm Gartner publishes their "Hype Cycle curves" of emerging technology areas and particular technologies. As the representative of Gartner, J. Fenn coined the purpose of them: "Hype Cycle for Emerging Technologies targets strategic planning, innovation and emerging technology professionals by highlighting a set of technologies that will have broad-ranging impact across the business" [48]. Gartner publishes both broad and more specific Hype Cycles. There

Investing money and effort to technologies in their early stage sounds a risky choice. But it is also risk baring for a company to wait until a technology reaches the more predictable development stage. Acting first in a stage where more and more insights of how the technology can benefit the company start to crystallize, and the whole value chain and customer-base means the competitive advantage potential for a company has vastly diminished. One interesting line of research could be studying the means entrepreneurs are trying to balance the growth of business value and the risk that growth bears. One approach to this direction is the framework by Skok [54] based on his view that increasing of the value and reduction of the risk are key targets for any start-up management. He linked some key events or artifacts (Figure 11) that lead to success in relation to these two targets. Empirical research on that framework would

are close to 2000 individual technologies under Gartner's radar [53].

28 Entrepreneurship - Development Tendencies and Empirical Approach

Figure 11. Key artifacts and events in risk/value framework across development stages (Skok [54]).

Juha Saukkonen

Address all correspondence to: juha.saukkonen@jamk.fi

JAMK University of Applied Sciences, Jyväskylä, Finland

### References


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26 May, 2017]


**Chapter 2**

**Provisional chapter**

**Entrepreneurship and Creative Economy: Mental**

**Entrepreneurship and Creative Economy: Mental** 

Anna G.M. Oliveira and Marlene C.O.L. Melo

Additional information is available at the end of the chapter

Anna G.M. Oliveira and Marlene C.O.L. Melo

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.70770

of the sector and its professionals.

qualitative research

**1. Introduction**

**Abstract**

**Brazil**

**Brazil**

**Models of Cultural Entrepreneurs in Belo Horizonte,**

This study aims to analyze the common elements in the mental models of cultural entrepreneurs in Belo Horizonte, Brazil, as well as to contribute to the expansion of public policies that enable the development of such enterprises. The theoretical framework of this study addresses entrepreneurship and the mental models of entrepreneurs in the creative economy sector. The Brazilian government has showed concern with the development of the creative economy sector, considering its importance in the national and international scenario. There is a lack of information and data that describes the specific characteristics and issues of the creative economy. Thus, it is important not only to present a statistical data on the sector, but also qualitative data that can broaden and deepen the knowledge

**Keywords:** entrepreneurship, mental models, cultural entrepreneurs, creative economy,

Entrepreneurship, over time, has emerged as a generator of income source, contributing to the economic and social development of Brazil; whether motivated by the need of an individual, or group, or business opportunities perceived in the market [1]. According to The Global Entrepreneurship Monitor report (GEM) published in 2015, 17.2% of the Brazilian adult pop-

The Brazilian government has showed concern with the development of some sectors of the economy, including efforts to expand the development of the creative economy sector.

ulation (between 18 and 64 years of age), were entrepreneurs [2].

**Models of Cultural Entrepreneurs in Belo Horizonte,** 

DOI: 10.5772/intechopen.70770

© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution,

© 2018 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

and reproduction in any medium, provided the original work is properly cited.

**Provisional chapter**

### **Entrepreneurship and Creative Economy: Mental Models of Cultural Entrepreneurs in Belo Horizonte, Brazil Models of Cultural Entrepreneurs in Belo Horizonte, Brazil**

**Entrepreneurship and Creative Economy: Mental** 

DOI: 10.5772/intechopen.70770

Anna G.M. Oliveira and Marlene C.O.L. Melo Additional information is available at the end of the chapter

Anna G.M. Oliveira and Marlene C.O.L. Melo

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.70770

#### **Abstract**

This study aims to analyze the common elements in the mental models of cultural entrepreneurs in Belo Horizonte, Brazil, as well as to contribute to the expansion of public policies that enable the development of such enterprises. The theoretical framework of this study addresses entrepreneurship and the mental models of entrepreneurs in the creative economy sector. The Brazilian government has showed concern with the development of the creative economy sector, considering its importance in the national and international scenario. There is a lack of information and data that describes the specific characteristics and issues of the creative economy. Thus, it is important not only to present a statistical data on the sector, but also qualitative data that can broaden and deepen the knowledge of the sector and its professionals.

**Keywords:** entrepreneurship, mental models, cultural entrepreneurs, creative economy, qualitative research

### **1. Introduction**

Entrepreneurship, over time, has emerged as a generator of income source, contributing to the economic and social development of Brazil; whether motivated by the need of an individual, or group, or business opportunities perceived in the market [1]. According to The Global Entrepreneurship Monitor report (GEM) published in 2015, 17.2% of the Brazilian adult population (between 18 and 64 years of age), were entrepreneurs [2].

The Brazilian government has showed concern with the development of some sectors of the economy, including efforts to expand the development of the creative economy sector.

© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons

In 2011, we saw intensification of this effort with the creation of the Secretariat of Creative Economy in, under the Ministry of Culture, aiming to lead the formulation, implementation, and monitoring of public policies based on social inclusion of the Brazilian cultural diversity, sustainability, and innovation [3].

to the topic were exposed, as well as a reflection on its relationship with entrepreneurship. In addition, this theoretical framework addresses the sector of the creative economy in Brazil.

Entrepreneurship and Creative Economy: Mental Models of Cultural Entrepreneurs in Belo…

http://dx.doi.org/10.5772/intechopen.70770

37

Behind every invention or innovation, there are people or teams with visionary, argumentative characteristics, seeking differentiation: entrepreneurs are those persons who "have a singular motivation (…), a desire to be recognized and admired, imitated and referenced, and wish to leave a legacy [5]." Dornelas [5] tracks the position of Schumpeter [6] in finding that "The entrepreneur has always had a fundamental role in society and argues that the emphasis on studies in the area emerged as a result of rapid technological change and the rapid increase

Filion [7], reports that Schumpeter "was the one who really launched the field of entrepreneurship" by associating economic growth to the behavior of the entrepreneur, especially with regards to innovative entrepreneurship, which, according to Schumpeter himself [6], is

Schumpeter [8] states the importance of entrepreneurship to the capitalist system, by considering such a system as "a form or method of economic change," an evolutionary process that takes place through changes in the economic life, which in turn produces industrial and

The innovation is "a specific tool for entrepreneurs" by which they identify the change as an opportunity for new businesses, products, or services. The executives must find the sources of innovation, the changes and symptoms "that indicate opportunities for an innovation to succeed [9]." The term entrepreneurial ship derives from the French word entrepreneur, which literally translated, means "one who is among" or "intermediate," or "being on the market

McClelland [11] points out characteristics of entrepreneurial behavior: the pursuit of opportunity and initiative, persistence, commitment, demand for quality and efficiency, calculated risk taking, goal setting, information gathering, planning and monitoring systematic, persua-

Sometimes—and mistakenly—the term entrepreneur is regarded as synonymous with business owner. A business owner is not always an entrepreneur, because the entrepreneur demonstrates an innovative behavior by creating a new situation for their company or business, while the business owner is more directed to the operational aspects of the business. Despite the differences between these individuals, they share some characteristics; it would be rare to find a business owner that did not have at least some characteristics of the entrepreneur

The GEM report [1] defines entrepreneurialship as "any attempt to create a new business or new venture such as a stand-alone activity, a new company, or an expansion of the existing enterprise. In either situation the initiative can be from an individual, group of individuals or companies already established." That is, in conceptual terms, the literature points to the

a propellant of economic and social development of a nation.

**2.1. Entrepreneurship**

in market competition."

consumer transformations.

[5, 12].

between supplier and the consumer [10]."

sion and networking, independence and self-confidence.

This concern of the Government is also reflected in the National Plan of Culture, established by Law 12.343, on December 2, 2010, which has, among its objectives as defined in Article 2, § IX, XI and XII, "to develop the cultural economy, the internal market of cultural consumption, as well as exports of goods, services and cultural content;" "to improve and develop the cultural industry both in the public and private sectors," and "to professionalize and specialize agents and cultural managers [4]."

The Plan of the Secretariat of Creative Economy presents five key challenges for the development of effective public policies for this sector. The first major challenge was the gathering of information and data related to companies in this sector. The Plan confirms the lack of sufficient existing data, which prevents a comprehensive understanding of features and capabilities of the sector, as well as the fact that the secondary data reported does not always reflect the reality.

The second challenge is related to the coordination, stimulation, and nurturing of creative endeavors. The third challenge is the lack of educational opportunities promoting the development creative skills, which hinder the advancement of qualified professionals. The fourth challenge is the need of an infrastructure for distribution/circulation and consumption/enjoyment of creative goods and services. The fifth challenge revolves around the creation/adaptation of the tax legislation, social security, labor law, and intellectual property terms that meet the specific needs of enterprises and industry professionals.

The lack of information and data describing the characteristics and specific industry issues is noticeable. Thus, it is important not only to present, through further research, statistical data on the sector, but also qualitative data that can broaden and deepen the knowledge of the sector and its professionals.

Based on this scenario, this study aimed to analyze the common elements in the mental models of cultural entrepreneurs in Belo Horizonte, Brazil. The five companies of the cultural sector surveyed in this study were selected by criteria of accessibility: an art school, an open air cinema, a publisher, a conventional theater group, and a puppet theater group.

Following this introduction, this chapter is divided into five parts: the theoretical framework, which is a review of the key concepts related to the topic of this study; the context of the studied sector, the methodology, in which is explained how this study was conducted; the presentation and discussion of results; and final considerations, followed by references.

### **2. Theoretical framework**

This study is anchored on two theoretical pillars: entrepreneurship and mental models. To understand the phenomenon of entrepreneurship, theoretical considerations about its conceptual dimensions and development were drawn. In the area of mental models, theories related to the topic were exposed, as well as a reflection on its relationship with entrepreneurship. In addition, this theoretical framework addresses the sector of the creative economy in Brazil.

#### **2.1. Entrepreneurship**

In 2011, we saw intensification of this effort with the creation of the Secretariat of Creative Economy in, under the Ministry of Culture, aiming to lead the formulation, implementation, and monitoring of public policies based on social inclusion of the Brazilian cultural diversity,

This concern of the Government is also reflected in the National Plan of Culture, established by Law 12.343, on December 2, 2010, which has, among its objectives as defined in Article 2, § IX, XI and XII, "to develop the cultural economy, the internal market of cultural consumption, as well as exports of goods, services and cultural content;" "to improve and develop the cultural industry both in the public and private sectors," and "to professionalize and specialize

The Plan of the Secretariat of Creative Economy presents five key challenges for the development of effective public policies for this sector. The first major challenge was the gathering of information and data related to companies in this sector. The Plan confirms the lack of sufficient existing data, which prevents a comprehensive understanding of features and capabilities of the sector, as well as the fact that the secondary data reported does not always reflect the reality. The second challenge is related to the coordination, stimulation, and nurturing of creative endeavors. The third challenge is the lack of educational opportunities promoting the development creative skills, which hinder the advancement of qualified professionals. The fourth challenge is the need of an infrastructure for distribution/circulation and consumption/enjoyment of creative goods and services. The fifth challenge revolves around the creation/adaptation of the tax legislation, social security, labor law, and intellectual property terms that meet

The lack of information and data describing the characteristics and specific industry issues is noticeable. Thus, it is important not only to present, through further research, statistical data on the sector, but also qualitative data that can broaden and deepen the knowledge of the sec-

Based on this scenario, this study aimed to analyze the common elements in the mental models of cultural entrepreneurs in Belo Horizonte, Brazil. The five companies of the cultural sector surveyed in this study were selected by criteria of accessibility: an art school, an open air

Following this introduction, this chapter is divided into five parts: the theoretical framework, which is a review of the key concepts related to the topic of this study; the context of the studied sector, the methodology, in which is explained how this study was conducted; the presentation and discussion of results; and final considerations, followed by references.

This study is anchored on two theoretical pillars: entrepreneurship and mental models. To understand the phenomenon of entrepreneurship, theoretical considerations about its conceptual dimensions and development were drawn. In the area of mental models, theories related

cinema, a publisher, a conventional theater group, and a puppet theater group.

sustainability, and innovation [3].

36 Entrepreneurship - Development Tendencies and Empirical Approach

agents and cultural managers [4]."

tor and its professionals.

**2. Theoretical framework**

the specific needs of enterprises and industry professionals.

Behind every invention or innovation, there are people or teams with visionary, argumentative characteristics, seeking differentiation: entrepreneurs are those persons who "have a singular motivation (…), a desire to be recognized and admired, imitated and referenced, and wish to leave a legacy [5]." Dornelas [5] tracks the position of Schumpeter [6] in finding that "The entrepreneur has always had a fundamental role in society and argues that the emphasis on studies in the area emerged as a result of rapid technological change and the rapid increase in market competition."

Filion [7], reports that Schumpeter "was the one who really launched the field of entrepreneurship" by associating economic growth to the behavior of the entrepreneur, especially with regards to innovative entrepreneurship, which, according to Schumpeter himself [6], is a propellant of economic and social development of a nation.

Schumpeter [8] states the importance of entrepreneurship to the capitalist system, by considering such a system as "a form or method of economic change," an evolutionary process that takes place through changes in the economic life, which in turn produces industrial and consumer transformations.

The innovation is "a specific tool for entrepreneurs" by which they identify the change as an opportunity for new businesses, products, or services. The executives must find the sources of innovation, the changes and symptoms "that indicate opportunities for an innovation to succeed [9]." The term entrepreneurial ship derives from the French word entrepreneur, which literally translated, means "one who is among" or "intermediate," or "being on the market between supplier and the consumer [10]."

McClelland [11] points out characteristics of entrepreneurial behavior: the pursuit of opportunity and initiative, persistence, commitment, demand for quality and efficiency, calculated risk taking, goal setting, information gathering, planning and monitoring systematic, persuasion and networking, independence and self-confidence.

Sometimes—and mistakenly—the term entrepreneur is regarded as synonymous with business owner. A business owner is not always an entrepreneur, because the entrepreneur demonstrates an innovative behavior by creating a new situation for their company or business, while the business owner is more directed to the operational aspects of the business. Despite the differences between these individuals, they share some characteristics; it would be rare to find a business owner that did not have at least some characteristics of the entrepreneur [5, 12].

The GEM report [1] defines entrepreneurialship as "any attempt to create a new business or new venture such as a stand-alone activity, a new company, or an expansion of the existing enterprise. In either situation the initiative can be from an individual, group of individuals or companies already established." That is, in conceptual terms, the literature points to the individual entrepreneur and the settings that characterize such behavior. On the other hand, an individual with such characteristics cannot be considered entrepreneur, which would be equally mistaken to consider an individual lacking these characteristics unable to undertake an entrepreneurial endeavor.

Several factors may influence the construction of mental models: the observation of the occurrence being modeled, experimentation and understanding of the trends of the occurrence, as well as all types of search and selection of information on the subject that are fundamental for the construction of a mental model. In this construction, individuals make use of processes of representation, communication, and interaction with the environment, forming a loop between the experience, evaluation and application of certain concepts. The environment sends messages of all kinds and the individual, based on their ability and cognitive capacity, processes these messages to build a representation of the world and the elements

Entrepreneurship and Creative Economy: Mental Models of Cultural Entrepreneurs in Belo…

http://dx.doi.org/10.5772/intechopen.70770

39

The mental models strongly affect the attitudes of individuals, because they influence how people interpret what they see and what they experience [14]. Senge [22] collaborates with Johnson-Laird [17] in stating that two people with different mental models, also reflecting its subjectivity, can observe the same object in different ways and thus describe it in different ways, each under their own perspectives. For him, mental models can be "simple generaliza-

In the field of organizations, Hill and Levenhager [23] speculated that to be successful, entrepreneurs must be able to handle significant ambiguity, which requires them to develop a "vision" or mental model of how to act in their environments, as well how to communicate their interests and goals to stakeholders to gain their support. The responsibility committed to the position of the entrepreneur is very large, because as decision makers, or sometimes the only decision maker, they take upon themselves to define the company's strategy [24]. These decisions may be heavily influenced by the professional and personal life of the entrepreneur, the meaning they attach to reality and how they live it—in other words, by their

The mental models are a set of four elements from systemic construction: cognitive, functional, symbolic, and emotional. The functional elements are not only made from a number of physical characteristics of the organization, such as size, product line, and market infrastruc-

The symbolic elements are related to what the organization represents or symbolizes for the subject, in other words, the meaning he/she attaches to it. Cognitive elements are their mental constructions—or perceptions—about a particular phenomenon or object, including the perception that the individual has of the organization. In other words, cognitive elements create knowledge networks that organize and connect the various types of information, generating meanings to objects. Emotional elements show a series of "states of mind (pleasure, pain, joy, fear, etc.) that the individual carries on the organization." These elements generally refer to the emotional state, either positive or negative, that the individual develops for the

The entrepreneur registers objects and events from these elements. Based on external stimuli, the collective representations of the object and their own mental representations, form the subject of its business representation. So "the more important the organization is for the entre-

preneur, the greater will be the network of meanings associated with it [25]."

ture, but also translated into aspects of the utility of the company [25].

tions" and even "more complex theories" that shape the way of individuals act [22].

associated with it [14].

mental models [24].

organization [25].

For this study we adopted the Hisrich and Peters [13] entrepreneurship concept, defined as "the process of creating something new with value by devoting the necessary time and effort, assuming the financial, psychological and social risks, as well as receiving the resulting rewards of satisfaction, and personal and economic independence."

The literature indicates the action of the entrepreneur is strongly influenced by their mental models [14]. Therefore, it is necessary to review the subject of mental models or cognitive styles, in order to understand their influential relationship.

#### **2.2. Mental models of entrepreneurs**

To better understand entrepreneurial action, a deep understanding of cognition is required. Cognitive skills, concurrently with motivation, represent the basic determinants of learning and performance at work. Besides the entrepreneurial behavior and entrepreneurial skills, the mental model of entrepreneurs seems to be the path to understanding and developing this topic.

The term mental models emerged in 1943 from the launch of the book "The Nature of Explanation," written by Scottish psychologist Kenneth Craig who defined it as a representation of elements and environmental situations. His theory has been used in psychology and cognitive sciences, and in the business field, albeit slowly, through the research of mental models concepts [15].

Mioranza [16] attributes the spread of the mental models concepts by the publication of two books, both titled as "Mental Models," in 1983. The first publication by Gentner and Stevens consists of a collection of contributions made to a seminar on the topic. The second publication by Johnson-Laird seeks to explain the theory of mental models through deductive reasoning and reading comprehension.

Johnson-Laird [17] made explicit the need to create new cognitive science study methods that would change how researchers in the field would perceive how the human mind operates. Later, Johnson-Laird [18] stated that reasoning depends on the individual collection of knowledge that leads to the formulation of a conclusion and validation; as well as the pursuit of other opportunities in alternative mental models to reach a decision. According to the author, reasoning is a simulation of outcomes in the outside world based on the knowledge of the individual through their mental models, and not just a rearrangement of formal logic [19].

The mental models are incomplete and reflect only the portion of the object understood, and may therefore be flawed or reflect limited knowledge that no longer applies to a given situation, thus requiring the improvement of its theoretical analysis and practice in daily life [20]. The cognition is not limited only to the human brain, but it is also directly related to the physical and social environment of the individual [21].

Several factors may influence the construction of mental models: the observation of the occurrence being modeled, experimentation and understanding of the trends of the occurrence, as well as all types of search and selection of information on the subject that are fundamental for the construction of a mental model. In this construction, individuals make use of processes of representation, communication, and interaction with the environment, forming a loop between the experience, evaluation and application of certain concepts. The environment sends messages of all kinds and the individual, based on their ability and cognitive capacity, processes these messages to build a representation of the world and the elements associated with it [14].

individual entrepreneur and the settings that characterize such behavior. On the other hand, an individual with such characteristics cannot be considered entrepreneur, which would be equally mistaken to consider an individual lacking these characteristics unable to undertake

For this study we adopted the Hisrich and Peters [13] entrepreneurship concept, defined as "the process of creating something new with value by devoting the necessary time and effort, assuming the financial, psychological and social risks, as well as receiving the resulting

The literature indicates the action of the entrepreneur is strongly influenced by their mental models [14]. Therefore, it is necessary to review the subject of mental models or cognitive

To better understand entrepreneurial action, a deep understanding of cognition is required. Cognitive skills, concurrently with motivation, represent the basic determinants of learning and performance at work. Besides the entrepreneurial behavior and entrepreneurial skills, the mental model of entrepreneurs seems to be the path to understanding and developing

The term mental models emerged in 1943 from the launch of the book "The Nature of Explanation," written by Scottish psychologist Kenneth Craig who defined it as a representation of elements and environmental situations. His theory has been used in psychology and cognitive sciences, and in the business field, albeit slowly, through the research of mental

Mioranza [16] attributes the spread of the mental models concepts by the publication of two books, both titled as "Mental Models," in 1983. The first publication by Gentner and Stevens consists of a collection of contributions made to a seminar on the topic. The second publication by Johnson-Laird seeks to explain the theory of mental models through deductive rea-

Johnson-Laird [17] made explicit the need to create new cognitive science study methods that would change how researchers in the field would perceive how the human mind operates. Later, Johnson-Laird [18] stated that reasoning depends on the individual collection of knowledge that leads to the formulation of a conclusion and validation; as well as the pursuit of other opportunities in alternative mental models to reach a decision. According to the author, reasoning is a simulation of outcomes in the outside world based on the knowledge of the individual through their mental models, and not just a rearrangement of formal logic [19].

The mental models are incomplete and reflect only the portion of the object understood, and may therefore be flawed or reflect limited knowledge that no longer applies to a given situation, thus requiring the improvement of its theoretical analysis and practice in daily life [20]. The cognition is not limited only to the human brain, but it is also directly related to the physical and social

rewards of satisfaction, and personal and economic independence."

styles, in order to understand their influential relationship.

38 Entrepreneurship - Development Tendencies and Empirical Approach

an entrepreneurial endeavor.

**2.2. Mental models of entrepreneurs**

this topic.

models concepts [15].

soning and reading comprehension.

environment of the individual [21].

The mental models strongly affect the attitudes of individuals, because they influence how people interpret what they see and what they experience [14]. Senge [22] collaborates with Johnson-Laird [17] in stating that two people with different mental models, also reflecting its subjectivity, can observe the same object in different ways and thus describe it in different ways, each under their own perspectives. For him, mental models can be "simple generalizations" and even "more complex theories" that shape the way of individuals act [22].

In the field of organizations, Hill and Levenhager [23] speculated that to be successful, entrepreneurs must be able to handle significant ambiguity, which requires them to develop a "vision" or mental model of how to act in their environments, as well how to communicate their interests and goals to stakeholders to gain their support. The responsibility committed to the position of the entrepreneur is very large, because as decision makers, or sometimes the only decision maker, they take upon themselves to define the company's strategy [24]. These decisions may be heavily influenced by the professional and personal life of the entrepreneur, the meaning they attach to reality and how they live it—in other words, by their mental models [24].

The mental models are a set of four elements from systemic construction: cognitive, functional, symbolic, and emotional. The functional elements are not only made from a number of physical characteristics of the organization, such as size, product line, and market infrastructure, but also translated into aspects of the utility of the company [25].

The symbolic elements are related to what the organization represents or symbolizes for the subject, in other words, the meaning he/she attaches to it. Cognitive elements are their mental constructions—or perceptions—about a particular phenomenon or object, including the perception that the individual has of the organization. In other words, cognitive elements create knowledge networks that organize and connect the various types of information, generating meanings to objects. Emotional elements show a series of "states of mind (pleasure, pain, joy, fear, etc.) that the individual carries on the organization." These elements generally refer to the emotional state, either positive or negative, that the individual develops for the organization [25].

The entrepreneur registers objects and events from these elements. Based on external stimuli, the collective representations of the object and their own mental representations, form the subject of its business representation. So "the more important the organization is for the entrepreneur, the greater will be the network of meanings associated with it [25]."

Past experiences, social interactions, symbols and their meanings, and moments of difficulty, all contribute to the changes and consolidations of mental models. Thus, mental models do not depend on "just the heads of individuals," but also on their life stories and their interpersonal relationships with employees, customers, suppliers, competitors, family, and friends [26].

Development (UNCTAD), the creative economy is comprised of "the cycles of creation, production and distribution of goods and services that use creativity and intellectual capital as

Entrepreneurship and Creative Economy: Mental Models of Cultural Entrepreneurs in Belo…

http://dx.doi.org/10.5772/intechopen.70770

41

The creative factor is of great importance for the country's economy. Creativity is a "relevant factor for the establishment of trade relations, competitiveness, and global economic integration to the extent that the ability to create becomes more important than the production of

In this economy, the main raw material is creativity itself, and its activities can be grouped as core, related activities, and support activities, in accordance with the UNCTAD's proposed classification. Core activities include segments such as Cultural Expressions, Performing Arts, Visual Arts, Music, Film, Video, TV, Radio, Printing and Publishing, Software, Technology, Architecture, Design, Fashion, and Advertising. The related activities are composed of segments for secondary companies providing services and materials essential to the core activities. Support activities relates to the indirect deliveries of goods and services that support

It is important to realize that the creative economy is a productive sector and provides potential for development, including the creation of public policies that encourage its growth. The Office of Creative Economy (SEC) was created in 2011, under the Ministry of Culture, which developed the Plan of the Secretariat of Creative Economy, containing actions to regulate and

The SEC, through the Plan of the Secretariat of the Creative Economy, defines creative industries as "all productive activities that have as their main function the generation of a creative output of symbolic value, which becomes the central element for price formation and produc-

The 2012 SEBRAE report shows that the annual growth of the creative sector in the last 5 years, as compared to the country's Gross Domestic Product (GDP), is of 6.13%. The survey data indicates the volume of people exercising formal occupations related to creative industries—3,763,271 people, or 8.54% of the country's formal employees. There are 865,881 persons exercising formal occupations in activities related to the core, representing 1.96% of total formal employees in the country. The average monthly income of formal workers in the core activities of the creative industry is R\$ 2293.64, 44% higher than the average income of formal workers in the country, which averages at R\$ 1588.42. The research also shows that 63,373 companies are acting in the core of the creative industries, which corresponds to 1.86%

Thus, one can observe the importance of the sector to the economy, especially if you take into account the fact that the country has a huge number of informal enterprises in this sector—as in other sectors of the economy—which makes it difficult to fully analyze it in terms of the number of acting enterprises and number of persons employed therein, as well as the financial transactions that it produces, and the extent of their contributions to their growth

commodities and industrial products with low added value [30]."

primary inputs [29]."

both the core and related activities.

stimulate the activities of this sector.

tion of cultural and economic wealth [3]."

of the total of 3,403,448 enterprises in the country [31].

and development of the sector.

The mental models, along with other external aspects, can contribute positively or negatively to the development of the skills of individuals, and therefore influence on the organizational performance. The responsibility of entrepreneurs about their organizations is in their actions, thoughts, and representations of the world—in other words, in their mental models [26].

In this viewpoint, Estrada et al. [15] argue that, given the context of evolution and constant changes in the markets, there is a growing trend of people incorporating more mature and evolved models in the values and objectives of the organization, with thoughts and attitudes continually seeking training, development, and true values. According to these authors, there is no point for an organization to have tools, instruments, techniques, organizational structure, resources, and information, if the mental models of individuals of the organization are unable to process then and make decisions to position the organization strategically. These considerations are consistent with those of Mioranza et al. [26], by claiming that the way individuals act and relate is also essential influencers to the organizational processes.

The competitiveness of companies depends on the ability of the organization—or entrepreneur—to identify opportunities, trends, and new realities in the market in which the organization operates; as well as the ability to see what occurs within the organization, to question existing practices and procedures, and have the ability to adapt them as needed. It is clear, therefore, that the way entrepreneurs think about their organization, the image they have of its development, and the way they pursue their objectives can either broaden or narrow the possibilities of the organization [15]. De Toni et al. [27] collaborate with this reasoning by stating that the construction of mental models of the entrepreneurs can strongly influence the performance of organizations, contributing to the differences in performance between samesized organizations and in the same market segment.

The mental models are an important factor in the entrepreneurial process emphasizing the social nature of it and the need for the development of studies on the subject [28].

#### **2.3. The creative economy in Brazil**

The creative economy sector began to gain prominence in the worldwide in 1986, when the United Nations (NU) published the Declaration of the Right to Development, which states that it is an indisputable human right and also a duty of the state. The creative economy has to be understood as a "strategic axis of development for different countries and continents in the new century [3]."

The sector of the creative and cultural economy includes the activities performed from intellectual capital that generates new jobs and enables economic growth and the development of the country. According to the 2008 Report of the United Nations Conference on Trade and Development (UNCTAD), the creative economy is comprised of "the cycles of creation, production and distribution of goods and services that use creativity and intellectual capital as primary inputs [29]."

Past experiences, social interactions, symbols and their meanings, and moments of difficulty, all contribute to the changes and consolidations of mental models. Thus, mental models do not depend on "just the heads of individuals," but also on their life stories and their interpersonal relationships with employees, customers, suppliers, competitors, family, and

The mental models, along with other external aspects, can contribute positively or negatively to the development of the skills of individuals, and therefore influence on the organizational performance. The responsibility of entrepreneurs about their organizations is in their actions, thoughts, and representations of the world—in other words, in their mental models [26].

In this viewpoint, Estrada et al. [15] argue that, given the context of evolution and constant changes in the markets, there is a growing trend of people incorporating more mature and evolved models in the values and objectives of the organization, with thoughts and attitudes continually seeking training, development, and true values. According to these authors, there is no point for an organization to have tools, instruments, techniques, organizational structure, resources, and information, if the mental models of individuals of the organization are unable to process then and make decisions to position the organization strategically. These considerations are consistent with those of Mioranza et al. [26], by claiming that the way indi-

The competitiveness of companies depends on the ability of the organization—or entrepreneur—to identify opportunities, trends, and new realities in the market in which the organization operates; as well as the ability to see what occurs within the organization, to question existing practices and procedures, and have the ability to adapt them as needed. It is clear, therefore, that the way entrepreneurs think about their organization, the image they have of its development, and the way they pursue their objectives can either broaden or narrow the possibilities of the organization [15]. De Toni et al. [27] collaborate with this reasoning by stating that the construction of mental models of the entrepreneurs can strongly influence the performance of organizations, contributing to the differences in performance between same-

The mental models are an important factor in the entrepreneurial process emphasizing the

The creative economy sector began to gain prominence in the worldwide in 1986, when the United Nations (NU) published the Declaration of the Right to Development, which states that it is an indisputable human right and also a duty of the state. The creative economy has to be understood as a "strategic axis of development for different countries and continents in

The sector of the creative and cultural economy includes the activities performed from intellectual capital that generates new jobs and enables economic growth and the development of the country. According to the 2008 Report of the United Nations Conference on Trade and

social nature of it and the need for the development of studies on the subject [28].

viduals act and relate is also essential influencers to the organizational processes.

sized organizations and in the same market segment.

40 Entrepreneurship - Development Tendencies and Empirical Approach

**2.3. The creative economy in Brazil**

the new century [3]."

friends [26].

The creative factor is of great importance for the country's economy. Creativity is a "relevant factor for the establishment of trade relations, competitiveness, and global economic integration to the extent that the ability to create becomes more important than the production of commodities and industrial products with low added value [30]."

In this economy, the main raw material is creativity itself, and its activities can be grouped as core, related activities, and support activities, in accordance with the UNCTAD's proposed classification. Core activities include segments such as Cultural Expressions, Performing Arts, Visual Arts, Music, Film, Video, TV, Radio, Printing and Publishing, Software, Technology, Architecture, Design, Fashion, and Advertising. The related activities are composed of segments for secondary companies providing services and materials essential to the core activities. Support activities relates to the indirect deliveries of goods and services that support both the core and related activities.

It is important to realize that the creative economy is a productive sector and provides potential for development, including the creation of public policies that encourage its growth. The Office of Creative Economy (SEC) was created in 2011, under the Ministry of Culture, which developed the Plan of the Secretariat of Creative Economy, containing actions to regulate and stimulate the activities of this sector.

The SEC, through the Plan of the Secretariat of the Creative Economy, defines creative industries as "all productive activities that have as their main function the generation of a creative output of symbolic value, which becomes the central element for price formation and production of cultural and economic wealth [3]."

The 2012 SEBRAE report shows that the annual growth of the creative sector in the last 5 years, as compared to the country's Gross Domestic Product (GDP), is of 6.13%. The survey data indicates the volume of people exercising formal occupations related to creative industries—3,763,271 people, or 8.54% of the country's formal employees. There are 865,881 persons exercising formal occupations in activities related to the core, representing 1.96% of total formal employees in the country. The average monthly income of formal workers in the core activities of the creative industry is R\$ 2293.64, 44% higher than the average income of formal workers in the country, which averages at R\$ 1588.42. The research also shows that 63,373 companies are acting in the core of the creative industries, which corresponds to 1.86% of the total of 3,403,448 enterprises in the country [31].

Thus, one can observe the importance of the sector to the economy, especially if you take into account the fact that the country has a huge number of informal enterprises in this sector—as in other sectors of the economy—which makes it difficult to fully analyze it in terms of the number of acting enterprises and number of persons employed therein, as well as the financial transactions that it produces, and the extent of their contributions to their growth and development of the sector.

### **3. Methodology**

The methodology of this research is characterized as qualitative, constituting of a descriptive and explanatory case study. The qualitative research is essentially interpretative, which includes a description and analysis of data about people, organizations, or even scenarios, with the aim interpret and generate bases for some considerations and conclusions from the data [32].

and perspective, animation, visual storytelling, painting, advertising art and illustration, sculpture and modeling, digital and 3D illustration, and technical course in visual arts. The school is a small business, founded by two partners with 16 employees, and a teaching staff consisting of 15 experienced and qualified teachers to provide quality education to their

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The second company operates in the field of motion picture, founded in 1992 as an open air cinema in order to display French films only. Two years later, in 1994, the current owner took over the company with the vision to display a repertoire, not only French, but independent movies originating from all European, North American, Latin American countries, and more. Subsequently, the organization acquired sponsorships of large corporation, such as Unibanco and Usiminas, which provided greater livelihood to the exhibits. The organization currently has three projection rooms with a capacity for up to 138 people, and it promotes various film festivals, including free daily shows at public schools in the suburban areas with the goal of enabling low-income children to gain cultural access to through the exhibits. This project takes place throughout the year without the help of the government or any funding for its implementation. This is a small business and currently employs about 30 employees. Besides the exhibition of films, the open-air cinema houses in its space have a restaurant and cafe, a

The third subject is a publishing company founded in 1981 with the intention of bringing African-Brazilian and Brazilian cultures back into schools through the publication of books. According to the entrepreneur, the idea was to mildly debate the theme of racial prejudice by enhancing self-esteem and the sense of equality among children. This small business employs seven full time employees and relies on the cooperation of other freelance professionals for illustration and layout work. The publisher currently offers in its catalog books in the field of Anthropology, Sociology, History, Education, Brazilian Literature, Children, and Youth Literature. In textbooks, other topics were added to promote cultural development of children and adolescents, such as the children with special needs, native Brazilians in the current soci-

The fourth company is a theater group founded in 1982 by 12 artists aiming to create pieces that reflect and represent their generation. The interviewee is one of the founders of the group that brought her education and professional business experience as an accountant and administrator to the enterprise. The theater group is a small business currently employing 50 people at its headquarters—the cultural center, created from the perceived need for greater social engagement with performance arts in the city, with focus on research, training, and encouragement of theatrical creation. The organization offers courses and workshops for artistic training for various projects in the area, while maintaining a research center, as well as preservation of the art through an in-house book and video library. The group has performed repeatedly in all regions of Brazil, as

well as in the United States, Canada, and several countries in Europe and Latin America.

The fifth company is a puppet theater group founded in 1970 by three professors of the School of Fine Arts at the Federal University of Minas Gerais (UFMG). The group manages every project from script creation and adaptation, to scene props, to de conceptualization, and creation of the puppets. In 2000, the group decided to part ways the University, looking for

bookstore, and a small shop selling customized products.

ety, gender and homosexuality, among other topics.

students.

The case study method appears to be the most suitable for the proposed goals of this work, the method "is characterized by deep and exhaustive study of one or a few objects, so as to allow their broad and detailed understanding [33]." The case study is the process that "investigates a contemporary phenomenon within its real life context, especially when the boundaries between phenomenon and context are not clearly defined [34]." Thus, this research consists of a case study of multiple subjects.

This study can be characterized as descriptive and explanatory. The descriptive study aims to "accurately describe the facts and scenarios of a certain reality [35]." The explanatory research deepens the knowledge of a particular subject, and that it can be performed as a continuation of descriptive research [33].

Five companies in the cultural sector in Belo Horizonte, one of the segments that make up the sector of the creative economy, were selected based on the criteria of accessibility. As the focus of the research is the analysis of the mental models of the entrepreneur, which are related to individual behaviors and perceptions, there was no concern in distinguishing very successful companies to other that are less successful, but to select companies that were consolidated in market, having the entrepreneurs as the main subject of the research.

The fieldwork consisted of semi-structured interviews with an entrepreneur of each of the companies surveyed, based on the script used by Mioranza [16], adapted for the objectives of this research. For the analysis and interpretation of data, we used the technique of content analysis that should produce results that reflect the objectives proposed in the research based on the extracted content of communication [36]. The content analysis can be understood as a set of techniques for communication analysis, through an objective and systematic description of the reveled content, for the purpose of interpreting the message. This technique "seeks to know what is behind between the lines [37]."

The interviews were recorded and transcribed so that the speech content could be analyzed according to the thematic category method, with the aid of Windows Excel spreadsheets to interpret the data obtained. Data was analyzed according to Bardin [37] and is presented and analyzed in the next section.

### **4. Presentation and analysis of data**

To better understand the organizations surveyed, a brief description of each is necessary. The first organization, the School of Visual Arts, was founded in 1999 in Belo Horizonte, and offers courses in cartoon illustration, drawing from observation, composition, anatomy and perspective, animation, visual storytelling, painting, advertising art and illustration, sculpture and modeling, digital and 3D illustration, and technical course in visual arts. The school is a small business, founded by two partners with 16 employees, and a teaching staff consisting of 15 experienced and qualified teachers to provide quality education to their students.

**3. Methodology**

consists of a case study of multiple subjects.

42 Entrepreneurship - Development Tendencies and Empirical Approach

to know what is behind between the lines [37]."

**4. Presentation and analysis of data**

analyzed in the next section.

of descriptive research [33].

The methodology of this research is characterized as qualitative, constituting of a descriptive and explanatory case study. The qualitative research is essentially interpretative, which includes a description and analysis of data about people, organizations, or even scenarios, with the aim interpret and generate bases for some considerations and conclusions from the data [32].

The case study method appears to be the most suitable for the proposed goals of this work, the method "is characterized by deep and exhaustive study of one or a few objects, so as to allow their broad and detailed understanding [33]." The case study is the process that "investigates a contemporary phenomenon within its real life context, especially when the boundaries between phenomenon and context are not clearly defined [34]." Thus, this research

This study can be characterized as descriptive and explanatory. The descriptive study aims to "accurately describe the facts and scenarios of a certain reality [35]." The explanatory research deepens the knowledge of a particular subject, and that it can be performed as a continuation

Five companies in the cultural sector in Belo Horizonte, one of the segments that make up the sector of the creative economy, were selected based on the criteria of accessibility. As the focus of the research is the analysis of the mental models of the entrepreneur, which are related to individual behaviors and perceptions, there was no concern in distinguishing very successful companies to other that are less successful, but to select companies that were consolidated in

The fieldwork consisted of semi-structured interviews with an entrepreneur of each of the companies surveyed, based on the script used by Mioranza [16], adapted for the objectives of this research. For the analysis and interpretation of data, we used the technique of content analysis that should produce results that reflect the objectives proposed in the research based on the extracted content of communication [36]. The content analysis can be understood as a set of techniques for communication analysis, through an objective and systematic description of the reveled content, for the purpose of interpreting the message. This technique "seeks

The interviews were recorded and transcribed so that the speech content could be analyzed according to the thematic category method, with the aid of Windows Excel spreadsheets to interpret the data obtained. Data was analyzed according to Bardin [37] and is presented and

To better understand the organizations surveyed, a brief description of each is necessary. The first organization, the School of Visual Arts, was founded in 1999 in Belo Horizonte, and offers courses in cartoon illustration, drawing from observation, composition, anatomy

market, having the entrepreneurs as the main subject of the research.

The second company operates in the field of motion picture, founded in 1992 as an open air cinema in order to display French films only. Two years later, in 1994, the current owner took over the company with the vision to display a repertoire, not only French, but independent movies originating from all European, North American, Latin American countries, and more. Subsequently, the organization acquired sponsorships of large corporation, such as Unibanco and Usiminas, which provided greater livelihood to the exhibits. The organization currently has three projection rooms with a capacity for up to 138 people, and it promotes various film festivals, including free daily shows at public schools in the suburban areas with the goal of enabling low-income children to gain cultural access to through the exhibits. This project takes place throughout the year without the help of the government or any funding for its implementation. This is a small business and currently employs about 30 employees. Besides the exhibition of films, the open-air cinema houses in its space have a restaurant and cafe, a bookstore, and a small shop selling customized products.

The third subject is a publishing company founded in 1981 with the intention of bringing African-Brazilian and Brazilian cultures back into schools through the publication of books. According to the entrepreneur, the idea was to mildly debate the theme of racial prejudice by enhancing self-esteem and the sense of equality among children. This small business employs seven full time employees and relies on the cooperation of other freelance professionals for illustration and layout work. The publisher currently offers in its catalog books in the field of Anthropology, Sociology, History, Education, Brazilian Literature, Children, and Youth Literature. In textbooks, other topics were added to promote cultural development of children and adolescents, such as the children with special needs, native Brazilians in the current society, gender and homosexuality, among other topics.

The fourth company is a theater group founded in 1982 by 12 artists aiming to create pieces that reflect and represent their generation. The interviewee is one of the founders of the group that brought her education and professional business experience as an accountant and administrator to the enterprise. The theater group is a small business currently employing 50 people at its headquarters—the cultural center, created from the perceived need for greater social engagement with performance arts in the city, with focus on research, training, and encouragement of theatrical creation. The organization offers courses and workshops for artistic training for various projects in the area, while maintaining a research center, as well as preservation of the art through an in-house book and video library. The group has performed repeatedly in all regions of Brazil, as well as in the United States, Canada, and several countries in Europe and Latin America.

The fifth company is a puppet theater group founded in 1970 by three professors of the School of Fine Arts at the Federal University of Minas Gerais (UFMG). The group manages every project from script creation and adaptation, to scene props, to de conceptualization, and creation of the puppets. In 2000, the group decided to part ways the University, looking for greater administrative autonomy as well as greater possibilities for gaining sponsorship to finance their projects. In 2003, with the death of two of the original founders, the direction of the group was passed to one of the original partner's daughter and two other professionals. Since then, the group has developed several projects, creating new shows, and a museum where the puppets and props of shows since its foundation and the school are exposed, and a school which offers introductory courses to puppetry.

According to [25], mental models are characterized by cognitive, symbolic, emotional, and functional elements. The authors define the cognitive elements as the mental constructs of the individual on a particular experience or object, allowing the evaluation of the image the individual has of the organization. The extracts from the interviews that reflect these elements

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45

The data presented reflects cognitive elements of images that respondents constructed in relation to their organizations. Their speeches are marked by descriptor such as constant movement, community project, and what the company offers to its target audience. An element that displays disparity to the others is the symbolism of struggle and survival, as it relates to the difficulty of survival in a competitive environment. In this sense, the capacity and the behavior of the entrepreneur are fundamental bases for the continuity of the company [39].

The symbolic elements are related to what the organization represents or symbolizes for the subject, the meanings they assigns to it [25]. The data obtained from the interviews were pre-

Entrepreneurs had common symbolic elements related to joy, memory and stability. Noteworthy are the symbolic elements, translated as "my life," "big career goal," which are greatly related to the identification with the organization. Other evidence presented in the interviews demonstrates certain symbiosis between the entrepreneur and their organizations: at times, entrepreneurs confuse the characteristics of the organization with their own and describe both. This can be clearly seen in the following extract: "The open air cinema is synonymous with strength, and I am his guardian (I2)." This can be explained by the fact that the entrepreneur is looking to print their values and characteristics in the companies they created. It is an interesting result, however, to find that level of identification with the established

In the case of cinema, we are faced with the question of preserving the city's cultural heritage. According to the theory, this fact can produce the strengthening of the creative potential and

The emotional elements refer to the affective state, albeit positive or negative, that the individual has towards the organization [25]. The emotional elements cited by the entrepreneurs surveyed were very diverse, most mentioned were feelings of satisfaction, joy, commitment, achievement, responsibility, anxiety, and frustration. **Table 3** presents the elements mentioned.

> It's a small company in Brazilian context, which makes it an endless struggle, hard, difficult in every end.

It's a collective project and lots of work.

It is an eternal motion, is an unrelenting thing, pulsating non-stop.

organization. Such data collaborates with the study of [15].

the development of the organization [40, 41].

**Cognitive Element—How do you describe… (company name)?**

the city.

It's a house of public interest in the city, plus the responsibility of being the last open air cinema of

are presented in **Table 1**.

sented in **Table 2**.

This is the space where experienced artists show aspiring artists the possibilities that they may have.

Source: Survey data.

**Table 1.** Cognitive elements.

With regards to demographics of the respondents, among the five subjects researched, three are men and two women. The entrepreneurs surveyed are between 40 and 71 years of age, two are married, two are single, and one is divorced. About their academic backgrounds, all respondents have training in the area in which they operated and exhibited quite diverse professional experiences prior to opening their current companies, which might have been beneficial in the development and growth of their current businesses—confirming the above cited theory by [24, 26].

The respondents reported that they always had an interest in getting involved in the arts industry. According to the theory, the motivations of the entrepreneur can originate from their creativity, need to contribute to society through their work, and the need for recognition [38]. Their motivations for the creation of their enterprises can be seen in the extracts below:

*And I always thought to myself, what would I be willing to do until I die? I'll be working, because I do not believe in retirement. So what type of work would satisfy me? You often hear of artists of visual arts who die in the middle of a project, this is very common in this field and I admire that. (I1)*

*[…] What I feel for motion pictures is not passion, it is love. Love is very distinct from passion. Love requires dedication, resignation, sacrifice, patience, tolerance, cadence, faith, believe. Love is a different feeling by choice. I chose motion pictures because I love it. (I2)*

*[…] This space stimulates greatly. It's a space where playfulness extraordinary are possible, where people can express their emotions, show their other side. This interested me more than being a farmer, which was my destiny because my father was a farmer. (I4)*

One interviewee showed her desire to give continuity to the work of her parents, a responsibility to carry on a social activity that brings cultural projects to less fortunate social classes.

*Years ago, my dad gave an interview at the group, and the end of it he laughed and he said "look, I think we've been condemned to make the world go round" and I agree! I agree because he left me here with the hot potato, and I'm thinking that's it, I'm doomed, I don't have too many options! (laughs) (I5)*

Such feelings are related to the life history of the individual, and even their family ties as described by [26]. Another observation from the interviews is the view that the company could contribute in some way to the social question, as in art school, which detected the lack of trained visual arts professionals in the city, fulfilling no only the commercial purpose of any institution, but also the social objective of training professionals. As the publisher, which seeks to bring schools the discussion of prejudice and racial inequality, it also has the function of changing the cultural viewpoint of the society:

*[…] God knows how I've been supporting my community library here. It's what I like do—put a book into the hands of a kid, although kids today do not like to read much, but we have to insist! We can't be discouraged! It's a question value, I believe in the cause, I believe that this work is important and there's a lot much more to be done. (I3)*

According to [25], mental models are characterized by cognitive, symbolic, emotional, and functional elements. The authors define the cognitive elements as the mental constructs of the individual on a particular experience or object, allowing the evaluation of the image the individual has of the organization. The extracts from the interviews that reflect these elements are presented in **Table 1**.

The data presented reflects cognitive elements of images that respondents constructed in relation to their organizations. Their speeches are marked by descriptor such as constant movement, community project, and what the company offers to its target audience. An element that displays disparity to the others is the symbolism of struggle and survival, as it relates to the difficulty of survival in a competitive environment. In this sense, the capacity and the behavior of the entrepreneur are fundamental bases for the continuity of the company [39].

The symbolic elements are related to what the organization represents or symbolizes for the subject, the meanings they assigns to it [25]. The data obtained from the interviews were presented in **Table 2**.

Entrepreneurs had common symbolic elements related to joy, memory and stability. Noteworthy are the symbolic elements, translated as "my life," "big career goal," which are greatly related to the identification with the organization. Other evidence presented in the interviews demonstrates certain symbiosis between the entrepreneur and their organizations: at times, entrepreneurs confuse the characteristics of the organization with their own and describe both. This can be clearly seen in the following extract: "The open air cinema is synonymous with strength, and I am his guardian (I2)." This can be explained by the fact that the entrepreneur is looking to print their values and characteristics in the companies they created. It is an interesting result, however, to find that level of identification with the established organization. Such data collaborates with the study of [15].

In the case of cinema, we are faced with the question of preserving the city's cultural heritage. According to the theory, this fact can produce the strengthening of the creative potential and the development of the organization [40, 41].

The emotional elements refer to the affective state, albeit positive or negative, that the individual has towards the organization [25]. The emotional elements cited by the entrepreneurs surveyed were very diverse, most mentioned were feelings of satisfaction, joy, commitment, achievement, responsibility, anxiety, and frustration. **Table 3** presents the elements mentioned.


**Table 1.** Cognitive elements.

greater administrative autonomy as well as greater possibilities for gaining sponsorship to finance their projects. In 2003, with the death of two of the original founders, the direction of the group was passed to one of the original partner's daughter and two other professionals. Since then, the group has developed several projects, creating new shows, and a museum where the puppets and props of shows since its foundation and the school are exposed, and a

With regards to demographics of the respondents, among the five subjects researched, three are men and two women. The entrepreneurs surveyed are between 40 and 71 years of age, two are married, two are single, and one is divorced. About their academic backgrounds, all respondents have training in the area in which they operated and exhibited quite diverse professional experiences prior to opening their current companies, which might have been beneficial in the development and growth of their current businesses—confirming the above cited theory by [24, 26]. The respondents reported that they always had an interest in getting involved in the arts industry. According to the theory, the motivations of the entrepreneur can originate from their creativity, need to contribute to society through their work, and the need for recognition [38]. Their motivations for the creation of their enterprises can be seen in the extracts below:

*And I always thought to myself, what would I be willing to do until I die? I'll be working, because I do not believe in retirement. So what type of work would satisfy me? You often hear of artists of visual arts* 

*[…] What I feel for motion pictures is not passion, it is love. Love is very distinct from passion. Love requires dedication, resignation, sacrifice, patience, tolerance, cadence, faith, believe. Love is a different* 

*[…] This space stimulates greatly. It's a space where playfulness extraordinary are possible, where people can express their emotions, show their other side. This interested me more than being a farmer,* 

One interviewee showed her desire to give continuity to the work of her parents, a responsibility to carry on a social activity that brings cultural projects to less fortunate social classes.

*Years ago, my dad gave an interview at the group, and the end of it he laughed and he said "look, I think we've been condemned to make the world go round" and I agree! I agree because he left me here with the hot potato, and I'm thinking that's it, I'm doomed, I don't have too many options! (laughs) (I5)*

Such feelings are related to the life history of the individual, and even their family ties as described by [26]. Another observation from the interviews is the view that the company could contribute in some way to the social question, as in art school, which detected the lack of trained visual arts professionals in the city, fulfilling no only the commercial purpose of any institution, but also the social objective of training professionals. As the publisher, which seeks to bring schools the discussion of prejudice and racial inequality, it also has the function

*[…] God knows how I've been supporting my community library here. It's what I like do—put a book into the hands of a kid, although kids today do not like to read much, but we have to insist! We can't be discouraged! It's a question value, I believe in the cause, I believe that this work is important and there's* 

*who die in the middle of a project, this is very common in this field and I admire that. (I1)*

*feeling by choice. I chose motion pictures because I love it. (I2)*

*which was my destiny because my father was a farmer. (I4)*

of changing the cultural viewpoint of the society:

*a lot much more to be done. (I3)*

school which offers introductory courses to puppetry.

44 Entrepreneurship - Development Tendencies and Empirical Approach



of the interviewed entrepreneurs about their organizations, they were asked about what comes to mind when they hear the name of their company. The elements represented were the most diverse, but also related to the feelings they have for their companies. Some elements, such as love, commitment, sense of belonging to a collective project, joy, only underscore the level of personal connection entrepreneurs have with their own ventures. Thus, it is perceived that the mental models of the surveyed entrepreneurs of this cultural segment are loaded with symbolic representations related to the emotional aspects of the relationship between entrepreneurs and their own businesses. The results point to a strong relationship of identification and realization

A reasonably good life, spiritually and mentally.

A very interesting experience as an actor, as well as my subsistence.

Entrepreneurship and Creative Economy: Mental Models of Cultural Entrepreneurs in Belo…

I love my work and have fun doing it.

47

http://dx.doi.org/10.5772/intechopen.70770

**Functional Element—What benefits will the… (name of company) gives you?**

Professional achievement. And what I need, materially

speaking.

The surveyed cultural entrepreneurs had an inclination to identify market opportunities as [26, 39]. Two of the respondents reported having identified themselves to a market opportunity when opening their businesses, both aimed to fulfill unexplored markets in the city. As for new market opportunities, all cultural entrepreneurs surveyed reported to know opportunities in underexplored niches or of great potential in their own markets, both for the development of new products and services for these niches, confirming the approach [15]. Two of the entrepreneurs surveyed reported that one of the issues that ultimately hinder progress in

*Because the government, I'll give you an example, there is a line of credit from government for recovery open air cinemas and creating new theaters with Brazilian capital. Look how wonderful! A 4% interest per year, that looks wonderful!? And you can pay in 12 years, look how wonderful? Just you need to guarantee the same money you borrow! If I have the value I'm asking, it's easy, no need to take loan! So that's the difficulty here in Brazil. They need to understand that it's not a 'favor' the state is creating, it's a way to strengthen the cultural level of the people and this kind of cinema is strictly cultural. But* 

*I think the biggest challenge is that we're still an underdeveloped country. A country where you still have a narrow political class, managers who lack knowledge, lack of culture, lack citizenship, lack ethics, lack full observance of the constitution, and because of the lack of collective interests they always turn their back to the cultural industry. Fail to see that education and culture are essential for a human* 

Such difficulties are not unknown to the government; proof is in the second key challenge the Plan of the Secretariat of the Creative Economy, which calls for the development of public policies for the sector, as well as the coordination, encouragement, and promotion of creative endeavors. The document stresses that public notices of promotion are currently the only means of investment in culture in the country, and that it is necessary to find other ways to

this segment is the lack public policies for investments in the cultural area:

*the Brazilian government doesn't understand it yet. (I2)*

by the interviewees.

Constant learning.

Source: Survey data.

**Table 4.** Functional element.

*being to be happy. (I4)*

finance projects in this sector [3].

**Table 3.** Emotional element.

It is noticed that the emotional elements described by the interviewees are a mixture of positive and negative feelings, but most predominantly are feelings related to pleasure. It is noteworthy that the elements of anxiety and frustration are related to problematic situations which entrepreneurs surveyed are currently facing in their own businesses. In the first case, the entrepreneur expressed his concern to "refresh the group," since, according to him, the actors are aging the group needs to continue without their physical presence.

*So we have been thinking about it, how refresh the group, how to give continuity to the group without the physical presence of the founders. Because today, our major limitation is also our greatest advantage - our product is that we do, and our shows take off mostly because of actors in them. This is a physical limitation of both time and space, which is disturbing. (…) And besides, we're old, we're getting old, and can't really take the race (…) How about ten years from now? We're already tired of traveling, how are we going to do? This is how generate revenue so we need to reinvent our model (I4).*

Another fact that stood out was the question of succession. The interviewee, aged 71, is seeking a person who can continue his business with the cultural identity that he gave the company. Single and childless, this entrepreneur does not have a natural successor to take control of the company. She shares how she thinks about it daily and believes that the only solution would be to sell the company when she is no longer able to run the business.

The functional elements are comprised of a number of physical characteristics of the organization, such as size, product line, markets and infrastructure, and translated into aspects of company utility [25]. The interviewed entrepreneurs were asked about the benefits they get from the company. It can be seen through **Table 4**, that despite treating the physical aspects of the environment, most of the elements cited by entrepreneurs qualify as emotional. I was cautious to not fix the entrepreneurs in their speech to fully convey their own perceptions. The mental models are a partial reflection of object, which can be understood by the means of perception [20, 42].

The elements reported show the emotional bond that entrepreneurs have with relation to their companies. For the respondents, their companies symbolize their achievements, a place of personal and professional fulfillment. Aiming to expand the vision of the mental representations


**Table 4.** Functional element.

Source: Survey data.

It is noticed that the emotional elements described by the interviewees are a mixture of positive and negative feelings, but most predominantly are feelings related to pleasure. It is noteworthy that the elements of anxiety and frustration are related to problematic situations which entrepreneurs surveyed are currently facing in their own businesses. In the first case, the entrepreneur expressed his concern to "refresh the group," since, according to him, the

Fulfillment and frustration.

It's a big career goal of work and life.

> All feelings that a person can experience.

Joy, tears, anger, satisfaction, fulfillment,

anxiety.

It's my memory, my joy, my life, my history, my future: it's all of that.

*So we have been thinking about it, how refresh the group, how to give continuity to the group without the physical presence of the founders. Because today, our major limitation is also our greatest advantage - our product is that we do, and our shows take off mostly because of actors in them. This is a physical limitation of both time and space, which is disturbing. (…) And besides, we're old, we're getting old, and can't really take the race (…) How about ten years from now? We're already tired of traveling, how are we going to* 

Another fact that stood out was the question of succession. The interviewee, aged 71, is seeking a person who can continue his business with the cultural identity that he gave the company. Single and childless, this entrepreneur does not have a natural successor to take control of the company. She shares how she thinks about it daily and believes that the only solution

The functional elements are comprised of a number of physical characteristics of the organization, such as size, product line, markets and infrastructure, and translated into aspects of company utility [25]. The interviewed entrepreneurs were asked about the benefits they get from the company. It can be seen through **Table 4**, that despite treating the physical aspects of the environment, most of the elements cited by entrepreneurs qualify as emotional. I was cautious to not fix the entrepreneurs in their speech to fully convey their own perceptions. The mental models are a partial reflection of object, which can be understood by the means of perception [20, 42].

The elements reported show the emotional bond that entrepreneurs have with relation to their companies. For the respondents, their companies symbolize their achievements, a place of personal and professional fulfillment. Aiming to expand the vision of the mental representations

actors are aging the group needs to continue without their physical presence.

would be to sell the company when she is no longer able to run the business.

*do? This is how generate revenue so we need to reinvent our model (I4).*

**Emotional Element—What are the feelings that… (name of company) brings you?**

My life.

Responsibility, commitment and joy.

**Symbolic Element—What the… (name of company) mean to you?**

46 Entrepreneurship - Development Tendencies and Empirical Approach

It's synonym of resistance.

Tranquility and anxiety at the same

Stability. It is a safe

Source: Survey data.

**Table 2.** Symbolic element.

haven.

Source: Survey data.

**Table 3.** Emotional element.

time.

of the interviewed entrepreneurs about their organizations, they were asked about what comes to mind when they hear the name of their company. The elements represented were the most diverse, but also related to the feelings they have for their companies. Some elements, such as love, commitment, sense of belonging to a collective project, joy, only underscore the level of personal connection entrepreneurs have with their own ventures. Thus, it is perceived that the mental models of the surveyed entrepreneurs of this cultural segment are loaded with symbolic representations related to the emotional aspects of the relationship between entrepreneurs and their own businesses. The results point to a strong relationship of identification and realization by the interviewees.

The surveyed cultural entrepreneurs had an inclination to identify market opportunities as [26, 39]. Two of the respondents reported having identified themselves to a market opportunity when opening their businesses, both aimed to fulfill unexplored markets in the city. As for new market opportunities, all cultural entrepreneurs surveyed reported to know opportunities in underexplored niches or of great potential in their own markets, both for the development of new products and services for these niches, confirming the approach [15]. Two of the entrepreneurs surveyed reported that one of the issues that ultimately hinder progress in this segment is the lack public policies for investments in the cultural area:

*Because the government, I'll give you an example, there is a line of credit from government for recovery open air cinemas and creating new theaters with Brazilian capital. Look how wonderful! A 4% interest per year, that looks wonderful!? And you can pay in 12 years, look how wonderful? Just you need to guarantee the same money you borrow! If I have the value I'm asking, it's easy, no need to take loan! So that's the difficulty here in Brazil. They need to understand that it's not a 'favor' the state is creating, it's a way to strengthen the cultural level of the people and this kind of cinema is strictly cultural. But the Brazilian government doesn't understand it yet. (I2)*

*I think the biggest challenge is that we're still an underdeveloped country. A country where you still have a narrow political class, managers who lack knowledge, lack of culture, lack citizenship, lack ethics, lack full observance of the constitution, and because of the lack of collective interests they always turn their back to the cultural industry. Fail to see that education and culture are essential for a human being to be happy. (I4)*

Such difficulties are not unknown to the government; proof is in the second key challenge the Plan of the Secretariat of the Creative Economy, which calls for the development of public policies for the sector, as well as the coordination, encouragement, and promotion of creative endeavors. The document stresses that public notices of promotion are currently the only means of investment in culture in the country, and that it is necessary to find other ways to finance projects in this sector [3].

Thus, new forms of financing through the development agencies, public, and private banks need to be created. Lenders need to adapt their offers to the actual needs of the industry, while taking into consideration their inability to provide full security for such loans, and meet deadlines and other requirements imposed by the lending institutions. If the nature of these entrepreneurial endeavors differs from traditional enterprises, it is necessary to create policies and regulations that promote their development.

The reports feature elements such as: satisfaction, challenges, opportunities for personal and professional growth, possibilities for what the business can become, as well as the emotional bond created with the company. The existence of such elements strengthens the bond and commitment of the entrepreneurs interviewed with their businesses. This data confirm what [25] argues as the greater the importance entrepreneurs give to their organization, the larger

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49

The data also indicates common elements of mental models among entrepreneurs surveyed in this segment, especially with regards to the elements cited [25, 26]. Among them, the symbolic and emotional elements that led respondents to explore their mental representations in relation to their endeavors are highlighted. With this regard, it was apparent in their speech, evidence showing a strong connection, identification, and a symbiotic relationship with their companies, what seems to be one of the main sources of great motivation and commitment to the same. Such involvement can also come from the pleasure afforded by the fact that they do what they love, which in turn provides an opportunity to satisfy their need for achievement.

This study aimed to analyze the common elements in the mental models of cultural entrepreneurs in Belo Horizonte, Brazil. The field research was conducted through semi-structured

The interview results indicated that cultural entrepreneurs are often required to deal with financial difficulties to sustain their ventures, whether through the Law for Promotion of Culture or sponsorship development. These difficulties require the entrepreneur to obtain necessary resources to execute their projects, as well as to have the ability to manage resources,

For this to occur, it is necessary to develop the entrepreneurial skills that enable dealing with these activities efficiently. It is not enough for entrepreneur this segment, have only the artistic and cultural skills for the development of the organization. It is essential to create public policies and programs that make possible the formation and development of management skills in these entrepreneurs with the aim of strengthening the projects already established and also provide the basis for the creation of new ventures. Thus, it is necessary to consider that the nature and dynamics of these activities and projects differ from traditional enterprises, becoming essential and urgent to create policies that promote their development. It is necessary to establish new forms of financing that encourages the development of enterprises, calling for public and private banks to adapt their offerings by taking into account the challenge thee entrepreneurs face that to offer collateral and abide by deadlines required by the

Investments in this sector is necessary as it has a have specific role in society. The cultural sector has great social impact in the country [43, 44]. Mainly because Brazil is a developing country, which should strive to invest in education and culture, thus promoting more than the development of its population, but the fulfillment of a constitutional right guaranteed to

deal with the allocated budget, all while striving to achieve the projected results.

meaning of commitment is associated with it.

interviews with an entrepreneur of each company studied.

**5. Final considerations**

lending institutions.

Regarding the process undertaken, respondents cited some factors that provide pleasure in the process. Among the most frequently cited factors are; the pleasure to see the outcome of their efforts, the possibility to create something new, the satisfaction of getting a positive result, to overcome challenges and see the company grow; as reflected in the statements below:

*[…] It's like having a dream and not know if it will ever work. (I1)*

*I think it is a chance, that's all. (I2)*

*You see the book in the kid's hand, whether at school or at any other place. That's when I begin to drool! The kid doesn't know who I am, never mind who the publisher is, he's just there enjoying the book, the new world that he's walking into. (I3)*

*You happen to see an invention come to fruition, a new idea to be performed -that gives me more pleasure than anything. To see it happen and transform it into reality. That's what gives me pleasure. (I4)*

*I think it's to create. To draw the puppet, see it being built, and finally ready. I think that is what gives me the most pleasure. (I5)*

Some of the motivations refer to the need for achievement, which is a second entrepreneurial characteristic, according to [11]. This characteristic is the individual need of entrepreneurs to test their limits and capabilities to performing what they have proposed. The need for achievement drives individuals to start and build their businesses [11].

Regarding the involvement of the respondents with their ventures, they reported working about 10–12 h a day. In some accounts, it was observed that respondents often take work home and even work on weekends and during the holidays.

Regarding the degree of importance given to their businesses, three of the respondents reported that cultural entrepreneurs put their companies before their personal lives. The other two have given the company the second place in their lives, being second only to their children. About the motivations that lead them to continue with the organizations, the reports show the involvement and commitment of entrepreneurs with their organizations:

*I think it's the idea that we're just beginning (I1).*

*Man, I never want to stop! To stop for me would be the end of my life (I2).*

*If I did not have to work, I don't know what I would do. My sister says "Are going to work until you die?" I say: "If I could die working, I will find it to be a very good end."(I3).*

*I think it's because of all the possibilities that are still on the table, that I still can take a risk and see what could happen (I4).*

*I think that's my story, challenge, each year has a new challenge, a history, my days are never the same. So I think that's what motivates me (I5).*

The reports feature elements such as: satisfaction, challenges, opportunities for personal and professional growth, possibilities for what the business can become, as well as the emotional bond created with the company. The existence of such elements strengthens the bond and commitment of the entrepreneurs interviewed with their businesses. This data confirm what [25] argues as the greater the importance entrepreneurs give to their organization, the larger meaning of commitment is associated with it.

The data also indicates common elements of mental models among entrepreneurs surveyed in this segment, especially with regards to the elements cited [25, 26]. Among them, the symbolic and emotional elements that led respondents to explore their mental representations in relation to their endeavors are highlighted. With this regard, it was apparent in their speech, evidence showing a strong connection, identification, and a symbiotic relationship with their companies, what seems to be one of the main sources of great motivation and commitment to the same. Such involvement can also come from the pleasure afforded by the fact that they do what they love, which in turn provides an opportunity to satisfy their need for achievement.

### **5. Final considerations**

Thus, new forms of financing through the development agencies, public, and private banks need to be created. Lenders need to adapt their offers to the actual needs of the industry, while taking into consideration their inability to provide full security for such loans, and meet deadlines and other requirements imposed by the lending institutions. If the nature of these entrepreneurial endeavors differs from traditional enterprises, it is necessary to create policies

Regarding the process undertaken, respondents cited some factors that provide pleasure in the process. Among the most frequently cited factors are; the pleasure to see the outcome of their efforts, the possibility to create something new, the satisfaction of getting a positive result, to

*You see the book in the kid's hand, whether at school or at any other place. That's when I begin to drool! The kid doesn't know who I am, never mind who the publisher is, he's just there enjoying the book, the* 

*You happen to see an invention come to fruition, a new idea to be performed -that gives me more pleasure than anything. To see it happen and transform it into reality. That's what gives me pleasure. (I4) I think it's to create. To draw the puppet, see it being built, and finally ready. I think that is what gives* 

Some of the motivations refer to the need for achievement, which is a second entrepreneurial characteristic, according to [11]. This characteristic is the individual need of entrepreneurs to test their limits and capabilities to performing what they have proposed. The need for

Regarding the involvement of the respondents with their ventures, they reported working about 10–12 h a day. In some accounts, it was observed that respondents often take work

Regarding the degree of importance given to their businesses, three of the respondents reported that cultural entrepreneurs put their companies before their personal lives. The other two have given the company the second place in their lives, being second only to their children. About the motivations that lead them to continue with the organizations, the reports

*If I did not have to work, I don't know what I would do. My sister says "Are going to work until you* 

*I think it's because of all the possibilities that are still on the table, that I still can take a risk and see* 

*I think that's my story, challenge, each year has a new challenge, a history, my days are never the same.* 

show the involvement and commitment of entrepreneurs with their organizations:

overcome challenges and see the company grow; as reflected in the statements below:

and regulations that promote their development.

48 Entrepreneurship - Development Tendencies and Empirical Approach

*I think it is a chance, that's all. (I2)*

*new world that he's walking into. (I3)*

*me the most pleasure. (I5)*

*what could happen (I4).*

*So I think that's what motivates me (I5).*

*[…] It's like having a dream and not know if it will ever work. (I1)*

achievement drives individuals to start and build their businesses [11].

*Man, I never want to stop! To stop for me would be the end of my life (I2).*

*die?" I say: "If I could die working, I will find it to be a very good end."(I3).*

home and even work on weekends and during the holidays.

*I think it's the idea that we're just beginning (I1).*

This study aimed to analyze the common elements in the mental models of cultural entrepreneurs in Belo Horizonte, Brazil. The field research was conducted through semi-structured interviews with an entrepreneur of each company studied.

The interview results indicated that cultural entrepreneurs are often required to deal with financial difficulties to sustain their ventures, whether through the Law for Promotion of Culture or sponsorship development. These difficulties require the entrepreneur to obtain necessary resources to execute their projects, as well as to have the ability to manage resources, deal with the allocated budget, all while striving to achieve the projected results.

For this to occur, it is necessary to develop the entrepreneurial skills that enable dealing with these activities efficiently. It is not enough for entrepreneur this segment, have only the artistic and cultural skills for the development of the organization. It is essential to create public policies and programs that make possible the formation and development of management skills in these entrepreneurs with the aim of strengthening the projects already established and also provide the basis for the creation of new ventures. Thus, it is necessary to consider that the nature and dynamics of these activities and projects differ from traditional enterprises, becoming essential and urgent to create policies that promote their development. It is necessary to establish new forms of financing that encourages the development of enterprises, calling for public and private banks to adapt their offerings by taking into account the challenge thee entrepreneurs face that to offer collateral and abide by deadlines required by the lending institutions.

Investments in this sector is necessary as it has a have specific role in society. The cultural sector has great social impact in the country [43, 44]. Mainly because Brazil is a developing country, which should strive to invest in education and culture, thus promoting more than the development of its population, but the fulfillment of a constitutional right guaranteed to the people. It is also considered that such actions justified the formalization of enterprises that operate informally, show that the industry has potential for economic growth and generation of tax revenue for the country. Small enterprises and valorization of the culture can provide a fertile environment for the strengthening of the local economy [45].

the economy to be better exploited. Above all, this study aims to show that this market sector is different from the others and it lacks specialized competencies of individuals wishing to enter this environment. It is believed that continuous research in these areas can greatly contribute to business growth, through the development of their entrepreneurial skills and consolidation of mental models geared to better organizational performance. In the perspective of management, the theme of the creative economy has still been little explored, constituting an opportunity for its development [44]. It is hoped that this study may well contribute to the development of the subject, and it may stimulate further research in the area considering its

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51

[1] Greco SMSS et al. GEM—Empreendedorismo no Brasil: 2010. Curitiba: IBQP; 2010. Available from: http://www.sebrae.com.br/customizado/estudos-e-pesquisas /temasestrategicos/empreendedoris mo/livro\_gem\_2010.pdf Accessed: December 09, 2010 [2] Singer S, Amorós JE, Arreola DM. GEM—Global Entrepreneurship Monitor 2014-2015 Global Report. Massachusetts: Babson College; 2015. Available from: http://www.gem-

[3] Ministério da Cultura. Plano da Secretaria da Economia Criativa: Políticas, Diretrizes e Ações 2011 a 2014. Brasília: Ministério da Cultura; 2011. Available from: http://www. cultura.gov.br/site/wp-content/uploads/2011/09/Plano-da-Secretaria-da-Economia-

[4] Brasil. Lei n° 12. 343 de 23 de dezembro de 2010. Institui o Plano Nacional de Cultura - PNC, cria o Sistema Nacional de Informações e Indicadores Culturais - SNIIC e dá outras providências. 2010. Available from: http://www.cultura.gov.br/site/wp-content/uploads/2011/05/

[5] Dornelas JCA. Empreendedorismo: Transformando Idéias em Negócios. Rio de Janeiro:

[6] Schumpeter JA.A Teoria do Desenvolvimento Econômico. Nova Cultural: São Paulo; 1988 [7] Filion LJ. Empreendedorismo: Empreendedores e proprietários-gerentes de pequenos negócios. Revista ADM. 1999; 34:05-28. Available from: http://www.rausp.usp.br/busca/

importance to the field of management studies.

Anna G.M. Oliveira\* and Marlene C.O.L. Melo

\*Address all correspondence to: annamira@gmail.com Unihorizontes University Center, Belo Horizonte, Brazil

consortium.org/report Accessed: March 11, 2015

Lei12.343-PNC-Publica1.pdf [Accessed: September 02, 2011]

artigo.asp?num\_artigo=102 [Accessed: September 02, 2000]

Criativa.pdf. [Accessed: May 15, 2011]

Elsevier; 2001

**Author details**

**References**

It is hoped that this study can contribute to the social context, providing information regarding the specifics of these organization, to help establish public policies that enable the development of businesses in the creative economy sector as the first challenge in the proposed Plan of the Secretariat of Creative Economy (2011), with regards to survey information and industry data.

The collected data indicate common elements of mental models between the entrepreneurs surveyed. The most evident were the emotional and symbolic elements that led respondents to explore their mental representations in relation to their endeavors. Were evident, in their responses the strong connections with their respective companies (almost symbiotic), fueled their motivation and commitment to the success of their enterprises.

Among the common elements we highlight a few like emotional satisfaction, joy, commitment, achievement, responsibility, anxiety and frustration, and "all the emotions inherent to any other area of life," mentioned during the interviews. The reports are marked by positive elements, such as satisfaction and achievement. Only two of the respondents also cited the frustration and anxiety due to adverse situations they face in their businesses. Such networks of meanings formed in their mental models around their developments point to some elements common to entrepreneurs surveyed: their high degree of involvement and commitment to their organizations, and also their emotional ties with their businesses. Distinct elements of mental models of entrepreneurs within the same segment are fully explainable since, despite of being companies in the same industry, they perform different activities.

The research results point to the importance of the theme of this study. The development of mental models of entrepreneurs can narrow or broaden the possibilities for growth of organizations, by building the skills of entrepreneurs and their decision-making in the conduct of their respective companies. As these are dynamic structures that can change over time, it is believed that mental models can be created to encourage the development and organizational performance. The development of mental models of entrepreneurs can narrow or broaden the possibilities for growth of organizations, by building the skills of entrepreneurs in the conduct of their companies.

A challenge found in this research is anchored by the fact that the subject of mental models still offers sparse literature, particularly in the area of administration, since this topic has been extensively explored in the areas of education and psychology. The studies related to the mental models of entrepreneurs conducted so far are few and recent. One limitation of the research is the fact that a small number of entrepreneurs have been interviewed.

It is suggested for future studies, the continuity of research conducted in non-traditional sectors of the economy, such as the creative economy, with the goal of building a more adequate research model for these segments, to better analyze the mental models of these entrepreneurs. Thus, this paper is expected to contribute to the expertise, education, and training of entrepreneurship, providing administrator with realistic training with a vision of new segments of the economy to be better exploited. Above all, this study aims to show that this market sector is different from the others and it lacks specialized competencies of individuals wishing to enter this environment. It is believed that continuous research in these areas can greatly contribute to business growth, through the development of their entrepreneurial skills and consolidation of mental models geared to better organizational performance. In the perspective of management, the theme of the creative economy has still been little explored, constituting an opportunity for its development [44]. It is hoped that this study may well contribute to the development of the subject, and it may stimulate further research in the area considering its importance to the field of management studies.

### **Author details**

the people. It is also considered that such actions justified the formalization of enterprises that operate informally, show that the industry has potential for economic growth and generation of tax revenue for the country. Small enterprises and valorization of the culture can provide a

It is hoped that this study can contribute to the social context, providing information regarding the specifics of these organization, to help establish public policies that enable the development of businesses in the creative economy sector as the first challenge in the proposed Plan of the Secretariat of Creative Economy (2011), with regards to survey information and industry data. The collected data indicate common elements of mental models between the entrepreneurs surveyed. The most evident were the emotional and symbolic elements that led respondents to explore their mental representations in relation to their endeavors. Were evident, in their responses the strong connections with their respective companies (almost symbiotic), fueled

Among the common elements we highlight a few like emotional satisfaction, joy, commitment, achievement, responsibility, anxiety and frustration, and "all the emotions inherent to any other area of life," mentioned during the interviews. The reports are marked by positive elements, such as satisfaction and achievement. Only two of the respondents also cited the frustration and anxiety due to adverse situations they face in their businesses. Such networks of meanings formed in their mental models around their developments point to some elements common to entrepreneurs surveyed: their high degree of involvement and commitment to their organizations, and also their emotional ties with their businesses. Distinct elements of mental models of entrepreneurs within the same segment are fully explainable since, despite of being companies in the same industry, they perform different activities.

The research results point to the importance of the theme of this study. The development of mental models of entrepreneurs can narrow or broaden the possibilities for growth of organizations, by building the skills of entrepreneurs and their decision-making in the conduct of their respective companies. As these are dynamic structures that can change over time, it is believed that mental models can be created to encourage the development and organizational performance. The development of mental models of entrepreneurs can narrow or broaden the possibilities for growth of organizations, by building the skills of entrepreneurs in the

A challenge found in this research is anchored by the fact that the subject of mental models still offers sparse literature, particularly in the area of administration, since this topic has been extensively explored in the areas of education and psychology. The studies related to the mental models of entrepreneurs conducted so far are few and recent. One limitation of the

It is suggested for future studies, the continuity of research conducted in non-traditional sectors of the economy, such as the creative economy, with the goal of building a more adequate research model for these segments, to better analyze the mental models of these entrepreneurs. Thus, this paper is expected to contribute to the expertise, education, and training of entrepreneurship, providing administrator with realistic training with a vision of new segments of

research is the fact that a small number of entrepreneurs have been interviewed.

fertile environment for the strengthening of the local economy [45].

50 Entrepreneurship - Development Tendencies and Empirical Approach

their motivation and commitment to the success of their enterprises.

conduct of their companies.

Anna G.M. Oliveira\* and Marlene C.O.L. Melo \*Address all correspondence to: annamira@gmail.com Unihorizontes University Center, Belo Horizonte, Brazil

### **References**


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**Chapter 3**

**Provisional chapter**

**Economic Transition and the Corporate Governance**

In Slovakia, the privatization of the state property in the beginning of the 1990s created a need for the corporate governance implementation. The aim of this chapter is to evaluate the level of implementation of corporate governance in Slovakia after more than 25 years since starting the transition from a centrally planned to a market economy, including a legal framework for its implementation. To support our analysis, we explored a relationship between the level of the corporate governance implementation and economic results of corporations. For this purpose, we reviewed annual reports for year 2015 by 27 corporations listed on the Bratislava Stock Exchange. The average profit of the evaluated corporations was approaching 21 million EUR, and the average assets value was at 1.2 billion EUR. Using the scoring method devised by us for this purpose, the average score of the annual report evaluation reached 2.59 points out of maximum 5 points. Finally, we tested a hypothesis that improving the level of corporate governance implementation

**Keywords:** corporate governance, principles, implementation, transition, privatization

In the academic literature as well as at the regulatory level, there are various definitions of the corporate governance. A governance in general is dealing with strategy development for directing a group of people and deciding on roles of its members [1]. According to the OECD, corporate governance involves a set of relationships among company's management, its board, shareholders, and other stakeholders. Corporate governance also provides a structure through which objectives of company are set, and means of attaining those objectives and performance

may contribute to profitability and assets value of corporations.

**Economic Transition and the Corporate Governance** 

DOI: 10.5772/intechopen.70533

© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution,

© 2018 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

and reproduction in any medium, provided the original work is properly cited.

**Implementation**

**Implementation**

Viera Ružeková

**Abstract**

**1. Introduction**

Viera Ružeková

Zuzana Kittová, Dušan Steinhauser and

Zuzana Kittová, Dušan Steinhauser and

http://dx.doi.org/10.5772/intechopen.70533

Additional information is available at the end of the chapter

Additional information is available at the end of the chapter


**Provisional chapter**

### **Economic Transition and the Corporate Governance Implementation Implementation**

**Economic Transition and the Corporate Governance** 

DOI: 10.5772/intechopen.70533

Zuzana Kittová, Dušan Steinhauser and Viera Ružeková Viera Ružeková Additional information is available at the end of the chapter

Zuzana Kittová, Dušan Steinhauser and

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.70533

#### **Abstract**

[32] Creswell JW. Projeto de Pesquisa: Métodos Qualitativo, Quantitativo e Misto. Artmed:

[35] Triviños ANS. Introdução à Pesquisa em Ciências Sociais: A Pesquisa Qualitativa em

[38] Chen MH et al. Understanding creative entrepreneurs' intention to quit: The role of entrepreneurial motivation, creativity, and opportunity. Entrepreneurship Research

[39] Smirnov V. The genesis of the entrepreneurship theory at the classical and non-classical stages of science development. Economic Annals-XXI. 2017;**164**:14-19. DOI: 10.21003/

[40] Abankina T. Creative economy: Towards cultural heritage capitalization. Voprosy

[41] Castro FG, Figueiredo LF. Creative economy as value proposal in business models.

[42] Siachou E, Daskou S, Yannopoulos P. Existing dimensions of absorptive capacity and the way foreword: The mediating functionality of mental models manifested by entrepreneurs. In: 12th Annual European Conference on Knowledge Management (ECKM); Passau, Germany. Available from: http://connection.ebscohost.com/c/articles/98280699/ existing-dimensions-absorptive-capacity-way-foreword-mediating-functionality-men-

[43] Lazzeretti L, Innocenti N, Capone F. The impact of related variety on the creative employment growth. The Annals of Regional Science. 2017;**58**:491-512. DOI: 10.1007/

[44] Oliveira P et al. Economia criativa na produção científica brasileira em administração: Mapeamento bibliométrico nas bases ANPAD, CAPES E SPELL. Revista GEINTEC.

[45] Aragão A et al. O impulso da economia criativa no desenvolvimento regional no México.

Revista GEINTEC. 2017;**7**:3634-3645. DOI: 10.7198/S2237-072220170001004

tal-models-manifested-by-entrepreneurs [Accessed: August 23, 2017]

[33] Gil AC. Métodos e Técnicas de Pesquisa Social. Atlas: São Paulo; 1999

[36] Franco MLPB. Análise de Conteúdo. Liber Livros: Brasília; 2008

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NAVUS-Revista de Gestão e Tecnologia. 2016;**6**:111-122

2016;**6**:2966-2981. DOI: 10.7198/S2237-0722201600010018

Journal. 2017;**3**:7. DOI: 10.1515/erj-2016-0001

[34] Yin RK. Estudo de Caso: Planejamento e Métodos. Bookman: Porto Alegre; 2001

Porto Alegre; 2007

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Ekonomiki. 2017;**4**:100-116

s00168-016-0805-2

Educação. Atlas: São Paulo; 1987

54 Entrepreneurship - Development Tendencies and Empirical Approach

In Slovakia, the privatization of the state property in the beginning of the 1990s created a need for the corporate governance implementation. The aim of this chapter is to evaluate the level of implementation of corporate governance in Slovakia after more than 25 years since starting the transition from a centrally planned to a market economy, including a legal framework for its implementation. To support our analysis, we explored a relationship between the level of the corporate governance implementation and economic results of corporations. For this purpose, we reviewed annual reports for year 2015 by 27 corporations listed on the Bratislava Stock Exchange. The average profit of the evaluated corporations was approaching 21 million EUR, and the average assets value was at 1.2 billion EUR. Using the scoring method devised by us for this purpose, the average score of the annual report evaluation reached 2.59 points out of maximum 5 points. Finally, we tested a hypothesis that improving the level of corporate governance implementation may contribute to profitability and assets value of corporations.

**Keywords:** corporate governance, principles, implementation, transition, privatization

### **1. Introduction**

In the academic literature as well as at the regulatory level, there are various definitions of the corporate governance. A governance in general is dealing with strategy development for directing a group of people and deciding on roles of its members [1]. According to the OECD, corporate governance involves a set of relationships among company's management, its board, shareholders, and other stakeholders. Corporate governance also provides a structure through which objectives of company are set, and means of attaining those objectives and performance

Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. © 2018 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons

monitoring are determined. The purpose of corporate governance is to help build an environment of trust, transparency, and accountability necessary for fostering long-term investment, financial stability, and business integrity [2]. Corporate governance deals with the way suppliers of finance to corporations assure themselves of getting a return on their investment [3]. Corporate governance system is a combination of mechanisms which ensure that the management (the agent) runs the firm for the benefit of one or several stakeholders (principals). Such stakeholders may cover shareholders, creditors, suppliers, clients, employees, and other parties with whom the firm conducts its business [4]. Corporate governance represents the whole set of legal, cultural, and institutional arrangements that determine what public corporations can do, who controls them, how that control is exercised, and how the risks and return from the activities they undertake are allocated [5]. Knapik explains that it is an internal structure of rules governing the distribution of rights and responsibilities among the actors inside the corporation as well as outside of it. Corporate governance increases the market value of a corporation and the benefits for its shareholders [6]. In our opinion, corporate governance can be defined as a control system for transactions of a specific nature, namely for contractual relations arising between corporate capital owners and corporate managers in result of investing into corporate capital. Property owners are seeking a profitable allocation for their available resources, where managers are possessing professional competences. A contract arises between the capital owners and corporate managers that can be broken by one or both parties under imperfect competition conditions. In order to ensure desirable performance under these contracts, a concept of corporate governance has been devised [7].

privatization, liberalization of foreign trade (for more details see for example [9–11]), and, in later stages, building of market institutions [12]. The privatization in Slovakia took the form of restitution, the large-scale privatization, and the small-scale privatization. In January 1991, the Bratislava Stock Exchange was founded. The large-scale privatization took place in two phases: the first one in years 1991–1993 and the second one in years 1993–1996. The first phase of the so-called coupon or voucher privatization started with preparing the list of privatized companies. Slovak citizens were granted coupon books with 100 investment points in return for 1000 Kčs (Czechoslovak crown, currency unit in the former Czechoslovakia). Citizens investors were able to purchase directly company stocks or vest their investment points in socalled investment privatization funds (IPFs). As they were lacking any knowledge on investing, IPFs were preferred. These funds obtained 6.1 billion investment points representing 71%

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57

In Slovakia, a method of rapid transformation, so-called "shock therapy," was applied. It was believed that a rapid transformation of property rights would automatically lead to the creation of market regulation mechanism and law enforcement. This method combined the property rights reform with the creation of the financial market of Anglo-Saxon model. At the same time, the German model of universal banks, i.e., the combination of credit and investment banking (concentrated model of corporate governance) was adopted. However, the absence of regulation authorities turned to be a problem in the privatization and in the financial market creation. For example, minority shareholders were not always sufficiently protected [14]. The transformation should have started with effective regulation and law enforcement, not with privatization.

The first national code of best practises for corporate governance was published by the committee chaired by A. Cadbury in 1992 in the UK. In 1999, the OECD published the corporate

*"The Principles themselves are evolutionary in nature and are reviewed in light of significant changes in circumstances in order to maintain their role as leading instrument for policy making in the area of* 

The latest review is a response to the international financial and economic crises as well as to challenges of the global economy. The principles are nonbinding, they seek to identify objectives and suggest various means for achieving them. The above document contains six main principles each of which is supplemented by number of supporting sub-principles. The principles are presented in six chapters. In the following text, we indicate only a very brief description of the principles. Due to the large number of changes, we emphasize the most

**I.** Ensuring the basis for an effective corporate governance framework (transparent and fair markets, efficient allocation of resources, clearly defined split of powers among authorities, new: independency and accountability of supervision, regulatory, and enforcement

out of the total number [13].

**3. National corporate governance code**

*corporate governance" [2].*

important ones marking them as "new."

authorities).

governance principles. The principles were revised in 2004 and 2015.

It is a prerequisite for the corporate governance implementation that some corporate capital exists. The first joint stock companies emerged in the seventeenth century. However, by the mid of the nineteenth century, companies were mostly directed and controlled by their owners. In 1855, the Limited Liability Act was adopted in the United Kingdom that introduced the concept of limited liability of the shareholders. This resulted in increasing profitability of companies. Management as a profession emerged and the capital ownership was detached from the company management [8]. These matters are the source of essential problems in the current corporate governance.

After the regime change in Slovakia, the transition and namely privatization of the state property in the beginning of the 1990s created a need for the corporate governance implementation. The aim of this chapter is to evaluate the level of implementing corporate governance in Slovakia after more than 25 years since starting the transition from a centrally planned to a market economy, including a legal framework for its implementation, as well as to explore an expected relationship between the level of the corporate governance implementation and economic results of corporations.

#### **2. Economic transition and privatization in Slovakia**

Economic transition from the centrally planned to a market economy at the beginning of 1990s started by one-shot price liberalization, followed by further rapid liberalization steps including abandoning of wage regulation, introduction of internal convertibility of the currency, privatization, liberalization of foreign trade (for more details see for example [9–11]), and, in later stages, building of market institutions [12]. The privatization in Slovakia took the form of restitution, the large-scale privatization, and the small-scale privatization. In January 1991, the Bratislava Stock Exchange was founded. The large-scale privatization took place in two phases: the first one in years 1991–1993 and the second one in years 1993–1996. The first phase of the so-called coupon or voucher privatization started with preparing the list of privatized companies. Slovak citizens were granted coupon books with 100 investment points in return for 1000 Kčs (Czechoslovak crown, currency unit in the former Czechoslovakia). Citizens investors were able to purchase directly company stocks or vest their investment points in socalled investment privatization funds (IPFs). As they were lacking any knowledge on investing, IPFs were preferred. These funds obtained 6.1 billion investment points representing 71% out of the total number [13].

In Slovakia, a method of rapid transformation, so-called "shock therapy," was applied. It was believed that a rapid transformation of property rights would automatically lead to the creation of market regulation mechanism and law enforcement. This method combined the property rights reform with the creation of the financial market of Anglo-Saxon model. At the same time, the German model of universal banks, i.e., the combination of credit and investment banking (concentrated model of corporate governance) was adopted. However, the absence of regulation authorities turned to be a problem in the privatization and in the financial market creation. For example, minority shareholders were not always sufficiently protected [14]. The transformation should have started with effective regulation and law enforcement, not with privatization.

### **3. National corporate governance code**

monitoring are determined. The purpose of corporate governance is to help build an environment of trust, transparency, and accountability necessary for fostering long-term investment, financial stability, and business integrity [2]. Corporate governance deals with the way suppliers of finance to corporations assure themselves of getting a return on their investment [3]. Corporate governance system is a combination of mechanisms which ensure that the management (the agent) runs the firm for the benefit of one or several stakeholders (principals). Such stakeholders may cover shareholders, creditors, suppliers, clients, employees, and other parties with whom the firm conducts its business [4]. Corporate governance represents the whole set of legal, cultural, and institutional arrangements that determine what public corporations can do, who controls them, how that control is exercised, and how the risks and return from the activities they undertake are allocated [5]. Knapik explains that it is an internal structure of rules governing the distribution of rights and responsibilities among the actors inside the corporation as well as outside of it. Corporate governance increases the market value of a corporation and the benefits for its shareholders [6]. In our opinion, corporate governance can be defined as a control system for transactions of a specific nature, namely for contractual relations arising between corporate capital owners and corporate managers in result of investing into corporate capital. Property owners are seeking a profitable allocation for their available resources, where managers are possessing professional competences. A contract arises between the capital owners and corporate managers that can be broken by one or both parties under imperfect competition conditions. In order to ensure desirable performance under these

It is a prerequisite for the corporate governance implementation that some corporate capital exists. The first joint stock companies emerged in the seventeenth century. However, by the mid of the nineteenth century, companies were mostly directed and controlled by their owners. In 1855, the Limited Liability Act was adopted in the United Kingdom that introduced the concept of limited liability of the shareholders. This resulted in increasing profitability of companies. Management as a profession emerged and the capital ownership was detached from the company management [8]. These matters are the source of essential problems in the

After the regime change in Slovakia, the transition and namely privatization of the state property in the beginning of the 1990s created a need for the corporate governance implementation. The aim of this chapter is to evaluate the level of implementing corporate governance in Slovakia after more than 25 years since starting the transition from a centrally planned to a market economy, including a legal framework for its implementation, as well as to explore an expected relationship between the level of the corporate governance implementation and

Economic transition from the centrally planned to a market economy at the beginning of 1990s started by one-shot price liberalization, followed by further rapid liberalization steps including abandoning of wage regulation, introduction of internal convertibility of the currency,

contracts, a concept of corporate governance has been devised [7].

56 Entrepreneurship - Development Tendencies and Empirical Approach

**2. Economic transition and privatization in Slovakia**

current corporate governance.

economic results of corporations.

The first national code of best practises for corporate governance was published by the committee chaired by A. Cadbury in 1992 in the UK. In 1999, the OECD published the corporate governance principles. The principles were revised in 2004 and 2015.

*"The Principles themselves are evolutionary in nature and are reviewed in light of significant changes in circumstances in order to maintain their role as leading instrument for policy making in the area of corporate governance" [2].*

The latest review is a response to the international financial and economic crises as well as to challenges of the global economy. The principles are nonbinding, they seek to identify objectives and suggest various means for achieving them. The above document contains six main principles each of which is supplemented by number of supporting sub-principles. The principles are presented in six chapters. In the following text, we indicate only a very brief description of the principles. Due to the large number of changes, we emphasize the most important ones marking them as "new."

**I.** Ensuring the basis for an effective corporate governance framework (transparent and fair markets, efficient allocation of resources, clearly defined split of powers among authorities, new: independency and accountability of supervision, regulatory, and enforcement authorities).

**II.** The rights and equitable treatment of shareholders and key ownership functions (shareholders' rights such as the right to secure methods of ownership registration, convey or transfer shares, obtain information on the corporation, participate and vote in the general shareholder meetings, elect and remote members of the board, share in the profits; equitable treatment of shareholders; disclosure of capital structure and control arrangements, new: making use of information and communication technologies at general meetings such as electronic voting and vote confirmation systems, ability to vote in person or in absentia, disclosure of remuneration of board members and key executives).

The OECD principles may be adopted not only by corporations listed on stock markets but also by other companies, including smaller enterprises. For them, adopting and implementing corporate governance principles may improve their reputation, their position in supplier-

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The OECD principles have become a basis for creating national codes of good corporate governance in many developed countries. According to the OECD, there is no single model for a good corporate governance [2]. The adjustment to local legal, economic, and cultural conditions is therefore necessary. While the EU member states prefer nonbinding corporate governance principles, in the U.S. mandatory rules prevail. Following the year 2000, corporate scandals in the U.S. were revealed such as accounting fraud in Enron and WorldCom. They led to enacting the Sarbanes-Oxley Act in 2002 defining responsibilities of corporation's board

The creation of the national corporate governance code for Slovakia reflects very closely the development concerning corporate governance in the rest of the world. Already, the first Slovak code published in 2002 referred back to the OEDC 1999 principles. This code was incorporated into the Bratislava Stock Exchange rules for shares admission to the listed market. In 2004, the Bratislava Stock Exchange initiated establishing an association that would monitor international developments in the field of corporate governance, update the national code, and promote the implementation of principals by corporations. Foundation of the Central European Corporate Governance Association (CECGA) in 2004 was an important step from the institutional point of view. Following the publication of revised OEDC Principles in 2004

other institutions such as the National Bank of Slovakia, the Slovak Banking Association, the Ministry of Finance of the Slovak Republic, the Ministry of Economy of the Slovak Republic, and the Ministry of Justice of the Slovak Republic elaborated the new corporate governance code for Slovakia, setting benchmarks to internal company relationships and environmental matters. It came into effect in 2008 and was applicable to all companies whose securities were admitted to trading on the Bratislava Stock Exchange regulated market [15]. The code was structured according to the OECD principles; however, the principle of ensuring the basis for an efficient corporate governance framework was emphasized as an underlining principle of

The approval of G20/OECD principals' revision in 2015 represents the next milestone of the Slovak national code development. The second Slovak code revision was coordinated by a Steering Committee that met for the first time in February 2016, comprising representatives of five institutions (CECGA, the Bratislava Stock Exchange, the Ministry of Economy of the Slovak Republic, the Ministry of Justice of the Slovak Republic, and the University

This legislation encompasses mainly: Act No. 460/1992 – Constitution of the Slovak Republic; Act No. 513/1991 – Commercial Code; Act No. 40/1964 – Civil Code; Act No. 365/2004 Z. z. – Act on Equal Treatment in Particular Areas and on Protection against Discrimination; Act No. 300/2005 – Criminal Code, Act No. 540/2007 Coll. on Auditors, Audit and Audit Supervision; Act No. 483/2001 Coll. on Banks; Stock Exchange Act No. 429/2002 Coll.; Act No. 566/2001Coll. on Securities and Investment Services; Act No. 7/2005 Coll. on Bankruptcy and Restructuring; Act No. 431/2002 Coll. on

, the CECGA in cooperation with

customer relations, as well as their access to external financial resources.

of directors and introducing criminal penalties for certain misconducts.

as well as the changes of the relevant legislation in Slovakia1

the code.

1

Accounting; Act No. 311/2001 – Labor Code.


Among the most significant changes of the OECD principles in its latest revision, there is the introduction of enforceability together with sanctions in case of incompliance with the principles. Such sanctions by government authorities are included in the first chapter that describes corporate governance framework, transparency, fairness, and effective allocation of resources. In this chapter, new references are also made to the accountability of supervising bodies, respecting human rights, environment protection, as well as to the need for a crossborder cooperation and information exchange among government authorities in different countries in the case of cross-border ownership. As far as the structure of principles is concerned, the third principle—formerly titled "The Equitable Treatment of Shareholders"—has been fundamentally changed. In the new revision, the third chapter aims at discouraging the conflict of interests that may concern analysts, brokers, rating agencies, or other persons. The next important change relates to the obligation to disclose not only financial but also nonfinancial information. Company websites serve as the best medium for this purpose. In our opinion, another significant change is the responsibility of the board for overseeing the risk management system, tax planning, and internal audit.

The OECD principles may be adopted not only by corporations listed on stock markets but also by other companies, including smaller enterprises. For them, adopting and implementing corporate governance principles may improve their reputation, their position in suppliercustomer relations, as well as their access to external financial resources.

**II.** The rights and equitable treatment of shareholders and key ownership functions (shareholders' rights such as the right to secure methods of ownership registration, convey or transfer shares, obtain information on the corporation, participate and vote in the general shareholder meetings, elect and remote members of the board, share in the profits; equitable treatment of shareholders; disclosure of capital structure and control arrangements, new: making use of information and communication technologies at general meetings such as electronic voting and vote confirmation systems, ability to vote in person or in absentia, disclosure of remuneration of board members and key executives).

58 Entrepreneurship - Development Tendencies and Empirical Approach

**III.** Institutional investors, stock markets, and other intermediaries as a new principle replacing the previous third principle requiring equal treatment of shareholders (institutional investors acting in a fiduciary capacity, conflicts of interests minimization concerning analysts, brokers or rating agencies, fair and efficient price discovery at stock markets).

**IV.** The role of stakeholders in corporate governance (active cooperation between corporations and stakeholders, especially creditors, bank and insurance companies; the rights of stakeholders established by law or by contractual relations; access to information on a timely and regular basis for stakeholders; effective redress for violation of rights).

**V.** Disclosure and transparency (disclosure on financial and operating results of a company, on company objectives, share ownership, remuneration, related party transactions, foreseeable risk factors, responsibilities of the CEO and/or Chair, new: nonfinancial

**VI.** The responsibilities of the board (functions of the board such as guiding corporate strategy, major plans of action, annual budges etc.; selecting, compensating, or replacing key executives, ensuring the integrity of accounting and financial reporting systems, new: responsibility of the board for oversight of the risk management system, tax planning,

Among the most significant changes of the OECD principles in its latest revision, there is the introduction of enforceability together with sanctions in case of incompliance with the principles. Such sanctions by government authorities are included in the first chapter that describes corporate governance framework, transparency, fairness, and effective allocation of resources. In this chapter, new references are also made to the accountability of supervising bodies, respecting human rights, environment protection, as well as to the need for a crossborder cooperation and information exchange among government authorities in different countries in the case of cross-border ownership. As far as the structure of principles is concerned, the third principle—formerly titled "The Equitable Treatment of Shareholders"—has been fundamentally changed. In the new revision, the third chapter aims at discouraging the conflict of interests that may concern analysts, brokers, rating agencies, or other persons. The next important change relates to the obligation to disclose not only financial but also nonfinancial information. Company websites serve as the best medium for this purpose. In our opinion, another significant change is the responsibility of the board for overseeing the risk

reporting).

and internal audit).

management system, tax planning, and internal audit.

The OECD principles have become a basis for creating national codes of good corporate governance in many developed countries. According to the OECD, there is no single model for a good corporate governance [2]. The adjustment to local legal, economic, and cultural conditions is therefore necessary. While the EU member states prefer nonbinding corporate governance principles, in the U.S. mandatory rules prevail. Following the year 2000, corporate scandals in the U.S. were revealed such as accounting fraud in Enron and WorldCom. They led to enacting the Sarbanes-Oxley Act in 2002 defining responsibilities of corporation's board of directors and introducing criminal penalties for certain misconducts.

The creation of the national corporate governance code for Slovakia reflects very closely the development concerning corporate governance in the rest of the world. Already, the first Slovak code published in 2002 referred back to the OEDC 1999 principles. This code was incorporated into the Bratislava Stock Exchange rules for shares admission to the listed market. In 2004, the Bratislava Stock Exchange initiated establishing an association that would monitor international developments in the field of corporate governance, update the national code, and promote the implementation of principals by corporations. Foundation of the Central European Corporate Governance Association (CECGA) in 2004 was an important step from the institutional point of view. Following the publication of revised OEDC Principles in 2004 as well as the changes of the relevant legislation in Slovakia1 , the CECGA in cooperation with other institutions such as the National Bank of Slovakia, the Slovak Banking Association, the Ministry of Finance of the Slovak Republic, the Ministry of Economy of the Slovak Republic, and the Ministry of Justice of the Slovak Republic elaborated the new corporate governance code for Slovakia, setting benchmarks to internal company relationships and environmental matters. It came into effect in 2008 and was applicable to all companies whose securities were admitted to trading on the Bratislava Stock Exchange regulated market [15]. The code was structured according to the OECD principles; however, the principle of ensuring the basis for an efficient corporate governance framework was emphasized as an underlining principle of the code.

The approval of G20/OECD principals' revision in 2015 represents the next milestone of the Slovak national code development. The second Slovak code revision was coordinated by a Steering Committee that met for the first time in February 2016, comprising representatives of five institutions (CECGA, the Bratislava Stock Exchange, the Ministry of Economy of the Slovak Republic, the Ministry of Justice of the Slovak Republic, and the University

<sup>1</sup> This legislation encompasses mainly: Act No. 460/1992 – Constitution of the Slovak Republic; Act No. 513/1991 – Commercial Code; Act No. 40/1964 – Civil Code; Act No. 365/2004 Z. z. – Act on Equal Treatment in Particular Areas and on Protection against Discrimination; Act No. 300/2005 – Criminal Code, Act No. 540/2007 Coll. on Auditors, Audit and Audit Supervision; Act No. 483/2001 Coll. on Banks; Stock Exchange Act No. 429/2002 Coll.; Act No. 566/2001Coll. on Securities and Investment Services; Act No. 7/2005 Coll. on Bankruptcy and Restructuring; Act No. 431/2002 Coll. on Accounting; Act No. 311/2001 – Labor Code.

of Economics in Bratislava). A tutor responsible for review was appointed to each of the six chapters of the code: they were:

If an undertaking departs from a corporate governance code, Art. 20 (1)(b) of the directive requires an explanation as to which parts of the corporate governance code it departs from and the reasons for doing so. Where an undertaking decides not to refer to any provisions of a corporate governance code, it shall explain reasons for not doing so. Furthermore, the corporate governance statement shall include a description of the main features of the undertaking's internal control and risk management systems as well as the composition and operation of the administrative, management, and supervisory bodies and their committees. Article 20 (1)(b) of the directive refers to the key principle of corporate governance in the EU, namely the "comply or explain" principle that explained in more detail in the Commission Recommendation 2014/208/EU. The aim of this recommendation is to provide guidance for

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*"It is recommended that, where applicable, corporate governance codes make a clear distinction between the parts of the code which cannot be derogated from, the parts which apply on a 'comply or explain'* 

Companies should describe how they have applied corporate governance code in order to inform shareholders, investors, and other stakeholders. The information should be easily

Article 20 (1)(b) of the Directive 2013/34/EU requires listed companies to provide explanations in case of departure from the recommendations of the code to which they are subject to or which they have voluntarily decided to apply. The explanation of departure from an

• how the decision to depart from the recommendation was taken within the company,

• where the departure is limited in time, when the company envisages complying with a

• where applicable, a measure taken instead of compliance and how that measure achieves the underlying objective of the specific recommendation or of the code as a whole, or how

The corporate governance code for Slovakia implements the "comply or explain" approach. Therefore, it was necessary to clearly differentiate the principles that are regulated by laws in Slovakia from the rest of the text. The code is intended not only for listed companies but also for other companies interested in its implementation. The code regulates internal as well as external relationships of companies on basis of fairness, openness, and accountability. Disclosure, within the limits given by the position of a company among competitors, is a basis for trust between a company and those, who contribute to its success such as shareholders, employees, creditors, suppliers, customers, or other stakeholders [18]. Companies should comply with the code since January 1, 2017, and report according to the code since 2018.

member states and their companies on corporate governance reporting.

individual corporate governance code recommendation should specify:

it contributes to the good corporate governance of the company.

• in what manner a company departed from a recommendation,

*basis and those which apply on a purely voluntary basis" [17].*

accessible and available on companies' websites.

• the reasons for the departure,

particular recommendation,


The remaining members of the Steering Committee gave recommendations on the draft. Further consultation with specialists and representatives of companies aimed at simplification and readability of the text. Repeatedly revised code was introduced to the public in October 2016 during the 19th European Corporate Governance Conference. Apart from the OECD 2015 Principles, the revised code incorporates also the EU Commission Recommendations on the quality of corporate governance reporting on the "comply or explain" basis (2014/208/EU), on the regime for the remuneration of directors of listed companies (2009/385/EC), on the role of nonexecutive directors of listed companies and on the committees of the board (2005/162/ EC) as well as the recommendation fostering an appropriate regime for the remuneration of directors of listed companies (2004/913/EC). In the field of transparency and information disclosure, the relevant EU legal framework is regarded by incorporating the binding Directive 2013/34/EU and nonbinding Commission Recommendation 2014/208/EU. The Directive 2013/34/EU on the annual financial statements, consolidated financial statements, and related reports of certain types of undertakings refers to the corporate governance in recital 4:

*"Annual financial statements pursue various objectives and do not merely provide information for investors in capital markets but also give an account of past transactions and enhance corporate governance. Union accounting legislation needs to strike an appropriate balance between the interests of the addressees of financial statements and the interest of undertakings in not being unduly burdened with reporting requirements" [16].*

Undertakings referred to in the directive (i.e., public-interest entities such as undertakings, whose transferable securities are admitted to trading on a regulated market, credit institutions, and insurance undertakings) shall include a corporate governance statement in their management report. That statement shall under Art. 20 (1)(a) contains a reference to the:


If an undertaking departs from a corporate governance code, Art. 20 (1)(b) of the directive requires an explanation as to which parts of the corporate governance code it departs from and the reasons for doing so. Where an undertaking decides not to refer to any provisions of a corporate governance code, it shall explain reasons for not doing so. Furthermore, the corporate governance statement shall include a description of the main features of the undertaking's internal control and risk management systems as well as the composition and operation of the administrative, management, and supervisory bodies and their committees. Article 20 (1)(b) of the directive refers to the key principle of corporate governance in the EU, namely the "comply or explain" principle that explained in more detail in the Commission Recommendation 2014/208/EU. The aim of this recommendation is to provide guidance for member states and their companies on corporate governance reporting.

*"It is recommended that, where applicable, corporate governance codes make a clear distinction between the parts of the code which cannot be derogated from, the parts which apply on a 'comply or explain' basis and those which apply on a purely voluntary basis" [17].*

Companies should describe how they have applied corporate governance code in order to inform shareholders, investors, and other stakeholders. The information should be easily accessible and available on companies' websites.

Article 20 (1)(b) of the Directive 2013/34/EU requires listed companies to provide explanations in case of departure from the recommendations of the code to which they are subject to or which they have voluntarily decided to apply. The explanation of departure from an individual corporate governance code recommendation should specify:


of Economics in Bratislava). A tutor responsible for review was appointed to each of the six

• the Ministry of Economy of the Slovak Republic as a tutor for both the ensuring the basis for an effective corporate governance framework (chapter 1) and the role of stakeholders in

• the Ministry of Justice of the Slovak Republic as a tutor for both the rights and equitable treatment of shareholders and key ownership functions (chapter 2) as well as the responsi-

• the Ministry of Finance of the Slovak Republic as a tutor for both the institutional investors, stock markets, and other intermediaries (chapter 3) as well as the disclosure and transpar-

The remaining members of the Steering Committee gave recommendations on the draft. Further consultation with specialists and representatives of companies aimed at simplification and readability of the text. Repeatedly revised code was introduced to the public in October 2016 during the 19th European Corporate Governance Conference. Apart from the OECD 2015 Principles, the revised code incorporates also the EU Commission Recommendations on the quality of corporate governance reporting on the "comply or explain" basis (2014/208/EU), on the regime for the remuneration of directors of listed companies (2009/385/EC), on the role of nonexecutive directors of listed companies and on the committees of the board (2005/162/ EC) as well as the recommendation fostering an appropriate regime for the remuneration of directors of listed companies (2004/913/EC). In the field of transparency and information disclosure, the relevant EU legal framework is regarded by incorporating the binding Directive 2013/34/EU and nonbinding Commission Recommendation 2014/208/EU. The Directive 2013/34/EU on the annual financial statements, consolidated financial statements, and related

reports of certain types of undertakings refers to the corporate governance in recital 4:

*"Annual financial statements pursue various objectives and do not merely provide information for investors in capital markets but also give an account of past transactions and enhance corporate governance. Union accounting legislation needs to strike an appropriate balance between the interests of the addressees of financial statements and the interest of undertakings in not being unduly burdened with* 

Undertakings referred to in the directive (i.e., public-interest entities such as undertakings, whose transferable securities are admitted to trading on a regulated market, credit institutions, and insurance undertakings) shall include a corporate governance statement in their management report. That statement shall under Art. 20 (1)(a) contains a reference to the:

• the corporate governance code which the undertaking may have voluntarily decided to

• all relevant information about the corporate governance practices applied over and above

• corporate governance code to which the undertaking is subject,

chapters of the code: they were:

corporate governance (chapter 4),

60 Entrepreneurship - Development Tendencies and Empirical Approach

bilities of the board (chapter 6),

*reporting requirements" [16].*

the requirements of national law.

apply,

ency (chapter 5).


The corporate governance code for Slovakia implements the "comply or explain" approach. Therefore, it was necessary to clearly differentiate the principles that are regulated by laws in Slovakia from the rest of the text. The code is intended not only for listed companies but also for other companies interested in its implementation. The code regulates internal as well as external relationships of companies on basis of fairness, openness, and accountability. Disclosure, within the limits given by the position of a company among competitors, is a basis for trust between a company and those, who contribute to its success such as shareholders, employees, creditors, suppliers, customers, or other stakeholders [18]. Companies should comply with the code since January 1, 2017, and report according to the code since 2018.

Apart from the code, an important corporate governance regulation in Slovakia is represented by the Act No. 431/2002 Coll. on Accounting as well as Act No. 540/2007 Coll. on Auditors, Audit, and Audit Supervision. The Act on Accounting in its § 20 imposes an obligation to corporation listed on regulated markets to support their annual reports with a statement on corporate governance. The annual report should further include an information on the capital structure, rights attached to all series and classes of shares, restrictions of voting rights, shareholders with special rights including the description of these rights, rules for appointing and withdrawing board members, and powers of the board, particularly the right to decide on issuing or buying back shares and so on.

• Information on the existence, composition and activities of the Audit Committee (companies whose securities are trade on a regulated market are required to establish an audit committee according to § 19 of the Accounting Act; this committee does not have to be set

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• Information on the existence, composition, and operation of the Remuneration Committee (according to principle V of the code, the establishment of this committee is

• Information on the existence, composition, and activities of the Nomination Committee (similarly, the establishment of the nomination committee is recommended by principle V

• Additional criteria such as information on rotation of auditor, board members elected by

The survey results show positive changes compared to previous year in several areas. The number of companies disclosing their annual report in all of the available platforms (e.g., CERI, RUZ, and on the company's website) increased from 1 in 2013 to 39 in 2014. Annual report or annual financial report was quickly and easily available on website for 76% of companies. The share of companies without available corporate governance statement or with a statement providing no relevant information fell from 60 to 42%. However, the share of companies with comprehensive explanation of each item, and deviation from the code decreased slightly from 22 to 20%. As far as disclosure of information on board members is concerned, the decrease by three percentage points to 13% in the share of companies that do not provide any information can be observed. However, this percentage is still very high. The disclosure on remuneration is an area that most companies (71%) have carefully protected. The share of companies providing sufficient information about risk management, ex-ante risk, and risk quantification slightly increased, making 23% in total. Finally, a growing number of companies that inform on the establishment of the Audit Committee were

For our research, we, however, performed our own review of annual reports for year 2015 by 27 corporations listed on the Bratislava Stock Exchange. We selected corporations that met two criteria: they had been listed since 2010 and were not in liquidation. We evaluated the

• **Bankruptcy** or restructuring: no bankruptcy or restructuring proposal/no problems = 1

• **Enforced debt collection**: no proceeding = 1 point, warning = 0.5 points, serious prob-

• **Debts on taxes or insurance**: no debts registered = 1 point, warning = 0.5 points, serious

• **Risk rate**: average of the variables bankruptcy, enforced debt collection, debts on taxes or

point, warning = 0.5 points, serious problems = 0 points;

up separately if the supervisory board carries out its normal activities).

employees, independent board members, and gender diversity.

recommended).

of the code).

observed.

following criteria:

lems = 0 points;

insurance;

problems = 0 points;

### **4. Evaluation of the corporate governance implementation and its impact on economic results of corporations**

Regular evaluation of the corporate governance implementation in Slovakia is carried out by the CECGA based on publicly available information, primarily on the quality of the annual reports of corporations. Surveys on corporate government disclosure for the years 2011–2014 are available to the public. The association monitors the quality of information on corporate governance, the compliance with the § 20 of the Law No. 431/2002 on Accounting as well as with the corporate governance code for Slovakia. In 2014, the survey covered 66 companies listed and traded on the Bratislava Stock Exchange. Companies with capital listed in the multilateral trading system were excluded from the survey because according to the Stock Exchange Act No. 429/2002, the disclosure obligation does not apply to them. The evaluation criteria included [18, 19]:


• Information on the existence, composition and activities of the Audit Committee (companies whose securities are trade on a regulated market are required to establish an audit committee according to § 19 of the Accounting Act; this committee does not have to be set up separately if the supervisory board carries out its normal activities).

Apart from the code, an important corporate governance regulation in Slovakia is represented by the Act No. 431/2002 Coll. on Accounting as well as Act No. 540/2007 Coll. on Auditors, Audit, and Audit Supervision. The Act on Accounting in its § 20 imposes an obligation to corporation listed on regulated markets to support their annual reports with a statement on corporate governance. The annual report should further include an information on the capital structure, rights attached to all series and classes of shares, restrictions of voting rights, shareholders with special rights including the description of these rights, rules for appointing and withdrawing board members, and powers of the board, particularly the right to decide on

**4. Evaluation of the corporate governance implementation and its impact** 

Regular evaluation of the corporate governance implementation in Slovakia is carried out by the CECGA based on publicly available information, primarily on the quality of the annual reports of corporations. Surveys on corporate government disclosure for the years 2011–2014 are available to the public. The association monitors the quality of information on corporate governance, the compliance with the § 20 of the Law No. 431/2002 on Accounting as well as with the corporate governance code for Slovakia. In 2014, the survey covered 66 companies listed and traded on the Bratislava Stock Exchange. Companies with capital listed in the multilateral trading system were excluded from the survey because according to the Stock Exchange Act No. 429/2002, the disclosure obligation does not apply to them. The evaluation

• Presence of disclosed annual report in the Central Register of Regulated Information (CERI), in the Register of Financial Statements (RUZ) and on the company's website (according to § 34 of the Stock Exchange Act, companies are required to publish an annual financial report including the annual report as well as information on corporate governance

• Availability of information on the company's website (in accordance with § 23d of the Ac-

• Scope and quality of information in the corporate governance statement (according to the Accounting Act, the annual report of a company has to include a statement on corporate

• Information about board members of the company including their qualifications, selection process, and independence (this obligation is imposed by § 20, paragraph 6 of the Account-

• Disclosure on remuneration of directors and the supervisory board according to the prin-

• Information on risk management as recommended by the principle IV of the code.

no later than 4 months after the end of the financial year).

counting Act as well as with the principle IV of the code).

ing Act as well as by the principle IV of the code).

issuing or buying back shares and so on.

62 Entrepreneurship - Development Tendencies and Empirical Approach

**on economic results of corporations**

criteria included [18, 19]:

governance).

ciple IV of the code.


The survey results show positive changes compared to previous year in several areas. The number of companies disclosing their annual report in all of the available platforms (e.g., CERI, RUZ, and on the company's website) increased from 1 in 2013 to 39 in 2014. Annual report or annual financial report was quickly and easily available on website for 76% of companies. The share of companies without available corporate governance statement or with a statement providing no relevant information fell from 60 to 42%. However, the share of companies with comprehensive explanation of each item, and deviation from the code decreased slightly from 22 to 20%. As far as disclosure of information on board members is concerned, the decrease by three percentage points to 13% in the share of companies that do not provide any information can be observed. However, this percentage is still very high. The disclosure on remuneration is an area that most companies (71%) have carefully protected. The share of companies providing sufficient information about risk management, ex-ante risk, and risk quantification slightly increased, making 23% in total. Finally, a growing number of companies that inform on the establishment of the Audit Committee were observed.

For our research, we, however, performed our own review of annual reports for year 2015 by 27 corporations listed on the Bratislava Stock Exchange. We selected corporations that met two criteria: they had been listed since 2010 and were not in liquidation. We evaluated the following criteria:


For the purpose of quantitative analysis, we considered also the following variables:


High value of skewness can be observed for both variables of profit or loss and total assets. It means that few observations with very high value of variables exist. The validity of the results of quantitative analysis is negatively influenced by this fact. Therefore, we decided to proceed with the graphical regression analysis and with the figure showing the number of observations

**Table 1.** Descriptive statistics of the survey on Slovak corporations.

**Variable Mean Standard Error Skewness Kurtosis Count** Profit or loss 20637480.33 46955078.05 2.67 6.56 27 Assets 1209156473.22 3068741581.81 3.14 9.22 27 Number of employees 9.22 3.66 −0.21 −0.4 27 Profit or loss/number of employees 1548612.31 3246777.11 2.67 6.92 27 Assets/number of employees 85789446.69 205263945.77 3.04 8.69 27 Bankruptcy 0.89 0.32 −2.62 5.27 27 Enforced debt collection 1.00 0.00 27 Debts on taxes or insurance 0.81 0.28 −1.25 0.74 27 Risk rate 0.90 0.16 −1.56 1.61 27 Annual report format 0.67 0.48 −0.75 −1.56 27 Information on corporate governance 0.74 0.45 −1.16 −0.70 27 Reference to the code 0.64 0.45 −0.65 −1.52 27 The "comply or explain" principle 0.54 0.47 −0.12 −1.99 27 Annual report evaluation 2.59 1.38 −0.67 −0.80 27

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**Figure 1** illustrates polynomial regression between the annual report evaluation reflecting the level of the corporate governance implementation and the profit or loss of a corporation divided by the number of employees' coefficient. We tested a hypothesis that the level of corporate governance principles implementation should have impact on corporation

Based on our results (correlation coefficient R = 0.1828 and p-value = 0.3614), we were not able to confirm the hypothesis. The main reason is the existence of extreme observations that were indicated also by the skewness results. Thus, we were not able to confirm the existence of relationship between a good implementation of corporate governance principles and the profitability of corporations, even when not taking into account three corporations with extreme values of variables. Therefore, we interpreted values of isolated variables using a histogram. The histograms show the standard normal distribution of observations. The majority of corporations under evaluation reached a relatively low value of the variable profit or loss/number of employees (within the interval from 0 to 2,000,000 EUR) and higher value of the annual report evaluation. The three corporations with extreme values of variables reached high values for both variables (e.g., the profit or loss/number of employees and the annual report

(histogram).

profitability.


Data were obtained from publicly available databases [20–23] and official companies' websites. **Table 1** comprises the descriptive statistics of our survey.

The average profit of the evaluated corporations was approaching 21 million EUR and the average assets value was at 1.2 billion EUR. The average score of the annual report evaluation reached 2.59 points out of maximum 5 points. It is important to pay attention to the skewness according to which most of variables were negatively skewed. It means that the value of variables for the majority of corporations is lower than the mean. Negative skewness value can be observed for the variables of number of employees, annual report evaluation as well as all variables compounded in the annual report evaluation variable (e.g., risk rate, annual report format, information on corporate governance, reference to the code, the "comply or explain" principle). We interpret this as an insufficient corporate governance implementation. In our opinion, the reason behind is the insufficiently developed Slovak capital market that does not motivate corporations to improve performance against the principles and increase transparency.


**Table 1.** Descriptive statistics of the survey on Slovak corporations.

• **Annual report format**: annual report disclosed in a format enabling easy search of information = 1 point, annual report disclosed in a 20 (1)(b) format not enabling easy search of

• **Information on corporate governance**: annual report includes information on corporate governance = 1 point, annual report does not include information on corporate gover-

• **Reference to the code**: annual report makes reference to the corporate governance code, evaluation within the interval < 0–1>, lower evaluation granted where the company made

• **The "comply or explain" principle**: the company respects the "comply or explain" principle, evaluation within the interval < 0–1>, lower evaluation granted where this requirement

• **Annual report evaluation**: sum of variables Risk rate, Annual report format, Information on corporate governance, Reference to the code, The "comply or explain" principle.

• **Number of employees**: coefficient was added according to the applicable interval: <1–2 > = 1; <3–4 > = 2; <5–9 > = 3; <10–19 > = 4; <20–24 > = 5; <25–49 > = 6; <50–99 > = 7; <100–149 > = 8; <150–199 > = 9; <200–249 > = 10; <250–499 > = 11; <500–999 > = 12; <1000–1999 > = 13;

• **Profit or loss/number of employees**: profit or loss of a company divided by the number of

• **Assets/number of employees**: total value of company assets divided by the number of

Data were obtained from publicly available databases [20–23] and official companies' web-

The average profit of the evaluated corporations was approaching 21 million EUR and the average assets value was at 1.2 billion EUR. The average score of the annual report evaluation reached 2.59 points out of maximum 5 points. It is important to pay attention to the skewness according to which most of variables were negatively skewed. It means that the value of variables for the majority of corporations is lower than the mean. Negative skewness value can be observed for the variables of number of employees, annual report evaluation as well as all variables compounded in the annual report evaluation variable (e.g., risk rate, annual report format, information on corporate governance, reference to the code, the "comply or explain" principle). We interpret this as an insufficient corporate governance implementation. In our opinion, the reason behind is the insufficiently developed Slovak capital market that does not motivate corporations to improve performance against the principles and increase transparency.

For the purpose of quantitative analysis, we considered also the following variables:

• **Profit or loss**: profit (+) or loss (−) of a company in EUR;

sites. **Table 1** comprises the descriptive statistics of our survey.

• **Assets**: total value of company assets in EUR;

<2000–2999 > = 14; <3000–3999 > = 15;

employees' coefficient;

employees' coefficient.

reference to invalid code or the title of the code was not indicated properly;

information = 0 points;

64 Entrepreneurship - Development Tendencies and Empirical Approach

was not respected sufficiently;

nance = 0 points;

High value of skewness can be observed for both variables of profit or loss and total assets. It means that few observations with very high value of variables exist. The validity of the results of quantitative analysis is negatively influenced by this fact. Therefore, we decided to proceed with the graphical regression analysis and with the figure showing the number of observations (histogram).

**Figure 1** illustrates polynomial regression between the annual report evaluation reflecting the level of the corporate governance implementation and the profit or loss of a corporation divided by the number of employees' coefficient. We tested a hypothesis that the level of corporate governance principles implementation should have impact on corporation profitability.

Based on our results (correlation coefficient R = 0.1828 and p-value = 0.3614), we were not able to confirm the hypothesis. The main reason is the existence of extreme observations that were indicated also by the skewness results. Thus, we were not able to confirm the existence of relationship between a good implementation of corporate governance principles and the profitability of corporations, even when not taking into account three corporations with extreme values of variables. Therefore, we interpreted values of isolated variables using a histogram. The histograms show the standard normal distribution of observations. The majority of corporations under evaluation reached a relatively low value of the variable profit or loss/number of employees (within the interval from 0 to 2,000,000 EUR) and higher value of the annual report evaluation. The three corporations with extreme values of variables reached high values for both variables (e.g., the profit or loss/number of employees and the annual report

**Figure 1.** Scatterplot with histograms of profit or loss/number of employees against annual report evaluation.

evaluation). At the same time, no corporation with a high level of the profit or loss/number of employees' variable had a low value for the annual report evaluation variable. Therefore, we assume that larger corporations pay more attention to corporate governance implementation.

company divided by the replacement value of the firm's assets) was shown within the context

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67

**Figure 2.** Scatterplot with histograms of assets/number of employees against annual report evaluation.

After the long period of centrally planned economy, Slovakia changed its economic system and started to establish a market economy. State-owned property was privatized and private property, as a prerequisite for the corporate governance implementation, was established. Despite efforts to implement a model of corporate governance based on financing by capital markets, a model based on credit financing was pushed through. The situation persists, and the Slovak capital market is still underdeveloped. Our aim was to evaluate the level of implementation of corporate governance in Slovakia after more than 25 years since starting the transition from a

of the Middle East and North Africa (MENA) region [24].

**5. Conclusion**

Results of the polynomial regression between the variables assets/number of employees and annual report evaluation as well as of the analysis of the two variables based on histogram (**Figure 2**) are very similar. We identified only two corporations with extreme values of variables. These extreme observations reduced both the correlation coefficient and the p-value and negatively influenced the validity of the results of quantitative analyses. The hypothesis that the level of corporate governance principles implementation should have impact on assets value was not confirmed for Slovak corporations. However, we have to add that, in the literature on corporate governance, a strong and significant positive relationship between good corporate governance (such as higher investor protection and lower managerial entrenchment) and firm value (measured by the Tobin's Q Ratio calculated as the market value of a

**Figure 2.** Scatterplot with histograms of assets/number of employees against annual report evaluation.

company divided by the replacement value of the firm's assets) was shown within the context of the Middle East and North Africa (MENA) region [24].

### **5. Conclusion**

evaluation). At the same time, no corporation with a high level of the profit or loss/number of employees' variable had a low value for the annual report evaluation variable. Therefore, we assume that larger corporations pay more attention to corporate governance implementation. Results of the polynomial regression between the variables assets/number of employees and annual report evaluation as well as of the analysis of the two variables based on histogram (**Figure 2**) are very similar. We identified only two corporations with extreme values of variables. These extreme observations reduced both the correlation coefficient and the p-value and negatively influenced the validity of the results of quantitative analyses. The hypothesis that the level of corporate governance principles implementation should have impact on assets value was not confirmed for Slovak corporations. However, we have to add that, in the literature on corporate governance, a strong and significant positive relationship between good corporate governance (such as higher investor protection and lower managerial entrenchment) and firm value (measured by the Tobin's Q Ratio calculated as the market value of a

**Figure 1.** Scatterplot with histograms of profit or loss/number of employees against annual report evaluation.

66 Entrepreneurship - Development Tendencies and Empirical Approach

After the long period of centrally planned economy, Slovakia changed its economic system and started to establish a market economy. State-owned property was privatized and private property, as a prerequisite for the corporate governance implementation, was established. Despite efforts to implement a model of corporate governance based on financing by capital markets, a model based on credit financing was pushed through. The situation persists, and the Slovak capital market is still underdeveloped. Our aim was to evaluate the level of implementation of corporate governance in Slovakia after more than 25 years since starting the transition from a centrally planned to a market economy, including a legal framework for its implementation as well as to explore the relationship between the level of the corporate governance implementation and economic results of corporations. We evaluated the level of corporate governance implementation on the basis of publicly available databases, annual reports, annual financial reports, and companies' websites. Our evaluation shows insufficient corporate governance implementation by corporation listed at the Bratislava Stock Exchange. Further, we were not able to confirm our hypothesis that good corporate governance has positive impact on corporation profitability and assets value. There was no observable statistical correlation between the economic performance of corporations and the level of corporate governance implementation. We interpret our results by an assertion that in Slovak conditions, benefits of the corporate governance implementation need not directly and immediately manifest themselves in increased profits or increased value of assets. However, it should be borne in mind that a correlation between adherence to corporate governance principles and economic performance may still exist but it was overridden by inefficiency of underdeveloped Slovak capital market. It could be worthwhile to test the hypothesis in conditions of efficient markets. Nevertheless, we assume that larger corporations pay more attention to corporate governance implementation.

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[5] Blair M. Ownership and Control: Rethinking Corporate Governance for the Twenty-

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### **Acknowledgements**

This paper is a part of a research project of the Ministry of Education, Family and Sports of the Slovak Republic VEGA (in the period 2017–2019) No. 1/0897/17: "The Importance of European Energy Union Project for Strategic Interests of This Grouping in the Context of the Enhancement of Competitiveness of the Slovak Republic."

### **Author details**

Zuzana Kittová\*, Dušan Steinhauser and Viera Ružeková

\*Address all correspondence to: zuzana.kittova@euba.sk

Faculty of Commerce, University of Economics in Bratislava, The Slovak Republic

### **References**


centrally planned to a market economy, including a legal framework for its implementation as well as to explore the relationship between the level of the corporate governance implementation and economic results of corporations. We evaluated the level of corporate governance implementation on the basis of publicly available databases, annual reports, annual financial reports, and companies' websites. Our evaluation shows insufficient corporate governance implementation by corporation listed at the Bratislava Stock Exchange. Further, we were not able to confirm our hypothesis that good corporate governance has positive impact on corporation profitability and assets value. There was no observable statistical correlation between the economic performance of corporations and the level of corporate governance implementation. We interpret our results by an assertion that in Slovak conditions, benefits of the corporate governance implementation need not directly and immediately manifest themselves in increased profits or increased value of assets. However, it should be borne in mind that a correlation between adherence to corporate governance principles and economic performance may still exist but it was overridden by inefficiency of underdeveloped Slovak capital market. It could be worthwhile to test the hypothesis in conditions of efficient markets. Nevertheless, we assume that larger corporations pay more

This paper is a part of a research project of the Ministry of Education, Family and Sports of the Slovak Republic VEGA (in the period 2017–2019) No. 1/0897/17: "The Importance of European Energy Union Project for Strategic Interests of This Grouping in the Context of the

Faculty of Commerce, University of Economics in Bratislava, The Slovak Republic

ekonomiky a společnosti. Prague: Professional Publishing; 2014. p. 729

1997;**52**(2):737-783. DOI: 10.1111/j.1540-6261.1997.tb04820.x

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attention to corporate governance implementation.

68 Entrepreneurship - Development Tendencies and Empirical Approach

Enhancement of Competitiveness of the Slovak Republic."

Zuzana Kittová\*, Dušan Steinhauser and Viera Ružeková \*Address all correspondence to: zuzana.kittova@euba.sk

p. 60. DOI: 10.1787/9789264236882-en

**Acknowledgements**

**Author details**

**References**


[18] Lazárová B, Debnárová L. Slovak Corporate Governance Disclosure Survey 2014 [Internet]. 2015. Available from: http://cecga.org/wp-content/uploads/CECGA-Monitoring-Report-2015. pdf [Accessed: June 19, 2017]

**Chapter 4**

Provisional chapter

**The Roll of the Entrepreneur in the Establishment of**

DOI: 10.5772/intechopen.70674

In this chapter, a simple market model is presented to illustrate how random entrepreneurial activity can be responsible for the establishment of economic equilibria without the assumption of perfect knowledge. In this model it is assumed that the entrepreneurs (both traders and producers) have no information regarding the other entrepreneurs' preferences, wealth, or production skills. The only information they have is the past transaction prices, and yet this information is sufficient for the market to reach equilibrium price. Equilibrium is not a stationary process on the microscopic level. It is a process, which consists of interactions between entrepreneurs, who act randomly without insight. Consequently, the market price continuously oscillates randomly around the equilibrium values. The higher the risk the producers are willing to take, the more stable is the equilibrium. When entrepreneurial actions are depressed, the market may drift from its optimal point. This model also investigates the more realistic scenario, in which, due to specialization, the production boundary frontiers are convex (instead of linear). It is shown that in this case, the drifts are suppressed and the optimal equilibrium is more stable. Moreover, the amount of risk aversion has a clear effect on the production growth of the economy. The

Keywords: entrepreneurship, market equilibrium, entrepreneurial behavior, economic equilibria, entrepreneur, iterative economic processes, Austrian school of economics

The entrepreneur is usually regarded as a unique special individual, who has some foresight abilities. Usually, entrepreneurship is related to the introduction of a new technology, a new method, and a new invention, and therefore its presence imbalances the established economy, forcing it to migrate from one equilibrium to the next. Since the traditional Marshallian-Walrasian economic analysis is based on equilibrium, no room was left to the entrepreneur in this traditional economic paradigm (see [1, 2]; see also [3] where the term entrepreneur is used for small

> © The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and eproduction in any medium, provided the original work is properly cited.

© 2018 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

lower the risk aversion is, the higher is the growth rate of the economy.

The Roll of the Entrepreneur in the Establishment

**Economic Equilibria**

of Economic Equilibria

Additional information is available at the end of the chapter

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.70674

Er'el Granot

Er'el Granot

Abstract

1. Introduction


Provisional chapter

### **The Roll of the Entrepreneur in the Establishment of Economic Equilibria** The Roll of the Entrepreneur in the Establishment of Economic Equilibria

DOI: 10.5772/intechopen.70674

### Er'el Granot

[18] Lazárová B, Debnárová L. Slovak Corporate Governance Disclosure Survey 2014 [Internet]. 2015. Available from: http://cecga.org/wp-content/uploads/CECGA-Monitoring-Report-2015.

[19] Debnárová L. CECGA rozšírila kritériá hodnotenia spoločností. Finančný manažér: Journal of Slovak Association of Finance and Treasury [Internet]. 2015. Available from: http://asocfin.sk/wp-content/uploads/2012/07/FM-2-2015-VNUTRO\_WEB.pdf; Accessed:

[20] Index podnikateľa [Internet]. 2017. Available from: https://www.indexpodnikatela.sk

[21] Ministry of Finance of the Slovak Republic. Register účtovných závierok [Internet]. 2017. Available from: http://www.registeruz.sk/cruz-public/domain/accountingentity/simple-

[22] FinStat. [Internet]. 2017. Available from: http://www.finstat.sk [Accessed: Jan 14, 2017]

[23] The Bratislava Stock Exchange. Zoznam cenných papierov. [Internet]; 2017. Available from: http://www.bsse.sk/Cenn%C3%A9papieretrhy/Zoznamcenn%C3%BDchpapierov.

[24] Hasan I, Kobeissi N, Song L. Corporate governance, investor protection, and firm performance in MENA countries. Middle East Development Journal. 2014;**6**(1):84-107. DOI:

pdf [Accessed: June 19, 2017]

70 Entrepreneurship - Development Tendencies and Empirical Approach

[Accessed: Jan 14, 2017]

search [Accessed: Jan 8, 2017]

10.1080/17938120.2014.886421

aspx . DOI: 10.17226/24810Accessed: Jan 8, 2017

June 24, 2017

Additional information is available at the end of the chapter Er'el Granot

http://dx.doi.org/10.5772/intechopen.70674 Additional information is available at the end of the chapter

#### Abstract

In this chapter, a simple market model is presented to illustrate how random entrepreneurial activity can be responsible for the establishment of economic equilibria without the assumption of perfect knowledge. In this model it is assumed that the entrepreneurs (both traders and producers) have no information regarding the other entrepreneurs' preferences, wealth, or production skills. The only information they have is the past transaction prices, and yet this information is sufficient for the market to reach equilibrium price. Equilibrium is not a stationary process on the microscopic level. It is a process, which consists of interactions between entrepreneurs, who act randomly without insight. Consequently, the market price continuously oscillates randomly around the equilibrium values. The higher the risk the producers are willing to take, the more stable is the equilibrium. When entrepreneurial actions are depressed, the market may drift from its optimal point. This model also investigates the more realistic scenario, in which, due to specialization, the production boundary frontiers are convex (instead of linear). It is shown that in this case, the drifts are suppressed and the optimal equilibrium is more stable. Moreover, the amount of risk aversion has a clear effect on the production growth of the economy. The lower the risk aversion is, the higher is the growth rate of the economy.

Keywords: entrepreneurship, market equilibrium, entrepreneurial behavior, economic equilibria, entrepreneur, iterative economic processes, Austrian school of economics

### 1. Introduction

The entrepreneur is usually regarded as a unique special individual, who has some foresight abilities. Usually, entrepreneurship is related to the introduction of a new technology, a new method, and a new invention, and therefore its presence imbalances the established economy, forcing it to migrate from one equilibrium to the next. Since the traditional Marshallian-Walrasian economic analysis is based on equilibrium, no room was left to the entrepreneur in this traditional economic paradigm (see [1, 2]; see also [3] where the term entrepreneur is used for small

© 2018 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

© The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and eproduction in any medium, provided the original work is properly cited.

business manager rather than an actor in an uncertain economic world). Since entrepreneurs interrupt the equilibrium state, they were no more than noises (or as Kirzner calls: pests) to the well-established economic theories.

the gas is at rest. However, it is clear that no information is transmitted between the particles. They all propagate in a totally random manner. In this case, all the "information" that a single particle needs to know about the gas to reach equilibrium is the average volume of the gas, which in this case is merely the dimension of the vessel. The particle does not need to know any

The Roll of the Entrepreneur in the Establishment of Economic Equilibria

http://dx.doi.org/10.5772/intechopen.70674

73

In a similar manner economic equilibrium can be generated in a gradual process of random events, where every one of the actors has only a rough estimate of some average property of

Ever since the establishment of the Marshallian synthesis [2], one of the fundamental tools in

This tool was frequently used by the Austrian school of economics as well; however, they regarded it with much suspicion since they did not recognize supply as a separate entity, which depends on objective costs (as the classical economists conjectured), but as a realization of the demand to other commodities. That is, there is a supply of good A only since the supplier prefers other goods over good A. Therefore, in principle, the knowledge of the individuals' preference ranking or their utility functions (which can be shown to be equivalent [10]) is sufficient to determine the supply and demand curves, and therefore it can determine the equilibrium point. Moreover, as was shown in Ref. [11], the willingness to trade depends not only on the price of the good but on the amount of exchanged goods as well. Therefore, the history of trading has an impact on the amount of the traded goods. If a person does not possess any units of good A, he may be willing to purchase 5 units, but if, let us assume, he already has 3 units, then he will not be willing to purchase the extra 2 units. This is indeed a plausible scenario, which empha-

sizes the fact that both curves have a "thickness" or a certain amount of uncertainty.

point, is the random entrepreneurial activity.

Nevertheless, we begin with stationary market analysis.

The nth trader's utility preference matrix is Rn(a, b) [11].

Another problem arises from the discretization of the commodities. For example, let the intersection between the demand and supply curves occurs at the price of 14.5 units of A, for which 23.5 units of B are traded. If these are indivisible goods (like cars or houses), then clearly no equilibrium can be established. For 23 units of B demand exceeds supply, and for 24 units supply exceeds demand. In such a scenario, it is clear that the system would oscillate around the unreachable equilibrium point. The mechanism, by which the system oscillates around this

It is the object of this chapter to demonstrate that not only does the economic equilibrium can be established by entrepreneurial actions but also that these actions can be totally random.

2. Deriving the supply-demand intersection from the preference ranking

Let the market consists of N traders. The nth trader possesses an units of A and bn units of B.

information about the other particles, not even their total number.

the neoclassical theory is the equilibrium between demand and supply.

the market.

matrices

The neoclassical economic equilibrium is established by perfect competition, as was formulated by Knight (see Ref. [4]), and perfect knowledge. It is therefore recognized that the participating actors act as if they possess all the information regarding the market [3, 4]. Clearly, they do not really have perfect knowledge, however, to all practical matters; it was conjectured that they act as if they do.

The Austrian school of economics based its theory on ordinary men and ordinary man's behavior and therefore rejected these prepositions [5, 6], and yet they recognized that the market converges to an equilibrium [7]. This observation was regarded by Hayek as one of the most fundamental laws of economics [6, 7].

The mechanism, by which the market is in a permanent convergence process toward equilibrium, despite the lack of knowledge, is based on entrepreneurial action [8, 9]. The information is transmitted via the entrepreneurial action, where every act toward equilibrium is encouraged, while every act away from equilibrium is discouraged via the profit and loss mechanism. Therefore, entrepreneurs are crucial ingredients in the process toward equilibrium, but as far as I know, this process has never been demonstrated.

Despite the fact that the Austrian economists recognized that the information is transmitted via the price mechanism, they still attributed insight to the entrepreneurial act [8, 9]. Such an attitude makes it difficult to establish a scientific analysis of the connection between the entrepreneurial behavior and the convergence to equilibrium. However, this conjecture is superfluous. Since the profit and loss mechanism is an essential ingredient in the process, it can be the only necessary feedback mechanism, and no additional conjectures (as entrepreneurial insights or the assumptions that errors lure the entrepreneurs) are needed.

A physical analogy to such a process is diffusion. In the microscopic realm, diffusion occurs by random movements and collisions of microscopic particles. However, in the macroscopic level, the diffusion equation emerges, which frustrates any deviation from the equilibrium values. On the macroscopic level, there are no signs of the complex randomness of the microscopic world.

This physical analogy can be useful to illustrate the problems in the Austrian picture of the equilibrium state. According to their view, at the state of equilibrium, all expectations are coordinated in a perfect concert. As Kirzner put it, "(in the state of equilibrium) All plans are made in the correct expectation of the corresponding plans being made by others. No one's plan is frustrated on account of others failing to act as that plan had anticipated they would act. No realised plan is regretted as having failed to make use of opportunities, made possible by the actions of others, which hindsight reveals but which foresight failed to anticipate" [8].

Going back to the physical analogy, at a state of equilibrium, a gas occupies a container homogenously. Using Kirzner's (or Hayek's) terminology, one can state that every particle is completely coordinated with the rest of the particles, since every particle is, on the average, propagated toward the vacancies that the other particles have generated. After all, on average the gas is at rest. However, it is clear that no information is transmitted between the particles. They all propagate in a totally random manner. In this case, all the "information" that a single particle needs to know about the gas to reach equilibrium is the average volume of the gas, which in this case is merely the dimension of the vessel. The particle does not need to know any information about the other particles, not even their total number.

business manager rather than an actor in an uncertain economic world). Since entrepreneurs interrupt the equilibrium state, they were no more than noises (or as Kirzner calls: pests) to the

The neoclassical economic equilibrium is established by perfect competition, as was formulated by Knight (see Ref. [4]), and perfect knowledge. It is therefore recognized that the participating actors act as if they possess all the information regarding the market [3, 4]. Clearly, they do not really have perfect knowledge, however, to all practical matters; it was

The Austrian school of economics based its theory on ordinary men and ordinary man's behavior and therefore rejected these prepositions [5, 6], and yet they recognized that the market converges to an equilibrium [7]. This observation was regarded by Hayek as one of

The mechanism, by which the market is in a permanent convergence process toward equilibrium, despite the lack of knowledge, is based on entrepreneurial action [8, 9]. The information is transmitted via the entrepreneurial action, where every act toward equilibrium is encouraged, while every act away from equilibrium is discouraged via the profit and loss mechanism. Therefore, entrepreneurs are crucial ingredients in the process toward equilibrium, but as far

Despite the fact that the Austrian economists recognized that the information is transmitted via the price mechanism, they still attributed insight to the entrepreneurial act [8, 9]. Such an attitude makes it difficult to establish a scientific analysis of the connection between the entrepreneurial behavior and the convergence to equilibrium. However, this conjecture is superfluous. Since the profit and loss mechanism is an essential ingredient in the process, it can be the only necessary feedback mechanism, and no additional conjectures (as entrepre-

A physical analogy to such a process is diffusion. In the microscopic realm, diffusion occurs by random movements and collisions of microscopic particles. However, in the macroscopic level, the diffusion equation emerges, which frustrates any deviation from the equilibrium values. On the macroscopic level, there are no signs of the complex randomness of the microscopic world. This physical analogy can be useful to illustrate the problems in the Austrian picture of the equilibrium state. According to their view, at the state of equilibrium, all expectations are coordinated in a perfect concert. As Kirzner put it, "(in the state of equilibrium) All plans are made in the correct expectation of the corresponding plans being made by others. No one's plan is frustrated on account of others failing to act as that plan had anticipated they would act. No realised plan is regretted as having failed to make use of opportunities, made possible by the actions of others, which hindsight reveals but which foresight failed to anticipate" [8]. Going back to the physical analogy, at a state of equilibrium, a gas occupies a container homogenously. Using Kirzner's (or Hayek's) terminology, one can state that every particle is completely coordinated with the rest of the particles, since every particle is, on the average, propagated toward the vacancies that the other particles have generated. After all, on average

neurial insights or the assumptions that errors lure the entrepreneurs) are needed.

well-established economic theories.

conjectured that they act as if they do.

the most fundamental laws of economics [6, 7].

72 Entrepreneurship - Development Tendencies and Empirical Approach

as I know, this process has never been demonstrated.

In a similar manner economic equilibrium can be generated in a gradual process of random events, where every one of the actors has only a rough estimate of some average property of the market.

Ever since the establishment of the Marshallian synthesis [2], one of the fundamental tools in the neoclassical theory is the equilibrium between demand and supply.

This tool was frequently used by the Austrian school of economics as well; however, they regarded it with much suspicion since they did not recognize supply as a separate entity, which depends on objective costs (as the classical economists conjectured), but as a realization of the demand to other commodities. That is, there is a supply of good A only since the supplier prefers other goods over good A. Therefore, in principle, the knowledge of the individuals' preference ranking or their utility functions (which can be shown to be equivalent [10]) is sufficient to determine the supply and demand curves, and therefore it can determine the equilibrium point.

Moreover, as was shown in Ref. [11], the willingness to trade depends not only on the price of the good but on the amount of exchanged goods as well. Therefore, the history of trading has an impact on the amount of the traded goods. If a person does not possess any units of good A, he may be willing to purchase 5 units, but if, let us assume, he already has 3 units, then he will not be willing to purchase the extra 2 units. This is indeed a plausible scenario, which emphasizes the fact that both curves have a "thickness" or a certain amount of uncertainty.

Another problem arises from the discretization of the commodities. For example, let the intersection between the demand and supply curves occurs at the price of 14.5 units of A, for which 23.5 units of B are traded. If these are indivisible goods (like cars or houses), then clearly no equilibrium can be established. For 23 units of B demand exceeds supply, and for 24 units supply exceeds demand. In such a scenario, it is clear that the system would oscillate around the unreachable equilibrium point. The mechanism, by which the system oscillates around this point, is the random entrepreneurial activity.

It is the object of this chapter to demonstrate that not only does the economic equilibrium can be established by entrepreneurial actions but also that these actions can be totally random. Nevertheless, we begin with stationary market analysis.

### 2. Deriving the supply-demand intersection from the preference ranking matrices

Let the market consists of N traders. The nth trader possesses an units of A and bn units of B. The nth trader's utility preference matrix is Rn(a, b) [11].

Therefore, every trader seeks to improve its state by increasing its preference ranking. That is, if initially his possessions of A and B are an and bn, respectively, then he will be willing to trade Δa units of A for Δb units of B (note that Δa and Δb can be negative) provided

$$R\_n(a\_n - \Delta a, b\_n + \Delta b) > R\_n(a\_n, b\_n). \tag{1}$$

exchanges. But these are only approximations; in ordinary markets, the trader's preference is

First, the trader needs to contact a different trader, and usually this part of the process is a

Let trader q has aq units of A and bq units of B, and similarly trader p has apand bpunits of A and B, respectively. Then, their initial preference ranking is Rq(aq, bq) and Rp(ap, bp), respectively.

Rq aq <sup>þ</sup> <sup>Δ</sup>a; bq � <sup>Δ</sup><sup>b</sup> <sup>&</sup>gt; Rq aq; bq

Rp ap � <sup>Δ</sup>a; bp <sup>þ</sup> <sup>Δ</sup><sup>b</sup> <sup>&</sup>gt; Rp ap; bp

If they do not find such numbers, i.e., they do not agree on the price and the amount of exchanged goods [11], then they look for a different trading partner. In this case, there is no entrepreneurial activity since they have nothing to lose by stopping the bargaining (since the

However, if there exist Δa and Δb that meets these demands, then the entrepreneurial stage begins since each one of them has to decide whether he should or should not take the deal. In this case he chooses an entrepreneurial act because he takes risks. He is risking in losing the

The method, by which the trader (now entrepreneur) can evaluate how beneficial is the deal, is by comparison of previous transactions. The entrepreneur must have a memory or some kind

The entrepreneurial process is therefore a continuous process, in which the entrepreneur seeks

In many respects this process resembles the process, in which, according to Mises [12], money regains its value. Mises solved Helfferich vicious cycle (see, e.g., [13]), by explaining that money has a current value, i.e., people want it today, since they expect that other people would

In all these cases, the individual takes a risk, which makes him an entrepreneur. His decision is based on the two questions: what kind of information he possesses and how large a risk is he

The decision can be based on published public information of previous transactions. In many markets the past transactions are published. If not all the information is distributed among the participants, then at least part of it is. However, even if the past transactions and prices are classified, or at least, are inaccessible, then the trader can base his decision on his own trading experience. In this case, the convergence is slower but provided the traders choose their

to improve his future condition by acting today based on his past experience.

still want money tomorrow on the account of their yesterday's experience.

trading partner randomly, the process can still converge.

and (9)

The Roll of the Entrepreneur in the Establishment of Economic Equilibria

: (10)

http://dx.doi.org/10.5772/intechopen.70674

75

not a public knowledge, and it takes an entrepreneurial activity to unveil it.

From this initial condition, the bargaining stage begins.

other trader offers only to reduce their preference status).

In this stage they seek Δa and Δb such that

pseudorandom one.

good deal in front of him.

willing to take?

of a record of historical prices.

Thus, for every n, there are infinite preferred states m, which are characterized by am and bm, which obey

$$R\_n(a\_m, b\_m) > R\_n(a\_n, b\_n). \tag{2}$$

To upgrade to the preferred state m, Δa = an� am units of A should be exchanged with Δb = bm � bn units of B (or vice versa). Hence, a price can be determined

$$p\_m \equiv \frac{a\_n - a\_m}{b\_m - b\_n}.\tag{3}$$

Then, for any price p, the maximum units of B that the nth trader is willing to purchase is

$$
\Delta b\_n(p) = \max\_{p\_m > p} \{ b\_m - b\_n \} \tag{4}
$$

(where the subscript stands for the fact that the maximum operation is acting on the group of states <sup>m</sup>, for which Rn(am, bm) > Rn(an, bn) and pm � an�am bm�bn <sup>&</sup>gt; <sup>p</sup>).

Therefore, the total demand of units of B, i.e., bDemand(p) for the price p, is

$$b\_{\text{Demand}}(p) = \sum\_{n} \Delta b\_n(p) = \sum\_{n} \max\_{p\_m > p} \{b\_m - b\_n\} \tag{5}$$

Similarly, on the supply side, the maximum units of B that the nth trader is willing to sell is

$$\Delta b\_n(p) = \max\_{p\_n < p} \{ b\_n - b\_m \},\tag{6}$$

and then the total supply of units of B, i.e., bSupply(p) for the price p, is

$$b\_{Supply}(p) = \sum\_{n} \Delta b\_n(p) = \sum\_{n} \max\_{p\_n < p} \{b\_n - b\_m\}.\tag{7}$$

Since the equilibrium price p<sup>∗</sup> corresponds to the intersection point of the two curves, then

$$b\_{\text{Supply}}(p^\*) = b\_{\text{Demand}}(p^\*). \tag{8}$$

#### 3. Perpetual dynamic convergence to equilibrium

Clearly, such a mechanism can work only in trading arenas, in which the preferences of each trader are publicly published. An approximation of such a trading arena is the modern stock exchanges. But these are only approximations; in ordinary markets, the trader's preference is not a public knowledge, and it takes an entrepreneurial activity to unveil it.

First, the trader needs to contact a different trader, and usually this part of the process is a pseudorandom one.

Let trader q has aq units of A and bq units of B, and similarly trader p has apand bpunits of A and B, respectively. Then, their initial preference ranking is Rq(aq, bq) and Rp(ap, bp), respectively. From this initial condition, the bargaining stage begins.

In this stage they seek Δa and Δb such that

Therefore, every trader seeks to improve its state by increasing its preference ranking. That is, if initially his possessions of A and B are an and bn, respectively, then he will be willing to trade

Thus, for every n, there are infinite preferred states m, which are characterized by am and bm,

To upgrade to the preferred state m, Δa = an� am units of A should be exchanged with

pm � an � am bm � bn

pm>p

(where the subscript stands for the fact that the maximum operation is acting on the group of

<sup>Δ</sup>bnð Þ¼ <sup>p</sup> <sup>X</sup>

Similarly, on the supply side, the maximum units of B that the nth trader is willing to sell is

pm<p

<sup>Δ</sup>bnð Þ¼ <sup>p</sup> <sup>X</sup>

Clearly, such a mechanism can work only in trading arenas, in which the preferences of each trader are publicly published. An approximation of such a trading arena is the modern stock

Since the equilibrium price p<sup>∗</sup> corresponds to the intersection point of the two curves, then

n

max pm<p

bSupply <sup>p</sup><sup>∗</sup> ð Þ¼ bDemand <sup>p</sup><sup>∗</sup> ð Þ: (8)

bm�bn <sup>&</sup>gt; <sup>p</sup>).

max pm>p

n

Then, for any price p, the maximum units of B that the nth trader is willing to purchase is

Δbnð Þ¼ p max

Rnð Þ an � Δa; bn þ Δb > Rnð Þ an; bn : (1)

Rnð Þ am; bm > Rnð Þ an; bn : (2)

: (3)

f g bm � bn (4)

f g bn � bm , (6)

f g bm � bn (5)

f g bn � bm : (7)

Δa units of A for Δb units of B (note that Δa and Δb can be negative) provided

74 Entrepreneurship - Development Tendencies and Empirical Approach

Δb = bm � bn units of B (or vice versa). Hence, a price can be determined

Therefore, the total demand of units of B, i.e., bDemand(p) for the price p, is

n

Δbnð Þ¼ p max

bDemandð Þ¼ <sup>p</sup> <sup>X</sup>

and then the total supply of units of B, i.e., bSupply(p) for the price p, is

n

bSupplyð Þ¼ <sup>p</sup> <sup>X</sup>

3. Perpetual dynamic convergence to equilibrium

states <sup>m</sup>, for which Rn(am, bm) > Rn(an, bn) and pm � an�am

which obey

$$R\_q(a\_q + \Delta a, b\_q - \Delta b) > R\_q(a\_q, b\_q) \text{ and } \tag{9}$$

$$R\_p(a\_p - \Delta a, b\_p + \Delta b) > R\_p(a\_p, b\_p). \tag{10}$$

If they do not find such numbers, i.e., they do not agree on the price and the amount of exchanged goods [11], then they look for a different trading partner. In this case, there is no entrepreneurial activity since they have nothing to lose by stopping the bargaining (since the other trader offers only to reduce their preference status).

However, if there exist Δa and Δb that meets these demands, then the entrepreneurial stage begins since each one of them has to decide whether he should or should not take the deal. In this case he chooses an entrepreneurial act because he takes risks. He is risking in losing the good deal in front of him.

The method, by which the trader (now entrepreneur) can evaluate how beneficial is the deal, is by comparison of previous transactions. The entrepreneur must have a memory or some kind of a record of historical prices.

The entrepreneurial process is therefore a continuous process, in which the entrepreneur seeks to improve his future condition by acting today based on his past experience.

In many respects this process resembles the process, in which, according to Mises [12], money regains its value. Mises solved Helfferich vicious cycle (see, e.g., [13]), by explaining that money has a current value, i.e., people want it today, since they expect that other people would still want money tomorrow on the account of their yesterday's experience.

In all these cases, the individual takes a risk, which makes him an entrepreneur. His decision is based on the two questions: what kind of information he possesses and how large a risk is he willing to take?

The decision can be based on published public information of previous transactions. In many markets the past transactions are published. If not all the information is distributed among the participants, then at least part of it is. However, even if the past transactions and prices are classified, or at least, are inaccessible, then the trader can base his decision on his own trading experience. In this case, the convergence is slower but provided the traders choose their trading partner randomly, the process can still converge.

As for the risk taken, the entrepreneur has to decide on the margins of the acceptable price. That is, if 〈pprevious〉 is the mean value of the previous transaction, then the entrepreneur has to decide on Δp, which determines his tolerance to price fluctuations.

If the trader is a seller then Δp determines a minimum acceptable value for future transaction prices

$$
\langle p\_{new} > \left\langle p\_{previous} \right\rangle - \Delta p.\tag{11}
$$

Similarly, if the trader is a buyer, then Δp determines a maximum acceptable value for future transaction prices

$$
\langle p\_{new} < \left\langle p\_{previous} \right\rangle + \Delta p.\tag{12}
$$

The lower Δp is, the higher is the risk the entrepreneur is willing to take. When Δp has high positive values, the trader is a risk averse actor, while Δp has low (or negative) values, the trader is a risk-seeker.

In particular if the transaction price is distributed normally with a mean 〈pprevious〉 and standard deviation σ, then the trader takes a risk, which can be quantified by the probability

$$\frac{1}{2}\text{erfc}\left(\frac{\Delta p}{\sigma}\right),\tag{13}$$

Δp ¼ c

<sup>0</sup> 0.2 0.4 0.6 0.8 <sup>1</sup> 1.2 1.4 1.6 1.8 <sup>2</sup> <sup>0</sup>

*p* (price of B in units of A)

price variations vs. the iteration number.

4. Entrepreneurship in production

improved nor worsened.

value p<sup>∗</sup>

*Q* (Units of 1000B)

p2

r

and that (2) The transaction price agrees with their risk aversion.

ffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi

Demand Supply

previous D E � pprevious D E<sup>2</sup>

The transaction will take place only if: (1) The transaction improve their preference ranking,

Figure 1. Simulation results. Left: static analysis of demand-supply curve intersection. Right: a dynamic market—the

As can be shown from this simulation, the prices oscillate but quickly converge to the average

disagreement can be attributed to the fact that the supply and demand curves were calculated under the assumption that the traders would prefer to trade the largest amount of goods, which, as was explained in [11], this is not always the case. Moreover, dynamic convergence has a memory, and it depends on the initial state, which is randomly selected, in this simulation.

Moreover, we see that the system does not converge to a single value but keep oscillating randomly around the mean value. When Δp decreases, the convergence is quicker but the

In trading, entrepreneurship is relatively simple. There are only two relevant parameters: the price and the amount of exchange goods. However, if the traders are producers as well, they have to decide about additional parameters: the amount of goods to produce. This is a much more risky operation. In trading, the entrepreneur can decide whether to make the trade or to reject it. In the latter, he may put himself at a risk of losing a good deal for the prospect of finding a better one. However, by rejecting a deal, his state remains intact. Neither has it

When the entrepreneur decides to change his production strategy, he put himself in a larger risk of finding himself in a worse position. The reason is that the production abilities are

amount of exchanged goods (and the number of transaction) decreases as well.

~0.8, which is close but not identical to the demand-supply intersection point. The small

0.2 0.4

0.6 0.8

*p* (price of B in units of A)

1 1.2

The Roll of the Entrepreneur in the Establishment of Economic Equilibria

, where c ¼ 0:5: (15)

<sup>0</sup> <sup>50</sup> <sup>100</sup> <sup>150</sup> <sup>0</sup>

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77

Iteration #

(where erfc(x) is the complementary error function [14]) to reject the transaction.

It should be stressed, however, that in reality not only does not the trader have the distribution, but he cannot even tell whether there is one. In the simulation (in the following section), no such knowledge was assumed.

For simplicity, it is assumed that all the traders have the same utility function R, in which case

$$R(a,b) = -\left(a - 105\right)^2 - \left(b - 105\right)^2, \ a \le 100 \text{ and } b \le 100. \tag{14}$$

The market in this simulation consists of N=1000 traders, where half of them initially have an = 40 � 2 units of A and none of B and half of them possess bn = 70 � 2 units of B and none of A.

The demand and supply curves of this market are presented in Figure 1 (on the left), and as can be seen, the equilibrium price is around p<sup>∗</sup> ~0.75.

In Figure 1 (on the right), the result of a dynamic market simulation is plotted. In every iteration, two traders are chosen: the first from the owners of As and the second from the owners of Bs. First, they both check if trading is beneficial for both of them, i.e., that their status after trading is better off than their current status (according to the utility function). Then, they both check if the price agrees with their risk aversion. In this simulation, it was taken that Δp is about half the standard deviation of previous price transactions, i.e.,

Figure 1. Simulation results. Left: static analysis of demand-supply curve intersection. Right: a dynamic market—the price variations vs. the iteration number.

$$
\Delta p = c \sqrt{\left\langle p\_{previous}^2 \right\rangle - \left\langle p\_{previous} \right\rangle^2},
\text{where } c = 0.5. \tag{15}
$$

The transaction will take place only if: (1) The transaction improve their preference ranking, and that (2) The transaction price agrees with their risk aversion.

As can be shown from this simulation, the prices oscillate but quickly converge to the average value p<sup>∗</sup> ~0.8, which is close but not identical to the demand-supply intersection point. The small disagreement can be attributed to the fact that the supply and demand curves were calculated under the assumption that the traders would prefer to trade the largest amount of goods, which, as was explained in [11], this is not always the case. Moreover, dynamic convergence has a memory, and it depends on the initial state, which is randomly selected, in this simulation.

Moreover, we see that the system does not converge to a single value but keep oscillating randomly around the mean value. When Δp decreases, the convergence is quicker but the amount of exchanged goods (and the number of transaction) decreases as well.

#### 4. Entrepreneurship in production

As for the risk taken, the entrepreneur has to decide on the margins of the acceptable price. That is, if 〈pprevious〉 is the mean value of the previous transaction, then the entrepreneur has to

If the trader is a seller then Δp determines a minimum acceptable value for future transaction

Similarly, if the trader is a buyer, then Δp determines a maximum acceptable value for future

The lower Δp is, the higher is the risk the entrepreneur is willing to take. When Δp has high positive values, the trader is a risk averse actor, while Δp has low (or negative) values, the

In particular if the transaction price is distributed normally with a mean 〈pprevious〉 and standard deviation σ, then the trader takes a risk, which can be quantified by the probability

> erfc <sup>Δ</sup><sup>p</sup> σ � �

It should be stressed, however, that in reality not only does not the trader have the distribution, but he cannot even tell whether there is one. In the simulation (in the following section),

For simplicity, it is assumed that all the traders have the same utility function R, in which case

The market in this simulation consists of N=1000 traders, where half of them initially have an = 40 � 2 units of A and none of B and half of them possess bn = 70 � 2 units of B and none

The demand and supply curves of this market are presented in Figure 1 (on the left), and as

In Figure 1 (on the right), the result of a dynamic market simulation is plotted. In every iteration, two traders are chosen: the first from the owners of As and the second from the owners of Bs. First, they both check if trading is beneficial for both of them, i.e., that their status after trading is better off than their current status (according to the utility function). Then, they both check if the price agrees with their risk aversion. In this simulation, it was taken that Δp is

~0.75.

� Δp: (11)

þ Δp: (12)

, (13)

, a ≤ 100 and b ≤ 100: (14)

pnew > pprevious D E

pnew < pprevious D E

> 1 2

(where erfc(x) is the complementary error function [14]) to reject the transaction.

R að Þ¼� ; <sup>b</sup> ð Þ <sup>a</sup> � <sup>105</sup> <sup>2</sup> � ð Þ <sup>b</sup> � <sup>105</sup> <sup>2</sup>

about half the standard deviation of previous price transactions, i.e.,

decide on Δp, which determines his tolerance to price fluctuations.

76 Entrepreneurship - Development Tendencies and Empirical Approach

prices

of A.

transaction prices

trader is a risk-seeker.

no such knowledge was assumed.

can be seen, the equilibrium price is around p<sup>∗</sup>

In trading, entrepreneurship is relatively simple. There are only two relevant parameters: the price and the amount of exchange goods. However, if the traders are producers as well, they have to decide about additional parameters: the amount of goods to produce. This is a much more risky operation. In trading, the entrepreneur can decide whether to make the trade or to reject it. In the latter, he may put himself at a risk of losing a good deal for the prospect of finding a better one. However, by rejecting a deal, his state remains intact. Neither has it improved nor worsened.

When the entrepreneur decides to change his production strategy, he put himself in a larger risk of finding himself in a worse position. The reason is that the production abilities are bounded by his production frontiers, and therefore should he decides to increase the production of good A, then a corresponding reduction in the production of good B is obligatory. By doing so he temporarily reduces his optimal production point.

By increasing the production of goods, he does not need, and simultaneously decreasing the production of goods he does need, the producer specializes.

However, essentially the two entrepreneurial actions (trading and production) are similar. In both cases his decisions depend on the other producers' preferences. The problem is, of course, that he does not know the preference ranking of the other buyers (producers).

In the simulation that follows, we will demonstrate that the price system solves this problem.

In the simulation, each one of the producers has a production frontier, which he cannot exceed. Let bn[a] be the production frontier of the nth producer, i.e., while producing a units of A, he cannot produce more than bn[a] units of B.

In the case of linear production frontiers, i.e., if the nth producer's production is limited by

$$\frac{a}{A\_n} + \frac{b}{B\_n} \le 1\tag{16}$$

bSupply <sup>p</sup>ð Þ <sup>m</sup> � � <sup>¼</sup> bDemand <sup>p</sup>ð Þ <sup>m</sup> � �, (19)

The Roll of the Entrepreneur in the Establishment of Economic Equilibria

<sup>n</sup> (20)

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79

<sup>n</sup> , (21)

<sup>n</sup> (22)

<sup>n</sup> ≥ 0: (23)

n o is preferred over the state

� � (24)

Rnð Þ a; b , (25)

where the superscript (m) stands for the mth iteration, while the nth producer produced

<sup>a</sup>ð Þ <sup>m</sup>þ<sup>1</sup> <sup>n</sup> <sup>¼</sup> <sup>a</sup>ð Þ <sup>m</sup>

<sup>n</sup> are random deviations under the constrains

bn að Þ <sup>m</sup>þ<sup>1</sup> <sup>n</sup>

bð Þ <sup>m</sup>þ<sup>1</sup> <sup>n</sup> <sup>¼</sup> <sup>b</sup>ð Þ <sup>m</sup>

<sup>b</sup> � <sup>b</sup>ð Þ <sup>m</sup>þ<sup>1</sup>

� � <sup>&</sup>lt; max b�b ð Þ mþ1 <sup>n</sup> ≤ �pð Þ <sup>m</sup> a�a

<sup>n</sup> in the mth iteration, then in the next iteration, he can randomly change these amounts

<sup>n</sup> <sup>þ</sup> <sup>δ</sup>að Þ <sup>m</sup>

<sup>n</sup> <sup>þ</sup> <sup>δ</sup>bð Þ <sup>m</sup>

ð Þ <sup>m</sup>þ<sup>1</sup> <sup>n</sup> ; bð Þ <sup>m</sup>þ<sup>1</sup> n

ð Þ <sup>m</sup>þ<sup>1</sup> ð Þ <sup>n</sup>

ð Þ m <sup>n</sup> ; bð Þ <sup>m</sup> n n o are kept.

h i <sup>&</sup>lt; <sup>b</sup>ð Þ <sup>m</sup>þ<sup>1</sup>

<sup>a</sup>ð Þ <sup>m</sup>þ<sup>1</sup> <sup>n</sup> <sup>≥</sup> <sup>0</sup>, bð Þ <sup>m</sup>þ<sup>1</sup>

n o because clearly it is not, but whether there is a third state that he can reach by trading, provided that the price is lower than p(m) (i.e., the price of the previous iterations). That is, he checks among all possible states {a, b} that are reachable by trade, i.e., states which

<sup>n</sup> <sup>≤</sup> � <sup>p</sup>ð Þ <sup>m</sup> <sup>a</sup> � <sup>a</sup>ð Þ <sup>m</sup>þ<sup>1</sup> <sup>n</sup>

n o are chosen to be the next iteration production goals; otherwise, this trial is

Clearly, the fact that the producer evaluated that there is a state {a, b}, which can be reached by trading, doesn't mean that it will be reached. There are other players in this system, who also change gradually the amount of their production strategies. But the previous price is the only information that the traders can use to improve their production strategies. As can be seen from Eqs. (22)–(25), the traders use the price of the mth iteration to improve their production

the one with the highest ranking and compare it to his current ranking. If he finds improve-

a ð Þ m <sup>n</sup> , bð Þ <sup>m</sup>

a little to

where δa

and

a ð Þ m <sup>n</sup> ; bð Þ <sup>m</sup> n

keep

then a

ð Þ m

<sup>n</sup> and δbð Þ <sup>m</sup>

ment, i.e., if mathematically

ð Þ <sup>m</sup>þ<sup>1</sup> <sup>n</sup> ; bð Þ <sup>m</sup>þ<sup>1</sup> n

Then, the producer checks, not that the state a

Rn að Þ <sup>m</sup> <sup>n</sup> ; <sup>b</sup>ð Þ <sup>m</sup> n

rejected, and the previous iteration production goals a

judgment regarding the next, (m+1)th one.

then

$$b\_n[a] = B\_n(1 - a/A\_n). \tag{17}$$

However, it can be generalized to any form of production frontier. In particular, it can be used even when specialization is taken under considerations [11].

Then, initially, before the traders begin their mutual interaction, every producer produces according to its preference ranking Rn(a, b). Thus, initially

$$R\_n^{(0)} = R\_n\left(a\_n^{(0)}, b\_n^{(0)}\right) = \max\_{b < b\_n[a\_n]} R\_n(a, b),\tag{18}$$

i.e., Rð Þ<sup>0</sup> <sup>n</sup> is the highest ranking of producer n, which he reaches when he possess a ð Þ0 <sup>n</sup> and bð Þ<sup>0</sup> n units of A and B, respectively.

When the producers begin to interact, i.e., begin to trade, then initially when there is no single price in the market, they just bargain, but they do not have a relative price for comparison. However, as was explained in the previous section, eventually a price is determined, and the market is cleared. Thus, an iterative process begins.

Let m stands for the iteration number. Initially m = 0.

Once the price is determined, then it can be used in the entrepreneurial process of the next iteration.

If the price is determined by equating supply and demand (like in the stock exchange)

The Roll of the Entrepreneur in the Establishment of Economic Equilibria http://dx.doi.org/10.5772/intechopen.70674 79

$$b\_{Supply}\left(p^{(m)}\right) = b\_{Demand}\left(p^{(m)}\right),\tag{19}$$

where the superscript (m) stands for the mth iteration, while the nth producer produced a ð Þ m <sup>n</sup> , bð Þ <sup>m</sup> <sup>n</sup> in the mth iteration, then in the next iteration, he can randomly change these amounts a little to

$$
\mathfrak{a}\_{n}^{(m+1)} = \mathfrak{a}\_{n}^{(m)} + \delta \mathfrak{a}\_{n}^{(m)} \tag{20}
$$

$$b\_n^{(m+1)} = b\_n^{(m)} + \delta b\_n^{(m)},\tag{21}$$

where δa ð Þ m <sup>n</sup> and δbð Þ <sup>m</sup> <sup>n</sup> are random deviations under the constrains

$$b\_n \left[ a\_n^{(m+1)} \right] < b\_n^{(m+1)} \tag{22}$$

and

bounded by his production frontiers, and therefore should he decides to increase the production of good A, then a corresponding reduction in the production of good B is obligatory. By

By increasing the production of goods, he does not need, and simultaneously decreasing the

However, essentially the two entrepreneurial actions (trading and production) are similar. In both cases his decisions depend on the other producers' preferences. The problem is, of course,

In the simulation that follows, we will demonstrate that the price system solves this problem. In the simulation, each one of the producers has a production frontier, which he cannot exceed. Let bn[a] be the production frontier of the nth producer, i.e., while producing a units of A, he

In the case of linear production frontiers, i.e., if the nth producer's production is limited by

However, it can be generalized to any form of production frontier. In particular, it can be used

Then, initially, before the traders begin their mutual interaction, every producer produces

¼ max b<bn½ � an

<sup>n</sup> ; <sup>b</sup>ð Þ<sup>0</sup> n 

<sup>n</sup> is the highest ranking of producer n, which he reaches when he possess a

When the producers begin to interact, i.e., begin to trade, then initially when there is no single price in the market, they just bargain, but they do not have a relative price for comparison. However, as was explained in the previous section, eventually a price is determined, and the

Once the price is determined, then it can be used in the entrepreneurial process of the next

If the price is determined by equating supply and demand (like in the stock exchange)

≤ 1 (16)

Rnð Þ a; b , (18)

ð Þ0 <sup>n</sup> and bð Þ<sup>0</sup> n

bn½ �¼ a Bnð Þ 1 � a=An : (17)

a An þ b Bn

that he does not know the preference ranking of the other buyers (producers).

doing so he temporarily reduces his optimal production point.

78 Entrepreneurship - Development Tendencies and Empirical Approach

production of goods he does need, the producer specializes.

even when specialization is taken under considerations [11].

according to its preference ranking Rn(a, b). Thus, initially

market is cleared. Thus, an iterative process begins. Let m stands for the iteration number. Initially m = 0.

Rð Þ<sup>0</sup>

<sup>n</sup> <sup>¼</sup> Rn <sup>a</sup>ð Þ<sup>0</sup>

cannot produce more than bn[a] units of B.

then

i.e., Rð Þ<sup>0</sup>

iteration.

units of A and B, respectively.

$$a\_n^{(m+1)} \ge 0, \quad b\_n^{(m+1)} \ge 0. \tag{23}$$

Then, the producer checks, not that the state a ð Þ <sup>m</sup>þ<sup>1</sup> <sup>n</sup> ; bð Þ <sup>m</sup>þ<sup>1</sup> n n o is preferred over the state a ð Þ m <sup>n</sup> ; bð Þ <sup>m</sup> n n o because clearly it is not, but whether there is a third state that he can reach by trading, provided that the price is lower than p(m) (i.e., the price of the previous iterations). That is, he checks among all possible states {a, b} that are reachable by trade, i.e., states which keep

$$a \, b - b\_n^{(m+1)} \le -p^{(m)} \left( a - a\_n^{(m+1)} \right) \tag{24}$$

the one with the highest ranking and compare it to his current ranking. If he finds improvement, i.e., if mathematically

$$R\_n(a\_n^{(m)}, b\_n^{(m)}) < \max\_{b - b\_n^{(m+1)} \le -p^{(m)} \left(a - a\_n^{(m+1)}\right)} R\_n(a, b), \tag{25}$$

then a ð Þ <sup>m</sup>þ<sup>1</sup> <sup>n</sup> ; bð Þ <sup>m</sup>þ<sup>1</sup> n n o are chosen to be the next iteration production goals; otherwise, this trial is rejected, and the previous iteration production goals a ð Þ m <sup>n</sup> ; bð Þ <sup>m</sup> n n o are kept.

Clearly, the fact that the producer evaluated that there is a state {a, b}, which can be reached by trading, doesn't mean that it will be reached. There are other players in this system, who also change gradually the amount of their production strategies. But the previous price is the only information that the traders can use to improve their production strategies. As can be seen from Eqs. (22)–(25), the traders use the price of the mth iteration to improve their production judgment regarding the next, (m+1)th one.

#### 5. Simulation of entrepreneurial activity in production

We used a simulation to illustrate the market process with the presence of entrepreneurial activity.

In the simulation the market consists of N = 800 producers with the linear production frontier, i.e., Eqs. (16) and (17) are used when An and Bn have normal distribution with mean 85 and standard deviation 15 with a maximum value of 100, and to emphasize the effect of specialization, the ranking matrix (discrete utility function) was replaced with

$$R\_n(a,b) = -(a - 105)^4 - (b - 105)^4 \text{ for } a \le 100 \text{ and } b \le 100. \tag{26}$$

In every iteration the deviations a ð Þ m <sup>n</sup> , bð Þ <sup>m</sup> <sup>n</sup> were selected randomly with the probability

$$p\left(a\_n^{(m)} = q\right) = p\left(b\_n^{(m)} = q\right) = \text{erfc}\left(\frac{q + 1/2}{Q}\right) - \text{erfc}\left(\frac{q - 1/2}{Q}\right). \tag{27}$$

However, the dynamic results are different if the variations are considerably smaller. In Figures 5–7, the same simulation was taken for Q = 8.5, in which case, the dynamic is much more affected by the initial state and the arbitrariness of the first random transactions.

> Demand Supply

Figure 3. The temporal dependence of the market price of B in units of A (upper plot) and the amount of exchanged good

0 20 40 60 80 100 120 140 160 180 200

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81

Iteration

0 20 40 60 80 100 120 140 160 180 200

Iteration

Units of 1000B

Figure 4. The supply-demand curves before trading and specialization (left) and after 200 trading iterations (right).

<sup>0</sup> 0.5 <sup>1</sup> 1.5 <sup>2</sup> 2.5 <sup>3</sup> <sup>0</sup>

Iteration #201

Demand Supply

*p* (price of B in units of A)

0.6

0

<sup>0</sup> 0.5 <sup>1</sup> 1.5 <sup>2</sup> 2.5 <sup>3</sup> <sup>0</sup>

Iteration #1

*p* (price of B in units of A)

2000

4000

units of B

(lower plot).

Units of 1000B

6000

0.8

1

price

1.2

where q is an integer number. In this simulation Q = 80.

The result of this simulation is presented in Figure 2. In this figure the initial (prior to trading) and final (after 200 iterations) distributions are presented in a false color presentation. As could be expected, since the ranking matrix is symmetric, most traders prefer not to give precedence of one commodity over the next. From the same reason, and due to the linear production frontier, there is no fundamental difference after trading takes place. Indeed, there are more producers, who prefer to deviate considerably from their initial state; however, as Figure 2 shows, they are the minority.

The dynamic of the process is illustrated in Figure 3. Despite the fact that there is no substantial difference in the market price, the gradual specialization increases the amount of exchange goods.

The effect of the specialization and the trading on the supply-demand curve is presented in Figure 4. While the intersection point remains at the price level p ffi 1, the amount of exchanged goods has increased considerably.

Figure 2. Left: a 2D histogram map of the producer's production after the first iteration. The false colors represent the number of producers. Right: after 200 iterations.

5. Simulation of entrepreneurial activity in production

80 Entrepreneurship - Development Tendencies and Empirical Approach

zation, the ranking matrix (discrete utility function) was replaced with

ð Þ m <sup>n</sup> , bð Þ <sup>m</sup>

<sup>n</sup> ¼ q 

<sup>¼</sup> p bð Þ <sup>m</sup>

where q is an integer number. In this simulation Q = 80.

In every iteration the deviations a

goods has increased considerably.

number of producers. Right: after 200 iterations.

p að Þ <sup>m</sup> <sup>n</sup> ¼ q 

We used a simulation to illustrate the market process with the presence of entrepreneurial activity. In the simulation the market consists of N = 800 producers with the linear production frontier, i.e., Eqs. (16) and (17) are used when An and Bn have normal distribution with mean 85 and standard deviation 15 with a maximum value of 100, and to emphasize the effect of speciali-

Rnð Þ¼� <sup>a</sup>; <sup>b</sup> ð Þ <sup>a</sup> � <sup>105</sup> <sup>4</sup> � ð Þ <sup>b</sup> � <sup>105</sup> <sup>4</sup> for <sup>a</sup> <sup>≤</sup> 100 and <sup>b</sup> <sup>≤</sup> <sup>100</sup>: (26)

<sup>¼</sup> erfc <sup>q</sup> <sup>þ</sup> <sup>1</sup>=<sup>2</sup> Q 

The result of this simulation is presented in Figure 2. In this figure the initial (prior to trading) and final (after 200 iterations) distributions are presented in a false color presentation. As could be expected, since the ranking matrix is symmetric, most traders prefer not to give precedence of one commodity over the next. From the same reason, and due to the linear production frontier, there is no fundamental difference after trading takes place. Indeed, there are more producers, who prefer to deviate considerably from their initial state; however, as Figure 2 shows, they are the minority. The dynamic of the process is illustrated in Figure 3. Despite the fact that there is no substantial difference in the market price, the gradual specialization increases the amount of exchange goods. The effect of the specialization and the trading on the supply-demand curve is presented in Figure 4. While the intersection point remains at the price level p ffi 1, the amount of exchanged

Figure 2. Left: a 2D histogram map of the producer's production after the first iteration. The false colors represent the

<sup>n</sup> were selected randomly with the probability

� erfc <sup>q</sup> � <sup>1</sup>=<sup>2</sup> Q 

: (27)

Figure 3. The temporal dependence of the market price of B in units of A (upper plot) and the amount of exchanged good (lower plot).

However, the dynamic results are different if the variations are considerably smaller. In Figures 5–7, the same simulation was taken for Q = 8.5, in which case, the dynamic is much more affected by the initial state and the arbitrariness of the first random transactions.

Figure 4. The supply-demand curves before trading and specialization (left) and after 200 trading iterations (right).

Consequently, the price may gradually drift to different values. To return to the preferred price p = 1, the system has to experience a large perturbation, which has a very low probability in this case. Thus, as can be seen in Figure 5 after about 90 iterations, a perturbation causes a sudden drift toward lower prices. This behavior is also shown in the supply-demand curves in Figure 6 where in this case there is a clear change in the intersection point's price. As can be seen in Figure 7, a different run of the same simulation can present a drift toward higher prices. This is due to the sensitivity of the problem on the initial conditions (the population distribution) and

In the previous section, it was assumed that the production frontier is a linear function. This

Despite its popularity [18–20], this production frontier ignores the effect of specialization. Superficially, it can be argued that if the producer is focused only on a single product, i.e., it produces only A or only B, then this producer is specializing in producing this single good. However, this analysis assumed that while he "specializes" in producing a single good, his production rate (production per units of time) was not improved. This assumption ignores the main feature of specialization, namely, that specialization increases the production rate (the

In Ref. [11] the effect of specialization on the law of association was presented. It this reference a mathematical presentation of the effect of specialization on the production frontier was introduced.

where α ≤ 1 and β ≤ 1 are parameters that characterize the specialization in producing A and B,

In case where α = β, then this production frontier corresponds to the statement that specializa-

<sup>F</sup> <sup>¼</sup> 21=α�<sup>1</sup>

We now apply the simulation of the previous section on the following production frontier,

ð Þ <sup>a</sup>=An <sup>α</sup> <sup>þ</sup> ð Þ <sup>b</sup>=Bn <sup>β</sup> <sup>≤</sup> <sup>1</sup> (28)

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83

ð Þ <sup>a</sup>=An <sup>0</sup>:<sup>5</sup> <sup>þ</sup> ð Þ <sup>b</sup>=Bn <sup>0</sup>:<sup>5</sup> <sup>≤</sup> <sup>1</sup> (30)

: (29)

production frontier goes back to Ricardo's law of comparative advantage [15–17].

on the specific trading decisions, which are also random.

In general, the linear frontier was replaced with a convex one:

tion increases the good's production by a factor of (see Ref. [11])

7. Simulation with specialization

which considers specialization:

6. Specialization

production efficiency).

respectively.

i.e.,

Figure 5. The temporal dependence of the market price and exchanged goods (left) and the distribution of the producers in the population after 200 iterations (right).

Figure 6. The supply-demand curves of the simulation of Figure 5 before trading (left) and after 200 iterations (right).

Figure 7. A different run of the same simulation that is generated in Figure 5.

Consequently, the price may gradually drift to different values. To return to the preferred price p = 1, the system has to experience a large perturbation, which has a very low probability in this case. Thus, as can be seen in Figure 5 after about 90 iterations, a perturbation causes a sudden drift toward lower prices. This behavior is also shown in the supply-demand curves in Figure 6 where in this case there is a clear change in the intersection point's price. As can be seen in Figure 7, a different run of the same simulation can present a drift toward higher prices. This is due to the sensitivity of the problem on the initial conditions (the population distribution) and on the specific trading decisions, which are also random.

### 6. Specialization

Figure 5. The temporal dependence of the market price and exchanged goods (left) and the distribution of the producers

Units of 1000B

Figure 6. The supply-demand curves of the simulation of Figure 5 before trading (left) and after 200 iterations (right).

<sup>0</sup> 0.5 <sup>1</sup> 1.5 <sup>2</sup> 2.5 <sup>3</sup> <sup>0</sup>

Iteration #201

Demand Supply

*p* (price of B in units of A)

Demand Supply

in the population after 200 iterations (right).

<sup>0</sup> 0.5 <sup>1</sup> 1.5 <sup>2</sup> 2.5 <sup>3</sup> <sup>0</sup>

Iteration #1

82 Entrepreneurship - Development Tendencies and Empirical Approach

*p* (price of B in units of A)

0 20 40 60 80 100 120 140 160 180 200

Iteration

<sup>0</sup> <sup>20</sup> <sup>40</sup> <sup>60</sup> <sup>80</sup> <sup>100</sup> <sup>120</sup> <sup>140</sup> <sup>160</sup> <sup>180</sup> <sup>200</sup> <sup>0</sup>

Iteration

Figure 7. A different run of the same simulation that is generated in Figure 5.

> 1 1.5 2

2000 4000 6000

Bf osti nu

ecir p

Units of 1000B

In the previous section, it was assumed that the production frontier is a linear function. This production frontier goes back to Ricardo's law of comparative advantage [15–17].

Despite its popularity [18–20], this production frontier ignores the effect of specialization. Superficially, it can be argued that if the producer is focused only on a single product, i.e., it produces only A or only B, then this producer is specializing in producing this single good. However, this analysis assumed that while he "specializes" in producing a single good, his production rate (production per units of time) was not improved. This assumption ignores the main feature of specialization, namely, that specialization increases the production rate (the production efficiency).

In Ref. [11] the effect of specialization on the law of association was presented. It this reference a mathematical presentation of the effect of specialization on the production frontier was introduced.

In general, the linear frontier was replaced with a convex one:

$$(a/A\_n)^{\alpha} + (b/B\_n)^{\beta} \le 1\tag{28}$$

where α ≤ 1 and β ≤ 1 are parameters that characterize the specialization in producing A and B, respectively.

In case where α = β, then this production frontier corresponds to the statement that specialization increases the good's production by a factor of (see Ref. [11])

$$F = \mathfrak{2}^{1/a - 1}. \tag{29}$$

### 7. Simulation with specialization

We now apply the simulation of the previous section on the following production frontier, which considers specialization:

$$\left(\left(a/A\_n\right)^{0.5} + \left(b/B\_n\right)^{0.5} \le 1\right) \tag{30}$$

i.e.,

$$b\_n[a] = B\_n \left(1 - \sqrt{a/A\_n}\right)^2. \tag{31}$$

with the same An, Bn, and Rn(a, b) of the previous section. In this case specialization increases production, according to Eq. (29), by a factor of F = 2.

As was demonstrated in Ref. [11], curved production frontier, i.e., Eq. (28), causes instability in the initial state even when all the producers have exactly the same production frontier (this is not the case when they all have the same linear, i.e., Eq. (16), production frontier). Therefore, specialization and trading are encouraged. Moreover, the curved frontier depresses drifts, since any small drift highly encourages entrepreneur to change their production strategies accordingly, and due to the curvature, even small drift directly affects the producers. As was shown in the previous section—this is not the case in the linear production frontier scenario. In Figures 8–10 the results of the simulation with Q = 80 are presented. Similarly, the results of a similar simulation but with Q = 8.5 are presented in Figures 11 and 12. As can be seen, unlike the linear production frontier

Figure 8. The effect of specialization on the producer's production histogram for Q = 80. Left: after the first iteration. Right: 1400 iterations later. The false colors represent the number of producers.

case, there is no qualitative difference between the two. The main difference is that large fluctuations (risk loving Q = 80) help to keep the system at the optimal equilibrium value (p = 1), while smaller fluctuations (risk aversion Q = 8.5) do it less efficiently, and small drifts last longer (more

0 200 400 600 800 1000 1200 1400

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85

0 200 400 600 800 1000 1200 1400

Iteration

Figure 10. The temporal dependence of the market price (upper plot) and the amount of exchanged good (lower plot).

Iteration

0.6

0

Figure 11. Same as in Figure 8 but with Q = 8.5.

5000

10000

units of B

15000

0.8

price

1

1.2

than 700 iterations when Q = 80 instead of less than 100 when Q = 8.5).

Figure 9. The supply-demand curves before trading and specialization (left) and after 1400 iterations (right).

Figure 10. The temporal dependence of the market price (upper plot) and the amount of exchanged good (lower plot).

Figure 11. Same as in Figure 8 but with Q = 8.5.

bn½ �¼ <sup>a</sup> Bn <sup>1</sup> � ffiffiffiffiffiffiffiffiffiffi

with the same An, Bn, and Rn(a, b) of the previous section. In this case specialization increases

As was demonstrated in Ref. [11], curved production frontier, i.e., Eq. (28), causes instability in the initial state even when all the producers have exactly the same production frontier (this is not the case when they all have the same linear, i.e., Eq. (16), production frontier). Therefore, specialization and trading are encouraged. Moreover, the curved frontier depresses drifts, since any small drift highly encourages entrepreneur to change their production strategies accordingly, and due to the curvature, even small drift directly affects the producers. As was shown in the previous section—this is not the case in the linear production frontier scenario. In Figures 8–10 the results of the simulation with Q = 80 are presented. Similarly, the results of a similar simulation but with Q = 8.5 are presented in Figures 11 and 12. As can be seen, unlike the linear production frontier

Figure 8. The effect of specialization on the producer's production histogram for Q = 80. Left: after the first iteration.

Units of 1000B

Demand Supply

Figure 9. The supply-demand curves before trading and specialization (left) and after 1400 iterations (right).

Right: 1400 iterations later. The false colors represent the number of producers.

<sup>0</sup> 0.5 <sup>1</sup> 1.5 <sup>2</sup> 2.5 <sup>3</sup> <sup>0</sup>

Iteration #1

*p* (price of B in units of A)

Units of 1000B

production, according to Eq. (29), by a factor of F = 2.

84 Entrepreneurship - Development Tendencies and Empirical Approach

a=An � � p <sup>2</sup>

: (31)

<sup>0</sup> 0.5 <sup>1</sup> 1.5 <sup>2</sup> 2.5 <sup>3</sup> <sup>0</sup>

Iteration #1401

Demand Supply

*p* (price of B in units of A)

case, there is no qualitative difference between the two. The main difference is that large fluctuations (risk loving Q = 80) help to keep the system at the optimal equilibrium value (p = 1), while smaller fluctuations (risk aversion Q = 8.5) do it less efficiently, and small drifts last longer (more than 700 iterations when Q = 80 instead of less than 100 when Q = 8.5).

Figure 12. Same as in Figure 10 but with Q = 8.5.

#### 8. Production growth and entrepreneurship

In the previous section, we have seen that there is a major effect of the amount of risk the entrepreneurs are willing to take (which was quantified by the parameter Q) on the stability of the equilibrium. However, it seems that in this simplified model, the amount of risk taken is irrelevant to the final equilibrium case. Nevertheless, the rate toward equilibrium is clearly related to the entrepreneur risk aversion parameter Q. On the left side of Figure 13, the total production parameter (M is the total number of producer, and p is the current market price)

$$\text{production} = \sum\_{n=1}^{M} (a\_n + b\_n p) \tag{32}$$

standard deviation σ (Q, in the above examples), and the mean initial production μ. This plot

Figure 13. Left: the production as a function of the iteration number for different values of Q (from 4 to 42). Right: the

production growth rate as a function of σ/μ (which is a relative evaluation of the risk aversion).

0 0.1 0.2 0.3 0.4 0.5 0.6

) %( ht wor g n oit c u d or p

PG ffi <sup>C</sup> <sup>σ</sup>

A simple market model was presented to illustrate how the market reaches equilibrium and clearance without the assumption of perfect knowledge. In fact, the model assumed that the traders and producers have no information about other producers' preferences, wealth, or production skills, and yet their knowledge about the past transaction prices and their entre-

The producers use the past transaction prices to make entrepreneurial decisions regarding

The amount of risk aversion, which is quantified in a single parameter, determines how stable the equilibrium is. The lower the population's risk aversion, the more stable is the equilibrium. When the production frontier is linear, and the producers are risk averse, the equilibrium price can drift from its optimal value. Future research is needed to investigate the dynamic of these

Moreover, to emphasize the effect of specialization, a convex production frontier was simulated as well. In this case, the equilibrium prices are much more stable and are less affected by

preneurial activity keeps the market oscillates randomly near equilibrium.

<sup>μ</sup> (33)

<sup>0</sup> 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4 0.45 0.5 -0.1

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87

s/m

suggests the following simple linear relation:

where C = (1.0 � 0.2)%.

9. Main conclusions

their future production strategies.

the producers' risk aversion.

drifts and their sensitivity on initial conditions.

is plotted for various values of Q as a function of the iteration number for the first 24 iterations. As this plot clearly suggests, the higher the parameter Q, the faster is the production growth.

On the right side of Figure 13, the rate of the relative production growth (PG) <sup>Δ</sup><sup>p</sup> <sup>p</sup>Δ<sup>n</sup> is measured as a function of the relative risk taken, i.e., as a function of the ratio between the production

The Roll of the Entrepreneur in the Establishment of Economic Equilibria http://dx.doi.org/10.5772/intechopen.70674 87

Figure 13. Left: the production as a function of the iteration number for different values of Q (from 4 to 42). Right: the production growth rate as a function of σ/μ (which is a relative evaluation of the risk aversion).

standard deviation σ (Q, in the above examples), and the mean initial production μ. This plot suggests the following simple linear relation:

$$PG \cong \mathbb{C} \frac{\sigma}{\mu} \tag{33}$$

where C = (1.0 � 0.2)%.

#### 9. Main conclusions

8. Production growth and entrepreneurship

0.6

0

Figure 12. Same as in Figure 10 but with Q = 8.5.

5000

10000

units of B

15000

0.8

price

1

1.2

86 Entrepreneurship - Development Tendencies and Empirical Approach

In the previous section, we have seen that there is a major effect of the amount of risk the entrepreneurs are willing to take (which was quantified by the parameter Q) on the stability of the equilibrium. However, it seems that in this simplified model, the amount of risk taken is irrelevant to the final equilibrium case. Nevertheless, the rate toward equilibrium is clearly related to the entrepreneur risk aversion parameter Q. On the left side of Figure 13, the total production parameter (M is the total number of producer, and p is the current market price)

0 200 400 600 800 1000 1200 1400

0 200 400 600 800 1000 1200 1400

Iteration

Iteration

M

n¼1

is plotted for various values of Q as a function of the iteration number for the first 24 iterations. As this plot clearly suggests, the higher the parameter Q, the faster is the production growth.

as a function of the relative risk taken, i.e., as a function of the ratio between the production

ð Þ an þ bnp (32)

<sup>p</sup>Δ<sup>n</sup> is measured

production <sup>¼</sup> <sup>X</sup>

On the right side of Figure 13, the rate of the relative production growth (PG) <sup>Δ</sup><sup>p</sup>

A simple market model was presented to illustrate how the market reaches equilibrium and clearance without the assumption of perfect knowledge. In fact, the model assumed that the traders and producers have no information about other producers' preferences, wealth, or production skills, and yet their knowledge about the past transaction prices and their entrepreneurial activity keeps the market oscillates randomly near equilibrium.

The producers use the past transaction prices to make entrepreneurial decisions regarding their future production strategies.

The amount of risk aversion, which is quantified in a single parameter, determines how stable the equilibrium is. The lower the population's risk aversion, the more stable is the equilibrium.

When the production frontier is linear, and the producers are risk averse, the equilibrium price can drift from its optimal value. Future research is needed to investigate the dynamic of these drifts and their sensitivity on initial conditions.

Moreover, to emphasize the effect of specialization, a convex production frontier was simulated as well. In this case, the equilibrium prices are much more stable and are less affected by the producers' risk aversion.

Nevertheless, the amount of risk aversion has a clear effect on the production growth of the economy. The lower the risk aversion is, the higher is the growth rate of the economy.

[12] von Mises L. The Theory of Money and Credit. Yale University Press; 1953

Austrian Economics. 2014;17:3-18

Cheltenham, UK: Edward Elgar; 1998

Addison-Wesley. Boston, 8th ed. 2009

Publicationa; 1972

Action; 2015

[13] McCulloch JH. Misesian Insights for Modern Macroeconomics. The Quarterly Journal of

The Roll of the Entrepreneur in the Establishment of Economic Equilibria

http://dx.doi.org/10.5772/intechopen.70674

89

[14] Abramowitz M, Stegun IA. Handbook of Mathematical Functions. New York: Dover

[15] Ricardo D. On the Principles of Political Economy and Taxation. UK: John Murray; 1817 [16] Maneschi A. Comparative Advantage in International Trade: A Historical Perspective.

[18] Rothbard MN. Classical Economics: An Austrian Perspective on the History of Economic

[19] Krugman PR, Obstfeld M. Boston, MA. In: International Economics: Theory & Policy,

[20] Murphy RP. Choice Cooperation. Independent Institute, Oakland: Enterprise and Human

[17] Hollander S. The Economics of David Ricardo. Tronto Press: Toronto. Univ; 1979

Thought. Vol II: Edward Elgar Publishing, Cheltenham; 2006

Another important general conclusion is that economic equilibrium is not a stationary process, at least not on the microscopic domain. It may be regarded as stationary only on the macroscopic level. Like molecule gas in a container, economic equilibria are generated by random interactions between entrepreneurs, which act without insight. Only on the macroscopic level, it seems as if deviations from equilibrium lure the actors (or particles) to correct the error.

#### Author details

Er'el Granot

Address all correspondence to: erel@ariel.ac.il

Department of Electrical and Electronics Engineering, Ariel University, Ariel, Israel

#### References


[12] von Mises L. The Theory of Money and Credit. Yale University Press; 1953

Nevertheless, the amount of risk aversion has a clear effect on the production growth of the

Another important general conclusion is that economic equilibrium is not a stationary process, at least not on the microscopic domain. It may be regarded as stationary only on the macroscopic level. Like molecule gas in a container, economic equilibria are generated by random interactions between entrepreneurs, which act without insight. Only on the macroscopic level, it seems as if deviations from equilibrium lure the actors (or particles) to correct the error.

economy. The lower the risk aversion is, the higher is the growth rate of the economy.

Department of Electrical and Electronics Engineering, Ariel University, Ariel, Israel

[1] van Daal J, Jolink A. Equilibrium Economics of Léon Walras. London: Routledge; 1993

[5] von Mises L. Human Action: A Treatise on Economics. Ludwig von Mises Institute: Yale

[6] Rothbard MN. Man Economy and State. 2nd ed. Scholar's Edition: Ludwig von Mises

[7] Hayek FA. Individualism and Economic Order. Chicago: University of Chicago Press;

[8] Kirzner IM. How market work: Disequilibrium, Entrepreneurship and Discovery. London:

[9] Kirzner IM. Competition and Entrepreneurship. Chicago and London: The University of

[10] Debreu G. Representation of a Preference Ordering by a Numerical Function. In: Thrall, Davis, Coombs, editors. Decision Process. New York: Wiley; 1954. p. 159-165

[11] Granot E. Ricardo's law of comparative advantage and the Law of Association: A subjective analysis. Chapter 3 in Economics and Development. Rijeka: INTECH; 2017

[2] Marshall A. Principles of Economics, Great Minds Series. Prometheus Books; 1997

[4] Knight FH. Risk, Uncertainty and Profit. New York: Augustus M. Kelley; 1964

[3] Gravelle H, Rees R. Microeconomics. Harlow: Pearson Education; 2004

Author details

Address all correspondence to: erel@ariel.ac.il

88 Entrepreneurship - Development Tendencies and Empirical Approach

Er'el Granot

References

University Press; 1949

Chicago Press; 1973

The Institute of Economic Affairs; 1997. p. 78

Institute; 2009

1958


**Section 2**

**Innovation in Entrepreneurship and Economic**

**Growth**

**Innovation in Entrepreneurship and Economic Growth**

**Chapter 5**

Provisional chapter

**Determinants of Established Entrepreneurs' Innovative**

DOI: 10.5772/intechopen.71843

Determinants of Established Entrepreneurs' Innovative

For established entrepreneurs from Western European economies (WEEs) and Northern European economies (NEEs), we estimated relationships between firms' innovative activity and their owner-managers' educational level, the firms' international orientation, and their growth aspirations. International orientation proved to be positively and significantly related to innovative activity in both groups, but associations were stronger in NEEs. Established entrepreneurs with higher educational levels are more innovative than those with less education, with an exception for NEEs, where more innovative are entrepreneurs with a secondary instead of a postsecondary degree. Established entrepreneurs with growth aspirations are more innovative only for the NEEs. The empirical results confirm our two hypotheses for both groups of economies, whereas the third hypothesis which suggests that established entrepreneurs with aspirations for growing their firms are expected to be more innovative is confirmed only for the NEEs.

Keywords: global entrepreneurship monitor, innovative versus imitative activities,

Although the EU policy strives to unify the EU market as much as possible, extensive country and regional differences in economic growth and the prosperity between them still exist. Strengthening the knowledge of regional differences in entrepreneurial activity and its determinants is of utmost importance. When comparing entrepreneurial activity across regions, it is important to take into account that not all companies can be regarded as "entrepreneurial" [1–3] or "productive" [4]. Schutjens and Wever [5] as well as Koellinger [6] argue the difference between imitative and innovative types of entrepreneurial activity. The latter, innovative type, is uppermost in the minds of decision-makers throughout Europe. In the policymaking context, innovation is considered a prerequisite for economic growth [1, 7, 8]. An evident gap

> © The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and eproduction in any medium, provided the original work is properly cited.

© 2018 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

international orientation, educational level, firm growth aspirations

**Activity in Northern and Western Europe**

Activity in Northern and Western Europe

Karin Širec and Dijana Močnik

Karin Širec and Dijana Močnik

Abstract

1. Introduction

http://dx.doi.org/10.5772/intechopen.71843

Additional information is available at the end of the chapter

Additional information is available at the end of the chapter

Provisional chapter

### **Determinants of Established Entrepreneurs' Innovative Activity in Northern and Western Europe** Determinants of Established Entrepreneurs' Innovative Activity in Northern and Western Europe

DOI: 10.5772/intechopen.71843

Karin Širec and Dijana Močnik

Additional information is available at the end of the chapter Karin Širec and Dijana Močnik

http://dx.doi.org/10.5772/intechopen.71843 Additional information is available at the end of the chapter

#### Abstract

For established entrepreneurs from Western European economies (WEEs) and Northern European economies (NEEs), we estimated relationships between firms' innovative activity and their owner-managers' educational level, the firms' international orientation, and their growth aspirations. International orientation proved to be positively and significantly related to innovative activity in both groups, but associations were stronger in NEEs. Established entrepreneurs with higher educational levels are more innovative than those with less education, with an exception for NEEs, where more innovative are entrepreneurs with a secondary instead of a postsecondary degree. Established entrepreneurs with growth aspirations are more innovative only for the NEEs. The empirical results confirm our two hypotheses for both groups of economies, whereas the third hypothesis which suggests that established entrepreneurs with aspirations for growing their firms are expected to be more innovative is confirmed only for the NEEs.

Keywords: global entrepreneurship monitor, innovative versus imitative activities, international orientation, educational level, firm growth aspirations

### 1. Introduction

Although the EU policy strives to unify the EU market as much as possible, extensive country and regional differences in economic growth and the prosperity between them still exist. Strengthening the knowledge of regional differences in entrepreneurial activity and its determinants is of utmost importance. When comparing entrepreneurial activity across regions, it is important to take into account that not all companies can be regarded as "entrepreneurial" [1–3] or "productive" [4]. Schutjens and Wever [5] as well as Koellinger [6] argue the difference between imitative and innovative types of entrepreneurial activity. The latter, innovative type, is uppermost in the minds of decision-makers throughout Europe. In the policymaking context, innovation is considered a prerequisite for economic growth [1, 7, 8]. An evident gap

© The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and eproduction in any medium, provided the original work is properly cited.

exists in studies on entrepreneurial activity that simultaneously encompass regions and countries [9, 10]. Therefore, investigating determinants of entrepreneurship over regions (in our case, Western and Northern European economies) enables us to disentangle regional demography attributes (e.g., identifying ambitious entrepreneurs), institutional components (e.g., educational system), and specific regional attributes (e.g., international orientation). In recent years, the connection among innovation and international orientation, educational level, and growth aspiration has attracted increased interest among policymakers, researchers, and business leaders [6, 8, 11–15].

of failure to prevent them from starting a new business, whereas Western European highgrowth entrepreneurs are among the least likely to have started their business in order to increase their incomes. They are the most likely to start their business in order to become more

Determinants of Established Entrepreneurs' Innovative Activity in Northern and Western Europe

http://dx.doi.org/10.5772/intechopen.71843

95

Our research concentrates on the relationship among various dimensions of entrepreneurship (e.g., educational level, firms' customers from other countries—international orientation, growth aspirations, about future employment) and their innovative versus imitative activity. Investigated variables of our research are in line with three broad areas of innovative performance as described in IUS 2014: enablers, firm activities, and outputs. Among the enablers, which refer to a firm's external drivers of innovation activity, human resources measured with entrepreneurs' educational level have been examined. From the firm activities, companies' international orientation has been explored. Finally, using output, entrepreneurs' growth aspirations have been taken into consideration. We derived data from the GEM research for 2001– 2008. The NEEs that participated in the GEM and in which we were interested included Denmark, Finland, Iceland, Ireland, Latvia, Norway, Sweden, and the United Kingdom, whereas the WEEs comprise Austria, Belgium, France, Germany, Italy, the Netherlands, Portu-

This paper is divided into six sections. The next section presents the theoretical background and previous research. The following section describes research hypotheses, which is succeeded by the presentation of the data, variables, and models. Results are explained in the next section. The

Entrepreneurship and innovation theories demonstrate that it is easier to find common points than to define limits between them; this might be one reason why we often see them as a single

Such understanding originates from the work of Schumpeter [22]. He defined an entrepreneur "as an individual carrying out new combinations—namely, innovations." In his view the entrepreneur was the one who innovates. Schumpeter undoubtedly assigned the role of innovator to the entrepreneur and made a distinction between invention and innovation. He also explicitly differentiates the role of entrepreneurs and enterprise: "The carrying out of new combinations we call 'enterprise'; the individuals who carry them out, we call 'entrepreneurs'" [22]. In this way he emphasized the relevance of explicit human possessions: the ability to think, be creative, and innovate. Therefore, the entrepreneur becomes essential resource for an enterprise to exist. In order for an enterprise to grow, develop, and succeed, the entrepreneur needs to be innovative in constantly performing new combinations of existing resources [23]. Innovative activity in a given economy depends not only on individuals (entrepreneurs), networks of innovative enterprises and research organizations, suppliers, and customers but also on various institutional factors, such as the public financing system of research, the nation's system of schooling, training, and financial establishments. As such, innovation can

independent.

gal, Spain, and Switzerland.

phenomenon.

final section presents the discussion and conclusion.

2. Theoretical background and previous research

Prior studies lack a thorough investigation of the factors that stimulate innovative rather than imitative forms of entrepreneurial activity. They are certainly related to the phenomena of business opportunity recognition; therefore the current paper adds to the knowledge of the development of different types and levels of companies' innovation and focus on the determinants that might differ between Western and Northern European economies' established entrepreneurs. The reasoning behind expected differences of these two regions lies in the Innovation Union Scoreboard (IUS) 2014's results, showing four different performance groups, based on the average innovation performance in the EU. Three countries from our northern group (i.e., Denmark, Finland, and Sweden) fell into the group of "innovation leaders," with innovation performance being well above the EU average, whereas only Germany from the investigated western group belonged to this same category [16].

This paper focuses on country and regional differences in innovation activity. Our research is based on the Global Entrepreneurship Monitor (GEM). GEM's contribution to the knowledge and understanding of the entrepreneurial process is unique as it is the only existing data set that can provide consistent cross-country comparisons and information on entrepreneurial activity. As such, the importance of its findings is invaluable for policymakers as well as academics. GEM focuses in particular on the level of involvement in a country's early-stage entrepreneurial activity. But one needs to understand that many new entrepreneurs can be characterized as imitators, not "real" entrepreneurs in search of novelty; in fact their aim is not to innovate or grow their business [17]. At the regional level, our interest therefore lies in another group, called established entrepreneurs, by which we can investigate the innovative type of entrepreneurial activity as, in the Schumpeterian perspective, they will boost the employment growth and innovation at the company level and, consequently, growth at the regional level [18, 19]. According to van der Zwan et al. [20], the structural presence of entrepreneurial activities within a country depends strongly on the prevalence rates of established entrepreneurs. This means that established companies ultimately create certainty for employment and jobs.

Different authors claim that entrepreneurial innovativeness relates strongly to individual as well as environmental circumstances and differs significantly between countries. More developed countries have higher intensity of innovative rather than purely imitative entrepreneurs [1, 6, 8]. Also the presence of business opportunities in general depends on environmental factors such as technology advancement, rules of law, and demographics and also other society characteristics, such as values, customs, and urbanization [6]. For example, Morris [21] describes Northern European high-growth entrepreneurs as being very unlikely to allow fear of failure to prevent them from starting a new business, whereas Western European highgrowth entrepreneurs are among the least likely to have started their business in order to increase their incomes. They are the most likely to start their business in order to become more independent.

Our research concentrates on the relationship among various dimensions of entrepreneurship (e.g., educational level, firms' customers from other countries—international orientation, growth aspirations, about future employment) and their innovative versus imitative activity. Investigated variables of our research are in line with three broad areas of innovative performance as described in IUS 2014: enablers, firm activities, and outputs. Among the enablers, which refer to a firm's external drivers of innovation activity, human resources measured with entrepreneurs' educational level have been examined. From the firm activities, companies' international orientation has been explored. Finally, using output, entrepreneurs' growth aspirations have been taken into consideration. We derived data from the GEM research for 2001– 2008. The NEEs that participated in the GEM and in which we were interested included Denmark, Finland, Iceland, Ireland, Latvia, Norway, Sweden, and the United Kingdom, whereas the WEEs comprise Austria, Belgium, France, Germany, Italy, the Netherlands, Portugal, Spain, and Switzerland.

This paper is divided into six sections. The next section presents the theoretical background and previous research. The following section describes research hypotheses, which is succeeded by the presentation of the data, variables, and models. Results are explained in the next section. The final section presents the discussion and conclusion.

### 2. Theoretical background and previous research

exists in studies on entrepreneurial activity that simultaneously encompass regions and countries [9, 10]. Therefore, investigating determinants of entrepreneurship over regions (in our case, Western and Northern European economies) enables us to disentangle regional demography attributes (e.g., identifying ambitious entrepreneurs), institutional components (e.g., educational system), and specific regional attributes (e.g., international orientation). In recent years, the connection among innovation and international orientation, educational level, and growth aspiration has attracted increased interest among policymakers, researchers, and busi-

Prior studies lack a thorough investigation of the factors that stimulate innovative rather than imitative forms of entrepreneurial activity. They are certainly related to the phenomena of business opportunity recognition; therefore the current paper adds to the knowledge of the development of different types and levels of companies' innovation and focus on the determinants that might differ between Western and Northern European economies' established entrepreneurs. The reasoning behind expected differences of these two regions lies in the Innovation Union Scoreboard (IUS) 2014's results, showing four different performance groups, based on the average innovation performance in the EU. Three countries from our northern group (i.e., Denmark, Finland, and Sweden) fell into the group of "innovation leaders," with innovation performance being well above the EU average, whereas only Germany from the

This paper focuses on country and regional differences in innovation activity. Our research is based on the Global Entrepreneurship Monitor (GEM). GEM's contribution to the knowledge and understanding of the entrepreneurial process is unique as it is the only existing data set that can provide consistent cross-country comparisons and information on entrepreneurial activity. As such, the importance of its findings is invaluable for policymakers as well as academics. GEM focuses in particular on the level of involvement in a country's early-stage entrepreneurial activity. But one needs to understand that many new entrepreneurs can be characterized as imitators, not "real" entrepreneurs in search of novelty; in fact their aim is not to innovate or grow their business [17]. At the regional level, our interest therefore lies in another group, called established entrepreneurs, by which we can investigate the innovative type of entrepreneurial activity as, in the Schumpeterian perspective, they will boost the employment growth and innovation at the company level and, consequently, growth at the regional level [18, 19]. According to van der Zwan et al. [20], the structural presence of entrepreneurial activities within a country depends strongly on the prevalence rates of established entrepreneurs. This means that established companies ultimately create certainty

Different authors claim that entrepreneurial innovativeness relates strongly to individual as well as environmental circumstances and differs significantly between countries. More developed countries have higher intensity of innovative rather than purely imitative entrepreneurs [1, 6, 8]. Also the presence of business opportunities in general depends on environmental factors such as technology advancement, rules of law, and demographics and also other society characteristics, such as values, customs, and urbanization [6]. For example, Morris [21] describes Northern European high-growth entrepreneurs as being very unlikely to allow fear

investigated western group belonged to this same category [16].

ness leaders [6, 8, 11–15].

94 Entrepreneurship - Development Tendencies and Empirical Approach

for employment and jobs.

Entrepreneurship and innovation theories demonstrate that it is easier to find common points than to define limits between them; this might be one reason why we often see them as a single phenomenon.

Such understanding originates from the work of Schumpeter [22]. He defined an entrepreneur "as an individual carrying out new combinations—namely, innovations." In his view the entrepreneur was the one who innovates. Schumpeter undoubtedly assigned the role of innovator to the entrepreneur and made a distinction between invention and innovation. He also explicitly differentiates the role of entrepreneurs and enterprise: "The carrying out of new combinations we call 'enterprise'; the individuals who carry them out, we call 'entrepreneurs'" [22]. In this way he emphasized the relevance of explicit human possessions: the ability to think, be creative, and innovate. Therefore, the entrepreneur becomes essential resource for an enterprise to exist. In order for an enterprise to grow, develop, and succeed, the entrepreneur needs to be innovative in constantly performing new combinations of existing resources [23].

Innovative activity in a given economy depends not only on individuals (entrepreneurs), networks of innovative enterprises and research organizations, suppliers, and customers but also on various institutional factors, such as the public financing system of research, the nation's system of schooling, training, and financial establishments. As such, innovation can be seen as the outcome of mutual activities of various members of the whole system [24]. Thus, the functioning of these joint constituencies of the system of which the outcome is represented by innovation is greatly dependent on economy-specific formal (e.g., regulatory frameworks) and informal (e.g., rules, conventions, and norms) institutions [2, 8, 25]. As a result, innovation activities are not equally distributed in space, i.e., [2, 26–29], and we are faced with different development levels of regional innovation systems, i.e., [1, 8, 30–33].

them. Entrepreneurs' higher educational level positively affects the company's innovation

Determinants of Established Entrepreneurs' Innovative Activity in Northern and Western Europe

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97

The 2011 Eurydice survey "Entrepreneurship Education" [40] gathered information on the state of entrepreneurship education as well as on the associated national strategies, action plans, initiatives, and ongoing reforms. The study investigated 31 European countries. Results show the wide recognition of the entrepreneurship education importance, since almost half of the countries have integrated the objectives linked to the promotion of entrepreneurship education within their broader strategies. Especially Northern European countries went even further and launched also specific entrepreneurship education strategies. It needs to be emphasized that Scandinavian countries promote innovation and entrepreneurship at every educational level. Entrepreneurship is taught from primary school on as a cross-curricular skill and not as a separate class. Universities systematically teach entrepreneurship in many different classes and create projects for students that include the development of an entrepreneurial

The expected positive relationship of educational level and a firm's innovative activity implicates that a firm's knowledge is managed properly and efficiently, which is manifested in a firm's innovativeness [42]. We use the term knowledge management as a description of "everything from the application of new technology to the broader endeavour of harnessing the intellectual capital of an organization" [42]. Successful organizations are capable of making new value by creating knowledge, which is manifested in a firm's innovation (new products or

Behind that reasoning, we expect that higher levels of educational attainment lead individuals to perceive and exploit innovative rather than imitative business ideas. Thus, our first research

H1: A higher educational level is significantly and positively related to firm innovative activity,

Internationalization has been defined by several different schools of thoughts. The monopolistic advantage theory proposes the internationalization when enterprises may use their established advantages abroad at no or very low cost. Product cycle theory suggests the internationalization as a strategy where enterprises protect their existing markets of mature products or services. The stage theory of internationalization describes the enterprise's internationalization as a result of development advancement. After accumulating a certain amount of knowledge and experience, enterprises start to work abroad and develop relationships across international boundaries [43]. Globalization raises the importance of global trade. Modern technologies allow smaller firms to compete on international markets. However, reasons for entrepreneurial internationalization remain quite different. Sometimes products and service might be more suitable for foreign markets. In the case of smaller economies, the size of internal markets might be the stimulating factor for going international. The intense local competition motivates them to pursue customers outside their countries. A broader leverage of high investments as well as

more so in Northern Europe than in the western part of the region.

3.2. International orientation and innovative activity

activities.

mind set [41].

services) [42].

hypothesis (H1) reads:

Andersson and Ejermo [14], for example, found a positive relationship between the innovativeness of a firm and its accessibility to university researchers within regions where a firm's own research groups are located. They also found that, for a firm's innovativeness, the size of the firm's R&D staff is the most important internal factor, whereas intraregional accessibility to other firms' research is not important. That regional effect matter has also been argued by Ashem et al. [34], who presented a regional innovation policy model aimed to enable regional advantage.

Insights into the determinants of innovative versus imitative entrepreneurship are relevant for policymakers as increasing the share of the former (i.e., innovative entrepreneurial activity) is a major target for the EU's 2020 Entrepreneurship as well as Innovation Strategy Agenda [16, 35, 36]. Previous study results [9, 10] have suggested that accounting for the regional context is important. They have also confirmed the distinction between low- and high-ambition entrepreneurship within various regions. Therefore, we expect to identify the significant differences in the innovative activity of established entrepreneurs within Western and Northern European regions. Bosma and Schutjens [9] further suggest that (the process of) setting up new businesses generally relates to regional conditions and regional demography effects, such as urbanization, age, and education structure, whereas entrepreneurs' growth and innovation ambitions are subject to national institutional factors, including entrepreneurial and cultural attitudes. Thus, we aim to see whether regional institutional conditions affect a firm's innovative activity.

### 3. Research propositions

#### 3.1. Entrepreneurs' educational level and innovative activity

Education at individual as well as country level is strongly related to productivity. Therefore, economies investing more into education express higher levels of national wealth. Different types of education—formal, informal, job training, as well as work experience—present a higher level of human capital that clearly benefits individuals. Some studies have shown that each year of school raises an individual's wage by 5–7% on average. The percentage depends on the quality of school, education type, and so on, but more highly educated workers are undoubtedly better paid and—unless firms are throwing their money away—more productive, e.g., [37–39].

Millán et al. [12] recently demonstrated that a higher level of education positively affects the average entrepreneur's performance. When profitable opportunities for new economic activities exist, individuals with more human capital should more effectively identify and develop them. Entrepreneurs' higher educational level positively affects the company's innovation activities.

The 2011 Eurydice survey "Entrepreneurship Education" [40] gathered information on the state of entrepreneurship education as well as on the associated national strategies, action plans, initiatives, and ongoing reforms. The study investigated 31 European countries. Results show the wide recognition of the entrepreneurship education importance, since almost half of the countries have integrated the objectives linked to the promotion of entrepreneurship education within their broader strategies. Especially Northern European countries went even further and launched also specific entrepreneurship education strategies. It needs to be emphasized that Scandinavian countries promote innovation and entrepreneurship at every educational level. Entrepreneurship is taught from primary school on as a cross-curricular skill and not as a separate class. Universities systematically teach entrepreneurship in many different classes and create projects for students that include the development of an entrepreneurial mind set [41].

The expected positive relationship of educational level and a firm's innovative activity implicates that a firm's knowledge is managed properly and efficiently, which is manifested in a firm's innovativeness [42]. We use the term knowledge management as a description of "everything from the application of new technology to the broader endeavour of harnessing the intellectual capital of an organization" [42]. Successful organizations are capable of making new value by creating knowledge, which is manifested in a firm's innovation (new products or services) [42].

Behind that reasoning, we expect that higher levels of educational attainment lead individuals to perceive and exploit innovative rather than imitative business ideas. Thus, our first research hypothesis (H1) reads:

H1: A higher educational level is significantly and positively related to firm innovative activity, more so in Northern Europe than in the western part of the region.

#### 3.2. International orientation and innovative activity

be seen as the outcome of mutual activities of various members of the whole system [24]. Thus, the functioning of these joint constituencies of the system of which the outcome is represented by innovation is greatly dependent on economy-specific formal (e.g., regulatory frameworks) and informal (e.g., rules, conventions, and norms) institutions [2, 8, 25]. As a result, innovation activities are not equally distributed in space, i.e., [2, 26–29], and we are faced with different

Andersson and Ejermo [14], for example, found a positive relationship between the innovativeness of a firm and its accessibility to university researchers within regions where a firm's own research groups are located. They also found that, for a firm's innovativeness, the size of the firm's R&D staff is the most important internal factor, whereas intraregional accessibility to other firms' research is not important. That regional effect matter has also been argued by Ashem et al. [34], who presented a regional innovation policy model aimed to enable regional

Insights into the determinants of innovative versus imitative entrepreneurship are relevant for policymakers as increasing the share of the former (i.e., innovative entrepreneurial activity) is a major target for the EU's 2020 Entrepreneurship as well as Innovation Strategy Agenda [16, 35, 36]. Previous study results [9, 10] have suggested that accounting for the regional context is important. They have also confirmed the distinction between low- and high-ambition entrepreneurship within various regions. Therefore, we expect to identify the significant differences in the innovative activity of established entrepreneurs within Western and Northern European regions. Bosma and Schutjens [9] further suggest that (the process of) setting up new businesses generally relates to regional conditions and regional demography effects, such as urbanization, age, and education structure, whereas entrepreneurs' growth and innovation ambitions are subject to national institutional factors, including entrepreneurial and cultural attitudes. Thus, we aim to see whether regional institutional conditions affect a firm's innova-

Education at individual as well as country level is strongly related to productivity. Therefore, economies investing more into education express higher levels of national wealth. Different types of education—formal, informal, job training, as well as work experience—present a higher level of human capital that clearly benefits individuals. Some studies have shown that each year of school raises an individual's wage by 5–7% on average. The percentage depends on the quality of school, education type, and so on, but more highly educated workers are undoubtedly better paid and—unless firms are throwing their money away—more produc-

Millán et al. [12] recently demonstrated that a higher level of education positively affects the average entrepreneur's performance. When profitable opportunities for new economic activities exist, individuals with more human capital should more effectively identify and develop

development levels of regional innovation systems, i.e., [1, 8, 30–33].

96 Entrepreneurship - Development Tendencies and Empirical Approach

advantage.

tive activity.

tive, e.g., [37–39].

3. Research propositions

3.1. Entrepreneurs' educational level and innovative activity

Internationalization has been defined by several different schools of thoughts. The monopolistic advantage theory proposes the internationalization when enterprises may use their established advantages abroad at no or very low cost. Product cycle theory suggests the internationalization as a strategy where enterprises protect their existing markets of mature products or services. The stage theory of internationalization describes the enterprise's internationalization as a result of development advancement. After accumulating a certain amount of knowledge and experience, enterprises start to work abroad and develop relationships across international boundaries [43].

Globalization raises the importance of global trade. Modern technologies allow smaller firms to compete on international markets. However, reasons for entrepreneurial internationalization remain quite different. Sometimes products and service might be more suitable for foreign markets. In the case of smaller economies, the size of internal markets might be the stimulating factor for going international. The intense local competition motivates them to pursue customers outside their countries. A broader leverage of high investments as well as geographical factors and strategic partnership connections can also stimulate cross border activities [39, 44, 45].

innovation [19, 60, 61]. A positive but not significant relationship was estimated between a firm's entrepreneurial orientation and its growth aspirations for a sample of 1612 small- and medium-sized enterprises from Germany, Austria, Switzerland, and Liechtenstein [11]. Harrison et al. [62] studied the impact of process and product innovations on employment growth in manufacturing and services firms from France, Germany, Spain, and the United Kingdom (20,000 firms) for the 1998–2000 period. The results indicated that employment decreases with productivity growth in the production of old products, whereas it remains unchanged or rises

Determinants of Established Entrepreneurs' Innovative Activity in Northern and Western Europe

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99

In our investigation, we sought to uncover an individual's unique capacity to be innovative and creative. We believe that essential factors for transferring ideas, knowledge, and experiences into something that is radically new or ameliorates a product or process are at least two. The first factor is determination and longing to innovate (innovation impulse), while the second factor comprises opportunities and the feasibility to innovate (innovation capacity). From this standpoint, the economic literature interprets innovation capacity of organizations [63] and innovation capacity of countries [64, 65]. Notwithstanding, the previous literature, according to our knowledge, has not researched and debated about the innovation impulse or innovation capacity of an individual as determinants related to his/her aspiration for growing a firm. We propose that individuals who declare a larger extent of innovation activity are more

plausible to be engaged in growing their firms. Hence, the third hypothesis (H3) is:

economies (WEEs) and eight Northern European economies (NEEs).

from the nine WEEs and 6144 to 7618 individuals from eight NEEs.

well as separately for the two groups of countries.

4. Data, variables, and models

4.1. Data

4.2. Variables

H3: Firm growth aspirations are significantly and positively related to firm innovative activity. All three hypotheses were tested for established entrepreneurs in nine Western European

Research data were derived from the GEM research. Bosma et al. [53] fully explained the GEM study's content and procedures. GEM is a large-scale entrepreneurship research program launched with ten countries in 1997. In 2014, the coverage was extended to 73 countries [66]. For our research, we used GEM data pooled form Adult Population Survey (APS) collected for the period 2001–2008. Interviewing was done by the method of computer-assisted telephone interviewing (CATI). Our model is represented by a sample of 13,285 to 15,358 individuals

In this section, we described the way we measured the variables included in our research. We used the GEM data already mentioned. In the following, we first presented the dependent (criterion) variable, which is innovative activity. Then we proceeded with main independent variables (predictors), which are educational level, international orientation, and firm growth aspirations. We built a model for established entrepreneurs from WEEs and NEEs combined as

with process innovations.

International orientation and innovative activity are strongly interrelated. Williams and Shaw [13] stated that "successful internationalization requires innovation, and internationalization requires firms to have superior knowledge." Knight and Cavusgil [46] claimed that "fast internationalisers are more innovative than domestic firms or slow internationalisers" and their entrepreneurial teams have more international experience. Andersson and Lööf [47] found that, especially for small firms, persistence in pursuing exports appears to be necessary and sufficient for gleaning learning effects from exports. The authors also found that such an effect of learning by exporting increases with the extent of small firms' exports [48].

The reason we use international orientation as an indicator of a firm's innovative activity stems from the general consideration that innovative products or services are easily exploited across countries [49]. According to Cerrato [49], the consequence of a more international presence leads to a higher level of innovation. The mediating role of the region is included in our research because of the recent empirical arguments that both the diversity and strength of knowledge generated within the region or brought into the region on the basis of international cooperation are crucial for the region's innovative activity [41, 45, 50]. Regarding Andersson and Lööf's [51] findings, for micro and small firms to be innovative, important determinants include skilled labor, affiliation to a domestically owned multinational corporation, and international trade with the G7 countries. As Kaufmann and Tödtling [52] argued, determinants of innovation for SMEs depend on characteristics of the region in which SMEs are integrated; thus, we divide the sample into two regions in order to address such distinctions.

A specific GEM measure assesses the extent to which entrepreneurs sell to customers outside their economies. Internationalization is—on average—lowest in the factor-driven economies and increases with the economic development level [53, 54]. Based on Porter's typology [55], all the investigated countries in our sample are innovation-driven economies; the one exception is Latvia, which is an efficiency-driven economy. In line with the discussed circumstances, we presuppose a positive association between innovative activity and international orientation of established entrepreneurs. Our second research hypothesis (H2) reads:

H2: International orientation is significantly and positively related to firm innovative activity, more so in Northern Europe than in the western part of the region.

#### 3.3. Growth aspirations and innovative activity

Entrepreneurship research and practice emphasize company growth as a measure of entrepreneurial success. One reason why society values entrepreneurs is their potential to create employment opportunities for others [19, 56]. Davidsson [57] argues that a determinant of perpetual entrepreneurship is firm growth. To Penrose [58] firms that are oriented to grow are better equipped to allure exceptionally qualified management, as well as outside investors, partners, and rivals. Since business growth is advantageous, it would be a good idea for entrepreneurs to pursue it [59].

The variable of firm growth aspirations is added to our model as the growth enables small firms to achieve a competitive advantage, which can be developed and is implicated by innovation [19, 60, 61]. A positive but not significant relationship was estimated between a firm's entrepreneurial orientation and its growth aspirations for a sample of 1612 small- and medium-sized enterprises from Germany, Austria, Switzerland, and Liechtenstein [11]. Harrison et al. [62] studied the impact of process and product innovations on employment growth in manufacturing and services firms from France, Germany, Spain, and the United Kingdom (20,000 firms) for the 1998–2000 period. The results indicated that employment decreases with productivity growth in the production of old products, whereas it remains unchanged or rises with process innovations.

In our investigation, we sought to uncover an individual's unique capacity to be innovative and creative. We believe that essential factors for transferring ideas, knowledge, and experiences into something that is radically new or ameliorates a product or process are at least two. The first factor is determination and longing to innovate (innovation impulse), while the second factor comprises opportunities and the feasibility to innovate (innovation capacity). From this standpoint, the economic literature interprets innovation capacity of organizations [63] and innovation capacity of countries [64, 65]. Notwithstanding, the previous literature, according to our knowledge, has not researched and debated about the innovation impulse or innovation capacity of an individual as determinants related to his/her aspiration for growing a firm. We propose that individuals who declare a larger extent of innovation activity are more plausible to be engaged in growing their firms. Hence, the third hypothesis (H3) is:

H3: Firm growth aspirations are significantly and positively related to firm innovative activity.

All three hypotheses were tested for established entrepreneurs in nine Western European economies (WEEs) and eight Northern European economies (NEEs).

### 4. Data, variables, and models

#### 4.1. Data

geographical factors and strategic partnership connections can also stimulate cross border

International orientation and innovative activity are strongly interrelated. Williams and Shaw [13] stated that "successful internationalization requires innovation, and internationalization requires firms to have superior knowledge." Knight and Cavusgil [46] claimed that "fast internationalisers are more innovative than domestic firms or slow internationalisers" and their entrepreneurial teams have more international experience. Andersson and Lööf [47] found that, especially for small firms, persistence in pursuing exports appears to be necessary and sufficient for gleaning learning effects from exports. The authors also found that such an effect of learning

The reason we use international orientation as an indicator of a firm's innovative activity stems from the general consideration that innovative products or services are easily exploited across countries [49]. According to Cerrato [49], the consequence of a more international presence leads to a higher level of innovation. The mediating role of the region is included in our research because of the recent empirical arguments that both the diversity and strength of knowledge generated within the region or brought into the region on the basis of international cooperation are crucial for the region's innovative activity [41, 45, 50]. Regarding Andersson and Lööf's [51] findings, for micro and small firms to be innovative, important determinants include skilled labor, affiliation to a domestically owned multinational corporation, and international trade with the G7 countries. As Kaufmann and Tödtling [52] argued, determinants of innovation for SMEs depend on characteristics of the region in which SMEs are integrated;

thus, we divide the sample into two regions in order to address such distinctions.

of established entrepreneurs. Our second research hypothesis (H2) reads:

more so in Northern Europe than in the western part of the region.

3.3. Growth aspirations and innovative activity

entrepreneurs to pursue it [59].

A specific GEM measure assesses the extent to which entrepreneurs sell to customers outside their economies. Internationalization is—on average—lowest in the factor-driven economies and increases with the economic development level [53, 54]. Based on Porter's typology [55], all the investigated countries in our sample are innovation-driven economies; the one exception is Latvia, which is an efficiency-driven economy. In line with the discussed circumstances, we presuppose a positive association between innovative activity and international orientation

H2: International orientation is significantly and positively related to firm innovative activity,

Entrepreneurship research and practice emphasize company growth as a measure of entrepreneurial success. One reason why society values entrepreneurs is their potential to create employment opportunities for others [19, 56]. Davidsson [57] argues that a determinant of perpetual entrepreneurship is firm growth. To Penrose [58] firms that are oriented to grow are better equipped to allure exceptionally qualified management, as well as outside investors, partners, and rivals. Since business growth is advantageous, it would be a good idea for

The variable of firm growth aspirations is added to our model as the growth enables small firms to achieve a competitive advantage, which can be developed and is implicated by

by exporting increases with the extent of small firms' exports [48].

98 Entrepreneurship - Development Tendencies and Empirical Approach

activities [39, 44, 45].

Research data were derived from the GEM research. Bosma et al. [53] fully explained the GEM study's content and procedures. GEM is a large-scale entrepreneurship research program launched with ten countries in 1997. In 2014, the coverage was extended to 73 countries [66]. For our research, we used GEM data pooled form Adult Population Survey (APS) collected for the period 2001–2008. Interviewing was done by the method of computer-assisted telephone interviewing (CATI). Our model is represented by a sample of 13,285 to 15,358 individuals from the nine WEEs and 6144 to 7618 individuals from eight NEEs.

#### 4.2. Variables

In this section, we described the way we measured the variables included in our research. We used the GEM data already mentioned. In the following, we first presented the dependent (criterion) variable, which is innovative activity. Then we proceeded with main independent variables (predictors), which are educational level, international orientation, and firm growth aspirations. We built a model for established entrepreneurs from WEEs and NEEs combined as well as separately for the two groups of countries.

#### 4.2.1. Dependent (criterion) variable

We assumed the activity of established entrepreneurs being innovative or imitative according to given answers to the next questions:

answer from two options: no (coded as 0) or yes (coded as 1). Yes represented the reference

Determinants of Established Entrepreneurs' Innovative Activity in Northern and Western Europe

http://dx.doi.org/10.5772/intechopen.71843

7. Year survey (control variable). Data for the survey was collecting in the period 2001 to

8. Gender (control variable). Respondents indicated their gender: male (coded as 1) or

We built three pooled binary logistic regression models for eight consecutive years (2001–2008) in one dataset: the first model for nine WECs, the second model for eight NECs, and the third model for both groups combined. Pooling the years in one dataset allowed us to control the fluctuations in the distribution across countries over time. In the models, we assumed that the criterion variable is a linear combination of the eight predictors. The models for estimation read:

þB3j Firm growth aspirationsji þ B4j Technology sectorji þ B5jm Firm typemji þ B6j Skillsji þB7jn Year surveynji þ B8j Genderji þ eji

where Logit [P(y = 1)] is the criterion variable (i.e., the binary logit estimate for innovative activity); a is the binary logit for the regression constant; B is the binary logit estimate for the regression coefficients of predictors; j is the index for the WEEs, NEEs, and combined model (j = 1,2,3); k is the index for three categories of educational level (k = 1,2,3); l is the index of four categories of international orientation (l = 1,…, 4); m is the index of three categories of firm type (m = 1,2,3); n is the index of eight categories of survey year (n = 1,…,8); i is the index for the number of cases (NWEEs = 13,285 to 15,358; NNEEs = 6144 to 7618); and eji is the binary logit

By adding the control variables (technology sector, firm type, skills, survey year, and gender),

Table 1 summarizes the results. The binary logit estimate for educational level is negative and significant, whereas it is positive for international orientation. Firm growth aspirations are negatively and significantly related to innovative activity only for the NEEs model, whereas this predictor proved to be irrelevant for the WEEs model and combined economies (when both groups were pooled together). As the WEEs and NEEs models' estimations are correct, in the following we focus on explaining the meaning of these models' regression coefficients. The empirical results confirm our H1 and H2 hypotheses for both groups of economies, whereas the H3 hypothesis is confirmed only for the NEEs. In the H1 hypothesis, we suggested that higher levels of education positively affect a firm's innovative activity. In the H2 hypothesis, we

we tried to improve the results presented in the next section.

ji ¼ aj þ B1jk Educational levelkji þ B2jl International orientationlji

(1)

101

2008. The year of 2008 represented the reference indicator.

indicator.

female (coded as 2).

Logit P y <sup>¼</sup> <sup>1</sup>

estimate for the error term.

5. Results

4.3. Binary logistic regression models


We assumed as innovative (coded as 1) an established entrepreneur (an interviewee) who selected no to the first question, all or some to second question, and few or none to the third question. Interviewees that selected yes to the first question, none to second question, and many to the third question represented imitative established entrepreneurs (coded 0, which assumes the reference category).

#### 4.2.2. Independent variables (predictors)

In the binary logistic regression model, we included three independent variables and five control variables:


answer from two options: no (coded as 0) or yes (coded as 1). Yes represented the reference indicator.


#### 4.3. Binary logistic regression models

4.2.1. Dependent (criterion) variable

(coded as 3).

control variables:

assumes the reference category).

4.2.2. Independent variables (predictors)

represented the reference indicator.

to given answers to the next questions:

100 Entrepreneurship - Development Tendencies and Empirical Approach

We assumed the activity of established entrepreneurs being innovative or imitative according

• Were the technologies or procedures available more than a year ago? Interviewees

• How many (potential) customers consider the product new/unfamiliar? Interviewees selected their answer from three options: all (coded as 1), some (coded as 2), and none

• How many businesses offer the same products? Interviewees selected the answer from

We assumed as innovative (coded as 1) an established entrepreneur (an interviewee) who selected no to the first question, all or some to second question, and few or none to the third question. Interviewees that selected yes to the first question, none to second question, and many to the third question represented imitative established entrepreneurs (coded 0, which

In the binary logistic regression model, we included three independent variables and five

1. Educational level. Interviewees were able to choose the answer from the following options: some secondary (coded as 1), secondary degree (coded as 2), postsecondary (coded as 3), or graduate expanded (coded as 4). The fourth option represented the indicator of reference.

2. International orientation. Interviewees were choosing their answers from the following options: 76–100% (coded as 1), 26–75% (coded as 2), 11–25% (coded as 3), 1–10% (coded as

3. Firm growth aspirations. Interviewees responded if they intend to recruit more than five employees in the next 5 years: no (coded as 0) or yes (coded as 1). The last option

4. Technology sector (control variable). Interviewees' business and the technology sector were selected from among two given options considering the classification of the technology level proposed by OECD: no/low technology sector (coded as 0) or medium or high technology sector (coded as 1). The last option represented the reference indicator.

5. Firm type (control variable). Interviewees selected their answers from four options: extractive (coded as 1), transforming (coded as 2), business services (coded as 3), or consumer oriented (coded as 4). The representative of the reference indicator was the fourth option.

6. Skills (control variable). Interviewees answered whether they had the capacity, represented by knowledge, skill, and experience, necessary to establish a new firm. They selected the

4), or none (coded as 5). We used the last option for the reference indicator.

selected the answer from two options: no (coded as 0) and yes (coded as 1).

three options: many (coded as 1), few (coded as 2), and none (coded as 3).

We built three pooled binary logistic regression models for eight consecutive years (2001–2008) in one dataset: the first model for nine WECs, the second model for eight NECs, and the third model for both groups combined. Pooling the years in one dataset allowed us to control the fluctuations in the distribution across countries over time. In the models, we assumed that the criterion variable is a linear combination of the eight predictors. The models for estimation read:

Logit P y <sup>¼</sup> <sup>1</sup> ji ¼ aj þ B1jk Educational levelkji þ B2jl International orientationlji þB3j Firm growth aspirationsji þ B4j Technology sectorji þ B5jm Firm typemji þ B6j Skillsji (1)

þB7jn Year surveynji þ B8j Genderji þ eji

where Logit [P(y = 1)] is the criterion variable (i.e., the binary logit estimate for innovative activity); a is the binary logit for the regression constant; B is the binary logit estimate for the regression coefficients of predictors; j is the index for the WEEs, NEEs, and combined model (j = 1,2,3); k is the index for three categories of educational level (k = 1,2,3); l is the index of four categories of international orientation (l = 1,…, 4); m is the index of three categories of firm type (m = 1,2,3); n is the index of eight categories of survey year (n = 1,…,8); i is the index for the number of cases (NWEEs = 13,285 to 15,358; NNEEs = 6144 to 7618); and eji is the binary logit estimate for the error term.

By adding the control variables (technology sector, firm type, skills, survey year, and gender), we tried to improve the results presented in the next section.

### 5. Results

Table 1 summarizes the results. The binary logit estimate for educational level is negative and significant, whereas it is positive for international orientation. Firm growth aspirations are negatively and significantly related to innovative activity only for the NEEs model, whereas this predictor proved to be irrelevant for the WEEs model and combined economies (when both groups were pooled together). As the WEEs and NEEs models' estimations are correct, in the following we focus on explaining the meaning of these models' regression coefficients. The empirical results confirm our H1 and H2 hypotheses for both groups of economies, whereas the H3 hypothesis is confirmed only for the NEEs. In the H1 hypothesis, we suggested that higher levels of education positively affect a firm's innovative activity. In the H2 hypothesis, we


Predictor

Coefficient

 West European economies (WEEs)

North European economies (NEEs)

West and North European economies

(j = 3) (N = 20,935\*\*\*)

(j = 2)

(N = 5095\*\*)

(j = 1)

(N = 12,314\*)

B

 Exp(B)

Wald

 p-Value B

 Exp(B)

Wald

 p-value B

 Exp(B)

Wald

 p-Value

(odds

ratio)

(odds

ratio)

(odds

ratio)

Year survey (2006) Year survey (2007)

Gender (males)

Intercept -2Log Likelihood

Nagelkerke

Model χ<sup>2</sup>

Model χ<sup>2</sup> Overall Predictive Accuracy (%)

Notes: The reference category of the criterion variable in the estimation is 0 (Imitative) by which respondents

seven predictors are: educational

= 0), firm type (consumer oriented; = 0), skills (yes; = 0), year survey (2008; = 0), and gender (female; = 0). In the model, there is no problem of

by correlation matrices. These matrices are not included in the paper but are accessible on request.

West European economies

include Denmark, Finland, Iceland, Ireland, Latvia, Norway, Sweden, and the United Kingdom.

\*Included in analysis (missing cases 4065; total 16,379);

\*\*included in analysis (missing cases 2265; total 7360);

\*\*\*included

Table 1. Results of the binary logistic regression for the WEEs, NEEs, and combined established

 in analysis (missing cases 10,008; total 30,943).

 (WEEs) include Austria, Belgium, France, Germany, Italy, the

 level (graduate expanded; = 0),

international

 orientation (none; = 0), firm growth aspirations (yes; = 0), technology

Netherlands,

 Portugal, Spain, and

entrepreneurs,

 2001–2008

 (criterion variable: innovative

 activity = 1).

http://dx.doi.org/10.5772/intechopen.71843

103

Switzerland;

 North European economies (NEEs)

Significance

 R Square

B74j B75j

B8j

aj

1614

7639,356

0.091 548,834

0.000

88,7

 0.199

 87,633

 0.000

0.273

3047,352

0.179 485,470

0.000

89,9

 with the imitative activity are coded. Reference categories of the

 sector (medium or high tech;

Determinants of Established Entrepreneurs' Innovative Activity in Northern and Western Europe

multicollinearity

 which is confirmed

 0.761

 1008

 0.315

1173

12,677,829

0.118

1233,768

0.000

89,6

 0.309

 85,283

 0.000

0.054

 1055

 0.725

 0.394

 0.037

 1037

 0.111

 0.738

0.125

 0.882

 2054

 0.152

0.098

 0.907

 0.399

 0.527

0.090

 0.914

 1776

 0.183

0.004

 0.996

 0.002

 0.966

0.022

 0.978

 0.024

 0.878

 0.032

 1032

 0.189

 0.663


Predictor

Coefficient

 West European economies (WEEs)

North European economies (NEEs)

West and North European economies

(j = 3) (N = 20,935\*\*\*)

(j = 2)

(N = 5095\*\*)

(j = 1)

(N = 12,314\*)

B

 Exp(B)

Wald

 p-Value B

 Exp(B)

Wald

 p-value B

 Exp(B)

Wald

 p-Value

(odds

ratio)

104,815 0.000

(odds

ratio)

33,903

 0.000

(odds

ratio)

58,650

 0.000

Educational

Educational

Educational

degree)

Education International

International

International

International

International

Firm growth aspirations (No)

Technology

technology) 0,138

Firm type Firm type (extractive)

Firm type Firm type (business service)

Skills (No) Year survey Year survey (2003)

Year survey (2004) Year survey (2005)

(transforming)

B52j

 B53j

B6j B7j B71j B72j B73j

0.004

 0.996

 0.002

 0.960

0.230

 0.794

 2145

 0.143

0.081

 0.923

 1385

 0.239

1628

 0.196

 114,446 0.000

2776

 0.062

 41,357

 0.000

2079

1738

 0.176

 95,675

 0.000

1702

 0.182

 285,514 0.000

 0.125

 41,406

 0.000

2083

 0.125

 159,045 0.000


 0.922

 0.594 161,070 0.000

 0.441

 -0.267

 0.766

 2855 159,336 0.000

 0.091

0.214

 0.808

 6821 476,715 0.000

 0.009

0.131

 0.877

 2203

 0.138

0.406

 0.666

 8171

 0.004

0.310

 0.734

 20,468

 0.000

0.072

 0.930

 0.996

 0.318

0.217

 0.805

 3128

 0.077

0.090

 0.914

 2492

 0.114

 sector (low

 orientation (1–10%)

 orientation (11–25%)

 orientation (26–75%)

 orientation (76–100%)

 B21j

 B22j

 B23j

 B24j

 B3j B4j B5j B51j

0.401

 0.670

 10,701

 0.001

0.969

 0.379

 28,673

 0.000

0.587

 0.556

 38,247

 0.000

0.138

 0.871

 1298 11,460

 0.009

 0.255

0.884

 0.413

 30,478 31,353

 0.000

 0.000

0.433

 0.648

 25,561 51,142

 0.000

 0.000

0.061

 1063

 0.492

 0.483

0.382

 0.682

 7638

 0.006

 0.030

 1031

 0,192

 0.661

0.304

 1356

 16,402

 0.000

 0.514

 1672

 20,218

 0.000

 0.408

 1504

 52,738

 0.000

0.579

 1784

 21,769

 0.000

 0.931

 2538

 20,767

 0.000

 0.675

 1963

 46,996

 0.000

0.807

 2240

 73,950

 0.000

 0.835

 2305

 29,511

 0.000

 0.779

 2179

 109,398 0.000

1033

 2809

 69,962

 0.000

 1166

 3210

 41,125

 0.000

 1001

 2721

 109,840 0.000

 orientation

(postsecondary)

 B13j

B2j

0.197

 0.821

 4445 131,062 0.000

 0.035

0.514

 0.598

 13,825 65,210

 0.000

 0.000

0.352

 0.703

 25,117 209,617 0.000

 0.000

 level (secondary

 level (some secondary)

 B11j B12j

0.403

 0.668

 21,484

 0.000

0.327

 0.721

 6850

 0.009

0.389

 0.678

 36,679

 0.000

0.595

 0.551

 54,724

 0.000

0.822

 0.440

 27,984

 0.000

0.647

 0.524

 101,485 0.000

102 Entrepreneurship - Development Tendencies and Empirical Approach

 level

B1j Table 1. Results of the binary logistic regression for the WEEs, NEEs, and combined established entrepreneurs, 2001–2008 (criterion variable: innovative activity =

 1). presupposed that established enterprises that export certain proportions of their products or services are more innovative (compared to those that do not export). Our H3 hypothesis suggests that established entrepreneurs that have aspirations for growing their firms are expected to be more innovative. In the following, we analyze the results in greater detail.

compared to a firm not involved in exporting. In the NEEs model (as shown in Table 1), the greatest likelihood of innovative activity in an established enterprise is expected in firms with 11– 25% of exporting as its odds ratio amounts to 2.5. Thus, the probability of innovative orientation is 2.5 times greater if a firm exports 11–25% compared to a firm not involved in exporting. Our result confirms and further refines Palangkaraya's [68] findings of the positive correlation between innovation and export market participation among Australia's small and medium enterprises. The result can also be compared to Cerrato's [49] research findings that a stronger international

Determinants of Established Entrepreneurs' Innovative Activity in Northern and Western Europe

http://dx.doi.org/10.5772/intechopen.71843

105

Firm growth aspirations proved to be a significant predictor only in the NEEs model. The binary logit estimate was negative [B3 (NEEs) = 0.382, odds ratio = 0.682], indicating that the likelihood of established entrepreneurs with no growth aspirations being innovative is 32% smaller than the innovative orientation of established entrepreneurs that have firm growth aspirations. Our H3 hypothesis, which states that firm growth aspirations have a positive impact on innovative activity, was only partly confirmed as it was only valid for the NEEs model. This result for the NEEs is supported by Colombelli et al. [69] empirical finding of a positive association between firm growth and innovation for French industry. A positive but not significant relationship was estimated between a firm's entrepreneurial orientation and its growth aspirations for small- and medium-sized enterprises from Germany, Austria, Switzerland, and Liechtenstein [11]. In a way, our results can be compared to those of Harrison et al. [62], who estimated the impact of process and product innovations on employment growth in manufacturing and services firms from France, Germany, Spain, and the United Kingdom. Their results indicated that employment

Regarding control variables, the results demonstrated that their inclusion in the models was reasonable as they proved to be additional indicators of innovative activity, although they were not significant in all cases. For example, the technology sector is a significant indicator for NEEs' established entrepreneurs [B4 (NEEs) = 0.884, odds ratio = 0.413], but not for the WEEs. Thus, the likelihood of innovative activity for established entrepreneurs from NEEs is 59% smaller if a firm operates in a low technology sector compared to a medium or high technology sector. However, technological classification does not contribute to the explanation of innovative activity in WEEs. In the combined model, this relationship also proved to be negative and significant, although the value of the regression coefficient was halved compared

Firm type for the extractive sector proved to be a negative and significant indicator in both cases. The likelihood of being innovative is 33 and 62% smaller if an established enterprise operated in the extractive sector compared to the consumer-oriented sector [B51 (WEEs) = 0.401, odds ratio = 0.670 and B51 (NEEs) = 0.969, odds ratio = 0.379]. The business service is another significant category of the firm-type predictor, but only for the NEEs model [B53 (NEEs) = 0.406, odds ratio = 0.666]. This means that a likelihood of being innovative is 33% smaller if an established firm operates in the business service sector than in the consumer-oriented sector.

The results indicate that the binary estimate for the 2003 and 2004 survey years were negative and significant (compared to 2008) (see B71 and B72 for WEEs and NEEs in Table 1). Thus,

during these years, established entrepreneurs were less innovative than in 2008.

presence among micro and small enterprises affects the greater level of their innovation.

remains unchanged or increases with process innovations.

to that of the NEEs, which we consider to be incorrect.

Some secondary education showed the highest negative and significant binary logit estimate for NEEs [B11 (NEEs) = 0.822, odds ratio = 0.440]. The odds ratio indicates that the likelihood of being innovative for an established entrepreneur with some secondary education is 56% smaller than an established entrepreneur with an expanded graduate-level education. This predictor in WEEs model has a smaller binary logit estimate and a higher odds ratio [B11 (WEEs) = 0.595, odds ratio = 0.551], which means that the likelihood of being innovative for an established entrepreneur with some secondary education is 45% less than for an established entrepreneur with an expanded graduate-level education. As indicated in Table 1, the odds ratios increase with higher educational levels in the WEEs and combined models, which mean that the probability of innovative activity (compared to imitative activity) of established entrepreneurs is higher an entrepreneur's higher educational level. However, in the NEEs model, we can see (in Table 1) that a secondary education degree creates a larger likelihood that an established entrepreneur is innovative [B13 (NEEs) = 0.514, odds ratio = 0.598] than a postsecondary education (the reference category). Thus, the likelihood of innovative activity is higher by 12% points for an established entrepreneur with a secondary degree compared to a postsecondary degree. Such results can be compared to the empirical research results of Ucbasaran et al. [67], who found that business owners with more experience, managerial, entrepreneurial, and technical capabilities (presented by the educational level variable in our case) identify and realize more business opportunity (presented by the innovative activity variable in our case).

The overall impact of international orientation proved to be a positive and significant predictor in all three models, although the regression coefficients were quite different. In all cases, the coefficients were the highest in the NEEs model. A positive relationship between innovative activity and a specific degree of international orientation was expected, as presupposed in our H2 hypothesis. As the reference category for comparison was no international orientation, an increasing value of regression coefficients was expected; this was true for the WEEs and combined cases, but not for the NEEs model. In the WEEs model, the highest positive impact had exports of 76–100% [B21 (WEEs) = 1.033, odds ratio = 2.809]. The likelihood of being innovative in a WEEs' established enterprise is 2.8 times greater if a firm exports 76–100% of its products or services, compared to a similar firm not involved in exporting. In the NEEs model, this figure is even higher [B21 (NEEs) = 1.166, odds ratio = 3.210]. Thus, the probability of being innovative is 3.2 times greater for an established enterprise that exports 76–100% of its products or services than a firm not involved in exporting. The value of regression coefficients for exports between 26 and 75% for both the WEEs and NEEs models was almost the same [B22 (WEEs) = 0.807, odds ratio = 2.240 and B22 (NEEs) = 0.835, odds ratio = 2.305]. Therefore, the likelihood of being innovative in a WEEs established enterprise is 2.2, whereas in the NEEs model, it is 2.3 times greater if a firm exports 26–75%. For the WEEs model, the results for another two categories of the predictor show that the likelihood of firm's innovative activity is 1.8 and 1.4 times bigger if a firm exports 11–25% and 1–10% of its products, respectively, compared to a firm not involved in exporting. In the NEEs model (as shown in Table 1), the greatest likelihood of innovative activity in an established enterprise is expected in firms with 11– 25% of exporting as its odds ratio amounts to 2.5. Thus, the probability of innovative orientation is 2.5 times greater if a firm exports 11–25% compared to a firm not involved in exporting. Our result confirms and further refines Palangkaraya's [68] findings of the positive correlation between innovation and export market participation among Australia's small and medium enterprises. The result can also be compared to Cerrato's [49] research findings that a stronger international presence among micro and small enterprises affects the greater level of their innovation.

presupposed that established enterprises that export certain proportions of their products or services are more innovative (compared to those that do not export). Our H3 hypothesis suggests that established entrepreneurs that have aspirations for growing their firms are expected to be more innovative. In the following, we analyze the results in greater detail.

104 Entrepreneurship - Development Tendencies and Empirical Approach

Some secondary education showed the highest negative and significant binary logit estimate for NEEs [B11 (NEEs) = 0.822, odds ratio = 0.440]. The odds ratio indicates that the likelihood of being innovative for an established entrepreneur with some secondary education is 56% smaller than an established entrepreneur with an expanded graduate-level education. This predictor in WEEs model has a smaller binary logit estimate and a higher odds ratio [B11 (WEEs) = 0.595, odds ratio = 0.551], which means that the likelihood of being innovative for an established entrepreneur with some secondary education is 45% less than for an established entrepreneur with an expanded graduate-level education. As indicated in Table 1, the odds ratios increase with higher educational levels in the WEEs and combined models, which mean that the probability of innovative activity (compared to imitative activity) of established entrepreneurs is higher an entrepreneur's higher educational level. However, in the NEEs model, we can see (in Table 1) that a secondary education degree creates a larger likelihood that an established entrepreneur is innovative [B13 (NEEs) = 0.514, odds ratio = 0.598] than a postsecondary education (the reference category). Thus, the likelihood of innovative activity is higher by 12% points for an established entrepreneur with a secondary degree compared to a postsecondary degree. Such results can be compared to the empirical research results of Ucbasaran et al. [67], who found that business owners with more experience, managerial, entrepreneurial, and technical capabilities (presented by the educational level variable in our case) identify and realize more business opportunity (presented by the innovative activity

The overall impact of international orientation proved to be a positive and significant predictor in all three models, although the regression coefficients were quite different. In all cases, the coefficients were the highest in the NEEs model. A positive relationship between innovative activity and a specific degree of international orientation was expected, as presupposed in our H2 hypothesis. As the reference category for comparison was no international orientation, an increasing value of regression coefficients was expected; this was true for the WEEs and combined cases, but not for the NEEs model. In the WEEs model, the highest positive impact had exports of 76–100% [B21 (WEEs) = 1.033, odds ratio = 2.809]. The likelihood of being innovative in a WEEs' established enterprise is 2.8 times greater if a firm exports 76–100% of its products or services, compared to a similar firm not involved in exporting. In the NEEs model, this figure is even higher [B21 (NEEs) = 1.166, odds ratio = 3.210]. Thus, the probability of being innovative is 3.2 times greater for an established enterprise that exports 76–100% of its products or services than a firm not involved in exporting. The value of regression coefficients for exports between 26 and 75% for both the WEEs and NEEs models was almost the same [B22 (WEEs) = 0.807, odds ratio = 2.240 and B22 (NEEs) = 0.835, odds ratio = 2.305]. Therefore, the likelihood of being innovative in a WEEs established enterprise is 2.2, whereas in the NEEs model, it is 2.3 times greater if a firm exports 26–75%. For the WEEs model, the results for another two categories of the predictor show that the likelihood of firm's innovative activity is 1.8 and 1.4 times bigger if a firm exports 11–25% and 1–10% of its products, respectively,

variable in our case).

Firm growth aspirations proved to be a significant predictor only in the NEEs model. The binary logit estimate was negative [B3 (NEEs) = 0.382, odds ratio = 0.682], indicating that the likelihood of established entrepreneurs with no growth aspirations being innovative is 32% smaller than the innovative orientation of established entrepreneurs that have firm growth aspirations. Our H3 hypothesis, which states that firm growth aspirations have a positive impact on innovative activity, was only partly confirmed as it was only valid for the NEEs model. This result for the NEEs is supported by Colombelli et al. [69] empirical finding of a positive association between firm growth and innovation for French industry. A positive but not significant relationship was estimated between a firm's entrepreneurial orientation and its growth aspirations for small- and medium-sized enterprises from Germany, Austria, Switzerland, and Liechtenstein [11]. In a way, our results can be compared to those of Harrison et al. [62], who estimated the impact of process and product innovations on employment growth in manufacturing and services firms from France, Germany, Spain, and the United Kingdom. Their results indicated that employment remains unchanged or increases with process innovations.

Regarding control variables, the results demonstrated that their inclusion in the models was reasonable as they proved to be additional indicators of innovative activity, although they were not significant in all cases. For example, the technology sector is a significant indicator for NEEs' established entrepreneurs [B4 (NEEs) = 0.884, odds ratio = 0.413], but not for the WEEs. Thus, the likelihood of innovative activity for established entrepreneurs from NEEs is 59% smaller if a firm operates in a low technology sector compared to a medium or high technology sector. However, technological classification does not contribute to the explanation of innovative activity in WEEs. In the combined model, this relationship also proved to be negative and significant, although the value of the regression coefficient was halved compared to that of the NEEs, which we consider to be incorrect.

Firm type for the extractive sector proved to be a negative and significant indicator in both cases. The likelihood of being innovative is 33 and 62% smaller if an established enterprise operated in the extractive sector compared to the consumer-oriented sector [B51 (WEEs) = 0.401, odds ratio = 0.670 and B51 (NEEs) = 0.969, odds ratio = 0.379]. The business service is another significant category of the firm-type predictor, but only for the NEEs model [B53 (NEEs) = 0.406, odds ratio = 0.666]. This means that a likelihood of being innovative is 33% smaller if an established firm operates in the business service sector than in the consumer-oriented sector.

The results indicate that the binary estimate for the 2003 and 2004 survey years were negative and significant (compared to 2008) (see B71 and B72 for WEEs and NEEs in Table 1). Thus, during these years, established entrepreneurs were less innovative than in 2008.

Skills are not a significant indicator of firm innovative activity in WEEs and NEEs models. It is a significant indictor in the combined model, which is considered incorrect. The results also show that the gender control variable is not a significant indicator of innovative activity either.

activity at the secondary level of education was 12 percentage points larger than at the

Determinants of Established Entrepreneurs' Innovative Activity in Northern and Western Europe

http://dx.doi.org/10.5772/intechopen.71843

107

We also confirmed our H2 hypothesis, which presupposed that more innovative establish enterprises that export a certain proportion of their products or services (compared to not exporting them). For all four categories of exporting, the likelihood of a firm's innovative activity increases as the proportion of exports increased compared to no exports in both groups of economies. The one exception to this was NEEs' established enterprises, where the likelihood of innovative activity was greater by almost 10 percentage points in terms of the

Our H3 hypothesis suggested that established entrepreneurs that have aspirations for growing their firms are expected to be more innovative. Firm growth aspirations proved to be the

However, we need to address the limitations of our study. First, the innovation activity might be observed from a variety of aspects. The findings could be replicated using a different type of innovation activity (e.g., processes, product, or outsourcing innovation). In addition, other measures of internationalization could be used. Second, this study utilized GEM data. To present more sophisticated results, future research should encompass other national-level measurements in order to provide more precise distinctions and reasoning behind differences within regions and countries. Another interesting avenue for future work on firms' innovative activity might focus on the comparison of regions that differ significantly in the level and

smaller proportion of exports (11–25%) compared to a larger proportion (26–75%).

significant indicator of innovative activity only for NEEs' established entrepreneurs.

1 Faculty of Economics and Business, University of Maribor, Maribor, Slovenia

2 Faculty of Electrical Engineering and Computer Science, University of Maribor, Maribor,

[1] Elenurm T, Alas R, Rozell EJ, Scroggins WA, Alsua CJ. Cultural prototypes of the successful entrepreneur: Comparison of Estonia and the United States. Journal of Baltic

[2] Hyeock-Lee I, Marvel MR. The moderating effects of home region orientation on R&D investment and international SME performance: Lessons from Korea. European Manage-

postsecondary level).

history of their entrepreneurial activity.

\* and Dijana Močnik<sup>2</sup>

Studies. 2014;45(4 October):499-515

ment Journal. 2009;27(5):316-326

\*Address all correspondence to: karin.sirec@um.si

Author details

Karin Širec<sup>1</sup>

Slovenia

References

In summary, using three main predictors (educational level, international orientation, and firm growth aspirations) and five control variables (technology sector, firm type, skills, survey year, and gender), we can adequately explain the innovative activity of established entrepreneurs from Western European and Northern European economies.

### 6. Conclusion

According to IUS [16], the differences in innovation performance among EU member states are still high and diminishing only slowly. At the regional level, the innovation gap is even wider. IUS 2014 revealed considerable differences among member states, particularly in knowledge excellence, internationalization, and business innovation cooperation. This is why this paper sought to achieve a better understanding of the development of innovative versus imitative innovation activity. We highlighted determinants that differ between Western and Northern European economies' established entrepreneurs. The identified differences strongly support the need for the sound development and implementation of a smart specialization strategy, which should include innovation on a country as well as regional level. Countries and their regions need to focus their efforts on building economic strengths and developing innovative ways to face global competition. Continuous innovation is inevitably dependent on new knowledge creation —a process that is multidimensional in nature and "must be managed at individual and organizational level, as well as in the societal, cultural, economic and political context" [8, 70].

We empirically estimated that firms' differences in innovation effectiveness among EU countries are large, still present, and diminishing only slowly. We estimated the impact of educational level, international orientation, and firm growth aspirations on firms' innovative activity. Therefore, our aim was to contribute to comprehension of the relationships between the presented variables, which we believe is essential for policy decision-makers, entrepreneurs, as well as academics. In this paper, our aim has been to confirm the hypotheses of significant relationships between an innovative activity and the three identified predictors. The hypotheses were tested on a sample of more than 17,000 established entrepreneurs from WEEs and NEEs.

We empirically succeeded in confirming two of the three proposed hypotheses for both groups of economies, whereas the third hypothesis was confirmed only for the NEEs. The results of the binary logistic regressions also highlighted that associations among variables differed across economies and were higher for the NEEs.

In the H1 hypothesis, we suggested that the higher the educational level, the greater the firm's expected innovative activity. This expectation was confirmed. Namely, the results demonstrated that the likelihood of established enterprises' innovative activity increased as the firm owners' educational level increased. The only exception was for NEEs' established entrepreneurs with a secondary level of education, who experienced a stronger impact of innovative activity in their firms than those with postsecondary education (the likelihood of innovative activity at the secondary level of education was 12 percentage points larger than at the postsecondary level).

We also confirmed our H2 hypothesis, which presupposed that more innovative establish enterprises that export a certain proportion of their products or services (compared to not exporting them). For all four categories of exporting, the likelihood of a firm's innovative activity increases as the proportion of exports increased compared to no exports in both groups of economies. The one exception to this was NEEs' established enterprises, where the likelihood of innovative activity was greater by almost 10 percentage points in terms of the smaller proportion of exports (11–25%) compared to a larger proportion (26–75%).

Our H3 hypothesis suggested that established entrepreneurs that have aspirations for growing their firms are expected to be more innovative. Firm growth aspirations proved to be the significant indicator of innovative activity only for NEEs' established entrepreneurs.

However, we need to address the limitations of our study. First, the innovation activity might be observed from a variety of aspects. The findings could be replicated using a different type of innovation activity (e.g., processes, product, or outsourcing innovation). In addition, other measures of internationalization could be used. Second, this study utilized GEM data. To present more sophisticated results, future research should encompass other national-level measurements in order to provide more precise distinctions and reasoning behind differences within regions and countries. Another interesting avenue for future work on firms' innovative activity might focus on the comparison of regions that differ significantly in the level and history of their entrepreneurial activity.

### Author details

Skills are not a significant indicator of firm innovative activity in WEEs and NEEs models. It is a significant indictor in the combined model, which is considered incorrect. The results also show that the gender control variable is not a significant indicator of innovative activity either. In summary, using three main predictors (educational level, international orientation, and firm growth aspirations) and five control variables (technology sector, firm type, skills, survey year, and gender), we can adequately explain the innovative activity of established entrepreneurs

According to IUS [16], the differences in innovation performance among EU member states are still high and diminishing only slowly. At the regional level, the innovation gap is even wider. IUS 2014 revealed considerable differences among member states, particularly in knowledge excellence, internationalization, and business innovation cooperation. This is why this paper sought to achieve a better understanding of the development of innovative versus imitative innovation activity. We highlighted determinants that differ between Western and Northern European economies' established entrepreneurs. The identified differences strongly support the need for the sound development and implementation of a smart specialization strategy, which should include innovation on a country as well as regional level. Countries and their regions need to focus their efforts on building economic strengths and developing innovative ways to face global competition. Continuous innovation is inevitably dependent on new knowledge creation —a process that is multidimensional in nature and "must be managed at individual and organi-

zational level, as well as in the societal, cultural, economic and political context" [8, 70].

on a sample of more than 17,000 established entrepreneurs from WEEs and NEEs.

across economies and were higher for the NEEs.

We empirically estimated that firms' differences in innovation effectiveness among EU countries are large, still present, and diminishing only slowly. We estimated the impact of educational level, international orientation, and firm growth aspirations on firms' innovative activity. Therefore, our aim was to contribute to comprehension of the relationships between the presented variables, which we believe is essential for policy decision-makers, entrepreneurs, as well as academics. In this paper, our aim has been to confirm the hypotheses of significant relationships between an innovative activity and the three identified predictors. The hypotheses were tested

We empirically succeeded in confirming two of the three proposed hypotheses for both groups of economies, whereas the third hypothesis was confirmed only for the NEEs. The results of the binary logistic regressions also highlighted that associations among variables differed

In the H1 hypothesis, we suggested that the higher the educational level, the greater the firm's expected innovative activity. This expectation was confirmed. Namely, the results demonstrated that the likelihood of established enterprises' innovative activity increased as the firm owners' educational level increased. The only exception was for NEEs' established entrepreneurs with a secondary level of education, who experienced a stronger impact of innovative activity in their firms than those with postsecondary education (the likelihood of innovative

from Western European and Northern European economies.

106 Entrepreneurship - Development Tendencies and Empirical Approach

6. Conclusion

Karin Širec<sup>1</sup> \* and Dijana Močnik<sup>2</sup>

\*Address all correspondence to: karin.sirec@um.si

1 Faculty of Economics and Business, University of Maribor, Maribor, Slovenia

2 Faculty of Electrical Engineering and Computer Science, University of Maribor, Maribor, Slovenia

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**Chapter 6**

**Provisional chapter**

**Business Intelligence: An Innovative Technological**

DOI: 10.5772/intechopen.70538

**Business Intelligence: An Innovative Technological Way** 

Adaptation to dynamism and complex environments in today's Knowledge Society is key for firms to survive and improve their positions. This paper applies business intelligence (BI) to the firm to shape its organizational design and improve its performance. The paper also relates business intelligence to organizational performance management through organizational learning (OL), knowledge management (KM) and the technological competencies of the company's employees and managers. Theoretical study of the main current research serves as the basis for the development of several propositions to fill the gaps in knowledge of business intelligence. Finally, the paper presents conclu-

**Keywords:** business intelligence, corporate entrepreneurship, knowledge management,

The current environment is very hostile and dynamic for firms. Firms have numerous competitors struggling to achieve strong market positions. Organizations are therefore looking for tools to strengthen their customer outreach as well as innovative organizational designs

Firms must thus continually update their knowledge on change occurring within firm, through initiatives such as information mobility or cloud computing. Such initiatives enable employees and managers to have constant connection with each other and with stakeholders and full access to all information obtained directly by the company to make better decisions [2].

organizational learning, technological capabilities, organizational performance

© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution,

© 2018 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

and reproduction in any medium, provided the original work is properly cited.

**Way to Influence Corporate Entrepreneurship**

**to Influence Corporate Entrepreneurship**

Reyes Giménez-Figueroa, Rodrigo Martín-Rojas and

sions about application of business intelligence in firms.

Reyes Giménez-Figueroa, Rodrigo Martín-Rojas and

Additional information is available at the end of the chapter

Additional information is available at the end of the chapter

Víctor Jesús García-Morales

**Abstract**

**1. Introduction**

to obtain more benefits [1].

Víctor Jesús García-Morales

http://dx.doi.org/10.5772/intechopen.70538


**Provisional chapter**

### **Business Intelligence: An Innovative Technological Way to Influence Corporate Entrepreneurship to Influence Corporate Entrepreneurship**

DOI: 10.5772/intechopen.70538

**Business Intelligence: An Innovative Technological Way** 

Reyes Giménez-Figueroa, Rodrigo Martín-Rojas and Víctor Jesús García-Morales Víctor Jesús García-Morales Additional information is available at the end of the chapter

Reyes Giménez-Figueroa, Rodrigo Martín-Rojas and

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.70538

#### **Abstract**

[65] Furman JL, Porter ME, Stern S. The determinants of national innovative capacity.

[66] Singer S, Amorós JE, Arreola DM. Global Entrepreneurship Monitor 2014, Global Report. Babson Park, MA: Babson College; 2014. Available from: http://www.gemconsortium.

[67] Ucbasaran D, Westhead P, Wright M. Opportunity identification and pursuit: Does an entrepreneur's human capital matter? Small Business Economics. 2008;30(2):153-173 [68] Palangkaraya A. The link between innovation and export: Evidence from Australia's small and medium enterprises. ERIA Discussion paper series. 2012. Available from:

[69] Colombelli A, Haned N, La Bas C. On firm growth and innovation: Some new empirical perspectives using French CIS (1992-2004). Structural Change and Economic Dynamics.

[70] Rebernik M, Širec K. Fostering innovation by unlearning tacit knowledge. Kybernetes.

http://www.eria.org/ERIA-DP-2012-08.pdf [Accessed: 2015–12-18]

Research Policy. 2002;31:899-933

112 Entrepreneurship - Development Tendencies and Empirical Approach

org/report [Accessed: 2016–01-18]

2013;26:14-26

2007;36(3–4):406-419

Adaptation to dynamism and complex environments in today's Knowledge Society is key for firms to survive and improve their positions. This paper applies business intelligence (BI) to the firm to shape its organizational design and improve its performance. The paper also relates business intelligence to organizational performance management through organizational learning (OL), knowledge management (KM) and the technological competencies of the company's employees and managers. Theoretical study of the main current research serves as the basis for the development of several propositions to fill the gaps in knowledge of business intelligence. Finally, the paper presents conclusions about application of business intelligence in firms.

**Keywords:** business intelligence, corporate entrepreneurship, knowledge management, organizational learning, technological capabilities, organizational performance

### **1. Introduction**

The current environment is very hostile and dynamic for firms. Firms have numerous competitors struggling to achieve strong market positions. Organizations are therefore looking for tools to strengthen their customer outreach as well as innovative organizational designs to obtain more benefits [1].

Firms must thus continually update their knowledge on change occurring within firm, through initiatives such as information mobility or cloud computing. Such initiatives enable employees and managers to have constant connection with each other and with stakeholders and full access to all information obtained directly by the company to make better decisions [2].

© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons

These initiatives are producing innovative forms of entrepreneurship in firms, modifying their organizational design to obtain higher revenues. Our chapter focuses on the potential of business intelligence (BI) to improve corporate entrepreneurship (CE) by allowing firms to acquire knowledge that enables better decision making.

Since BI is increasingly important to the decision making and changes that firms undertake to surpass competitors and gain competitive advantages, BI can be seen as an innovative form

Business Intelligence: An Innovative Technological Way to Influence Corporate Entrepreneurship

http://dx.doi.org/10.5772/intechopen.70538

115

We will thus study BI as a promoter of knowledge management (KM hereafter), organizational learning (OL here after) and technological capabilities (TC hereafter) within the firm. We will then relate these three distinctive concepts of contemporary firms to CE to determine the latter's influence on organizational performance and possible new designs

BI is an interactive process for exploring and analyzing structured information on an area (usually stored in a "data warehouse") to discover tendencies or patterns from which to derive ideas and conclusions [10, 11]. To perform a rigorous study, one must take into account that the data alone do not provide any information. The following pyramid shows the stages of data transformation that must occur for decision making and the relative value of these

At the lowest level are the data, which taken alone are useless to the firm. The next level, information, is of some importance because it involves processed data. The highest level, knowledge, represents the goal to be achieved following analysis of the data and their transformation into information [3, 4, 10]. Using knowledge analysis, firms can anticipate future events to make more accurate decisions and compete with other organizations. The steps to be followed are thus: data, information, knowledge, and finally assimilated knowledge [13]. The process by which data are transformed into knowledge is shaped by the data sources. It is important to remember that transformation of data into information and then knowledge to be applied to a business plan or strategy [11] is determined by artificial intelligence through intelligent agents [4, 14, 15].

**Figure 1.** Transformation of data for decision-making. Source: Davenport and Prusak [12].

of entrepreneurship.

that originate in BI.

stages to the firm (**Figure 1**).

**2.1. The concept of business intelligence**

Given the importance BI is achieving in today's society and the limited scholarly literature connecting BI directly to business management, this study will focus on: (1) determining guidelines for artificial intelligence that relate it to BI; (2) presenting some BI tools that improve entrepreneurship; and (3) developing a series of propositions to improve business performance through innovative CE obtained with the aid of BI and its influence on each of the concepts analyzed in this study.

BI originates in the application of new technologies to business [1, 3, 4]. Together, business applications and technological infrastructure have produced the concept of technological entrepreneurship [5]. Technological entrepreneurship is part of CE, specifically, the part involving technological and process-innovative activities. We can thus view technological entrepreneurship as an innovative form of entrepreneurship that plays an important role in developed economies, as well as in the performance and revitalization of economies [5].

This paper develops the concept of technological entrepreneurship as an innovative form of CE. We venture to combine the concepts of "innovation" and "entrepreneurship" to define innovative CE. The OSLO Manual OECD [6] defines innovation as the implementation of a new or significantly improved product (good or service) or process, a new marketing method or a new organizational method in business practices, workplace organization or external relations." Entrepreneurs "are those business persons and owners who seek to generate value through the creation or expansion of economic activity, by identifying and exploiting new products, processes or markets" [7]. Combining entrepreneurship and innovation generates innovative entrepreneurship that materializes in innovative CE in the company as a whole: new firms based on new innovative ideas ([8], p. 2). Innovative entrepreneurship is the key to economic well-being and growth [9].

To achieve these goals, the first section establishes the theoretical framework. This section provides a brief description of BI, which is based fundamentally on artificial intelligence algorithms, neural networks and the research propositions developed from them. The methodology section then explains the analytical procedure used. Finally, the results and conclusions section presents the most significant conclusions, implications, limitations and lines for future research derived from this chapter.

### **2. Theoretical framework**

The BI construct is a compound of several components of the firm. To involve every employee of the organization in the BI, this study focuses on three of these components at each level of the organizational hierarchy: operations, lower managers, and top managers.

Since BI is increasingly important to the decision making and changes that firms undertake to surpass competitors and gain competitive advantages, BI can be seen as an innovative form of entrepreneurship.

We will thus study BI as a promoter of knowledge management (KM hereafter), organizational learning (OL here after) and technological capabilities (TC hereafter) within the firm. We will then relate these three distinctive concepts of contemporary firms to CE to determine the latter's influence on organizational performance and possible new designs that originate in BI.

#### **2.1. The concept of business intelligence**

These initiatives are producing innovative forms of entrepreneurship in firms, modifying their organizational design to obtain higher revenues. Our chapter focuses on the potential of business intelligence (BI) to improve corporate entrepreneurship (CE) by allowing firms to

Given the importance BI is achieving in today's society and the limited scholarly literature connecting BI directly to business management, this study will focus on: (1) determining guidelines for artificial intelligence that relate it to BI; (2) presenting some BI tools that improve entrepreneurship; and (3) developing a series of propositions to improve business performance through innovative CE obtained with the aid of BI and its influence on each of

BI originates in the application of new technologies to business [1, 3, 4]. Together, business applications and technological infrastructure have produced the concept of technological entrepreneurship [5]. Technological entrepreneurship is part of CE, specifically, the part involving technological and process-innovative activities. We can thus view technological entrepreneurship as an innovative form of entrepreneurship that plays an important role in developed economies, as well as in the performance and revitalization of economies

This paper develops the concept of technological entrepreneurship as an innovative form of CE. We venture to combine the concepts of "innovation" and "entrepreneurship" to define innovative CE. The OSLO Manual OECD [6] defines innovation as the implementation of a new or significantly improved product (good or service) or process, a new marketing method or a new organizational method in business practices, workplace organization or external relations." Entrepreneurs "are those business persons and owners who seek to generate value through the creation or expansion of economic activity, by identifying and exploiting new products, processes or markets" [7]. Combining entrepreneurship and innovation generates innovative entrepreneurship that materializes in innovative CE in the company as a whole: new firms based on new innovative ideas ([8], p. 2). Innovative entrepreneurship is the key to

To achieve these goals, the first section establishes the theoretical framework. This section provides a brief description of BI, which is based fundamentally on artificial intelligence algorithms, neural networks and the research propositions developed from them. The methodology section then explains the analytical procedure used. Finally, the results and conclusions section presents the most significant conclusions, implications, limitations and lines for future

The BI construct is a compound of several components of the firm. To involve every employee of the organization in the BI, this study focuses on three of these components at each level of

the organizational hierarchy: operations, lower managers, and top managers.

acquire knowledge that enables better decision making.

114 Entrepreneurship - Development Tendencies and Empirical Approach

the concepts analyzed in this study.

economic well-being and growth [9].

research derived from this chapter.

**2. Theoretical framework**

[5].

BI is an interactive process for exploring and analyzing structured information on an area (usually stored in a "data warehouse") to discover tendencies or patterns from which to derive ideas and conclusions [10, 11]. To perform a rigorous study, one must take into account that the data alone do not provide any information. The following pyramid shows the stages of data transformation that must occur for decision making and the relative value of these stages to the firm (**Figure 1**).

At the lowest level are the data, which taken alone are useless to the firm. The next level, information, is of some importance because it involves processed data. The highest level, knowledge, represents the goal to be achieved following analysis of the data and their transformation into information [3, 4, 10]. Using knowledge analysis, firms can anticipate future events to make more accurate decisions and compete with other organizations. The steps to be followed are thus: data, information, knowledge, and finally assimilated knowledge [13]. The process by which data are transformed into knowledge is shaped by the data sources. It is important to remember that transformation of data into information and then knowledge to be applied to a business plan or strategy [11] is determined by artificial intelligence through intelligent agents [4, 14, 15].

**Figure 1.** Transformation of data for decision-making. Source: Davenport and Prusak [12].

An intelligent agent is defined as "any system located in an environment that can perceive the surrounding medium and act based on that medium using a series of actuators, i.e., elements that react to the perception of a change to perform an action" ([16], p. 14). As intelligent agents have received much study in relation to KM and twenty first century decision-making technology [17], we can relate artificial intelligence as a form of innovation in entrepreneurship through technology.

*2.2.1. Balanced scorecard (BS)*

ers, capabilities or competencies, etc.

*2.2.2. Decision support system*

historic information.

*2.2.3. Data mining*

decision-making.

flows [26].

*2.3.1. Knowledge management*

and demand OL processes in the firm.

Since the BS is at the tip of the pyramid, this BI tool can be used to monitor the evolution of the firm's procedures, analysis and activities strategically, with focus on the different areas of the firm [23]. As defined by Kaplan and Norton [23] is a revolutionary tool to mobilize people to fulfill the company's mission by channeling the energies, abilities and specific knowledge held by people throughout the organization toward achieving long-term strategic goals. It

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117

Organizations decide which dashboard to use based on financial indicators (income and expenses), nonfinancial or intangible assets, learning development, relations with stakehold-

The DSS is a BI tool that has a series of reports that can be navigated, managed, and structured to lead to analysis of the firm's data. DSS has a set of important characteristics: dynamic, flexible, interactive reports that change as the firm's data change; no need for technical knowledge; quick response; integration of all systems/departments in the company; availability of the right information to each user according to profile; and availability of

Data mining emerged to explore large quantities of data with the help of statistical techniques

Since data mining searches for patterns in data, this tool will achieve more extensive information on customers, thereby reducing marketing costs and achieving retention of current customers. Further, such detailed information into account enables more accurate

According to Nonaka and Takeuchi [24], knowledge can be viewed in two ways. When viewed as static (stock), knowledge is usually called intellectual capital. A dynamic view of knowledge stresses knowledge flows composed of OL and KM. The field of knowledge as static has received extensive study over the years [12, 24, 25], but the dynamic view has not been treated in depth. This study thus focuses on knowledge as dynamic, since firms are continually changing and knowledge must be dynamic to enable them to face events that arise

KM and OL provide a dynamic image of intellectual capital reconceived knowledge

and a series of search algorithms based on neural networks of artificial intelligence.

**2.3. Influence of BI on KM and OL based on technology and TC**

thus enables both direction of both current and future performance.

Having analyzed the intelligent agents, we stress that they form part of artificial intelligence [18], the capability of machines to perform actions by simulating intelligent behavior, based on experience and study of the environment [14, 16]. If we consider artificial intelligence as a fundamental component of BI [17, 19], both enable the materialization of firms' practical data as knowledge, favoring the firm's entrepreneurship and development [20, 21].

BI is thus increasingly crucial in making good decisions to respond to the rapid and substantial changes occurring in firms [19]. Because BI originates in the firm's technology, we can speak of BI as a form of innovative or technological entrepreneurship in the firm.

#### **2.2. Business components of BI**

BI can materialize in several components of the firm [19]. We study three of these, one for each level of the business hierarchy pyramid [22]. Our goal is to show that BI affects all parts of the organization (**Figure 2**). We choose the components most influential in the business world for improving firms' decision-making and efficiency, as well as the components that are enabling the greatest development of artificial intelligence and thus of BI [19]. At the bottom of the pyramid, we find employees' decisions and a series of tools used for them, such as enterprise resource planning (ERP) and customer relations management (CRM), tailored applications, data warehouses, and data mining—the tools discussed in this study. At the middle level of the pyramid, we find the analysts, who also possess a series of tools, such as the decision support system (DSS), which we will explain here, and the executive information system (EIS). Finally, at the tip of the pyramid, we find the top management, who use the balanced scorecard (BS).

**Figure 2.** Pyramid of BI tools based on level in firm. Source: Sinnexus [19].

#### *2.2.1. Balanced scorecard (BS)*

An intelligent agent is defined as "any system located in an environment that can perceive the surrounding medium and act based on that medium using a series of actuators, i.e., elements that react to the perception of a change to perform an action" ([16], p. 14). As intelligent agents have received much study in relation to KM and twenty first century decision-making technology [17], we can relate artificial intelligence as a form of innovation in entrepreneur-

Having analyzed the intelligent agents, we stress that they form part of artificial intelligence [18], the capability of machines to perform actions by simulating intelligent behavior, based on experience and study of the environment [14, 16]. If we consider artificial intelligence as a fundamental component of BI [17, 19], both enable the materialization of firms' practical data

BI is thus increasingly crucial in making good decisions to respond to the rapid and substantial changes occurring in firms [19]. Because BI originates in the firm's technology, we can

BI can materialize in several components of the firm [19]. We study three of these, one for each level of the business hierarchy pyramid [22]. Our goal is to show that BI affects all parts of the organization (**Figure 2**). We choose the components most influential in the business world for improving firms' decision-making and efficiency, as well as the components that are enabling the greatest development of artificial intelligence and thus of BI [19]. At the bottom of the pyramid, we find employees' decisions and a series of tools used for them, such as enterprise resource planning (ERP) and customer relations management (CRM), tailored applications, data warehouses, and data mining—the tools discussed in this study. At the middle level of the pyramid, we find the analysts, who also possess a series of tools, such as the decision support system (DSS), which we will explain here, and the executive information system (EIS). Finally, at the tip of the pyramid, we find the top management, who use the bal-

as knowledge, favoring the firm's entrepreneurship and development [20, 21].

speak of BI as a form of innovative or technological entrepreneurship in the firm.

ship through technology.

116 Entrepreneurship - Development Tendencies and Empirical Approach

**2.2. Business components of BI**

anced scorecard (BS).

**Figure 2.** Pyramid of BI tools based on level in firm. Source: Sinnexus [19].

Since the BS is at the tip of the pyramid, this BI tool can be used to monitor the evolution of the firm's procedures, analysis and activities strategically, with focus on the different areas of the firm [23]. As defined by Kaplan and Norton [23] is a revolutionary tool to mobilize people to fulfill the company's mission by channeling the energies, abilities and specific knowledge held by people throughout the organization toward achieving long-term strategic goals. It thus enables both direction of both current and future performance.

Organizations decide which dashboard to use based on financial indicators (income and expenses), nonfinancial or intangible assets, learning development, relations with stakeholders, capabilities or competencies, etc.

#### *2.2.2. Decision support system*

The DSS is a BI tool that has a series of reports that can be navigated, managed, and structured to lead to analysis of the firm's data. DSS has a set of important characteristics: dynamic, flexible, interactive reports that change as the firm's data change; no need for technical knowledge; quick response; integration of all systems/departments in the company; availability of the right information to each user according to profile; and availability of historic information.

#### *2.2.3. Data mining*

Data mining emerged to explore large quantities of data with the help of statistical techniques and a series of search algorithms based on neural networks of artificial intelligence.

Since data mining searches for patterns in data, this tool will achieve more extensive information on customers, thereby reducing marketing costs and achieving retention of current customers. Further, such detailed information into account enables more accurate decision-making.

#### **2.3. Influence of BI on KM and OL based on technology and TC**

#### *2.3.1. Knowledge management*

According to Nonaka and Takeuchi [24], knowledge can be viewed in two ways. When viewed as static (stock), knowledge is usually called intellectual capital. A dynamic view of knowledge stresses knowledge flows composed of OL and KM. The field of knowledge as static has received extensive study over the years [12, 24, 25], but the dynamic view has not been treated in depth. This study thus focuses on knowledge as dynamic, since firms are continually changing and knowledge must be dynamic to enable them to face events that arise and demand OL processes in the firm.

KM and OL provide a dynamic image of intellectual capital reconceived knowledge flows [26].

To gain a position among the best firms, it is important to know how to manage knowledge. From the dynamic perspective, a good definition of KM is "the firm's capability to foster and drive all of its competencies and capabilities" [26]. Bueno Campos ([27], p. 17) defines it as "the function that plans, coordinates and controls knowledge flows that occur in the firm relative to its activities and environment in order to create certain essential competencies."

BI attempts to use the information achieved by technology applications in the firm to enable interoperability and organization of the flow of knowledge among applications. This means that BI attempts to enable communication not only among the different applications in the firm but also with customers, partners, or suppliers, such that these other parties can form part of the business system and improve its knowledge through OL processes motivated by the firm. In conclusion, OL is indispensable in firms and closely related to entrepreneurship [29, 36, 37], since BI permits tools such as data mining or data warehousing that encourage learning for all

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Taking into account the information gathered here on OL and its relationship to BI, we pro-

Due to environmental dynamicity, we must define dynamic capabilities before we discuss TC. The term "dynamic capability" was coined by Teece et al. ([38], p. 510) as "the firm's ability to integrate, build, and reconfigure internal and external competences to address rapidly

TC are dynamic capabilities, and they grant a competitive advantage because firms are also inherently changing [37–39]. It is primarily in the field of innovation and technology that TC

If we focus on the field of technology, having examined the relationship between BI and technological knowledge, we can affirm that BI enables discovery and anticipation of trends when making decisions about change and technology based on the information explored and ana-

Westphal et al. [40], p. 5, thus define TC as "the ability to make effective use of technological knowledge." As seen above, BI in firms increases technological knowledge. BI thus fosters the

According to Martín-Rojas et al. [37], TC enable firms to have greater competitive advantage due to rapid adaptation to changing opportunities. Further, firms are more efficient when they acquire TC [36, 37, 41]. Therefore, BI through the firm's development of TC will improve

The technological integration currently underway in society is creating greater development of TC in individuals [42] and allowing them to juggle several things at once [43]. For instance, the Smartphones gadget requires specific capacities in order to perform various tasks in parallel. The ability to perform various activities in parallel on the same device is being fostered inherently and with increasing frequency. Further, business performance will develop to solve problems in companies using a single device. It is thus advisable for firms to have specific devices to improve their activities and train personnel with incremental TC [34] in order to

personnel in the organization as a flow process/system.

pose the following proposition:

*2.3.3. Technological capabilities*

changing environments."

lyzed in the firm.

are especially motivated by BI.

development of TC in the firm.

control data integration within the firm.

business performance.

P2: BI motivates the development of OL.

The firm must manage and strengthen its knowledge, strengthening that knowledge both in its different phases of acquisition, storage, transfer and use, and in the process by which the firm generates new knowledge (socialization, externalization, combination and internalization) [24]. Further, since this type of BI is having dramatic and increasing impact on knowledge in firms, development of BI may well provide more efficient KM.

The tools mentioned above (data mining, DSS and BS) have been studied as developers of knowledge, since they are responsible for converting data into information and performing the analysis that will transform this information into knowledge for proper decision-making. BI thus promotes KM.

Through artificial intelligence, intelligent systems and finally data, BI facilitates KM. Knowledge acquisition also becomes more fluid through BI tools, which store, manage and analyze knowledge, as for example through document management or web content analysis. We thus formulate the following hypothesis:

P1: BI motivates the development of KM.

#### *2.3.2. Organizational learning*

OL is the capability "within an organization to maintain or improve performance based on experience" ([28], p. 363). It is a process whereby members in an organization are stimulated to strive continually for new approaches and to acquire as well as to share knowledge that emerges from interactions with environments [29, 30]. OL is thus the process of increasing the knowledge created by individuals in an organized way and transforming it into part of the organization's knowledge system [28].

OL complements the flow phase of KM. "It not only occurs over a period of time and among different levels of the firm (individual, group, organizational and interorganizational) but also creates tension between assimilation of new knowledge (feed-forward) and exploitation of what has already been learned (feedback)" ([31], p. 532).

In the case of technology-based firms or firms that foster development of BI, fostering OL is necessary to maintain a balance between activities of exploitation (feedback) and exploration (feedforward). Achieving this balance is quite complicated, however, as investment is difficult and learning involves imbalances [32].

Artificial intelligence, and consequently BI, are increasingly changing the way firms work. BI makes firms more efficient in terms of connections among employees [33] and exploitation of ongoing ways of training to control new data (BS, DSS or data mining). An educational system or OL program for the entire production staff is thus necessary to exploit BI [34, 35].

BI attempts to use the information achieved by technology applications in the firm to enable interoperability and organization of the flow of knowledge among applications. This means that BI attempts to enable communication not only among the different applications in the firm but also with customers, partners, or suppliers, such that these other parties can form part of the business system and improve its knowledge through OL processes motivated by the firm.

In conclusion, OL is indispensable in firms and closely related to entrepreneurship [29, 36, 37], since BI permits tools such as data mining or data warehousing that encourage learning for all personnel in the organization as a flow process/system.

Taking into account the information gathered here on OL and its relationship to BI, we propose the following proposition:

P2: BI motivates the development of OL.

#### *2.3.3. Technological capabilities*

To gain a position among the best firms, it is important to know how to manage knowledge. From the dynamic perspective, a good definition of KM is "the firm's capability to foster and drive all of its competencies and capabilities" [26]. Bueno Campos ([27], p. 17) defines it as "the function that plans, coordinates and controls knowledge flows that occur in the firm relative to its activities and environment in order to create certain essential

The firm must manage and strengthen its knowledge, strengthening that knowledge both in its different phases of acquisition, storage, transfer and use, and in the process by which the firm generates new knowledge (socialization, externalization, combination and internalization) [24]. Further, since this type of BI is having dramatic and increasing impact on knowl-

The tools mentioned above (data mining, DSS and BS) have been studied as developers of knowledge, since they are responsible for converting data into information and performing the analysis that will transform this information into knowledge for proper decision-making.

Through artificial intelligence, intelligent systems and finally data, BI facilitates KM. Knowledge acquisition also becomes more fluid through BI tools, which store, manage and analyze knowledge, as for example through document management or web content analysis.

OL is the capability "within an organization to maintain or improve performance based on experience" ([28], p. 363). It is a process whereby members in an organization are stimulated to strive continually for new approaches and to acquire as well as to share knowledge that emerges from interactions with environments [29, 30]. OL is thus the process of increasing the knowledge created by individuals in an organized way and transforming it into part of the

OL complements the flow phase of KM. "It not only occurs over a period of time and among different levels of the firm (individual, group, organizational and interorganizational) but also creates tension between assimilation of new knowledge (feed-forward) and exploitation

In the case of technology-based firms or firms that foster development of BI, fostering OL is necessary to maintain a balance between activities of exploitation (feedback) and exploration (feedforward). Achieving this balance is quite complicated, however, as investment is difficult

Artificial intelligence, and consequently BI, are increasingly changing the way firms work. BI makes firms more efficient in terms of connections among employees [33] and exploitation of ongoing ways of training to control new data (BS, DSS or data mining). An educational system or OL program for the entire production staff is thus necessary to exploit BI [34, 35].

edge in firms, development of BI may well provide more efficient KM.

competencies."

BI thus promotes KM.

*2.3.2. Organizational learning*

We thus formulate the following hypothesis: P1: BI motivates the development of KM.

118 Entrepreneurship - Development Tendencies and Empirical Approach

organization's knowledge system [28].

and learning involves imbalances [32].

of what has already been learned (feedback)" ([31], p. 532).

Due to environmental dynamicity, we must define dynamic capabilities before we discuss TC. The term "dynamic capability" was coined by Teece et al. ([38], p. 510) as "the firm's ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments."

TC are dynamic capabilities, and they grant a competitive advantage because firms are also inherently changing [37–39]. It is primarily in the field of innovation and technology that TC are especially motivated by BI.

If we focus on the field of technology, having examined the relationship between BI and technological knowledge, we can affirm that BI enables discovery and anticipation of trends when making decisions about change and technology based on the information explored and analyzed in the firm.

Westphal et al. [40], p. 5, thus define TC as "the ability to make effective use of technological knowledge." As seen above, BI in firms increases technological knowledge. BI thus fosters the development of TC in the firm.

According to Martín-Rojas et al. [37], TC enable firms to have greater competitive advantage due to rapid adaptation to changing opportunities. Further, firms are more efficient when they acquire TC [36, 37, 41]. Therefore, BI through the firm's development of TC will improve business performance.

The technological integration currently underway in society is creating greater development of TC in individuals [42] and allowing them to juggle several things at once [43]. For instance, the Smartphones gadget requires specific capacities in order to perform various tasks in parallel.

The ability to perform various activities in parallel on the same device is being fostered inherently and with increasing frequency. Further, business performance will develop to solve problems in companies using a single device. It is thus advisable for firms to have specific devices to improve their activities and train personnel with incremental TC [34] in order to control data integration within the firm.

Data integration enables the firm to share information among the different applications. To do so, however, employees must possess TC, since the data must be identified and metadata models built that require highly advanced knowledge to use that many people cannot use. Once the models are built, data can be transmitted through the database systems to grow the firm [44].

performance and business effectiveness [50]. Such innovative entrepreneurship combines new knowledge obtained from applying BI in the firm to enable it to reflect innovative results

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OL is needed throughout this process, since involving users as part of the comprehensive innovation process necessitates more planning than may be realized at the outset [34]. Thus, models of OL have been applied fruitfully to specific aspects of the innovative process [53, 54]. The most innovative organizations have effective learning systems, in which knowledge is managed efficiently and one learns to maintain today's competitive advantage while preparing for tomorrow. Such innovation requires high capability for learning and effective KM [55].

Entrepreneurs must learn these aspects of entrepreneurship, including use of technological knowledge to prepare for the competitive global market and the challenge of managing a business in its different dimensions, and to guarantee the solidity of the structural conditions

Nevertheless, the higher the degree of innovation, the greater the OL required [57]. More innovative products or services require a higher degree of OL [57, 58]. In dynamic and competitive environments such as BI businesses, the process of OL is even more essential as a mechanism to encourage innovative CE [5]. Furthermore, OL models are usually appropriate

Moreover, CE requires an OL framework that involves searching for innovative activities, such as investing resources obtained through BI in exploration of alternative possibilities, attempting to understand the relationship between organizational characteristics and out-

OL also enables development of CE in technological organizations by enhancing the development of technological variables throughout the firm as a coordinating management process. The firm can thus become a cognitive entity in which new abilities, competencies and knowledge have been developed [29, 38, 59]. In addition, Simsek et al. [60] consider OL as a central mechanism likely to grant the firm an adaptive advantage via CE. All of this evidence sug-

Business models are currently changing firms' way of acting in society by using web tools, specifically through web applications such as "Google." Applications have been developed because the firm's personnel have better TC or have acquired more technological knowledge,

TC represents "the organization's expertise in mobilizing various scientific and technical resources through a series of routines and procedures which allow new products and production processes to be developed and designed" ([61], p. 508). They "reflect the firm's ability to make certain physical products or processes which enable the firm to serve a particular

comes, and determining the viability of organizational change [9, 29, 32, 54].

materialized in processes or systems [51, 52].

P4. KM of technology encourages CE.

for its development [56].

for the study of CE [29].

gests the following proposition:

customer group" ([62], p. 520).

P5. Technology-based learning encourages CE.

motivated fundamentally by the development of BI [4, 37, 43].

In conclusion, the relationship between BI and TC is quite close, since BI will only function correctly if one realizes that it manages changing data and requires workers to have the TC necessary to adapt to this change. That is, if the firm does not have specific TC, it will not be able to adapt effectively to BI.

This adaptation shows that the firm's TC are especially important when competing with different firms, making it necessary to innovate in and improve employees' technological knowledge continually to accelerate the process of developing their TC and motivating the idea of BI with a more positive and significant effect.

P3: BI motivates the development of TC.

#### **2.4. Influence of KM, OL and TC on innovative entrepreneurship**

As discussed above, in technology firms, where turbulence is practically an imperative, knowledge becomes indispensable for increasing the firm's innovation capability [45]. That is, knowledge requires a form of innovative entrepreneurship.

Organizations' members must acquire greater intellectual integration of knowledge through advanced training programmes and further training to respond innovatively to the entrepreneurial needs of their market [20]. For example, in a study of TFT-LCD firms, Hu [46] explains how good knowledge management in all its phases enables the firm to undertake small innovations that make better products for the market. This knowledge is not easy to acquire; entrepreneurs must invest tremendous effort. If they do not do make this effort, however, they will miss true innovations that permit them to face new challenges the firm confronts. If the firm is unable to dedicate time and resources to good KM, a competitive break will occur, with loss of current market position [47]. In firms that face a turbulent market and are in continuous change, such as technology-intensive industries where BI is becoming a key to their development, KM is especially important. It ensures the effective development of innovative entrepreneurship [46], which allows modification of the systems and processes of business development that lead to strategic flexibility, faster learning and more efficient adaptation to market opportunities [47].

KM thus enables acquisition, assimilation and use of new knowledge that improve the innovative entrepreneurship of the firm's personnel and of the firm in itself, improving the business results to the extent that the knowledge becomes more intensive and is developed better to improve the dynamic business process [48]. Knowledge is thus a strategic source of the organization's innovative entrepreneurship. The greater and more strategic the knowledge, the better the proactive innovative actions and search for new ideas in the firm resulting from its members' greater consciousness of the importance of innovation [49].

In sum, efficient KM in the firm promotes innovative entrepreneurship through change or flexibility of previously established models or the creation of new models that foster performance and business effectiveness [50]. Such innovative entrepreneurship combines new knowledge obtained from applying BI in the firm to enable it to reflect innovative results materialized in processes or systems [51, 52].

P4. KM of technology encourages CE.

Data integration enables the firm to share information among the different applications. To do so, however, employees must possess TC, since the data must be identified and metadata models built that require highly advanced knowledge to use that many people cannot use. Once the models are built, data can be transmitted through the database systems to grow the firm [44]. In conclusion, the relationship between BI and TC is quite close, since BI will only function correctly if one realizes that it manages changing data and requires workers to have the TC necessary to adapt to this change. That is, if the firm does not have specific TC, it will not be

This adaptation shows that the firm's TC are especially important when competing with different firms, making it necessary to innovate in and improve employees' technological knowledge continually to accelerate the process of developing their TC and motivating the idea of

As discussed above, in technology firms, where turbulence is practically an imperative, knowledge becomes indispensable for increasing the firm's innovation capability [45]. That

Organizations' members must acquire greater intellectual integration of knowledge through advanced training programmes and further training to respond innovatively to the entrepreneurial needs of their market [20]. For example, in a study of TFT-LCD firms, Hu [46] explains how good knowledge management in all its phases enables the firm to undertake small innovations that make better products for the market. This knowledge is not easy to acquire; entrepreneurs must invest tremendous effort. If they do not do make this effort, however, they will miss true innovations that permit them to face new challenges the firm confronts. If the firm is unable to dedicate time and resources to good KM, a competitive break will occur, with loss of current market position [47]. In firms that face a turbulent market and are in continuous change, such as technology-intensive industries where BI is becoming a key to their development, KM is especially important. It ensures the effective development of innovative entrepreneurship [46], which allows modification of the systems and processes of business development that lead to strategic flexibility, faster learning and more efficient adaptation to market opportunities [47].

KM thus enables acquisition, assimilation and use of new knowledge that improve the innovative entrepreneurship of the firm's personnel and of the firm in itself, improving the business results to the extent that the knowledge becomes more intensive and is developed better to improve the dynamic business process [48]. Knowledge is thus a strategic source of the organization's innovative entrepreneurship. The greater and more strategic the knowledge, the better the proactive innovative actions and search for new ideas in the firm resulting from

In sum, efficient KM in the firm promotes innovative entrepreneurship through change or flexibility of previously established models or the creation of new models that foster

its members' greater consciousness of the importance of innovation [49].

able to adapt effectively to BI.

BI with a more positive and significant effect.

120 Entrepreneurship - Development Tendencies and Empirical Approach

**2.4. Influence of KM, OL and TC on innovative entrepreneurship**

is, knowledge requires a form of innovative entrepreneurship.

P3: BI motivates the development of TC.

OL is needed throughout this process, since involving users as part of the comprehensive innovation process necessitates more planning than may be realized at the outset [34]. Thus, models of OL have been applied fruitfully to specific aspects of the innovative process [53, 54]. The most innovative organizations have effective learning systems, in which knowledge is managed efficiently and one learns to maintain today's competitive advantage while preparing for tomorrow. Such innovation requires high capability for learning and effective KM [55].

Entrepreneurs must learn these aspects of entrepreneurship, including use of technological knowledge to prepare for the competitive global market and the challenge of managing a business in its different dimensions, and to guarantee the solidity of the structural conditions for its development [56].

Nevertheless, the higher the degree of innovation, the greater the OL required [57]. More innovative products or services require a higher degree of OL [57, 58]. In dynamic and competitive environments such as BI businesses, the process of OL is even more essential as a mechanism to encourage innovative CE [5]. Furthermore, OL models are usually appropriate for the study of CE [29].

Moreover, CE requires an OL framework that involves searching for innovative activities, such as investing resources obtained through BI in exploration of alternative possibilities, attempting to understand the relationship between organizational characteristics and outcomes, and determining the viability of organizational change [9, 29, 32, 54].

OL also enables development of CE in technological organizations by enhancing the development of technological variables throughout the firm as a coordinating management process. The firm can thus become a cognitive entity in which new abilities, competencies and knowledge have been developed [29, 38, 59]. In addition, Simsek et al. [60] consider OL as a central mechanism likely to grant the firm an adaptive advantage via CE. All of this evidence suggests the following proposition:

P5. Technology-based learning encourages CE.

Business models are currently changing firms' way of acting in society by using web tools, specifically through web applications such as "Google." Applications have been developed because the firm's personnel have better TC or have acquired more technological knowledge, motivated fundamentally by the development of BI [4, 37, 43].

TC represents "the organization's expertise in mobilizing various scientific and technical resources through a series of routines and procedures which allow new products and production processes to be developed and designed" ([61], p. 508). They "reflect the firm's ability to make certain physical products or processes which enable the firm to serve a particular customer group" ([62], p. 520).

These TCs permit exploitation of technological opportunities for development of CE and generation of innovative competitive advantage in the firm [37, 61, 63].

first-mover advantages that translate into superior firm performance. Such characteristics may well enable entrepreneurial firms to take advantage of the effects of learning and experience curves to improve their product, process or market strategies and achieve better organizational performance [81]. These entrepreneurial firms are willing to deviate from prior routines, strategies, business models and operating environments to embrace new resource combinations that hold promise as potential enablers of innovation [78], such as exploitation of BI in firms. In the case of technological organizations, various current studies indicate a positive relationship between CE and organizational performance [5, 8, 9, 36, 37, 73, 82, 83]. These studies show that entrepreneurship aims to stimulate the emergence of productive entrepreneurial undertakings. Research also demonstrates that positive economic performance in high-tech or ICT companies depends on innovative entrepreneurship capital. Alternately, companies may license use of their technology to other companies in the industry to create new business and enhance their revenue and profits [69]. Since these technological opportunities in an industry are positively associated with increased CE, we can expect a positive relationship between CE and performance in terms of profitability and growth, enabling proposal of the following hypothesis:

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The methodology followed to perform this study is called grounded theory. It attempts to discover theories, concepts, hypotheses and propositions by starting directly from data rather from a priori assumptions drawn from other research [84]. Since grounded theory has been primarily theoretical, we performed an exhaustive search for articles specifically on BI in the field of telecommunications engineering of intelligent systems and related these studies to

P7. CE encourages organizational performance.

articles in the field of business management.

**Figure 3.** Proposed model. Source: Developed by the authors.

**3. Methodology**

In firms' focus on BI, industrial application of technology requires new capabilities in process technologies [64], which can compensate for average or potentially below-average technological know-how when firms seek to innovate technologically. Integration of business applications is thus a serious matter, as it integrates the levels of the firm's information system [2]. That is, TC enables the firm to integrate technological knowledge within and across its boundaries, an important determinant of heterogeneous competency [65]. It also encourages innovation capability [66] and CE [21, 37, 67].

Technological innovation systems thus increase the firm's TC, since they provide innovative ways to speed up the problem-solving process, with key elements such as technological infrastructure or TC [68] and CE [37].

Findings also show that TC including capabilities for exploring or exploiting technological opportunities, core technology capability, and autonomy of R&D decisions are particularly important to the firm's innovation capability in highly competitive industries, where technological knowledge is extremely important and BI application is becoming inherent [69, 70].

Given the current environmental dynamicity and uncertainty, firms with higher levels of information processing, communication and knowledge transfer are more likely to develop CE as an innovative way of doing, as these processes will result in more successful technological innovation than firms in these environments with lower levels of cooperative resources [65, 71]. All in all, we propose that:

P6. TC encourage CE.

### **2.5. Influence of innovative entrepreneurship on organizational performance**

Numerous studies identify a positive relationship between innovative entrepreneurial activity and territorial growth [72–74].

CE is a strategic variable in successful organizations [5, 75, 76], and it is positively related to the firm's growth and profitability [21, 77]. Organizations that engage in entrepreneurial activities achieve higher levels of growth and profitability than organizations that do not [75].

As a result, firms that exhibit CE are typically viewed as dynamic, flexible entities preparing or prepared to take advantage of new business opportunities when they arise [63, 78].

Nowadays, firms that exploit BI as a way of achieving better market positions have a strong incentive to be first innovators when the first-mover advantage is significant [11, 14, 32, 79]. Once an innovation is made, the entrepreneur must bring the innovation to the market in the shortest possible time, as the innovator's position of monopoly might otherwise be quickly eroded by imitators or superior innovations [80].

Innovative companies frequently develop strong, positive market reputations that ensure customer loyalty, enable them to exploit an additional basis for competitive advantage, or result in first-mover advantages that translate into superior firm performance. Such characteristics may well enable entrepreneurial firms to take advantage of the effects of learning and experience curves to improve their product, process or market strategies and achieve better organizational performance [81]. These entrepreneurial firms are willing to deviate from prior routines, strategies, business models and operating environments to embrace new resource combinations that hold promise as potential enablers of innovation [78], such as exploitation of BI in firms.

In the case of technological organizations, various current studies indicate a positive relationship between CE and organizational performance [5, 8, 9, 36, 37, 73, 82, 83]. These studies show that entrepreneurship aims to stimulate the emergence of productive entrepreneurial undertakings. Research also demonstrates that positive economic performance in high-tech or ICT companies depends on innovative entrepreneurship capital. Alternately, companies may license use of their technology to other companies in the industry to create new business and enhance their revenue and profits [69]. Since these technological opportunities in an industry are positively associated with increased CE, we can expect a positive relationship between CE and performance in terms of profitability and growth, enabling proposal of the following hypothesis:

P7. CE encourages organizational performance.

### **3. Methodology**

These TCs permit exploitation of technological opportunities for development of CE and gen-

In firms' focus on BI, industrial application of technology requires new capabilities in process technologies [64], which can compensate for average or potentially below-average technological know-how when firms seek to innovate technologically. Integration of business applications is thus a serious matter, as it integrates the levels of the firm's information system [2]. That is, TC enables the firm to integrate technological knowledge within and across its boundaries, an important determinant of heterogeneous competency [65]. It also encourages

Technological innovation systems thus increase the firm's TC, since they provide innovative ways to speed up the problem-solving process, with key elements such as technological infra-

Findings also show that TC including capabilities for exploring or exploiting technological opportunities, core technology capability, and autonomy of R&D decisions are particularly important to the firm's innovation capability in highly competitive industries, where technological knowledge is extremely important and BI application is becoming inherent [69, 70].

Given the current environmental dynamicity and uncertainty, firms with higher levels of information processing, communication and knowledge transfer are more likely to develop CE as an innovative way of doing, as these processes will result in more successful technological innovation than firms in these environments with lower levels of cooperative resources

Numerous studies identify a positive relationship between innovative entrepreneurial activ-

CE is a strategic variable in successful organizations [5, 75, 76], and it is positively related to the firm's growth and profitability [21, 77]. Organizations that engage in entrepreneurial activities achieve higher levels of growth and profitability than organizations that do not [75].

As a result, firms that exhibit CE are typically viewed as dynamic, flexible entities preparing

Nowadays, firms that exploit BI as a way of achieving better market positions have a strong incentive to be first innovators when the first-mover advantage is significant [11, 14, 32, 79]. Once an innovation is made, the entrepreneur must bring the innovation to the market in the shortest possible time, as the innovator's position of monopoly might otherwise be quickly

Innovative companies frequently develop strong, positive market reputations that ensure customer loyalty, enable them to exploit an additional basis for competitive advantage, or result in

or prepared to take advantage of new business opportunities when they arise [63, 78].

**2.5. Influence of innovative entrepreneurship on organizational performance**

eration of innovative competitive advantage in the firm [37, 61, 63].

innovation capability [66] and CE [21, 37, 67].

122 Entrepreneurship - Development Tendencies and Empirical Approach

structure or TC [68] and CE [37].

[65, 71]. All in all, we propose that:

ity and territorial growth [72–74].

eroded by imitators or superior innovations [80].

P6. TC encourage CE.

The methodology followed to perform this study is called grounded theory. It attempts to discover theories, concepts, hypotheses and propositions by starting directly from data rather from a priori assumptions drawn from other research [84]. Since grounded theory has been primarily theoretical, we performed an exhaustive search for articles specifically on BI in the field of telecommunications engineering of intelligent systems and related these studies to articles in the field of business management.

**Figure 3.** Proposed model. Source: Developed by the authors.

Further, due to the newness and minimal development of the topic, in addition to scholarly articles, we consulted numerous webpages to gather information on the new types of design firms are currently applying.

integration of BI (P5); and thirdly, by strengthening TC among the firm's stakeholders (P6). Finally, innovative CE has been shown to increase or improve organizational performance

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In dynamic environments, dynamic capabilities rest less on existing knowledge than on faster new knowledge creation through learning [85]. Firms should stimulate the development of opportunities that combine inventions generated internally and externally through efficient knowledge transfer and protection of intellectual property, and improved protection against imitation by rivals [86]. "Firms innovate through a continuous learning process by which they

BI thus attempts to use the information traffic achieved with firms' current technological integration to achieve interoperability and organization of the flow of information between applications. This means that BI seeks to enable communication not only among the firm's different applications but also with other stakeholders that may form part of the

This study thus proposes that BI influences company performance directly and indirectly: directly because it permits innovative development of entrepreneurship dependent on task interdependence in the organization, and indirectly through effective knowledge management, efficient organizational learning processes, and increased technological capabilities in the firm. All of these improvements materialize in data, business processes and applications,

If we understand that entrepreneurial activity involves innovation [72, 87], entrepreneurs become critical to the innovation process, and entrepreneurial capability is a key element in knowledge transfer during the commercialization process. Such innovative corporate entre-

Only after firm personnel develop technological capabilities through BI will firms achieve trustworthy and efficient use of the information within the company. Furthermore, doing work on time, without mistakes and more effectively enables firms to achieve higher entre-

The information analysis performed provides not only easy visualization of data within the

Such excellent decision-making—achieved by the impact of BI on CE through organizational learning processes, effective knowledge management and strengthening of technological competencies—increases the company's organizational performance and changes its current

firm, but also rapid decision-making for managers supported by well-developed CE.

in the firm (P7).

**4.2. Conclusions**

business system.

**4.3. Implications**

preneurial activity.

organizational design.

generate new knowledge" ([24], p. 3).

which are in turn innovative forms of entrepreneurship.

This study has the three main implications:

preneurship enhances the potential for achieving excellent performance.

After reading and studying this information, we formulated a series of propositions that relate BI to each of the management concepts explained above (organizational learning, knowledge management and technological capabilities of the firm's employees and top managers). We will attempt to contrast these propositions empirically with theoretical development in this study to obtain results of interest for the scholarly community.

**Figure 3** represents the proposed model.

### **4. Results and conclusions**

#### **4.1. Results**

We have achieved the study's initial goals. First, we were able to distinguish between artificial intelligence and BI, while observing that artificial intelligence is one of the main components of BI.

The second goal was to provide a series of tools (CMI, DSS and data mining) to develop BI. These tools were explained in the course of the study and are indirectly related to greater business development.

Finally, the third goal was to propose a series of propositions to improve business performance with the aid of BI. To do this, we demonstrated a series of relationships between BI and numerous specific components of business development which, when performed well, can lead to the firm's success.

To fulfill this goal and observe these relationships, it is worth stressing that:

The help of BI in the firm's knowledge management and organizational learning makes information more accurate and useful, improving business efficiency and thus business results (P1 and P2).

On the other hand, the firm's aptitudes, such as technological capabilities, are fostered by introducing BI in the firm. Aspects of the firm are changing every day, requiring the organization to adapt, and it will adapt correctly when it has sufficiently developed technological capabilities (P3).

The business structure assumes that using BI will be more effective for the businessperson and easier to install in the firm. We have thus developed other hypotheses that connect BI to business performance through the development of CE as an innovative form of entrepreneurship. CE has been encouraged, firstly, indirectly by BI through effective knowledge management within the firm or by managing the web application needed (P4); secondly, through development of organizational learning processes within the firm or technological integration of BI (P5); and thirdly, by strengthening TC among the firm's stakeholders (P6). Finally, innovative CE has been shown to increase or improve organizational performance in the firm (P7).

#### **4.2. Conclusions**

Further, due to the newness and minimal development of the topic, in addition to scholarly articles, we consulted numerous webpages to gather information on the new types of design

After reading and studying this information, we formulated a series of propositions that relate BI to each of the management concepts explained above (organizational learning, knowledge management and technological capabilities of the firm's employees and top managers). We will attempt to contrast these propositions empirically with theoretical development in this

We have achieved the study's initial goals. First, we were able to distinguish between artificial intelligence and BI, while observing that artificial intelligence is one of the main com-

The second goal was to provide a series of tools (CMI, DSS and data mining) to develop BI. These tools were explained in the course of the study and are indirectly related to greater

Finally, the third goal was to propose a series of propositions to improve business performance with the aid of BI. To do this, we demonstrated a series of relationships between BI and numerous specific components of business development which, when performed well,

The help of BI in the firm's knowledge management and organizational learning makes information more accurate and useful, improving business efficiency and thus business results (P1

On the other hand, the firm's aptitudes, such as technological capabilities, are fostered by introducing BI in the firm. Aspects of the firm are changing every day, requiring the organization to adapt, and it will adapt correctly when it has sufficiently developed technological

The business structure assumes that using BI will be more effective for the businessperson and easier to install in the firm. We have thus developed other hypotheses that connect BI to business performance through the development of CE as an innovative form of entrepreneurship. CE has been encouraged, firstly, indirectly by BI through effective knowledge management within the firm or by managing the web application needed (P4); secondly, through development of organizational learning processes within the firm or technological

To fulfill this goal and observe these relationships, it is worth stressing that:

study to obtain results of interest for the scholarly community.

firms are currently applying.

**Figure 3** represents the proposed model.

124 Entrepreneurship - Development Tendencies and Empirical Approach

**4. Results and conclusions**

**4.1. Results**

ponents of BI.

and P2).

capabilities (P3).

business development.

can lead to the firm's success.

In dynamic environments, dynamic capabilities rest less on existing knowledge than on faster new knowledge creation through learning [85]. Firms should stimulate the development of opportunities that combine inventions generated internally and externally through efficient knowledge transfer and protection of intellectual property, and improved protection against imitation by rivals [86]. "Firms innovate through a continuous learning process by which they generate new knowledge" ([24], p. 3).

BI thus attempts to use the information traffic achieved with firms' current technological integration to achieve interoperability and organization of the flow of information between applications. This means that BI seeks to enable communication not only among the firm's different applications but also with other stakeholders that may form part of the business system.

This study thus proposes that BI influences company performance directly and indirectly: directly because it permits innovative development of entrepreneurship dependent on task interdependence in the organization, and indirectly through effective knowledge management, efficient organizational learning processes, and increased technological capabilities in the firm. All of these improvements materialize in data, business processes and applications, which are in turn innovative forms of entrepreneurship.

If we understand that entrepreneurial activity involves innovation [72, 87], entrepreneurs become critical to the innovation process, and entrepreneurial capability is a key element in knowledge transfer during the commercialization process. Such innovative corporate entrepreneurship enhances the potential for achieving excellent performance.

#### **4.3. Implications**

This study has the three main implications:

Only after firm personnel develop technological capabilities through BI will firms achieve trustworthy and efficient use of the information within the company. Furthermore, doing work on time, without mistakes and more effectively enables firms to achieve higher entrepreneurial activity.

The information analysis performed provides not only easy visualization of data within the firm, but also rapid decision-making for managers supported by well-developed CE.

Such excellent decision-making—achieved by the impact of BI on CE through organizational learning processes, effective knowledge management and strengthening of technological competencies—increases the company's organizational performance and changes its current organizational design.

Finally, BI and the different propositions that emerge from this process develop as firms continually discover business models, modifying the firm's current organizational design. For instance, dosdoce.com [88] presents some innovative business models that integrate BI: (a) *micropayments* or fractioned content, "*carrier billing*" in which the customer makes purchases through the Smartphone, charging the expense to the phone bill; (b) *Streaming/Pay per View* in the hotel sector *ByHours*; (c) subscription to journals or newspapers; (d) *Freemium-Premium, Spotify*; (e) *Open Access, Wikipedia* or Open Access articles; (f) P2P ("*peer to peer") People's University,* which undertakes to provide a series of online academic content free, charging only for registration; (g) *MOOCs* or *Massive Open Online Courses*, free online courses, and other courses available for a set price; (h) *Bundles*, or inseparable products, such as the Microsoft Office package; (i) *Crowdfunding,* or financing a business idea from an investor or collaborator like *kickstarter* or *indiegogo*; (j) *cocreation, Lego Cuusoo*, where the customer creates a LEGO product which, with sufficient support and compliance with the requirements imposed by the company, could be produced as an official LEGO product; (k) gamification, which enables one to find and evaluate game-based solutions to develop behavior in nonludic situations; (l) *Direct sale*, whether *B2C* or *B2B* models; and (n) *Self-publication,* as with *Amazon Kindle Direct Publishing*, where authors can publish free and keep copyright of their books.

**Author details**

**References**

June 22, 2015].

24 2015].

**68**:2290-2294

2011;**10**(2):123-135

nan-16575 [Accessed: August 18, 2015]

10.1787/9789264013100-en

Reyes Giménez-Figueroa, Rodrigo Martín-Rojas\* and Víctor Jesús García-Morales

Business Intelligence: An Innovative Technological Way to Influence Corporate Entrepreneurship

http://dx.doi.org/10.5772/intechopen.70538

127

[1] Curto DJ. Introducción al Business Intelligence. Barcelona: UOC; 2012

[2] Linthicum DS. Enterprise Application Integration. Canada: Addison Wesley; 1999

[3] Medina-Soto JA. Business Intelligence. Teoría y conceptos [Internet]. 2005. Available from: https://www.gestiopolis.com/business-intelligence-teoria-y-conceptos/ [Accessed:

[4] Ramos S. Curso MS Business Intelligence – Componentes de una solución de BI, SolidQ [Internet]. 2011. Available from: http://blogs.solidq.com/es/business-analytics/ curso-ms-business-intelligence-componentes-de-una-solucion-de-bi-4/ [Accessed: July,

[5] Antoncic B, Prodan I. Alliances, corporate technological entrepreneurship and firm performance: Testing a model on manufacturing firms. Technovation. 2008;**28**:257-265

[6] OECD. Oslo Manual. Guidelines for Collecting and Interpreting Innovation Data. 3rd ed. Paris, France: European Commission: OECD Publishing; 2005. DOI:

[7] OECD. Innovation and Growth. Rationale for an Innovation Strategy [Internet]. 2007. Available from: http://www.oecd.org/sti/inno/39374789.pdf [Accessed: June 22, 2017]

[8] Szabo KZ, Herman E. Innovative entrepreneurship for economic development in

[9] Roig-Tierno N, Alcázar J, Ribeiro-Navarrete JA. Use of infrastructures to support innovative entrepreneurship and business growth. Journal of Business Research. 2015;

[10] Bustamante AA, Galvis EA, González M, García AA, Benavides LF. Soluciones de inteligencia de negocios en la práctica: apoyo a la toma de decisiones en proyectos educativos para población infantil vulnerable en el caribe Colombiano. Revista UIS Ingenierías.

[11] Computer hoy. "Qué son los wearables" "Cómo funcionan" [Internet]. 2014. Available from: http://computerhoy.com/noticias/hardware/que-son-wearables-como-funcio-

EU. Procedia Economics and Finance. 2012;**3**:268-275

\*Address all correspondence to: rodrigomr@ugr.es

University of Granada, Granada, Spain

#### **4.4. Limitations**

In addition to the problems posed by applying BI in firms (the high investment involved in introducing BI in the firm and the fact that employees are not accustomed to using the tool), it is important to mention another limitation of this study:

To study this topic, we used a grounded theory focus, for which we will attempt to achieve empirical results.

#### **4.5. Future lines of research**

Studies such as Gartner [89] study the business results of organizations that use BI and data analysis and conclude that these trends will evolve more in the coming years. More research on these topics is thus advisable. It is also quite likely that the concept of BI will even fuse with the Internet of Things, since BI must increasingly analyze a quantity of data about which the firm will have to obtain the necessary information and which, as we have seen, is of vital importance for the firm's organization.

In conclusion, future development of this research could perform case studies of the application of BI in the firm, as in the case of Google, or demonstrate the propositions statistically and thus perform an empirical study to confirm the hypotheses.

### **Acknowledgements**

We acknowledge the financial support from Excellence Research Project with reference P11-SEJ-7988 from Andalusian Regional Government.

### **Author details**

Finally, BI and the different propositions that emerge from this process develop as firms continually discover business models, modifying the firm's current organizational design. For instance, dosdoce.com [88] presents some innovative business models that integrate BI: (a) *micropayments* or fractioned content, "*carrier billing*" in which the customer makes purchases through the Smartphone, charging the expense to the phone bill; (b) *Streaming/Pay per View* in the hotel sector *ByHours*; (c) subscription to journals or newspapers; (d) *Freemium-Premium, Spotify*; (e) *Open Access, Wikipedia* or Open Access articles; (f) P2P ("*peer to peer") People's University,* which undertakes to provide a series of online academic content free, charging only for registration; (g) *MOOCs* or *Massive Open Online Courses*, free online courses, and other courses available for a set price; (h) *Bundles*, or inseparable products, such as the Microsoft Office package; (i) *Crowdfunding,* or financing a business idea from an investor or collaborator like *kickstarter* or *indiegogo*; (j) *cocreation, Lego Cuusoo*, where the customer creates a LEGO product which, with sufficient support and compliance with the requirements imposed by the company, could be produced as an official LEGO product; (k) gamification, which enables one to find and evaluate game-based solutions to develop behavior in nonludic situations; (l) *Direct sale*, whether *B2C* or *B2B* models; and (n) *Self-publication,* as with *Amazon Kindle Direct* 

*Publishing*, where authors can publish free and keep copyright of their books.

it is important to mention another limitation of this study:

126 Entrepreneurship - Development Tendencies and Empirical Approach

thus perform an empirical study to confirm the hypotheses.

P11-SEJ-7988 from Andalusian Regional Government.

In addition to the problems posed by applying BI in firms (the high investment involved in introducing BI in the firm and the fact that employees are not accustomed to using the tool),

To study this topic, we used a grounded theory focus, for which we will attempt to achieve

Studies such as Gartner [89] study the business results of organizations that use BI and data analysis and conclude that these trends will evolve more in the coming years. More research on these topics is thus advisable. It is also quite likely that the concept of BI will even fuse with the Internet of Things, since BI must increasingly analyze a quantity of data about which the firm will have to obtain the necessary information and which, as we have seen, is of vital

In conclusion, future development of this research could perform case studies of the application of BI in the firm, as in the case of Google, or demonstrate the propositions statistically and

We acknowledge the financial support from Excellence Research Project with reference

**4.4. Limitations**

empirical results.

**4.5. Future lines of research**

**Acknowledgements**

importance for the firm's organization.

Reyes Giménez-Figueroa, Rodrigo Martín-Rojas\* and Víctor Jesús García-Morales

\*Address all correspondence to: rodrigomr@ugr.es

University of Granada, Granada, Spain

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**Chapter 7**

Provisional chapter

**Entrepreneurship and Sustainability as Key Elements**

DOI: 10.5772/intechopen.70771

Considering the socio-economic reality of Brazil and from the relevance of the issues related to entrepreneurship and organizational innovation in the country, the importance of sustainability for the organizations could become a solution for the integration of entrepreneurship with innovation. The objective of this research is to highlight the relevance of sustainability for organizations as a way to trigger the integration of entrepreneurship toward innovation in the Brazilian context. Various exploratory and descriptive researches on the dynamics of entrepreneurship, innovation and sustainability in the main organizations of the Serra Gaúcha (RS), Brazil were carried out through the Multidisciplinary Research Group on Innovation and Competitiveness, in partnership with a research Nucleus on Innovation, Entrepreneurship and Sustainability. The main results indicate that the key sectors of this Brazilian regional economy present less "innovation intensity," which are mainly characterized by internal organizational activities of innovation, preventing them to become "regional systems of innovation," and which presupposes the lack of sustainability. Those limitations can be characterized as "innovation ghettos." In that logic, the researchers have also demonstrated the presence of "ghettos of sustainability, ghettos of innovation, and therefore, ghettos of sustainability

> © The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and eproduction in any medium, provided the original work is properly cited.

© 2018 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Entrepreneurship and Sustainability as Key Elements

**for Innovation: A Brazilian Dilemma**

for Innovation: A Brazilian Dilemma

Eric Charles Henri Dorion, Pelayo Munhoz Olea, François Coallier, Cleber Cristiano Prodanov,

Eric Charles Henri Dorion, Pelayo Munhoz Olea, François Coallier, Cleber Cristiano Prodanov,

Vânia Beatriz Merlotti Heredia,

Vânia Beatriz Merlotti Heredia,

Claudio Baltazar Corrêa De Mello,

Claudio Baltazar Corrêa De Mello,

http://dx.doi.org/10.5772/intechopen.70771

Paula Patricia Ganzer,

Paula Patricia Ganzer,

Oberdan Teles Da Silva,

Vandoir Welchen

Abstract

Eliana Andrea Severo, Julio Cesar Ferro Guimarães, Cristine Hermann Nodari, Ana Cristina Fachinelli,

Eliana Andrea Severo, Julio Cesar Ferro Guimarães, Cristine Hermann Nodari, Ana Cristina Fachinelli,

Fernando Fantoni Bencke, Nilson Varella Rubenich,

Fernando Fantoni Bencke, Nilson Varella Rubenich,

Adrieli Alves Pereira Radaelli, Cassiane Chais, Oberdan Teles Da Silva, Luana Folchini Da Costa, Vanessa Machado, Joel Tshibamba Mukendi and

Adrieli Alves Pereira Radaelli, Cassiane Chais,

Additional information is available at the end of the chapter

Additional information is available at the end of the chapter

Luana Folchini Da Costa, Vanessa Machado, Joel Tshibamba Mukendi and Vandoir Welchen


#### **Entrepreneurship and Sustainability as Key Elements for Innovation: A Brazilian Dilemma** Entrepreneurship and Sustainability as Key Elements for Innovation: A Brazilian Dilemma

DOI: 10.5772/intechopen.70771

Eric Charles Henri Dorion, Pelayo Munhoz Olea, François Coallier, Cleber Cristiano Prodanov, Eliana Andrea Severo, Julio Cesar Ferro Guimarães, Cristine Hermann Nodari, Ana Cristina Fachinelli, Vânia Beatriz Merlotti Heredia, Fernando Fantoni Bencke, Nilson Varella Rubenich, Paula Patricia Ganzer, Claudio Baltazar Corrêa De Mello, Adrieli Alves Pereira Radaelli, Cassiane Chais, Oberdan Teles Da Silva, Luana Folchini Da Costa, Vanessa Machado, Joel Tshibamba Mukendi and Vandoir Welchen Eric Charles Henri Dorion, Pelayo Munhoz Olea, François Coallier, Cleber Cristiano Prodanov, Eliana Andrea Severo, Julio Cesar Ferro Guimarães, Cristine Hermann Nodari, Ana Cristina Fachinelli, Vânia Beatriz Merlotti Heredia, Fernando Fantoni Bencke, Nilson Varella Rubenich, Paula Patricia Ganzer, Claudio Baltazar Corrêa De Mello, Adrieli Alves Pereira Radaelli, Cassiane Chais, Oberdan Teles Da Silva, Luana Folchini Da Costa, Vanessa Machado,

Additional information is available at the end of the chapter Joel Tshibamba Mukendi and Vandoir Welchen

http://dx.doi.org/10.5772/intechopen.70771 Additional information is available at the end of the chapter

#### Abstract

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132 Entrepreneurship - Development Tendencies and Empirical Approach

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130-147

Considering the socio-economic reality of Brazil and from the relevance of the issues related to entrepreneurship and organizational innovation in the country, the importance of sustainability for the organizations could become a solution for the integration of entrepreneurship with innovation. The objective of this research is to highlight the relevance of sustainability for organizations as a way to trigger the integration of entrepreneurship toward innovation in the Brazilian context. Various exploratory and descriptive researches on the dynamics of entrepreneurship, innovation and sustainability in the main organizations of the Serra Gaúcha (RS), Brazil were carried out through the Multidisciplinary Research Group on Innovation and Competitiveness, in partnership with a research Nucleus on Innovation, Entrepreneurship and Sustainability. The main results indicate that the key sectors of this Brazilian regional economy present less "innovation intensity," which are mainly characterized by internal organizational activities of innovation, preventing them to become "regional systems of innovation," and which presupposes the lack of sustainability. Those limitations can be characterized as "innovation ghettos." In that logic, the researchers have also demonstrated the presence of "ghettos of sustainability, ghettos of innovation, and therefore, ghettos of sustainability

© The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons © 2018 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and eproduction in any medium, provided the original work is properly cited.

and innovation" in the sectors of this Brazilian regional economy, but in differentiated and restricted perspectives

Keywords: entrepreneurship, sustainability, innovation, Brazilian organizations, sectors, economy, research academic, research group

#### 1. Introduction

In the late 19th century in Brazil, the industrial development began encouraging the entrepreneurial character of the nation. In more than 100 years, the Brazilian industries have covered most of the regions of their country and have developed various areas of the civil society. But today, it is not possible to approximate and explain the role of entrepreneurship toward the practice of innovation, since many entrepreneurs still come to the market with similar ideas, creating some wealth, despite most of them are still not innovating [1]. However, Drucker [2] has suggested that innovation is directly related to the economic or social potential of entrepreneurship change, which consists in creating and using new products, processes, organizations or production systems. It represents the key to competitiveness and knowledge development [3], but it still occurs in very few Brazilian organizations [1].

In [4], Brazil is ranked in the 69th position among 128 countries, behind the economies of Panama, Colombia, Mongolia, South Africa and others. The Global Innovation Index assists in adapting policies for long-term development to increase productivity and generate employment. According to Ref. [4], the growth forecasts for 2016 were not optimistic as well as the economic recovery slowed down even in high-income countries like the United States, Japan and some European countries. At the same time, low- and middle-income countries face lower growth expectations than they were 2 years ago. Africa, Latin America and the Caribbean have reduced their growth rates to levels considered modest by the report, and for Brazil, this impact was mainly felt by the fall in commodity prices, which increases the economic fragility of the country. In this scenario, innovation is distant, since there is no wealth for investment in research and development [4]. The Central Bank of Brazil reports that, since 1980, the country has followed a sinusoidal trajectory with its economic growth (Figure 1), considering that the past 3 years are with negative results.

seek competitiveness and an improvement in financial performance, suffering a constant pressure on normative issues and legal impositions [6]. Still facing economic, social, political and environmental problems, the Brazilian industry has been declining nowadays. According to data released by the Brazilian Institute of Geography and Statistics (IBGE) in February 2017, the Brazilian industrial production fell by 6.6% in 2016 compared to 2015. In this context, the effort of companies to invest and generate innovations stayed at a minimum level of invest-

Entrepreneurship and Sustainability as Key Elements for Innovation: A Brazilian Dilemma

http://dx.doi.org/10.5772/intechopen.70771

135

So, in a Brazilian context, what would be the link between a centenary background of entre-

The investigation of the dynamics between the entrepreneurial reality, sustainability and innovations in the leading organizations of Serra Gaúcha (RS), Brazil constitutes the main mandate of the Multidisciplinary Research Group in Innovation and Competitiveness [7], in partnership with the Nucleus of Innovation, Entrepreneurship and Sustainability [8]. Both Groups are associated to the MSc and Doctorate Programs in Administration of the University of Caxias do Sul (RS), Brazil, and focus on the development of new research paths based on integration and interdisciplinary. One of their objectives is to develop new evaluation tools on the potential of Brazilian companies to allow a better recognition of business realities in terms

As introduced by Schumpeter in 1934, the concept of entrepreneurship is considered as the main generator of companies' competitiveness as well as a guarantor for their development [9]. It constitutes the elements for the local leading organizations to generate the development

ment, due to the lack of both sustainability and expansion in productive capacity.

Figure 1. Brazil's economic growth (1980–2014). Source: [5].

of entrepreneurial development, sustainability and innovation in organizations.

preneurship activity and an almost inexistent rate of consistent innovation intensity?

This reality has become a fact, since this country of Latin America has not evolved beyond its GDP, demonstrating that Brazilian organizations do not invest in innovation. It is important to note that Brazilian companies, research institutions and government are making an effort to keep on their agenda the generation of innovation. However, at a moment where Brazil has entered in a period of economic turbulence, it has become necessary for the country to overcome the short-term constraints and to stick to the commitments that generate results with innovation. An interaction and a stronger cooperation within Latin America could perhaps contribute to the recovery of the economy and consequently reach a higher level of innovations in the country [4]. An Innovation Survey (PINTEC) highlights that for the period of 2012–2014, Brazil had 132,529 innovation intense companies (industry and services). Those companies

Figure 1. Brazil's economic growth (1980–2014). Source: [5].

and innovation" in the sectors of this Brazilian regional economy, but in differentiated and

Keywords: entrepreneurship, sustainability, innovation, Brazilian organizations, sectors,

In the late 19th century in Brazil, the industrial development began encouraging the entrepreneurial character of the nation. In more than 100 years, the Brazilian industries have covered most of the regions of their country and have developed various areas of the civil society. But today, it is not possible to approximate and explain the role of entrepreneurship toward the practice of innovation, since many entrepreneurs still come to the market with similar ideas, creating some wealth, despite most of them are still not innovating [1]. However, Drucker [2] has suggested that innovation is directly related to the economic or social potential of entrepreneurship change, which consists in creating and using new products, processes, organizations or production systems. It represents the key to competitiveness and knowledge

In [4], Brazil is ranked in the 69th position among 128 countries, behind the economies of Panama, Colombia, Mongolia, South Africa and others. The Global Innovation Index assists in adapting policies for long-term development to increase productivity and generate employment. According to Ref. [4], the growth forecasts for 2016 were not optimistic as well as the economic recovery slowed down even in high-income countries like the United States, Japan and some European countries. At the same time, low- and middle-income countries face lower growth expectations than they were 2 years ago. Africa, Latin America and the Caribbean have reduced their growth rates to levels considered modest by the report, and for Brazil, this impact was mainly felt by the fall in commodity prices, which increases the economic fragility of the country. In this scenario, innovation is distant, since there is no wealth for investment in research and development [4]. The Central Bank of Brazil reports that, since 1980, the country has followed a sinusoidal trajectory with its economic growth (Figure 1), considering that the past 3 years are with negative results.

This reality has become a fact, since this country of Latin America has not evolved beyond its GDP, demonstrating that Brazilian organizations do not invest in innovation. It is important to note that Brazilian companies, research institutions and government are making an effort to keep on their agenda the generation of innovation. However, at a moment where Brazil has entered in a period of economic turbulence, it has become necessary for the country to overcome the short-term constraints and to stick to the commitments that generate results with innovation. An interaction and a stronger cooperation within Latin America could perhaps contribute to the recovery of the economy and consequently reach a higher level of innovations in the country [4]. An Innovation Survey (PINTEC) highlights that for the period of 2012–2014, Brazil had 132,529 innovation intense companies (industry and services). Those companies

development [3], but it still occurs in very few Brazilian organizations [1].

restricted perspectives

1. Introduction

economy, research academic, research group

134 Entrepreneurship - Development Tendencies and Empirical Approach

seek competitiveness and an improvement in financial performance, suffering a constant pressure on normative issues and legal impositions [6]. Still facing economic, social, political and environmental problems, the Brazilian industry has been declining nowadays. According to data released by the Brazilian Institute of Geography and Statistics (IBGE) in February 2017, the Brazilian industrial production fell by 6.6% in 2016 compared to 2015. In this context, the effort of companies to invest and generate innovations stayed at a minimum level of investment, due to the lack of both sustainability and expansion in productive capacity.

So, in a Brazilian context, what would be the link between a centenary background of entrepreneurship activity and an almost inexistent rate of consistent innovation intensity?

The investigation of the dynamics between the entrepreneurial reality, sustainability and innovations in the leading organizations of Serra Gaúcha (RS), Brazil constitutes the main mandate of the Multidisciplinary Research Group in Innovation and Competitiveness [7], in partnership with the Nucleus of Innovation, Entrepreneurship and Sustainability [8]. Both Groups are associated to the MSc and Doctorate Programs in Administration of the University of Caxias do Sul (RS), Brazil, and focus on the development of new research paths based on integration and interdisciplinary. One of their objectives is to develop new evaluation tools on the potential of Brazilian companies to allow a better recognition of business realities in terms of entrepreneurial development, sustainability and innovation in organizations.

As introduced by Schumpeter in 1934, the concept of entrepreneurship is considered as the main generator of companies' competitiveness as well as a guarantor for their development [9]. It constitutes the elements for the local leading organizations to generate the development of a region and to improve the quality of life of a community [10]. In that perspective, the Brazilian entrepreneurs know how to take advantage of the opportunities of the local business dynamic, by improving their organizational characteristics that allow their development and competitiveness. However, data on the issues of entrepreneurship and innovation development in Brazil are contradictory, and no scientific link has yet been scientifically established [1]. However, the importance of innovation for business growth and the economic development of the regions is already recognized in the literature and is of common interest to all actors in a society of organizations [11, 12]. Porter [13], in his book "The Competitive Advantage of Nations," examines why some nations achieve success in international competition and others fail. The author reports that business success is based on its economic environment, the relevance of its government policies and the presence and efficiency of its support institutions. In this context, innovations have assumed a fundamental role in all the advanced economies of the world and are considered as essential for the growth and the development of a nation. However, since it is not possible to directly insert the practice of innovation into entrepreneurship and, since the Brazilian entrepreneurs do undertake action and also create wealth despite of not innovating [1]; why cannot we directly link entrepreneurship to innovation in most of the Brazilian economy?

Nevertheless, such action is limited to the organization's own environment and does not grow in a socio-economic context. The Brazilian organizations innovate in isolation with no perspective of open diffusion [23, 24]. Who innovates does not divulge. Whoever undertakes imitates but does not innovate. Considering the socio-economic reality of Brazil and from the relevance of the issues related to entrepreneurship and organizational innovation in the country, the importance of sustainability for the organizations could become a solution for the integration

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There is an extensive theoretical basis produced on the economic approach to entrepreneurship, and the foundations are related to the various schools of economic thought, such as the works of Schumpeter, Kirzner and Knight. According to Schumpeter [9], the entrepreneur is the one who destroys the existing economic order by introducing new products and services, by creating new forms of organizations or by exploiting new resources and materials. According to the economist, the entrepreneur is considered as an engine of the economic system who perceives the essence of entrepreneurship in the use of new business opportunities and by associating this concept with innovation [25]. Such a view leads to a trend toward economic growth and a value system peculiar to it, by creating an environment for product

The work of the economists has demonstrated a tendency to concentrate on issues such as wealth, commerce and social welfare. However, some authors like McClelland [27], Stevenson and Gumpert [28] and Gartner [29] introduced new perspectives of study on entrepreneurship. McClelland [27] postulates that the psychological approach considers that the entrepreneur has specific characteristics and behavior. Stevenson and Gumpert [28] believe that entrepreneurship research should focus on what the entrepreneur does and not on what he is, since the entrepreneurial process can be considered as a set of behaviors that the entrepreneur develops. Gartner [29] postulates that an entrepreneurial organization may be driven by the perception of the opportunities and the oriented actions, where the actions of the entrepreneur must be

The social approach to entrepreneurship proposes different levels of analysis that are above the individual entrepreneur. It looks into the interpersonal network, the organizational structure, the population, as well as the institutional environment [30]. Thus, such approach aggregates the traditional focus given to financial and market conditions, by introducing the issue of socioeconomic sustainability. Pirich et al. [31] postulate that to encounter innovation actions in conjunction with an entrepreneurship reality, three key elements must be met: (1) the economic antecedents and an incentive of open business behavior; (2) a sophistication and efficiency in spreading knowledge generation and (3) an adequate capacity of the organizations, their employees and the individuals in general. Therefore, since researches tend to explain and define the "entrepreneur" by using axioms from different disciplines [27], the field of entrepreneurship

consumption, profit, competitiveness and organizational development [26].

the starting point for theorizing about entrepreneurship.

of entrepreneurship with innovation. Such is our premise.

2. Theory

2.1. Entrepreneurship

A prosperous path to economic growth starts by enhancing the existing entrepreneurial potential in a country through support mechanisms that allow the economic development of the organizations [13]. The search for innovation is to ensure, if not enlarge, a market share of a company and to trigger impacts beyond the simple economic sphere. In this sense, and according to Lundvall [14], the innovation is the key to development and constitutes the economic and social advance of a region or a nation. Thus, the literature demonstrates that innovation can strongly contribute to the socio-economic development of a region, but does not guarantee its specific sustainable development [1]. In a strategic perspective, it is necessary for an organization to generate innovations as a part of its growth strategy, since it represents a basic standard for sustainable and innovative behavior toward its own development [15]. Through such dilemma, how to link the entrepreneurial effort to success in innovation? In that context, the results generated by sustainability could lead to a new and different level of innovation that generates organizational competitiveness and stability. Consequently, both sustainability and innovation can become critical to ensuring the competitiveness of organizations in the global context [16].

Concerns about sustainability and innovation are shown to managers as a new business strategy, since it provides a competitive differential, attracting the most demanding and frequent segments of society [17]. In order to ensure a "posture for innovation," a society of organizations [18] seeks to implement mechanisms of sustainable management, involving the commitment of the actors themselves, aligned with a corporate strategy [19]. In such scenario, a logic emerges between entrepreneurship and the actions focused on change and innovation [16, 20]. Any innovative management strategies implemented in a leading organization envision a sustainable endogenous action. It then confirms their activities and actions toward a sustainable growth, which generates a variety of direct and indirect impacts within and outside the organization, and ranging from the consumers and employees to the regional community [21, 22].

Nevertheless, such action is limited to the organization's own environment and does not grow in a socio-economic context. The Brazilian organizations innovate in isolation with no perspective of open diffusion [23, 24]. Who innovates does not divulge. Whoever undertakes imitates but does not innovate. Considering the socio-economic reality of Brazil and from the relevance of the issues related to entrepreneurship and organizational innovation in the country, the importance of sustainability for the organizations could become a solution for the integration of entrepreneurship with innovation. Such is our premise.

### 2. Theory

of a region and to improve the quality of life of a community [10]. In that perspective, the Brazilian entrepreneurs know how to take advantage of the opportunities of the local business dynamic, by improving their organizational characteristics that allow their development and competitiveness. However, data on the issues of entrepreneurship and innovation development in Brazil are contradictory, and no scientific link has yet been scientifically established [1]. However, the importance of innovation for business growth and the economic development of the regions is already recognized in the literature and is of common interest to all actors in a society of organizations [11, 12]. Porter [13], in his book "The Competitive Advantage of Nations," examines why some nations achieve success in international competition and others fail. The author reports that business success is based on its economic environment, the relevance of its government policies and the presence and efficiency of its support institutions. In this context, innovations have assumed a fundamental role in all the advanced economies of the world and are considered as essential for the growth and the development of a nation. However, since it is not possible to directly insert the practice of innovation into entrepreneurship and, since the Brazilian entrepreneurs do undertake action and also create wealth despite of not innovating [1]; why cannot we directly link entrepreneurship to innovation in most of

136 Entrepreneurship - Development Tendencies and Empirical Approach

A prosperous path to economic growth starts by enhancing the existing entrepreneurial potential in a country through support mechanisms that allow the economic development of the organizations [13]. The search for innovation is to ensure, if not enlarge, a market share of a company and to trigger impacts beyond the simple economic sphere. In this sense, and according to Lundvall [14], the innovation is the key to development and constitutes the economic and social advance of a region or a nation. Thus, the literature demonstrates that innovation can strongly contribute to the socio-economic development of a region, but does not guarantee its specific sustainable development [1]. In a strategic perspective, it is necessary for an organization to generate innovations as a part of its growth strategy, since it represents a basic standard for sustainable and innovative behavior toward its own development [15]. Through such dilemma, how to link the entrepreneurial effort to success in innovation? In that context, the results generated by sustainability could lead to a new and different level of innovation that generates organizational competitiveness and stability. Consequently, both sustainability and innovation can become critical to ensuring the competitiveness of organiza-

Concerns about sustainability and innovation are shown to managers as a new business strategy, since it provides a competitive differential, attracting the most demanding and frequent segments of society [17]. In order to ensure a "posture for innovation," a society of organizations [18] seeks to implement mechanisms of sustainable management, involving the commitment of the actors themselves, aligned with a corporate strategy [19]. In such scenario, a logic emerges between entrepreneurship and the actions focused on change and innovation [16, 20]. Any innovative management strategies implemented in a leading organization envision a sustainable endogenous action. It then confirms their activities and actions toward a sustainable growth, which generates a variety of direct and indirect impacts within and outside the organization, and ranging from the consumers and employees to the regional

the Brazilian economy?

tions in the global context [16].

community [21, 22].

#### 2.1. Entrepreneurship

There is an extensive theoretical basis produced on the economic approach to entrepreneurship, and the foundations are related to the various schools of economic thought, such as the works of Schumpeter, Kirzner and Knight. According to Schumpeter [9], the entrepreneur is the one who destroys the existing economic order by introducing new products and services, by creating new forms of organizations or by exploiting new resources and materials. According to the economist, the entrepreneur is considered as an engine of the economic system who perceives the essence of entrepreneurship in the use of new business opportunities and by associating this concept with innovation [25]. Such a view leads to a trend toward economic growth and a value system peculiar to it, by creating an environment for product consumption, profit, competitiveness and organizational development [26].

The work of the economists has demonstrated a tendency to concentrate on issues such as wealth, commerce and social welfare. However, some authors like McClelland [27], Stevenson and Gumpert [28] and Gartner [29] introduced new perspectives of study on entrepreneurship. McClelland [27] postulates that the psychological approach considers that the entrepreneur has specific characteristics and behavior. Stevenson and Gumpert [28] believe that entrepreneurship research should focus on what the entrepreneur does and not on what he is, since the entrepreneurial process can be considered as a set of behaviors that the entrepreneur develops. Gartner [29] postulates that an entrepreneurial organization may be driven by the perception of the opportunities and the oriented actions, where the actions of the entrepreneur must be the starting point for theorizing about entrepreneurship.

The social approach to entrepreneurship proposes different levels of analysis that are above the individual entrepreneur. It looks into the interpersonal network, the organizational structure, the population, as well as the institutional environment [30]. Thus, such approach aggregates the traditional focus given to financial and market conditions, by introducing the issue of socioeconomic sustainability. Pirich et al. [31] postulate that to encounter innovation actions in conjunction with an entrepreneurship reality, three key elements must be met: (1) the economic antecedents and an incentive of open business behavior; (2) a sophistication and efficiency in spreading knowledge generation and (3) an adequate capacity of the organizations, their employees and the individuals in general. Therefore, since researches tend to explain and define the "entrepreneur" by using axioms from different disciplines [27], the field of entrepreneurship can be studied through economic, psychological, social and organizational theories [29, 32, 33]. Consequently, the entrepreneurial perspectives of research include the study of the socioeconomic forces that interfere in a regional economic development perspective, through certain axioms coming from the field of psychology, social sciences and organizational studies.

millennium will be to make the organizations protective and improve the quality of the environment. The author postulates on the necessity to establish performance standards based on a judicious use of economic instruments and harmonious framework regulatory policies, since the organizations that will take the lead on the environmental issue will have to cover

Entrepreneurship and Sustainability as Key Elements for Innovation: A Brazilian Dilemma

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139

Today, the Brazilian economy experiences an internal crisis of frightening socio-economic size. The International Monetary Fund has presented negative economic data for the last 18 months and foresees a downturn for the entire South American continent. IMF [44] reported that "[… as the global recovery continues to struggle to gain its footing, growth in Latin America and the Caribbean has been marked down further and is likely to contract for the second consecutive year in 2016]." A further deterioration of the situation in Brazil could lead to a reduction in the demand for exports between trading partners in the region and an increase in the perception of risk, which could create more difficulties for the leading companies and become more vulnerable in an already fragile global market [44]. According to data from such survey, Brazil has shown the third worst growth performance projection in Latin America for 2015, 2016 and 2017, after Ecuador and Venezuela. Nevertheless, the situation is expected to improve in 2017, considering the proposed changes and measures by the Brazilian Government to boost fiscal sustainability, as well as the measures taken to liberalize and open the economy in order to significantly enhance the country's competitiveness. IMF [44] also mentioned that growth in Latin America and the Caribbean is expected to remain below historical trends for a near future. In that context, it becomes relevant to rethink the dimensions of study about the

high risks to get significant competitive advantages in the market.

companies, their economic performance and their real capacity to innovate.

In the literature, the debates about the environmental dimension of sustainability mainly consider the aspects that touch on the renewable natural resources, the impacts caused in the environment and the environmental actions used by the organizations [6, 45, 46]. For many years, the environmental issue has been understood as something that was not part of the organizational context. Companies were seen as economic institutions that were concerned with resolving economic problems (what they produce, how to produce and to whom to produce for). The environmental problems were perceived as outside threats to corporate profitability and established business practices. By the mid-1990s, a new phase of integration of environmental issues began to be implemented in the organizations. It proposes (1) the progressive introduction of a sustainability perspective; (2) the proliferation of collective engagements; (3) a greater interaction between the public and private spheres and (4) a greater involvement of the organized civil society. This scenario postulates that companies begin to focus their activities and actions toward sustainable development. The premise is that everything that is done inside an organization generates a variety of direct and indirect impacts inside and outside of its core competence, affecting consumers, community collaborators and

Given the evolution of society toward an environmental conscience, the organizations started to adopt a different posture than the original one aimed at achieving a maximum profit [43].

2.4. Environmental dimension

the environment [22].

#### 2.2. Sustainability

On one hand, a globalized and competitive market demands an increasingly strategic position, where companies are induced to establish defined strategies to maintain competitive advantage. On the other hand, consumers are pressing for quality, safety and different new products. In order to meet the pressures set by the consumers and the business world, companies are starting to pay attention to sustainability as a solution for growth. The role of the organizations in the development is an upward movement in an entire social system. It is characterized not only by endogenous economic and non-economic factors but also by induced and implemented exogenous elements, such as government policies and laws [34]. The idea of development is multidimensional and involves the economic, environmental, cultural, social and political dimensions [35, 36].

The concept of sustainability related to the use of available resources, whether natural, capital or human, has a process of historical construction that has resulted in indicators used by the various nations. In Brazil, "sustainable development" indicators are part of a series of international efforts to achieve the ideas and the principles formulated at the United Nations Conference on Environment and Development (UNCED), held in Rio de Janeiro in 1992 [37]. The publication of "Indicators of Sustainable Development – Brazil 2015," from IBGE, brings data on the Brazilian reality through environmental, social, economic and institutional perspectives [37]. In this context, the economic effects are relatively easy to predict due to the important amount of developed instruments, but the social and environmental effects are more difficult to assess in advance because they involve many more variables, uncertainties and interactions. According to Schot and Geels [38], sustainable development requires the combination of technical and social changes, since they are deeply related. Therefore, the authors raise the necessity to transform the conventional understanding on sustainability, by incorporating new axioms of study that may facilitate the understanding on sustainability and its implications [39].

#### 2.3. Economic dimension

More recently, the concept of economic sustainability has appeared in the development of growth models. Until the 1970s, economic analyses only included the axioms of monetary flow and economic growth and relegating the limits of the natural environment to the background [40]. In 1971, Georgescu-Roegen [41] presented the idea that the economy must consider the law of entropy in the process of growth, given the fact that the expansion of the countries occurs by increasing the use of energy. Martine [42] analyzes the effects of energy consumption per capita, per country and relates it to the growth in population. The study concludes that the production and the consumption patterns of industrial economies continue to have a greater participation in their quality of life compared to the demographic growth of the developing countries. According to [43], one of the greatest challenges the world will face in this new

millennium will be to make the organizations protective and improve the quality of the environment. The author postulates on the necessity to establish performance standards based on a judicious use of economic instruments and harmonious framework regulatory policies, since the organizations that will take the lead on the environmental issue will have to cover high risks to get significant competitive advantages in the market.

Today, the Brazilian economy experiences an internal crisis of frightening socio-economic size. The International Monetary Fund has presented negative economic data for the last 18 months and foresees a downturn for the entire South American continent. IMF [44] reported that "[… as the global recovery continues to struggle to gain its footing, growth in Latin America and the Caribbean has been marked down further and is likely to contract for the second consecutive year in 2016]." A further deterioration of the situation in Brazil could lead to a reduction in the demand for exports between trading partners in the region and an increase in the perception of risk, which could create more difficulties for the leading companies and become more vulnerable in an already fragile global market [44]. According to data from such survey, Brazil has shown the third worst growth performance projection in Latin America for 2015, 2016 and 2017, after Ecuador and Venezuela. Nevertheless, the situation is expected to improve in 2017, considering the proposed changes and measures by the Brazilian Government to boost fiscal sustainability, as well as the measures taken to liberalize and open the economy in order to significantly enhance the country's competitiveness. IMF [44] also mentioned that growth in Latin America and the Caribbean is expected to remain below historical trends for a near future. In that context, it becomes relevant to rethink the dimensions of study about the companies, their economic performance and their real capacity to innovate.

#### 2.4. Environmental dimension

can be studied through economic, psychological, social and organizational theories [29, 32, 33]. Consequently, the entrepreneurial perspectives of research include the study of the socioeconomic forces that interfere in a regional economic development perspective, through certain

On one hand, a globalized and competitive market demands an increasingly strategic position, where companies are induced to establish defined strategies to maintain competitive advantage. On the other hand, consumers are pressing for quality, safety and different new products. In order to meet the pressures set by the consumers and the business world, companies are starting to pay attention to sustainability as a solution for growth. The role of the organizations in the development is an upward movement in an entire social system. It is characterized not only by endogenous economic and non-economic factors but also by induced and implemented exogenous elements, such as government policies and laws [34]. The idea of development is multidimensional and involves the economic, environmental, cultural, social

The concept of sustainability related to the use of available resources, whether natural, capital or human, has a process of historical construction that has resulted in indicators used by the various nations. In Brazil, "sustainable development" indicators are part of a series of international efforts to achieve the ideas and the principles formulated at the United Nations Conference on Environment and Development (UNCED), held in Rio de Janeiro in 1992 [37]. The publication of "Indicators of Sustainable Development – Brazil 2015," from IBGE, brings data on the Brazilian reality through environmental, social, economic and institutional perspectives [37]. In this context, the economic effects are relatively easy to predict due to the important amount of developed instruments, but the social and environmental effects are more difficult to assess in advance because they involve many more variables, uncertainties and interactions. According to Schot and Geels [38], sustainable development requires the combination of technical and social changes, since they are deeply related. Therefore, the authors raise the necessity to transform the conventional understanding on sustainability, by incorporating new axioms of

study that may facilitate the understanding on sustainability and its implications [39].

More recently, the concept of economic sustainability has appeared in the development of growth models. Until the 1970s, economic analyses only included the axioms of monetary flow and economic growth and relegating the limits of the natural environment to the background [40]. In 1971, Georgescu-Roegen [41] presented the idea that the economy must consider the law of entropy in the process of growth, given the fact that the expansion of the countries occurs by increasing the use of energy. Martine [42] analyzes the effects of energy consumption per capita, per country and relates it to the growth in population. The study concludes that the production and the consumption patterns of industrial economies continue to have a greater participation in their quality of life compared to the demographic growth of the developing countries. According to [43], one of the greatest challenges the world will face in this new

axioms coming from the field of psychology, social sciences and organizational studies.

2.2. Sustainability

and political dimensions [35, 36].

138 Entrepreneurship - Development Tendencies and Empirical Approach

2.3. Economic dimension

In the literature, the debates about the environmental dimension of sustainability mainly consider the aspects that touch on the renewable natural resources, the impacts caused in the environment and the environmental actions used by the organizations [6, 45, 46]. For many years, the environmental issue has been understood as something that was not part of the organizational context. Companies were seen as economic institutions that were concerned with resolving economic problems (what they produce, how to produce and to whom to produce for). The environmental problems were perceived as outside threats to corporate profitability and established business practices. By the mid-1990s, a new phase of integration of environmental issues began to be implemented in the organizations. It proposes (1) the progressive introduction of a sustainability perspective; (2) the proliferation of collective engagements; (3) a greater interaction between the public and private spheres and (4) a greater involvement of the organized civil society. This scenario postulates that companies begin to focus their activities and actions toward sustainable development. The premise is that everything that is done inside an organization generates a variety of direct and indirect impacts inside and outside of its core competence, affecting consumers, community collaborators and the environment [22].

Given the evolution of society toward an environmental conscience, the organizations started to adopt a different posture than the original one aimed at achieving a maximum profit [43]. Thus, since it was essential for the organizations to not only maintain the role of producers of goods and services but also to become responsible for the environment in which they are inserted [47], new managerial tools and the adaptation of the existing management systems were developed to give a more effective approach to the problem. From that moment, the environmental issue became strategic within the organizations [48]. According to Fisher [47], the concept of environmental responsibility as an organizational strategic vector has recently gained ground. The author postulates that the companies start to realize that the respect for the environment and the valorization of man are among the main factors that directly reflect their success as a way to gain competitive advantage in the market. The environmental dimension emerges as a viable alternative, allowing economistic objectives to be maintained and incorporating environmental issues into the economic model of development [48]. Accordingly, the environmental dimension can become a new business strategy, as it provides a competitive edge and attracts the most demanding and environmentally conscious segments of society.

of differentiation in organizational management, being characterized as a business opportunity [48]. According to [58], being socially responsible is one of the cornerstones of business sustainability and must be considered as important as the concepts of quality, technology and

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The movement for sustainable development seems to be one of the most important social movements of this century. There are many voluntary initiatives related to sustainable development subscribed by the organizations. By committing themselves to sustainable development, entrepreneurs must necessarily change their way of acting in order to achieve economic sustainability and social sustainability, in a neoclassical perspective, in order to reduce their negative social impacts arising from a purely economic perspective. This requires a new way of looking at innovation, which leads to the idea of "innovation intensity" because of the imple-

Schumpeter [9] emphasizes the importance of innovations for the development of the economy of a country. The author postulates that the innovations introduced by innovative entrepreneurs constitute the main stimulus for the generation of a new economic cycle. Consequently, the innovation process is aimed at discovering, experimenting, developing, adopting new products, new production processes and new organizational forms [59, 60]. According to Drucker [2], innovation is the specific instrument of the entrepreneurial spirit. Dosi [60] postulates that the innovation is the search, the discovery, the experimentation and the adoption of new products, new processes and new organizational forms. Therefore, companies that want to increase their competitiveness feel the need to invest in practices aimed at the systematic development of new technologies, by seeking new ways to develop their activities, through the

In principle, innovation can be characterized as a type of change that introduces new organizational practices and they can be classified into four categories. The first one refers to products or services innovation, which represents the changes of a product or a service offered by an organization. The second one refers to process innovation, which represents the changes in the way products or services are created and distributed in an organization. The concept of management of innovation refers to the adaptations in the underlying mental models that shape the core competence of an organization. Finally, the concept of marketing innovation (competitive position) represents the changes in the context that the products or services are introduced in the market [12, 63]. Oslo Manual [64] introduces four main categories in its model: product, process, marketing and organization. According to Gallouj [65], the classification of Oslo Manual [64] brings the analysis of the restrictive definitions to the industrial sector, in addition to focus on technology innovations. However, considering the sectoral scope proposed and interpreted by Oslo Manual [64], innovations can occur in any sector of the economy. The adoption of an innovation respects a process where the deciders act to use innovation as the best available option. Rogers [23] points out the internal environment of the organization as one of the determinants that can contribute to the success or the failure of adopting a technology innovation. However, recent researches have linked social matters

the capacity for innovation.

mentation and the presence of sustainability [39].

creation of new products, services or processes [61, 62].

2.6. Innovation

#### 2.5. Social dimension

The social sustainability dimension, historically referred to as "social responsibility," emerged as a way for the wealthiest to help the most in need [49]. The idea to let the organizations reroute some profit to "invest" in social development projects began to win support after World War II. It represented a new and stronger concept of the society of the organizations and it was socially making sense [18]. According to Melo Neto and Froes [50], social responsibility is a collective action aimed at fostering civility. The author postulates that social responsibility focuses on the "civic duty" of the organizations, which requires management, periodicity and systematization [47]. Considered as the "Father of Social Responsibility," Bowen [51], in his book "Social Responsibilities of the Businessman," initiated the modern era of the literature on social responsibility [52, 53].

A global movement of non-governmental organizations (NGOs) in search of values such as ethics, solidarity and trust has generated interest among various actors like the civil society, governments, investors, financiers, insurance companies, consumers and the media [54]. The diffusion of the concept of social responsibility in the organizations has occurred with greater scope with the creation of entities that disseminate and support companies in their actions of social responsibility. Generating profits for shareholders is no longer the sole concern of companies. Environmental, social, legal and ethical concerns have penetrated the strategic core of the companies, which have undergone a transition period in their way to re-think their strategies and their mission [55]. Any socially responsible company implements ethical practices with its established relationships, including the shareholders, clients, employees, suppliers or with the whole community. According to [56, p. 118], "[…a socially responsible company is the one that can generate profit as well as be beneficial for society.]."

Social responsibility actions enable the organizations to stand out from their environment. In addition, customers, suppliers, shareholders and stakeholders of the organization perceive those actions as a competitive edge, which makes them stand out from other competitors [57]. When a company is socially responsible, it attracts consumers and increases sales potential, generating greater profits for shareholders. Socio-economic sustainability is becoming a factor of differentiation in organizational management, being characterized as a business opportunity [48]. According to [58], being socially responsible is one of the cornerstones of business sustainability and must be considered as important as the concepts of quality, technology and the capacity for innovation.

#### 2.6. Innovation

Thus, since it was essential for the organizations to not only maintain the role of producers of goods and services but also to become responsible for the environment in which they are inserted [47], new managerial tools and the adaptation of the existing management systems were developed to give a more effective approach to the problem. From that moment, the environmental issue became strategic within the organizations [48]. According to Fisher [47], the concept of environmental responsibility as an organizational strategic vector has recently gained ground. The author postulates that the companies start to realize that the respect for the environment and the valorization of man are among the main factors that directly reflect their success as a way to gain competitive advantage in the market. The environmental dimension emerges as a viable alternative, allowing economistic objectives to be maintained and incorporating environmental issues into the economic model of development [48]. Accordingly, the environmental dimension can become a new business strategy, as it provides a competitive edge and attracts the most demanding and environmentally conscious segments of society.

140 Entrepreneurship - Development Tendencies and Empirical Approach

The social sustainability dimension, historically referred to as "social responsibility," emerged as a way for the wealthiest to help the most in need [49]. The idea to let the organizations reroute some profit to "invest" in social development projects began to win support after World War II. It represented a new and stronger concept of the society of the organizations and it was socially making sense [18]. According to Melo Neto and Froes [50], social responsibility is a collective action aimed at fostering civility. The author postulates that social responsibility focuses on the "civic duty" of the organizations, which requires management, periodicity and systematization [47]. Considered as the "Father of Social Responsibility," Bowen [51], in his book "Social Responsibilities of the Businessman," initiated the modern era of the literature on

A global movement of non-governmental organizations (NGOs) in search of values such as ethics, solidarity and trust has generated interest among various actors like the civil society, governments, investors, financiers, insurance companies, consumers and the media [54]. The diffusion of the concept of social responsibility in the organizations has occurred with greater scope with the creation of entities that disseminate and support companies in their actions of social responsibility. Generating profits for shareholders is no longer the sole concern of companies. Environmental, social, legal and ethical concerns have penetrated the strategic core of the companies, which have undergone a transition period in their way to re-think their strategies and their mission [55]. Any socially responsible company implements ethical practices with its established relationships, including the shareholders, clients, employees, suppliers or with the whole community. According to [56, p. 118], "[…a socially responsible

company is the one that can generate profit as well as be beneficial for society.]."

Social responsibility actions enable the organizations to stand out from their environment. In addition, customers, suppliers, shareholders and stakeholders of the organization perceive those actions as a competitive edge, which makes them stand out from other competitors [57]. When a company is socially responsible, it attracts consumers and increases sales potential, generating greater profits for shareholders. Socio-economic sustainability is becoming a factor

2.5. Social dimension

social responsibility [52, 53].

The movement for sustainable development seems to be one of the most important social movements of this century. There are many voluntary initiatives related to sustainable development subscribed by the organizations. By committing themselves to sustainable development, entrepreneurs must necessarily change their way of acting in order to achieve economic sustainability and social sustainability, in a neoclassical perspective, in order to reduce their negative social impacts arising from a purely economic perspective. This requires a new way of looking at innovation, which leads to the idea of "innovation intensity" because of the implementation and the presence of sustainability [39].

Schumpeter [9] emphasizes the importance of innovations for the development of the economy of a country. The author postulates that the innovations introduced by innovative entrepreneurs constitute the main stimulus for the generation of a new economic cycle. Consequently, the innovation process is aimed at discovering, experimenting, developing, adopting new products, new production processes and new organizational forms [59, 60]. According to Drucker [2], innovation is the specific instrument of the entrepreneurial spirit. Dosi [60] postulates that the innovation is the search, the discovery, the experimentation and the adoption of new products, new processes and new organizational forms. Therefore, companies that want to increase their competitiveness feel the need to invest in practices aimed at the systematic development of new technologies, by seeking new ways to develop their activities, through the creation of new products, services or processes [61, 62].

In principle, innovation can be characterized as a type of change that introduces new organizational practices and they can be classified into four categories. The first one refers to products or services innovation, which represents the changes of a product or a service offered by an organization. The second one refers to process innovation, which represents the changes in the way products or services are created and distributed in an organization. The concept of management of innovation refers to the adaptations in the underlying mental models that shape the core competence of an organization. Finally, the concept of marketing innovation (competitive position) represents the changes in the context that the products or services are introduced in the market [12, 63]. Oslo Manual [64] introduces four main categories in its model: product, process, marketing and organization. According to Gallouj [65], the classification of Oslo Manual [64] brings the analysis of the restrictive definitions to the industrial sector, in addition to focus on technology innovations. However, considering the sectoral scope proposed and interpreted by Oslo Manual [64], innovations can occur in any sector of the economy. The adoption of an innovation respects a process where the deciders act to use innovation as the best available option. Rogers [23] points out the internal environment of the organization as one of the determinants that can contribute to the success or the failure of adopting a technology innovation. However, recent researches have linked social matters with the concept of innovation; denominated as social innovation. It poses its focus on the structures, the objects and their effects, the initiative capacity of the individuals, the organizations, the communities and their social movements. Those researches allow a new discussion about the process of innovation transfer and its role on the public policy institutions [57].

A sustainable, innovative organization "is not one that introduces novelty of any kind, but novelties that addresses the multiple dimensions of sustainability on a systematic basis and that reaches out positive results for society and the environment" [66, p. 105]. The current sustainability phenomenon generates an increasing capacity to differentiate products and services [24] and to aggregate the contexts of work and life environment [57]. Such differentiation search passes through the process of innovation [2, 57, 60, 67, 68]. Consequently, it only makes sense to postulate that entrepreneurs will begin to incorporate issue on sustainability for strategy arguments because of societal pressure as an alternative to develop growth through innovation. Based on this, it seems obvious to foresee a new perspective of research that integrates the theories of entrepreneurship, sustainability and innovation.

### 3. Method

The objective of this research is to highlight the relevance of sustainability for organizations as a way to trigger the integration of entrepreneurship toward innovation in the Brazilian context. Various exploratory and descriptive researches on the dynamics of entrepreneurship, innovation and sustainability in the main organizations of the Serra Gaúcha (RS), Brazil was carried out through the Multidisciplinary Research Group on Innovation and Competitiveness [7], in partnership with a research Nucleus on Innovation, Entrepreneurship and Sustainability [8]. Evidenced among the following concepts: entrepreneurship, sustainability and innovation, the approach of this research was qualitative and the method used was documentary research because it articulated subjects where the theoretical dimensions and bases are unknown [69]. That is, highlighted the relevance of sustainability for organizations as a way to make a solution of integration to entrepreneurship for innovation in the Brazilian context exemplifying one or more trends in the behavior of a given phenomenon.

the production of numerous articles in indexed journals and conferences and books chapters from international publishers. In general, the recurrent research objectives focus on identifying, describing and analyzing the dimensions of the entrepreneurial reality and the characteristics of innovation and sustainability adopted by the leading organizations of the Serra

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Figure 2. Distribution of the GMIC/NIES researches in the Brazilian economy. Source: The authors.

The Group's research activities were developed in three specific moments. The first period refers to the research activities related to the themes of entrepreneurship and innovation. The axiom of entrepreneurship was studied, based on Schumpeter's [9] concept of innovation and through three aspects: the profile, processes and systems, seen as reactive or proactive entrepreneurial realities. The second period, from 2010, coincides with the integration of the PhD course with the MSc program, where research on innovation has taken a different strand. In addition to studying innovation as a proactive entrepreneurial dimension, the Group has been researching innovation through its process, by integrating the causes and stages, indicators and process models, and finally the study of innovation as a system. During the third period, a concentration of internal innovations in the organizations, in a restricted scale, emerges from the research results in several areas of economic activity, but without demonstrating a sustainable effect. This lack of sustained diffusion of innovations, coupled with a high degree of entrepreneurial activity, has led to question the very essence of the concepts of entrepreneurship and sustainability as structuring elements for the generation of innovation. Porter [13] reports that business success is based on its economic environment, where innovation has assumed a fundamental role in all the economies of the world and is considered essential for the growth and development of companies and nations. Nevertheless, the author is lacking in

explaining how to establish the link between entrepreneurship and innovation.

Gaúcha, Brazil.

In the first 12 years of activities of the research Group, 40 Master's and Doctoral dissertations were finalized, which offered a more concise and comprehensive look at the concepts of entrepreneurship, sustainability and innovation. The Group developed national and international academic and research activities, which have contributed to a clearer understanding of those themes. The object of the studies mainly focuses on leading sectors of the Brazilian economy, through the study of organizations situated in the southern region of Brazil. The researches refer to 11 sectors of the Brazilian economy (Figure 2).

The studies include the sectors of health, the metal-mechanic industry, technology, education, services, the furniture industry, the textile industry, the food and beverage industry (wine), the transportation and the energy industries and the MSE sectors. Most of the researches had a qualitative-exploratory character, with some key quantitative-descriptive ones. It generated

Figure 2. Distribution of the GMIC/NIES researches in the Brazilian economy. Source: The authors.

with the concept of innovation; denominated as social innovation. It poses its focus on the structures, the objects and their effects, the initiative capacity of the individuals, the organizations, the communities and their social movements. Those researches allow a new discussion about the process of innovation transfer and its role on the public policy institutions [57].

142 Entrepreneurship - Development Tendencies and Empirical Approach

A sustainable, innovative organization "is not one that introduces novelty of any kind, but novelties that addresses the multiple dimensions of sustainability on a systematic basis and that reaches out positive results for society and the environment" [66, p. 105]. The current sustainability phenomenon generates an increasing capacity to differentiate products and services [24] and to aggregate the contexts of work and life environment [57]. Such differentiation search passes through the process of innovation [2, 57, 60, 67, 68]. Consequently, it only makes sense to postulate that entrepreneurs will begin to incorporate issue on sustainability for strategy arguments because of societal pressure as an alternative to develop growth through innovation. Based on this, it seems obvious to foresee a new perspective of research

The objective of this research is to highlight the relevance of sustainability for organizations as a way to trigger the integration of entrepreneurship toward innovation in the Brazilian context. Various exploratory and descriptive researches on the dynamics of entrepreneurship, innovation and sustainability in the main organizations of the Serra Gaúcha (RS), Brazil was carried out through the Multidisciplinary Research Group on Innovation and Competitiveness [7], in partnership with a research Nucleus on Innovation, Entrepreneurship and Sustainability [8]. Evidenced among the following concepts: entrepreneurship, sustainability and innovation, the approach of this research was qualitative and the method used was documentary research because it articulated subjects where the theoretical dimensions and bases are unknown [69]. That is, highlighted the relevance of sustainability for organizations as a way to make a solution of integration to entrepreneurship for innovation in the Brazilian context exemplifying

In the first 12 years of activities of the research Group, 40 Master's and Doctoral dissertations were finalized, which offered a more concise and comprehensive look at the concepts of entrepreneurship, sustainability and innovation. The Group developed national and international academic and research activities, which have contributed to a clearer understanding of those themes. The object of the studies mainly focuses on leading sectors of the Brazilian economy, through the study of organizations situated in the southern region of Brazil. The

The studies include the sectors of health, the metal-mechanic industry, technology, education, services, the furniture industry, the textile industry, the food and beverage industry (wine), the transportation and the energy industries and the MSE sectors. Most of the researches had a qualitative-exploratory character, with some key quantitative-descriptive ones. It generated

that integrates the theories of entrepreneurship, sustainability and innovation.

one or more trends in the behavior of a given phenomenon.

researches refer to 11 sectors of the Brazilian economy (Figure 2).

3. Method

the production of numerous articles in indexed journals and conferences and books chapters from international publishers. In general, the recurrent research objectives focus on identifying, describing and analyzing the dimensions of the entrepreneurial reality and the characteristics of innovation and sustainability adopted by the leading organizations of the Serra Gaúcha, Brazil.

The Group's research activities were developed in three specific moments. The first period refers to the research activities related to the themes of entrepreneurship and innovation. The axiom of entrepreneurship was studied, based on Schumpeter's [9] concept of innovation and through three aspects: the profile, processes and systems, seen as reactive or proactive entrepreneurial realities. The second period, from 2010, coincides with the integration of the PhD course with the MSc program, where research on innovation has taken a different strand. In addition to studying innovation as a proactive entrepreneurial dimension, the Group has been researching innovation through its process, by integrating the causes and stages, indicators and process models, and finally the study of innovation as a system. During the third period, a concentration of internal innovations in the organizations, in a restricted scale, emerges from the research results in several areas of economic activity, but without demonstrating a sustainable effect. This lack of sustained diffusion of innovations, coupled with a high degree of entrepreneurial activity, has led to question the very essence of the concepts of entrepreneurship and sustainability as structuring elements for the generation of innovation. Porter [13] reports that business success is based on its economic environment, where innovation has assumed a fundamental role in all the economies of the world and is considered essential for the growth and development of companies and nations. Nevertheless, the author is lacking in explaining how to establish the link between entrepreneurship and innovation.

In the health sector, studies demonstrate a structural shift from a technology-based economy to an "entrepreneurial health service" society. The results consider knowledge as a central resource, which is reflected by changes in the innovation process. Therefore, the innovation process is seen as a learning method to generate or to acquire new knowledge from the analysis of the local environment, where knowledge, skills and attitudes constitute the key elements in the identification and the execution of social and communicational actions. In a hospital context, the preponderant element for linking the dynamics of the innovations resides in the management of the environmental residues that constitute a stimulus to the improvement of the quality attributes of the health services. The surveys clearly show the presence of entrepreneurial activities, the employees' concerns and their relevant actions toward the application of sustainability standards and the application of strategies and the creation and imple-

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mentation of innovations to improve the quality of services to the population [76].

innovation, from the generation of ideas to internal applied research schemes [6, 21].

In technology development environments, the main results reveal a series of elements that preceded and influenced the constitution of the innovation environments and gave rise to different models, with their own characteristics. One main aspect that arises from the results is the entrepreneurial nature of the people who study, research and create new companies within the reality of a technology environment [78]. In addition, the researchers identified and analyzed the roles played by the university, the government and the business sector, as proposed in Etzkowitz's [79] model. In that context, it was possible to evidence a new determinant in the constitution of the Brazilian science parks and technology incubators: leadership. It is considered as a new dimension of analysis to the triple helix model. Such concept emerges from empirical, spontaneous and endogenous movements of development and resides in any university management teams that generate a favorable environment for the promotion of entrepreneurship and innovation capable of creating and developing the necessary conditions for the implementation and the consolidation of scientific and technology environments [80].

Researches in the metal-mechanical sector have demonstrated a relationship between the concepts of entrepreneurship, innovation and sustainability, both in historical and cultural contexts. The results show that the actions of the entrepreneurs are a demonstration of the strength of the attributes of the individuals, through the enhancement of opportunities and the use of the conditions that promote the economic development of the region, making it become one of the most dynamic sectors of the Brazilian economy [33]. In the region of Caxias do Sul, all entrepreneurs act either in micro, small, medium or large companies. The region represents the second metal-mechanical pole of Brazil, precisely because of this entrepreneurial force in the Serra Gaúcha region. The results identified the implantation of product and process innovations, which were all of incremental type and internal to each company. Large companies have sophisticated organizational innovation schemes, but they do not even represent 1% of the organizational population. The research corroborated with such position, considering that innovation is a new product or service, a new structure or administrative system, a new technological production process, a new plan or a program related to the members of the organization [77]. The research also pointed out the presence of environmental sustainability schemes, but exclusively within the large companies of the region. In addition, by having the duty to comply with the Brazilian environmental and capitalization laws, larger companies have developed strategies with a sustainability scheme to maintain a continuous flow of

Figure 3. Representation of the axioms of entrepreneurship, sustainability and innovation. Source: The authors.

The conceptual framework brings an integration of the axioms of entrepreneurship, sustainability and innovation and is supported by its economic, environmental and social relevance. The concept figure must dimension the cause-effect connections that may exist from one dimension to the other [70]. Figure 3 introduces the integrated context of the researches carried out.

The classification of the entrepreneurial axioms is contextualized in four dimensions: (1) economic [9, 61, 71], (2) social [72, 73], (3) organizational [2, 73] and (4) psychological [2, 27]. In order to study the question of sustainability, the (1) economic [74, 75], (2) environmental [13, 48] and (3) social [43, 54] dimensions were addressed. Finally, the study about innovations in the leading organizations of Serra Gaúcha uses the categories listed according to Oslo Manual [64]: (1) products (services) innovation; (2) process innovation; (3) organizational management innovation and (4) marketing innovation, considering that those categories have a greater proximity to the research objectives.

It is important to note that for the organizations, both sustainability and innovation can become critical to ensuring competitiveness in a global context. Not only to innovate constantly but also to innovate considering the social and economic dimensions of sustainability [37, 39]. The application to those dimensions makes the innovation process more sophisticated and demanding, which requires any organization to make a greater effort to meet such requirement. This leads to new perspectives in management of innovation.

### 4. Results

The identification, the description and the analysis of the dimensions of the entrepreneurial reality, the characteristics of innovation and sustainability adopted by the leading organizations of the Serra Gaúcha present an eclectic panorama in terms of results.

In the health sector, studies demonstrate a structural shift from a technology-based economy to an "entrepreneurial health service" society. The results consider knowledge as a central resource, which is reflected by changes in the innovation process. Therefore, the innovation process is seen as a learning method to generate or to acquire new knowledge from the analysis of the local environment, where knowledge, skills and attitudes constitute the key elements in the identification and the execution of social and communicational actions. In a hospital context, the preponderant element for linking the dynamics of the innovations resides in the management of the environmental residues that constitute a stimulus to the improvement of the quality attributes of the health services. The surveys clearly show the presence of entrepreneurial activities, the employees' concerns and their relevant actions toward the application of sustainability standards and the application of strategies and the creation and implementation of innovations to improve the quality of services to the population [76].

Researches in the metal-mechanical sector have demonstrated a relationship between the concepts of entrepreneurship, innovation and sustainability, both in historical and cultural contexts. The results show that the actions of the entrepreneurs are a demonstration of the strength of the attributes of the individuals, through the enhancement of opportunities and the use of the conditions that promote the economic development of the region, making it become one of the most dynamic sectors of the Brazilian economy [33]. In the region of Caxias do Sul, all entrepreneurs act either in micro, small, medium or large companies. The region represents the second metal-mechanical pole of Brazil, precisely because of this entrepreneurial force in the Serra Gaúcha region. The results identified the implantation of product and process innovations, which were all of incremental type and internal to each company. Large companies have sophisticated organizational innovation schemes, but they do not even represent 1% of the organizational population. The research corroborated with such position, considering that innovation is a new product or service, a new structure or administrative system, a new technological production process, a new plan or a program related to the members of the organization [77]. The research also pointed out the presence of environmental sustainability schemes, but exclusively within the large companies of the region. In addition, by having the duty to comply with the Brazilian environmental and capitalization laws, larger companies have developed strategies with a sustainability scheme to maintain a continuous flow of innovation, from the generation of ideas to internal applied research schemes [6, 21].

The conceptual framework brings an integration of the axioms of entrepreneurship, sustainability and innovation and is supported by its economic, environmental and social relevance. The concept figure must dimension the cause-effect connections that may exist from one dimension to the other [70]. Figure 3 introduces the integrated context of the researches carried out.

Figure 3. Representation of the axioms of entrepreneurship, sustainability and innovation. Source: The authors.

The classification of the entrepreneurial axioms is contextualized in four dimensions: (1) economic [9, 61, 71], (2) social [72, 73], (3) organizational [2, 73] and (4) psychological [2, 27]. In order to study the question of sustainability, the (1) economic [74, 75], (2) environmental [13, 48] and (3) social [43, 54] dimensions were addressed. Finally, the study about innovations in the leading organizations of Serra Gaúcha uses the categories listed according to Oslo Manual [64]: (1) products (services) innovation; (2) process innovation; (3) organizational management innovation and (4) marketing innovation, considering that those categories have a greater

It is important to note that for the organizations, both sustainability and innovation can become critical to ensuring competitiveness in a global context. Not only to innovate constantly but also to innovate considering the social and economic dimensions of sustainability [37, 39]. The application to those dimensions makes the innovation process more sophisticated and demanding, which requires any organization to make a greater effort to meet such

The identification, the description and the analysis of the dimensions of the entrepreneurial reality, the characteristics of innovation and sustainability adopted by the leading organiza-

requirement. This leads to new perspectives in management of innovation.

tions of the Serra Gaúcha present an eclectic panorama in terms of results.

proximity to the research objectives.

144 Entrepreneurship - Development Tendencies and Empirical Approach

4. Results

In technology development environments, the main results reveal a series of elements that preceded and influenced the constitution of the innovation environments and gave rise to different models, with their own characteristics. One main aspect that arises from the results is the entrepreneurial nature of the people who study, research and create new companies within the reality of a technology environment [78]. In addition, the researchers identified and analyzed the roles played by the university, the government and the business sector, as proposed in Etzkowitz's [79] model. In that context, it was possible to evidence a new determinant in the constitution of the Brazilian science parks and technology incubators: leadership. It is considered as a new dimension of analysis to the triple helix model. Such concept emerges from empirical, spontaneous and endogenous movements of development and resides in any university management teams that generate a favorable environment for the promotion of entrepreneurship and innovation capable of creating and developing the necessary conditions for the implementation and the consolidation of scientific and technology environments [80]. The question of sustainability was identified as being present in the incubation and technology development environments in an incremental and discontinued way.

In the food and beverages industry, more specifically in the Brazilian wine industry, researchers have shown the formulation of strategies from both entrepreneurial and innovative perspectives, involving processes and ecosystems. The wine production in the southern region of Brazil presents a high level of associative and family entrepreneurship, with a large number of wineries that were established and are operated as a family business or as the result of regional association schemes [90]. In such entrepreneurial ecosystem, the wineries create connections through their association and develop entrepreneurial and innovative strategies with the actors involved and with different intensities of the local society. The associations serve as bridges between wineries, institutes, class entities and with local governments [91]. The study allowed observing that the oldest wineries are developing a structuring entrepreneurial process, aiming at the certification for "Appellation d'origine contrôlée," in search of a quality brand based on the certification of Geographical Origin Indication. Such initiative corroborates with Schumpeter's [9] vision, where the entrepreneur innovates to differentiate itself and conquer new markets. The study of the ecosystems allowed the identification of the actors that compose and interact in the associations, by using the association as a link between the wineries and all the government actors. Through the association schemes, the wineries strengthen their positioning and competitiveness in terms of sustainability. Being small and limited, the group manages to innovate

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In the textile sector, research results show that the entire industrial activity is the result of entrepreneurial action. In this context, researchers establish that innovations include incremental changes in procedures, techniques, materials and dissemination, according to Oslo Manual [64]. It can be considered that the rectilinear knitting sector presents innovations that allow characterizing an environment of change, which aims at the improvement and the qualification of the products and services offered to the customers. The study of the process innovations shows significant changes in machinery, production layout, software that aid in production control, production scheduling and techniques were highlighted [92, 93]. Innovations in marketing showed that more and more companies are willing to disclose their products through direct dissemination to customers. The organizational innovations that happen are incremental and internal to an organization, confirming that this sector of the economy do not present

Research in the transportation sector refer to the port and logistics matters, which are recognized as global entrepreneurial activities, coped with the presence of process innovations [94, 95]. Considering the frequency of innovations occurring in the sector, the requirement of the Agência Nacional de Transportes Aquaviários do Brasil—ANTAQ, which regulates the implementation of the country's environmental agenda, generated a high number of innovations, mainly related to process innovations. This position confirms the presence of sustainability

Research in the energy field presents opposing scenarios in terms of entrepreneurship and innovation. The omnipresence of laws and regulations does not allow room for creativity and change. The concern and position from the energy managers are to achieve a high degree of accuracy in their decision process. The research shows a greater determinant for the use of

because it has achieved a certain degree of internal sustainability.

caused by the application of the National laws and regulations.

perspectives of sustainability.

In the higher education sector, the researchers did not show an entrepreneurial specificity due to the nature of the economic branch and the rules and conditions that govern higher education institutions in Brazil [81, 82]. In terms of innovation, the dimension of innovation processes was evidenced through results that show antecedents for organizational learning, which impact as the outputs on the performance of the courses in the national education evaluation system [83, 84]. The most relevant aspects of the research show parity between the teaching practices and the practices of single and double learning cycles; through the informal relationships between the teachers and the outcomes of the course assessments and on the links between the companies, the non-academic professionals and student performance. Such reality is re-enforced through a pedagogical model that enhances such convergence [85]. From a sustainability perspective, the surveys did not present relevant data to identify a differentiated model.

In the service sector, the entrepreneurial issue occupied and demonstrated positive results with the proposed theories. Such convergence allowed verifying the presence of characteristics on the profile of the entrepreneurs, such as resilience [86]. The concept of innovation was identified in the study as a perspective for economic growth. The axiom of leadership appeared as a key element, considering the difficulties, the weaknesses and the socio-economic scarcities that Brazil encounters. The results showed the absence of a system of innovation in the creative industry in State of Rio Grande do Sul [87], which supports the idea that the entrepreneurial axiom is omnipresent in the Brazilian economic reality, but the concepts of innovation and sustainability for the services sector are almost inexistent. The research carried out in the Province of Quebec, Canada, in collaboration with the Ministry of Science, Innovation and Technology Development of the State of Rio Grande do Sul, shows a complete system of innovation and sustainability. The study allowed the Brazilian Ministry to confirm the absence of a system of innovation [10] and the necessity to have a structural perspective at the situation. The Canadian research has shown that the issue of sustainability is a key element in creating innovation environments and processes in a given region, through partnerships and by linking business creativity to the production of scientific knowledge and the economic development of the State [88].

In the furniture sector, research has demonstrated an entrepreneurial reality with industrial leaders and regionalism with this phenomenon. In terms of innovation, the results point out links between the use of specific resources (information system, people, knowledge management, alliance) and product innovation. It demonstrates that product innovation is the result of the use of specific resources, which constitutes the antecedents for innovation. The enterprises in the furniture industry have a joint research entity that look for information regarding the use of strategic resources, which extends their "innovative capabilities." Nevertheless, the business community has not yet consolidated integrated sustainability schemes for the advancement and the development of innovations [89]. Only the greater companies pretended to realize innovations, but only in an exclusive internal way. Such pattern shows that the companies do not use schemes capable of producing innovations that impact on global performance.

In the food and beverages industry, more specifically in the Brazilian wine industry, researchers have shown the formulation of strategies from both entrepreneurial and innovative perspectives, involving processes and ecosystems. The wine production in the southern region of Brazil presents a high level of associative and family entrepreneurship, with a large number of wineries that were established and are operated as a family business or as the result of regional association schemes [90]. In such entrepreneurial ecosystem, the wineries create connections through their association and develop entrepreneurial and innovative strategies with the actors involved and with different intensities of the local society. The associations serve as bridges between wineries, institutes, class entities and with local governments [91]. The study allowed observing that the oldest wineries are developing a structuring entrepreneurial process, aiming at the certification for "Appellation d'origine contrôlée," in search of a quality brand based on the certification of Geographical Origin Indication. Such initiative corroborates with Schumpeter's [9] vision, where the entrepreneur innovates to differentiate itself and conquer new markets. The study of the ecosystems allowed the identification of the actors that compose and interact in the associations, by using the association as a link between the wineries and all the government actors. Through the association schemes, the wineries strengthen their positioning and competitiveness in terms of sustainability. Being small and limited, the group manages to innovate because it has achieved a certain degree of internal sustainability.

The question of sustainability was identified as being present in the incubation and technology

In the higher education sector, the researchers did not show an entrepreneurial specificity due to the nature of the economic branch and the rules and conditions that govern higher education institutions in Brazil [81, 82]. In terms of innovation, the dimension of innovation processes was evidenced through results that show antecedents for organizational learning, which impact as the outputs on the performance of the courses in the national education evaluation system [83, 84]. The most relevant aspects of the research show parity between the teaching practices and the practices of single and double learning cycles; through the informal relationships between the teachers and the outcomes of the course assessments and on the links between the companies, the non-academic professionals and student performance. Such reality is re-enforced through a pedagogical model that enhances such convergence [85]. From a sustainability perspective, the surveys did not present relevant data to identify a differentiated model.

In the service sector, the entrepreneurial issue occupied and demonstrated positive results with the proposed theories. Such convergence allowed verifying the presence of characteristics on the profile of the entrepreneurs, such as resilience [86]. The concept of innovation was identified in the study as a perspective for economic growth. The axiom of leadership appeared as a key element, considering the difficulties, the weaknesses and the socio-economic scarcities that Brazil encounters. The results showed the absence of a system of innovation in the creative industry in State of Rio Grande do Sul [87], which supports the idea that the entrepreneurial axiom is omnipresent in the Brazilian economic reality, but the concepts of innovation and sustainability for the services sector are almost inexistent. The research carried out in the Province of Quebec, Canada, in collaboration with the Ministry of Science, Innovation and Technology Development of the State of Rio Grande do Sul, shows a complete system of innovation and sustainability. The study allowed the Brazilian Ministry to confirm the absence of a system of innovation [10] and the necessity to have a structural perspective at the situation. The Canadian research has shown that the issue of sustainability is a key element in creating innovation environments and processes in a given region, through partnerships and by linking business creativity to the production of scientific knowledge and the economic

In the furniture sector, research has demonstrated an entrepreneurial reality with industrial leaders and regionalism with this phenomenon. In terms of innovation, the results point out links between the use of specific resources (information system, people, knowledge management, alliance) and product innovation. It demonstrates that product innovation is the result of the use of specific resources, which constitutes the antecedents for innovation. The enterprises in the furniture industry have a joint research entity that look for information regarding the use of strategic resources, which extends their "innovative capabilities." Nevertheless, the business community has not yet consolidated integrated sustainability schemes for the advancement and the development of innovations [89]. Only the greater companies pretended to realize innovations, but only in an exclusive internal way. Such pattern shows that the companies do

not use schemes capable of producing innovations that impact on global performance.

development environments in an incremental and discontinued way.

146 Entrepreneurship - Development Tendencies and Empirical Approach

development of the State [88].

In the textile sector, research results show that the entire industrial activity is the result of entrepreneurial action. In this context, researchers establish that innovations include incremental changes in procedures, techniques, materials and dissemination, according to Oslo Manual [64]. It can be considered that the rectilinear knitting sector presents innovations that allow characterizing an environment of change, which aims at the improvement and the qualification of the products and services offered to the customers. The study of the process innovations shows significant changes in machinery, production layout, software that aid in production control, production scheduling and techniques were highlighted [92, 93]. Innovations in marketing showed that more and more companies are willing to disclose their products through direct dissemination to customers. The organizational innovations that happen are incremental and internal to an organization, confirming that this sector of the economy do not present perspectives of sustainability.

Research in the transportation sector refer to the port and logistics matters, which are recognized as global entrepreneurial activities, coped with the presence of process innovations [94, 95]. Considering the frequency of innovations occurring in the sector, the requirement of the Agência Nacional de Transportes Aquaviários do Brasil—ANTAQ, which regulates the implementation of the country's environmental agenda, generated a high number of innovations, mainly related to process innovations. This position confirms the presence of sustainability caused by the application of the National laws and regulations.

Research in the energy field presents opposing scenarios in terms of entrepreneurship and innovation. The omnipresence of laws and regulations does not allow room for creativity and change. The concern and position from the energy managers are to achieve a high degree of accuracy in their decision process. The research shows a greater determinant for the use of forecasting model in their decision process, which contributes to companies that improve a forecasting strategy as a process innovation and consider the possibility of reaching forecast results that are closer to reality, to create an edge in such competitive market [96]. The behavior and trends that arise in the complex equation of the decision process and by predictive models presuppose a permanent search for sustainability to offer a permanent quality service to the community.

The MSE sector represents 93% of the private organizations in Brazil [97], being a crucial subject for studies. The Schumpeterian view argues that entrepreneurial action is the driving force behind the activities of all those companies and is the basis of the country's economy. In such context, research shows that most of the companies surveyed use performance indicators to monitor business management. The companies that had the highest sales increase are those that, in addition to the indicators have a clear definition of the business, have established goals and have information about the industry and the competition [98]. In terms of innovation and sustainability, research has shown the absence of both dimensions. Innovation is restricted to larger companies and is limited to an internal environment. The absence of sustainability demonstrates that there is a relationship between the two concepts.

> Figure 4 presents two theoretically already known phenomena, but little considered in the Brazilian scientific community. First, the connection between the private-public nature of the organizations and the entrepreneurial intensity phenomenon. Second, the connection between the social nature of the organizations and the level of entrepreneurial intensity. The research confirms the link between entrepreneurial intensity and the private sector organizational nature, but does not exclude specific sectors of development, such as the health and transportation sectors. History may sustain the reasons why both these sectors show entrepreneurial intensity, whereas the education and energy sectors present other results. These issues are related to the Brazilian public sphere, where the management processes are highly bureaucratic and the methods of supervision do not encourage entrepreneurship intensity. Thus, their cases can be explained, not by the country's legislation but by the control on the governance and processes in the organizations of each sector, which reinforce the idea of including a fourth

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Figure 4. Public-private realities [79] and entrepreneurship intensities. Source: The authors.

To understand the matter of the organizations and sustainability, the practices of entrepreneurship adopted were pointed out in a historical perspective. According to the authors, many entrepreneurs from the industry have developed an entrepreneurial behavior because they were attentive to perceive the opportunities of the market. However, they did not know how to cooperate with each other, by sharing risks and learning from their mistakes. The results show their capacity to enhance skilful and firm behavior regarding issues involving their relationship with public power. This dimension raises the question of sustainability, considering that the actors did not go beyond business issues and became agents of economic development by their individual and collective actions that led to the development of the region in a peculiar way. The Brazilian Serra Gaúcha region managed to excel due to endogenous entrepreneurial

Figure 5 proposes a rationale between the issue of territorial coverage and sustainability intensity, on a scale 1–3–5. Researches in the health and energy sectors show the presence of

Helix to aggregate Dorion et al.'s [78] model.

intensity issues, nor for sustainability.

### 5. Dilemmas

The researches on various sectors of the Brazilian Serra Gaúcha economy allow to point out the existence of a relationship between the concepts of entrepreneurship, innovation and sustainability through individual, social, cultural process and system perspectives. By using historical and cultural panoramas, it was possible to observe the manifestations of the entrepreneurs of the region of Serra Gaúcha and to assert that the attributes and the actions of those entrepreneurs constitute a demonstration of the strength for the potential of the opportunities and the use of the conditions that promoted the economic development of region. The presence of "entrepreneurship intensity" in this specific region and the concern for sustainability lead to a more "coherent" understanding of the innovation process, which is in fact still very poorly achieved in Brazil and little understood by the country's institutional leaders. The key elements of the researches also converged on the issues of the entrepreneurs' actions, considering that innovation represents the success of a business community that leads in terms of entrepreneurship and sustainability. In Brazil, innovation could generate new and differentiated organisations that could have a positive socio-economic impact in a fragmented and closed business society. Such results demonstrate the limitation of Chesbrough's [24] model to explain open innovation in the Brazilian reality. The identification, the description and the analysis of the conceptual trilogy are exposed through the region's own history, and the main results reveal a series of elements, events that preceded and influenced the constitution of the industrialization of the Serra Gaúcha region and gave rise to different models with their own specific particularities.

The positioning and the distribution of the results on entrepreneurship (Figure 4 – on a scale 1– 3–5) based on a "Etzkowitzian" perspective show peculiar private-public realities by sector of the Brazilian economy in relation to entrepreneurship intensity.

Figure 4. Public-private realities [79] and entrepreneurship intensities. Source: The authors.

forecasting model in their decision process, which contributes to companies that improve a forecasting strategy as a process innovation and consider the possibility of reaching forecast results that are closer to reality, to create an edge in such competitive market [96]. The behavior and trends that arise in the complex equation of the decision process and by predictive models presuppose a permanent search for sustainability to offer a permanent quality service to the

The MSE sector represents 93% of the private organizations in Brazil [97], being a crucial subject for studies. The Schumpeterian view argues that entrepreneurial action is the driving force behind the activities of all those companies and is the basis of the country's economy. In such context, research shows that most of the companies surveyed use performance indicators to monitor business management. The companies that had the highest sales increase are those that, in addition to the indicators have a clear definition of the business, have established goals and have information about the industry and the competition [98]. In terms of innovation and sustainability, research has shown the absence of both dimensions. Innovation is restricted to larger companies and is limited to an internal environment. The absence of sustainability

The researches on various sectors of the Brazilian Serra Gaúcha economy allow to point out the existence of a relationship between the concepts of entrepreneurship, innovation and sustainability through individual, social, cultural process and system perspectives. By using historical and cultural panoramas, it was possible to observe the manifestations of the entrepreneurs of the region of Serra Gaúcha and to assert that the attributes and the actions of those entrepreneurs constitute a demonstration of the strength for the potential of the opportunities and the use of the conditions that promoted the economic development of region. The presence of "entrepreneurship intensity" in this specific region and the concern for sustainability lead to a more "coherent" understanding of the innovation process, which is in fact still very poorly achieved in Brazil and little understood by the country's institutional leaders. The key elements of the researches also converged on the issues of the entrepreneurs' actions, considering that innovation represents the success of a business community that leads in terms of entrepreneurship and sustainability. In Brazil, innovation could generate new and differentiated organisations that could have a positive socio-economic impact in a fragmented and closed business society. Such results demonstrate the limitation of Chesbrough's [24] model to explain open innovation in the Brazilian reality. The identification, the description and the analysis of the conceptual trilogy are exposed through the region's own history, and the main results reveal a series of elements, events that preceded and influenced the constitution of the industrialization of the Serra Gaúcha region and gave rise to different models with their own specific particu-

The positioning and the distribution of the results on entrepreneurship (Figure 4 – on a scale 1– 3–5) based on a "Etzkowitzian" perspective show peculiar private-public realities by sector of

the Brazilian economy in relation to entrepreneurship intensity.

demonstrates that there is a relationship between the two concepts.

148 Entrepreneurship - Development Tendencies and Empirical Approach

community.

5. Dilemmas

larities.

Figure 4 presents two theoretically already known phenomena, but little considered in the Brazilian scientific community. First, the connection between the private-public nature of the organizations and the entrepreneurial intensity phenomenon. Second, the connection between the social nature of the organizations and the level of entrepreneurial intensity. The research confirms the link between entrepreneurial intensity and the private sector organizational nature, but does not exclude specific sectors of development, such as the health and transportation sectors. History may sustain the reasons why both these sectors show entrepreneurial intensity, whereas the education and energy sectors present other results. These issues are related to the Brazilian public sphere, where the management processes are highly bureaucratic and the methods of supervision do not encourage entrepreneurship intensity. Thus, their cases can be explained, not by the country's legislation but by the control on the governance and processes in the organizations of each sector, which reinforce the idea of including a fourth Helix to aggregate Dorion et al.'s [78] model.

To understand the matter of the organizations and sustainability, the practices of entrepreneurship adopted were pointed out in a historical perspective. According to the authors, many entrepreneurs from the industry have developed an entrepreneurial behavior because they were attentive to perceive the opportunities of the market. However, they did not know how to cooperate with each other, by sharing risks and learning from their mistakes. The results show their capacity to enhance skilful and firm behavior regarding issues involving their relationship with public power. This dimension raises the question of sustainability, considering that the actors did not go beyond business issues and became agents of economic development by their individual and collective actions that led to the development of the region in a peculiar way. The Brazilian Serra Gaúcha region managed to excel due to endogenous entrepreneurial intensity issues, nor for sustainability.

Figure 5 proposes a rationale between the issue of territorial coverage and sustainability intensity, on a scale 1–3–5. Researches in the health and energy sectors show the presence of

Figure 5. Territory (scale) and sustainability intensity. Source: The authors.

intra-organizational sustainability schemes at the regional level. The metal-mechanic industry, the technology development environments, the sectors of education, services, furniture, food and beverages, textile and transport point out the question of sustainability as an internal strategic element of the organizations. Researches in the metal-mechanic sector have demonstrated that cleaner production methods and environmental management practices are tools that aim at the efficiency of the production process, the use of its inputs and the generation of industrial waste. The furniture and textile sectors point out isolated process and product innovation actions and economic and environmental sustainability cases. Since entrepreneurship constitutes the engine of the sector, the creative industry sector did not show the presence of sustainability, but only some innovation actions in isolated initiatives.

patterns, necessary for regional long-term development schemes. Therefore, innovation becomes a learning process that generates or acquires new knowledge from the analysis of a

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Figure 6. Entrepreneurship, sustainability and innovation intensities. Source: The authors.

The sectors of such Brazilian regional economy that presented less "innovation intensity" are characterized by internal organizational activities of innovation, preventing them to become "regional systems of innovation," which presupposes the lack of sustainability. Those limitations can be characterized as "innovation ghettos" in order to establish the intensity necessary to generate innovation activities within a specific territory. Ghettos, as explained by its etymology, refer to the conditions of survival of a population, in a limited and a highly concentrated scale. In that logic, the researchers have also demonstrated the presence of "ghettos of sustainability, ghettos of innovation, and therefore, ghettos of sustainability and innovation" in the sectors of this Brazilian regional economy, but in differentiated and restricted perspectives.

Finally and in a managerial perspective, considering the trilogy of entrepreneurship, sustainability and innovation, the organizations may seek a sustainable competitive advantage to generate monopoly through a regional logic. In turbulent organizational environments such as Brazil, a regional perspective may present some structural advantages for business activity. Nevertheless, only the generation of entrepreneurial initiatives with the aim for innovation through sustainability will favor regional development. In that regard, to better understand the logic of regional development and its organizational reality, more researches need to be

specific sustainable environment.

accomplished.

There is consensus in the researches about the fact that entrepreneurship appears in all sectors of the studied activities, but with different intensities. Sustainability does contribute to the business innovations, but still it is not possible to explain to what extent and in what specific way. Each sector has its own rationale profile on entrepreneurship, sustainability and innovation. A trend radar shows opposite and convergent results among the sectors of the Brazilian economy.

The rationale between the concepts of entrepreneurship, sustainability and innovation, as presented in Figure 6, brings some reflections that can more clearly contextualize and explain those issues in Brazil. The sectors that most presented evidence of innovations refer to health, technology development and transportation environments, which all belong to the public sphere. Then, a higher degree of innovation intensity demonstrates a drive for economic, environmental and social improvements and growth. Based on a sustainable process of combining and recombining the capacities and preferences of the different agents integrated into a regional organizational reality; it is possible to design regional structural schemes on innovation that would give the necessary sustainability edge to make them survive through time. Such mobilization would allow a continuous development effort that produce regeneration

Figure 6. Entrepreneurship, sustainability and innovation intensities. Source: The authors.

intra-organizational sustainability schemes at the regional level. The metal-mechanic industry, the technology development environments, the sectors of education, services, furniture, food and beverages, textile and transport point out the question of sustainability as an internal strategic element of the organizations. Researches in the metal-mechanic sector have demonstrated that cleaner production methods and environmental management practices are tools that aim at the efficiency of the production process, the use of its inputs and the generation of industrial waste. The furniture and textile sectors point out isolated process and product innovation actions and economic and environmental sustainability cases. Since entrepreneurship constitutes the engine of the sector, the creative industry sector did not show the presence

There is consensus in the researches about the fact that entrepreneurship appears in all sectors of the studied activities, but with different intensities. Sustainability does contribute to the business innovations, but still it is not possible to explain to what extent and in what specific way. Each sector has its own rationale profile on entrepreneurship, sustainability and innovation. A trend radar shows opposite and convergent results among the sectors of the Brazilian

The rationale between the concepts of entrepreneurship, sustainability and innovation, as presented in Figure 6, brings some reflections that can more clearly contextualize and explain those issues in Brazil. The sectors that most presented evidence of innovations refer to health, technology development and transportation environments, which all belong to the public sphere. Then, a higher degree of innovation intensity demonstrates a drive for economic, environmental and social improvements and growth. Based on a sustainable process of combining and recombining the capacities and preferences of the different agents integrated into a regional organizational reality; it is possible to design regional structural schemes on innovation that would give the necessary sustainability edge to make them survive through time. Such mobilization would allow a continuous development effort that produce regeneration

of sustainability, but only some innovation actions in isolated initiatives.

Figure 5. Territory (scale) and sustainability intensity. Source: The authors.

150 Entrepreneurship - Development Tendencies and Empirical Approach

economy.

patterns, necessary for regional long-term development schemes. Therefore, innovation becomes a learning process that generates or acquires new knowledge from the analysis of a specific sustainable environment.

The sectors of such Brazilian regional economy that presented less "innovation intensity" are characterized by internal organizational activities of innovation, preventing them to become "regional systems of innovation," which presupposes the lack of sustainability. Those limitations can be characterized as "innovation ghettos" in order to establish the intensity necessary to generate innovation activities within a specific territory. Ghettos, as explained by its etymology, refer to the conditions of survival of a population, in a limited and a highly concentrated scale. In that logic, the researchers have also demonstrated the presence of "ghettos of sustainability, ghettos of innovation, and therefore, ghettos of sustainability and innovation" in the sectors of this Brazilian regional economy, but in differentiated and restricted perspectives.

Finally and in a managerial perspective, considering the trilogy of entrepreneurship, sustainability and innovation, the organizations may seek a sustainable competitive advantage to generate monopoly through a regional logic. In turbulent organizational environments such as Brazil, a regional perspective may present some structural advantages for business activity. Nevertheless, only the generation of entrepreneurial initiatives with the aim for innovation through sustainability will favor regional development. In that regard, to better understand the logic of regional development and its organizational reality, more researches need to be accomplished.

### Author details

Eric Charles Henri Dorion\*, Pelayo Munhoz Olea, François Coallier, Cleber Cristiano Prodanov, Eliana Andrea Severo, Julio Cesar Ferro Guimarães, Cristine Hermann Nodari, Ana Cristina Fachinelli, Vânia Beatriz Merlotti Heredia, Fernando Fantoni Bencke, Nilson Varella Rubenich, Paula Patricia Ganzer, Claudio Baltazar Corrêa De Mello, Adrieli Alves Pereira Radaelli, Cassiane Chais, Oberdan Teles Da Silva, Luana Folchini Da Costa, Vanessa Machado, Joel Tshibamba Mukendi and Vandoir Welchen

[11] Christensen CM, Raynor ME. The Innovator's Solution: Creating and Sustaining Success-

Entrepreneurship and Sustainability as Key Elements for Innovation: A Brazilian Dilemma

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153

[12] Tidd J, Bessant J, Pavitt K. Managing Innovation: Integrating Technological, Market and

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\*Address all correspondence to: echdorion@gmail.com

University of Caxias do Sul, Rio Grande do Sul, Brazil

### References


Author details

and Vandoir Welchen

References

Eric Charles Henri Dorion\*, Pelayo Munhoz Olea, François Coallier,

\*Address all correspondence to: echdorion@gmail.com University of Caxias do Sul, Rio Grande do Sul, Brazil

152 Entrepreneurship - Development Tendencies and Empirical Approach

Cleber Cristiano Prodanov, Eliana Andrea Severo, Julio Cesar Ferro Guimarães, Cristine Hermann Nodari, Ana Cristina Fachinelli, Vânia Beatriz Merlotti Heredia,

Claudio Baltazar Corrêa De Mello, Adrieli Alves Pereira Radaelli, Cassiane Chais,

Oberdan Teles Da Silva, Luana Folchini Da Costa, Vanessa Machado, Joel Tshibamba Mukendi

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**Chapter 8**

**Provisional chapter**

**Entrepreneurship and Consulting**

**Entrepreneurship and Consulting**

DOI: 10.5772/intechopen.70673

For entrepreneurs, counselling means one of the ways how to overcome the challenges of developing markets and the environment through flexibility and creative innovation potential. It brings effects in the form of problem solving with the help of a counsellor and by adjusting the business entity to the change that this solution brings. All changes, suggested or implemented by counsellors, should contribute directly or indirectly to improving business performance and improving overall business performance. Therefore, the task and the aim of counselling are to find new solutions and optimize the entire corporate system, which is reflected in the savings and economic growth of a busi-

Dynamic discontinuities, rising dynamics, turbulence of business environment and its complexity require high flexibility, adaptability and effective coordination between particular corporate functions and the environment. Businesses often encounter problems in the course of their work which negatively affect their performance. The dynamics of that is highly influenced by the political and economic changes taking place at state level [1]. Contemporary trade is affected by integration and globalization processes and its manifestation [2]. The effect of such negative impacts influences the success or failure of business. Businesses find that they need more and more information, professional skills and capabilities. The pace of innovation is rapid in a way that corporations, trying to promote business activities only by their internal

**Keywords:** entrepreneurship, consulting, trends, effects, innovations

Additional information is available at the end of the chapter

Additional information is available at the end of the chapter

© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution,

© 2018 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

and reproduction in any medium, provided the original work is properly cited.

In order to respond adequately to the dynamics of the business environment, companies can use various modern tools and methods. These include counselling as well that fulfils

resources, are encompassing everything, but not a one thing is properly under control.

Eva Hanuláková and Ferdinand Daňo

Eva Hanuláková and Ferdinand Daňo

http://dx.doi.org/10.5772/intechopen.70673

ness as a measurable effect.

**Abstract**

**1. Introduction**


**Provisional chapter**

## **Entrepreneurship and Consulting**

**Entrepreneurship and Consulting**

Eva Hanuláková and Ferdinand Daňo Eva Hanuláková and Ferdinand Daňo Additional information is available at the end of the chapter

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.70673

#### **Abstract**

[95] Quintana CG, Olea PM, Abdallah PR, Quintana AC. Port environmental management: Innovations in a Brazilian public port. RAI: Revista de Administração e Inovação. 2016;

[96] Homrich MC, Dorion E, Camargo MC. Forecast models and the nature of the decision process: The case of a Brazilian Electricity Distribution Company. In: 6th IEEE International Conference on Management of Innovation and Technology. 2012. Singapore: National University of Singapore. Available from: http://ieeexplore.ieee.org/document/6225800 [97] IBPT. Confederação Nacional do Comércio de Bens, Serviços e Turismo [Internet]. 2014.

[98] Nunes AVS, Dorion ECH, Olea PM, Nodari CH, Radaelli AAP, Severo EA. The use of performance indicators for small and micro enterprises (SMEs): A Brazilian regional

experience. African Journal of Business Management. 2012;6(2):8378-8389

Available from: http://cnc.org.br [Accessed: May 10, 2017]

13(1):261-273

158 Entrepreneurship - Development Tendencies and Empirical Approach

For entrepreneurs, counselling means one of the ways how to overcome the challenges of developing markets and the environment through flexibility and creative innovation potential. It brings effects in the form of problem solving with the help of a counsellor and by adjusting the business entity to the change that this solution brings. All changes, suggested or implemented by counsellors, should contribute directly or indirectly to improving business performance and improving overall business performance. Therefore, the task and the aim of counselling are to find new solutions and optimize the entire corporate system, which is reflected in the savings and economic growth of a business as a measurable effect.

DOI: 10.5772/intechopen.70673

**Keywords:** entrepreneurship, consulting, trends, effects, innovations

### **1. Introduction**

Dynamic discontinuities, rising dynamics, turbulence of business environment and its complexity require high flexibility, adaptability and effective coordination between particular corporate functions and the environment. Businesses often encounter problems in the course of their work which negatively affect their performance. The dynamics of that is highly influenced by the political and economic changes taking place at state level [1]. Contemporary trade is affected by integration and globalization processes and its manifestation [2]. The effect of such negative impacts influences the success or failure of business. Businesses find that they need more and more information, professional skills and capabilities. The pace of innovation is rapid in a way that corporations, trying to promote business activities only by their internal resources, are encompassing everything, but not a one thing is properly under control.

In order to respond adequately to the dynamics of the business environment, companies can use various modern tools and methods. These include counselling as well that fulfils

© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons

its function of upgrading, revitalizing and improving overall corporate performance and maintaining a favourable market and industry position. At the same time, it brings effects not only for the company itself but also for its customers.

basis of a rigorous systematic and conceptual approach, using the diagnosis of relevant areas, activities and problems and the subsequent assessment of different options for solving a given problem or task. Counselling means activities that aim to make the outcome/result of people or organizations acting differently and more effectively. Counselling is characterized by the fact that its results (recommendations and/or solutions) are provided to someone who has the choice (may or may not accept recommendations/solutions as counselling outcomes). Generally speaking, businesses turn to counsellors when they feel the need to be advised or find a solution to the problem, provided they do not have their own capacity or appropriate

Entrepreneurship and Consulting

161

http://dx.doi.org/10.5772/intechopen.70673

professional competence. There are several ways (reasons) of using advisory services:

It is probably the most common reason why clients turn to consultants. The need for expert advice and/or impartial assistance arises in various situations. The counsellor can either contribute to solving this problem or to minimize the problem and its negative impacts on the

Clients often turn to consultants if they do not have enough time and staff to deal with a particular problem. Employees cannot address the problem either due to lack of experience, lack of qualification or being busy with other projects. The advantage is that the consultant leaves the client's organization after the service was provided. Clients turn to consultants and seek their help, which is based on a temporary basis. It is therefore not necessary to recruit new

Businesses often need new, up-to-date information for their further decision-making or their own business activity. The counsellor then performs function of an informant. The client is provided with the information the counsellor has in his/her database or he/she obtains it from available sources or ways that client has no access to. The counsellor can not only get this

It happens often that the company has a problem with which management and employees are too closely connected to that they do not see its context and do not perceive all its aspects and dimensions. They are simply not able to find an effective solution. External counsellors with relevant competencies can be useful and helpful to resolve such a problem. By not being internalized in the client's organization, it has the prerequisites for it to be able to permeate all the circumstances of the problem, determine its nature and causes and recommend solutions.

This fact is partly related to the previous situation, but more often it refers to the policy of a particular company. For example, the management of a company may believe that the proposals and recommendations submitted by its own staff are not unbiased. For example, an

• Fixing a specific problem.

• Obtaining or expanding client capabilities.

information for the client but also process and evaluate it.

• The need for an impartial and unbiased opinion.

business.

employees.

• Getting information.

• Need for new ideas.

The aim of the chapter is to highlight the importance and benefits of business advisory services. In economically advanced countries, counselling is really a service that helps businesses to manage their troubled situation through changes to greater efficiency and prosperity. The services of counsellors are sought not only by those companies who have problems but also by well-established ones. At present, the rationale for the use of counselling continues to grow. The dynamics of the competitive environment, its rapid qualitative changes and the global character of the markets generate the demand for advisory services.

Counselling is a useful professional service that helps businesses analyse and address practical issues in different areas of their work. Current modern counselling is characterized by a number of trends and tendencies leading to perspectives of growth and the development of advisory services potential. Successful are those businesses that do not only act as production and sales but as providing value to the customer [3]. Marketing managers in companies and organizations need to use its tools much more intensively in the upcoming years [4].

For this reason it is also necessary to mention the changing position and the role of marketing in companies. Marketing becomes an integrating element of all other departments in the interests of effective interaction with a customer that helps to overcome the challenges of market and environment development through the flexibility and creative innovation potential of the business. While marketing, together with innovations, is considered to be business functions that bring revenue to business, its implementation often requires a considerable amount of money. In this context, not only marketing productivity is the issue but also the question of the effectiveness of marketing activities, which goes hand in hand with its professional implementation in practice. The ambition of this chapter is therefore to clarify these milestones with regard to marketing counselling.

### **2. The theoretical basis of counselling and its importance for entrepreneurship**

There are several definitions of "counselling" and two basic approaches to ponder counselling in the professional literature. The first is characterized by a broad functional approach. Such an approach regards counselling as a method of giving practical advice and helping to improve management practices as well as individual management performance and performance across the organization. The second approach emphasizes the professional side of counselling considering it to be a specific professional service. P. Block understands the counselling very broadly: according to him, anyone who acts in a role of "support" could counsel [5].

In general, counselling can be defined as providing services and/or handing over know-how in a certain field by qualified specialists or specialized organizations. It is performed on the basis of a rigorous systematic and conceptual approach, using the diagnosis of relevant areas, activities and problems and the subsequent assessment of different options for solving a given problem or task. Counselling means activities that aim to make the outcome/result of people or organizations acting differently and more effectively. Counselling is characterized by the fact that its results (recommendations and/or solutions) are provided to someone who has the choice (may or may not accept recommendations/solutions as counselling outcomes).

Generally speaking, businesses turn to counsellors when they feel the need to be advised or find a solution to the problem, provided they do not have their own capacity or appropriate professional competence. There are several ways (reasons) of using advisory services:

• Fixing a specific problem.

its function of upgrading, revitalizing and improving overall corporate performance and maintaining a favourable market and industry position. At the same time, it brings effects

The aim of the chapter is to highlight the importance and benefits of business advisory services. In economically advanced countries, counselling is really a service that helps businesses to manage their troubled situation through changes to greater efficiency and prosperity. The services of counsellors are sought not only by those companies who have problems but also by well-established ones. At present, the rationale for the use of counselling continues to grow. The dynamics of the competitive environment, its rapid qualitative changes and the

Counselling is a useful professional service that helps businesses analyse and address practical issues in different areas of their work. Current modern counselling is characterized by a number of trends and tendencies leading to perspectives of growth and the development of advisory services potential. Successful are those businesses that do not only act as production and sales but as providing value to the customer [3]. Marketing managers in companies and

For this reason it is also necessary to mention the changing position and the role of marketing in companies. Marketing becomes an integrating element of all other departments in the interests of effective interaction with a customer that helps to overcome the challenges of market and environment development through the flexibility and creative innovation potential of the business. While marketing, together with innovations, is considered to be business functions that bring revenue to business, its implementation often requires a considerable amount of money. In this context, not only marketing productivity is the issue but also the question of the effectiveness of marketing activities, which goes hand in hand with its professional implementation in practice. The ambition of this chapter is therefore to clarify these milestones with

There are several definitions of "counselling" and two basic approaches to ponder counselling in the professional literature. The first is characterized by a broad functional approach. Such an approach regards counselling as a method of giving practical advice and helping to improve management practices as well as individual management performance and performance across the organization. The second approach emphasizes the professional side of counselling considering it to be a specific professional service. P. Block understands the counselling very broadly: according to him, anyone who acts in a role of "support" could

In general, counselling can be defined as providing services and/or handing over know-how in a certain field by qualified specialists or specialized organizations. It is performed on the

organizations need to use its tools much more intensively in the upcoming years [4].

**2. The theoretical basis of counselling and its importance for** 

global character of the markets generate the demand for advisory services.

not only for the company itself but also for its customers.

160 Entrepreneurship - Development Tendencies and Empirical Approach

regard to marketing counselling.

**entrepreneurship**

counsel [5].

It is probably the most common reason why clients turn to consultants. The need for expert advice and/or impartial assistance arises in various situations. The counsellor can either contribute to solving this problem or to minimize the problem and its negative impacts on the business.

• Obtaining or expanding client capabilities.

Clients often turn to consultants if they do not have enough time and staff to deal with a particular problem. Employees cannot address the problem either due to lack of experience, lack of qualification or being busy with other projects. The advantage is that the consultant leaves the client's organization after the service was provided. Clients turn to consultants and seek their help, which is based on a temporary basis. It is therefore not necessary to recruit new employees.

• Getting information.

Businesses often need new, up-to-date information for their further decision-making or their own business activity. The counsellor then performs function of an informant. The client is provided with the information the counsellor has in his/her database or he/she obtains it from available sources or ways that client has no access to. The counsellor can not only get this information for the client but also process and evaluate it.

• Need for new ideas.

It happens often that the company has a problem with which management and employees are too closely connected to that they do not see its context and do not perceive all its aspects and dimensions. They are simply not able to find an effective solution. External counsellors with relevant competencies can be useful and helpful to resolve such a problem. By not being internalized in the client's organization, it has the prerequisites for it to be able to permeate all the circumstances of the problem, determine its nature and causes and recommend solutions.

• The need for an impartial and unbiased opinion.

This fact is partly related to the previous situation, but more often it refers to the policy of a particular company. For example, the management of a company may believe that the proposals and recommendations submitted by its own staff are not unbiased. For example, an unbiased advice from a consultant may be necessary in a situation where company faces a serious decision and its possible adoption. Another example may be a situation where there is a risk that the management decision of an enterprise will be based or influenced by lack of expertise, operational blindness, lack of information and so on.

• Regular shortage of cash.

• Loss of market position.

• Burnout staff.

• Curiosity. • Uncertainty.

• Learning.

internally.

• Need to have an alibi.

• Chronic delay of supply of goods.

• Continued defects in deliveries.

• Improving the achieved results.

• Counselling as a profession.

• Counselling as an ecosystem.

**2.1. Counselling as a profession**

• Counselling as a service. • Counselling as a method. • Counselling as a change.

• Solving a specific technical or business issue.

approaches to modern counselling can be identified:

• Excessive workload without achieving goals.

• Lack of information about competition or the market.

P. Block defines the areas in which the consultant can help the client [5]:

• Teaching clients how to solve a similar problem in the future independently.

• Improve the way the organization manages its resources, uses its systems and cooperates

Current modern counselling is characterized by a number of trends and tendencies leading to perspectives of growth and the development of the potential of advisory services. Five basic

The development of counselling towards profession and *professionalism* is part of an intensive effort that seeks to create a profession out of counselling. Consultants as professionals follow the main trends in theory and practice. At the same time, they create a specialized group with their own working methods, their own set of standards of behaviour and their own workflows.

M. Kubr, as the usual motives or reasons for using advisory services, states the following [7]:

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• The need for organizational change.

Deep-rooted ideas and habits are a big problem in a situation where the company faces significant organizational change. In this case, the consultant is expected to have the knowledge and experience leading to this change. The main contribution of the consultant to the strategy of change in the client's organization lies in the fact that he/she possesses the necessary qualification, advisory technique and alternative point of view. Through his/her activity and approach, he/she influences the behaviour of those involved in managing changes in the business.

• Need to diagnose the problem and find its solution.

Diagnostic skills and abilities represent one of the most important professional competencies of counsellors and are an expression of their professionalism. It is for this ability that consultants are in demand. The subject of diagnosis may be the internal situation of the business or the external environment in which the company operates. Diagnosis may be complex, but it may be narrowed and limited to one problem or circuit of problems. After the diagnosis and specification of the problem, the client can ask the counsellor for suggestions on how to deal with it.

• The need for education.

Clients often use advisory services to educate their employees. Many consultants provide lecturing and trainings as complement to their main activity—consulting activity. Vocational trainings can be focused on new methods, techniques and technologies. The trainings can focus on improving the professional skills of the client's employees. Lecturing and training can be done as part of the counselling activities or separately from these activities.

• Introducing new methods and systems.

Every organization needs to work as efficiently as possible. In this context, the client expects the consultant to introduce new organizational, planning and controlling methods and systems. The consultant can tailor these procedures and systems to "tailor-made" it to the client. When finding solutions, the consultant can use a variety of creative techniques. Creative counselling is very important for recognizing potential solutions and making them accessible to the client by working in their terms.

There are a number of signals that indicate the need for consulting services [6]:


unbiased advice from a consultant may be necessary in a situation where company faces a serious decision and its possible adoption. Another example may be a situation where there is a risk that the management decision of an enterprise will be based or influenced by lack of

Deep-rooted ideas and habits are a big problem in a situation where the company faces significant organizational change. In this case, the consultant is expected to have the knowledge and experience leading to this change. The main contribution of the consultant to the strategy of change in the client's organization lies in the fact that he/she possesses the necessary qualification, advisory technique and alternative point of view. Through his/her activity and approach, he/she influences the behaviour of those involved in managing changes

Diagnostic skills and abilities represent one of the most important professional competencies of counsellors and are an expression of their professionalism. It is for this ability that consultants are in demand. The subject of diagnosis may be the internal situation of the business or the external environment in which the company operates. Diagnosis may be complex, but it may be narrowed and limited to one problem or circuit of problems. After the diagnosis and specification of the problem, the client can ask the counsellor for suggestions on how to

Clients often use advisory services to educate their employees. Many consultants provide lecturing and trainings as complement to their main activity—consulting activity. Vocational trainings can be focused on new methods, techniques and technologies. The trainings can focus on improving the professional skills of the client's employees. Lecturing and training

Every organization needs to work as efficiently as possible. In this context, the client expects the consultant to introduce new organizational, planning and controlling methods and systems. The consultant can tailor these procedures and systems to "tailor-made" it to the client. When finding solutions, the consultant can use a variety of creative techniques. Creative counselling is very important for recognizing potential solutions and making them accessible

can be done as part of the counselling activities or separately from these activities.

There are a number of signals that indicate the need for consulting services [6]:

expertise, operational blindness, lack of information and so on.

• Need to diagnose the problem and find its solution.

• The need for organizational change.

162 Entrepreneurship - Development Tendencies and Empirical Approach

in the business.

deal with it.

• The need for education.

• Introducing new methods and systems.

to the client by working in their terms.

• Absence of a written business plan.

• Regular, repeated increase in expenditure.

• Inexplicably low morale.


M. Kubr, as the usual motives or reasons for using advisory services, states the following [7]:


Current modern counselling is characterized by a number of trends and tendencies leading to perspectives of growth and the development of the potential of advisory services. Five basic approaches to modern counselling can be identified:


#### **2.1. Counselling as a profession**

The development of counselling towards profession and *professionalism* is part of an intensive effort that seeks to create a profession out of counselling. Consultants as professionals follow the main trends in theory and practice. At the same time, they create a specialized group with their own working methods, their own set of standards of behaviour and their own workflows.

#### **2.2. Advice as a service**

The product of advisors and advisory organizations is consulting services. These are specific expert services provided by qualified experts and/or specialized organizations to solve a specific problem.

Relationships between the elements of the counselling system are based on the life cycle of the counselling process, selection, relationships, changes, portfolio, professionalism and

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These approaches to advanced counselling complement and support each other. Professionalism and service are the basis for the common use of methods and procedures in a particular process. They create a complex system based on balanced methods, practices, styles and principles with the aim to recommend or find a solution to a specific problem and reach

Counselling brings effects in a problem solution by the counsellor's help and adjusting to the change that this solution inevitably brings. As part of counselling, there are specializations for each functional area of the company, including marketing counselling. Marketing consulting generally represents a comprehensive approach in the field of management consulting (or economic consulting), which offers methods and procedures aimed at effective marketing performance, improvement of the management procedures and strengthening of the competitiveness of the company. The characteristic feature of marketing consulting is that it deals with the relationships of a particular company with its business environment (customers, competitors, suppliers, purchaser and public) as well as with the internal environment of the company itself (its organizational structure, relations and atmosphere of management and

• Diagnostic function: Considered to be the core of consulting and marketing consulting and

• Information function: Based on the information the counsellor provides about the identi-

• Evaluator: The consultant evaluates alternative solutions to the problem/problems of the client and expresses the opinion/qualified estimation regarding the priority of the pro-

• Therapist: Consulting services create solutions that are related to the symptoms of some-

• Implementation function: The counsellor is involved, directly or indirectly (e.g. through lectures, trainings, etc.), in the implementation process of the chosen solution to the problem. The role and purpose of marketing consulting are to find new solutions and optimize the entire marketing system, which is reflected in the savings and economic growth of the company as a measurable effect. However, marketing advisory also helps with such measures like image improving, customer loyalty, etc. where it is difficult to measure the effect of counselling.

Counselling and marketing consulting services are economic and highly professional activities that affect the competitiveness of companies by causing changes in the corporate system

marketing culture). Marketing consulting performs the following functions:

fied problem, the client is able to make strategic reactions to the problem.

helps clients to identify and understand the nature of the problem.

posed solution, in active cooperation with the client.

thing "unhealthy" in the company.

**3. Materials and methodology**

reputation [9].

a change in the organization of the client.

Advisory services fall into the category of business services. From the point of view of the effects of their actions leading to changes in production systems, productivity and efficiency, consultancy services are part of the intensive knowledge services. They are characterized by the application of a high level of knowledge aimed at solving the problems of business process-related clients with highly qualified employees with a high level of education and professional qualification—advisory, consulting of information technology, legal, accounting, architectural-engineering research-development, advertising, market research, marketing and personal services. Counselling services are very innovative; they use predominantly internal and implicit sources of innovative activities and have very strong contacts with suppliers and clients [8].

#### **2.3. Advice as a method**

Advisor's approach is conceptual and strictly methodical: from problem identification and diagnostics, through collection, analysis and evaluation of relevant data, investigation and diagnosis of resolution of the problem. Counsellor uses a variety of methods; creative steps; looks for new, tailor-made solutions; identifies and verifies individual alternatives or assists the client in implementing and controlling the chosen alternative. This procedure is referred to as counselling.

#### **2.4. Counselling as a change**

Traditional perception of counselling is usually associated with the role of a counsellor in which he/she acts as someone who advises others. It does not take into account other aspects, areas, procedures and tasks of advisory performance, such as implementation, monitoring and control, outsourcing, etc. At present, however, advice is expected to be more than just "good advice." Counselling is no longer judged by what it does (giving advice), but through the changes it brings [9]. The common aspect of consulting contracts is that they assist in planning, designing and organizing change/changes in the client's business.

#### **2.5. Advice as a system**

The classic model of counselling is outdated, and modern counselling is currently a system consisting of six elements and relationships between them. The elements of the counselling system are:


Relationships between the elements of the counselling system are based on the life cycle of the counselling process, selection, relationships, changes, portfolio, professionalism and reputation [9].

These approaches to advanced counselling complement and support each other. Professionalism and service are the basis for the common use of methods and procedures in a particular process. They create a complex system based on balanced methods, practices, styles and principles with the aim to recommend or find a solution to a specific problem and reach a change in the organization of the client.

Counselling brings effects in a problem solution by the counsellor's help and adjusting to the change that this solution inevitably brings. As part of counselling, there are specializations for each functional area of the company, including marketing counselling. Marketing consulting generally represents a comprehensive approach in the field of management consulting (or economic consulting), which offers methods and procedures aimed at effective marketing performance, improvement of the management procedures and strengthening of the competitiveness of the company. The characteristic feature of marketing consulting is that it deals with the relationships of a particular company with its business environment (customers, competitors, suppliers, purchaser and public) as well as with the internal environment of the company itself (its organizational structure, relations and atmosphere of management and marketing culture). Marketing consulting performs the following functions:


The role and purpose of marketing consulting are to find new solutions and optimize the entire marketing system, which is reflected in the savings and economic growth of the company as a measurable effect. However, marketing advisory also helps with such measures like image improving, customer loyalty, etc. where it is difficult to measure the effect of counselling.

### **3. Materials and methodology**

**2.2. Advice as a service**

164 Entrepreneurship - Development Tendencies and Empirical Approach

cific problem.

pliers and clients [8].

to as counselling.

**2.4. Counselling as a change**

**2.5. Advice as a system**

system are:

projects.

consultants.

**2.3. Advice as a method**

The product of advisors and advisory organizations is consulting services. These are specific expert services provided by qualified experts and/or specialized organizations to solve a spe-

Advisory services fall into the category of business services. From the point of view of the effects of their actions leading to changes in production systems, productivity and efficiency, consultancy services are part of the intensive knowledge services. They are characterized by the application of a high level of knowledge aimed at solving the problems of business process-related clients with highly qualified employees with a high level of education and professional qualification—advisory, consulting of information technology, legal, accounting, architectural-engineering research-development, advertising, market research, marketing and personal services. Counselling services are very innovative; they use predominantly internal and implicit sources of innovative activities and have very strong contacts with sup-

Advisor's approach is conceptual and strictly methodical: from problem identification and diagnostics, through collection, analysis and evaluation of relevant data, investigation and diagnosis of resolution of the problem. Counsellor uses a variety of methods; creative steps; looks for new, tailor-made solutions; identifies and verifies individual alternatives or assists the client in implementing and controlling the chosen alternative. This procedure is referred

Traditional perception of counselling is usually associated with the role of a counsellor in which he/she acts as someone who advises others. It does not take into account other aspects, areas, procedures and tasks of advisory performance, such as implementation, monitoring and control, outsourcing, etc. At present, however, advice is expected to be more than just "good advice." Counselling is no longer judged by what it does (giving advice), but through the changes it brings [9]. The common aspect of consulting contracts is that they assist in plan-

The classic model of counselling is outdated, and modern counselling is currently a system consisting of six elements and relationships between them. The elements of the counselling

• On the demand side: (1) individual clients, (2) businesses and organizations and (3) contracts/

• On the supply side: (4) consulting industry, (5) consultancy providers and (6) individual

ning, designing and organizing change/changes in the client's business.

Counselling and marketing consulting services are economic and highly professional activities that affect the competitiveness of companies by causing changes in the corporate system as well as the utility and efficiency of business and business activities. In spite of its long tradition in the world, the counselling in the conditions of the Slovak Republic began to write its history only after 1989. Its origin and introduction here were directly related to the transition to the market economy and the manifestation of a new phenomenon of competition. After several decades of planned economy and manufacturing-oriented economic policy, during the past 20 years, the Visegrád Four (V4) countries (Poland, Hungary, Czech Republic and Slovakia) have been experiencing a shift towards a market economy combined with intensification of service activity [10]. Most businesses found themselves in an environment of profound changes that varied in depth and intensity. There has been a significant diversion from the supplier's market to the customer's market. Markets have acquired a global character. Businesses have had to learn to respond flexibly to these changes. However, entrepreneurs and business managers have not always been able to solve the problems themselves. These facts represented the main reasons for the development of counselling not only as a discipline but above all a service that aimed to find ways for companies to compete and improve their position in the market and in the industry.

• What are the businesses' expectations from marketing consulting?

• What criteria for choosing a provider of marketing consulting are applied?

• What are the limits and barriers to applying marketing consulting from the point of view

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In formulating the conclusions, we relied on the hypotheses that we set out on the assumption that marketing advice provides effective help to businesses in solving marketing and business problems. Greater specialization of external consultants enables higher economic efficiency. Based on the above, we have determined the following descriptive hypotheses that have been

• H2: In practice, there are several reasons for using marketing consulting. This is in particular inadequate quality of internal performance, pressure to reduce costs, higher objectivity, more qualified and professional approach and achieving a long-term competitive

• H3: The use of specialized external consulting subjects' services enables businesses to respond flexibly to changes and turbulence in the business environment, to adapt to trends and new marketing perspectives, to mobilize creative innovation potential and to focus on

• H4: The high price, negative experience and underestimation of the benefits are major limi-

All respondents said they considered marketing consulting to be useful and effective, pro-

Concerning the intensity of the use of marketing consulting services, this service was bought by all 222 respondents more than once; the regular use of these services was declared by 37% of users. The most frequently used marketing consulting services were the following: web site creation (94%), marketing research (81%), public relations (62%), online marketing (45%),

The biggest effects of marketing consulting reported by respondents are as follows: better knowledge of customers and competitors (90%), introduction of new ICT (85%), information needed for their business activity (84%), competitive pricing policy (66%), higher quality of products (60%), development of new products (53%), better brand reputation (50%), improved customer image (50%), more satisfied customers (46%), improving customer relationships (44%), improving the strategy in relation to customers and competitors (42%), higher sales (35%), new business opportunities (35%) and lower marketing and business costs

All respondents plan to continue to use marketing consulting. On the part of marketing consultants, however, they expect a price reduction for their performance (95%), an acceleration

• H1: Marketing consulting has become a regularly used service to help businesses.

• What are the benefits of marketing consulting for businesses?

formulated in relation to descriptive research problems:

creating and delivering value to customers.

tations in the use of marketing consulting.

vided it is done professionally, cheaply and quickly.

advertising (44% 34%) and mystery shopping (30%) (**Table 1**).

of the companies surveyed?

advantage.

(30%) (**Table 2**).

In the light of the above, it raises a number of questions: What is the state and level of use of marketing counselling by companies operating in the Slovak business environment? What criteria do companies apply for choosing providers of such services? What are the expectations of entities established in the Slovak business environment from these services and their providers? What does marketing advice provide to businesses concerning their own performance? How do businesses evaluate relationships with marketing consultants?

Finding answers to these questions was the purpose of an empirical survey aimed at using marketing advice by companies operating in the Slovak business environment. The survey was conducted in two stages—(1) a quantitative survey in 2016 and (2) a qualitative survey in 2017—and was part of a broader consultancy-focused research on counselling.

Within the quantitative survey, 500 domestic and foreign business entities established in Slovakia were addressed. The sample was specified by the criterion of using marketing advisory. Only those businesses that used marketing advisory, i.e. 222 from the businesses addressed, were involved in the survey. Respondents were owners of companies, directors and marketing department managers, depending on the size of the company and its organizational arrangements.

The aim of the quantitative survey was to clarify and assess the situation in the field of marketing consultancy in the business environment in the SR. On the basis of this, the main research problem was formulated: What is the state and level of use of marketing consulting by enterprises established in the Slovak business environment? From the basic research problem, the following partial descriptive (descriptive) research problems have been formulated through structured genesis:


as well as the utility and efficiency of business and business activities. In spite of its long tradition in the world, the counselling in the conditions of the Slovak Republic began to write its history only after 1989. Its origin and introduction here were directly related to the transition to the market economy and the manifestation of a new phenomenon of competition. After several decades of planned economy and manufacturing-oriented economic policy, during the past 20 years, the Visegrád Four (V4) countries (Poland, Hungary, Czech Republic and Slovakia) have been experiencing a shift towards a market economy combined with intensification of service activity [10]. Most businesses found themselves in an environment of profound changes that varied in depth and intensity. There has been a significant diversion from the supplier's market to the customer's market. Markets have acquired a global character. Businesses have had to learn to respond flexibly to these changes. However, entrepreneurs and business managers have not always been able to solve the problems themselves. These facts represented the main reasons for the development of counselling not only as a discipline but above all a service that aimed to find ways for companies to compete and improve their

In the light of the above, it raises a number of questions: What is the state and level of use of marketing counselling by companies operating in the Slovak business environment? What criteria do companies apply for choosing providers of such services? What are the expectations of entities established in the Slovak business environment from these services and their providers? What does marketing advice provide to businesses concerning their own perfor-

Finding answers to these questions was the purpose of an empirical survey aimed at using marketing advice by companies operating in the Slovak business environment. The survey was conducted in two stages—(1) a quantitative survey in 2016 and (2) a qualitative survey in

Within the quantitative survey, 500 domestic and foreign business entities established in Slovakia were addressed. The sample was specified by the criterion of using marketing advisory. Only those businesses that used marketing advisory, i.e. 222 from the businesses addressed, were involved in the survey. Respondents were owners of companies, directors and marketing department managers, depending on the size of the company and its organi-

The aim of the quantitative survey was to clarify and assess the situation in the field of marketing consultancy in the business environment in the SR. On the basis of this, the main research problem was formulated: What is the state and level of use of marketing consulting by enterprises established in the Slovak business environment? From the basic research problem, the following partial descriptive (descriptive) research problems have been formulated through

mance? How do businesses evaluate relationships with marketing consultants?

2017—and was part of a broader consultancy-focused research on counselling.

• What are the attitudes and approaches of businesses to marketing consulting?

• What are the areas in which marketing consulting is applied?

• What is the frequency of the use of marketing consulting?

position in the market and in the industry.

166 Entrepreneurship - Development Tendencies and Empirical Approach

zational arrangements.

structured genesis:


In formulating the conclusions, we relied on the hypotheses that we set out on the assumption that marketing advice provides effective help to businesses in solving marketing and business problems. Greater specialization of external consultants enables higher economic efficiency. Based on the above, we have determined the following descriptive hypotheses that have been formulated in relation to descriptive research problems:


All respondents said they considered marketing consulting to be useful and effective, provided it is done professionally, cheaply and quickly.

Concerning the intensity of the use of marketing consulting services, this service was bought by all 222 respondents more than once; the regular use of these services was declared by 37% of users. The most frequently used marketing consulting services were the following: web site creation (94%), marketing research (81%), public relations (62%), online marketing (45%), advertising (44% 34%) and mystery shopping (30%) (**Table 1**).

The biggest effects of marketing consulting reported by respondents are as follows: better knowledge of customers and competitors (90%), introduction of new ICT (85%), information needed for their business activity (84%), competitive pricing policy (66%), higher quality of products (60%), development of new products (53%), better brand reputation (50%), improved customer image (50%), more satisfied customers (46%), improving customer relationships (44%), improving the strategy in relation to customers and competitors (42%), higher sales (35%), new business opportunities (35%) and lower marketing and business costs (30%) (**Table 2**).

All respondents plan to continue to use marketing consulting. On the part of marketing consultants, however, they expect a price reduction for their performance (95%), an acceleration


directors and executive directors who are in charge of purchasing such service. The interview had several stages (preparation, introduction, fixation, interview itself, conclusion and termination). The conversation always took place with only one person in the form of a semistructured interview. The interview included observations that enabled the respondent's nonverbal communication to be monitored. The interview was conducted in the respondent's work environment. The average length of one interview was 65 minutes. Within both interviews and observations, we did not record all the findings, but only selective entries were realized. As a means of support of the validity of a qualitative survey, the following triangula-

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• We have evaluated the obtained data from the point of view of the clients of the consulting

In a qualitative survey, we chose the procedure of constant comparison of the phenomena investigated, in which we did not establish the hypothesis. We wanted to know in particular the attitudes, opinions and expectations of the respondents from the marketing consulting, the reasons and areas of their further use/termination of the service, the reasons for the decision on the selection criteria of the consultant, the intensity of the relations with the consultancy providers and the ideas for improving the qualities of subject providing marketing

As in the previous survey, respondents, in their statements within the qualitative survey, stated that marketing consulting is perspective and is useful and they plan to continue using it. According to respondents, the customer and the competition are the biggest reasons for the use of marketing consulting services. Negative or even reluctant attitudes towards marketing consulting have been observed only sporadically. The results of the quantitative survey have shown a massive predominance in the use of specialized marketing consulting services. We were interested in the reasons for which respondents do not use general marketing consulting at the same intensity. The reasons for which more intensive services are not being used or general marketing consulting is not being used at all as well as other marketing services are not being used, include lack of information on these services; a narrowed/distorted view of marketing itself; lack of finances, experience and insight into these capabilities on the part of internal capacities; and also a restrained approach to purchasing such services and postpon-

Providers of marketing consulting are uniquely chosen on the basis of references because they are a guarantee of experience for them. The references provided by the advisor are not validated. The equivalent criterion for choosing a consultant is the price. It suits them if they can continue to work with the current counsellor as it saves time and money for choosing a new one, and moreover, the original provider understands them better, understands their

Counselling is important to them, but they do not think about it. It can be said that they antici-

services (clients) and from the point of view of the consultants (consultants).

tion has been chosen:

consulting.

ing them "at a later date."

pate it more than demand it.

environment and is able to adapt himself/herself better.

• Two research methods: interview and observation.

• The investigated situation was monitored by two researchers.

**Table 1.** The most frequently used marketing consulting services in the Slovak business environment.


**Table 2.** The greatest effects of marketing consulting from the point of view of the Slovak business environment.

of the delivery time of the service (88%) and solutions that (a) contribute to higher revenues (95%), (b) ensure differentiation and the source of competitive advantage (52%) and higher product quality (50%), (c) reduce customer claims and complaints (49%), (d) increase customer satisfaction (45%), (e) increase customer loyalty and (F) reduce the loss of customers (40%).

When selecting provider of consulting services, respondents are equally interested in the references and the price for these services. As for the shortcomings of marketing consulting services, respondents cited especially high prices and time consumption (75%). The results of the survey confirmed H1–H4 hypotheses.

In the next stage, we conducted a qualitative survey where we used the interview method on a sample of 30 respondents. They were managers of marketing staff but also the owners, directors and executive directors who are in charge of purchasing such service. The interview had several stages (preparation, introduction, fixation, interview itself, conclusion and termination). The conversation always took place with only one person in the form of a semistructured interview. The interview included observations that enabled the respondent's nonverbal communication to be monitored. The interview was conducted in the respondent's work environment. The average length of one interview was 65 minutes. Within both interviews and observations, we did not record all the findings, but only selective entries were realized. As a means of support of the validity of a qualitative survey, the following triangulation has been chosen:

• Two research methods: interview and observation.

**The greatest effects of marketing consulting Percentage of using**

**Most frequently used marketing consulting services Percentage of using**

Web site creation 94 Marketing research 81 Public relations 62 Online marketing 45 Advertising 44 Mystery shopping 30

168 Entrepreneurship - Development Tendencies and Empirical Approach

**Table 2.** The greatest effects of marketing consulting from the point of view of the Slovak business environment.

of the delivery time of the service (88%) and solutions that (a) contribute to higher revenues (95%), (b) ensure differentiation and the source of competitive advantage (52%) and higher product quality (50%), (c) reduce customer claims and complaints (49%), (d) increase customer satisfaction (45%), (e) increase customer loyalty and (F) reduce the loss of customers (40%).

When selecting provider of consulting services, respondents are equally interested in the references and the price for these services. As for the shortcomings of marketing consulting services, respondents cited especially high prices and time consumption (75%). The results of

In the next stage, we conducted a qualitative survey where we used the interview method on a sample of 30 respondents. They were managers of marketing staff but also the owners,

Better knowledge of customers and competitors 90 Introduction of new ICT 85 Information needed for their business activity 84 Competitive pricing policy 66 Higher quality of products 60 Development of new products 53 Better brand reputation 50 Improved customer image 50 More satisfied customers 46 Improving customer relationships 44 Improving the strategy in relation to customers and competitors 42 Higher sales 35

**Table 1.** The most frequently used marketing consulting services in the Slovak business environment.

Source: own processing.

Source: own processing.

the survey confirmed H1–H4 hypotheses.


In a qualitative survey, we chose the procedure of constant comparison of the phenomena investigated, in which we did not establish the hypothesis. We wanted to know in particular the attitudes, opinions and expectations of the respondents from the marketing consulting, the reasons and areas of their further use/termination of the service, the reasons for the decision on the selection criteria of the consultant, the intensity of the relations with the consultancy providers and the ideas for improving the qualities of subject providing marketing consulting.

As in the previous survey, respondents, in their statements within the qualitative survey, stated that marketing consulting is perspective and is useful and they plan to continue using it. According to respondents, the customer and the competition are the biggest reasons for the use of marketing consulting services. Negative or even reluctant attitudes towards marketing consulting have been observed only sporadically. The results of the quantitative survey have shown a massive predominance in the use of specialized marketing consulting services. We were interested in the reasons for which respondents do not use general marketing consulting at the same intensity. The reasons for which more intensive services are not being used or general marketing consulting is not being used at all as well as other marketing services are not being used, include lack of information on these services; a narrowed/distorted view of marketing itself; lack of finances, experience and insight into these capabilities on the part of internal capacities; and also a restrained approach to purchasing such services and postponing them "at a later date."

Providers of marketing consulting are uniquely chosen on the basis of references because they are a guarantee of experience for them. The references provided by the advisor are not validated. The equivalent criterion for choosing a consultant is the price. It suits them if they can continue to work with the current counsellor as it saves time and money for choosing a new one, and moreover, the original provider understands them better, understands their environment and is able to adapt himself/herself better.

Counselling is important to them, but they do not think about it. It can be said that they anticipate it more than demand it.

In terms of long-term cooperation, they expect from the service providers' price reduction, individual approach and less time to implement the project. They also expect better service providers' orientation in the problem and new solutions that will be better than previous ones.

based on a thorough counselling diagnosis of solid facts and subsequent counselling ther-

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In the case of counselling diagnostics, consideration should be given to the fact that the business is an unknown object for the consulting firm and the diagnosis is processed for commercial purposes [11]. The counselling therapy expresses ways to solve business problems by external counselling subjects. It consists of searching for and proposing effective measures with regard to the diagnosis result—a diagnosis and also of research, formulation and verification of procedures, approaches, methods and techniques that lead to the achievement of desired results (therapies) in areas that are the subject of counselling diagnostics.

Without therapy, diagnostics would not make sense, and therapy without diagnosis would be unhelpful and would not have the desired effect. Therefore, the diagnostic and therapeutic phases form the core of the counselling process and counselling activity as a whole. It should be emphasized that both the diagnosis and the therapeutics must be focused not only on the identification and solving of the marketing problems themselves but also on the identification

Experience shows that defects in effective counselling process occur both on the part of providers of advisory services and on their buyers' side. In order to eliminate the aforementioned defects of an effective marketing counselling process on the part of providers of counselling, it is desirable that the relatively well-established process of counselling diagnosis with the emphasis on establishing a diagnosis in marketing is applied to the counselling process on two levels:

**1.** Diagnostics and diagnosis of marketing as a leading management concept based on the

The following algorithm can be used to diagnose an enterprise's marketing activity (**Scheme 1**):

**2.** Description of the development and condition of the object of the diagnostics.

The individual steps of the diagnostic activity are explained in the following text:

marketing as a business function and business philosophy:

• Selection of object of the diagnostics: marketing as the leading management concept and

value of the business and the value provided to the customer.

**2.** Diagnostics and diagnosis of marketing as a business function.

apy in the form of search for real and pragmatic solutions.

of the causes of these disorders and their sources.

**1.** Introductory phase.

**4.** Diagnostic analysis. **5.** Diagnostic synthesis.

**1.** Introductory phase

**3.** Diagnostic test.

**6.** Final phase.

The gestures, mimics and visions of respondents during a qualitative survey have shown their positive impressions/attitudes, thoughts, increased attention, readiness and openness. For some topics, especially as regards the price and the education of an advisor as the criteria for choice, we were surprised by their awkwardness but also concentration.

### **4. Conclusions and recommendations**

It can be said that marketing consulting has become a common service in our country. Consultants consider it beneficial and useful with the prospect of further growth. Nevertheless, it is still a young and dynamically evolving service, which is confirmed by our finding as well. It is the limitations of both actors of counselling process (buyer and consultant), which restricts the intensive and complex use of marketing consulting services.

In particular, buyers are unaware of, misunderstand, or underestimate these services, which do not allow them to use their full potential as well as the potential of marketing itself. Also limited financial options, the reluctance to spend funds on these services have their share on the restrictions in terms of the perspective of its more intensive use. When selecting a service provider, the cost approach over the corresponding qualification prevails, with the exception of the repeated purchase of consulting services from the original provider. Clients expect effects from the consultancy on the economic side (revenue growth, more customers, increased sales, etc.) as well as noneconomic indicators (brand awareness, customer loyalty, better customer and partner relationships). We have also experienced symptoms of management schizophrenia, in terms of the cost of consulting services, the intensity of their use and the effects of their use.

On the part of the advisory service providers, these limits are manifested in particular in the absence of continuous cooperation and post-contract control, lack of communication with the client and the absence of feedback.

The core of effectiveness of marketing consulting is an effective guidance approach. It identifies two critical aspects of problem solving in the contracting organization, which are:


Both critical aspects are the basic prerequisites for the final result of the consulting activity with respect to finding effective solutions and optimizing the entire marketing and business performance.

The technical aspect of counselling addresses the nature of the problem that is (will be) the subject of counselling and the way in which this problem can be assessed and resolved. Therefore, an effective counselling requires intensive systematic and disciplined work, based on a thorough counselling diagnosis of solid facts and subsequent counselling therapy in the form of search for real and pragmatic solutions.

In the case of counselling diagnostics, consideration should be given to the fact that the business is an unknown object for the consulting firm and the diagnosis is processed for commercial purposes [11]. The counselling therapy expresses ways to solve business problems by external counselling subjects. It consists of searching for and proposing effective measures with regard to the diagnosis result—a diagnosis and also of research, formulation and verification of procedures, approaches, methods and techniques that lead to the achievement of desired results (therapies) in areas that are the subject of counselling diagnostics.

Without therapy, diagnostics would not make sense, and therapy without diagnosis would be unhelpful and would not have the desired effect. Therefore, the diagnostic and therapeutic phases form the core of the counselling process and counselling activity as a whole. It should be emphasized that both the diagnosis and the therapeutics must be focused not only on the identification and solving of the marketing problems themselves but also on the identification of the causes of these disorders and their sources.

Experience shows that defects in effective counselling process occur both on the part of providers of advisory services and on their buyers' side. In order to eliminate the aforementioned defects of an effective marketing counselling process on the part of providers of counselling, it is desirable that the relatively well-established process of counselling diagnosis with the emphasis on establishing a diagnosis in marketing is applied to the counselling process on two levels:


The following algorithm can be used to diagnose an enterprise's marketing activity (**Scheme 1**):


In terms of long-term cooperation, they expect from the service providers' price reduction, individual approach and less time to implement the project. They also expect better service providers' orientation in the problem and new solutions that will be better than previous ones. The gestures, mimics and visions of respondents during a qualitative survey have shown their positive impressions/attitudes, thoughts, increased attention, readiness and openness. For some topics, especially as regards the price and the education of an advisor as the criteria

It can be said that marketing consulting has become a common service in our country. Consultants consider it beneficial and useful with the prospect of further growth. Nevertheless, it is still a young and dynamically evolving service, which is confirmed by our finding as well. It is the limitations of both actors of counselling process (buyer and consultant), which

In particular, buyers are unaware of, misunderstand, or underestimate these services, which do not allow them to use their full potential as well as the potential of marketing itself. Also limited financial options, the reluctance to spend funds on these services have their share on the restrictions in terms of the perspective of its more intensive use. When selecting a service provider, the cost approach over the corresponding qualification prevails, with the exception of the repeated purchase of consulting services from the original provider. Clients expect effects from the consultancy on the economic side (revenue growth, more customers, increased sales, etc.) as well as noneconomic indicators (brand awareness, customer loyalty, better customer and partner relationships). We have also experienced symptoms of management schizophrenia, in terms of the cost of consulting services, the intensity of their use and the effects of their use. On the part of the advisory service providers, these limits are manifested in particular in the absence of continuous cooperation and post-contract control, lack of communication with the

The core of effectiveness of marketing consulting is an effective guidance approach. It identi-

Both critical aspects are the basic prerequisites for the final result of the consulting activity with respect to finding effective solutions and optimizing the entire marketing and business

The technical aspect of counselling addresses the nature of the problem that is (will be) the subject of counselling and the way in which this problem can be assessed and resolved. Therefore, an effective counselling requires intensive systematic and disciplined work,

fies two critical aspects of problem solving in the contracting organization, which are:

for choice, we were surprised by their awkwardness but also concentration.

restricts the intensive and complex use of marketing consulting services.

**4. Conclusions and recommendations**

170 Entrepreneurship - Development Tendencies and Empirical Approach

client and the absence of feedback.

**1.** Technical aspect. **2.** Qualitative aspect.

performance.


The individual steps of the diagnostic activity are explained in the following text:

	- Selection of object of the diagnostics: marketing as the leading management concept and marketing as a business function and business philosophy:

**3.** Diagnostic test

**4.** Diagnostic analysis:

**5.** Diagnostic synthesis

main cause.

following tendencies:

of another type.

(existence, survival).

preneurial activity.

lowing initiatory effects:

allow the existence (survival) of an enterprise.

• Marketing is considered from a procedural point of view.

diagnostics and the starting point of counselling diagnostic therapy.

**6.** Final phase

the consequences of problems.

ing faults and shortcomings (abnormalities).

• Comparison of the behaviour of the diagnosed object with the test criterion and identify-

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• Classification of the problem type: structured, unstructured and poorly structured.

• Analysis of the frequency, intensity and demonstration of the problem(s) and analysis of

• Prediction of the further development of the problem and analysis of causes of the problem.

• Formulation of the problem in terms of its severity, the urgency of the solution and the

• Coordination of the counsellor and the client in proposing of corrective actions. • Diagnostic test of progress: verification of the effectiveness of corrective actions.

The mentioned process of consulting diagnostics aimed at marketing is characterized by the

• Already in the initial phase of the counselling process, it is possible to recognize what is and is not a marketing problem/disorder and to distinguish it from problems/disorders

• An enterprise is understood as an entity that defines its vision, mission and goals

• Marketing is considered in terms of interaction with other business functions and entre-

• Marketing is viewed as a set of mutually dependent tools, activities and operations that

• Identification of existing, potential or future change represents the core of counselling

The position of counselling diagnostics or diagnosis in marketing is determined by the fol-

• Fault recognition, i.e. deviations/changes from the ex post state (i.e., "disease" formation). • The need for ex ante business potential verification (i.e. prevention and development activities).

• Naming the existence/non-existence of a problem/failure in marketing.

**Scheme 1.** Algorithm of the diagnostics of the company's marketing activity. Source: own processing.

	- Measuring the behaviour of the diagnosed object.
	- Description of the development and state of behaviour of the diagnosed object.
	- Comparison of the behaviour of the diagnosed object with the test criterion and identifying faults and shortcomings (abnormalities).
	- Naming the existence/non-existence of a problem/failure in marketing.
	- Classification of the problem type: structured, unstructured and poorly structured.
	- Analysis of the frequency, intensity and demonstration of the problem(s) and analysis of the consequences of problems.
	- Prediction of the further development of the problem and analysis of causes of the problem.
	- Formulation of the problem in terms of its severity, the urgency of the solution and the main cause.

○ Marketing diagnostics as a leading management concept begins at the top of the business goal pyramid assessing the vision and mission of the business and their evaluation in relation to the goals set followed by diagnostics of corporate integrity, identity,

**Diagnostic test**

**Scheme 1.** Algorithm of the diagnostics of the company's marketing activity. Source: own processing.

**Diagnostic analysis**

**Diagnostic synthesis**

**Final phase**

○ Marketing diagnostics as a business function starts with diagnostics of marketing organization and its position within the corporate organizational structure and continues with diagnostics of the marketing environment, diagnostics of the marketing planning system, diagnostics of marketing mix tools and diagnostics

• Selection of behavioural characteristics of the diagnosed object: diagnostics of marketing

• Selection of diagnostic methods and procedures: depending on the behaviour characteristics of the diagnosed object; proper selection of methods of diagnostics is the determi-

• Formulating the test criterion: the expressions and limits of the normal behaviour of the

• Description of the development and state of behaviour of the diagnosed object.

culture and work atmosphere.

nant of effective diagnostic activity.

strategy/diagnostics of marketing implementation.

• Measuring the behaviour of the diagnosed object.

**2.** Description of the development and condition of the diagnosed object

of customers.

**Introductory phase**

172 Entrepreneurship - Development Tendencies and Empirical Approach

**Description of the development and condition of the object of the diagnostics**

diagnosed object.


The mentioned process of consulting diagnostics aimed at marketing is characterized by the following tendencies:


The position of counselling diagnostics or diagnosis in marketing is determined by the following initiatory effects:


An important determinant of effective diagnostic activity in counselling is the time factor [12]. The teamwork plays a dominant role here. The project manager (project leader) is the most responsible person for fulfilling the projects´ goals. His key role, however, lies in the synergy with project and support teams. He has to work with the people he usually did not choose and who have different interests and abilities [13, 14]. A large part of the management activities are related to the actual process management over time and the coordination of the various work areas associated with the communication between the participants in the project. The participation of the consultant's customer is also a necessary condition for the diagnostic activity. The last but not least important area is the creation of interpersonal relationships, motivation of project team members to eliminate potential conflicts. Therefore, the ability to influence others and excellent communication skills are necessity.

The qualitative aspect of counselling expresses the relationship between the counsellor and the client: the way employees in the contracting organization respond to changes and how the counsellor can help them to implement changes. The rate of participation between the consultant and the client is one of the key determinants of an effective counselling approach. In general, counselling is considered to be participatory if:


to define the timeframe for the execution of the contract, as well as the place and manner of performance of the contract. It is appropriate to process the abovementioned facts in the form of documents for the selection of the provider/providers of advisory services. They represent a minimal but sufficient basis for the next procedure when ordering counselling

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**2.** Sending a call for proposals to a potential provider: the invitation may be sent to them in writing by post or electronically or both ways. The optimal content of this call is the following: the objective and purpose of the tender, the conditions for participation in the tender, the content of the tender, the price specification, the deadline and method of posing the additional questions and comments, the selection criteria of the provider, the date and place of the service, evaluation of offers, declaration of results and design of contract. The content of this call is appropriate for larger orders/projects. In the case of smaller contracts/projects, some parts may be omitted. In the case of larger and more complex or potentially sensitive projects, it is appropriate to ask candidates first to take part in the selection procedure for a confidentiality statement and to ask them to complete the prequalification questionnaire. The call must be sent in proper time. It is advised to

**3.** Space for questions and comments from applicants: in order to avoid misunderstandings concerning the tender, it is appropriate to provide the applicants with the time and space

**4.** Personal presentation of their own solution by the participants in the selection procedure.

service.

address several subjects.

for their questions and input comments.

**5.** Applying multiple bidding (especially pricing).

**Preparation of documentation for use of** 

**Sending a call for proposals to a potential** 

**Space for questions and comments from**

**Personal presentation of their own solution by the participants in the selection procedure**

**Applying multiple bidding**

**Scheme 2.** Algorithm of the choice of consulting services provider. Source: own processing.

**counselling services**

**provider**

**applicants**


The most common reason for the continuation distortion and eventually distortion of the effect of the whole counselling process on the part of the counselling service providers is problems associated with the choice of the provider. These issues are both procedural and substantive.

From the procedural aspect of the ordering of counselling services, it is worth highlighting in particular the absence of a system and standards in the area of selection of counselling service providers and time factor. Many companies have no experience with the selection of providers, which has a negative impact on the entire counselling process. It is advised to have this process standardized, which can result in minimizing errors associated with the choice of a provider. In the framework of a selection procedure (not a competition in a public tender), the customers of the counselling services can apply the following algorithm (**Scheme 2**):

**1.** Preparation of documentation for the use of counselling services: this is exclusively an internal phase. It is necessary to define in particular the scope of the assignment and the financial possibilities corresponding to this assignment. Last but not least, it is important

**Scheme 2.** Algorithm of the choice of consulting services provider. Source: own processing.

An important determinant of effective diagnostic activity in counselling is the time factor [12]. The teamwork plays a dominant role here. The project manager (project leader) is the most responsible person for fulfilling the projects´ goals. His key role, however, lies in the synergy with project and support teams. He has to work with the people he usually did not choose and who have different interests and abilities [13, 14]. A large part of the management activities are related to the actual process management over time and the coordination of the various work areas associated with the communication between the participants in the project. The participation of the consultant's customer is also a necessary condition for the diagnostic activity. The last but not least important area is the creation of interpersonal relationships, motivation of project team members to eliminate potential conflicts. Therefore, the ability to

The qualitative aspect of counselling expresses the relationship between the counsellor and the client: the way employees in the contracting organization respond to changes and how the counsellor can help them to implement changes. The rate of participation between the consultant and the client is one of the key determinants of an effective counselling approach. In

• Project and the relevant action plan determine when and how the client's staff work with

• Progress is assessed, together with important issues and the project plan, i.e. its method-

• Consultant prepares the client for active cooperation by providing information and

• Consultant consistently applies a participatory approach at all levels in the contracting

The most common reason for the continuation distortion and eventually distortion of the effect of the whole counselling process on the part of the counselling service providers is problems associated with the choice of the provider. These issues are both procedural and

From the procedural aspect of the ordering of counselling services, it is worth highlighting in particular the absence of a system and standards in the area of selection of counselling service providers and time factor. Many companies have no experience with the selection of providers, which has a negative impact on the entire counselling process. It is advised to have this process standardized, which can result in minimizing errors associated with the choice of a provider. In the framework of a selection procedure (not a competition in a public tender), the customers of the counselling services can apply the following algorithm (**Scheme 2**):

**1.** Preparation of documentation for the use of counselling services: this is exclusively an internal phase. It is necessary to define in particular the scope of the assignment and the financial possibilities corresponding to this assignment. Last but not least, it is important

influence others and excellent communication skills are necessity.

general, counselling is considered to be participatory if:

ology is adapted flexibly to a particular situation.

• Client works together with the consultant.

174 Entrepreneurship - Development Tendencies and Empirical Approach

the consultant.

training.

substantive.

organization.

to define the timeframe for the execution of the contract, as well as the place and manner of performance of the contract. It is appropriate to process the abovementioned facts in the form of documents for the selection of the provider/providers of advisory services. They represent a minimal but sufficient basis for the next procedure when ordering counselling service.


From the factual point of view, it is necessary to focus especially on the criteria for participation in the competition, which must be aligned with the nature of the existing problem and with the specific requirements of the client. The choice of the consultant service provider to its customers is one of the significant determinants of the quality of their relationship. There are no generally valid rules or criteria that will guarantee the right choice for the choice of an advisory service provider.

• The counsellor's image. It is created by the clients' perception of the counsellor. Sometimes the reputation of the counsellor is a substitute for applying a more specific criterion, but

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One of the conditions for mastering the relationship between the counsellor and the client is effective communication. The counsellors can bring the best solutions for the client: but if they do not inform the client about them effectively, the benefits of such solutions will be zero.

The modified model of an effective marketing consulting process consists of five stages: the zero stage and the three main stages and the post-counselling phase, each of which contains

**1.** Initiation. The first step is the basis of an effective counselling process. It occurs on the part of the client (buyer) when the client becomes aware of a particular problem, disorder or lack of marketing performance that can be more or less obvious. What follows is the clarification of what the client expects from such a service and from its provider (i.e. purpose

**2.** Consultant selection. At this stage, the client is first contacted by potential consultants, initiating a contract/project, bidding by applicants and presenting them. The roles and relationships between client and consultant are clarified. The zero stage ends with the choice

3. Initial diagnostic phase followed by preliminary diagnostics or the so-called pre-diagnostics of the situation/problem, identifying and defining the problem and determining the conditions for its solution. The consultant then draws up an offer/project plan, including a contract, with the client. Once the proposed conditions have been agreed, the contract/project

4. Diagnostics itself presents a key step in the entire counselling process. It is about creating presumptions for diagnostics processing. On the basis of the facts based on the real status and

• Diagnostic analysis (analysis of the quantity, intensity and manifestations of a problem/ problems, analysis of the consequences of problems, prediction of further development of

• Diagnostic synthesis (formulation of the problem in terms of its severity, urgency of the

Diagnosis is then established and verified, the details of the problem are examined, and the diagnosis is summarized. In counselling practice, it often happens that it is not possible or not appropriate to separate the diagnostic phase from the next stage that solves the problem. This

and benefits), on the basis of which the tender documents are processed as a call.

sometimes it is only a complement to other criteria.

two counselling phases.

A. The diagnostic stage.

is officially proposed and signed.

solution and main cause).

situation, the consultant performs the following operations:

the problem, analysis of causes of problems and their sources).

• Diagnostic mission (praxeological verification of the analysis conclusions).

of the counselling service provider.

0. Zero stage.

In practice, several criteria have proved successful:


• The counsellor's image. It is created by the clients' perception of the counsellor. Sometimes the reputation of the counsellor is a substitute for applying a more specific criterion, but sometimes it is only a complement to other criteria.

One of the conditions for mastering the relationship between the counsellor and the client is effective communication. The counsellors can bring the best solutions for the client: but if they do not inform the client about them effectively, the benefits of such solutions will be zero.

The modified model of an effective marketing consulting process consists of five stages: the zero stage and the three main stages and the post-counselling phase, each of which contains two counselling phases.

#### 0. Zero stage.

From the factual point of view, it is necessary to focus especially on the criteria for participation in the competition, which must be aligned with the nature of the existing problem and with the specific requirements of the client. The choice of the consultant service provider to its customers is one of the significant determinants of the quality of their relationship. There are no generally valid rules or criteria that will guarantee the right choice for the choice of an advisory service provider.

• References. They reflect the professional competence and experience of a consultant. Clients can request them from an applicant or directly from their previous clients or check

• Cost of counselling services. The question of price should not be dominant when choosing a provider of counselling services and should not overcome professional competence, quality or good relationships. However, it should be noted that only a few clients can afford to ignore the price of the offer. The counsellors should use rates according to standard practice. Also, the method of pricing must be agreed before the work begins. If it is in place, the

• Professional integrity. It should be a basic prerequisite for choosing a particular (individual) counsellor representing particular counselling agency. It connects counsellor's professional behaviour and professional ethics. If the client has any doubts about this criterion,

• Professional competence. It should be a necessary prerequisite for choosing a particular counsellor. It refers to the degree and type of the higher education of a counsellor and their further education, length and type of practice in counselling, references from previous clients, membership in a professional association and other professional activities of the counsellor (e.g. publications, participation in professional conferences, etc.). Lack of education and qualification of a counsellor in the counselling process rules out the effective and professional approach that the client assumes and expects when entering into the counselling relationship. It may also result in insufficient knowledge and skills regarding the use of appropriate techniques, programmes and procedures, which will ultimately af-

• Mutual trust. It creates the basis for mutual relationships between the counsellor and the client. The client believes in counsellor's integrity and professional judgement. The coun-

• Project concept (offers). The professional competence of the counsellors is not the only and sufficient criterion for their choice. They must also demonstrate their competencies

• Ability to fulfil commitments. The counsellors must be able to deliver what they committed

• Ability to mobilize additional resources. The client should consider whether and to what extent the counsellor is willing and able to go beyond the originally agreed range of assign-

through their own approach to the project (problem, task) to be addressed.

client may recognize the requirement for higher fees (e.g. timing).

fect the outcome and success of the entire counselling process.

sellor believes the client's word and likes to work with him.

to, including supervision and control in the counselling process.

ment, if this necessity occurs during work.

particular counsellor should not be considered at all.

In practice, several criteria have proved successful:

176 Entrepreneurship - Development Tendencies and Empirical Approach

them in writing or by phone.


#### A. The diagnostic stage.

3. Initial diagnostic phase followed by preliminary diagnostics or the so-called pre-diagnostics of the situation/problem, identifying and defining the problem and determining the conditions for its solution. The consultant then draws up an offer/project plan, including a contract, with the client. Once the proposed conditions have been agreed, the contract/project is officially proposed and signed.

4. Diagnostics itself presents a key step in the entire counselling process. It is about creating presumptions for diagnostics processing. On the basis of the facts based on the real status and situation, the consultant performs the following operations:


Diagnosis is then established and verified, the details of the problem are examined, and the diagnosis is summarized. In counselling practice, it often happens that it is not possible or not appropriate to separate the diagnostic phase from the next stage that solves the problem. This is particularly so because the operations and procedures usually used in the diagnostic phase can only be implemented in a pragmatic way. At the same time, it increases the likelihood that all work and diagnostics will actually be effective.

B. Therapeutic stage.

5. Implementation proposal. Consultants develop alternatives to solutions, which they evaluate from different viewpoints (causes and sources) and draw the client's attention to the benefits and possible risks associated with the implementation of individual solutions. They will submit them to the client, who will jointly review the strengths and weaknesses of the diagnosis. Based on the assessment of the different solutions, the consultant will propose and develop a plan for the implementation of the chosen solution and submit it for approval to the client.

6. Implementation. Consultant provides synergy even when implementing the chosen solution. This phase often brings many surprises regarding the feasibility of the chosen solution. The role of the consultant lies in the additional diagnosis and correction of the proposed solution. The implementation phase also involves the (pre)training of the client and the beginning of the intensive realization of the chosen therapeutic steps on the basis of the (definitive) diagnosis, usually by the client's own capacities (**Scheme 3**).

C. Stage of termination of counselling activities.

7. Evaluation of counselling activity. In this step, the consultant provides the client with a final report on the order/project in which he/she assesses the diagnostic activities, the course of the contract/project and its milestones; summarizes the variants/therapeutic steps in the form of proposed solutions with an emphasis on the alternative chosen, its benefits and (potential) risks and describes participation in its implementation.

8. Perspective of counselling relationship. At the end of this stage, the commitments with the client are balanced; the future possible cooperation and the termination of the counselling activity are outlined.

D. Post-counselling stage.

9. Interaction of a counsellor. Consultant maintains contact with the client even after the end of the contract/project, provides him/her with possible cooperation (based on free consulting capacity) and monitors the effectiveness of the proposed and implemented measures or the course of their implementation and the client's satisfaction with his/her services.

• Simplifying the phasing of the steps of the individual stages of the counselling process.

of participation of both its actors (consultant-client).

and defects in its further stages.

• Integrating the methodical (technical) aspect of the counselling process with a higher level

 Perspective of counselling relationship Evaluation of counselling activity

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• Counselling diagnostics is linked to counselling therapy with a view to identifying causes

• Considering the zero life cycle of the counselling process with the aim of minimizing errors

and sources of disruptions in marketing and entrepreneurial activity.

**Scheme 3.** The modified model of an effective marketing consulting process. Source: own processing.

• Expanding the life cycle of the counselling process to post-counselling activities.

10. Initiating a new order. The client or consultant may initiate a new order or modify the original order. In this case, the second step of the null phase is omitted.

Throughout the counselling process, intensive communication and collaboration take place between the consultant and the client. One form of this interaction can be consultation days, fulfilling the information, evaluation and control functions.

The modified model of the counselling process is characterized by higher efficiency than the classic model by:

is particularly so because the operations and procedures usually used in the diagnostic phase can only be implemented in a pragmatic way. At the same time, it increases the likelihood that

5. Implementation proposal. Consultants develop alternatives to solutions, which they evaluate from different viewpoints (causes and sources) and draw the client's attention to the benefits and possible risks associated with the implementation of individual solutions. They will submit them to the client, who will jointly review the strengths and weaknesses of the diagnosis. Based on the assessment of the different solutions, the consultant will propose and develop a plan for the implementation of the chosen solution and submit it for approval to

6. Implementation. Consultant provides synergy even when implementing the chosen solution. This phase often brings many surprises regarding the feasibility of the chosen solution. The role of the consultant lies in the additional diagnosis and correction of the proposed solution. The implementation phase also involves the (pre)training of the client and the beginning of the intensive realization of the chosen therapeutic steps on the basis of the (definitive)

7. Evaluation of counselling activity. In this step, the consultant provides the client with a final report on the order/project in which he/she assesses the diagnostic activities, the course of the contract/project and its milestones; summarizes the variants/therapeutic steps in the form of proposed solutions with an emphasis on the alternative chosen, its benefits and (potential)

8. Perspective of counselling relationship. At the end of this stage, the commitments with the client are balanced; the future possible cooperation and the termination of the counselling

9. Interaction of a counsellor. Consultant maintains contact with the client even after the end of the contract/project, provides him/her with possible cooperation (based on free consulting capacity) and monitors the effectiveness of the proposed and implemented measures or the

10. Initiating a new order. The client or consultant may initiate a new order or modify the

Throughout the counselling process, intensive communication and collaboration take place between the consultant and the client. One form of this interaction can be consultation days,

The modified model of the counselling process is characterized by higher efficiency than the

course of their implementation and the client's satisfaction with his/her services.

original order. In this case, the second step of the null phase is omitted.

fulfilling the information, evaluation and control functions.

all work and diagnostics will actually be effective.

178 Entrepreneurship - Development Tendencies and Empirical Approach

diagnosis, usually by the client's own capacities (**Scheme 3**).

risks and describes participation in its implementation.

C. Stage of termination of counselling activities.

B. Therapeutic stage.

activity are outlined.

classic model by:

D. Post-counselling stage.

the client.

**Scheme 3.** The modified model of an effective marketing consulting process. Source: own processing.


• Guaranteeing continuous, intensive and effective communication between the consultant and the client at each stage of the life cycle of the counselling process.

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The modified efficient counselling model is more transparent, motivating and flexible than the classic one. It can be recommended for each type of marketing counselling. It examines and evaluates all parameters of marketing effectiveness. It can be implemented in the form of total or functional diagnostics and therapeutics of corporate marketing as well as the revision of marketing efficiency.

### **Acknowledgements**

The paper was elaborated as part of the project VEGA no. 1/0380/17 "Economic efficiency of electromobility in logistics," solved at the Faculty of Commerce, University of Economics in Bratislava.

### **Author details**

Eva Hanuláková\* and Ferdinand Daňo

\*Address all correspondence to: eva.hanulakova@emcg.sk

University of Economics, Bratislava, Slovakia

### **References**


[3] Lesáková D, et al. Strategický marketing. Bratislava: Sprint 2 s. r. o., 2014. 350 p

• Guaranteeing continuous, intensive and effective communication between the consultant

• Is based on the principle of feedback and multiple control throughout the life cycle of the

• Containing added value in the form of counselling in both the therapeutic and post-coun-

• Assuming the transfer of responsibility for the resulting effect of counselling to the consultant through active and intensive participation at all stages of the life cycle of the counsel-

The modified efficient counselling model is more transparent, motivating and flexible than the classic one. It can be recommended for each type of marketing counselling. It examines and evaluates all parameters of marketing effectiveness. It can be implemented in the form of total or functional diagnostics and therapeutics of corporate marketing as well as the revision

The paper was elaborated as part of the project VEGA no. 1/0380/17 "Economic efficiency of electromobility in logistics," solved at the Faculty of Commerce, University of Economics in

[1] Križan F, et al. Potential food deserts and food oases in a post-communist city: Access, quality, variability and price of food in Bratislava–Petržalka. Applied Geography, 2015,

[2] Francová Z, Breveníková. Interdependence of trade and trade science development, In: The Proceedings of the 5th International Scientific Conference on Trade, International Business and Tourism: Application of Knowledge in Process of Business Dynamization

in Central Europe, 2014, Mojmírovce. Slovak Republic, 2014, pp. 134-145

and the client at each stage of the life cycle of the counselling process.

180 Entrepreneurship - Development Tendencies and Empirical Approach

counselling process.

selling phases.

ling process.

of marketing efficiency.

**Acknowledgements**

Bratislava.

**Author details**

**References**

Eva Hanuláková\* and Ferdinand Daňo

University of Economics, Bratislava, Slovakia

\*Address all correspondence to: eva.hanulakova@emcg.sk

62, pp. 8-18. http://awwwwap.georg. dx.doi.org/10.1016/j


**Section 3**

**Current Trends in Family Bussiness, Social**

**Entrepreneurship and Responsibility**

**Current Trends in Family Bussiness, Social Entrepreneurship and Responsibility**

**Chapter 9**

**Provisional chapter**

**Family Business: Experience from the Czech Republic**

The chapter deals with problems of small family-owned companies in the Czech Republic. The main aim of the chapter is to describe a family business in the Czech Republic. The partial aims of the chapter are as follows: presentation of family business definition used in investigation of Czech family businesses and model of successful transfer of power to the next generation called "relay." This chapter uses a research methodology of the secondary as well as primary data collection. In the frame of secondary data collection, the data were obtained from the company's websites as well as from the official Amadeus database and those by the Czech Statistical Office. The collection method of primary data was based on interviews with the company's founder and his children and on the questionnaire survey. So gained interview results were transformed into the paper form and then transcribed. The research case study was analysed and focused on the case. This chapter states the results of qualitative research regarding a small family-owned company, called Kaláb—Building Company, Ltd. The concerning research part has the form of a case study. Two models are given in discussion of research results: (1) strategy of small family-owned enterprise and (2)

**Keywords:** family business, succession management, family business definition, family ties, two-circle model of family business, family system, strategic process, successor, incumbent

The problems of family-owned enterprises and family businesses are quite common nowadays, but only little attention is paid to this business segment in the Czech Republic. This, in some measure, arises from the fact that business itself is relatively new and young discipline in Czechoslovakia, respectively in the Czech Republic. The expanding business activities have also brought a development of family-owned enterprises in its train. Many traditional business families, feeling a challenge for continuity within the new environs, wanted to pick up

**Family Business: Experience from the Czech Republic**

DOI: 10.5772/intechopen.71020

© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution,

© 2018 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

and reproduction in any medium, provided the original work is properly cited.

Vojtěch Koráb and Anastasia Murinova

Vojtěch Koráb and Anastasia Murinova

http://dx.doi.org/10.5772/intechopen.71020

**Abstract**

**1. Introduction**

Additional information is available at the end of the chapter

power delegation in a family-owned enterprise.

Additional information is available at the end of the chapter

**Provisional chapter**

## **Family Business: Experience from the Czech Republic**

**Family Business: Experience from the Czech Republic**

DOI: 10.5772/intechopen.71020

#### Vojtěch Koráb and Anastasia Murinova Additional information is available at the end of the chapter

Vojtěch Koráb and Anastasia Murinova

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.71020

#### **Abstract**

The chapter deals with problems of small family-owned companies in the Czech Republic. The main aim of the chapter is to describe a family business in the Czech Republic. The partial aims of the chapter are as follows: presentation of family business definition used in investigation of Czech family businesses and model of successful transfer of power to the next generation called "relay." This chapter uses a research methodology of the secondary as well as primary data collection. In the frame of secondary data collection, the data were obtained from the company's websites as well as from the official Amadeus database and those by the Czech Statistical Office. The collection method of primary data was based on interviews with the company's founder and his children and on the questionnaire survey. So gained interview results were transformed into the paper form and then transcribed. The research case study was analysed and focused on the case. This chapter states the results of qualitative research regarding a small family-owned company, called Kaláb—Building Company, Ltd. The concerning research part has the form of a case study. Two models are given in discussion of research results: (1) strategy of small family-owned enterprise and (2) power delegation in a family-owned enterprise.

**Keywords:** family business, succession management, family business definition, family ties, two-circle model of family business, family system, strategic process, successor, incumbent

#### **1. Introduction**

The problems of family-owned enterprises and family businesses are quite common nowadays, but only little attention is paid to this business segment in the Czech Republic. This, in some measure, arises from the fact that business itself is relatively new and young discipline in Czechoslovakia, respectively in the Czech Republic. The expanding business activities have also brought a development of family-owned enterprises in its train. Many traditional business families, feeling a challenge for continuity within the new environs, wanted to pick up

Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. © 2018 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons

the threads of family tradition and tried to follow up the fame of the former fathers and forefathers. The others launched into business with illusion of easy reachable million profits and the like. There were various types of traps lurking for the businessmen, for example legislation gaps, but especially a catastrophic lack of business activity experiences itself. Those facts caused many faults and only a small number of businessmen and family-owned enterprises held out the running of business up to the present time.

using qualitative methods. In the frame of secondary data collection, the data were obtained from the company's websites and other materials as well as from the official Amadeus database and those by the Czech Statistical Office. The collection method of primary data is based on the case study with using of interviews with the company's founder and his children. That case study was conducted, namely the face-to-face structured interviews, which belong to the verbal form of questioning methods commonly employed in qualitative research. The study supposed the use of open-ended questions due to the nature of the collected data favoured as a means to illustrate findings and support the developed theory described above. The questions for pilot study were formulated on the several main concepts that are based on field of power delegating in small family-owned enterprises. Interviews were conducted by an interviewer using an audio recorder. The following factors influenced the choice of data collection method resulting in interviews: importance to reach a particular person, high confidence that the right person has responded, obtaining a great level of detail, ease of use for respondents, low expenses/financial implications and simplicity of data coding. At the beginning of the interview, the interviewer explained the purpose of the interview and the importance of the respondent's participation. The gained audio interview results were transformed into the paper form and then word-forword transcribed. The research case study was analysed and focused on the case. In the analysis of respondents' answers, statements were decompound and compared with each other using content analysis; the authors were inspired by the Constant Comparative Method known from

Family Business: Experience from the Czech Republic http://dx.doi.org/10.5772/intechopen.71020 187

The literature deals with many definitions regarding a family-owned enterprise. The majority of them are based on measurement following from the number of statutory body members descending from the given family in comparison with total number of statutory body members; the family controlled authorized capital and the whole sum of the authorized capital. The most acceptable definition of a family-owned enterprise will be probably that one presented in Ref. [1]. This definition may be interpreted as follows: "Family-owned enterprises are those, held by a group of people, being in a family relationship." This definition specifically enables to research also the small- and micro-family-owned enterprises in the Czech Republic, playing the role of natural persons and cooperating with family members. However, it is necessary to investigate the type of family relationship in this case. On the basis of the assessed definitions owing to the family-owned enterprises, the following definition applied to the Czech environs may be assigned: "A family-owned enterprise is that one owned and possibly controlled by family or families or by selected family member(s), whereas its delivery to the next generation is supposed." This definition presumes an enterprise establishment under the § 5 of the Act No. 513/1991 Sb. (Commercial Act), where an enterprise is understood as a complex of material, personal and non-material business components. The term "family" is not explicitly defined within the Legal Code of the Czech Republic. In general, a family is above

the approach of Grounded Theory.

**3. Theoretical solution approach**

**3.1. Definition of a family-owned enterprise**

However, the situation in the field of family-owned enterprises improves rather quickly in the Czech Republic in the last time. Due to a responsible approach to investment of private means, the family businessmen being concentrated on the own aims are far more flexible in comparison with managers delegated from outside. The owners usually have many obligations not only towards the enterprise but also towards the successor(s) and above all towards the whole family. Family-owned enterprises show very sensitive approach to administration of the own property. A communication within the family triangle is usually decisive for managing the enterprise and market and for the further development. The enterprise itself represents a life work of a businessman, and when ceasing to function, the responsible family members are struggling to rescue company far more obstinately and persistently in comparison with the other enterprises.

Thereby, this chapter aims to describe the family business in the Czech Republic and define tendencies in specification of that. Partial aims are as follows: to present the family business definition used in investigation of Czech family businesses and model of successful transfer of power to the next generation called "relay." The object of the research focus on describing of the specifics of family business as an economical phenomenon. The subjects of the research are definitions, strategies and succession of the family business enterprises.

### **2. Family business in the Czech Republic**

### **2.1. The applied methodology**

The chapter presents the theoretical and practical part in the topic of family business definition, its perception and analysis of weaknesses and strengths in the framework of the investigation of Czech family businesses. In addition, the chapter performs the results of theoretical and practical knowledge from the field of strategy and power delegation between the generations. The chapter uses a research methodology of the secondary as well as primary data collection. The theoretical part is based on the analysis of secondary literature sources. For insight into family business' phenomenon, it was decided to study the historical sources of the family business concept development during the twentieth and twenty-first centuries after evaluating them with the help of Vallone's three key principles of determination of family business. The chapter is also prepared on the basis of research of the most cited scientific papers relating to the definition of family business with the help of general theoretical scientific methods, in particular, analysis, synthesis, analogy, comparison, generalizations, deduction and methods of expert estimates. In addition, according to aim, also a SWOT analysis is applied to find out the basic strengths and weaknesses of family business. The practical part is based on primary research using qualitative methods. In the frame of secondary data collection, the data were obtained from the company's websites and other materials as well as from the official Amadeus database and those by the Czech Statistical Office. The collection method of primary data is based on the case study with using of interviews with the company's founder and his children. That case study was conducted, namely the face-to-face structured interviews, which belong to the verbal form of questioning methods commonly employed in qualitative research. The study supposed the use of open-ended questions due to the nature of the collected data favoured as a means to illustrate findings and support the developed theory described above. The questions for pilot study were formulated on the several main concepts that are based on field of power delegating in small family-owned enterprises. Interviews were conducted by an interviewer using an audio recorder. The following factors influenced the choice of data collection method resulting in interviews: importance to reach a particular person, high confidence that the right person has responded, obtaining a great level of detail, ease of use for respondents, low expenses/financial implications and simplicity of data coding. At the beginning of the interview, the interviewer explained the purpose of the interview and the importance of the respondent's participation. The gained audio interview results were transformed into the paper form and then word-forword transcribed. The research case study was analysed and focused on the case. In the analysis of respondents' answers, statements were decompound and compared with each other using content analysis; the authors were inspired by the Constant Comparative Method known from the approach of Grounded Theory.

### **3. Theoretical solution approach**

the threads of family tradition and tried to follow up the fame of the former fathers and forefathers. The others launched into business with illusion of easy reachable million profits and the like. There were various types of traps lurking for the businessmen, for example legislation gaps, but especially a catastrophic lack of business activity experiences itself. Those facts caused many faults and only a small number of businessmen and family-owned enterprises

However, the situation in the field of family-owned enterprises improves rather quickly in the Czech Republic in the last time. Due to a responsible approach to investment of private means, the family businessmen being concentrated on the own aims are far more flexible in comparison with managers delegated from outside. The owners usually have many obligations not only towards the enterprise but also towards the successor(s) and above all towards the whole family. Family-owned enterprises show very sensitive approach to administration of the own property. A communication within the family triangle is usually decisive for managing the enterprise and market and for the further development. The enterprise itself represents a life work of a businessman, and when ceasing to function, the responsible family members are struggling to rescue company far more obstinately and persistently in comparison with the other enterprises. Thereby, this chapter aims to describe the family business in the Czech Republic and define tendencies in specification of that. Partial aims are as follows: to present the family business definition used in investigation of Czech family businesses and model of successful transfer of power to the next generation called "relay." The object of the research focus on describing of the specifics of family business as an economical phenomenon. The subjects of the research

are definitions, strategies and succession of the family business enterprises.

The chapter presents the theoretical and practical part in the topic of family business definition, its perception and analysis of weaknesses and strengths in the framework of the investigation of Czech family businesses. In addition, the chapter performs the results of theoretical and practical knowledge from the field of strategy and power delegation between the generations. The chapter uses a research methodology of the secondary as well as primary data collection. The theoretical part is based on the analysis of secondary literature sources. For insight into family business' phenomenon, it was decided to study the historical sources of the family business concept development during the twentieth and twenty-first centuries after evaluating them with the help of Vallone's three key principles of determination of family business. The chapter is also prepared on the basis of research of the most cited scientific papers relating to the definition of family business with the help of general theoretical scientific methods, in particular, analysis, synthesis, analogy, comparison, generalizations, deduction and methods of expert estimates. In addition, according to aim, also a SWOT analysis is applied to find out the basic strengths and weaknesses of family business. The practical part is based on primary research

**2. Family business in the Czech Republic**

**2.1. The applied methodology**

held out the running of business up to the present time.

186 Entrepreneurship - Development Tendencies and Empirical Approach

#### **3.1. Definition of a family-owned enterprise**

The literature deals with many definitions regarding a family-owned enterprise. The majority of them are based on measurement following from the number of statutory body members descending from the given family in comparison with total number of statutory body members; the family controlled authorized capital and the whole sum of the authorized capital. The most acceptable definition of a family-owned enterprise will be probably that one presented in Ref. [1]. This definition may be interpreted as follows: "Family-owned enterprises are those, held by a group of people, being in a family relationship." This definition specifically enables to research also the small- and micro-family-owned enterprises in the Czech Republic, playing the role of natural persons and cooperating with family members. However, it is necessary to investigate the type of family relationship in this case. On the basis of the assessed definitions owing to the family-owned enterprises, the following definition applied to the Czech environs may be assigned: "A family-owned enterprise is that one owned and possibly controlled by family or families or by selected family member(s), whereas its delivery to the next generation is supposed." This definition presumes an enterprise establishment under the § 5 of the Act No. 513/1991 Sb. (Commercial Act), where an enterprise is understood as a complex of material, personal and non-material business components. The term "family" is not explicitly defined within the Legal Code of the Czech Republic. In general, a family is above all an institution constituted by marriage. The authors have defined the family as "a group of persons mutually associated not only by matrimony or relational bonds, but also by a common life-style." It is worth noting that the development of the family business theory and the theoretical researches devoted to definitions of family business are gaining a momentum.

discussion: the degree of ownership, the intention to the succession and the involvement of the family members in the business. He understands ownership as "the percentage of capital possessed by the family (by shares or quota) or the dominant influence represented by the family members' ability to affect the remarkable and strategic choices." According to that expression determining the family business, family must have full control or must be the most influential unit in making strategic decisions. Concerning the expectation of transferring the firm to the next generations (succession), Vallone states that "family business should concern only the companies managed by a family where the second generation is present or where there is a precise wish to transfer the business and family culture and the management to heirs, so that it is possible to exclude occasional business initiatives managed by two brothers, or by an individual with the aid of the partner." He claims that because there are many examples, where husband and wife manage the business but not intend to transfer the business to the next generation. There are many explanations; therefore, for instance, they have no children or none of their children wants to keep on the business like the parents. In this way, in spite of full ownership of the firm, the "familiarity" thereof is slack due to the absence of intention to transfer the firm and business culture to the next generation [4]. Another most essential element of family business, according to Vallone, is the involvement of the family members in business. This element occurs as a decisive aspect in differentiation between the family business and non-family one, especially in case of small business. Therefore, the author proposes to include this element as an attribute of family business because most of family companies are small companies, where founder works in the continuous way with the relatives [3]. Nevertheless, Vallone in his work concludes that constant involvement of family members or their relatives in the business is not crucial because it can lead to a limiting effect, that is, elimination of some big companies which are hired not only by/to the non-family

Family Business: Experience from the Czech Republic http://dx.doi.org/10.5772/intechopen.71020 189

members but also have external employees.

*3.1.2. Definition of family business with the help of historical analysis*

For understanding the historical tendencies of comprehension of family business, it was decided to follow the main historical investigations in that area and evaluate results with the help of Vallone's three key principles, which relate one of the most catchall determinations of family business. For understanding the historical tendencies of comprehension of family business, it was decided to follow the main historical investigations in that area and evaluate results with help of Vallone's three key principles, which relate one of the most catchall determinations of family business. If we look through the history, it is an interesting fact that family business is one of the favourite subjects of business historians, and nowadays, it represents one of the promising subfields of the business history [7]. The family business started to attract business historians during the 1990s [8]. According to A. Colli, there can be described as some "reactions" against the dominant Chandlerian approach interpreting the persistence of family capitalism as a dominant form of ownership and management in large, capitalintensive firms of the Second Industrial Revolution as a signal of inefficiency and backwardness [9]. As she notes, the recent accent on family companies and family capitalism does not mean that business historians noted it as unworthy of attention. In business research before the 1990s, there was a lot of research studies about family business at both the "micro" level, that is, about the dynamics internal to family enterprises, and the "macro" level, that is, the

However, there are some key tendencies. For example, the results, which were received in the development of family business theoretical definition, are significant. In addition, the theoretical researches shed some light on how the family business can differ from the non-family one. Thereby, following questions are considered now: why the family business exists, what factors do it more or less successful in survival, growth and creation of long-term economic values. The definition of research object is the fundamental requirement for an advance in any area. In addition, as it was previously noted, the theoretical definition of family business has to begin with a question: what the family business is. The special literature shows that no unified definition exists for "family business," which is exclusively applied to all areas. This fact suggests that the debate on this topic is not exhausted. If we look at this problem from the perspective point of view, we will find out two systems in the family business layering at each other: the system of family and the one of firm, called the "The Model of two circles." The integral part of those systems is the objectives, priorities and expectations. The family world is characterized by a strong emotional aspect; the corporate world requires rationality and results. Families are the cornerstones of human communities [2]. They are of different sizes, but they often have rigid internal relations as a common feature. It is known that family business is a traditional method of business in the private sector. The goal of family enterprises is not to get rich as fast as possible, but rather to build something that will last and provide sustenance not only to the present generation but also to those of future.

Before starting to analyse different definitions, it is significant to state why having a generally accepted definition within the family business academia is primary for future extension of that field [3]. Most of the definitions were created to suit of certain research. Heck and Trent [4] maintained the argument of having a widely acknowledged definition by stating that "a proper definition and count of family businesses is important to future research and current policy, practice, service and education. Promoting definitional consensus among researchers may increase the likelihood of theory development, in-depth empirical analyses, comparative studies and replication [4]." Furthermore, distinction in definitions obstructs the comparison of international investigations of family business. Using a common definition would therefore allow making clearer and comparable statistics of this entity, especially in case of its contribution to the economy [5]. Vallone [6] has the same opinion that an elaboration a generally accepted definition would "circumscribe the field of investigation, and obtain a comparable sample for international researches; to individualize the presence and the specific characteristics of the family business in comparison to nonfamily business; in addition, it means to be able to compare more easily the empirical studies." To fully understand the development of family business study and its definition, it was decided to overlook historical tape of that field development.

#### *3.1.1. Main principles of family business definition by Vallone*

One of the most interesting studies belongs to C. Vallone, who published his literature review paper in 2013 [6]. He concluded that there are three key principles in the family business discussion: the degree of ownership, the intention to the succession and the involvement of the family members in the business. He understands ownership as "the percentage of capital possessed by the family (by shares or quota) or the dominant influence represented by the family members' ability to affect the remarkable and strategic choices." According to that expression determining the family business, family must have full control or must be the most influential unit in making strategic decisions. Concerning the expectation of transferring the firm to the next generations (succession), Vallone states that "family business should concern only the companies managed by a family where the second generation is present or where there is a precise wish to transfer the business and family culture and the management to heirs, so that it is possible to exclude occasional business initiatives managed by two brothers, or by an individual with the aid of the partner." He claims that because there are many examples, where husband and wife manage the business but not intend to transfer the business to the next generation. There are many explanations; therefore, for instance, they have no children or none of their children wants to keep on the business like the parents. In this way, in spite of full ownership of the firm, the "familiarity" thereof is slack due to the absence of intention to transfer the firm and business culture to the next generation [4]. Another most essential element of family business, according to Vallone, is the involvement of the family members in business. This element occurs as a decisive aspect in differentiation between the family business and non-family one, especially in case of small business. Therefore, the author proposes to include this element as an attribute of family business because most of family companies are small companies, where founder works in the continuous way with the relatives [3]. Nevertheless, Vallone in his work concludes that constant involvement of family members or their relatives in the business is not crucial because it can lead to a limiting effect, that is, elimination of some big companies which are hired not only by/to the non-family members but also have external employees.

#### *3.1.2. Definition of family business with the help of historical analysis*

all an institution constituted by marriage. The authors have defined the family as "a group of persons mutually associated not only by matrimony or relational bonds, but also by a common life-style." It is worth noting that the development of the family business theory and the theoretical researches devoted to definitions of family business are gaining a momentum.

188 Entrepreneurship - Development Tendencies and Empirical Approach

However, there are some key tendencies. For example, the results, which were received in the development of family business theoretical definition, are significant. In addition, the theoretical researches shed some light on how the family business can differ from the non-family one. Thereby, following questions are considered now: why the family business exists, what factors do it more or less successful in survival, growth and creation of long-term economic values. The definition of research object is the fundamental requirement for an advance in any area. In addition, as it was previously noted, the theoretical definition of family business has to begin with a question: what the family business is. The special literature shows that no unified definition exists for "family business," which is exclusively applied to all areas. This fact suggests that the debate on this topic is not exhausted. If we look at this problem from the perspective point of view, we will find out two systems in the family business layering at each other: the system of family and the one of firm, called the "The Model of two circles." The integral part of those systems is the objectives, priorities and expectations. The family world is characterized by a strong emotional aspect; the corporate world requires rationality and results. Families are the cornerstones of human communities [2]. They are of different sizes, but they often have rigid internal relations as a common feature. It is known that family business is a traditional method of business in the private sector. The goal of family enterprises is not to get rich as fast as possible, but rather to build something that will last and provide

sustenance not only to the present generation but also to those of future.

*3.1.1. Main principles of family business definition by Vallone*

Before starting to analyse different definitions, it is significant to state why having a generally accepted definition within the family business academia is primary for future extension of that field [3]. Most of the definitions were created to suit of certain research. Heck and Trent [4] maintained the argument of having a widely acknowledged definition by stating that "a proper definition and count of family businesses is important to future research and current policy, practice, service and education. Promoting definitional consensus among researchers may increase the likelihood of theory development, in-depth empirical analyses, comparative studies and replication [4]." Furthermore, distinction in definitions obstructs the comparison of international investigations of family business. Using a common definition would therefore allow making clearer and comparable statistics of this entity, especially in case of its contribution to the economy [5]. Vallone [6] has the same opinion that an elaboration a generally accepted definition would "circumscribe the field of investigation, and obtain a comparable sample for international researches; to individualize the presence and the specific characteristics of the family business in comparison to nonfamily business; in addition, it means to be able to compare more easily the empirical studies." To fully understand the development of family business study and its definition, it was decided to overlook historical tape of that field development.

One of the most interesting studies belongs to C. Vallone, who published his literature review paper in 2013 [6]. He concluded that there are three key principles in the family business For understanding the historical tendencies of comprehension of family business, it was decided to follow the main historical investigations in that area and evaluate results with the help of Vallone's three key principles, which relate one of the most catchall determinations of family business. For understanding the historical tendencies of comprehension of family business, it was decided to follow the main historical investigations in that area and evaluate results with help of Vallone's three key principles, which relate one of the most catchall determinations of family business. If we look through the history, it is an interesting fact that family business is one of the favourite subjects of business historians, and nowadays, it represents one of the promising subfields of the business history [7]. The family business started to attract business historians during the 1990s [8]. According to A. Colli, there can be described as some "reactions" against the dominant Chandlerian approach interpreting the persistence of family capitalism as a dominant form of ownership and management in large, capitalintensive firms of the Second Industrial Revolution as a signal of inefficiency and backwardness [9]. As she notes, the recent accent on family companies and family capitalism does not mean that business historians noted it as unworthy of attention. In business research before the 1990s, there was a lot of research studies about family business at both the "micro" level, that is, about the dynamics internal to family enterprises, and the "macro" level, that is, the research regarding the relationships between family enterprises and the more general environment as well as respective national economies [9]. Donnelley was likely the first to define the family business [10]. His definition included one or more of the following conditions: (1) existence of family relationships as a key factor in succession; (2) the presence of family member among board of directors; (3) reflection of family values in business; (4) actions of family member reflected on reputation of business; (5) the presence of relatives involved and who felt obligated to hold stock for more than financial reasons and (6) entering the firm being a part of family member's career decisions. Donnelley's definition reflected on early consulting observations of family business, but it was difficult in meaning, empirically complicated to implement and so, it was not utilized in subsequent research studies [11]. Many definitions were created in that period, but they did not explain how the family business differs from non-family one. Classical family systems of theory developed from clinical work with actual families, but that theory did not include any specific recognition that owning and operation business might change the family life [11].

results, dealing with "family business" (under this concept, many different types of business can be seen) but also particularly about comparativeness of statistic data about family business. Because of that, in the end of previous century, scholars tried to make an order in that chaotic situation. First of those were Astrachan and Shanker, who recommended, based on their research, to use three definitions of family business that vary by the level of involvement of families in business [15]. Despite the fact, that the attempt seemed to be auspicious, in practice, it completely did not take hold. As it was confirmed, the majority of family business definition are based on ownership criterion, slightly less are related to involvement of the family members in the business. These definitions specifically enable to research also the small- and micro-family-owned enterprises in the Czech Republic, playing the role of natural persons and cooperating with family members. Nevertheless, it is needful to investigate the type of family relationships in this case. On the basis of the assessed definitions owing to the familyfamily enterprises, the following definition applied to the Czech suburbs may be assigned: "A family-owned enterprise is that one owned and possibly controlled by family or families or by selected family member(s), whereas its delivery to the next generation is supposed." The term "family" is not precisely defined within the Legal Code of the Czech Republic. However, a family is constituted by marriage. The author has defined the family as: "a group of persons mutually associated not only by matrimony or relational bonds, but also by a common lifestyle." According to the Civil Code of the Czech Republic [16], the family business is considered as an establishment, where the spouses, or at least one of them, are working together and where the other relatives up to the third degree or those related to husbands and connected via brothers-in-law up to the second stage are working, and where some of those people are the owners of such establishment. Those of them who are constantly working for the family or family business are viewed as family members involved in the family business operation [17].

Family Business: Experience from the Czech Republic http://dx.doi.org/10.5772/intechopen.71020 191

*3.1.3.1. Family ties of representative wine family enterprises in the Czech Republic*

For the understanding of family business concept, it is necessary to display a determination and structure of family business relationships [5]. Here, the research conducted by Petlina [18] should be mentioned, where the purpose of research was to determine the family ties within wine trading business. The object of research was focused on the family wine trading business in the Czech Republic, in particular in the region of South Moravia as an economical phenomenon. The subject of research was based on family ties within the selected families as representatives of the family wine trading business in the Czech Republic. On the basis of conclusions about family business definition that mentioned above, it was found out by Petlina that greater percentage of the statistical sampling has shown the seventh family situation within the family wine trading business in the Czech Republic ("Father + Sons," 25%). The "Spouses" as the main managers of the family business ranked second; this kind of family ties has got 20.2%. The third place is shared by the first and twelfth types of family ties within the family wine trading business or, there are situations, where managers of business are brothers and parents with a son relatively; those have got 11.9% each. The fourth position belongs to the type of family tie, where the management of family wine trading business is shared by father and his sons. The rest of family ties within the family wine trading business have shown the values as follows: the family tie "Grandfather + Son + Grandchild" has got

The most cited definitions of family business during the twentieth and twenty-first century are evaluated with help of Vallone's three key principals of determination of family business: the degree of ownership (designated by code A), the intention to the succession (designated by code B) and the involvement of the family members in the business (designated by code C) [6]. For uncertain principle of determination, the code D is used. Family business researchers are confronted with a definitional dilemma similar to those facing entrepreneurial researchers [12]. Some researchers argue that at least one of family members should be active in the management/or ownership of the firm, others think that there should be at least two active members of family. Still others require the family business with family members of different generations active in the business [13].

Some scholars see the family as the owner of at least 51% of the stock, whereas the others suppose the family has to have an influence on decision-making in business. It could be said that clear definition of family business will not be set up soon and agreed by most scientists because of wide difference of definition options. Despite that the research shows that the most generally used attribute in the studied definitions during the twentieth century is the criterion of ownership equalling to 58%. The authors of many researches support it because most of scholars state that ownership is the main tool in legalization and keeping the power to influence a firm. The number of definition criteria occurrences is in absolute terms as well as in relative terms. The total percentage exceeds 100% because that most definitions use multiple criteria. Involvement of the family members in the business is the second most used criteria, respectively 51% of them. Intention to the succession is in 15% of the identified definitions as less used criteria of family business. Thereby, it can be observed that criteria for family business describing "intention to the succession," unfortunately, is not considered severely in many definitions because those criteria could help distinguish small family business from non-family business firms.

#### *3.1.3. Family business definition investigations*

During the last few years, it could be observed that such huge diversity of family business definition leads to problems in practice [14]. It is not only about comparativeness of researches' results, dealing with "family business" (under this concept, many different types of business can be seen) but also particularly about comparativeness of statistic data about family business. Because of that, in the end of previous century, scholars tried to make an order in that chaotic situation. First of those were Astrachan and Shanker, who recommended, based on their research, to use three definitions of family business that vary by the level of involvement of families in business [15]. Despite the fact, that the attempt seemed to be auspicious, in practice, it completely did not take hold. As it was confirmed, the majority of family business definition are based on ownership criterion, slightly less are related to involvement of the family members in the business. These definitions specifically enable to research also the small- and micro-family-owned enterprises in the Czech Republic, playing the role of natural persons and cooperating with family members. Nevertheless, it is needful to investigate the type of family relationships in this case. On the basis of the assessed definitions owing to the familyfamily enterprises, the following definition applied to the Czech suburbs may be assigned: "A family-owned enterprise is that one owned and possibly controlled by family or families or by selected family member(s), whereas its delivery to the next generation is supposed." The term "family" is not precisely defined within the Legal Code of the Czech Republic. However, a family is constituted by marriage. The author has defined the family as: "a group of persons mutually associated not only by matrimony or relational bonds, but also by a common lifestyle." According to the Civil Code of the Czech Republic [16], the family business is considered as an establishment, where the spouses, or at least one of them, are working together and where the other relatives up to the third degree or those related to husbands and connected via brothers-in-law up to the second stage are working, and where some of those people are the owners of such establishment. Those of them who are constantly working for the family or family business are viewed as family members involved in the family business operation [17].

#### *3.1.3.1. Family ties of representative wine family enterprises in the Czech Republic*

research regarding the relationships between family enterprises and the more general environment as well as respective national economies [9]. Donnelley was likely the first to define the family business [10]. His definition included one or more of the following conditions: (1) existence of family relationships as a key factor in succession; (2) the presence of family member among board of directors; (3) reflection of family values in business; (4) actions of family member reflected on reputation of business; (5) the presence of relatives involved and who felt obligated to hold stock for more than financial reasons and (6) entering the firm being a part of family member's career decisions. Donnelley's definition reflected on early consulting observations of family business, but it was difficult in meaning, empirically complicated to implement and so, it was not utilized in subsequent research studies [11]. Many definitions were created in that period, but they did not explain how the family business differs from non-family one. Classical family systems of theory developed from clinical work with actual families, but that theory did not include any specific recognition that owning and operation

The most cited definitions of family business during the twentieth and twenty-first century are evaluated with help of Vallone's three key principals of determination of family business: the degree of ownership (designated by code A), the intention to the succession (designated by code B) and the involvement of the family members in the business (designated by code C) [6]. For uncertain principle of determination, the code D is used. Family business researchers are confronted with a definitional dilemma similar to those facing entrepreneurial researchers [12]. Some researchers argue that at least one of family members should be active in the management/or ownership of the firm, others think that there should be at least two active members of family. Still others require the family business with family members of different

Some scholars see the family as the owner of at least 51% of the stock, whereas the others suppose the family has to have an influence on decision-making in business. It could be said that clear definition of family business will not be set up soon and agreed by most scientists because of wide difference of definition options. Despite that the research shows that the most generally used attribute in the studied definitions during the twentieth century is the criterion of ownership equalling to 58%. The authors of many researches support it because most of scholars state that ownership is the main tool in legalization and keeping the power to influence a firm. The number of definition criteria occurrences is in absolute terms as well as in relative terms. The total percentage exceeds 100% because that most definitions use multiple criteria. Involvement of the family members in the business is the second most used criteria, respectively 51% of them. Intention to the succession is in 15% of the identified definitions as less used criteria of family business. Thereby, it can be observed that criteria for family business describing "intention to the succession," unfortunately, is not considered severely in many definitions because those criteria could help distinguish small family business from non-family business firms.

During the last few years, it could be observed that such huge diversity of family business definition leads to problems in practice [14]. It is not only about comparativeness of researches'

business might change the family life [11].

190 Entrepreneurship - Development Tendencies and Empirical Approach

generations active in the business [13].

*3.1.3. Family business definition investigations*

For the understanding of family business concept, it is necessary to display a determination and structure of family business relationships [5]. Here, the research conducted by Petlina [18] should be mentioned, where the purpose of research was to determine the family ties within wine trading business. The object of research was focused on the family wine trading business in the Czech Republic, in particular in the region of South Moravia as an economical phenomenon. The subject of research was based on family ties within the selected families as representatives of the family wine trading business in the Czech Republic. On the basis of conclusions about family business definition that mentioned above, it was found out by Petlina that greater percentage of the statistical sampling has shown the seventh family situation within the family wine trading business in the Czech Republic ("Father + Sons," 25%). The "Spouses" as the main managers of the family business ranked second; this kind of family ties has got 20.2%. The third place is shared by the first and twelfth types of family ties within the family wine trading business or, there are situations, where managers of business are brothers and parents with a son relatively; those have got 11.9% each. The fourth position belongs to the type of family tie, where the management of family wine trading business is shared by father and his sons. The rest of family ties within the family wine trading business have shown the values as follows: the family tie "Grandfather + Son + Grandchild" has got 6% of the statistical sampling; the family tie "Father + Posterity" has got 4.8%; the family tie "Parents + Posterity" has got 3.6%; the family ties "Brothers + Granddaughter," "Cousins," "Father + Daughter," "Father + Son + Brother-in-law" and "Parents + Son + Son-in-law" have got each the same value equalling to 1.2% of the statistical sampling related to family ties within the family wine trading business.

extended and supplemented anytime in order to obtain a better illustration of the idea related to the whole complex of elements defining the system of a family-owned enterprise. Anyway, the result of such effort will always give a "model of three spheres," in which the mutual rela-

Family Business: Experience from the Czech Republic http://dx.doi.org/10.5772/intechopen.71020 193

When trying to define the difficulties encountered within the family business, we must first penetrate deep into the essence of the whole problem. It means, it is first necessary to focus our interest on a detailed analysis of how the individual components interact with contribution to the own existence. When looking at this problem from the perspective point of view, we will find out that there are two systems colliding in the family business, namely the system of family and the one of the firm. Those two systems are very tightly connected with each other. They are, to say, tied by an umbilical cord. Each of those different systems is based on a varied foundation. The integral parts of those systems are their own objectives, priorities and expectations. Thus, if two different systems are connected in this way, it is clear that a conflict zone occurs. This scheme of two systems can be further extended and complemented by the element of ownership. This scheme shows interdependence between three systems: family, ownership and management [17]. The strengths and weaknesses of the Czech family business are not much different from those of family business

tionship between the family, ownership and controlling will appear.

**6. SWOT analysis of family business in the Czech Republic**

On the basis of research conducted by Petlina [18], a final SWOT analysis was compiled identifying the strengths and weaknesses of family business firms in the Czech Republic including various internal factors and opportunities as well as threats based on external factors. Those analyses resulted below showing the strengths and weaknesses together with opportunities and threats in comparison with non-family business firms. The carried out analyses suggest that the family business, as an economic phenomenon in the Czech Republic, is healthy, economically stable and in the phase of growth. The family business has a number of strengths and there are many opportunities providing a potential for further growth. The great asset of family business is the team of long-term-employed family members with knowledge and experience in the given field and the efforts to keep family traditions of high-quality production or service. The family business has always focused on meeting of customers' needs. It is reflected in the flexibility in work, time and money of family members as employees and also the pride and confidence in the own business and its outputs. The result thereof is recognition and confidence in the family business products by local customers. The weaknesses of family business in the Czech Republic can be divided into internal and external parts. Internal pressures emanate from the very nature of these institutions. Major internal pressures are divided into the emotional and managing

**5. Difficulties faced by family business**

in the Western economies.

All the values were rounded to the nearest tenths. Considering that the third quartile (Q3) equals to 10 (n = 13), it is clear that the cases with data lower than the value of indicator are equal to 75% of the values of selection. The third quartile splits the lowest 75% of the data from the highest 25%. Those highest cases (25% of the data) are as follows: "Brothers" (11.9%), "Parents + Son" (11.9%), "Spouses" (20.2%) and "Father + Son" (25%). It was confirmed that this respondent was the representative of family wine trading business in the Czech Republic, particularly in the Viničné Šumice, a village in South Moravian region. He has reported to have run his business since 2003, but their family tradition of wine production and sale has already been supported by five generations. During the course of interview, it was found out that managers of the firm are parents and their son. The owner of business is Mother who is engaged in accounting and strategic planning and in the firm production as well. The Father is then the main wine grower and cellar man. The son is in charge of marketing and communication with the exterior, graphic design and printing of labels and leaflets and he manages the projects of "Svatomartinské" (wine) and "Vinné želé" (wine jelly). During the intensive period of vintage and various actions, the whole family and many a close and distant relatives are helping for the development of their family wine business. Thus, the interview has confirmed that the family wine trading business exists, and it is not only a mere marketing tool for customer acquisition. One note should be said regarding the materials related to family ties within the family business, where the mentioned member, the "Son," has emphasized to prefer rather a family business in which a son or the sons are engaged. It can be the result of a phenomenon when the son is associated with the next generation and business succession.

### **4. Particularities of a family-owned enterprise**

When wanting to define the difficulties or problems of a family-owned enterprise, we must deeply penetrate into the core thereof. That means, we must thoroughly analyse single components mutually influencing the whole process and taking part in the existence thereof. Those specific forces typical for each of such component are the main sources of problems, the family-owned enterprise must withstand. When focusing this problem on a system of view, we will ascertain that there are two crossing systems within the family-owned enterprise, as Leach said in Ref. [19]. Though both of the systems are created by the same persons, each thereof depicts a world of its own. The integral parts of this systems are their own goals, priorities and expectations. A family world is characterized by strong emotions and the business world demands rationality and results. There is one of the main problems following from this initial outline, that is, the family members must learn to grasp the measure of changes within the systems, they are moving in. It is not only the change of this relation, they must grasp, they must also modify the norms, expectations and the entire behaviour. This scheme may be extended and supplemented anytime in order to obtain a better illustration of the idea related to the whole complex of elements defining the system of a family-owned enterprise. Anyway, the result of such effort will always give a "model of three spheres," in which the mutual relationship between the family, ownership and controlling will appear.

### **5. Difficulties faced by family business**

6% of the statistical sampling; the family tie "Father + Posterity" has got 4.8%; the family tie "Parents + Posterity" has got 3.6%; the family ties "Brothers + Granddaughter," "Cousins," "Father + Daughter," "Father + Son + Brother-in-law" and "Parents + Son + Son-in-law" have got each the same value equalling to 1.2% of the statistical sampling related to family ties

All the values were rounded to the nearest tenths. Considering that the third quartile (Q3) equals to 10 (n = 13), it is clear that the cases with data lower than the value of indicator are equal to 75% of the values of selection. The third quartile splits the lowest 75% of the data from the highest 25%. Those highest cases (25% of the data) are as follows: "Brothers" (11.9%), "Parents + Son" (11.9%), "Spouses" (20.2%) and "Father + Son" (25%). It was confirmed that this respondent was the representative of family wine trading business in the Czech Republic, particularly in the Viničné Šumice, a village in South Moravian region. He has reported to have run his business since 2003, but their family tradition of wine production and sale has already been supported by five generations. During the course of interview, it was found out that managers of the firm are parents and their son. The owner of business is Mother who is engaged in accounting and strategic planning and in the firm production as well. The Father is then the main wine grower and cellar man. The son is in charge of marketing and communication with the exterior, graphic design and printing of labels and leaflets and he manages the projects of "Svatomartinské" (wine) and "Vinné želé" (wine jelly). During the intensive period of vintage and various actions, the whole family and many a close and distant relatives are helping for the development of their family wine business. Thus, the interview has confirmed that the family wine trading business exists, and it is not only a mere marketing tool for customer acquisition. One note should be said regarding the materials related to family ties within the family business, where the mentioned member, the "Son," has emphasized to prefer rather a family business in which a son or the sons are engaged. It can be the result of a phenomenon when the son is associated with the next generation and business succession.

When wanting to define the difficulties or problems of a family-owned enterprise, we must deeply penetrate into the core thereof. That means, we must thoroughly analyse single components mutually influencing the whole process and taking part in the existence thereof. Those specific forces typical for each of such component are the main sources of problems, the family-owned enterprise must withstand. When focusing this problem on a system of view, we will ascertain that there are two crossing systems within the family-owned enterprise, as Leach said in Ref. [19]. Though both of the systems are created by the same persons, each thereof depicts a world of its own. The integral parts of this systems are their own goals, priorities and expectations. A family world is characterized by strong emotions and the business world demands rationality and results. There is one of the main problems following from this initial outline, that is, the family members must learn to grasp the measure of changes within the systems, they are moving in. It is not only the change of this relation, they must grasp, they must also modify the norms, expectations and the entire behaviour. This scheme may be

within the family wine trading business.

192 Entrepreneurship - Development Tendencies and Empirical Approach

**4. Particularities of a family-owned enterprise**

When trying to define the difficulties encountered within the family business, we must first penetrate deep into the essence of the whole problem. It means, it is first necessary to focus our interest on a detailed analysis of how the individual components interact with contribution to the own existence. When looking at this problem from the perspective point of view, we will find out that there are two systems colliding in the family business, namely the system of family and the one of the firm. Those two systems are very tightly connected with each other. They are, to say, tied by an umbilical cord. Each of those different systems is based on a varied foundation. The integral parts of those systems are their own objectives, priorities and expectations. Thus, if two different systems are connected in this way, it is clear that a conflict zone occurs. This scheme of two systems can be further extended and complemented by the element of ownership. This scheme shows interdependence between three systems: family, ownership and management [17]. The strengths and weaknesses of the Czech family business are not much different from those of family business in the Western economies.

### **6. SWOT analysis of family business in the Czech Republic**

On the basis of research conducted by Petlina [18], a final SWOT analysis was compiled identifying the strengths and weaknesses of family business firms in the Czech Republic including various internal factors and opportunities as well as threats based on external factors. Those analyses resulted below showing the strengths and weaknesses together with opportunities and threats in comparison with non-family business firms. The carried out analyses suggest that the family business, as an economic phenomenon in the Czech Republic, is healthy, economically stable and in the phase of growth. The family business has a number of strengths and there are many opportunities providing a potential for further growth. The great asset of family business is the team of long-term-employed family members with knowledge and experience in the given field and the efforts to keep family traditions of high-quality production or service. The family business has always focused on meeting of customers' needs. It is reflected in the flexibility in work, time and money of family members as employees and also the pride and confidence in the own business and its outputs. The result thereof is recognition and confidence in the family business products by local customers. The weaknesses of family business in the Czech Republic can be divided into internal and external parts. Internal pressures emanate from the very nature of these institutions. Major internal pressures are divided into the emotional and managing parts. The course thereof is "engagement" of family in the business system. The emotional problems can paralyze all the fields of business spoiling the interpenetration between the family/enterprise systems. Thereby the main weaknesses of family business are considered to exist, and the family business has no direct influence thereon, although sometimes, it may be controlled indirectly. Such weaknesses do negatively affect the competitive position in the business market. In this context, we can mention three main areas of weaknesses: public opinion attitude, investment institutions and fiscal matters [18]. Another challenge for family business is its growth [20]. The author Sorenson is convinced that an important instrument for family business lies in overcoming such obstacles by means of quality education, counselling and research in this area [21].

potential for conflicts: various conflicts may occur within the family business, such as those between generations or founder(s) and successor(s), interfamily conflicts, those between siblings, family and employees, family and managers, no family employees, conflicts connected with professionalization of the family business, conflicts between non-family manager and family employees; (5) reduced ability to respond to global opportunities: family business firms belong to the category of lower-sized (local) firms rather than to the global ones [23–25].

Family Business: Experience from the Czech Republic http://dx.doi.org/10.5772/intechopen.71020 195

Johnson and Scholes speak about following steps regarding the process of an enterprise strategy: strategy analysis, fixing of the entire (corporate) strategy, analysis of strategy relating to the single strategic business units (SBU) and strategy definition of each SBU [26]. The whole process of strategy is crowned by its implementation. The limitation mentioned earlier is one of the very frequent opinions published today. However, the opinion of the term called "strat-

Merwe's definition of "strategy" going back to the seventeenth and eighteenth centuries related to a "bulwark, maneuver and delivery" [27]. After the stormy social changes of the nineteenth and twentieth centuries, it was difficult to draw a line between the "military strategy" and the "basic strategy," the latter especially related to planning and utilization of all resources. Consequently, the term of strategy was implemented into the business as well. A modern business strategy is supposed to deal with bringing into consonance the firm activities with the environs in which it operates. A strategic management should ensure a longlasting performance of the firm. Strategic management includes the formulation of strategy,

We have seen how the family and enterprise systems overlap each other. The research by Basco and Peréz shows that firms combining both of those systems in their strategic decisions may achieve better business results [28]. The scanty research results by Goel dealing with strategy of family-owned enterprises show that strategic decisions should be chosen in context of the family ownership complexity [29]. A family-owned enterprise strategy namely includes the complexity of inner business dynamics and outer environs, as well as family interests, goals and problems in the field of heritage, culture and sibling relationships. Further, this research

Lindow et al. have introduced the term "strategic fit," the idea of which is that a research in the field of family-owned enterprises must include the balance of dynamics between both the business and family activities; all these ought to be monitored in the environs of both the systems [30]. Mustakallio et al. claimed that a family vision depending on family social interactions relates to the quality of strategic decisions [31]. Astrachan then speaks about more family elements influencing the process of strategic creation and acceptation [32]. Those elements are, for example, the sequence of kids' birth or the family psychological factors, such as adaptability, rigidity, cohesion, and so on. We can see that the strategy of family-owned

speaks about a poor aspect of the internal family system mechanisms.

**7. Family enterprise strategy**

egy" was varying during the past few centuries.

its implementation, evaluation and control.

enterprises may be viewed under various angles.

#### **6.1. Strengths of family business in the Czech Republic**

The strengths of family business follows from its own essence and may increase its competitiveness [22]. Those strengths are as follows: (1) a mutual agreement between the individuals sharing common interests arising among family members working in the family business on one hand and interests of owners on the other hand; (2) commitment leading to the fact that all family members striving to achieve a mutual benefit are ready to submit themselves to the given demands under the certain personal sacrifices. A family considers the business as its "own" creation; (3) flexibility regarding the work, time and money: a family enterprise can devote all its time that is necessary for a successful firm development; (4) long-term plans allowing to reduce the risks and making it easier to cope with unforeseen circumstances. Family business firms tend to planning of long-term visions; (5) stable corporate culture: the corporate culture of family business is still compared with other non-family companies. Managers are holding the office for a relatively long time being intrinsically involved in the business success. This also applies to non-family managers; (6) quickness in decision-making: certain powers of family members are clearly defined. This is a typical feature for family business considered as a great advantage; (7) pride and confidence: a strong foundation and commitment of family members within the family business are evident in the relationship to clients; (8) efficiency: the family business can effectively and successfully utilize the resources being at its disposal [17].

#### **6.2. Weaknesses of family businesses in the Czech Republic**

There is a tight link between the phenomenon of weaknesses and strengths of the family business. The weaknesses of family business are as follows: (1) strong ties within a family: a decision-making within the family business is usually fast, but the family ties make the family business more conservative in relation to the risks [2]; (2) reluctance to external sources of financing: a strong responsibility to the family can be the reason of reluctance to external financial sources. Consequently, the family business firms used to have a motto: "I will buy only under supposition of earning." This can be compared with mistrust in return on equity in non-family business companies; (3) necessity of high-quality communication channels functioning between the family and family business: it can be claimed that one of the keys to succession will be a communication between the firm and family; (4) high potential for conflicts: various conflicts may occur within the family business, such as those between generations or founder(s) and successor(s), interfamily conflicts, those between siblings, family and employees, family and managers, no family employees, conflicts connected with professionalization of the family business, conflicts between non-family manager and family employees; (5) reduced ability to respond to global opportunities: family business firms belong to the category of lower-sized (local) firms rather than to the global ones [23–25].

### **7. Family enterprise strategy**

parts. The course thereof is "engagement" of family in the business system. The emotional problems can paralyze all the fields of business spoiling the interpenetration between the family/enterprise systems. Thereby the main weaknesses of family business are considered to exist, and the family business has no direct influence thereon, although sometimes, it may be controlled indirectly. Such weaknesses do negatively affect the competitive position in the business market. In this context, we can mention three main areas of weaknesses: public opinion attitude, investment institutions and fiscal matters [18]. Another challenge for family business is its growth [20]. The author Sorenson is convinced that an important instrument for family business lies in overcoming such obstacles by means of

The strengths of family business follows from its own essence and may increase its competitiveness [22]. Those strengths are as follows: (1) a mutual agreement between the individuals sharing common interests arising among family members working in the family business on one hand and interests of owners on the other hand; (2) commitment leading to the fact that all family members striving to achieve a mutual benefit are ready to submit themselves to the given demands under the certain personal sacrifices. A family considers the business as its "own" creation; (3) flexibility regarding the work, time and money: a family enterprise can devote all its time that is necessary for a successful firm development; (4) long-term plans allowing to reduce the risks and making it easier to cope with unforeseen circumstances. Family business firms tend to planning of long-term visions; (5) stable corporate culture: the corporate culture of family business is still compared with other non-family companies. Managers are holding the office for a relatively long time being intrinsically involved in the business success. This also applies to non-family managers; (6) quickness in decision-making: certain powers of family members are clearly defined. This is a typical feature for family business considered as a great advantage; (7) pride and confidence: a strong foundation and commitment of family members within the family business are evident in the relationship to clients; (8) efficiency: the family business can effectively and successfully utilize the resources

There is a tight link between the phenomenon of weaknesses and strengths of the family business. The weaknesses of family business are as follows: (1) strong ties within a family: a decision-making within the family business is usually fast, but the family ties make the family business more conservative in relation to the risks [2]; (2) reluctance to external sources of financing: a strong responsibility to the family can be the reason of reluctance to external financial sources. Consequently, the family business firms used to have a motto: "I will buy only under supposition of earning." This can be compared with mistrust in return on equity in non-family business companies; (3) necessity of high-quality communication channels functioning between the family and family business: it can be claimed that one of the keys to succession will be a communication between the firm and family; (4) high

quality education, counselling and research in this area [21].

**6.2. Weaknesses of family businesses in the Czech Republic**

**6.1. Strengths of family business in the Czech Republic**

194 Entrepreneurship - Development Tendencies and Empirical Approach

being at its disposal [17].

Johnson and Scholes speak about following steps regarding the process of an enterprise strategy: strategy analysis, fixing of the entire (corporate) strategy, analysis of strategy relating to the single strategic business units (SBU) and strategy definition of each SBU [26]. The whole process of strategy is crowned by its implementation. The limitation mentioned earlier is one of the very frequent opinions published today. However, the opinion of the term called "strategy" was varying during the past few centuries.

Merwe's definition of "strategy" going back to the seventeenth and eighteenth centuries related to a "bulwark, maneuver and delivery" [27]. After the stormy social changes of the nineteenth and twentieth centuries, it was difficult to draw a line between the "military strategy" and the "basic strategy," the latter especially related to planning and utilization of all resources. Consequently, the term of strategy was implemented into the business as well. A modern business strategy is supposed to deal with bringing into consonance the firm activities with the environs in which it operates. A strategic management should ensure a longlasting performance of the firm. Strategic management includes the formulation of strategy, its implementation, evaluation and control.

We have seen how the family and enterprise systems overlap each other. The research by Basco and Peréz shows that firms combining both of those systems in their strategic decisions may achieve better business results [28]. The scanty research results by Goel dealing with strategy of family-owned enterprises show that strategic decisions should be chosen in context of the family ownership complexity [29]. A family-owned enterprise strategy namely includes the complexity of inner business dynamics and outer environs, as well as family interests, goals and problems in the field of heritage, culture and sibling relationships. Further, this research speaks about a poor aspect of the internal family system mechanisms.

Lindow et al. have introduced the term "strategic fit," the idea of which is that a research in the field of family-owned enterprises must include the balance of dynamics between both the business and family activities; all these ought to be monitored in the environs of both the systems [30]. Mustakallio et al. claimed that a family vision depending on family social interactions relates to the quality of strategic decisions [31]. Astrachan then speaks about more family elements influencing the process of strategic creation and acceptation [32]. Those elements are, for example, the sequence of kids' birth or the family psychological factors, such as adaptability, rigidity, cohesion, and so on. We can see that the strategy of family-owned enterprises may be viewed under various angles.

#### **8. Succession in a family-owned enterprise**

Griffeth et al. stated that family-owned enterprises, though being successful in business for a certain time, must break through one great obstacle, lying in the continuation of business and power transfer between the generations [33]. The future of a family-owned enterprise always depends on the owner's competence and the measure of how he is able to face the challenge of the family bond preservation across the generations. Goel puts interesting questions in his work regarding the choice of a successor in the family-owned enterprise [29]. For example, he asked that whether the successors are chosen with regard to support a certain strategy and whether the founder's kids could fall into a stereotype. He also considered the preferences or influences playing a role within the family system in relationship to the chosen business strategy. What seems like to be better for the founder? Astrachan [32] mentioned an ascertainment according to which the successor's training was allegedly influenced by the relationship between successor and incumbent. In case that this relationship is poor or imperfect, such power delegation to successor may be unsuccessful. The work by Griffeth et al. presents power delegation as a process, in which senior positions are being calculatedly opened or possibly fulfilled [33]. This process exaggerates a project management of organizational needs, evaluation of skill and solution of the found development needs. Dyck et al. compared this process with a relay race [34]. There are four main factors in such relay race: sequence, timing, baton-passing technique and communication. All these factors have to be solved at one stroke for the race to turn out well. The authors argue with the fact that succession is determined by sequence. This allegedly means that with regard to the present firm state and its future development, a successor will be chosen in a view of the adequate qualification and skill in order to be able to overtake the control of enterprise from the present incumbent. Second, it is also necessary to choose the right timing for the power transfer to the next generation. This means that both successor and incumbent have taken into consideration the given circumstances and now they are ready to pass and overtake the baton. For three, it is necessary to choose appropriate techniques for the baton passing. The last part of relays is a good communication ensuring a successful result. However, Griffeth et al. warned of a sole focusing on planning the succession, which may ignore one critical factor, namely a motivation of the potential successor to continue the work in family-owned enterprise.

which results in a "predetermined" successor's choice. The other elements may be modified by the enterprise in a way to improve the process of succession. The ownership structure and the board composition will then determine a suitable successor. In the view of staff, the most important persons in the enterprise context are the COE incumbent and the successor(s). Here, it is not only the mutual relationship between them, which is very important, but also the incumbent's personality, his approach of training and care for the successor(s). Naturally, a successor must fulfil certain preconditions and features, such as management competence, skill, motivation, age, and so on. Family context is then influenced by surrounding social context (social norms, laws, values, etc.), having great effect on family relationships and distribution of the roles. The family context then contains family relationships, role distribution, respect, confidence, management of family financial means and effect control. As stated by the authors, the core of this model includes various phases of heritage process, influenced by business context on one hand and by family context on the other hand. The phases of heritage model are developed in time and include a feedback, which can change the behaviour. The first phase includes the principal rules. This, for example, includes a vision creation and rules for selection and training of successors, the role of owner(s), managers and family members. The second phase includes the development and progress of successor(s). Here, it is to emphasize education, training programs, knowledge transfer, practicing outside the firm, and so on. In case of more successor candidates, it is necessary to do their continuous assessment and training modifications, eventually to extend or narrow the candidates' circle. The third phase includes selection. Here, the selection criteria of the previous phase are to be checked up. A selection, namely, represents no one-stage process. It is a sequence of more decisions, following one after another. The fourth and last phase of this process lies in "installment" of the chosen successor(s) into the position(s). This phase is accompanied with capital

Family Business: Experience from the Czech Republic http://dx.doi.org/10.5772/intechopen.71020 197

Griffeth et al. defined factors that may influence the participation of a family-owned successor by working up of a Successor Retention Model [33]. Those defined factors include the relationship between the successor and his parents, conflict as a consequence of power struggle between incumbent and heir, conflict between the parents' and business roles, generation gaps, experience of childhood, relationships within the family or business features and successor's character. The model thereof including three phases (anticipatory socialization, full time employment and management) leads to two decisive points. The first one follows after the anticipatory socialization, when heir considers and decides, whether to accept the fulltime job in the family-owned enterprise; the phase of full-time employment leads to the point,

whether to enter the family-owned enterprise as its owner, respectively a manager.

The previous text presents various views and principles of succession power transfer based on the literature. The question left behind is, whether the family involvement is someway measurable or whether it reflects in finances of the enterprise. Mazzola et al. tried to find out a relationship between the family involvement in the firm ownership and its profitability [36]. They detected an existence of a positive relationship between the return on equity (ROE) indicator and the family involvement. The more family members are involved in the management, the better ROE indicator there is. However, on the other hand, the greater number of involved generations is it then the worse results of ROE indicator are achieved. The next chapters, drawing

transfer within or between the generations.

Le Breton-Miller et al. are just the authors having concentrated themselves on the problem of successor's motivation and passing of the family-owned enterprise into the hands of next generation [35]. As they state, only every third family-owned enterprise succeeds to continue the business in second generation and only 10–15% survive until the third generation. The said authors have noted the fact that many a thinkers deal in the literature with various parts of the given problem complex related to power delegation, successor's quality, family context or incumbent. They extrapolated an integrated model, having worked out the neglected courses of study, which may influence the long-lasting succession lifetime. There is a nonfamily context contained in industry and competitive environs of the enterprise influencing and controlling the strategy, organization and internal policy. The family-owned enterprise alone based on this strategy then influences the process of succession. The context of industry and the social context, both of them are principally predetermined and so not governable, which results in a "predetermined" successor's choice. The other elements may be modified by the enterprise in a way to improve the process of succession. The ownership structure and the board composition will then determine a suitable successor. In the view of staff, the most important persons in the enterprise context are the COE incumbent and the successor(s). Here, it is not only the mutual relationship between them, which is very important, but also the incumbent's personality, his approach of training and care for the successor(s). Naturally, a successor must fulfil certain preconditions and features, such as management competence, skill, motivation, age, and so on. Family context is then influenced by surrounding social context (social norms, laws, values, etc.), having great effect on family relationships and distribution of the roles. The family context then contains family relationships, role distribution, respect, confidence, management of family financial means and effect control. As stated by the authors, the core of this model includes various phases of heritage process, influenced by business context on one hand and by family context on the other hand. The phases of heritage model are developed in time and include a feedback, which can change the behaviour. The first phase includes the principal rules. This, for example, includes a vision creation and rules for selection and training of successors, the role of owner(s), managers and family members. The second phase includes the development and progress of successor(s). Here, it is to emphasize education, training programs, knowledge transfer, practicing outside the firm, and so on. In case of more successor candidates, it is necessary to do their continuous assessment and training modifications, eventually to extend or narrow the candidates' circle. The third phase includes selection. Here, the selection criteria of the previous phase are to be checked up. A selection, namely, represents no one-stage process. It is a sequence of more decisions, following one after another. The fourth and last phase of this process lies in "installment" of the chosen successor(s) into the position(s). This phase is accompanied with capital transfer within or between the generations.

**8. Succession in a family-owned enterprise**

196 Entrepreneurship - Development Tendencies and Empirical Approach

Griffeth et al. stated that family-owned enterprises, though being successful in business for a certain time, must break through one great obstacle, lying in the continuation of business and power transfer between the generations [33]. The future of a family-owned enterprise always depends on the owner's competence and the measure of how he is able to face the challenge of the family bond preservation across the generations. Goel puts interesting questions in his work regarding the choice of a successor in the family-owned enterprise [29]. For example, he asked that whether the successors are chosen with regard to support a certain strategy and whether the founder's kids could fall into a stereotype. He also considered the preferences or influences playing a role within the family system in relationship to the chosen business strategy. What seems like to be better for the founder? Astrachan [32] mentioned an ascertainment according to which the successor's training was allegedly influenced by the relationship between successor and incumbent. In case that this relationship is poor or imperfect, such power delegation to successor may be unsuccessful. The work by Griffeth et al. presents power delegation as a process, in which senior positions are being calculatedly opened or possibly fulfilled [33]. This process exaggerates a project management of organizational needs, evaluation of skill and solution of the found development needs. Dyck et al. compared this process with a relay race [34]. There are four main factors in such relay race: sequence, timing, baton-passing technique and communication. All these factors have to be solved at one stroke for the race to turn out well. The authors argue with the fact that succession is determined by sequence. This allegedly means that with regard to the present firm state and its future development, a successor will be chosen in a view of the adequate qualification and skill in order to be able to overtake the control of enterprise from the present incumbent. Second, it is also necessary to choose the right timing for the power transfer to the next generation. This means that both successor and incumbent have taken into consideration the given circumstances and now they are ready to pass and overtake the baton. For three, it is necessary to choose appropriate techniques for the baton passing. The last part of relays is a good communication ensuring a successful result. However, Griffeth et al. warned of a sole focusing on planning the succession, which may ignore one critical factor, namely a motiva-

tion of the potential successor to continue the work in family-owned enterprise.

Le Breton-Miller et al. are just the authors having concentrated themselves on the problem of successor's motivation and passing of the family-owned enterprise into the hands of next generation [35]. As they state, only every third family-owned enterprise succeeds to continue the business in second generation and only 10–15% survive until the third generation. The said authors have noted the fact that many a thinkers deal in the literature with various parts of the given problem complex related to power delegation, successor's quality, family context or incumbent. They extrapolated an integrated model, having worked out the neglected courses of study, which may influence the long-lasting succession lifetime. There is a nonfamily context contained in industry and competitive environs of the enterprise influencing and controlling the strategy, organization and internal policy. The family-owned enterprise alone based on this strategy then influences the process of succession. The context of industry and the social context, both of them are principally predetermined and so not governable, Griffeth et al. defined factors that may influence the participation of a family-owned successor by working up of a Successor Retention Model [33]. Those defined factors include the relationship between the successor and his parents, conflict as a consequence of power struggle between incumbent and heir, conflict between the parents' and business roles, generation gaps, experience of childhood, relationships within the family or business features and successor's character. The model thereof including three phases (anticipatory socialization, full time employment and management) leads to two decisive points. The first one follows after the anticipatory socialization, when heir considers and decides, whether to accept the fulltime job in the family-owned enterprise; the phase of full-time employment leads to the point, whether to enter the family-owned enterprise as its owner, respectively a manager.

The previous text presents various views and principles of succession power transfer based on the literature. The question left behind is, whether the family involvement is someway measurable or whether it reflects in finances of the enterprise. Mazzola et al. tried to find out a relationship between the family involvement in the firm ownership and its profitability [36]. They detected an existence of a positive relationship between the return on equity (ROE) indicator and the family involvement. The more family members are involved in the management, the better ROE indicator there is. However, on the other hand, the greater number of involved generations is it then the worse results of ROE indicator are achieved. The next chapters, drawing on the literature searches regarding the process of power delegation to next generations, will work out a simple theoretic model based on a family-owned enterprise. This model could serve as an example for small family-owned enterprises, how to delegate powers to the next generations and the process of power delegation will be evaluated by means of the ROE indicator.

was a period of economic crisis in the Czech Republic and in Europe as well. "This state was caused by a great personnel shock in the early 2008," according to Mr. Tomáš (successor). The former business manager specifically left the company and almost all employees of the commercial department followed him. This led to a great company restructuring, and the crew was reduced on the whole. However, this personnel shock ironically meant a good preparation for the economic crisis coming at the turn of 2008 and 2009 and practically lasting up to the present time. The results before 2009 would have been rather different, if quoted in the old Czech currency. The euro development showed specifically great differences during the followed up years. Based on excellent net incomes of 2009 and 2006, the ROE indicator was quite high especially due to the huge net profit and low equity capital. Thus, this concrete example did not show any significant influence on the ROE indicator due to employment of greater family members' number. The excellent results of 2009 and 2006 were caused by other circumstances, though the family engagement might have contributed to an improvement. The ROE indicator of other years moved around the values of 10 or 12%. Gradually, Mr. Jiří has come to a stage where he has started to think of who of the offsprings should be his successor. A tension has appeared between Tom, the son, and Marie, the daughter, as they both wanted to take part in the future business. The analysed small family-owned enterprise has no sophisticated strategy in writing. In literature, so frequently mentioned family protocol or family council is missing in the business conduction. The knowledge of whole business strategy has been transferred from the founder to the successor. Everything is based on the family pyramid quality of the shared principles, transformed into deeds. The all-family lunch is fulfilling the communication role and so unifying the family strategy is one of the business strategies that play a very important role. Also, the results of this research are confirmed in

Family Business: Experience from the Czech Republic http://dx.doi.org/10.5772/intechopen.71020 199

the literature, see for example, the work by Carlock and Ward [37].

**9.1. Strategy model of a small family-owned company Kaláb—Building Company, Ltd.**

The strategy model of a small family-owned enterprise describes nothing else than the fact that the family strategy must intersect, otherwise it will not function together. Further, we can see the strategy emerging from the enterprise. The enterprise foundation is based on articles of partnership, and the enterprise is governed by the general assembly. Naturally, there is a crew creating an important part of the enterprise. The general assembly members and/or the employees may have their origin in the family. The family strategy, on the contrary, has been determined by the family alone. A definition of the family strategy should follow from the family council. The family itself and the family council as the whole are influenced or "governed" by a family protocol. Both the enterprise strategy and the family strategy may arise parallel or, on the contrary, there will be created a preferable strategy (of the family or firm) from which the other one will be derived. This model is described below as an example related to the followed up construction company of Kaláb—Building Company, Ltd. The Kaláb Company is carrying out its strategy updating every February on the top management's two days' meetings. Not all top management's members are simultaneously members of the family. Yet but still, they have considerable influence on how the resulting version of strategic goals will look. The other managers are acquainted with that strategic goals' wording consequently. Yet, the most important decisions related to the whole firm policy of next

#### **9. Case study focused on the Kaláb—Building Company, Ltd.**

The basic information describing this family-owned enterprise was gained from its www. kalab.cz Internet homepage, the Czech Trade Register Database (www.justice.cz) as well as from numerous conversations held with the owner and family members during the last years. The monitored family-owned enterprise, Kaláb—Building Company, Ltd., operates on the construction market of the Czech Republic since 1993. The owner, Jiří Kaláb, worked in various positions for a great state-owned enterprise until November 1989 (the point of the Velvet Revolution). Stepwise, he attained the position of a site manager. Immediately after the Velvet Revolution, he started to pay up interest on his skills, he founded an enterprise of his own, namely a limited company (s.r.o.). During the history of its existence, this family-owned enterprise has taken some awards (circa 27) in the categories like TOP SME, Construction Firm of the Year, Construction of South Moravian Region, and so on. The last prize was awarded by the Chairwoman of the House of Commons of the Czech Republic in February 2013. This prize was awarded to small businessmen and small family-owned enterprises taking care of the quality and good reputation of the Czech craft and service. Straight away, he engaged his family: wife, daughter and son. Later, Mr. Jiří has ascertained that business made together with family members brings about advantages, but disadvantages as well. Therefore, he has started to drive a family pyramid in order to master the incurred conflicts. The levels of his pyramid are shown below. The values at the bottom of this pyramid show not only the values confessed by the family but also those on which the family business is based. Those values are as follows: honour, morality, social feeling and charity. The pyramid middle level contains the target including a long-time enterprise orientation. Mr. Jiří has not planned any immediate profit achievement. He wanted to conduct the enterprise in such a way in order to be able to pass it to his offspring. The upper pyramid level contains the acts. Mr. Jiří's attempt was to apply the values and target in the everyday life of his enterprise. This was rather surprising discovery as the author of research has supposed to find target or strategy at the top of the pyramid suspiciously. The function of family-owned enterprise since the beginning and up until today is based on the interaction of family, enterprise, cooperation of children and creation of mutual respect among the family members, namely also among those family members who were not involved in business. The offsprings have married and their partners are not involved in business so far. The business has functioned rather well since its founding, in spite of relatively great competition on the building market. The enterprise was focused on smaller structures in the field of civic amenities and light industry constructions. The enterprise took never part in any large transport infrastructure building in the Czech Republic.

The family-owned enterprise, Kaláb—Building Company, Ltd., is doing quite well. It has achieved outstanding results in 2006 and 2009. The result of 2009 is very interesting as this was a period of economic crisis in the Czech Republic and in Europe as well. "This state was caused by a great personnel shock in the early 2008," according to Mr. Tomáš (successor). The former business manager specifically left the company and almost all employees of the commercial department followed him. This led to a great company restructuring, and the crew was reduced on the whole. However, this personnel shock ironically meant a good preparation for the economic crisis coming at the turn of 2008 and 2009 and practically lasting up to the present time. The results before 2009 would have been rather different, if quoted in the old Czech currency. The euro development showed specifically great differences during the followed up years. Based on excellent net incomes of 2009 and 2006, the ROE indicator was quite high especially due to the huge net profit and low equity capital. Thus, this concrete example did not show any significant influence on the ROE indicator due to employment of greater family members' number. The excellent results of 2009 and 2006 were caused by other circumstances, though the family engagement might have contributed to an improvement. The ROE indicator of other years moved around the values of 10 or 12%. Gradually, Mr. Jiří has come to a stage where he has started to think of who of the offsprings should be his successor. A tension has appeared between Tom, the son, and Marie, the daughter, as they both wanted to take part in the future business. The analysed small family-owned enterprise has no sophisticated strategy in writing. In literature, so frequently mentioned family protocol or family council is missing in the business conduction. The knowledge of whole business strategy has been transferred from the founder to the successor. Everything is based on the family pyramid quality of the shared principles, transformed into deeds. The all-family lunch is fulfilling the communication role and so unifying the family strategy is one of the business strategies that play a very important role. Also, the results of this research are confirmed in the literature, see for example, the work by Carlock and Ward [37].

on the literature searches regarding the process of power delegation to next generations, will work out a simple theoretic model based on a family-owned enterprise. This model could serve as an example for small family-owned enterprises, how to delegate powers to the next generations and the process of power delegation will be evaluated by means of the ROE indicator.

The basic information describing this family-owned enterprise was gained from its www. kalab.cz Internet homepage, the Czech Trade Register Database (www.justice.cz) as well as from numerous conversations held with the owner and family members during the last years. The monitored family-owned enterprise, Kaláb—Building Company, Ltd., operates on the construction market of the Czech Republic since 1993. The owner, Jiří Kaláb, worked in various positions for a great state-owned enterprise until November 1989 (the point of the Velvet Revolution). Stepwise, he attained the position of a site manager. Immediately after the Velvet Revolution, he started to pay up interest on his skills, he founded an enterprise of his own, namely a limited company (s.r.o.). During the history of its existence, this family-owned enterprise has taken some awards (circa 27) in the categories like TOP SME, Construction Firm of the Year, Construction of South Moravian Region, and so on. The last prize was awarded by the Chairwoman of the House of Commons of the Czech Republic in February 2013. This prize was awarded to small businessmen and small family-owned enterprises taking care of the quality and good reputation of the Czech craft and service. Straight away, he engaged his family: wife, daughter and son. Later, Mr. Jiří has ascertained that business made together with family members brings about advantages, but disadvantages as well. Therefore, he has started to drive a family pyramid in order to master the incurred conflicts. The levels of his pyramid are shown below. The values at the bottom of this pyramid show not only the values confessed by the family but also those on which the family business is based. Those values are as follows: honour, morality, social feeling and charity. The pyramid middle level contains the target including a long-time enterprise orientation. Mr. Jiří has not planned any immediate profit achievement. He wanted to conduct the enterprise in such a way in order to be able to pass it to his offspring. The upper pyramid level contains the acts. Mr. Jiří's attempt was to apply the values and target in the everyday life of his enterprise. This was rather surprising discovery as the author of research has supposed to find target or strategy at the top of the pyramid suspiciously. The function of family-owned enterprise since the beginning and up until today is based on the interaction of family, enterprise, cooperation of children and creation of mutual respect among the family members, namely also among those family members who were not involved in business. The offsprings have married and their partners are not involved in business so far. The business has functioned rather well since its founding, in spite of relatively great competition on the building market. The enterprise was focused on smaller structures in the field of civic amenities and light industry constructions. The enterprise took never part in any large transport infrastructure building in the Czech Republic.

The family-owned enterprise, Kaláb—Building Company, Ltd., is doing quite well. It has achieved outstanding results in 2006 and 2009. The result of 2009 is very interesting as this

**9. Case study focused on the Kaláb—Building Company, Ltd.**

198 Entrepreneurship - Development Tendencies and Empirical Approach

#### **9.1. Strategy model of a small family-owned company Kaláb—Building Company, Ltd.**

The strategy model of a small family-owned enterprise describes nothing else than the fact that the family strategy must intersect, otherwise it will not function together. Further, we can see the strategy emerging from the enterprise. The enterprise foundation is based on articles of partnership, and the enterprise is governed by the general assembly. Naturally, there is a crew creating an important part of the enterprise. The general assembly members and/or the employees may have their origin in the family. The family strategy, on the contrary, has been determined by the family alone. A definition of the family strategy should follow from the family council. The family itself and the family council as the whole are influenced or "governed" by a family protocol. Both the enterprise strategy and the family strategy may arise parallel or, on the contrary, there will be created a preferable strategy (of the family or firm) from which the other one will be derived. This model is described below as an example related to the followed up construction company of Kaláb—Building Company, Ltd. The Kaláb Company is carrying out its strategy updating every February on the top management's two days' meetings. Not all top management's members are simultaneously members of the family. Yet but still, they have considerable influence on how the resulting version of strategic goals will look. The other managers are acquainted with that strategic goals' wording consequently. Yet, the most important decisions related to the whole firm policy of next years, decisions of who will manage the firm or how the profit will be distributed, have been accepted a day before on the Kaláb family council. Such family council proceeds quite formally. There is an external consultant moderating it, who simultaneously records the single goals or proposals. Besides the owner, Jiří Kaláb, and his wife, only the kids are admitted. At the end of this family council's meeting, the results have been shortly presented to the rest of family, namely the kids' partners and their offsprings. There is a principal ruling within the family saying that no partners of the kids take part in the company running. Though the family protocol has no written form, it is rooted and accepted as naturally valid." With extension of the family and growing number of family members engaged in the work for the firm, it will be most likely necessary to draw up such family protocol," Mr. Tomáš (successor) admits. As we can see on the example of this construction firm, the small family-owned enterprise strategy is functioning quite well, though it is not formally, but it has been formalized and utilized by the years of its functioning. This concrete enterprise, thus, has chosen a method of functioning in which the most important and principal decisions are made by the family council, and the firm strategy is created consequently. In this way, the intersection of both strategies is attained.

in the part of TRAINING, where successor must cultivate his knowledge and gain skill (i.e., to gain the speed) so that the power may be delegated properly. Consequently, successor finding himself in the "SPACE FOR HANDING OVER OF BATON," where both are running together, he is taking over the baton (power). After the passing/overtaking, both athletes are still running together, but successor begins to accelerate. Then, he comes to the part where successor is running alone and allows the business to flourish. In this phase, successor may still accept the incumbent's advice and help. During the course of this process, a right timing of the single parts and a feedback are necessary for the enterprise to survive and to go on. It is necessary to say that the power passing to successor was not accompanied with transfer of property in the company of Kaláb—Building Company, Ltd. Founder is still the owner, and successor conducts the business by a power of attorney, the feature of which follows from the Legal Code of the Czech Republic. A transfer of ownership (property) would be suitable in the phase, when owner is made sure that successor has managed the business running. The moment, when incumbent decelerates and successor accelerates, seems to be a suitable point

Family Business: Experience from the Czech Republic http://dx.doi.org/10.5772/intechopen.71020 201

This chapter describes most important research results in the area of family business in the Czech Republic. Followed family business definition was applied into the chapter: "A family-owned enterprise is that one owned and possibly controlled by family or families or by selected family member(s), whereas its delivery to the next generation is supposed," with respect to family ties. Family ties of representative wine family enterprises in the Czech Republic were presented, and the object of research was focused on the family wine trading business, in particular in the region of South Moravia. The subject of research was based on

Most important difficulties faced by family business and SWOT analysis of family business in

Model of power delegation in a small family-owned company was developed. It states the results of qualitative research regarding a small family-owned company, Kaláb—Building Company, Ltd. The model of successful transfer of power to the next generation called "relay" was presented. Today, successor is conducting the business alone, and the financial results show that he is successful in his office. Further, the results show that a family-owned enterprise may be well and the power delegation to successor may be carried out successfully, even if having no written strategy or sophisticated documents, like family protocol or family

This chapter was supported by Project "Podnikání v éře Průmyslu 4.0" [FP-S-17-4634].

for the ownership transfer.

family ties within the selected families.

**Acknowledgements**

the Czech Republic were presented in the chapter.

council. This is valid twofold for small family-owned enterprises.

**10. Conclusion**

#### **9.2. Model of power delegation in a small family-owned enterprise**

We can distinguish a model of power delegation, the example for which we will take a work term from sports relating to a relay race and we will call it "Passing the Baton." When leading a conversation with founder of the above enterprise, we have ascertained that, though having not ever heard of the searching by Dyck et al., Passing the Baton: The Importance of Sequence, Timing, Technique and Communication in Executive Succession [34], he has applied this model of power passing to his successor in a non-scientific form. The model has three main parts. Two determining parts are given by the family and enterprise systems; both ought to be taken into consideration for the core, meaning the very power passing. The core, as the third part of power passing, includes two lines: incumbent and successor. The shapes of those two lines may be described as follows.

Line I (incumbent): incumbent may be the founder or an umpteenth owner of the familyowned enterprise within further and further generations. The incumbent first of all starts with the firm foundation and its development. The second and further incumbents then "only" take care for the development. After a certain time, incumbent comes to a point in which he would like or should to delegate power to his successor. So, he finds himself in a "SPACE FOR HANDING OVER OF BATON," like the sports athletes do. This phase is characterized by a situation in which both athletes—incumbent and successor in this case—are running together for a certain time. As soon as the baton (power) is passed, they are still running together, but incumbent begins to decelerate. This does not mean his being ousted at all, as he can still mentor and support the successor, whereas he simultaneously can go in for his hobbies.

Line II (successor)—looking at a relay race, we can see that, before the first athlete (incumbent) runs into the space of baton handing over, the second one (successor) already starts his running, in order to gain the speed securing his proper baton passing. This is depicted in the part of TRAINING, where successor must cultivate his knowledge and gain skill (i.e., to gain the speed) so that the power may be delegated properly. Consequently, successor finding himself in the "SPACE FOR HANDING OVER OF BATON," where both are running together, he is taking over the baton (power). After the passing/overtaking, both athletes are still running together, but successor begins to accelerate. Then, he comes to the part where successor is running alone and allows the business to flourish. In this phase, successor may still accept the incumbent's advice and help. During the course of this process, a right timing of the single parts and a feedback are necessary for the enterprise to survive and to go on. It is necessary to say that the power passing to successor was not accompanied with transfer of property in the company of Kaláb—Building Company, Ltd. Founder is still the owner, and successor conducts the business by a power of attorney, the feature of which follows from the Legal Code of the Czech Republic. A transfer of ownership (property) would be suitable in the phase, when owner is made sure that successor has managed the business running. The moment, when incumbent decelerates and successor accelerates, seems to be a suitable point for the ownership transfer.

### **10. Conclusion**

years, decisions of who will manage the firm or how the profit will be distributed, have been accepted a day before on the Kaláb family council. Such family council proceeds quite formally. There is an external consultant moderating it, who simultaneously records the single goals or proposals. Besides the owner, Jiří Kaláb, and his wife, only the kids are admitted. At the end of this family council's meeting, the results have been shortly presented to the rest of family, namely the kids' partners and their offsprings. There is a principal ruling within the family saying that no partners of the kids take part in the company running. Though the family protocol has no written form, it is rooted and accepted as naturally valid." With extension of the family and growing number of family members engaged in the work for the firm, it will be most likely necessary to draw up such family protocol," Mr. Tomáš (successor) admits. As we can see on the example of this construction firm, the small family-owned enterprise strategy is functioning quite well, though it is not formally, but it has been formalized and utilized by the years of its functioning. This concrete enterprise, thus, has chosen a method of functioning in which the most important and principal decisions are made by the family council, and the firm strategy is created consequently. In this way, the intersection of both

We can distinguish a model of power delegation, the example for which we will take a work term from sports relating to a relay race and we will call it "Passing the Baton." When leading a conversation with founder of the above enterprise, we have ascertained that, though having not ever heard of the searching by Dyck et al., Passing the Baton: The Importance of Sequence, Timing, Technique and Communication in Executive Succession [34], he has applied this model of power passing to his successor in a non-scientific form. The model has three main parts. Two determining parts are given by the family and enterprise systems; both ought to be taken into consideration for the core, meaning the very power passing. The core, as the third part of power passing, includes two lines: incumbent and successor. The shapes

Line I (incumbent): incumbent may be the founder or an umpteenth owner of the familyowned enterprise within further and further generations. The incumbent first of all starts with the firm foundation and its development. The second and further incumbents then "only" take care for the development. After a certain time, incumbent comes to a point in which he would like or should to delegate power to his successor. So, he finds himself in a "SPACE FOR HANDING OVER OF BATON," like the sports athletes do. This phase is characterized by a situation in which both athletes—incumbent and successor in this case—are running together for a certain time. As soon as the baton (power) is passed, they are still running together, but incumbent begins to decelerate. This does not mean his being ousted at all, as he can still mentor and support the successor, whereas he simultaneously

Line II (successor)—looking at a relay race, we can see that, before the first athlete (incumbent) runs into the space of baton handing over, the second one (successor) already starts his running, in order to gain the speed securing his proper baton passing. This is depicted

**9.2. Model of power delegation in a small family-owned enterprise**

of those two lines may be described as follows.

200 Entrepreneurship - Development Tendencies and Empirical Approach

strategies is attained.

can go in for his hobbies.

This chapter describes most important research results in the area of family business in the Czech Republic. Followed family business definition was applied into the chapter: "A family-owned enterprise is that one owned and possibly controlled by family or families or by selected family member(s), whereas its delivery to the next generation is supposed," with respect to family ties. Family ties of representative wine family enterprises in the Czech Republic were presented, and the object of research was focused on the family wine trading business, in particular in the region of South Moravia. The subject of research was based on family ties within the selected families.

Most important difficulties faced by family business and SWOT analysis of family business in the Czech Republic were presented in the chapter.

Model of power delegation in a small family-owned company was developed. It states the results of qualitative research regarding a small family-owned company, Kaláb—Building Company, Ltd. The model of successful transfer of power to the next generation called "relay" was presented. Today, successor is conducting the business alone, and the financial results show that he is successful in his office. Further, the results show that a family-owned enterprise may be well and the power delegation to successor may be carried out successfully, even if having no written strategy or sophisticated documents, like family protocol or family council. This is valid twofold for small family-owned enterprises.

### **Acknowledgements**

This chapter was supported by Project "Podnikání v éře Průmyslu 4.0" [FP-S-17-4634].

### **Author details**

Vojtěch Koráb\* and Anastasia Murinova

\*Address all correspondence to: korab@fbm.vutbr.cz

Brno University of Technology, Faculty of Business and Management, Brno, Czech Republic

[13] Brockhause R. Entrepreneurship and Family Business Research: Comparisons, Critique, and Lessons. Entrepreneurship: Theory and Practice. Baylor University; 1994. p. 25-38

Family Business: Experience from the Czech Republic http://dx.doi.org/10.5772/intechopen.71020 203

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**Author details**

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Press; 1992

Vojtěch Koráb\* and Anastasia Murinova

Institute for SME Research; 2008

Oxford University Press; 2008. p. 194-218

DOI: 10.1093/acprof:oso/9780199580866.003.0004

\*Address all correspondence to: korab@fbm.vutbr.cz

202 Entrepreneurship - Development Tendencies and Empirical Approach

Brno University of Technology, Faculty of Business and Management, Brno, Czech Republic

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**Chapter 10**

Provisional chapter

**Investment in Microenterprises for Scaling up Business**

DOI: 10.5772/intechopen.72126

Investment in Microenterprises for Scaling up Business

Promoting entrepreneurship among the youth and women is an emerging global trend for inclusive sustainable development. This study aims to unlock the potential of social business investments in microenterprises for turning unemployment into entrepreneurship and scaling up business growth. According to Prof Yunus, "social business is selfless business to solve social problems" based on seven principles. The study has selected 264 enterprises of Nobin Udyokta (NU) meaning new entrepreneurs under Nobin Udyokta Project (NUP) of Grameen Telecom Trust (GTT). NUs and GTT have co-investments under equity participation for at least one or more than 1 year. NUs are basically emerging micro entrepreneurs, who are often disproportionately burdened with multi-dimensions of poverty and lack of working capital, which inhibits business growth. Findings of regression analysis show that social business fund can significantly influence the growth of NU enterprises and increased investment can also create more employments. Therefore, this study is having value to the promoter, advocates, investors in social enterprises, and policy makers seeking strategy for reducing poverty and unemployment through entrepreneur-

Keywords: youth entrepreneurship, sustainable development, social business, Nobin

Micro, small, and medium enterprise (MSME) growth is considered as an engine for generating employment, enhancing more inclusive growth and sustainable economic development. Therefore, a growing attention has been observed by the governments and developmental partners worldwide for facilitating the growth of such MSME. "Poor people are like bonsai trees. They could have grown into giant trees if they had been supported by the right environment for growth" [1]. For sustainable development, it is imperative that microenterprises'

> © The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and eproduction in any medium, provided the original work is properly cited.

© 2018 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

**Growth: Evidence from Social Business Project**

Growth: Evidence from Social Business Project

Farhana Ferdousi and Parveen Mahmud

Farhana Ferdousi and Parveen Mahmud

http://dx.doi.org/10.5772/intechopen.72126

Abstract

1. Introduction

Additional information is available at the end of the chapter

Additional information is available at the end of the chapter

ship for sustainable development leaving no one behind.

Udyokta (NU), Grameen Telecom Trust (GTT)


Provisional chapter

### **Investment in Microenterprises for Scaling up Business Growth: Evidence from Social Business Project** Investment in Microenterprises for Scaling up Business

DOI: 10.5772/intechopen.72126

Growth: Evidence from Social Business Project

Farhana Ferdousi and Parveen Mahmud

Additional information is available at the end of the chapter Farhana Ferdousi and Parveen Mahmud

http://dx.doi.org/10.5772/intechopen.72126 Additional information is available at the end of the chapter

#### Abstract

[28] Basco R, Pérez Rodríguez MJ. Studying the family enterprise holistically: Evidence for integrated family and business systems. Family Business Review. 2009;**22**(1):82-95. DOI:

[29] Goel S, Mazzola P, Phan PH, Pieper TM, Zachary RK. Strategy, ownership, governance, and socio-psychological perspectives on family businesses from around the world. Journal of Family Business Strategy. 2012;**3**(2):54-65. DOI: 10.1016/j.jfbs.2012.03.005 [30] Lindow CM, Stubner S, Wulf T. Strategic fit within family firms: The role of family influence and the effect on performance. Journal of Family Business Strategy. 2010;**1**(3):167-178.

[31] Mustakallio M, Autio E, Zahra SA. Relational and contractual governance in family firms: Effects on strategic decision making. Family Business Review. 2002;**15**:205-222.

[32] Astrachan JH. Strategy in family business: Toward a multidimensional research agenda. Journal of Family Business Strategy. 2010;**1**(1):6-14. DOI: https://doi.org/10.1016/j.jfbs.

[33] Griffeth RW, Allen DG, Barrett R. Integration of family-owned business succession with turnover and life cycle models: Development of a successor retention process model. Human Resource Management Review. 2002;**16**(4):490-507. https://doi.org/10.1016/j.

[34] Dyck B, Mauws M, Starke FA, Mischke GA. Passing the baton: The importance of sequence, timing, technique and communication in executive succession. Journal of Business Venturing. 2002;**17**:143-162. https://doi.org/10.1016/S0883-9026(00)00056-2 [35] Le Breton-Miller I, Miller D, Steier LP. Toward an integrative model of effective FOB succession. Entrepreneurship: Theory and Practice. 2004;**28**(4):305-328. DOI: 10.1111/

[36] Mazzola P, Sciascia S, Kellermanns FW. Non-linear effects of family sources of power on performance. Journal of Business Research. 2013;**66**(4):568-574. https://doi.org/10.1016/j.

[37] Carlock RS, Ward JL. Strategic Planning for the Family Business. UK: Palgrave; 2001. 270 p.

https://doi.org/10.1177/0894486508327824

204 Entrepreneurship - Development Tendencies and Empirical Approach

https://doi.org/10.1016/j.jfbs.2010.08.004

2010.02.001

hrmr.2006.08.006

j.1540-6520.2004.00047.x

DOI: 10.1057/9780230508750

jbusres.2012.01.005

DOI: https://doi.org/10.1111/j.1741-6248.2002.00205.x

Promoting entrepreneurship among the youth and women is an emerging global trend for inclusive sustainable development. This study aims to unlock the potential of social business investments in microenterprises for turning unemployment into entrepreneurship and scaling up business growth. According to Prof Yunus, "social business is selfless business to solve social problems" based on seven principles. The study has selected 264 enterprises of Nobin Udyokta (NU) meaning new entrepreneurs under Nobin Udyokta Project (NUP) of Grameen Telecom Trust (GTT). NUs and GTT have co-investments under equity participation for at least one or more than 1 year. NUs are basically emerging micro entrepreneurs, who are often disproportionately burdened with multi-dimensions of poverty and lack of working capital, which inhibits business growth. Findings of regression analysis show that social business fund can significantly influence the growth of NU enterprises and increased investment can also create more employments. Therefore, this study is having value to the promoter, advocates, investors in social enterprises, and policy makers seeking strategy for reducing poverty and unemployment through entrepreneurship for sustainable development leaving no one behind.

Keywords: youth entrepreneurship, sustainable development, social business, Nobin Udyokta (NU), Grameen Telecom Trust (GTT)

### 1. Introduction

Micro, small, and medium enterprise (MSME) growth is considered as an engine for generating employment, enhancing more inclusive growth and sustainable economic development. Therefore, a growing attention has been observed by the governments and developmental partners worldwide for facilitating the growth of such MSME. "Poor people are like bonsai trees. They could have grown into giant trees if they had been supported by the right environment for growth" [1]. For sustainable development, it is imperative that microenterprises'

© 2018 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

© The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and eproduction in any medium, provided the original work is properly cited.

needs for business development services (BDSs) should be sufficiently addressed, e.g., larger and timely credit, training, information, technology, marketing, and consultancy. But, access to finance remains the major constraint for the microenterprise development in Bangladesh. For several decades, microfinance institutions, government agencies, and commercial banks are providing inclusive financial services. Yet, high interest rate, small size of the loan, and weekly or monthly repayment system put debates over the impacts of such loan. Against such backdrop, social business fund along with various technical assistance provided by various Grameen Companies through Nobin Udyokta Program not only provides an opportunity for second-generation microcredit borrowers to grow their business more sustainably but also helps to attain the goal of sustainable development goals (SDGs). This new forms of equity financing for the poor entrepreneurs will not only promote inclusive and sustainable economic growth but also provide opportunity for full and productive employment and decent work for all (SDG:8) which will ultimately end poverty in all its forms everywhere (SDG:1). These aims will be achieved, if the businesses of the Nobin Udyokta grow sustainably. Therefore, the present study has attempted to investigate whether the invested capital has contributed to the firms' growth by increasing total assets as well as number of employment. The research will finally be expected to answer the following research questions:

alternative of conventional business named social business focusing on three goals: zero poverty, zero unemployment, and zero carbon emission utilizing youth, technology, and good governance. GTT strives to transform societies through engaging in social business focusing to make a poverty-free world. Besides NUP and Joint Ventures investments in Grameen Danone Foods Ltd., Grameen Health Care Services Ltd., Grameen Distribution Ltd., Grameen Fabrics and Fashion Ltd., and Softy Sanitary Napkins, GTT has pioneered Social Business Learning and Innovation Fund (SBLIF) to innovate, incubate, and translate new ideas into action. Once new ideas are proven through pilot implementation to address a social cause in a sustainable manner, prototype seeds are ready for planting through replication and scaling up. GTT is already operating 10 SBLIF initiatives to address diverse social problems. Under SBLIF, GTT has initiated NUP program support through "Grameen Poshra" to facilitate market access of products of Nobin Udoykta's rural artisans, through value chain development, digital marketing, and micro franchise outlets. Furthermore, investment recoupment from the profit generated from the SBLIF initiatives has commenced which is being accumulated for creating a fund for building a Social Business Village. GTT has also Social Business Learning Centre for advocacy, training, and inspiring to undertake social business to leave a signature behind through touching lives,

Investment in Microenterprises for Scaling up Business Growth: Evidence from Social Business Project

http://dx.doi.org/10.5772/intechopen.72126

207

making positive changes for a sustainable world.

2.1. Entrepreneurship development and employment generation through

division with dedicated staff to operationalize the program.

The economy of Bangladesh is emerging with enormous entrepreneurial potentials, as onethird of her population belongs to the ages between 18 and 35 years. Every year nearly 2 million people are entering into the labor force, while only 1 million get employed in domestic and overseas job markets (source: Bangladesh Bank), leaving rest half unemployed. Without entrepreneurial effort from the youths, it is really a big challenge to create new employment opportunities for them. Moreover, one of the most pressing challenges of new entrepreneurs in their early stages of venture is having access to the friendly capital to materialize their innovative ideas or to bring high growth prospects into their innovative venture. Therefore, with adequate flow of venture capital investment fund in the economy, entrepreneurship process can be boosting up. Therefore, Professor Mohammad Yunus initiated Nobin Udyokta program, which aims to support the enterprise of the Grameen Bank's borrowers' children who wants to pursue his or her endeavor as entrepreneur. A lack of management skills is quite a universal constraint among rural, micro, or informal entrepreneurs. Nobin Udyokta Program not only helps entrepreneurs to expand his or her business and runs it better but also helps to manage the business properly in the areas of marketing and accounting and to expand their operations. Therefore, following the path of Grameen Telecom Trust, several other Grameen companies, namely, Grameen Shakti Samajik Byabosha Limited, Grameen Kalyan, and Grameen Trust, have also joined in the program to accelerate the impact of this NU program and created a social business fund and NU

2. Review of literature

Nobin Udyokta Program


#### 1.1. Nobin Udyokta Program (NUP)

Nobin Udyokta Program (NUP) is an innovative social business program for turning unemployment into entrepreneurship. Father of Microcredit and Social Business, Nobel Laureate Professor Muhammad Yunus introduced this program since 2014. Based on seven social business principles determined by Professor Mohammad Yunus, four Grameen Companies [Grameen Telecom Trust (GTT); Grameen Trust (GT); Grameen Kalyan (GK); and Grameen Shakti Samajik Byabosha Ltd. (GSSB)] participated in financing NU program. Potential Nobin Udyoktas are usually children of Grameen Bank borrowers whose age limit is 18–35 years, although women entrepreneurs are relaxed from this age bar. The role of Grameen companies is like venture capitalist firm. They identify potential entrepreneurs, incubate, and provide necessary supports for the promotion of their new ventures. Nobin Udyokta programs are the joint investment of the new entrepreneurs and Grameen Company. Innovative feature of this social business investment is that no profit will be taken by the venture capitalist firm, except the processing cost of the funds which in turn helps the business growth and creates more opportunities for more NUs. Inspired by the slogan "We Are Not Job-Seekers, We Are Job-Givers" (Prof Yunus), the NUP is designed for creating a world without poverty using social business as a tool.

#### 1.2. Grameen Telecom Trust (GTT)

Grameen Telecom Trust (GTT) began its journey in 2010, which is the flagship company to implement and facilitate the germination of social business in Bangladesh. In 2006, with an insight of building an equitable and sustainable world, Professor Muhammad Yunus pioneered alternative of conventional business named social business focusing on three goals: zero poverty, zero unemployment, and zero carbon emission utilizing youth, technology, and good governance. GTT strives to transform societies through engaging in social business focusing to make a poverty-free world. Besides NUP and Joint Ventures investments in Grameen Danone Foods Ltd., Grameen Health Care Services Ltd., Grameen Distribution Ltd., Grameen Fabrics and Fashion Ltd., and Softy Sanitary Napkins, GTT has pioneered Social Business Learning and Innovation Fund (SBLIF) to innovate, incubate, and translate new ideas into action. Once new ideas are proven through pilot implementation to address a social cause in a sustainable manner, prototype seeds are ready for planting through replication and scaling up. GTT is already operating 10 SBLIF initiatives to address diverse social problems. Under SBLIF, GTT has initiated NUP program support through "Grameen Poshra" to facilitate market access of products of Nobin Udoykta's rural artisans, through value chain development, digital marketing, and micro franchise outlets. Furthermore, investment recoupment from the profit generated from the SBLIF initiatives has commenced which is being accumulated for creating a fund for building a Social Business Village. GTT has also Social Business Learning Centre for advocacy, training, and inspiring to undertake social business to leave a signature behind through touching lives, making positive changes for a sustainable world.

### 2. Review of literature

needs for business development services (BDSs) should be sufficiently addressed, e.g., larger and timely credit, training, information, technology, marketing, and consultancy. But, access to finance remains the major constraint for the microenterprise development in Bangladesh. For several decades, microfinance institutions, government agencies, and commercial banks are providing inclusive financial services. Yet, high interest rate, small size of the loan, and weekly or monthly repayment system put debates over the impacts of such loan. Against such backdrop, social business fund along with various technical assistance provided by various Grameen Companies through Nobin Udyokta Program not only provides an opportunity for second-generation microcredit borrowers to grow their business more sustainably but also helps to attain the goal of sustainable development goals (SDGs). This new forms of equity financing for the poor entrepreneurs will not only promote inclusive and sustainable economic growth but also provide opportunity for full and productive employment and decent work for all (SDG:8) which will ultimately end poverty in all its forms everywhere (SDG:1). These aims will be achieved, if the businesses of the Nobin Udyokta grow sustainably. Therefore, the present study has attempted to investigate whether the invested capital has contributed to the firms' growth by increasing total assets as well as number of employment. The research will

finally be expected to answer the following research questions:

206 Entrepreneurship - Development Tendencies and Empirical Approach

1.1. Nobin Udyokta Program (NUP)

business as a tool.

1.2. Grameen Telecom Trust (GTT)

1. Does access to social business fund enhance growth of the microenterprises?

2. Is there any significant relationship between enterprise growth and employment generation?

Nobin Udyokta Program (NUP) is an innovative social business program for turning unemployment into entrepreneurship. Father of Microcredit and Social Business, Nobel Laureate Professor Muhammad Yunus introduced this program since 2014. Based on seven social business principles determined by Professor Mohammad Yunus, four Grameen Companies [Grameen Telecom Trust (GTT); Grameen Trust (GT); Grameen Kalyan (GK); and Grameen Shakti Samajik Byabosha Ltd. (GSSB)] participated in financing NU program. Potential Nobin Udyoktas are usually children of Grameen Bank borrowers whose age limit is 18–35 years, although women entrepreneurs are relaxed from this age bar. The role of Grameen companies is like venture capitalist firm. They identify potential entrepreneurs, incubate, and provide necessary supports for the promotion of their new ventures. Nobin Udyokta programs are the joint investment of the new entrepreneurs and Grameen Company. Innovative feature of this social business investment is that no profit will be taken by the venture capitalist firm, except the processing cost of the funds which in turn helps the business growth and creates more opportunities for more NUs. Inspired by the slogan "We Are Not Job-Seekers, We Are Job-Givers" (Prof Yunus), the NUP is designed for creating a world without poverty using social

Grameen Telecom Trust (GTT) began its journey in 2010, which is the flagship company to implement and facilitate the germination of social business in Bangladesh. In 2006, with an insight of building an equitable and sustainable world, Professor Muhammad Yunus pioneered

#### 2.1. Entrepreneurship development and employment generation through Nobin Udyokta Program

The economy of Bangladesh is emerging with enormous entrepreneurial potentials, as onethird of her population belongs to the ages between 18 and 35 years. Every year nearly 2 million people are entering into the labor force, while only 1 million get employed in domestic and overseas job markets (source: Bangladesh Bank), leaving rest half unemployed. Without entrepreneurial effort from the youths, it is really a big challenge to create new employment opportunities for them. Moreover, one of the most pressing challenges of new entrepreneurs in their early stages of venture is having access to the friendly capital to materialize their innovative ideas or to bring high growth prospects into their innovative venture. Therefore, with adequate flow of venture capital investment fund in the economy, entrepreneurship process can be boosting up. Therefore, Professor Mohammad Yunus initiated Nobin Udyokta program, which aims to support the enterprise of the Grameen Bank's borrowers' children who wants to pursue his or her endeavor as entrepreneur. A lack of management skills is quite a universal constraint among rural, micro, or informal entrepreneurs. Nobin Udyokta Program not only helps entrepreneurs to expand his or her business and runs it better but also helps to manage the business properly in the areas of marketing and accounting and to expand their operations. Therefore, following the path of Grameen Telecom Trust, several other Grameen companies, namely, Grameen Shakti Samajik Byabosha Limited, Grameen Kalyan, and Grameen Trust, have also joined in the program to accelerate the impact of this NU program and created a social business fund and NU division with dedicated staff to operationalize the program.

Up to May 31, 2016, statistical overview of the NU program and employment generation is given in Table 1.

venture capital (VC) positively affects (i) the number of firm starts, (ii) employment, and (iii) aggregate income. Focusing on the advantage of venture capital, they mentioned two basic benefits. (1) Likelihood of potential entrepreneurs to initiate new start-ups will be increased once the supply of venture capital increases. (2) Venture capital firm increases the likelihood of transferring tacit knowledge to their own employees and beneficiaries through demonstration effects. Soerenson and Audia [9] also found similar outcomes of venture capital through demonstration and training effects. Jain and Kini [10] also found that firms financed by venture capital grew faster in sales and in employment. As the evidence from firm-level studies generally suggests that venture capitalists produce value through their pre- and post-investment roles (i.e., through the selection and advising of portfolio companies). The literature on wealth and entrepreneurship suggests that insufficient financial resources may prevent many from starting their own businesses. Without capital infusions, many capitalconstrained entrepreneurs would find it impossible to develop their businesses [8]. Besides firms' growth, employment, and income generation, access to fund or venture capital may

Investment in Microenterprises for Scaling up Business Growth: Evidence from Social Business Project

http://dx.doi.org/10.5772/intechopen.72126

209

Literature review shows evidence of the relationship between entrepreneurship development and access to finance or venture capital. Social business fund being a new form of financial instrument for inclusive entrepreneurial growth, the present study also is an attempt to analyze and address the above mentioned research question and objectives. Thus, the study

Hypothesis 1: There is a significant relationship between access to social business fund and

Hypothesis 2: There is significant relationship between firms' growth and employment

The study will also include two more general assumptions that general education and experience in business operation increase analytical ability to assume opportunities and pursue

Since investing company (venture capitalist) is taking care of their business through mentoring, training, and systematic monitoring, the influence of education and experience was assumed to be less significant. Preliminary analysis (using regression model) did not find any significant impact on education and business experience, therefore, these two hypotheses (3 and 4) have been dropped from the model, and the revised model includes only two independent variables

innovative ideas. Therefore, the following hypotheses have also been developed.

Hypothesis 3: General education has significant relation with enterprise growth.

Hypothesis 4: Business experience has significant relation with enterprise growth.

engender entrepreneurship through spinoffs.

as follows: social business fund as investment.

growth of microenterprises.

generation.

3. Hypothesis development and conceptual framework

develops the following hypotheses and conceptual framework (Figure 1):

#### 2.2. Access to finance and entrepreneurship development

Most business development services do not target the micro- and small-scale enterprises most often run by rural/disadvantaged entrepreneur. Findings of the recent interview of Eva Majurin of ILO identified that SMEs face almost similar difficulties in all countries these include access to finance, skills, access to power, and registration procedure. The report also mentioned that Bangladesh does not have an entrepreneurship development strategy, and the ILO is working with the government and the private sector to develop one [2]. Professor Mohammad Yunus, through his relentless effort to develop entrepreneurship from the bottom of the pyramid, has initiated NU program among the second generation of the Grameen's borrower. Although social business fund is not similar with microcredit, the impact on growth on microenterprises could be similar or more robust than the microcredit because social business fund has overcome the problems of mandatory weekly or monthly repayment system of microcredit. Most of the previous literature has found relationship between access to finance and enterprise growth as a proxy of entrepreneurship development [3–7]. The Grameen Companies providing fund for the Nobin Udyokta Program are playing the role like venture capitalist firm. Samila and Sorenson [8] emphasized on venture capital as one of the important instruments for entrepreneurship development. Using a panel of US metropolitan areas from 1993 to 2002, they find that an increase in the local supply of


Source: "Nobin" a quarterly publication by Grameen Telecom Trust.

Table 1. Statistical overview of the NU program (May 31, 2016).

venture capital (VC) positively affects (i) the number of firm starts, (ii) employment, and (iii) aggregate income. Focusing on the advantage of venture capital, they mentioned two basic benefits. (1) Likelihood of potential entrepreneurs to initiate new start-ups will be increased once the supply of venture capital increases. (2) Venture capital firm increases the likelihood of transferring tacit knowledge to their own employees and beneficiaries through demonstration effects. Soerenson and Audia [9] also found similar outcomes of venture capital through demonstration and training effects. Jain and Kini [10] also found that firms financed by venture capital grew faster in sales and in employment. As the evidence from firm-level studies generally suggests that venture capitalists produce value through their pre- and post-investment roles (i.e., through the selection and advising of portfolio companies). The literature on wealth and entrepreneurship suggests that insufficient financial resources may prevent many from starting their own businesses. Without capital infusions, many capitalconstrained entrepreneurs would find it impossible to develop their businesses [8]. Besides firms' growth, employment, and income generation, access to fund or venture capital may engender entrepreneurship through spinoffs.

### 3. Hypothesis development and conceptual framework

Up to May 31, 2016, statistical overview of the NU program and employment generation is

Most business development services do not target the micro- and small-scale enterprises most often run by rural/disadvantaged entrepreneur. Findings of the recent interview of Eva Majurin of ILO identified that SMEs face almost similar difficulties in all countries these include access to finance, skills, access to power, and registration procedure. The report also mentioned that Bangladesh does not have an entrepreneurship development strategy, and the ILO is working with the government and the private sector to develop one [2]. Professor Mohammad Yunus, through his relentless effort to develop entrepreneurship from the bottom of the pyramid, has initiated NU program among the second generation of the Grameen's borrower. Although social business fund is not similar with microcredit, the impact on growth on microenterprises could be similar or more robust than the microcredit because social business fund has overcome the problems of mandatory weekly or monthly repayment system of microcredit. Most of the previous literature has found relationship between access to finance and enterprise growth as a proxy of entrepreneurship development [3–7]. The Grameen Companies providing fund for the Nobin Udyokta Program are playing the role like venture capitalist firm. Samila and Sorenson [8] emphasized on venture capital as one of the important instruments for entrepreneurship development. Using a panel of US metropolitan areas from 1993 to 2002, they find that an increase in the local supply of

Samajik Byabosha

Grameen Trust Grameen

Kalyan

Limited

2.2. Access to finance and entrepreneurship development

208 Entrepreneurship - Development Tendencies and Empirical Approach

Name of NU investing company Grameen Telecom Trust Grameen Shakti

Source: "Nobin" a quarterly publication by Grameen Telecom Trust.

Table 1. Statistical overview of the NU program (May 31, 2016).

No of NU 2187 1812 1256 403

Male 2148 1727 1232 303 Female 39 85 24 29 NU firms in operation 1833 1604 1069 332 Average business size 4,35,425 3,35,949 1,34,243 1,62,832

Company 32% 39% 33% 43% NU 68% 61% 67% 57% Wage-based new employment creation 1862 Not available 1080 498

Total investment (BDT) 199,546,370 608,739,864 144,435,000

given in Table 1.

Classification of NU

Equity contribution breakdown

Literature review shows evidence of the relationship between entrepreneurship development and access to finance or venture capital. Social business fund being a new form of financial instrument for inclusive entrepreneurial growth, the present study also is an attempt to analyze and address the above mentioned research question and objectives. Thus, the study develops the following hypotheses and conceptual framework (Figure 1):

Hypothesis 1: There is a significant relationship between access to social business fund and growth of microenterprises.

Hypothesis 2: There is significant relationship between firms' growth and employment generation.

The study will also include two more general assumptions that general education and experience in business operation increase analytical ability to assume opportunities and pursue innovative ideas. Therefore, the following hypotheses have also been developed.

Hypothesis 3: General education has significant relation with enterprise growth.

Hypothesis 4: Business experience has significant relation with enterprise growth.

Since investing company (venture capitalist) is taking care of their business through mentoring, training, and systematic monitoring, the influence of education and experience was assumed to be less significant. Preliminary analysis (using regression model) did not find any significant impact on education and business experience, therefore, these two hypotheses (3 and 4) have been dropped from the model, and the revised model includes only two independent variables as follows: social business fund as investment.

Figure 1. Conceptual framework.

### 4. Methodology of the study

This study has taken data from 264 respondents who have taken fund from Grameen Telecom Trust for minimum of 1 year. So that changes due to using social business fund can be observed and measured in quantitative terms. Among 264 respondents, 61 have been selected from Gaibandha, 65 from Jessore, 82 from Rangpur, and 53 from Thakurgaon. Information on the amount of investment, asset growth of Nobin Udyokta's firm, education, and experience of the Nobin Udyokta has been collected from the annual closing report of Grameen Telecom Trust. Regression model has been adopted to see the relationship among the firms' growth, investment in NU, and employment generation. STATA 12 version statistical software has been used to analyze the data.

Based on the result of Hausman specification test, ordinary least square method was confirmed for determining relationship between firm's growth and investment and employment. Ordinary least square (OLS) model applied in this study is given below:

$$
\ln Y = a + \beta 1 \ln X1 + \beta 2 \ln X2 + e \dots \tag{1}
$$

Regression analysis shows that the dependent variable "growth" of the firm is significantly related with investment, which represents that for each unit of invested fund, 79% growth will be achieved by the NU firm (Table 3). This is supported by our model as the model is significant at 99% confidence interval (p value is <0.001) and hypothesis 1 is accepted. Growth of the firm is also expected to increase (by 12%) due to increase in employment, which is also supported through our model as the p value is less than 0.05. The result of R2 suggests that 56% of the variance in firms' growth can be accounted for by the variables in the regression model. Normality test, Breusch-Pagan test for heteroskedasticity, and multicollinearity test

Variable Obs Mean Std. dev. Min Max Investment 264 127422.4 82976.65 30,008 840,006 Education 255 9.639216 2.512025 0 16 Experience 255 6.972549 3.929901 1 20 Total asset 264 483,949 449592.9 81,667 4,841,984 Employment change 264 0.318182 0.4666551 0 1

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Although robust growth has not been achieved, yet as the program duration is very short, only 1 year, R2 is not strong enough. But positive regression coefficients might help us to expect that if social business funds are generated to the capital-constrained entrepreneur, the more economic activities will create more employment opportunities, and firm's growth will continue to be scaling up. Samila and Sorenson [8] based on their research findings also suggested to increase the local supply of venture capital, as they appear to increase both employment and aggregate income in the region. Belke et al. [11] in cross-country panel data analysis also find evidence of employment growth with improved labor-market performance in the presence of

Since the prime objectives of NU program are not to create job seekers rather create job givers, the increased investment in new entrepreneurs' (NU) firm will not only help to reduce unemployment from the rural community but also help their business to grow sustainably. Rural or informal economy is very often rife with long hours, little pay, job insecurity, limited-to-no

ln social business fund 0.792059 0.0464856 17.04 0.000 ln employment 0.12023 0.0537561 2.24 0.026 Constant 3.663851 0.535842 6.84 0.000

R<sup>2</sup> = 0.563; adjusted R<sup>2</sup> = 0.5597; Prob > F = 0.000; number of observation = 264; F (2, 261) = 168.23.

Coefficient Standard error t Value Sig

were also conducted, and all were in line with the theory.

Predictor/independent variable Dependent variable: firms' growth

venture capital.

Table 3. Predictors of firms' growth.

Table 2. Descriptive statistics.

where Y is the growth of the firm (total asset of the firm has been taken as a proxy of the firm's growth); X1 is the investment in terms of amount of social business fund allocated to NU; X2 is the employment generation (1 = increase in employment, 0 = no change in employment); β is the coefficient; ln is the natural log; a is the intercept; and e is the error term.

### 5. Findings of the study

This study analyzed the impact of Grameen Telecom Trust investment on Nobin Udyokta (NU) in order to scale up their microenterprises. The study observed growth impact of 264 firms, which have taken social business fund from Grameen Telecom Trust and utilized them for supporting their ventures for at least 1 year and more. In Table 2, overall description of the variable is provided. Although robust growth cannot be measured within 1 year of investment, prospects of investment could be inspiring for scaling up the NU's small enterprises.


Table 2. Descriptive statistics.

4. Methodology of the study

210 Entrepreneurship - Development Tendencies and Empirical Approach

Figure 1. Conceptual framework.

used to analyze the data.

5. Findings of the study

This study has taken data from 264 respondents who have taken fund from Grameen Telecom Trust for minimum of 1 year. So that changes due to using social business fund can be observed and measured in quantitative terms. Among 264 respondents, 61 have been selected from Gaibandha, 65 from Jessore, 82 from Rangpur, and 53 from Thakurgaon. Information on the amount of investment, asset growth of Nobin Udyokta's firm, education, and experience of the Nobin Udyokta has been collected from the annual closing report of Grameen Telecom Trust. Regression model has been adopted to see the relationship among the firms' growth, investment in NU, and employment generation. STATA 12 version statistical software has been

Based on the result of Hausman specification test, ordinary least square method was confirmed for determining relationship between firm's growth and investment and employment.

where Y is the growth of the firm (total asset of the firm has been taken as a proxy of the firm's growth); X1 is the investment in terms of amount of social business fund allocated to NU; X2 is the employment generation (1 = increase in employment, 0 = no change in employment); β is

This study analyzed the impact of Grameen Telecom Trust investment on Nobin Udyokta (NU) in order to scale up their microenterprises. The study observed growth impact of 264 firms, which have taken social business fund from Grameen Telecom Trust and utilized them for supporting their ventures for at least 1 year and more. In Table 2, overall description of the variable is provided. Although robust growth cannot be measured within 1 year of investment, prospects of investment could be inspiring for scaling up the NU's small enterprises.

ln Y ¼ a þ β1 ln X1 þ β2ln X2 þ e… (1)

Ordinary least square (OLS) model applied in this study is given below:

the coefficient; ln is the natural log; a is the intercept; and e is the error term.

Regression analysis shows that the dependent variable "growth" of the firm is significantly related with investment, which represents that for each unit of invested fund, 79% growth will be achieved by the NU firm (Table 3). This is supported by our model as the model is significant at 99% confidence interval (p value is <0.001) and hypothesis 1 is accepted. Growth of the firm is also expected to increase (by 12%) due to increase in employment, which is also supported through our model as the p value is less than 0.05. The result of R2 suggests that 56% of the variance in firms' growth can be accounted for by the variables in the regression model. Normality test, Breusch-Pagan test for heteroskedasticity, and multicollinearity test were also conducted, and all were in line with the theory.

Although robust growth has not been achieved, yet as the program duration is very short, only 1 year, R2 is not strong enough. But positive regression coefficients might help us to expect that if social business funds are generated to the capital-constrained entrepreneur, the more economic activities will create more employment opportunities, and firm's growth will continue to be scaling up. Samila and Sorenson [8] based on their research findings also suggested to increase the local supply of venture capital, as they appear to increase both employment and aggregate income in the region. Belke et al. [11] in cross-country panel data analysis also find evidence of employment growth with improved labor-market performance in the presence of venture capital.

Since the prime objectives of NU program are not to create job seekers rather create job givers, the increased investment in new entrepreneurs' (NU) firm will not only help to reduce unemployment from the rural community but also help their business to grow sustainably. Rural or informal economy is very often rife with long hours, little pay, job insecurity, limited-to-no


Table 3. Predictors of firms' growth.

benefits, and difficult working conditions [12, 13]. Majority of the Nobin Udyokta operates their business in rural/informal economy, which is mostly characterized by the issue of unemployment, employment inequity, and wage discrimination. Chen et al. [12] posit that building poor or micro entrepreneurs' economic security is fundamental to poverty reduction and that efforts need to focus on the creation of decent work for the youth in the rural economy involving adequate income, employment rights, opportunities for advancement, and social protection. Social business fund could be such an instrument for poverty reduction and rural development as well. Sanders [14] argued that in response to widespread global economic hardship, poverty-reduction measures are abundant with public work programs and microfinance being the most established; therefore, social enterprise, as a newer poverty-reduction model, is gaining growing attention.

over again." In the future, journey of social business program, lessons learned from direct and indirect impact, and researches can establish the power of social business as an alternative tool

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213

[1] Yunus M. Halving Poverty by 2015: We can Actually Make it Happen—Commonwealth Lecture 2003 [Internet]. 11 March, 2003. Available from: https://www.google.com/url? sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0ahUKEwj1z\_WniZ7- VAhUHOY8KHRr6CXYQFggsMAE&url=https%3A%2F%2Fwww.kcl.ac.uk%2Faboutkings %2Fprincipal%2Fdean%2Fakc%2Farchivedhandouts%2Fgeneral%2Fdocs0708%2FAutumn %2FYunusCommonwealthLecture2003.doc&usg=AFQjCNF7Hzz26D6Sji\_4qWXUf34yDt7V\_g

[2] Majurin E. Entrepreneurship: AWay to Combat Unemployment, the Daily Star [Internet]. 7 June, 2016. Available from: http://www.thedailystar.net/business/entrepreneurship-

[3] Akinbola OA, Ogunnaike OO, Tijani AA. Micro financing and entrepreneurial development in Nigeria; the mediating role of marketing. Arabian Journal of Business and

[4] Aftab M, Naveed TA. Role of microfinance institutions in entrepreneurship development in district Gujrat, Pakistan. Journal of Global and Scientific Issues. 2013;1(1):53-69

[5] Olu OJO. Impact of microfinance on entrepreneurial development: The case of Nigeria. In: International Conference on Economics and Administration, November 2009; Faculty

[6] Tariq M, Aleemi AR, Qureshi MA, Shakri IH. Role of microfinance providers (MFPs) on the economic and social welfare of the people in Pakistan. Journal of Business Strategies.

[7] Ferdousi F. Impact of microfinance on sustainable entrepreneurship development. Development Studies Research. 2015;2(1):51-63. DOI: http://dx.doi.org/10.1080/21665095.2015.1058718

of Administration and Business, University of Bucharest, Romania. p. 536-545

for sustainable development goals.

\* and Parveen Mahmud<sup>2</sup>

1 School of Business, Southeast University, Dhaka, Bangladesh

way-combat-unemployment-1235488 [Accessed: May 2016]

Management Review. 2013;1(6):7-19. DOI: 10.12816/0003648

\*Address all correspondence to: dfferdousi@gmail.com

2 Grameen Telecom Trust (GTT), Bangladesh

Author details

Farhana Ferdousi<sup>1</sup>

References

[Accessed: 01-06-2016]

2015;9(2):33-46

#### 6. Conclusion

Sustainable micro entrepreneurship development is a function of adequate access to financial services, various support services, information related with business and management knowledge and skills, efficient market mechanism, etc. Most of the above mentioned instruments are very often an illusion to micro entrepreneurs, especially those that operate in rural/informal economy. Since social business focuses on inclusive business or believes in development from the bottom of the pyramid and addresses issues compatible with sustainable development goals (SDGs), this study could be a milestone for such social enterprises who want to have investment in social purposes. The present study finds a significant positive relationship with investment in micro enterprises and growth of the firm. Growth in physical assets and working capital is an engine for new entrepreneurs' firms. Generating more employment is a promise by the new entrepreneurs, which will further help their enterprise to be scaled up. Thus, more investment is expected from the social enterprises, government partners, and developmental and philanthropic organizations along with sound entrepreneurship development policies and strategies to fight against poverty and unemployment. The initiative of Grameen Telecom Trust (GTT) could be a role model for other stakeholders for achieving an equitable and sustainable development goal.

#### 7. Future research

This is the first empirical initiative to measure the impact of Nobin Udyokta Program, although the program is in an infant stage to see the adequate impact. But now the scope is broadening as the program is moving very fast to keep pace with the demand and emerges as a popular and alternative tool of financial access. Moreover, the research includes only the contribution of Grameen Telecom Trust (GTT). Contribution from other Grameen companies can also be included in future research to see the wider impact. Only financial intervention by Grameen companies is considered for this study. The impact of other technical interventions and the extent of innovation can also be addressed through future researches. According to Prof Yunus, "A dollar in charity has one life; a dollar in social business can be invested over and over again." In the future, journey of social business program, lessons learned from direct and indirect impact, and researches can establish the power of social business as an alternative tool for sustainable development goals.

### Author details

benefits, and difficult working conditions [12, 13]. Majority of the Nobin Udyokta operates their business in rural/informal economy, which is mostly characterized by the issue of unemployment, employment inequity, and wage discrimination. Chen et al. [12] posit that building poor or micro entrepreneurs' economic security is fundamental to poverty reduction and that efforts need to focus on the creation of decent work for the youth in the rural economy involving adequate income, employment rights, opportunities for advancement, and social protection. Social business fund could be such an instrument for poverty reduction and rural development as well. Sanders [14] argued that in response to widespread global economic hardship, poverty-reduction measures are abundant with public work programs and microfinance being the most established; therefore, social enterprise, as a newer poverty-reduction model, is gaining growing attention.

Sustainable micro entrepreneurship development is a function of adequate access to financial services, various support services, information related with business and management knowledge and skills, efficient market mechanism, etc. Most of the above mentioned instruments are very often an illusion to micro entrepreneurs, especially those that operate in rural/informal economy. Since social business focuses on inclusive business or believes in development from the bottom of the pyramid and addresses issues compatible with sustainable development goals (SDGs), this study could be a milestone for such social enterprises who want to have investment in social purposes. The present study finds a significant positive relationship with investment in micro enterprises and growth of the firm. Growth in physical assets and working capital is an engine for new entrepreneurs' firms. Generating more employment is a promise by the new entrepreneurs, which will further help their enterprise to be scaled up. Thus, more investment is expected from the social enterprises, government partners, and developmental and philanthropic organizations along with sound entrepreneurship development policies and strategies to fight against poverty and unemployment. The initiative of Grameen Telecom Trust (GTT) could be a role model for other stakeholders for achieving an

This is the first empirical initiative to measure the impact of Nobin Udyokta Program, although the program is in an infant stage to see the adequate impact. But now the scope is broadening as the program is moving very fast to keep pace with the demand and emerges as a popular and alternative tool of financial access. Moreover, the research includes only the contribution of Grameen Telecom Trust (GTT). Contribution from other Grameen companies can also be included in future research to see the wider impact. Only financial intervention by Grameen companies is considered for this study. The impact of other technical interventions and the extent of innovation can also be addressed through future researches. According to Prof Yunus, "A dollar in charity has one life; a dollar in social business can be invested over and

6. Conclusion

equitable and sustainable development goal.

212 Entrepreneurship - Development Tendencies and Empirical Approach

7. Future research

Farhana Ferdousi<sup>1</sup> \* and Parveen Mahmud<sup>2</sup>

\*Address all correspondence to: dfferdousi@gmail.com


### References


[8] Samila S, Sorenson O. Venture capital, entrepreneurship, and economic growth. The Review of Economics and Statistics. 2011;93(1):338-349. DOI: 10.1162/REST\_a\_00066

**Chapter 11**

**Provisional chapter**

**Social Entrepreneurship in an Inclusive Business Model:**

Business's role in society is expanding; they are held accountable not only for their (traditional) business conduct but also for institutional development that leads to alleviation of poverty as well as institutional development. The aim of the case study is to identify critical factors for the implementation of an inclusive business model. These factors are contextualized at a regional and local level as a part of an ongoing agro-food project. The forestry company's operations in Lao PDR, offers an understanding of challenges related to political, social and financial sourcing conditions in needs of an inclusive business model. Creating the shared values relates to creating job opportunities, embracing gender aspects and engaging in institutional development in marginalized communities. A key factor in the development is a social entrepreneur, who re-creates a new community of practice by coordinating corporate strategies with local and regional needs. This case study offers a narrative of the development of a new context bound business model that positively influences the development of a multinational enterprise, an industry, a local community and academic understanding of what might become a dominant discourse

**Social Entrepreneurship in an Inclusive Business Model:** 

DOI: 10.5772/intechopen.70295

© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution,

© 2018 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

and reproduction in any medium, provided the original work is properly cited.

The notion of a "triple bottom line", (TBL), continues to grow in importance [1]. It refers to the fact that modern business models are expected to address not only economic objectives but also social and environmental values [2]. Contemporary understanding of corporate models for sustainable development also assumes the understanding that the stakeholder toward

**A New Business Model for Sustainable Agroforestry**

**A New Business Model for Sustainable Agroforestry**

Cecilia Mark-Herbert and Brita Prejer

Cecilia Mark-Herbert and Brita Prejer

http://dx.doi.org/10.5772/intechopen.70295

**Abstract**

Additional information is available at the end of the chapter

for industrial upgrade and sustainable development.

sustainable enterprise business model

**Keywords:** agroforestry, entrepreneur, local knowledge, stakeholder network,

**1. Challenges for developing an inclusive business model**

Additional information is available at the end of the chapter


**Provisional chapter**

### **Social Entrepreneurship in an Inclusive Business Model: A New Business Model for Sustainable Agroforestry A New Business Model for Sustainable Agroforestry**

**Social Entrepreneurship in an Inclusive Business Model:** 

DOI: 10.5772/intechopen.70295

Cecilia Mark-Herbert and Brita Prejer Additional information is available at the end of the chapter

Cecilia Mark-Herbert and Brita Prejer

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.70295

#### **Abstract**

[8] Samila S, Sorenson O. Venture capital, entrepreneurship, and economic growth. The Review of Economics and Statistics. 2011;93(1):338-349. DOI: 10.1162/REST\_a\_00066 [9] Sorenson O, Audia PG. The social structure of entrepreneurial activity: Geographic concentration of footwear production in the United States, 1940–1989. American Journal of

[10] Jain BA, Kini O. Venture capitalist participation and the post-issue operating performance of IPO firms. Managerial and Decision Economics. 1995;16(6):593-606. DOI:

[11] Belke A, Fehn R, Foster N. Does venture capital investment spur employment growth?

[12] Chen M, Vanek J, Lund F, Heintz J, Jhabvala R, Bonner C. Progress of the World's [Internet]. 2005. Available from: www.unifem.org/ [Accessed: 17 February 2013]

[13] United Nations. The Millennium Development Goals Report [Internet]. 2012. Available

[14] Sanders CK. Employment options for low-income women: Microenterprise versus the labor market. Social Work Research. 2004;28(2):84-92. DOI: https://doi.org/10.1093/swr/

Sociology. 2000;106(2):424-462. DOI: https://doi.org/10.1086/316962

10.1002/mde.4090160603

28.2.83

CEPS Working Document. 2003;197:24

214 Entrepreneurship - Development Tendencies and Empirical Approach

from: www.un.org/ [Accessed: 28 May 2013]

Business's role in society is expanding; they are held accountable not only for their (traditional) business conduct but also for institutional development that leads to alleviation of poverty as well as institutional development. The aim of the case study is to identify critical factors for the implementation of an inclusive business model. These factors are contextualized at a regional and local level as a part of an ongoing agro-food project. The forestry company's operations in Lao PDR, offers an understanding of challenges related to political, social and financial sourcing conditions in needs of an inclusive business model. Creating the shared values relates to creating job opportunities, embracing gender aspects and engaging in institutional development in marginalized communities. A key factor in the development is a social entrepreneur, who re-creates a new community of practice by coordinating corporate strategies with local and regional needs. This case study offers a narrative of the development of a new context bound business model that positively influences the development of a multinational enterprise, an industry, a local community and academic understanding of what might become a dominant discourse for industrial upgrade and sustainable development.

**Keywords:** agroforestry, entrepreneur, local knowledge, stakeholder network, sustainable enterprise business model

### **1. Challenges for developing an inclusive business model**

The notion of a "triple bottom line", (TBL), continues to grow in importance [1]. It refers to the fact that modern business models are expected to address not only economic objectives but also social and environmental values [2]. Contemporary understanding of corporate models for sustainable development also assumes the understanding that the stakeholder toward

© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons

whom the corporation is responsible needs to include a wide set of stakeholders including society at large. Porter and Kramer [4] refer this as the creation of "shared value".

study was selected. A flexible research design gave room for an abductive process in which literature reviews and empirical work were interwoven. In what Robson [12] refers to as real world research, studies of contemporary phenomena, it is challenging to decide on particular fixed frameworks and tools *ex ante,* so a flexible design, meaning constantly reconsidering both theoretical framework and empirical research conduct, has led to mind-breaking empirical findings and an awareness of alternative conceptual frameworks that could have been used. We had an epistemological starting point of the triple bottom line and understanding of the importance of stakeholder theory. These starting points were complemented with vast reviews of the entrepreneurship literature, in particular that related to social entrepreneurship. The selected case study was a commission project that filled our needs in terms of the following criteria: a corporation that had or was in the process of developing an inclusive business model, willingness to share data about the process, and an additional criterion can be added that we were not aware of the importance of at the time of making research plans. It relates to the context in which this business model is developed and managed, the cultural, financial,

Social Entrepreneurship in an Inclusive Business Model: A New Business Model for Sustainable…

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217

social and environmental context offered by business operations in Lao PDR.

carried out with the assistance of a translator.

**3. A conceptual framework**

the use of rigors research conduct including a case protocol.

understanding of management in socially complex environments.

Primary data collection was carried out in ten semi-structured personal interviews with various stakeholders representing groups that were part of or influenced by Stora Enso's Rethink project. Stakeholders were identified with support from employees of Stora Enso and the recent UNDP report [13] about the project. The interviews were summarized and made available for the interviewee when that was technically possible. A number of interviews were

The process of qualitative data analysis is context bound and not fully predictable, and in particular, when working with narratives, new categories can occur that contribute to the initial contextual framework. Narrative analysis based on multiple information sources is applied in this project, and various techniques, such as matching and organizing data in tables and graphs was used to facilitate categorization [14]. Efforts made to ensure research quality includes the understanding of creating construct and internal validity through triangulation of data, external validity through caution in generalizing the results and reliability through

Corporate social responsibility represents an evolving research field that offers a wide set of terms and theories, some of which are complex and indistinct [15, 16]. This section expands on CSR as a conceptual framework and underlines ideas and concepts that can extend the

Ultimately, CSR is about the role of business in society and the fact that companies "have an obligation to work toward meeting the needs of a wider array of stakeholders" ([17], p. 244). Society at large, in particular media and NGO's hold businesses accountable for issues that were not seen as business responsibilities twenty years ago [18]. External pressures, expectations, from wide set of stakeholders may thus serve as motives for rethinking a business model.

Assuming that corporations not only accept the notion of being held accountable for the past and current actions but also embrace forward looking understandings of corporate social responsibility (CSR), what is expected of the new business model? In order to include a vast number of stakeholders' interests the model would have to be inclusive [3], in other words connected to the context in which it is developed. Developing a new business model is not merely a minor modification of existing theories, it refers to an entirely new epistemological chapter [5], new models where corporate the raison d'être is closely connected to societal needs [6]. The call for inclusive business models is associated with corporate challenges as well as opportunities. Communicating awareness of social and environmental values in strategic documents without enacting these values would quickly be labeled as greenwash. The corporation thus has to find ways to operationalize CSR on a strategic level as well as in daily operations. This is especially challenging for large corporations and multinational companies that, due to their complex and extensive character [7, 8].

The fastest growing markets of today are those in emerging economies [9, 10]. These markets have inspired Prahalad and Hart [7] to develop a conceptual model called base of the pyramid (BOP) that focuses on adapting business models to the local conditions. It is not a question of bringing western systems to developing economies. It is rather about innovation and fundamental changes of strategy to create business models that are economically sustainable and in line with the needs of local communities [7] in order to move beyond philanthropy and focus on common prosperity, referred to as "shared value" by Porter and Kramer [4].

*The aim of this study is to identify critical factors for the implementation and management of an inclusive business model.* These factors are contextualized at a regional and local level in an emerging economy setting as a part of an ongoing agro-food project in a multinational corporation.

In short, the empirical study that is presented on the following pages has its roots in a corporation, Stora Enso, that was willing to rethink their business model (the name happens to be "RETHINK"), two entrepreneurs that knew all about the context in which the model was developed and researchers that are fortunate to get the data about the ongoing project aimed at sustainable development [11]. After reviewing the literature, challenges for development of an inclusive business model seemed to outnumber the possible advantages and the empirical study started with doubts; how can this be done in practice? How can the existing corporate structure and values be adapted to the local and regional conditions? This case study offers a narrative of the development and implementation of a new business model. The context for the forestry-based business model is one of the poorest countries in Asia, Lao PDR. The case offers clarity to our questions, but before presenting the empirical case, a short presentation of approach, key concepts and an empirical background.

### **2. Approach: a holistic view on a case bound case study**

Based on the research objective and the realization that a holistic approach would offer a context bound understanding of the phenomenon (an inclusive business model), a single case study was selected. A flexible research design gave room for an abductive process in which literature reviews and empirical work were interwoven. In what Robson [12] refers to as real world research, studies of contemporary phenomena, it is challenging to decide on particular fixed frameworks and tools *ex ante,* so a flexible design, meaning constantly reconsidering both theoretical framework and empirical research conduct, has led to mind-breaking empirical findings and an awareness of alternative conceptual frameworks that could have been used. We had an epistemological starting point of the triple bottom line and understanding of the importance of stakeholder theory. These starting points were complemented with vast reviews of the entrepreneurship literature, in particular that related to social entrepreneurship.

The selected case study was a commission project that filled our needs in terms of the following criteria: a corporation that had or was in the process of developing an inclusive business model, willingness to share data about the process, and an additional criterion can be added that we were not aware of the importance of at the time of making research plans. It relates to the context in which this business model is developed and managed, the cultural, financial, social and environmental context offered by business operations in Lao PDR.

Primary data collection was carried out in ten semi-structured personal interviews with various stakeholders representing groups that were part of or influenced by Stora Enso's Rethink project. Stakeholders were identified with support from employees of Stora Enso and the recent UNDP report [13] about the project. The interviews were summarized and made available for the interviewee when that was technically possible. A number of interviews were carried out with the assistance of a translator.

The process of qualitative data analysis is context bound and not fully predictable, and in particular, when working with narratives, new categories can occur that contribute to the initial contextual framework. Narrative analysis based on multiple information sources is applied in this project, and various techniques, such as matching and organizing data in tables and graphs was used to facilitate categorization [14]. Efforts made to ensure research quality includes the understanding of creating construct and internal validity through triangulation of data, external validity through caution in generalizing the results and reliability through the use of rigors research conduct including a case protocol.

### **3. A conceptual framework**

whom the corporation is responsible needs to include a wide set of stakeholders including

Assuming that corporations not only accept the notion of being held accountable for the past and current actions but also embrace forward looking understandings of corporate social responsibility (CSR), what is expected of the new business model? In order to include a vast number of stakeholders' interests the model would have to be inclusive [3], in other words connected to the context in which it is developed. Developing a new business model is not merely a minor modification of existing theories, it refers to an entirely new epistemological chapter [5], new models where corporate the raison d'être is closely connected to societal needs [6]. The call for inclusive business models is associated with corporate challenges as well as opportunities. Communicating awareness of social and environmental values in strategic documents without enacting these values would quickly be labeled as greenwash. The corporation thus has to find ways to operationalize CSR on a strategic level as well as in daily operations. This is especially challenging for large corporations and multinational companies

The fastest growing markets of today are those in emerging economies [9, 10]. These markets have inspired Prahalad and Hart [7] to develop a conceptual model called base of the pyramid (BOP) that focuses on adapting business models to the local conditions. It is not a question of bringing western systems to developing economies. It is rather about innovation and fundamental changes of strategy to create business models that are economically sustainable and in line with the needs of local communities [7] in order to move beyond philanthropy and focus

*The aim of this study is to identify critical factors for the implementation and management of an inclusive business model.* These factors are contextualized at a regional and local level in an emerging economy setting as a part of an ongoing agro-food project in a multinational corporation. In short, the empirical study that is presented on the following pages has its roots in a corporation, Stora Enso, that was willing to rethink their business model (the name happens to be "RETHINK"), two entrepreneurs that knew all about the context in which the model was developed and researchers that are fortunate to get the data about the ongoing project aimed at sustainable development [11]. After reviewing the literature, challenges for development of an inclusive business model seemed to outnumber the possible advantages and the empirical study started with doubts; how can this be done in practice? How can the existing corporate structure and values be adapted to the local and regional conditions? This case study offers a narrative of the development and implementation of a new business model. The context for the forestry-based business model is one of the poorest countries in Asia, Lao PDR. The case offers clarity to our questions, but before presenting the empirical case, a short presentation of approach, key concepts and an empirical background.

Based on the research objective and the realization that a holistic approach would offer a context bound understanding of the phenomenon (an inclusive business model), a single case

on common prosperity, referred to as "shared value" by Porter and Kramer [4].

**2. Approach: a holistic view on a case bound case study**

society at large. Porter and Kramer [4] refer this as the creation of "shared value".

that, due to their complex and extensive character [7, 8].

216 Entrepreneurship - Development Tendencies and Empirical Approach

Corporate social responsibility represents an evolving research field that offers a wide set of terms and theories, some of which are complex and indistinct [15, 16]. This section expands on CSR as a conceptual framework and underlines ideas and concepts that can extend the understanding of management in socially complex environments.

Ultimately, CSR is about the role of business in society and the fact that companies "have an obligation to work toward meeting the needs of a wider array of stakeholders" ([17], p. 244). Society at large, in particular media and NGO's hold businesses accountable for issues that were not seen as business responsibilities twenty years ago [18]. External pressures, expectations, from wide set of stakeholders may thus serve as motives for rethinking a business model.

#### **3.1. An inclusive business model**

Corporate social responsibility is expressed in relationships between business and society, in strategies, conduct and communication. A strategic approach to CSR implies a focus on how to achieve competitive advantage through finding intersecting points of interest between business and society. A concept developed to describe this phenomenon is creating shared value (CSV) [4]. CSV is based on the idea that "a business needs a successful community, not only to create demand for its products but also to provide critical public assets and a supportive environment" ([4], p. 66). However the implementation and management of CSV is a complex process which depends on a firm's culture context and strategy [19], and there is still a need for examples of how the strategy can be operationalized.

CSR may also be interpreted from a less instrumental perspective, leaving the strategic management behind, focusing on ethical or political aspects of corporate conduct. A political CSR view [20, 21] highlights the importance of adapting CSR to the context [17, 20, 22] for creating the shared value. Local institutions and culture inevitably have an effect on operations of the firm and sets the structure of the company's responsibilities [20]. Societal needs such as health care, security, logistical networks and education are commonly seen as primary responsibilities of governments—but in the perspective of political CSR these needs are incorporated in an extended stakeholder definition and interpretation of corporate responsibilities. The extended interpretation of platforms for CSR is interpreted by McElhaney [23] as different levels where corporate conduct influences society (**Figure 1**).

**Figure 1** illustrates that CSR can be expressed in various ways, ranging from local engagement at a facility, influencing the immediate community, to political CSR expressed in powerful positions influencing industrial development in a long-term perspective. Accordingly, continued globalization and increasing international trade may lead to corporate opportunities to contribute to sustainable development in local as well as global development [17] but it would assume an inclusive corporate model. The change agents that may develop an inclusive business model can be referred to as social entrepreneurs.

Our interpretation of social entrepreneurship relates to context bound [28] entrepreneurial activities with embedded social purposes [29] that may be carried out by an individual or a group of individuals [25]. These entrepreneurial activities are carried out in specific organizational and institutional context, which points to difficulties to generalize. As expressed by Austin et al. ([26], p. 16) *"What might be deemed an unfavorable contextual factor for marketbased commercial entrepreneurship could be seen as an opportunity for a social entrepreneur aiming to* 

Take responsibility for our full impact 219

environmental, and economic) Take responsibility to adjacent industries Take responsibility for global

condions (climate change, global inter-dependence

**World** 

(social,

http://dx.doi.org/10.5772/intechopen.70295

Develop codes of conduct for the industry Build strong coalions to eect and enforce these codes

Innovate and demonstrate restorave business pracces Influence the industry indirectly by serving as an example

Social Entrepreneurship in an Inclusive Business Model: A New Business Model for Sustainable…

Support local communies (philanthropy, in direct programs, employee matching and volunteering) Reduce waste, consumpon and emissions **Company Community Industry** 

**Figure 1.** Corporate Social Responsibility as platforms for creating values ([23], p. 22).

etc.)

A stable institutional environment is crucial in market development [30]. An institutional environment may refer to financial and legal institutions, political governance, educational systems and many other resources that in the case of many emerging economies are underdeveloped. Shortcomings of these systems imply increased corporate costs but also opportunities for corporate management to develop and get access to resources, so-called inclusive networks [31]. An inclusive network implicates interactions between individuals, communities, organizations and companies and can serve as a structure for creating predictability in an unstable environment thus creating opportunities for economic activity. One way of gaining access to an inclusive network is to implement an issue focused view of stakeholders [31], which implies that the firm identifies and addresses issues that are of interest to various stakeholders, and thereby develop and participate in issue driven networks. Social entrepreneurship may thus be based on a common interest and it is not only adapting to the context,

it also influences the context [28] for example a local market or community.

*address social need arising from market failure".*

**3.3. The importance of context**

**World Industry** 

**Community** 

**Company**

Transform mulple **industries** 

Transform an industry Be a beacon to others

Be a good neighbor

Run a good business

Give something back

Provide access to tools/ product Disaster relief

#### **3.2. Corporate social entrepreneurship**

Michelini and Fiorentino [9] present corporate social entrepreneurship (CSE) and inclusive business models as potential strategies for creating shared value and finding new business opportunities. The concept of a new business model, in this particular context, implies that "the triple bottom line" and "shared values" are operationalized and implemented, not only in longterm strategies, but also in the actual daily operations and management of day to day business.

CSE is the process in which a basis for shared values is identified. An inclusive business model is formed when the local community is involved as a business partner in operations to generate long-term value for the company and the community [9]. Both of these concepts highlight the discussion of management and the various ways of approaching a new business environment.

The strategy of social entrepreneurship (**Table 1**) suggests that there are central elements of responsiveness and innovation in the process of finding business opportunities in a socially challenging context.


**Figure 1.** Corporate Social Responsibility as platforms for creating values ([23], p. 22).

Our interpretation of social entrepreneurship relates to context bound [28] entrepreneurial activities with embedded social purposes [29] that may be carried out by an individual or a group of individuals [25]. These entrepreneurial activities are carried out in specific organizational and institutional context, which points to difficulties to generalize. As expressed by Austin et al. ([26], p. 16) *"What might be deemed an unfavorable contextual factor for marketbased commercial entrepreneurship could be seen as an opportunity for a social entrepreneur aiming to address social need arising from market failure".*

#### **3.3. The importance of context**

**3.1. An inclusive business model**

218 Entrepreneurship - Development Tendencies and Empirical Approach

Corporate social responsibility is expressed in relationships between business and society, in strategies, conduct and communication. A strategic approach to CSR implies a focus on how to achieve competitive advantage through finding intersecting points of interest between business and society. A concept developed to describe this phenomenon is creating shared value (CSV) [4]. CSV is based on the idea that "a business needs a successful community, not only to create demand for its products but also to provide critical public assets and a supportive environment" ([4], p. 66). However the implementation and management of CSV is a complex process which depends on a firm's culture context and strategy [19], and there is still

CSR may also be interpreted from a less instrumental perspective, leaving the strategic management behind, focusing on ethical or political aspects of corporate conduct. A political CSR view [20, 21] highlights the importance of adapting CSR to the context [17, 20, 22] for creating the shared value. Local institutions and culture inevitably have an effect on operations of the firm and sets the structure of the company's responsibilities [20]. Societal needs such as health care, security, logistical networks and education are commonly seen as primary responsibilities of governments—but in the perspective of political CSR these needs are incorporated in an extended stakeholder definition and interpretation of corporate responsibilities. The extended interpretation of platforms for CSR is interpreted by McElhaney [23] as different

**Figure 1** illustrates that CSR can be expressed in various ways, ranging from local engagement at a facility, influencing the immediate community, to political CSR expressed in powerful positions influencing industrial development in a long-term perspective. Accordingly, continued globalization and increasing international trade may lead to corporate opportunities to contribute to sustainable development in local as well as global development [17] but it would assume an inclusive corporate model. The change agents that may develop an inclu-

Michelini and Fiorentino [9] present corporate social entrepreneurship (CSE) and inclusive business models as potential strategies for creating shared value and finding new business opportunities. The concept of a new business model, in this particular context, implies that "the triple bottom line" and "shared values" are operationalized and implemented, not only in longterm strategies, but also in the actual daily operations and management of day to day business. CSE is the process in which a basis for shared values is identified. An inclusive business model is formed when the local community is involved as a business partner in operations to generate long-term value for the company and the community [9]. Both of these concepts highlight the discussion of management and the various ways of approaching a new business environment. The strategy of social entrepreneurship (**Table 1**) suggests that there are central elements of responsiveness and innovation in the process of finding business opportunities in a socially

a need for examples of how the strategy can be operationalized.

levels where corporate conduct influences society (**Figure 1**).

sive business model can be referred to as social entrepreneurs.

**3.2. Corporate social entrepreneurship**

challenging context.

A stable institutional environment is crucial in market development [30]. An institutional environment may refer to financial and legal institutions, political governance, educational systems and many other resources that in the case of many emerging economies are underdeveloped. Shortcomings of these systems imply increased corporate costs but also opportunities for corporate management to develop and get access to resources, so-called inclusive networks [31]. An inclusive network implicates interactions between individuals, communities, organizations and companies and can serve as a structure for creating predictability in an unstable environment thus creating opportunities for economic activity. One way of gaining access to an inclusive network is to implement an issue focused view of stakeholders [31], which implies that the firm identifies and addresses issues that are of interest to various stakeholders, and thereby develop and participate in issue driven networks. Social entrepreneurship may thus be based on a common interest and it is not only adapting to the context, it also influences the context [28] for example a local market or community.


whole new corporate model called "Rethink" [11]. However, the company has received extensive critique from various stakeholders for not taking enough responsibility for the socioeconomic effects of their operations. The expansion of *Eucalyptus* plantations in China has been particularly noted and criticized by NGOs and media. In China, the substantial amount of land utilized has led to land conflicts with local populations caused by great dissatisfaction associated with the pricing of land and the handling of land rights by governmental local

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221

With lessons learned from China, Stora Enso decided to expand their operations into the country of Lao PDR in 2006. Lao PDR offers a close to perfect biological setting for running successful *Eucalyptus* plantations, but it also possess a rather unique set of challenges, related to the institutional environment. Despite a growing economy in the urban areas, the rural parts of Lao PDR are still suffering from poverty. An extensive bureaucracy and corruption have prevented economic development from reaching the rural parts of the country, where lack of knowledge leads to continued extensive use of shifting cultivation that causes food insecurity and extensive deforestation. In addition, there are great challenges related to the remains of the Vietnam War. These remains are unexploded ordinance (UXO), cluster bombs that have a high failure rate (30%) and therefore pose a risk of explosion when removed [36].

As Stora Enso started to plan for possible activity in Lao PDR (hereby referred to as Laos), the first step was to investigate the availability of land. Stora Enso hired Mr. Fogde as a consultant due to extensive local knowledge and thirty years of experience from the forest industry in

The investigation showed that there were plenty of suitable land, but Mr. Fogde indicated that the business model could not be structured in the traditional way as the ground had to be cleared from UXO to ensure safety and a long-term perspective in using the land. The next step in the process was to conduct a socio-economic study in the area. The study consisted of visits to the villages, surveys and interviews with the members of the villages were conducted. Ms. Axelsson, who had her educational background in South East Asia science, was one of the persons who conducted the study, and at a later stage she was hired by Stora Enso

The beneficial conditions for forestry in the country in combination with the socio-economic survey formed the basis of the business model. Through positive experiences at Stora Enso's testing-operations in Thailand the idea of implementing agroforestry became relevant. By combining *Eucalyptus* with rice in the plantations and hiring locals as daily workers, the villages could get access to yields of rice that are significantly higher than yields from shifting cultivation, also known as "slash and burn", which is the traditional method. Moreover, including the villagers in the fundamental part of the business model decreases the risk of conflicts as the villages have a traditional right to the land surrounding the village. As the majority of land in Lao PDR has not undergone any classification or division of property, the

These UXOs limit the land use for cultivation and other uses.

**4.1. The development of an agroforestry model**

as the CSR and HR-manager in Laos.

authorities [35].

Laos.

**Table 1.** A few academic perspectives on social entrepreneurship.

### **4. Empirics: "Rethink", Stora Enso's inclusive business model in Laos**

The forest-based industry has some specific characteristics that make it particularly interesting from the perspective of CSR [32]. Forest areas cover about 30 % of the land of world ([33], p. 11); and as stated by Mikkilä ([33], p. 11) "millions of people interact frequently with the forests and are directly or indirectly dependent on them". Accordingly, the resource based character of the forestry industry implies that forest companies inevitably have an impact on the socio-economic conditions in the area in which they operate [33]. Hence, there is a clear connection between the forest industry and poverty alleviation as a large number of individuals' livelihoods depends on land and forest-based resources.

One of the world's largest industry groups in the pulp and paper sector today is the Nordic forestry company Stora Enso. The group has about 30,000 employees in 35 countries and is active within four major business areas: printing and reading, renewable packaging, biomaterials and building and living [34]. Stora Enso sources most of its wood from Sweden, Finland, the Baltic countries and Russia but is increasingly focusing on markets and plantation sources in Latin America, China and Southeast Asia [34]. The objective of the expansions is to meet an increased demand for pulp and paper products in these areas. In 1999 the Stora Enso group published their first environmental and social policy, and in 2011 the group introduced a whole new corporate model called "Rethink" [11]. However, the company has received extensive critique from various stakeholders for not taking enough responsibility for the socioeconomic effects of their operations. The expansion of *Eucalyptus* plantations in China has been particularly noted and criticized by NGOs and media. In China, the substantial amount of land utilized has led to land conflicts with local populations caused by great dissatisfaction associated with the pricing of land and the handling of land rights by governmental local authorities [35].

With lessons learned from China, Stora Enso decided to expand their operations into the country of Lao PDR in 2006. Lao PDR offers a close to perfect biological setting for running successful *Eucalyptus* plantations, but it also possess a rather unique set of challenges, related to the institutional environment. Despite a growing economy in the urban areas, the rural parts of Lao PDR are still suffering from poverty. An extensive bureaucracy and corruption have prevented economic development from reaching the rural parts of the country, where lack of knowledge leads to continued extensive use of shifting cultivation that causes food insecurity and extensive deforestation. In addition, there are great challenges related to the remains of the Vietnam War. These remains are unexploded ordinance (UXO), cluster bombs that have a high failure rate (30%) and therefore pose a risk of explosion when removed [36]. These UXOs limit the land use for cultivation and other uses.

#### **4.1. The development of an agroforestry model**

**4. Empirics: "Rethink", Stora Enso's inclusive business model in Laos**

**Perspective The contribution points to… Sources**

to the context bound nature of the concept

with Social Value Proposition (SVP) in the center

Needs for contextualizing the field of research for

Various approaches to value creation in low-income communities: social business models and inclusive business

corporate governance

and entrepreneurship

entrepreneurship

objectives

models

**Table 1.** A few academic perspectives on social entrepreneurship.

The importance of looking at social entrepreneurship in

The use of the concept social entrepreneurship with different meanings, which points to needs for defining the concept when using it. The authors also point to difficulties to generalize due

Commonalities and differences between social and commercial entrepreneurship. Revised social entrepreneurship framework

Outline of research done and suggestions for future directions in the research area concerned with sustainable development

Differences and similarities between social and commercial

Keijzers [24]

Peredo and McLean [25]

Austin et al. [26]

Hall et al. [27]

Welter [28]

Austin et al. [29]

Michelini and Fiorentino [9]

The transition to the sustainable

220 Entrepreneurship - Development Tendencies and Empirical Approach

Social entrepreneurship as an

Exploratory comparative analysis of business entrepreneurship and social entrepreneur ship

enterprise

"untidy concept"

The important role of entrepreneurship in sustainable

Impact of context on entrepreneurship, social embeddedness

Motives and outcomes from a social and commercial

entrepreneurship as the base for

development

perspective

Corporate social

new business models

als' livelihoods depends on land and forest-based resources.

The forest-based industry has some specific characteristics that make it particularly interesting from the perspective of CSR [32]. Forest areas cover about 30 % of the land of world ([33], p. 11); and as stated by Mikkilä ([33], p. 11) "millions of people interact frequently with the forests and are directly or indirectly dependent on them". Accordingly, the resource based character of the forestry industry implies that forest companies inevitably have an impact on the socio-economic conditions in the area in which they operate [33]. Hence, there is a clear connection between the forest industry and poverty alleviation as a large number of individu-

One of the world's largest industry groups in the pulp and paper sector today is the Nordic forestry company Stora Enso. The group has about 30,000 employees in 35 countries and is active within four major business areas: printing and reading, renewable packaging, biomaterials and building and living [34]. Stora Enso sources most of its wood from Sweden, Finland, the Baltic countries and Russia but is increasingly focusing on markets and plantation sources in Latin America, China and Southeast Asia [34]. The objective of the expansions is to meet an increased demand for pulp and paper products in these areas. In 1999 the Stora Enso group published their first environmental and social policy, and in 2011 the group introduced a As Stora Enso started to plan for possible activity in Lao PDR (hereby referred to as Laos), the first step was to investigate the availability of land. Stora Enso hired Mr. Fogde as a consultant due to extensive local knowledge and thirty years of experience from the forest industry in Laos.

The investigation showed that there were plenty of suitable land, but Mr. Fogde indicated that the business model could not be structured in the traditional way as the ground had to be cleared from UXO to ensure safety and a long-term perspective in using the land. The next step in the process was to conduct a socio-economic study in the area. The study consisted of visits to the villages, surveys and interviews with the members of the villages were conducted. Ms. Axelsson, who had her educational background in South East Asia science, was one of the persons who conducted the study, and at a later stage she was hired by Stora Enso as the CSR and HR-manager in Laos.

The beneficial conditions for forestry in the country in combination with the socio-economic survey formed the basis of the business model. Through positive experiences at Stora Enso's testing-operations in Thailand the idea of implementing agroforestry became relevant. By combining *Eucalyptus* with rice in the plantations and hiring locals as daily workers, the villages could get access to yields of rice that are significantly higher than yields from shifting cultivation, also known as "slash and burn", which is the traditional method. Moreover, including the villagers in the fundamental part of the business model decreases the risk of conflicts as the villages have a traditional right to the land surrounding the village. As the majority of land in Lao PDR has not undergone any classification or division of property, the process of determining which land that belongs to the villagers has to be conducted by Stora Enso in collaboration with villagers. This, however, serves as a benefit when applying for land concessions from the government as the inclusive approach increases trustworthiness and makes it possible to avoid the prevailing procedures characterized by corruption. After the completion of an in-depth socio-economic study in the region, the structure of the business model developed. As the rotation period of a *Eucalyptus* tree is seven years, the model came to include seven steps (**Figure 2**).

Due to the socio-economic conditions and the expectations from Stora Enso, the team, led by Mr. Fogde and Ms. Axelsson realized that the business model had to be built *from the bottom up* in the process of getting land concession, building a functional organization and finding employees. For example the administrative process started with a discussion with the village chief who communicated to members of the villages, and then to the office of the district. Also, an organization structure and a policy of hiring locally, from Laotian universities on senior level, and villages on junior level, were developed. To include village members they were offered to work and paid per hour during planting and harvesting season. Moreover, built in to the idea of organization structure was the possibility of communication through all the levels of the organization as the senior roles could handle English and Lao, and the junior roles could handle Lao and the local language of the villages. Also, in order to increase the direct communication the districts and plantations were visited by one of the head offices

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Agroforestry is not a new concept, but the use of agroforestry on an industrial scale is new. What started on a limited acreage is gradually scaled up to an industrial scale. This is in this process that the inclusive business model is developed. The agroforestry business model illustrates a rationale for the operationalization of triple bottom line [2] and how including stakeholders early in the development process can create what Porter and Kramer [4] refer to as shared values. The critical factors and the inclusive aspects of the model are illustrated in **Figure 3**. These four critical factors can serve as a starting point when discussing the development and management of new business models in emerging economies (or BOP, as worded by [7]) . The factors can be seen as phases in a process of developing an alternative business model, as well

A number of interdependent factors influence the implementation of the new business model. The first factor, **corporate commitment**, requires changing fundamental parts of the existing business model aiming for sustainable development. In this case the change was driven by the new corporate identity and experience from situations where the traditional model had led to

**Identifying** key resources for the development of a new business model can not only be managed at a corporate level, as it requires a local and national connection as well. One of the most critical factors from this perspective is the involvement of social entrepreneurs and individuals who possess the local knowledge and have experience from running business in

In the continued process, the **inclusion** of stakeholders in a dialogue to develop an understanding of shared values enables access to a network, for example with NGO's, civil society and government departments. Hence, the identification of shared values is not only a strategy of developing the business model itself. The identification of shared values may also offer

managers every ten days.

**5. Critical factors for an inclusive business model**

as a process of internal acceptance of alternative corporate governance.

conflicts and critique from external stakeholders.

the country.

After land concession is granted and UXO are cleared, the Eucalyptus trees are planted with the intercrop, in this case, rice. Planting is managed by staff recruited from agriculture and forestry-based educational programs in the country, together with local villagers who are educated by managers in the planting of rice and Eucalyptus. Growing rice is possible for the first two years but then has to be replaced by cash crops and suitable grazing crops for livestock.

#### **4.2. The role of social entrepreneurs**

Mr. Fogde's 30 years of experience in Laos, serving as the COO of Stora Enso Laos, has resulted in a wide network of contacts and an understanding of the social and institutional mechanisms of the country. Insights from a socio-economic study, carried out by Ms. Axelsson, gave a detailed insight in to the social opportunities and challenges of the region. Their vast understanding and the corporate ambitions from headquarters of Stora Enso served as key enabling factors for developing a best practice beyond legal requirements, as a counter weight to projects in other countries that had failed to meet expectations on social and environmental sustainability.

**Figure 2.** A seven-year rotational model of the agroforestry model with Eucalyptus and rice/cash crop/grazing ([11], p. 31).

Due to the socio-economic conditions and the expectations from Stora Enso, the team, led by Mr. Fogde and Ms. Axelsson realized that the business model had to be built *from the bottom up* in the process of getting land concession, building a functional organization and finding employees. For example the administrative process started with a discussion with the village chief who communicated to members of the villages, and then to the office of the district. Also, an organization structure and a policy of hiring locally, from Laotian universities on senior level, and villages on junior level, were developed. To include village members they were offered to work and paid per hour during planting and harvesting season. Moreover, built in to the idea of organization structure was the possibility of communication through all the levels of the organization as the senior roles could handle English and Lao, and the junior roles could handle Lao and the local language of the villages. Also, in order to increase the direct communication the districts and plantations were visited by one of the head offices managers every ten days.

### **5. Critical factors for an inclusive business model**

process of determining which land that belongs to the villagers has to be conducted by Stora Enso in collaboration with villagers. This, however, serves as a benefit when applying for land concessions from the government as the inclusive approach increases trustworthiness and makes it possible to avoid the prevailing procedures characterized by corruption. After the completion of an in-depth socio-economic study in the region, the structure of the business model developed. As the rotation period of a *Eucalyptus* tree is seven years, the model came

After land concession is granted and UXO are cleared, the Eucalyptus trees are planted with the intercrop, in this case, rice. Planting is managed by staff recruited from agriculture and forestry-based educational programs in the country, together with local villagers who are educated by managers in the planting of rice and Eucalyptus. Growing rice is possible for the first two years but then has to be replaced by cash crops and suitable grazing crops for

Mr. Fogde's 30 years of experience in Laos, serving as the COO of Stora Enso Laos, has resulted in a wide network of contacts and an understanding of the social and institutional mechanisms of the country. Insights from a socio-economic study, carried out by Ms. Axelsson, gave a detailed insight in to the social opportunities and challenges of the region. Their vast understanding and the corporate ambitions from headquarters of Stora Enso served as key enabling factors for developing a best practice beyond legal requirements, as a counter weight to projects in other countries that had failed to meet expectations on social and environmental

> **Year 1.**

**UXO Clearing**

**Year 4.**

**7 Year rotation cycle, single eld**

**Year 5.**

**Year 7.**

**Year 6.**

**Granted land Concession**

> **Year 2.**

rice.

livestock.

new trees & intercropping rice.

**Year 1**: Planng trees & intercropping rice. **Year 2**: Intercropping

**Year 3-4**: Cash crop or other edible crop **Year 5-6**: Grazing of

**Year 7:** Logging, planng

**Year 3.**

**Figure 2.** A seven-year rotational model of the agroforestry model with Eucalyptus and rice/cash crop/grazing ([11], p. 31).

to include seven steps (**Figure 2**).

222 Entrepreneurship - Development Tendencies and Empirical Approach

**4.2. The role of social entrepreneurs**

livestock.

sustainability.

Agroforestry is not a new concept, but the use of agroforestry on an industrial scale is new. What started on a limited acreage is gradually scaled up to an industrial scale. This is in this process that the inclusive business model is developed. The agroforestry business model illustrates a rationale for the operationalization of triple bottom line [2] and how including stakeholders early in the development process can create what Porter and Kramer [4] refer to as shared values.

The critical factors and the inclusive aspects of the model are illustrated in **Figure 3**. These four critical factors can serve as a starting point when discussing the development and management of new business models in emerging economies (or BOP, as worded by [7]) . The factors can be seen as phases in a process of developing an alternative business model, as well as a process of internal acceptance of alternative corporate governance.

A number of interdependent factors influence the implementation of the new business model. The first factor, **corporate commitment**, requires changing fundamental parts of the existing business model aiming for sustainable development. In this case the change was driven by the new corporate identity and experience from situations where the traditional model had led to conflicts and critique from external stakeholders.

**Identifying** key resources for the development of a new business model can not only be managed at a corporate level, as it requires a local and national connection as well. One of the most critical factors from this perspective is the involvement of social entrepreneurs and individuals who possess the local knowledge and have experience from running business in the country.

In the continued process, the **inclusion** of stakeholders in a dialogue to develop an understanding of shared values enables access to a network, for example with NGO's, civil society and government departments. Hence, the identification of shared values is not only a strategy of developing the business model itself. The identification of shared values may also offer

It illustrates that inclusive business model is tailored to the context in which it is developed and managed in order to be an inclusive business model. This shows that there are no simple answers to the question of how corporations may alter a traditional conduct to contribute to the society in which they operate, to alleviate poverty, raise educational levels, contribute to a more even distribution of wealth and serve as parts in creating shared values. An inclusive business model thus require corporate responsible intents and management is enacted in a

Social Entrepreneurship in an Inclusive Business Model: A New Business Model for Sustainable…

http://dx.doi.org/10.5772/intechopen.70295

225

The entrepreneurship literature points to the importance of contextualization (e.g. [28]), and the importance of keeping the Social Value Proposition at the center of the context [26]. Our findings also show that the social entrepreneurs take the role as change agents, for example in the process of land concession with a wide set of stakeholders' needs in mind and corporate hiring with gender awareness, which points to adaptation made by "the context" as well.

The Stora Enso case offers insights in challenges and opportunities perceived so far in their efforts to develop and implement an inclusive business model. So far the transformation of corporate conduct has transformed a local community but it has a potential value to an entire industry—and possibly with contextual adaptations to other industries on a world market in McElhaney [23] CSR landscape illustration (**Figure 1**). This project has neither investigated the internal or external assessment of the new business model, nor the consequences of what happens if the social entrepreneurs no longer are in office. Our suggestions for future research therefore include a call for other empirical studies of inclusive business models, the role of social entrepreneurs and the continued studies of various perspectives of corporate ambitions

We gratefully acknowledge the support and generosity of the Royal Swedish Academy of Agriculture and Forestry without which the present study could not have been possible to share with you. We would also like to thank SIDA for providing initial funding for the project, everybody at Stora Enso in Laos for generously sharing their TBL ambitions, especially Peter and Helena, and all the community interviewees that have generously shared their story with us in this project and encouraged us to communicate their entrepreneurship in developing an

dialogue with a wide set of stakeholders [3].

to "*Rethink*".

**Acknowledgements**

inclusive business model.

**Author details**

Cecilia Mark-Herbert1

\* and Brita Prejer2

1 Swedish University of Agricultural Sciences, SLU, Uppsala, Sweden

\*Address all correspondence to: cecilia.mark-herbert@slu.se

2 Syngenta Nordics, Landskrona, Sweden

**Figure 3.** Critical factors for implementing an inclusive business model as a process of value creation in accordance with the triple bottom line ([11], p. 48).

access to an inclusive network from other sectors and serve as grounds for legitimacy [10]. In this case the inclusive network supports the development of the business model and facilitates the exchange of knowledge between sectors.

This case supports the understanding that inclusive business models are characterized by high start-up and transaction costs [9]. It may, on the other hand, generate indirect values that can lead to long-term benefits for the company as suggested by Keijzers [24]. Typical benefits can be an enhanced corporate image, local support for continued operations, extended experience from new operational methods and ultimately competitive advantage.

One of the most critical factors is related to **social entrepreneurship**, the key roles of two social entrepreneurs with local knowledge and has experience from running a business operation in the country. The involvement of a social entrepreneur enables an effective *identification* of the most crucial points of intersection between the company and the community, what Austin et al. [26], calls the Social Value Proposition (SVP). These entrepreneurs also ensure the *inclusion* of various stakeholders in the process, aimed at benefiting the local community.

However, the traditional way of measuring the success of a business model is based on the economic efficiency and does not include long-term benefits and indirect values. This is a central problem as evaluations made in the early process can be crucial to the future of the development of a new business model. Therefore, an evaluation tool that takes the indirect values into account is a critical factor for the continued development of inclusive business models. The **evaluation** method is not only to evaluate traditional economic indicators but also to take into account the future values generated through the inclusion of social issues and the values associated with reputation and brand image. The evaluation method must not replace existing measures but serve as a complement in order to facilitate the communication with headquarters, the board of directors and investors.

### **6. Research contributions**

This case study may provide an answer to the call for empirical examples of where social entrepreneurs "rise to the challenge" ([27], p. 446) and a transition of an enterprise ([24], p. 357) especially in identification and inclusion of key stakeholders in the process.

It illustrates that inclusive business model is tailored to the context in which it is developed and managed in order to be an inclusive business model. This shows that there are no simple answers to the question of how corporations may alter a traditional conduct to contribute to the society in which they operate, to alleviate poverty, raise educational levels, contribute to a more even distribution of wealth and serve as parts in creating shared values. An inclusive business model thus require corporate responsible intents and management is enacted in a dialogue with a wide set of stakeholders [3].

The entrepreneurship literature points to the importance of contextualization (e.g. [28]), and the importance of keeping the Social Value Proposition at the center of the context [26]. Our findings also show that the social entrepreneurs take the role as change agents, for example in the process of land concession with a wide set of stakeholders' needs in mind and corporate hiring with gender awareness, which points to adaptation made by "the context" as well.

The Stora Enso case offers insights in challenges and opportunities perceived so far in their efforts to develop and implement an inclusive business model. So far the transformation of corporate conduct has transformed a local community but it has a potential value to an entire industry—and possibly with contextual adaptations to other industries on a world market in McElhaney [23] CSR landscape illustration (**Figure 1**). This project has neither investigated the internal or external assessment of the new business model, nor the consequences of what happens if the social entrepreneurs no longer are in office. Our suggestions for future research therefore include a call for other empirical studies of inclusive business models, the role of social entrepreneurs and the continued studies of various perspectives of corporate ambitions to "*Rethink*".

### **Acknowledgements**

access to an inclusive network from other sectors and serve as grounds for legitimacy [10]. In this case the inclusive network supports the development of the business model and facili-

**Figure 3.** Critical factors for implementing an inclusive business model as a process of value creation in accordance with

This case supports the understanding that inclusive business models are characterized by high start-up and transaction costs [9]. It may, on the other hand, generate indirect values that can lead to long-term benefits for the company as suggested by Keijzers [24]. Typical benefits can be an enhanced corporate image, local support for continued operations, extended experi-

One of the most critical factors is related to **social entrepreneurship**, the key roles of two social entrepreneurs with local knowledge and has experience from running a business operation in the country. The involvement of a social entrepreneur enables an effective *identification* of the most crucial points of intersection between the company and the community, what Austin et al. [26], calls the Social Value Proposition (SVP). These entrepreneurs also ensure the *inclusion* of various stakeholders in the process, aimed at benefiting the local community. However, the traditional way of measuring the success of a business model is based on the economic efficiency and does not include long-term benefits and indirect values. This is a central problem as evaluations made in the early process can be crucial to the future of the development of a new business model. Therefore, an evaluation tool that takes the indirect values into account is a critical factor for the continued development of inclusive business models. The **evaluation** method is not only to evaluate traditional economic indicators but also to take into account the future values generated through the inclusion of social issues and the values associated with reputation and brand image. The evaluation method must not replace existing measures but serve as a complement in order to

ence from new operational methods and ultimately competitive advantage.

facilitate the communication with headquarters, the board of directors and investors.

p. 357) especially in identification and inclusion of key stakeholders in the process.

This case study may provide an answer to the call for empirical examples of where social entrepreneurs "rise to the challenge" ([27], p. 446) and a transition of an enterprise ([24],

tates the exchange of knowledge between sectors.

224 Entrepreneurship - Development Tendencies and Empirical Approach

the triple bottom line ([11], p. 48).

**6. Research contributions**

We gratefully acknowledge the support and generosity of the Royal Swedish Academy of Agriculture and Forestry without which the present study could not have been possible to share with you. We would also like to thank SIDA for providing initial funding for the project, everybody at Stora Enso in Laos for generously sharing their TBL ambitions, especially Peter and Helena, and all the community interviewees that have generously shared their story with us in this project and encouraged us to communicate their entrepreneurship in developing an inclusive business model.

### **Author details**

Cecilia Mark-Herbert1 \* and Brita Prejer2


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**Chapter 12**

**Provisional chapter**

**Entrepreneurship with Social Responsibility**

**Entrepreneurship with Social Responsibility**

DOI: 10.5772/intechopen.70609

Since the second half of the twentieth century, the society's thinking about the behavior of companies has gradually begun to change. Companies are expected to use their power and finances to influence life around themselves, especially their quality. The corporate social responsibility (CSR) concept is a very progressive management approach that focuses on long-term goals and long-term returns. CSR seeks to harmonize relationships with stakeholders, which the company identifies and implements activities that go beyond legal and ethical standards. A socially responsible company performs something extra volunteer, conducts dialog with its stakeholders, and invests in improving relationships. The Department of Economics of the University of Žilina conducted a marketing survey entitled "Perceptions of Corporate Social Responsibility and its Communication by Companies". The survey was conducted to find out how companies in Slovakia use the CSR concept and what is the level of their communication about this concept in relation to the external environment. Anonymous questionnaire method was used to obtain this data. The method of induction and deduction was used to process the obtained data and the phenomena investigated and to generalize and produce conclusions. Mathematical and statistical methods were used to evaluate survey data, and the synthesis method was

> © 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution,

© 2018 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

and reproduction in any medium, provided the original work is properly cited.

The issue of corporate social responsibility (CSR) is becoming an increasingly important element of strategic business management under the conditions of today's globalized market. Society expectations of companies' performance are constantly rising. At present, companies have a competitive advantage, that are able to actively respond to ever-changing customer

**Keywords:** entrepreneurship, corporate social responsibility, Slovak companies

Anna Križanová, Katarína Moravčíková and

Anna Križanová, Katarína Moravčíková and

Additional information is available at the end of the chapter

used to create recommendations for companies.

Additional information is available at the end of the chapter

http://dx.doi.org/10.5772/intechopen.70609

Jana Klieštiková

**Abstract**

**1. Introduction**

Jana Klieštiková


**Provisional chapter**
