Available online at www.sciencedirect.

com

ScienceDirect
Procedia - Social and Behavioral Sciences 210 (2015) 358 – 367

4th International Conference on Leadership, Technology, Innovation and Business Management

Linking entrepreneurial orientation to firm performance: the role of

differentiation strategy and innovation performance
Cemal Zehira , Esin Canb, Tugba Karabogac
a,b,c
Yıldız Technical University, Istanbul, 34330, Turkey

Abstract

In the strategy literature, the effect of entrepreneurial orientation (EO) on firm performance has been investigated in many studies.
The latest researches investigate the relationship between them by considering the effects of third variables which can be internal
and external factors. Within this framework, our study focuses on the mediating role of innovation performance and differentiation
strategy on the relationship between entrepreneurial orientation and firm performance. The survey of this study is conducted on 991
middle and senior managers of 331 middle and large scale firms operating in manufacturing industry in Turkey, in 2014. The data
gathered from questionnaires are analyzed with SPSS statistical package program at firm level. The results of analyses showed that
both differentiation strategy and innovation performance mediate the relationship between EO and firm performance. Also,
analyses results revealed another mediating effect in which differentiation strategy mediates the relationship between EO and
innovation performance.

Keywords: Entrepreneurial orientation, Differentiation strategy, Innovation performance, Firm performance

th
© 2015
© 2014ThePublished
Authors.byPublished
Elsevier by
Ltd. Selection
Elsevier Ltd.and/or
This is peer-review under
an open access responsibility
article under the CCofBY-NC-ND
4 International
licenseConference
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
on Leadership, Technology, Innovation and Business Management
Peer-review under responsibility of the International Conference on Leadership, Technology, Innovation and Business Management
1. Introduction

In the strategy literature many researchers (eg: Miller, 1983; Lumpkin and Dess, 2001; Zahra and Covin, 1995;
Wiklund and Shephard, 2005) have studied the importance of EO on firm performance. Entrepreneurial orientation is
a firm level concept and it is closely related to strategic management and strategic decision making processes (Covin
and Slevin, 1991; Lumpkin and Dess, 1996; Birkinshaw, 1997). Globalization, global competition, focusing on firm
performance for profitability, and inadequacy of traditional managerial techniques due to the changing market
conditions can be the reasons for the increase in the importance of corporate entrepreneurship (Morris and Kuratko,
2002).

The concept of “entrepreneur” goes back to 1755 and Cantillon (Hamilton and Harper, 1994). Cantillon defined
entrepreneurs as risk takers and they buy at certain prices today and sell at uncertain prices in the future. In the 19th
and early 20th centuries entrepreneurs were generally considered in an economic perspective. According to
Schumpeter ([1942] 1994, p.132) “The function of the entrepreneur is to reform or revolutionize the pattern of
production by exploiting an invention or, more generally, an untried technological possibility for producing a new
commodity or producing an old one in new way, by opening up a new source of supply of materials or a new outlet for
products, by reorganizing an industry and so on.” According to Lumpkin and Dess (1996), the concept of
Corresponding Author.

E-mail Address: [email protected]

1877-0428 © 2015 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Peer-review under responsibility of the International Conference on Leadership, Technology, Innovation and Business Management
doi:10.1016/j.sbspro.2015.11.381
 Cemal Zehir et al. / Procedia - Social and Behavioral Sciences 210 (2015) 358 – 367 359

entrepreneurship is mainly related to “new entry” and it is applicable to different levels such as individuals, groups and
organizations. With the development of the strategic management literature, a new concept “entrepreneurial
orientation” (EO) is emerged. They define EO at firm level, as the reflection of strategic orientation of a firm by
affecting processes, practices, and decision-making activities that lead to new entry. Thus, new entry describes what
entrepreneurship consists of and EO describes how new entry is carried out (Lumpkin and Dess, 1996).

Today, due to the globalization all sectors, companies, institutions and people are facing intense global competition.
Under this pressure, for businesses it is being more difficult to exceed their rivals and outperform. In order to perform
better than rivals firms should gain competitive advantage which is one of the most important subjects of management
area. Porter has created two basic competitive advantages: low cost and differentiation. Cost leadership is related to
producing products and services with lower costs than competitors and reaching a broader customer segment.
Differentiation strategy is related to being unique in the market with the unique or different products and services
companies offer (Porter, 1980, 1985). According to Barney (1991), in order to have a competitive advantage a firm
needs to implement a value creating strategy that is not simultaneously implemented by any other potential
competitors. Eisenhardt and Martin (2000) classified cost leadership strategy as temporary and long term sustainability
of performance is not possible. Also, Murray (1988) stated that in the cost advantage strategy imitation is inevitable.
On the other hand, differentiation strategy creates more sustainable competitive advantage with the unique products
and services offered into the market and imitation is very difficult or very costly. (Grant, 1991; Carter and Ruefli,
2006). Also the recent study of Banker, Mashruwala and Tripathy (2014) showed that differentiation strategy creates
sustainable higher financial performance in the long run. On the other hand another important subject is innovation or
innovativeness which is one of the most important dimensions of EO, critical for differentiation strategy and again
crucial for higher performance (e.g. Porter, 1990; Miller, 1983; Hull and Rothenberg, 2008). In the literature, some
studies showed that there are relationships between EO, innovation and differentiation strategy (e.g. Prajogo et al.,
2007). In this study we will exclude cost leadership strategy because of the higher sustainability of differentiation
strategy and higher relationships with other variables (EO, innovation performance and financial performance) we
investigate in this study.

In this study we investigate the relationships between EO, differentiation strategy, innovation performance and
financial performance. More precisely, we want to analyze the role of differentiation strategy and innovation
performance within the EO-financial performance relationship. Our expectation is that differentiation strategy and
innovation performance will play a mediating role in the EO-financial performance relationship. In the rest of the
paper we give literature review about our variables, we create our hypotheses, draw our research model and
methodology, give empirical results from our analysis and present our conclusions.

2. Literature Review And Hypotheses

2.1. Entrepreneurial Orientation

Entrepreneurial orientation is defined as an organizational willingness to find and accept new opportunities and
taking responsibility to affect change (Morris et al., 1996). According to Rauch and Frese (2009), EO describes firm
level strategic processes that businesses use to gain competitive advantage. Thus, EO is not related to individual level
variables as in the previous entrepreneurship theories, it is related to firm level processes (Rauch and Frese, 2009).
Especially newly established firms should be very careful in pursuing strategic orientations because they have limited
financial and managerial resources (Eisenhardt and Schoonhoven, 1990).

When the importance of EO on firm performance is considered, the EO can be a good measure to explore
opportunities in the market and to utilize from them (Barringer and Bluedorn, 1999; Zahra and Garvis, 2000; Ireland et
al. 2003). If a firm offers new products and services above averages and enter new markets it can be said that this firm
is an entrepreneurial firm (Jennings ve Lumpkin, 1989). According to Lumpkin and Dess (1996), EO consists of
independent variables and in the recent researches it is studied as a multidimensional concept (Lumpkin and Dess,
1996; Kreiser et al., 2002; Rauch et al., 2009). Miller (1983) defined entrepreneurial orientation in three dimensions:
innovativeness, risk taking and proactiveness. Then Lumpkin and Dess, (1996) added aggressive competitiveness and
autonomy to Miller’s 3 dimensions. In this study, depending on different models of corporate entrepreneurship we use
360 Cemal Zehir et al. / Procedia - Social and Behavioral Sciences 210 (2015) 358 – 367

5 dimensions of entrepreneurship; innovativeness, risk taking, proactiveness, aggressive competitiveness and

autonomy.

2.1.1. EO Dimensions

According to Lumpkin and Dess (1996: 142), innovativeness reflects “willingness to support creativity and
experimentation in introducing new products/services, and novelty, technological leadership and R&D in developing
new processes”. Schumpeter is one of the researchers who firstly emphasized the importance of innovativeness in
entrepreneurial processes and defined innovativeness as doing new things or doing existing things in new ways
(Schumpeter, 1947). According to Drucker (1985), innovativeness is the most important subject of entrepreneurship
and in a similar way Lumpkin and Dess (1996) found it as the key component of entrepreneurship.

Lumpkin and Dess (1996: 144) defined risk taking propensity as a reflection of activities of entrepreneurial firms
such as “incurring heavy debt or making large resource commitments, in the interest of obtaining high returns by
seizing opportunities in the marketplace”. Risk taking behavior is a crucial factor that differentiates entrepreneurs from
others because it can create losses and inconsistencies in the performance (Morris and Kuratko, 2002), but it is the
behavioral dimension of an EO along which opportunity is pursued (Lumpkin and Dess, 1996).

Proactiveness is defined as seeking new opportunities in the market and firms can be proactive by anticipating
future demands and opportunities in the market, participating in emerging markets, shaping the environment, and
introducing new products and brands before their rivals, (Venkatraman, 1989). Proactive companies perform better
than rivals because they respond market changes instantly (Hughes and Morgan, 2007), and they become leaders of
the industry with opportunities they find before their rivals (Lumpkin and Dess; 1996).

Competitive aggressiveness refers to “a firm's propensity to directly and intensely challenge its competitors to
achieve entry or improve position, that is, to outperform industry rivals in the marketplace” (Lumpkin and Dess, 1996:
148). Also, they viewed competitive aggressiveness as responses of companies to achieve competitive advantage in
the market.

Autonomy is defined as an independent action by an individual or a team focused on creating a business concept or
a vision and carrying it through to completion (Lumpkin and Dess, 1996). According to Mintzberg and Waters (1985),
entrepreneurs are strong leaders because their decision making processes requires decisive and risky actions, so
entrepreneurial autonomy is related to freedom of entrepreneurs, free actions and independent decision making
(Lumpkin and Dess, 1996).

2.2. EO, Differentiation Strategy and Innovation Performance Relationship

From the beginning of the recent decade, due to the speed of the globalization the intensity of the competition
increased and as a result firms started to focus on searching strategies which will provide them sustainable competitive
advantage. These strategies generally make firms differentiate their products and processes in other words, force them
to innovate (Popadiuk & Choo, 2007). Differentiation strategy is one of the Porter’s generic strategies (differentiation,
cost leadership and focus) and closely related to innovation and performance (Porter, 1985).

Differentiation strategy is related to being unique in the market with the unique or different products and services
companies offer. According to Barney and Hesterly (2006), differentiation is the reflection of individuals and groups
working in a firm. When compared to competitive rivals, differentiation strategy provides higher profitability by
creating brand loyalty and low price sensitivity (Porter, 1988). Due to the product or service differentiation, customers
are ready to pay higher prices. Therefore this strategy reduces price sensitivity, decreases power of suppliers, creates a
powerful entry barrier and reduces threat of substitute products. Brand positioning, innovation in marketing
techniques, control of distribution channels, advertising campaigns, technological developments, high quality,
improving brand image and company reputation are signs of differentiation strategy (Dess and Davis, 1984;
Fitzsimmons and Fitzsimmons, 2004). Therefore advantages gained with differentiation strategy are more likely to be
sustainable because unique products and services cannot be easily imitated by competitors (Grant, 1991).
 Cemal Zehir et al. / Procedia - Social and Behavioral Sciences 210 (2015) 358 – 367 361

In the strategy literature innovation is an important concept that creates value for companies and enables
sustainable competitive advantage in the complex and rapidly changing business environment (Madhavan and Grover,
1998). Firms that have higher innovation capabilities are more successful in responding to changing conditions and
developing new capabilities to adopt changes and as a result achieve better performance (Montes et al., 2004).
Innovation is related to organizations’ adoption of a new idea or behavior (Zaltman et al. 1973). Differentiation
strategies involve expending resources through research and development, marketing new products and services and
promoting brand image (Porter, 1985). Similar to differentiation strategy, innovation occurs in different types such as
product innovation, process innovation, service innovation and technological innovation. Also, according to Ireland
and Webb (2007), entrepreneurial activities have effects on innovations of the firms. Therefore, due to the intense
competitive environment, firms need entrepreneurially oriented individuals or groups in order to innovate new and
different products, services, images and processes which cannot be imitated easily by others. This is why
differentiation strategies, innovation and EO are closely related with each other.

2.3. Firm Performance

In today’s business world it is highly emphasized on firm performance. However, there are a lot of criteria used in
studies and determining the performance. According to Venkatraman and Ramanujam (1986), performance can be
measured with financial and operational (non-financial) indicators. Financial measures are related to economic factors
such as profitability and sales growth (e.g. return on investment, return on sales and return on equity) and operational
measures are related to non-financial success factors such as quality, market share, satisfaction, new product
development and market effectiveness. Also, they classified performance data in two dimensions; primary or
secondary data. Primary data are directly collected from organizations and secondary data are collected from publicly
available sources. Another classification in the performance measure includes objective and subjective measures.
Objective performance measures refer to quantified indicators. They are generally financial indicators and obtained
from organizations. On the other hand, subjective measures depend on judgmental assessments of respondents and
these indicators cover both financial and non-financial indicators (Gonzalez-Benito, and Gonzalez-Benito, 2005). In
the management field, Gonzalez-Benito, and Gonzalez-Benito (2005), suggest the use of subjective measures because
subjective measure facilitates the measurement of complex dimensions of performance. Also some authors found
difficult to obtain objective measures and perceive objective measures as unreliable because the data can be narrow in
scope or cannot be up to date (e.g. Pitt, Caruana, & Berthon, 1996). Depending on similar views in the literature,
subjective measures are used in this study and the role of differentiation strategy and innovation performance between
the EO – performance relationship is investigated. Data are collected directly from executives of the firms, which
show that primary data are used. Also firm performance questions in the survey include profitability and growth
questions which mean financial performance is measured.

2.4. Development of Hypotheses

According to Lyon, Lumpkin and Dess (2000), there is a general perception that EO affects firm performance. In
the entrepreneurship literature, many researchers emphasized the importance of EO – performance relationship and in
most of the studies powerful relationship is found between EO and firm performance (e.g. Miller, 1983; Lumpkin and
Dess, 2001; Wiklund, 1999; Wiklund & Shepherd, 2005; Zahra & Covin, 1995; Hult, Snow, & Kandemir, 2003). Also
some researchers made longitudinal researches and found that the positive influence of entrepreneurial orientation on
performance increases over time (e.g. Zahra and Covin, 1995; Wiklund, 1999). On the other hand, some studies were
unable to find any significant relationship between EO and performance (e.g. George, Wood, & Khan, 2001; Covin,
Slevin, & Schultz, 1994). Thus, there is a variation in the previous research findings. As a result, researchers began to
seek internal and external factors that mediate the relationship between EO and firm performance rather than
measuring the direct link between them (e.g. Lumpkin and Dess, 1996; Zahra and Garvis, 2000; Lumpkin and Dess,
2001; Li, Huang and Tsai, 2008; Wang, 2008; Alegra and Chiva, 2013). Therefore, in this study, we are investigating
mediator effect of differentiation strategy and innovation performance on the relationship between EO and financial
performance. In order to measure innovation performance researchers generally examine the indicators such as R&D,
patents, new products and services offered by firms (Hagedorn and Cloodt, 2003). On the other hand differentiation
strategies involve expending resources through research and development, marketing new products and services and
promoting brand image (Porter, 1985). When the relation of differentiation strategy with EO and innovation
performance is investigated, differentiation strategy is shown to be the strongest predictors for product and process
362 Cemal Zehir et al. / Procedia - Social and Behavioral Sciences 210 (2015) 358 – 367

innovation in the literature (e.g. Richard, McMillan, and Chadwick, 2003; Prajago et al., 2007; Khalili, Nejadhussein,
and Fazel; 2013). Also Lumpkin and Dess (2001), Hughes and Morgan (2007) and Ireland et al. (2005) have
concluded that EO directly affects organizational innovation and performance. Therefore, it is expected that that good
implementation of differentiation strategy can increase financial and innovative performance of companies. Also,
depending on the literature, we argue that innovation performance and differentiation strategy will enhance the EO –
performance relationship. In accordance with the literature review, our research model is developed as at Figure 1
below:

Fig 1. Research Model

Depending on the model, our hypotheses are created as following:

H1: Differentiation strategy mediates the relationship between entrepreneurial orientation and firm performance.
H2: Innovation performance mediates the relationship between entrepreneurial orientation and firm performance.
H3: Differentiation strategy mediates the relationship between entrepreneurial orientation and innovation
performance.

3. Methodology

3.1. Research Goal

In this survey we aim to examine the mediating effect of differentiation strategy and innovation performance on the
relationship between EO and firm performance.

3.2. Sample and Data Collection

The survey of this study is conducted on 991 middle and senior managers of 331 middle and large scale firms
operating in manufacturing industry in Turkey, in 2014. Firms were conducted via e mail or phone and informed about
the research. Data gathered from 991 questionnaires were reduced to firm level and 331 data were created at firm
level. These 331 data were analyzed through SPSS statistical package program and hypotheses were tested through
regression analyses.

3.3. Analyses and Results

To measure entrepreneurial orientation, 21-item questionnaire is created to measure 5 dimensions (5 questions for
proactiveness, 4 questions for competitive aggressiveness, 5 questions for innovativeness, 4 questions for risk
propensity and 3 questions for autonomy) by adapting from literature (Covin and Slevin, 1988;Venkatraman, 1989; A
ndersen, 2001; Li, Zhao and Liu, 2006;). To measure differentiation strategy 14-item questionnaire is created by
adapting from literature (Porter, 1980; Dess and Davis, 1984; Kohli and Jaworski, 1990; Chang et al., 2003). 8-item
questionnaire is created to measure innovation performance by adapting from Prajogo and Sohal (2006). To measure
 Cemal Zehir et al. / Procedia - Social and Behavioral Sciences 210 (2015) 358 – 367 363

firm performance 7- item questionnaire is created by adapting from literature that focus on financial performance
indicators such as profitability and growth (Baker and Sininkula, 1999; Antoncic and Hisrich, 2001). During the
analyses 3 questions are deleted (1question from proactiveness and 2 questions from innovation performance) because
they showed a weak loading or loaded two different factors. Overall 47 questions are used to measure variables. Factor
loadings can be seen on the Table 1 and Cronbach’s Alpha values can be seen on table 2.

Table 1 Factor Analysis Results

DIFFERENTIATION

PERFORMANCE

PERFORMANCE

Risk Propensity
INNOVATION

Aggressiveness
Innovativeness

Proactiveness
STRATEGY

Competitive

Autonomy
FIRM
Developing new products and services 0,704
Offering products according to the special needs of our customers 0,725
Offering better quality products compared to our competitors 0,618
Offering products in differentiating features 0,687
Hiring qualified and creative people to achieve strategic goals 0,692
Coordination among R&D, product development and marketing 0,762
First company in introducing new products/brands to our customers 0,718
Differentiated products of our company take place in the market 0,728
Developing additional models and sizes upon our existing products 0,770
Reducing new product development and marketing time 0,735
Continuous improvement and development of products 0,735
Benefiting from identified new businesses and market opportunities 0,721
Satisfying the needs of different customers in different markets 0,711
Expanding production line in order to produce different products 0,693
Average net profitability compared to equity 0,819
Net profitability before tax compared to all available resources 0,813
Net revenue achieved from basic operations 0,839
Financial success of the new products offered to market. 0,734
Overall success level in financial terms 0,752
Average annual increase in sales 0,658
Overall level of profitability 0,740
Technological competitiveness of our company 0,686
Level of new product offering to the market 0,539
Latest technological innovations in our new products and processes 0,789
Adaption of the latest technological innovations in all processes 0,690
The rate of change in our processes, techniques and technology. 0,685
Importance given to R&D, technological leadership and innovation 0,659
ENTREPRENEURIAL ORIENTATION
Technical innovations based on research results are accepted quickly. 0,570
Importance given to innovative ideas regarding products and services 0,612
In our firm, innovations are accepted easily in projects. 0,612
Employees are not punished even if their new ideas do not work. 0,690
Innovativeness is encouraged in the firm. 0,702
There is a strong proclivity for high risk projects 0,542
In general, our operations include high risk. 0,743
Taking bold, wide-ranging acts which are not tried before. 0,769
Taking aggressive postures to maximize the probability of exploiting 0,774
potential opportunities
We often sacrifice profitability to gain market share 0,685
We often cut prices to increase market share 0,794
For higher prices, we often set prices below competitors 0,752
Market share position at the expense of cash flow and profitability 0,739
Effectiveness in providing new products/services 0,732
Changes in the products are more radical compared to competitors 0,686
Great importance to the development of new and innovative products 0,574
First move instead of responding to the moves of our competitors 0,526
We generally follow tried and right ways while conducting activities. 0,663
New projects are approved step by step not as a whole. 0,706
A more conservative way is followed in taking major decisions. 0,717
Total Explained Variance for Differentiation Strategy % 60,891
Total Explained Variance for Financial Performance % 70,483
Total Explained Variance for Innovation Performance % 69,898
364 Cemal Zehir et al. / Procedia - Social and Behavioral Sciences 210 (2015) 358 – 367

Total Explained Variance for Entrepreneurial Orientation %68,570

Explained Total Variance 68,368%

Table 2. Cronbach Alpha Values

Concepts Number of Items Scale Format Cronbach Alpha % of Variance Cumulative %
Differentiation Strategy 14 LRF 0,950 19,592 19,592
Financial Performance 7 LRF 0,930 11,289 30,881
Innovation Performance 6 LRF 0,913 8,184 39,065
Innovativeness 5 LRF 0,854 7,018 46,083
Risk Propensity 4 LRF 0,832 6,563 52,646
Competitive Aggressiveness 4 LRF 0,842 6,387 59,033
Proactiveness 4 LRF 0,863 5,356 64,389
Autonomy 3 LRF 0,708 3,980 68,368
Notes: LRF - Likert Response Format (Five point: 1=strongly disagree to 5=strongly agree)

Table 3: Correlations, means and standard deviations of all variables

Std.
Mean 1 2 3 4 5 6 7 8
Deviation
Proactiveness 3,7478 ,67881 1
Competitive Aggressiveness 3,4194 ,75452 ,373** 1
Innovativeness 3,8549 ,57418 ,689** ,397** 1
Risk Propensity 3,2893 ,74137 ,432** ,573** ,397** 1
Autonomy 3,8078 ,53575 ,415** ,433** ,461** ,378** 1
Differentiation Strategy 3,9793 ,53455 ,613** ,259** ,599** ,363** ,395** 1
Innovation Performance 3,8183 ,59531 ,653** ,261** ,587** ,380** ,335** ,687** 1
Financial Performance 3,7728 ,56381 ,501** ,362** ,512** ,364** ,375** ,535** ,544** 1
**. Correlation is significant at the 0.01 level (2-tailed).

In this study, we conducted regression analysis to test the hypotheses and to define the direction of relations. When
we examined the Table 4, it can be seen that in the first regression analysis, 5 dimensions of EO (proactiveness,
competitive aggressiveness, innovativeness, risk propensity, and autonomy) have significant effect on differentiation
strategy and the total model is significant at p=,000. In the 2 nd regression model proactiveness, competitive
aggressiveness, risk propensity and innovativeness dimensions of EO have significant effect on innovation
performance but autonomy do not have a direct effect on innovation performance and model is significant at p=,000.
In the 3rd and 4th regression models, it can be seen that differentiation strategy (β=,535; p=,000) and innovation
performance (β=,544; p=,000) have significant effect on firm performance. In the 5 th model, it can be seen that three
dimensions of EO (proactiveness, innovativeness and autonomy) have significant effects on EO-performance
relationship (model is significant at p=,000). In model 6, differentiation strategy is added to EO-performance
relationship and the direct effect of autonomy on firm performance disappears and the effect of innovativeness and
proactiveness decrease which means differentiation strategy partially mediates the relationship between EO and firm
performance (model significant at p=,000). In model 7, innovation performance is added to EO-performance
relationship and the direct effect of proactiveness on firm performance disappears and the effect of innovativeness
reduces which means innovation performance partially mediates the relationship between EO and firm performance
(model significant at p=,000). Also, in model 8 we put both differentiation strategy and innovation performance to the
regression analysis and we saw that the previous effects of proactiveness and autonomy on firm performance
disappear and the effect of innovativeness and differentiation strategy decrease, so we can say that differentiation
strategy mediates the EO-firm performance relationship through innovation performance. Depending on the regression
analyses results we can say that differentiation strategy and innovation performance mediate the relationship between
EO and firm performance which means H1 and H2 is supported. Also, in model 9 differentiation strategy is added to
EO-innovation performance relationship and the direct effect of risk propensity disappeared and the effect of
innovativeness decrease which means differentiation strategy mediates the relationship between EO and innovation
performance, so H3 is also supported.
 Cemal Zehir et al. / Procedia - Social and Behavioral Sciences 210 (2015) 358 – 367 365

Table 4. Regression Analysis Results

Regression Adjusted Model
Independent Variables Dependent Variables Standardized β Sig. F Value
Model R2 Sig.
Proactiveness ,274*** ,000
Competitive Aggressiveness -,073* ,051
1 Innovativeness Differentiation Strategy ,283*** ,000 ,445 53,915 ,000a
Risk Propensity ,078** ,040
Autonomy ,114** ,021
Proactiveness ,446*** ,000
Competitive Aggressiveness -,090* ,083
2 Innovativeness Innovation Performance ,254*** ,000 ,465 58,454 ,000a
Risk Propensity ,129** ,013
Autonomy ,023 ,635
3 Differentiation Strategy Financial Performance ,535*** ,000 ,284 132,033 ,000a
4 Innovation Performance Financial Performance ,544*** ,000 ,294 138,372 ,000a
Proactiveness ,222** ,001
Competitive Aggressiveness ,094 ,107
5 Innovativeness Financial Performance ,245*** ,000 ,326 32,971 ,000a
Risk Propensity ,079 ,171
Autonomy ,099* ,068
Proactiveness ,120* ,069
Competitive Aggressiveness ,124** ,029
Innovativeness ,156** ,018
6 Financial Performance ,372 33,589 ,000a
Risk Propensity ,048 ,398
Autonomy ,066 ,214
Differentiation Strategy ,293*** ,000
Proactiveness ,080 ,237
Competitive Aggressiveness ,122** ,030
Innovativeness ,164** ,011
7 Financial Performance ,379 34,510 ,000a
Risk Propensity ,038 ,497
Autonomy ,092* ,078
Innovation Performance ,318*** ,000
Proactiveness ,050 ,462
Competitive Aggresiveness ,135** ,015
Innovativeness ,126* ,053
8 Risk Propensity Financial Performance ,028 ,614 ,394 31,670 ,000a
Autonomy ,071 ,169
Differentiation Strategy ,195** ,002
Innovation Performance ,234*** ,000
Proactiveness ,300*** ,000
Competitive Aggressiveness -,047 ,321
Innovativeness ,127** ,021
9 Innovation Performance ,561 71,251 ,000a
Risk Propensity ,084* ,075
Autonomy -,025 ,574
Differentiation Strategy ,418*** ,000
Significance: * p<0.10 ** p<0.05 *** p<0.01

4. Conclusion

This study highlighted the relationship among EO, differentiation strategy, innovation performance and firm
performance. The results of the regression analyses indicate that differentiation strategy and innovation performance
mediate the effect of EO on firm performance. So, H1 and H2 is supported according to regression analyses. Also, in
the regression analyses it is seen that differentiation strategy mediates the relationship between EO and innovation
performance which means H3 is supported. These results are consistent with the literature which supports that EO-
firm performance relationship can be mediated by other variables which can be external or external (e.g. Lumpkin and
Dess, 1996; Zahra and Garvis, 2000; Wang, 2008; Alegra and Chiva, 2013). Although there are many studies
examining the EO-innovation performance relation (e.g. Khalili et al., 2013), innovation-firm performance relation
(e.g. Montes et al., 2004), differentiation strategy-innovation performance (e.g. Prajogo et al., 2007), and
differentiation strategy-firm performance relation (e.g. Porter, 1985) in the literature; the mediator effect of
differentiation strategy and innovation performance on the relationship between EO and firm performance is examined
366 Cemal Zehir et al. / Procedia - Social and Behavioral Sciences 210 (2015) 358 – 367

for the first time through this survey, which differentiates this survey from others. However, in this study there are
some limitations. This survey is conducted on middle and large scale manufacturing firms in Turkey, findings might
not be transferable to all types of organizations. Thus, it is recommended that further researches can be conducted on
small scale firms in different countries or service companies in Turkey and other countries for the generalizability of
findings. The other limitation of this survey is that questions related to EO, innovation performance, differentiation
strategy and firm performance are answered by same respondents which are middle or senior managers of firms. In the
future surveys questions can be filled out by different respondents to prevent same-source bias.

References

Alegre, J., Chiva, R., (2013), Linking Entrepreneurial Orientation and Firm Performance: The Role of Organizational Learning Capability and
Innovation Performance, Journal of Small Business Management 2013 51(4), pp. 491–507
Andersen, J.T. (2001), Information Technology, Strategic Decision Making Approaches and Organizational Performance in Different Industrial
Settings, Strategic Information Systems, 10, pp. 101-119.
Antoncic, B. and Hisrich, R. D. (2001), Intrapreneurship: construct refinement and cross-cultural validation, Journal of Business Venturing,
Vol.16, pp.495-527
Baker, W. E. and Sinkula, J. M. (1999), The synergistic effect of market orientation and learning orientation on organizational performance, Journal
of the Academy of Marketing Science, Vol. 27, No.4, pp.411-427.
Banker, D. R.; Mashruwala, R.; Tripathy, A., (2014), "Does a differentiation strategy lead to more sustainable financial performance than a cost
leadership strategy?", Management Decision, Vol. 52 Iss 5 pp. 872 - 896
Barney, J. B. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17, 99–120.
Barney, J.B. & Hesterley, W.S. (2006), Strategic management and competitive advantage concepts, Pearson Prentice Hall: New Jersey
Barringer, B.R. & Bluedorn, A.C. (1999), ‘The relationship between corporate entrepreneurship and strategic management’, Strategic Management
Journal, 20: 421–444.
Birkinshaw, J. (1997), “Entrepreneurship in multinational corporations: the characteristics of subsidiary initiative”, Strategic Management Journal,
Vol. 18, No.3, pp. 207–229.
Carter, S.M. & Ruefli, T.W. (2006), Intra-industry reputation dynamics under a resource-based framework: Assessing the durability factor.
Corporate Reputation Review, 9: 3-25.
Chang, S., Lin, N., Yang, C. and Sheu, C. (2003), Quality dimensions, capabilities and business strategy: an empirical study in high-tech industry,
Total Quality Management, Vol.14, No.4, pp.407-421
Covin, J. G., & Slevin, D. P. 1991. A conceptual model of entrepreneurship as firm behavior, Entrepreneurship: Theory and Practice, 16(1): 7-24.
Covin, J. G., Slevin, D. P., & Schultz, R. L. (1994). Implementing strategic missions: Effective strategic, structural, and tactical choices. Journal of
Management Studies, 31(4), 481- 503.
Dess, G.G., & Davis, P.S. (1984), Porter's generic strategies as determinants of strategic group membership and performance, Academy of
Management Journal, 26, pp 467-488
Drucker, P. (1985). Innovation and entrepreneurship, New York: Harper & Row.
Eisenhardt, K. M. and Martin, J. A. (2000), Dynamic capabilities: what are they? Strategic Management Journal, 21, 1105-1121.
Eisenhardt K., Schoonhoven C. (1990), “Organizational Growth - Linking Founding Team, Strategy, Environment, And Growth Among United-
States Semiconductor Ventures, 1978-1988” Administrative Science Quarterly, 35, 504-529.
Frank, H., Kessler, A. and Fink, M. (2010), Entrepreneurial Orientation and Business Performance - A Replication Study, Schmalenbach Business
Review, Vol. 62, pp. 175-198.
Fitzsimmons, J.A., Fitzsimmons, M., 2004. Service Management, 4th ed. Irwin McGraw-Hill, Boston
George, G., Wood, D. R. Jr, Khan, R. (2001). Networking Strategy of Boards: Implications for Small and Medium-Sized Enterprises.
Entrepreneurship-and-Regional- Development, 13(3), 269-285.
Gonzalez-Benito, O. and Gonzalez-Benito, J. (2005), Cultural vs. operational market orientation and objective vs. subjective performance:
Perspective of production and operations, Industrial Marketing Management, 34, pp.797-829.
Grant, R.M. (1991), “The resource-based theory of competitive advantage: implications for strategy formulation”, California Management Review,
22: 114-135.
Hagedoorn, J., Cloodt, M. (2003), Measuring innovative performance: is there an advantage in using multiple indicators? Research Policy, Iss: 21,
pp. 1365-1379.
Hamilton, R.T., Harper D.A., (1994), "The Entrepreneur in Theory and Practice", Journal of Economic Studies, Vol. 21 Iss: 6, pp. 3 – 18.
Hughes, M. & Morgan, R. E. (2007), Deconstructing The Relationship Between Entrepreneurial Orientation and Business Performance at The
Embryonic Stage of Firm Growth. Industrial Marketing Management, Iss: 36, pp. 651-661.
Hull, C.E. and Rothenberg, S. (2008), “Firm performance: the interactions of corporate social performance with innovation and industry
differentiation”, Strategic Management Journal 29, 781-789.
Hult, G. T., Snow, C. and Kandemir, D. (2003), The role of entrepreneurship in building cultural competitiveness in different organizational types,
Journal of Management, 29 (3), pp.401-426.
Ireland, R.D., Kuratko, D.F. & Covin, J.G. (2003), Antecedents, elements, and consequences of corporate entrepreneurship strategy. Best Paper
Proceedings: Academy of Management, Annual Meeting, Seattle Washington.
Ireland, R.D. and J.W. Webb, (2007). A cross disciplinary exploration of entrepreneurship research. J. Manage., 33(6): 891-927.
Jennings, D. F., & Lumpkin, J. R. (1989). Functioning modeling corporate entrepreneurship: An empirical integrative analysis. Journal of
Management, 15: 485-502.
 Cemal Zehir et al. / Procedia - Social and Behavioral Sciences 210 (2015) 358 – 367 367

Khalili, H., Nejadhussein, S., Fazel, A. (2013),"The influence of entrepreneurial orientation on innovative performance", Journal of Knowledge-
based Innovation in China, Vol. 5 Iss 3 pp. 262 - 278
Kohli, A. K., and B. J. Jaworski (1990), ” Market-orientation: The Construct Research Propositions, and Managerial Implications”, Journal of
Marketing, Vol. 54, No. (2), pp. 01-18.
Kreiser, P.M., Marino, L.D., & Weaver, K.M. (2002). “Assessing the Psychometric Properties of the Entrepreneurial Orientation Scale: A Multi-
Country Analysis” Entrepreneurship Theory and Practice, Volume 26, Issue 4, pages 71-94.
Li, Y.H., Huang, J.W. & Tsai, M.T. (2009), Entrepreneurial orientation and firm performance: the role of knowledge creation process. Industrial
marketing management, 38, 440-449.
Li, Y., Zhao, Y., & Liu, Y. (2006). The relationship between HRM, technology innovation and performance in China. International Journal of
Manpower, 27(7), 679–697.
Lumpkin, G.T. & Dess, G.G. (1996), ‘Clarifying the entrepreneurial orientation construct and linking it to performance’, Academy of Management
Review, 21(1): 135–173.
Lumpkin, G.T., & Dess, G.G..(2001), Linking two dimensions of entrepreneurial orientation to firm performance: The moderating role of
environment and industry life cycle. Journal of Business Venturing, 16, 429-451.
Miller, D. (1983), “The correlates of entrepreneurship in three types of firms”, Management Science, Vol. 29 No. 7, pp. 770-90.
Mintzberg, H. and Waters J. (1985), “Of strategies, deliberate and emergent”, Strategic management journal, 6, pp. 257-72.
Montes FJL, Moreno AR, Fernandez LMM. 204. Asesing the Organizational Climate and Contractual Relationship for Perceptions of Suport
for Inovation. International Journal of Manpower, Vol. 25, p. 167–80.
Morris, M.H. and Kuratko, D.F. (2002), Corporate entrepreneurship. Fort Worth, TX: Harcourt College Publishers.
Morris, M.H. and Sexton, D.L. (1996), The concept of entrepreneurial intensity: Implications for company performance. Journal of Business
Research, 36(1): 5-14.
Pitt, L., Caruana, A., & Berthon, P. R. (1996). Market orientation and business performance: Some European evidence. International Marketing
Review, 13(1), 5 – 18.
Popadiuk, S., Choo, C. W. (2007), Innovation and knowledge creation: How are these concepts related? International Journal of Information
Management, Volume 27, Issue 1, p. 302 – 312.
Porter, M.E., (1980), “Competitive Strategy”, New York: [M] The Free Press.
Porter, M.E., (1985), “Competitive Advantage: Creating and Sustaining Superior Performance”. [M]New York: The Free Press.
Porter, M.E. (1988), Competitive strategy: techniques for analyzing industries and competitors. Free Press: New York. Second edition
Porter M. E. (1990), The Competitive Advantage of Nations, Macmillan, London.
Prajogo, D. I. (2007), "The relationship between competitive strategies and product quality", Industrial Management & Data Systems, Vol. 107 Iss:
1 pp. 69 – 83
Prajogo, D.I., Sohal, A.S. (2006) The relationship between organization strategy, total quality management (TQM), and organization performance -
the mediating role of TQM.
European Journal of Operational Research, 168(1), 35-50.
Rauch, A., Wiklund, J., Lumpkin, G. T. and Frese, M., (2009), Entrepreneurial Orientation and Business Performance: An Assessment of Past
Research and Suggestions for the Future. Entrepreneurship Theory and Practice, Vol. 33, Issue 3, pp. 761-787.
Rauch, A. & Frese, M. (2009), Entrepreneurial orientation. In: A. Bausch& B. Schwenker (Eds.). Handbook of Utility Management (pp. 89-104).
Berlin: Springer.
Richard, O. C., Wu, P. & Chadwick, K. (2009), The Impact of Entrepreneurial Orientation on Firm Performance: The Role of CEO Position Tenure
and Industry Tenure, The international Journal of Human Resource Management, 20, 1078-1095.
Schumpeter, J. A. [1942] 1994, Capitalism, Socialism and Democracy, London: Routledge.
Schumpeter, J.A. (1947), The creative response in economic history .Journal of Economic History, 7, (2): 149-159.
Shepherd, D. and Wiklund, J., (2005), Entrepreneurial Orientation and Small Business Performance: A Configurational Approach, Journal of
Business Venturing, Vol. 20, Issue 1, p. 71-91.
Venkatraman, N. (1989), "Strategic Orientation of Business Enterprises: The Construct, Dimensionality, and Measurement." Management Science
35(8): 942Ǧ962.
Venkatraman, N. and Ramanujam, V. (1986), Measurement of business performance in strategy research: A comparison of approaches, Academy of
Management Review, 1(4), pp.801-808.
Wang, C.L. (2008), “Entrepreneurial Orientation, Learning Orientation and Firm Performance” Entrepreneurship Theory and Practice, 32(4), 635-
656.
Wiklund, J., 1999. The sustainability of the entrepreneurial orientation – performance relationship. Entrepreneurship Theor. Pract. 24 (1), 37 – 48
Wiklund, J. and Shepherd, D. (2003), Knowledge-based resources, entrepreneurial orientation, and the performance of small and medium-sized
businesses. Strategic Management Journal, 24: 1307–1314.
Wiklund, J., & Shepherd, D. (2005). Entrepreneurial orientation and small business performance: a configurational approach. Journal of Business
Venturing. 20(1), 71-89.
Zahra, S. A., & Garvis, D. M. (2000), Entrepreneurship and firm performance: The moderating effect of international environmental hostility.
Journal of Business Venturing, 15(5), 469−492.
Zahra, S., and Covin, J. G. (1995), Contextual influences on the corporate entrepreneurship—performance relationship: A longitudinal analysis.
Journal of Business Venturing 10:43–58.
Zaltman G, Duncan R, Holbek J. (1973), Innovations and organizations. New York: Wiley.