Examining entrepreneurial and renewal capital of Finnish and Italian firm, paper present in Research in Entrepreneurship and Small Business

Objectives (200 words) We combine three streams of literature – entrepreneurial orientation, innovation and intellectual capital literature – to introduce two key constructs – entrepreneurial capital (EC) and renewal capital (RC) – as critical components of Intellectual capital (IC) in established medium and large firms. Main literature argues that IC consists of 3 elements: human, structural and relational capital (e.g. Bontis 2001; Guthrie 2001). However we suggest that also 2 other elements could be included in IC visualizing and mapping: RC and EC (Kianto 2007; Kianto 2008; Kianto et. al. 2013). EC (Erikson 2002) concerns the competence and commitment related to entrepreneurial activities in the organization. It can be defined as entrepreneurial behavior exerted in an organization. RC refers to the ability of an organization to continuously develop itself through learning and innovation (see e.g. Kianto et al., 2010). We argue that together EC and RC represent key resources of organizations enabling high innovation performance and organizational growth. They also indicate how well an organization can respond to future challenges and radical changes in the market With these premises, the aim of this work is twofold: 1. to highlight the importance of EC and RC as stand alone components of the IC; 2. to prove that EC and RC don't’ have overlapping meanings. To this end, we compare the level of entrepreneurial capital and renewal capital in the context of two countries, Finland and Italy. Literature review (+/- 500 words) In this paper three distinct streams of research are combined: entrepreneurship studies, innovation and creativity studies, intellectual capital literature. 1) Entrepreneurship “encompasses acts of organizational creation, renewal or innovation that occur within or outside an existing organization” (Sharma, Chrisman, 1999). Entrepreneurship can be studied at an individual and collective level (independent and corporate entrepreneurship). Entrepreneurship scholars have attempted to explain a firm’s performance by investigating its entrepreneurial orientation (EO) (Wiklund, Shepherd, 2003). EO refers to a firm’s strategic orientation, capturing specific entrepreneurial aspects of decision-making styles, methods, and practices (Lumpkin and Dess, 1996). This construct has been described by a set of three to five behaviors, including autonomy, innovativeness, risk taking, proactiveness, and competitive aggressiveness (Covin and Slevin, 1989; Miller, 1983; Lumpkin and Dess, 1996). Lumpkin and Dess (1996) define EO as the propensity of firms to be innovative, proactive to the market place opportunities and be willing to take risk. While the EO is identified as a process, the entrepreneurship is defined as the content. the level of EO in an organization depends on the interaction between 3 sets of factors (Lau et al., 2012): organizational factors (Hornsby et al., 2002; Kuratko et al., 2005); environmental context and behaviors of individuals operating within an organization. It follows that in order to analyze the level of EO in an organization, it is important to verify the existence of the dimensions of entrepreneurship in individuals working within the firm (employees and managers). Entrepreneurial capital (EC) can be defined as the entrepreneurial behavior exerted in an organization, i.e. the courage, initiative taking and pro-activeness demonstrated by organizational actors. It deals with the competence and commitment related to entrepreneurial activities in the organization (Erikson 2002). 2) Some authors (Kianto et al. 2013) argue that EO should be considered another important component of intellectual capital (IC), even if most authors consider human, structural and relational capital as main IC components (Bontis 2001; Guthrie 2001). This broader definition of IC is based upon a “wide understanding of knowledge, as not only the explicit outcomes of knowledge-intensive work such as patents, formulae and actualized products, but also as the tacit potential of organizational actors to e.g. flexibly react to unexpected situations and rapidly changing customer demands” (Kianto et al., 2013, p. 1475). For this reason we argue that EC represents a critical intangible asset that contribute to firm’s value creation, especially in periods of turbulence and economic crisis. To this end EC is defined as a stock of competences and the personnel’s attributes related to proactive, risk oriented, innovativeness and aggressive decisionmaking and behavior. 3) According to the above-mentioned authors (Kianto et al., 2013), a further component of the IC is the capital renewal. Renewal capital refers to the ability of an organization to continuously develop itself through learning and innovation (see e.g. Kianto et al., 2010). A firm with high renewal capital is proficient at acquiring new knowledge and skills, at learning throughout the organization and at creatively and innovatively changing its operations. Approach/Method (between 300 & 400 words) We used two survey datasets from two countries: Finland and Italy. The data was collected during 2013 in Finland and in Italy during 2013-2014. In both cases, the survey data was collected by means of a structured questionnaire, using key-informant technique. For Finnish dataset, the initial population comprised a cross-industry sample of Finnish companies that included all firms with at least 100 employees. The Intellia database was utilized in identifying the companies. A total of 1.523 companies were considered suitable for the initial sample. All the eligible firms were contacted by external research company by telephone and the person in charge of the human resources were asked to respond to the questionnaire. Confidentiality was emphasized and a summary of the results was promised to the respondents. Out of the 1523 companies 262 responses were received, representing a response rate of 17.2%. Most of the respondents held positions such as a HR director or manager (77.9 %), other director or manager (8.8 %) or managing director (6,9 %), indicating their expertise and key position regarding the issues of intellectual capital and performance. The questionnaire was sent to all types of commercial firms in different industries, and the distribution among different industrial sectors corresponds quite closely to that of Finnish companies as a whole. The Italian target population was made up of Italian limited liabilities companies with 100 or more employees. From AIDA database 2000 companies were randomly extracted in order to respect sector, size and geographical stratification existing in the population. 105 questionnaires were received and the response rate is therefore 5,25%. After deleting unobtainable or unavailable firms and questionnaires with missing data, the final Italian dataset included 70 feasible responses. In each firm a key informant was involved in the survey, mostly CEO and HR/KM Director. Data was collected using an internet-administered survey questionnaire. In order to make respondents comfortable and willing to fill the questionnaire, information about survey’s origins and aims was given. Furthermore confidentiality was emphasized. We utilized two multi-item scales as the key constructs: entrepreneurial capital and renewal capital. Entrepreneurial capital includes six 3 items related to risk-taking, proactiveness, aggressive decision-making among the firm’s personnel. The scale for renewal capital includes four items related to learning and inventiveness of the organization. The items were adapted from Kianto et al. (2010), Garcia-Morales et al. (2006) and Hughes & Morgan (2007). Results/Findings (between 300 & 400 words) In both datasets, we found that the constructs of entrepreneurial capital and renewal capital load into two distinguishing factors, representing the theoretical rationale behind them, and a suitable level of discriminant validity. In addition, the internal reliabilities of the scales can be considered as good. In terms of entrepreneurial capital, the Cronbach alpha is .85 for Finnish sample and .93 for Italian sample. In terms of renewal capital, the Cronbach alpha is .80 for Finnish sample and .88 for Italian sample. Overall, these results suggest that the two scales work in a similar way in two different countries and can be perceived as representing their underlying phenomena quite well. After scale validation, we examined the descriptive statistics of the scales in both samples. By looking at the mean values, it seems that the levels of both measures are on a similar level. The mean value of entrepreneurial capital was 3.21 for Finnish firms and 3.20 for Italian firms. Renewal capital was 3.43 for Finnish firms and 3.47 for Italian firms. Based on an independent samples T-test, there is no statistical difference between the means between the two datasets regarding these measures, which shows that the phenomena is in similar levels in both countries. We also made several correlation analyses and found some trends (not statistically significant though) that the number of employees is negatively correlated with entrepreneurial capital and at the same time total sales per year is positively correlated. This would suggest that entrepreneurial capital helps to create firms with less employees but a lot of sales. This preliminary result, however, calls for further studies. Value & Implications (400 words) By addressing the constructs of EC and RC the paper combines the streams of literature based on entrepreneurial orientation, innovation a and intellectual capital studies with the extent to demonstrate that EC and RC can be considered as intangible resources that should be managed to produce value. We are aware of no previous studies explicitly combining these constructs to this extent. Drawing from the above-mentioned literature our investigation highlights the importance of EC and RC as stand alone components of the intellectual capital and leads/leading to the construction of an instrument that can be used to measure and monitor intellectual and renewal capital, thus representing an important support to maintain and increase the growth and innovativeness potential of established medium and large firms. By defining and operationalising the concepts of EC and RC and assessing their current levels in medium and large firms belonging to different countries, this paper contributes to IC literature in organizations and potentially offers a theoretical grounding both for the present step of the empirical research and for future studies. Indeed, survey’s results show that EC and RC are measures that have discriminant validity and internal reliability. Consequently we suggest they are relevant for measuring the growth and innovativeness potential of established medium and large firms. Moreover, there are no differences between countries regarding these measures. Thus, cultural etc. differences are not visible, and the firm-specific variation is likely to be a more relevant focus of further analyses than comparison between countries. Under the practical implications level, our findings provides/provide managers with unique insights into the state of art of entrepreneurial and renewal capital in the selected Finnish and Italian firms’ sample while previous empirical research are mainly a single-region or singlecountry emphasis. The results enable organizations to improve their performance by addressing attention to these components of intellectual capital in order to better management knowledge-based resources. Specifically, practitioners can learn key mechanisms for managing entrepreneurial and renewal capital and how they interact in value creation. This study conducted here focuses on scale development, validation, and comparison between two countries for improving the entrepreneurial and renewal capital practices of Finnish and Italian companies. Furthermore the author team intends to broaden the research by examining the growth rates and other performance indicators of firms expressing different levels of entrepreneurial and renewal capital and extend the comparison to firms from other countries that are participating in the same project