Collective Entrepreneurship,Environmental Uncertainty and Small Business Performance: A Contingent Examination

Abstract

This study empirically investigates the relationship between collective entrepreneurial capability and small business performance in different environmental conditions. A hierarchical multiple regression analysis of data from more than 100 small businesses shows that the collective entrepreneurial capability of a small business is positively associated with its competitive performance. Among the three investigated environmental dimensions, environmental dynamism is found to have a positive interaction effect with collective entrepreneurial capability on small business performance. Environmental hostility is found to have a negative interaction effect with collective entrepreneurial capability on small business performance. No interaction effect is found between environmental heterogeneity and collective entrepreneurial capability. Implications of this study are discussed.

Keywords

collective entrepreneurship competitive performance environmental uncertainty small business

Different from the leadership imperative theory that a small business relies on its owner/entrepreneur as the main, if not the only, source of entrepreneurship (Miller, 1983), the theory of collective entrepreneurship believes that a small business can develop collective entrepreneurial capability by drawing on the talents and creativity of all its employees in a synergistic way and use the capability to generate continuous and incremental innovations (Reich, 1987). There has been extensive research on entrepreneurs’ personal resources and capabilities and their benefits to the performance of small businesses (e.g., Miller, 1983; Sandberg & Hofer, 1987; Wu, 2007). However, research on collective entrepreneurial capability and its contribution to the performance of small businesses is still very limited (Burress & Cook, 2009; Stewart, 1989; Yan & Sorenson, 2003). A good understanding of how and under what circumstances collective entrepreneurial capability may help small businesses improve organisational performances will not only enable researchers to develop better entrepreneurship theories about small businesses but also provide small business owners and managers with valuable information on how and when to use collective entrepreneurial capability so as to survive and succeed in marketplace competitions. The study reported in this article intends to join in the above-mentioned research endeavour through an empirical investigation of the relationship between collective entrepreneurial capability and performance of small private businesses under different external environmental conditions.

Like all organisations, the performance of a small business is influenced by its external environment (Aldrich, 1979). Organisational environment is always considered as one of the most important contingency factors in organisation research. Research finds that organisational environment has impacts on many organisational characteristics (for a review, see Bluedorn, 1993). Various conceptualisations and measurements of organisational environment have been developed (e.g., Aldrich, 1979; Castrogiovanni, 1991; Dess & Beard, 1984; Sharfman & Dean, 1991). Relationships between environment and organisational structure (McDonough & Leifer, 1983), strategy (Miller & Friesen, 1983; Lindsay & Rue, 1980; Romanelli, 1989), innovation (Burns & Stalker, 1961) and other organisational characteristics (e.g., Argot, 1982; Hrebiniak & Snow, 1980; Weiner & Mahoney, 1981) have been extensively investigated.

This study proposes that as an important source of competitive advantage (e.g., Amit & Schoemaker, 1993; Barney, 1986; Makadok, 2001; Rumelt, 1984; Wernerfelt, 1984), the collective entrepreneurial capability of a small business is positively associated with its performance, especially its competitive performance (Chandler & Hanks, 1993). In addition, this study also proposes that the relationship between a small business’ collective entrepreneurial capability and its competitive performance is moderated by its external environment. This means in some environmental conditions, collective entrepreneurial capability may have a stronger relationship with small business performance, while in other environmental conditions the relationship may become weaker.

Organisational environment is now widely accepted among organisational researchers as a multidimensional construct (Bluedorn, 1993). Numerous sets of dimensions have been developed to capture the complex nature of the organisational environment. The set of environmental dimensions to be investigated in this study includes environmental dynamism, hostility and heterogeneity. All the three environmental dimensions have been extensively investigated and have been found to have both direct and indirect impact on many important organisational and strategic characteristics (e.g., Khandwalla, 1973; Miller, 1988; Miller & Friesen, 1983). For example, previous research (Covin & Slevin, 1989) finds interaction effect between environmental hostility and small firms’ entrepreneurial strategic posture on their performance. To include these three environmental uncertainty dimensions in this empirical study will provide us with a better understanding of the influence that external environment exerts on the relationship between collective entrepreneurial capability and the competitive performance of small businesses. To achieve this research purpose, an environmental contingency model is developed (see Figure 1) to investigate the interaction effects between the three environmental dimensions and the collective entrepreneurial capability of small businesses on their competitive performance.

Literature Review and Hypotheses

Collective Entrepreneurial Capability and Performance

There is an emerging interest in the study of collective entrepreneurship across different disciplines (Burress & Cook, 2009; Yan & Sorenson, 2003). Research has been done to investigate collective entrepreneurship in agricultural cooperatives (Chouinard & Forgues, 2002; Cook & Plunkett, 2006; Tetzschner, 1991) and small private and family businesses (Stewart, 1989; Yan & Sorenson, 2003). However, research on collective entrepreneurship is still very limited, and there is currently a lack of consensus on the definition of collective entrepreneurship (Burress & Cook, 2009). Some researchers treat collective entrepreneurship as a collective capability (Reich, 1987; Yan & Sorenson, 2003), while others treat it as a process that involves the participation of all members of a collective (Stewart, 1989; Tiessen, 1997).

Figure 1.

Source: Authors’ own.

This study treats collective entrepreneurship as a collective capability (Reich, 1987; Yan & Sorenson, 2003) and uses the term ‘collective entrepreneurial capability’ as the focus of investigation to avoid the lack of clarity from previous studies regarding the nature of collective entrepreneurship (Reich, 1987; Stewart, 1989; Tiessen, 1997; Yan & Sorenson, 2003). Borrowing Yan and Sorenson’s definition of collective entrepreneurship, collective entrepreneurial capability is defined in this article as a ‘synergistic capability that emerges from a collective and propels it beyond the current state by seizing opportunities without regard to resources under its current control’ (Yan & Sorenson, 2003, p. 37). In this study, we treat each small business as an independent collective or a work group (Riordan & Riordan, 1993). Thus, the collective entrepreneurial capability developed by all members of a small business together over time is viewed as a firm-level property and an organisational competence which will give the small business a chance to gain competitive advantage in competition under right circumstances (e.g., Amit & Schoemaker, 1993; Barney, 1986; Makadok, 2001; Rumelt, 1984; Wernerfelt, 1984). Developed by a collective over time, the collective entrepreneurial capability is likely both path dependent and socially complex, thus making it not only idiosyncratic but also difficult to imitate. Such characteristics will enable a small business to develop sustainable competitive advantage from its collective entrepreneurial capability (Peteraf, 1993). Collective entrepreneurial capability includes the collective capability of both identifying and responding to opportunities (Yan & Sorenson, 2003). A few antecedent factors to the collective entrepreneurial capability of small businesses have been identified, which include active cooperation and communication between organisational members (Yan & Sorenson, 2003), internally developed teams (Stewart, 1989) and proactive contribution of new information from organisational members (Simsek, Lubathin, Veiga & Dino, 2009). Different from the mainstream studies of entrepreneurial orientation (e.g., Lumpkin & Dess, 1996) that often treat top management team or individual entrepreneur(s) as the major source of an organisation’s entrepreneurial orientation (Covin & Slevin, 1989; Miller, 1983), the collective entrepreneurship of a small business is based on the collective efforts that involve all members of the business (Stewart, 1987), rather than one or a few individuals. Another major difference is that entrepreneurial orientation reflects the strategic gesture of a firm, while collective entrepreneurial capability is a competence which may become the basis for successful entrepreneurial strategic moves.

Although research on collective entrepreneurial capability is still very limited, evidence shows that like dynamic capability (Wu, 2007), collective entrepreneurial capability may become an important source of competitive edge for small businesses (Heene & Sanchez, 1997) and can ‘generate rents (for small businesses) inaccessible to the sole entrepreneurs’ (Burress & Cook, 2009, p. 3). In his ethnographic study, Stewart (1989) finds that workers in a small Canadian manufacturing firm employ collective entrepreneurial capability to successfully respond to the rapid changes in customer demands. In ‘Running Hot’, a metaphorical description of using collective entrepreneurial capability, members of a group or an organisation work together to ‘stretch past their previous abilities and learn how to solve customer’s problems’ (Stewart, 1989, p. 12). According to Reich (1987), collective entrepreneurial capability draws on everyone’s talent, creativity, knowledge and experience which are diffused throughout the organisation to create a whole that is greater than the sum of individual contributions. The collective entrepreneurial capability developed by members of an organisation or team working together over time leads to countless small innovative ideas that help it to seize opportunities (Yan & Sorenson, 2003). The participation of all members of a small business can also increase the knowledge absorption capability of the business, which is believed to benefit its performance especially in a rapidly changing environment (Camison & Fores, 2010). The collectivistic nature of such capability also allows a team or organisation to be able to implement a new idea or make a new move more efficiently and swiftly. All these discussions suggest that collective entrepreneurial capability will have a positive impact on the performance of either a team or an organisation and will enable it to outrival its competitors.

For small businesses, their simple and informal organisational structures and operational procedures (Miller, 1983) will provide both their owners and employees with more opportunities to interact with one another than in large companies. In addition, employees in small businesses often have more opportunities to perform multiple tasks, thus making them grasp a broader variety of job-related skills. The increased interpersonal interaction and increased need for individual employees to grasp more than one type of skill will make collective entrepreneurial capability, a synergistic capability (Yan & Sorenson, 2003), to grow and develop more easily inside a small business (Stewart, 1989). Different from their large counterparts, small businesses have a higher need for collective entrepreneurial capability. Large companies often have more abundant and specialised resources to carry out R&D, market research and other innovation-related activities, but small businesses perpetually struggle with limited resources (e.g., Acs & Audretsch, 1990; Rothwell & Zegveld, 1982). The scarcity of resources will push and encourage small business owners to draw on the collective efforts of their employees for new ideas and solutions to respond to market changes, explore new market opportunities and find new ways to improve performance. That is, compared with large companies, collective entrepreneurial capability is more valuable to small businesses. Thus, based on the above discussion and analysis, the following hypothesis regarding the relationship between collective entrepreneurial capability and a small business’ competitive performance is provided.

Hypothesis 1: The level of collective entrepreneurial capability of a small business is positively associated with its competitive performance.

Environment Uncertainty as Contingency Variables

There has been extensive coverage of organisational environment and its dimensions in the literature of organisation research (e.g., Aldrich, 1979; Bluedorn, 1993; Khandwalla, 1973; Sharfman & Dean, 1991). Environment has been found to be a major contingency that moderates the effects of organisational size, technology, structure, strategy, resources, capabilities and other organisational factors on organisational performance (e.g., Bourgeois, 1985; Child, 1972; Eisenhardt & Schoonhoven, 1990; Koberg & Ungson, 1987; Lawrence & Lorsch, 1967; Leatt & Schneck, 1982; Pelham, 1999). In the entrepreneurship and small business literature, research finds that environment moderates the impact of the entrepreneurial, strategic and market orientations (Covin & Slevin, 1989; Pelham, 1999) of a small business on its performance. The following sections discuss the proposed moderating effects of three environmental uncertainty dimensions on the relationship between collective entrepreneurial capability and a small business’ competitive performance.

Environmental dynamism: A dynamic environment is characterised with rapid changes in customer demands, production and service technologies and competitor moves (Aldrich, 1979; Miller & Friesen, 1983). Environmental dynamism increases the unpredictability and uncertainty of the external environment for all types of organisations, thus increasing the difficulty in their decision making. It is reasonable to believe that an uncertain and unpredictable external business environment will push an entrepreneur to use the help of other members of the small business in order to make better decisions. Small businesses that know how to use the collective efforts and capabilities of all their members will be able to handle a dynamic business environment better than those that do not. A previous study (Stewart, 1989) finds that the collective entrepreneurial capability that all members of a small business develop collectively by working together over time will enable the small business to respond to the changes in its business environment more efficiently and effectively. The entrepreneur is able to obtain more timely and complete information from all employees than only from him or herself and draw on the ideas and solutions from more than one person to meet changing customer demands, solve new problems and respond to the new moves of competitors. The dynamic environment often abounds with opportunities, such as new customer needs, technological innovations and regulation changes (Miller & Friesen, 1983). Previous research shows that entrepreneurial activities are more positively associated with performance in a dynamic environment than in a stable environment (Miller & Friesen, 1983). Thus, it can be inferred that the contribution of collective entrepreneurship to a small business’ performance increases with the increased environmental dynamism. So the following hypothesis is developed.

Hypothesis 2: The relationship between the collective entrepreneurial capability of a small business and its competitive performance is positively moderated by the degree of dynamism of its external environment.

Environmental hostility: According to Miller and Friesen (1983, p. 222), environmental hostility ‘represents the degree of threat to the firm posed by the multifacetedness, vigor and intensity of the competition and the downswings and upswings of the firm’s principal industry’. A hostile environment is often characterised by intense competition, risky industry settings, fewer exploitable opportunities, increasing resource scarcity and harsh and overwhelming business climate (Covin & Slevin, 1989; Miller & Friesen, 1983). Previous research (Covin & Slevin, 1989) finds that in a hostile environment, the entrepreneurial strategic posture of small businesses is positively associated with their performance, while in benign environment the relationship is negative. Even though a small business’ strategic posture is often mainly the reflection of the strategic intention of the entrepreneur (Miller, 1983), it is quite reasonable to expect that a strong collective entrepreneurial capability will heighten the entrepreneurial strategic posture or make the implementation of the small business’ entrepreneurial strategy more effective and successful. In his ethnographic study, Stewart (1989) finds that team entrepreneurship enables a small manufacturing firm to better deal with the pressure from an increasingly demanding market. The pressure intensifies the need for the members of the small manufacturing firm to ‘run hot’ together. All these studies suggest a positive influence of environmental hostility on the relationship between collective entrepreneurial capability and small business performance. Thus, the following hypothesis is provided.

Hypothesis 3: The relationship between the collective entrepreneurial capability of a small business and its competitive performance is positively moderated by the degree of hostility of its external environment.

Environmental heterogeneity: Environmental heterogeneity or complexity is the extent to which elements of the population that an organisation has to deal with in its external environment are different from one another (Aldrich, 1979; Khandwalla, 1973). These elements include organisations, individuals and any social forces that affect the input, output and operations of an organisation. Operating in a heterogeneous market environment means the small business has to deal with very different customers, which tends to encourage the entrepreneur to delegate more decision-making power to other employees (Miller & Friesen, 1983). A high degree of environmental heterogeneity provides a small business with both challenges and opportunities. When environmental heterogeneity increases, new market niches may open up and bring new opportunities to a small business. The increased heterogeneity often requires the small business to employ very different marketing, production and administration practices, which makes the entrepreneur’s own skills and capabilities become more likely inadequate. So the increase in environmental heterogeneity will motivate a small business owner to utilise the collective efforts of all his or her employees to respond to the diverse needs in marketing, production, administration and other areas of the business. In the meantime, the increase in environmental heterogeneity also will increase the contribution of collective efforts to the performance of a small business and reduce the entrepreneur’s share of contribution.

Previous research also finds that environmental heterogeneity is more positively associated with innovation for successful companies than unsuccessful ones (Miller & Friesen, 1983). By definition, a higher level of collective entrepreneurial capability should generate more innovations. Thus, it is reasonable to expect that the relationship between collective entrepreneurial capability and environmental heterogeneity is stronger for successful small businesses than for unsuccessful ones. A stronger association between environmental heterogeneity and collective entrepreneurial capability predicts better performance. Based on these discussions and analyses, the following hypothesis is provided.

Hypothesis 4: The relationship between the collective entrepreneurial capability of a small business and its competitive performance is positively moderated by the degree of heterogeneity of its external environment.

Methods

Sample

A 46-item questionnaire is developed to collect data from small businesses. The questionnaire includes items about the level of collective entrepreneurial capability of the small business, its business environment and its competitive performance. Students who take small business management class at a major state university on the West Coast participate in the data collection. There are no a priori lists for inclusion in the study. Students taking the small business management class are given a class assignment to interview a local small business owner/entrepreneur and write an interview report. During the interview, students ask the interviewees if they would like to participate in a small business research and fill out a survey. The rationale for this method is that students taking the small business management class often have contacts with many local small businesses, and these personalised relationships will increase the participation in the study (Stewart, Carland, Carland, Watson & Sweo, 2003; Stewart, Watson, Carland & Carland, 1999). Such a data collection method has some advantages over the traditional mail survey method (Stewart et al., 1999, 2003). In addition to the increased participation, respondents often are more willing to fill out a lengthy survey and give more meticulous attention to the questions. The sample is not anonymous, and the data collection process is carefully controlled. Less than 10 per cent of the individuals who are approached refuse to participate in the study, which indicates less concern with non-response bias. Over a period of 1 year, a total of 125 samples are collected; 16 samples are dropped for further analysis because they are insufficiently answered. All the respondents were either owners or co-owners of the surveyed businesses and were at the same time top managers. The demographics of the data used in analysis are displayed in Table 1.

Table 1.

Demographic Characteristics of Respondents

Characteristics		Number of respondents^a
Gender	Female	16
	Male	92
Age (entrepreneur)
	Under 25 years	7
	25–34 years	11
	35–44 years	31
	45–54 years	31
	55 and over	25
Age (firm)
	Under 5 years	16
	5–9 years	29
	10–19 years	30
	20 years and more	27
Industry
	Agriculture	4
	Retail or wholesale	32
	Manufacturing	8
	Construction	11
	Service	52
Employees
	Less than 10	82
	10–50	23
	51–100	2

Source: Authors’ own.

Note: ^aSome numbers do not add to correct totals due to missing data points.

Variables

Collective entrepreneurial capability: Based on the definition of collective entrepreneurial capability as a synergistic capability that emerges from a collective and propels it beyond the current state by seizing opportunities without regard to resources under its current control, an eight-item scale is developed to assess this construct (see Appendix A). All the eight items are of the forced choice type with pairs of opposite statements. A seven-point scale divides the two statements. Factor analysis is done to assess the dimensionality of this construct. All the eight items load above 0.5 on a single factor, which demonstrates good unidimensionality. The scale has a mean of 5.30, a standard deviation of 1.08 and an inter-item reliability (Cronbach’s α) of 0.93.

Environment: The seven-item scale developed by Miller and Friesen (1983) is used to measure the three environmental dimensions. Among the seven items, three items measure environmental dynamism; three measure environmental hostility; and one measures environmental heterogeneity. The internal reliabilities for environmental dynamism and environmental hostility in this study are 0.68 and 0.70, respectively, which are considered as acceptable (Hair, Black, Babin, Anderson & Tatham, 2005).

Competitive performance: The eight-item scale developed by Chandler and Hanks (1993) is used to measure the competitive performance of small businesses in this study. This instrument asks respondents to use five-point Likert-type scales to subjectively compare the performance of their companies to the performance of competitors they are aware of that are at about the same age and stage of development. According to the study of Chandler and Hanks (1993), competitive performance is relatively more reliable than some other performance measurements. The scale has good internal reliability (Cronbach’s α = 0.87).

Control variables: Businesses of different size and age may exhibit different organisational characteristics. Studies show that firm size and age may influence performance (Bluedorn, 1993; Gooding & Wagner, 1985). Thus, organisational size and age are included as control variables. Firm age is calculated by asking respondents what year their businesses were established. Firm size is calculated by asking how many individuals, including the owners, work in the firm at the present time.

Analyses and Results

Table 2 reports the means, standard deviations and correlations of the variables included in the analysis. Correlations between the three environment variables are significant, which are consistent with previous findings (Miller & Friesen, 1983). The collective entrepreneurial capability is significantly correlated with environmental heterogeneity and competitive performance. No significant correlations are found between other variables. Overall, most correlations are low to moderate, indicating that multicollinearity is not a serious threat to the analyses (Tabachnick & Fidell, 2001).

Table 2.

Means, Standard Deviations and Correlations

Variable	Mean	SD	1	2	3	4	5	6	7
1. Firm age	15.00	12.12
2. Firm size	7.33	9.45	0.11
3. Collective entrepreneurship	5.30	1.08	−0.02	0.06
4. Dynamism	4.13	0.92	0.17	0.16	0.08
5. Hostility	4.03	0.82	−0.12	−0.04	−0.04	0.25**
6. Heterogeneity	4.72	1.26	−0.03	0.07	0.21*	0.30**	0.36**
7. Competitive performance	3.61	0.59	0.13	0.07	0.38**	0.08	−0.13	0.00

Source: Authors’ own.

Note: *p < 0.05 and **p < 0.01.

Hierarchical multiple regression analysis is conducted to investigate the main effect (Hypothesis 1) and three two-way interaction effects (Hypotheses 2–4). To test the hypotheses, the control variables are first entered (results reported in column 2), then the independent variables (main-effects-only model in column 3) are entered and finally the interaction terms (contingency model in column 4) are entered. No variance inflation factors (VIFs) exceed 10.0, so multicollinearity is not a problem. Analysis results are summarised in Table 3.

Table 3.

Results of Hierarchical Multiple Regression Analysis

Variable	Control Variables	Universal Model	Contingency Model
Step 1: (control variables)
Firm age	0.12	0.10	0.09
Firm size	0.06	0.07	0.09
Step 2: (main effects)
Collective entrepreneurship (CE)		0.34**	0.32
Dynamism (D)		0.07	−0.94
Hostility (HO)		−0.10	0.76
Heterogeneity (HE)		−0.06	−0.05
Step 3: (interaction effects)
CExD			1.37*
CExHO			−1.18*
CExHE			0.01
R ²	0.02	0.15*	0.23**
Adjusted R²	0.00	0.10*	0.16 **
ΔR²	0.02	0.13**	0.08*

Source: Authors’ own.

Note: *p < 0.05 and **p < 0.01.

In the first step of analysis, control variables of firm age and size explain only 2 per cent of the variation in performance, which is not significant. Neither firm age nor firm size has statistically significant relationship with small business performance. In the second step, the universal influence of collective entrepreneurial capability, environmental dynamism, environmental hostility and environmental heterogeneity on small business performance are assessed. These four variables account for an additional 13 per cent of the variation in performance, as displayed in the third column of Table 2 (p < 0.01). However, only collective entrepreneurial capability has a statistically significant positive relationship with small business performance (β = 0.34, p < 0.01); that is, higher small business performance is associated with greater collective entrepreneurial capability. This finding provides support for Hypothesis 1.

The contingency model significantly increases the amount of explained variance (∆R² = 8 per cent, p < 0.05). Two out of three interaction terms are statistically significant. The interaction between collective entrepreneurial capability and environmental dynamism has a statistically significant positive relationship with small business performance (β = 1.35, p < 0.05), that is, the more dynamic the external environment, the stronger the positive relationship between collective entrepreneurial capability and small business performance. So Hypothesis 2 is supported. The interaction between collective entrepreneurial capability and environmental hostility has a statistically significant relationship with small business performance, but contrary to Hypothesis 3 that predicts a positive relationship, the relationship is negative (β = −1.18, p < 0.05). This means the more hostile the external environment, the less positive, or more negative, association exists between collective entrepreneurial capability and small business performance. This finding does not support Hypothesis 3. To aid interpretation, the two significant interactions were plotted at one standard deviation above and below the mean (Aike & West, 1991) in Figures 2 and 3, respectively. No interactive effect is found between collective entrepreneurial capability and environmental heterogeneity. Thus, Hypothesis 4 is not supported.

Figure 2.

Source: Authors’ own.

Figure 3.

Source: Authors’ own.

Discussion

The findings from this study provide support to the theory of collective entrepreneurship, which argues that the collective and synergistic capability of all members of an organisation to pursue opportunities is an important source of competitive advantage (Burress & Cook, 2009; Reich, 1987; Stewart, 1989; Yan & Sorenson, 2003). However, relying on the main effect relationships provides an incomplete understanding of the impact of collective entrepreneurial capability on small business performance. A contingency model is developed and tested to help us better understand how external environment affects the relationship between the collective entrepreneurial capability of a small business and its competitive performance.

The interaction effects of collective entrepreneurial capability and three organisational environment dimensions are examined simultaneously in a hierarchical multiple regression analysis. Results of the analysis show that organisational environment has a significant influence on the relationship between collective entrepreneurship and small business performance. However, the influence varies with the different types of environmental uncertainty. Environmental dynamism is found to positively moderate the relationship between collective entrepreneurial capability and the competitive performance of small businesses. This finding suggests that for small businesses, collective entrepreneurship contributes more to their performance in a dynamic environment than in a non-dynamic environment. As previously discussed, in a dynamic environment where factors such as customer needs constantly change, the entrepreneur has to count on all members of the small business to collect information from the environment and contribute new ideas and solutions. The increase in environmental dynamism increases the need and intention of entrepreneurs to count on such collective efforts from their employees. In contrast, in a stable environment where tasks of a small business often become standardised and routinised, the reliance on collective entrepreneurial capability to improve performance is reduced.

The most surprising finding in this study is that environmental hostility has a statistically significant negative influence on the relationship between collective entrepreneurship and small business performance. Contrary to the hypothesis, this finding suggests that the contribution of collective entrepreneurship to performance is smaller in a hostile environment than in a non-hostile environment. Several explanations are provided. One explanation is that environmental hostility increases the tendency of the leadership of a small business to strengthen its control of the business and centralise its decision making (McDonough & Leifer, 1983). Such tendency will increase entrepreneurs’ reliance on themselves, and decrease their reliance on other people for input and contribution. Leadership studies (Yukl, 1998) find that in very unfavourable situations, task-oriented leaders tend to be more effective than relations-oriented leaders (Fiedler, 1971). So, even though collective entrepreneurship as an organisational competence is available, the entrepreneur will be less likely to use it, or use it less when the external environment becomes hostile. This may lead to the finding in this study that increased environmental hostility decreases the contribution of collective entrepreneurial capability to small business performance. It also suggests that even though collective entrepreneurial capability is available, it is mostly up to the leadership to decide whether to use it or not.

A second explanation is that firms often incline to reduce their entrepreneurial activities in hostile environments because risk-taking, forceful proactiveness and strong emphasis on innovation can sometimes lead to very hazardous consequences (Miller & Friesen, 1983). Hostile environments often put pressure on the resources, profit margin and manoeuvrability of a business organisation, so it has to put more emphasis on conservation of resources and is more likely to pursue economical competitive strategies rather than entrepreneurial strategies. The scarcity of resources base for small businesses will increase such inclination.

A third explanation is that when under the pressure of extremely hostile environments, entrepreneurs may put less trust on other people to perform critical activities. Such a lack of trust with other people may reflect a strong individualistic orientation which is more pervasive in the United States than in other more collectivistic cultures (Hofstede, 1991; Tiessen, 1997). A hostile environment often leads to lay-offs in order to control costs, which could hurt the trust between the entrepreneur and his or her employees. A fourth explanation is that in a hostile environment, the entrepreneur may perceive fewer opportunities and thus focus on other avenues rather than entrepreneurship to achieve desirable performance. All these explanations point to an environmental contingency leadership imperative theory of entrepreneurship for small businesses (Miller & Friesen, 1983), that is, the more hostile the external environment, the less the entrepreneur will count on the collective efforts and competence, though available, and the more he or she will count on his or her own experience, knowledge and capabilities. The finding tells a story about the impact of external environment on small businesses different from the findings of some previous research (Miller & Friesen, 1983). Future studies should include entrepreneurs’ needs, concerns and personalities as moderating variables to investigate the impact on small business performance from the three-way interactions between the above-mentioned entrepreneur-related variables, environmental hostility and collective entrepreneurial capability.

The finding that environmental dynamism and hostility have different impacts on the relationship between collective entrepreneurial capability and small business performance seems to suggest that entrepreneurs may have different attitudes towards these two types of environmental uncertainty, and thus use different strategies to deal with them. Entrepreneurs often do not perceive dynamic environment as threatening, but instead full of opportunities, and thus are more willing to rely on the collective efforts of all their employees to pursue these opportunities. However, in a hostile environment, when entrepreneurs perceive their businesses threatened constantly by hostile factors or changes in the external environment, they tend more likely to centralise decision making, strengthen their own control and less likely to rely on the collective efforts and capabilities of their employees.

Another surprising finding of this study is that environmental heterogeneity is found to have no significant influence on the relationship between collective entrepreneurial capability and small business performance. This finding suggests that for small businesses, the increase of the heterogeneity in customer needs and market conditions does not increase the contribution of collective entrepreneurial capability to performance. One explanation is that the increased environmental heterogeneity may increase the tendency for an entrepreneur to delegate and rely on his or her employees, but may not necessarily drive him or her to integrate their work and efforts. That is, delegation itself will not give birth to collective synergy. Another explanation is that the nature of collective entrepreneurship is dynamic. It is a collective competence that enables an organisation to respond effectively to the changes in the external environment. Collective efforts may be more effective in dealing with a complex environment than individual efforts do, but if the environment is static, such as no changes in customer demands, collective entrepreneurship will lose its effectiveness as soon as a company has acquired enough knowledge and experience to deal with the diversity in the environment. A final explanation is that unlike large firms, small businesses are less able to diversify due to their small scale of operations and limited resource bases. Small businesses tend to be market-niche players that often concentrate on one type of product or service. Thus, environmental heterogeneity may not be a very relevant contingency factor to small businesses. More research should be done to verify our findings regarding the negative interaction effect of hostile organisational environment and our explanations. Qualitative data should be collected to explain why environmental hostility would reduce the positive impact of collective entrepreneurial entrepreneurship, or even turn the relationship to become negative.

The theoretical model developed for empirical examination in this study is mainly based on the findings from the previous studies of large organisations. The differences between large established businesses and small businesses (Miller, 1983) may be the reason why our findings did not support the hypothesised moderating effects of both environmental hostility and heterogeneity. Our study, like many other studies of small businesses, indicates that organisational theories that are based on the study of large organisations need thorough and careful re-examination and probably modification before they can be applied to small businesses. So findings from our study provide important materials for the development of better collective entrepreneurship theories for small businesses.

Findings from this study have many important implications for small businesses. The most important implication is that the entrepreneur is not the only source of entrepreneurship for a small business as prescribed by the leadership imperative theory of small business entrepreneurship (Miller, 1983). The collective efforts of all the members of a small business working together to pursue opportunities contribute to the competitive performance of a small business (Reich, 1987; Stewart, 1989; Yan & Sorenson, 2003). Future studies should examine the two types of entrepreneurship simultaneously. There exists the possibility that they may be in conflict with each other. For example, the centralised decision-making style of the entrepreneur, which is shown to be positively associated with the level of leader-driven entrepreneurship of the small business (Miller, 1983), may negatively affect the collective entrepreneurial capability and its contribution to the business. Practically, findings from this study imply that entrepreneurs should not ignore the potential that the collective efforts and capabilities of their employees can be utilised to improve performance. It is also important that entrepreneurs should intentionally help to develop the collective entrepreneurial capability of their businesses through effective leadership (Yan & Sorenson, 2003). The findings also imply that the more dynamic the external environment, the more contributions from the collective efforts and capabilities. However, findings from our study show that collective entrepreneurship may not always contribute to the competitive performance of a small business, or at least not equally under different circumstances. The effect of collective entrepreneurship is continuous and incremental rather than drastic and revolutionary. Thus, collective entrepreneurial capability fits better with strategies that strive for long-term, continuous and incremental performance changes. If a small business needs a dramatic change due to such reasons as drastically changed business environment, collective entrepreneurship may not be a good choice as reflected in the findings of this study that a hostile environment tends to decrease rather than enhance the effect of collective entrepreneurial capability on firm performance.

Conclusion

Due to the importance of small businesses to most economies, it is important for us to have a better understanding of what contributes to its survival and success. Adding to the findings of previous research that the entrepreneurship of a small business mainly comes from the entrepreneur, this study provides evidence that drawing on the talents and creativity of other members of the business in a synergistic way provides an alternative source of entrepreneurship for small businesses. Consistent with the arguments and findings of very limited previous research (Reich, 1987; Stewart, 1989; Yan & Sorenson, 2003), the findings of this study show that collective entrepreneurial capability contributes to small business performance. The findings also show that environmental dynamism and hostility have interaction effects with collective entrepreneurial capability on small business performance. However, the interaction effects are totally opposite. In a dynamic environment, the contribution of collective entrepreneurial capability to small business performance increases, while in a hostile environment, the contribution decreases. More research needs to be done to better understand the reasons that lead to this finding. More research also needs to be conducted to investigate other factors that affect collective entrepreneurship and collective entrepreneurial capability and their contribution to the survival and success of small businesses.

To further develop the theory of collective entrepreneurship, the relationship between collective entrepreneurial capability and social capital (Nahapiet & Ghoshal, 1998) should be studied. To a certain extent, collective entrepreneurial capability can be viewed as a competence to build social capital and utilise it to exploit the human capital stored in every member of a small business in a synergistic way for entrepreneurial purposes. Thus, collective entrepreneurial capability of a small business is embedded (Granovetter, 1985) in the complex social relationships both inside and outside of the small business. Future research should explore and investigate the impact of the social capital that a small business has accumulated over time on its collective entrepreneurial capability.

We considered organisational environment as the only contingency in this study. However, other contingency factors, such as the type of industry, firm age, size, structure, strategy and entrepreneurs’ personal characteristics, should be considered in order to obtain a better picture of how collective entrepreneurship affects the performance of small businesses. We only examined the two-way interactive effects between collective entrepreneurial capability and organisational environment in this study; future studies may take a configurational approach (Miller, 1996) to better understand the specific circumstances that will maximise the contribution of collective entrepreneurship. Moreover, future research should take a longitudinal approach to investigate the impact of collective entrepreneurship on a small business by comparing its past and present performance.

This study is not without limitations. Using cross-sectional data makes it difficult to draw causal relationship between the investigated variables. Future research should take a longitudinal design so that a better understanding of the causal relationship between collective entrepreneurial capability and small business performance can be obtained. We also recognise the limitation of using entrepreneurs as the sole source of information about the collective entrepreneurial capability of their small businesses. Future research should consider collecting data from multiple sources from the same business. However, the small size of the surveyed business gives its owners better chance to know its employees and their collective strength (Dess & Robinson, 1984). In addition, we collected the data through student interviews, and the willingness of the small business owners to participate in the data collection and interview and the time commitment may increase the reliability and accuracy of the data they provided in the survey. The negative effects of ‘key informant’ (Mitchell, 1994) methodology used in this research are also controlled by obtaining respondents who hold similar or identical positions in the small businesses, which help to reduce problems associated with lack of standardisation. Another limitation of the methodology used in this study is the possible percept–percept inflation due to the single self-reporting source for each measure. Future research should collect different data from different sources. For example, data about collective entrepreneurial capability may be collected from other members of the small business, not from the entrepreneur. The tendency of respondents to provide socially desirable answers could contaminate the data for this study, which may suppress and obscure relationships among variables, or produce artificial relationships among independent and dependent variables (King & Bruner, 2000). In future research, statistical control techniques should be included in the questionnaire design to reduce the effects of social-desirability bias. Another limitation is that the measurement of environment in this study is perceptual, not objective. There is a possibility that the same level of environmental dynamism, hostility or heterogeneity is perceived differently by different entrepreneurs, which leads to different levels of interaction effects on small business performance.

Footnotes

Appendix

The collective entrepreneurial capability is measured by asking the respondents to select a number from one to seven between two opposing statements that describe the collective capability of the small business. The following are the items used in the study.

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