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High-Growth Entrepreneurs: Learn, Respond and Prosper!
By Rob Fuller, Beyster Institute Staff
I recently completed a research study on growth-oriented small and medium enterprises (SMEs) in Russia that confirmed the findings of a 2003 study on similar companies in America that has important implications for entrepreneurs. These two studies found that there is a positive correlation between what is known as an SME’s absorptive capacity and their ability to successfully respond to changes in their business environment.
Absorptive capacity is the ability of an organization to learn from external sources, assimilate that knowledge and then disseminate it throughout the organization to those who might be able to exploit the knowledge for the competitive advantage of the company. The implication is that, in order to stay competitive, SMEs (and the entrepreneurs who start and run them) need to be aware of what is going on around them, and make sure others in the company get the word, too.
In 2003, the research team of Liao, Welsch and Stoica published an article in Entrepreneurship Theory and Practice1 in which they empirically demonstrated that for American growth-oriented SMEs, their ability to respond to changes in their environment is expected to increase if they have well-developed capabilities to acquire knowledge from outside the firm and disseminate that knowledge throughout the firm. They defined the term “growth-oriented” both subjectively and objectively. Subjectively, each of the SMEs included in their study stated that growth was an important element of their strategy. Objectively, each SME included in the study was also experiencing annual revenue growth in excess of 6 percent per year.
My 2008 research study2 not only included Russian SMEs that stated the importance of their growth intentions and had revenue growth in excess of 6 percent per year as in the U.S. study, but it also included those SMEs reporting revenue growth in excess of 20 percent per year regardless of their stated growth intention. Known as rapid growth firms3, these SMEs were included in my study because their rate of growth made them a priori “growth-oriented.” Like the previous U.S. study, my study also demonstrated a positive correlation between external knowledge acquisition (capabilities to acquire knowledge from outside the firm, also called organizational learning), internal knowledge dissemination and the Russian SMEs’ responsiveness to changes in their business environment.
Some of the practical implications of this research seem to apply to any small or medium enterprise that wishes to grow their business to the next level, or that is experiencing rapid growth, and which is experiencing changes in their environment that challenge their competitiveness. Improving your absorptive capacity by boosting your ability to acquire additional external knowledge and disseminate that knowledge within the company more effectively may help.
Proven techniques for external knowledge acquisition include: networking with other entrepreneurs, public officials, lenders and investors, and entrepreneur support organizations such as accountants and attorneys; talking regularly to customers; actively participating in business or industry associations; and continuing your education through formal or informal education and training events.
Examples of ways entrepreneurs have successfully improved the internal dissemination of new knowledge within the firm include: holding regular departmental and inter-departmental meetings; establishing a company newsletter; measuring and publicizing customer satisfaction data throughout the organization; and creating formal planning and goal monitoring systems for the company. These tools and techniques are important because the person learning new knowledge from external sources may not know what to do with that knowledge, but someone else in the company may have an “Aha!” moment when they learn it. That may be enough to spark the development of an innovation in response to the changed business environment that improves your competitiveness or even your company’s ability to stay in business.
While neither research study could claim to prove a cause and effect relationship, I believe the two studies taken together show that the likely relationship between absorptive capacity and organizational responsiveness is something to which the smart entrepreneur ought to pay attention.
1 Liao, J., Welsch, H., & Stoica, M. (2003). Organizational absorptive capacity and responsiveness: An empirical investigation of growth-oriented SMEs. Entrepreneurship Theory & Practice, 28(1), 63-85.
2 Fuller, R. (2008). An Empirical Comparison of the Absorptive Capacity and Responsiveness of Russian and American Growth-Oriented Small and Medium Enterprises (SMEs). Unpublished doctoral dissertation, Corvallis, OR: Oregon State University.
3 For further discussion see: Fischer, E., & Reuber, A. R. (2003). Support for rapid-growth firms: A comparison of the views of founders, government policymakers, and private sector resource providers. Journal of Small Business Management, 41(4), 346-365.©2008 The Beyster Institute and its authors and their entities. All rights reserved.
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