Entrepreneurial orientation and the survival of the 21st century manufacturer
By Shari L.S. Worthington
Today's manufacturers live in a hostile environment that is unpredictable, precarious, filled with intense competition, and often lacking exploitable investment or marketing opportunities. As if that is not enough, many manufacturers recognize they work in a hostile environment, but operate as if they were in a safe, benign space. As a result, they stick with rigid, mechanistic organizational structures and conservative strategic postures. Their competitive profiles are characterized by conservative, risk-averse financial management; a short-term financial orientation focused on profitability; an emphasis on product refinement versus innovation; and a willingness to rely heavily on single or small numbers of customers. That does not bode well for the long-term survival of these firms.
Research has shown that the types of organizations that survive and thrive in a hostile environment have more of an entrepreneurial orientation. That means they embrace an organic organizational structure that can respond faster to changing external forces. They have an entrepreneurial strategic posture and a competitive profile characterized by long-term, goal-oriented management, high product prices, and a concern for maintaining awareness of industry trends.
Entrepreneurial orientation is the entrepreneurial strategy-making processes that key decision makers use to put their firm's organizational purpose into action, sustain its vision, and create competitive advantages. In entrepreneurial firms, top managers are inclined to take business-related risks. They favor change and innovation in order to obtain a competitive advantage for their firm, and to compete aggressively with other firms. These managers are proactive, innovative, and willing to take calculated risks. Conservative firms are those in which top managers are passive, risk-averse, not innovative, and reactive.
It is time for manufacturers to do more than give a nod to flexibility and creativity in their mission statements. This needs to be an organization-wide change in attitude. We need manufacturers who are innovative, risk-taking, and proactive.
Innovativeness is an organization-wide mindset that encourages engagement in creativity and experimentation. This can be through the introduction of new products and services, as well as through technological leadership via research and development in new processes.
Risk taking involves taking bold actions by venturing into the unknown, borrowing, or committing significant resources to ventures in uncertain environments. Note that these are calculated risks. Many think that entrepreneurs take wild risks that sane people would avoid. The reality is that entrepreneurs take more risks because they see risks differently. They are able to assess limitations, apply creativity, and find a reasonable path to constructing something new.
Proactiveness is an opportunity-seeking, forward-looking perspective. It means introducing new products and services ahead of the competition and acting in anticipation of future demand.
There is some good news. According to the Federal Reserve Bank, manufacturing is a growing contributor to the U.S. economy, even when manufacturing job numbers are shrinking. Manufacturing contributed $2.33 trillion to the U.S. economy in the first quarter of 2018. Small-to-medium enterprises (SMEs) are responsible for a large and growing share of that added value. In fact, about three-quarters of the 250,000+ firms in the manufacturing sector have fewer than 20 employees.
While SMEs are often more specialized and flexible than their larger customers, there are gaps in the productivity and R&D investments of small manufacturers compared to large manufacturers. SME manufacturers face a number of obstacles: scarce resources, lack of skills, skepticism toward formal training, and the need for flexibility to compete against larger manufacturers.
The Boston Consulting Group found that a majority of U.S.-based manufacturing executives at companies with sales of at least $1 billion are investing in additional automation or advanced manufacturing technologies (AMT) with the expectation that this will improve productivity and competitiveness when compared to products made in low-cost countries. At the same time, low-cost countries are making significant and sophisticated investments in AMT. This creates an increasingly competitive climate, especially for SME manufacturers, many of whom are reluctant to make the major technology investments needed to keep pace. Small firms are also less likely than larger firms to train employees due to concerns about high employee turnover, high failure rates, and perceptions that training is costly.
What SMEs can do is embrace a more entrepreneurial orientation. This will lead to more opportunity recognition, more innovation, as well as more new products, processes, markets, and business models.