Moving with the market
Enterprising companies regularly innovate, open up new markets, introduce trends and are prepared to take risks. Does this really contribute to their profitability and performance in the long term? To answer that question, Dr Hans Bruining and Dr Aart-Willem Saly followed 135 Dutch companies employing more than 400 employees between 1999 and 2014. Aart-Willem Saly said: “The greatest effect on the financial performance of businesses concerns being able to gear entrepreneurship to the market situation. Businesses which were more proactive in times of market turbulence or threats to their position, and which innovated more and took risks, were significantly more profitable in 7 of the 14 years. There were no years in which these companies performed significantly worse than the average of all the companies we studied.”
Hans Bruining adds: “Research warns against ‘overdoing entrepreneurship’ I when the company’s position is not under particular pressure and the organisation has a relatively unthreatened position in the market. A more conservative approach in this situation is certainly equally profitable.”
Entrepreneurship and continuity
In the long term, a higher level of entrepreneurship contributes to a company’s continuity. On average, the 14 companies in the study which went bankrupt after 1999 scored lower on innovation, proactivity and the willingness to take risks than the other 135 companies which survived. Furthermore it appeared that although all companies’ financial results were hit hard during the crisis of 2008, companies scoring more highly for innovations and proactivity recovered sooner and were able to restore their results back to pre-crisis levels. In this case, their innovative activities were the engine for their recovery.
Crisis creates caution
At the time of the crisis, the average level of entrepreneurship among all Dutch companies fell, but has since been restored. However, the study shows that the companies in the study still tend to avoid risks. The crisis seems to have affected the extent to which companies are able and willing to take financial business risks. Some companies were able to adjust their level of entrepreneurship to the changing market situation at exactly the right moment, thus achieving greater profitability than other companies.
Tips for upper management
The study offers tips for upper management of big companies, but entrepreneurship is no magic formula. Saly says: “The study shows that entrepreneurship can be encouraged, but it is certainly not easy and requires patience. However, some measures have proved effective and beneficial to companies. Factors for success emerging from the study include having a clear and focused strategy, recruiting enterprising employees and creating separate business units which are fully dedicated to innovation and developing new business.
“We have also seen a recent increase in co-operations with enterprising start-ups. Overall, diversity in innovation plays an important role.”
About the study
The study was conducted by Dr Hans Bruining of RSM and Dr Aart-Willem Saly of EY. Dr Bruining is Associate Professor in Strategic Management and Entrepreneurship at RSM and researches buy-outs, strategic management and entrepreneurship. Dr Saly is Strategy director at accountancy and consultancy firm EY and advises big companies on strategy and innovation. The study was also supported by VNO-NCW (The Confederation of Netherlands Industry and Employers), which encouraged businesses to co-operate with the study.
About EY
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