http://www.smallbusinessinstitute.biz Social proactiveness and innovation: The impact of stakeholder salience on corporate entrepreneurship Michael G. Goldsby1, Donald F. Kuratko2, James W. Bishop3, Patrick M. Kreiser4, Jeffrey S. Hornsby5 1Ball State University, USA, mgoldsby@bsu.edu 2Indiana University, USA, dkuratko@indiana.edu 3New Mexico State University, USA, jbishop@nmsu.edu 4Iowa State University, USA, pkreiser@iastate.edu 5University of Missouri-Kansas City, USA, hornsbyj@umkc.edu A B S T R A C T Innovation has become a major strategic component of corporate entrepreneurship. Managerial decisions regarding innovative activity are complex and can be affected by numerous factors. In this study, we draw upon the tenets of stakeholder theory to examine how stakeholder salience (consisting of stockholders, employees, and customers) is integral to the decisions made by senior level managers related to social proactiveness within a corporate innovation strategy. In doing so, we introduce a social proactiveness scale that exam- ines a manager’s priorities toward internal and external social issues. Examining 200 senior-level managers, we find that companies which place salience on employees are more proactive on both internal and external social issues, while those placing salience on stockholders are more proactive on internal social issues but not external social issues. Surprisingly, placing salience on customers is associated with neither internal nor external social issues. Finally, the data suggests that proactiveness related to internal social issues leads to greater internal innovation with external innovation mediating the relationship, whereas proactiveness on external social issues is not related to innovation. Keywords: Journal of Small Business Strategy 2018, Vol. 28, No. 02, 1-15 ISSN: 1081-8510 (Print) 2380-1751 (Online) ©Copyright 2018 Small Business Institute® APA Citation Information: Goldsby, M. G., Kuratko, D. F., Bishop, J. W., Kreiser, P. M., & Hornsby, J. S. (2018). Social proactiveness and innovation: The impact of stakeholder salience on corporate entrepreneurship. Journal of Small Business Strategy, 28(2), 1-15. w w w. j s b s . o rg Social proactiveness, Stakeholder theory, Stakeholder salience, Corporate entrepreneurship, Innovation Conditions in the global business environment demand that established firms pursue innovation and relevancy in their markets if they are to stay in business (Morris, Kurat- ko, & Covin, 2011). The strategic approach of supporting innovation and revitalization within forward-thinking com- panies is better known as corporate entrepreneurship or cor- porate innovation and has become a prime area of research in the strategic management and entrepreneurship fields. More specifically, corporate entrepreneurship refers to the pursuit of innovation by established organizations and is a vital component in facilitating the exploitation of exist- ing company resources or exploration of new opportunities (Kuratko & Audretsch, 2013). Corporate entrepreneurship has been initiated in established organizations for a host of purposes, including profitability (Vozikis, Bruton, Prasad, & Merikas, 1999; Zahra, 1993), strategic renewal (Guth & Ginsberg, 1990), innovativeness (Baden-Fuller, 1995), gaining knowledge to develop future revenue streams (Mc- Grath, Venkataraman, & MacMillan, 1994), international success (Birkinshaw, 1997), growth (Zahra, Kuratko, & Jennings, 1999), and the effective configuration of resourc- es as the pathway to developing competitive advantages (Borch, Huse, & Senneseth, 1999; Covin & Miles, 1999; Covin, Slevin, & Heeley, 2000; Kuratko, Covin, & Garrett, 2009). Regardless of the reason that firms decide to engage in corporate entrepreneurship, it has become a major strat- egy (Morris et al., 2011; Narayanan, Yang, & Zahra, 2009). For the purposes of this paper, we have chosen to focus on innovation, a subject that drives many of the other afore- mentioned purposes. As more companies seek to embrace corporate entrepreneurship as the framework for the firm’s future innovative goals and activities (Ireland, Covin & Ku- ratko, 2009; Morris et al., 2011), a greater understanding of phenomena that affect and potentially foster a strategy for corporate innovation would serve academics and prac- Introduction http://www.smallbusinessinstitute.biz http://www.jsbs.org 2 M. G. Goldsby, D. F. Kuratko, J. W. Bishop, P. M. Kreiser, & J. S. Hornsby Journal of Small Business Strategy / Vol. 28, No. 2 (2018) / 1-15 titioners well. While most people think of changing consumer tastes and evolving technologies as drivers of new business de- velopment, problems and challenges can also serve as the impetus for innovation (Zahra, Filatochev, & Wright, 2009). Addressing problems and challenges in unique ways can dif- ferentiate companies from their competitors. One complex set of challenges that companies often face is social issues (Hemingway, 2005; Ozmoyer, Calantone, & DiBonetto, 1997). We contend that companies pursuing more proactive approaches to social issues often discover opportunities for innovation (Shepherd & Patzelt, 2011). Consistent with the findings of Boesso and Kumar (2016), we expect that a definite stance toward these issues will impact innovation pursued by its managers. Therefore, the purpose of this re- search is to develop and test a model in which proactiveness towards social issues mediates the relationships between the salience placed upon certain stakeholder groups and inno- vation. See Figure 1. In order to accomplish this purpose, we first provide a discussion of stakeholder theory--a dom- inant strategic approach in the social issues literature--and its application to corporate innovation. We then develop the hypotheses which, taken together, constitute our model and detail the relationships among stakeholder salience, social proactiveness, and innovation. We then explain the study’s results and conclude with a discussion of the theoretical and practical implications of our findings. A major contribution of this paper is the development of a scale based on the sem- inal corporate social responsibility (CSR) work of Clarkson (1991). Clarkson developed categories of socially respon- sible activity, which he used to score company social per- formance via the examination of archival data. Our scale, however, allows managers inside the firms to score what they believe their companies’ posture towards these possi- ble activities are. The modified Social Proactiveness Scale offers researchers an instrument to include in future surveys of company postures toward CSR. More scales are need- ed to better assess the role CSR plays in a variety of busi- ness activity (Alvaredo-Herrera, Bigne, Aldas-Manzano, & Curras-Perez, 2017). The focus of entrepreneurial activity in this paper is innovation, for which we also developed a scale in order to study the internal and external sources of the behavior. Literature Review Stakeholder Theory Freeman (1984) defines a stakeholders group as any group that affects or is affected by the decisions managers make in achieving their goals. Thus, stakeholder manage- ment is the manner in which an organization manages and relates to its diverse group of stakeholders. A key challenge in stakeholder research is determining how much priority managers should give to different groups. Clarkson (1988) recognized that different stakeholder groups occupy differ- ent levels of importance to different firms. Primary stake- holders are those “without whose continuing participation the corporation cannot survive” and secondary stakehold- ers are those “who influence or affect, or are influenced or affected by, the corporation” (Clarkson, 1988: 259). In the relevant literature, this is often referred to as stakeholder salience; i.e., how salient is a specific group to the organi- zation’s decisions? It is unlikely that an organization would give each stakeholder equal attention, so researchers have sought methodological approaches to capture stakeholder salience. Increased understanding of the roles that stakeholders play in opportunity development provides the potential for enhancing innovation efforts. Specifically, by maintain- ing relationships with multiple stakeholders, managers are more aware of the needs of their constituencies, whereas those organizations that take a more reactive stance are less likely to be aware of these entrepreneurial opportuni- ties. Introduced by Carroll (1979) and modified by Wartick and Cochran (1985), the most commonly employed Cor- porate Social Responsibility (CSR) categorization is reac- tive, defensive, accommodative, and proactive. Reactive means that, with regard to social issues, less is done than is required; defensive means that the least required actions are done; accommodative means that all that is required is done; and proactive means that doing more than is required is accomplished. Companies using a reactive posture deny responsibility on social issues; defensive companies ad- mit responsibility but fight it; accommodative companies accept responsibilities on issues; and proactive companies anticipate responsibility and search for ways to be leaders on social issues. Clarkson (1988; 1991) employed this RDAP (Reactive, Defensive, Accommodative, and Proactive) typology to study firm-level approaches to social issues and stakehold- ers. He identified four principal areas for analysis (human resources, environmental issues, community relations, and ethics) and made use of historical information obtained in a case study approach to rate the companies in the study. While positively received in the social issues field, the methodology has limitations. For instance, Clarkson did not contact the companies but rather assessed them by read- ing archival accounts about them. Since we focused upon social proactiveness, it was chosen as the construct label in our survey. This avoids Clarkson’s somewhat ambigu- ous classification scheme as well as captures the desired 3 M. G. Goldsby, D. F. Kuratko, J. W. Bishop, P. M. Kreiser, & J. S. Hornsby Journal of Small Business Strategy / Vol. 28, No. 2 (2018) / 1-15 phenomenon; i.e., social proactiveness, whose definition is consistent with our theory. Also, we believe that for our purposes a self-report survey instrument is the better way to go. First, we were more interested in the behavior of the organizations rather than in the labels they could apply to themselves or be applied by others. Second, we believe that a well-designed survey would be more finely grained and, therefore, more descriptive and accurate. Third, we also be- lieve that this approach would allow respondents to more accurately assess and rate their organizations on the specific dimensions germane to our research. Fourth, and finally, the survey methodology allows for a large sample to be gath- ered concurrently and, therefore, faster. Hence, we devel- oped what we called a Social Proactiveness Scale, based on Clarkson’s original typology. More details of the scale development process are presented in the Method section. In this study, social proactiveness is utilized to concep- tualize and measure the response companies have on ethi- cal issues. Jones (1995), Waddock and Graves (1997), and Agle, Mitchell, and Sonnenfeld (1999) state that corporate social performance is directly affected by a company’s re- lationship with its stakeholders. Kuratko, Hornsby, and Goldsby (2007) found that, in the context of entrepreneurial activity, the firm’s primary stakeholders are its stockhold- ers/investors, employees, and customers. Therefore, these are the stakeholders we address in our study. In the follow- ing sections, we develop and test theory as to the degree that stakeholder salience affects social proactiveness, which in turn influences innovation. Stockholder Salience and Social Proactiveness In our study, we first examine the relationship between the salience executives place on their stockholders and their level of social proactiveness. Given that the literature on CSP and firm financial performance is mixed at best, we believe that investigation of other organizationally valued outcomes associated with social proactiveness may provide new insights into the phenomenon. As a result of the scale development process that was based upon Clarkson’s RDAP typology, we identified two types of social proactiveness: (1) the internal issues of human resource (HR) ethics and (2) the external issues of community/environmental ethics. We first examine the relationship between stockholder salience and human resource ethics. Regarding companies that place salience on stockholders’ interests, we expect companies to institute policies that would enhance stock prices, company value and, therefore, shareholder wealth. Prior research has shown that proactive human resource initiatives are positively related to the firm’s stock price (Wright, Ferris, Hiller, & Kroll, 1995). The mechanism for such a relationship may be that fair treatment and collabora- tion enhance corporate reputation, and that a favorable cor- porate reputation in turn has a positive influence on stock prices (Friedman, 2009). Additionally, high performance human resource systems are often considered a source of competitive advantage for a company (Becker & Huselid, 1998, 1999). Based upon these findings, we expect that there is a positive relationship between the salience placed upon stockholders and the extent a firm is proactive on internal social issues. That is, if a company is concerned about its stockholders and its responsibility to increase their wealth, then it will attempt to enhance its corporate reputation. One way to do this is to be proactive with respect to HR policies and programs. We therefore propose: Hypothesis 1A. Stockholder salience is positively associat- ed with proactive HR Ethics. Research also suggests that proactive environmental initiatives have a positive effect on stock price (Darnall, Henriques, & Sadorsky, 2010; Hamilton, 1995; Klassen & McLaughlin, 1996; Konar & Cohen, 1997; Muoghalu, Ro- bison, & Glascock, 1990). Socially proactive firms are also perceived by the market as being less risky, whereas “so- cially irresponsible firms may face uncertain future claims” (El Ghoul, Guedhami, Kwok, & Mishra, 2011: 8). More en- vironmentally proactive firms face substantially less litiga- tion than irresponsible ones, and are therefore perceived as safer choices by investors (Frederick, 1995). With regard to smaller firms, Becherer and Helms (2014) found that com- panies that achieve their green goals have better financial and business outcomes in earnings, marketing share, sales, and cash flow. Consequently, we would expect that com- panies whose stockholders are highly salient will be con- cerned about what is important to them; particularly share prices. That is, similar to proactive HR ethics, proactive en- vironmental initiatives should enhance corporate reputation and, in turn, share price. Therefore, by similar reasoning to that above, we pro- pose: Hypothesis 1B. Stockholder salience is positively associat- ed with proactive Community/ Environmental Ethics. Employee Salience and Social Proactiveness In one of the few studies that explores the relationship between employee salience and ethics, Backhaus, Stone, and Heiner (2002) found that companies can attract top tal- ent if they signal high corporate social performance. Appar- ently potential employees view firms with high corporate social performance as an employer of choice, and there is a 4 M. G. Goldsby, D. F. Kuratko, J. W. Bishop, P. M. Kreiser, & J. S. Hornsby Journal of Small Business Strategy / Vol. 28, No. 2 (2018) / 1-15 positive relationship between corporate social responsibili- ty performance signaling and the ability to attract top talent to the firm. Once recruited, employees are more likely to be retained and perform better if they perceive that the compa- ny takes their interests in mind when adopting HR policies and practices (Nishii & Mayer, 2009), as well as being more ethical in their decision making (Tang & Liu, 2012). For example, Batt (2002) found call center representatives quit less and make more sales when the company emphasizes employee participation in decision making and the develop- ment of work skills. In fact, some employees will work for less pay for a company they respect than one they find irre- sponsible (Branco & Rodrigues, 2006). At the same time, organizations who place high salience on their employees want to be recognized as desirable places to work (Bram- mer & Pavelin, 2006; Melo & Garrido-Morgado, 2012). Hence, they will be proactive with their HR ethics policies and practices. Consequently, we expect that companies that place salience on employees are more likely to be proactive on internal human resource issues. Therefore, we propose: Hypothesis 1C. Employee salience is positively associated with proactive HR Ethics. Corporate image is an issue that is normally examined from an external perspective. Indeed, as stated earlier, com- panies may take part in volunteer activities to garner good- will in the community. Sen and Cowley (2013), for exam- ple, found that proximity to stakeholders, such as those in the local community, influences managerial behavior. How- ever, external image also has internal consequences (Hatch & Schultz, 1997). Herrbach and Mignonac (2004) found that perceived external prestige had positive relationships with job satisfaction, affective organizational commitment, and affective well-being at work. Since employees devote significant individual resources in pursuing their careers, their sense of identity becomes intertwined with that of their company. Furthermore, proactive community/environmen- tal ethics signal that the organization is a desirable entity to be a member of and to deal with. Alt, Diez-de-Castro, and Lloréns-Montes (2014) discovered that a shared vision be- tween employees and management on environmental issues translates into better employee stakeholder integration into a company’s operations. Also, when employees recognize supportive behaviors from their managers, they are more likely to take an interest in environmental initiatives (Ra- mus, 2001). Consequently, we expect that companies that place salience on employees are more likely to be proactive on external social issues. We therefore propose: Hypothesis 1D. Employee salience is positively associated with proactive Community/ Environmental Ethics. Customer Salience and Social Proactiveness With regard to the relationship between placing priority on customers and the degree of proactiveness on HR Ethics, one can imagine a company making a decision on wheth- er to primarily support the interests of its customers or its employees. One could also imagine that some companies who place the customer first send a signal to its employees that they are not a significant concern of management. Fur- thermore, placing high priority on the customer may divert the managers’ attention from the needs of their employees. However, this ultimatum need not happen, as each initiative can support the other. Companies with this perspective op- erate under the belief that if customers are salient, they must ensure they are treating their employees well in order to provide exceptional service (Batt, 2002). For example, the Gallup Organization studied over one million employees over a 25-year period and discovered that companies that build trust through engagement and individualized attention through the ranks generate more customer satisfaction and productivity (Clifton, 2011). Since placing importance on customers necessitates ethical human resource practices, we expect that companies that place salience on customers are more likely to be proactive on internal human resource is- sues. Therefore, we propose: Hypothesis 1E. Customer salience is positively associated with proactive HR Ethics. With regard to the relationship between customer sa- lience and Community/ Environmental Ethics, one must consider the fact that customers are members of the com- munity and operate within the company’s external environ- ment. If a company places importance on the well-being of its customers, it would make sense that it would be a good steward of issues related to their community and external environment (Schlange, 2009). By visibly supporting com- munity causes, firms display the values they deem important and, in the process, create identifiable personalities (Agar- wal, Kumar, Swati, & Tyagi, 2010). With regard to family businesses, Peake, Davis, and Cox (2015) found that en- trepreneurs followed an enlightened self-interest approach toward engaging in small business responsibility; i.e., what is good for the community and environment is good for the company. Their findings build on Wilson’s (1980) work that small businesses are socially responsible in order to in- crease profit, improve reputation, and retain customers and employees. As a result of these insights regarding commu- nity involvement, environmental awareness, and customer 5 M. G. Goldsby, D. F. Kuratko, J. W. Bishop, P. M. Kreiser, & J. S. Hornsby Journal of Small Business Strategy / Vol. 28, No. 2 (2018) / 1-15 loyalty, we expect that companies that place salience on customers are more likely to be proactive on external social issues. We therefore propose: Hypothesis 1F. Customer salience is positively associated with proactive Community/ Environmental Ethics. Social Proactiveness and Innovation Many factors encourage innovation, but perhaps the most important facilitator is proactiveness. Proactiveness has come into popular usage as a term to describe an ac- tion-based orientation. At the company level, Miller (1987) associates proactiveness with assertiveness, which he in turn views as a dimension of strategy-making. He argues that entrepreneurial firms act on rather than react to their environments. Proactiveness is also concerned with imple- mentation, with taking responsibility, and doing whatever is necessary to bring an innovative concept to fruition. A proactive orientation usually involves considerable perse- verance, adaptability, and a willingness to assume respon- sibility for failure. In his study of the strategic orientation of business enterprises, Venkatraman (1989) uses the term “proactiveness” to refer to a continuous search for market opportunities and experimentation with potential respons- es to changing environmental trends. He suggests that it is manifested in three key ways: (1) seeking new opportuni- ties that may or may not be related to the present line of operations; (2) introducing new products and brands ahead of competition; and (3) strategically eliminating operations that are in the mature or declining stages of the life cycle. Proactive behavior has also been viewed as one’s dis- position to take actions to influence one’s environment (Bateman & Crant, 1993). This perspective holds that the be- havior of people is both internally and externally controlled, and that situations are as much a function of individuals as individuals are themselves functions of their environment. As Buss (1987) suggests, people are not “passive recipients of environmental pressures”; they influence their own envi- ronments. This approach to proactiveness is one which fits very well with the ideals of corporate entrepreneurship— namely, that people can intentionally and directly influence their organizations to enact change in their current circum- stances, including aspects of their work environment. Further, proactive organizations can seek to influence and change their environment rather than responding to their environment out of necessity or survival. Jauch and Glueck (1980) define a proactive strategy as “one in which strategists act before they are forced to react to environ- mental threats and opportunities.” While proactiveness can be resource intensive due to the costs of monitoring cus- tomers and competitors, scanning markets and technolo- gies, and lobbying, such proactiveness aids significantly in maintaining competitiveness (Sandberg, 2002). These types of proactive firm-level behaviors include identifying opportunities, challenging the status quo, and creating fa- vorable conditions. We expect entrepreneurial firms to find increased opportunities for innovation through exhibiting proactiveness on social issues. Internally, innovative HR programs that recruit and reward the ingenuity of employ- ees are likely to lead to the creation of new products as these forward thinking employees enact new solutions to existing problems. By staying abreast on the latest sustainable mate- rials, technologies, and practices, it will build an expansive network of experts for triggering new business ideas and strategies. We therefore propose: Hypothesis 2A. Proactiveness on HR issues is positively associated with externally directed innovation. Hypothesis 2B. Proactiveness on Community/Environ- mental issues is positively related to externally directed in- novation. We also posit that externally directed innovation pre- dicts internally directed innovation and not the other way around. The external innovation construct is focused direct- ly upon goods and services customers may want or require and/or innovations that can be used to thwart various efforts by competitors. That is, they are customer and/or compet- itor focused; involving innovative activities that directly affect customers and/or competitors. It may be argued that such innovations are the most important since they affect customers directly. In order to implement such external in- novations and deliver the associated goods and services, it may be necessary to make innovative internal changes. These could be known as internal innovations and the gen- esis of many of them, as described above, may be driven or made necessary by external innovations. Although this may seem counterintuitive, we believe this relationship is a salient point of interest for this paper. Once an opportu- nity in the market is identified, managers must then adapt their units internally to achieve the new entrepreneurial goal. In other words, the external innovation instructs what internal adjustments must be made in processes and tech- nological adaptions. For example, consider the invention of the iPhone by Apple. Once the market opportunity was identified and the product design established, Steve Jobs and Tim Cook modified the supply chain of the company to source the materials and manufacturing required to produce it. These internal company changes eventually became a source of competitive advantage for the company, allowing 6 M. G. Goldsby, D. F. Kuratko, J. W. Bishop, P. M. Kreiser, & J. S. Hornsby Journal of Small Business Strategy / Vol. 28, No. 2 (2018) / 1-15 it to scale production, deliver record sales in the product category, and attain a market cap of $876 billion (Merchant, 2017). We therefore propose: Hypothesis 3. Externally directed innovation is positively related to internally directed innovation. Method Procedure The data utilized for this study was part of a larger re- search effort aimed at examining corporate entrepreneur- ship issues. Initially, we used a sample of 310 managers from different organizations participating in executive ed- ucation programs conducted by a large Midwestern public university that focused on general management develop- ment. Because of the high response rate (approximately 80%), no tests for non-respondent biases or self-selection into/out of the sample were conducted. No incentives were given for survey completion. We believe that this sample is highly appropriate for our study because the managers were at a senior level, there was a wide range of companies and industries represented, and we had a good opportunity for a high response rate. This follows Hayton’s (2005) study of first line managers and Hornsby, Kuratko and Zahra’s (2002) study described earlier. Senior level managers were selected based on Floyd and Lane’s (2000) contention that senior level managers have ratifying, recognizing, and directing roles in strategy implementation. Furthermore, this level of manager was chosen because they were in positions likely to influence stakeholder relationships and to make decisions regarding innovation activity within their companies (Delgado-Cebal- los, Aragon-Correa, Ortiz-de-Mandojana, & Rueda-Man- zanares, 2012). Senior managers essentially operate as entrepreneurs of their own businesses inside the larger orga- nization, often being held accountable to the results of their units as if they owned them. Eleven surveys were discarded due to missing data, resulting in a usable sample size of 299 respondents. Nine respondents who identified themselves as professional or “other” with no managerial responsibil- ities were removed. Only those participants who identified themselves as senior-level management were retained for analysis resulting in a research sample of 290 respondents. Since we developed some of the scales used in this study, we randomly split the overall sample of 290 respondents into two subsamples; one of 90 respondents and another of 200 respondents. The 90 observation data set was used to test and, in some cases, help us develop our scales. The 200 observation data set was used to test our hypotheses. Measures Salience. Stockholder, employee, and customer sa- lience were each measured by one item using the measure developed by Agle et al. (1999). Tests for construct validity of these measures were demonstrated by prior research. Al- though the scales for salience were single item measures, we did not assume that they were measured without error. Since we had no reliable estimates for these measurement errors, we assigned to each single item factor the average errors of the multiple item factors as calculated using their coefficient alphas and standard deviations (Jöreskog & Sör- bom, 1993). The instruction for the items was, “Using the following descriptions, please circle the number in the box- es following each statement that corresponds most closely to your observations.” Thus, for example, the statement used to measure stockholder salience was, “Stockholders are highly salient to our organization (definition: receive high priority from our management team).” The response choices for salience were 1 = strongly disagree; 2 = dis- agree; 3 = slightly disagree; 4 = neither agree nor disagree; 5 = slightly agree; 6 = agree; 7 = strongly agree. Proactiveness. To measure proactiveness we used the Social Proactiveness Scale, which was developed by us based upon Clarkson’s (1991) research. As mentioned earli- er Clarkson did not survey members of the organizations he studied to measure proactiveness; rather he examined pub- lished materials about them. For our purposes we believe that a self-report survey instrument is the better way to go. First, we were more interested in behavior than in labels that could be applied. We see this as a possible limitation of Clarkson’s data source. Second, we believe that the survey methodology would be more accurate since the respondents were senior management and we received responses direct- ly from them rather than information that has been filtered and prepped for a non-anonymous public forum. Third, the survey method was more fine grained and faster. Fourth, we also believe that this approach allows respondents to more candidly and accurately assess and rate their organizations on the specific dimensions germane to our research. Fifth, and finally, with the survey method it is possible to measure variables on a large sample of firms concurrently. Based upon Clarkson’s work, we developed 14 items designed to score organizations on social proactiveness. We submitted these to an exploratory factor analysis (EFA) and extracted two primary factors measured by 8 items. Based upon their content we labeled them Human Resource Eth- ics and Community/Environmental Ethics. The HR Ethics factor addressed internal issues related to employees (equal treatment of employees, employee empowerment, legal/ 7 M. G. Goldsby, D. F. Kuratko, J. W. Bishop, P. M. Kreiser, & J. S. Hornsby Journal of Small Business Strategy / Vol. 28, No. 2 (2018) / 1-15 ethical problems, code of conduct/ethics, and diversity). The Community/Environmental Ethics factor addressed ex- ternal issues such as environmental policies and community groups. The items were scored on a five point scale (1 = no involvement, 2 = little involvement, 3 = moderately in- volved, 4 = very involved, 5 = completely involved). The factors made methodological and theoretical sense. Table 1 shows the final items for the proactive variables. Innovation. Innovation was measured by asking the re- spondents to rate the importance of several dimensions of innovation as they pertained to the development, delivery, and application of new products, services, and processes. The scale was scored on a one to seven scale with 1 being “not important at all” and 7 being “extremely important.” Table 2 shows the final items for innovation and the re- sponse choices. By asking respondents how important they Table 1 Social proactiveness scale Please indicate the degree to which your company is involved with the following items. No Involvement Moderately Involved Extremely Involved HR Ethics 1 2 3 4 5 Equal treatment of employees 1 2 3 4 5 Employee empowerment 1 2 3 4 5 Legal/ethical problems 1 2 3 4 5 Code of conduct/ethics 1 2 3 4 5 Valuing diversity 1 2 3 4 5 Community/Environmental Ethics External environmental policies 1 2 3 4 5 Community relations 1 2 3 4 5 Employee involvement in community groups and functions 1 2 3 4 5 deemed new products, services, and processes that are de- veloped each year, this scale holds a number of advantages over other scales that ask for the specific number of inno- vations developed. First, we contend that it may be difficult for managers to accurately assess the actual number of new products, services, and processes developed, particularly in large companies. However, they will have a good sense of the attention and importance that the company places on innovation. Second, such cardinal number counts are diffi- cult to standardize across companies of different sizes and in different industries. Third, cardinal number counts may belie the actual importance a company places on innova- tion. Hence, we believe that the items of the Importance of Innovation Scale captures a company’s overall approach to new product, service, and process innovation and thereby accurately reflects the definition of our construct. Results Construct Validation We employed the split sample method to test our scales for evidence of discriminant and convergent validity. We selected at random 90 observations from our final usable sample of 290. We then subjected the 8 “importance of in- novation” items and the 14 “social proactiveness” items to an exploratory factor analysis (EFA). We subsequently re- tained 16 items representing the 4 latent factors. Six of the initial “social proactiveness” items cross-loaded or failed to load on any factor and, consequently, being uninterpretable, were dropped from further analysis. Table 3 shows all of the remaining items that were used in hypothesis testing as well as their factor loadings. Confirmatory Factor Analysis (CFA) Having settled on the manifest indicators for our latent variables, our “set aside” data set of 200 observations was used for all subsequent analyses by using LISREL 9.2. Prior to testing our hypotheses, we performed a CFA on the 19 items used to measure our constructs (see Table 3). As shown, the hypothesized measurement model fit the data well (c2 (N = 200), = 290.47, df = 134; root mean square error of approximation (RMSEA) = .075; comparative fit index (CFI) = .95; Tucker-Lewis Index (TLI) = .94; stan- dardized root mean square residual (SRMR) = .060). The descriptive statistics for our scales, along with their inter- correlations and reliability coefficient alphas are reported in Table 4. Against this base line model, we tested two alternative 8 M. G. Goldsby, D. F. Kuratko, J. W. Bishop, P. M. Kreiser, & J. S. Hornsby Journal of Small Business Strategy / Vol. 28, No. 2 (2018) / 1-15 Table 2 Importance of innovation scale Please indicate the degree of importance your company attaches to each of the following performance criteria by circling the appropriate number. Innovation Performance Criteria Not at all Important Moderately Important Extremely Important Externally Oriented Innovation Number of new products or services developed 1 2 3 4 5 6 7 Number of new products or services brought to market 1 2 3 4 5 6 7 Speed with which new products or services are developed 1 2 3 4 5 6 7 Speed with which new products or services are brought to market 1 2 3 4 5 6 7 Internally Oriented Innovation Ability to respond quickly to market or technological developments 1 2 3 4 5 6 7 Ability to pre-empt competitors in responding to market or technological developments 1 2 3 4 5 6 7 Incorporation of technological innovations into product/ service offerings 1 2 3 4 5 6 7 Incorporation of technological innovations into internal operations 1 2 3 4 5 6 7 models. In Model 2, we tested the possibility that our instru- ment could not differentiate between internal and external proactiveness. Hence, we allowed all proactiveness items to load onto a single factor. The χ2 difference test (Bollen, 1989) was used to compare this model with the hypothe- sized one. The results (Δχ2 (N = 200) = 17.02, df = 6) were significant, demonstrating that the hypothesized model fit the data better than the alternative one. We also tested the possibility that our instrument could not differentiate be- tween internal and external innovation. To do so we allowed all innovation items to load on a single factor and applied the Δχ2 test (Δχ2 (N = 200) = 194.62, df = 6). Again the hypothesized model fit the data better than the alternative. As summarized in Table 5, the baseline model proved to be a better representation of the data than either of the alter- native models. Hence, we concluded that our hypothesized model was preferred and appropriate for hypothesis testing. Hypotheses Testing We estimated the hypothesized structural model shown in Figure 1. The model fit the data well (c2 (N = 200) = 296.24, df = 142; RMSEA = .073, CFI = .95; TLI = .94; SRMR = .065). See Figure 2. Support for the hypotheses were determined by the sig- nificance or non-significance of the associated path. Based upon the criterion, Hypotheses 1a, 1c, and 1d were support- ed, but H1b, H1e, and H1f were not. Hypothesis 2a was supported by the data, but Hypothesis 2b was not. Hypothe- sis 3 was supported. We were somewhat surprised that cus- tomer salience was not significantly associated with either form of proactiveness. However, a further and closer exam- ination of the data led us to what we believe is a reasonable explanation of this outcome. A frequency table and distri- bution analysis for the customer salience variable revealed that over 80% of the responses were concentrated in the ‘agree’ or ‘strongly agree’ choices. Hence, there was very little variance available in the customer salience variable to form a statistically significant relationship with other vari- ables, certainly not the proactive variables. For customers to be given consistently high salience across the board should not surprise us. In fact, it may be considered more of a sur- prise if it was not this way. That is, customer salience must be high and remain high for the organization to continue to exist. In other words, customer salience will behave more like a (high scoring) constant and not covary with much of anything. An important implication of this finding is that if researchers wish to uncover independent variables associ- ated with innovation or other organizationally valued out- comes, then they will likely have to look elsewhere besides customer salience. On the other hand, future researchers may want to conduct longitudinal studies on organizations whose customer salience varies over time. It may be that over time those organizations with low customer salience may tend to fall by the wayside and, therefore, be unlikely to be represented in a survey population of this type. 9 M. G. Goldsby, D. F. Kuratko, J. W. Bishop, P. M. Kreiser, & J. S. Hornsby Journal of Small Business Strategy / Vol. 28, No. 2 (2018) / 1-15 Table 3 Scale items and factor loadings Salience Salient: Stockholders .98 Salient: Employees .96 Salient: Customers .96 HR Ethics Equal treatment of employees .71 Employee empowerment .67 Legal/ethical problems .71 Code of conduct/ethics .88 Valuing diversity .74 Community / Environmental Ethics External environmental policies .58 Community relations .45 Employee involvement in community groups and functions .63 Externally Oriented Innovation Importance: number of new products or services developed .66 Importance: number of new products or services brought to market .66 Importance: speed with which new products or services are developed .87 Importance: speed with which new products or services are brought to market .80 Internally Oriented Innovation Importance: ability to respond quickly to market or technological developments .84 Importance: ability to pre-empt competitors in re- sponding to market or technological developments .93 Importance: incorporation of technological innova- tions into product/service offerings .90 Importance: incorporation of technological innova- tions into internal operations .82 Table 4 Means, standard deviations, coefficient alphas, and correlations Construct Means SD 1 2 3 4 5 6 7 Salient: Stockholders 5.13 1.82 n/a Salient: Employees 5.41 1.16 .23** n/a Salient: Customers 6.05 1.09 .19* .52*** n/a HR ethics 5.36 1.15 .27*** .38*** .24** (.86) Community environment 4.63 1.73 .11 .24** .16* .42*** (.73) Externally oriented innovation 5.19 1.08 .15 .03 .03 .31*** .14 (.93) Internally oriented innovation 4.29 1.45 .07 -.01 -.03 .20** .14* .52*** (.83) Coefficient Alphas are on the diagonal. * p <.05, ** p <.01, *** p <.001. Discussion and Implications Innovation is one of the key organizational outcomes associated with corporate entrepreneurship and competi- tiveness. Therefore, research that uncovers factors that in- fluence innovation is very pertinent to entrepreneurship re- search. This paper examined the relationships between three types of stakeholder salience (stockholders, employees, and customers) and social proactiveness, as well as the rela- tionship between social proactiveness and innovation. We posited that maintaining positive stakeholder relationships leads to more proactiveness with regard to social issues. Our reasoning is that adopting a proactive posture leads to a firm taking more risks and being more entrepreneurial. Our findings, however, were mixed. Our results suggest that companies that focus on em- ployees tend to be more proactive with regards to internal and external social issues. This in itself is not too surpris- ing, because firms that treat their employees well have an orientation that would lead to social responsiveness in oth- er domains in society; i.e., the company does not focus on the bottom line over the wellbeing of its employees and the community. Given this statement, it may not be overly sur- prising that placing salience on stockholders did not lead to socially proactive behavior with regard to the communi- ty and external environment. This is consistent with many business ethicists’ views on the relationship between stock- holder salience and corporate social performance. However, one might expect to find a relationship between placing pri- ority on customer salience and Community/Environmental ethics, but this was not supported by the data. Perhaps these findings support the Southwest Airlines approach to busi- ness. Companies that take care of their employees tend to meet internal and external expectations well. We hypothesized that companies that are more proac- tive with regards to social issues may adapt a posture that leads to more innovation. Since corporate social responsi- 10 M. G. Goldsby, D. F. Kuratko, J. W. Bishop, P. M. Kreiser, & J. S. Hornsby Journal of Small Business Strategy / Vol. 28, No. 2 (2018) / 1-15 Table 5 Comparison of measurement models Model c2 df Dc2 Δ df RMSEA CFI NNFI SRMR Model 1: Hypothesized (baseline) Model 290.47 134 n/a n/a .075 .95 .94 .060 Model 2: Social Proactive Model 307.49 140 17.02** 6 .077 .95 .93 .062 Model 3: Innovation Model 485.09 140 194.62** 6 .116 .89 .86 .089 ** p < .01 Employee Salience Customer Salience Com Env External Innovation Internal Innovation + + + + HR Ethics + Stock Salience + + + + Figure 1. Hypothesized Model Employee Salience Customer Salience Com Env External Innovation Internal Innovation HR Ethics Stock Salience .22** .02 ns .32** .38** .34** .05 ns .01 ns .00 ns .54** Figure 2. Standardized Coefficients χ2 (N = 200) = 296.24, df = 142, RMSEA = .073, CFI = .95, TLI = .94, SRMR = .065 11 M. G. Goldsby, D. F. Kuratko, J. W. Bishop, P. M. Kreiser, & J. S. Hornsby Journal of Small Business Strategy / Vol. 28, No. 2 (2018) / 1-15 bility is often a discretionary decision, we argued that firms that deal in an open and creative fashion in those domains may approach opportunities and problems in a more proac- tive way and thus be more innovative. Additionally, social issues may provide avenues for business opportunities as well. For example, the green movement is ripe with busi- ness opportunity according to current business thought. However, our data suggests that proactiveness in internal social issues (i.e., HR ethics) leads to innovation, but ex- ternal social issues do not influence it. This finding does not warrant evading community and environmental ethics (i.e., Community/Environmental ethics), since innovation is only one performance outcome for a company. However, if a company is looking for sources of new business oppor- tunity, it may find internal social issues a better avenue for innovation. But perhaps most importantly, the results of the study offer interesting insights into the impact of stakeholder management on innovative activity. While researchers have proposed the link between stakeholder management on en- trepreneurship, no empirical research has examined this link. This study’s findings suggest that making employees a priority leads to a more proactive approach to HR and community/environmental issues. A somewhat surprising, but potentially intriguing, finding was that proactive HR management leads to more focus on externally directed in- novation, but that there was not a link between proactive community/environmental ethics and externally directed innovation. Research on corporate entrepreneurship, such as Kuratko, Ireland, Covin, and Hornsby (2005) and Horns- by, Kuratko, Shepherd, and Bott (2009), that focuses on the internal environment as a source of innovation seems to support our findings. Our findings indicate the importance of placing salience on employees as a major stakeholder in the company’s entrepreneurial strategy. Companies that do so will tend to be more ethical in HR practices, which creates a supportive environment for employees to share their ideas for improving organizational competitiveness in the marketplace. Additionally, our findings indicate that once market opportunities are identified, companies that place salience on their employees and operate in an ethi- cally proactive way with regard to HR practices are then able to make needed internal changes to capitalize on new external innovations. Research on social exchange theory supports this finding, suggesting that employees will match commitment toward their organization based on the level of support their employing organizations have for them, re- ferred to as perceived organizational support (POS) (Bish- op, Scott, Goldsby, & Cropanzano, 2005; Eisenberger, Hun- tington, Hutchison, & Sowa, 1986). We can imagine that with regard to innovation, organizations that place salience on employees would create a supportive environment for generating new market ideas, and, in turn, employees would be more amenable to making the needed changes inside the company to deliver on the opportunities (Senge, 2006; Schein, 2010). Again, although our findings did not show a significant relationship between community/environmental ethics and external innovation, it must be kept in mind that there are other performance measures such as profit, mar- ket share, and growth where it may play a role, especially with regard to reputational issues. However, the results do indicate that if a company seeks to be more innovative, it should strongly consider the interests of its employees in its strategy and operations. One of the primary contributions of our study is the development of two new measures that can be employed in future organizational research. We modified Clarkson’s (1991) measure to develop a new Social Proactiveness Scale, and we also developed an eight item Importance of Innovation Scale to measure perceived innovation activi- ty in the responding companies. The Social Proactiveness Scale provides a reliable and valid measure that can be utilized in future entrepreneurship and business ethics re- search. This scale offers researchers a valid measure in as- sessing the proclivity of organizations to draw upon social issues when making strategic decisions, and thus we believe that future entrepreneurship research efforts would be wise to account for the influence of such effects. Further, there is a great need for valid measures in innovation research, and such measures can be gainfully used to further the infer- ences drawn from future studies related to innovation and its many positive outcomes. Scales such as Entrepreneurial Orientation (Covin & Slevin, 1989), Entrepreneurial Inten- sity (Ireland, Kuratko, & Morris, 2006), and the Corporate Entrepreneurship Assessment Instrument (Hornsby et al., 2002; Kuratko, Hornsby & Covin, 2014) have helped to in- crease the importance of understanding the role of anteced- ents, elements, and outcomes when implementing innova- tion as a strategic initiative. The results of the current study offer continued evidence related to the importance of such initiatives. In this regard, our study prompts several directions for future research. First, we examined the influence of social proactiveness on innovation performance. There may be other non-financial performance metrics that are also worth- while for organizations to pursue. Future studies should examine such outcomes. For example, the influence of so- cial proactiveness on organizational learning would be an interesting area to examine. Second, we used survey data to test our hypotheses. Studies using objective data to test 12 M. G. Goldsby, D. F. Kuratko, J. W. Bishop, P. M. Kreiser, & J. S. Hornsby Journal of Small Business Strategy / Vol. 28, No. 2 (2018) / 1-15 the relationship between stakeholder salience, social proac- tiveness, and innovation performance would help to provide stronger generalizability to our primary findings. Third, we acknowledge that the influence of social proactiveness on innovation performance may strengthen over time. Future research using longitudinal data would provide more ro- bust evidence of the findings discussed in this research. Our study is intended to serve the entrepreneurship field in ex- amining whether proactiveness toward internal and external social issues affects innovation, and also to offer guidance on how corporate entrepreneurs can find new sources for creating products, services, and processes. Many companies today are expecting senior managers to behave more like owners of their own small businesses inside a larger organization. For example, the Magic King- dom theme park inside Walt Disney World restructured the responsibilities of its general managers to be in charge of the attractions, food and beverage, and merchandise within the geographic area they supervise. Previously attractions, food beverage, and merchandise had their own respective general managers, but, with the restructuring, responsibil- ities in these areas are now more localized. Essentially the five areas of the theme park are assessed as individual business units with a bottom line assessed to each general manager. 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