Entrepreneurial Orientation (EO) plays a pivotal role in driving risk-taking, innovation, and proactivity within organisations. But what drives EO at the leadership level? CEDGE researcher Associate Professor Danny Soetanto with a global research team from the University of Sheffield and Sun Yat-Sen University sheds light on the motivational attributes of CEOs, specifically their regulatory focus—a theory of motivation that distinguishes between promotion focus (growth-oriented) and prevention focus (safety-oriented).
Unpacking Their Effects on EO
This research uncovered a clear distinction in how CEOs' regulatory focus impacts EO:
- Promotion focus had a positive impact, encouraging innovation, risk-taking, and proactivity. These are critical for exploration and entrepreneurial success.
- Prevention focus, on the other hand, negatively influenced EO, as it tends to prioritise maintaining the status quo and avoiding risk.
Rationalists, Conservatives, & Achievers
While promotion and prevention independently influence EO, the interaction between the two creates nuanced dynamics:
- High promotion focus paired with high prevention focus significantly enhances EO. CEOs with this combination (labelled rationalists) balance growth aspirations with caution, leading to calculated, strategic entrepreneurial behaviour.
- Conversely, when prevention focus is dominant, it does not significantly diminish EO if promotion focus remains high. This suggests that promotion focus tends to play a more influential role, even when prevention-oriented tendencies coexist.
Interestingly, firms led by rationalist CEOs displayed higher levels of exploration than those led by conservative CEOs (high prevention, low promotion focus). The study found no significant difference in EO between rationalists and achievers (high promotion, low prevention focus).
Unexpected Insights into Prevention Focus
While prevention-focused CEOs are generally less inclined toward entrepreneurial activities, market pressures can sometimes shift their behaviour. For instance, “competitors’ new offerings may stimulate conservative CEOs to develop new products and take risks, driven by a need to safeguard the business’s position”. This insight highlights how external threats can override the natural inclination of prevention-focused leaders to maintain the status quo, spurring entrepreneurial activity in response to competitive challenges.
Practical Implications for SMEs
The research team offer actionable insights for SMEs aiming to enhance their EO:
- Strategic Recruitment: When hiring CEOs, organisations should evaluate candidates' motivational profiles alongside their skills and experience. A high promotion focus is critical for driving EO, while prevention focus should ideally complement this with a cautious approach to risk.
- Team Composition: CEOs can leverage the regulatory focus of their teams. For example, pairing a prevention-focused CEO with promotion-focused team members can balance risk aversion with growth-oriented strategies, fostering a more dynamic entrepreneurial environment.
- Situational Fit: Boards should consider the alignment between a CEO’s regulatory focus and the situational context of the firm. For instance, a high prevention focus may be more suitable for industries facing significant regulatory scrutiny, while a high promotion focus aligns with markets requiring rapid innovation.
Furthering Our Understanding
This study:
- identifies regulatory focus as a motivational antecedent of EO, bridging the gap between macro-level organisational factors and micro-level CEO characteristics.
- highlights how the interplay between promotion and prevention shapes firm-level entrepreneurial behaviour.
- underscores the need to explore how situational factors, such as market dynamics and competitive pressures, influence the relationship between CEOs’ motivational orientations and EO.
This research underscores the critical role of CEOs’ motivational attributes in shaping the entrepreneurial trajectory of SMEs. High promotion focus emerges as a key driver of EO, while prevention focus, when balanced, can enhance strategic decision-making. These findings not only deepen our understanding of EO's micro foundations but also offer SMEs a roadmap for aligning leadership motivations with entrepreneurial goals.
By tailoring leadership and team dynamics to align with their desired EO, SMEs can better position themselves to navigate competitive landscapes and drive sustainable growth.
To follow up with Associate Professor Danny Soetanto > danny.soetanto@unisa.edu.au
