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International Journal of Economics & Management Sciences
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Strategizing for firm excellence in Innovation: An exploratory study of Entrepreneurial Tendencies and Behaviors in SMEs in Uganda

Nangoli Sudi1, Basalirwa Edith2, Kituyi Mayoka G.3, Kusemererwa Christopher4

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Abstract

The ability to innovate on a sustainable basis is a desirable, and yet, a rare skill that firms need to nature and develop amongst its business managers/owners and employees. This study was aimed at empirically exploring the Entrepreneurial Tendencies and Behaviors among the business persons that enable them to successfully innovate on a sustainable business. These could then inform managers on the kind of innovation-related behaviors to search for and nature among their human resources in the course of strategizing for firm excellence in Innovation. Responses where sought from business owners/managers and employees in SMEs established in the area with the highest business activity in Uganda (i.e. Kampala). The data collected from the surveyed 50 SMEs all of which had successfully existed for over a year as a test of sustainability were analyzed to extract the salient Entrepreneurial Tendencies and Entrepreneurial Behaviors that characterized the success of their businesses. Descriptive statistics were used. Based on the findings, this study identifies and proposes solutions, key policy interventions and approaches to be adopted for ensuring business sustainability in Uganda.  

Keywords

Strategy, Innovation, Entrepreneurial Tendencies and Behavior, Uganda, Kampala

INTRODUCTION

Today, firms are finding it increasingly challenging to recognize and profitably exploit business opportunities due to the dynamisms in the environment. Kaplan and Norton (1996), in their balanced score card, have emphasized the strategic significance of meeting this challenge and described it with the term ‘innovation’. Horth and Buchner (2009) have indicated that not all strategic managers posses the innovative skill and as such, the services of the entrepreneur have become inevitable for businesses that need to ensure sustainability (Pinchort, 1985; Acs, et. al., 2006, Alutu & Uzamere, 2011). According to Schumpeter (1934), Entrepreneurs are innovators who use a process of shattering the status quo of the existing products and services, to set up new products and new services. Entrepreneurial behavior is thus a preference for changing the status quo over maintaining it. Pinchort (1985) adds that the entrepreneur may not be the overall manager but rather a visionary employee. Business managers and employees always apply their Entrepreneurial Tendencies and Behaviors through introducing new goods or new methods of production or discovering new markets for the enterprise (Bewayo, 1995). The GEM report (2004; 2009) identifies Uganda as one of the most entrepreneurial countries. According to Rwakakamba (2011), Ugandan enterprises are largely informal with approximately 97% unregistered businesses, employing close to 80% of the population and family members constitute the main source of labor in most of these businesses. Other complementary studies have indicated that the bulk of Uganda’s business activity is located in Kampala most of which are small and Medium-Sized Enterprises (SMEs). According to Acs, et. al., (2006), SMEs are a major source of innovation (see also Drucker, 1985). The SMEs directly and indirectly provide employment to majority of residents in Kampala and ensuring there continuity and growth not only improves on the residents leaving standards but also the country’s GDP. The inability for many SMEs to attain sustained competitiveness in Uganda (Brüderl et al., 1992; Boden & Nucci, 2000; Walter et al., 2004; Rooks & Sserwanga, 2009), could be attributed to poor saving culture, acts of financial indiscipline, lack of a desire and commitment to achieve greater heights, irresponsibility, laxity, laziness and lack of a vision among other factors. However, amidst the high failure rate of SMEs in Uganda, there are other businesses which have managed to stand a test of time. It is probable that such firms which have existed for long could be displaying some unique tendencies and behaviors uncommon to most SMEs that end up closing within less than a year of operation (GEM 2004;2009). The purpose of this study is therefore to explore the Entrepreneurial Tendencies and Behaviors of business players in those SMEs that have managed to competitively stay in business for more than a year. This will in turn inform policy making and point towards reducing the high rate of business failures currently being experienced in many regions in Uganda. The rest of this paper is organized as follows; the next section reviews literature on Entrepreneurial Tendencies and Behavior, followed by the research methodology, data analysis, discussion of findings, implications, limitations and areas for future research.

2.0 LITERATURE REVIEW AND DEVELOPMENT OF CONCEPTS

Research shows that SMEs are the engine behind proliferation of economic growth in many regions world over. The informal sector in Africa, for example, employs 65% of urban dwellers and 25% of the total labor force according to the United Nations report (UN, 1996). According to Rwakakamba (2011), small businesses play a big role in national development of Uganda. As such, efforts aimed at making them more entrepreneurial can further boost economic growth of the host country. According to Alutu & Uzamere, (2011) and Linda (2002), Entrepreneurship is thus increasingly becoming a strategy of choice for promoting economic transformation through innovation. Many definitions have been tagged on the term entrepreneurship, depending on the area it is being applied (Carlock, 1994; Grant & Perren, 2002; Alutu & Uzamere, 2011). This study assumes Schumpeter’s (1934) and Ocici’s (2006) definitions of entrepreneurs. While Schumpeter (1934) defines entrepreneurs as ‘individuals who exploit market opportunity through technical and/or organizational innovation”, Ocici (2006) indicates that entrepreneurship is a mindset characterized with the ability to blend risk taking, with innovation so as to ensure business sustainability. This study conceptualizes the drive to start something new that has been conceptualized as ‘entrepreneurial tendency’ (Bewayo, 1995). In line with the social development theory of Entrepreneurship, this study assumes that Entrepreneurs are made and that environmental factors like the surrounding community and cultural values shape them (Casson 1995). Although studies to the contrary exist (see for example Rauch & Frese, 2007), most studies have described Entrepreneurs as possessing; “a high marginal propensity to save , an internal locus of control, a high tendency to reinvest their business earnings, high need for achievements (McClelland, 1961) and having a collectively strong desire to secure a better education (Raduan et. al. (2006); Frese & Fay 2001; McClelland, 1961; Sexton and Bowman, 1986). Cooper and Ziemnowicz (2007) also aver that some of the most important manifestations of entrepreneurial behavior are risk-taking and Innovation. Innovation is at the basis of economic development and can be defined as an idea, behavior, or object that is perceived as new by its audience (Les 2009). It can be argued that those SMEs that have managed to survive in business, have as part of their winning strategies, continued to innovate better means of carrying on business. According to Kaplan and Norton, (1996), Innovation and Learning enables organizations to answer the question "How can we continue to improve and create value?” The discrepancy in levels of innovation among SMEs and larger firms has been justified in various angles including the ‘scarcity of ideas’ concept which tries to indicate that SMEs are more entrepreneurial than Large firms (Scotchmer, 2005). In explaining Firm excellence in innovation, this study suspended the chain-linked innovation model (Kline & Rosenberg 1986) since it is more of an operational model whose focus is to ensure technical efficiency which is not a primary concern of a strategist. The study adopts the theory of planned behavior (Ajzen, 2002) and extends that Entrepreneurial Tendencies and behavior can be explained by an entrepreneur’s attitude, social norms which are also culturally influenced and perceived behavioral control (i.e. the perception that the target behavior is within the decision maker’s control). It should be noted that the theory of planned behavior (TPB) is collocated with the Shapero’s entrepreneurial event model (SEE) as it also addresses perceptions of desirability of coming up with something new, feasibility of sustaining the idea and propensity to act independently (Shapero & Sokol 1982; Kolvereid, 1996). The above views agree with those of Atkinson & Birch, (1978), that an individual’s life is a continuous stream of behaviors as set out in the dynamic theory of action. This theory indicates that Variables such as effort, ability, previous experience, age, education, family history, and environment thus influence behavior, such as the choice to become an innovative entrepreneur. It can therefore be postulated that Entrepreneurs in Uganda who have ably sustained their businesses have some unique tendencies and behaviors based on the above literature.

3.0 METHODOLOGY

This was an exploratory and Interpretivistic survey that was aimed at establishing facts on the issues under study from the chosen business players in SMEs. This research design thus adopted a Critical Humanism paradigm and involved the people studied in the research process. In line with Brigg (2009) and Asika (1991), such design is used mainly in business and social science research where the researcher aims at describing the current state of affairs with no effort to control and/or manipulate the variables under the study. Using this design, the researchers employed various forms of enquiry to ascertain the state of affairs as guided by (Kothari, 2004). The use of SMEs instead of large businesses was merited by the fact that SMEs are a major source of innovation (Acs & Audretsch, 1987; Drucker, 1985). As a measure of sustainability (GEM 2004; 2009) only SMEs that had existed for over a year where considered. The main type of data was primary data, collected from the field although the researchers reviewed literature to enlighten their understanding of the issues under the study and also prepare themselves for the challenges that could arise during field work and data analysis and presentation of findings. The main sources of secondary data were online research journal articles and other electronically published material. A self administered questionnaire was used to collect data due to its flexibility, ease of analysis, interpretation and high response rate compared to other data collection methods. In line with Rooks & Sserwanga’s (2009) submission that a robust sample is difficult to attain in studies involving small scale businesses in Uganda since most of them are not registered and lack a clear structure, the researchers adopted purposive and simple random sampling techniques to generate a study sample. Other related studies in Uganda have used Cluster sampling method (Rwakakamba, 2011) and random sampling technique (Rooks & Sserwanga, 2009). While Purposive sampling was used to target only those key respondents that must not miss in the study such as business owners, random sampling technique was used to select employee respondents. The study population comprised owners and employees of 50 small businesses in Kampala-Uganda. A total of 10 SMEs were selected purposively in consideration of type of business and location from each of the 5 divisions of Kampala district and 6 employees, including the owner(s) of each business served as the unit of inquiry as seen in table 1 below.

Kampala District  
Division Number
SMEs
of Sampling method Number of
respondents
Sampling
method
Central Division 10   Purposive sampling 6*10=60 Simple Random
Nakawa Division 10   Purposive sampling 6*10=60 Simple Random
Rubaga Division 10   Purposive sampling 6*10=60 Simple Random
Kawempe Division 10   Purposive sampling 6*10=60 Simple Random
Makindye Division 10   Purposive sampling 6*10=60 Simple Random
Total 50     300  

Table 1: sample size design

With the help of SPSS software tool Version 19, descriptive statistics were generated to extract the most important Entrepreneurial Tendencies and Behaviors that characterized the unit of inquiry. Content validity index and Cronbach alpha coefficient were used to test the validity and reliability of the questionnaire. The results as seen in table 2 indicate that the data collection tool was valid and reliable since all variables had a cronbach alpha coefficient >0.7 and content validity index >0.6.

Variable N
Items
Anchor Cronbach  Alpha
Coefficient
Content
Validity Index
Entrepreneurial Behavioral 11 5 0.871 0.764
Entrepreneurial Tendencies 6 5 0.782 0.769

Table 2: Reliability and reliability results

4.0 PRESENTATION OF FINDINGS AND DATA ANALYSIS

As seen in table 3 below, frequencies and percentages were used to determine the respondents’ gender, age bracket, marital status and highest academic qualification. The findings indicated that the majority respondents constituting 62.7% (N=143) were female while male respondents contributed only 37.3% (N=85). The findings also showed that 27.2% (N=62) respondents where in the age bracket of 18-25years while those in the age bracket of 26-30 constituted majority of the respondents at 32% (73). A total of 65 respondents, representing 28.5% of the respondents, were in the age bracket of 31-35 and 27.2% of respondents were in age bracket of 18-25. 22 respondents were in age bracket 36-40 while only 4 and 2 respondents were in age bracket 41-45 and 46-50 respectively. No respondents were aged 50 years and above. Findings also showed that majority of the respondents constituting 56.1% were single. This was followed by respondents who were cohabiting at 37.3%. A total of 13 respondents, contributing 5.7% were married. Respondents who were divorced/separated and widowed tallied 0.4% each respectively. Frequencies and percentages were also used to determine the highest qualification of respondent. Findings indicated that majority of the respondents constituting 45.2% (N=103) had attained undergraduate degrees, 37.3% (N=85) had only certificates and 10.1% had diplomas. Only 6.6% had attained Postgraduate qualifications while 2 respondents, representing (0.9%) had no academic qualification. The findings indicate that SMEs in Kampala that have managed not to collapse within less than a year, have mainly employed youthful staff whose age ranges from 18-35 years. The finding that most organizational staff in SMEs were not married, and that most of them were female may indicate that engaging female persons in business who have less social responsibilities may enable them to concentrate more on helping the firm to build sustainable competitiveness through innovation. Frequencies and percentages were also used to determine the mode of employment in which respondents where, the Period they had spent in current organization. The Findings showed that majority of the respondents constituting 43.0% were employed in family businesses. This was followed by respondents who were working for other people/company (33.8%). The self employed were 53 (23.2%). As regards Period spent in current organization, Findings showed that majority of the respondents had worked in that organization for a period of 1-3 years (60.5%). A total of 66 respondents, constituting 28.9% had worked for the organization for period of 4-6 years while 21 respondents contributing 9.2% had worked for the organization for a period of 7-9 years. Only 3 respondents had worked for their organizations for a period of 10 years and above. This indicates that respondents had good knowledge of their organization’s performance.

    Count Valid %age
  Gender Male 85 37.3
Female 143 62.7
Total 228 100.0
Marital Status Single 128 56.1
  Married 13 5.7
  Divorced/separated 1 0.4
  Widow 1 0.4
  Cohabiting 85 37.3
  Total 228 100.0
Age Bracket 18-25 62 27.2
  26 - 30 yrs 73 32.0
  31 – 35yrs 65 28.5
  36-40yrs 22 9.6
  41-45yrs 04 1.8
  46-50yrs 02 0.9
  Above 50 yrs 00 00
  Total 228 100.0
Highest academic qualification No formal education 2 0.9
  Certificate 85 37.3
  Diploma 23 10.1
  Undergraduate degree 103 45.2
  Postgraduate degree 15 6.6
  others 0 0.0
  Total 228 100.0
Mode of employment Self employed 53 23.2
  Working for another
person/company
77 33.8
  Working in family business 98 43.0
  Total 288 100
Period with organization 1-3 years 138 60.5
  4-6years 66 28.9
  7-9years 21 9.2
  10 years and above 3 1.3
  Total 228 100

Table 3: Background information on the Unit of inquiry

Frequencies and percentages were also used to determine the source of the capital respondents used to run their businesses. The results in table 4 show that majority of the respondents constituting 57.0% used bank loans. A total of 27 respondents representing 15.7% obtained loans from friends. 13 respondents used their own savings, inheritance and loans from relatives respectively. 4 respondents got assistance from relatives while only 2 used assistance from friends and donations/grants. No respondents used government loans and/or assistance to start a business. This could imply that the Use of Bank Loans is still viewed by businesses as the most feasible source of funding.

Source Freq %
Savings 13 7.6
Bank loan 98 57.0
Inherited 13 7.6
Assistance from a relative 4 2.3
Loan from a relative 13 7.6
Assistance from a friend 2 1.2
Loan from a friend 27 15.7
Grant/Donation from an NGO 2 1.2
Loan from government 0 0.0
Assistance from government 0 0.0
Total 172 100.0

Table 4: Source of capital used in running SMEs

Data on behavioral features of respondents were also generated on a 5 point likert scale, where 1=strongly disagree, 2=disagree, 3=neutral, 4=agree and 5=strongly agree. Descriptive means were also used to analyze the date. Findings in Table 5 show that respondents strongly agreed that they are creative and innovative (Mean=4.56), aggressive (Mean=4.47), hardworking (Mean=4.45), prefer working for themselves (Mean=4.42) and also that they respected other people’s values and talents (Mean=4.12). The respondents agreed that they preferred being employed by another person/company. The respondents however disagreed that they had a good savings culture (Mean=1.88), financially disciplined (Mean=2.12), in full control of their destiny (Mean=2.22), skilled (Mean=2.51) and also that they were committed to work (Mean=2.81).

  N Min Max Mean Standard Deviation
I am skilled 228 1 5 2.51 .657
I am committed to work 228 1 5 2.81 .626
I am financially disciplined 228 1 5 2.12 .726
I respect other people’s values and talents 228 1 5 4.12 .943
I am hardworking 228 3 5 4.45 .652
I have a good savings culture 228 1 5 1.88 1.324
I prefer working for myself 228 1 5 4.42 .663
I prefer being employed by another person/company 228 1 5 3.01 .673
I am creative and innovative 228 2 5 4.56 .688
I am aggressive 228 1 5 4.47 .623
I am in full control of my destiny 228 1 5 2.22 1.231
Valid N (list wise)          

Table 5: Behavioral features

5.0 DISCUSSIONS

The finding that about 52% (118) of the respondents had at least attained an undergraduate degree supports Bates’ (1995) argument that entrepreneurs have high need for education and shows that working with educated people can ensure business sustainability. This could be because educated personal help management to feasibly analyze and craft firm direction and implement it successfully. The results indicate that SMEs that have successfully survived for over a year in Uganda employ individuals who posses business features associated with the tendency to engage in entrepreneurial activities like preference for doing own work which gives them independence to try out new things. These results agree with those of Evans and Leighton (1989) that locus of control, self confidence are some of the characteristics associated with entrepreneurial tendencies and behaviours. Only a very small percentage of respondents was married which supports Cliff (1998) who argued that married women give a higher preference to social considerations than economic considerations when making business expansion decisions. The findings however contradict those carried out by Anna et. al. (2000) to the effect that married persons are more likely to engage in entrepreneurial ventures. It should be noted however, that ‘marriage’ was used in the context of the Ugandan Laws and as such persons who where cohabiting were independently represented. If perceived as married too, then Anna et. al.’s (2000) views could still hold. Generally, the studies support the ideas of (Bates 1995, Ritsila & Tervo 2002; Evans & Leighton 1989; and Amit et. al., 1995) that demographic factors like education have implications on the firm’s ability to innovate through shaping the tendencies and behaviors of entrepreneurs. The results support Reynolds et al., (2000), Higino (2005) and Ocici (2006) arguments that government aid should go to improving business development services. This is because of the need to improve the savings culture of entrepreneurs. This will in turn impact on growth potential of SMEs and hence economic prosperity of the nation. Results also support Brockhaus’s (1982) observations that a risk taking propensity and a need to achieve, can lead to the sustainability of business firms.

6.0 IMPLICATIONS, STUDY LIMITATIONS AND AREAS FOR FURTHER RESEARCH

The Government interventions aimed at promoting growth of SMEs in Uganda should mainly target adults who are neither more than 35years of age nor married. As such, existing government support schemes like the ‘youth fund’ should be maintained so as to support individuals in this age bracket as they have potentials in form of energy, ample time and ability to ensure sustainable firm innovation and hence survival and growth. The study results also imply that SMEs should hire staff that are driven by need for achievement, are aggressive, hardworking and have an internal locus of control as a way of increasing chances of excelling in innovation and hence ensuring sustainability of the business. Entrepreneurship training needs to be encouraged as part of the business development services as high education levels are associated with ability to excel in innovation. The finding that bank loans are still used by managers as a major source of funding could indicate to policy makers that the outcry the business men have made to government as regards reduction of interest rates needs to be listened to if government is to create and ensure sustainability of this SMEs that employ most of its population. The results also imply that having less social responsibilities like taking care of family members, like is usually the case with unmarried women, can enable individuals to concentrate more conceptual efforts in innovating for the business on a sustained basis. The empirical data used was gathered from Divisions in Kampala which may have unique characteristics from those in other geographical locations and cultures which may limit the application of the results in explaining tendencies and behaviours of entrepreneurs in other locations. While this study took the assumption that most SMEs in Uganda that survive for more than one year, posses sustainability potentials and thus are said to be excelling in innovation, modals which test for business survival like the Altman’s Z score (Altman 1968), multiple linear discriminant analysis (MLDA) and logit analysis (Ooghe, Spaenjers and Vandermoere, 2005) where not invoked to predict whether these businesses could continue surviving through innovations or where at the verge of failure. Further studies could apply some of these models in order to indicate how the results of the study could change as we posit that with time SMEs will posses formally processed financial statements to enable advanced analysis.

Acknowledgments

We would like to extend our appreciation to the Faculty of Entrepreneurship and Business Administration of Makerere University Business School that funded this study. Special thanks go to the MUBS Principal, Professor Wasswa Balunywa and the Dean faculty of Entrepreneurship and Business Administration, Dr. Warren Byabashaija for their enabling leadership.

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1-702-714-7001Extn: 9038

Neuroscience & Psychology Journals

Nathan T

[email protected]

1-702-714-7001Extn: 9041

Pharmaceutical Sciences Journals

Ann Jose

[email protected]

1-702-714-7001Extn: 9007

Social & Political Science Journals

Steve Harry

[email protected]

1-702-714-7001Extn: 9042

 
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