Organizational ambidexterity in young SMEs? The incompatibility of entrepreneurial orientation and process improvement

Organizational ambidexterity describes firms’ ability to pursue exploration and exploitation strategies simultaneously. It is, however, unclear if young SMEs should seek to develop organizations with this ability or if they are better off focusing on just one strategy. To shed light on this matter, this paper investigates the interaction between entrepreneurial orientation (EO) (organic organizing) and process improvement (mechanistic organizing) in relation to firm growth in young SMEs (small and medium-sized enterprises). We hypothesize that both types of strategies can produce growth for young SMEs but that, due to their incompatibility, young SMEs do not have the resources needed to successfully pursue them both. We test these hypotheses on a sample of 257 young Danish SMEs. Our results confirm that both EO and process improvement have a positive effect on firm growth. The results further show that while process improvement has a considerable positive effect in low EO firms, for high EO firms, this effect is minimal. Thus, high EO firms may waste important resources by putting too much effort into process improvement initiatives.