Frontiers of Entrepreneurship Research
Volume 30 | Issue 17
CHAPTER XVII. CORPORATE
ENTREPRENEURSHIP
Article 1
6-12-2010
MANAGING HUMAN RESOURCES TO
ACHIEVE NEW FIRM GROWTH: A
STEWARDSHIP PERSPECTIVE
Jake G. Messersmith
George Washington University, USA, [email protected]
Matthew W. Rutherford
Virginia Commonwealth University
Recommended Citation
Messersmith, Jake G. and Rutherford, Matthew W. (2010) "MANAGING HUMAN RESOURCES TO ACHIEVE NEW FIRM
GROWTH: A STEWARDSHIP PERSPECTIVE," Frontiers of Entrepreneurship Research: Vol. 30: Iss. 17, Article 1.
Available at: http://digitalknowledge.babson.edu/fer/vol30/iss17/1
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Messersmith and Rutherford: MANAGING HUMAN RESOURCES TO ACHIEVE NEW FIRM GROWTH
THE STEVENS INSTITUTE OF TECHNOLOGY WESLEY J. HOWE AWARD
FOR EXCELLENCE IN RESEARCH ON THE TOPIC OF CORPORATE
ENTREPRENEURSHIP
MANAGING HUMAN RESOURCES TO ACHIEVE NEW
FIRM GROWTH: A STEWARDSHIP PERSPECTIVE
Jake G. Messersmith, George Washington University, USA
Matthew W. Rutherford, Virginia Commonwealth University, USA
ABSTRACT
This study examines the relationship between managerial philosophy and firm performance in a
sample of young ventures. We draw from a diverse body of literature linking stewardship theory
and the resource based view to submit that management based on trust, reciprocity, and
identification (commitment) will enhance firm performance. Utilizing a sample of small high-tech
new ventures this study tests the hypothesized relationships between stewardship, human and
social capital, sales growth and voluntary turnover. Study findings indicate that a managerial
philosophy governed by stewardship is related to higher levels of firm sales-growth, human and
social capital and less voluntary turnover. Neither human nor social capital was found to mediate
the relationship between partnership and sales growth.
INTRODUCTION & LITERATURE REVIEW
Many entrepreneurs note that one of their greatest struggles is in the implementation of
effective management practices that help to select quality employees and motivate their work
force to achieve superior performance (Rutherford, Buller, & McMullen, 2003). As firms begin to
grow and develop, the addition of new human resources becomes an important part of the
management challenge (Hambrick & Crozier, 1985). As these new members are added to the
organization the entrepreneur must meet the challenge by retaining his or her visionary role as
leader of the firm, while simultaneously letting go of some of the tactical day-to-day operations of
the firm. Many entrepreneurs struggle with this transition and find difficulty in defining and
implementing a successful managerial philosophy (Terpstra and Olson,1993). This paper
postulates that the most effective form of management for growth-oriented new ventures may be
based upon a stewardship-philosophy, where the owner seeks to promote ownership and mutuality
within his or her employment base.
While there have been a number of studies examining the connection between a stewardship
managerial philosophy and firm performance (e.g. Eddleston and Kellermans, 2007), none have
examined this explicitly in the young firm. Indeed the study of human resource management
practices in small and young firms, in general, remains an under researched area (Cardon and
Stevens, 2004; Hornsby and Kuratko, 1990; Tocher and Rutherford, 2009; Way, 2002). This study
endeavors, in part, to remedy this situation by addressing the relationship between management
philosophy and performance, as well as by investigating potential mediators of this relationship.
Stewardship Theory as Managerial Philosophy
Stewardship theory arose in the sociology and psychology literatures as an alternative form of
management than those based upon agency theory (Davis, Schoorman, & Donaldson, 1997).
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Agency theory rests on the core economic belief that human behavior is motivated by self-interest,
opportunism, and utility-maximization (Jensen & Meckling, 1976). As such, agency theory
prescribes that organizations must work to align the interests of agents with those of the
organization’s principles via control and incentive systems. Though generally conceptualized as a
framework for the relationship between shareholders and top managers, the basic principles have
also been applied to the employment relationship between the small business owner and the
organization’s employees (Breton-Miller and Miller, 2009; Corbetta and Salvatto, 2004). Under
agency theory the owner is offered the choice of seeking to monitor and control the behavior of his
or her employees (and thus incur agency costs) or, alternatively, to create incentive systems that
align individual utility seeking behaviors with organizational objectives (thereby reducing agency
costs).
Stewardship theory challenges the basic supposition that all human behavior results from selfinterest and claims that utility can be maximized in other, more intrinsic, forms (Davis et. al.,
1997; Donaldson & Davis, 1991; Zahra et al., 2008). Under stewardship theory, utility may be
maximized through both financial and nonfinancial rewards. For instance, research indicates that
firm founders are willing to accept lower levels of financial rewards from their firm, because they
are achieving other non-pecuniary needs through firm formation and ownership (Wasserman,
2006). In the same vein, employees working for an entrepreneurial firm might be rewarded in
forms other than strict financial benefits (Appelbaum & Kamal, 2000; Appelbaum & Shapiro,
1991). The opportunity to work with innovative products or services, or to help build a young
organization, or to work in a less firmly established organizational culture may all provide utility
to the employees working in a new venture (Appelbaum & Kamal, 2000). As a result, stewardship
theory suggests more open forms of management that help to build trust and collaboration
between the owner-manager and the firm’s employees in order to establish a culture of proorganizational rather than pro-self values (Davis et al., 1997).
A managerial philosophy based upon stewardship may be able to enhance firm performance
and ultimately lead to competitive advantage by increasing the level of human and social capital
within the young firm. As such, a stewardship philosophy to managing human resources may
serve as a firm level competency or dynamic capability. The strategic management literature has
defined such capabilities as a “subset of the competences/capabilities which allow the firm to
create new products and processes and respond to changing market circumstances” (Teece and
Pisano, 1994: 541). Several processes have been noted as potential dynamic capabilities such as
those connected to knowledge acquisition mechanisms, strategic decision-making processes, new
product development, supply chain management, inventory management capabilities,
organizational reputation, and organizational culture (Carmeli & Tishler, 2004; Eisenhardt &
Martin, 2000; Lee, Lee, & Pennings, 2001; Yli-Renko, Autio, & Sapienza, 2001; Zollo & Winter,
2002). These processes allow for the successful deployment and reconstruction of resources such
as human and social capital, which represent the stock of factors available to, or under the control
of the firm (Amit & Schoemaker, 1993; Helfat & Lieberman, 2002).
Stewardship forms of management have the ability to affect firm performance by serving as a
dynamic capability that unlocks the potential of the firm’s employment base. While the empirical
research on the link between stewardship and firm performance is light, it is extant and growing.
For example, Vallejo (2009) studied the affect that a managerial philosophy based on stewardship
had on firm performance in 90 auto dealers in the Spanish Federation of Automobile Dealers
Association. Findings indicate that managers who create an environment based on stewardship
(trust, reciprocity, and commitment) among employees are able to achieve significantly higher
performance for their firms. Vallejo (2009) measured stewardship as commitment among
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employees to the firm along three dimensions (identification, involvement, and loyalty). While
involvement and loyalty were not significant, identification commitment was; explaining 10% of
the variance in profitability and 16% of the variance in survival.
This is an important finding, because identification is seen as a particularly important aspect of
stewardship theory (Davis, et al, 1997). Identification results when individual employees have
their values closely aligned with values of the organization (Deckop, Mangel, & Cirka, 1999).
When identification is high, organizational members view the firm as an extension of themselves.
Stewardship theory suggests that taking a collaborative approach is one such way to build
increased levels of identification, which will serve to promote organizational- rather than selfinterest (Davis et al., 1997; Wasserman, 2006).
In addition, Zahra, et al. (2008) conducted a study on 248 firms in the food processing industry
to ascertain the impact of a stewardship culture on strategic flexibility; essentially submitting that
firms with such a culture would have greater flexibility and therefore possible competitive
advantage. In this study, items were created to measure a stewardship culture by tapping the
manager-employee dyad. Their results generally support the notion that a stewardship culture
leads to enhanced strategic flexibility.
Stewardship Theory and Emerging Organizations
Stewardship approaches to management may be particularly powerful in young firms. New
enterprises are often smaller and rely more heavily on individual contributions than do their larger
counterparts. Each individual within the smaller firm contributes to the firm’s bottom line in more
direct ways than in larger organizations. Moreover, new ventures often lack the financial capital to
be able to pay above market wages (Appelbaum & Kamal, 2000; Hornsby and Kuratko, 1990),
which means that these enterprises must find new ways to attract and retain valuable contributors.
Offering an environment characterized by trust, communication, and reciprocity may be one such
way of attracting talent. In addition, new ventures benefit from having fewer constrains imposed
by past management practices, philosophies or cultural artifacts. Many have the opportunity to
shape and create organizational culture that larger and more established firms lack. While
established firms often fall into the self-fulfilling prophecy of monitoring and controlling
employees via traditional agency relationships (Argyis, 1973; Ferraro, Pfeffer, & Sutton, 2005),
newer firms are afforded the opportunity of establishing norms and routines based upon a
stewardship model. This is particularly important as the philosophies, culture, and practices
established early in a firm’s lifecycle will be subjected to the forces of inertia that grow during the
firm’s development (Baron & Hannan, 2002).
While the results examining the relationship between managerial stewardship and firm
performance have been mixed, we believe that enough has been compiled to suggest a positive
association; especially when considering the special nature of the emergent enterprise. Therefore,
we hypothesize:
Hypothesis 1: Stewardship will be associated with firm sales growth.
Beyond growth, it is also likely that management philosophies based on trust, reciprocity, and
commitment will have an effect on other, more proximal, measures of firm performance. For
instance, such philosophies have been conceptually linked to increased productivity, better quality,
and lower levels of absenteeism and turnover (Roscow & Casner-Lotto, 1998). Of specific interest
to this study, is the relationship between stewardship and employee voluntary turnover in new
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ventures. Turnover is an important issue in small businesses, as these firms often lack the
resources to pay above market wages or offer the benefits that larger competitors are able to
provide. As a result, it is important for growing ventures to find other means to compete and retain
talent. Stewardship may be one avenue that small businesses can utilize to lower turnover levels as
it is expected that perceptions of trust, collaboration, and communication will increase retention.
Therefore, we hypothesize:
Hypothesis 2: Stewardship will be associated with lower levels of voluntary turnover.
Linking Stewardship to Performance: The Mediating Role of Human and Social Capital
The proper management of the HR function has been associated with positive firm level
outcomes in organizations of all sizes (Arthur, 1994; Huselid, 1995; Way, 2002); including new
ventures (Chandler and McEvoy, 2000; Hayton, 2003). It has traditionally been noted that these
positive relationships exist because the human resource brings valuable stocks of human and
social capital to the organization, which are likely to serve as critical resources that produce
competitive advantages (Wright, Dunford, & Snell, 2001). This proposition has traditionally been
linked to the resource based view of the firm (Barney, 1991; Penrose, 1959; Wernerfelt, 1984).
The resource based view of the firm proposes that firms can gain a sustainable competitive
advantage over rivals to the extent that they are able to utilize resources that are unique, valuable,
rare, inimitable, and non-substitutable (Barney, 1991). The strategic human resource management
literature has argued that the human resource is a useful avenue to invest and develop as it meets
these criteria, possibly more fully than any other organizational resource (Boxall & Steeneveld,
1999; Guthrie, 2001; Wright et al., 2001). This literature further argues that management practices
and philosophies can affect firm performance by creating inimitable resources bundles of human
and social capital (Agarwala, 2003). By bringing together valuable human and social capital in
idiosyncratic forms a young firm is likely to achieve a non-replicable strategic advantage over its
rivals (Davidsson & Honig, 2003).
Human capital is the combination of knowledge, skills, and abilities embedded within a firm’s
human resources that are the direct result of individual learning and education (Becker, 1964). As
a powerful organizational resource, human capital has been noted to be an important driver of firm
performance through its potential to influence firm-level innovation (Hayton, 2005; Pinchot, 1985;
Selvarajan et al., 2007; Zahra, 1993). Human capital has been specifically identified as a firmlevel capability that allows organizations to develop and realign resources to attain a performance
advantage and possibly a sustainable competitive advantage (Adner & Helfat, 2003; Carmeli &
Tishler, 2004, Reed et al., 2006). In addition, empirical studies have found a consistent and
positive relationship between measures of human capital and firm performance metrics (Carmeli
& Tishler, 2004; Hitt, Bierman, Shimizu, & Kochar, 2001; Reed et al., 2006; Skaggs & Youndt,
2004; Youndt & Snell, 2004).
In addition to human capital, social capital also has been demonstrated to be a firm level
resource that can enhance firm performance (Pinchot, 1985). Social capital reflects the strength of
associations within the firm and the ability to coordinate knowledge exchange and employee
communication (Youndt & Snell, 2004). Social capital serves as a proxy for the overall quality
and depth of relationships within the organization that help to build high levels of teamwork,
enhance collaboration, and increase the incidence of organizational citizenship behaviors
(MacDuffie, 1995). In addition, the strength of social relationships within a firm influences the
ability of organizational members to transfer both tacit and explicit knowledge between employees
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Messersmith and Rutherford: MANAGING HUMAN RESOURCES TO ACHIEVE NEW FIRM GROWTH
(Grant, 1996; Kang et al., 2007). This knowledge transfer has been noted as a powerful tool
assisting firms in exploitative learning (Kang et al., 2007; Leana & Van Buren, 1999).
Social capital has been subject to multiple empirical investigations. For instance, Subramaniam
& Youndt (2005) were able to support a positive relationship between social capital and measures
of both incremental and radical innovation capabilities. In addition, Yli-Renko, Autio, & Sapienza
(2001) supported a connection between firm-level social capital and knowledge acquisition, which
in turn was found to enhance knowledge exploitation capabilities in the form of new product
development, cost-efficiency, and technological distinctiveness. Similarly, in a sample of singleindustry industrial organizations Youndt and Snell (2004) found a positive relationship between
social capital and firm performance.
Simply stated, a stewardship philosophy can be thought of as the dynamic capability that helps
to align and realign important organizational resources, such as human and social capital.
Stewardship helps to build human capital in the firm by providing market signals that the firm is
an “employer of choice” (Pfeffer, 1994). If current employees enjoy working for the organization
they are likely to provide an important signal to talented outsiders about the advantages of
working for the organization, thereby increasing the quality and quantity of human capital
available to the firm. In addition, by building strong levels of stewardship the organization is
likely to foster a greater sense of identification and commitment in its employment base that will
lead to the retention of greater levels of human and social capital. Therefore, we expect that:
Hypothesis 3: The relationship between stewardship and sales growth will be partially
mediated by human capital.
Hypothesis 4: The relationship between stewardship and sales growth will be partially
mediated by social capital.
METHODS
The data for this study was collected as part of a larger data collection process, which is
detailed in (Messersmith & Guthrie, 2010). The initial sample was derived from the National
Establishment Time-Series (NETS) database. The NETS database was first made available in
2003 and has since been used at a more macro level to track business growth and movement and
job creation (Neumark, Wall, & Zhang, 2008). The database is assembled by utilizing Dun &
Bradstreet market reports to track longitudinal data on firm sales performance, employment
numbers, and credit status across the life cycle of each firm.
An initial sampling pool of 50,000 establishments was originally extracted from the database
across industry groups operating in the computer hardware, software, peripherals and consulting
areas. In particular, firms identified as operating within SIC designated industry sectors 7371-7379
and 5045 were targeted for inclusion in the sample. This more limited set of industries allows for a
test of firms operating within industries that have traditionally been classified as technology
intensive (e.g., Baron et al., 1996; Burton & O’Reilly, 2004; Insch & Steensma, 2006; Schilling &
Steensma, 2002; Tegarden et al., 2005). The initial sample was further restricted to those firms
that were listed as being less than 10 years old, which were standalone businesses that had a
minimum of 10 employees at the time of the survey. These firms were eliminated in order to avoid
bias from having firms in vastly different life cycle stages, with too few employees to establish a
management philosophy, and those that may have managerial philosophies adapted from larger
corporate mandates. Also, firms without adequate contact information were removed from the
sample. This resulted in a pool of 2,018 firms.
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Pilot testing was completed with three executives of similarly sized organizations. After
revision of the survey instrument, survey based measures of demographic data, turnover, net sales,
and partnership (among others) were mailed to the senior most contact person listed in the NETS
database. All participants were offered an executive summary of the study results once the project
was completed. Several follow-up e-mails were sent to those individuals in the database with
available e-mail address information. Those that were inaccessible via e-mail were sent reminder
phone messages and an additional mailing. These efforts resulted in 215 responses, providing an
overall response rate of 10.7%. Many respondents were hesitant to provide financial information
as all of the companies surveyed were private firms. Also, of these 215 responses, 25 of the firms
were older than 10 years of age and were subsequently removed from the analysis. Below we
describe the measures used in the study.
Stewardship Philosophy. As mentioned previously, there is a lack of consistency with respect
to the operationalization of stewardship philosophy. Few empirical studies have been undertaken
with a stewardship focus. As a result of this lack of agreement we chose to measure stewardship
using scale items adapted from the labor relations literature, which actualize stewardship using the
concept of partnership. Partnership is an employment model popularized by the Labour Party in
the United Kingdom, which has sought to find productive ways to recast the relationship between
management and labor as a collaborative rather than an adversarial system (Dietz, 2004; Guest and
Peccei, 2001; Guest, Brown, Peccei, and Huxley, 2008; McCartan, 2002). This literature has
generally discussed partnership as being a function of the following: mutual trust and respect
between employees and owners and managers, a recognition of the link between relative levels of
job security and productivity, a shared vision for the mutual success of employees and employers,
continuous information exchange within the organization, and decentralized decision-making
(McCartan, 2002). Each of these aspects of partnership resonates with the underlying model of
stewardship discussed above.
Sales Growth. Sales growth was calculated by taking the percentage change in sales from the
establishment in 2005 to 2006 as reported in the NETS database. The use of the NETS data allows
us to remove concerns of common method bias by retrieving one of the primary dependent
variables of interest from an archival source.
Turnover. Turnover was calculated by asking respondents to indicate the percentage of
employees who left voluntarily during each year from 2004 through 2007. Obtaining turnover data
from key respondents is the modal approach in the SHRM literature (e.g., Guthrie, 2001; Huselid,
1995).
Human and Social Capital. Both human and social capital were measured using the scale
created by Subramaniam and Youndt (2005). These are perceptual scales that use five items to
assess the levels of human and social capital in the organization from the perspective of the
organizational leader. An average of the five items was taken to represent the perceived level of
both human and social capital within the firm.
Controls. Control variables were included for firm size, firm age, and the percentage of venture
capital financing received by the organization
RESULTS
Descriptive statistics and correlations are presented below in Table 1. The correlations reveal a
positive and significant relationship between partnership and firm sales growth (p < .05) and a
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Messersmith and Rutherford: MANAGING HUMAN RESOURCES TO ACHIEVE NEW FIRM GROWTH
negative relationship between partnership and voluntary turnover (p < .05). The bivariate
correlations do not suggest a significant relationship between either human capital or social capital
and firm sales growth.
Structural equation modeling (SEM) was performed to determine the best fitting model for
predicting firm performance with all dependent variables included in the analysis. SEM is a broad
analytic framework that allows scholars to combine path analysis with confirmatory factor
analysis. For each of the models in the study model fit was evaluated using three common fit
metrics: χ² significance tests, root mean square error of approximation (RMSEA), and the
Comparative Fit Index (CFI). LISREL 10.0 with maximum likelihood estimation was used to
perform the structural equation analyses in this study. We examine four models to assess the
hypotheses of interest. First, we fit a measurement model for the underlying data structure without
the mediation effect of human and social capital. This model was used to assess the degree of
overall fit of the hypothesized model with that of the underlying data structure. The measurement
model exhibited strong model fit with a nonsignificant χ2 statistic. In addition, the RMSEA (.0200)
index of fit is well below .08 and the CFI (.997) is well above the .90 threshold that Kline (1998)
recommends.
Following the establishment of the measurement model a structural model was fit to test the
main effect of stewardship on sales growth and turnover. The structural model also exhibited
strong model fit (χ2 = 12.688; d.f. = 12; p = .392; RMSEA = .0177; CFI = .998). The structural
model is presented in Figure 1. This model indicates that firm size is positively associated with
sales growth (β = .146, p < .10). In addition, firm age is negatively associated with voluntary
turnover (β = -.135, p < .10). The structural model supports Hypothesis 1 by showing a significant
relationship between stewardship and sales growth at the latent level (β = .262, p <.05).
Hypothesis 2 was also supported as a significant negative relationship was observed between
stewardship and voluntary turnover (β = -.209, p <.05).
To test Hypotheses 3 and 4 separate measurement and structural models were fit, which
included the human and social capital data. The measurement model for these hypothesis tests
exhibits strong model fit (χ2 = 27.772; d.f. = 22; p = .392; RMSEA = .0427; CFI = .986). Figure 2
presents the structural model, which was fit to assess whether human or social capital serve as
partial mediators of the relationships between stewardship and both sales growth and voluntary
turnover. This model also fit the covariance structure of the data well (χ2 =31.528; d.f. = 22; p =
.0848; RMSEA = .0533; CFI = .978). The results of this model fail to support Hypotheses 3 and 4.
While the relationship between stewardship and both human (β = .539, p <.01) and social capital
(β = .427, p <.05) is significant, neither of these is significantly associated with sales growth. An
additional model was also fit to the data to assess the potential for full mediation by human and
social capital between the stewardship construct and firm sales growth. This model demonstrates
adequate model fit, though the χ2 for this model is significant (χ2 =38.574; d.f. = 24; p = .0303;
RMSEA = .0593; CFI = .970). This model again fails to support Hypothesis 4, though weak
support is found for Hypothesis 3 as human capital is marginally associated with both sales growth
(β = .187, p <.10) and voluntary turnover (β = -.207, p <.10).
DISCUSSION
This study examines two primary research questions. The first is to what extent is a
stewardship philosophy associated with firm performance? In this case firm performance was
operationalized as sales growth and voluntary turnover levels. The results of the study support the
logic of stewardship theory which suggests that building, trust, collaboration, and high-levels of
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communication with employees will benefit the organization. Stewardship was related to sales
growth in this sample of small, young, high-tech firms. The results of the study also indicate that
an espoused philosophy of stewardship is linked to lower levels of voluntary turnover. This
relationship suggests that small and growing ventures can build higher levels of retention by
managing via a philosophy of stewardship, rather than based upon an intricate system of
monitoring and controlling employee behavior.
From a theoretical standpoint these results support stewardship theory. Firms that allow their
employees greater autonomy and seek to partner with them fully in decision-making tended to
outperform those with less stewardship-oriented managerial philosophies. These findings are
particularly salient given the relatively youthful nature of the businesses that participated in the
study. Whereas more established firms may have difficulty changing their managerial philosophies
from an agency-relationship focus to a partnership-relationship focus, this sample of firms does
not suffer under the same weight of inertia. As a result they may be able to create their own set of
self-fulfilling prophecies (Ferraro et al., 2005) based upon a more inclusive managerial
philosophy.
The second research question attempts to examine the relationship between stewardship and
firm performance more deeply by analyzing the mediating roles of both human and social capital.
The hypothesized answer to this question is that stewardship improves firm performance by
increasing levels of human and social capital within the firm, which in turn help to improve firm
performance. These hypotheses were built using the logic of the resource-based view of the firm
and the dynamic capability perspectives. It was argued that stewardship is a firm-level capability
that helps to build key resources in the form of human and social capital, which ultimately
influence firm performance. However, these hypotheses were not supported. Though stewardship
had a strong positive relationship with both human and social capital in this sample of firms,
neither of the mediating constructs was found to be statistically related to firm sales growth in the
partial mediation model.
As a result, the arguments based upon the resource-based view and dynamic capabilities
perspectives were not supported in this sample of firms. While a clear link existed in this study
between models of stewardship and the human and social capital within the firm, these later
resource groups were not connected to sales growth. It may be that the measures of human and
social capital in the study lacked construct validity or that not enough time was given for true
stocks of human and social capital to be established in the firm. In addition, the resource-based
view stresses that competitive advantage can only be achieved by configuring resource bundles in
a causally ambiguous manner (Barney, 1991). As such, the operationalization of the key constructs
in this study may have failed to capture the idiosyncratic forces that each firm used to leverage
stewardship into a competitive advantage. Therefore, future studies using better proxies for human
and social capital along with longitudinal analyses will be better positioned to answer this research
question.
Limitations & Directions for Future Research
The results of this study should be interpreted in light of several significant limitations. First,
the relatively small sample size and the low response rate suggest that generalizations should be
made cautiously. Despite the fact that tests of nonresponse bias did not reveal any significant
differences, it is still possible that other high-tech firms differ in substantive and systematic ways
from those who participated in the study.
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Messersmith and Rutherford: MANAGING HUMAN RESOURCES TO ACHIEVE NEW FIRM GROWTH
An additional limitation of this study is the potential for reverse causality between the
stewardship measure and firm performance. It may be that successful firms operate with different
managerial philosophies early on and then switch to a more stewardship-oriented philosophy once
the company has achieved a certain level of success. While this is certainly possible, it seems less
likely given the relative youth of all of these firms (all 10 years older or less) and the fact that the
majority of the firms in the sample were still be led by the founder. It seems more plausible that an
underlying management philosophy has guided these firms since their inception, rather than the
mid-course correction hypothesis. Regardless, future longitudinal studies are necessary to control
for this possibility.
Finally, this study may suffer from a survival bias, in that all of these firms have achieved the
first criterion of success: survival. As many young firms fail to reach 7 years of age (the mean in
this sample) all of the firms assessed were relatively successful. One could argue that this study
then was a study of only successful firms; however, there was still variance to be explained in
sales growth that can be attributed to a stewardship philosophy.
CONCLUSION
Entrepreneurship has routinely been hailed as the foundation of successful economies (e.g.,
Drucker, 1985). In fact, in a recent Wall Street Journal article Edmund Phelps, the 2006 Nobel
Laureate in Economics, noted that entrepreneurship is the key to developing and sustaining a
prosperous economy, and stressed that a nation’s competitive advantage lies with its ability and
motivation to innovate (Phelps, 2007). Despite these claims relatively little has been investigated
in regard to the managerial values that help new ventures become successful. This study helps to
answer that question by linking a managerial philosophy based upon stewardship to higher levels
of sales growth, human and social capital, and employee retention. In doing so, this research adds
to entrepreneurship scholarship and offers useful advice to practitioners charged with managing a
new venture.
CONTACT: Jake Messersmith; [email protected]; (T): 785-760-2025; (F): 202-994-4930; The
George Washington University, 2201 G St., NW Washington, DC 20052.
ACKNOWLEDGEMENTS
This research was funded in part by the Ewing Marion Kauffman Foundation. The contents of this
manuscript are solely the responsibility of the authors.
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APPENDIX
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FIGURE 1: STRUCTURAL MODEL – MAIN EFFECT (Non-significant paths removed)
Sales
Growth
.262*
SGR
.146†
Stewardship
TRST
COMM
-.209*
Vol.
Turnover
CMTM
VT
-.135
AG
†
SIZ
VC
Control Variablesa
a
AG
SZ
VC
The same pattern of correlations
between latent constructs and residuals
was used in this model as in the
measurement model. Paths were
omitted for graphical purposes.
χ²(12) = 12.688 p = .392; RMSEA = .0177 CFI = .998
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Messersmith and Rutherford: MANAGING HUMAN RESOURCES TO ACHIEVE NEW FIRM GROWTH
FIGURE 2: SEM MODEL – STRUCTURAL PARTIAL MEDIATION MODEL
(Non-significant paths removed)
Sales
Growth
SGR
.290**
.167*
Human
Capital
.539**
Stewardship
HC
TRST
COMM
Vol.
Turnover
CMTM
.427*
Social
Capital
VT
SC
AG
SIZ
VC
Control Variablesa
a
χ²(22) = 31.528, p =.0848; RMSEA = .0533 CFI = .978
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AG
SZ
VC
The same pattern of correlations
between latent constructs and residuals
was used in this model as in the
measurement model. Paths were
omitted for graphical purposes.
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