A Formative to Reflective Transition

The analysis of the first-order reflective, second-order formative construct specification clearly indicates problems between the hypothesized conceptual arrangement and the empirical results. While issues with the data (e.g., the nature and/or number of the original survey items) could certainly be responsible – a topic explored in Chapter Seven – it is also possible that the hypothesized conceptual model is not underlying the data. Generally speaking, formative models represent a comparatively stringent model

specification for a number of reasons. For one, the error term of a formative construct is typically set to zero, representing the causal indicators fully forming the construct without residual variance; this is a very strict constraint (Bagozzi, 2007). The choice of outcome variable (e.g., reflective indicator items or constructs) inclusion in the model also creates context-specificity in the result (Diamantopoulos, 2011). Thus, fitting the hypothesized formative model specification is a challenging empirical standard. The results of the analysis suggest that this standard has not been met.

Given this inconsistency between the hypothesized model and the observed data, it becomes appropriate to revisit the conceptual underpinning of the entrepreneurial culture construct. One of the central conceptual points discussed in Chapter Three was the notion that entrepreneurial culture was theoretically constructed and may not exist in reality. I originally posited that a firm scoring highly on the five sub-dimensions of entrepreneurial culture would thus be said to have an “entrepreneurial culture." The act of measuring and evaluating these particular scores and their collective contribution would form the construct. The data collected and analyzed in this research does not seem to support this conclusion. The conceptual development of the construct and the

justification for the use of formative modeling outlined previously still has merit. However, in the absence of additional data, I must consider an alternate specification of the model to best fit the data at hand. It is possible that with a different set of items or different conceptualizations of the sub-dimensions that this formative specification may yet work. However, given the data collected, I must consider alternative models which may more accurately describe the data. As the factor analysis results indicate that the items do seem to be adequately measuring the dimensions (although some dimensions

more than others), which possible relationships might instead be underlying these dimensions?

With the previous formative model specification, a natural counter-point would be a reflective model specification. In order to consider a reflective, multi-dimensional model specification it is critical to evaluate the conceptual theorizing behind such a model. Even with the empirical results, pursuing a reflective specification makes little sense without a justifiable theoretical rationale for doing so. As indicated in Chapter Three, generally speaking, a reflective model would represent some phenomenon which exists in the world, the effects of which can be measured through observable variables. A second- order construct with reflective first-order constructs describes an “indirect” model where the effect of the second-order construct on the observed variables would be mediated by one or more latent variables (Edwards & Bagozzi, 2000). This would mean that the scoring seen in the survey items do not reflect entrepreneurial culture directly, but rather, as the effects of mediating sub-dimensions such as Organizational Enthusiasm,

Cohesiveness, and so on. From a formative perspective, these items measure sub- dimensions which collectively form the entrepreneurial culture construct. From a reflective perspective, the items still measure the sub-dimensions except now each dimension instead reflects disparate but correlated parts of the overall entrepreneurial culture construct. Variance observed in each measure is explained by its first-order construct and the variance in the first-order constructs are explained by the common second-order construct. In other words, some “entrepreneurial culture” exists within a firm which influences the sub-dimensions and the scores on their associated measures. In contrast, as a formative specification, entrepreneurial culture is empirically defined by the total variance among all its indicators and the indicators only capture the entire

conceptual domain as a group (MacKenzie et al., 2005).

Although previously argued in Chapter Three that entrepreneurial culture is best conceived of as a formative construct, in light of the results an alternate explanation of the relationship between the conceptual model and empirical data is necessary. I had previously suggested that a broader organizational culture may exist within the firm but it is the collective formulation of sub-dimensions which determine the existence of the

“entrepreneurial culture” organizational culture sub-type. While other researchers may label this collective formulation something else (e.g., a “start-up culture” or a “creative- innovation culture”), I argued that the collective combination of the five sub-dimensions is what constitutes entrepreneurial culture. The existence of the construct flows from the measures to the construct; entrepreneurial culture is determined through the

multiplicative relationship of the five sub-dimensions. Their presence, ascertained by researchers, determines whether or not an entrepreneurial culture exists within the firm. In contrast, a reflective model specification entails a different underlying conceptual ontology. From a reflective perspective, entrepreneurial culture might be thought of as existing within a firm, independent of researchers, with evidence of its existence detected through observable measures. One way to conceptualize this is that an “entrepreneurial culture” is, in fact, one of many facets of an organization’s broader organizational culture. In this case, cultural subtypes reflect “real” aspects of the organizational culture that co-exist (and correlate) with one another. An organizational culture may reflect, through different degrees, an entrepreneurial culture, an ethical culture, an innovation- supportive culture, an adaptive culture, and so on with other cultural subtypes. Rather than a theoretical construction explicitly invented by researchers, an entrepreneurial culture might represent a fundamental, underlying aspect of an organization. This is much more in line with the perspective of organizational culture being equivalent to a firm’s “personality” where entrepreneurial culture is then a specific kind of firm “personality trait.” If so, entrepreneurial culture might then exist as part of a firm’s underlying personality towards opportunities. In this case, it always exists in some potential or realized capacity within a firm, but will vary across firms and for a number of different reasons. Entrepreneurial culture would not come into existence through the act of measurement and construction, but rather, always exist at some level with the potential to be measured. This notion of entrepreneurial culture existing as a “real” construct versus a theoretical construction is the central ontological distinction between reflective and formative conceptualizations.

An instructive and somewhat analogous example comes from Judge, Erez, Bono and Thoresen (2003), who describe the concept of core self-evaluations (CSEs). They define

CSEs as a broad personality trait describing a fundamental appraisal of one’s worthiness, effectiveness, and capability as a person. CSEs are indicated by four well established personality traits of self-esteem, generalized self-efficacy, neuroticism, and locus of control. Judge et al. (2003) argue that CSE is a broad, latent trait that is the common source of these four specific traits and is the psychological mechanism that causes the traits to be correlated with one another. Importantly, Judge et al. (2003) argue that these four traits (acknowledging that there may be other traits) are not completely redundant but rather, CSE as a higher-order latent concept explains the conceptual and empirical redundancy among the four traits. CSEs thus represent a higher-order underlying trait which explains variation in the first-order traits, which can be measured individually. The measures of the four core traits are manifestations or indicators of CSE, the inner self-concept or core self-evaluation. In sum, CSE is posited not as a multidimensional aggregate construct but rather a latent psychological construct where “self-esteem, generalized self-efficacy, and the other core traits are different ways in which core self- evaluations is realized” (Judge et al., 2003:305).

Adapting this logic, within the broader domain of organizational culture, entrepreneurial culture might be thought of as a latent, underlying organizational culture construct which is indicated by Organizational Enthusiasm, Stakeholder Alignment, Cohesiveness, Learning and Development Support, and Opportunity Driven Change. These five dimensions act as indicators of the higher-order entrepreneurial culture latent concept. The five dimensions would correlate with one another as distinct but related aspects of entrepreneurial culture. In effect, this underlying entrepreneurial culture is what causes changes in these dimensions which are subsequently observed. For example, because an organization has an underlying entrepreneurial culture, the organization would be

observed to have higher Cohesiveness or Stakeholder Alignment. It is an underlying entrepreneurial culture which explains variation in these dimensions (and other possible reflective dimensions), and the dimensions, in turn, function as observable indicators of entrepreneurial culture. In comparison, with a formative conceptualization, a firm would have to exhibit high levels of specific dimensions in order to be said to have an

conceptualization, the sub-dimensions may each have different causes or antecedents which give rise to them.

It may be the case that both formative and reflective conceptualizations are plausible explanations for a higher-order entrepreneurial culture construct. Presently, the data tell us that the formative model as specified is problematic (i.e., non-significant paths and a negative path) and that the dimensions are exhibiting some high correlations with one another. Different tests for model identification replicate these results. While intuitively formative and reflective conceptualizations of constructs seem conflicting, researchers have concluded that constructs are not necessarily inherently formative or reflective, and that they can be fruitfully theoretically examined from different perspectives (Covin & Wales, 2012; MacKenzie et al., 2011). The crucial question then is which kind of conceptualization is the most appropriate explanation for the way the construct is

envisioned? A reflective higher-order conceptualization of entrepreneurial culture seems to be just such a possible explanation. Fundamentally, the definition of the sub-

dimensions and the overall entrepreneurial culture construct do not change;

entrepreneurial culture is still defined as a pattern of values, assumptions, and practices shared within an organization, which is centrally concerned with opportunities. The issue is whether this particular shared pattern can exist as a “real” phenomenon within an organization, independent of measurement and observation. If we can accept that they can indeed exist independently, then a reflective conceptualization can be a plausible explanation for the nature and structure of entrepreneurial culture.