Constrained or creative? Changes in financial condition and entrepreneurial orientation in public organizations

AuthorAkheil Singla,Mary K. Feeney,Justin M. Stritch
Published date01 December 2018
Date01 December 2018
Constrained or creative? Changes in financial
condition and entrepreneurial orientation in public
Akheil Singla
| Justin M. Stritch
| Mary K. Feeney
School of Public Affairs, Arizona State
University, Phoenix, Arizona, USA
Center for Science, Technology &
Environmental Policy Studies, Arizona State
University, Phoenix, Arizona, USA
Akheil Singla, School of Public Affairs, Arizona
State University, 411 N. Central Avenue,
Phoenix, Arizona 85004, USA.
Funding information
The Center for Science, Technology &
Environmental Policy Studies, Arizona State
Public managers and organizations are often encouraged to take a
proactive role in finding solutions to the challenges that face their
communities. These challenges require meeting increasingly high
expectations for public service provision with ever reducing
resources. This research investigates the relationship between
change in resource constraintsas measured by longer and shorter
term financial conditionand the entrepreneurial orientation of US
local governments. Theoretically, it remains unclear whether
resource constraints foster or impede entrepreneurial actions
(i.e., risk taking, proactivity, and innovation) in public organizations.
While entrepreneurial actions may be related to increased organi-
zational financial capacity, a decline in an organizations financial
condition might motivate proactivity, innovation, and risk taking as
problem-solving mechanisms and a means to continue service pro-
vision. We explore this relationship using two sources of data: a
2012 national survey of managers in 500 cities and financial data
from Comprehensive Annual Financial Reports. Our findings sug-
gest that resource constraints are associated with increased entre-
preneurial activity in US local governments.
Public managers and organizations are tasked with more than simply executing policies passed by legislative bodies
(Meynhardt and Diefenbach 2012, p. 765). Indeed, new governance models suggest that public managers should not
only work to improve performance, but also to increase the value their organizations provide to the communities
they serve (Osborne and Gaebler 1992; Moore 1995). Public managers and organizations take a proactive role in
engaging stakeholders, identifying innovations, coproducing, and finding solutions to the issues and challenges their
communities face (Hartley 2005; Van der Wal 2017). Simultaneously, managers in local governments confront
increasing service obligations and decreasing resources. Movements to devolve or decentralize responsibilities from
higher levels of government to local governments are likely to continue this trend (Daigneau 2011; Gamkhar and
DOI: 10.1111/padm.12540
Public Administration. 2018;96:769786. © 2018 John Wiley & Sons Ltd 769
Pickerill 2012). Recognizing both this recent re-envisioning of public organizations as innovative and dynamic places
that create community value and the persistence of resource constrained environments, this article examines the
relationship between resource availability and the pursuit of value through entrepreneurship in local government
organizations (Kim 2010; Meynhardt and Diefenbach 2012).
Early theories of public sector entrepreneurship focused on rational calculation and emphasized specific policy
tools (e.g., publicprivate partnerships, privatization, and contracting). Todays approaches place greater emphasis on
identifying ways of enhancing public sector outcomes and performance (Shockley et al. 2006). Entrepreneurship is a
driving force for both change and innovation in pursuit of higher levels of organizational performance. Entrepreneur-
ial orientation describes an organizations commitment to the intensity of entrepreneurial actions(Kim 2010,
pp. 78384). Previous public management research on entrepreneurship has considered the role of organizational
culture, structures, and processes in supporting an entrepreneurial orientation, but there is still considerable room for
additional understanding (Zerbinati and Souitaris 2005; Shockley et al. 2006; Kim 2010). Critically, the extent to
which an entrepreneurial orientation is an adaptive function of public organizations associated with changes in
resource availability remains unknown. In this research, we examine the following question: How are changes in a
governments financial condition (e.g., availability of resources and overall financial health) related to the entrepre-
neurial orientation of public organizations?
Organizational scholars have examined the effects of resource availability on organizational outcomes in myriad
contexts. For instance, researchers have looked at slack resources, or the availability of extra resources, as a predictor
of innovation (Damanpour 1991; Berry 1994; De Vries et al. 2016). While researchers agree that the existence of fis-
cal slack is important for innovation, there is some debate about the direction of this relationship (Nohria and Gulati
1996, 1997). Our study builds on these studies to explore the relationship between resource availability and entre-
preneurial orientation in local government. Specifically, we move beyond the measure of fiscal slack (extra resources)
and leverage financial condition to better capture different types of resource availability. Financial condition is an
indicator of the financial health of an organization and provides a more comprehensive picture of resource availability
by measuring its ability to meet financial obligations over different time horizons.
We proceed as follows. First, we discuss entrepreneurial orientation in public organizations. Second, we examine
competing theoretical perspectives with respect to the relationship between change in an organizations financial
condition and its entrepreneurial orientation. Third, we test our hypotheses with two primary sources of data: a
nationally representative survey of local government managers conducted in 2012 and government-wide financial
data taken from 2008 to 2014 Comprehensive Annual Financial Reports (CAFR). Fourth, we present our results. We
find that weakened financial condition, signalled by decreases in unabsorbed resourcesa sign of limited resource
availability and poor financial health in the shorter termis associated with a more entrepreneurial orientation among
government managers. We conclude with a discussion of the findings and what they mean for research and practice.
2.1 |Organizational entrepreneurship
While early entrepreneurship research focused on the role of individuals as sources of new ideas, products, and inno-
vations, Miller (1983) conceptualized an organization-level construct. Organizational entrepreneurship reflects that
there is continually a need for organizational renewal, innovation, constructive risk-taking, and the conceptualization
and the pursuit of new opportunities(Miller 1983, p. 770). Organizational entrepreneurialism has gained traction in
the public management literature (Shockley et al. 2006; Currie et al. 2008; Kim 2010; Langer et al. 2017) as public
agencies and local governments are increasingly called upon to find new ways to improve performance and enhance
value for the public (Hood 1991; Osborne and Gaebler 1992; Kettl 2002).

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