1.4 entrepreneurial innovation

7/30/2019 1.4 Entrepreneurial Innovation

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Entrepreneurship

DEEPAK BAJAJ


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Entrepreneurial Innovations

SESSION IV

Chapter I Entrepreneur & Entrepreneurial Management


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ENTREPRENEURIAL INNOVATIONS

Innovation: The Schumpeterian Model Conventional image of the innovative entrepreneur is some

one who operates with new products and new processes.

Entrepreneurial innovation is generally understood asproduct and process innovation not only by layman but byentrepreneurs themselves.

A study has revealed a surprise that even entrepreneurswould not consider themselves innovative unless they didsomething new with their product or process.

Researchers and scholars have recognized the widerramifications of the concept of entrepreneurial innovation.

One of the best known and accepted definitions ofentrepreneurial is by Schumpeter (1934), which covers thefollowing five areas of entrepreneurial action:


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Introduction of a new good, that is, one with whichconsumers are not yet familiar, or of a new quality of aproduct.

Introduction of a new method of production, that is, one

not yet tested by experience in the branch ofmanufacture concerned, which need by no means befounded upon a discovery significantly new, and can alsoexist in a new way of handling commodity commercially.

Opening of a new market, that is, a market into which theparticular branch of manufacture of the country inquestion has not previously entered, whether or not thismarket has existed before.

Conquest of a new source of supply of raw materials, or

half-manufactured goods, again irrespective of whether,this source already exists or whether it has first to becreated.

Carrying out of a new organization of any industry, likethe creation of a monopoly position (for example through

trustification) or the breaking up of a monopoly position.


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As per Schumpeters words there is very little dispute thatentrepreneurs secure competitive advantage or a temporarymonopoly (in the words of Schumpeter) for their enterprisethrough innovations performed in the above-mentioned areas.

It has, however, been lately observed by some scholars thatinnovations in a few other areas also can secure suchcompetitive advantages for entrepreneurs.

In the samples examined for a study, there were many who

were not doing new things in the conventionally recognizedareas of product, production process, market and so on.

There were however, innovations in some other uncharteredareas like mobilizing financial resources, obtaining, developingand retaining manpower & in organizing activities of the

enterprise. It may be noted that even though these entrepreneurs are not

innovative in traditional recognized areas, they areeminently innovative entrepreneurs.


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There is thus a need for broader definition of entrepreneurialinnovation. Conceptually, we would accept entrepreneurialinnovation as anything new undertaken by an entrepreneur

that enhances the competitive advantage of his/herenterprise.


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TYPES OF ENTREPRENEURIAL INNOVATIONS

A study of 138 entrepreneurs has been conducted by aresearcher to identify, specify & classify possible areas ofentrepreneurial innovation through empirical studies.

The research study revealed that first four of the fiveSchumpeterian categories were quite common. There washowever, no case of innovation in industry organization, whichis the fifth category in Schumpeterian model.

Since the study focused on the start-up phase of enterprises, itis likely that these entrepreneurs were not powerful enough atthat time to influence the industry organization. Besides, thelaws against restrictive grouping of the industry are morestringent these days, than during the time of Schumpeter.

It was therefore natural that industry organization was not anarea of action for the present day innovators.


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In addition to the innovations in the four Schumpeteriancategories, innovations were found in areas of

Securing financial resources,

Structuring the work organization,

Obtaining, developing and retaining skilled personnel,

Building a suitable organizational culture, developing,testing and commercializing new ideas (R&D function) &

Managing the interface with government and other externalagencies.

The types of innovations observed in the cases along with the

percentage of their occurrence are shown in the table below.


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S. No. Type of Innovation Sample Percentage (N = 138)

1. Market/Marketing Innovation 84

2. Product Innovation 74

3. Process Innovation 48

4. R & D Management Innovation 43

5. Supply/Supply source Innovation 36

6. Personnel Innovation 31

7. Finance Innovation 30

8. Cultural Innovation 29

9. Structural Innovation 27

10. Government Related Innovation 21

Table 3.1


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Three most popular innovations (namely, market/marketing,

product and process) also figure in the Schumpeterian list,though not in the same order.

In identifying innovations the study adopted a broaderdefinition of innovation, according to which an innovationneed not evolve absolutely novel ideas, policies, and/or

actions. Relatively novel ones that is, those which are novel in the

local context may also create temporary monopolies for theenterprises and enhance their competitive advantage andhence would qualify as entrepreneurial innovation.


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Market/Marketing Innovation

Market related innovations are the most popular of all the

types This is probably because many entrepreneurs who happened

to enter the field with conventional products/processes foundit difficult to survive without some kind of market-relatedinnovativeness in the market.

Moreover, inclusion criterion for market-related innovation inthe study was made broader than that of Schumpeter forwhom it was restricted to opening of new market, whereasin the study, not only finding new market was included, butalso innovative operations in existing markets were included.

Innovations in the marketplace can take several forms. Thecommonest one is the Schumpeterian type ofdiscovering arelatively new market.


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Second type of market-related innovation is that ofemploying new marketing strategies and techniques forselling existing products in existing markets. Such strategiesand techniques are many and varied and their effectiveness

depends largely on the specific requirements of the situation. Success of market related innovations depends primarily on

the entrepreneurs ability to perceive the total situationand design strategies suitable for them.


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Product Innovation

Product innovations relate mainly to modification of existingproducts and/or introduction of locally new products.

Any new products not available locally and introduced in themarket like new electronic items, beauty aids and otherconvenience goods fall in this category.

These products are considered novel only with reference tothe local market.

Cases of product modification range from modifyingcommercially available day-to-day items to suit local needsor style to innovating a new product based on availabletechnology and local skills.

In most cases when modifications in the product are being

made to conform to local needs, to make it cheaper orproduce it using locally available skills, changes desired in theproduct necessitate a change in process also.


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Process Innovation

Process innovations are undertaken by Indian entrepreneursfor one or more of the following reasons: -

To overcome hurdles posed by patent protection of anestablished process, the modification of which might takeit outside the purview of the patent laws.

To make use of locally available skilled labour, or of adifferent quality of raw material which is locally

available and therefore is cheaper and easier to procurecompared to the imported one originally prescribed forthe process.

To reduce the costs or improve quality or appearance inthe face of severe competition.

Product-induced process changes are fairly common. In a fewcases, especially of chemical products, the processes aremodified because of the non-availability of or harmfulness ofan input or intermediary product.


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R & D Management Innovation

Inspite of very few formal R & D set-ups in India, entrepreneurialventures are the ones who showed a sustained interest indeveloping and commercializing new ideas.

It quite often happens that an entrepreneur perceives the needfor new products and has the interest and competence fordeveloping and introducing them, but the resources for doing thisare controlled by large organizations or public agencies.

Entrepreneurs need to develop innovative ways of managing R & Defforts without having any formal infrastructure. The method oftheir operations in this regards may be characterized in general ascreative dependence.

Some entrepreneurs make use of semi-finished & unsuccessfulresearch of others. Others would borrow the facilities of larger

companies and educational institutions. A few entrepreneurs alsosponsor research projects selectively at universities orsubcontracted projects to professional researchers.

In this kind of R & D, while using the resources of others one tendsto lose control over ones big secret and protecting ones rights.


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Supply/Supply-source Innovation

A major form of supply source innovation is verticalintegration where an enterprise manufactures its own rawmaterial or subjects its own product to further processingand value addition. This is usually prompted by shortage ofsupplies or lack of demand in the market, for an intermediateproduct.

There have also been cases where costlier originallyprescribed materials have been substituted by cheaper andoften indigenous materials. Such cases may also call forinnovations in the manufacturing process, thus indicating therelatively high correlation between supply source innovation

and process innovation.


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Personnel Innovation

A close inter-relationship exists among the structural, cultural &personnel innovations. Starting ones own institute to develop acontinuous stream of trained personnel for ones own

enterprise, constructing and providing single personaccommodation near the work place to attract young unmarriedskilled personnel,facilitating and using skills of locally availablecraftsmen by providing them with required financial support, areall innovations related to personnel, which have positive

implications for organizational structure and culture, as well.Financial Innovation

Financial innovations related mainly to the mobilization offinancial resources from outside rather than to the managing ofsuch resources within.

Since the sources of finances for industrial and commercialactivities and the ways of mobilizing them are strictly regulatedand controlled by governmental authorities in India, it is seenthatpeople who were innovative about finances were alsoinnovative about managing the interface with government and

other external agencies.

C l l i


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Cultural Innovation

Some entrepreneurs made deliberate attempts at building adesirable culture within the organization.

One of them wanted a paternalistic culture and started payingattention to the personal and social needs of the employees.Loyalty became the most dominant feature of organizationsculture.

In another company, the entrepreneur wanted to create result-orientation within the company and so he started to deliberatelyignore non-performers and assign challenging tasks to highperformers.

An interesting thing is that he rarely offered them financialrewards to high performers; instead he made them feel theywere the most wanted people in the organization by assigning

them more challenging, difficult and prestigious tasks to them.

In a third case the entrepreneur wanted his enterprise todevelop a culture of human excellence. He started with aconventional product, but never defined his business around theproduct.


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Instead he defined his business around the people and theircapabilities and let the business evolve accordingly.

As a result the company very successfully diversified into

several apparently unrelated areas and is doing an excellentjob in all. This is because of the entrepreneurs mission wasto facilitate professional development and to give autonomyto professionals. He gave them so much say in the affairs ofhis enterprise that unlike in other family owned businesses,

majority of the board members were professionals fromwithin the company. The number was as high as ten out offourteen.

The policy of giving autonomy to professionals had paid richdividends. During a period of two years when the

entrepreneur was incapacitated due to ill health, thecompany performed as usual under a committee ofprofessionals. After all commented the top man, thepeople who run the company now ran it then.


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Structural Innovation

Innovation in how work is organized could enhance thecompetitive advantage of a enterprise.

E.g.flexible working schedules combined with a piece-ratewage system has been used by a few entrepreneurs toreduce wage costs and increase employee satisfaction andproductivity.

There are other entrepreneurs who made use of village andcottage industries for getting the components, orsometimes, the final products made, which worked out to bemuch cheaper than having ones own facilities for making allcomponents.

Notwithstanding these examples, structural innovations arefar fewer than most other types of innovations.

Government Relation Innovation


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Government Relation Innovation

In the context of a developing country where industrial andcommercial activities are tightly controlled by thegovernmental agencies at various levels, maintaining cordial

relations with such agencies becomes a critical issue for thesurvival and growth of the enterprise.

While most entrepreneurs are careful about avoiding directconfrontation with the authorities, some of them makedeliberate efforts in cultivating cordial relationship in

anticipation of future interaction.

It is a proactive approach compared to the special effortsmade (at time unethical) at the hour of need.

Since bureaucrats are a sensitive group, entrepreneurs have

to spend much of their precious time developing a properrelationship with them.

Realizing this, one entrepreneur started dealing with themthrough an agent, who in turn also served the function of abuffer to absorb any unpleasant interactions.


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1.4 entrepreneurial innovation

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