unit 1 theories of entrepreneurship

8/12/2019 Unit 1 Theories of Entrepreneurship

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UNIT 1

ENTREPRENEURSHIPINTRODUCTION AND DEFINITION

MEANING OF ENTREPRENEURS

TYPES OF ENTREPRENEURSDIFFERENCE BETWEEN ENTREPRENEURS AND

MANAGERS


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MEANING AND DEFINITION

According to A Schumpeter Entrepreneurship is essentially acreative activity or it is an innovative function.

Entrepreneurship is usually understood with reference to individualbusiness, and has been identified with the individual as success ofan enterprise depends upon imagination, vision, innovativeness and

risk taking. Production is possible due to the cooperation of variousfactors of production, eg land,labour, capital, market, managementand of course entrepreneurship.

Thus entrepreneurship is a risk-taking factor which is responsiblefor the end result in the form of profit or loss.

Thus we can sum up that Entrepreneurship is the propensity of themind to take calculated risks with confidence to achieve apredetermined objective that is industrial or business objective.

It is the risk taking ability coupled with the correct decision making.


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MEANING AND DEFINITION OF

ENTREPRENEURS According to J.A Schumpeter a person who introduces innovation

changes is an entrepreneur. He is an integral part of economicgrowth and is the fundamental source of equilibrium.

According to Peter Drucker An Entrepreneur is a person who alwayssearches for change, responds to it and exploits it as an

opportunity. Innovation is the specific tool of entrepreneurs. According to H. Dantroff entrepreneur is a person who makes

decision under alternative course of action.

Thus an entrepreneur is an important input of economicdevelopment.He is a catalyst of economic development.

An entrepreneur is one who innovates, raises money, assemblesinputs, chooses managers and sets the organisation going with hisability to identify them. Innovation occurs through a new product,a new quality in a product, discovery of a fresh demand and a freshsource of supply.


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TYPES OF ENTREPRENEURS

Entrepreneurs have been broadly classified according to the type of business,motivation, professional skill, growth and stages of development.

According to the type of Business:

Business entrepreneursThey are those individuals who conceive an idea for anew product or service and then create a business to materialize their idea intoreality.

Trading entrepreneursIs one who undertakes trading activities and is notconcerned with manufacturing work.

Industrial entrepreneursIs essentially a manufacturer who identifies thepotential needs of customers and tailors a product to meet the marketing needs.

Corporate EntrepreneursIs a person who demonstrates his innovative skills inorganising and managing corporate undertaking.

Agriculture EntrepreneursThey are those people who undertake agriculturalactivities as raising and marketing of crops, fertilizers and other inputs ofagriculture.They are motivated to raise agriculture through mechanisation,irrigation and application of technologies for dry land agriculture products.


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TYPES CONTD.

According to the Use of Technology:

Technical EntrepreneursHe is essentially compared to acraftsman. He develops improved quality of goods due tohis craftsmanship.

Non Technical EntrepreneurAre those who are notconcerned with the technical aspects of the product.Areconcerned with developing alternative marketing anddistribution strategies to promote their business.

Professional EntrepreneurIs a person who is interested

in establishing a business but does not have interest inoperating or managing it once it is established.


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TYPES CONTD..

According to Motivation:

Pure EntrepreneurIs an individual who is motivated byrewards.

Induced EntrepreneurIs one who is induced to take up

entrepreneurial task due to the policy measures of thegovernment that provide assistance, incentives,concessions and necessary facilities to start a venture.

Motivated EntrepreneursNew entrepreneurs aremotivated by desire for self fulfillment.

Spontaneous EntrepreneursThese entrepreneurs starttheir business by their natural talent.They are persons withinitiative boldness and confidence in their ability whichmotivate them to undertake entrepreneurial activity.


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TYPES CONTD..

According to Growth:

Growth EntrepreneurAre those whonecessarily take up a high growth industry

which has substantial growth prospects. Super Growth EntrepreneursAre those who

have shown enormous growth of performance

in their venture.The growth performance isidentified by the liquidity of funds,profitability and gearing.


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TYPES CONTD

According to Stages of Development:

First Generation EntrepeneurIs one who startsan industrial unit by innovative skill. He is

essentially an innovator. Modern EntrepreneurIs one who undertakes

those ventures which go well along with the

changing demand in the market.

Classical EntrepreneurIs one who is concernedwith the customers and marketing needs through

the development of a self supporting venture.


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TYPES CONTD

According to area:

Urban entrepreneur-those from an urban setup

Rural Entrepreneur-Those from a rural set up.

According to gender and age:

Men and Women Entrepreneurs.

Others

Depending upon other qualities.


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THEORIES OF ENTREPRENEURSHIP

Theories of Entrepreneurship are broadly

classified into economic, psychological,sociological and cultural.

The phenomenon of entrepreneurshipdevelopment has been viewed explained andinterpreted differently by social scientists.

The concepts of entrepreneur and

entrepreneurship have been investigated fromeconomic, social, political cultural and managerial

points.


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THEORIES

THEORY 1An Economic Theory

Marc Casson in his book The Entrepreneur An EconomicTheory, presented a functional definition of entrepreneurand considered why the entrepreneurial function is sovaluable.

He emphasised that the demand for entrepreneurshipstems from the need to adjust to change.

Supply of entrepreneurship is limited firstly by the scarcityof requisite personal qualities and secondly by the difficulty

of identifying them when they are available. He suggested that there are four main qualities of a

successful entrepreneur of which one imagination is almostentirely innate, the other three may be enhanced.


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THEORIES

THEORY2 LEIBENSTEINS X-EFFECIENCY THEORY

This theory originally developed for another purpose, has beenapplicable to analyze the role of the entrepreneur.

Basically the X-Efficiency is the degree of inefficiency in the use ofresources within the firm. It measures the extent to which the firm

fails to realize its productive potential. X-Efficiency arises either because the firms resources are used in

the wrong way or either because they are not used at all.

Leibensteins identifies two main roles for the entrepreneur. Thefirst role is input completion which involves making available those

inputs which improve the efficiency of existing production methods. The second role is gap filling that is visualising the economy as a net

made up of nodes and pathways.


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THEORIES

THEORY-3 DYNAMIC ESHIP INNOVATION THEORY

A Dynamic theory of eshipwas first advocated by Schumpeter whoconsidered entrepreneurship as the catalyst that disrupts thestationary flow of the economy and thereby initiates and sustainsthe process of development. The entrepreneur activates the

economy to a new level of development. This he terms asinnovation and says that it has five functions

Introduction of a new method of production

Introduction of a new good

Opening of new market

Conquest of a new source of supply of raw materials

Carrying of a new organization of any industry.

His concept of innovation included the elements of risk taking andcoordination.


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THEORY

THEORY-4 HARVARD SCHOOL THEORY

According to the Harvard School entrepreneurship comprises anypurposeful activity that initiate, maintain or develop a profit-oriented business in interaction with the internal situation ofbusiness or with political, economic and social circumstances

surrounding the business. This approach emphasizes two type ofactivities: the organization or coordination activity and thesensitivity to the environmental characteristics that affect decisionmaking.

Another factor of the Harvard tradition is emphasized on activitiessuch as searching and evaluating economic opportunities ,

mobilising resources necessary for the production process,connecting different markets and creating or expanding the firm.

The essence of entrepreneurship consists in the alertness of marketparticipants to profit opportunities.


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THEORIES

THEORY-5 THEORY OF HIGH ACHIEVEMENT

Mc Clelland identified two characteristics of entrepreneurshipnamely doing things in a new and better way and decision makingunder uncertainty. He stressed the need for achievement as themost directly relevant factor for explaining economic behavior. This

motive is defined as the tendency to strive for success in situationsinvolving an evaluation of ones performance in relation to somestandard of excellence. People having high need for achievementare more likely to succeed as entrepreneurs.McClelland explains theentrepreneurs interest in profits in terms of a need forachievement. Profit is merely a measure of success and

competency for people with high achievement need. People withhigh achievement are not influenced by rewards as compared topeople with low achievement.


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THEORIES

THEORY-6 THEORY OF PROFIT

Knight identifies the entrepreneur as a recipient ofpure profit. Pure profit according to him, with regard tothe entrepreneur is bearing the costs of uncertainty. He

identifies uncertainty with a situation whereprobabilities of alternative outcomes cannot bedetermined either by reasoning. Reasoning is simplyirrelevant to economic situation involving a uniqueevent.

Knight argues that business uncertainty can be reducedthrough consolidation, it is a method of reducing totaluncertainty by pooling individual instances.


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THEORIES

THEORY-7 THEORY OF ADJUSTMENT OF PRICE

For Kirzner, the adjustment of price is the main role of theentrepreneur. If the wrong price prevails in the market,then an opportunity for profit is created somewhere in themarket if a frustrated buyer or seller is willing to pay ahigher price or accept a lower one. Then again if differentprices prevail in the same market, there is scope forprofitable arbitrage between the two segments of themarket.

Alertness is a distinguishing characteristic of anentrepreneur. It enables some individuals to intervene inthe market by changing the price while other individualssimply respond by changing their buying and selling plansdue to the new price.


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THEORIES

THEORY-8 HAGENS THEORY OF SOCIAL CHANGE

Everett Hagen in his work Theory of Social Change says that creativepersonality is an individual characterised by a high need for achievement.He views the entrepreneur as a creative problem solver interested inthings in the practical and technological realm, and driven by a duty toachieve.

Hagen considers the withdrawl of status as the trigger mechanism forchanges in personality formation. Status withdrawl occurs in the followingfour types of events:

Displacement of a traditional elite group from its previous status byanother traditional supply physical force.

Denigration of valued symbols through through some change in theattitude of the superior group.

Inconsistency of status symbols with a changing distribution of economicpower.

Non Acceptance of expected status on migration to a new society.

DISTINCTIVE FEATURES OF


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DISTINCTIVE FEATURES OF

ENTREPRENEURS AND PROFESSIONAL

MANAGERS Entrepreneurs and Managers are both answerablefor producing results. Both have to produce results

through people working with them, though they deal

with different sets of people. Both are decision makers but the decisions are

different as their tasks vary.

Both have to operate under constraints which are

understandably different.

To be effective both have to follow sound principles

of management like planning, staffing, delegation

and control.

DISTINCTION BETWEEN


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DISTINCTION BETWEEN

TRADITIONAL MANAGERS AND

ENTREPRENEURS Managers Entrepreneurs Are power motivated eg promotion Are goal oriented self

reliant,self motivated

Respond to quotas and budgets, End goals of 5-10 years Weekly, quarterly, next promotion growth as guides and

move furthar

Delegate action, supervising, Gets hands dirty, may

Reporting upset employees, by

suddenly doing their

work


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DIFFERENCES CONTD..

Managers Entrepreneurs

Professional training, often Knows business intimately

Business school trained, people more business acumen

People management, political skills than managerial or

political skill, often

technically trained

Attention mainly on events Attention mainly on

Inside the corporation technology and market

Risk-careful Likes moderate risks, but

invests and expects to

succeed


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DIFFERENCES CONTD


Has market study done to Creates needs and

Discover needs and products and products that often

cant be tested with

market research

Cares about status symbols Happy sitting on an

orange crate if job is done

Strives to avoid mistakes Deals with mistakes and

failures as learning

experiances


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DIFFERENCES CONTD.


Agrees with those in power Follows own vision,

decisive, action oriented

Sees system as protective,seeks may rapidly advance in a

Position within it system, and form a new

one if required

Pleases others Pleases self and

customers

Highly educated Less well educated in

earlier studies, but con

fident, self motivation


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INTRAPRENEURS

A new breed of corporate entrepreneurs has

come into force in large organizations.

They are called intrapreneurs, they are those

entrepreneurs who catch hold of a new idea

for a product, service, process and work to

bring this idea to success within the

organization.Intrapreneurs are considered asvaluable assets to the organization due to

their innovation and dedicated effort. They

can successfully start their own businesses

unit 1 theories of entrepreneurship

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