This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.
The lack of consensus on the definition of entrepreneur and entrepreneur process makes it very difficult to present an over-arching theory of entrepreneurship. Most definition have focused on what the entrepreneur is (type of person or product of particular environment) and what the entrepreneur does (e.g. entrepreneurial process) (Kirby, 2003; Ebner, 2006; Montanye, 2006). Sirolli (2003) argues that entrepreneurs and entrepreneurship are very
difficult to define and it seems that there are as many definitions as there are books on the subject. The author suggests that entrepreneurship has two components: passion and skill. Passion refers to that all consuming dedication which is essential to the pursuit of any worthwhile activity. At the same time, passion by itself is futile. Skill is what complements passion by transforming passion into good work. Listed below are the more commonly cited definitions from various academic literature sources:
"â€¦the desire to found a new kingdom, the will to conquer and the joy to createâ€¦to destroy the existing economic equilibrium in an act of creative destructionâ€¦and to profit from the new order" (Schumpeter, 1934, cited in Westhead, 2002, p16).
"Any purposeful human being, seeking to better himself or herself who sees and exploits a temporary disequilibrium in the market" (Kirzner, 1973, cited in Westhead, p16).
"â€¦the ability to create and build something from practically nothing. It is initiating, doing, achieving, and building an enterprise or organisation, rather than just watching, analysing and describing one. It is the knack for sensing an opportunity where others see chaos, contradiction, and confusionâ€¦" (Kirby, 2003, p10).
"â€¦ manages the business for the principal purpose of profit and growth (Carland et al, 1984).
Of the above listed definitions, Schumpeter's definition is arguably the most widely cited/debated. Schumpeter's definition of entrepreneurship placed an emphasis on innovation, such as:
â€¢ new products
â€¢ new production methods
â€¢ new markets
â€¢ new forms of organization
Research by Gartner (1990) identified eight common themes in entrepreneurship. These are - the entrepreneur (his/her abilities and personality); innovation (for either existing or new firms); organisation creation; value creation, profit generation, growth, uniqueness, and the presence of owner-manager.
The issues relating to the complexity in the theory of entrepreneurship are more appropriately summarised by Amit et al (1993, p824; p815), "There is no doubt that a theory of entrepreneurship should, indeed, reflect a range of decision theoretic, economic, psychological and other dimensions. It is unclear, however, what core aspects of entrepreneurship should be reflected in such a theory and how the various perspectives can be effectively integratedâ€¦ it may be too ambitious to expect a complete and robust theory due to the interdisciplinary nature of entrepreneurship."
Entrepreneurship has been studied from a variety of disciplines, the main models some of which have been summarised Cunningham and Lischeron (1991, p47). The 'Great Person' School focuses on the entrepreneur as an individual with 'inborn' intuitive ability, with a sixth sense and traits and instincts with which he or she is born. The model relates mostly to start-up. The Psychological Characteristics School views entrepreneurs as having unique values, attitudes (risk taking), and needs (for achievements) that drive them. This model is generally associated with start-ups. The Classical School Theory argues that the central characteristic of entrepreneurial behaviour is innovation. The 'doing' process is more critical than the 'owning.' The behavioural skills are innovation, creativity and discovery. The model is applied to start-ups and early growth firms. The Management School model considers entrepreneurs as organisers of economic venture - they are individuals who organise, own, manage, and assume the risk. The key assumption is that entrepreneurs can be developed or trained in the technical functions of management. The model is applicable to the early growth and maturity stage of the firm. The Leadership School model considers entrepreneurs as leaders of people. These leaders have the ability to adapt their style to the needs of their people. The important assumption is the dependence of the entrepreneurs on others. The model is applied in early growth and maturity of the firm. The Entrepreneurship School argues that entrepreneurial skill can be useful in complex organisations. That is, entrepreneurship is the development of independent units to create, market and expand services. There is a need by organisation, to adapt in order to survive, and entrepreneurial activity leads to organisational building and entrepreneurs becoming managers.
The more popular and also current models of entrepreneurship are discussed below. First we begin with arguably the most popular theory developed by Schumpeter in 1934 and revised in subsequent years. Schumpeter suggests that an entrepreneur is a special person with the ability to bring about extra ordinary events. According to Schumpeter, wealth is created when such innovation results in new demand. Hence the implication of this is that the function of the entrepreneur would be described as that of combining various input factors in an innovative manner to generate value to the customer with the hope that this value will exceed the cost of the input factors, thereby generating superior/economic returns that result in the creation of wealth. Schumpeter argues that the entrepreneur is an innovator and brings about change through the introduction of new technological process or product, and that the overriding motive for entrepreneurial activity is the profit that may arise from being the first to innovate a particular activity or process (Ebner, 2006).
In economic theory, entrepreneurship is used to refer to the innovative activities that are performed by individuals or firms in conditions of uncertainty. There is also usually an explicit or implicit understanding that these activities can be either 'productive' or 'unproductive' as evaluated by some a priori chosen criterion (Adaman and Devine, 2000). There is therefore a certain amount of risk assumed by the entrepreneur. However, Schumpeter argues that the entrepreneur does not take risk; risk bearing is left to the financiers. Schumpeter argues that the entrepreneur finds it difficult to obtain finance and other forms of support because other people fail to understand the entrepreneur's new way of thinking about business or to change the old routines. An additional distinction made between the entrepreneur and the inventor is that inventions are actually economically irrelevant. For Schumpeter, the entrepreneur is different because "The ability to carry any improvement into effect is a task entirely different from the inventing of it, and a task, moreover, requiring entirely different kinds of aptitudes" This aptitude is particular to the entrepreneur.
Another theory of entrepreneurship puts forth the concept of endogenous change in which the entrepreneur, the underlying force in economic development, breaks away from the normally accepted path of doing business (Schumpeter, 1934 cited in Westhead, 2002). Schumpeter puts forward a scenario where under unchanging conditions goods of the same kind and quantity would be produced and consumed in each successive period, with
people abiding by their same choices based on previous experience. Schumpeter then brings in a new variable according to which change occurs, disturbing the smooth flow of economic life. Hence, according to Schumpeter, "It is the spontaneous and discontinuous change in the channels of the flow, disturbance of equilibrium, which forever alters and displaces the equilibrium state previously existing." From a profit perspective, entrepreneurial profit is a surplus over costs.
Opponents of Schumpeter's views such as Kirzner (1973) argue that conditions have changed significantly since Schumpeter set out his theory (Montanye, 2006). Kirzner is associated with the Modern Austrian Tradition, which suggests that the entrepreneurial activity element of decision making is, "â€¦alertness to possibly newly worthwhile goals and to possibly newly available resources." Kirzner's views are summarised by Loasby (1991, p20) as:
"In Kirzner's theme Competition and Entrepreneurship (1973) is the way in which market economy transforms private into public knowledge, and thereby allows the economy to evolve towards the kind of equilibrium that is modelled in orthodox economics. Kirzner's entrepreneur - who is very different to Schumpeter's - is alert to messages from the economy, which signals some failure of co-ordination, and therefore (as in orthodox theory), potential gains from tradeâ€¦"
Schultz's 1973 theory (Klein and Cook, 2006) posits that, "â€¦entrepreneurship is the ability to adjust or reallocate resources in response to changing circumstances. As such, entrepreneurship is an aspect of all human behaviour, not a unique function performed by a class of specialists." Schultz's conceives entrepreneurial activity as a form of human capital. This ability can therefore be increased through education, training, experience and so forth. Technological innovation can diffuse slowly and unevenly for other reasons.
Porter (1980, 1985, 1991) does not actually present a theory of entrepreneurship, but highlights a number of critical skills exhibited by the entrepreneur who owns a growing businesses. Porter's competitive strategy perspective focuses on the firm as opposed to industry performance. According to Porter, a firm's stock of resources reflects prior entrepreneurial and managerial choices, with managerial choices being related to the choice of strategy.
According to Sirolli (2003), the wealth of a country depends primarily on the capabilities of its people than the abundance of its natural resources. The ability to apply intelligence separates wealthy countries from poor countries. Historically, only those countries that have evolved social conditions favourable to their long term social, environmental and economic survival have managed to prosper and entrepreneurial activity was responsible for most of this.
In the very recent publication in the highly regarded MIT Sloan Management Review journal, Wolcott and Lippitz (2007, p75) present their "four Models of Corporate Entrepreneurship". The authors define corporate entrepreneurship as:
"â€¦the process by which teams within an establishment company conceive, foster, launch, and manage a new business that is distinct from the parent company but leverage the parent's assets, market position, capabilities, or other resources. It differs from corporate venture capital, which predominantly pursues financial investments in external companies."
Briefly, Wolcott and Lippitz's (2007) four models are - the Opportunistic model; The Enabler model; the Advocate model and the Produce model. According to the Opportunistic model, the company does not have a deliberate approach to corporate entrepreneurship. Instead, internal and external networks drive concept selection and resource allocation (e.g. Zimmer). In the Enabler model, the company provides funding and top executives' attention to prospective projects (e.g. Google). The Producer model posits that the company establishes and supports a 'full service' group with a mandate for corporate entrepreneurship (e.g. Carghill). Finally, for the Advocate model, the company strongly evangelizes for corporate entrepreneurship, but business units provide the primary funding (e.g. DuPont).
Wolcott and Lippitz (2007) vehemently argue that a company needs to be blessed with the right culture in order to innovate. Citing a few examples, Wolcott and Lippitz (2007, p.82) argue, "Unless a company is blessed with the right culture - and few are - corporate entrepreneurship won't just happen. It needs to be nurtured, as a strategic and deliberate act. The traditional isolated 'skunkworks' project is no longer the primary option for companies pursuing the creation of new businesses. Indeed as IBML Google, DuPont and others have shown, corporate entrepreneurship does not have to rely solely on serendipity and the grassroots efforts of a few 'project champions'."
To conclude on entrepreneurship theory, the brief review has highlighted that over time the focus on research into entrepreneurship has extended, as pointed out by Ucsbasaran et al (2001). Of particular interests over the last decade has been the role of government regulation as a constraint to entrepreneurial activity as pointed out by Acs and Szerb (2006).