The Role of Entrepreneurship and Innovation in the Growth of an Economy - Coursework Example

ENTREPRENEURSHIP By Name Institution Lecturer Course Date Introduction The role of entrepreneurship and innovation in the growth of an economy is extremely evident such that entrepreneurship and innovation are now being recognised as the major economic drivers. The history of entrepreneurship and innovation dates back to the Industrial Revolution era. Indeed, entrepreneurship and innovation are profoundly considered as the primary driver behind Industrial Revolution (Aundretsch, Keilbach & Lehmann 2006). People wanted to speed up the production process by changing the way things were done. There were major changes in practically every field including Agriculture (for example the emergence of Agricultural Machinery), manufacturing (a prominent ancient entrepreneur/innovator was Henry Ford) and clothing among others. Since then, people have ever been in search for enhanced speed, efficiency and effectiveness; consequently, there ever new ways of doing things. While entrepreneurship and innovation are clearly unending processes, scholars have continuously in search for more understanding of the concepts of entrepreneurship and innovation. In the effort to contribute to the search for answers in these two concepts, this paper applies alternate theories, concepts and tools to outline the key elements of contemporary entrepreneurship and innovation as they apply to the development of the individual characteristics associated with effective entrepreneurs. Entrepreneurship and Innovation Explained This section defines and explains the two key terms to be used in the rest of the paper. Entrepreneurs are defined as people who have a desire to change the way things are done. They are quick to note unmet needs, identify opportunities and then take the necessary actions to exploit the opportunity. Bessant and Tidd define entrepreneurs as people who have the motive power that enables them to come up with ideas and then turn ideas into realities (2015). Innovation, on the other hand, is identified as a tool for entrepreneurship. While innovation is driven by entrepreneurship, it is a crucial part of innovation. Bessant and Tidd define innovation as “a process that can be organised and managed” (2015: 12). Examples of innovation is a new way of growing crops which reduces production costs, a new service which satisfies some unmet needs and a new way of marketing and selling products and services, which increases sales at reduced expenses. In short, innovation is change, which is a core part of entrepreneurship because entrepreneurship is about changing the way things are done, of course for the better. Innovation and entrepreneurship are processes with clearly identifiable steps. The four key steps include: opportunity recognition; getting the required resources; idea development; and capturing the value (Bessant & Tidd 2015). This is clearly shown in the process model shown in figure 1. Figure 1: Entrepreneurship process model showing the various steps through the entrepreneurship process (Bessant & Tidd 2015) The recognition of the opportunity is the first and a fundamental aspect of entrepreneurship. Successful entrepreneurs are people who are able to recognise opportunities fast before others do. There are numerous sources of opportunities, some of which might be so invisible such that only entrepreneurs are able to recognise them. Some of the sources of opportunities include unmet market needs, dissatisfaction with current conditions, changes in regulations and laws, and an action by a competitor or a desire to make things better. As Niammuad, Napompech and Suwanmaneepong (2014) note, effective entrepreneurs know very well that the market is ever dynamic; as such, they keep on looking for new opportunities to exploit despite how small some of them may be and then take necessary steps to exploits identified opportunities before competitors do so (Niammuad, Napompech & Suwanmaneepong 2014). Chukwujioke, Benapugha and Oriarewo (2013) also note that effective entrepreneurs are constant learners. Learning and consequent constant identification of opportunities makes the entrepreneurship process a continuous process as shown in the improved process model in figure 2 Figure 2: Improved entrepreneurship process model showing that learning facilitates continuous identification of opportunities, which in turn makes entrepreneuship a continuous process Source: Bessant and Tidd (2015) Entrepreneurial Factors: Source and Success Personal, social and environmental factors affect entrepreneurial activities including the genesis of entrepreneurial spirit and the success of an entrepreneurial effort. The entrepreneurial learning concept helps in outlining some of the most prominent entrepreneurial factors by explaining how entrepreneurs recognise opportunities, exploit opportunities and achieve success while others are unsuccessful. Entrepreneurial learning is fundamental to entrepreneurial success. The importance of learning in the field of entrepreneurship is based on the link between entrepreneurial learning and opportunity recognition (Chia 2008) as well as between entrepreneurial learning and venture creation (Watkins-Mathys 2015). Indeed, entrepreneurial learning has been found to facilitate opportunity recognition (Chia 2008) while increasing success in new business ventures (Chia 2008). According to Rae (2007), entrepreneurial learning involves learning how to recognise opportunities and consequently act on them. In a more summative way, entrepreneurial learning increases entrepreneurial success. Learning, in the context of entrepreneurial learning, is construed in terms of the ability to notice instead of just seeing, the ability to scan and browse instead of just looking or gazing at things and the ability to scan but not just gazing at things. Entrepreneurial learning skills help entrepreneurs to see things from a deeper insight than they appear through critical analysis. This analysis helps entrepreneurs to identify opportunities while other people only see problems. Entrepreneurial learning is comprised of three themes, which include contextual learning, negotiated enterprise and personal and social emergence as shown in figure three. Figure 3: an entrepreneurship learning model showing the three themes in entrepreneurial learning Source: Rae (2007) Each of the three themes in entrepreneurial learning is described below with an explanation of how it relates to the ability to identify opportunities and act on them. Personal and social emergence This theme is concerned with learning how to become an entrepreneur. This theme is comprised of five sub themes. The first one is narrative construction of identity or the search for the question “who am I?” The second sub theme is identity as practice, which involves striving to understand what a person does shape his or her identity. The third sub theme is family role, which involves understanding the relationship between a person and family relationships. The final sub theme is the tension that arises between the current and the future (desired) identity, which involves understanding of the relationship between dissatisfaction with the current identity with entrepreneurship. Figure 4 below shows the sub-themes of personal and social emergence Figure 4: The four sub themes of personal and social emergence Contextual learning Another way through which entrepreneurs identify opportunities for exploitation is through contextual learning. Contextual learning is a learning approach which encourages a holistic learning strategy whereby learners collect and synthesise and analyse information from a wide range of disciplines, sources and viewpoints (Johnson 2002). Contextual learning encourages critical thinking and knowledge transfer because it encourages learners to apply theoretical knowledge into real problem solving cases (Johnson 2002). The application of contextual learning into entrepreneurial learning involves the application of what an entrepreneur knows theoretically to solving real life problems, which consequently results to opportunity identification and exploitation. There is a number of ways through which contextual learning facilitates opportunity recognition. According to Rae (2007), there are three ways through which entrepreneurs identify opportunities through contextual learning. The first one is when an entrepreneur operates within a certain environment such that he/she gains experience in the environment (industry or community) (Rae 2007). This occurs when, for example, an entrepreneur starts a business venture within his/her career field or within the industry within which he was employed. An example is when an electrical engineer starts a business venture within the electrical engineering field to solve a particular problem. The second way through which contextual learning helps entrepreneurs to recognise opportunities is through participation, which occurs when one has participated in a certain field for quite long so that he/she has sufficient experience in the field (Rae 2007). Consequently, it is easy for such a person to know where gaps exist. For example, a community health worker may realise that a certain community has health needs which have not been met and thus starts a business venture or comes up with an innovation to meet the needs. The third way through which entrepreneurs and innovators recognise opportunities through contextual learning is by trying to actualise the theories of entrepreneurship and innovation (Rae 2007). In the process, the entrepreneur tries to find out what is best for him or her and in the process they become entrepreneurs. The concept of contextual learning is summarised in the model shown in figure 5, which shows how entrepreneurs recognise opportunities Figure 5: How entrepreneurs identify and act on opportunities through contextual learning Source: Rae (2007) Negotiated Enterprise Successful entrepreneurs have a realisation that a successful venture develops with time through establishing and cementing internal and external relationships. Internal stakeholders include employees, management and investors. For success to be realised, entrepreneurs have to ensure that people within the organisation have a common and well established culture comprised of shared goals, meaning, values and beliefs (Rae 2007). The common culture facilitates collaboration, which in turn results to the achievement of a shared vision (Karatas-Ozkan & Chell 2010). External stakeholders, people around the business venture include suppliers, customers, financiers (such as banks) and the government. Entrepreneurs build and maintain strong relationships with these people upon the realisation that they are extremely important in entrepreneurial success. For example, a new venture that does not have strong working relationships with suppliers may find it difficult to achieve its vision because if suppliers terminate their supply contract with the business, the business cannot continue with its operations. The ability to create and maintain relationships is therefore an important entrepreneurial trait which highly effective entrepreneurs exhibit. According to Boone and Kurtz (2011), interpersonal interaction is one of the factors determining entrepreneurial success. People with social competence, those who are able to create and maintain working relationships with others, have been found to make good entrepreneurs (Boone & Kurtz 2011). Business relationships not only help the business venture to be successful, but also facilitate entrepreneurial learning and consequently opportunity recognition (Rae 2007). For instance, how can an entrepreneur identify an unmet market need if he/she (or the organisation) does not support strong relationships with customers? The stakeholder theory is very useful in entrepreneurship especially in detailing the importance of analysing and identifying major business stakeholder and consequently maintaining good working relationships with all the stakeholders. The stakeholder theory argues that “if we adopt as a unit of analysis the relationship between a business and the groups and individuals who can affect or are affected by it, then we have a better chance to deal with business problems” (Freeman et al. 2010: 5-6). Consequently, the application of the stakeholder theory in entrepreneurship helps entrepreneurs to understand how to relate properly with all the business stakeholders for the success of the business. Figure 6: Negotiated enterprise Source: Rae (2007) The entrepreneurial learning model explained above outlines some of the factors affecting entrepreneurship. While some factors are external, others such as social competence are personal attributes, which a person can develop over time to become an effective entrepreneur. The section that follows now concentrates on some more personal attributes of effective entrepreneurs. Characteristics of Entrepreneurs While entrepreneurs are not born that way or do not possess special genes which other people do not, effective entrepreneurs posses some unique character traits. Effective entrepreneurs are not born with these traits but some of them develop them through mentorship. For instance, studies indicate that effective entrepreneurs are most likely to be brought up in families where one or both parents were entrepreneurs such that they develop entrepreneurship traits through observation (Freeman et al. 2010). Research into the field of entrepreneurship outlines some key personality traits of entrepreneurs, which include being inquisitive, self-motivated, reliable, intelligent, passionate, honest, courageous and flexible (Yildiz 2012; Maas & Jones 2015). Entrepreneurs are visionary people, have the desire to achieve, are optimistic, have high energy, tolerate failure, tolerate ambiguity and have internal locus of control (Nga 2010; Boone & Kurtz 2011). The section that follows explores all these traits of entrepreneurs with the application of relevant tools, theories and models. Entrepreneurs are Creative People The recognition of an opportunity is one thing and the exploitation of the opportunity to create value is another thing. Creativity means the ability to come up with new and interesting ideas, which help solve problems through the introduction of new goods and services or simply come up with innovative ways of doing things (Maas & Jones 2015). Creativity, according to Boone and Kurtz (2011), is what helps entrepreneurs to recognise problems; when others see problems, entrepreneurs see opportunities. Creativity is also what helps entrepreneurs to create value out of problems or challenges. Creativity also helps entrepreneurs to appreciate negative comments from customers because they know they have been given a golden opportunity to improve the product or service and in so doing attract even more customers. Vision Entrepreneurs are visionary people. A vision is also known as an aspiration, imagination or a dream. By definition, a vision is an overall idea of the future of a person or a business venture. Once they develop a vision, entrepreneurs then pursue their vision passionately such that every step or decision they make aims at helping them realise the vision. Arguably, a vision is the mother of every invention in the world. In fact, according to Boone and Kurtz (2011), entrepreneurs were often called ‘crazy’ people because their ideas were often seen to be crazy or unrealisable. High levels of energy When an entrepreneurs is regarded to as being crazy, it clearly shows that their visions are so great that other people find it unrealisable and hence crazy. Therefore, entrepreneurs must dedicate a lot of time and effort by working extremely hard in order to realise their visions. For instance, starting a business is not an easy undertaking requiring vast amount of work and effort in planning and working often for extra long hours. Entrepreneurs who try to start their own ventures alongside their day-to-day work (employment) find themselves spending long hours of work because they have to work at their regular day jobs and later spend their nights and weekends trying to start up their ventures. It is estimated that starting up a new venture takes about two years of full-time work, which requires entrepreneurs to work in the tune of 50 hours and over per week (Boone & Kurtz 2011). Quite often, entrepreneurs work alone or with very few people during the initial stages of the new business venture. One of the reasons for working alone or with a small staff is to bring down startup costs in order to ensure that the business venture is successful (Boone & Kurtz 2011). The other reason is that some entrepreneurs want to have time with the new business so that they learn it quite well before leaving it in the hands of managers. This strategy implies that the entrepreneur must have a lot of energy to work for the new venture tirelessly to ensure a successful business start-up. Entrepreneurs are People in Search for Achievement This attribute combines optimism, high levels of energy, self confidence and being visionary. Once a vision is set, entrepreneurs are optimistic that they will achieve their vision and will therefore be successful. They usually have a strong competitive drive that encourages them work hard towards achieving their vision despite the challenges they may come across such as constant failures (Stokes, Wilson & Mador 2010). Entrepreneurs also believe in their capability, which makes them fearless in going through highly risky undertakings. This trait demonstrates high levels of self confidence and optimism. Without optimism, entrepreneurs would trend very cautiously, which would discourage them from pursuing some extremely risky ventures. However, because they are highly optimistic that they will be successful and that their otherwise crazy ideas will materialise, they are ready to risk their time, money and other resources to pursue the journey of uncertainty. It is worth noting that entrepreneurship is often surrounded with so many uncertainties. For instance, how sure is an entrepreneur that the new service, which might have spent so much before launching, will attract customers? What if another person is working on a similar idea? Of course, the high level of optimism that entrepreneurs have is usually not unfounded because even if entrepreneurs are high risk takers, they usually take well calculated risks. Consequently, even if failure is part of the entrepreneurship equation, chances of failure is quite well known to them including factors which may contribute to failure such that they work towards reducing failure and hence maximising chances of success. The high level of self confidence inherent in entrepreneurs is a major entrepreneurial asset although it may pose a major risk. As Locke and Baum (2012) notes, some entrepreneurs are so confident that they see what they want to see but not what is actually is. Believing that one is the driver of his or her own destiny is very good and admirable but when the destiny is too ideal to be true may result to waste of resources pursuing to make a destiny that will never be. This is where being overconfidence on self ability or being too optimistic is risky for entrepreneurs because they might end up ‘chasing the wind’. Although it was earlier noted that sometimes entrepreneurs are considered to be crazy people for having ‘crazy’ ideas, Locke and Baum (2012) warn entrepreneurs to exercise some bit of self control to ensure that they only invest their resources in entrepreneurial projects that will highly likely materialise. Indeed, Baron (2014) outlines this self control as one of the characteristics of successful entrepreneurs and a notable factor for the entrepreneurial success. Self control helps entrepreneurs to think critically on the recognised opportunity having set aside optimism and self confidence so that they can evaluate whether the opportunity is worth exploitation or necessary actions required to ensure successful exploitation of the opportunity. An entrepreneurship process model developed by Rae (2007) shows the importance of self control in the early stages of entrepreneurship. As shown in figure 7, planning is to be done after careful consideration of the opportunity and the idea. Figure 7: entrepreneurship process model outlining the various activities and steps of the entrepreneurship process. Consideration and reconsideration of the opportunity and the idea must be done in depth before the entrepreneur gets into the planning phase. Entrepreneurs have a high level of tolerance to ambiguity As already noted, entrepreneurship journey is full of uncertainties. Not every idea that an entrepreneur decides to actualise is successful and successful entrepreneurs know this very well. As such, they are not the kind or people who will very quickly retract and give up because the entrepreneurial journey has become too challenging. Instead, successful entrepreneurs have in them a calling that forces them to give it another trial by changing some things here and there instead of calling it a quit. For example, if an entrepreneur realises that his business is not making profits because of tough economic conditions, he may decide to reduce the packaging size and consequently the price per package so that customers can buy in smaller units instead of giving up. They do so because they are optimistic and that they believe they were created to excel but not to fail. Boone and Kurtz (2011) give an example of Gorilla Fuel & Lube. The founder, Robb Corwin, had established contracts with businesses to sell to them diesel and gasoline at a flat rate. However, gasoline prices rose unexpectedly such that the company found itself in a situation whereby it was selling fuel at a lower price than the buying price implying that every drop it was selling was bringing some loss to the company. Terminating the contract before the legal timeline would result to court cases. However, Robb Corwin did not give up. Instead, he decided to take a brave but risky action whereby he visited his clients in person and persuaded them to amend the terms of the contract because his business was selling fuel at a price lower than the buying price. He knew that he would destroy the reputation of his company but realised that saving the company from total collapse ranked higher than safeguarding the reputation of the firm. Fortunately, almost all his clients agreed to amend the terms of the contract, which enabled Gorilla Fuel & Lube to resume profitable business within six months. This is an excellent example showing how successful entrepreneurs respond to uncertainties in a creative and brave manner instead of crying foul. This is so because they have zeal for excellence and achievement. Conclusion Entrepreneurship is a journey characterised by high levels of uncertainties but successful entrepreneurs manage through because they have a clear goal enshrined in their vision. Entrepreneurs possess some unique energy which they dedicate to their entrepreneurial activities, and being optimistic that they will eventually be successful. They also realise that entrepreneurship is not a one-time process but a continuous process which calls for constant learning, recognising opportunities and taking necessary and speedy actions to exploit on the opportunities. Entrepreneurs turn problems into opportunities and then create value by creating a new product, service or come up with an innovative way of doing things. 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