Theories of Entrepreneurship

Theories of Entrepreneurship Jump to: Sociological Theories of Entrepreneurship Economic Theories of Entrepreneurship Cultural Theories of Entrepreneurship Psychological Theories of Entrepreneurship This essay aims at reviewing the development of the enterprise, entrepreneurs and entrepreneurship literature to date. Comments from various authors point to the fact that this area, both as an area of study and an area of research, is relatively new when compared with other fields of business such as economics and business management. There are however a multitude of theories that have been propounded to explain the developments in the area. These theories, their assumptions and pronouncements will be reviewed and critiqued in this essay. The concepts of enterprise, entrepreneurs and entrepreneurship will be discussed in the first section. The subsequent section shall review major or leading theories in the area and the third section shall look at the development of the event management industry, the relevance of entrepreneurship within the area of event management and the role entrepreneurship has played in the development of the industry. A supplement to this essay shall look at the skills an entrepreneur should possess from the perspective of different authors. A brief self assessment of my own skills will be made and indications of how I plan to develop these skills in the future will be highlighted. Enterprise Thefreedictionary.com defines an enterprise as an undertaking especially one of some scope and risk (www.thefreedictionary.com). Other online dictionaries on google.com use words and phrases like a bold, a difficult, a dangerous, an important, a business venture, a company, requiring courage, energy, dedication to describe what an enterprise actually is. Veblen (2005) in his book, the theory of business enterprise gives a more subtle description of what an enterprise really is (in the business sense). He notes that the motive of business (an enterprise) is pecuniary gain, the method is essentially purchase and sale †¦ the aim and usually the outcome is the accumulation of wealth (p. 16). This contention about the motive, the method, the aim and the outcome of an enterprise qualifies the former definition. The insight drawn from these phrases is that literally all establishments on the high streets today and all the ways in which people try to earn a living is one form of enterprise or another. It could range from big businesses such as public companies through partnerships to family businesses and sole proprietorships. The event management industry for example is composed of several event management enterprises. These are mainly partnerships and private limited companies formed and managed with the goal of turning a profit. Exam ples include OWL Event Management LTD and Innovative Event Management. These comprise organizations where individuals come together to provide a service to individuals and other businesses in return for a profit. Entrepreneurs Congruent with the definition of an enterprise, one can contend that an entrepreneur is that person who runs, manages or owns an enterprise. This statement however does not fully describe who an entrepreneur really is. Arthur and Sheffrin (2003) regard an entrepreneur as a person who possesses a new venture, a new enterprise or a new idea, assumes responsibility for the risks involved in running such a venture or enterprise or pursuing his idea and enjoys the benefits and outcomes from such activity. The recurrent theme in Arthur and Sheffrins view of an entrepreneur is new which in the literature refers to innovation. As the subsequent discussions will indicate, Innovation is a central theme that runs through the entrepreneurship literature and practice. There are other views on this issues which will be expounded on shortly. The act of being an entrepreneur is referred to as entrepreneurship. Both terms are therefore closely related and there is no marked distinction in the literat ure between them. The discussion on entrepreneurs will therefore be culminated with entrepreneurship for simplicity and clarity. Entrepreneurship Baron and Shane (2008) contend that there is no single agreed definition of entrepreneurship either as an activity or a field of study. They acknowledged that the definition of entrepreneurship introduced by Shane and Venkataraman (2000) is one with high popularity. Shane and Venkataraman (2000) define entrepreneurship as a field of business aimed at understanding how opportunities for innovation in terms of new products, services, markets, production process, raw materials, ways of organizing existing technologies, arise and are discovered (or in fact created) by individuals (entrepreneurs), who develop and exploit these opportunities through different ways to produce a wide range of effects (Baron and Shane, 2008). Baron and Shane, (2008) support this definition by emphasizing that entrepreneurship involves identifying an opportunity that is potentially valuable in the sense that it can be exploited in practical business terms and yield sustainable profits†¦ and actually exploiting or developing this opportunity (p. 5). They extend this definition by emphasizing the need to be able to run the resulting business successfully after the opportunity is developed. Early entrepreneurs in the event management industry recognized the need for a service- event management. The history of humankind is marked with celebrations-man is a social being. People always come together, mainly temporary, to achieve certain goals under a time limit. This raised the need for effectiveness in these meetings which today is ensured by the event management industry. The growth in entrepreneurship Baron and Shane (2008) present startling statistics revealing that over a million new businesses were started in the US over a 10 year period with over 10 million people being registered as self employed. The growth in entrepreneurship has been attributed to three main factors. Baron and Shane (2008) argue that three factors have spurred growth in entrepreneurship through the 20th and 21st centuries. These include the media, fundamental changes in employment contracts and change in basic values (p.9). These conform to theories of social change discussed above. The media has put entrepreneurship in a positive light with many entrepreneurs such as Bill Gates, taking up role model positions in the world. In terms of the employment contract, the writers argue that workers are increasingly seeking for independence and freedom. Employers also employ strategies to hire and fire with ease in order to cut costs. This has made entrepreneurship a safety hob for most individuals. Theories on entrepreneurs and entrepreneurship Several theories and a continuum of approaches have been developed over the years to describe entrepreneurs and to explain the development of entrepreneurship. Deakins and Freel (2009) surmises major contributions and view points held in the area. Deakins and Feel (2009) contend that an entrepreneur has been considered as an innovator (Schumpeter), an organizer of factors of production and a catalyst for economic change (Say, Casson and Cantillon), a highly creative individual (Shackle). Ucbasaran et al (2001) reviews the development of entrepreneurship literature and contends that various themes or lines of enquiry can be identified in the building of entrepreneurship theory. These include: entrepreneurs personalities, backgrounds and early experiences; entrepreneurs traits; behavioral aspects of entrepreneurs; cognitive processes in decision making; and heuristics (Ucbasaran et al., 2001). Below, I review some of the early contributions in this area under four different umbrellas; sociological theories, economic theories, cultural theories and psychological theories. This classification is pervasive in the literature (Ucbasaran et al., 2001; Deakins and Freel, 2009, Mohanty, 2005). Sociological theories Several theories have been advanced to explain how social factors affect the growth of entrepreneurs. Two established theories have been recurrently discussed in the literature; the theory of religious beliefs and the theory of social change. These theories explain how sociological factors accelerate the growth of entrepreneurs (Mohanty, 2005). Theory of religious beliefs Max Webber was a famous sociologist and political economist of German origin. His writings in the early 20th century have tremendously influenced sociological, religious and political thinking today. His books have been recompiled and republished. In his book the theory of social and economic organizations edited by Parsons (1964) Webber asserts that entrepreneurship is a function of religious beliefs and the impact of religion shapes the entrepreneurial culture (p. 36). He argues that entrepreneurial energies are exogenous i.e. they are come from external factors, and are fuelled by religious aspects (p.37). Webber argues that the rise of capitalism in Northern Europe was due to the protestant theology which inspired many followers to engage in work, open up enterprises, accumulate wealth and make investments. This he calls the spirit of capitalism (Parsons, 1964). One factor spurring the creation of businesses in his theory is the inducement of profit, where people are motivated by the prospects of making a profit from their enterprise (Parsons, 1964). His theory proposed in a nutshell that, the Spirit of Capitalism arising from the protestant ethic therefore combines with the motive of profit resulting in the creation of many businesses. Needless to say, this theory has received heavy criticism over the years from contemporary researchers mostly based on the assumptions on which the theory was built (Karotayev et al., 2006). Karotayev eta l., 2006 for example noted that the promotion of literacy, education and learning by the protestant movement rather than the protestant ethic in itself resulted in the capitalism through the development of enterprises. Another yet related sociological theory of entrepreneurship was advanced by Everett E Hagen in his Theory of social change. He asserts that economic growth resulted from political and social change (Karotayev et al., 2006). His model shows that an entrepreneurs creativity was the main ingredient and driving force behind social transformation (change) and economic growth (Karotayev et al., 2006). Other social theories include theory of entrepreneurial supply advanced by Thomas Cochran and theory of group level pattern propounded by Frank Young (Mohanty, 2005). Economic theories Schumpeters Theory of innovation In his theory Schumpeter describes innovation as the central feature of economic development and an entrepreneur as the driver of change (Sweezy, 1943, Mohanty, 2005). He defines an entrepreneur as someone who perceives the opportunity to innovate by forming new enterprises (Sweezy, 1943, Mohanty, 2005). He views innovation as a form of creative destruction which is process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one (Sweezy, 1943, p. 95). The concept of creative destruction has been widely used in practice to refer to a situation where something new and more advanced replaces and destroys its predecessors. For example, Oil replacing Coal. The concept of innovation has been maintained as the core of entrepreneurship today. Innovation has been extended and expanded to include several aspects such as the introduction of new goods, the improvement of the quality of existing goods, the introduction of a new (cheaper, faster, more efficient) method of production, the discovery or opening of a new market, the discovery of a new source of raw material supply and/or the formation of a new organization (Burns, 2007, 2008, Gray, 1995, Lowe and Marriott, 2006). Schumpeterian theory of entrepreneurship furthered that big companies were mainly behind the drive of entrepreneurship as they had the resources and capital to engage in research and development activities (Sweezy, 1943). Schumpeter later complemented this position by contending that small companies were also drivers on entrepreneurship because their size allowed for flexibility and agility (Sweezy, 1943). The relationship between size, innovation and entrepreneurship has not seemingly been further established in the empirical literature. His position became controversial when he argued that both big and small companies are in the best position to innovate. This implies that size does not moderate innovation capacity. Some researchers criticize the stance of Schumpeter based on his assertion that individual business men as well as directors and company managers were all entrepreneurs. This stance undermines the role of risk, taking, creativity, idea generation, and innovativeness as an integral part of entrepreneurship (Baron and Shane, 2008, Shane and Venkataraman, 2000). Again, Schumpeter uses innovation as the foundation of his theory asserting that innovation was the main driver of entrepreneurship. This point is also subject to criticism as it uses innovation as a sole defining quality of an entrepreneur while undermining the role of risk taking, technical skills and organization abilities as key factors for entrepreneurship (Ward, 2005). Proponents of sociological and cultural theories of entrepreneurship will argue that this theory is limited in its view of the subject as it does not explain why entrepreneurship and entrepreneurial ability varies greatly across countries. Other economic theories of entrepreneurship include Knights theory of profit and Hayeks theory of market equilibrium (Mohanty, 2005). In the theory of profits, Knight views an entrepreneur as someone who takes risks and is exposed to uncertainty (Mohanty, 2005). FH Von Hayek in his theory of market equilibrium showed that market equilibrium is characterized by the absence of entrepreneurs. Though relevant these subsequent theories have not taken the pride of place in the literature. Cultural theories The basic tenet and argument put forward by cultural theorists is that entrepreneurship is a product of culture (Mohanty, 2005). Cultural theories of entrepreneurship explain the differences in entrepreneurial ability and spirit across different cultures. The major attraction of these theories is that they explain why some countries are underdeveloped while others develop and grow so rapidly. Other theorists mentioned above such as Schumpeter and Hagen have no explanation of this occurrence. Hoselitz theory of entrepreneurship supply Mohanty (2005) noted that Hoselitz theory posits that the supply of entrepreneurship is governed by cultural factors and culturally minority groups are the spark plugs of entrepreneurial and economic development (p. 49). This attempts to explain why certain socio-cultural groups have spurred development and small business growth in many countries; Mohanty (2005) quotes the examples of the Jews and the Greeks in Medieval Europe, the Indians in East Africa and the Chinese in South Africa. These culturally minority groups have been at the forefront of enterprise development, entrepreneurship and economic growth in these areas. Hoselitz was one of the earliest theories to contend that managerial skills as well as leadership abilities in addition to the drive to amass wealth were key to entrepreneurship (Mohanty, 2005). His theory is also in line with Max Webbers concepts of the protestant ethic and how it drives capitalism. This is through the realization that particular socio-cultural groups or classes foster economic growth through entrepreneurship. Hoselitz realizes the role of change as a stimulus for innovation in his Hypothesis of the marginal men (Mohanty, 2005). He posits that marginal men are best suited to make creative adjustments in times of economic change and through these adjustments are able to introduce better ways through genuine innovations in social behavior (Mohanty, 2005). The theory seemingly presents a holistic view of entrepreneurship by considering the influence of factors such as change, innovation, culture, social class, managerial as well as leadership skills, personal traits etc. Other cultural theories of entrepreneurship include Stokes theory of entrepreneurship (Mohanty, 2005). Psychological theories Psychological theories look at how the psychology of the society influences the supply of entrepreneurs (Mohanty, 2005). Although this strand of theories is not popular in the literature, it has received significant contributions from Schumpeter, Krunkel and Carland (Mohanty, 2005). Other theories One of the most esteemed management scholars of the last century was Peter Drucker. Incidentally, Drucker has contributed colossally to the development of the entrepreneurship theory and literature. He has written several papers over the years which have led to the advancement of knowledge in this area. Peter Drucker defined an entrepreneur as one who always searches for change, responds to it and exploits it as an opportunity (Deakins and Freel, 2009). His focus is on the attitude of an entrepreneur and how he views the world around him. Drucker notes that two factors lead to entrepreneurship; resource and innovation. He argues that innovation creates resource†¦ and resource is anything with an economic value (Mohanty, 2005; Deakins and Freel, 2009). The main contribution of Drucker is his view that an entrepreneur must not be the owner or creator but he who manages or executes is also an entrepreneur. His works point out aspects that can be considered as entrepreneurship which include; increasing customer satisfaction from a resource, increasing the perceived value of a resource, creating new value from an old product, converting a material into a resource, combining existing resources into a new and more productive configuration (Deakins and Freel, 2009). Drucker extends the view of entrepreneurship to non profit organization while emphasizing that the practice has a knowledge base, with concepts and theories and is not based on intuitions (Mohanty, 2005). Controversially, Drucker argues that entrepreneurship behavior rather than personality traits spurs and enhances entrepreneurship (Mohanty, 2005). Several writers in the area have argued against this point presenting empirical evidence to show that there is a high correlation between certain types of personality traits and entrepreneurship behavior (Ward, 2005). Druckers contributions still remain significant. Entrepreneurship as a process Baron and Shane, (2008) have extensively reviewed the literature on entrepreneurship building on early theories and propositions and have arrived at what they term the entrepreneurship process. This process involves a series of steps that a successful entrepreneur will take. Their model includes steps such as; Recognition of an opportunity, Deciding to proceed and assembling the essential resources, Launching a new venture, Building success and managing growth, Harvesting the rewards (Baron and Shane, 2008). The writers advocate a more holistic view of entrepreneurship from idea recognition through development. In their view, opportunities for innovation are external and they arise from three sources; Technological changes, political and regulatory change, social and demographic change (Baron and Shane, 2008). In conformance with the view of other writers such as Drucker, the researchers recognize various forms of innovation including; a new product or service, a new way of organizin g, a new market for existing products, a new method of production and a new raw material. This view is widely accepted and can be classed as contemporary as it is widely promoted in current entrepreneurship literature. Enterprise, Entrepreneurs and Entrepreneurship in the Events management industry (1000 words) Events management generally refers to managing event projects i.e. applying project management techniques to the management of events. Ramsbord et al., (2008) noted that event management involves several project management aspects such as brand analysis and consideration, analysis of event audience, creation of an event concept, planning and coordinating the event delivery. The authors also noted that other aspects such as event appraisal and event profitability are growing in significance as part of the event management concept. An event means several things to different people and variations will develop in terms of size of the event, the event audience, the significance of the event, the frequency of the event, the location of the event and the potential revenues to be generated from the event etc. In the context of event management however the word event takes a multitude of meanings. It includes corporate events such press conferences, other business conferences, corporate meetings (such Annual General Meetings), corporate anniversaries and product launches amongst others. It also includes corporate marketing programs such as opening of business sites and road shows. Events in this sense may also refer to corporate hospitality events such as award ceremonies, fashion shows, movie premieres, music concerts, music launches. It can refer to national events such as National days and sporting meets (Olympics, world cup, champions league games and English premier league games). Bowdin et al., 2006 reviewing se veral concepts of events resolved that an event is an organized occasion such as a meeting, convention, exhibition, special event, gala, dinner etc. which is composed of several yet different functions. They assert that it is temporary in nature, it is unique and it stems from management, program, setting and people (p. 14). Aspects involved in event management as noted by Bowdin et al., 2006 include venue surveys, site design, budget drafting, supply chain and logistics management, cash flow management, project scheduling, materials procurement, health and safety, technical aspects (sound, light, video), security and crowd management. As noted above, post-event appraisal and event profitability are increasing growing as a significant part of the event management discipline. This also constitute major concerns for entrepreneurs. The view of classical theorists such Webber and Schumpeter shows that profitability is that main push behind entrepreneurship. The business of event management is relatively new when compared to other businesses such as retail and transport. Recognition for the need for an event management service it self indicates entrepreneurship. Before too long along, event organizers had to manage the event without the need for any professional and experienced organizer. Today many organizations can outsource event management to professional organizations which have the skills, experience and resources to run such events. This has tremendously improved the success of events. Within the events industry several innovations have been made over time. Sign-Up Technologies, a small US firm has recently released its eticketing system which allows event promoters to sell tickets and collect customer information online. This eliminates the need for third party retailers who charge high commissions. It also expands the markets by allowing customers to easily access markets. The introduction of sophisticated video and sound technologies and new practices in stage design allows event managers to expand the capacity of events while ensuring that the customer experience and the quality of the event is not hampered. This helps to improve profitability. The use of new sophisticated surveillance and monitoring equipment has improved the cost incurred by event management companies. An Irish Event Management Company, EventSec LtD uses a mobile monitoring system that allows it to reduce manning at events (cutting costs) but improve security through effective and efficient monitoring. EventSec LTD has also found a new market for its product and has now worn a contract to engage in traffic management OWL Event management LTD current has gained fame in the events management industry through its use of contemporary technology in lighting, sound and video to improve the event experience of its customers. The firm also liaises actively with other firms to provide bespoke catering, security, cleaning and more services. This business model innovates by combining different resources in a configuration that serves a need. This comprehensive event management model improves the customer experience. OWL Event Management LTD also realized that exhibition stands where sometimes an important factor drawing potential customers towards exhibitionist. The design of exhibition stands has for a long time been taken for granted by firms. Most firms use stands that provide sitting space, a table and a shade. OWL Event Management has introduced its new range of stands which it provides to its customers. These stands are attention grabbing through their bespoke designs, their contemporary curves and th eir eye catching lighting. The firm argues that these stands keep visitors glued to exhibitionists thus facilitating the message delivery. The demand for these set up has helped the firm improve its profit position. SECTION B A reflection on my current entrepreneurial skills and  traits, and a discussion on how I plan to develop these in the future Entrepreneurial skills The literature and research in the area highlights several skills, traits, personalities and characteristics which should be possessed by successful entrepreneurs. One of the most holistic view of these has been provided by Ward (2005) in An integrated model for entrepreneurship and entrepreneurship. Ward (2005) asserts that entrepreneurs require a personality, technical skills and behavioral skills in order to be successful. The desired or winning personality traits according to his model include; Risk tolerance, Self confidence, Achievement oriented, Proactive, Innovative, vision, flexibility, high energy, uncertainty tolerance, Desire for autonomy, assertiveness, resilience, tenacity, self awareness, creativity, capacity to inspire and emotional stability. These personality traits help in the generation of winning ideas. These must be matched by technical skills and behavioral skills which will enable the entrepreneur to transfer these ideas to viable businesses through the establishment and management of the enterprise. As indicated by the model, the technical skills involved include; marketing, finance, business planning, strategic planning, human resource management, production management, legal issues, logistics management and quality management (Ward, 2005). The behaviora l skills involves include; communications, judgment, negotiation, creativity, decision making, delegation, customer-supplier relationship, motivation, problem solving and team working (Ward, 2005). The model indicates that all three types of skills are necessary for effective entrepreneurship. The model also shows that several external factors combine with these skills to determine the outcome of an entrepreneur. These external factors include, opportunities in the market place which may arise from uncertainty or changes (Ward, 2005). The model shows that the availability of resources in the external environment coupled with the entrepreneurs control over such resources moderates the outcome. Such resources include the other factors of production such as material, land, building (Ward, 2005). Self assessment; A reflection As an individual, I strongly believe that I am creative and innovative. I have always questioned the way things are done and thought of better ways of doing certain things. I adopt a proactive approach by thinking ahead. I am open-minded, flexible and always happy to embrace change. I am not dismayed by uncertainty but find uncertainty but find change and uncertainty as an opportunity to break the status-quo and enjoy new experiences. I will confidently say I fit Wards (2005) personality profile of an entrepreneur. With respect to technical skills, I have expounded my knowledge in several areas of business through my course learning and additional external reading. Despite my broad knowledge in the field of business, I am still unconfident about taking my ideas to the next level because I feel I lack the experience to by successful. I call this inertia. Most of my ideas only remain in my head. I am sometimes impressed with myself when my friends comment on how good my business ideas are. I however lack technical knowledge in legal issues and my knowledge on human resource management and logistics management needs to be improved. As concerns behavioral skills, I think I am a good communicator. This has helped my in my studies in building relationships with friends and creating alliances at work. I am good with team working and have been successfully involved in minor business negotiations. At certain times, I let my emotions get in the way of my negotiations and do end up regretting some of the decisions I make. I am working on being firm in my decision making and negotiations. I lack sufficient experience on certain areas such as delegation, motivation and problem solving. Plans for future development I plan to hone my entrepreneurial abilities by actually engaging in small scale ventures. I am currently setting up a small venture with a friend. The initial stages have involved drawing a business plan and meeting up with potential suppliers and customers. We have carried out market surveys and have taken a look at factors such as logistics, marketing, distribution and financial reporting. This experience has opened up my horizons and given me an insight of what entrepreneurship is all about. I also get very constructive feedback from my business partners. This helps me to amend and improve certain issues. Concurrent with the assertion of Ward (2005), external factors seem to play a huge role to the success of entrepreneurs. Some of the ideas, we have conceived cannot be implemented due to the lack of resources. Certainly, this current venture will not be my last or my best but it will allow me to develop my skills in the area. Aside from this, I also read books and listen to speeches from motivational writers and famous entrepreneurs. This inspires me to pursue my dreams as an entrepreneur.