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Entrepreneurship and innovation management
Milé Terziovski
Introduction
The traditional business model has changed in the past two decades. Information Technology has enabled organizations to reengineer their processes and therefore create flatter organizations. As a consequence, many redundant managers have been forced to consider other options, such as establishing an entrepreneurial venture. This chapter examines several definitions of innovation and entrepreneurship. The chapter provides the contextual variables that play a significant role in the entrepreneurial and innovation process, leading to successful commercialization of products and services.
Definitions of entrepreneurship
The word entrepreneur originates from the French word “entreprende,” meaning “to undertake” (Burgelman et al., 2005). There are many definitions of entrepreneurship in the literature. Schumpeter (1951/1976) defined entrepreneurship as:
In more recent times, Kuratko and Hodgetts (2004:30) defined entrepreneurship as:
Kuratko and Hodgetts (2004) explain the entrepreneurship process through an interdisciplinary approach by identifying four key areas that need to be addressed simultaneously:
1 Unique markets – entrepreneurs identify new market segments
2 Unique people – entrepreneurial ventures are built around special talents of one or more individuals.
3 Unique products – innovation of new products or services that capture new or existing markets.
4 Unique resources – ability of the entrepreneurs to harness resources such as land, labour, capital, and raw materials over the long term.
Based on the above framework, Kuratko and Hodgetts (2004:28) define an entrepreneur as a person who:
Drucker (1985) sums up very well by dispelling any myth that entrepreneurs are born with entrepreneurial capabilities: “It’s not magic; it’s not mysterious; and it has nothing to do with genes. It’s a discipline and, like any discipline, it can be learned.”
Definitions of innovation
There are many definitions of innovation in the literature. For example, Porter and Stern (1999) define innovation from a customer perspective as:
Kim and Mauborgne (1999) combine customer value with technology innovation with the term “value innovation.” Technology innovation without “value” does not necessarily address customer needs and expectations. For example, a new product may have technological excellence without being accepted in the market as having value for the customer. Value innovation addresses customer problems which may lead to a customized solution.
Based on the literature review we found that a global definition of innovation does not exist. There are different definitions of innovation that are appropriate under different circumstances. Therefore, we have articulated a definition of innovation for the purpose of this book as an application of resources to create value for the customer and the enterprise by developing, improving and commercializing new and existing, products, processes and services.
The above definition encompasses the entrepreneurial process as can be seen from the following discussion on the link between innovation and entrepreneurship (Kim and Mauborgne, 1999).
The link between innovation and entrepreneurship
Drucker (1985) explained the relationship between innovation and entrepreneurship, stating that:
Davis and Moe (1997) contend that without a mind-set change it would not be possible to develop and entrepreneurial/innovation culture stating that: “Business people must shed their short-term mindsets and expand their thinking into the future.” For example, highly innovative firms such as 3M, HP, and Motorola tolerate uncertainty and ambiguity. These firms create an innovative and entrepreneurial culture, and learn from their mistakes. The most basic requirement for entrepreneurial culture is “to sense the urgency to do it” (Burgelman et al., 2005).
Knowledge management capabilities as main driver for service innovation
Aranda and Molina-Fernandez (2002) present a model for determining innovation in service industries. Such a model is developed under the knowledge-based theory lens. The authors identify and analyse those relevant factors that foster innovation in service firms. According to Aranda and Molina-Fernandez (2002) knowledge management is the basic ingredient for the successful launch of new products and services.
Knowledge and its management are critical success factors in taking an idea to market through the various stages of the innovation process, which transforms tacit knowledge into explicit knowledge. For example, innovation in the service industry requires the integration of knowledge related to the service delivery system. Customer involvement in the service delivery system requires knowledge integration of front and back office activities (Aranda and Molina-Fernandez, 2002).
Synthesis
Innovation is a process of taking an entrepreneurial idea to market. A management paradigm shift is required for organizations to become more entrepreneurial and innovative. Managers must expand their mind-set and aim to create new customers as well as satisfy existing customers. A dual paradigm ensures that the “mainstream” provides the necessary cash flow to fund new ventures, products and services, in the “new stream” (Kanter, 1989; Lawson and Samson, 2001).
Chapter summary
Chapter 1 has provided definitions of innovation and entrepreneurship and establishes a link between the two. Based on the above discussion, we can deduce that entrepreneurship and innovation are strongly interrelated. Entrepreneurship comes under the wider aspect of leadership (Schumpeter, 1951/1976).
Chapter 2 explores the dynamics of corporate entrepreneurship in four arenas: strategic, political, managerial, and behavioural. After briefly reviewing the existing literature on corporate entrepreneurship, management and strategy theory, the authors propose a new theory of corporate entrepreneurship.
Chapter 3 considers the nature of decision making under uncertainty, entrepreneurial strategy, and the effects of over-optimism. It considers entrepreneurship as a process that couples investments with the gaining of information.
Chapter 4 complements the literature with concrete findings from a research study which develops innovation and entrepreneurship models in the public sector. The authors introduce a model covering the impact of four factors that foster entrepreneurial behaviour, on public sector employees.
Chapter 5 investigates the central question of how strategic management practices and organizational routines influence industry-level competitiveness of firms. Research findings reveal that entrepreneurially oriented organizations face greater growth p...
