Innovation and Entrepreneurship

Mike Kennard

• Publisher: Routledge
• Year: 2021
• Print ISBN:
  9780367510572
• eBook ISBN:
  9781000421224
• Topic: Business
• Subtopic: Business General
• Index: Business

The effective management of innovation and entrepreneurship is vitally important for managers, organisations and governments. This concise textbook examines strategic approaches and concepts relevant for the effective management of innovation and entrepreneurship, supported by practical insights from a variety of industry sectors.

The book:

• Identifies the key challenges and dilemmas faced by managers and executives charged with leading, stimulating and sustaining innovation within large complex organisations.

• Explores the critical factors that drive entrepreneurial venture creation and growth, including the search for opportunities, the management of risk and the evaluation of alternative funding sources.

• Considers how innovation and entrepreneurship can be facilitated through the development of technology, knowledge, intellectual property and networks.

Each chapter includes an essential summary of the key points, a practical example focusing on innovation and entrepreneurship in action, discussion and reflection activities, as well as further reading suggestions.

Innovation and Entrepreneurship provides a practical and concise introduction for executive education students studying MSc and MBA apprenticeship programmes, as well as supplementary reading for postgraduate students studying modules on Innovation and Entrepreneurship.

1 What are innovation and entrepreneurship?

Essential summary

1. 1 Innovation and entrepreneurship are closely interrelated concepts. Although there are no universally accepted definitions, the following are proposed for the purpose of this book:
   1. Innovation is the process that generates value through the creation, development and implementation of new ideas, technologies, products, services and business models.
   2. An entrepreneur is an individual who identifies an opportunity and undertakes to start and grow a new innovative venture to benefit from the opportunity.

So, entrepreneurs are innovators, and innovators can be entrepreneurs.

1. 2 One of the most influential scholars to shape the field of innovation and entrepreneurship is the Austrian economist Joseph Schumpeter, who developed two competing models. The Mark I model proposed that incumbent companies are under threat from new innovative firms through a process of ‘creative destruction’. The Mark II model proposes that incumbent companies have the size and resources necessary to successfully innovate, and it is the newer, smaller firms that are at a competitive disadvantage. Empirical evidence suggests the two models may in fact be complementary.
2. 3 Innovation and entrepreneurship drive economic growth. The seminal research of David Birch demonstrated that job creation in the United States is driven by small, innovative high-growth firms termed ‘gazelles’. In contrast, large slow-growth firms that find it difficult to innovate, termed ‘elephants’, are vulnerable to new innovative competitors. This means innovation and entrepreneurship are crucial areas for both organisations and government policymakers.

Definitions of innovation and entrepreneurship

You will perhaps be unsurprised to learn that there are no universally accepted definitions of innovation and entrepreneurship in either the academic or practitioner communities.

From the academic perspective the continuous development, exploration and expansion of the field provides a rich literature of ideas, insights and arguments. In our field it is perfectly acceptable to have multiple (and sometimes opposing) views which are equally valid and valuable.

From the practitioner perspective innovation and entrepreneurship will mean different things to different organisations operating in different contexts. In my view this is positive, giving scope to shape definitions which resonate within the specific organisation.

Definitions of innovation

The origin of the word innovation comes from the Latin ‘innovare’, translated as ‘to make something new’. This central theme of ‘new’ is core to definitions of innovation.

For example, the UK government define innovation as:

The successful exploitation of new ideas.

The Organisation for Economic Co-operation and Development (OECD) define innovation as:

New products, business processes and changes that create wealth or social welfare.

The noted scholar Professor Everett Rogers defines innovation as:

An idea, practice or object that is perceived as new.

And Harvard Business School’s Professor Scott Anthony offers the succinct:

Something different that has impact!

For the purpose of this book I propose the following definition:

Innovation is the process that generates value through the creation, development, and implementation of new ideas, technologies, products, services and business models.

For commercial organisations value may be expressed in metrics such as increased market share, revenues, profit or shareholder returns. For public sector organisations value is focused on improved efficiency and enhanced service delivery.

Processes need to be managed, and therefore innovation is a management task. This can come as something of a surprise to many organisations. Some believe innovation is a mysterious phenomenon that occurs randomly as a series of ‘light bulb’ moments. Others believe innovation can be achieved by throwing copious amounts of money into a room full of boffins, coffee and whiteboards and then standing well back. A few organisations believe innovation is not required at all and instead focus on relentless cost-cutting. They then receive an unpleasant surprise when their customers eventually leave for innovative competitors who can better serve their needs.

To give a stark illustration of this, data from the Kauffman Foundation indicates that around 50% of Fortune 500 companies drop out of the index every ten years. Some failed, some merged, some were acquired, some were broken up and others simply failed to keep up with the required levels of growth to maintain their position—overtaken by new innovative competitors. What is clear is that despite their substantial advantages in the market the everlasting upward trajectory of success their directors and shareholders expected simply did not happen. It is primarily for this reason that innovation is a critical factor that needs to be actively managed by organisations.

Definitions of entrepreneurship

Where does entrepreneurship fit in? When we read or hear the word ‘entrepreneur’ we immediately think of individuals who have started and run successful businesses, such as Sir Richard Branson, Sir James Dyson, Steve Jobs, Mark Zuckerberg, Jeff Bezos, Elon Musk and the panel on Dragons Den. But providing an actual definition is much more difficult.

Professor Peter Kilby famously compared attempts to define entrepreneurs as hunting the elusive Heffalump in the Winnie the Pooh stories:

He has been hunted by many individuals using various trapping devices, but no one so far has succeeded in capturing him. All who claim to have caught sight of him report that he is enormous, but disagree on his particulars.

The origin of the word entrepreneur comes from the French ‘entreprende’, translated as ‘to undertake’. The word entrepreneur was first used in the 18th century by economist Richard Cantillon, who viewed an entrepreneur as a ‘risk taker’. The French economist Jean-Baptiste Say later developed the word entrepreneur to mean ‘adventurer’ and ‘one who undertakes an enterprise’. Since then various economic schools of thought have emerged, including the Austrian School, British School, German School and American School.

Entrepreneurs are not simply business owners; they utilise innovation to identify and exploit new opportunities. According to Peter Ducker innovation is ‘the tool of the entrepreneur’. In this context a working definition we will use for this book is:

An entrepreneur is an individual who identifies an opportunity and undertakes to start and grow a new innovative venture to benefit from the opportunity.

So, entrepreneurs are innovators, and innovators can also be entrepreneurs. In addition, managers and staff within an established business can operate with an entrepreneurial approach, identifying and developing new business opportunities. This is sometimes termed ‘intrapreneurship’ or ‘corporate entrepreneurship’.

It is for these reasons the concepts of innovation and entrepreneurship are integrated within this book and are a vital management discipline, whether you want to start and grow a new business, develop new opportunities for an existing business, defend against competitive threats, improve public services or enhance sustainability and develop wider societal benefits.

Creative destruction: Schumpeterian perspectives on innovation and entrepreneurship

The Austrian economist Joseph Schumpeter is possibly the most influential figure in the development of our understanding of innovation and entrepreneurship. Schumpeter held a Professorship at the University of Bonn and emigrated to the United States before the onset of the Second World War to join Harvard University. Schumpeter proposed two models to demonstrate how innovation and entrepreneurship drive economic growth, his Mark I Model and then later a less influential (but still valid) Mark II model.

Mark I model

Schumpeter’s Mark I model proposes that new firms emerge using innovation to disrupt markets and threaten the position of existing firms. These new firms are founded by entrepreneurs and compete not on price but by creating one of five sources of significant change:

• Introducing new products or making an improvement to an existing product.
• Creating new markets, particularly export markets in new territories.
• Securing new sources of raw materials or semi-manufactured goods.
• Developing new methods of production that have not yet been validated.
• Creating new types of industrial organisation, particularly if the new organisation leads to the formation of a monopoly.

Schumpeter’s view of an entrepreneur is someone who has the ability, vision and determination to bring about these significant changes and threaten the viability of incumbent firms. In this respect entrepreneurs are different to business owners and salaried managers who undertake ‘routine’ work. Crucially, entrepreneurs use innovation to create change and disrupt markets.

Schumpeter envisioned what he describes as a cycle of ‘creative destruction’, where the creation of new entrepreneurial firms causes the destruction of established firms that can no longer compete. This cycle of creative destruction drives economic growth, although as more firms enter the market there will be a gradual erosion of profitability until the next wave of innovation occurs.

Creative destruction is sometimes referred to as ‘waves of creative destruction’, the ‘winds of creative destruction’ or ‘Schumpeter’s gale’ (‘Schumpeter’s wind’ not sounding quite right somehow).

Mark II model

And then he completely changed his mind! Schumpeter developed his Mark II model while a professor at Harvard University, arguing that it is in fact the large incumbent organisations that have the capabilities and resources required to drive innovation and economic growth, with small start-ups unlikely to be able to compete. In this model the entrepreneur is not someone who starts their own business but rather is an employee or manager of a large organisation that behaves in an entrepreneurial way, that is, by utilising innovation to drive change.

So which model is correct? I would suggest that they are in fact complementary. There are many examples of the Mark I model at work. For example, Apple, Microsoft, Google, Dell, Starbucks, Walmart, Facebook and Ryanair are all firms created by entrepreneurs that grew rapidly to disrupt existing markets. On the ‘destruction’ side of the equation large corporate failures include Nortel, Kodak, Texaco, Kmart, and MG Rover Group.

Yet there are many large organisations that have survived (and have in fact prospered) for decades, for example, General Electric, Boeing, Ford, Procter & Gamble, DuPont and Shell. What separates successful organisations from the failures is the ability to retain their entrepreneurial spirit and innovate. Effective innovation management is therefore a key capability for both new and incumbent firms.

Elephants, mice and gazelles: the economic i...

Table of contents

• Cover
• Half Title
• Series
• Title
• Copyright
• Contents
• About the author
• Preface
• Acknowledgements
• 1 What are innovation and entrepreneurship?
• 2 Ideas, opportunities and creativity
• 3 New venture start-up and growth
• 4 Developing and sustaining innovative and entrepreneurial organisations
• 5 Knowledge Management, collaboration and User-Centred Innovation
• 6 Intellectual property and Open Innovation
• 7 Disruptive innovation and technology management
• 8 Strategic innovation management
• Further reading
• Index