Entrepreneurial Profiles of Creative Destruction

Courage, Imagination and Creativity in Action

E. Carayannis, M. Stewart, C. Sipp, T. Venieris

• Publisher: Palgrave Macmillan
• Year: 2014
• Print ISBN: 9780230002036
• eBook ISBN: 9781137429834
• Topic: Business
• Subtopic: Business Strategy
• Index: Business

Entrepreneurial Profiles is intended to help students and practitioners of entrepreneurship think about what it takes to create a significant business, with focus on what it may take to create a successful and significant business.

1

Introduction and Definition of Terms

Elias G. Carayannis

Key issues

1. Most new businesses fail, all businesses ultimately fail—we will discuss meanings of “success” and “failure”—what do they mean and how do they play out?

2. We define “serious”—does it simply mean financial size or are there other measures of importance?

3. We define “entrepreneur”—are we really including new businesses established within existing corporations? If not, why not?

This work is intended to help students and practitioners of entrepreneurship alike to think about what it takes to create a significant business, not what it will take, because complexity, chaos and the fluidity of our changing environment dictate that the “requirements” of any particular business can, at best, be known only in part, not just at inception but at each stage as a company develops and evolves. Thus the focus here is on what it may take to create a successful and significant business.

Using the lamp of experience as its touchstone, this book looks to the creation and evolution of significant businesses, primarily in the United States. It will highlight past experience, best practice, and good and bad examples. The intent is to explore the analyses, assessments and decisions that the entrepreneur makes (consciously and unconsciously) and the range of questions that need to be answered when one sets out to build a significant business. The work will touch on the adequacies of existing management training and the reality that large corporate training and skills are often poor preparation for building a business from the ground up.

What is not intended here is to provide a roadmap or guidebook, or to systematize “entrepreneurship”—the authors believe that neither is rational as an approach to constructive ways of thinking about entrepreneurial activity or as guidance for entrepreneurs. The importance of particular individuals in creating new businesses, the evolutionary and chaotic basis of such creation, and the fluidity of the environment in which we now live make even an attempt to identify consistent patterns, processes or principles in the evolution of new businesses suspect. What can be identified are the range of questions and challenges that the entrepreneur faces and the skills that are needed to create and sustain an enterprise.

The intent of this volume is to open up the world in which the serious entrepreneur lives and the questions that they need to ask and answer—the issues of judgment

• of themselves;

• of their companies;

• of the world around them.

Equally important, this book is predicated on the idea that at this time, in the midst of one of the great economic and social revolutions in history, no entrepreneur can ignore that revolution when creating and growing a significant company. The technologies that underpin the nascent “information age” began to be applied about a half-century ago and it is unlikely that they will be relatively fully deployed for another half-century—and it may be decades beyond that before all of their first-order effects are felt. Given that context, any significant new business will need to accommodate change generated by that revolution—changes which have already occurred, changes which are occurring and changes which will only emerge as the company evolves. In short, the serious entrepreneur needs to think about their business in the context of the revolution and the fluidity that it imposes on the human environment.

This introduction will elaborate on all of these matters, provide a brief roadmap to the contents of the book, and take one example of a serious entrepreneur as an illustration. Each of the subsequent chapters will be built around lessons from entrepreneurial successes and failures.

Many see trends and accurately predict economic change—that skill is necessary and often sufficient for the investor, who then spreads their bets across a portfolio. That skill is necessary but insufficient for the entrepreneur, who must accurately predict the general trend, then build an enterprise that takes advantage of the specifics of change to succeed.

The key themes traced through the book are:

• the inevitability and importance of chaos¹ in the creation of a successful business;

• creative destruction² as the essence of entrepreneurial effort (if capitalism is creative destruction, then entrepreneurial enterprise epitomizes a furious cycle of creation and destruction);

• the evolutionary and organic nature of new business creation³ (countries and institutions are born, grow and die; few live more than a century or two, at most, and those that do transform themselves [e.g., Britain, Rome]);

• the relatively short lifecycle of businesses⁴ among human endeavors (companies and business organizations have the same characteristics—only their lifecycles tend to be much shorter, particularly in times of great change [social, economic and technological]; successful companies rarely survive more than a century, and usually only decades, with exceptions usually being family firms, which are closely controlled).

In addition to these defining themes, the book will constantly weave among a number of threads, the first half of which relate primarily to personal characteristics (1–4 below) or, to use an old-fashioned word, character, and the second half of which relate primarily to analysis and judgment (5–8):

1. risk-taking—managing and calculating risk;

2. creativity, inventiveness and innovativeness;

3. persistence;

4. leadership;

5. predicting change;

6. planning change;

7. responding to unplanned change;

8. coping with institutional resistance.

In closing, this book is an effort to better understand what makes entrepreneurs and entrepreneurship in an age of profound economic/business/social changes driven by a revolution in technology, and our examples and our discussion will focus on those changes and their implications for the evolving and globalizing knowledge economy and society that we are all part of.

Glossary of terms

There are no universally accepted, single definitions of many of the concepts examined in this dissertation. The following are abstracted for consistency and clarity, and presented alphabetically for ready reference.

Absorptive capacity

The ability to exploit external knowledge is a critical component of innovative capabilities. The ability to evaluate and utilize outside knowledge is largely a function of the level of prior related knowledge, starting with basic skills or a shared language, then also knowledge of the most recent scientific or technological developments in a given field. Thus prior knowledge confers an ability to recognize the value of new information, assimilate it and apply it to commercial ends. Collectively, these abilities constitute a firm’s absorptive capacity (Cohen & Levinthal, 1990).

The notion of absorptive capacity refers to the capacity of the recipient to assimilate value and use the knowledge transferred. Similar notions of “learning” have been defined as the acquisition and use of exciting knowledge and/or creation of new knowledge with the purpose of improving economic performance (Carayannis et al., 2006).

Braun (1997) introduces a conceptual model for knowledge flows that shows how a large company with high connectivity and an integrated infrastructure for information and knowledge exchange vis-à-vis communities of practice can lead to a higher level of trust, and subsequent innovation and competitive advantage. He identifies the critical factors to consider in terms of knowledge exchange between organizations as follows:

• adequate technology (infrastructure and data exchange);

• trust and cooperative relationships;

• common interest;

• exchange of tacit and explicit company knowledge for the public good of the company.

C3

Co-opetition, co-evolution and co-specialization (Carayannis, 2004, 2008a, 2008b; Carayannis & Gonzalez, 2003; Carayannis et al., 2006; Carayannis & Campbell, 2006, 2009) are constituent processes in the dynamics of strategic knowledge. Strategic knowledge co-opetition refers to the deriving of new knowledge through a healthy balance of competition and cooperation, involving employees and business partners. Strategic knowledge co-evolution is the creating of new knowledge through a series of interactions and changes at various organizational levels, spurred by the co-generation and complementary nature of that knowledge. Strategic knowledge co-specialization refers to the learning and knowledge that encourages individuals or groups to expand their roles into new areas and new domains in a complementary and mutually reinforcing way.

Chaotic fractal

Chaotic fractal is a geometric model of a natural dynamic phenomenon involving chaos, turbulence, mixing, and similar random influences. Using computer modeling, a three-dimensional representation of a chaotic fractal possesses a mathematical quality termed “strange attractor” wherein the pattern reiterates similarly but not identically around a variable periodicity, suggesting that even random natural phenomena are constrained, and disorder is channeled into patterns with some common underlying theme (Gleick, 1987).(See also Fractal and Fractal innovation ecosystem.)

Content analysis

Normally used by research methodologists to refer to the quantitative analysis of texts or images, content analysis is in practice often combined with qualitative thematic analysis to produce a broadly interpretive approach in which quotations as well as numerical counts are used to summarize important facets of the raw materials analyzed (Seale, 2004).

CoP

A community of practice (Carayannis et al., 2006) is a persistent, sustained social network of individuals who share and develop an overlapping knowledge base, set of beliefs, values, history and experiences focused on a common practice and/or mutual enterprise (Barab & Duffy, 2000). Wenger (2004) has identified three dimensions of communities of practice:

• domain: the area of knowledge that brings the community together;

• community: the group of people for whom the domain is relevant;

• practice: the body of knowledge, methods, tools, stories, cases, documents which members share and develop together.

Nonaka & Takeuchi (1995) state the importance of tacit company knowledge as the basis for CoP and transforming it into explicit company assets. Wender & Snyder (2000) give examples of successful CoP as both internal company networking groups and with members from different companies. The other stream within the knowledge-transfer research, interorganizational transfer literature argues that the outcome of knowledge transfer is highly dependent on the absorptive capacity of the recipient (Cohen & Levinthal, 1990).

Creative destruction

Coined by Schumpeter (1942), this is a term for the action and impact of free-market entrepreneurial innovations on the status quo of business and economic transactions:

Capitalism, then, is by nature a form or method of economic change and not only never is but never can be stationary. And this evolutionary character of the capitalist process is not merely due to the fact that economic life goes on in a social and natural environment which changes and by its change alters the data of economic action; this fact is important and these changes (wars, revolutions and so on) often condition industrial change, but they are not its prime movers. Nor is this evolutionary character due to a quasi-automatic increase in population and capital or to the vagaries of monetary systems, of which exactly the same thing holds true. The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers, goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates.

As we have seen in the preceding chapter, the contents of the laborer’s budget, say from 1760 to 1940, did not simply grow on unchanging lines but they underwent a process of qualitative change. Similarly, the history of the productive apparatus of a typical farm, from the beginnings of the rationalization of crop rotation, plowing and fattening to the mechanized thing of today–linking up with elevators and railroads–is a history of revolutions. So is the history of the productive apparatus of the iron and steel industry from the charcoal furnace to our own type of furnace, or the history of the apparatus of power production from the overshot water wheel to the modern power plant, or the history of transportation from the mailcoach to the airplane. The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U.S. Steel illustrate the same process of industrial mutation–if I may use that biological term–that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in.

(Schumpeter, 1942, pp. 82–83)

Carayannis et al. (2007, p. 25) elucidate further:

Schumpeter’s theory is grounded in the general equilibrium model of economics, which states that everything in the economy achieves equilibrium within the construct of the “circular flow.” While Schumpeter understood that a stationary equilibrium is possible, he believed that it was unrealistic, arguing that the entrepreneur or innovator is a critical factor in the dynamic capitalistic economy (Screpanti & Zamagni, 1993, p. 243). Schumpeter’s perspective highlights the entrepreneur as introducing new combinations of products, ideas, or methods into an organization’s business environment. These new combinations disrupt the equilibrium condition, forcing the organization to readjust and adapt itself to the new set of dynamics (Brouwer, 1991, p. 45). The entrepreneur’s income therefore arises from a departure from the traditional equilibrium: in other words, entrepreneurial profits originate from the consequences of the innovation.

Creativity

Creative style is correlated with more than 30 different personality traits (Gelade, 2002). The predominant personality indicators of creative style are conscientiousness, openness to experience, and extraversion, providing a basis for comparing the personality traits associated with creative style and occupational creativity. Innovators differ from scientists, having personality characteristics similar to those of artists, suggesting that artistic personality may be more unexpectedly common and that artistry and creativity have common factors.

Starting at the individual level, creativity may be defined as the capacity to “think out of the box,” to think laterally, to perceive, conceive and construct ideas, models and constructs that exceed or supersede established items and ways of thinking and perceiving (Carayannis & Gonzalez, 2003). Creativity is related to the capacity to imagine, since it requires the creator to perceive future potentials that are not obvious based on current conditions. From a cognitive perspective, creativity is the ability to perceive new connections among objects and concepts—in effect, reordering reality by using a novel framework for organizing perceptions.

Creative types such as artists, scientists and entrepreneurs often exhibit attributes of “obsessed maniacs” and “clairvoyant oracles” (Carayannis, 1998–2011, George Washington University Lectures on Entrepreneurship), as well as the capacity and even propensity for creative destruction that is how Joseph Schumpeter qualified innovation. Albert Scentzgeorgi, a Nobel Prize laureate, defined creativity as “seeing what everyone sees and thinking what no one has thought before.”

Dystechnia

This is a barrier to organizational performance—a condition of flawed or failed efficacy in the use, deployment or logistics of technology. Dystechnia occurs at every level: individual, team, firm, industry, region, nation and world. At the microlevel it is a diminished self-efficacy or technophobia personally experienced by an individual or team; at the mesolevel it is a disconnect among the critical organizational elements of people, culture and technology; and at the macrolevel it is a condition of suboptimal functioning in the sociotechnologic-economic network, where the yield from resources and the efficacy of transactional logistics are compromised by a latent demand for technological innovation (Carayannis & Stewart, 2007–2011; Stewart & Carayannis, 2011).

Endogenous economic growth

This is a theory of macroeconomics focusing on the behavior of the economy as a whole, emphasizing that economic growth (e.g., per capita income) is an outcome of internal factors arising from private and public sector choices that cause the rate of growth to vary across countries, and not the result of forces that impinge from the outside (Romer, 1994, p. 3). (See also New growth theory.)

Endogenous technological change

Romer (1986) introduced a revisionary economic model based on “endogenous technological ...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• List of Figures and Tables
• 1. Introduction and Definition of Terms
• 2. Theory and Literature
• 3. Obsessed Maniacs and Clairvoyant Oracles: Empirically Validated Patterns of Entrepreneurial Behavior
• 4. Dystechnia: A Model of Technology Deficiency and Implications for Entrepreneurial Opportunity
• 5. Knowledge-Driven Creative Destruction: Strategic Knowledge Arbitrage and Serendipity
• 6. Real Technology Options and Venture Creation
• 7. From the Zoo to the Jungle and Back in a Second: The Profile of a Serial Entrepreneur in Action
• Index