What is the relationship between entrepreneurship and innovation? Depending on which model you are considering entrepreneurship has a differing relationship with innovation. A couple of definitions out there that produce an entrepreneurial behaviour almost identical compared to that of innovation. Is there more to innovation than being entrepreneurial? Can entrepreneurship be defined by innovation? These are some questions I intend to answer throughout the essay and I'll examine and regulate how both are related, however large or small the relationship is. Up to 1 1 in 3 business start-ups fail within the first three years and with the quantity of start ups, 3 per minute in 2001, there's a lot of prospective, hopeful entrepreneurs looking to succeed in business but fail. What's the difference in characteristics between those that succeed and fail, will there be a differentiation and can the amount of innovation used by the entrepreneur effect the success of the business? I aim to come to a conclusion and answer many of these questions throughout and critically analyse differing theories.
Both of the terms tend to be used interchangeably with little knowledge of the differentiation between the two (David Johnson, 2001). My interpretation of innovation is the fact that it has a lot to do with the invention of a product or an activity and is a change in typical, which in turn becomes typical. A good example which would show innovation could be the movement from the floppy disk to the CD ROM, this is a clear move with a completely different design and then became typical, till further innovation happened and the USB flash drive is becoming the most common for file storing and transfer. The question of defining entrepreneurship and linking it to innovation is harder than it sounds. There are many studies of entrepreneurship however there is no specific definition as it can't be summed up into one single statement. There are many models showing a differing correlation between innovation and entrepreneurship. I see the link between the two as one in which, if worked together in harmony there can be a prefect outcome in conditions of the success of an entrepreneur. Not everyone who starts up a business can be an entrepreneur; it's the one who makes the best outcome of any opportunity given throughout the life of the business that'll be a successful entrepreneur. There are different characteristics and various circumstances surrounding each successful entrepreneur's story but each made it down their path to achieve success.
'A good idea is only a tool in the hands of a business owner. '(Jeffry Timmons 1977) This idea demonstrates innovation, or the idea is just one single aspect of the processes of the entrepreneur in the making of, and continuing the success of a company. Therefore this implies there's a relationship noticeable but it can't be said it is one which says that entrepreneurship is more than just an idea, or innovation but it is using that idea.
'Innovations are the composite of two worlds, namely, the technical, and the business enterprise; so when only an alteration in technology is involved, this is merely an invention; but as soon as the business world is involved, it becomes an Innovation. ' (Schumpeter 1934). 'An entrepreneur can be an person that establishes and manages a company for the principle purposes of profit and growth. The entrepreneur is characterised principally by progressive behaviour and can employ strategic management practices in the business this explanation is very highly relevant to what I am endeavoring to explain and the link with business shows how entrepreneurs in business can be innovative. ' (Carland et al, 1984). They are how innovation and entrepreneurship can be defined in 2 the latest models of. They can both be linked into one another visibly because of the idea of business in innovation and the innovative behaviour. However they can even be criticised due to saying entrepreneurs are only in pursuit of profit but this would be based upon the personality of the average person. The founder of Oxfam, Joe Mitty, was solely considering making money for charity and was a volunteer.
Schumpeter's view of 'creative destruction' (1934) identifies the entrepreneur introducing a fresh idea that takes over market and links entrepreneurs to monetary growth and development. This may be a concept of shifting production processes, reducing the size of the workforce to increase productivity or indeed the introduction of a new product. The reason the introduction of the new idea has such an effect is, as a result of unpredictability of the introduction, meaning there is absolutely no chance to prepare and lessen the impact of the new idea. Therefore Schumpeter's theory was very much in line and the link innovation has with the entrepreneur is clear and represented by the fact that this creative destruction often brings about the overhaul of market and takes over the old idea. For example the DVD, overtaking VHS, and today they don't sell VHS in HMV and most other leading electronic multi media stores.
The view of Kirzner (1973) is the fact that entrepreneurs are individuals that recognise opportunity and find gaps on the market and test the viability of new business by learning from your errors and feedback from the marketplace. Therefore these two views are contrasting with Kirzner's view of entrepreneurship related more markets and gaps within them, and the responsiveness of a person to react and make the the majority of this opportunity, rather than seeing the ability for a new product or idea, rather than moulding or adapting what's there already to gain market share. Following this a business owner differentiates from just an opportunist introduction and realisation of the theory by carrying on the theory and turning it into a viable business.
These two ideas give a different level of linkage with innovation, rather than the destruction of Schumpeter's model which creates the market for the merchandise, Kirzner believes it is approximately adapting the theory to fit in to the market, so the innovation may be seen as more lapse and less extreme in Kirzner's case.
OECD (1998) states that: '(they) accelerate the generation, dissemination and application of ground breaking ideas' this sums up one particular idea of the partnership between the two; it implies that entrepreneurship is impressive however, innovation is not always entrepreneurial. Innovation may only be one aspect in the beginning, or simply innovation should happen throughout and be continued through the life of the business to try and keep before competition. Innovation is not necessarily a radical destruction of the current process or product and it can just be a little alteration to current product or process. E. G. Sir Stelios Haji-Ioannou, an entrepreneur and the founder of easy jet, took an idea and used his business mind and talents to build and exploit the market, however didn't invent any new impressive product, or production process but he spotted an opportunity for a budget airline which opened flights up to the masses, whom perhaps cannot afford what was there before it.
Schere (1982) sums up a business owner giving their characteristics, it states they have a tolerance for stress and uncertainty, a real life example here can be the entrepreneur I interviewed, John Russell, who had to aid a family at exactly the same time as remortgaging his house and set up a small business. To complete the stress of the whilst establishing and pursuing a successful business would have a lot of tolerance and self belief. The tolerance of uncertainty could be associated with innovation, if it is a fresh process or product and it is not proven in market as is discussed by Kirzner (1973), the entrepreneur is taking a big risk even if the gap on the market it there in theory, there is no certainty due to the irrational behaviour of consumers. Schere gives a characteristic of entrepreneurs that they are open minded and can react quickly to improve. The type of innovation is the fact however prepared or quickly entrepreneurs can react they are generally powerless to avoid a complete overhaul of market, because of the action of another entrepreneur (Schumpeter 1934).
Timmons et al (1985) gives one of the most significant sets of traits in the field. The trait of having the drive to achieve and grow is one of these. The drive to grow is one trait appealing and can be linked in to what was already discussed, because of the distinction between innovation and entrepreneurship, with innovation being the starting place of an activity and the entrepreneurial side leading to the growth of the business, however innovation would be needed throughout the life span of the business enterprise to lead to a rise in the theory, an example is Simon Cowell who from X factor went on to expand using entrepreneurial prowess to take it into other countries and then continued and created Britain's got talent, which introduced a new idea and process to the TV industry. Simon Cowell, just one single example can already counter the idea of Timmons et al, of they may have Low dependence on status and power, as it is noticeable that interests him.
Theories giving traits of entrepreneurs, however, is a generalisation of all entrepreneurs and can be easily criticised as there are a wide variety of types and individual entrepreneurs that can't be segmented and categorised. The studies give traits of entrepreneurs and do not look at the background. For instance, one entrepreneur may be a university graduate, whilst another could be a middle aged worker who may have found a way doing what their business is doing more efficiently. It is therefore likely that the traits they portray are not all identical to each other. If all the traits an entrepreneur is thought to portray in journals and articles are true then entrepreneurs would be near to perfectly efficient and functioning human beings.
People can be innovative but cannot make the step up to become entrepreneurial, the BBC television programme (2. Age Plenty, THE MEALS that make Billions 2010) it shows us the storyline of how business has turned grain into one of the biggest success stories of the present day food industry. Initially it was one of the Kellogg brothers who invented the product; nonetheless it was the other one of the brothers that took it forward as an enterprise. The individual who created the idea is the brother of the entrepreneur and he could be seen as innovative. His brother was the one who took the theory further, by increasing the product range and adding sugar to it where his brother chose not to. Therefore a differentiation is shown here between your two thought processes of merely an inventor and then an entrepreneurial mind that has increased the size of the company, and its profits, significantly.
Apple, recently, is a great example to make use of when discussing both entrepreneurial expertise and new ground breaking products. Prior to the IPod premiered on October 23rd 2001, there were there means of personal media players which individuals were satisfied with. Nevertheless the idea of '1000 songs in your pocket' came by surprise and nobody might have predicted it. People used lightweight CD players and walkmans without realising the actual and they were later deemed 'clunky and useless'. However, The IPod has become a household name, and despite not being the first mp3 player they revolutionised the MP3 and now people call them IPods rather than mp3 players. Here the iPod is seen to maintain line with Schumpeter's notion of creative destruction (1934) because it is an exemplory case of what sort of new introduction (of the iPod) effectively destroyed the ideas that came before it, e. g. people don't use walkman anymore, due to the intro of the iPod. The reason why Apple is a near perfect exemplory case of a complementary relationship between both innovation and entrepreneurship is because of their actions following the initial introduction, and the way in which they continued to utilize impressive strategies and continue the level of innovation and didn't settle on the theory. Further developments on the IPod were brought to the market, for example the mini, shuffle, nano and the touch were all further innovations, and they continued to create other products under the Apple brand. They made the new Mac books, the air and the pro, Apple Macs which further competed with other computer companies than they did before. Then more recently they may have made the I Phone, which includes 4 the latest models of, and potentially more, iPad and in the future also, they are looking into getting into a fresh (for the coffee lover) form of media, TV. These innovative ideas, combined with the fact that they are becoming a market leader in electronics and making huge profits year on year, whilst 'banging nails' into past leader of the portable media industry (with the walkman) Sony's 'coffin' (Naughton, 2010). They demonstrate properly why innovation has such a relationship with entrepreneurship. The reality of it is, however, one day there will be innovation, not by apple, as well as perhaps not by the current organizations in the electronics market, that will kill off apple and lead to a new market leader. Because of the nature of innovation, however much Apple prepare they will not have the ability to prevent this happening.
Drucker's way to obtain opportunity (1985) is a model where the opportunities for an entrepreneur happen both internally and externally. Internally through inadequacy, changes in market or coming about through chance; or externally through perception and mood, demographic changes and new knowledge, from individuals or chance revelations.
'Small firms are definitely more innovative than their large firm counterparts, being less bound by convention plus more flexible' (Carter & Jones-Evans 2006) This shows that in large organizations which have set policy and running to it, would become more ridged, and therefore less reactive to a change in the market and could be pushed from the market due to new progressive firms overtaking. Therefore for an enterprise to succeed in the long-term they could need innovative ideas to survive and stop being overtaken by the more impressive smaller firms.
To summarize the relationship between innovation and entrepreneurship is not a simple thing to do with a single sentence answer. What I could conclude is that there surely is a differing relationship between the two in several fields of study. A common idea of the partnership is that it is a dependant one, in which both are needed in an economy to stimulate economic growth. The theory that innovation is an integral part of the entrepreneurial process is one which I trust, there may be innovation lacking any entrepreneur involved; however there cannot be a successful entrepreneurial venture without the input of innovation. This is because innovation is exactly what will be the distinction between ideas, without innovation there may be change or progression and this may lead to a stagnant economy. The examples I have given of entrepreneurs are ones that I really believe show a differing amount of innovation, but similar levels of success, Stelios had only a change in the pricing and strategy of airline firms which in comparison with the exemplory case of apple is only a little change, however, innovation continues to be shown and is still important. Overall in most cases it is not only a person entrepreneur people may be inspired by a person ground breaking idea and create entrepreneurial flow of the business as time passes as a team which can result in great success with the right mixture of both innovation and entrepreneurial processes.
