Kirzners View Concerning Entrepreneurship - Literature review Example

? ENTREPRENEURSHIP THEORY ………………………….. College ……………………………… ……………….. Table of Contents Table of Contents 2 Introduction 3 Entrepreneurship 3 Entrepreneurial behaviour 4 Theory of Intention model to explain entrepreneurial behaviour 5 Kirzner’s Theory of Entrepreneurial behaviour 6 Behaving Entrepreneurially 7 Entrepreneur as Innovator 8 Entrepreneur as Risk Bearer 8 Entrepreneur as Creative Thinker 9 Evaluative Conclusion 10 References 11 Introduction Entrepreneurship, which most literatures address as holistic and economic functions (Julien, 2008, p. 18) conjure up images of heroic efforts by entrepreneurs to transform their ideas and vision to reality and thus make successful changes. For most people, entrepreneur triggers mental images of some world renowned personalities like Bill Gates, Mark Zuckerberg, Larry Page, Steve Jobs and so on with certain aspirations of their fame and wealth they have reaped from their skills (Baron, 2012, p. 3). Theoretically, an entrepreneur is one who must exhibit certain enterprising attributes and specific characteristics of behaviour and thinking perhaps attained innately or from education, training and experiences (Gibb, 2007, p. 5). This piece of research work critically evaluates the theoretical underpinnings of entrepreneurial behaviours and explains what triggers to the behaviour of an entrepreneur based on relevant literatures Entrepreneurship Entrepreneurs are those who use their ability, talent, skills and personality to perform and carry out new combinations to successfully implement a change. Joseph A Schumpeter, famously known as father of entrepreneurship, viewed entrepreneurship as all about innovation (Carsrud and Brannback , 2007, p. 7) and entrepreneur as a distinct individual in the society as he discovers a dynamic business opportunity, seizes the opportunity to convert the idea in to a reality to deliver new product or service and thus to create a new marketable contribution to the economy (McDaniel, 2002, p. 57). Some literatures argued that entrepreneur is not only an innovator or a distinct person to transform opportunity to business reality, but also that he is characterized with many of managerial skills and abilities such as direction, organizing, supervision, risk bearing, control etc (Brockhaus, 1987, p. 1). With the idea of establishing a business enterprise, entrepreneur mentally prepares to take risks of financial well being, career opportunities, family relations, and psychic ell being as well (Brockhaus, 1980, p. 511). As and when the business contexts become more complex and markets turn to be highly vulnerable to rigorous competition, entrepreneurs must be able to take very strategic steps to introduce innovative ideas with their creative thinking. Based on various views, Cunningham and Lischeron (1991, p. 46) defined six schools of thoughts to describe various qualities of entrepreneurs. These schools are 1) the great person school of thought, 2) psychological characteristic school, 3) classical school of entrepreneurship, 4) the management school, 5) the leadership school and 6) the intrapreneurship school of entrepreneurship. There are large numbers of explanations for what triggers to the behaviour of an entrepreneur, but most of these literatures reached to a consensus that some of the most important characteristics generally and are found universally important are innovation, risk taking, creative thinking etc. Some authors have also found some other components or dimensions of entrepreneurship such as new venture formation, pro-activeness, renewal, strategic vision, international and domestic venturing, competitive aggressiveness etc (Lau, Shaffer, Chan and Man, 2012, p. 675). Entrepreneurial behaviour Entrepreneurial behaviour, as defined by Mair (2005, p. 51) refers to a set of activities and practices by which individuals at varying levels generate and utilize innovative resource combination to discover and pursue opportunities. Entrepreneurial behaviour necessarily related to a number of significant factors such as opportunity, autonomy and innovation. Innovation occurs when an individual functions as a change-agent being dedicated to bear risks associated with change. Entrepreneur becomes a creative thinker in discovering and pursuing the opportunity. Acs and Audretsch (2010, p. 101) argued that entrepreneurial behaviour is impacted by some of the most significant characteristics generally identified of entrepreneur, but in entrepreneurial behaviour perspectives, it is the behaviour that matters and not the characteristics. They argued that entrepreneurial behaviour is something that individuals engage in rather their organizations engage in. In the attempt to explain characteristics of entrepreneurial behaviour, Acs and Audretsch (2010, p. 101) stressed that the process of creating a new organization is an individual phenomenon because individual behaviour is the necessary ingredient for organization’s formation. Secondly, entrepreneurial behaviour is a process. Third, formation of a business through developing or converting an opportunity to a real business model is the principal outcome of entrepreneurial behaviour. Theory of Intention model to explain entrepreneurial behaviour Scheiner (2009, p. 9) introduced ‘intention model’ to poise the view that an entrepreneur is one who develops and apply entrepreneurial behaviour. He argued that ‘what is an entrepreneur’ is not such as significant question, but ‘what influences people to develop entrepreneurial behaviour’ is more relevant to be explored. Since intentions are predictors of activity, Scheiner (2009, p. 9) stated that there is an evolutionary transition from belief to attitude, from attention to intention and then from intention to behaviour. Since intention plays significant role in entrepreneurial behaviour, it is very evident that the development of entrepreneurial behaviour is determined or planned and not simply automatic or incidental. Theory of planned behaviour and intention model were elaborated in the work of Fayolle and Degeorge (2006, p. 79) to explain how they conjure up entrepreneurial behaviour. They stressed that venture creation, which is a major outcome of the entrepreneurship, is a planned and an intentional behaviour. Fayolle and Degeorge (2006, p. 79) listed out three antecedents of intention related to entrepreneurial behaviour. They are 1) perceived attractiveness of entrepreneurial behaviour, 2) perceived social norms of entrepreneurial behaviour and 3) perceived self efficacy or control of entrepreneurial behaviour. Kirzner’s Theory of Entrepreneurial behaviour Koppol (2006) has attempted to explain what triggers to entrepreneurial behaviour based on Kirzner’s theory and the modern Austrian school of thought. According to him, entrepreneurs are not a class of people distinct from other people and thus entrepreneurial behaviour is not a class of actions distinct from other actions. But rather, entrepreneurship can be viewed as an aspect of all human actions as being part of a broader social theory encompassing many different areas like economics, finance, sociology and psychology (p. 2- 3). When entrepreneurship is viewed as human universal, entrepreneur’s behaviour refers to what he does. Koppol (2006, p. 3) emphasized that entrepreneurs are change-agents and they do innovate to successfully implement the change. Bygrave and Zacharakis (2011, p. 564) viewed that social entrepreneurs play roles of change-agents by adopting a mission to create and sustain social value. As change agents, they bring together vision, resources and values so as to address a need that is yet to be met (London and Morfopoulos, 2009, p.57). As change-agents, entrepreneurs initially discover an opportunity of a change (Koppol, 2006, p. 3), then they recognize how this opportunity to be transformed to a real business utility by successfully managing the resistance to change and thus they successfully implement the change. This is one major way how they innovate. Israel Kirzner’s theory set out two basic elements of entrepreneurial behaviour. First, entrepreneurship is alertness to new opportunities. Second, it is the arbitrage following the alert discovery of an opportunity. Kirzner poised that alertness is present in all human actions and that entrepreneurs live in a static world of new-classical economics (Koppol, 2006, p. 3). Kirzner viewed entrepreneur as a person who is alert to business opportunities and that he carries out innovative actions following from the discovery of such as opportunity. In brief, he not only discovers but also seizes the opportunity to transform it to a business reality (Acs and Audretsch, 2010, p. 224). Kirzner’s theory supports Schumpeter’s view about how entrepreneur plays pivotal role in the economy. Kirzner assumed that the market is imperfect, because there will be market opportunities when there exists market disequilibrium (Cuervo, Ribeiro and Roig, 2007. P. 43). Behaving Entrepreneurially An entrepreneur, when he behaves entrepreneurially, will be involved in the entrepreneurial process that involves all the functions, activities and actions that are associated with perceiving of opportunities and creation of a new organization (Bygrave and Hofer, 1991, p. 13). In simple words, entrepreneurial behaviour leads to entrepreneurial process. It’s because, when outcomes of entrepreneurial behaviour meet or exceed expectations, the behaviour will be positively reinforced and this the individual is motivated to behave entrepreneurially (Kuratko, 2012, p. 56). Since entrepreneur is someone who perceives an opportunity and creates an organization to pursue it, his behaviour is his attitude or intention or alertness to discover an opportunity, seize the same for pursuing for a business purpose and thence converting this idea to a marketable value. In behaving so, he needs to take a number of strategic roles, most importantly as innovator, creative thinker and risk bearer according to most literatures and as manager, pro-activist, international or domestic venture etc according some other literatures. The most important three dimensions, namely innovation, risk bearing and creative thinking are described in detail below. Entrepreneur as Innovator As Drucker (2007, p. 17) noticed, innovation is a very specific behavioral tool for entrepreneurs with which they transform business opportunity to a dynamic enterprise or new value of different product or service. In developing an economic enterprise, entrepreneurship necessarily involves innovation processes based on new product or service development by differentiating them from the existing products or services being marketed already (Morrison, Rimmington and Williams, 1999, p. 8). Growth and sustainable wealth in any industry are the outcomes of innovation and new product or service development (Peters and Pikkemaat, 2006, p. 1). Most innovations are the outcomes of purposeful and intentional search for new opportunities (Kuratko, 2012, p. 166). In attempt to find out a hidden marketing opportunity and to convert the same to a marketable value, the entrepreneur is inspired to strategically work as an innovator by bringing creative ideas and thus applying newer technology to differentiate his product or service in the market. Innovation, as Jones (2008, p. 342) noted, is newer ways of doing things or unique combination of services to deliver different value. Entrepreneur is both inventor and innovator, because, based on Schumpeter’s view, entrepreneur is one who discovers the opportunity and exploits the same (Alvarez and Busenitz, 2001, p. 761) for further benefits of enterprising. Entrepreneur as Risk Bearer Manager is more likely to work as ‘employee’ and therefore he may not always be a risk-bearer, but in contrast, the entrepreneur’s risk-taking propensity is well documented in literatures. Entrepreneur is the owner of the enterprise and the theoretical framework states that he is one who finds opportunity and manages various enterprise activities, people, process and organization to create a new venture by taking any risk associated with it. His devotedness to bear the risks makes him more equal to that of a transformational leader who brings changes by establishing a business value from an opportunity he discovered. Risk-bearing theory Knight states that the modern business world is full of uncertainty. There is no certainty about whether a product will be competitively marketable or whether the opportunity discovered can easily be brought to a real business venture and therefore decision related to these will never be fruitful or logical. Profit can be foreseen only if the entrepreneur is ready to bear the risks which are neither insured nor eliminated (Shane, 2003, p. 103). Entrepreneur as Creative Thinker As entrepreneur finds a hidden business opportunity, exploits the opportunity by strategic combination of technology, people and process and thus transforms the idea to a real business entity, it is extremely important that he should think wisely. A creative thinker will be successful in exploiting the opportunity with help of latest technology, process and best combination of human capital. Creative thinking is a divergent process that generally an entrepreneur begins from a single point and then extends to varying directions by finding and applying wide possible actions (Treffinger Isaksen and Stead-Dorval, 2005, p. 3). An entrepreneur who is creative and thinks creatively will be able to come across a number of challenges, paradoxes, uncertainties and opportunities in relation to his efforts (Bessant and Tidd, 2007, p. 49). In brief, innovation, risk bearing and creative thinking are the very fundamental behavioral tools that an entrepreneur requires to reach his destination of successfully establishing a business venture. Evaluative Conclusion Entrepreneur is a distinct person as he is one who uncovers a hidden business opportunity and exploits it to transform his creative idea to a dynamic business entity with certain personal and outstanding skills such as innovation, risk taking and creative thinking. This research work has described entrepreneurship and entrepreneur in relation to what makes him behave entrepreneurially. Based on Kirzner’s theoretical model of entrepreneurial behaviour, this paper suggested that entrepreneur is not only alert to opportunities but also that he makes use of them for developing a business enterprise and to contribute to the economy. Based on intention model of entrepreneurial behaviour, this paper stressed that entrepreneur’s behaviour, since it is a planned and intentional process, results in venture creation with an evolutionary transition of attitude to attention and thence to intention. Kirzner’s view put forward ‘entrepreneurship as alertness’ and ‘entrepreneurship as action’ and detailed that he is first alert to opportunity and then varying actions such as innovation, creativity, pro-activity. In his market theory, arbitrage has been considered as fundamental form of entrepreneurship and this seemed to reduce entrepreneurship to a narrowed concept. But, Kirzner viewed arbitrage in an enlarged meaning to include even the most elaborate entrepreneurial ventures (Acs and Audretsch, 2010, p. 226). Intention model of entrepreneurial behaviour explains how an entrepreneur’s behaviour is formulated and structured since intentions are assumed to capture motivational factors that influence behaviour. This model supports the view that entrepreneur’s behaviour is impacted by both his inheritance and experiences or training or education. This paper highlighted that an entrepreneur behaves entrepreneurially with certain behavioral dimensions, mainly innovation, risk bearing and creative thinking. References Acs, Z. J & Audretsch, D.B. 2010, Handbook of Entrepreneurship Research: An Interdisciplinary Survey and Introduction, Springer Alvarez, S.A & Busenitz, L. W. 2001, The entrepreneurship of resource-based theory, Journal of Management, Elsevier Baron, R.A. 2012, Entrepreneurship: An Evidence-based Guide, Edward Elgar Publishing Bessant, J & Tidd, J, 2007, Innovation and Entrepreneurship, Illustrated Edition, John Wiley and Sons Brockhaus, R. H. 1980), Risk Taking Propensity of Entrepreneurs, Academy of Management Journal, Brockhaus, R. 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