Role of Leadership in Entrepreneurship - Term Paper Example

Leadership and Its Role in Entrepreneurship Introduction It can be said that the success or failure of an organization lies in the governance of itsleaders. Big or small, if these organizations are not handled to weather good and bad times, the organization may fail. With today’s global economic recession, we have seen on the news of big businesses that have long been established going bankrupt. Upon close inspection of these businesses, the analysis why these businesses failed was due to poor business management. Corrupt practices, poor employee supervision or even too many goals may hinder the success of any business (Colley et al., 2003). But why do businesses really fail? Is it in the poor leadership skills of the manager? Or is it in the poor marketing forecasts? Business strategies that have worked decades ago may need to be reviewed for their effectiveness in an organization. With the present ever changing times, if a leader cannot adapt to change thinking that his business style which has worked for many years is enough, he may lose to competition (Sharp 1991). A degree in Business Management or Marketing can help entrepreneurs develop business or marketing strategies that can ensure the survival of businesses in today’s business world. These degrees can also help in the development of leadership skills that can make or break small to medium enterprises. But why is it important to acquire education or knowledge of management to become an effective entrepreneur? This relationship of leadership and entrepreneurship will be thoroughly discussed in the paper, giving implications of leadership in the development of an effective business enterprise. Also a comparison between two SME companies will be provided to serve as evidential examples for the analysis of the effect of leadership and its role in the entrepreneurial world. Likewise, the paper will discuss the close relationship of good governance in terms of profitability for sustainable businesses. The theories that may be applied and the possible errors that some leaders may commit that lead to the downfall of their businesses (Finch, 2003). Entrepreneurship and Leadership The development and growth of the economy relies heavily on the sustainability of the entrepreneurial activities encompassing small, medium and large businesses. As such, developing economies look at entrepreneurship as a vital factor for its continued growth (Asel, 200). In lieu of the importance of entrepreneurship to economy, the role of leadership is also perceived otherwise as equally essential to the significance of entrepreneurship in building a sustainable and strong economy. Success of business lies on the efficiency of its leaders. As Kotelnikov (2005) implicates in his study, entrepreneurial leadership is leadership that is grounded on the characteristic of the leader as being self-employed. Individuals possessing such characteristics are able to initiate and act with superior knowledge and skills, likewise, aiming to empower and inspire subordinates, seek for continuous development and opportunities that would open new ventures for entrepreneurial activity. Leaders of this kind are perceived to be risk-takers and strategic in their own way. Leading today’s businesses means being able to make good predictive forecasts in order to sustain maximum productivity and profitability. A business when it is set up has a common goal which is to become profitable. This profit is a means to give back what investors have put in, knowing that it may be a risk if ever that the business fails to succeed (Finch 2003). It is concomitant that vision set forth directs the business, creating a team of people that work towards not only to satisfy the role or the position but to make a difference that include collaboration with other colleagues to obtain the envisioned by the company. Parallel to this, a leader that is able to direct the workforce and inspire them to participate in the achievement of the organization’s objective is likewise benefiting and most important (Kotelnikov, 2005). Therefore, successful growth of businesses and economies are the result of effective collaboration of business tactics and talents of people working within the organization and the motivational mechanisms that drive the entrepreneurial activity (Baumol, 2003). Even if consumerism is dictated on what a consumer or the market perceives as a basic commodity, each entrepreneur knows that they need to be different in order to attract prospective clients. This need to be individually different can be seen through the prices of a particular product or the additional services that the establishment may offer. This where students or graduates of Marketing can show what they have learned. Thru aggressive marketing they can dictate or control trends as per the needs of the consumer (Sharp 1991). This differentiation can also translate to forecasting as a leader what the future generation may need. For entrepreneurs, the ability to predict a trend in order to appeal to consumers is one way of ensuring that their business can survive in years to come. Most products are service based and even new technology gadgets are based on making life simpler (Legge et al., 1997). In terms of profitability for meeting this demand, a good leader or manager should also know where to get goods or products that will be cost effective. Being cost effective does not mean that the products will be of low quality. Getting low cost, low quality products may mean loss of revenues due to poor customer satisfaction and product recalls (Sharp 1991). An entrepreneur can be defined as an innovator who can turn their ideas into profit. This type of marketing philosophy has been around since ancient times where merchants saw profit from marketing specific needs of man. This idea when capitalized and utilized with good connections can turn into good businesses (Bolton 2004). The global recession has hit most of the small and medium businesses. These businesses have products and services that may be contracted by bigger companies as part of their cost cutting measures. And also as part of their cost cutting in these hard economic times, they may have terminated these contracts. This is a big problem for these small to medium enterprises that may be relying on these contracts as the large part of their revenues (Bolton 2004). Leaders or managers of these small businesses in order to survive may cut down costs at their end also in order to make their companies survive. Implementing low cost alternatives in order to weather the economic storm brought about by the recession can make or break these small businesses (Sharp 1991). Leadership Theories There are a lot of leadership theories, each one as effective and time tested in organizations. For entrepreneurs one of the theories that can be most applicable when it comes to leadership style is the one by Blake and Mouton’s managerial grid. This leadership theory puts emphasis on the managers’ concern for the production or operational issues of his organization. It also puts emphasis on the employee-employer type of relations where there is much importance placed on the employee because the manager needs to make sure that productivity and profitability in operations are met. This type of leadership theory is one of the most effective leadership styles that one can adapt if they want to have their business grow (Bolden et al., 2003). With this theory, leaders or managers need to know how to motivate their team in order to make sure that the employees feel that their job is appreciated. For small businesses that may not have the budget for cash incentives, one of the most tangible incentive that a manager can give is job security. Meaning that if operations are able to meet production deadlines, revenues come in and there is a possibility of growth within the company (Bolden et al., 2003). Another leadership theory that can be effectively identified in entrepreneurship operations is the one by Max Weber. According to Weber there are three ideal types of leaders; the bureaucratic, the traditional and the charismatic type of leader. For those studying Business Management or Marketing degrees, the bureaucratic type of leadership may be the most adaptable for entrepreneurship since it focuses on the control based on knowledge (Leadership models, n.d.). However, the theory of transformational leadership by Bass (1985) supplements the ideal leadership approach that commensurate with the needs of entrepreneurship. In this theory, the leader is articulate in regards vision, objective and aim of the organization. Exercising skills and abilities beyond one’s capacity is highly regarded and the empowerment of people is also recognized. The key role of a transformational leader is to transform the people within the organization through enlightenment of the significance of achieving desired goals or outcomes. Therefore, it implies that followers or the subordinates transcend their own self-interest and join others in working towards the attainment of the organization’s goal. In this manner, entrepreneurship will benefit much with the implementation of such leadership approach as everyone is empowered to give their best in their work as caused by unified initiative to serve the organization and achieve its objective. Sun Microsystems vs Hewlett Packard Because of market dominance, some enterprises fail to identify possible threats to their successes. A good leader or manager should know or expect these possible threats in order to prepare for them. One example for this is in the computer workstation industry. Sun Microsystems has long dominated the workstation industry and when IBM and Digital Equipment Corporation tried to penetrate the market, they had little success. Even when companies were investing in computer workstations for their businesses, these two companies could not reach the heights of success made by Sun Microsystems (Legge et al., 1997). But what Sun Microsystems was not able to forecast is the possible merger of these companies with other computer manufacturing companies. Digital Equipment Corporation merged with Hewlett-Packard and after seventeen years was able to become one of the established computer workstation providers. In 1975 Hewlett-Packard was smaller than Digital Equipment Corporation but after a decade it was Hewlett-Packard that bought them out. After these mergers, Sun Microsystems had a competitor that was as aggressive as they are in marketing and producing computer workstations (Legge et al., 1997). An effective leader should know how to forecast possible demands in the market. Once he is able to forecast these demand, he can then make plans in order to meet these demands. Forecasting can also determine if these demands will be constant or seasonal that will eventually die out. The constants in making these forecasts are that market demands will be influenced greatly by macroeconomic variables and changes in development (Barnett 1988). In these examples, Sun Microsystems employed a bureaucratic leadership, relying on their years of strength of not having competitors in the computer workstation industry. They also employed their knowledge in technology, that’s why they remained in the top position or a leader for so many years (Legge et al., 1997). Nonetheless, Hewlett Packard may seem to be the underdog at the beginning, but because of altering its leadership approach, the business thrived to success and consequently overcome Sun Microsystems. It has been regarded that leadership plays a significant role in entrepreneurship. As such, leaders that are able to effectively transform its organization by making a unified team of workers aiming toward the same goal is likely to succeed. For it is important that workforce are empowered and inspired to excel in their work; likewise, making the entrepreneurial activity more effective and efficient. Tapping the entrepreneurial talents and skills of the people is needed to make the entire entrepreneurial activity effective and successful. Likewise, in transformational leadership, part of the characteristics is to continually seek for opportunities that may lead to new ventures of entrepreneurial activity. Relating to the case of the two companies, Sun Microsystems and Hewlett Packard, the former being well established in its standing as the only one of its kind, nonetheless gave a false assurance that no competitors will change the course. As such, if only Sun Microsystems has not been too complacent of its standing in the market and instead continually look for new opportunities to increase its effectiveness and business connections, they may be able to sustain their rating. Leaders that value innovation and superior skills are importantly seen as precursor of good entrepreneurial activity particularly for small businesses. To become more profitable, the business needs to be more strategic in its activities. With small businesses, they have more to lose. These small entrepreneurs may have invested their life savings or loaned their capital. Unlike big corporations, the owner or entrepreneur themselves may be the stakeholders of their businesses. That is why for entrepreneurs it is important that they not only have good ideas, but good leadership skills as well (Colley et al., 2003). Conclusion It is therefore conclusive that success of entrepreneurship lies also in the effectiveness of leadership that it employs. There are a lot of theories and principles about leadership, and they are being implemented and adopted by different organizations. Depending on the needs of the company, the approach of leadership varies. As for the entrepreneurial organizations, it is perceived best that a leader that thrives for continued growth and development through empowerment of its people toward the attainment of organization’s goal is more likely effective. Essentially important to small businesses is the presence of a highly skilled and effective leader who can address the needs of the company and direct it towards attainment of its vision. Leadership plays an important role for entrepreneurs. Even if it is a small business that they are just starting out, if they do not have leadership skills in order to manage the daily operations they may fail. A business enterprise is always a risk. It is like a gamble where you need to place your bets on products and services and play your cards well by knowing your business operations well. Playing your cards also means that you need to predict the possible moves of your opponents, hence your competitors (Sharp 1991). 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Bass & Stogdills handbook of leadership: theory, research and managerial applications. New York: The Free Press. Asel, P. (2003). International Entrepreneurship Course Description. Available [Online] at http://icp.gmu.edu/course/syllabi/03fa/ITRN769-001.pdf. Kotelnikov, V. (2005). Ten3 BUSINESS e-COACH - New Wonder of the World. Available [Online] at http://www.1000ventures.com/business_guide/ crosscuttings/leadership_entrepreneurial.html - 56k – Baumol, W. (2003). Formal entrepreneurial theory in economic: existence and bounds. Journal of Business Venturing, 8, p197-210. Read More