Entrepreneurship and Innovation - Assignment Example

ABC XYZ May 1st Barriers to Growth – How can barriers be overcome TERMS OF REFERENCE The report is basedon identification of barriers to growth of entrepreneurial firms which are in the initial set up phases. It identifies some of the peculiar limitations that these firms have and how do they overcome them in the process of application of their marketing strategy. It also identifies what resource constraints do they have and how do they manage within a resource-constraint environment. BARRIERS TO GROWTH – HOW CAN BARRIERS BE OVERCOME Barriers to Growth – How Can Barriers Be Overcome INTRODUCTION or BACKGROUND Innovation is an entrepreneur’s darling that he pursues and perfects fondly. As Druckerg sgo k , (1985) states, ‘Innovation is the specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or service. It is capable of being presented as a discipline, capable of being learned, capable of being practiced’ What is innovation? As Gunn & Durkin (2006) defne ‘Innovation is a personal skill but one that is exercised within an organizational context’. Why innovation is important and what are the key issues that surround the growth and development of entrepreneurial firms. Because of limited size of business, entrepreneurship has certain growth barriers in terms of organizational resources. Nonetheless innovation is a key primary source of human progress on earth. It is through genuine process of innovation that human beings achieve better standard and style of living. The entrepreneurial marketing is confronted by peculiar growth barriers which entrepreneurial marketers have to face and overcome. They have certain inherent limitations that are peculiar to entrepreneurial nature of business. Deduced from the ‘Entrepreneurship and Innovation 4 Spring 2012 The Innovation Imperative’ we can identify following features explain the characteristic features of innovation. Innovation is the process , whether formal or informal, of creating a commercially viable product, idea or service from an invention that has value Innovation comes through practical application of creative knowledge to solve problems and exploit matching opportunities in the market. Innovation builds on the creative idea or combines creative ideas in novel ways Innovation is a key outcome firms seek through entrepreneurship and is often the source of competitive success Innovations produced in large established firms are often referred to as corporate entrepreneurship Entrepreneurial strategies are bound by very idiosyncratic environment imposing certain basic limitations on their strategy designs. The strategies of entrepreneurial marketing are the same as those in the conventional marketing. They just follow different routes. The entrepreneurial organizations are resource constrained organizations because they do not approach the mass media to launch their products or campaigns. They have limited financial, human and technical resources. But they do have creativity and time which they use as resources to accomplish their management and marketing goals. The meaning and significance of the barriers to growth of entrepreneurial business are highlighted by the fact that entrepreneurial business is mostly surrounded by lack of monetary and, financial and technical and man power resources in the initial and early stages of its development. Despite these facts entrepreneurs are surrounded by barriers that limit their growth and financial stability. Corporate Entrepreneurship: How do corporate level companies innovate. Deduced from our lecture: (Entrepreneurship and Innovation 3 Spring 2012Entrepreneurship v Intrapreneurship) we can identify that there are five possible corporate entrepreneurship models. The organisation will decide which form is the most appropriate which are as follows. 1. Organic organisation – entire organisation adopts intrapreneurship and an organic structure – a cellular structure – individual cells (independent businesses) can grow or contract without affecting the main company - Virgin good example 2. New products group – multi-disciplinary – to facilitate new products and encourage others in the organisation – the head becomes product champion 3. New products subsidiary – accepts proposals from individuals and evaluates to determine whether worth funding 4. Corporate venture firm – a separate company or subsidiary that assists and underwrites both internal and external projects that meet formal criteria of venture capitalists – breakeven, profitability etc. 5. A section within the HR department – trains managers in intrapreneurship – arranges conferences/seminars for them If an organisation wants to become really intrapreneurial – the entire corporate culture must fit and align with the intrapreneurial model. The new corporate culture cannot be developed immediately – but in fact it takes time some times in years, decades before a viable corporate culture can be developed that fits its model and experience of entrepreneurial firms says that it must be given adequate time and effort that it needs to develop it must be developed over time so that there s adequate fit between the corporate culture and its entrepreneurial model. The reason why some new product or service ideas are created by smaller and new manufacturers and entrepreneurs is because the large and medium corporate companies loose drive for innovation and entrepreneurship. We can discuss here some of the reasons why this happens. We can summarise some of the reasons as follows: (Entrepreneurship and Innovation 3 Spring 2012Entrepreneurship v Intrapreneurship) 1. The need for short term profits – senior managers pressured to achieve short term profits rather than long term investment – entrepreneurial ventures lose money initially! 2. Lack of entrepreneurial talent – enterprising individuals not attracted to large organisations – those that do are worn down by bureaucracy 3. Inappropriate reward methods – large organisations have few ways to reward innovation – monetary or non-monetary We can isolate the following barriers to the growth of entrepreneurial business. There can be changes in the market environment that may lead to invalidate or affect the fit between existing start up strategy, the offer and the targeted customers and thus cause a barrier to the growth. The internal operations of the organization may suffer certain failures indigenous operational failures Support from the stakeholders may get affected along the growth years of entrepreneurial organization. This means that the bankers, suppliers, customers may become less interested in supporting the organization and may cause the growth barrier. Barber et al (1989) define following as barriers to growth of entrepreneurial firms. Then there are other barriers to growth such as Management and motivational barriers. Such barriers may emanate from lack of management training, relatively low qualifications, managerial or management’s reluctance to delegate, need for new management skills as the organisation grows. Then there are barriers to growth from Resources such as access to finance, access to skilled labour and access to technology. Barriers also exist with respect to market opportunities and structure – market growth rates, size and frequency of purchases, degree of segmentation, opportunities for collaboration or merger achieved by an entrepreneurial organization compared to established organization. Cranfield University (2000/2001) identify more precise barriers such as : Planning vacuum may exist to cause barriers to growth of sales and profit as growth are better for those with business plans Muddled marketing –successful businesses have superior product/service, reputation, better customer understanding – not chasing new markets and launching new products Mismanaged change – failure to recognise different stages of growth require different approach Meddling and mis-spent time –overseeing work they pay others to do The wrong objectives – tendency to muddle through No financial strategy – inappropriate finance and budgetary system An entrepreneur has a keen sense of idea and opportunity. As Tidd, et al (2005, p.66 ) defines that ‘Turning opportunity into ideas and putting these into widely used practice’. Yet again, Porter, defines ‘Companies achieve competitive advantage through acts of innovation. They approach innovation in its broadest sense including both new technologies and new ways of doing things’ (Porter 1990). We know that entrepreneurship in the early phases is characterized by certain traits and characteristics which set it apart. These set of characteristics identify and profile the surrounding environment of the entrepreneurial business and defines the very context that bounds the working and operations and planning and thinking of an entrepreneur at an operational and strategic level. These characteristics can be succinctly summarized as following: 1. Opportunity Recognition 2. Innovation 3. Risk taking 4. Limited resourcefulness 5. Lack of prior market knowledge & information 6. Lack of manpower resources The first three characteristics from the above list, i.e opportunity recognition, innovation, risk taking Opportunity recognition triggers entrepreneurial process. It entices and incites the entrepreneurial interest in a venture, thus as such it can not be termed as a barrier. The last three characteristics i.e Limited resourcefulness, Lack of prior market knowledge & information and Lack of manpower resources do, however, stand as barriers to the growth of entrepreneurial business. We will discuss these as well as the strategies to overcome these barriers in the remaining parts of this essay. Fist of all, limited resourcefulness implies scarcity of man, material, financial and technical resources. An entrepreneur is always faced with scarcity of such resources in realizing his entrepreneurial venture. For example, an entrepreneurs who wishes to test his idea, a product or a service idea, will need financial and technical and financial resources to reach his target audience and get their feedback on his idea, service or a product. For that he needs financial resources which he usually does not have. How can these limitations be overcome? An entrepreneur would normally use time, energy and creativity to overcome these barriers. Entrepreneurs do not have financial resources to launch extensive branding and promotional campaigns to attack his/her chosen market targets. Instead of money, an entrepreneurs use Time, Energy and Creativity to reach his target market. In a non-entrepreneurial set up, limited resourcefulness is not a pre-condition. Customer’s needs are the central focus of the entire organization’s efforts and activities. The customer needs define the focus of the entire organization. The organizations tend to study customers needs in advance and before they plan campaigns or product or service development of launching a new service. In a non-entrepreneurial context, a detailed understanding of customer needs comes before any new product or service is developed or devising any marketing strategy, implementation of promotional campaign etc. In contrast in an entrepreneurial context, growth is bounded by an, material and financial resources. By this definition, the entrepreneur has to rely on intuitive knowledge and use his heuristic decision making. Rely on intuition to find out Customer needs is mostly the key means of achieving innovation. Through this process, they can overcome the barriers imposed by limited resourcefulness. They can develop a product/service first based on their intuitive knowledge then they get customer feedback and adjust the product offering later. In effect we can say that they have an antenna in the market through which they receive instinctive knowledge and gut feel to generate their ideas of innovation. Formal vs Informal Research: We are also aware of the fact that conventional business practices where there is no financial limitations, companies launch formal research to find out answers to their research queries. They award formal research contracts to professional research companies who work out methodically answers to their research problems. Here again because of lack of financial and technical resources, Entrepreneurial firms on the other hand tend to solve their research problems via informal Networking. They maintain an external focus through network of personal contacts who keep them informed and aware of the trends in the business environment. Entrepreneurs do not believe in the value of formal research Why? Because some of them consider that the formal research slows down the speed of reaction needed to adapt to market changes. Research is also regarded as too expensive for the results generated and it does not come up with breakthrough innovations that change the nature of the product, service or its market. Top down VS Bottom-up expansion strategies: Another type of barrier faced by firms in an entrepreneurial context is with respect to market access strategy. In non-entrepreneurial context, firms, enter and expand their markets in a top-down fashion. They adopt a Top-Down Segmentation, Targeting and Positioning where they define their strategy in 3 steps i.e: 1. Segmentation: Market is divided via research into smaller groups 2. Targeting: One (or more) segment(s) is chosen as appropriate target 3. Positioning: Product/service is offered to this target which is appropriately positioned to appeal to target customers Obviously, as it is evident from the above, this strategy needs substantial man, material, financial and technical resources at hand which are not available to an entrepreneur. In contrast in an entrepreneurial set up, marketing strategy is developed and approached on a Bottom-up Segment Selection pattern. The strategy process adopted in the following fashion enables entrepreneurs to articulate a sizeable market size for their entrepreneurial venture as well as continue to add more customers. The following approach of Bottom-up addition of segments adopted for the marketing strategy enables entrepreneurial firms to overcome their barrier to market expansion. The process goes as follows: 1. Select a segment to offer the product or service offering 2. Add more buyers through referrals, recommendations and personal networking 3. Add more segments by product modifications and via referral, recommendations and Networking How to overcome barrier to Market Growth: The satisfied customers are an excellent source of generating more sales via Word of mouth recommendations from them. Entrepreneurs use word of mouth recommendations albeit they are hard to win. When customers used an actual product service via trial, entrepreneurs can spend time to build relations with satisfied customers. These satisfied customers are the primary source of recommending business in their network. They seek to establish direct Personal contact with customers instead of impersonal contact as in traditional Mass marketing. In nut shell entrepreneurs use Interactive Word of Mouth and Personal relations which are their Unique Selling Point (USP) and provides with customers feedback on product quality. In an entrepreneurial context, an entrepreneur’s name becomes his/her brand. Entrepreneurs stress the importance of direct contact with customers in developing their customer base as the same is the root source of their market expansion strategy. They see the growth of their business as affecting their opportunities for direct contact with customers. Eventually, what we see is that entrepreneurs set in motion a process of 4 I’s. 1. Interactive innovative ideas and adjustments 2. Bottom up identification of target markets 3. Interactive marketing methods 4. Informal information gathering By invoking these four processes in succession, entrepreneurs can overcome barriers to their firm’s growth. CONCLUSION From the foregoing discussion and analysis, we can conclude that entrepreneurial firms are surrounded by certain growth barriers peculiar to their stage of business development. These barriers are mostly related to manpower, material, technical and eventually financial in nature. These barriers hinder and impede the growth and expansion of entrepreneurial business. From the discussion, we concluded that if an entrepreneur sets in motion a process of 4 Is as described below, he/she can overcome the practical side of these barriers in most, if not all, cases. We see is that entrepreneurs set in motion a process of 4 I’s. 1. Interactive innovative ideas and adjustments 2. Bottom up identification of target markets 3. Interactive marketing methods 4. Informal information gathering By invoking these four processes in succession, entrepreneurs can overcome barriers to their firm’s growth. RECOMMENDATIONS In the light of the discussion in this report, it is difficult to escape the following eminent recommendations. 1. The entrepreneurs must keep an eye on the changing market environment that may lead invalidate or alter the basic fit between existing start up strategy, the offer and the targeted customers. 2. The entrepreneurial firms must keep fit the internal operations of the organization in order to avoid failures for indigenous reasons. 3. It must continue to ensure that the support from the stakeholders is fully guaranteed and for that it must continue to meet their expectations. This means that the sup[port from the bankers, suppliers, customers must continue alongside the growth phases of an entrepreneurial firm. 4. Management and motivational aspects of the organization must also continue to flourish in terms of management training, qualifications, managerial or delegation of powers and functions, acquisition of new management skills as the organisation grows. 5. Forms must also ensure easy and quick access to resources such as access to finance, access to skilled labour and access to technology. 6. Firms must also routinely assess market opportunities and structure – market growth rates, size and frequency of purchases, degree of segmentation, opportunities for collaboration or merger achieved by an entrepreneurial organization compared to established organization. 7. Firms must also oversee work they pay others to do 8. Firms must also see their objectives. Are serving the right objectives 9. Firms also must ensure they have a sound financial strategy – inappropriate finance and budgetary system are also barriers to growth. Investigation typical entrepreneur ‘V’ = Very much like me , ‘S’ = Some what like me, ‘N’ = Not like me at all A typical entrepreneur V S N Why Is independent, self confident and takes intuitive\ I like to be own my own Is decisive I sometimes take advice from others Needs to achieve I always feel need to achieve Has vision and can persuade others of his value I have the vision Is dedicated, dogged and determined I am not much into routine work Can take criticism and rejection I moderately take criticism Is creative and innovative I am creative and innovative Is prepared to take calculated risk I am prepared to take calculated risk Sees how the pieces fit together I can see how pieces fit together Networks successfully with others I do sometimes network well Knows their personal strengths and weaknesses and builds effective team I assess people’s strengths’ and weaknesses Find the resources to make things happen I can find resources Like to have control I do moderately want control Come from a small business background I have worked in SME Have developed expertise from education or experience I have learnt from education and experience 1. I am moderately independent and decisive however I do want to achieve in life. I have the vision but my working pattern is devoid of routines and determination 2. I can take constructive criticism however and I do take calculated risk as well. 3. I can see how the pieces of the puzzle fit together to make a more meaningful picture of any scenario. I do however moderately network because of my limited social skills But I can make resources available to make my own business successful. 4. I do however like to have control and my background comes form a working experience in an SME and a strong business education. REFERENCES: 1. Entrepreneurship - David Stokes, Nicholas Wilson, Martha Mador - Google Books. 2012. Entrepreneurship - David Stokes, Nicholas Wilson, Martha Mador - Google Books. [ONLINE] Available at: http://books.google.com.pk/books?id=5Rrvr37Rlk4C&pg=PA261&dq=entrepreneurial+marketing&hl=en&sa=X&ei=YCGiT_rQDYPrrQf93ayzBw&ved=0CGYQuwUwCQ#v=onepage&q=entrepreneurial%20marketing&f=false. [Accessed 03 May 2012]. 2. Marketing for Entrepreneurs: Concepts and Applications for New Ventures - Frederick G. Crane - Google Books. 2012. Marketing for Entrepreneurs: Concepts and Applications for New Ventures - Frederick G. Crane - Google Books. [ONLINE] Available at: http://books.google.com.pk/books?id=Obbabq74U4EC&printsec=frontcover&dq=entrepreneurial+marketing&hl=en&sa=X&ei=YCGiT_rQDYPrrQf93ayzBw&ved=0CFQQ6AEwBw#v=onepage&oq=entrepreneurial%20marketing&f=false. [Accessed 03 May 2012]. 3. Robert Gunn, Chris Durkin. (2006). Social Entrepreneurship: A Skills Approach . Available: http://books.google.com.pk/books?id=fVrPF0Ku-bsC&pg=PA85&dq=Lowe+and+Marriott+entrepreneur&hl=en&sa=X&ei=xOutT6v4NIzLtAbiw82pBA&ved=0CDgQ6AEwAQ#v=onepage&q=Lowe%20and%20Marriott%20entrepreneur&f=false. Last accessed 11th May 2012. 4. Entrepreneurship and Innovation 4 Spring 2012, The Innovation Imperative 5. (Entrepreneurship and Innovation 3 Spring 2012Entrepreneurship v Intrapreneurship) 6. Cranfield University (2000/2001) 7. Barber et al (1989)y klh4 Read More