An analysis of entrepreneurial theory - Essay Example

An analysis of entrepreneurial theory Introduction A true and legitimate entrepreneur is defined as an individual who is able to create a new product or service concept that provides customers with enhanced value through considerable time investment and perseverance to provide their organization with financial rewards (Hisrich and Peters 2002). The entrepreneur creates business successes by absorbing financial risks and market-oriented risks to achieve desired strategic goals and realise a dream or vision for where they want the organisation to be well into the future. Sarasvathy and Dew (2005) see an entrepreneur as an individual that is able to create human capital to transform an established vision into reality whilst also allocating financial resources effectively to position the business successfully in competitive markets. To be a true entrepreneur means changing his or her organisation to adapt to changing external market conditions, accomplished by considering the positioning of competition, effectively servicing the needs of future and current customers, and consistently innovating in order to remain relevant to a firm’s target customers whilst establishing an internal vision of creativity and ingenuity to create a positive business reputation for the entrepreneurial firm. This is accomplished by recognising an opportunity, acts appropriately by creating an organisation that can achieve fulfilment of this opportunity, and is willing to risk their own personal wealth to achieve a goal (Bygrave and Minniti 2000). Between 2008 and 2010, the United Kingdom faced a recession which put substantial pressures on the entrepreneurial organisation in relation to revenue creation in an environment where customers were purchasing less products and services. Today, however, with the UK emerging from this recession, the genuine entrepreneur maintains new opportunities to procure wealth for the entrepreneurial firm and gain important customers that now have more viable resources to purchase the service and product offerings of an entrepreneurial organisation. This essay debates the different, key activities of entrepreneurship and explores how these activities ultimately impact economic performance for the entrepreneurial firm in a market environment that is much more conducive for organisational success and growth. Entrepreneurial activity as cultural development internally Many new entrepreneurial firms fail as a result of entrepreneurs not fully understanding problems associated with their business models (Chwolka and Raith 2011). It is rather commonplace for entrepreneurs to jump blindly into a new business model without properly planning that includes construction of a concise and well-developed business plan. A successful entrepreneurial venture must be considerate of the entire value chain, including marketing, human resources, technology, logistics and production in order to have a viable business model that can productively support a desired vision. Failure of the entrepreneurial venture occurs regularly as entrepreneurial leaders do not efficiently measure the business’ holistic capabilities and capacities needed to service a market which leads to a lack of competitiveness in the firm’s competitive market (Brinckmann, Grichmar and Kapsa 2010). In order to properly service the external market effectively and profitably, it is critical to understand what constitutes the dynamic of the post-recession UK markets and then attempt new strategies to align the entrepreneurial enterprise with these conditions and dynamics. As one example, the post-recession consumer is now more concerned about the ethical values and behaviours of the organisation. A study conducted by Oh and Yoon (2014), utilising a sample of 343 different consumers, identified that when an organisation illustrates that it maintains altruistic values and activities, consumers maintain a more positive perception of this business over that of businesses without a promoted ethical stance. This provides empirical support that entrepreneurial organisations that focus on corporate social responsibility can experience higher revenue growth as a result of exhibiting moral behaviours and values since customers will prefer consuming products from the ethical business. In such a post-recession situation where ethical consumerism is creating significant influence in why a customer segment chooses one business over another, this details how entrepreneurial innovation can effectively position the entrepreneurial firm over that of less-ethical competitors. One of the most fundamental activities of a legitimate entrepreneur is to build a team-focused environment internally which enhances creativity, innovation, and builds a culture of team commitment and collaboration (Hayton 2005). A longitudinal study carried out between 1977 and 1988 identified that when a business is able to build a cohesive organisational culture, it leads to a 765 percent increase in income production for organisations spotlighted in the study (Kotter and Heskett 1992). This is substantial and provides the foundation for a true entrepreneur to focus on internal strategies that can better ensure better organisational performance and achieve substantial increases in profitability which is typically the primary objective of the entrepreneurial leader. This reflects how an entrepreneur can innovate at the internal level, working diligently to develop human resource policies and initiatives that promote ethical values as a foundational, cultural vision for the entrepreneurial firm. Saffold (1998) found that when all members of the organisation have shared values with an emphasis on teamwork, it enhances ethical attitudes and behaviours of employees. This is how an ingenious entrepreneur can gain more consumer following: by influencing organisational members to maintain an ethical set of values and promote these beliefs in all dynamics of business practice. Entrepreneurs need only to demonstrate their own integrity and consistently reiterate the need for the firm to maintain an ethical vision in order to gain organisational followership. Through role modelling, it builds trust in the leader, which leads to organisational commitment and influences others to emulate these behaviours and accept the entrepreneur’s ethical ideologies (Resick, Hanges, Dickson and Mitchelson 2006). How, though, would ethical leadership and ethical cultural development lead to superior economic performance for the entrepreneurial firm? Such activities such as role modelling and promoting an ethical vision to gain ethically-based commitment are low-cost activities, first and foremost. For an organisation that is attempting to promote itself as being superior in corporate social responsibility and the provision of ethical products and services, building a cohesive ethically-minded organisational culture can manifest itself in areas of customer service, production quality, and even in the marketing function within the value chain (such as creating truthful and reliable advertising content for a product or service). The entrepreneur is building human capital toward the organisation’s new vision of ethical business behaviours, without significant financial expenditures, in order to better satisfy and interest the post-recession ethical consumer. Secondly, the literature states that investors are more attracted to a firm that has a cohesive organisational culture (Very, Lubatkin, Calori and Veiga 1997). Investors often believe that such an organisation is more high prestige and creates motivation to partner with such a business organisation (Very, et al.). Many entrepreneurial firms are reliant on external investor contributions to the business model in order to achieve growth and improve capacity in many areas of operations, especially in an environment where banking institutions in the UK are more stringent about issuing loans in a post-recession environment. Therefore, using low-cost role modelling strategies and using internal human resources practices to build an ethical organisational culture, it can attract more investment from private investors or venture capitalists which is critical for a smaller entrepreneurial organisation to be competitive short- and long-term. Economic performance as a result of promoting an ethical culture of cohesion, based on the evidence, can theoretically be improved by attracting investors that provide important economic capital for the organisation and better equip the firm to satisfy and entice the post-recession ethically-oriented consumer. It is not always simplistic for an entrepreneur that is attempting to realise a vision to obtain the necessary financial capital needed to start-up an entrepreneurial firm and ensure improvements throughout the entire business model needed to effectively service customers and the general external market. In a post-recession environment where many entrepreneurs are seeking funding and economic assistance from multiple lending facilities and independent actors, a firm requires some advantage that makes one firm more enticing for investment than another. Not all entrepreneurs can rely on quantitative statistics of existing and projected profitability in order to procure such funding and assistance, hence the cohesiveness of a dedicated and ethically-oriented culture could provide the type of unique incentive needed to make the entrepreneurial organisation stand out from other applicants seeking external funding support. Entrepreneurship as innovation Literature supports that companies that provide a market with unique and innovative products or services as a first mover maintain substantial advantages over competition that enters the same market later (Kalyanaram and Gurumurthy 2008). The pioneer becomes the standard by which customers judge a late entrant and it is typically the late entrant that is viewed unfavourably (Kalyanaram and Gurumurthy). Fortunately, in the post-recession environment in the UK, products that were once considered top line pre-recession now have reached their life cycle and are being seen exiting multiple markets (Hudson, Gregory and Davison 2012). This represents an opportunity to innovative a product or service and enter the market in order to build a reputation as a pioneer in a certain product category. Such a reputation is especially important in a very saturated competitive environment and would, theoretically, guarantee that a firm maintains more consumer loyalty in the long-term. Customer retention and commitment toward a firm is a major source of long-run competitive advantages that lead to greater revenue production for an organisation. Furthermore, Komninos (2002) identifies that it is often quite difficult for companies to recognise when the life cycle of their products has reached the decline stage. It is not generally until the company witnesses a decline in sales revenues that the firm realises their market position is now weak. Hence, a manager that is more proactive in conducting research of the competitive marketplace, evaluating market competitor activities, and researching consumer needs will be more equipped to innovate a product in an environment where competition has reached the decline stage with their existing product or service. One can consider the following example. A small-sized entrepreneurial firm entered a competitive market through the production and distribution of drawer rails utilised in household furniture, cabinetry and professional office furniture. In the post-recession environment, higher-resource consumers are now buying more of this furniture due to having more available disposable incomes. However, standardised steel drawer rails no longer ensure quality of home and office furnishings and buyers are demanding more longevity for their furnishing purchases; eliminating problems with bending, twisting and potential rust in the drawer mechanisms. This represents a declining competitive market for standardised drawer rails and an opportunity to innovate. In response, the genuine entrepreneur realises that quality is of the utmost importance to the post-recession buyer markets. Through a strategic alliance with metallurgy research organisations, the entrepreneur realises that electro-coating powder finishing can effectively coat the drawer rails with non-permeable materials, thus enhancing the quality and longevity of furnishing drawers. Through banking loans and venture capitalist interest, the entrepreneur is able to incorporate a powder-coating process within the production system at the entrepreneurial firm and enter a market as a first mover in electro-coating technology. Through effective direct marketing and promotion, the pioneer in this new activity builds a rapid reputation for being an innovator which motivates buyer segments to cancel their contracts with other standard drawer manufacturers and establishes a positive brand identity and business position in this supply market. As a result, this supplier to the furnishings industry has provided opportunities for the rail buyers to promote a more quality product and has built positive business-to-business relationships with many buyers of the innovative electro-coated drawer rails. Now, this entrepreneur is a true pioneer and will be the model by which buyers judge later entrants who attempt to replicate this new technological process in the future. Buchanan and Huczynski (2010) states that as external market conditions change, internal contingencies must be considered to ensure an organisation can remain competitive and relevant. The true entrepreneur identified a potential gap in the drawer rail market, sought out alliances and investment to revolutionise product quality and functionality, and altered operations (including marketing) to ensure that the entrepreneurial business can achieve substantial revenue improvements and also position the business effectively in a dynamic supply market. Though the aforementioned is only one example of innovation as a critical entrepreneurial activity, it illustrates how in a post-recession environment an entrepreneur can become a new product first-mover and sustain long-term brand-related reputation with important customer constituents. This entrepreneur identified an opportunity, procured the necessary resources and talents needed to become a pioneer, and made contingent changes in the organisational model necessary to outperform late movers well into the future. Pre-recession, where standardised drawer rails were the norm in many markets, a more hedonistic consumer that demands higher quality post-recession now provided the foundation for radically altering a business model to improve the holistic economic performance of the organisation. Entrepreneurial activity as opportunity spotting It is anticipated that the post-recession consumer will be more substantially thrifty with a new emphasis on economising their purchases and frugality (Flatters and Willmott 2009). Hence, it might not be viable for entrepreneurial firms to establish premium pricing structures on a variety of products and services or focus on gaining the marketing-based attention of a diminishing luxury consumption segment. One can consider an entrepreneurial gourmet chocolates firm that had, pre-recession, experienced explosive profits by selling top quality chocolates at a premium price justified through years of effective promotion that positioned the firm in terms of premium product benefits. In the post-recession environment, faced with a more frugal and thrifty buyer segment, now is having problems selling these products which erode profitability and sustainability for the entrepreneurial firm. A genuine entrepreneur now spots an opportunity: to revamp the business model to gain a cost leadership position in a competitive market, attract a larger segment of more frugal buyers, and achieve a market position as a price leader. Rather than producing luxury chocolate products, using premium ingredients in a very premium raw material supply chain, the company can shift procurement, production and marketing to better service a broader market of lower-resource buyers with a demand for non-extravagant purchases. How, though, would this entrepreneurial activity be accomplished? The entrepreneur can scan the external environment to identify opportunities to purchase less-high-quality ingredients with a revamped supply chain. Through partnerships with supply vendors, considering raw material purchases in bulk quantities, and standardizing production activities, the entrepreneur is now equipped to distribute a finished product with a lower price that will have mass market appeal rather than focusing on gaining premium revenues from a smaller, niche market. Under a pre-recession business model, the entrepreneur required the artistic talents of many production line employees who hand-decorated the gourmet goods to achieve an aesthetic appeal to the luxury-oriented buyer segments. This increased payroll obligations for the firm and complicated the speed by which gourmet food products could be completed and packaged for distribution. By establishing the operational capacity to mass produce, rapidly, a new line of less-premium chocolate products, it eliminates the need for excessive labour which provides the firm with much less overhead expense. Furthermore, more rapid production of a less-quality finished product allows the firm to more quickly distribute the finished product at a variety of budget-conscious retailers which gives the brand more exposure and capability to serve a broader market than in the pre-recession environment where distribution was limited to only high-end retailers that could contribute to the quality brand identity of the firm. What the entrepreneurial manager has accomplished, in the aforementioned scenario, is the ability to produce a lower-cost product by improving economies of scale by speeding up operations, radically altering procurement methodologies, and reducing long-run costs of production. As a result, the more frugal consumer is attracted to a product with a lower price tag (hence satisfying their post-recession characteristics and needs), whilst also improving economic performance by attracting a much broader consumer market with the resources necessary to purchase this standardised chocolate product. In this scenario, entrepreneurial opportunity spotting identified prospects for ensuring longevity of the corporate life cycle by altering many aspects of the value chain that support profitable business operations. Internal operational activities were adjusted or modified to achieve cost reductions critical for providing a low cost product and the entrepreneur, through market analyses and persistence, established a new and efficient production and procurement model that allowed the entrepreneurial firm to seize market share with a new mass market distribution strategy. As aligned with entrepreneurial theory, this genuine entrepreneur managed to introduce new technological processes, reinvested profits to achieve a new operational model, and adjusted to changing market conditions so that the firm could continue to achieve growth (Fonacier and Mueller 2007). The post-recession consumer, being less interested in extravagant purchasing and desiring to scale back their purchases represented ample opportunities to expand the life cycle of the entrepreneurial firm in an environment where there was a new type of risk related to achieving profit by a changing target segment dynamic and set of needs and values. If the entrepreneur had not evaluated the external market characteristics (perhaps achievable by investing in focus groups and surveys of real-world consumers) and identified methods to cut costs and standardise production, it is likely the firm would have experienced diminished profitability as a result of the post-recession consumer dynamic. From a different perspective, however also related to opportunity spotting activities, one can consider an entrepreneurial firm that wishes to exploit opportunities to create market entry barriers for competition as a means of competing more effectively. In the post-recession environment, the United Kingdom now provides opportunities for competing businesses to seek new markets, create innovative products, and guarantee more revenues in an environment where consumer spending is increasing in the UK. One can consider a mid-sized entrepreneurial firm that creates online gaming applications for low-cost download on consumer smartphones and other mobile devices to enhance lifestyle and recreation. Pre-recession, this firm had been an innovative leader in providing new and revolutionary, yet small-scale, software applications and marketing these toward the youth buyer segments with low resources and high demand for personal gaming technologies. Today, however, as a result of an improved UK economy, and with many competitors learning how to replicate such programs and applications to provide low-cost mobile games, the entrepreneurial firm is now witnessing new market entrants who are seizing market share and diminishing consumer loyalties that had once contributed to a much higher profit margin. As a result of this new environment, the entrepreneurial leader begins seeking joint ventures and strategic alliances with technology firms to develop creative gaming concepts that make the business stand out from competition. Through effective B2B relationship management practices, seeking such partnerships as a diligent executive activity, and sharing capital resources with development partners, the entrepreneur and partner organisations begin conceptualising and producing unique gaming systems that are unlike other competing technologies in this growing market. Now, these new technologies achieved through alliances and joint ventures can procure intellectual property protections as a means of fostering an environment where replication of these gaming applications is discouraged and protected by law. Fixed term contract agreements occurring between the entrepreneurial leader and their partner development agencies minimise risks in the event of an ultimate, future need for market exit and also allow the entrepreneur to seek new opportunities in the event that competition produces superior innovations in this product category into the future. Inkpen (2000) asserts that knowledge acquisition through pursuing joint ventures provides substantial leveraging opportunities for the firm as well as inter-organisational learning which provide the firm with significant competitive advantages. In the aforementioned example scenario, there is ample risk for seeking out joint ventures and strategic alliances as there is no guarantee that the product outcomes developed through such partnerships will achieve market success and consumer buyer interests. Furthermore, the risks to the entrepreneur is that such partnerships will not produce valuable and profitable innovations in this technology sector and could result in significant losses of available financial capital. However, a genuine entrepreneur is willing to absorb these risks in order to seize important and potentially-lucrative opportunities (Kamalanabhan, Sunder and Manshor 2006). If such partnerships are successful in developing innovative products in the technology market, and protections placed on this property, it is likely that the life cycle of this technology will be extended and potential competitors thereby deterred from entering the market and being able to replicate the partnership-produced products. There are always risks that alliance or joint venture partners will have incompetent or over-bearing management that attempt to seize control over joint operations or perhaps even that partner employees will be unmotivated in creating new product innovations along an expected deadline and with the level of quality required to make the entrepreneurial leader successful for new product development. Conclusion Whilst all of the examples identified in this essay which provide evidence of how a firm can achieve greater economic performance through entrepreneurial activity are valid as aligned with entrepreneurial theory, they do not represent the only activities that a genuine entrepreneur can undertake to achieve greater profitability and organisational performance. This essay identified the many potential financial advantages of being dedicated toward leadership, human resources development, and using exemplary, role-modelled behaviours as a means of producing more productive and committed human capital. Leadership is consistently iterated as being a fundamental entrepreneurial activity and characteristic and, by appealing to the post-recession consumer with a focus on ethical consumption expectations, a true entrepreneur can better satisfy a changing consumer market dynamic and thereby achieve higher profit through promotion and illustration of ethical behaviours. Furthermore, this essay identified that innovation is a fundamental method of achieving a better market position, reputation and achieving the ability to outperform competitors in the same market as the entrepreneurial leader. By focusing the firm on creating unique products and services, or enhancing existing products such as the steel drawer rail example, a firm can become an effective pioneer that has many financial advantages both short- and long-term as it builds a better company reputation in the market and better satisfies markets with a demand for quality. In terms of opportunity spotting, there are a plethora of potential opportunities that a genuine entrepreneur can seek and align the entrepreneurial organisation to achieve. In the post-recession environment, where changing external market conditions dictate a need for an entrepreneurial leader to be diligent in seeking new prospects for business growth, an entrepreneur must regularly scan the conditions and dynamics of the external market and make important changes to better service this market effectively. With new opportunities as a result of a better UK economic climate in terms of customer segments having more resources to increase their consumption, achieving financial performance appears to be achievable by simply assessing market needs, determining efficiency of operational strategy, improving knowledge through partnerships, and revamping operations to alter the business model more productively. Though this involves some level of risk with each opportunity spotting adjustment to the business model, this is a fundamental aspect of entrepreneurial behaviour necessary for the entrepreneur to achieve economic and competitive successes. As illustrated in this essay, the post-recession environment now provides an entrepreneur with the ability to improve financial performance of the firm. 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