Entrepreneurial Activity and Its Impact on Economic Performance - Research Paper Example

 Entrepreneurial Activity and Its Impact on Economic Performance An authentic entrepreneur is debated to be a person who is able to open new markets, create a service or product that maintains value for important customer constituents, and is persistent in providing the entrepreneurial organisation with financial gains (Hisrich and Peters 2002). Theory states that an entrepreneur remains focused on bringing his or her business successes by identifying risks in the market where the entrepreneurial organisation operates and creates strategic objectives that assist in realising a vision for where the entrepreneur wants the business to be positioned long-term. Entrepreneurs are said to be innovators (Antoncic and Hisrich 2003), in which behaviours manifest themselves as building human capital through creative HR-based strategies to bring a firm competitive advantages, recognising how to creatively fill market deficiencies, and translating a desired vision into appropriate action using strategies that position the business differentially in an established competitive market. Between the years 2008 and 2010, the UK was in a deep recession which placed significant problems on entrepreneurial businesses in terms of achieving growth and better revenues in an environment where consumer incomes were strapped and their consumption levels had decreased. However, the UK is, today, emerging from this problematic recession and the UK environment now provides new opportunities for building organisational wealth and opportunities for capturing the interest of a UK consumer that is less-burdened with the economic environment in the country. In a market where viable customer segments now have better incomes and financial resources to make more predictable purchases of services and products offered by the entrepreneurial business, entrepreneurial activity is even more important for bringing an entrepreneurial firm more competitive and financial success. This essay explores different characteristics and activities of a true entrepreneur and investigates how these activities can contribute to improving the economic performance of the entrepreneurial organisation. In a UK market that is more supportive of providing firms with growth opportunities, understanding how the entrepreneur conducts strategy development, people development, and aligning the business with market conditions and needs can assist a legitimate entrepreneur with practical and profitable strategies to ensure that outputs provide value to the firm. The entrepreneur as a risk-taker is said to be one of the most important and fundamental activities of true entrepreneurship that will serve as a predictor of achieving the most superior gains over that of competing firms. There are substantial risks in managing and running a successful entrepreneurial enterprise that is directly related to the competencies of the entrepreneurial decision-maker (Macko and Tyszka 2009). Chwolka and Raith (2011) state that a high volume of entrepreneurial enterprises fail due to the fact that many entrepreneurs do not recognise that many different problems that are connected to their desired business models. Many entrepreneurs will enter into management of an entrepreneurial business without construction an appropriate planning framework needed to make the business run efficiently and productively, representing a situation where an established entrepreneurial venture does not maintain an adequate long-run business plan. Deming (2002) strongly asserts that the success or failure predictability of a firm is directly related to managerial competency. Hence, a competent entrepreneur must consider much more than a new vision for a firm, but must consider the dynamics of the external market, how to support through operations and through employee job roles, the nature of the value chain, identify what competition is doing in the established market, and be considerate of effective and profitable resource allocation to support their new business model. Furthermore, many entrepreneurs who have over-confidence in their abilities will too quickly establish a business model and operating structure without planning for fundamental contingencies, learning about the customer environment in the external market, or establishing value chain-related activities that can efficiently and profitably support the business vision. Many new entrepreneurial firms fail as a result of entrepreneurs not fully understanding problems associated with their business models (Chwolka and Raith 2011). Is it 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 should theoretically 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. It has been contested that 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). To properly service the external market effectively and profitably, it is theoretically 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. Hmieleski and Baron (2009) warn that when entrepreneurs maintain this level of over-confidence without first considering more rational and logical judgments about strategy development at the firm, it can erode long-term business success. It is common, according to Ropega (2011) for entrepreneurs to maintain an apathetic attitude as it pertains to proper planning processes, with failures occurring as a result of overlooking important activities inter-linked and critical to achieving business success. A successful entrepreneur should, according to theory, be equipped with knowledge of all value chain activities, determine how to effectively align operations with service ideologies, and fully understand the market environment in order to create a viable and profitable business model that can support long-term success. With the UK emerging from a very difficult and challenging recession, it is even more critical that entrepreneurs pay close attention to the planning process if the business desires to capture the interest and loyalty of external customers. Flatters and Willmott (2009) describe characteristics of the post-recession customer segments, suggesting that consumers have much more emphasis on being thrifty in their purchasing behaviours, a wholesome life with a desire to be less wasteful (p.1). This is referred to as a new type of discretionary thrift in the post-recession customer demographics. Hence, a true entrepreneur that maintains proper planning competencies can theoretically alter their business model to be more responsive, empathetic, and generically capable of better servicing the needs of this new and evolving thrifty consumer. An example of this more thoughtful and planning-oriented entrepreneur can be illustrated with the UK low-cost grocery market, Iceland. Iceland was founded by an independent entrepreneur, Malcolm Walker, who wanted to create a supermarket business model that could provide high quality, low-cost food products to consumers throughout the UK. Iceland began a supply chain structuring that would provide the firm with low-cost private-label brands that are relevant for the price-conscious consumer. However, prior to the recession, Iceland only managed to maintain a 1.8 percent market share in the UK as the customer segments attracted to the firm, pre-recession, were not interested in private label brands and were not nearly as price-sensitive as they are today. Prior to the recession, consumers were often embarrassed to have others in the social environment see private label brands in their supermarket cart (Business Wire 2011). It is at this point where an innovative entrepreneur theoretically determines how to restructure the business model and value chain to cater to a growing segment of consumers that now see private label buying as chic. The first and foremost challenge, however, is promoting how Iceland can provide value to customers and getting them to believe in this message in order to achieve superior financial performance for this entrepreneurial firm. With an operational model that had not, prior to the recession, considered the value of marketing promotional expenditures to gain consumer attention, now there are opportunities to make marketing a more fundamental aspect of the value chain in order to gain important consumer attention and interest in the private label, low-cost brands. Market research on behalf of Iceland, as part of proper planning, would recognise that the concept of cheap chic is spreading across the UK as a result of a more thrifty-oriented consumer (KeyNote Ltd 2014). Rather than focusing on product quality as a means of selling private label products, which was only viable for the niche markets prior to the recession, now the entrepreneur can potentially innovate the marketing function at the firm and redesign customer service processes and ideologies to make Iceland appear more valuable to the frugal consumer segments. Entrepreneurial innovation is not only about making changes to an established product, but introducing new creative ideas and methods that provide greater value to an entrepreneurial firm. Prior to the recession, Iceland maintained an everyday low price model that was targeted at “busy, value-conscious mums” (deliveryfe.net 2013, p.1), which was not successful in improving market share through the procurement of more broad consumer segments. Hence, the creative and innovative entrepreneur, in a post-recession UK environment, can potentially now begin altering pricing strategies, such as promoting short-term sales on the already discounted private label brands to capture market attention. Recurring print advertisements, such as in newspapers and on billboards, can create important psycho-social connections with the new buying markets that value thrift as being chic and socially relevant. By creating a value proposition and investing more capital resources into the promotional function, a new concept at Iceland, the true entrepreneur opened new channels to gain more consumer interest and aligned staff to support a new market-centric model targeting more than just the value-conscious mother. Zhang and Chan (2009) state that when a product or service is able to provide consumers with the perception that it can improve their personal self-expansion, they are likely to develop strong emotional attachments and loyalties to these services and goods. The entrepreneurial business now has opportunities, based on understanding and researching market trends as competent planning talent, to illustrate legitimate economic-based value to a growing segment of price-conscious buyers whilst illustrating that private label purchasing is chic and relevant. This will ultimately lead to more interested buyers who do not need to feel embarrassed about being frugal, hence saving face from a social reputation perspective, thereby theoretically improving sales revenues and genuine economic performance. It has been said that knowledge of how the market functions is a characteristic of a successful entrepreneur (Caird 1988) as well as the ability to effectively grasp opportunities for improving economic wealth. Prior to the recession, Iceland focused on the tangible product with an emphasis on supply chain support in order to provide consumers with top quality products at an affordable private label brand price. Now, the creative entrepreneur plans new strategies that might build a more positive reputation for the firm and exploits restructuring the firm’s operational strategies to gain a whole new market of changing post-recession customer segment. From a different perspective, it has been offered that there is a type of entrepreneur, known as the social entrepreneur, which creates more wealth for a firm by pursuing a social mission (Zahra, Gedajilovic, Neubaum and Shulman 2009). For-profit organisations can have compatible goals in the pursuit of achieving economic performance whilst also taking a stand or approach toward corporate social responsibility (Carroll 2007). There is considerable research available that there is a growing trend in the external consumer markets, a situation known as ethical consumption, whereby consumers favour buying services and goods from businesses that have a strong moral and ethical mission. Oh and Yoon (2014) conducted an empirical study, post-recession, that found the majority of surveyed consumers would maintain more loyalty toward a business that has ethical values and promotes philanthropic activities. This is supported by Bezencon and Blili (2010) and Globe Scan (2009) who suggest that consumers, today, favour products with an ethical mission or vision and are starting to punish companies without such a promoted ethical stance in favour of buying from companies with a corporate social responsibility ideology. The exact rationale for why consumers are adopting this new set of beliefs and consumerist power related to choice between ethical versus non-ethical business is unclear. It might be a product of a more community-minded consumer that had to rely on others in the social environment during the difficult recession. However, it seems to be an empirically supported trend in the external customer markets which represent substantial opportunities for an entrepreneur who wishes to become a social entrepreneur in order to provide a firm with higher economic performance. Hence, a social entrepreneur might be able to recognise an opportunity to transform the image and reputation of his or her entrepreneurial venture in a method that will have more favour to the external customer by adopting a socially-conscious business mission. Consider an entrepreneurial venture that, prior to the recession, provided consumer food products that had gained market share and attention for having dramatic and eye-catching packaging that made it stand out from competition. Today, however, the post-recession consumer is more concerned about waste (Flatters and Willmott) and might be turned off by such extravagant plastics and other materials utilised in once-competitive over-packaging in production. Now, under the debated definition of a legitimate entrepreneur, graced with knowledge and research of the changing post-recession consumer, the entrepreneur might have significant advantages for better servicing the needs of customers: becoming a business with a greener, ecological vision that promotes less consumer waste by minimising packaging ideology. To achieve this vision, however, the firm should develop an organisational culture focused on improving social ecology. Human capital development and adoption of a more effective leadership ideology, as a potential entrepreneurial activity, could build a new type of human capital to support a new CSR-oriented, ethical vision. Yilmaz and Ergun (2008) identified that when a firm maintains a cohesive culture that has a shared set of values and beliefs, it enhances problem-solving in the firm and increases organisational performance. A person viewed as an entrepreneur is capable of using transformational leadership practices to gain organisational commitment and championing the vision throughout the entire organisation (Hayton 2005). Now that consumers value being less wasteful and have a more positive attitude toward the ethically-oriented business, a genuine entrepreneur might be able to utilise leadership strategies effectively so that all employees are on-board with a new vision and changing business practices. Reducing package waste would require not only gaining organisational commitment to become an ethical enterprise, but it would require revamping the supply chain, altering production operations, and changing the methodology of promotion to provide the business with a positive reputation in the external customer markets. Whilst still providing the same food products, the business gains market interest and loyalty by using, for example, recyclable packaging or compostable materials with a shorter decomposition life cycle. Now, in a competitive environment where other comparable food providers still utilise extravagance in packaging concepts to stand out, the entrepreneurial food producer firm could be positioned as a socially-conscious leader which is likely to gain the attention of a growing ecologically-minded, less wasteful customer demographic. With the literature providing support that consumers are more willing to patronise a competing firm with an emphasis on CSR and ethics, the entrepreneur recognised an opportunity and made small-scale (but organisation-wide) changes necessary to differentiate the business from competing food manufacturers. Hence, in this scenario, leadership and social entrepreneurship as legitimised entrepreneurial behaviours serves as a predictor for greater revenue growth and a more positive competitive reputation to service the post-recession ethical consumer more effectively. This entrepreneur that has determined having an ethical vision and mission might bring the firm competitive advantages can also role model volunteerism behaviours in order to gain commitment from organisational members to contribute to a philanthropic model. Leaders who role model behaviours are more likely to gain employee followership under social learning theory. After gaining the hearts and minds of organisational members toward volunteerism efforts can be promoted effectively using a variety of PR tools or media outlets that will better promote how the entrepreneurial firm has become committed to improving the social condition in the UK. Volunteerism in mentoring programs, urban clean-up objectives, and a plethora of other activities, with the entrepreneur taking a lead in these physical efforts, might significantly differentiate the firm from competitors without this focus, thereby improving the long-term revenue production opportunities for the business that are generated with an improved socially-conscious reputation. Bill Gates, the entrepreneurial founder of Microsoft, often utilises media promotions and other public relations mediums to illustrate his philanthropic contributions and dedication which, in turn, leads to higher revenues for Microsoft over many competing technology companies. From yet a different perspective, entrepreneurs as theoretical innovators could potentially bring a firm more economic performance. It has been offered that an entrepreneur maintains a talent for spotting opportunities related to an innovative idea (Gaglio and Katz 2001). Consider a small-sized entrepreneurial firm that found market success, pre-recession, providing consumers with no-fade nail colours that had been guaranteed to provide consumers with an elongated colour experience at a quality-positioned premium pricing structure. Identifying opportunities to improve the output of research and development, pre-recession, captured the attention of the once luxury-minded consumer female segment for distribution of an innovative, quality beauty industry product. Today, however, the post-recession UK female consumer is more willing to trade premium products for lower-cost private label alternatives to better suit their frugal beliefs (McDougall 2011). Now, the entrepreneurial firm maintains an opportunity to produce products at a lower price point to satisfy a growing demographic that is concerned about extravagance in their beauty product purchases. The entrepreneur might, as one example, look overseas for foreign producers of cosmetic products (such as in China) to create a joint venture to launch a line of quality-focused, yet low-cost products for import and distribution in the UK. Such a venture would provide a persistent entrepreneur with new supply chain channels, bring his or her firm more knowledge in relation to research and development, and allow for production of beauty products sold in the UK at a much lower price point. (There is a significant currency exchange benefit between the UK Pound Sterling and the Chinese Yuan). Such an action might not only provide the price-sensitive female buyer with quality alternatives to the premium-priced nail colours, but might potentially allow this innovative entrepreneur with opportunities to distribute UK-produced products in China now that the joint venture maintains a foothold in a new foreign market. Higher revenues as a result of capturing the attention of a broader, post-recession female segment and the long-term ability to enter a new market with innovative products represent true entrepreneurial activity that brings more substantial economic performance in the post-recession environment. In the aforementioned scenario, the entrepreneur absorbed considerable risk that customers, who were once loyalty to the premium beauty products distributed by the entrepreneurial firm, might not be as accepting of a cheaper, private label alternative to satisfy their beauty consumption needs. However, this entrepreneur likely conducted a cost-benefit analysis and explored opportunity costs associated with contracting a new foreign joint venture and determined it would provide more long-run opportunities for the firm. Instead of just seeking out other luxury buyer segments, instead the firm now has the capacity to produce the luxury products, produce lower-priced beauty products for much lower-resource buyers, and now has equipped the firm with knowledge of a lucrative foreign market environment that could translate into significant revenue growth and distribution capability. Furthermore, using the beauty industry example as the relevant illustration of entrepreneurship and the achievement of economic performance post-recession, this entrepreneurial behaviour of innovation and risk adoption also created potential new opportunities. It is recognised that in the post-recession environment, it is more difficult for an entrepreneur to gain access to credit and loans as banks and other lenders tighten their credit restrictions which previously contributed to an economic collapse (Rae 2009). Now that the business is earning revenues through a joint venture, it could theoretically become more attractive to venture capitalists and other lending facilities as a firm with predictable revenue growth opportunities. As a result, it might become easier for this firm, which found revenue success through risk-adopting activities, to procure credit or independent investor capital infusions that give the firm a greater economic advantage than the business experienced pre-recession. The ultimate decision to begin manufacture (overseas) of lower-priced nail colour products became a creative resource-based strategy that has ample opportunities for improving the economic position of the entrepreneurial enterprise. Yet another example of entrepreneurial innovation as a catalyst for economic performance improvement could be illustrated with a UK owner of health clubs. Prior to the recession, consumers might have been willing to pay higher prices to have access to personalised health experts who assisted in creating new diet regimens for the health club customers and providing expert advice on maximising the exercise experience. However, with today’s post-recession consumer more cost-conscious and frugal, this represents an idea for innovation without necessarily incurring higher costs. Through low-cost web development strategies, the business can establish an online consulting model that is available to customers of the health club without substantial additional cost. The new online health expert site can have pre-conceived menu strategies, exercise strategies for certain body mass indices, and a variety of other low-cost web-based interactive forums to engage the health-conscious customer segment. This innovation in service ideology and service delivery could give the entrepreneur a more differentiated competitive identity and motivate the cost-conscious health club customer to make a purchase without having to pay additional fees for personalised service. Such a strategy would be considered original in service competency in the minds of the consumer whilst also promoting a new type of value related to this entrepreneurial health club over that of more standardised, price-focused competition in this sector. This essay identified that an authentic and productive entrepreneur should be willing to spot opportunities, absorb risk, develop innovative strategies, and build human capital in a fashion that is conducive to economic growth and operational improvement. The post-recession environment has created a new type of customer that values thrift in consumption, the reduction of waste, and willingness to defect to more economical brands that satisfy their new budget-conscious consumption behaviours in the United Kingdom. Hence, if a business is not able to come up with creative ideas or make adjustments to the business model to better satisfy an evolving customer demographic, the entrepreneurial venture is unlikely to achieve higher economic performance over the short- and long-term. The essay provided many different examples of how entrepreneurial activity can theoretically achieve superior economic performance if the entrepreneur is persistent in creative developments, being willing to take appropriate risks, and aligning support staff of the organisation to support a new vision or mission. Whilst there are many other entrepreneurial activities that can theoretically serve as catalysts for enhancing an entrepreneurial firm’s economic performance, innovation, human capital development and willingness to absorb risk are the most fundamental for improving an organisation’s financial position. The post-recession consumer has ample choices of which company to purchase products and services from, which lowers the switching costs to these customers and poses ample risk of being able to retain loyalty for the entrepreneurial firm. In an environment where customers have choice and are dedicated to finding products and services that provide economic value to their new frugality characteristics, it is appears critical that the entrepreneur examine changing market conditions, be flexible to make operational changes when required, establish new vision for their organisations, and make risky decision that will likely bring the most significant long-term economic advantages. 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