Entrepreneurship and Innovation Theories - Article Example

ENTREPRENEURSHIP AND INNOVATION THEORIES By Location Entrepreneurship and innovation theories Introduction Ininvestment terms, entrepreneurship refers to a concept in business where a person develops a business from zero up through the forming of an idea and turning the same into a profitable venture. According to (Gasparski, Ryan & Kwiatkowski 2011, p. 9), entrepreneurship is a journey of exploring risks and opportunities with the aim of creating value and making profit. In order for this process to be successful, it requires that an entrepreneur has a keen eye for recognizing the opportunities that are available and also is able to gather the resources needed in executing this plan as explained by (Schermerhorn 2011, p. 400). Chernett (2010, p. 23) intimates that this process also requires finding the right individuals or team that would be able to push the agendas of a business meaning that the creation of the right team is a must. Coming up with an idea is the first step in entrepreneurship, which means that other factors such as developing a way of reaching the targeted consumers in a way that is affordable and effective is vital. With this, this essay will delve into the explanation of some main theories that are related to answering the question of how entrepreneurs can use creativity to develop their business ideas and innovations. Economic theories As depicted by Landström & Lohrke (2010, p. 18), Richard Cantillon developed this theory in the 1700s which stated the entrepreneurs bear uncertainty when performing their functions as they buy goods in anticipation to sell to buyers that they have not even met. Brown and Thorton (2013) explain that Cantillon described an entrepreneur as any individual that makes an investment with the intention of selling the goods in the future with the price of these goods not being. Entrepreneurs ranged from butchers, lawyers, carpenters, retailers, shop keepers, painters, bakers, artisans among a list of other investors whose future profits were unknown to them. Sahai and Lall (2008, p. 6) confirm the notion that entrepreneurs tend to be risk takers despite the economic conditions that go through, but focusing on the opportunities that they can create out of the investments they decide to make. Resource based theories These theories of entrepreneurship focus on the ability of the entrepreneur to pull the required resources so as to get their desires for entrepreneurship off the ground by any means possible (Cuervo García, Ribeiro, & Roig, 2007, p. 207). According to Simpeh (2011, p. 5), this theory requires that an entrepreneur has the required access to the resources and to the capital that a business may require in order for it to be up and running. An entrepreneur’s ability to leverage the required capital is also an applicable concept because each entrepreneur has the ability to pull resources as they tend to posses opportunity seeking behaviours. This means that a set of skills and activities conducted by an entrepreneur can serve as the resources that a firm needs in order for it to pick from the ground going up. Alvarez & Busenitz (2001) state that entrepreneurial cognition influences a business to gain a competitive advantage because such entrepreneurs are able to integrate their knowledge and skills for the benefit of their businesses. Psychological theories Cuervo Garcia, Ribieor and Roig (2007, p. 139) state that McClelland was the founder of this theory in which he asserted that entrepreneurs resulted from their need to achieve meaning that entrepreneurship had to begin from the mind. This theorist also suggested that enntrepreneurship was a culture, which was psychological, in which Vermeulen & Curseu (2010, p. 45) state that those with the desire to succeed through this way have to be personally responsible for the decisions they make and are able to set goals form themselves and for others. The other critical element that explained an entrepreneur from the psychological theory perspective was that they desire feedback as to ascertain the amount of impact they could be making based on the efforts applied. Strydom, Antonites, & Nieuwenhuizen (2007, p. 49) asserts that other personality traits also come to play such as initiative, systemic planning, assertiveness and commitment also complement the need for achievement so as to make their enterprises to be more successful. Just like in the resource based theories, risk taking is another trait attached to entrepreneurs in this theory as they tend to view high risk situations to be more moderate as suggested by Zimmerman (2008, p. 30). This is significantly what distinguishes a manager from an entrepreneur because the former tends to evaluate the risks associated with venturing into certain businesses while an entrepreneur visualizes the opportunities that lie ahead for the business amidst the risk. Farenga and Ness (2005, p. 432) suggest that Rotter’s theory based on the locus of control can apply here in that individuals also tend to have expectations that tend to influence the way they behave and is likely to make the people in their environments to behave the same. These expectancies tend to be psychological drawing from past experiences and the situations that they are currently facing whereby these two are likely to influence their perceptions of what to expect. Sociological theories Baron and Shane (2008, p. 195) assert that this theory strongly suggests that a strong social connections to those that provide resources increases the chances of opportunities for entrepreneurs in terms of raising capital. This implies that an entrepreneur could be having all the right ideas that are likely to grow into good business opportunities, but might lack the capital to start the same. Essentially, they may lack the connections to larger social networks that would be able to transform their ideas into the big business that they would wish to start. Breschi & Malerba (2005, p. 301) explain that entrepreneurs that have larger social ties are likely to overcome this challenge as they are likely to access those that can fund their ideas with ease as compared to those that do not have such opportunities. The illustration presented here is that cultural forces tend to shape the entrepreneurship perception as those that might be willing to support a business idea might belong to the same social class or ethnic divide. This somehow creates a barrier for the entrepreneurs that have substantive ideas, but do not belong to the same social circle as their potential investors, meaning that their ideas might not be able to kick off. Opportunity based theory Developed by Peter Drucker, the opportunity based entrepreneurship theory asserts that entrepreneurs do not bring change as per other schools of thought but focus on exploring the opportunities created by change (Mishra, Zachary, & Palgrave Connect, 2014, p. 117). This means that an entrepreneur is seeking to change, responds to the same and explores it as an opportunity for their business to grow. Wu (2011, p. 284) explains that entrepreneurs through this framework focus more on the opportunities that might result from the change rather than the problems that they might come across during this process. This theory can also stretch to incorporate the resourcefulness for entrepreneurs, especially if the resources are controlled and they end up running successful projects all the same. As witnessed above, entrepreneurs apply creativity to develop their own business, ideas and innovation irrespective of the challenges they may face or resource availability. As per the theories, entrepreneurship can be a cultural trait whereby they do not have to learn in order for them to manoeuvre in their craft. This means that entrepreneurs are able to work to work with what they have so as to make the change that they require and also influence other people in an organization to work towards the same for the success of a business. 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