Personality Traits Approach To Explaining Entrepreneurship - Case Study Example

< Personality Traits Approach To Explaining Entrepreneurship> by Abstract The essay critically analyses the personality traits approach and its contribution to the study of entrepreneurship in small and medium sized businesses. The recent renewal of interest in the personality traits approach for studying entrepreneurship is also discussed in detail. Table of Contents I. Introduction………………………………………………………….4 II. The Emergence of Personality Traits Approach…………………….4 III. The Need for Achievement……………………………………….…5 IV. Locus of Control…………………………………………………….7 V. Individual Traits…………………………………………………..…7 VI. Recommendations…………………………………………………...8 VII. Conclusion…………………………………………………………...8 Personality Traits Approach To Explaining Entrepreneurship Introduction In the field of entrepreneurship study, the concept of personality traits and psychological traits has been a subject of a number of debates and controversies. Personality Traits is one of the most popular research areas and it is also one of the subjects which has one of the highest inconsistencies in the findings by the studies conducted so far. There have been a number of researchers who have formulated a link between competitive advantage and personality traits. Especially in the area of small and medium enterprises, personality traits have reportedly played a significant role in explaining entrepreneurship. There are a number of researchers who want to further reinstate the link between personality traits and entrepreneurship in small and medium enterprises, for expanding and validating the study of personality (or psychological) traits approach. The Emergence of Personality Traits Approach There have been several of researches which were conducted in the nineteen nineties and also earlier in the eighties. Unfortunately, there were a number of inconsistencies discovered between the empirical findings and theory, which eventually led the researchers in abandoning the personality traits approach in favour of Behavioural Approach which was considered to be more effective at that time. The Environmental Sensitive Approach was also used during the eighties and nineties, which was partially successful and it also contributed in further abandoning the personality traits approach in the study of SME’s. However, by the turn of the century, personality traits approach for studying entrepreneurship was once again gaining ground, and presently personality traits study is considered as one of the major schools of thought in better understanding entrepreneurship in the small and medium business environment. Paul Burns (2007, p.8) states ‘Despite the independence criteria, SMEs could still include organisations managed by non-owner-managers. Even so, some of them may be entrepreneurs. We are still, therefore, left with our three groups – managers of small firms, owner-managers and entrepreneurs – without any clear delineation. However, it is likely to be true that the smaller the firm, particularly the owner-managed firm, the more important the personality and influence of the manager, be they entrepreneurial or not.’ The reason why personality traits approach was believed to be inconclusive was due to numerous reasons. There is a discrepancy in the internal concept used by the various studies. However one of the most common ways of using personality traits to study for entrepreneurship is by linking the firm’s performance with personality traits. A number of measures have been used to evaluate the performance of a small or medium scale business. Littunen and Storhammar (2000) have extensively used the growth of the firm and firm’s profit margin along with the assessment of the entrepreneurs about their firms for studying entrepreneurship. Likewise, Jaafar and Abdul-Aziz (2005) have used the overall performance of the firm while Lee and Tsang (2001) have made use of the venture growth of firms for measuring the firm’s performance. One of the reasons why there have been so many inconsistencies in the findings is because the researchers have used different types of methods for studying entrepreneurship. Another important aspect is the accuracy of personality traits approach in representing the true competitiveness of the firm. It is also important that a resource-based view is used for studying the contribution of personality traits for generating competitive advantage in small and medium enterprises. The Need for Achievement In the area of entrepreneurship, a few of the important aspects which need to be looked into are the internal locus of control and the intrinsic needs for achievement. These two aspects are of primary importance while discussing entrepreneurship and personality traits. The need for achievement is one of the motivational bases of behaviour and drives a human in business success. The concept of the need of achievement was created by McClelland in 1961. The need for achievement is essentially the reflection of a person’s requirement for attaining success and the hard work that he puts in for attaining that success or goal. The persons or the entrepreneurs who have a high need for success or a high need for achievement, sets targets which are very difficult to attain and are extremely demanding. These kinds of targets make the entrepreneurs much more proactive than his peers. Furthermore, these people always prefer the tasks which are very challenging or the tasks which have a steep difficulty level, they also avoid taking personal responsibility of their own performance and like to get a feedback on their performance. A person with a high need for achievement also has the tendency to look for better and more effective ways for improving his performance. It is also found that the people who have such traits tend to be more successful in the area of entrepreneurship and in the area of running small and medium scale businesses. A few studies are also suggested that the need for achievement can be used as one of the best distinguishing tools for separating the people with an entrepreneur spirit and the people who are basically non-entrepreneurs. It has also been revealed that the students, who aspire to be entrepreneurs, score much higher in the term of achievement needs and thus have more chances to be a successful entrepreneur. Paul Burns (2007, p.102) comments ‘In small firm marketing the most important P is probably the personality of the entrepreneur. The term ‘place’ in the marketing mix encompasses channels of distribution. Not all businesses sell direct to the end users. Many sell through intermediaries – agents, wholesalers, mail order companies, retailers, specialist outlets or other routes. Often these are established routes to particular markets offering the advantage of loyal customers and local knowledge as well as possible savings in terms of distribution costs or reduced stock holding. For a start-up it might be difficult and risky to ignore these established distribution channels. Although, that is precisely what many e-commerce start-ups are doing. For example, a designer and producer of novel greeting cards had little practical alternative but to sell his cards through high street shops. However, he decided to sell directly to selected shops rather than to go through wholesalers, selling to small shops rather than chains. Doing things differently can be risky, but the rewards of success can be high. The decision about channels revolves around matching the product or service to the customer and their needs in a way that provides an adequate return. However, the evidence points towards small firms rarely being adventurous in their choice of distribution channels.’ Locus of Control The locus of control is another aspect of personality traits approach, which was suggested in 1966 by Rotter. It is described as one of the important social learning theories and it measures the magnitude to which entrepreneurs feels in total control of the projects. The extent of influence that the person has over the outcome of the project also falls under the locus of control. The people who believe that they have a complete control over their own lives are said to have a strong internal locus of control, whereas the people who believe that the actions of people and events along with other external forces are not beyond his control, but extremely controllable; such people are said to have a strong external locus of control. The concept of locus of control has basically been derived from the divide that exists between the external locus and the internal locus of control. Presently, the locus of control follows the Internal Chance Powerful others model or the IPC model. In the study of entrepreneurship, one of the main criteria is the ability of the person to perform. Therefore the internal locus of control is a crucial tool for studying entrepreneurial activities. Individual Traits Traits of an individual and the background of an individual often determine the quality the individual will show as an entrepreneur. An entrepreneur can be described as valuable, imperfectly imitable, rare, and imperfectly substitutable resource of a company, even more so when a company is in the start-up phase. A few other characteristics of an entrepreneur are the characteristics of heterogeneity, imperfect mobility and ex post limits in regard to competition. The personality traits of the entrepreneur are regarded as one of the strategic resources of the company which helps the company in generating competitive advantage. Paul Burns (2007, p.9) comments ‘Small firms are not just scaled down versions of large ones. They go about their business in a number of fundamentally different ways. The key to understanding how a particular small firm goes about management and why and how decisions are made is to understand the personality of the owner-manager. Their personality and their behavioural characteristics will strongly influence this. More than large firms, small firms are social entities that revolve around personal relationships. They approach risk and uncertainty in a particular way that sometimes may seem far from rational, which explains why they are so little understood by economists.’ Recommendations The number of important studies has been carried out on personality traits and its association with entrepreneurship in SME’s. Most of these studies in the recent times have confirmed that personality traits play an important role in entrepreneurship. There have been a number of policies which has been recommended to the policymakers and entrepreneurs on the basis of the studies. The findings in these studies have revived the role of personality traits in entrepreneurship study. Thus, various recommendations can be forwarded to the policy makers and entrepreneurs. Training is one of the ways to improve the individual’s personality traits. There are a number of educational institutions which encourage memorizing and ‘spoon feeding’ to the students. This is one of the major detriments in the way of a successful entrepreneur. The students who might have potentially been an entrepreneur, loses his edge as a result of a poor educational system, which eventually weakens the personality traits of the person. Another point which was revealed by the findings was that the internal locus of control in people needs to be imbibed from a very early age, in order to make the person more successful as an entrepreneur. Conclusion Personality traits approach can help the would-be entrepreneurs in evaluating their own competencies. Besides making them self aware of their personality traits, personality traits can also help in building long term strategies and in career development. Paul Burns (2007, p.18) states ‘By way of contrast, labour market economists have been more interested in what influences individuals to become potential entrants to an industry by becoming self-employed. Psychologists have also contributed greatly to this work which has focused on the character or personality of the individual, the antecedent influences on them such as age, sex, education, employment status, experience and ethnicity as well as other societal influences. This work has proved far more successful and informative.’ The assessment of personality can help predict the future success of a firm; it can also help in making the financial allocation more effective. It is therefore proved now that there is a distinct connection between personality traits and competitive advantage. Additionally, the two important constructs of personality traits: the internal locus of control and the need for achievement are very closely linked with competitive advantage of the firm. Therefore it is perfectly rational for researchers to propose and encourage further studies in personality traits approach, for a better understanding and better evaluation of entrepreneurship in the context of small and medium sized enterprises. Bibliography Burns, P. (2007) Entrepreneurship and Small Business, Basingstoke: Palgrave Macmillan. Bridge, S., ONeill, K., and Cromie, S. (2009) Understanding Enterprise, Entrepreneurship and Small Business, Basingstoke: Palgrave Macmillan Carter, S., and Evans, D.J. (2006) Enterprise and Small Business, 2nd Edition, Financial Times, New Jersey: Prentice Hall Clegg, S. & Lawrence T. (2006), The Sage Handbook of Organization Studies, Beverley Hills: Sage Publications. Deakins, D. and Freel, M. (2009) Entrepreneurship and Small Firms, 5th edition, New York: McGraw-Hill Education Rae, D, (2007), Entrepreneurship: from Opportunity to Action, Basingstoke: Palgrave Macmillan Read More