Strategic Management and Entrepreneurship - Essay Example

Introduction The contemporary society has witnessed a manifold increase in number of businesses. Not all of them can be inherited since the number of companies, ventures and enterprises has grown exponentially over the years. Though the idea of entrepreneurship is as old as trade and industry itself, it has seen unprecedented proliferation in the last and current century. Majority of the businesses flourishing today, owe their past, and present to the entrepreneurial spirits of their founders and teams that run them. Successful businesses started by young upstarts without inherited capital or and experience of a specific kind have seen an exponential increase especially with the dawn of Internet era. The behemoths of Information Technology industry like. Microsoft, Yahoo, Google, the IT giants, are all results of ‘entrepreneurial vision’ of their founders. Who is an entrepreneur? What are the chief causes for the success of entrepreneurs? What are the attributes required for being an entrepreneur? What makes entrepreneurship different from regular business? How does an entrepreneur with very little resources create wealth and value? We will study ‘the entrepreneur’ along with the special strategies; he makes use of, by researching contemporary literature on entrepreneurship. Definition: Entrepreneurship is the business idea, the set of practices adopted by an entrepreneur for value enhancement and wealth creation. Entrepreneurship is a break from the past; conception and creation of a unique venture through novel means, and a synergy of strategy, technology, material, and human resources. Entrepreneurship involves a high risk factor as it can’t be forecast with certainty whether a particular entrepreneurship idea would succeed or fail. The results often vary between and extreme success and abject failure. Nevertheless, the entrepreneur, by his inherent nature, keeps on experimenting taking risks, losses and failures in his stride, till he hits upon an idea that clicks. Entrepreneurship has been differently viewed, and hence interpreted differently, over a period of time. In the earlier times entrepreneurship was related to buying and selling of commodities, whereupon a trader took upon himself the buying of a product at a certain price, and selling it for an uncertain price (Di-Masi n.d.). One of the earliest definitions of entrepreneur offered by JS Mill (1848) (quoted by Brockhaus, Sr 2000) as “one who undertakes to start and conduct an enterprise or business, assuming full control and risks” may have held to be true but for some entrepreneurs succeeding in business without having undertaken the risks. “Many entrepreneurs have succeeded by avoiding risk where possible and seeking others to bear the risk (Di-Masi, n.d.). Entrepreneurs have succeeded in establishing new ventures by transferring risk to a third party. The literature about entrepreneurship in the early twentieth century recognizes of entrepreneurship as a concept. Schumpeter (1934), the pioneer of entrepreneurial research typified entrepreneurship as a ‘new way of doing things’ Schumpeter’s constructs included ‘opening up of new markets’, ‘new sources of supply’, ‘introduction of a new good’ or a ‘new method of production’ (Marriot and Lowe, 2006). Considerable research has taken to establish the special traits of an entrepreneur. Entrepreneurs are rarely daunted by the fear of failure rather they learn to take failure in their stride by making it a learning process. Generally, the entrepreneur is seen as intrepid business adventurer. Entrepreneur has been classified as multi-skilled, disciplinarian, committed visionary. Others like Agrawal (2004) are not impressed by such a simplistic definition do not see ‘entrepreneur’ as a group and hence develop typologies based on differences and commonalities in entrepreneur. However, ‘entrepreneurship’ and not the ‘entrepreneur’ has been the subject of thrust of research. Though even earlier literature defines entrepreneurship in an ‘individual-centric’ model, it was Schumpeter who saw entrepreneurship in broader economic context as a process of ‘creative destruction’. The Schumpeterian process of creative destruction is a continuing cycle of industry emergence where a new industry emerges to replace the old. It was further elaborated by the Austrian School, consisting of Hayek, Mises, and Kirzner through statement of a new paradigm of ‘equilibrium and disequilibrium creation.’ The entrepreneurs by their unique enterprise action, a new usage of resources, technology, and create a disequilibrium in the economic environment. The imitators follow suit and create more such enterprises once again leading to equilibrium. The period is marked by alternating cycles of profiteering (disequilibrium) and rent earning (equilibrium). The entrepreneur plays the pivotal role in spotting an opportunity, collecting the resources, explores the right market and delivers the right product at the right time. Entrepreneurship is studied as team work with collective synergies of marketing, production, research and development teams. (Venkatraman et.al 1999 cited by Marriot and Lowe, 2006) conclusively establish the domain of entrepreneurship as a multidisciplinary field involving creation of new combinations of goods and services, methods of production, markets and supply chains. By now, the extent and scope of entrepreneurship has far extended its original definition of entrepreneur centric activity of development of a new product, a new technology, making an innovation or exploitation of market opportunity. Entrepreneurship is the study “of how, by whom, and with effects opportunities to create future goods and services are discovered, evaluated and exploited.” (Shane and Venkataraman: 2004: 218) quoted by (Michael et al. 2002). In the context of strategic management the most apt definition of entrepreneurship was developed by Ireland et.al (2001:6) (quoted by Alvarez and Barney) “as a context dependent social process through, which individuals and teams create wealth by bringing together unique packages of resources to exploit marketplace opportunities.” However, the critics view this definition as extremely resource based in an environment where strategic management is being studied in the context of knowledge management. Low and Macmillan (1988) relate it to an organisation by calling it a process for creation of a new organisation, a view supported by Gartner (1988). Successful entrepreneurship is not the result of solitary individual acting in isolation; entrepreneurs are member of larger collectives Mezias and Kuperman (2000). Entrepreneurship in a company In the early stages of industrial revolution entrepreneurship was defined as bringing together of factors of means of production. Later with development of trade environment theorist described came to associate, it often mistakenly, with managerial capabilities. As the complexities of business environment grew, entrepreneurship came to be associated with innovation and ingenuity. Incidentally, scientific innovation differs from commercial innovation. Often scientific innovators of products do not exploit their commercial potential. This remains particularly true of scientific inventions, and product development. However, recently there has been a spate of innovations in technology, management that has led to gain of competitive edge by a company. Toyota’s success as the world’s biggest automobile manufacturer has been due to its extremely innovative product line with cost cutting, inventory management and deliverance of more customer value. Innovation at Toyota is an ongoing process as result of which at least 60, 000 events and incidents are reported annually that occur due to continuous improvement and product differentiation efforts. Innovation takes place in the mind of the entrepreneur. At another level entrepreneurship is defined as opportunity exploitation, risk-taking, and use of knowledge for and resources for enhancement. Entrepreneurship is then imbibed in the critical decision-making and then embedded in the corporate culture of company. This way a company maintains its strategic entrepreneurial abilities as an ongoing process in the culture of the company. There is an innovative climate (Lowe and Marriot, 2006:115) in such a company that allows learning through use of knowledge, imagination and creativity. Thus entrepreneurship is not wholly intuitive but also entails learning. Entrepreneurs know how to encourage individual learning and entrepreneurship in the organisations to keep the strategic thinking process. (Mises,1949 quoted by Smith and Gregario 2002) define strategic thinking as to deliberate beforehand over future action and to reflect afterwards on a past action. At a given moment, an entrepreneur could be analysing his past activities and using them to formulate new strategies for the future. Other than that entrepreneurship is associated with business leadership. However, embodying entrepreneurial cultures needs some rigorous and regular exercising, often different from routine work thus entailing additional costs and time. An entrepreneur has to be given a free hand in the organisational hierarchy and often his ideas, howsoever, far-fetched and impractical they may seem, have to be have to be put to test to evaluate their efficacy. Often, the marketing management tactics adopted by companies are nothing less than entrepreneurship. Entrepreneurship definitely consists of dynamic environmental scanning to seize the right opportunity at the right time. Entrepreneurship in Strategic Management The contemporary context makes it imperative to study the entrepreneurship in regard to strategic management. There are various discourses that dwell on an interplay of entrepreneurship and strategy that leads to gain of competitive strategy (Slater and Oslon) quoted by Meyer et.al (2002). The intersection of strategy and entrepreneur develops ‘entrepreneurial management”. However, theorists hold sharply contrasting views on entrepreneurship and strategic management. Some believe them to interchangeable term, others say they only intersect, and still others talk of their dynamic interplay. Strategic management when confined only efficient administration of a firm may stand opposed to entrepreneurship. The crux of entrepreneurship is often disruption of normal activities through innovation by thinking differently, and doing differently. As a result, administrative management through its regime of controls and regulated work atmosphere comes in conflict with entrepreneurial activity. Entrepreneurship and strategic marketing Entrepreneurial may not just involve product or service innovation but also mean striking strategic marketing poses to exploit an impending market opportunity. Entrepreneurial marketing management includes making acquisitions, mergers and alliances to exploit a market opportunity. The entry of GM and Volkswagen into China, in the mid 90s, by making strategic alliances with local companies has made these corporations leaders in Chinese automobile business. Japanese and European competitors still smarting from their initial failure are furtively trying to make inroads into the Chinese markets. Dell outwitted the computer giants HP-Compaq, IBM and Lenovo by spotting opportunity on online retail. Today having captured a large share of the PC market, Dell, a small start up company, with meagre resources, has become a major of rival of the computer giants. Entrepreneurial management is the critical factor that allows a firm based on lesser resources to compete or outdo a firm that holds greater potential. However, the sheer inertia of the company may stand in way of its enterprise. Lowe and Marriot explain the macro-environmental, the micro-environment, and the organisation’s immediate environment in concentric circles originating from entrepreneur that is located in the middle of the circles. These very factors, lying in the concentric circles that are helpful in its successful running, may stand in way of its entrepreneurial management. The entrepreneurial ideas of the entrepreneur are resisted by the inertia of various factors that are at work around the entrepreneurs. Shane Baron (quoted by Marion and Lowe 295) categorise the resisting forces as Core rigidities, Tyranny of the current market, and User myopia. The Creative Dilemma The administrative and creativity dilemma is overcome with a new breed of leaders who are lateral thinkers. The lateral manager inspires, encourages constructive dissent, rewards risk-taking and seeks importing of fresh ideas into the team. Thus the team not only meets the required performance standards but with imagination, vision and courage lands into a new territory. (Michalsi cited by Lowe and Marriot, 2006). Companies use ‘reflective resonance’ to measure and evaluate whether its management methods and procedures are abreast of contemporary environment. (Low and Marriot, 2006). The process involves creative reflection over achievements. Creative reflection is often resorted to, by the individuals, to evaluate their past and present performance. Voluntarily and sub-conscious creative reflection can be introduced to teams. In teams, creative reflection is action-centred, learning through breaking down of a complex activity into a series of step and then reflecting on each separately (Lowe and Marriot 2006). This is done with informal and formal peer meetings where different outcomes of varied decision-making are conceived. Hitt et. al. (2002) state the existence of six main content domains that lie at the intersection of entrepreneurship and strategic management; innovation, organizational networks, internationalization, organizational learning, top management teams and governance, and growth, flexibility and change. Going by the definition of strategy offers two distinct tasks of entrepreneurial and administrative management. The former concerns with coordination of activities within the firm, preventing losses and supervising the use of resources and the latter focusing on identifying opportunities to take the firm in new directions, with new capabilities, products or markets. Often the entrepreneurial spirit of a company comes in confrontation with the tight administrative control and stirs up a conflict of ideas. This conflict can lead to failure of innovative and bear heavily on performance of the company. However, if tackled effectively, with conflict resolution yields insights into adoption of innovative ideas. However, Drucker (2001) warns of too much of experimentation and diversification beyond the capabilities of the company. He entrusts the higher management with the responsibility for fixing boundaries of entrepreneurial culture in an organisation. Many companies can retain their administrative controls while encouraging ‘organic creativity’ in the employees. Strategic or Entrepreneurship Management Though Meyer et. al. (2002) see entrepreneurship as a subordinate component of strategic management, however, the debate remains inconclusive whether entrepreneurship is a subset of strategic management or strategic management is a subset of entrepreneurship. However, various perspectives develop from the strategic management and entrepreneurship interface. Both entrepreneurship and strategic management aim at the performance improvement of the firm. Managers invoke an entrepreneurial attitude among themselves and their teams to gain a competitive advantage by improvement of quality or cutting costs. However, the ambit of entrepreneurial management contains, and is not restricted to, performance metrics. Entrepreneurial management may be aiming for a whole new design and process improvement and could be marked by a temporary lowering of performance levels of the firms. The entrepreneurial nature of a firm can be studied from the number of path breaking decisions it takes to improve its performance thus relating entrepreneurship to effective decision-making. Managers use information to make quick decision thus imparting nimbleness even to large corporations. (Meyer et al 2002). Mammoth organisations with their arteries and veins having a global spread ought to be extremely sensitive to market conditions, and eventualities to retain their competitiveness. Shane and Baron (2005) quoted by Marriot and Lowe(2006) warn that mere based on past information may not be sufficient for an entrepreneur. “However, there is a potential danger existing, in that they (entrepreneurs) focus continually on the same environmental factors and trends and do not notice unexpected changes in a related area. (Low and Marriot 2006:179.) The entrepreneurial organisation has to achieve new solutions for old problems, and new solutions for new problem. However, companies like Hewllet-Packard have used their backyard information and knowledge base to diversify their product-line resulting in enhancement of profits. Entrepreneurial vision is broad and dynamic that includes studying latest trends and imagining future developments. The flight of imagination has to soar high taking using latest achievements of science and technology. This often involves ideas created by others and using them for own purposes, though this approach can be contested from an ethical and a legal standpoint. Corporate entrepreneurship demands speedy decisions, zero reaction time, planning and deployment of resources to meet an exigency or emergence of an opportunity. Convergence of strategic management and entrepreneurship bears time-compressed decisions (Bettis and Hitt, 2000 cited by Marriot and Lowe). In entrepreneurial management, the distinction between opportunity exploitation and loss mitigation tends to evaporate, as both lead to corporate benefits. Entrepreneurial mindsets are extremely responsiveness and are driven by real time situational demands. The corporate teams associated with entrepreneurial attitude are highly responsive and adaptive and free of bureaucratic red-tapism. They have the matchless ability to decide there and then. Decision-making is supported by strong internal communication support and highly perceptive external interface with macro and micro environmental elements. Knowledge and Resource Perspective Entrepreneurship in strategic management, in current times, is studied from perspective of knowledge management besides the resource management. With the information of competitive landscape increasingly available as usable database, entrepreneurship is seen in the paradigm of knowledge management. Many companies have succeeded in encouraging organisations can encourage innovation and experimentation with a distinct focus on management of knowledge and resources. Like in the case of individual entrepreneurs, of risk factors are also inherent to corporate entrepreneurship. The entrepreneurial atmosphere in a company gives required flexibility with sustained commitment of resources. The term “entrepreneur” is used to describe those who direct resources in the firm. Coase (1948) quoted by Alvarez et.al (2002). The rapid pace of technological development has shifted the task from management of existing resources to managing knowledge and intangible assets. (Michael, et.al 2002). Knowledge management encourages organizational learning thus promoting a culture for innovative practices. From the resource management perspective, it means a dynamic evaluation of resource and their tactic deployment to seek maximum benefit for the organisation. Resources when directed by the entrepreneur lead to wealth creation and value enhancement. The resource perspective of entrepreneurial management gets heightened in the modern context with the customer getting all the more discerning and varied in choice. The contemporary business environment is matter of better matching economic output to a heterogeneous demand (Michael et.al 2002). Entrepreneurship in business extreme sensitivity to changing customer behaviour for a small variation in the customer behaviour could be signalling an impeding widespread change in the market. The choice of the customer evolves as he becomes accepts and accustomed to a particular product. A corporation has to stay a step ahead of customer by thinking and creating today, what he may require tomorrow. The most classic example in customer need driven entrepreneurship is the development of operating systems—Windows 96, 98, XP, and Vista. This is a step-by-step need driven entrepreneurship where the corporation tends to innovate through real-time customer requirements and needs. Globalisation, increasing competition, market restructuring are impacted the consumer needs and it’s equally true that, the ever evolving customer requirements are also effecting the pace of this change. Barnes and Noble could not perceive the impending change in conventional book shopping whereas Amazon.com realising its potential, created the biggest online book shopping place. Thus changing competitive landscape has led to failure of many well-established organizations. But sometimes, the macro and micro-environmental changes do a service to the market by clearing it of debris, thus allowing only ‘fittest’ organisations. “Inefficient and ‘no-hope’ organisations are removed, leaving the way for entrepreneurial organizations that are more in tune with the changing environment to progress and grow.” (Lowe and Marriot, 2006: 207). Thus opportunities and threats, generally, arise from factors over which the organisations have no control. The roots of change or development of a particular circumstance may lie in technological, political, social, economic or cultural reasons. Some Examples Sometimes gigantic infrastructures become defunct due to the non-adaptability of their managements to the changing markets. An entrepreneur, with his vision, and capital resources can turn the wheels of such enterprises. A spectacular example in the recent times is provided by the steel entrepreneur LN Mittal who acquired steel assets across, former Soviet republics, and integrated them into his company, Mittal-Arcelor. To this is added the globalised competitive atmosphere, declining trade barriers, communication and high mobility posing a big competitive challenge for the managers. Strategic deployment of scarce and inimitable resources is a subject matter of entrepreneurial management. The managers may not only have to account for situational aspects affecting business today but also prepare for a more challenging tomorrow. This includes assimilation of industry specific l technological breakthroughs in the company’s goals. For example, none of the conventional landline telephone manufacturers like Alcatel, AT &T and Bell realised the potential of mobile telephony explosion on the global scene. New and small companies like Motorola, Nokia, and Eriksson made hay in the air, as the old manufacturers stuck to their landlines. Though landline phones have still not lost their relevance in communication but the mobile revolution was up and waiting. The superior infrastructural abilities of land line manufacturers could have given them an edge in the mobile business also. But as the unwritten law of entrepreneurship reads; those with meagre resources have to succeed while technological giants are condemned to live in with their past. This example also proves the point of entrepreneurship development that it is not merely having the resources that is important but their strategic usage combined with entrepreneurial ability that is important. Similarly, Kodak, leaders of in film photography business could not fathom the impending digital revolution and besides, losing a lot of business to new players, also received some debilitating loses incurred due to heavy investment in human and other resources dedicated to film photography. Lowe and Marriot (2006) emphasize constant environmental scanning and analysis for a company to retain its competitive advantage. Entrepreneurship, though strictly an economic concept, sometimes, has cultural and social overtones. The Grameen Bank, a concept of economic innovation and social participation of its members benefited a large segment of economically challenged society of Bangladesh. The Grameen Bank a vision of its founder, Prof Muhammed Yunus, is exemplary work of socio-cultural and economic uplift. Similar to the Grameen Bank is the story of milk revolution ushered in the Indian state of Gujarat that not milk production but served to enhance the socio-cultural status of women through economic independence. The milk revolution is the result entrepreneurial thinking of its founder VJ Kurien who involved the government, the bureaucracy, and masses. This work of this kind of organisations is defined as a combine of an income generating or business-type with a social purpose. (Lowe and Marriot 2002: 219). Far away from the bread and butter struggle of a totally different concept of cultural entrepreneurship is studied in the success of rock band “The Beatles” in the late 60s and early 70s. Through their innovative cultural experimentation, “The Beatles” came to identify with the young, liberated and hippie generation of the West. Besides, the economic success of “The Beatles” happened with widespread socio-cultural ramifications. Conclusion Since both strategic management and entrepreneurship are young fields, research on lot many aspects of their interplay or interface remains yet inconclusive. While researchers and theorists deliberate on their relative importance for each other, rapid changing businesses in an increasingly globalised business environment will give us more food for thought. The imponderables will definitely through a host of scenarios from where we can properly evaluate the importance of strategies and entrepreneurship. The coming times will also establish the importance of other factors use of Internet, socio-political conditions, scientific innovation, economic considerations in the success of entrepreneurship. Last, but not the least, the times will also reveal the criticality of the impact of creative imagination of human kind in entrepreneurship. After all, it all started with devising of simple contraption called the ‘wheel’. And the wheel of time has brought us to such a juncture where importance of human imagination is being studied as one of the factors, impacting entrepreneurship. References: Marriot, S and Lowe(2006), R. Enterprise: entrepreneurship and innovation: concepts, contexts and commercialisation, Elsevier Ltd, Oxford, UK Hitt, Michael A., Ireland D, A., Camp, Michael S., Sexton, Donald L., (2002), Strategic entrepreneurship: integrating entrepreneurial and strategic management perspectives, In Hitt, Michael A., Ireland D, A., Camp, Michael S., Sexton, Donald L., (2002). Strategic entrepreneurship, Blackwell Publishers. Oxford, UK. Michael, S., Storey, David., Thomas, H., (2002), Discovery and coordination in strategic management and entrepreneurship, In Hitt, Michael A., Ireland D, A., Camp, Michael S., Sexton, Donald L., (2002). Strategic entrepreneurship, Blackwell Publishers. Oxford, UK. 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