Entrepreneur is implicitly bound up with innovation
"It's not the strongest nor most intelligent of the species that survive; it is the one most adaptable to change"Â ~Â Charles Darwin
The essay examines the relation between the terms Entrepreneurship and Innovation and how an entrepreneurial project has to overcome the technological and economical barriers to win the competitive edge in present globalized world. Entrepreneurship is increasingly recognised as an important driver of economic growth, productivity, innovation and employment, and it is widely accepted as a key aspect of economic dynamism: the birth and death of firms and their growth and downsizing. As firms enter and exit the market, theory suggests that the new arrivals will be more efficient than those they displace. Entrepreneurship is always bound with the terms Innovation and Commercialization. Around the world, the nature of innovation and commercialization is miraculous. Though increasing Technology Entrepreneurship, knowledge-driven economies and technology centres are rapidly evolving as focus of attention of economic growth, global competition, and wealth creation. Some countries have moved ahead in the economic race by actively encouraging this change to an innovative knowledge economy, primarily by strengthening the entrepreneurship infrastructure for technology start-ups.Introduction
For Frank H. Knight (1967) andÂ Peter DruckerÂ (1970) Entrepreneurship is about takingÂ risk. The behaviour of the entrepreneur reflects a kind of person willing to put his career and financial security on the line and take risks in the name of an idea, spending much time as well asÂ capital on an uncertain venture. Austrian economist Joseph Schumpeter was among the first to systematically argue that "individuals with vision gambling their own and investors money on new products" is the engine that drives economic growth. A successful Entrepreneur practices "creative destruction" of existing markets and competitors and fuels new economic growth. Competition between wired and cellular or wireless phones is the current example, along with networking PCs by Sun Microsystems, and numerous other examples that involve competition among the companies. Evidence of this theory includes the observation that protection of the European markets prevents change and growth, whereas free markets in Asia, like Singapore, stimulate this process of creative destruction (Becker, Gary S. 1998).
There is always confusion between invention, innovation, and commercialization with subtle differences in meaning of each term. For the purposes of this report, the three terms will be used as defined below:
Invention refers to the act of devising or fabricating a novel device, process, or service. Invention describes the initial conception of a new product, process, or service, but not the act of putting it to use.
Innovation encompasses many activities, including scientific, technical, and market research; product, process, or service development; and manufacturing and marketing to the extent they support dissemination and application of the invention.
Commercialization refers to the attempt to profit from innovation through the sale or use of new products, processes, and services1. What Innovation has to do with Entrepreneurship?
Entrepreneur is the person who puts together a team of people to take advantage of the opportunity and manages the venture day-to-day. Entrepreneurship and innovation are positively related to each other and interact to help an organisation flourish and the ability to develop effective plans to implement innovation and commercialization procedures. Therefore, the stakeholders have determined that given the realities of the entrepreneurial process, to be a successful entrepreneur, the person should possess the following core attributes:
â- Perseverance and commitment
â- Ability to handle uncertainty
â- Sound judgment and right action
Commercial success depends as much on the ability of firms and individuals to establish and protect a proprietary advantage in the market place as it does on their ability to generate new scientific and technical advances.2. Innovation and Panorama:
According to the Fig1, the innovation scheme has got lot of diversified concepts to deal with like what makes one individual more creative than another? Why are some groups more innovative? Why are some organisations more innovative? There have been numerous attempts over the years to answer these questions, and some of these attempts have been based on critical thinking and analysis.
Fig 1. Innovation Panorama
Source: http://www.debateitout.com/is-innovatio-required-to-solve-our-energy-problems.html accessed on 24/03/11.
Fig 2. Innovation for achieving sustainability in the market
Source: http://www.courseware.finntrack.eu/learners/caree_20.htm accessed on 26/03/11.
It is widely recognised that, without innovation, companies will quickly lose their competitive edge in the market. Although the importance of innovation is clear, how to achieve it remains a largely unanswered question (Drucker, P.F., 1998). In reality admitting the need to become more innovative to face the competition in the market and achieving it are two vastly different things. Because every new innovation has a clear perspective as it has to undergo a vast process to achieve sustainable growth in the market and to win the competitive edge. In Fig 2, it is clearly pictured as of the step by step process of attaining sustainable growth starting from the innovation stage to commercializing the process in the market.2.1 The Framework
Innovation has various types:
Innovation systems generally comprise three main elements:
1. Institutional arrangements that establish the general environment for innovation.
2. Resource endowments that provide the basic feedstock of innovation.
3. Proprietary functions typically performed by private industry that harness resources and combine them into new products, processes, and services. (Ven and Garud, 1989)2.2 Phases of Innovation:
Fig 3. Three Phases of simplified innovation process
Source: http://www.global-innovation.net/innovation/index.html accessed on 26/03/11.
Any innovation must progress through a number of phases before it is commercially applicable as shown in Fig 3. Irrespective of the type of innovation, May it be a new product, new service or even a new business process everything must go through a process to achieve sustainable edge in the global market.2.3 Innovation Complexity:
Fig 4: Innovation Complexity curve
Source: http://www.completeinnovator.com/2008/09/26/innovation-complexity-curve/ accessed on 26/03/11.
According to the innovation complexity curve shown in Fig 4, when addressing a new concept or a product or a process, the first stage is to see if you can use it for cost reduction purposes. It's low risk, easy to do, can generate some marginal value that you wouldn't have otherwise achieved and if you fail, no one will notice.Â Having achieved success at that, you then start looking at finding ways in which to improve your existing processes to become more efficient and to start adding some original value to the company.Â Success in that area leads you to look at how you can begin to use the concept/tool to gain some sort of competitive advantage with your product line - at first by looking at Incremental changes to your existing product line, and then by looking for alternative adjacent offerings you can develop to complement your existing product line. Finally you start looking to the future - first by envisioning what your product line will look like in future generations and then ultimately by opening your mind to what sort of blue sky / breakthrough opportunities the company could capitalize on in the future.Â The further up the complexity curve you go, the more potential impact on your business a project will have. (Pluskowski, 2008)2.4 Dimensions of innovation:
All the innovations that happen in industry today can be explained in terms of these four quadrants shown in fig below:
Fig 5: Dimensions of Innovation
Source: http://www.arunkottolli.blogspot.com/2007/07/dimensions-of-innovation.html accessed on 26/03/11.
In the Fig 5 above it is clearly given about the competitiveness and the risk tolerance of the innovation process where a new innovative process has to have to undergo a competitive process and also tolerate risk factors to be successful.3. The E-Formula for success
We all understand what an idea is and we have them all the time. The idea is the central nuclei to a start-up. So much goes into the makeup of an idea, and this is where it all begins.
Let us take I.D.E.A. as the starting equation in the E-formula and it takes the following form:
I = Innovate
D = Desire
E = Effort
A = Ability
Innovate: Innovation is the substance of the I.D.E.A
Desire: Desire is the emotion needed to accomplish the I.D.E.A
Effort: Effort is the physical needed to accomplish the I.D.E.A
Ability: Ability is the skill needed to accomplish the I.D.E.A
Now the I.D.E.A. is formed and its components are ignited and ready to deploy. The utilitarian vision of the innovation at hand will commit the entrepreneur's desire to extend extraordinary effort and complete utilization of all available abilities to see a functional result achieved. When an idea takes hold, it is exciting. After personally assessing dozens-maybe hundreds-of ideas, you've hit one that you believe enough in to stand behind and commit resources to. This is a very exciting time. However, the I.D.E.A. alone is often not enough for the entrepreneur to be successful and may not be enough to activate the entrepreneur. A great idea alone may not make you rush out and get a second mortgage on your home to fund your start-up. There are still two more parts to the E-Formula that are needed to make it complete. The appropriate situation and the necessary opportunity must intersect to provide a fertile ground for the I.D.E.A. to grow. The complete formula looks like this:
I.D.E.A. + Situation + Opportunity = Entrepreneurial Activation (Jeffrey Weber, 2011)4. The theory of change
The Disruptive Technology, Christensen and Bower expand on the concept of disruptive technology, which amounts to more than just a renaming of the discontinuity. This research contains the tradition of the evolutionary theory started by Nelson and Winter (1982)by which the firms and the markets co evolve and are determined jointly over time. Again the basic idea is quite simple: Good management is the reason that companies fail because the listened to customers, invested in technologies to support customer wants and needs, and subsequently lost market leadership (Christensen, 1997, p.xii). From the Fig 6: it is shown the graph between the growth in the processes of the disruptive technologies and the sustainable technologies.
The Principles of the disruptive technology include the following:
Companies depend on the customers and the investors for resources.
Small markets don't solve the growth needs of the large companies.
Markets that don't exist cannot be analyzes.
Technology supply may not equal market demand.
Disruptive technologies are the lower performing and lower profit than current technologies.
Companies overshoot their markets with technology.
Fig 6: Disruptive Technology Vs Sustainable Technology.
Source: http://www.web.mit.edu/6.933/www/Fall2000/teradyne/clay.html accesses on 27/03/11Box Case 4: Hewlett Packard and the inkjet printing.
When it first emerged inkjet could not rival the quality of the laser printing, but it had other attributes such as low cost, low noise and low power consumption. Rather than trying to get the existing customers to buy the inferior technology HP set up a separate division tasked with exploiting inkjet in whatever applications it could find, operating whatever business model may it be sustainable technology or disruptive technology allowed it to make money. The strategy paid off handsomely when the quality of the inkjet printing eventually rose to be good enough to displace laser from much of the desktop market. But if improvement had not happened HP would still have had a profitable, if modest, business.
Source: Keith Goffin and Rick Mitchell (2005) Innovation Management: Strategy and Implementation Using The Pentathlon Framework, pg 60.4.1 Elements of innovation systems and commercialization:
Though decisions to pursue particular areas of innovation or to commercialize particular technologies are made by individual firms, these decisions are influenced by factors external to the company that are often beyond their control. Innovation is rarely the result of individual genius or the actions of individual firms. Successful innovation requires the coordinated action of numerous actors who play vastly different roles, from creating new science, to financing start up firms, to developing standards and regulatory regimes. Taken together, these actors constitute an innovation system, each component of which is essential to the overarching act of bringing new products, processes, and services to the market. Though innovation systems span the borders of individual nations, the ability of a nation to capitalize on new technology development is largely dependent on its particular system of innovation.4.2 Product innovation and Growth:
Figure 6 looks at the steps for building an innovation system in the organisation. This consists of four stages
Clarify drivers and provide incentives
Developing innovative ideas from staff, suppliers, customers, other organisations
Implement innovations: leadership, risk management, address barriers
Scale up for wider implementation
These stages interact with two overarching processes:
Learning: about generating ideas, incentives that work, project management, leadership, scaling up
Building confidence, networks, linkages outside the organisation, reputation, new organisational arrangements
Fig 7: Building an innovation system in an organisation.
Source: Modified from UK, Comptroller and Auditor General (2009) Innovation Across Central Government. National Audit Office, HC 12 Session 2008-9
From Fig 7, building an innovative system in an organisation will help to be successful over a long period of time, firms must develop the ability to innovate and then to profit from that innovation (Nelson, 1991). Product innovation appears to be closely linked to the market share (Cooper, R.G et al., 1992). Several studies have confirmed these points. For example, one found that on average, new products generated nearly 30 percent of the manufacturing companies' revenues (Meyer, A. Et al., 1996). In the service sector, new products were found to generate nearly 50 percent of the revenues (Chan, A., et al 1998).Companies that introduce more product innovations have been found to exhibit higher growth levels.Box Case 4.1: Halifax Building Society - A new service development.
The Halifax Building Society in the UK focuses on the fast development of new service products. These include new lending packages for house purchasers, which for instance allow borrowers to customize repayment levels to their needs over a number of years. Halifax has reduced the time to develop and introduce new mortgage packages from six months to a matter of a few weeks, in response to a more competitive market. There are four main steps to their development process and in each of these the responsibilities of each department are clearly defined:
Concept Development: This takes account of the previous products, competitive products and perceived customer requirements. The concept will be refined, taking particular account of views of marketing and operations. An initial check is made on whether the concept can be delivered with existing systems or whether it will require changes to the operation level.
Trial: Customers (in focus group) are asked their opinions of the new service. The market research largely replaces the market piloting of new mortgage packages, which was common in the industry, a few years ago.
Delivery system definition: The delivery of a new service requires that a suitable system is set-up. The system means all resources involved in the delivery, which typically will include computer resources (for tracking payment level, etc.) and human resources (for marketing and administering the service).
Introduction: Once the delivery system has been defined, the introduction of the new service largely involves the implementation of the training programmes to explain it to staff, preparation of the necessary software to run systems, etc.
Source: Keith Goffin and Rick Mitchell (2005) Innovation Management: Strategy and Implementation Using The Pentathlon Framework, pg 60.
Fig 8: Business innovation and Growth strategies.
Source: http://www.1000ventures.com/business_guide/innovation_business.html accessed on 26/03/11.
From the above Fig 8, the growth strategies that are to be followed by the firms and individual entrepreneurs are clearly portrayed so that the company produces effective results.
Below shown is the business case of Extricom GmbH.Box Case 4.2: Extricom GmbH - Small but innovative.
Extricom, based in Lauffen am Neckar near Stuttgart in Germany, is a small company competing in the 'twin-screw extruder' market. Twin-screw extruders are large machines used to mix and form a wide variety of materials, such as plastics, chemicals, pharmaceuticals and foods. The manufacturing process exposed to high temperatures and abrasive or corrosive materials, which means that replacement parts are required regularly.
The original twin-screw extruder was developed in the 1950's. Patents protected the technology and the monopoly this provided allowed high margins on both the machines and the replacement parts. Attracted by the margins, further players entered the market and several of those copied the original technology (with small variations), or produced replacement parts aware of the over-pricing of the replacement parts and the competition forced prices down by 70 per cent. Today, there are over 100 companies' worldwide offering twin-screw extruder technology, including Extricom. The technology has largely become a commodity, margins are relatively narrow and this has led the market leaders to also produce replacement parts for their competitors' machines.
With intense competition, innovation can be differentiator. Extricom has developed the latest technology - 12-screw extruders - which allow materials to be processed more efficiently through improved flow dynamics. Micha Dannenhauer, Sales and Operations Manager at Extricom says, 'we are only a small company with about 50 employees and do not have the R&D resources of the big players. However, we do have a great deal of process know-how, which has enabled us to quickly develop the 12-screw technology. Our challenge is to continue to be faster than our competitors at making innovations that make our customers' processes more efficient.-
Source: Keith Goffin and Rick Mitchell (2005) Innovation Management: Strategy and Implementation Using The Pentathlon Framework, pg 60.4.3 Commercialization Strategies of Innovations
Often a company with a new product wants to penetrate the biggest markets as fast as possible. It pours resources into developing marquee accounts, and adapts the product to meet the needs of these very demanding customers. It may even drop price to get the business, or acquire a channel partner in an effort to push the innovation into customers' hands. The results: long sales cycles, escalating costs, persisting low prices, channel conflict, and huge distractions. Fig 9, shows the commercialization process map which most of the firms and individual entrepreneurs follow along with the three phenomena - in order to successfully commercialize a new product or a new process, given phenomena:
Growing Market for Technology
The Emergence of Intermediaries
Fig 9: Commercialization Process Map
Source: http://www.staging.2.2gen.net/csii/innovation_commercialization.php accessed on 27/03/11.5. Five Barriers to Innovation
Inadequate Funding: Getting the start-up funds for an innovation often means taking money away from an established program. Getting the money at just the right time is also problematic since organizations often work on annual funding cycles that don't match up well with real-world opportunities.
Risk avoidance: Most of us won't run toward risks. We want to maintain our health, wealth and peace of mind. But no progress is made without calculated risk taking. Since people know that innovation is risky, many people run away from it.
"Siloing": Organizations seek to protect create their identities, get proper credit, sustain themselves and protect themselves.
Time commitments: Time is a scarce and precious commodity. One of management's jobs is to verify that minutes are productively filled. And while enlightened management will invest some of workers' on-the-job time in education, experimentation, relationships, personal growth and health, it's difficult to prove that such investments pay off.
Incorrect measures: For many organizations, revenue, profits and market share are the only measures used. These are easier to quantify than intangibles such as reputation, knowledge, attractiveness to talent, leadership and other assets that make major contributions to the true value of an enterprise.
Source: (IBM Executive Technology Report, 2006)5.1 How to Overcome the Barriers and be a Winning Company
In order to overcome the obstacles or the barriers in the process of commercializing a process or a product we have to follow certain characteristics like we have to take care about the products we deal with, be obsessive about customers, take up an integrated design, break down the walls, particularly concentrate on the design, have a product strategy, chase technology, co-operate with your suppliers, demand quality, communicate.
These are the ten characteristics add up to a remarkable capacity to create products very quickly that their customers buy in preference to others making the product a successful one.6. Conclusion
Entrepreneurship and innovation are positively related to each other and interact to help an organisation flourish and the ability to develop effective plans to implement innovation and commercialization procedures. Innovation won't go away- it is not the next big thing- it is always there. Technological innovation or just innovation is the act of developing and putting to use new products and processes. This has indeed, influenced many companies to reform their strategies. The challenge of innovation in today's fast paced world is by continuously trying new things. Smart managers and Entrepreneurs realise that this challenge is not a simplistic process but have to go through a lot in making the venture or project successful. Companies that are open to an idea of change remain, and those that don't, disappear.
"You've got to Have clear objectives and fire in your belly" ~ John Bertrand, 1983.
Article name: Entrepreneur is implicitly bound up with innovation essay, research paper, dissertation