• Entrepreneurship theories

• Entrepreneurial motivation

• Innovation- Process and techniques,

Unit-II Innovation and invention

• Types of innovation, Select cases

 • For Scientist, ‘theory’ refers to the relationships
between facts.
• In another words, theory is some ordering of principles

• There are different opinions on the emergence of

Emergence of entrepreneurship, classified into three categories:
Entrepreneursh • Economist’s view
ip • Sociologist’s view
• Psychologist’s view
Economist’s view
• Entrepreneurship will take place when economic conditions are most favourable.
• Economic incentives are the main driver for the entrepreneurial activities.

Sociologist’s view
• Entrepreneurship is most likely to emerge under a specific social culture.
• Social-cultural values channel economic action that gives birth to entrepreneurship.

Psychologist’s view
• Focus on the individual and the mental or emotional elements that drive
entrepreneurial individuals.
• Mainly by psychologist David McClelland
Theories of Entrepreneurship
Innovation Theory of Schumpeter
Need for Achievement Theory of McClelland
Leibenstein’s X-efficiency Theory
Risk Bearing Theory of Knight.
Max Weber’s Theory of Entrepreneurial Growth
Hagen’s Theory of Entrepreneurship
Thomas Cochran’s Theory of Cultural Values
Theory of Change in Group Level Pattern
Economic Theory of Entrepreneurship
Exposure Theory of Entrepreneurship.
Political System Theory for Entrepreneurial Growth
 Joseph Schumpeter’s Innovation Theory (1949)

• An entrepreneur has three major characteristics: innovation, foresight,

and creativity.

• Entrepreneurship takes place when the entrepreneur

• creates a new product
• introduces a new way to make a product
• discovers a new market for a product
• finds a new source of raw material
• finds new way of making things or organisation

• Ignores the entrepreneur’s risk taking ability and organizational skills,

and place undue importance on innovation.

• This theory applies to large-scale businesses, but economic conditions

force small entrepreneurs to imitate rather than innovate.
Innovation
theory of
Entrepren
eurship
 McClelland’s Theory of Achievement
Motivation
• McClellands theory of Achievement Motivation holds that people have three motives
for accomplishing things:
• The need for achievement (nAch) : A drive to excel, advance and grow.
• The need for power (nPow) : A drive to dominate or influence others and situations
• The need for affiliation (nAff) : A drive for friendly and close inter-personal
relationships.

• David McClelland (1917-1988) considers entrepreneurs as people who do things in a

better way and makes decisions in times of uncertainty.

• The dream to achieve big things overpowers monetary or other external incentives.
• Dreams of entrepreneur appear to be not to ‘get rich’ but to ‘get big
Leibenstein’s X-Efficiency Theory
• X-efficiency is the degree of inefficiency in the use of resources within the firm: it measures
the extent to which the firm fails to realise its productive potential.

• According to Leibenstein
• When an input is not used effectively the difference between the actual output and the
maximum output attributable to that input is a measure of the degree of X-efficiency
• X-efficiency arises either because the firm’s resources are used in the wrong way or
because they are wasted, that is, not ­used at all.

• Leibenstein identifies two main roles for the entrepreneur:

a) a gap­filler and
b) an input completer

• These functions arise from the basic assumptions of this theory

 Risk bearing theory of Knight
• A key element of entrepreneurship is risk bearing.
• Prof. Knight and John Stuart Mill saw risk-bearing as the
important function of entrepreneurs.

• Some important features of this theory are as follows:

• Risk creates Profit
• More Risk More Gain
• Profit as Reward and Cost
• Entrepreneur’s Income is Uncertain

• Frank Hyneman Knight (November 7, 1885 – April 15, 1972)

was an American economist who spent most of his career at the
University of Chicago
Theories of Entrepreneurship
Innovation Theory of Schumpeter
Need for Achievement Theory of McClelland
Leibenstein’s X-efficiency Theory
Risk Bearing Theory of Knight.
Max Weber’s Theory of Entrepreneurial Growth
Hagen’s Theory of Entrepreneurship
Thomas Cochran’s Theory of Cultural Values
Theory of Change in Group Level Pattern
Economic Theory of Entrepreneurship
Exposure Theory of Entrepreneurship.
Political System Theory for Entrepreneurial Growth
Max Weber’s Theory of
Entrepreneurial Growth
• Max Weber in his theory says religion has a large impact on entrepreneurial
development.
• According to Weber some religions have basic beliefs to earn and acquire money
and some have less of it.

• These beliefs produce intensive exertion in occupational pursuits, the systematic

ordering of means to ends, and the accumulation of assets.

• His theory suggests the belief systems of Hinduism, Buddhism ad Islam do not
encourage entrepreneurship.
• His stand has been challenged by many sociologists
 Innovation Theory of Schumpeter

Need for Achievement Theory of McClelland

Leibenstein’s X-efficiency Theory

Risk Bearing Theory of Knight.

Theories of Max Weber’s Theory of Entrepreneurial Growth

Entrepreneur Hagen’s Theory of Entrepreneurship

ship
Thomas Cochran’s Theory of Cultural Values

Theory of Change in Group Level Pattern

Economic Theory of Entrepreneurship

Exposure Theory of Entrepreneurship.

Political System Theory for Entrepreneurial Growth

Hagen’s Theory of
Entrepreneurship
• Referred to as the withdrawal of status respect
• Hagen argued that entrepreneurship is triggered when a social group loses
status as compared to other groups in a society
• When members of a given social group perceive that they are not respected by the
dominant groups in society, this triggers a personality change (creativity) that encourages
entrepreneurial behaviours

• He developed this thesis from the case of the samurai community of Japan.
• Traditionally, this community had enjoyed a high status of which it was deprived later.
• To regain this lost prestige, it became more active and vigorous and gave rise to many
entrepreneurs.
• Jews in many countries
The Samuarai
• The samurai community of Japan had traditionally enjoyed a high
status, which was lowered when they were defeated by other groups
with superior weapons (Tokugawa).

• To regain their status, the Samurai pursued entrepreneurial

development and contributed to the fastest growing Asian economy

• The samurai (or bushi) were the warriors of premodern Japan. They
later made up the ruling military class that eventually became the
highest ranking social caste of the Edo Period (1603-1867).
 Theory of Cultural Values

• By Cochran
• According to Cochran the entrepreneur represents society’s model personality.

• Society’s values are the most important determinant of the attitudes and role expectation.
• His performance depends upon
• his own attitudes towards his occupation
• the role expectations of sanctioning groups and
• the occupational requirements of the job.

• Various communities and castes like samurai in Japan, family pattern in France, Yoruba in
Nigeria, Kikuya in Kenya, Christians in Lebanon, Halai Memon industrialists in Pakistan, Parsees,
Marwaries and Gujaratis in India have been the sources of entrepreneurship.
18
Theory of Change in Group Level Pattern

• Young defines entrepreneurs as that the entrepreneur characteristics are

found in small groups wherein individuals develop as entrepreneurs.

• Young’s theory is a theory of change based on society’s incorporation of reactive

subgroups.

• A group becomes reactive when the following three conditions coincide:

• When denied of access to important social networks;
• When a group experiences low ‘status recognition; and
• When the group has better institutional resources than other groups in the
society at the same level.
 1. Innovation Theory of Schumpeter
2. Need for Achievement Theory of McClelland
3. Leibenstein’s X-efficiency Theory
4. Risk Bearing Theory of Knight.
Theories of 5. Max Weber’s Theory of Entrepreneurial Growth
6. Hagen’s Theory of Entrepreneurship
Entrepreneur 7. Thomas Cochran’s Theory of Cultural Values
ship 8. Theory of Change in Group Level Pattern
9. Economic Theory of Entrepreneurship
10. Exposure Theory of Entrepreneurship.
11. Political System Theory for Entrepreneurial
Growth
Economic Theory of
Entrepreneurship
• Many economists revealed that entrepreneurship and economic growth will take
place in those circumstances where particular economic conditions are in favour of
the business environment
• These factors are:
• (a) The availability of bank credit
• (b) High capital formation with a good flow of savings and investments
• (c) Supply for loanable funds with a lower rate of interest.
• (d) Increased demand for consumer goods ad services
• (e) Availability of productive resources.
• (f) Efficient economic policies like fiscal ad monetary policies
• (g) Communication and transportation facilities
Exposure Theory of
Entrepreneurship:
Many studies have shown that it is the exposure to new ideas and opportunities
towards creativity and innovation which leads to create a new venture.

There is adequate empirical evidence to prove its validity.

‘Tripathi has observed that exposure to new ideas and values were the common factor
between Parsi and Hindu entrepreneurs, which led them to entrepreneurship.

Education have played very significant role in exposing the Indian entrepreneurs to
Western ideas leading them to entrepreneurship.
Political System Theory of
Entrepreneurial Growth
• Political system can crate adequate infrastructure, favourable laws, favourable
taxation system and procedures, provide incentives and subsides, security to
entrepreneurs, create promoting policies and can encourage people towards
entrepreneurship.

• Government can also build supporting system for entrepreneurs.

• the commitment of political system can contribute significantly towards
entrepreneurial development
 Innovation Theory of Schumpeter

Need for Achievement Theory of McClelland

Leibenstein’s X-efficiency Theory

Risk Bearing Theory of Knight.

Theories of Max Weber’s Theory of Entrepreneurial Growth

Entrepreneur Hagen’s Theory of Entrepreneurship

ship
Thomas Cochran’s Theory of Cultural Values

Theory of Change in Group Level Pattern

Economic Theory of Entrepreneurship

Exposure Theory of Entrepreneurship.

Political System Theory for Entrepreneurial Growth

 • Entrepreneurship theories

• Entrepreneurial motivation

Unit-II • Innovation
• Process and techniques, Innovation and
invention; Types of innovation, Select cases
Entrepreneurial Motivation
 What is motivation?

 Motivation is the desire to achieve a goal, combined

with the energy to work towards that goal

 Motivation is the basic drive for all of our actions and

it directs our behavious

 A motive is a need for specific experiences

 Motives are stimulated by the situation

29
 The Nature of Motivation

 Motivation is a psychological process

through which unsatisfied wants or needs
lead to drives that are aimed at goals or
incentives.

The Basic Motivation Process

Theories of Motivation

Content and Process Theories

 Content Theories of Motivation

Theories that explain motivation in terms of what
energizes, or initiates human behavior.

 Process Theories of Motivation

Theories that explain motivation by how human behavior is
initiated, redirected, and halted.
 Theories of motivation

Content theories Process theories Theories related with

human nature
1. Maslow’s need hierarch 1. Expectancy Theory 1. McGregor theory of X
theory. 2. Goal Setting Theory and Y.
2. Herzberg two factor theory. 3. Reinforcement 2. Ouchi’s theory Z.
3. McClelland theory of theory
achievement, affiliation and 4. Equity theory.
power.
4. Alderfer’s theory of ERG
(existence, relatedness and
growth).
ERG theory
 3 main motives - (McClelland, 1985)
Dominant
Motivator Characteristics of This Person

• Has a strong need to set and accomplish challenging goals.

Achievement • Takes calculated risks to accomplish their goals.
• Likes to receive regular feedback on their progress and achievements.
• Often likes to work alone.

• Wants to control and influence others.

Power • Likes to win arguments.
• Enjoys competition and winning.
• Enjoys status and recognition.

• Wants to belong to the group.

• Wants to be liked and will often go along with whatever the rest of the group
Affiliation wants to do.
• Favors collaboration over competition.
• Doesn't like high risk or uncertainty.
 Entrepreneurial motivation and Personality

 The big five model provides a general framework for examining the
effects of personality traits on the motivation to become an
entrepreneur.

 The big five model of personality is probably one of the most

comprehensive personality taxonomies.
 big five personality traits affect the odds of getting motivated to
become an entrepreneur
 Big-Five personality variables
(FFM; Costa &McCrae, 1992)

Dimension Description High scores on the scale Low scores on the scale

Neuroticism Represents individual Experiencing negative emotions: Self-confidence,

differences in emotional anxiety, hostility, depression, self calm, relaxed
stability consciousness, impulsiveness
Extraversion Represents the extent to Tendency to be cheerful, like people and Tendency to spend time
which an individual is big groups, look for excitement and alone, being reserved, quiet,
assertive, dominant, stimulation independent
energetic, talkative
Openness to Describes tendency to seek Being creative, innovative, imaginative, Being narrow,
Experience new experiences, exploration reflective, untraditional conventional, non
of novel ideas analytical
Agreeableness Represents one’s Trusting, forgiving, caring, altruistic, Low need for
interpersonal orientation gullible, tendency to have good affiliation, unforgiving,
interpersonal relationships able to make difficult
decisions

Conscientiousn Describes individual’s degree High need of achievement, persistence Low need of achievement
ess of organisation, persistence, and dependability (reflects the extend and low dependability
hard work and motivation in to which one is organised, deliberate,
pursuit the goal fulfils
accomplishment duties and responsibilities)
Emotional stability (Low Neuroticism)

• The common characteristics associated with people scoring low on this factor include
being anxious, worried, insecure, embarrassed and emotional
• People who are emotionally stable are more likely to start their own businesses than
people who are neurotic because entrepreneurs need a high tolerance to stress to cope
with the hard work
• A variety of studies show that people high on emotional stability are more likely than
others to engage in entrepreneurship

Extraversion

• Extraversion is an aspect of personality which includes characteristics such as sociability,

talkativeness, assertiveness, and ambition
• It is a valuable trait for entrepreneurs because they need to spend a lot of time
interacting with investors, employees, and customers, and have to sell all of them on the
value of the business
• Extraversion is positively related to motivation in enterprising occupation
• This is reaffirmed by empirical research that is indicating people who score high on
extraversion are more likely than others to become entrepreneurs
Openness to experience

• Openness to experience characterizes someone who is open to novel

experiences and ideas and who is imaginative, innovative and
reflective
• important for entrepreneurs as they need to explore new ideas and
take innovative approaches to the development of products and the
organization of businesses
• Empirical research confirms the positive association between
openness to experience and the odds of being an entrepreneur
Agreeableness

• Agreeableness characterizes someone who is cooperative, trusting,

forgiving, tolerant, courteous and soft-hearted
• Agreeable people are less likely to start businesses because people
with this trait are less likely to pursue their own self-interest, drive
difficult bargains, or use others to achieve their objectives
• Less agreeable people also are more skeptical than others which
makes them more likely to have a critical approach to assessing
business information
• Empirical research confirms the negative association between
agreeableness and the odds of being an entrepreneur
Conscientiousness
• This trait is associated with dependability, hard work and
perseverance
• Entrepreneurs need to be high on conscientiousness since
they need to be organized and deliberate to achieve their
goals.
• They also need to be persistent and put in the hard work
necessary to overcome obstacles, like the failure to obtain
financing or cost overruns, associated with the venturing
process
• Empirical research confirms the positive association
between conscientiousness and the tendency to be an
entrepreneur
The driving force: what motivates Indian entrepreneurs?

Motivator % mentioning
(On the basis of Rewards of entrepreneurship )
Autonomy 57
Making money/financial independence 43
Saw business opportunity/impact on industry 27
Recognition of self and/or organization 23
Desire to create something new/innovate 20
Build something important/make a difference 17
Grow a business from scratch 17
Desire to be entrepreneur/excitement of entrepreneurship 03
 The driving force: what motivates
Indian entrepreneurs?
Motivator % mentioning
(Personal Qualities)
Intellectual challenge/achieve potential 27
Instinct 10
Others 10
(Career)
Career growth/diversification/satisfaction 13
Others 03
(Experience)
Utilize previous experience 06
Had technology/industry vision 03
(Non-monetary Factors)
Help India in various ways 23
Non-monetary success/personal satisfaction 07
Create value/jobs/wealth in society 03
 Motivating Factors:

( A ) Internal Factors:
 Educational Background.
 Occupational Experience.
 Desire to do work independently.
 Desire to branch out to manufacturing.
 Family Background.

( B ) External Factors:
 Assistance from Government.
 Assistance from financial institutions.
 Availability of technology.
 Availability of raw material.
 Demand of the particular product.
Positive models: Bill Gates – A story of
Success
 • Entrepreneurship theories

• Entrepreneurial motivation

Unit-II • Innovation
• Process and techniques, Innovation and invention
• Types of innovation, Select cases
 Two types of Entrepreneurship

• IDE (Innovation Driven Entrepreneurship)

• MSME

1-47
 Innovation
• Innovation can be defined as the application of new ideas to the products, processes,
or other aspects of the activities of a firm that lead to increased “value.”
• “Value”
• higher value added for the firm
• benefits to consumers or other firms.

• Innovation and Entrepreneur

• Is a key function in the entrepreneurial process.
• Is the process by which entrepreneurs convert opportunities into marketable ideas.
• Is a combination of the vision to create a good idea and the perseverance and
dedication to remain with the concept through implementation.
What is an innovation?

o Innovation = Invention * Commercialisation.

o “Innovation is the search for and the discovery,

development, improvement, adoption and
commercialisation of new processes, new
products and new organisation structures and
procedures.”
 Invention vs innovation
• Invention
• Idea, technology
• Might not generate value in itself
• Innovation
• Generate value
• Faster, better, cheaper product or service, gives more satisfaction
Invention Innovation
X-ray…………………………………… Medical x-ray
Light sensitivity of silver compounds Photography & camera
Semi conductors Radio
Storage of data on magnetic surfaces Magnetic tape, cassettes, & diskettes
Lasers CDs, DVDs
E = MC^2 Nuclear Power
• Innovation = Invention *
Commercialization

Underlying
• The most innovative company Innovation Invention Commercialisation
today : Apple
Windows icon
iMac mouse pointer Apple
(Xerox PARC)

MP3
iPod ( Fraunhofer Apple
Society, Germany)

PARC : Palo Alto Research Center

 Innovation or Invention?
What's the difference?

Innovation Invention
• Introduction of new product service • Creation of a new product,
or process into marketplace service or process

• Result into commercialisation • May not be commercialised

• Succeeds/follows invention
• Precedes innovation
• Innovation=Invention and
Commercialisation
• Invention = Innovation-
Commercialisation
The BIG Picture...

Source: http://www.slideshare.net/joanvijetha/innovation-46553709
Types of Innovations

Incremental
Architectural
Modular
Radical
 Types of Innovations
• Incremental innovation
• introduces quality improvements in core components. The word renovation would more precisely
describe this type of innovation.
• i-phone – smartphones were existing, but complete renovation
• Architectural innovation
– may result in the complete redesign or reconfigure of core components,
– Takes existing components and combines them in novel ways
• Portable fan in place of ceiling fan, Touch phones, smart watch
• Modular innovation
• Significant changes in elements of products and technologies
• Without significant changes to the existing configuration of the elements
• Fuel engine car in place of steam engine, digital device in place of analog
• Radical innovation
• Revolutionary changes, potentially a paradigm shift.
• Robotics manufacturing, Music CDs into digital files in MP3 extension
 Product and Process Innovation

– Product innovation:
• the introduction of a new product, or a significant qualitative change in an
existing product.
• Electric cars, or superior substitutes of existing products, vacuum cleaners,
computers

– Process innovation:
• the introduction of a new process for making or delivering goods and services.
• Henry Fords Assembly line manufacturing; Japanese management concept of
quality, AI, online banking, e commerce
 Architectural
Innovation
Change in

Product Structure

Modular
Innovation
Steam Engine Fuel Engine
of Car Change in of Car

Component
Technology
Slide 1.60

Innovation Process

Figure 1.7 Interactive model of innovation

Source: Adapted from R. Rothwell and W. Zegveld (1985) Reindustrialisation and Technology, Longman, London.

Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013
Example: Rise of Levi’s
• Problem:
• Working Clothes for Mining Workers do Not Last

• Solution:
• First Pair of Jeans
 What Is Innovation?

 Innovation is the “creation of substantial new value for customers and

the firm by creatively changing one or more dimensions of the
business”
 Key Aspects of Innovation
 Broader than product or technology innovation
 Must generate new value for customer and seller
 Involves change leading to differentiation and SCA
 How did Starbucks, Dell, and IPod create value and SCA (Sustainable Competitive Advantage)?

© Palmatier (Sawhney, Wolcott, and Arroniz) 62

 Developing an Innovative Offering is
Critical to Many Firms’ SCA
 GE is pursuing 100 “imagination breakthrough” projects to drive
growth
 “Innovation is the only way that Microsoft can keep customers
happy and competition at bay” (Ballmer)
 Today, innovation is the number one strategic priority at 40% of
companies versus 19% in 2005 (BCG)
 86% of senior managers believe that “innovation is more
important than cost reduction for long-term success” (Bain)

63
63
Innovation Radar Captures many different ways a firm can innovate; helps define the innovation
space according to what, who, how, and where

Changing Brand Offering W

where to sell Leverage HA Changing
to customers RE Develop new T what the firm
E the brand products or offers
H into new services Platform
W Networking markets Use
Interconnections
interchangeable
as a strength
designs

Presence Solutions
Change where Provide a total
products are sold solution

Organization Value capture

Change firm Change how
structure customers pay

Experience
Supply chain Change Changing who
Change supply customer the customer
Changing
how to sell to
chain Processes Customer interactions is

HO
Change
H

Change
OW

customers
customers to

W
operating
processes target

Adapted from Sawhney, M., Wolcott, R.C., & Arroniz, I. (2006), “The 12 Different Ways for Companies to Innovate,” MIT Sloan Management Review, Vol. 47 (3), p. 75.
64
 Many Aspects of the Offering Can be Innovated

 There are many different ways a firm can innovate; it helps define the innovation space according
to what, who, how, and where aspects
 Change what the firm offers, in line with a traditional view of new product or service innovation
 IPOD
 Changing who the customer is represents another route that involves innovations related to customers,
experiences, and value capture
 Google, IKEA, Home depot DIY
 Changing how you sell to customers pertains to the processes, organizations, and supply chains that a
firm uses
 Dell, Progressive insurance
 Changing where to sell to customers comprises presence, networking, and brand innovations
 Starbuck at airport, Virgin (leverage the brand into new areas), Otis elevator

© Palmatier 65
© Palmatier 66
 Example: Tata Motors (India)

 Tata Motors innovated the Nano, the cheapest car in the world, launched in 2009 at a sale price of
just $2,000
 Most car manufacturers use a sedan chassis to begin building new models; Tata challenged the
conventional wisdom and started with a blueprint featuring a scooter’s backbone
 The ultimate product cost less to build and thus was affordable in the Indian market, but perhaps
even more important, it turned out to be better suited to busy Indian traffic patterns, which require
quick and frequent maneuvering

© Palmatier 67
 Example: Kellogg’s (US)

 Launched Breakfast Mates – a single serving of breakfast cereal, a spoon, and a serving of
pasteurized milk that did not require refrigeration
 Kellogg’s positioned the innovation as a solution for hurried parents who wanted to give their
children breakfast in the morning but were often rushing out the door to make it to school on time
 Positioning was ineffective, because Kellogg’s failed to realize that parents hated the idea of giving
their children a product that would enable them to spill milk all over the back seat of the car

© Palmatier 68