MZUMBE UNIVERSITY

SCHOOL OF BUSINESS
(SOB)
SUBJECT NAME: ENTREPRENEURSHIP AND SMALL BUSINESS
MANAGEMENT
SUBJECT CODE: BUS 225
LECTURER NAME: Ms. NASHTWAT
PRAGRAMME: BAF BS 3A
TASK TYPE: GROUP ASSIGMENT
GROUP NUMBER: 03
SUBMISSION DATE: 9. April. 2024
PARTICIPANTS:
NAMES REGISTRATION NUMBERS
MARIAM MSAFIRI THABIT 1732038/T.21
LUCY JOHN MHILU 1732122/T.21
DOTTO MASAU MLIGAS 1732157/T.21
DEUS VICENT MALIMA 1732188/T.21
CATHERINE JOHN HAILONJE 1732171/ T.21
SALIM SALEH FAISAL 1732059/T.21
MARIAM A RAMADHANI 1732129/T.21
NAOMI ENOS KALAMBO 1732175/T.21
SHIJA M. JAMES 1732119/T.21

Question 5: In a rapidly changing market environment, how do the theories of entrepreneurship

proposed by Schumpeter and Kirzner differ in their perspectives on innovation and opportunity
recognition?
Question 6: Discuss how the resource-based view of entrepreneurship contrast with the effectual
reasoning approach in terms of entrepreneurial decision making and resource utilization.
Question 5.
In the Schumpeterian view, the entrepreneur is pictured as initiating change through innovation
and as actively creating new opportunities. Schumpeter's (1934) point of departure is the notion
of innovation characterized as 'new combinations'. Thus, the entrepreneur is an individual who
creates a new combination and pursues it in the market (possibly but not necessarily by forming
a new firm). Schumpeter argued that changes in technology, political forces, regulation, macro-
economic factors and social trends create new information that entrepreneurs can use to figure
out how to recombine resources into more valuable forms. By altering the equilibrium price for
resources, these changes allow those people with access to new information to purchase
resources at low prices, recombine them into a more valuable form, and sell the output in the
hopes of generating a profit (Shane, 2003)

In the Kirzner view, innovation and new combinations are not necessary conditions. Nor do such
opportunities require macro-economic changes related to new technology or social trends.
Rather, the entrepreneur is someone who benefits from information asymmetries in the
established or dominant markets. Kirzner's (1973) very defining characteristic is that
entrepreneurs are 'able to perceive opportunities for entrepreneurial profits; that is, they are able
to see where a good can be sold at a price higher than that for which it can be bought' (p. 14).
Opportunities are regarded to be due to imperfect knowledge of market participants, and they can
be seized by anyone discovering their existence before others have done so. Thus, in the
Kirzner's view the existence of 7 opportunities requires only differential access to existing
information. By responding to this, people can obtain resources and recombine them to sell the
output in the anticipation of making a profit (Shane, 2003)

Here below is how do the theories of entrepreneurship proposed by Schumpeter and Kirzner
differ in their perspectives on innovation and opportunity recognition.

Nature of Innovation:
  Schumpeter: Schumpeterian entrepreneurship emphasizes radical, disruptive innovation.
According to Schumpeter, entrepreneurs are innovators who introduce entirely new
products, processes, or business models to the market. These innovations fundamentally
change industries and create new market opportunities.
 Kirzner: Kirznerian entrepreneurship focuses on incremental innovation and the
exploitation of existing market opportunities. Kirzner sees entrepreneurs as individuals
who recognize and capitalize on profit opportunities that arise due to market
imperfections, such as information asymmetry or inefficiencies.

Role of the Entrepreneur:

 Schumpeter: Schumpeterian entrepreneurs play a central role as visionaries and

disruptors. They drive economic progress through the introduction of radical innovations
that shake up existing market structures and create new ones. These entrepreneurs are
risk-takers who challenge the status quo and are driven by the pursuit of monopoly
profits.
 Kirzner: Kirznerian entrepreneurs are alert individuals who discover and exploit profit
opportunities within the existing market. They are not necessarily creators of new ideas
or technologies but rather resourceful individuals who capitalize on market inefficiencies.
Kirznerian entrepreneurs excel at recognizing overlooked opportunities and engaging in
arbitrage.

Opportunity Recognition:

 Schumpeter: Schumpeterian entrepreneurship involves identifying opportunities for

disruptive innovation. Entrepreneurs in Schumpeter's view anticipate and capitalize on
shifts in technology, consumer preferences, or market dynamics to introduce
groundbreaking innovations that create entirely new markets or industries.
 Kirzner: Kirznerian entrepreneurship focuses on the discovery and exploitation of profit
opportunities within the existing market. Entrepreneurs using Kirzner's approach are keen
observers who recognize undervalued resources or unmet consumer needs. They excel at
arbitrage and resource allocation to capitalize on these opportunities.
Market Dynamics:

 Schumpeter: Schumpeterian entrepreneurship thrives in dynamic and rapidly changing

markets. Innovation is the driving force behind economic progress, and entrepreneurs
play a central role in disrupting established market structures and creating new ones.
 Kirzner: Kirznerian entrepreneurship is less concerned with market dynamics and more
focused on identifying and exploiting opportunities within existing market conditions.
Kirznerian entrepreneurs navigate market imperfections and capitalize on profit
opportunities regardless of the pace of change in the market.

Outcome Orientation:

 Schumpeter: Schumpeterian entrepreneurs are often focused on achieving market

dominance or monopoly power through their innovative endeavors. Success is measured
by the ability to disrupt existing industries and establish a dominant position in the
market.
 Kirzner: Kirznerian entrepreneurs are primarily motivated by profit opportunities.
Success is measured by the ability to identify and exploit opportunities for profit within
the existing market, rather than by the scale of disruption or market dominance achieved.

In summary, Schumpeter and Kirzner offer distinct views on entrepreneurship in rapidly

changing markets. Schumpeter sees entrepreneurs as drivers of progress through disruptive
innovations, while Kirzner focuses on their role in spotting and seizing overlooked market
opportunities. Schumpeterian entrepreneurship values groundbreaking ideas and creative
destruction, while Kirznerian entrepreneurship emphasizes awareness and exploiting untapped
market potentials. Recognizing these differences sheds light on the diverse strategies
entrepreneurs employ to navigate dynamic market environments effectively.
Question 6

The Resource-Based View (RBV) is a strategic management framework that emphasizes the
significance of a firm's internal resources and capabilities in determining its competitive edge
and overall performance. It posits that not all resources are created equal and advocates for
prioritizing resource allocation based on their strength and potential for sustained competitive
advantage. These resources encompass both tangible assets like financial capital and
infrastructure, as well as intangible assets such as brand reputation, patents, and human capital.
According to RBV, for a resource to confer competitive advantage, it must meet criteria of being
valuable, rare, and difficult to replicate or substitute. The focus lies on leveraging these resources
effectively to create value for customers and achieve superior performance in the long term. By
identifying, nurturing, and exploiting core competencies, firms can establish barriers to imitation
and maintain their competitive position in the market. Hence, RBV offers firms a framework to
evaluate internal strengths and weaknesses and formulate strategies that harness their unique
resource base for sustainable competitive advantage.

Effectual reasoning, a strategic method frequently utilized by entrepreneurs to navigate uncertain

and ever-changing environments, prioritizes the utilization of current resources, networks, and
opportunities to generate value. Entrepreneurs employing this approach engage in collaborative
processes, actively involving stakeholders and adjusting their objectives based on emerging
circumstances. This mindset promotes adaptability, responsiveness, and resilience, enabling
entrepreneurs to seize unexpected opportunities and address unforeseen challenges.
Collaboration, experimentation, and experiential learning are emphasized, allowing
entrepreneurs to shape their ventures in accordance with evolving market dynamics and
stakeholder input. By reframing uncertainty as a source of opportunity rather than a hindrance,
entrepreneurs employing effectual reasoning are better equipped to innovate and attain
sustainable growth in intricate and fluctuating settings.

Resource Evaluation:

 Resource based view: Decision-making in RBV involves a thorough assessment of the

firm's tangible and intangible resources. This evaluation aims to identify key strengths
and capabilities that can be strategically leveraged to gain competitive advantage. Firms
focus on developing and exploiting these resources to achieve their objectives.
  Effectual Reasoning: Effectual reasoning suggests that entrepreneurs should start with the
resources they have at hand, including personal skills, knowledge, and social networks.
Instead of waiting for ideal conditions or additional resources, entrepreneurs adapt their
existing resources as opportunities emerge. This approach emphasizes agility and
flexibility in decision-making.

Risk Perception

 Resource based view: Resource based view tends to prioritize risk mitigation through
careful resource allocation and planning. Firms aim to minimize uncertainty by
leveraging their existing resources effectively, thereby maximizing returns and
maintaining competitive advantage.
 Effectual Reasoning: Effectual reasoning takes a different stance on risk perception. It
acknowledges that entrepreneurship inherently involves uncertainty and unpredictability.
Entrepreneurs using this approach embrace uncertainty as a natural part of the
entrepreneurial journey. They view risk as an opportunity for learning and growth, rather
than something to be avoided. Effectual reasoning encourages entrepreneurs to
experiment, adapt, and pivot based on real-time feedback from the market.

Decision-Making Approach

 Resource based view: Decision-making in resource-based view follows a structured and

systematic approach. Firms rely on thorough analysis and planning to leverage their core
competencies and resources effectively. Strategic decisions are made with the aim of
achieving predetermined objectives and sustaining competitive advantage over time.
 Effectual Reasoning: Effectual reasoning adopts a more flexible and iterative approach to
decision-making. Entrepreneurs using this approach recognize that the entrepreneurial
journey is dynamic and unpredictable. They experiment with different strategies, adapt
based on feedback from the market, and allow decisions to emerge organically from the
entrepreneurial process. Effectual reasoning emphasizes action over extensive planning
and encourages entrepreneurs to be responsive to emerging opportunities.
Goal Orientation

 Resource based view: resource-based view is typically goal-oriented, with firms setting
predefined objectives based on their analysis of internal resources and market
opportunities. Strategic decisions are made with the aim of achieving these predetermined
goals through the effective allocation of resources.
 Effectual Reasoning: Effectual reasoning takes a more emergent and flexible approach to
goal setting. Instead of strictly adhering to predefined objectives, entrepreneurs using this
approach focus on exploring new possibilities and opportunities as they arise. Goals
evolve over time based on the changing landscape and emerging opportunities. Effectual
reasoning encourages entrepreneurs to remain open to unexpected outcomes and adapt
their goals accordingly.

External Focus

 Resource based view: Resource based view often adopts an inward focus, concentrating
on leveraging internal capabilities and resources to gain competitive advantage. Firms
analyze their own strengths and weaknesses relative to competitors and make strategic
decisions accordingly.
 Effectual Reasoning: Effectual reasoning takes a more external perspective.
Entrepreneurs using this approach engage with external stakeholders, leverage networks,
and adapt to market feedback. They recognize the dynamic nature of the external
environment and adjust their strategies accordingly. Effectual reasoning emphasizes the
importance of building relationships, understanding customer needs, and staying
responsive to market dynamics in decision-making.

Generally, the resource-based view of entrepreneurship and effectual reasoning approach differ
in their perspectives on decision-making. Resource based view emphasizes structured analysis,
strategic planning, and goal-oriented decision-making, focusing on leveraging internal resources
to achieve predetermined objectives. In contrast, effectual reasoning emphasizes adaptability,
experimentation, and external engagement, encouraging entrepreneurs to be responsive to
emerging opportunities and uncertainties in the market.
Also here below is how the resource-based view of entrepreneurship contrast with the effectual
reasoning approach in terms of resource utilization.

Strategic Resource Allocation

 Resource based view: In resource-based view, resource utilization is guided by strategic

allocation decisions aimed at leveraging the firm's unique and valuable resources to gain
competitive advantage. Firms identify and prioritize their resources based on their
potential to contribute to sustainable competitive advantage. Resources are allocated to
activities and initiatives that align with the firm's core competencies and strategic
objectives.
 Effectual Reasoning: Effectual reasoning takes a more dynamic approach to resource
utilization. Entrepreneurs using this approach start with the resources they have readily
available, such as personal skills, knowledge, and social networks. Rather than waiting
for ideal conditions or additional resources, entrepreneurs adapt their existing resources
to fit emerging opportunities. Resource utilization is characterized by flexibility and
agility, with entrepreneurs continuously experimenting and adjusting their strategies
based on real-time feedback from the market.

Risk-Taking and Experimentation:

 Resource based view: Resource based view tends to prioritize risk mitigation through
careful resource allocation and planning. Firms aim to minimize uncertainty by
leveraging their existing resources effectively, thereby maximizing returns and
maintaining competitive advantage.
 Effectual Reasoning: Effectual reasoning embraces uncertainty and encourages
entrepreneurs to take calculated risks in resource utilization. Entrepreneurs using this
approach recognize that entrepreneurship inherently involves risk and uncertainty. They
view risk-taking as an opportunity for learning and growth, rather than something to be
avoided. Effectual reasoning encourages entrepreneurs to experiment, adapt, and pivot
based on real-time feedback from the market, leading to more innovative resource
utilization.
Efficiency vs. Adaptability

 Resource based view: Resource based view emphasizes efficiency in resource utilization,
aiming to maximize the productivity and effectiveness of existing resources. Firms focus
on leveraging their core competencies and specialized assets to achieve economies of
scale and scope.
 Effectual Reasoning: Effectual reasoning prioritizes adaptability over efficiency in
resource utilization. Entrepreneurs using this approach recognize that the entrepreneurial
journey is dynamic and unpredictable. They are willing to pivot and adapt their strategies
based on changing circumstances, even if it means sacrificing short-term efficiency for
long-term flexibility. Resource utilization is characterized by experimentation, iteration,
and a willingness to explore new possibilities.

Goal Alignment:

 Resource based view: Resource utilization in resource-based view is guided by the firm's
strategic goals and objectives. Firms allocate resources to activities and initiatives that
align with their long-term vision and competitive positioning.
 Effectual Reasoning: Effectual reasoning takes a more emergent approach to resource
utilization. Entrepreneurs using this approach are open to unexpected outcomes and
serendipitous opportunities. Resource utilization is guided by the dynamic interaction
between the entrepreneur, available resources, and the evolving market landscape.
Entrepreneurs adapt their resource allocation based on feedback from the market and the
emergence of new opportunities, leading to more flexible and responsive resource
utilization.

Generally, the resource-based view of entrepreneurship and effectual reasoning approach differ
in their perspectives on resource utilization. RBV emphasizes strategic resource allocation,
efficiency, and goal alignment, focusing on leveraging existing resources to achieve
predetermined objectives. In contrast, effectual reasoning prioritizes adaptability,
experimentation, and risk-taking in resource utilization, encouraging entrepreneurs to be
responsive to emerging opportunities and uncertainties in the market