Entrepreneurship

DEEPAK BAJAJ

SESSION IV
Chapter I Entrepreneur & Entrepreneurial Management

Entrepreneurial Innovations

ENTREPRENEURIAL INNOVATIONS
Innovation: The Schumpeterian Model

Conventional image of the innovative entrepreneur is some one who operates with new products and new processes. Entrepreneurial innovation is generally understood as product and process innovation not only by layman but by entrepreneurs themselves. A study has revealed a surprise that even entrepreneurs would not consider themselves innovative unless they did something new with their product or process. Researchers and scholars have recognized the wider ramifications of the concept of entrepreneurial innovation. One of the best known and accepted definitions of entrepreneurial is by Schumpeter (1934), which covers the following five areas of entrepreneurial action:

Introduction of a new good, that is, one with which consumers are not yet familiar, or of a new quality of a product. Introduction of a new method of production, that is, one not yet tested by experience in the branch of manufacture concerned, which need by no means be founded upon a discovery significantly new, and can also exist in a new way of handling commodity commercially. Opening of a new market, that is, a market into which the particular branch of manufacture of the country in question has not previously entered, whether or not this market has existed before. Conquest of a new source of supply of raw materials, or half-manufactured goods, again irrespective of whether, this source already exists or whether it has first to be created. Carrying out of a new organization of any industry, like the creation of a monopoly position (for example through trustification) or the breaking up of a monopoly position.

As per Schumpeters words there is very little dispute that entrepreneurs secure competitive advantage or a temporary monopoly (in the words of Schumpeter) for their enterprise through innovations performed in the above-mentioned areas. It has, however, been lately observed by some scholars that innovations in a few other areas also can secure such competitive advantages for entrepreneurs.
In the samples examined for a study, there were many who were not doing new things in the conventionally recognized areas of product, production process, market and so on. There were however, innovations in some other unchartered areas like mobilizing financial resources, obtaining, developing and retaining manpower & in organizing activities of the enterprise. It may be noted that even though these entrepreneurs are not innovative in traditional recognized areas, they are eminently innovative entrepreneurs.

There is thus a need for broader definition of entrepreneurial innovation. Conceptually, we would accept entrepreneurial innovation as anything new undertaken by an entrepreneur that enhances the competitive advantage of his/her enterprise.

TYPES OF ENTREPRENEURIAL INNOVATIONS

A study of 138 entrepreneurs has been conducted by a researcher to identify, specify & classify possible areas of entrepreneurial innovation through empirical studies. The research study revealed that first four of the five Schumpeterian categories were quite common. There was however, no case of innovation in industry organization, which is the fifth category in Schumpeterian model. Since the study focused on the start-up phase of enterprises, it is likely that these entrepreneurs were not powerful enough at that time to influence the industry organization. Besides, the laws against restrictive grouping of the industry are more stringent these days, than during the time of Schumpeter. It was therefore natural that industry organization was not an area of action for the present day innovators.

In addition to the innovations in the four Schumpeterian categories, innovations were found in areas of

Securing financial resources,

Structuring the work organization, Obtaining, developing and retaining skilled personnel, Building a suitable organizational culture, developing, testing and commercializing new ideas (R&D function) & Managing the interface with government and other external agencies.

The types of innovations observed in the cases along with the percentage of their occurrence are shown in the table below.

Table 3.1
S. No. 1. 2. 3. 4. 5. 6. Type of Innovation Market/Marketing Innovation Product Innovation Process Innovation R & D Management Innovation Supply/Supply source Innovation Personnel Innovation Sample Percentage (N = 138) 84 74 48 43 36 31

7.
8.

Finance Innovation
Cultural Innovation

30
29

9.
10.

Structural Innovation
Government Related Innovation

27
21

Three most popular innovations (namely, market/marketing, product and process) also figure in the Schumpeterian list, though not in the same order. In identifying innovations the study adopted a broader definition of innovation, according to which an innovation need not evolve absolutely novel ideas, policies, and/or actions. Relatively novel ones that is, those which are novel in the local context may also create temporary monopolies for the enterprises and enhance their competitive advantage and hence would qualify as entrepreneurial innovation.

Market/Marketing Innovation

Market related innovations are the most popular of all the types This is probably because many entrepreneurs who happened to enter the field with conventional products/processes found it difficult to survive without some kind of market-related innovativeness in the market. Moreover, inclusion criterion for market-related innovation in the study was made broader than that of Schumpeter for whom it was restricted to opening of new market, whereas in the study, not only finding new market was included, but also innovative operations in existing markets were included. Innovations in the marketplace can take several forms. The commonest one is the Schumpeterian type of discovering a relatively new market.

Second type of market-related innovation is that of employing new marketing strategies and techniques for selling existing products in existing markets. Such strategies and techniques are many and varied and their effectiveness depends largely on the specific requirements of the situation. Success of market related innovations depends primarily on the entrepreneurs ability to perceive the total situation and design strategies suitable for them.

Product Innovation

Product innovations relate mainly to modification of existing products and/or introduction of locally new products. Any new products not available locally and introduced in the market like new electronic items, beauty aids and other convenience goods fall in this category. These products are considered novel only with reference to the local market. Cases of product modification range from modifying commercially available day-to-day items to suit local needs or style to innovating a new product based on available technology and local skills. In most cases when modifications in the product are being made to conform to local needs, to make it cheaper or produce it using locally available skills, changes desired in the product necessitate a change in process also.

Process Innovation

Process innovations are undertaken by Indian entrepreneurs for one or more of the following reasons:

To overcome hurdles posed by patent protection of an established process, the modification of which might take it outside the purview of the patent laws. To make use of locally available skilled labour, or of a different quality of raw material which is locally available and therefore is cheaper and easier to procure compared to the imported one originally prescribed for the process.

To reduce the costs or improve quality or appearance in the face of severe competition.

Product-induced process changes are fairly common. In a few cases, especially of chemical products, the processes are modified because of the non-availability of or harmfulness of an input or intermediary product.

R & D Management Innovation

Inspite of very few formal R & D set-ups in India, entrepreneurial ventures are the ones who showed a sustained interest in developing and commercializing new ideas. It quite often happens that an entrepreneur perceives the need for new products and has the interest and competence for developing and introducing them, but the resources for doing this are controlled by large organizations or public agencies. Entrepreneurs need to develop innovative ways of managing R & D efforts without having any formal infrastructure. The method of their operations in this regards may be characterized in general as creative dependence. Some entrepreneurs make use of semi-finished & unsuccessful research of others. Others would borrow the facilities of larger companies and educational institutions. A few entrepreneurs also sponsor research projects selectively at universities or subcontracted projects to professional researchers. In this kind of R & D, while using the resources of others one tends to lose control over ones big secret and protecting ones rights.

Supply/Supply-source Innovation

A major form of supply source innovation is vertical integration where an enterprise manufactures its own raw material or subjects its own product to further processing and value addition. This is usually prompted by shortage of supplies or lack of demand in the market, for an intermediate product. There have also been cases where costlier originally prescribed materials have been substituted by cheaper and often indigenous materials. Such cases may also call for innovations in the manufacturing process, thus indicating the relatively high correlation between supply source innovation and process innovation.

Personnel Innovation

A close inter-relationship exists among the structural, cultural & personnel innovations. Starting ones own institute to develop a continuous stream of trained personnel for ones own enterprise, constructing and providing single person accommodation near the work place to attract young unmarried skilled personnel, facilitating and using skills of locally available craftsmen by providing them with required financial support, are all innovations related to personnel, which have positive implications for organizational structure and culture, as well. Financial innovations related mainly to the mobilization of financial resources from outside rather than to the managing of such resources within. Since the sources of finances for industrial and commercial activities and the ways of mobilizing them are strictly regulated and controlled by governmental authorities in India, it is seen that people who were innovative about finances were also innovative about managing the interface with government and other external agencies.

Financial Innovation

Cultural Innovation

Some entrepreneurs made deliberate attempts at building a desirable culture within the organization. One of them wanted a paternalistic culture and started paying attention to the personal and social needs of the employees. Loyalty became the most dominant feature of organizations culture. In another company, the entrepreneur wanted to create resultorientation within the company and so he started to deliberately ignore non-performers and assign challenging tasks to high performers. An interesting thing is that he rarely offered them financial rewards to high performers; instead he made them feel they were the most wanted people in the organization by assigning them more challenging, difficult and prestigious tasks to them. In a third case the entrepreneur wanted his enterprise to develop a culture of human excellence. He started with a conventional product, but never defined his business around the product.

Instead he defined his business around the people and their capabilities and let the business evolve accordingly. As a result the company very successfully diversified into several apparently unrelated areas and is doing an excellent job in all. This is because of the entrepreneurs mission was to facilitate professional development and to give autonomy to professionals. He gave them so much say in the affairs of his enterprise that unlike in other family owned businesses, majority of the board members were professionals from within the company. The number was as high as ten out of fourteen. The policy of giving autonomy to professionals had paid rich dividends. During a period of two years when the entrepreneur was incapacitated due to ill health, the company performed as usual under a committee of professionals. After all commented the top man, the people who run the company now ran it then.

Structural Innovation

Innovation in how work is organized could enhance the competitive advantage of a enterprise. E.g. flexible working schedules combined with a piece-rate wage system has been used by a few entrepreneurs to reduce wage costs and increase employee satisfaction and productivity. There are other entrepreneurs who made use of village and cottage industries for getting the components, or sometimes, the final products made, which worked out to be much cheaper than having ones own facilities for making all components. Notwithstanding these examples, structural innovations are far fewer than most other types of innovations.

Government Relation Innovation

In the context of a developing country where industrial and commercial activities are tightly controlled by the governmental agencies at various levels, maintaining cordial relations with such agencies becomes a critical issue for the survival and growth of the enterprise. While most entrepreneurs are careful about avoiding direct confrontation with the authorities, some of them make deliberate efforts in cultivating cordial relationship in anticipation of future interaction. It is a proactive approach compared to the special efforts made (at time unethical) at the hour of need. Since bureaucrats are a sensitive group, entrepreneurs have to spend much of their precious time developing a proper relationship with them. Realizing this, one entrepreneur started dealing with them through an agent, who in turn also served the function of a buffer to absorb any unpleasant interactions.