Innovation and Entrepreneurship

Entrepreneurship combined with technological innovation has been a powerful force for our nations’ industrial development, productivity growth and rising standards of living.

Innovation is not a unified phenomenon: some forms of innovation disrupt, destroy and make obsolete established competence; others refine and improve, and are incremental in their effects. Different kinds of innovation require different kinds of organizational environment and different managerial skills.

Breakthrough innovations tend to be disproportionately developed and brought to market by individuals or new firms (even though the ideas behind the breakthroughs originate in larger firms (or universities) that do not exploit them (because of their bureaucratic structures). Prior research suggests that entrepreneurial action occurs with firms whose organizational structures are not bureaucratic and rigid. The potential for stimulating breakthroughs hinges on individuals with prior experience in relevant technologies and insight about fresh roles for existing inventions and technologies and acting on it. For these reasons, smaller, younger firms produce substantially more innovations per employee than larger, more established ones.

Why might cumulative incremental innovations be the specialties of large firms? Regular innovation serves to strengthen and entrench competence in production and linkages to customers markets; such innovation requires an organizational environment and managerial skills that support the dogged pursuit of improvement. For example, it had taken Boeing a hundred years to continually refine the original airplane into a Boeing 777. Boeing achieved this with an army of engineers and designers and spending billions of dollars – smaller, younger firms or an independent entrepreneur would be at a great disadvantage (to Boeing) in carrying out the incremental improvements that have led to the modern jet plane.

According to Peter Drucker, “Innovation is the specific instrument of entrepreneurship”. It is the marriage of new knowledge, embodied in an invention, with the successful introduction of that invention into the marketplace. Even the best inventions are useless unless they have been designed, produced, marketed and adapted in ways that make them commercially viable. This requires someone: the entrepreneur to constantly assimilate knowledge not yet in current use, set up new production forms and functions to produce and market new products, and turn an invention into commercial exploitation.

Jean-Baptiste Say’s entrepreneur begins with the division of human industry into three distinct operations. The first is the scientific one, whereby before any product can be made; certain knowledge about the nature and purpose of it must be understood. The second – the “entrepreneurial” one – is the application of this knowledge to a useful purpose. The last is the manufacturing of the product.

The entrepreneur is therefore seen to be vital to the production of useful goods. He must be able to exercise sound judgment to apply knowledge and develop product that is of value or utility to the market (to meet the market test), and in addition, an ability to supervise and manage production and business. Say expounded it this way: “to be an entrepreneur requires a combination of moral qualities that are not often found together: judgment, perseverance, and knowledge of the world, as well as, of business. He is called upon to estimate, with tolerable accuracy, the importance of the specific product, the probable amount of the demand, and the means of its production: at one time he must employ a great number of hands; at another, buy or order the raw material, collect labourers, find consumers, and give at all times a rigid attention to order and economy; in a word, he must possess the art of superintendence and administration”.

These tasks require risk-taking, business management, exceptional economic leadership and an act of will. For Joseph Schumpeter, such a hazardous activity would not be undertaken by ordinary economic agents but only by entrepreneurs with the vision, drive and commitment to survive the uncertainty and turbulence involved.

Entrepreneurs are exceptionally talented. They sense and anticipate the impact of technological and environmental changes in industries (ahead of most in similar positions), assemble requisite resources: human skills, financial capital and physical assets, to develop and bring to market novel solutions that fulfilled the new requirements of a changing marketplace. They are a rare breed: able to lead and orchestrate all of the critical production, marketing and financing activities that transform a raw idea to valuable products and services demanded in global markets. Throughout the development life cycle of their companies, entrepreneurs are called to be opportunity perceivers, innovators, product champions, risk takers, business managers, product sponsors, and motivational leaders.