Role of Entrepreneurs in Enhancing Innovation

Subtheme: Entrepreneurship, Small Businesses and Human Resource Development. . Daniel Nderi Lecturer KIM- Meru Branch Address: dnderius@yahoo.com, Tel No. 0721 986 343

Key Words; Entrepreneurship, Innovation, Product development, Creativity, Flexibility ABSTRACT This paper critically examines the role played by entrepreneurs in enhancing innovations within their respective industries. This paper raises the questions of why most of the industrial innovations tend to be related to the small entrepreneurs within the industry. Many multinationals and national firms have been found to either source for competitive linkages with these entrepreneurs or take over the businesses or products developed by these innovative entrepreneurs. In Kenya the mobile service providers are relying on platforms developed by the entrepreneurs to serve their clients, for example the money transfer softwares developed by entrepreneurs have enabled these companies to offer financial products. This study investigates the relationship between innovation and entrepreneurship, how entrepreneurs drive innovation. This paper shows the contribution afforded to start up business and entrepreneurial ventures by flexibility, the environment of operation, the size and structure of the organization, ability to evaluate and attract the right kind of personnel, and their risk taking nature. This study relied on secondary data collected through review of current literature on entrepreneurship and innovation 1.0 Introduction Entrepreneurs have a huge role to play by driving change through product innovation. What is most crucial is the level of innovation and development required to meet the future needs of our society. This means all sectors needs to be populated with entrepreneurs who are driven by the desire to innovate. This does not rule out the presence of creative and bright people to spearhead the required change, who should at least be driven by the desire to create products and processes that solves the various problems besotting the mankind. The pace seems to have been set and especially by the entrepreneurs in the financial sector. The most pronounced leading entrepreneur- innovator in our beloved nation being Kamal Budhabhati. He has cut a niche in the provision of the financial solutions to the financial sector, Management (July 2011).

The concept of entrepreneurship, long hallowed in the context of business and economic ventures, has been increasingly applied to the context of social problemsolving (e.g., Dees, 1998a; 1998b; Thake & Zadek, 1997; Emerson & Twersky, 1986). The challenges of finding effective and sustainable solutions to many social problems are substantial, and solutions may require many of the ingredients associated with successful innovation in business creation. The nation today has to find ways of bringing the industrial players together and embark on initiating innovativeness. It is only recently that entrepreneurship has been identified by many researchers as a major driving force of a free market economy. However, it was only recently that economists began to synthesize the knowledge about entrepreneurship and analyze its impact on economic growth. However it should be understood that the conception of small or large businesses would not drive the economy without the presence of innovative products and processes. Thus this is why this paper tends to interrogate the role that entrepreneurship should play in innovating products that will sustain and give the organization a competitive edge. 2.0 The concept of entrepreneurship As a concept, entrepreneurship has acquired unprecedented significance in the global debate on the role of business enterprises on economic and social development. According to Professor Papanek in Henry (1994) entrepreneurship concept should be divided into three sub functions; Entrepreneurship in Schumpeterian sense (that is seeing and seizing an opportunity for a new economic venture), financial risk taking and finally managerial function. The amorphous nature of the concept of entrepreneurship therefore can be illustrated by the definition Benjamin Higgins uses when he describes the theory of development. Svedbergs (2000) provides a description of the historical developments. Schumpeter (1934) sums up several entrepreneurial characteristics, including the entrepreneur acting in a way leading to creative destruction. The latter

characteristic is known as the Schumpeterian notion (Gibb, 2002). This explanation of the nature and process of the capitalist economy wherein innovation is the engine, and entrepreneurs serve as the commanders and risk takers, while creative destruction symbolizes remains foundational and fundamental to date (Ma & Tan, 2005). Thus from the above argument it raises the argument of the need to combine entrepreneurship with innovation. Success in the economic growth according to Svedbergs is accomplished when entrepreneurship and innovation are intertwined. He further argues that innovation is only nurtured by that entrepreneur who have the drive to achieve the competitive edge or who wants to leave a mark in their businesses or endeavors. By entrepreneurship is meant the function of seeing investment and production activities: organizing an enterprise to undertake a new production process; raising capital, hiring labour, arranging for a supply of raw materials, finding a site and combining these factors of production into a going concern; introducing new techniques and commodities discovering new sources of natural resources; and selecting top managers for day to day operations Another dimension of defining entrepreneurship is taken by Hisrich etal (2009) entrepreneurship is the process of creating something new with value by devoting the necessary time and effort, assuming the accompanying financial, psychic, and social risks and receiving the results and the rewards of monetary and personal satisfaction and the rewards. The concept of entrepreneurship is understood as a combination of creativity and innovation. It is a stance taken within the business applying inherent creativity as the act of 'thinking of' new things. It involves coming up with innovative ideas and trying out new methods within the operations. The concept of entrepreneurship is also concerned with new ways of looking at opportunities and identifying a new approach towards solving problems. Entrepreneurship requires the entrepreneur to shift paradigms and do away with old assumptions and perspectives.

The entrepreneur basically adopts techniques that can be utilized by the organization or their firms to stimulate creativity amongst the employees. These techniques tend to bring the urge or the competitiveness amongst the employees.

The concept of entrepreneurship involves the consideration of a number of opportunities to enhance employee performance and business profits. The entrepreneur is expected to imply strategic planning to assess if the opportunities provided for growth are worthwhile and how they could be successfully exploited. Strategic planning is an essential part of the concept of entrepreneurship and effective application helps to ensure successful operation. It is a useful tool within the sphere of influence of entrepreneurship and serves a niche market for improving on the business performance. The concept of entrepreneurship involves the owner taking absolute responsibility of empowering the employees and in turn, affecting sales and profitability of the business.

3.0 The concept of Innovation For many years, R & D (research and Development) has been closely associated with technological innovation. Invention is the narrowest definition of innovation. According to Drucker (1994), innovation is the specific function of entrepreneurship... , he continued to state that there were seven basic sources of opportunities to innovate but only one of them was to do with inventing something new. Therefore, innovation is more than invention and does not have to be technical. There are numerous examples of social and economic inventions. Innovation is a proposed theory or design concept that synthesizes extant knowledge and techniques to provide a theoretical basis for a new concept Sundbo (1998). Innovation thus has many stages and is multidimensional. Innovation could also be explained as a process of intentional change made to create value by meeting opportunity and seeking advantage. This process could depicted as having the following stages; Invention Change Useful implementation Hindle (2009) puts it that every invention process is a blend of four principle components

i. ii. iii. iv.

Existing knowledge ( current expertise in given area) The conscious search for new knowledge ( continuous research ) The serendipitous (not consciously sought ) discovery of new knowledge Creativity

That invention is the creation of new knowledge is the vital predicate process in the innovation duality. The most prominent innovation dimensions can be expressed as dualisms; radical versus incremental, product versus process; and administrative versus

technological. Innovation can be radical and incremental. Radical innovations refer to discontinuous, revolutionary, original, basic or pioneering innovations. Incremental innovations are small improvements made to enhance and extend the establishment processes, products and services. For the purpose of this research, innovation is defined broadly to include new products, new processes, new services, new forms of organization, new markets, and the development of new skills and human capital. Tidd et al (2005) argue that there are four types of innovation; consequently the innovator has four pathways to investigate when searching for good ideas: i) Product Innovation - new products or improvements on products. The new Bonga na bob by Safaricom, OR the software enabling the mobile phones to use the local languages or the updated Toyota vehicle models, new models of mobile phones and so on. ii) Process Innovation - where some part of the process is improved to bring benefit. Just in Time is a good example. iii) Positioning Innovation - Lucozade used to be a medicinal drink but this has changed with it being repositioned as a sports drink.

iv) Paradigm Innovation - where major shifts in thinking cause change. During the time of the expensive mainframe, Bill Gates and others aimed to provide a home computer for everyone.

4.0 The conceptual relationship between entrepreneurship and innovation The economics of innovation, in particular, have attracted increased attention in recent years (Grupp, 2001; Arora et al 2002; Stoneman, 1995). Sundbo (1998) summarized the basic theories of the economics of innovation and identified three competing paradigms in the current theoretical discussion of innovation: i. ii. iii. The entrepreneur paradigm The technology-economics paradigm The strategic paradigm

For our discussion the prevalent paradigm is the entrepreneur paradigm which can be traced back to the 1930s when Schumpeter (1934) first attempted to establish a linkage between entrepreneurs and innovation in theory, and viewed the entrepreneur as innovator. He maintained that innovation contributed to the growth of the economy because entrepreneurs produced innovations.

Peter Drucker actually erases any doubt that exists on the relationship between entrepreneurship and innovation when he puts it that innovation is the specific function of entrepreneurship. That is innovation depends on the entrepreneurial ability of the owner or manager of the organization. Entrepreneurs seek to innovate. And in keeping with our earlier definition of innovation as change, this means that the entrepreneur is an agent of change made to create value. Thus there exists a relationship between an entrepreneur and the process of innovation.

The concept of entrepreneur as innovator underpins the entrepreneur paradigm in which the role of the entrepreneur is highlighted in the innovation process. According to this paradigm, only a person who founds a new company on the basis of a new idea can be called an entrepreneur. Entrepreneurship is viewed as a creative

act and an innovation. Entrepreneurship is about creating something that did not previously exists. Back to our nation this paradigm was exposed OR came to light when we focus on the Equity bank led by Dr. Mwangi. The team in this financial institution revolutionized the financial sector by opening banking to the people at the bottom of the pyramid. This could be classified as an act of creativity that not only charted, uncharted waters but introduced innovative products that meet the needs of those ranked at the bottom of the pyramid. The creation adds value to the individual and the community, and is based upon perceiving and capturing an opportunity [5]. Innovation is the specific tool of entrepreneurship by which entrepreneurs exploit change as an opportunity for a different business or service. There is a considerable overlap between entrepreneurship and innovation. Moreover, innovation has to address market needs, and requires entrepreneurship to achieve commercial success. While there is no test to determine entrepreneurs and innovators, they do appear to share some of the same qualities. These include vision, high energy level, need to achieve, self-confidence and optimism, tolerance for failure, creativity, tolerance for ambiguity and internal locus of control (Coleman, 2000).

Others have had different views on the relationship between entrepreneurship and innovation. Davidson (2004) has distinguished two principle schools of thought within the entrepreneurial discipline. The emergence perspective (Katz and Gartner 1998) and the opportunity perspective (Shane and Venkaraman 2000). The latter argued that the truly distinctive characteristic of entrepreneurship lies not in the act of organizational creation and development but in the management of entrepreneurial opportunities. Of fundamental importance to the opportunity perspective of entrepreneurship the perspective associated with innovation is that entrepreneurial opportunity involves discovery and the evaluation of new relationships between means and ends. This is quite distinct from the improvement of the optimization within the existing meansends frameworks. Functionally opportunities are defined as situations in which new goods and services, raw materials, markets and organizing methods can be

introduced through the formation of new means, ends or means- ends relationships (Eckhardt and Shane 2003).

A point to note according to Hindle (2009) on the relationship between entrepreneurship and innovation is that those who believe in the opportunist view argue that entrepreneurship is about the discovery, evaluation and the exploitation of opportunities whatever the organization mode of pursuit. This does not limit the innovation of products or processes to the small scale business; rather it takes the objectivity view of business growth on all kinds and sizes of organizations. 4.0 What is the difference between Entrepreneurship and Innovation? According to Hisrich et al (2009) on the historical development of entrepreneurship they argue that it is in the middle of the 20th century, that the notion of an entrepreneur as an innovator was established; they continue further to argue that the function of the entrepreneur is to reform or to revolutionalize the pattern of production by exploiting an invention or, more generally, an untried technological method of producing a new commodity or producing an old one in a new way, opening a new source of supply of materials or a new outlet for products, by organizing a new industry This question has baffled both entrepreneurs and innovators since the invention of the invention during the late 1800s (before this time period, inventions were thought of as being flashes of genius. They were considered mysterious, and were definitely unmanaged.) This did change with the entrepreneur writers of the 20th century who could now be able to trace and observe the innovative ways developed by the industrial captains. Within the renaissance period innovative products like cars were developed and these guys were nowhere genius, just guided by an appetite for risk taking which happened to be one of the characteristics embodied by successful entrepreneurs. The man who coined the term Entrepreneur, J.B. Say, defines an entrepreneur as one who delegates resources (capital) from things that are less efficient to those that

are more efficiently used. I believe J.B. Say was referring to the process of innovation and not necessarily Entrepreneurship as we know it today, Olson (2008) A distinct characteristic of the Innovators is their special ability to

optimize. According to Livingstone (2000) innovation is the process whereby new ideas are transformed, through economic activity into sustainable value-creating outcome. They find inefficiencies in already existing resources (may it be

technological, like advancements in computing power or even social, like the innovative practice of installment buying which revolutionizes industries from supply-driven to demand-driven instantaneously). These innovators, though important, often dont exploit the changes that they have stumbled upon, through research, invention, or whatever means it may be. Thus it is the work of entrepreneurs to exploit change that has been brought through innovation and often times are the creators of it. (Ma & Tan, 2005) describes the successful entrepreneur as the master of creative destruction. They anticipate change by systematically managing innovation through research. Rather they look at the economic value of the innovation and try to fit it to the dynamic environment in which we find the realm of todays customers. This has made it possible the ability of entrepreneurs to shun out continuos products in the same class of needs. They make economic value out of things that previously had none and sometimes drastically lower the value of existing innovations in the process. An example in the recent history of our music industry is our transitions from Vinyl-> Cassette-> Compact Disc-> Digital, all within a relatively short period. A very powerful statement that supports that definition comes from Druckers (1994), There is no such thing as a resource until a man finds a use for something in nature and thus endows it with economic value. Until then, every plant is a weed and every mineral just another rock. Penicillin was once just mold and crude was a nuisance for making the soil infertile and degenerate without value. Thus the combination of innovation is required for many are the times

innovators develop innovations, which when not in the radar of the entrepreneur may not be rolled out to the market. Entrepreneurship is thought of to be a risky venture; similar to investing in the stock market, simply because many of the so-called Entrepreneurs, like Investors, are simply Speculators dont know what they are doing. They are not trying to create change producing value for mankind by converting innovations (whether it be product, process, or social) into something we cannot refuse to accept. They are looking for the get rich quick route, or opening small shops that offer services that already exist. 5.0 Entrepreneurs Driving Innovation According to Hisrich etal (2009) an entrepreneur starts by painting a vision that is desirable, challenging and believable. This tends to reawaken the desire of

achievement in the human being. If an entrepreneur can do this then there are three big gains for the organization: First, people share a common goal and have a sense of embarking on a journey or adventure together. This means they are more willing to accept the changes, challenges and difficulties that any journey can entail. Secondly, it means that more responsibility can be delegated. Staff can be empowered and given more control over their work. Because they know the goal and direction in which they are headed they can be trusted to steer their own raft and to figure out the best way of getting there. This ensures the freedom required to exercise their creativity and innovative capability. According to Hindle (2009), innovation is a combination of invention and implementation. Livingstone (2000,3) amplifies the definition given by Hindle by putting it that .....Innovation is not just the idea-innovation is only achieved when the idea has been transferred into an outcome that has value. This brings us to the role played by the entrepreneur who ensures that the implementation phase is made available. That is the opportunity to convert the ideas into tangible models or designs which can be developed into innovative products that have economic value.

Thirdly, Hirsch puts it that people will be more creative and contribute more ideas if they know that there are unsolved challenges that lie ahead. They have bought into the adventure so they are more ready to find routes over and around the obstacles on the way. This brings to the conclusion that the entrepreneur drives innovation within the organization they lead. 6.0 Factors enhancing entrepreneur drive towards innovation Flexibility of an Entrepreneur Barnett and Weinsteins (1998) argue that flexibility is the degree to which a business unit is adaptable in administrative relations and the authority is vested in situational expertise. A firm that exhibits low flexibility is therefore rigid in administration relations and adheres to bureaucratic relations. Kwaku (1989) uses the term planned flexibility defined as the firms ability to change its strategic plan as environmental opportunities and threats emerge. Flexibility is also defined as the degree to which a business unit is adaptable on administration relations and the authority that is vested in situational expertise. Long (2001) argues that although that there are various ways of looking at flexibility, the defining characterization of flexibility include the design of organization in which the employees are afforded wide latitude in performing their jobs. It is intended to eliminate the need for extensive rigid systems of control which would otherwise be necessary to ensure effective employee behaviour. The term "flexibility" might best describe the feature of capital structures that enable them to adjust to exogenous change at relatively low cost. The notion of flexibility can be applied to both individual goods, in which it becomes a close, but more descriptive, synonym for "generality," and to a whole production process or capital structure. In an environment of greater uncertainty, or a faster pace of economic change, entrepreneurs are likely to prefer, on the margin, capital that has relatively more flexibility. This may be particularly true of human capital, where employees

may be required to move quickly from one project or production process to another as market conditions change.

Kirzner (1973), considered the entrepreneur as the 'prime-mover' in the firm. Therefore, the idea that the entrepreneur is simply a profit maximizing decisionmaker within the firm is regarded as defunct. This is so because it limits the nature and the recognizable beehaviour of the entrepreneur which tends to lean towards flexibility beyond the cost analysis aspect of maximizing profitability. According to Kirzners theory, it is the notion of 'alertness', a tendency for an individual to discover what would be profitable to him/her if he/she were to discover it. Thus the entrepreneur must be able to exist in the different planes that are determined by the forces of demand and supply observing not only the market but also the economic gaps appearing within his or her field of play. This view suggests that entrepreneurship is not a resource that can be planned. That is, alertness cannot be traded on the market. This therefore supports the notion of the need of flexibility on the side of the entrepreneur. Thus an entrepreneurship approach towards the importance of transaction costs is required in order to emphasize the discovery aspect involved in the emergence of a firm

The degree of flexibility of a firm's capital structure will be an important factor in its ability to respond to profit opportunities or potentially damaging exogenous change. If the owners or managers of a firm see a new profit opportunity (referred by many writers as the Kirzner's moment of entrepreneurial insight), it may well require changes in the allocation of the firm's capital to actually grasp the opportunity. Firms that have more flexible capital structures should, ceteris paribus, be quicker to seize such opportunities than those who are more committed to particular production plans through the use of highly specific inputs, Amir et al (2001) The moment one is an entrepreneur and business owner he or she are afforded more flexibilities with their business ideas and decisions than large corporations. This puts

you into a position to study and interact with your customers who are more enthusiastic about going to your company because you are willing to work with them and facilitate their needs. Since you make the decisions, you have the ability to give a little leeway and customize the product according to their diverse needs. The entrepreneur is able to develop processes, change them and develop solutions relevant to the prevailing times the customers are experiencing and build customer loyalty. The Structure of Entrepreneur Business According to Rusell (1986) many successful small businesses have been founded upon an innovative idea which creates a new product, process or service that better fulfills the needs of customers. By creating innovation, the small business entrepreneur not only provides an opportunity for self-profit but also is an important source of change within his or her industry.

There has been a great deal of effort directed at the study of the influence of organizational structure on innovation. Early studies adopted a global perspective on structure and found an association between increased levels of innovation and more "organic" structures (Burns et al 1961). Conversely, other studies confirmed that more "bureaucratic" organizations were less innovative (10;18). According to Tornatzky et al (1983), recent innovation research has concentrated on three structural variables: centralization, formalization and complexity. Positive associations have been found between innovation and a decentralized structure innovation and complexity and innovation and an informal structure (McGinnis 1983). These studies reinforce the notion that more organic structures seem to support innovation while bureaucratic structure tends to inhibit innovation.

Since innovation is an uncertain, unpredictable process, its progress cannot be directed by formal, structural means which large corporations tends to favor. This may be due to the processes and systems that tend to be standardized. It should be noted that the rules, procedures, job descriptions or even the experience of senior

managers that are synonymous with the large corporations cannot be used effectively to solve the new, unique problems presented by the attempt to innovate, Utterback et al (1971).

Innovation

requires

creative

problem-solving

during

its

initiation

and

implementation by a large number of organization members. Organic structures can aid innovation by providing the necessary context of freedom and autonomy to organizational members to pursue creative solutions to problems but organic structures cannot by themselves generate the motivation and commitment necessary to seek out innovation. In fact, in most organizations, generating motivation for innovation is difficult because of the inherent uncertainty of the process. Uncertainty about how to achieve the innovation as well as uncertainty about how the innovation will impact the organization will tend to reduce the propensity of organizational members to act in innovative ways. Moreover, the ambiguity regarding the means of achieving innovation makes it difficult for individuals to evaluate the likelihood that they will be rewarded for their innovative efforts which also tend to curtail motivation to innovate. 7.0 Conclusions Although there are many differing views on what constitutes entrepreneurship and innovation and the relationship between innovation and entrepreneurship, some of which are economically determined, there are developed core principles that transcend the natural view taken by investors, and the scholars on the other hand and which are viewed as representing the moral consensus of the business stakeholders. There are also studies that confirm the relationship between innovation and entrepreneurship; therefore every country Kenya included should embrace entrepreneurial spirit. Although Kenya has developed and adopted the Small and Micro enterprise bill that focuses on entrepreneurship, there is need to strengthen the capacity to enforce creativity, invention, innovation and business incubation.

There is need to acknowledge that innovation is important in our world but it is the Entrepreneurs who systematically manage research to produce innovation that are both the rocking balls of the status quo and the building blocks of the future. The direction being taken by the government and the higher learning institutions of opening incubation centers to nurture entrepreneurs furthering innovation is very commendable. As an entrepreneur, take advantage of the flexibility you have in your business. It will benefit you when times are tough and change is needed. Be confident that by being flexible you are not changing your business completely, but you are developing it to fit with the current economy.

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