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INNOVATION &

ENTREPRENEURSHI
P
Muhammad Atiq

ENTREPRENEURSHIP
Stevenson and Jarillo (1990, p. 23) define
entrepreneurship as the process by which individuals
either on their own or inside organizations pursue
opportunities without regard to the resources they
currently control

Entrepreneurship is the discovery, evaluation, and


exploitation of future goods and services (Eckhardt
and Shane, 2003, p. 336)

ENTREPRENEURSHIP
Stokes et al. (2010) take a step further and define
entrepreneurship as a societal phenomenon or process of
change, comprising the following three behavioural
components:
1.The identification, evaluation, and exploitation of an
opportunity.
2.The management of a new or transformed organization so
as to facilitate the production and consumption of new goods
and services.
3.The creation of value through the successful exploitation of
a new idea (i.e. innovation)

ENTREPRENEURSHIP
Thus, entrepreneurship can be defined as a process of
producing something of value in the face of uncertainty,
which is novel and transformational, through the formation
of a new organization or inside an existing organization by
identifying, evaluating, and exploiting an opportunity
Entrepreneurship is essentially a value creation process
The end product of this process is a new product
Entrepreneurship requires innovation, taking risks and
being pro-active

ENTREPRENEUR
Entrepreneur is a French word, which means taking the initiative to
bridge (Schaltegger and Wagner, 2011)

Entrepreneurs perform the bridging function by processing the


inputs to produce output that is unique and novel

Chell (2008, p. 47) defines entrepreneur as the person who bears


uncertainty for the sake of profit and has the ability to perceive
opportunities that others cannot see. He or she acts on his/her
perception. It is this perception and judgement that distinguishes
the entrepreneur from others

ENTREPRENEUR
Bygrave and Zacharakis (2010 , p. 49) define entrepreneur as
someone who perceives an opportunity and creates an
organization to pursue it

It can be concluded that two factors are important for


entrepreneurship and the entrepreneur:
Facing uncertainty and risk
Opportunity exploration and exploitation

UNCERTAINTY AND RISK


Uncertainty means ambiguity about the happening or nonhappening of an event

Risk is a concept through which we try to quantify future


uncertainty (Stokes et al. 2010, p. 226)

Risk is the probability or degree of uncertainty

Entrepreneurship is about risk-taking, which means venturing into


the unknown and the willingness to commit large percentage of
assets

UNCERTAINTY AND RISK


It is not necessary that higher risk will always yield higher return as:
returns are influenced by timing, managerial competence,
market conditions, and a host of environmental factors
(Morris et al. 2008, p. 410)
Morris et al. (2008) suggest that the chance of failure will be more for
those individual entrepreneurs and organizations who engage in
either very low or very high level of entrepreneurial activity
Creation of new goods and services involves downside risk and that
individual dissimilarity in the willingness to accept this risk affects the
decision to exploit entrepreneurial opportunities (Shane and
Venkataraman, 2000)

OPPORTUNITY EXPLORATION AND


EXPLOITATION
Opportunity is at the heart of entrepreneurship

The classic definition of opportunity is given by Stevenson and


Jarillo (1990) who define an opportunity as a future situation
which is deemed desirable and feasible (p. 23)

Entrepreneurs spot socio-economic problems which they turn


into profitable opportunities through the discovery of innovative
solutions

OPPORTUNITY EXPLORATION AND


EXPLOITATION
Profound knowledge of an industry (Stokes et al. 2010), previous
entrepreneurial experience (Foss and Foss, 2008), changes in the
business environment, and stakeholder demands can also serve as
important sources of opportunities (Shepherd and Patzelt, 2011;
Schaltegger and Wagner, 2011)
The existence of opportunities is an objective phenomenon, which is
not visible to every individual in society (Kirzner, 1973)
Hence, an entrepreneur will be that person who demonstrates
alertness to opportunities, and will exploit them as and when
discovered.

OPPORTUNITY EXPLORATION AND EXPLOITATION

For entrepreneurship to occur, it is necessary that, after an


opportunity has been discovered, it must be exploited

But not all opportunities that are discovered are exploited, and not all
individuals who have discovered an opportunity decide to exploit that
opportunity
Shane and Venkataraman (2000) offer two reasons for this:
(1) the nature of opportunity
(2) the characteristics of the individuals who have discovered the
opportunity

OPPORTUNITY EXPLORATION AND EXPLOITATION

They argue that if the opportunity can generate profit in excess


of the cost of pursuing it, has greater demand and high profit
margins, then it is more likely to be exploited
Alternatively, individuals who have a capacity for risk-taking,
have greater financial capital, can transfer information from
prior experiences to the current opportunity, are optimistic, and,
having a positive frame of mind, are more likely to exploit an
opportunity that they discover
When an entrepreneur makes a choice between opportunities,
then the entrepreneur commits specific resources to the chosen
course of action, and thus forms an enterprise, which is defined
by Shackle (1979, p. 140) as Enterprise is action in pursuit of
imagination

FORMS OF ENTREPRENEURSHIP
Micro Enterprises represent the poorest entrepreneurs mostly in
rural areas and city slums
Need more finances and support from the government/NGOs
Small and Medium Enterprises According to SBP, employing
20-250 persons and sales turnover not exceeding Rs. 400 million
on an annual basis
Corporations has a legal entity of its own and has greater
impact on national wealth, innovation and employment
Social/Sustainable Enterprises not for profit enterprise driven
by a motivation to bring social/environmental change
State Owned Enterprises (SOEs) majority owned and controlled
by the Government but exhibiting significant entrepreneurial
behavior

INNOVATION VS. INVENTION


Invention is the creation or discovery of a new product
and/or process based on research and development
efforts, undertaken internally or contracted externally
Innovation is the successful commercialization of
invention, be it a product or a process
Innovativeness represents a basic willingness to depart
from existing technologies or practices and venture
beyond the current state of the art (Lumpkin and Dess,
1996, p. 142)

WHY INNOVATE?
Change is inevitable (customer tastes and
preferences, cultural values, technology, legislation,
competitive landscape, sources of supplies,
demographics, economic conditions)

Therefore, innovate or die!

Innovation is a key driver of sustainable growth and


development

INNOVATE?
WHY INNOVATE?
Innovation is the lifeblood of organisations because it affects
their longevity

Corporations depend on products developed only some years


ago for a significant proportion of their current revenue

Innovation helps in gaining market leadership and thus raise


the bar for competitors

Ultimately, shareholders wealth increases

TYPES OF INNOVATION
Schumpeter (1934) referred to entrepreneurship as the
process of creative destruction
He identified five types of innovation:
the creation of a new product or modification in its quality
the development of a novel method of production
the development of a new market
securing a new source of supply
creation of a new organisation or a whole new industry

TYPES OF INNOVATION

TYPES OF INNOVATION
Product Vs. Process Innovations
Radical Vs. Incremental Innovations

Competence enhancing Vs. Competence destroying


Innovations
Open Vs. Closed Innovations

TYPES
TYPES OF
OF INNOVATION
INNOVATION
Product Vs. Process Innovations
Product innovations represent the outputs of an
organisation, which are apparent to the general public
Product innovations help an organisation in penetrating
existing markets or creating new ones
Process innovations are oriented towards improving the
effectiveness and efficiencies of production
Most often, such innovations are not apparent to the
general public

TYPES
TYPES OF
OF INNOVATION
INNOVATION
Radical Vs. Incremental Innovations
Radical innovations are exceptionally different from
existing products
Represent new to the world, new to the market or new to
the firm innovations
Incremental innovations involve adaptations and
refinements to existing products
Radical innovations are, most often, followed by a series
of incremental innovations

TYPES OF INNOVATION
TYPES OF INNOVATION
Competence enhancing Vs. Competence destroying
Innovations
If an innovation builds on the firms existing knowledge
base, it is competence enhancing innovation

If an innovation does not build on the firms existing


competencies and instead demands new competencies, it
is called a competence destroying innovation

TYPES OF INNOVATION
TYPES OF INNOVATION
Open Vs. Closed Innovations
open innovation is the use of purposive inflows and outflows
of knowledge to accelerate internal innovation, and expand the
markets for external use of innovation, respectively
(Chesbrough, 2003)

Closed innovation means that the design, control, management


and ownership of the innovation is with a single enterprise
Innovation is developed solely by a single company/enterprise

INNOVATION IN DEVELOPING
COUNTRIES
Developing countries are characterised by the
presence of large numbers of individuals who have
low disposable income (Prahalad and Hart, 2002)

Because of low disposable income, they cannot


afford expensive products often marketed by large
MNCs (Webb et al., 2010)

INNOVATION IN DEVELOPING
INNOVATION IN DEVELOPING COUNTRIES
COUNTRIES
Therefore in developing countries, the major issue is
not the identification of new customers, but the
affordability of products that companies produce and
market there (Anderson and Markides, 2007)

Thus, companies operating in developing countries


need to use bottom of pyramid approach in innovating
their products

INNOVATION
INNOVATIONIN
INDEVELOPING
DEVELOPING
COUNTRIES
COUNTRIES
BOP markets consist of the nearly 4 billion people, or 70% of
the worlds population, that live on less than two dollars a
day (Webb et al., 2010, p. 555)

They have special requirements which need localised


solutions

The basic premise is that the company adopting BoP


approach will earn on volume

INNOVATION
IN DEVELOPING
DEVELOPING
INNOVATION IN
COUNTRIES
COUNTRIES
Examples of BoP approach in Pakistan:

Small packs of: Ariel, Surf Excel, Brite, Everyday Liquid


Tea whitener, Nesvita, Tapal, Brooke Bond, Lipton,
sunsilk, Pantene and the likes

Low priced: pharmaceutical products, Tarang, Dairy


Qudrat, All Milk, Dairy Pure, Dairy Omung, mobile phones,
Dual Sim phones, easy paisa

INNOVATION AS A CORE BUSINESS


PROCESS

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Implement

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INNOVATION AS A CORE BUSINESS PROCESS


Innovation is a complex and uncertain process which needs to
be managed at every stage

Managing innovation means creating conditions within an


organisation under which the odds in favour of successful
innovation improve under high levels of uncertainty

Innovations success depends upon resources and the


capabilities in the organisation to manage them

INNOVATION AS A CORE BUSINESS PROCESS


Every organisation has a particular behaviour, which becomes so
embedded in the organisation that over time it becomes a routine

Organisations differ from each other on the basis of their


routines

Successful innovation routines are firm-specific and need to be


learned first rather than copying and implementing

Successful innovation management is primarily about building


and improving effective routines

INNOVATION AS A CORE BUSINESS PROCESS

It is also important to recognise when and how to destroy old


routines and allow new ones to emerge as core capabilities
become core rigidities
Over time, the innovating firm becomes blind to seeking new
ways of doing things and may overlook significant shifts in the
external environment
Discontinuities can arise which lead to a dislocation and create
new conditions within which innovation opportunities emerge
For example, new technology, new political rules, business
model innovation by new entrants, fractures along fault lines
are sources of discontinuities

INNOVATION AS A CORE
BUSINESS PROCESS
The key lies in building the capability within the firm to be
prepared for and proactively deal with innovation opportunities
presented by such discontinuities
This translates into developing alternative routines for
discontinuous innovations

Thus, a successful firm not only has effective routines for


developing a steady stream of innovations but it also has the
capability and the routines for effectively launching
discontinuous innovations (beyond steady state)

MANAGING SERVICES
INNOVATION
Services may appear different because they are often less
tangible
However, the same innovation model also applies to services
Services innovations are easier to imitate because there are
fewer or no barriers at all
Thus, the competitive advantage is quickly swept away by the
imitating firm
Service providing companies focus on the personalisation of
service experience so as to achieve customer loyalty

MANAGING SERVICES
INNOVATION
Nowadays, manufacturing also includes a sizable service
component with core products being offered together with
supporting services
For many complex products, manufacturers recognise that their
customers want to buy some service attribute which is embodied
in the product
Having demand-side knowledge is critical to success in services
innovation
Service businesses may not have a formal R&D department but
they do undertake this kind of activity to deliver a stream of
innovations

SOURCES OF INNOVATION

SOURCES OF INNOVATION
Users as Innovators
Users of a product often give their feedback and suggestions
which can serve as ideas for further innovations
Lead Users active and interested users who want to see new
innovative solutions to their problems
Lead users often team up with the innovating organisation to cocreate products as in the case of Sunsilk Co-creations
Some organisations create communities of lead users who identify
existing problems in the product and their potential solutions as in
the case of open source softwares

SOURCES OF INNOVATION
Watching Others
Learning from other organisations and adapting it to your context
Reverse engineering products and imitating technology
Benchmarking making structured comparisons with others to try
and identify new ways of carrying out particular processes
Working in collaboration with leading MNCs and get to know their
processes and routines
The case of mobile phone manufacturers

SOURCES OF INNOVATION
Recombinant Innovation
Crossovers transferring old ideas in new contexts which may
seem common and ordinary in the original context but new and
exciting for another context
Mostly done by MNCs
Pepsis snack products; Cokes pulpy orange; P&Gs pampers;
Toyota Corolla/Camry

SOURCES OF INNOVATION
Regulations
Regulations are pervasive in our lives, e.g. food safety laws, oil
marketing laws, drug laws, broadcasting laws, labour laws,
pollution control laws, driving laws
The legal statutes governing an industry are known as regulations
for that industry
Regulations restrict certain things and open up new ones
The opposite of regulations deregulation has inspired hypergrowth in many sectors including but not limited to telecoms,
media, IT, islamic banking etc.

SOURCES OF INNOVATION
Futures and Forecasting
Imagining and exploring alternative trajectories to the dominant
version in everyday use
Scenario planning, prototypes, concept models are some of the
tools used to explore employee and user reactions to game
changing situations
Royal Dutch Shell is famous for the use of scenario planning

SOURCES OF INNOVATION
Need Pull
Innovation requires some form of demand if it is to succeed
Innovators need to develop a clear understanding of needs and
find ways to meet those needs
Understanding consumer behavior vis--vis how they actually use
the product is essential to ensure a steady stream of innovations
Need pull innovation is more important at the maturity stage in the
industry/product life cycle

SOURCES OF INNOVATION
Knowledge Push
Innovation is done first and then need is created through
advertising or other marketing mechanisms
Products which are purely the result of scientific research and
development
For example, antibiotics, fibre optic cable, photocopier, Sony
walkman, smart phones

BUILDING THE INNOVATIVE ORGANISATION

Innovation

has nothing to do with how many R&D

dollars you have..its not about money. Its about


the people you have, how youre led, and how much
you get it (Steve Jobs)

BUILDING THE INNOVATIVE ORGANISATION


People are our greatest asset has become a corporate
fashion statement worldwide

Successful innovation is the result of people working together


in high performance teams

Creative individuals are at the heart of innovative enterprises

BUILDING THE INNOVATIVE ORGANISATION


Therefore, human resource management practices and business
performance have a positive relationship

Nevertheless, the management challenge is how to go about building the


kind of organisations in which innovative behaviour can flourish

An innovative organisation is an integrated set of components that work


together to create and reinforce the kind of environment which enables
innovation to flourish

BUILDING THE INNOVATIVE ORGANISATION

Top Management Commitment


Top managers contribute to the performance of their corporation
through their assessment of the environment, strategic decision
making and support for innovation
Top managers articulate a shared vision for the company and
motivate organisational members towards its achievement
Top management needs to find mechanisms which demonstrate
and reinforce the sense of management involvement, commitment,
enthusiasm and support
Walking the talk should be the norm!

BUILDING THE INNOVATIVE ORGANISATION


Long-term commitment to major projects is required as opposed
to seeking short-term returns

Only financial criteria should not be used in evaluating and


funding projects; future market penetration, growth and
enhancement of corporate image should also be taken into
consideration

Top managers need to prepare the organisation for taking risks


and accepting failure as an opportunity for learning

BUILDING THE INNOVATIVE ORGANISATION

Organisation Structure
Another important role of top management is to create such
organisational structures and processes which foster innovation
and provide a shared meaning to innovation inside an
organisation
Structure sets the reporting relationships, order and also
clarifies the role of each organisational member
Organisational may either be tall, hierarchical (mechanistic)
with many layers of management or it may be organic with few
layers of management

BUILDING THE INNOVATIVE ORGANISATION


Mechanistic structures result in increased costs and delayed
decision making
Organic structure promotes innovation because there is
delegation of authority with limited hierarchy with emphasis on
teamwork
For innovation to succeed, organisation needs to be structured
in such way which enables smooth information flows and crossfunctional cooperation
As innovation is an uncertain and complex process, it requires
greater flexibility around the structuring of relationships