Theories OF Entrepreneurship: Monirba (Allahabad University) Supported by

 

THEORIES OF ENTREPRENEURSHIP Monirba {Allahabad university} Supported by – Manish kanojia (MBA III sem} JITENDRA KUMAR MBA 3rd SEM

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AGENDA  AGENDA  •

What is Theory ?

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Classification An economic theory Risk bearing theory of Knight Innovation theory of Schumpeter 

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Leibenstein X-efficiency theory Harvard School theory Theory of Market Equilibrium by Hayek McClelland’s Achievement Motivation Theory Theory of Change

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Theory of Adjustment of Price Theory of Entrepreneurial Supply Theory of Personal Resourcefulness Theory of Cultural Values

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Conclusion

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What is Theory ? “ ffacts acts do not speak for themselves’,they are read in the light of  theory”  Stephen Jay Gould 

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According to Oxford Dictionary “it “it is supposition or system of ideas explaining something, esp. one based on general   principles.” 

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Classification

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An economic theory Ø Ø Ø  

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Given by Mark Casson in his book The Entrepreneur—An Economic  Theory  Demand for entrepreneurship arise from the need to change and the supply of entrepreneurship is limited. Four Qualities of Entrepreneur  1. Judgmental decisions. 2. Co-ordination of Scarce resources. 3. Motivated by Self Interest. 4. Imagination—entirely innate.

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Risk bearing theory of Knight • Pro Prof. f. K Kni night ght’s ’s tthe heory ory is base based d on econom economic ic prin princip ciple les s. According to Risk –Bearing theory 

1. Entrepreneu Entrepreneurr earns earns profits profits becaus because eh he e undertakes undertakes risk 2. The main main functio function n of an an ent entrepren repreneur eur is to act in anticipa anticipation tion of futu future re events. 3. UncertaintyUncertainty-beari bearing ng is essen essential tial to produ production ction;; there therefore fore itit is fac factor tor of  production and the reward for it is a part of normal cost of production. 4. Profit is a payment payment for the assump assumption tion of risks the entre entreprene preneur  ur  undertake. 

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Evaluation of Knights Theory • Ent Entrep repren reneur eur has to cop cope e with with the vario various us chal challen lenges ges which is at once unknown and unpredictable i.e there lies uncertainty.

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Innovation theory of Schumpeter(1949) Entrepreneur is a man who sees opportunity for 

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introducing new techniques or commodity Improving organization. Development resources. Entrepreneur embarks upon new combination of factors of production

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resulting in new product--termed as innovator. Entrepreneur is Dynamic

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TYPE OF INNOVATIONS • The introduction of new product. • The The intro introdu duct ctio ion n of new new met metho hod d of pro produ duct ctio ion n • The op open eniing of new mar marke kett • The con conque quest st of new source source of raw materi material al suppl supply. y. • Reorganizati Reorganization on of any industry. •

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Features of Schumpeter Theory • • • • •

High High degre degree e of risk risk and and unce uncerta rtaini inity ty in in Schu Schumpe mpeter terian ian World. World. High Highly ly moti motiva vate ted d and and tale talent nted ed indi indivi vidu dual al.. Prof Profit it is is merel merely y an part part of of obje object ctiv ives es of ent entre repre prene neurs urs.. Progre Progress ss unde underr capit capitali alism sm is much much slower slower than than actua actually lly it is. It is is lead leader ersh ship ip rat rathe herr than than own owner ersh ship ip whi which ch mat matte ters rs..

 

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Evaluation Schumpeter’s theory • It lays that entrepreneur played central part in rise of  modern capitalism. • Entrepreneur is prime mover of economic development.

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Leibenstein X-efficiency theory “When an input is not used effectively the t he difference between the actual output and  the maximum output attributable to that input is measure of Degree of X— Efficiency .” .”

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Types of Entrepreneurship Ø Routine entrepreneurship 

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Innovational entrepreneurship

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Role of Entrepreneurship Ø Input completion Ø Gap filling 

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Entrepreneurs must be able to perceive 1.buying and selling opportunities in different markets. 2.the possibility of transforming input into output 3.determine the profitable activities

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Evaluation of Leibenstein’s theory • It anal analyze yzes s ro role le of entr entrepr eprene eneur ur in in te terms rms of effi efficie ciency ncy.. • It tells us why growth rate is different in different countries. • This This theory theory shows shows that that a fi firm rm wil willl a achi chieve eve maxim maximum um efficiency when the firm minimizes cost.

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Harvard School theory • • • 

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Given by Cole (1949) Envisa Envisages ges entr entrepr eprene eneurs urship hip as as purpose purposeful ful acti activit vity y that init initiat iate, e, ma maint intain ain and develop a profit oriented business. Focus on two activities ies --co-ordination activity --sensitivity to the environment.

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Theory of Market Eqilibrium by Hayek According to Hayek “

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the associated absence with of entrepreneurs Neo –classical is intimately  . the assumptioninof market equilibrium. equilibriumeconomics The elasticity of bank credit causes a disparity between the natural and market  rate of interest. The ultimate cause of instability in the business world in the elasticity of bank  credit but the trace the consequences of this, not through the variations in consumers expenditure ,but through the change in volume of real investment  by entrepreneurs. entrepreneurs.

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Evaluation of Hayek theory This theory tells us that sectoral balance in economic system is essential for  steady economic development.

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McClelland’s Achievement Motivation Theory • • 

This is a psychological theory. Developed by David Mc Clelland as an Achievement motivation theory. Mc Clelland proposed that there are three major needs or motives for  personnel accomplishments. They are as follows:

1. The need need for for achie achievem vement ent(nA (nAch) ch) 2. The need need for affi affilia liatio tion.( n.(nAf nAff) f) 3. The The need need for for pow power er.( .(nP nPow ow))  

Implications of Motives Need for affiliation and need for power are driving force towards entrepreneurship. Ø High level of achievement makes an entrepreneur. Ø Dreams of entrepreneur appear to be not to ‘get rich’ but to ‘get big’.

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Tenets of McClelland’s theory 1. Economic developme nts depends on vigo vigorous rous activities activities of a numberdevelopments of individuals who behave in an entrepreneurial fashion. 2. Entre Entrepren preneurs eurs are m motiv otivated ated by by strong need need for  achievement. 3. There is evidence is direct that this motivational motivational compl complex ex has been in shorter supply in poor countries than in rich countries. 4. To improve improve the condition of poor countries entrepreneurs entrepreneurs are to be increased.

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Evaluation of McClelland’s theory • It produced reason for difference in economic condition of  rich and poor countries c ountries or developed and underdevelop underdeveloped ed countries. • It calle called d the the natio nations ns lea leader ders s to bui build ld up up ambit ambitio ion n into into the the minds of the young y oung people. •

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Theory of Change •

Propounded by Young.

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Acco Accord rdin ing g to to it it ent entre repr pren eneu eurs rs hav have e ten tende denc ncy y to to Desc Descri ribe be situ situat atio ion na as s pro probl blem em Awar Awaren enes ess s of of eff effor ortt Confide Confidence nce in abilit ability y Analyze Analyze the situation situation before before decision decision making making..

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Theory of change is based on society's incorporation of  reactive subgroups. • Acc Accord ording ing to it it grou group p becom becomes es reac reactiv tive e when when foll followi owing ng 

three conditions coincide….. a) When a group experiences low status status recognition. recognition. b) When d denied enied to access to important important social social networks c) When the group has better institutional resources than than other  groups in society at the same level. •

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Theory of Adjustment of Price • Given by Kirzner. According to him entrepreneur has following characteristics • Ad Adju justm stment ent of pric price e is is the the m mai ain n role role of entrep entrepren reneur eur.. • Al Aler ertn tnes ess s to to dis diseq equi uili libr briium um.. 

• Entrepreneur are unpredictable. unpredictable. 

Evaluation This theory lays stress on the behavior of the entrepreneur 

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and its quality of grabbing opportunities opportunities in the market.

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Theory of Entrepreneurial Supply • • •

It was propounded by John Kunkal in 1965. It is based upon experimental psychology and sociological variables. This behaviouristic model concerned with the activities ac tivities of individuals and their relations to both past,present and social structures and physical condition.

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Theory of Personal Resourcefulness 

“Personal resourcefulness” is the belief in one’s own capability for initiating actions directed towards creation and growth of enterprise. Thus, it emphasize on initiative rather  than reaction.

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Theory of Cultural Values • Pr Prop opo oun unde ded db by yT Tho hom mas Co Coch chra ran. n. • Ent Entrep repren reneur eurs s are not sup super er n norm ormal al in indiv dividu idual al bu butt they they are are so societ ciety’s y’s modal personality. • Per Perfor forman mance ce of ent entrep repren reneur eur inf influe luence nced db by y thre three e ffact actors ors:: i. Hi His so own wn at atti titu tude de to towa ward rds s his his o own wn oc occu cupa pati tion on . ii. Ope Operat ration ional al req requir uireme ement nt of job job.. iii. The ro role le expe expectatio ctations ns hel held d by the sanct sanctioning ioning groups.

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CONCLUSION •

Every theorist has looked at the entrepreneur and entrepreneurship on the basis of his perception, and therefore ,can at best ,provide only a limited view of entrepreneurial phenomenon. No view is right or wrong or more or less .

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“  He loves practice without theory is like the sailor who boards ship without a rudder and compass and never knows where he may cast ”    Leonardo Da Vinci

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References: • Dynamics of entrepreneurial entrepreneuria l development management……………….Vasant management…… ………….Vasant Desaiand • Entrepreneurship Development Development in India ………………Bishwanath Gosh 

• www.google.com • www.wikipedia.com •

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Thank you

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