Theories of Entrepreneurship

 

THEORIES OF ENTREPRENEURSHIP

 

MAX WEBER’S THEORY OF SOCIAL CHANGE  CHANGE  

Max Weber contended that entrepreneurial growth is dependent upon ethical value system of the society concerned.

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The spirit of of rapid industrialacquisition growth depends upon rational use technology, of money and its rational use of productivity and multiplication of money.  Weber analyzed his theoretical formulation by the relationship relationshi p that he found between protestant ethic and the spirit of capitalis capitalism. m. 

He analysed the religion and its impact on entrepreneurial culture.

 

MAX WEBER’S THEORY OF SOCIAL CHANGE  CHANGE  Weber’s theory has been criticized on various grounds that it was based on invalid assumptions such as: 1.There is a single system of Hindu values 2. The Indian Community internalized those values and translated them to day-to-day behaviour. 3. These value remain immune to and insulated against external pressure and change.

 

HOSELITZ SOCIOLOGICAL THEORY  

Sociologists have argued that entrepreneurship is Sociologists most likely to emerge under a specific social culture.

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They feel that social sanctions, cultural values and role expectations expectations are responsible responsible for the emergence of entrepreneurshi entrepreneurship. p.

 According to Cochran Cochran (1965), the entrepreneur entrepreneur

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represents society’s model personality. His personality. His performance depends upon three factors: (i) his own attitude towards his occupation, (ii) the role expectations expectation s held by the sanctioning groups, and (iii) the occupational requirements of the job.

 

HOSELITZ SOCIOLOGICAL THEORY  

Hoselitz (1964)formulated his socio-cultural theory on the assumption that certain persons are endowed with creative power in any cultural or social group and they develop different attitudes while practising social conduct.

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Hoselitz argued that entrepreneurship can develop in a society when its culture permits a variety of choices and where social processes are not rigid and in such a situation which encourages the development of personalities interested in enterprise the suggested that culturally marginal groups promote entrepreneurship.

 

HOSELITZ SOCIOLOGICAL THEORY  

Everett product change groups.

Hagen (1968) considered an entrepreneur to be a of social change and in many cases, the social may cause a loss in the status of certain social There are five ways of responding to such a loss of

status i.e., retreatism, ritualism, innovation, reformisms and rebellion. 

Randall

Stokes

(1974)

argued

that

values

channelize

economic action.He said due thatto such an individual into industrial entrepreneurship conditions moves as personal and social opportunity and the presence of the requisite psychological gains

 

TRAIT THEORY OF ENTREPRENEURSHIP

 According to FA FA Walker alker,, an entrepreneur is one who is endowed with more than average capacities in the task of organising and co-ordinating the factors of production.   A entrepreneur is a pioneer pioneer,, a leader and a captain of the firm.  The trait theory holds that entrepreneurship developed the individuals called entrepreneur possessed certain specific traits or characteristics or competencies which made them capable of generating new ideas and creating a new venture.  The major traits responsible for the emergence of entrepreneurs include: creative and innovative skills, propensity to take risk, ability of building on organization 

perseverance and foreseceability.

 

ECONOMIC THOERY OF ENTREPRENEURSHIP 

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G.F. Papanek (1962) and J.R.Haris (1970) hold the view that G.F. the economic incentive are the main drive for the entrepreneurial activities. Incentives and gains are regarded as sufficient conditions for the emergence of industrial entrepreneurship. The economic theory holds that when favourable economic conditions are prevailing , entrepreneurship develops at a faster arte and come forward to establish new ventures and bring resources, labour, materials and other assets and put them together to increase their wealth. Economic factors include: (a) market incentives(b)availability of sufficient capital and(c) institutional support.

 

SCHUMPETER’S SCHUMPETE R’S INNOVA INNOVATION TION THEORY  THEORY  

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Joseph Schumpeter (1934) has defined entrepreneur as the “one who seeks to reform or revolutionize the pattern of production by exploiting an innovation or more generally , an untried technological possibility for producing a new commodity or producing an old one in a new way, opening up a new source of supply of material or a new outlet of products”.  products”.    According to Schumpeter, Schumpeter, an entrepreneur is one who innovates, raises money, money, collects inputs, organises talent, provides leadership and sets the organization. Schumpeter has made a distinction between an inventor and innovator. innovator. Inventor discovers new methods and raw materials and an innovator utilizes discoveries in order to make new combinations.

 

SCHUMPETER’S R’S INNOVA INNOVATION TION THEORY  THEORY  SCHUMPETE

 According to Schumpeter Schumpeter,, innovation innovation leads to the following changes:

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1.

Introduction of new goods

2. 3.

Introduction of new method of production Opening of a new market

4.

Finding a new source of raw materials

5.

Recognition Recogniti on of process or enterprise

 

SCHUMPETER’S INNOVATION THEORY  THEORY  

Schumpeter proposed that innovation is guided by the following principles: i) innovation must be purpose oriented and

systematic ii) It must be conceptual and perceptual iii)It should be simple, easy and subjective iv) A successful innovation flows towards creation of leadership v) It exerts influence on economy and society vi) It is organized on the basis of innovating knowledge and capacity

 

SCHUMPETER’S R’S INNOVA INNOVATION TION THEORY  THEORY  SCHUMPETE 

Schumpeter’s theory is based on the following assumptions:

1.

Existence of sufficient availability of capital

2.

Existence of developed banking system to avoid scarcity of capital

3.

Existence of a high level developed technology

4.

Existence of private initiative and broad based entrepreneurial process.

 

LIMITATIONS OF SCHUMPETER’S THEORY  THEORY  1.

 A person is an en entrepreneur trepreneur when he inn innovates ovates but he ceases to be so when he settles down and runs the established business.

2.

Schumpeter’s theory ignores risk-taking risk-taking and organizing aspects of entrepreneurship. entrepreneurship.

3.

Schumpeter’s entrepreneur is a large scale businessman who create something new. An entrepreneur cannot have large scale operations from the very beginning. beginning.

 

MCCLELLAND’S PSYCHOLOGICAL THEORY  

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 According to this theory, theory, entrepreneurship entrepreneurship is most likely to emerge when a society has sufficient supply of individuals possessing particular characteristics. He argued that certain needs are learnt and socially acquired as the individual interacts with the environment.

David Mc Mc Clelland (1961) has identified three types of needs: a.

N ee e e d f o r Ac h i e v e m e n t ( n Ac h ) : a drive to excel, a d v a n c e an an d g r o w .

b.

N ee e e d f o r p o w e r (n (n Po w ) :  a d r i v e t o i n f l u e n c e o t h e r s a n d s i t u a ti ti o n s

c.

N ee e e d f o r A f f i l i at at i o n ( n A f f ): ): a d r i v e f o r f r i en en d l y a n d c l o s e i n t e r p e r s o n a l r e l at at i o n s h i p s

 

MCCLELLAND’S PSYCHOLOGICAL THEORY  

NEED FOR ACHIEVEMENT:

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Mc Clelland found that high achievers differentiate themselves from others by their desire to do things

better.  High achievers are not gamblers: they dislike succeeding by chance.  Achievers seek seek situations where they can a assume ssume personal responsibility for finding solutions to problems, where they can receive rapid feedback on their performance so that they can set moderately challenging goals.

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MCCLELLAND’S PSYCHOLOGICAL THEORY  

NEED FOR POWER:

a. The need for power is a drive to have impact to be influential and to control others. b. Individuals high in nPow enjoy being “in charge”, strive for influence over others, prefer to be placed into competitive and status – status –oriented oriented situations and tend to be more concerned with gaining influence over others and prestige than with effective per

 

MCCLELLAND’S PSYCHOLOGICAL THEORY  

NEED FOR AFFILIATION: AFFILIATION:

This need can be viewed as the desire to be liked and accepted by others. People with high n Aff display the following characteristics: 1. a strong desire for approval and reassurance from others. 2. A tendency to conform to the wiser and norms of those whom they value 3. A sincere interest in the feelong of others.

 

MCCLELLAND’S PSYCHOLOGICAL THEORY  

NEED FOR AFFILIATION:

•

 Individuals with a high need for achievement thrive on jobs and projects that tax their skills and abilities.

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Such individuals aretask goal-oriented in their activities, seek a challenge and want relevant feedback.

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Individuals with high affiliation needs value interpersonal relationships and exhibit sensitivity towards other people’s feeling.

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Mc Clelland found that the combination of a moderate to high need for power and a lower need for affiliation enables people to be effective entrepreneurs – entrepreneurs – they  they can use power to influence and control others’ behaviour and can make difficult decisions without undue worry of being disliked.

 

THEORY OF SOCIAL BEHAVIOUR 

Kunkel developed this model and purported that the overtly expressed activities of individuals and their relations to the previous and present surroundings,

social structure and physical conditions.  According to Kunkel, Kunkel, individuals individuals perform various various activities of which some are accepted by the society while others are not.The accepted ones are rewarded and are reinforced to increase the probability of repeating the behaviour pattern.

 

THEORY OF SOCIAL BEHAVIOUR 

1.

2.

3.

4.

The supply of entrepreneurship depends upon four structures founded in the society: Limitation Structure: the society limits specific activities and this limitation structure affects all the members of a society. Demand Structure: material rewards are necessary to lay the foundation for future social gains. Behaviour of people can be made entrepreneurial by manipulating certain selected components of the demand structure. Opportunity Structure:and it consists of the availability of capital, management technological skills, information concerning production methods, labour and market. Labour Structure: it is concerned with the supply of competent and willing labour

 

X-EFFICIENCY THEORY 

Many firms face the problem of inefficient utilization of various inputs or resources.Innovative resources.Innovative entrepreneurs come forward to check inefficiencies

in the utilisation of variuos resources.  According to Liebenstien, Liebenstien, the m most ost signifi significant cant feature of entrepreneurship is gap filling. It is the job of the entreprenuer to fill the gap or make up the deficiences which always exist in the knowledge about the production function i.e. utilisation of various resources.