Session06 introduction totheoryofentrepreneurship
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This document summarizes key topics from an introduction to entrepreneurship theory lecture: 1) Entrepreneurship is discussed from different perspectives including opportunity recognition and value creation. No single accepted theory of entrepreneurship exists. 2) Major contributors to entrepreneurship theory are discussed, including Schumpeter's theory of creative destruction and Knight's view of entrepreneurs bearing uncertainty. 3) Core themes in entrepreneurship research are identified as uncertainty, innovation, opportunity recognition, and firm creation. Entrepreneurship draws from many fields without a unified theory.
![Issues Addressed Entrepreneurship Theory /2 Economic Dynamics Innovation drives long term economic growth The process of Creative Destruction (destruction is the price of innovation) is the engine of economic development The entrepreneur is the driver of the process of creative destruction. The entrepreneur creates ‘New combinations’, which follows its dream and will to conquer and found a private kingdom. The Entrepreneur destroys the equilibrium, which is the conceptual basis for mainstream economic theories , attributing a radical, discontinuous nature to innovation. Prof. Dr. Bernhard Katzy 28/02/2011 SCHUMPETER PROCESS OF CREATIVE DESTRUCTION [Schumpeter, 1939]](https://image.slidesharecdn.com/session06introductiontotheoryofentrepreneurship-110708085257-phpapp01/85/Session06-introduction-totheoryofentrepreneurship-14-320.jpg)
![Issues Addressed Entrepreneurship Theory /3 Uncertainty Knight‘s Entrepreneurship as risk-bearing: “ A basic property of any economic activity is uncertainty. The entrepreneur’s role is bearing the uncertainty of market dynamics. The entrepreneur attempts to predict and act upon changes within the market”. Risk: insecurity about the future, can be measured with some probability and therefore can be insured Uncertainty: can not be predicted, measured or insured Entrepreneur is required to act in an economic environment where there is uncertainty and ambiguity Discuss: Psychology research insight: Entrepreneurs are typically risk avers Prof. Dr. Bernhard Katzy 28/02/2011 ENTREPRENEURIAL RISK [Knight, 1921]](https://image.slidesharecdn.com/session06introductiontotheoryofentrepreneurship-110708085257-phpapp01/85/Session06-introduction-totheoryofentrepreneurship-15-320.jpg)
![Issues Addressed Entrepreneurship Theory /4 Alertness Kirzner – The Entrepreneur is the one who has superior alertness: Discovers price differences and therefore profit opportunities Speculates regarding innovation Understands the course of economic phenomena Entrepreneurship is a psychological characteristic of the individual (in contrast to Schumpeter’s view as a function in economic theory) Prof. Dr. Bernhard Katzy 28/02/2011 ENTREPRENEURIAL ALERTNESS [Kirzner, 1999]](https://image.slidesharecdn.com/session06introductiontotheoryofentrepreneurship-110708085257-phpapp01/85/Session06-introduction-totheoryofentrepreneurship-16-320.jpg)
Session06 introduction totheoryofentrepreneurship
- 1. Session 6. Introduction into Theory of Entrepreneurship Prof. Dr. Bernhard Katzy Winter 2011
- 2. Introductory Group Discussion What is entrepreneurship for you? 2 minute discussion in 2-3 persons’ groups about the definition of entrepreneurship Short presentations afterwards Prof. Dr. Bernhard Katzy 28/02/2011
- 3. What is entrepreneurship? “ Entrepreneurship is a normal human capacity, it can be cultivated and developed” (Ludwig von Mises – Human Action) “ The pursuit of opportunity beyond the resources you currently control” (HBR) Prof. Dr. Bernhard Katzy 28/02/2011 VIEWS ON ENTREPRENEURSHIP
- 4. Class Discussion Prof. Dr. Bernhard Katzy 28/02/2011 VIEWS ON ENTRPERENEURSHIP
- 5. What is an entrepreneurial firm? Prof. Dr. Bernhard Katzy 28/02/2011 EXAMPLES OF ENTRPRENEURIAL FIRMS
- 6. Group discussion What is value? Divide into the groups of 2-3 persons In 10 minutes bring any kind of value (economic, social, etc.) to the pens/pieces of paper you have and present it to the whole class The class will decide whose idea was the best Prof. Dr. Bernhard Katzy 28/02/2011
- 7. Entrepreneurship and Added Value Entrepreneurship is universal - not dependent on industry, sector, or geography Prof. Dr. Bernhard Katzy 28/02/2011 But Entrepreneurship is no production factor (Labor, Capital, Ground: Marx) and therefore is external to classical economic theory of added value. Entrepreneurship has a connotation with value creation .
- 8. Elements for Entrepreneurship Theory /1 The Entrepreneur Comes from an old French word entreprendre – ‘undertake‘ Early mentions go back to beginning of modern science Richard Cantillon (1755): “Entrepreneurship is defined as self-employment of any sort. Entrepreneurs buy at certain prices in the present and sell at uncertain prices in the future. The entrepreneur is a bearer of uncertainty” J. B. Say (1803): “The entrepreneur is the agent ‘who unites all means of production and who finds in the value of the products...the reestablishment of the entire capital he employs, and the value of the wages, the interest, and rent which he pays, as well as profits belonging to himself.’ Entrepreneurship has been studied for more than 200 years, but no accepted theory or definition derived. Why? Prof. Dr. Bernhard Katzy 28/02/2011 ENTREPRENEUR
- 9. Elements for Entrepreneurship Theory /2 Theories Entrepreneurship is a phenomena. There is NO SINGLE generally accepted entrepreneurship theory, but there several theories: Finance related: Startup/new venture entrepreneurship Venture Capital Managerial: Opportunity Recognition Creation Theory Application Domain: Corporate entrepreneurship Social entrepreneurship Self employed, small and family owned business Prof. Dr. Bernhard Katzy 28/02/2011 ENTREPRENEURSHIP THEORIES
- 10. Elements for Entrepreneurship Theory /3 Theories Theory of entrepreneurship touches many scientific fields: Economics Business studies Technology Innovation Sociology Psychology Prof. Dr. Bernhard Katzy 28/02/2011
- 11. Elements for Entrepreneurship Theory /4 Authors Writers in entrepreneurship include: Joseph Schumpeter (1883-1950) Born in Austria-Hungary Creative destruction Frank Knight (1885 - 1972) Born in USA Risk & uncertainty Israel Kirzner (1930 - present) Born in England Alertness & arbitrage Prof. Dr. Bernhard Katzy 28/02/2011 ENTREPRENEURSHIP AUTHORS
- 12. Elements for Entrepreneurship Theory /4 Authors Writers in entrepreneurship include: Peter Drucker (1909 - 2005) Born in Austria Knowledge work William Baumol (1922 - present) Born in USA Microtheory of entrepreneurship Mark Casson (1945 - present) Born in England Judgmental decision Prof. Dr. Bernhard Katzy 28/02/2011 ENTREPRENEURSHIP AUTHORS
- 13. Issues Addressed Entrepreneurship Theory /1 The Opportunity Why, when and how some people explore the opportunities while others don’t? (entrepreneurial drivers, geographically spread start ups) Why, when and how value creation opportunities come into existence and are recognized by entrepreneurs? Why, when and how different action modes are used to exploit opportunities by entrepreneurs? (entrepreneurial strategies) Why and in which way are some entrepreneurial ventures successful while others fail? Prof. Dr. Bernhard Katzy 28/02/2011 ENTREPRENEURIAL OPPORTUNITY
- 14. Issues Addressed Entrepreneurship Theory /2 Economic Dynamics Innovation drives long term economic growth The process of Creative Destruction (destruction is the price of innovation) is the engine of economic development The entrepreneur is the driver of the process of creative destruction. The entrepreneur creates ‘New combinations’, which follows its dream and will to conquer and found a private kingdom. The Entrepreneur destroys the equilibrium, which is the conceptual basis for mainstream economic theories , attributing a radical, discontinuous nature to innovation. Prof. Dr. Bernhard Katzy 28/02/2011 SCHUMPETER PROCESS OF CREATIVE DESTRUCTION [Schumpeter, 1939]
- 15. Issues Addressed Entrepreneurship Theory /3 Uncertainty Knight‘s Entrepreneurship as risk-bearing: “ A basic property of any economic activity is uncertainty. The entrepreneur’s role is bearing the uncertainty of market dynamics. The entrepreneur attempts to predict and act upon changes within the market”. Risk: insecurity about the future, can be measured with some probability and therefore can be insured Uncertainty: can not be predicted, measured or insured Entrepreneur is required to act in an economic environment where there is uncertainty and ambiguity Discuss: Psychology research insight: Entrepreneurs are typically risk avers Prof. Dr. Bernhard Katzy 28/02/2011 ENTREPRENEURIAL RISK [Knight, 1921]
- 16. Issues Addressed Entrepreneurship Theory /4 Alertness Kirzner – The Entrepreneur is the one who has superior alertness: Discovers price differences and therefore profit opportunities Speculates regarding innovation Understands the course of economic phenomena Entrepreneurship is a psychological characteristic of the individual (in contrast to Schumpeter’s view as a function in economic theory) Prof. Dr. Bernhard Katzy 28/02/2011 ENTREPRENEURIAL ALERTNESS [Kirzner, 1999]
- 17. Conclusion Entrepreneurship is a phenomena Entrepreneurship was not a mainstream research topic until the year 2000. Entrepreneurship gets a popular study subject in many fields: economics, management, psychology, sociology, etc. Core themes are: Uncertainty, Innovation, Firm creation, opportunity, and the alertness for its recognition Entrepreneurship Research emerges as a system science across fields with, e.g. chaos theory m odels where outcome is sensitive to changes in initial conditions, Change of state m odeling of physical&social systems, or self-organization (l arge interactive systems evolve towards a critical state in which a minor event can lead to a sudden, dramatic change) and feedback mechanisms in economic systems. Prof. Dr. Bernhard Katzy 28/02/2011 FRAMEWORK FOR ENTREPRENEURIAL THEORY
- 18. Papers referred to in this lecture Schumpeter, J. A. (1939). Business Cycles. A Theoretical, Historical and Statistical Analysis of the Capitalist Process. McGraw-Hill, New York. Knight, F. H. (1921). Risk, Uncertainty and Profit. Houghton Mifflin,New York. Kirzner, I. M. (1999). Creativity and/or alertness: A reconsideration of the Schumpeterian entrepreneur. Review of Austrian Economics , 11 , pp. 5–17. Prof. Dr. Bernhard Katzy 28/02/2011
- 19. Readings for Session 7 Eckhardt, J. & Shane, S. (2003). Opportunities and Entrepreneurship. Journal of Management, 29(3), pp. 333-349. Ardichvili, A., Cardozo, R. & Ray, S. (2003). A Theory of Entrepreneurial Opportunity Identification. Journal of Business Venturing, 18, pp. 105-123. Prof. Dr. Bernhard Katzy 28/02/2011
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