Towards a theory of entrepreneurship

Over 200 years of the study of entrepreneurship have provided many definitions of the word “entrepreneur”. However, no theory of entrepreneurship has been developed that would explain or predict when an entrepreneur, by any of the definitions, might appear or engage in entrepreneurship. Indeed, the search for a best definition may have impeded the development of theory.The Schumpeter economic outcome-based concept that an entrepreneur creates value by carrying out new combinations causing discontinuity is embodied in many of the definitions offered within the last 50 years. We strongly recommend the adoption of Schumpeter's definition for academic and policy-making purposes.We offer the following tentative entrepreneurship theory, extracted from anecdotal observations and extant literature, in the hope that it will better explain and begin to predict the phenomenon of entrepreneurship:“A person will carry out a new combination, causing discontinuity, under conditions of:

• 1.1. Task-related motivation,
• 2.2. Expertise,
• 3.3. Expectation of personal gain, and
• 4.4. A supportive environment.

”Several relevant research questions are posed in the hope that they will encourage discontinuity in further development of theory.     

General managers control new and existing products differently

This article presents some initial findings from an ongoing research project on the way that divisional general managers of targe organizational units control new product innovations. (Control, in this instance, refers to the set of procedures, systems, and actions that general managers use to monitor, evaluate, influence, or define what subordinates are doing.) The research presented here focuses on three broad questions:

• 1.1. Do divisional general managers of large organizational units control their new product activities differently from their more established operations?
• 2.2. Is a new product's innovation strategy related to the nature and degree of divisional general manager control—and, if so, in what way?
• 3.3. Is a divisional general manager's choice of control methods related to his/her unit's new product output?

The results were based on in-depth interviews with the general managers of 26 large Canadian-based divisions in 12 firms. All the firms were significant competitors in the North American market and all were actively engaged in new product activities. Firm size ranged from $210 million to $5 billion in sales. The following is a summary of the study's principal findings and conclusions:

• 1.1. Control varies among dimensions. The study measured the degree of control exercised by divisional general managers over new and established products on 14 control variables. It was found that none of the new products (relative to established brands) was controlled in the same fashion by the managers. Instead, new products were always managed through a variety of “loose” and “tight” controls. In so doing, it appeared that the divisional general managers were trying to balance the control and freedom required by subordinates with new products.
• 2.2. Control varies with strategy. Both theory and empirical research generally support the notion of linkage between a unit's strategy and its organizational (eg, design, reward, placement, information, etc.) practices. The results of this study strengthen this line of thinking. The data show that both the nature and degree of divisional general manager control vary with three dimensions of product strategy (i.e., familiarity, uniqueness, and advancement).
• 3.3. Control varies with output. The analysis highlighted the pivotal relationship between divisional general manager control and new product output. Both the nature and degree of control were found to be associated with new product output in each strategic category. Although there does not appear to be one best way to control all types of new products, some divisional general management approaches to control were more preferred than others.
• 4.4. Loose formal/tight informal. The general managers' control patterns showed that formal control dimensions were usually managed more loosely than informal ones; that tighter informal controls were used to off-set (or “balance” ) the more relaxed formal dimensions; and that the observed reduction in formal control should not be interpreted to mean either the absence of bureaucracy or the absence of formal control. Indeed, some formal bureaucratic control was always found in the “high output” strategic categories. Thus, rather than being considered or labeled as typically “bad”, bureaucracy may in fact be “beautiful”—provided, of course, that it is appropriately used.

The article concludes by arguing that a divisional general manager's approach to controlling new products seems to make a difference in terms of performance. As such, the control approach chosen should not be made haphazardly or with abandon.     

Environment,corporate entrepreneurship,and financial performance: A taxonomic approach

This study examined the association between a firm's external environment, corporate entrepreneurship, and financial performance. The study emphasized three propositions: (1) perceived—rather than objective-characteristics of the environment significantly influenced entrepreneurship activities; (2) a multidimensional definition of a firm's environment was essential to unravel the interplay between the environment, orporate entrepreneurship activities, and financial performance; and (3) a taxonomic approach had the advantage of accounting for the interrelationships among the dimensions of the environment in classifying firms.Using data from 102 companies in six4-digit industrial classification codes (SIC),cluster analysis was used to distinguish four environmental settings: “dynamic growth,” “hostile and rivalrous but technologically rich,” “hospitable, product-driven growth,” and “static and impoverished” environments. These four environments varied in their characteristics.The four empirically derived environment clusters were then used to examine variations in corporate entrepreneurship—operationalized as corporate innovation and venturing, and corporate renewal activities. The first dimension—corporate innovation and venturing—had four components: new business creation, new product introduction, percent of revenue from new products, and technological entrepreneurship. The renewal dimension had three components: mission reformulation, reorganization, and system-wide change. The data were used to test six hypotheses:

• 1.H1: In dynamic or growth environments, companies will emphasize new business creation and innovation.
• 2.H2: Environmental hostility is positively associated with the redefinition of business through venturing activities.
• 3.H3: Hospitable business environments are positively associated with business venturing and renewal activities.
• 4.H4: Static environments are inversely associated with corporate venturing and renewal activities.
• 5.H5: Corporate entrepreneurship activities are positively associated with company financial performance.
• 6.H6: Corporate entrepreneurship activities emphasised in HI through H4 will be significantly and positively associated with company financial performance in their respective environmental clusters.

The results provided general support for the six hypotheses. They showed that: (1) each environmental cluster had a distinct combination of activities relating to corporate innovation and venturing, and renewal; (2) corporate entrepreneurship activities varied in their associations with measures of company growth and profitability; and (3) the associations between corporate entrepreneurship and company financial performance varied among the four environment clusters. The results from this study can help executives in selecting specific entrepreneurial activities that match the demands of success in their business environment to improve their company's performance.     

After the cash arrives: A comparative study of venture capital and private investor involvement in entrepreneurial firms

Equity investments in entrepreneurial firms continue to grow in number and dollar amount from both venture capital and private investment sources. Increasingly, these two sources of capital play an important role in the development of new and existing entrepreneurial ventures. Due to the sometimes hurried attempt to turn their dream into reality, entrepreneurs may fail to consider similarities and differences in the value-added benefits supplied by venture capital firms (VCs) and private investors (PIs).Accordingly, the purpose of this study was to determine how initial relationships are established and maintained between entrepreneurs and their primary investors. Specifically, we asked entrepreneurs to assess characteristics of the relationship with their primary investor. We then contrasted the results between entrepreneurial firms that had received venture capital funding versus private investor funding. Differences were examined along the following lines:

• 1.• Levels of investor involvement in entrepreneurial firms
• 2.• Reporting and operational controls placed on the firm
• 3.• Types of expertise sought by the entrepreneur

     

Entrepreneurship education in the nineties

Bringing entrepreneurship education into the community support infrastructure poses one of the more important economic development issue for the 1990s. Aspart of the new strategy for job creation, entrepreneurship education holds promise as an integral component in a community's venture support system along with incubators, innovation centers, technology transfer offices, science parks, and venture capital operations. Since new venture success is foremost a function of entrepreneurial knowledge and know-how, entrepreneurship education may be the most promising of these economic development mechanisms. Unfortunately, it may be the most difficult to implement.Generally the extent and nature of education required by modern aspiring entrepreneurs is not well understood. Many would see entrepreneurship education as strictly an add-on to current education in management or engineering. Such is the option of minimal use. The real promise or entrepreneurship education will be realized when it is strategically organized for economic development and job creation. This article traces the recent history of entrepreneurship education before proceeding to deal with a number of questions facing those who would use entrepreneurship education as part of a modern economic development strategy:

1. 1.1. Why is entrepreneurship education important?
2. 2.2. How should it be distinguished from related programs?
3. 3.3. How will success be measured?
4. 4.4. Who will be the students?
5. 5.5. How will the subject be taught?
6. 6.6. What will be the curriculum?
7. 7.7. Who will be the teachers?

     

Venture capital in transition: A Monte-Carlo simulation of changes in investment patterns

This article examines the nature of the investment process which has historically generated high returns for venture capital funds, and the impact on fund returns of perceived changes in management practice and the structure of the industry. The article outlines some policy implications for fund managers, investors, and the general management of corporations.The authors have investigated the investment process and the changes in the nature of the process through the use of a Monte-Carlo simulation model. Information gathered from interviews with fund managers and the available published data on venture fund performance (including proprietary surveys) was used to develop and calibrate the model. The model replicates the relatively high average fund returns and distribution of returns for funds through the early 1980s. The model simulates a multistaged investment process which draws on a pool of investment opportunities which have a log normal distribution of returns and a low (zero) average return. The model readily permits the exploration of the impact of management and industry practices on fund returns.The conditions identified by the authors, which led to high rates of return on the part of venture capital funds, include:

• 1.1) multistaged investment or commitment of funds on an incremental basis with evaluation of venture performance before commitment of additional fund;
• 2.2) objective evaluation of venture performance with the clear distinguishing of winners from losers;
• 3.3) parlaying funds or having the confidence to commit further funds to ventures identified as winners;
• 4.4) persistence of returns from one round to the next, which implies that valuable information is gained from previous rounds of investment in the same venture;
• 5.5) long-term holding of investment portfolios for a period sufficient for geometric averaging of compound returns to cause the winners to “take over” or raise portfolio returns.

Taken together, these conditions have permitted venture capital funds to historically realize strong average returns with a few of them realizing extraordinary returns.The article also explores the consequences of what some believe is happening in the industry: a trend toward holding investments for shorter periods, increased competition both for investments and later in the product-market arena, and a growing lack of loyalty between investors and investees. All of these conditions and their indirect consequences were shown by the model to negatively impact the limited partners in the venture capital funds while general partners, given the structure of fees and the distribution of investment returns, generally realized a reasonable to extraordinary return. The article outlines a number of management and investment policy implications for investors and fund managers.     

Strategy constraints of Polish foreign-trade organizations

This paper presents reflections on the survey of the general managers of Polish foreign-trade organizations (FTOs). The study focuses on business deals with Western partners and the associated problems. The relative inefficiency of Polish FTOs is due to:

• 1.1. Poor working relations between the FTOs and the Polish manufacturing sector;
• 2.2. Inadequate knowledge of modern marketing techniques;
• 3.3. The lack of clear-cut strategies regarding how to develop foreign markets; and
• 4.4. Rigidity of national planning and management systems in Poland.

As far as organizational solutions to correct the deficiencies are concerned, the experience of foreign branches of FTOs and the modifications of their cooperative links with the Polish manufacturing sector appear to be the most promising.     

Learning needs of growth-oriented entrepreneurs

As firms increase in size and complexities, the entrepreneurs managing them face a number of unique problems. Often the entrepreneurs lack the experience to address these challenges. Further, finding the best method to acquire the needed information has proven elusive for both entrepreneurs and educators.The existing entrepreneurship education literature related to teaching and/or learning skills to grow a business does not significantly address the problems brought on by growth. Most studies have examined students in an academic environment, away from realworld problems, in a relatively structured setting of a specific duration and with similar levels of competency and knowledge. Practicing entrepreneurs do not fit this educational mold.The results of this study show that entrepreneurs prefer learning experiences that are short, to the point, content oriented, and taught by practicing professionals. This study also identifies the priority learning needs and preferred delivery methods of fast growth entrepreneurs. These findings could be used to develop a series of courses or modules that could enhance the management efficiency and effectiveness of fast growth entrepreneurs.This study contributes to the general knowledge of entrepreneurship education in the following areas:

• 1.1. It identifies the learning needs and preferred instructional methods of practicing, fast growth entrepreneurs.
• 2.2. It provides market information on course offerings for executive education programs.
• 3.3. It provides a model of curriculum content for universities that wish to bring their courses more in line with the needs of practicing entrepreneurs.
• 4.4. It provides a teaching approach that can help bridge the gap between academe and the business world by focusing on learning needs common to both students and entrepreneurs.

     

Customer equity: a creative tool for SMEs in the services industry

The creative use of “Customer Equity” (CE) can be of interest to SMEs in the services industry.CE concerns:

• “Customer Acquisition”: Which customer or prospect should be acquired for present profit and future retention?
• “Customer Retention”: How can customers be made customers for life?
• “Add-on Selling”: Why selling more to existing customers is more profitable than the quest for new business.

The SME can furthermore apply two boosters to its CE policy:

• “Strategic Alliances”: When interdependence is smarter than independence.
• “External Economy of Scale”: Competition: if you cannot beat them, join them.

     

The internationalization process in the small and medium sized firms: A case study on the Italian clothing industry

In this research we use a data-base that reveals the propensity for contractual ventures and direct investments (1051 operations) of the clothing Italian companies during the period 1987–1991, on a national (342 operations) and international level (709 operations). The latter were analyzed with reference to the internal (412) and external growth strategies (297), cooperative (362) and non-cooperative (347) deals. Our analysis focuses on the different strategies that SMEs, on one hand, and large companies, on the other hand, show in the internationalization process. Main results of the study are:

the international growth of the SMEs takes place mainly through contractual agreements (68%), more so than with non-cooperative operation (32%), whereas in large companies the non-cooperative strategies slightly prevail (54%). Consequently, the external growth strategy is very important for the SMEs (72%) and somewhat less important for the large companies (54%);

the cooperative growth is usually seen by SMEs as an expansion both of the commercial (48% of the operations involves commercial purposes) and of the production areas (48% of the cases). This could indicate that SMEs try to organize on an international level the same network model used in Italy: SMEs decentralize their production within the country through networks of companies and industrial districts, whose horizontal connections (among SMEs themselves) and vertical connections (with large companies) provide flexibility and low costs;

large companies' expectations of the Single European Market have brought a great number of international operations in Europe (24%), notwithstanding the notable importance of Japan (23%) and U.S. (17%); on the contrary, SMEs focus on “niche and rich markets” as Japan (40%); but as far as the contractual agreements are concerned, both types of firm privilege the Japanese market: almost 50% of SMEs' international agreements are directed towards Japan (33% in the large company's case);

large companies and SMEs in the middle and high segments of the market carry out more operations than companies operating in the low quality and casual segments;

generally speaking, in Italy there is an urgent need for industrial policies promoting SMEs access to cooperative instruments (“learning by cooperating”).

     

The impact of regulatory legislation on contractual costs risk and the form of contracts used in the UK and Republic of Ireland

The problem of contractual cost and quality risk within the public sector has been infrequently addressed within the EU regulated procurement environment. The view of Member States has been that concentration of buying power, standard conditions of contract and competitive bidding are the protective mechanism and cornerstones of regulated sector buyers. Aspects of the size of the ‘bidding pool’ and the influence of EU purchasing requirements are addressed and seen as largely unsatisfactorily addressed. This article provides an empirical analysis on two significant points:

• •that the UK and Republic of Ireland (ROI) public sector bodies have not significantly changed the type of contract (or contractual form) as a result of regulatory requirements.
• •that the form of contract adopted does not effectively address the cost and quality risks management may face once such contracts have been let.

     

Three facets of satisfaction and their influence on the performance of innovation teams

This study investigates and demonstrates the mediating effect of job satisfaction between team deftness and team comprehension and the performance of 168 project teams involved in major innovation projects for their companies.The study demonstrates that there are at least three independent facets of job satisfaction: instrumental satisfaction with the way the task is progressing, social satisfaction with the way the team members interact with one another and the organization, and egocentric satisfaction with the individuals' perceived benefits to themselves.Previous studies have shown that innovation team performance is directly correlated with the two antecedents of performance: team deftness, which reflects how effectively the team works to achieve the innovation's purpose and team comprehension, which reflects how the team understands the linkages among key variables driving the innovation outcome. The study argues that these different facets of satisfaction differentially affect the ways in which team performance is affected by deftness and comprehension.There are three major results:

• 1.1. Social satisfaction mediates the relation between team deftness and performance—as social dissatisfaction of the team increases, it appears to impede the ability of the team to deploy its deftness in accomplishing the project's purpose.
• 2.2. Instrumental satisfaction mediates the relation between team comprehension and project performance—as instrumental dissatisfaction increases, it appears to impede the ability of the team to deploy its comprehension to accomplish the project's purpose.
• 3.3. Egocentric satisfaction does not appear to mediate the relation between team deftness and project performance.

Some managerial implications of these results are discussed.     

Ansatzpunkte für eine selbsthilfeorientierte Verbraucherberatung Ergebnisse einer empirischen Untersuchung

The article reports from a study of 835 Berlin citizens, in which their needs for legal counselling in five walks of life were ascertained. Subjectively experienced problems were related by the respondents, both spontaneously and as answers to a standardized questionnaire; in the same manner, the investigators tried to find out in which way, if any, the respondents had tried to solve the problems. In this paper, only some results from the questions dealing withconsumer problems are reported. Among the results of the study can be mentioned:

-Many more problems are reported for consumer durables than for insurance, holiday travel, and consumer credit (although when a problem arises in the latter spheres, they give rise to much concern). Doctors and consumer services (in particular, car repairs) show rather high problem rates, too;

-Most problems have to do with perceived deficits of the delivered goods and services (rather than with the activities of the seller);

-About 26% of the respondents explicitly stated that they had undertaken nothing by way of remedying the problem. The tendency to do nothing about it is clearly related to income (low income = proneness to do nothing). The relationship with education is less clear-cut.

-In particular, those persons who had resorted to legal counselling as a means of solving their problem, were very satisfied with this, and planned to use the method again if need arose. Contacts with the seller were less favourably evaluated as a problem-solving means. Also those who had not undertaken any action in order to solve their problem, state to a surprisingly high degree that they plan to use legal advice (lawyers, consumer advice centres, courts) the next time a problem arises. Plans to use legal counselling are mentioned by many more than have used them in an actual conflict, and these intentions do not differ dramatically among different social classes.

-Very few respondents (3%) report the use ofcollective action in attempts to solve their problem, but considerably more (15%) indicate a desire to solve future problems together with other consumers who find themselves in an similar situation.

On the basis of the results of the study and theoretical considerations, the authors draw the following conclusions:

1. A public consumer policy which entails the goals of consumer co-determination and self-reliance is more likely to succeed if it relates to deficiencies of goods and services perceived by the consumers. Consumer counselling should therefore change its focus from giving advice prior to decisions to giving advice about how to solve post-purchase problems.
2. Because of consumer expectations, consumer guidance must include legal counselling. It should not be limited to such counselling, however, since most consumer problem alleviation takes place outside the legal system.
3. Legal counselling should primarily aim at strengthening the position of the consumer innon-legal problem-solving attempts. Knowledge about the legal position is important because it gives self-confidence and increases the perceived rightfulness of one's concern. It creates the awareness that the problem is not an individual and rare one, and may give impetus to collective action. It makes it possible to see how one's problem is connected to other, related problem types. It strengthens the consumer's feeling of possessing negotiation power, since he can threaten with legal action, in case the seller does not yield, and it makes it possible for the consumer to specify minimum requirements in his dealings with the seller.
4. Legal counselling that has as its only purpose the securing of consumer rights throughlegal procedures, puts the consumer under tutelage and runs the risk of becoming an instrument which isolates consumers from each other and make them incapable of solidarity with fellow citizens.
5. Consumer counselling should as its starting-point take the problem-solving procedures usually employed by consumers (direct contacts with the seller, seeking advice from friends and colleagues) and attempt to make these procedures more efficient. The declared preparedness of consumers to consider collective actions should be put to use.
6. Consumer counselling should not address itself to specific, “weak” consumer groups (old people, low-income groups, non-employed women) but should in the first place concentrate its attention on those kinds ofproblem situations (certain types of goods and services, certain types of confrontations with sellers, etc.) in which such especially vulnerable consumers find themselves.

     

Social Entrepreneurship: The Role of Institutions

A relatively small segment of business, known as social entrepreneurship (SE), is increasingly being acknowledged as an effective source of solutions for a variety of social problems. Because society tends to view “new” solutions as “the” solution, we are concerned that SE will soon be expected to provide answers to our most pressing social ills. In this paper we call into question the ability of SE, by itself, to provide solutions on a scope necessary to address large-scale social issues. SE cannot reasonably be expected to solve social problems on a large scale for a variety of reasons. The first we label the organizational legitimacy argument. This argument leads to our second argument, the isomorphism argument. We also advance three other claims, the moral, political, and structural arguments. After making our arguments, we explore ways in which SE, in concert with other social institutions, can effectively address social ills. We also present two examples of successful ventures in which SEs partnered with governments and other institutions.     

The case method: A perspective

The task of preparing a case is similar to writing a legal brief or an essay insofar as all three should contain a thesis or main point and argumentation or logically arranged facts and inferences. However, different from a brief or an essay, case studies should not contain a conclusion. A case should lead the reader through the facts, but it should not offer a firm or fixed resolution or moral judgment. Ideally it should leave the reader with the opportunity to create and insert their own conclusion. A good case study should be amenable to the following kinds of questions or analysis procedures:

1. What is the problem? or What is at stake?
2. What are the non-normative or factual issues involved?
3. What are the normative or ethical issues involved?
4. What are the alternatives available?
5. What decision would you make?

     

The Swedish product safety legislation

During the 1970's and 80's the interest in product safety has grown in Sweden. This in turn has led to an examination of the product safety legislation. On July 1, 1989, a new general Product Safety Act will come into force. Its aim is to prevent hazardous goods and services from causing personal injury or damage to property. Under the Act an entrepreneur can:

--be enjoined to provide safety information

--be prohibited from further provision of the hazardous goods and services

--be enjoined to provide cautionary information

--be ordered to recall hazardous goods and services.

A Governmental Committee has recently investigated whether or not rules concerning prohibition of export goods entailing a direct danger to life, health, or safety should be introduced and, in that event, how they should be devised. The Committee proposed certain rules in December 1988. This proposal will be circulated for comment whereupon it will be decided within the Government Offices how to proceed with the work on the proposal.     

Commentary on “an empirical study of moral reasoning among managers”

Managerial reasoning is characteristic of a care-relationship ethics:

1. If a corporation provides certain community values to corporate members not reducible to their self-interested economic or professional objectives;
2. If such values are generated by a division of labor based on interdependence, reciprocity and concern for another's self-realization;
3. If it's based on promoting an ethical corporate self independent of its economic value.

Such an ethic is appropriate, given employees' tremendous personal contributions, the unique position of private industry to provide distinctive resources without committing extensive social resources, and due to its potential for reducing managerial moral fragmentation and hypocrisy.     

Corporate social responsibility and public accountability

The development of legislation determining corporate behaviour is a fascinating topic, offering insight into the societal problems of corporate enterprise as they are related to their accounting, their administration, and their external reporting. In this paper the following specific implications for accounting are examined:

-Should accountants get involved in social auditing and are they the ‘core’ persons in corporate social accounting systems?

-Should corporate social performance measurement and reporting become obligatory and to what extent?

-A general framework for the implementation of corporate social accounting systems is suggested and quidelines for its auditing are proposed.

-A tentative set of social auditing standard is outlined together with its methodological accompaniments.