INTERNATIONAL ISLAMIC UNIVERSITY

ISLAMABAD.

Article on
Entrepreneurship and Decision making

Submitted To:

Dr. Farooq Hussain

Submitted By:

Muhammad Azam
Reg# 4134

FACULTY OF MANAGEMENT SCIENCES

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 ACKNOWLEDGEMENTS

I am very thankful to all the people who help me in completing

this task. I am also thankful to my respectful teacher who gave
me necessary guideline.

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CONTENTS

ABSTRACT-------------------------------------------------------------------------------- 4

INTRODUCTION-------------------------------------------------------------------------- 5

ENTREPRENEURSHIP AS CAREER OPTION---------------------------------- 6

Literature Review------------------------------------------------------------------------ 8

Entrepreneurial Decision Making-------------------------------------------------- 10

Career Experience----------------------------------------------------------------------- 11

Career Motives---------------------------------------------------------------------------- 12

Conclusion--------------------------------------------------------------------------------- 13

References--------------------------------------------------------------------------------- 14

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Entrepreneurship and Decision making

ABSTRACT

This study provides a literature overview of the entrepreneurial decision-making

process. Entrepreneurship is a philosophy- it is the way one thinks, one acts and
therefore it can exist in any situation be it business or government or in the field
of life. Many authors have published lists of characteristics that they consider to
be displayed by entrepreneurs. They have grouped these contributions into six
schools of thought. They classify these as the; "Great Person", Psychological,
Classical, Management, Leadership and entrepreneurship schools of thought.
Decision making lies at the very heart of the entrepreneurial process.
Entrepreneurs have to make a plethora of different decisions on a daily basis.
Functionally all entrepreneurs are self-employed and income generating persons
but the reverse is not true- all self-employed and income generating persons are
not entrepreneurs.

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INTRODUCTION

Entrepreneur traits, creativity, innovation, business planning and growth

management are five of the main concepts of entrepreneurship. Lists of
characteristics common to entrepreneurs have been published by many authors
but others suggest that previous experiences are more important.
Entrepreneurial creativity requires a paradigm shift and there are many
techniques available to help the entrepreneur to see things in a different
perspective, to come up with new ideas. Innovation involves implementing newly
created ideas and the process can be classified as invention, extension,
duplication and synthesis. Strategic planning is used to assess the
entrepreneur's position in external/internal environments, identify key success
factors/competencies and to implement a strategy. Finally, the issue of growth
management requires the entrepreneur to settle on what size of company he is
happy with, how much direct control is afforded to him and how entrepreneurial
spirit can be retained in a growing business.

Entrepreneurship is the terminal stage of the entrepreneurial process wherein

after setting up a venture one looks for diversification and growth. An
entrepreneur is always in search of new challenges. An entrepreneur is not a
routine businessman he might not have resources but he will have ideas. He is
innovative and creative. He can convert a threat into an opportunity. Small
businessmen might shut-down or change his business if he anticipates losses
but an entrepreneur will try again after analyzing the situation. On the other hand
an entrepreneur can leave a perfectly running business to start another venture if
he so desires.

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Functionally all entrepreneurs are self-employed and income generating persons
but the reverse is not true- all self-employed and income generating persons are
not entrepreneurs. If seen on a continuum, income generation, self-employment
and entrepreneurship can be considered as the initial, middle and final stages of
the entrepreneurial growth process. Income generating experience encourages
self-employment, which in turn facilitates graduating into entrepreneurship.

An entrepreneur is a person who starts an enterprise. He searches for change

and responds to it.

The sociologists feel that certain communities and cultures promote

entrepreneurship. Still others feel that entrepreneurs are innovators who come up
with new ideas for products, markets or techniques.

To put it very simply an entrepreneur is someone who perceives opportunity,

organizes resources needed for exploiting that opportunity and exploits it.
Computers, mobile phones, washing machines, ATMs, Credit Cards, Courier
Service, and Ready to eat Foods are all examples of entrepreneurial ideas that
got converted into products or services.

ENTREPRENEURSHIP AS CAREER OPTION

The vast majority of human beings direct their activities towards earning a living,
generating wealth and improving their standard of living. You can choose your
career from two broad categories of options – Wage Employment or
Entrepreneurship. The term ‘career’ signifies a continuous, ever evolving, ever
expanding opportunity for personal as well as business growth and development.
We may define entrepreneurship as a career in your own business [YOB] rather
than wage employment [JOB] .If you option for a job then you will work for others.
In case you option for entrepreneurship you will be your own boss.

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In case of wage employment one is engaged in routine work carried on for others
for which he receives salary or wages. He has to follow instructions and execute
plans laid down by his superior. One can choose to be employed in Government
Service or the Public Sector or the Private sector. Some of the main differences
between entrepreneurship and wage employment career options are as under:

Wage Employment Entrepreneurship

Work for Others Own Boss

Follow Instructions Make own plans
Routine Job Creative activity
Earning is fixed, Can be negative
never negative sometimes, generally surplus

Does not create wealth Creates Wealth,

Contributes to GDP

Can choose from- Can choose from-

Government service Industry
Public Sector Trade or
Private Sector Service Enterprise

In the context of employment generation the three terms- Income generation,

Self-employment and Entrepreneurship are often used interchangeably.

Income generation is the initial stage in the entrepreneurial process in which one
tries to generate surplus or profit. They are often taken on part- time or casual

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basis to supplement income e.g. a man with some surplus money might put his
money in a fixed deposit account in a bank or a chit -fund to earn some interest.

Self-employment is the second stage in the entrepreneurial process and refers to

an individual’s fulltime involvement in his own occupation. e.g. a person who
starts a tea shop and remains happy and satisfied and has no plans to add on
any other items like samosas, buns, soft drinks etc. or to grow in any other
manner[e.g. supplying tea/coffee/sandwiches to others in the vicinity].

Literature Review

Entrepreneurship is a discipline with a knowledge base theory. It is an outcome

of complex socio-economic, psychological, technological, legal and other factors.
It is a dynamic and risky process. It involves a fusion of capital, technology and
human talent. Entrepreneurship is equally applicable to big and small
businesses, to economic and non-economic activities. Different entrepreneurs
might have some common traits but all of them will have some different and
unique features. If we just concentrate on the entrepreneurs then there will be as
many models as there are ventures and we will not be able to predict or plan,
how and where, and when these entrepreneurs will start their ventures.

Entrepreneurship is a process. It is not a combination of some stray incidents. It

is the purposeful and organized search for change, conducted after systematic
analysis of opportunities in the environment. Entrepreneurship is a philosophy- it
is the way one thinks, one acts and therefore it can exist in any situation be it
business or government or in the field of education, science and technology or
poverty alleviation or any others.

Many authors have published lists of characteristics that they consider to be

displayed by entrepreneurs. Cunningham and Lischeron (1991) have grouped
these contributions into six schools of thought. They classify these as the; "Great

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Person", Psychological, Classical, Management, Leadership and
entrepreneurship schools of thought.

According to Peter Drucker Entrepreneurship is defined as ‘a systematic

innovation, which consists in the purposeful and organized search for changes,
and it is the systematic analysis of the opportunities such changes might offer for
economic and social innovation, "Great person" - Born entrepreneurs, e.g. Fords,
Rockefeller, Trump Psychological - Entrepreneurial personality, behavior
developed over time.

Classical - Entrepreneurial key factors are innovation and creativity.

Management - Entrepreneurs can be developed or trained in the classroom.
Leadership - Attract people to support a vision and transform it into reality.
Intrapreneurship - Encouraging people to work in semi-autonomous units.
However, much criticism is leveled at these theories because many of the
characteristics are not unique to entrepreneurs and can be found in successful
managers and executives. Liles (1974:43) proposes that "certain kinds of
experiences and situational conditions - rather than personality or ego - are the
major determinants of whether or not an individual becomes an entrepreneur"
and Bailey (2003) questions whether entrepreneurs possess different
characteristics or whether they are merely products of unique situational factors.
This view is also supported by O'Neile (1989), who affirms that the entrepreneur
is a "product of his historical and environmental circumstances." The choice to
become an entrepreneur must be influenced by events that led to the decision,
claims Brockhaus and Horwitz (1986). They suggest that previous experience
has an effect. These previous experiences could be positive, such as role models
and education, or they could be negative displacements. Refugees and migrants
may choose entrepreneurship if gaining employment is difficult. Job
dissatisfaction or job loss may be other stimuli to select entrepreneurship.

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The question of why some nations are rich and others are poor has been at the
center of economic debate for over two centuries. While the post-WWII
Keynesian dominated discussion of economic development focused on and
emphasized the importance of such factors as foreign aid and government
planning, it is now widely agreed that the entrepreneur is the prime driver of
economic progress (Kasper & Streit, 1998: 1-23; Leff, 1979). It is also accepted
that the institutions that economic agents (including entrepreneurs) operate in –
political, legal and cultural – directly influence their activity and hence economic
development (Baumol, 1990; Olson, 1996). Institutions, or the rules of the game,
provide a framework which guides activity, removes uncertainty and makes the
actions of others predictable. In short, institutions serve to reduce the costs of
action and facilitate the coordination of knowledge dispersed throughout society.
Economists associated with the Austrian school of economics have long focused
their attention on the study of entrepreneurship and the economic analysis of
institutions, providing a robust literature emphasizing the importance of these
areas (Boettke, 1994; Boettke, 2001: 234-247; Foss, 1997; Wubben, 1997). In
contrast to other schools of economic thought, the Austrians have not only
realized the importance of institutions, but have attempted to provide a
connection between the market process and an economic understanding of
institutions. Moreover, Austrians stress that entrepreneurship does not
to describe a distinct group of individuals, but rather, is an omnipresent aspect of
human

Entrepreneurial Decision Making

Decision making lies at the very heart of the entrepreneurial process.

Entrepreneurs have to make a plethora of different decisions on a daily basis, for
example concerning refinements of the business idea, creating or identifying a
market niche, solving technical problems, acquiring resources, recruiting key

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personnel etc. (Davidsson and Klofsten, 2003). Many of these decisions can
have long lasting consequences, and critical decisions taken at early stages may
have unforeseeable impacts upon the entire future success and performance of
the new venture (Reuber and Fischer, 1999; Vohora, Wright and Lockett, 2004).
Studying entrepreneurial decision making, therefore, is important for a better
understanding of the process whereby individuals create and exploit new venture
opportunities.
Sarasvathy (2001) has identified two modes of reasoning that individuals may
apply when making decisions in business settings: causation and effectuation.
Causal reasoning is a problem solving decision model that rests on the logic of
prediction (Sarasvathy, 2001; Wiltbank, 2006). The choice of means is driven by
the entrepreneur’s knowledge of possible means, as well as the characteristics of
the effects the entrepreneur wants to create. The market is assumed to exist
independent of the entrepreneur and the main task is to grasp as much of that
market as possible. This is done by being involved in planning and gathering
necessary information to see how strategies materialize according to plan and to
identify possible reasons why plan and outcome differ.

Career Experience

One particular aspect that can be expected to have a potential impact on

entrepreneurial decision making is the career experience of the entrepreneur. A
career can be defined as any social strand of any person’s course through life’
(Goffman, 1961:127), which means that a career does not only include what an
individual does in a particular occupation but rather consist of the total
experience of an individual’s working life.
Previous studies have suggested that individuals tend to focus their attention and
activities on what has been working well in the entrepreneurs’ past career. Minniti
and Bygrave (2001) argue for example that many entrepreneurs tend to choose
actions that replicate, or are closely related to the ones they have already taken,
thereby exploiting their pre-existing knowledge (see also similar arguments in

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Starr and Bygrave, 1992; McGrath, 1999; Politis, 2005). This implies that
experienced business founders develop a knowledge corridor through which they
interpret the outside world as a basis for their future decision making (Ronstadt,
1988; Venkataraman, 1997). The insights gained from prior career experience
can thus be expected to create a perceived ‘path’ for future business venturing
where the entrepreneur has moved from his/her specific observations to make
broader generalizations and theories of how to achieve success in the new
venture.

Career Motives

While decision making can be seen as a function of entrepreneurs’ prior

experience we may also have to consider that their intentions, in terms of what
they aim for and where they want to go in the future, can influence their decision
making as well (Krueger, 2003). In this study we are particularly interested in
entrepreneurs’ career motives at it is widely acknowledged that the career
motives of individuals can both guide and constrain future actions and decision
behaviors (Schein, 1987; Brosseau, 1996).
The basic premise underlying this argument is that most individuals develop
diverse concepts of what a career means to them, which in turn greatly influence
their choice of career path and experience at work (Brousseau, 1996). Most
studies of careers in the entrepreneurship domain have however focused on the
decision to start a venture and become an entrepreneur (see e.g., Starr and
Fondas, 1992; Harvey and Evans, 1995; Simon, 2000). What is less known is
how entrepreneurs’ career motives may influence future actions and decision
behaviors (Katz, 1994; Shane, Locke and Collins, 2003; Politis, 2005). This
implies that the majority of entrepreneurship scholars have put large emphasis
on understanding the factors that influence someone to start a new venture,
while neglecting the issue of how their preferred career paths and underlying
motives can explain entrepreneurial decision making in the new venture creation
process.

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Conclusion

Entrepreneurship and decision making are to relative terms. A person is highly

entrepreneurial if his decision making is strong. A person who has less decision
making skills, he is less entrepreneurial. People who are wage employed are less
entrepreneurial than the people who are owner of the business and have
entrepreneurial skills because wage employed are congested to their jobs and
due to the pressure of their bosses and firm, s environment, they cannot utilize
their entrepreneurial skills. On the other hand, businessman or owners are free
from all these risks and they utilize their entrepreneurial skills beautifully.
Entrepreneurs make decisions on daily basis for example concerning
refinements of the business idea, creating or identifying a market niche, solving
technical problems, acquiring resources, recruiting key personnel etc.
Decision making helps in creating motive and career experience. Old
experiences help the employees/ person to take good and suitable
entrepreneurial decisions. Past experiences also help in creating the career
motives.
This is a little effort to summarize the topic “Entrepreneurship and Decision
making” but there are lot of more data and effort require to summarize more
aspects of this topic.

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