MBA 811 ENTREPRENEURSHIP AND INNOVATIONLearning outcomes On successful completion of the course students will be able to: 1. Critically discuss and analyse the concepts of entrepreneurship and innovation. 2. Demonstrate an ability to engage in entrepreneurial and innovation processes. 3. Create a well-structured and concise innovation plan.Introduction e Entrepreneurship will be explored in the course in terms of analysing new venture opportunities and ideas as well as building and assessing entrepreneurial characteristics. e A key element of entrepreneurship is innovation. e Innovation is an important prerequisite for gaining a competitive advantage and building a strong and sustainable business. e Modern thriving enterprise demand constant levels of innovation.e The scope and richness of theoretical developments in the discipline of innovation, offers students the potential to develop substantial skills in understanding the discipline, its role in entrepreneurship and in the development of successful, contemporary organisations.e The course provides a framework for understanding the process of creating and managing innovative organisations. e This will enable students to deal successfully with dynamic demands from markets and customers, that are becoming even more sophisticated and knowledgeable. e Entrepreneurship plus Innovation = Prosperity and Philanthropy.Concepts of entrepreneur, entrepreneurship and enterprise Entrepreneur — Person who undertakes a venture with the aim of making profits while bearing in mind possible risks or losses. e An individual who bears the risk of operating business in the face of uncertainty about the future conditions. e@ Common Meaning — one who starts his/ her own, new and small business (narrow). Enterprise — An undertaking or a venture Entrepreneurship — |t is a philosophy or process through which an entrepreneur seeks innovation and creativity for purpose of employment.Evolution of Entrepreneurship Theories 1600 — French word — Entreprendre - to undertake. 1700 - Person bearing Risk or Profit in a fixed price contract (Risk) 1803 - J. B. Say - aperson who shifts economic resources out from an area of lower to higher productivity & greater yields (Value Addition) 1934 — Joseph Schumpeter — a person who is an innovator and uses untried technology (Productivity & Innovation)1961 — David McClelland — Highly motivated, energetic, moderate risk taker (Need for achievement) 1964 — Peter Drucker — Searches for change, responds to it & exploits as opportunity (Opportunity Focused) 1980 — Karl Vesper — Individual Perceptions depending on the discipline - Economists, Psychologists, Businessmen, Capitalists, Marxists.1983 - Gifford Pinchot — Intrapreneur 1985 — Robert Hisrich - Creating something different with value, devoting time & effort, assuming risks; results— rewards and satisfaction. 2001 — David H. Holt — reformer or revolutionistMYTHS AND REALITIES ABOUT ENTREPRENEURS MYTHS REALITIES ° Entrepreneurs are e Successful entrepreneurs are made through acquiring skills, born not made knowledge, experience, and networking e Anyone can be an Anyone can be an entrepreneur entrepreneur but survival, sustainability and building a venture which can grow is not by anyoneMyths eEntrepreneurs are gamblers e Entrepreneurs want the whole show to themselves Realities e Successful entrepreneurs take very careful, calculated risk e Potential entrepreneurs build a team, an orgn., and a company.e Entrepreneurs e Being an entrepreneur experience a great is stressful and deal of stress and pay demanding just like a high price. any other demanding professional jobs. Entrepreneurs find their jobs very satisfying and have high sense of accomplishment.e Money is the most e If ideas and talents are important start-up there, money will follow. ingredient Money itself does not do much unless it is used to support ideas and talents. e Entrepreneurs should be young and energetic e While being young may help, age is not a barrier. What is important is having relevant know-how.e Entrepreneurs are e Entrepreneurs are driven : by the need for motivated solely by eet and quest for money. accomplishment. eEntrepreneurs seek —° Entrepreneurs are driven by the quest for power and control responsibility, over others achievement, and results, rather than power for its own sake.eWomen cannot be e Researches show that women are more successful successful in business entrepreneurs than their counterparts.Self-Evaluation Exercise Carry out the following exercise on this slide before proceeding to the next slides. 1. identify memorable situation you found yourself in sometimes 2. analyse one of the scenes depicted in different life situationsLife Situations People may find themselves in (Check-list) Check through the list to see how many you identified: e Social Gathering e Tourist in a national park e Subsistence farming e Political campaign e City life e Unemployment e Hunger/ Drought e Foreign countryChanges in life situations Activities and situations in life are many and they change from time to time. e|n any situation there is always something that can be done to alleviate the problem or take advantage of. e Everybody has potential to initiate action in any situation if they have the will, drive and motivation.e By taking actions when confronted by unfamiliar situations people receive benefits which are physical or psychological. e Action should be taken immediately when a person is in an unfamiliar life situation. e To respond to and accommodate the changed situations, a person needs to utilize tools (principles, skills, knowledge) which are appropriate for the situation. e All these can be summarized as elements of entrepreneurship.Element of Entrepreneurship . Observing the environment. 2. Identifying something one can do and get benefits from. . Gathering the necessary physical and psychological tools needed to accomplish the activity. . Implementing the activity when ready. . Receiving rewards.Entrepreneurship Defined Entrepreneurship is the process of creating something different with value by devoting the necessary time and effort, assuming the accompanying financial, psychological, social risks and receiving the resulting rewards of monetary and personal satisfaction and independence. The Definition involves four aspects — a) The creation process b) Devotion of time and efforts c) Assumption of risks d) Rewards of independence, satisfaction, money.Entrepreneurship and Management Students .1. A Management Graduate is a person trained in necessary skills and knowledge to start and manage an enterprise. 2. A Management Graduate is best placed to be an entrepreneur. With his/ her knowledge of business domain, his chances of launching a successful venture are much higher than any one else. 3. Experience from Harvard Business School confirms that more Management Graduates take Entrepreneurial Role (after gaining some experience) and the average income of entrepreneurs is higher by almost 2.5 times compared to their counter-parts who are in other jobs. 4. A Management Graduate should therefore not be just a Job Seeker. He/ she can and should take the role of Job Creator/ Provider.5. Enterprises in competitive environment are to be well managed. In the perfect or near perfect market, profits are thin and any losses due to errors can not e passed on to the consumer. Therefore, entrepreneurial ventures have to be well managed. 6. Even in employment in a company, a management student needs to become an intrapreneur in order to deliver and increase value for the employer. 7. Therefore, Entrepreneurship is an essential part of management studies.Advantages of Entrepreneurship To an Individual (a) Provides Self Employment for the entrepreneur (b) Entrepreneur can provide employment for others as well (c) Entrepreneurship often provides an employment and livelihood for next generations as well. (d) Freedom to use own ideas ~ Innovation and creativity (e) Unlimited income / higher retained income - Bill Gates has risen to become richest in the world in a single life time through entrepreneurship (f) Independence/ freedom from authority. (g) SatisfactionTo the nation (a) Provides larger employment — Entrepreneurs provide employment for self as well as other people and is source of employment creation. (b) Results in wider distribution of wealth — This is a logical consequence of above issue. The higher the employment, the greater the distribution of wealth. (c) Contributes to economic growth and development.Entrepreneurial Decision Process A person decides to do something either because something in that activity lures him or he/ she takes it as option in lieu of something else, ie., he/ she is forced to do it by people or circumstances. The factors which lure a person to become entrepreneur are called Pull factors and the factors that compel him are called Push factors. Pull Factors (a) Perception of Advantages — If a person feels that he can earn better or overall gains in terms of money. If one perceives status, security, future, etc as an entrepreneur are better than working as an employee, he/ she tends to turn an entrepreneur. (b) Spotting an Opportunity— Many employees spot a business opportunity in the course of their work and decide to exploit that opportunity rather than pass it on to their employer. Many employees buy unsuccessful businesses from their former employers and turn them around.(c) Government Policies — Govts very often formulate policies to promote certain business activity or backward areas which offer tax concessions/holidays, cash subsidies, cheap land, etc, which improve success and profit prospects. (d) Motivation from biographies or success stories. (e) Influenced by Culture, Community, Family Background, Teachers, Peers etc.Push Factors (a) Job Dissatisfaction - Many people start their own venture because they feel dissatisfied with their existing jobs/boss/work environment. (b) Relocation — Repeated or especially unhappy relocation some times prompts some people to entrepreneurship. (c) Joblessness — This is the biggest source of micro level entrepreneurships. Many parents help their academically poor children, who fail to find a job, to start their own micro ventures. But success rate in such ventures is poor.d) Lay off — Lay offs often lower the market value of an employee to half. Thus, if a person is laid off and he/ she is unable to find a suitable job for himself/ herself, he/ she might think of starting his/ her own business. (2) Retirement — Many retired, but physically and mentally it, people start their own business either to supplement their pension/savings or just to keep themselves gainfully occupied. (f) Boredom — This is applicable to many ladies from well to do families. With their servants who take care of home, they find an avenue to keep the boredom away and start ventures like boutiques, fashion designing, etc.Entrepreneurship and Economic Development Entrepreneurial spirit of people is greatly responsible for economic development of any country. There is no resource including diamond mines as valuable as human resource. Most African countries, despite their fertile soil and minerals, have remained poor/relatively poor, where as some countries, like Japan, with literally no natural resources, have developed. Therefore, if a country allows its human resources to be unutilized/underutilized (unemployment/disguised unemployment), its economic development would be severely hampered.Failure of communism worldwide and the experience with socialism has shown that “Gov't has no business to be in Business”. Gov't should only govern. Business activity should be left to people. This is where entrepreneurs enter the picture. (a) Entrepreneurs set up enterprises which provide employment not only to themselves but to many others directly and indirectly and thereby put into utilization human resources of the country. (b) Entrepreneurs combine resources, put their time, knowledge and efforts and produce goods or services. The Value Addition that they do to the resources brings prosperity to the country.(c) What entrepreneurs contribute - productivity, output, value addition, employment and income (d) Entrepreneurship is a “Low Cost Strategy”. An entrepreneur works with maximum financial efficiency in order to maximize profits. (e) The spirit of Entrepreneurship — Drive, achieving higher goals, creativity, innovative attitude bring about more economic activities in a society. (f) A dynamic society emerges and the spirit spreads like a chain reaction Many entrepreneurs have proved to be catalyst for growth of small businesses (smaller entrepreneurs) to cater for the needs of the growing population.Characteristics and Guiding Factors for Successful Entrepreneurs 1. The urge for achievement (most often monetary ambitions) — Most Important 2. Willingness to take moderate risks — (High risk takers are not entrepreneurs but gamblers). 3. Self Confidence - Confidence in own ability to win against all odds. 4. Ability to identify & exploit opportunities 5. Analytical ability to take strategic decisions 6. Perseverance - Determination to win 7. High organisational ability 8 Ability to work hard9. Desire for responsibility 10. Win- Win Personality 11. Flexibility 12. Capacity to plan and implement 13. Preparedness to undergo physical and emotional stress 14. Positive self concept/self belief/self efficacy 15. Future orientation — Vision 16. Ethics and Values — MissionGuiding Factors 1. Goal setter/ Clear objectives. 2. HR abilities. 3. Communication ability. 4. Technical knowledge. 5. High energy level. 6. Motivator. 7. Self confidence. 8. Problem solver.Conditions for Promoting Entrepreneurship e Developed Infrastructure Facilities — Availability of infrastructure reduces the cost & efforts and improves viability of projects through higher profit margins. e Financial Assistance — Easy access and availability of cheap funds is vital for promoting entrepreneurship. e Protective and Promotional Policies - Most of the entrepreneurship projects start very small and have no resilience. They are extremely vulnerable to competitors, market, money markets, etc, for considerable time. Favourable Govt policies sheltere Growth of Education - Science, Technology, Management and Entrepreneurship provide knowledge and skills. e Risk Taking Abilities — Risk taking ability is one of the pillars of entrepreneurial spirits. e Hunger for Success (Capitalistic View) - Fire in the belly and dreams of riches is what drives most entrepreneurs on this risky path.e Culture Impact — Entrepreneurship is contagious. Communities like Asians are historically entrepreneurial. They are known for seeking and exploiting business opportunities. It is a culture that propels them. e Technical/Industrial Training Facilities - Industrial Training facilities on one hand generate skilled manpower so vitally required for setting up enterprises while on the other hand they are also nursery for future entrepreneurs.e Globalization — Globalization has provided another avenue for business opportunity. e Economic Growth Rate of a Country - A growing economy creates more demand and improves prospects of success for entrepreneurship. e General Business Environment —- External environmental factor i.e. political, socio cultural, technology, legal, economic affect growth of entrepreneurship.Entrepreneurship Environment (a) Political - System, Stability, Leadership (b) Socio- cultural - Culture, Community, Values, Ethics, Attitude (c) Technological — Information, Competition, Innovation (d) Legal - Regulatory framework, Consumer protection, Concern for environment, Labour laws (e) Economic — Resources, Fiscal, Non- iscal policies, Incentives and SubsidiesINTRAPRENEURSHIP e Intrapreneurship is defined as entrepreneurship within an existing business set-up but with different product from the original products. That is to say — Intrapreneurship is Corporate Entrepreneurship e When a corporation indulges in entrepreneurial activities, like diversification into new businesses, it is called intrapreneurship. e Intrapreneur is a manager/ employee who focuses on innovation and creativity; who brainstorms, dreams and puts ideas into profitable venture by operating within the existing organisational environment.elt is a tool for capitalizing the entrepreneurial spirit of employees in the organisation. elt gives managers the freedom to try new ideas by employing firm's resources in a unique way. e Makes it possible for large businesses to adapt to changes. eA means to diversify from the core business with the aim of making more profits.Characteristics of an Intrapreneur An intrapreneur is not far removed from an entrepreneur. e The major difference being that an entrepreneur risks his/her own money where as an intrapreneur works with his/her employer's money. Thus, the risk level of an intrapreneur is considerably reduced. e Secondly, the desire for independence and material success is not as strong in case of entrepreneurs.e Vision — It is the basis for successful venture. An Intrapreneur has ability to visualise from idea to implementation. e Motivation — |ntrapreneur is generally self motivated, but expect corporation reward and recognition. e Orientation — \Intrapreneur is achievement oriented. e Risk Appetite — Intrapreneurs are moderate risk takers since risk acceptance depends on their skills. Wild risk takers are not affordable to corporates.e Locus of status — Intrapreneurs want to do the work on their own rather than delegate like managers. e Failure and Mistakes — Intrapreneur hide risky projects and ideas to ensure learning without political cost and public failure. They develop multi disciplinary team in the organisation and may go beyond organisation boundaries for results. ¢ Goal set up — Intrapreneur are determined to do things not even asked for. They set goals and quality standards.Steps for setting Intrapreneurship in organisation Following are the steps required to be taken to establish Intrapreneurship in an organisation 1. Secure Commitment to Intrapreneurship from Top, Upper and Middle Management — (a) Cultural Changes — The cultural changes needed to development of the spirit of intrapreneurship in an organisation is not possible without whole hearted commitment of its full line of higher management. It requires prolonged commitment and investment in arranging to expose the spirit of intrapreneurship among the employees. e Talk shows are organised and bulletins published to expose people to this concept. @ Seminars and strategy sessions are held to transform the organisation into an intrapreneurial organisation.(b) Resource Requirement — Intrapreneurship demands commitment of lot of resources; material as well as human. Without commitment of higher management, such resources will not be available for any intrapreneurial venture. (c) Confidence Building — While intrapreneurship leads to rich rewards for the company, there is very little direct benefit to the employees. Most tend to work as intrapreneur to give expression to their creative zeal. On top of that, there is always a fair amount of risk of failure in such ventures. Therefore, unless the employees have full support of the higher management, they will not stick their neck out in such a venture.2. Create Framework for Intrapreneurship — Once cultural changes have been launched, which is a long slow process lasting approximately 2-3 years, a framework needs to be developed as to how the ideas will be processed and executed, how they will be funded, how they will be monitored and how will the losses, whenever they occur be accounted for.3. Identification of Intrapreneurial Leaders — Not every one has entrepreneurial spirit. Therefore, people with entrepreneurial characteristic need to be identified, selected and trained. e Along with training, a mentor/sponsor system is also needed to be developed. These mentors from the top management will give the needed guidance and support to the intrapreneurial leaders4. Identify the general areas of Intrapreneurial Thrust — Every company has a priority area where it would like to move forward. Such areas need to be identified and notified to employees. An IT company would rarely want to venture into ardcore manufacturing sector even if the prospects are quite promising. 5. Improve Responsiveness and Flexibility — \ntrapreneurial spirit can not sustain the usual snail paced and bureaucratic decision making process in case of capital investments that is typical of ordinary organisations. Use of technology to speed- up decision making process and induce flexibility in the process is required.6. Modifying Organisational Structure - A tall hierarchical organisational structure is inherently sluggish in decision making (Many cooks spoil the soup). A flat organisational structure is more suited to the Intrapreneurship. Therefore, certain modifications to the organisational structure may be needed. 7. Publicity of Ideas - New ideas should be well publicised. While such publicity is a morale booster for the author of the idea and therefore encourages more people to come forward with ideas, published ideas get scrutinised and value added by other people.8. Tapping Customers Base for New Ideas — Customers are the richest source of new ideas. Most Corporations claims that almost 70% of new ideas are contributed by the customers themselves. 9. Create Strong Support Structure for Intrapreneurship — This is particularly important since most people have short term focus on quarterly, half yearly and yearly numbers. Intrapreneurial ventures are long term projects and therefore may get overlooked for funding and other support. Such a mishap is to be strongly guarded against because if such a thing does happen, it would kill the initiative among the employees.10. Create a Strong Reward System Linked to Performance of the Intrapreneurial Venture — Notwithstanding all the OB theories to the contrary, nothing works as fast and as effectively as tangible/material rewards system to motivate most people to put their best feet forward. 11. Create an Evaluation System - Some Intrapreneurial venture are bound to fail for various reasons including change in external environment. Also, some Promising ventures might need further thrust or scaling up in size while unsuccessful ones need to be wound up. Therefore, regular evaluation of the ventures in hand is necessary.Creativity and Innovation e Creativity and innovation have become widely accepted as key players for successful entrepreneurial activity. Creativity is showing imagination & originality. It is the mental and social process used to generate new ideas to serve the market better. e Creative thinking is basically a process of searching, screening & connecting thoughts/ concepts that can lead to exploitation of new ideas. e Creativity can be used for development of better business ideas in terms of product, process, and market development aspects. e Creativity is a process of assembling ideas by recombining elements already known but wrongly assumed to be unrelated to each other. To be creative, you need to have your mind and eyes open. You need to stretch your imagination and mind beyond the problem.Characteristics of creative people It is difficult to identify traits and attributes of creative people. © Creativity as a process is more of a skill than attitude. e People can become more creative through practice. e Creativity therefore requires the following characteristics: a) Mastery of a chosen field of knowledge/ ideas. b) Discovery through self-learning/ self-motivation c) Sensitivity to problems d) Flexibility in forming associations between objects, i.e. thinking in images more than words. e) Synthesizing information f) Ability to tolerate ambiguity g) Sharing ideasCharacteristics of Creative Organization e Open climate — changing and trusting eEmpowered staff — take decisions e Flexible structure — decentralized or flatter e|ntegrated procedures — multidisciplinary teams e Knowledge sharing — idea screening e External partnership — suppliers, customers and competitorsStrategies for Creative Thinking eUse analogies/ metaphors e Ask provocative questions e Think in terms of possibilities eLearn to listen carefully e Be receptive to the unexpected e Avoid falling into the “one answer trap”GENERATING BUSINESS IDEAS What is a business idea? e A business idea is the response of a person(s) or organization to solving an indentified problem or to meeting perceived needs in the environment (markets, community, etc.) ¢ Finding a good idea is the first step in transforming the entrepreneur's desire and creativity into a business opportunity. Why is it important to generate ideas? 1. To respond to market needs 2. To respond to changing fashions and requirements 3. To stay ahead of the competition 4. To spread risk and allow for failure 5. To do things better by way of technology 6. To respond to the product life cycle.Sources of Business Ideas Many entrepreneurs around the world testify that there are potential sources of business ideas. Some of the more useful ones are: e Hobbies/Interests — such as travelling, sport or performing and/ or hospitality, may make a person consider going into the tourist trade — which is one of the largest industries in the world. e Personal skills and Experience — work place experience is one of the main sources of business ideas. A mechanic with experience of working in a large garage who eventually sets up his/ her own car repair or used car business. e Complaints - complaints and frustrations on the part of customers maylead to new product or service. Whenever consumers complain bitterly about a product, there is a potential for a business idea. Mass Media - such as Newspapers, Magazines, Television and the Internet are great sources of information/ ideas. Responding to commercial advertisement in a magazine or newspaper is one way to become an entrepreneur. Articles in the printed press may report that people are now increasingly interested in healthy eating or physical fitness and this is an opportunity to think of what to offer. One may find a call for provision of certain services based on skills, for example managerial skills. e Exhibitions and Trade Fairs - visiting exhibition and trade fairs may lead to discovery of new products as well as meeting sales representatives, manufacturers, wholesalers, distributors and agents who can give useful ideas and information and may help in getting started.e Surveys - formal or informal talking to consumers, suppliers, distributors and even manufacturers may reveal some gaps in the market. This can be done by using questionnaire, interviews and/ or observation. e Brainstorming — where several ideas are obtained from several people. It starts with a question or problem statement. For example, “what are the products needed in the home today which are not available?” The ideas generated can be combined and improved to solve a particular problem.Brainstorming e Brainstorming is a technique for creative problem-solving as well as for generating ideas. the object is to come up with as many ideas as possible. e It usually starts with a question or problem statement. e Each idea leads to one or more additional ideas, resulting ina good number. Rules to follow when using brainstorming as a method of generating ideas: 1. Don't criticize or judge ideas of others 2. Freewheeling is encouraged — ideas that seem to be valid or carazy are welcome. 3. Quantity is desired — the greater the number of ideas, the better 4. Combine and improve upon ideas of othersPRACTICAL EXPERIENCE IN USING BRAINSTORMING Choose one of the following items and come up with as many uses as you can: Old newspapers e Bricks Old clothes Boxes (made of card boxes or wood) Poles/ sticksIdentifying and Assessing Business Opportunities e A business opportunity is an attractive idea or proposition that provides the possibility of a return for the investor or the person taking the risk. e The opportunity is seen from the customer requirements e A good idea is not necessarily a good business idea. e An idea can be turned into a business opportunity if expected income exceeds expected costs = profit. Me past nav ARR ARSA AM an failing (SAAR [UTRe “IF ALL YOU HAVEISA HAMMER, EVERYTHING LOOKS LIKE A NAIL.”Characteristics of a good business opportunity eReal demand — respond to unsatisfied needs or requirements of customers. e Return on investment — provision of durable and acceptable returns or rewards for the risk and effort required. e Competitive — be equal or better, from the view point of the customer, than other providerse Meet objectives — meet the goals and aspirations of the person or organization taking the risk. e Available resources and skills — be within the reach of the entrepreneur in terms of resources, competency, legal requirements.Factors involved in identifying and assessing a business opportunity e Industry and market — is there a market for the idea? e Length of the window of opportunity — opportunities exist but not forever and therefore it should be seized as soon as it is identified. e Personal goals and competencies of the entrepreneur — personal motivation is essential for success. There should be a good fit between the requirements of the business and what the owners want or desire.e Management team — strong management team is essential especially for ventures involving large amount of capital, high risk, sophisticated markets and/or high competition. e Competition — opportunity must have certain competitive advantages — low costs, better quality, entry barriers. Capital, technology and other resource requirements — the availability and access to capital, tech, skills determine whether certain opportunities can be pursued. e Environment — the environment within which the business will operate has an influence on the attractiveness of any opportunity. Are the political, econ, geographical, legal conducive? Will the business do any damage to the physical environ.?BUSINESS MODEL e Developed by Alexander Osterwalder Pigneur (2010).INNOVATION e What is innovation? e How different is innovation from creativity? e What are the sources of innovation? e Considering one of the business ideas you have developed, describe innovative ideas you are likely to come out with.