He is very explicit about the economic function of the entrepreneur. Max Weber has been criticized by many sociologists on his view on Hinduism and entrepreneurship. In his book “Innovation and Entrepreneurship”, Peter Drucker offers guidelines on how entrepreneurs can become innovative. Drucker takes the instance of the United States of America as a successful entrepreneurial economy. click to expand document information. Another associated concept was that of adventurous spirit which refers to the impulsive force that influences and promotes entrepreneurism. Knowledge –He has sound conceptual knowledge about all the technicalities of his business. Innovations of entrepreneurs are responsible for the rapid economic development of any country. Entrepreneurship Innovation theory. The existence of uncertainty tends to raise the minimum supply price. Governed by human factors – ever changing society pursuing simultaneously - economic objectives - social objectives - psychological objectives Theory of Entrepreneurship is woven into : - sociological, cultural, psychological, political and managerial fiber. David McClelland, a Harvard psychologist formulated the Theory of Achievement Motivation in 1967. Individuals with similar taste but with different information may take different decisions. These reactive sub-groups play an important role in enterprise creation. The carrying out of the new organization of any industry. Have an insight into MBA Full Form, Course Structure & Syllabus for 1st, 2nd Year for a better understanding of the concepts involved. Harvey Leibenstein was a Ukrainian-born American Jewish economist. The economic problems faced by the individual entrepreneurs are mitigated by the solidarity of entrepreneurial groups. Entrepreneurship and economic growth can only work when the economic conditions are favorable. Thomas Cochran held the view that the factors having a profound influence on the performance of the entrepreneurs include- First, the attitude of a person towards his/her own occupation. These theories have been supported and given by various thinkers Desire to succeed –He has multiple goals and a seeks opportunities to be productive. Further, Kirzner calls the state of mind that enables spontaneous learning to occur alertness. Psychological Theory. We should understand that invention refers to creation of new materials and innovation refers to application of new materials into practical use in industry. The theory does not provide the explanation as to why few countries have more entrepreneurship talent than others. Knight had distinguished risk into insurable risks and non-insurable risks. It includes the activities necessary to create an enterprise where not all the markets are well established or clearly defined. According to this theory, profit is reward for bearing uncertainty. 12. Thus all social and cultural factors play an important role in influencing the expectation levels, personality, behaviour of everyone in the society and entrepreneur’s role specially. Create a free account to download. Example of insurable risks include theft of commodities, fire in the enterprise, accidental death etc. The Hinduism didn’t profess the spirit of capitalism and was thus an obstacle in the promotion of entrepreneurship. The creativity of the entrepreneur brings about social transformation and economic development. •Theory by Joseph Schumpeter who believes that entrepreneur helps the process of development in an economy. Schumpeter’s theory has been subjected to the following criticisms: Despite of all the above criticisms Schumpeter’s theory is considered as a landmark in the expansion of entrepreneurship theories. He believed that entrepreneurs disturb the stationary circular flow of the economy by introducing an innovation and takes the economy to a new level of development. Supply of entrepreneurs has a functional relationship with the social, political and economic structure. As economic freedom and private enterprises are promoted in capitalism, the entrepreneurism is eulogized and entrepreneurial pursuits are encouraged. His theory viewed the entrepreneur as a trouble shooter who contributes to economic development. Entrepreneurship Development by Eiilm University. The concept of x-efficiency is also used in the theory of bureaucracy. The second area of reconstruction stems from recognition of the difficulty that is inherent in organizing a market. Thus it is clear that “if not all factors of production are marketed or if there are imperfections in markets, the entrepreneur has to fill the gaps in the market. Say on entrepreneur. To put the enterprise in motion, the entrepreneur should fill enough of gaps.” The second role is input completion, which involves making available inputs that improve the efficiency of existing production methods or facilitate the introduction of new ones. This theory asserts that the economy and entrepreneurship are closely linked together. Motivation theories also explain how to influence one’s direction to behavior that allows controlling and guiding employees’ actions. In developing countries there is a paucity of innovative entrepreneurs. On the contrary, an innovator is one who utilizes or applies inventions and discoveries in order to make new combinations. Again in an article Baumol laid out a simple hypothesis. The theory ignores the influence of important elements like risk, profit and innovation. Entrepreneurship is genuinely associated with risk bearing. The behaviour of the individuals is highly subjected to the conditioning procedure surrounding the environment of the individuals. In business and industrial organizations, managers play the role of leader and acquire leadership of subordinates, their efforts towards the achievement of … Routine entrepreneurship – deals with normal business functions like co-ordinating the business activities. Knight’s theory is one of the most sophisticated theories to explain supply of entrepreneurship based on profit. The rapid expansion of entrepreneurship in India in the post-independence period disproves that Hinduism is averse to the spirit of capitalism and to adventurous spirit. Talking about innovation, he referred to new combinations of the factors of production, Schumpeter had assigned the role of innovator to the entrepreneur, who is not a man of ordinary managerial ability, but one who introduces something entirely new. There's noticeably a bundle to know about this. (ii) Innovative entrepreneurship – wherein an entrepreneur is innovative in his approach. In spite of these lacking, the theory supports the “enterprising spirit” of entrepreneur to innovate. Theory of Entrepreneurship. These factors have not been taken into consideration. MBA Notes | Articles | Help. There are certain risks that are measurable and the probability of such risk can be statistically estimated and hence such risks can be insured. It can be noted that this theory’s main figure, the “innovating entrepreneur” has played an important role in the rise of modem capitalism. Sorry, your blog cannot share posts by email. One of his most important contributions to economics was the concept of x-efficiency. Bringing about innovations is the main task of the entrepreneur and not the maintenance of the enterprise. This is also referred to as X-inefficiency. Entrepreneurship is the process of creating something different with value by devoting the necessary time and effort, assuming the accompanying financial, psychic, social risks and receiving the resulting rewards of monetary and personal satisfaction and independence. The simplest situation in which spontaneous learning can occur is a Crusoe situation. This made the formulation of predictive theory of the entrepreneur impossible. Profit is the reward of the entrepreneur for bearing uncertainties and risks. The entrepreneur is the prime mover in economic development; his function, to innovate or carry out new combinations. Second, the role expectations conceived and expected by the sanctioning group. Description: Course content: (A) ENTREPRENEURIAL PERSPECTIVE: Concept of Entrepreneur, Entrepreneurship and Enterprise; advantages Entrepreneur 1) Nature and Development of Entrepreneurship; Gender issues in Entrepreneurship. Leibenstein identifies two main roles for the entrepreneur: (i) a gap filler and (ii) an input completer. This means reorganization of an industry. There are various theories of entrepreneurship which may be explained from the viewpoints of economists, sociologists and psychologists. If a firm is producing the maximum output it can, given the resources it employs, such as men and machinery, and the best technology available, it is said to be technical-efficient. Most of the full-time MBA Programs feature two semesters each year and it takes 2 years to finish the entire Master of Business Administration Course. The theory is of the view that everyone who is a conducting a particular business gets a particular profit margin which is line with his or her levels of labor. The theory also views the level of knowledge of an entrepren… The second is that subconscious learning about arbitrage opportunities is equilibrating in markets. Value addition –He does not … Schumpeter had completely ignored the risk-taking function of the entrepreneur, which cannot be ignored. He also considered that the entrepreneurial society is the outcome of innovative entrepreneurship combined with government facilitation. Theory of Profit. The second role of the entrepreneur is input completion. X-efficiency arises either because the firm’s resources are used in the wrong way or because they are wasted, that is, not used at all. Entrepreneurs might find new source of supply of raw materials. Frank Young opined that the entrepreneurial characteristics are observed in clusters, ethnic groups, occupational groups and groups with political orientation. In another words, theory is some ordering principles. Drucker’s book Innovation and Entrepreneurship published in 1985 is a great contribution. However, Schumpeter viewed innovation along with knowledge as the main catalysts of successful entrepreneurship. Thomas Cochran in his theory had tried to discuss the supply of entrepreneurship from the sociological point of view. The expectation of profit is the supply price of the entrepreneurial uncertainty bearing exercise. The inventor is the one who invents new materials and new methods. 11. He argued that knowledge can only go a long way in helping an entrepreneur to become successful. PDF. MBA Course Structure & Syllabus for 2 Years. In such a situation the status loosing group and the members of status loosing group endeavour to regain their status by undertaking rigorous entrepreneurial drive. The entrepreneur functions as a member of a group. I don't ordinarily comment but I gotta state thanks for the post on this perfect... Just wanted to say this website is extremely good. Schumpeter introduced a concept of innovation as key factor in entrepreneurship in addition to assuming risks and organizing factor of production. Weber was of the opinion that the Protestant ethic provided the mental attitude in a society that promotes spirit of capitalism and favours entrepreneurship. The marginal groups are the minorities in the society and they yearn to elevate their conditions and in the process promote economic development. LECTURE NOTES FOR ENTREPRENUERSHIP MASTERS STUDENTS. Fourth, when social group doesn’t enjoy the expected status when it migrates to a new society. Drucker says, “Innovation, indeed, creates a resource. Often, there is a dichotomy between ownership and management. These functions arise from the basic assumptions of X-efficiency theory. Mark Casson suggested that unlike neoclassical assumptions in reality transaction involves a significant resource cost. Takes pleasure of creativity and earning experiences of skills for doing various tasks. 4. It ignored the organizing aspects of entrepreneurship. His book as expressed by Mark Casson endeavoured to provide a balanced view on the topic of entrepreneur. Basically, X-efficiency is the degree of inefficiency in the use of resources within the firm: it measures the extent to which the firm fails to realize its productive potential. First reason was that the neoclassical school of economics made extreme assumptions regarding the access to information. Young disapproves the notion of an entrepreneur working individually. The opening of new market that is a market on to which the particular branch of manufacturer of thev country in question has not previously entered, whether or not this market has existed before, Conquest of a new source of supply of raw material and. It is not always true that all the social groups have behaved in the manner as advocated in the theory. This theory further states that entrepreneurs find motivation in the presence of economic incentives which include industrial policy, policies of taxation, fi… The entrepreneur’s perception of the situation has a profound influence on the allocation of resources. The entrepreneurs expect rewards for their contributions and their behaviour is influenced by the rewards. For using there unusual skills, he gets profits as well as a variety of non-peculiar advantages. The role of an entrepreneur has not been elaborately provided by the theory. Hinduism laid less emphasis on wealth accumulation, and material life. The labour structure in influenced by number of factors like the mobility of labour, available alternatives of employment, level of traditionalism and prevailing work culture. This structure is regarded as one of the most significant structure that influences the supply of entrepreneurs in an economy. 3. Similarly, there is a distinction between an innovator and an inventor. Many thanks for the great posting. We shall try to understand the basics features enshrined in his ideas. Leibenstein’s Theory (Emphasis on X-Efficiency): The exact influence which the X-efficiency has on output of an organisation cannot be determined. John H. Kunkel had built up his theory on the edifice of entrepreneurship supply. Hi! Prof. Knight opined that the profit is the reward for bearing the non-insurable risks and uncertainties. In his theory, Hoselitz had highlighted the importance of the culturally marginal groups in development of entrepreneurship and their contribution to economic development of the economy. There are six chapters. Need and importance of Entrepreneurship Development, Emergence of Entrepreneurial Class, Theories of Entrepreneurship, ... Theories of Entrepreneurship, 7; 26; 5798; Promotion of an enterprise/company Free. The spirit of capitalism will be widespread in the society that favours capitalism. ° Theory reveals that in development of successful entrepreneurship the following things are not to be followed: ° The demand for entrepreneurship need to be adjusted as per the changing needs of time. Hagen had ascribed the genesis of entrepreneurship to withdrawal of status respect of a group. This theory developed by David Mc Clelland as an Achievement motivation … The role of an entrepreneur is defined by the defining group in corporate world which include the members of board of directors and other top officials. The concept of innovation and its corollary development embraces five functions: Schumpeter is the first major theorist to put the human agent at the center of the process of economic development. These risks are non-insurable. The theory suggests that the more risky the nature of enterprise, the higher level of profit earned by the entrepreneurs. The reactive groups crop up whenever a group experiences low status recognition, limited or no access to social networks and have better institutional resources as compared to other groups in the society at the same level. With them it forms a economic web. The production function usually has certain deficiencies. Leadership Theories and Models explained with notes, articles, videos, and slideshows for MBA, BBA, higher Business studies courses and training programs. Critics feel that uncertainty-bearing should not be treated like other factors of production like land, labour and capital. Hence, it should be a part of the normal cost. Prof. Hawley, an American economist in 1907, propounded the risk-bearing theory of profit. But, his theory has been challenged and criticized by many researchers and scholars on the following grounds: Frank H. Knight (1957) in his book Risk, Uncertainty and Profit regards profit of the entrepreneur as the reward of bearing non-insurable risks and uncertainties. The entrepreneur considers that the totality of the information available to him/her with respect to some decision is unique. He stated that the entrepreneur has been read out of the model because the economic models are based on well-defined variables like output and price. Critics feel that the theory over emphasized on innovative functions of the entrepreneur. The Schumpeter economic outcome-based concept that an entrepreneur creates value by carrying out new combinations causing discontinuity is embodied in … Kunkel’s Theory (Emphasis on Entrepreneurial Supply): The theory is based on unrealistic postulates. He has contributed many books. Capitalism refers to the economic system where market forces of demand and supply are allowed to play freely. We shall try to understand his theory by studying the various specific elements attached to this theory. An innovator who brings new products or services into economy is given the status of an entrepreneur. The Mark Casson’s book the theoretical reconstruction proceeds on two fronts. The entrepreneur is defined as someone who specializes in taking judgmental decisions about the coordination of scarce resources. (ii) The ritualist – An individual who works in the manner accepted and approved by the society but has no hopes of improving his/her position. Harvey Leibenstein was a Ukrainian-born American Jewish economist. He didn’t encourage the entrepreneurs to imitate other’s technology. Download Organisational Behaviour Notes, PDF, Books, Syllabus for MBA, BBA, BCOM 2021. Second type is that of the ‘New entrepreneurship’ which involves innovative entrepreneurship. 2. According to Kirzner, the pure entrepreneur is “a market participant whose decisions are entirely incapable of being subsumed under the category of Robbinsian economizing.” And the pure entrepreneur is “a decision-maker whose entire role arises out of his alertness to hitherto unnoticed opportunities.”. B. This note describes the following topics: Entrepreneurship Development in Global contexts, Dynamics of Entrepreneurship Development, Entrepreneurship Quality and Motivation, Process of Developing Entrepreneur Qualities, Sensing Business opportunity, Business Plan Preparation, Modernization and Expansion of Enterprise. Moreover, the productive contribution of the society’s entrepreneurial activities also varies due to allocation of their activities into productive and unproductive activities. Schumpeter had differentiated between invention and innovation. Max Weber opined that the entrepreneurial energies of a society are exogenously generated and supplied by religious believes. But, the theory suffers from certain drawbacks as pointed by the critics. Leibenstein advocated two types of entrepreneurship. Entrepreneurs undertake risks of varying degrees according to their ability ad inclination. X-efficiency refers to the effectiveness with which a given set of inputs are used to produce outputs. Entrepreneurship is a multidisciplinary area. 8. The role of the entrepreneur is to improve the flow of information in the market. Shailendra Singh. Drucker writes that “the entrepreneur always searches for change, responds to it, and exploits it as an opportunity.”. The importance and contribution of the culturally marginal groups like Lebanese in West Africa; Jews in Europe towards the economic development of those regions reflect the gist of the theory. He believed that creativity was necessary if an entrepreneur was to accumulate a lot of profits in a heavily competitive market. Peter Drucker regards the definition of J. G.F. Papanek (1962) and J.R. Harris (1970) were of the view that economic incentive is the main factor that influences entrepreneurial activities. The introduction of new product means the product which the consumers have not seen and is of a new and better quality and utility. PDF. The transformation of an agrarian economy into an industrial economy required a great deal of initiative and changes on the part of businessmen and managers. Except for the discipline of Economics, all the social sciences had a definition of entrepreneur. As far as the entrepreneur is concerned, Cochran opined that the entrepreneurs are not extraordinary persons or super normal persons and they are not abnormal individuals deviant from the society. Leadership is an integral part of management and plays a vital role in managerial operations.Leadership provides direction, guidance, and confidence to the employees and helps in the attainment of goals in much easier way. When an entrepreneur develops a new combination of factors of production, there is enough risk involved. Uncertainty is due to unforeseeable or non-insurable risk. The role played by the entrepreneur is highly influenced by the model personality that crops up depending on the social conditioning. Theories of Entrepreneurship November 21, 2020 November 27, 2020 KNEC notes and Past Papers These refer to the various approaches, which have been advanced to give an explanation as to why entrepreneurs behave the way they do. Hence this means that entrepreneurs who work very hard at their various businesses will get more profits than those who don’t. The basis of Kirzner’s idea of entrepreneurship is spontaneous learning. M. Kirzrier’s View on Entrepreneurship: 14. They enjoy creating and getting things done. The level of dynamics associated with entrepreneurial depends on social factors. 10. Psychological Theories. Innovation in management. The theory has been found empirically invalid. 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