The environment we live in is in a continuous state of flux and is constantly evolving. As Drucker says,
“In a period of upheaval, such as the one we are living in, change is the norm” (Drucker.2008: 357). In this dynamic business environment people who survive and flourish are those who take initiative in innovating and creating change. But here a question arises, what is innovation? Different people have different views on what innovation is, most commonly innovation is thought of as “the introduction of something new” (Wilson, Jenifer: 178). It is a continually occurring process at the core of which are people who not only take the entire risk of failures but also by using their creativity and imagination “mobilize the necessary resources to produce new and improved goods and services” (Jones and George.2003: 658). These people known as entrepreneurs are continually involved in this process of innovation hence making it a part of their entrepreneurial activity. They are catalysts for economic change who effectively carry out the entrepreneurial process by using their purposeful searching, careful planning and sound judgement. (Kuratko & Rao.2013: 23). Innovation has always been present in entrepreneurial activity with businesses doing well as entrepreneurs and innovators. Although Satell (2017) claims innovation is categorized by the inspection of the problems being solved, however in the modern world innovation is commonly categorized into four main types: radical, incremental, disruptive and architectural, (Lopez, 2015), these being different from each other in respect to the parameters of the product and the market as identified by Figure 1. To scrutinize the different types of innovation the mobile phone industry can be taken as an example. Figure 1
Existing New Mobile Phone When in 1983 ‘Motorola’ commercialized the first smartphone, it not only brought about a revolutionary change but also gave birth to a new industry of handheld devices as a way of communication. This type of innovation-what people usually think about innovation-is called radical innovation. All the subsequent changes made that utilized this existing technology and increased value to the customer by improving various aspects such as design and resolution are known as incremental innovation. Another innovation that occurs is coined as ‘disruptive innovation’-also called stealth innovation-in Clayton Christensen’s book “The Innovator’s Dilemma” (Sandstorm, 2014). This is when some new process or technology is applied to the existing market, which makes its way from the bottom to the top eventually displacing established products. A prime example is iPhone which Steve Jobs described at its launch in 2007 as ‘delivering the internet to your pocket’, brought about disruptive innovation in the Market Existing New traditional smartphone market. This was as it granted internet access by reliance on Wi-Fi as compared to the phones at that time which used to allow access to heavy bandwidth sites “through the small straw of the 2G data networks” (Griffin, 2015). Lastly there are also cases when existing skills, lessons and overall processes are applied to a different market such as the Tablet computer market derived from cellphone and laptop markets, this case being called ‘architectural innovation’. Innovation has been the crux of economic development with economies evolving over time. It has enormous socio-economic benefits with there being a link between innovation and gains in the standard of living, (Cohen, undated), due to the development of new technologies and better ideas leading to increased business profitability. For example, in the mid-19th Century innovation increased productivity releasing human resources for other jobs thereby causing many agrarian economies such as the US to become industrialized. This, according to neoclassical economics, is the only way to achieve long run growth to reduce the effect of diminishing capital returns (World Bank Group). Although entrepreneurs are at the heart of innovation and product development but does that mean a reciprocal relationship making innovation the crux of entrepreneurial activity as well? To analyze this idea there are different schools of thought of entrepreneurship all revolving around the three views of entrepreneurship: The Economist’s view (e.g. Richard Cantillon), the Sociologist’s view (e.g. Webnar and Cochran) and the Psychologist’s view (e.g. McClelland) (ecestudy.com). These different schools of thought have given different economic theories of entrepreneurship. One of the most significant theory of entrepreneurship was that of Joseph Schumpeter (German-Austrian School of thought) who thought of innovation as crucial to entrepreneurship. According to him, “if creativity is the seed that inspires entrepreneurship, innovation is the process of entrepreneurship” (H. Holt:6). He described entrepreneurship as “gales of creative destruction”-which is the driving force of capitalism (also the main factor behind industry growth and dynamism) whereby new and better ways established to get things done replace the old ways (radical innovation), making them obsolete mainly due to being both more efficient and effective thus bringing about sustained economic growth. Hence, innovation for entrepreneurs is a crucial aspect of market power to compete with existing firms in the market, (Riley, 2009), and the reason for the failure of businesses is due to becoming the victims of innovation by their competitors. An example of creative destruction is the success of Netflix which almost drove the video tape and disc rental industries “along with companies such as Blockbuster into extinction”. (Perry, 2015). According to Schumpeter, entrepreneurs cannot be equated with inventors since the entrepreneurial function does not essentially consist of inventing something or otherwise creating the conditions that the enterprise exploits. It mainly attributes to getting the job done hence their purpose is to revolutionize the pattern of production either by exploiting an invention or even an untried technological possibility by which they can produce a new commodity or produce an old one in a new way. For example, like opening up a new outlet for products, by the reorganization of an industry, (M. Charantimath.2014: 5) or even by the carrying out of a new organization of any industry such as the creation or breaking up of a monopoly position, as identified under the five key areas of entrepreneurial innovation identified by Schumpeter (Hisrich et al.2014: 126). This can be demonstrated by various examples like the invention of a steam engine which was used to develop a homeless carriage (Schumpeter’s example). Further the creation of the car as a result of the homeless carriage’s transformation can be seen as a result of existing technologies in a novel manner (Trehan.2015: 3). However, Joseph Schumpeter’s theory of innovation has several critics. It may be argued that it ignores the risk taking and organizing aspects of entrepreneurship along with not stressing on some of the underlying economic and social factors due to undue emphasis on innovation, at the same time not focusing on the motivation factors behind entrepreneurs. Moreover, Schumpeter’s assumption that entrepreneurs are financed by borrowings from the bank is of little relevance as banks mainly grant short term loans and in the long run bank credit is insufficient as compared to the need of capital funds (Susan, S.). Another ideology of entrepreneurship is identified by Israel K. Kirzner (Austrian school of thought) who in his economic theory of equilibrium focuses on the entrepreneur being involved in the process of discovery. Kirzner believed the world to be fundamentally disequilibrated (FineGold, 2014). According to him an entrepreneur is a person always ‘alert’ to information who propels the system forward, as a result of seeking profit through exploitation of price deviations in these disequilibrated markets, hence in turn increasing market efficiency, until the time that market competition eliminates the profit opportunity. Thus, the entire role of an entrepreneur is as a result of knowledge about market data and ‘alertness’ to unnoticed economic opportunities causing the entrepreneur to be a driving force behind equilibrium (Kirzner, 1973), instead of the process depending on impulses from technology or on the entrepreneur being a genius. Therefore, the entrepreneurial function can be undertaken both from radical innovation or even from selling an existing factor of production at a higher price (Stolyarov II, 2005). Furthermore, Kirzner believed that if numerous market participants foresee an opportunity there is a fair chance that due to their inaccuracy of judging the competition, some of their expectations might get reversed so only those market participants who can exploit the given situation are ‘entrepreneurs’. Hence, he exemplifies that the entrepreneurial function is only possible due to ‘sheer ignorance’ unawareness of both a given piece of information and that others don’t know that (StolyarovII, 2005,) which result in sheer errors-mistakes in anticipating future events. Although his economic theory is indispensable as it not only provides an underscoring significance of entrepreneurs to a successful market economy but also some of the factors are aligned with the real world, however like Joseph Schumpeter’s theory of innovation, Kirzner’s economic theory also has complications of its own. Some may argue that uncertainty can be reduced in entrepreneurial activity by the rigorous market research undertaken by market participants before undertaking business activity as it provides them with a substantial amount of knowledge while others can criticize the fact that even though some entrepreneurs cannot anticipate the demand for their product or service effectively but sometimes demand can be the resultant of the activity undertaken (Stolyarov II, 2005), like in the case of release of books by famous novelists such as Dan Brown or JK. Rowling. A contrary School of thought of entrepreneurship is the French School of thought with theories from the economists Richard Cantillon and Jean Baptise Say. Cantillon was the first major economic thinker who defined an entrepreneur; an agent buying means of production at certain prices and in turn combining them into a new product (Krumina, 2017). He believed the real-world marketplace to be suffused with uncertainty mainly as a result of a decentralized market, thus for Cantillon competition and entrepreneurship go together (this theory formed the basis for Kirzner’s theory as well). It is the role of the entrepreneur-the ‘undertaker’-to bear that uncertainty by not only investing but also by paying expenses and then in turn hoping for a profitable return (Zera, undated). Therefore, Cantillon divided producers present in the market economy into classes based on their income being fixed or not. Those earning fixed incomes as ‘hired people’ and those having variable returns being the entrepreneurs (Zera, undated). In contrast to other theories of entrepreneurship Cantillon’s theory focuses on the role of the entrepreneur in the market of being the uncertainty bearer. His entrepreneur like Kirzner performs an equilibrating function instead of a disruptive one (as in the case of Schumpeter). Jean Baptise Say of this French school of thought further improved Cantillon’s definition of entrepreneurship by adding that the entrepreneur builds a productive item by bringing people together (Krumina, 2017). He also stressed the creation of value by moving resources into more productive areas. There are other theories of entrepreneurship too, such as Leibenstein’s x-efficiency theory focusing on the maximization of utility by organizations and individuals under perfect competition, McClelland’s motivation theory describing the 3 major motives for personal accomplishments: achievement, affiliation and power, etc. Therefore, every theorist has seen entrepreneurship differently according to his perception, providing solid foundations regarding entrepreneurship making no theory universal (Kumar, undated). Hence it can be precisely concluded that although innovation is very significant as it has not only led to immense economic development but also rendered social and environmental benefits, it is not the single major aspect of entrepreneurship. Entrepreneurship has various ingredients all efficiently combined together-including core values of entrepreneurs like partnership and personal integrity (Bozward, 2014)- such as the risk-taking ability of entrepreneurs, alertness to exploit markets etc. All these ‘ingredients’ have their own roles with none of them being more significant than others i.e. central to entrepreneurship, therefore although innovation has paramount importance in general, but for entrepreneurship it is just one of these ingredients combined with many others that lead to an entrepreneur being successful.