Entrepreneurship
James J. Chrisman
Entrepreneurship refers to acts of organizational creation, renewal, or innovation that occur within, or independent of, an existing organization (Sharma and Chrisman, 1999: 17). Entrepreneurial activity that occurs within the boundaries of an existing organization is referred to as corporate entrepreneurship (see corpor ate entrepreneurship). Independent entrepreneurship encompasses acts of organizational creation that are instigated by individuals acting independently of any association with an existing organization. The corollary term, entrepreneur (see entrepreneur), deals with the individuals who engage in independent or corporate entrepreneurship efforts.
The meaning of the term ‘‘entrepreneurship’’ has evolved and is currently subject to some debate (see history of the academic study of entrepreneurship). McMullan and Long (1983), reviewing the development of the formal theoretical usages of the term since the early 1700s, identified three recurring themes: (1) the uncertainty and risk associated with entrepreneurial behaviors and activities, (2) the complementary competence required in organizing new economic activity for entrepreneurial success, and (3) innovative pursuit of potential opportunities. These themes are consistent with the contemporary view that the field of entrepreneurship should be devoted to studies of (1) why, when, and how people seek, discover, and pursue opportunities (see entrepreneurial discovery; entrepreneurial opportunity), (2) why, when, and how different methods of organization and resource utilization are used for exploiting opportunities (see opportunity exploitation), and (3) why, when, and how economic opportunities come into existence (Shane and Venkataraman, 2000).
In the current milieu, the debate has centered on whether the term should be reserved for activities that involve innovations (see innovations) or should encompass all acts of organization creation, whether innovative or imitative (Sharma and Chrisman, 1999). On the one hand, Schumpeter (1934) argued that entrepreneur ship upsets an existing equilibrium situation in an economy through the development of new combinations, which may involve new products or services, methods of production, markets, sources of supply, or industrial organization (see creative destruction). On the other hand, according to Kirzner (1973) entrepreneur ship promotes a movement by an economy toward an equilibrium position through entrepreneurial alertness (see entrepreneurial alertness) to opportunities to exploit supply or demand asymmetries in existing markets that had gone unnoticed by industry participants due to imperfect information. Recognizing that these two arguments describe complementary rather than contradictory processes representing the ebbs and flows of economic activity over time, Cheah (1990) suggests that both theoretical perspectives should be taken into account in 120 entrepreneurship order to gain a full appreciation of the role of entrepreneurship in economic development.
Consistent with this viewpoint, Sharma and Chrisman (1999) have indicated that the study of entrepreneurship should be broad based and inclusive. In the context of developing a set of internally consistent definitions of the compon ents of corporate entrepreneurship, their work suggests that different types of entrepreneurial activities can be identified, classified, and studied independently. Taking a similar tack, Bruyat and Julien (2000) argue entrepreneur ship is about creating value (see creating value) and the reciprocal impacts on individuals and environments that occur as a result of innovation or organizational creation. They propose that the extent to which the individual and the environment change as a result of the entrepreneurial process leads to different types of entrepreneurship, ranging from entrepreneurial reproduction, where neither the individual nor the environment change very much, to entrepreneurial venture, where the changes to each are profound.
Despite some theoretical debates, there is widespread consensus among scholars and practitioners on the importance of entrepreneurship for economic development. The work of Birch (1987) has been especially influential in demonstrating how new venture creation has led to job generation in the US economy. Birch has shown that start ups are not evenly distributed across regions and that high growth start ups have dis proportionate impacts. He suggests that a region’s educational resources, labor force, government, infrastructure, and quality of life are especially important for fostering entrepreneur ship.
By empirically demonstrating that entrepreneurship is neither trivial nor random in its incidence and impact, Birch’s work has been significant in influencing the attitudes of public policy makers who are in a position to positively, or negatively, alter the environment for entrepreneurship. His work has also contributed to a surge of scholarly interest in entrepreneurship, as evidenced by the subsequent rapid growth in research and educational programs devoted to the subject. On the other hand, Birch’s find ings have also fueled the debates summarized above, as not all entrepreneurial ventures are equal in their potential to contribute to the economy.
Much of the work on entrepreneurship deals with entrepreneurial behaviors and entrepreneurial decisions (Gartner, 1988) (see entrepreneurial decisions), the discovery and exploitation of opportunities (Shane and Venka taraman, 2000), and the acquisition, development, and deployment of the resources (see entrepreneurial resources) necessary to translate an opportunity into a profitable business (Alvarez and Busenitz, 2001). These components are all essential to the study of entrepreneurship because organizational cre ation, renewal, and innovation are processes that are predicated on the identification and pursuit of opportunities that require resources not necessarily under the current control of an entrepreneur (Stevenson and Jarillo, 1990). Consequently, entrepreneurship can be viewed as a set of strategic decisions and actions (Chrisman, Bauerschmidt, and Hofer, 1998).
The strategic decisions and actions involved in entrepreneurship are different from the strategic decisions and actions of mature, stable organizations, however (see strategic entrepreneurship). First, the opportunity being pursued is new. At a minimum, the opportunity is new to the individual or the organ ization; at the extreme, the opportunity is one never before recognized or even anticipated as a value creating possibility. The uncertainty in volved in forecasting the size, nature, and evolution of an opportunity makes its pursuit very risky (see entrepreneurial risk). To be successful in such a high risk situation requires either, separately or in combination, superior cognitive abilities on the part of an entrepreneur, access to information not readily available to others, or a great deal of luck (Shane and Ven kataraman, 2000).
Second, an established organization already has tangible and intangible resources available to pursue opportunities, and at least some appreciation of the types of resources that must be developed to replenish its existing inventory. By contrast, entrepreneurship involves estimating the amounts of human, physical, and financial resources that will be required to innovate or organize, without the benefit of history. Often, entrepreneurship 121 it is the lack of sufficient tangible resources such as money or equipment that provides the greatest obstacle to the survival of an entrepreneurial enterprise in the short term (Chrisman, Bauerschmidt, and Hofer, 1998). Entrepreneurs also must anticipate the types of resources re quired to satisfy customer needs in the present and future and figure out how to deploy those resources in a way that is unique and cannot be easily imitated or circumvented by alternative means. It is largely the ability to develop and deploy intangible resources, particularly know ledge (see knowledge based assets in entrepreneurial ventures), that spells the difference between average and superior entrepreneurial outcomes (Chrisman, Bauer schmidt, and Hofer, 1998). The difficulty in making and implementing strategic decisions regarding resources and opportunities has led some to argue that sustainable competitive ad vantage (see competitive advantage) in entrepreneurship consists of the ability of an entrepreneur to recognize opportunity, organize resources, and create superior heterogeneous outputs (Alvarez and Busenitz, 2001).
The importance of entrepreneurship as a strategic process perhaps explains why the majority of investors, particularly venture capitalists (see venture capital), require a business plan (see business plan) before they will invest in an entrepreneurial venture. However, the tasks involved in entrepreneurship do not end with making strategic choices. Entrepreneurs must investigate the nature of the competitive environment, develop and produce the product or service to be sold, determine the legal structure for the business, select a location, buy or rent equipment, hire employees, purchase a business license, obtain inventory and supplies, choose a marketing approach, and deal with a whole host of additional necessary administrative and operational concerns. Success in entrepreneur ship is therefore primarily a function of the decisions made by an entrepreneur on the strategic, administrative, and operational issues in volved in innovation, organizational creation, or renewal.
See also entrepreneurial growth; entrepreneurial leadership
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