02 Entrepreneurship Motivation and Theories of Entrepreneurship

7/28/2019 02 Entrepreneurship Motivation and Theories of Entrepreneurship

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Theories of Entrepreneurship

&

Entrepreneurship Motivation

Motivation

Motivation is defined as a drive that cause a

person to take some goal oriented action.

Inner state of

disequilibrium/ need

expectancies

Incentive

or goalBehaviour

Feedback


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Basic Motivations for Entrepreneur

Passion

Creating Value

Changing the World

Independence

Money

Motivating FactorsR. A. Sharma

Internal Factors

Motivations

Education background

Experience

External factors

Government assistance and support

Availability of factors of production

Social Encouragement / suppression

Encouragement from big business

Promising demand for the product


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Maslows Need Hierarchy or ERG

Higher order needs- esteem and self actualization

Self-development

Accomplishing new things

Achievement of target and new standards.

Desire for reputation and recognition

Desire for a top position in the industry

Desire for social status.

In some cases maybe physiological or security

needs

Manifest Needs TheoryMurray & McClelland

Need for Power Sensitive to perceive when things can be done better (Logical?

More efficiently?)

Has a strong sense of order within the hierarchy or system

Is good at organizing things and people

Desires to influence others...Likes to give advice and guidance

Desires to be in-control of the situation

Need for Autonomy Desires to be his/her own boss Wants to do things their way Desire for independence Desire to be involved in decisions affecting oneself Desire to know the results of ones actions.


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Need for Affiliation

The extent to which an individual is concerned

about establishing and maintaining good

interpersonal relations, being liked, and having

other people get along.

Desire to fulfill family obligations

Desire to belong to a group


Need for Achievement The extent to which an individual has a strong desire to perform

challenging tasks well and meet personal standards forexcellence.

Drive to achieve targets, persist in adversity, sense problems andopportunity

the desire to do something better, faster, more efficiently, with

less effort. likes situations in which he/she takes personal responsibility for

finding solutions to problems.

has a tendency to set oneself challenging but realisticachievement goals and to take calculated risks.

also wants concrete feedback as to how well he/she is doing.


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Factors for Entrepreneurship

These factors are commonly grouped under 4schools of thought

1. Traits Approach: entrepreneurs are shaped bytheir character internal attributes

2. Environmental Approach: entrepreneurs are aproduct of their environment external factors

3. Behavioural/Managerial Approach : it isneither internal nor external factors but actions

& behaviors that lead to entrepreneurship4. Contingency Approach

Environmental Approach

Choice of Entrepreneurship is related to

external factors beyond the individuals

control,

Culture

Entrepreneurs are products of their culture Some cultural groups see Entrepreneurship as a more

desirable career opportunity


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Family Background- Entrepreneurial traits are

impacted by birth order, role models andexperience of rejection in childhood First born: self confidence, independence and internal

locus of control correlation exists with reception ofspecial attention & care

Role models: entrepreneurial environments foster thedevelopment of entrepreneurial traits risk-taking,independence, creativity and achievement

Rejection: rejection from family relations can lead tothe development of independence (to avoid authorityfigures)


Education and Experience

Level of education: more and more entrepreneurs are

educated

Experience: managerial and industry experience

A large percentage of entrepreneurs start

businesses in industries they are familiar with


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Push-Pull Theory: New venture creation

results from positive and negative external

factors

Pushedinto Entrepreneurship by negative

elements such as job dissatisfaction or job loss

Pulledinto Entrepreneurship by the

observation of an opportunity, idea (e.g. dot-

com mania)


Marginal/Displacement Approach: Some

studies show that marginal individuals are

more likely to become Entrepreneurs Misfits that cannot fit into the business mainstream

Dislike 9am to 5pm routine

Problem with acceptance of authority Difficulty in coping with bureaucracy

Minorities who feel discriminated against

Women experiencing the glass ceiling often start own business

out of necessity


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Entrepreneurial Traits Approach

Entrepreneurs generally possess the following characteristics: High need for achievement need to always achieve new

bold goals Risk taking propensity willingness to take financial risks Tolerance for ambiguity no fear of the unknown Innovation ability to create new or modify existing business

concepts Intuitionmake decisions based on gut feelings High need for independence & autonomymake own

decisions Internal locus of control belief that the future is

determined by their own actions Low need for conformity unhappy in environment withstrict rules

Proactive plans for events before they occur

Behavioral/Managerial Approach

Based on the entrepreneurs ability to achieve goals

Success depends on the entrepreneurs ability to obtainresources, implement an appropriate strategy and developan appropriate structure to exploit the opportunity

Actions are the key criteria to determining whether or notan individual fits the profile of an entrepreneur

Strategic thinking, goal setting, and planning, are all part ofdefining the characteristics of an entrepreneur under thistheory


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Contingency Approach

Combination of ALL factors

The ability to sense the opportunity

(result of E traits)

The ability/willingness to exploit(management skill)

Schumpeters view

The entrepreneur-innovators motivation

includes such aspects as

the dream to found a private kingdom,

the will to conquer and to succeed for the sake of

success itself, and the joy of creating and getting things done.


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Entrepreneurship Innovation theory

Theory by Joseph Schumpeter who believes that entrepreneur helps theprocess of development in an economy

He says that an entrepreneur is the one who is innovative, creative andhas a foresight

According to him, innovation occurs when the entrepreneur Introduces a new product

Introduces a new production method

Opens up a new market

Finds out a new source of raw material supply

Introduces new organisation in any industry

The theory emphasises on innovation, ignoring the risk taking andorganising abilities of an entrepreneur

Schumpeters entrepreneur is a large scale businessman, who is rarelyfound in developing countries, where entrepreneurs are small scalebusinessmen who need to imitate rather than innovate

Economic Theory

Entrepreneurship and economic growth take placewhen the economic conditions are favourable

Economic incentives are the main motivators forentrepreneurial activities

Economic incentives include taxation policy, industrialpolicy, sources of finance and raw material,infrastructure availability, investment and marketingopportunities, access to information about marketconditions, technology etc


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Sociological Theory

Entrepreneurship is likely to get a boost in a

particular social culture

Societys values, religious beliefs, customs, taboos

influence the behaviour of individuals in a society

The entrepreneur is a role performer according tothe role expectations by the society

Psychological Theory

Entrepreneurship gets a boost when society hassufficient supply of individuals with necessarypsychological characteristics

The psychological characteristics include need for highachievement, a vision or foresight, ability to faceopposition

These characteristics are formed during the individualsupbringing which stress on standards of excellence, selfreliance and low father dominance


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Competence motivation

A drive to do high quality work.

Competence motivated entrepreneur

seek mastery in job or tasks that they areundertaking,

develop problem solving skill and

strive to be innovative

Tend to perform good work because the inner

satisfaction they feel and respect they gainfrom others due to their competence.

Leibensteins Theory of X-efficiencyHarvey Leibenstein

popularly called Gap Filling Theory.

Entrepreneurial functions are determined by

the X-efficiency which means the degree of

inefficiency on the use of resources within the

firm. Eg. Lalu Prasad Yadav as an entreprenaur for

Indian Railways. Turned around the Indian

Railways by improving efficiency and innovation.


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Mark Cassons Theory

Deals with the functional behavior of entrepreneur and his qualitieswhich are crucial for his success.

Casson defines and Entrepreneur as someone who specializes intaking judgmental decisions about coordination of scarceresources

Demand Supply Relationship

Identification of qualities

Theory reveals that in development of successful entrepreneurshipthe following things are not to be followed: The demand for entrepreneurship need to be adjusted as per the

changing needs of time.

The deficient qualities of the entrepreneur should be made good bypersonal care.

Mark Cassons Theory

Example

Narayan Murthy

Identified the demand supply relationship and his

qualities and then established Infosys

Used his and his companys qualities to becomeone of the best I.T. Firms in the world.


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Papanek and Harris Theory

According to Papanek and Harris, economic

incentives are the integral factors that have

induced entrepreneurial initiatives. Main

Features of this theory are as under:

Economic incentives

Link between economic gains and the inner urge

Economic gain sufficient condition

Harvard School Theory

Internal Forces: These forces refer to the internalqualities of the individual such as intelligence,skill, knowledge experience, intuition, exposure,etc. These forces influence the entrepreneurialactivities of an individual to a great extent.

External Forces: These forces refer to theeconomic , political, social, cultural and legalfactors which influence origin and growth ofentrepreneurship in an economy.


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M.Kirzners Theory of Adjustment

Adjustment of Price: The chief role of entrepreneur isbased upon the adjustment of price in the market. Thebuyer may pay higher price or seller may accept alower price, which gives rise to opportunities for profit.Further if different prices prevail in the same market,there in an opportunity for profitable arbitragebetween two segments.

Alertness to disequilibrium: Alertness todisequilibrium enables the entrpreneur to intervene inthe market by changing the price. Thus, economy in

purchase and profitable selling results in economicgains

Knights Theory of Profit

Knight points out that entrepreneurs are specialized

group of persons who bears risk and deals with

uncertainty. Main features of this theory are:Pure Profit

Situation of Uncertainty

Risk Bearing Capability

Guarantee of Specified Sum

Identification of Socio Economic and Psychological Factors

Use of consolidation techniques to reduce business

uncertainty

Self Confidence


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Theory of religious belief- Max Weber

According to Max Weber, entrepreneurism is a

function of religious belief and the impact of

religion shapes the entrepreneurial culture.

He emphasized that the entrepreneurial

energies are exogenous supplied by means of

religious belief.

Elements of Webers theory

Spirit of capitalism

Spirit of capitalism is the guiding factor which

guides the entrepreneur to get engaged in

activities that can bring about more and more

profit.

Adventurous spirit

Spirit of capitalism is influenced by strict

discipline, where as, adventure spirit is affected by

the force of impulse.


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Elements of Webers theory

Protestant ethic: According to Weber, attitude can beprovided by protestant ethic irrespective of culturalbackground, personality type and experiences in thesociety. He also adds that, Hinduism lacks this sort ofmental attitude which acts as a stumbling block in theirway to entrepreneurship

Inducement of profit: The principle of low prices andlarge turnovers was the mechanism of theentrepreneurs to reap profits. This motive of profitguided protestant ethic to become entrepreneurialwhich was not found among Hindus

limitations

Diverse cultures in India


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Theory of Entrepreneurial supply-Thomas Cochran

Beginning with the premise that fundamental

problems of economic development are non-

economic, he emphasizes on the cultural

values, role expectation and social sanctions

as the key elements that determine the supply

of entrepreneurs

The type of childrearing and schooling and itsinfluence on intrinsic character

Theory of Social Change E.E. Hagen

The theory exhorts certain elements which

presumes the entrepreneurs creativity as the key

element of social transformation and economic

growth.

interrelationship among physical environment,

social culture, personality and culture.

entrepreneur as a creative problem-shooter who

brings about economic development which is

mingled with political and social changes.


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Rejection of followers syndrome: rejecting the ideathat the solution to economic development lies inimitating western technologies, Hagen insisted that thefollowers syndrome on the part of the entrepreneur, isdiscouraged. This is because technology is an integralpart of socio cultural-complex, and super-imposition ofthe same into different sociocultural set-up may notdeliver the goods.

Historic shift as a factor of initiating change: Historicshift is the crucial force which has brought about the

social change and technological progress therebyleading to the emergence of entrepreneurial classfrom different castes and communities.


Withdrawal of status respects as the mechanismfor rigorous entrepreneurial activity: Whenwithdrawal of status respect occurs, it leads tofour different responses and creation of fourdifferent personality types, namely:

Retreatist: One who constantly does his work in the society

but remain indifferent to his own position. Ritualist: One who adopts a kind of defensive personality

Reformist: One who initiates rebellion and attempts toestablish a new order in the society

Innovator: A creative individual who converts all odds intoopportunities and is likely to become an entrepreneur


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Theory of Group Level Pattern F. Young

Solidarity Groups: Young regarded the solidaritygroups as the main agencies for buildingentrepreneurship. He mentions that entrepreneurshipcharacteristics are found in clusters, ethniccommunities, occupational groups or politicallyoriented factions.

Disregarding single-handed concept ofentrepreneurship: Entrepreneurship is the product offamily background, experience and exposure of theindividual as a member of the group and as a reflection

of general values. Thus, entrepreneur doesnt workalone.

Theory of Group Level Pattern F. Young

Reduction of complex economic problems: The effort ofsolidarity group is likely to reduce the economic problemsthrough the recombination of factors related to production,higher standards of labor, new technology and markets andmore effective management of time and money

Incorporation of reactive subgroups: According to Young, agroup becomes reactive when three important conditions

coincide. These conditions are:a) When low status recognition is found in a group

b) When access to important social networks is denied

c) When the group has better institutional resources than othergroups in the society at the same level

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