Theories of Entrepreneurship Final

7/30/2019 Theories of Entrepreneurship Final

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Classification

Theory

Economic

principles

Psychological

principles

Sociological

principles

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An economic theory

Given by Mark Casson in his book The Entrepreneur

AnEconomic Theory

Demand for entrepreneurship arise from the need to changeand the supply of entrepreneurship is limited.

Four Qualities of Entrepreneur

1. Judgmental decisions.2. Co-ordination of Scarce resources.

3. Motivated by Self Interest.

4. Imaginationentirely innate.

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Risk bearing theory of Knight

Prof. Knights theory is based on economic principles .

According to Risk Bearing theory1. Entrepreneur earns profits because he undertakes risk

2. The main function of an entrepreneur is to act in anticipation offuture events.

3. Uncertainty-bearing is essential to production; therefore it is factorof production and the reward for it is a part of normal cost ofproduction.

4. Profit is a payment for the assumption of risks the entrepreneurundertake.

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Evaluation of Knights Theory Entrepreneur has to cope up with the various

challenges which is at once unknown andunpredictable i.e. there lies uncertainty.

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Innovation theory of Schumpeter(1949)

Entrepreneur is a man who sees opportunity for

introducing new techniques or commodity Improving organization.

Development resources. Entrepreneur embarks upon new combination of factors of production

resulting in new product--termed as innovator.

Entrepreneur is Dynamic

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Type Of Innovations The introduction of new product.

The introduction of new method of production

The opening of new market

The conquest of new source of raw material supply. Reorganization of any industry.

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Features of Schumpeter Theory High degree of risk and uncertainty in Schumpeterian World.

Highly motivated and talented individual.

Profit is merely a part of objectives of entrepreneurs.

It is leadership rather than ownership which matters.

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Leibenstein X-efficiency theoryWhen an input is not used effectively the difference between the

actual output and the maximum output attributable to that input ismeasure of Degree of XEfficiency.

Types of Entrepreneurship Routine entrepreneurship

Innovational entrepreneurship

Role of Entrepreneurship Input completion Gap filling

Entrepreneurs must be able to perceive1.buying and selling opportunities in different markets.2.the possibility of transforming input into output3.determine the profitable activities

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Evaluation ofLeibensteins theory

It analyzes role of entrepreneur in terms of efficiency.

This theory shows that a firm will achieve maximumefficiency when the firm minimizes its cost.

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Harvard School theory Given by Cole (1949)

Envisages (predict)entrepreneurship as purposeful activity thatinitiate, maintain and develop a profit oriented business.

Focus on two activities

--co-ordination of activity--sensitivity to the environment.

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HBS ( Harvard Business School) consider entrepreneurship is theoutcome of the combination of internal and external Forces.

Internal forcesIndividuals traits and qualities viz : Intelligence Skill Knowledge Intuition Exposure & Experience

External forcesSurroundings conditions viz : Economic Political Social & Cultural Legal frame-work Stable Govt. External security, law & order and legal process are the

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McClellands Achievement Motivation

Theory

This is a psychological theory.

Developed by David Mc Clelland as an Achievement motivation theory.

Mc Clelland proposed that there are three major needs or motives forpersonnel accomplishments. They are as follows:

1. The need for achievement(nAch)

2. The need for affiliation(association).(nAff)

3. The need for power.(nPow)

Implications of Motives Need for affiliation and need for power are driving force towards

entrepreneurship.

High level of achievement makes an entrepreneur.

Dreams of entrepreneur appear to be not to getrich but to getbig.

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View of McClellands theory

1. Entrepreneurs are motivated by strong need forachievement.

2. To improve the condition of poor countries

entrepreneurs are to be increased.

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Evaluation of McClellands theory It produced reason for difference in economic condition of

rich and poor countries or developed and underdevelopedcountries.

It called the nations leaders to build up ambition into the

minds of the young people.

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Theory of Change

Propounded by Young after conducting TAT(Thematic AppreciationTest).

According to it entrepreneurs have tendency to

i. Describe situation as problem to be solved

ii. Awareness of effort required

iii. Confidence in their own ability to solve the problemiv. Analyze the situation before decision making.

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Theory of change is based on society's incorporation ofreactive subgroups.

According to it group becomes reactive when following

three conditions coincide..a) When a group experiences low status recognition.

b) When denied to access to important social networks

c) When the group has better institutional resources

than other groups in society at the same level.

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Theory of Adjustment of Price

Given by Kirzner.

According to him entrepreneur has followingcharacteristics

Adjustment of price is the main role of entrepreneur. Entrepreneur are unpredictable.

Evaluation

This theory lays stress on the behavior of the entrepreneurand its quality of grabbing opportunities in the market.

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Theory of Personal Resourcefulness

Personal resourcefulness is the belief in ones owncapability for initiating actions directed towardscreation and growth of enterprise. Thus, it emphasize

on initiative rather than reaction.

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Theory of Cultural Values

Propounded by Thomas Cochran.

Entrepreneurs are not super normal individual but they are societysmodel personality.

Performance of entrepreneur influenced by these factors:i. His own attitude towards his own occupation .

ii. Operational requirement of job.

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Thank you

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Theories of Entrepreneurship Final

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