Monday, 17 February 2014

20. Entrepreneurial roles

 Along the cycle of discovery, discussed in preceding items, we can identify different forms of entrepreneurship.

Generalization entails the transfer of application to novel areas. For products this entails entry into new markets. This reflects Mangoldt’s notion of entrepreneurship, and was recognized also by Schumpeter.

In differentiation practices are adapted to differences in demand. This may connect with the arbitrage notion of entrepreneurship, ‘filling gaps in markets’. However, while it entails the realization of existing potential, it also entails learning and conceptual change, leading up to a next innovation.

Reciproca­tion is more Schumpeterian in that it explores elements for novel combi­nations. Schumpeteri­an entrepreneurs­hip comes more into its own in accommo­dation towards novel combinations in novel architectures, where existing structures of action are broken down and from the debris novel practices are experimen­tally built up, to survive, die or be improved in the subsequent stage of consolidation.

However, there are ambiguities in the attempt to fit existing notions of entrepreneurship along the cycle. How far does the arbitrage notion of entrepreneurship (Smith, Cantillon, Austrian economists) go? To what extent does it include adaptation in the form differentiation and reciprocation? Does it overlap, and where, with Schumpeterian entrepreneurship? In reciprocation, perhaps? Perhaps this matching exercise becomes too forced, and serves to show that the distinctions and boundaries between old notions of entrepreneurship are unclear. Perhaps we should go beyond them, to provide new perspectives and aspects of entrepreneurship, as follows.

In consolidation we find:

  -         Recognition of success and failure. This requires sense of realism, in the judgement of technical and commercial viability.

 -          Adapting or innovating systems of application to allow the innovation to achieve its fullest potential. This requires managerial innovation and corresponding capabilities, for utilization of economies of scale and scope, in division of labour, and corresponding standardization of practices, and development of organizational structure for coordination.

In generalization:

 -          Risk taking and vision for expansion into new applications and markets, and design of corresponding systems of coordination.

In differentiation:

-                      Incremental innovation by adaptation of practices to new conditions of demand and production, while maintaining the basic elements and architecture of existing practi­ce. This requires ‘intrapreneurship’.

-                      On the level of top management it requires the ability to combine the maintenance of efficient exploitation with an allowance for local deviations, in appropriate forms of decentralization.

In reciprocation:

-                      Importation of elements from ‘adjacent’ practices that in novel contexts appear to be better in some respect of product or production, while maintaining the architecture of the practice at hand. The requirements from the previous stage apply to a higher degree: imagina­tion to produce ideas for novel combinations. The intrapreneur requires an ability of diplomacy to obtain scope for experimentation while still adhering to demands for coherence with existing practices.  

-                      On the level of top management, the problem of combining efficient exploitation and local deviations, for the sake of exploration, becomes more problematic. Patterns of collaboration are required with outside firms, typically in joint ventures. This requires the ability to ‘let go’, and skills of cross-cultural management.

In radical novel combinations:

-                      Trials of new combinations of elements from diverse practices in a new architecture. This requires a high degree of risk acceptance, courage, determination, perseve­rance and charisma and leadership to bring other people along, including internal or external suppliers of capital.

-                      This stage requires a large degree of organizational autonomy. If the origin of ideas lay inside a large, integra­ted organization, this will often require a spin-off, particularly when the existing system of exploitation is highly systemic. Top management may then need to be entrepreneurial in the sense of facilitating external corporate venturing.

Clearly, along the cycle, the requirements of entrepreneurship vary greatly, and require different people with different competencies. For example, while radical innovation requires courage, independence, boldness and determination to tenaciously pursue an idea, consolidation requires a sense of realism, in the recognition of failure, and the ability to step back and design structures of coordination and seek compromise between conflicting interests. Few people will be able to combine such competencies.

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