Organization and the Theories of Entrepreneurship

Meaning of Organization: Organizationis a Process

Organization is a process which integratesdifferent type of activities to achieve organizational goals and objectives, toachieve these goals there must be competent management providing them all thosefactors to perform their job efficiently and effectively. Organization isnothing but is a process of integrating and coordinating the efforts of men andmaterial for the accomplishment of set objectives.

Every thinker is of the opinion that anorganization is a process. They further have added that this process leadidentification of work to be performed which for convenience sake should beobjectively grouped and defined. Then the work should be assigned toindividuals according to their aptitude, technical knowledge, skill andefficiency. For satisfactory working the individuals should be given some rightand authority. A mutual relationship between jobs (what to be done) duties (tobe performed) and authority (to be exercised) should be established.

Organization is just like a tool in the handsof management. Net results will be perfect if the tool is well designed andhanded properly.

Characteristics of Organization

Organization is an effective and necessaryinstrument for the attainment of predetermined goals. The following are maincharacteristics of organization.

  • Organization is an instrument used by the management for the attainment ofplanned objectives.
  • Management guides and directs the organization.
  • A set of rules and instrument are communicated to all connected with theorganization.
  • It prefers to a group of personnel whose positions, rights,responsibilities are well defined and classified according to the nature ofassignments.

Nature of Organization

A set of five processes in commonly acceptedas five functions of organization which represents nature of organization, theyare

  • Subdivision of main work into small groups
  • Based on principles of equality division of different activities ties
  • Selection of suitable personnel and allocation of jobs according tosuitability
  • Allotments of rights and authority to those who have been assigned thejob so that may be able to accomplish their job satisfactorily
  • Determination of positions at different levels

Importance of Organization

Any effective organization

  • Makes the management simple and efficient
  • Encourages specialization
  • Improves techniques
  • Encourages constructive thinking
  • Increase productivity and
  • Accelerates the progress

The management asks the organization toaccomplish the tasks set-forth before it which an effective organization iscapable of achieving through its fruitful organizational framework. This is whyit is said that organization is a foundation upon which the whole structure ofmanagement can be successfully built.

Theories of Entrepreneurship

People use the terms “entrepreneur”and “entrepreneurship” interchangeably. The entrepreneur is theperson who starts his own business. The exact definition of“entrepreneurship” still remains a vague concept, though variousentrepreneurship theories have defined the concept.

Early Theories of Entrepreneurship

Richard Cantillon (1680-1734)

He was the first of the major economicthinkers to define the entrepreneur as an agent who buys means of production atcertain prices to combine them into a new product. He classified economicagents into landowners, hirelings, and entrepreneurs, and considered theentrepreneur as the most active among these three agents, connecting theproducers with customers.

Jean Baptise Say (1767-1832)

He improved Cantillion’s definition by addingthat the entrepreneur brings people together to build a productive item.

Frank Knight’s Risk Bearing Theory

Frank Knight (1885-1972) first introduced thedimension of risk-taking as a central characteristic of entrepreneurship. Headopts the theory of early economists such as Richard Cantillon and J B Say,and adds the dimension of risk-taking.

This theory considers uncertainty as a factorof production, and holds the main function of the entrepreneur as acting inanticipation of future events. The entrepreneur earns profit as a reward fortaking such risks.

Alfred Marshall’s Theory ofEntrepreneurship

Alfred Marshall in his Principles of Economics(1890) held land, labor, capital, and organization as the four factors ofproduction, and considered entrepreneurship as the driving factor that bringsthese four factors together.

The characteristics of a successfulentrepreneur include:

  • thorough understanding of the industry
  • good leadership skills
  • foresight on demand and supply changes and the willingness to act onsuch risky foresights

Success of an entrepreneur however depends noton possession of these skills, but on the economic situations in which theyattempt their endeavors.

Many economists have modified Marshall’stheory to consider the entrepreneur as the fourth factor itself instead oforganization, and which coordinates the other three factors.

Max Weber’s Sociological Theory

The sociological theory entrepreneurship holdssocial cultures as the driving force of entrepreneurship. The entrepreneurbecomes a role performer in conformity with the role expectations of thesociety, and such role expectations base on religious beliefs, taboos, andcustoms.

Max Weber (1864-1920) held religion as themajor driver of entrepreneurship, and stressed on the spirit of capitalism,which highlights economic freedom and private enterprise. Capitalism thrivesunder the protestant work ethic that harps on these values. The rightcombination of discipline and an adventurous free-spirit define the successfulentrepreneur.

Mark Casson’s Economic Theory

Mark Casson (1945-) holds thatentrepreneurship is a result of conducive economic conditions.

In his book “Entrepreneurship, anEconomic theory” he states the demand for entrepreneurship arising fromthe demand for change.

Economic factors that encourage ordiscourage entrepreneurship include:

  • taxation policy
  • industrial policy
  • easy availability of raw materials
  • easy access to finance on favourable terms
  • access to information about market conditions
  • availability of technology and infrastructure
  • marketing opportunities

Joseph Schumpeter’s Innovation Theory

Joseph Schumpeter’s innovation theory ofentrepreneurship (1949) holds an entrepreneur as one having three majorcharacteristics: innovation, foresight, and creativity.

Entrepreneurship takes place when theentrepreneur:

  • creates a new product
  • introduces a new way to make a product
  • discovers a new market for a product
  • finds a new source of raw material
  • finds new way of making things or organization

Schumpeter’s innovation theory however ignoresthe entrepreneur’s risk taking ability and organizational skills, and placeundue importance on innovation. This theory applies to large-scale businesses,but economic conditions force small entrepreneurs to imitate rather than innovate.

Other economists have added a dimension toimitating and adapting to innovation. This entails successful imitation byadapting a product to a niche in a better way than the original product innovatorsinnovation

Israel Kirtzner’s Theory ofEntrepreneurship

Israel Kirzner (1935) hold spontaneouslearning and alertness two major characteristics of entrepreneurship andentrepreneurship is the transformation of spontaneous learning to consciousknowledge, motivated by the prospects of some gain.

Kirzner considers the alertness to recognizeopportunity more characteristic than innovation in defining entrepreneurship.The entrepreneur either remedies ignorance or corrects errors of the customers.

His entrepreneurship model holds:

  1. The entrepreneur subconsciously discovering an opportunity to earn moneyby buying resources or producing a good, and selling it
  2. Entrepreneur financing the venture by borrowing money from a capitalist.
  3. Entrepreneur using the funds for his entrepreneurial venture
  4. Entrepreneur paying back the capitalist, including interest, andretaining the “pure entrepreneurial profit.”

Leibenstein’s Theory ofEntrepreneurship

Harvey Leibenstein (1922-1994) considerentrepreneur as gap-fillers. The three traits of entrepreneurship include:

  1. recognizing market trends
  2. develop new goods or processes in demands but not in supply
  3. determining profitable activities

Entrepreneurs have the special ability toconnect different markets and make up for market failures and deficiencies.

McClelland’s Theory of AchievementMotivation

McClellands Theory of Achievement Motivationhold that people have three motives for accomplishing things: the need forachievement, need for affiliation, and need for power. Need for achievement andneed for power drive entrepreneurship.

David McClelland (1917-1988) considersentrepreneurs as people who do things in a better way and makes decisions intimes of uncertainty. The dream to achieve big things overpowers monetary orother external incentives.

McClelland’s experiment revealed thattraditional beliefs do not inhibit an entrepreneur, and that it is possible tointernalize the motivation required for achievement orientation through training.

Peter Drucker’s Theory ofEntrepreneurship

Peter Drucker (1909-2005) holds innovation,resources, and an entrepreneurial behaviour as the keys to entrepreneurship.According to him entrepreneurship involves

  1. increase in value or satisfaction to the customer from the resource
  2. creation of new values
  3. combination of existing materials or resources in a new productivecombination

What theories do you think explainentrepreneurial drive?

An analysis of various entrepreneurshiptheories reveal while what economists differ on the force that drivesentrepreneurs or the central characteristics of entrepreneurship, they remain unanimousthat entrepreneurship is a distinct concept and a central factor of the economicactivity.

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