Dimensions of entrepreneurship: Explained

By Mpho Sefalafala

Entrepreneurship has become a buzz word in recent times. In the context of the South African economy,entrepreneurship is gaining legitimacy as a way to create employment, grow the economy, and improve the country’s competitiveness. As is always the case, when a heavy concept like entrepreneurship enters common talk, it becomes everything and anything and its essence may be lost. It may be useful to seat back and reflect on the essence of entrepreneurship.

A fundamental question in entrepreneurship research concerns what it means to describe a particular event as “entrepreneurial” and to establish its underlining nature. Researchers have made considerable progress in identifying the core dimensions that underlie the entrepreneurship construct. There is insurmountable consensus in the extant literature that the key dimensions that underlie the entrepreneurship construct are: innovativeness, proactiveness, and risk-taking. However in their article “Clarifying the Entrepreneurial Orientation Construct and Linking It to Performance”, Thomas Lumpkin and Gregory Dess, argued that five dimensions, instead of three, should be used to measure entrepreneurship, namely autonomy, competitive aggressiveness, proactiveness, innovativeness and risk-taking. Without taking away the importance of Lumpkin and Dess‘s conception of entrepreneurship, we see autonomy as an internal condition that influences the organisational climate. Furthermore we can also see competitive aggressiveness as part of the proactiveness dimension as others have argued. As such let us examine the three dimensions:innovativeness, proactiveness, and risk-taking.

 Innovativeness

The innovativeness dimension of entrepreneurship reflects a tendency of a firm to engage in and support new ideas, novelty, experimentation, and creative processes, thereby departing from established practices and technologies, and leading to new products, services, or technological processes. The foundation for this concept can be traced back to the writings of entrepreneurship scholar Joseph Schumpeter who postulated that the entry of innovative new combinations into a marketplace enabled societal progress through economic development. Innovative entry disrupts existing market conditions and stimulates new demand, thereby enacting Schumpeter’s process of ‘‘creative destruction’’. Entrepreneurship scholar Sankaran Venkataraman advocated that several necessary factors that must accompany risk capital for the Schumpeterian entrepreneurship to flourish in a region – these are access to novel ideas, role models, informal forums, region-specific opportunities, safety nets (against entrepreneurial failure), access to large markets and executive leadership.

Innovations may be incremental or radical, meaning that they may either build off of existing skills to create incremental improvements, or rather require brand new skills to develop new ideas and in the process destroy existing skills and competencies. Boris Urban and colleagues in their book title ”Technopreneurship: Strategy, Innovation, and Entrepreneurship” (published by Heinemann) states that enterprises can use technological innovation, defined as the generation of new products and processes or significant technological improvements in current products and processes, to achieve objectives such as maximising profits, gaining market share, creating niche markets or adding value for stakeholders. An examination of revolutionary technological breakthrough innovations since the onset of industrial revolutions revealed that independent inventors and small newly founded ventures contributed more proportions of fundamentally new innovations than contributions of large firms large firms tend to follow incremental rather than revolutionary ideas.

An innovation orientation may be an effective response by SMEs to overcome the liabilities associated with smallness especially in situations of resource scarcity, market entry and when facing more established and resourceful incumbents. Much of the pressure to innovate is due to external forces, including the emergence of new and improved technologies, the globalisation of markets, and the fragmentation of markets, government deregulation, and dramatic social change. Innovativeness is aimed at developing new products, services, and processes, and firms that are successful in their innovationefforts are said to profit more than their competitors.

Proactiveness

Proactiveness reflects an action orientation and refers to a firm’s response to promising market opportunities. Although innovativeness relates to a firm’s orientation toward creating innovative responses, proactiveness is related to anticipating and acting on future wants and needs in the market, which would enable a firm to gain first-mover advantage ahead of the competition. The proactiveness dimension reflects top management orientation to pursuing enhanced competitiveness, and includes initiative, competitive aggressiveness and boldness. Competitive aggressiveness involves the propensity to directly and intensely challenge its competitors. A characteristic of a proactive enterprise therefore involves aggressive and unconventional tactics towards rival enterprises in the same market segment.

Proactive organisations shape their environments by actively seeking and exploiting opportunities. A proactive firm seizes new opportunities and takes pre-emptive action in response to perceived opportunity. In essence, proactive firms introduce new products, technologies, administrative techniques to shape their environment and not react to it.

Risk-taking

Typical elements of risk-taking such as heavy borrowing, committing a large portion of one’s assets to a course of action, or action in the face of uncertainty are associated with the risk-return trade-off. Jeffrey Hornsby confirmed five distinct internal organisational factors necessary to support entrepreneurship within organisations: rewards/recognition; management support; resources, including time availability; organisational structure; and acceptance of risk.

Risk-taking refers to a firm’s tendency to engage in high-risk projects and managerial preferences for bold versus cautious actions in order to achieve firm objectives. Risk-taking involves the willingness to commit significant resources to opportunities with a reasonable chance of costly failure as well as success. Risk-taking orientation indicates a willingness to engage resources in strategies or projects where the outcome may be highly uncertain. Risk can be managed by engaging in experiments, testing the markets, acquiring knowledge, and the use of networks. Interestingly, studies have shown that entrepreneurs perceive a business situation to be less risky than non-entrepreneurs. They cognitively categorize business situations more positively. Prior research suggests that entrepreneurs themselves do not perceive their actions as risky and dispel the common defining perception of entrepreneurs as chronic risk takers. Entrepreneurship does not entail reckless decision making, but reasonable awareness of the risks involved and these risks can be calculated and managed. When risk and uncertainty are thus differentiated, individuals and firms acting entrepreneurially may be more specifically thought of as effective uncertainty reducers, rather than reckless risk takers.

Mpho Sefalafala completed in 2012 his Masters in Management (specialising in entrepreneurship and new venture creation), with distinction, at the Graduate School of Business Administration, Wits Business School (WBS). This piece was adapted from a research report titled “Investigating entrepreneurial intensity and capability among South African exporting firms” written for the masters in management degree … Proper referencing can be found in the research report.

You can track more of Mpho’s thoughts and ventures by following him on twitter @BornGlobalTech

Leave a Reply

Your email address will not be published. Required fields are marked *