Innovation And Entrepreneurship: Key Drivers Of Economic Growth

Types of Innovations

Question:

Critically evaluate the various dimensions of Innovation and the drivers that contribute to the growth of small start-up entrepreneurs?

Economist Schumpeter contributed greatly for the concept of innovation and entre

Innovation means generating a new idea, products or application, which is a value add to customers. Innovation helps in better serving the customers, by improving the quality of product or service and meeting their expectations and needs, for which they are ready to pay. For a business’ perspective, innovation acts as a catalyst to growth. Innovation can be of different types. Innovation can be done in the processes of the company, offering to the customers, their delivery channel, brand positioning, marketing channels, business model and supply chain.

preneurship. One of the most common themes in Schumpeter’s writing was the role of innovation (“new combination”) and entrepreneurship in economic growth. He believed that innovation is the key driver for competition and those who wants to increase their profits should innovate continuously. According to Schumpeter, the customer needs does not play a role in the development. For economic development structural changes needs to be incorporated along with the innovative techniques. According to him, there are 5 types of innovations that can be done:

• Introducing a completely new product in the market or an advance version of the product existing in the market.
• Revolutionize the production process by introducing new, innovative techniques along with innovative sales and marketing methods.
• Acquiring new markets, which were not tapped.
• Innovation in supply chain by procuring raw material from a new source, different logistics etc.
• New structure of the industry.

Schumpeter defined innovation as, “a process of industrial mutation, that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, and incessantly creating a new one” (Drucker, 2014). This means that through innovation they will be continuous technological advancements, which will destroy and replace the old process/ technology. He coined a term ‘creative destruction’, which means a new thing will destroy something old. This will be a key driver for the transformation of the economic structure and sustained growth.

The characteristics of a successful entrepreneur are that he is able to explore new opportunities and is ready to pursue new ventures. He possesses the skills of creativity, innovativeness and ability to take risk (Autio, Kenney, Mustar, Siegel & Wright, 2014). They will deploy new techniques and innovative business models and strategies. Small and Medium Enterprises are considered as the backbone of economic growth of the country. They have contributed significantly for the economic development of the company by giving more employment opportunities, product outputs, exports etc. (Love & Roper, 2015). But for small companies, in order to survive in the market they need to constantly perform well, give quality products as well as generate profits and expand. It has become imperative for the small companies to hone their capabilities and competency. They need to develop new technologies and strategies for the improvement of their output efficiency and marketing their products and services. For their development small companies need to constantly create and introduce innovation in their techniques. Innovation and product differentiation will help small companies stand out from the crowd. This will help them create a loyal customer base.

• Human Resource: Managing a workforce with skills to innovate is very crucial. Employees with different skills are required for product innovation and exploring different strategies. Technical and managerial skills are required at various developmental stages of a project and its commercialization.

Skill development can also be done for the employee to make them capable of doing innovation.

• Research and Development: In house Research and Development plays a very important role in creating innovative technologies and processes for the firms. The capability of Research and Development is very crucial for the companies to incorporate innovative techniques and processes in their projects.

Research and Development are important as they can create new knowledge that will help in innovation. Secondly, they also help in accessing and absorbing the knowledge from outside which is also very important for the innovation with in the organization and to maintain competitiveness with the rival companies (O’Cass & Sok, 2013).

• Investment in the infrastructure: It is very important for firms to update their equipment and technologies by making investments. Especially in small companies who may face resource constraints, it is better to purchase new equipment and technologies, which can result very crucial in innovation.
• Design: This is a very important contributor for the success of any innovation. Emphasis is laid on designing a wide range of innovative products with improved functionality and value. There is a positive relationship between investments in design and the output.

But in small companies, design is not perceived as crucial as technology. It as considered as an expensive, time and resource consuming activity only. But by outsourcing the design resources, small companies can inculcate this practice.

• Management of Intellectual Property: Patents and copyright of innovative techniques is very crucial for any business. But smaller companies face problems, as the cost of IP protection and registration is very high. But for the small firms who are R&D intensive, patenting is very important for getting customers and attracting seed investments. Other small companies, instead of patenting, focus more on the speed to market their product.
• Innovative Strategies: When it comes to innovative strategy, the state of knowledge can be thought of as inconsistence in theories, knowledge gaps and conflict in the predictions. Following are the few innovation strategies which are popular among small companies:
• First is the selection between open and closed innovation and the way to develop the knowledge base of the company. For small companies, open model are more favored models for innovation. Specially, when it comes to collaboration along the supply chain of the firm. Such collaboration will not only help in the development of innovation but will also help the small companies to sustain this success. These strategies may also help smaller companies to extend their spectrum of knowledge and improve their performances.
• Second is the explicit strategy of the company, planning, organization and marketing their products/ services.
• Improving Knowledge and resourcing from outside the organization: Firms (specially their Research & Development department) should be open to gather information and knowledge from the external world to incorporate in their research to develop innovative techniques. Top management or strategy makers can also look what strategies the rival companies have adopted and based on that formulate an improvised, innovative strategy for the business. For the purpose of knowledge transfer, partnership up with the large firms can also be done.

Similarly, small companies face a resource constraint, which may hamper their ability to develop innovative techniques and strategies. These companies can outsource the resources, which will substantially bring down the pressure of resources from them and the companies can focus more on their core business and do innovation in that field.

• Government Policies: Policies laid by the government plays a crucial driver for the companies for adopting innovative techniques. Government actions can acts both as enabler or a barrier for the companies to do design and implement innovative techniques/ strategies.
• Diversity of the employees: Studies have shown a relationship between diversity of employees and innovation. There has been a positive relationship between innovation, educational diversity, cultural diversity and gender diversity of the employees. These factors are especially crucial in the initial stages of a project or the company.
• Business Partnership or funding: Partnering up with other businesses or funding through private equity will not only brings finance to the company but also expertise and experience of professionals from diverse companies. This will enhance the products/ service development and the value creation of the company. This venture can also help in improving the processes of the company and other future associations.

Conclusion

Small companies are very important for the growth of economy. In order to survive in the market they constantly need to innovate and develop to get a competitive edge over their competitors. There are internal and external drivers that contribute to the success of small companies. The main internal drivers of innovation are the resources available with the companies – be it human resource, knowledge, financial resource, infrastructure or supply chain.  The internal resources should create the knowledge repository for the company and develop innovative technologies and strategies. Also, they should spend sufficiently to create infrastructure to carry out processes for innovation. If company is short on their resources they approach external sources to fulfill their requirement be it of knowledge, technology, design or support. Also, government policies play a very crucial role in deciding the fate of innovation. Supporting policies allow the companies to do experiments and come out with new product/ service offerings.

References:

Autio, E., Kenney, M., Mustar, P., Siegel, D., & Wright, M. (2014). Entrepreneurial innovation: The importance of context. Research Policy, 43(7), 1097-1108.

Drucker, P. (2014). Innovation and entrepreneurship. Routledge.

Love, J. H., & Roper, S. (2015). SME innovation, exporting and growth: A review of existing evidence. International Small Business Journal, 33(1), 28-48.

O’Cass, A., & Sok, P. (2013). The role of intellectual resources, product innovation capability, reputational resources and marketing capability combinations in SME growth. International Small Business Journal, 0266242613480225.