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Abstract

We propose a model that links seven different conceptions of entrepreneurship and maps them in relation to eight associated disciplines and theories, specifying their corresponding units and levels of analysis and stage in the entrepreneurial process. Entrepreneurship scholars are attempting to either carve out a distinctive domain for the field or build a distinctive theory of entrepreneurship. However, an obstacle for understanding entrepreneurship is the lack of integration of the assumptions implicit in different conceptualizations of entrepreneurship. We contribute a scholarship of integration approach for understanding the phenomena underlying these conceptualizations and linking entrepreneurship domain, theory, method, and policymaking. Contents: Introduction; A Road Map; Entrepreneurship as the Individual Entrepreneur; Entrepreneurship as the Process of Innovation; Entrepreneurship as the Creation of Business or Organizations; Entrepreneurship as the Act of Entry; Entrepreneurship as Corporate Venturing; Entrepreneurship as the Process of Creative Destruction or Churning Rate; Entrepreneurship as the Small and Medium Sized Enterprise (SME); Conclusions and Directions for Future Research: References
H. Rocha & J. Birkinshaw – Forthcoming - Foundations and Trends in Entrepreneurship
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ENTREPRENEURSHIP SAFARI
A PHENOMENON-DRIVEN SEARCH FOR MEANING
Hector Rocha
IAE – Management and Business School of Austral University
Mariano Acosta s/n y Ruta 8 (1629) - Buenos Aires, Argentina
hrocha@iae.edu.ar
Julian Birkinshaw
London Business School
Regent´s Park NW1 – London, UK
jbirkinshaw@london.edu
ABSTRACT
We propose a model that links seven different conceptions of entrepreneurship and maps
them in relation to eight associated disciplines and theories, specifying their corresponding
units and levels of analysis and stage in the entrepreneurial process. Entrepreneurship
scholars are attempting to either carve out a distinctive domain for the field or build a
distinctive theory of entrepreneurship. However, an obstacle for understanding
entrepreneurship is the lack of integration of the assumptions implicit in different
conceptualisations of entrepreneurship. We contribute a scholarship of integration
approach for understanding the phenomena underlying these conceptualisations and
linking entrepreneurship domain, theory, method, and policymaking.
H. Rocha & J. Birkinshaw – Forthcoming - Foundations and Trends in Entrepreneurship
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INTRODUCTION
Entrepreneurship as a field of study is relatively young (Cooper, 2003). Although the
concept of entrepreneurship can be traced to the work of Cantillon in 1755, it has emerged
as a fast-growing line of inquiry during the last 30 years. Evidence of this interest in
entrepreneurship is found in each part of the value chain” from creation (academic and
policy research), through diffusion (research and policy publications and the popular
press) to implementation (cf. Busenitz et al 2003 for a review). The evidence is even
stronger when the study and diffusion of the phenomena are institutionalised through
specialised journals, endowed chairs, international conferences, international organisms’
policy units, and national policies. For example, relevant international organisms such as
the World Bank, OECD, the European Commission, UNIDO, and UNCTAD have created
specialised units, launched international conferences, or suggested policy options on
entrepreneurship
i
. Also, national governments from both developed and developing
countries are adopting entrepreneurship policies to promote economic development
ii
.
A typical feature of a field of study in its early stage of paradigmatic development is
the lack of agreement regarding the definition of the phenomenon under study (Ireland et
al. 2005). Given the current state of the field, which has been defined as potpourri (Low,
2001), many entrepreneurship researchers have attempted to define entrepreneurship and
carve out a distinctive domain for the field (Low and MacMillan, 1988; Venkataraman,
1997; Shane and Venkataraman, 2000; Zahra and Dess, 2001; Low, 2001; Brush et al
2003; Busenitz et al. 2003) and / or build a distinctive theory of entrepreneurship (cf.
Phan, 2004). The search for a unifying entrepreneurship domain and its interrelationship
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with other fields still continues today (cf. Zahra and Dess, 2001; Phan, 2004; Ireland et al.
2005).
Eschewing the discussion on whether entrepreneurship should be an independent
field of study for the moment (cf. Low, 2001; Zahra and Dess, 2001; Shane and
Venkataraman, 2000), we argue that one of the obstacles for understanding the
entrepreneurship phenomenon is the lack of integration of different assumptions, units and
levels of analysis that are implicit in the different conceptualisations of entrepreneurship
underlying current theoretical perspectives, empirical work, and public policies. For
example, entrepreneurship has been either defined or measured in terms of the
entrepreneur, the small / medium sized company’s owner, the development of new
businesses, market entry, and innovation. Although these different conceptualisations
imply different units and levels of analysis, many theories argue that entrepreneurship is
beneficial to economic growth (cf. Caree and Thurik, 2003; Rocha, 2004a). However, it is
not clear how different units such as individuals, firms, and industries, or a combination of
any of them, could translate into economic growth without clearly specifying the causal
mechanisms linking those units at different levels.
This need for integration is at the ontological level i.e. the integration of
entrepreneurship related phenomena- rather than at the epistemological level i.e. the
building of a unique entrepreneurship theory that could encompass the variety of
perspectives that reflect the current state of the field (cf. Gartner, 2001; Busenitz et al.
2003; Phan, 2004). In effect, as it is the case in the strategy field with the concept of
strategy (cf. Mintzberg et al. 1998) and in the organisation theory field with the concept of
organisations (cf. Scott, 1998; Baum and Rowley, 2002), different conceptions of
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entrepreneurship highlight particular features which necessarily provide only partial
views. As a consequence, scholars lose theoretical clarity and policy makers lack
conceptual guidelines for designing and evaluating the impact of their entrepreneurship
policies.
Acknowledging this research need, some scholars have started integrating particular
theoretical assumptions (Alvarez, 2005), constructs (Busenitz et al. 2003) and levels of
analysis (cf. Wennekers and Thurik, 1999; Davidsson and Wiklund, 2001) implicit in
different conceptualisations of entrepreneurship. In this paper, we contribute to the effort
of this group of scholars by proposing a model that integrates the different phenomena
implicit in previous theoretical and empirical work on entrepreneurship. Our aim is
threefold. First, we aim to understand both the phenomena underlying the different
conceptualisations of entrepreneurship and the relationships among those phenomena.
Second, we aim to make explicit the theoretical assumptions in terms of units and levels of
analysis implicit in the disciplines and theories that are studying the entrepreneurship
phenomenon. Third and finally, by mapping out the different entrepreneurship related
phenomena and their associated theoretical assumptions, we aim to provide a template to
scholars and policy makers for understanding the connections and overlapping of different
phenomena and their distinctive impact at the individual and societal levels. Our focus is
on the identification of and links between different phenomena related to entrepreneurship
according to different perspectives. Given this focus and space limitations, we do not
analyse in detail each entrepreneurship perspective
iii
.
We structure this paper as follows. First, we present the overall model based on
previous theoretical and empirical work on entrepreneurship. Then, we analyse each
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entrepreneurship phenomenon and its associated disciplines and levels of analysis. Finally,
we conclude with directions for future research and policymaking.
A ROAD MAP
The definition of entrepreneurship has evolved from a trait or supply side approach
i.e. a focus on entrepreneurs and their traits- to a context or demand side approach –i.e. a
focus on the influence of firms and markets on how, where, and why new enterprises are
founded (Thornton, 1999), or more generally, what entrepreneurs do (Gartner, 1990).
Based on Schumpeter’s ideas, entrepreneurship can be conceptualised as an activity
carried out by individuals or teams that involves innovation in an existing business or a
new venture (cf. Drucker, 1998; Busenitz et al. 2003; Shane, 2003; Ireland et al. 2005).
More specifically, entrepreneurship has been identified, either explicitly or
implicitly, with various phenomena and units of analysis such as the entrepreneurs
(Cantillon, 1931 [1755]), their traits (McClelland, 1961), behaviours (Stevenson and
Jarillo, 1989; Drucker, 1985), functions (Schumpeter, 1934; Kirzner, 1973), and actions
such as the discovery, evaluation, and exploitation of future goods and services
(Venkataraman, 1997; Eckhardt and Shane, 2003), the creation of new businesses (Low
and MacMillan, 1989; Gartner, 1989) or, more generally, entry into a single industry (Orr,
1974; Porter, 1980; Geroski, 1995), and the owning and managing of small and medium-
sized businesses (Brock and Evans, 1989; Birch, 1981).
These variety of phenomena shows that entrepreneurship is a multifaceted reality,
which explains why it has been studied from different disciplines, each one stressing
different units, levels, stages, and dimensions of the entrepreneurship process. Economic
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perspectives focus broadly on the entrepreneur and the functions of entrepreneurship, such
as innovation either by entrepreneurs (Schumpeter, 1934) or established big firms
(Schumpeter, 1942; Nelson and Winter, 1982), the discovery and exploitation of
opportunities (Venkataraman, 1997; Shane and Venkataraman, 2000; Eckhardt and Shane,
2003), the judgemental decisions on the allocation of scarce resources (Cason, 1982), or
the alertness to disequilibrium (Kirzner, 1973) that not only restores equilibrium through
arbitrage but also foster innovation (Koppl and Minniti, 2003:82), although in a non-
radical way (Shane, 2003:21). Industrial organisation economics perspectives stress
facilitating and inhibiting factors on entry into a single industry based on the assumption
of rational profit-maximising individuals (Orr, 1974; Porter, 1980; Geroski, 1995).
Psychological perspectives stress the distinguishing traits of entrepreneurs (McClelland,
1961). And sociological perspectives analyse the environmental factors affecting the
creation of business, such as social structure (Stinchcombe, 1965), industrial infrastructure
and institutional fields (Van de Ven, 1993; DiMaggio and Powell, 1983), cultural forces
(Aldrich and Waldinger, 1990), environmental selection and evolution of populations
(Hannan and Freeman, 1977), networks (Larson, 1992), and national (Reynolds et al 2002)
and regional (Reynolds et al 1994) entrepreneurial framework conditions.
Table 1 shows the previous conceptualisations of entrepreneurship and their
associated disciplines. This variety provides interdisciplinary insights but requires a
framework in order to make sense of the common attributes and links between the
different entrepreneurship-related phenomena, if this is possible at all. Many authors argue
that a definition of an entrepreneurship domain is required in order to establish an identity
for the emerging entrepreneurship field (Low and McMillan, 1988; Low, 2001; Shane and
Venkataraman, 2000; Busenitz et al. 2003). For example, in a first attempt to establish the
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domain of the field, Low and MacMillan defined entrepreneurship as “creation of new
enterprise” and proposed that “entrepreneurship research seek to explain and facilitate the
role of new enterprise in furthering economic progress” (Low and MacMillan, 1988:141).
Some years later, Shane and Venkataraman provided what could be considered the most
ambitious definition of the entrepreneurship domain when they defined the field of
entrepreneurship as the “scholarly examination of how, by whom, and with what effects
opportunities to create future goods and services are discovered, evaluated, and exploited”
(Shane and Venkataraman, 2000:218). Entrepreneurship is conceptualised as an activity
that “involves the discovery, evaluation, and exploitation of opportunities to introduce
new goods and services, ways of organizing, markets, processes, and raw materials
through organizing efforts that previously had not existed” (Shane, 2003:4). Given that
few scholars would appear to be allied to all the topic areas included in the
entrepreneurship domain, the aim is that scholars with strong affinities in the same topic
areas create communities for the creation of specific theories within the entrepreneurship
domain (cf. Gartner, 2001). The search for a unifying entrepreneurship domain and its
interrelationship with other fields still continues today (cf. Zahra and Dess, 2001; Busenitz
et al. 2003; Ireland et al. 2005).
------------------------------
Insert Table 1 about here
------------------------------
Other authors are in search of a distinctive (Phan, 2004) or general (Casson, 1982,
1990; Shane, 2003) theory of entrepreneurship. Assuming a given domain for the
entrepreneurship field and recognising the multifaceted and multilevel nature of the
entrepreneurship phenomena, these authors argue that the most important areas for
building entrepreneurship theory are at the intersection of different entrepreneurship
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dimensions. For example, Busenitz et al., viewing entrepreneurship as a field of study
within management (2003:286), argue that the intersection between opportunities,
enterprising individuals or teams, and mode of organizing within the overall context of
wider environments are critical for the future of entrepreneurship research (Busenitz et al.
2003:298). In the same vein, Shane proposes a general theory of entrepreneurship focusing
on the individual-opportunity nexus (Shane, 2003:4). Others like Phan argue that
“entrepreneurship theory building has to pay attention to the interactions among cognition,
organization, and industry levels of analyses” (Phan, 2004:619).
Finally, other authors focus on making explicit different theoretical assumptions
(Alvarez, 2005), constructs (Busenitz et al. 2003) and levels of analysis (cf. Wennekers
and Thurik, 1999; Davidsson and Wiklund, 2001) that are implicit in different
perspectives on entrepreneurship. For example, Alvarez investigates two sets of
assumptions about the nature of opportunities, the nature of entrepreneurs, and the nature
of the decision-making context underlying two logically consistent theories of
entrepreneurship: the discovery theory (Shane, 2003) and the creation theory (Schumpeter,
1934; Cason, 1982).
We follow and extend the effort of this latter group of scholars, proposing a model
that integrates the different phenomena implicit in previous theoretical and empirical work
on entrepreneurship. Given that understanding should precede explanation and
prescription, we argue that making explicit and integrating the implicit ontology of
different entrepreneurship perspectives will contribute clarity at the epistemological (i.e.
theory building), methodological (i.e. theory testing), and policy (i.e. policy design and
implementation) levels.
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To this end, we try to capture the phenomenon or unit of analysis, its associated
level of analysis and stage, and the associated disciplines that underlie the
conceptualisations of entrepreneurship summarised above. Figure 1 provides the overall
framework that links the different phenomena and disciplines within a bi-dimensional
space: level of analysis and stage within the entrepreneurship process.
------------------------------
Insert Figure 1 about here
------------------------------
Figure 1 focuses on the integration of the different conceptualizations of
entrepreneurship shown in Table 1. The different conceptualizations are shown at the
centre of Figure 1 by the blue boxes and the integration between them is done through
three categories: their main associated discipline and / or theory (Figure 1, ellipses in the
outer part), their level of analysis (Figure 1, arrow labelled “Level” in the first column),
and their place in the entrepreneurial process (Figure 1, arrow labelled “Process” in the
last row). For example, the conceptualization of entrepreneurship as the individual
Entrepreneur assumes that entrepreneurship is an individual or team level phenomenon
and that the entrepreneurs, not the context, are at the root of the entrepreneurial process.
This view of entrepreneurship makes psychology, economics, and strategy the main
disciplines informing entrepreneurship theories.
Focussing on the interrelationship between the different conceptualisations of
entrepreneurship depicted at the centre of Figure 1, it could be said that entrepreneurship
involves the creation or discovery and exploitation of opportunities that results from the
interaction between entrepreneurs and the specific context in which they operate (Figure 1,
circles Entrepreneur, Context, Opportunity Exploration, Recognition, and Exploitation).
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The exploitation of opportunities by entrepreneurs results in innovation i.e. the
introduction of new goods and services, ways of organising, markets, processes, and raw
materials (Schumpeter, 1934; Shane, 2003)- whether in an existing business (Schumpeter,
1942) or a new venture (Schumpeter, 1934:66) (Figure 1, doted line around Innovation). .
In the case of creation of new enterprises, most of them either remain small, owned and
managed by the entrepreneur (Storey, 1994), or close (Aldrich, 1999) (Figure 1, Business
Creation, SME, and Business Closure). This latter event combined with the entry of new
business into an industry generates a churning rate that is the base of the creative
destruction argument posed by Schumpeter (Schumpeter, 1942) (Figure 1, doted line
around Churning rate). Others, the great minority, experience high growth (Autio, 2005),
in which case they are termed gazelles (Birch et al. 1999; cf. Figure 1, High growth
(gazelles)), or go public with the help of venture capitalists (Bygrave, 2004; cf. Figure 1,
IPO)
iv
.
The next sections develop this framework, focussing on each entrepreneurship-
related phenomenon: the entrepreneur, innovation as a key function of entrepreneurship,
corporate venture, business creation, entry, and churning rate.
Entrepreneurship as the Individual Entrepreneur
The entrepreneur is the basic phenomenon and unit of analysis of the economic and
psychological approaches to entrepreneurship, and one of the levels of analysis that
register most publications in leading journals (Davidsson and Wicklund, 2001:83;
Busenitz et al. 2003:297; Ireland et al. 2005). The conceptualization of entrepreneurship as
the individual entrepreneur is depicted in Figure 1 by the blue box labelled “Entrepreneur”
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and it assumes that entrepreneurship is an individual or team level phenomenon, and that
the entrepreneurs, not the context, are at the root of the entrepreneurial process. This view
of entrepreneurship makes psychology, economics, and strategy the main disciplines
informing entrepreneurship theories.
Economic historians classify entrepreneurship schools according to three intellectual
traditions (Hébert and Link, 1982; Blaug, 1997): the German school, represented by
Schumpeter and his emphasis on entrepreneurship as innovation; the Austrian school,
represented by Kirzner who, building on von Mises and von Hayek, focuses on the
entrepreneur as responsible for restoring equilibrium through the perception and
exploitation of profit opportunities; and the Chicago or Neoclassical school, represented
by Knight and Schultz, who assign a minor role to entrepreneurs within an optimisation
and equilibrium framework as those bearing the uncertainty of future prices based on a
rational evaluation of expected incomes as entrepreneur or as paid-employee.
Therefore, for economists, the individual entrepreneur is the personification or
embodiment of a particular function. The traits of the entrepreneurs result from the
specific function performed by them and are not the focus of the economist’s analysis. For
example, according to Kirzner, the function of the entrepreneur is to be an equilibrating
force in the market through the perception and exploitation of profit opportunities, which
means that alertness towards profit opportunities (Kirzner, 1997) is a key attribute of
entrepreneurs. In other words, the entrepreneurs and their traits are a methodological
device used by the economist to simplify and develop a line of analysis that is centred in
the entrepreneur’s function (Harper, 2004). This view of the entrepreneur as a
“representative agent” implicitly assumes that the aim of theory is prescription and that a
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key feature of a good theory is simplicity or parsimony, which explains why mainstream
economics uses mathematical models as its main method of inquiry. This approach is
usually criticised for becoming an end in itself, leading to either prescriptions without
explanation or data without theory (cf. Rocha and Ghoshal, 2006 for a list of references).
The idea of entrepreneurs described by their function can be traced back to
Cantillon, who defines the entrepreneur as an individual who is “willing to buy at a certain
price and sell at an uncertain price” (Cantillon, 1755, cited in Blaug, 1997:442). Von
Thunen further elaborated on this element of uncertainty more than a century later,
characterising the entrepreneur as the residual income claimant of an unpredictable
income after deducting interest and wages (Blaug, 1997:443). Then, elaborating on von
Thunen’s distinction between risk i.e. a situation where expected values of outcomes can
be obtained from probability distributions- and uncertainty i.e. no such expected values
exists-, Knight (1921) conceptualises the entrepreneur as an uncertainty bearer as a return
for profit. Given this characterisation, the main traits of the entrepreneur are foresight and
profit orientation. This latter element is the basis for Knight’s argument that an individual
decides among unemployment, paid employment, or self-employment based on the
relative prices of each of these states (Storey, 1994:62).
Contrary to Knight, the Austrian School of von Mises and von Hayek, currently
represented by Kirzner, rejects the rational economic behaviour model of neoclassical
economics. Instead, assuming imperfect knowledge and disequilibrium, it focuses on the
processes through which equilibrium is achieved (cf. Kirzner, 1973; Shane, 2003). In
particular, Kirzner attributes to the entrepreneur an equilibrating role through arbitrage
i.e. imperfect information and knowledge leads to errors in the decision-making process
and these errors create opportunities to make a profit.
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The economists´ focus on the entrepreneur and its function is the most promising
avenue for developing rigorous models as a means of taking the entrepreneurship field
forward. However, there are at least three limitations. First, although economists
acknowledge that the entrepreneurship function could be carried out either by a solo
entrepreneur or an organisation, most of their analyses take the individual entrepreneur as
the unit of analysis and the analysis is carried out mostly at the individual level (cf.
Harper, 2004:8). However, entrepreneurship is both theoretically (Van de Ven, 1993;
Johannisson et al. 2002; Schoonhoven and Romanelli, 2001) and empirically (Reynolds et
al. 2005) a collective rather than an individual effort. This means that entrepreneurship
implies more than simply the sum of many entrepreneurs; it implies that new variables
such as social capital and group-think have to be introduced in the analysis of
entrepreneurship processes and outcomes.
Second, with only few exceptions (e.g. Schumpeter, 1934), economists assume that
entrepreneurs are moved only by self-interest and profit-seeking. However, this
assumption is limited from both the theoretical and empirical standpoints. From the
theoretical standpoint, self-interest and profit-seeking are standard assumptions in
economic analysis not because they are real, but because they are necessary to have
homogenous actors in order to extrapolate individual level outcomes to the aggregate level
(cf. Hannan, 1971; Blalock, 1984:354). Self-interest is only one amongst several generic
motives, including moral sentiments, duty, and excellence (see Rocha and Ghoshal, 2006
for a review). Non-pecuniary income is both an important positive factor advanced by
Schumpeter –i.e. the joy of creation- and a potential negative one because an entrepreneur
is likely to have less leisure than a wage worker (Westlund and Bolton, 2003:100; cf. also
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McGrath, 2003). More generally, the origin of reducing human motivation to self-interest
and the consequent identity self-interest selfishness is credited to Adam Smith (cf. James
and Rassekh (2000) for a review). This identity can be traced back to Buckle’s
interpretation of Adam Smith’s works. Buckle concluded that in Moral Sentiments (Smith,
1976) Smith ascribes human actions to sympathy while in Wealth of Nations (Smith,
1999) he ascribes them to selfishness (Raphael and Macfie, 1976:21)
v
.
However, Smith refuses the reduction of human motivations to self-interest: “the
whole account of human nature (…) which deduces all sentiments and affections from
self-love (…) seems to me to have arisen from some confused misapprehension of the
system of sympathy” (Smith, 1976: 317). For Smith, the pursuit of self-interest is bound
by sources of control such as rules of justice (James and Rassekh, 2000; Sen, 1987).
“Thus, the identity self-interest selfishness is based on a misinterpretation of Smith’s
work (Sen, 1987; Solomon, 1992). The deepest root of the concept of self-interest is found
in the idea of self-love, which has to be traced back to Aristotle and Aquinas to understand
its proper meaning i.e. the inclination of human beings to strive for their own good and
perfection” (Rocha and Ghoshal, 2006:602).
From the empirical standpoint, many studies demonstrate that not all entrepreneurs
are profit-seekers, but rather heterogeneously motivated individuals. In effect,
entrepreneurs usually start their businesses where they were born, have worked (Boswell,
1973; Reynolds and White, 1997) or where they already reside (Cooper and Dunkelberg,
1987; Haug, 1995; Reynolds and White, 1997), which explains why entrepreneurs are
often well-established in their own communities. In addition, given that entrepreneurship
is both an individual and a collective phenomenon, mobility in search of the most
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profitable opportunities is somehow restricted. Even in the case of industrial clusters of
high-tech industries, most entrepreneurs start in their own region rather than moving to the
clustered ones (Romanelli and Feldman, forthcoming). Other studies show that
entrepreneurs often have a goal of contributing to the welfare of their community as well
as to their own income and satisfaction (Dubini, 1989:18), especially where the
entrepreneur’s service to the community is reciprocated by community support of the
business (Kilkenny et al. 1999; cf. also Westlund and Bolton, 2003:98). Finally,
psychologists have found that motivations such as need for achievement, locus of control
(McClelland, 1961), self-efficacy (Bandura, 1997), and independence (Hornaday and
Aboud, 1977) are important drivers of the behaviour of entrepreneurs (cf. Gartner, 1989
and Shane et al. 2003 for a review).
Third and finally, given their emphasis on the individual level of analysis,
economists often neglect the role of specific contextual factors on entrepreneurship. In
effect, entrepreneurship involves interaction between the environment and individuals
(Venkataraman, 1997; Brush et al 2003), which is key not only to understanding the
emergence of entrepreneurship but also to linking entrepreneurship to societal outcomes.
In other words, contexts are not only means for entrepreneurship but also ends, in terms of
the entrepreneurship role in society.
Although economists do not focus on the characteristics of the entrepreneurs per se
but on their function, both Knight and the Austrian school’s characterisation of the
entrepreneur gave rise to further studies on traits. This line of inquiry, termed the trait
approach to entrepreneurship (Thornton, 1999) was developed by psychologists
(McClelland, 1961). Its central argument is that special types of individuals create
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entrepreneurship. The assumption is that entrepreneurs have particular personality traits
and, therefore, the bulk of trait research have focussed on enumerating the characteristics
of the phenomenon known as the entrepreneur (Gartner, 1989).
Despite their contribution to the entrepreneurship literature, the problem with the
trait approach is that different studies have identified different entrepreneurs’ traits and
therefore it is not possible to have a picture of who is an entrepreneur (cf. Gartner, 1989
for a review). In other words, viewing entrepreneurship as a state of being leads to the
complex task of trying to pin down their inner qualities and intentions, which makes it
difficult to both define and understand the entrepreneurship phenomenon (Gartner,
1989:48).
Entrepreneurship as the Process of Innovation
Among the functions performed by entrepreneurs summarised in the previous
section, innovation plays a major role and constitutes a core phenomenon of economic
approaches to entrepreneurship. According to this conception, entrepreneurship involves
the creation or discovery and exploitation of opportunities that results from the interaction
between entrepreneurs and the specific context in which they operate (Figure 1, circles
Entrepreneur, Context, Opportunity Exploration, Recognition, and Exploitation). The
exploitation of opportunities by entrepreneurs results in innovation i.e. the introduction
of new goods and services, ways of organising, markets, processes, and raw materials
(Schumpeter, 1934; Shane, 2003)-, whether in an existing business (Schumpeter, 1942) or
a new venture (Schumpeter, 1934:66) (Figure 1, doted line around Innovation).
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One of the early exponents of the conceptualization of entrepreneurship as the
process of innovation was Schumpeter (1934). Schumpeter (1934) focused on the
entrepreneur and stressed entrepreneurship as a function, defining it as the “carrying out of
new combinations” (Schumpeter, 1934:74). In effect, he calls “entrepreneurs not only
those ‘independent’ businessmen (…) who are usually so designated, but all who actually
fulfil the function by which we define the concept, even if they are (…) ‘dependent’
employees of a company (…)” (Schumpeter, 1934:74-75). His focus on entrepreneurship
as a function is a consequence of conceiving entrepreneurship not only as an individual’s
rent-seeking activity but also as an important factor contributing to economic
development.
Schumpeter’s focus on innovation does not mean that organisation creation and the
importance of entrepreneurs are not important. In effect, Schumpeter argues that the
carrying out of new combinations often results in the creation of new businesses
(Schumpeter, 1934:1966). In addition, the entrepreneur is at the root of carrying out new
combinations. In effect, even in a world of giant firms the entrepreneur still has the
primary role in innovation (Schumpeter, 1942 chapters 7 and 12; cf. also Schumpeter,
1939:97, cited in Fagelberg, 2003). His pessimistic view about big firms taking over the
innovation function of the entrepreneur (Schumpeter, 1942) confirms rather than
contradicts the previous tenet, because he explicitly states that the giant industrial unit
tends to automatize technological progress. Schumpeter’s conceptualisation of
entrepreneurship has been adopted by Shane and Venkataraman (2000) and Shane
(2003:10) who define entrepreneurship as “an activity that involves the discovery,
evaluation and exploitation of opportunities to introduce new goods and services, ways of
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organizing, markets, processes, and raw materials through organizing efforts that
previously had not existed” (Shane, 2003:4).
As Figure 1 shows, entrepreneurship as innovation cuts across the firm, industry,
regional, and national levels. The most relevant economic approaches to innovation are the
new endogenous growth theory (Romer, 1986, 1990), which focuses on the national and
regional levels, and evolutionary economics (Nelson and Winter, 1982), which focuses on
the firm and industry levels (Hodgson, 1999; Nelson, 2001).
Based on Schumpeter’s argument that innovation fosters economic development,
endogenous growth theory includes technological change or innovation as an endogenous
variable to explain economic growth. Endogenous growth theory makes technological
change endogenous allowing imperfect competition and therefore the existence of profit
incentive to invest in technology. In effect, in a perfect competitive market, once a firm
pays for its inputs, there is no output left to improve technology (Sala-i-Martin, 2002).
There should be a profit incentive to invest in technology, and this only exists when the
investment is partially excludable i.e. a premium can be charged due to the innovation
resulting from the investment, which can be protected by intellectual property rights such
as patents. In this scenario the firm will invest to improve technology and therefore
technological change is determined within the model. Two main sources of technological
change are investments in R&D (Romer, 1990) and in human capital (Lucas, 1988).
Endogenous growth theory improves the traditional growth model, but shares with it
the basic neo-classical economic assumptions: optimisation behaviour and equilibrium.
These assumptions are the building blocks that give strength to neoclassical modelling of
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growth, but they are at the same time its stumbling blocks. First, the assumptions of
optimisation behaviour and equilibrium outcomes make the theory essentially static,
contradicting the very idea of innovation, which implies process. Evidence of the static
nature of neoclassical theory is its almost exclusive focus on cross-sectional analysis
(Sala-i-Martin, 2002:3; Florax et al. 2002) and the lack of consideration of time (North,
1994). When changes occur, a process of automatic adjustment through competition
among consumers or producers is assumed to restore equilibrium, eliminating any
excesses in demand and supply, respectively (Baumol and Blinder, 1998:74). The same
optimisation-equilibrium reasoning underlies the models that try to formalise
Schumpeterian competition within an optimisation-equilibrium framework, in which
innovations arrive in a random sequence introduced by representative firms endowed with
perfect rationality and information (Aghion and Howitt, 1992; cf Fagerberg, (2003:153)
and Caree and Thurik (2003:454) for a review). Allowing imperfect competition and
increasing returns due to knowledge spillovers does not change the basic optimisation-
equilibrium framework, because firms are driven by profit maximisation to capture
potential monopoly rents, and equilibrium is reached once competitors enter the market
and make the innovation obsolete till a new wave of R&D starts.
The strict adherence to optimisation and equilibrium outcomes disregards essential
features of change such as uncertainty and the consequent lack of complete information,
which is the basis of the Austrian school critique of neoclassical economics. Advocating
dynamic selection processes (cf. Friedman, 1953) does not make the model dynamic,
because natural selection automatically restores equilibrium via the survival of the fittest
firms, which will produce the more efficient outcomes. In other words, “such models do
not explicate the competitive struggle itself, but only the structure of relations among the
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efficient survivors” (Nelson and Winter, 1982:32). Uncertain change is contrary to the
restricted framework of steady state equilibrium analysis proposed by new endogenous
growth theory. In effect, “the economy is always a scaled-up version of what it was years
ago, and no matter how far it has developed already the prospects for future developments
are always a scaled-up version of what they were years ago” (Aghion and Howitt,
1998:65). Time intervals are not real-time periods but an index indicating the period at
which each new innovation arises.
Therefore, neo-classical economics is entirely an analysis of timeless and
comparative statics, making it strong on equilibrium outcomes but weak on the process
whereby equilibrium is attained (Blaug, 1992). This has led North to assert that “(a) theory
of economic dynamics is crucial for the field of economic development. There is no
mystery why the field of development has failed to develop during the five decades since
the end of the Second World War” (1994:1).
A second major economic approach to innovation is evolutionary economics
(Nelson and Winter, 1982). This theoretical approach follows an evolutionary path
identifying entrepreneurship with innovation rather than with creation of new firms. Many
authors (Nelson and Winter, 1982; cf. Hodgson 1993 for a review) trace back evolutionary
economics to the work of Schumpeter, who emphasised the idea of economic development
as qualitative changes or innovations introduced either by entrepreneurs (Schumpeter,
1934) or large organisations (Schumpeter, 1942). This latter idea is one of the starting
points of the evolutionary approaches to economics that elaborate and formalise “the
Schumpeterian view of capitalism as an engine of progressive change” (Nelson and
Winter, 1982:39; Nelson, 2001); elaborate, because Schumpeter does not discuss how
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innovation occurs within large firms but focuses on the economic and political
implications of giant firms taking over innovation; and formalise because Schumpeter’s
method was non-mathematical.
Nelson and Winter (1982) criticise the optimisation-equilibrium mechanical
foundations of neoclassical economics and replace it with a natural selection-evolutionary
biology framework. Their main thrust is to formalise Schumpeterian competition
including its essential aspects “the diversity of firm characteristics and experience and
the cumulative interaction of that diversity within industry structure” (1982:30). To this
end, they focus on organisational routines i.e. the analogue to genes in biology
(1982:134)- and how their evolution explains technical advances at the firm and industry
level (Nelson and Winter, 1982:27; 52; Nelson, 2001). In this regard they parallel
Schumpeter (1934) by analogy, starting with organisational memory as the analogue of the
circular flow (or equilibrium conditions) and then turning to the role of routines in
innovation as the analogue of economic development (1982:98). Technical advance is
described as changes in routine initiated by a search process (1982:18) triggered by
anomalies in existing routines (1982:129) or, more generally, by a profit rate below the
satisfying criterion (1982:211). Endogenous change is therefore equated to a search
process that could result either in imitation (1982:123) or innovation (1982:128). Again
taking Schumpeter’s definition of economic development as an analogue, they define
innovations in organisational routine as new combinations of existing routines (1982:130).
The source of innovation is heterogeneity within the population of firms belonging to the
same sector, which resembles Schumpeter’s argument that innovation is due to individual
heterogeneity. Finally, markets complete the process of technical change by defining
success in terms of survival and growth differentials (1982:9, 401), applying the idea of
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struggle for existence to market competition. Therefore, without attempting a perfect
analogy with biological evolution, Nelson and Winter’s model of economic change is
framed in terms of a process of variation (search generating stochastic mutation)
heredity/retention (routines or genes) and selection (market environments’ definition of
success driving Schumpeterian competition or struggle for existence) (cf. Hodgson,
1999:164; Nelson and Winter, 1982:400). Economic change is the result of routine
changes at the firm level through search processes and routine selection at the industry
level, through selection processes based on differential firm growth (Winter, 1984:291;
Nelson and Winter, 1982:401).
Although many researchers characterise evolutionary economics as Neo-
Schumpeterian (Nelson and Winter, 1982:39, cf. Fagelberg, 2003), this is highly contested
in view of Schumpeter’s explicit rejection of evolutionary thought even as analogy in both
his earlier (Schumpeter, 1934:57) and later (Schumpeter, 1954:789, cited in Hodgson,
1993:146) writings. This is not just a question of words; the core of Schumpeter’s message
i.e. economic development as disruptive change through creative destruction- is more
related to Marxian dialectical change than to Darwinian or Lamarckian gradual change (cf.
Hodgson, 1993:146).
In addition, there are core differences in terms of the sources of innovation and the
role of human agency. In effect, as for the sources of innovation, Nelson and Winter´s
formalisation is entrepreneurless. They formalise Schumpeterian competition including
technical change as an endogenous variable. Technical change is represented by the search
process, which is made endogenous by deducting the cost of imitation of other firm’s
technology and the cost of innovation i.e. R&D expenditures- from firm revenues in
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order to compute firm profitability (1982:302-3). However, the drivers of innovation are
not the entrepreneur’s dreams and joy for creation but the firm’s detection of performance
below their profit satisfying level. Even more, their original models are entrepreneurless
because entry is not even considered (cf. Winter, 1984:288). As for the role of human
agency, contrary to Schumpeter, there is no role for individual agency in evolutionary
economics. Evolutionary economics has pushed forward the late Schumpeterian idea that
innovation occurs within big firms (1942), but it translates at the organisational level ideas
that Schumpeter formulated at the individual level such as that of innovation and
individual heterogeneity. However, this raises important questions in terms of translating
individual level attributes to the organisational level (cf. Fagerberg, 2003). For example,
one case in point is whether cognition, dreams and joy for creation are possible at a firm
level. In addition, when entry is considered in evolutionary models (Winter, 1984), it is
assumed that there is a queue of homogeneous potential entrants driven by profit motives
waiting till the expected profits derived from entry cover its average costs.
The previous analysis shows the difficulties of formalising Schumpeter´s
conceptualisation of entrepreneurship as innovation. The reasons lie not only in the
limitations of the economic apparatus for modelling real complex phenomena, but also on
the conceptualisation and operationalisation of the concept of innovation (Bamberger,
1991), which adds to the current complexity of the entrepreneurship field. As for
conceptualisation problems, innovation includes entrepreneurial-driven innovation such as
the creation of the steam machine and the automobile (Schumpeter, 1934), as well as
management-driven innovation such as incremental change of routines in existent big
firms that results from small investments in R&D (Nelson and Winter, 1982). As for
measurement problems, the most used measures of innovation are R&D and patents,
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which not only measure different things i.e. inputs in the former case and intermediate
outputs in the latter - but also bias the analysis of entrepreneurship in favour of large firms
and institutions. This can only be corrected by having a direct measure of innovation, such
as commercially-introduced innovations (Acs and Audrestch, 1990; 2003)
vi
.
As a consequence, the innovation approach for conceptualising and measuring
entrepreneurship does not consider that a key feature of entrepreneurship is the successful
exploitation of R&D and patents by enterprising individuals (Malecki, 1997:272). The
most relevant economic approaches to innovation i.e. the new endogenous growth theory
and evolutionary economics- are entrepreneurless either because the entrepreneur is
equated to a homogenous representative firm (endogenous growth theory) or because
human volition and intention are ruled out (evolutionary economics). Given data
availability on R&D and patents (Acs and Audretsch, 2003:56), the innovation
conceptualisation of entrepreneurship takes the middle part of the entrepreneurial process
without considering the key elements of Schumpeter’s original conceptualisation:
entrepreneurs at the origin and creation of new businesses at the end of the process
(1934:66). More specifically, and contrary to Shane and Venkataraman’s (2000)
conceptualisation, both endogenous growth theory and evolutionary economics replace the
entrepreneurial process of discovery, evaluation, and exploitation of opportunities for the
management-driven process of R&D investment and patent registration. This approach is
similar to Veblen´s view that the financial entrepreneur is more focused on the use of the
financial system rather than on the technical process of innovation (cf. Griffin and
Karayiannis, 2002:64-65).
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As a consequence of the previous limitations, some authors have developed a second
stream of evolutionary economics which tries to connect the work of Nelson and Winter
with the American Institutionalism of Veblen and Commons (Hodgson, 1999:169-170;
1993:150; Rocha, 2004b:66; for the application of Veblen´s holistic approach to the
evolution of entrepreneurship from the industrial to the financial type and its economics
effects, cf. Griffin and Karayiannis, 2002). This view proposes an evolutionary economics
with less formal modelling, more focus on both technical and institutional change, and the
development of economic, industrial, and environmental policies based on a broader set of
disciplines such as economic philosophy and history of economic thought (Hodgson,
1999:13, 18, 154).
The basic message is to restore the study of socio-economic systems, their features
and evolution as proposed originally by the classical and institutional schools and then by
Schumpeter. This has important implications for economic theory, because the focus is
widened from the firm and industry level of analysis to a national one, as for example in
the case of the literature on national systems of innovation (Nelson, 1993). Therefore,
specific contexts are explicitly considered in the analysis of innovation introducing the
cultural and institutional dimensions. This work initiated by Freeman (1987) and Lundvall
(1992) considers knowledge as tacit, idiosyncratic, and context dependent and therefore
stresses that competencies are developed within an appropriate institutional and cultural
framework. Evolutionary ideas can be therefore applied to the development of
competencies within specific socio-economic systems (cf. Hodgson, 1999:271). The units
of selections are not just routines, which explain technological change, but institutions,
which explain institutional evolution.
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Entrepreneurship as the Creation of Businesses or Organisations
vii
The conception of entrepreneurship as organisation creation is part of the contextual
or behavioural approach to entrepreneurship, which emerged as a reaction against the trait
approach (cf. Gartner, 1989). The behavioural approach defines entrepreneurship as the
creation of organisations (cf. Figure 1, blue box “Business Creation”) and focuses on what
the entrepreneur does rather than on who is the entrepreneur. It takes the organisation as
the basic unit of analysis and treats the individual as the responsible for carrying out the
necessary activities to enable the organisation to come into existence (Gartner, 1989).
Although people, rather than contexts, start businesses, entrepreneurs do not exploit
opportunities in a vacuum or in isolation. In effect, new organisations often emerge
embedded in specific environmental, industrial and regional contexts (Malecki, 1997) and
therefore even two people with the same traits can make different decisions about starting
an organisation if they operate in different industries or regions. The influence of different
contexts on entrepreneurship, often measured either as start-ups or market entry (Storey,
1994:60), is the object of the demand side perspective of entrepreneurship (Thornton,
1999), which explains the differential rate of start-ups between countries (Reynolds et al
2002), regions (Reynolds et al 1994; Acs and Storey, 2004), and industry clusters within
regions (Saxenian, 1994; Rocha, 2004a). Entrepreneurs usually start their businesses
where they were born, have worked (Boswell, 1973; Reynolds and White, 1997) or where
they already reside (Cooper and Dunkelberg, 1987; Haug, 1995; Reynolds and White,
1997), which make entrepreneurship a context-specific phenomenon.
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The creation of organisations has long been an important topic for entrepreneurship
researchers, and such creation occurs at multiple levels of analysis (Brush et al 2003). In
addition, the contextual perspective is concerned with how contextual factors at different
levels affect rates of startup, and acknowledges that entrepreneurship involves interaction
between the environment and individuals (Venkataraman, 1997; Brush et al 2003). The
interaction between the individual and the environment or the micro-macro link is key, not
only to understanding the emergence of entrepreneurship but also to linking
entrepreneurship to societal outcomes. In other words, contexts are not only means for
entrepreneurship but also ends, in terms of the role of entrepreneurship in society.
Schumpeter was the first to link entrepreneurship to economic development, which is not
only one of the proposed purposes of entrepreneurship research (Low and MacMillan,
1988; Low, 2001) but also the criterion for analysing whether entrepreneurship is
productive, unproductive, or destructive (Baumol, 1990).
The contextual approach to entrepreneurship illuminates the behavioural and
contextual side of entrepreneurship, but it assumes that most entrepreneurial activity
occurs through de novo start-ups (Shane and Venkataraman, 2000). Empirical research
shows that most independent start-ups are replications of existing businesses and that an
important percentage of start-ups emerge out of necessity rather than out of the pursuit of
opportunities (Reynolds et al. 2004; Rocha, 2006). This is the result of not including in the
identification of the entrepreneurship phenomenon the variation in the quality of
opportunities that different people identify (cf. Shane and Venkataramen, 2000). In
addition, the focus of the contextual approach on creation of organisations does not shed
light on the reality of entrepreneurship within existing organisations. This latter aspect of
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the entrepreneurship phenomenon is analysed in depth by the corporate entrepreneurship
conception of entrepreneurship.
Entrepreneurship as the Act of Entry
Entry is the basic phenomenon and unit of analysis of the industrial economics and,
to certain extent, the population ecology approaches to entrepreneurship. Entry has been
labelled as the essential act of entrepreneurship, defined more specifically as “the act of
launching a new venture, either by a start-up firm, through an existing firm, or via internal
corporate venturing” (Lumpkin and Dess, 1996:136).
However, industrial economists (Orr, 1974; Geroski, 1995) take a more data-driven
definition of entry. In effect, they define entry as “a firm which manufactures a product in
a given four-digit industry in a year, but did not manufacture it in the preceding year
(Storey, 1994:60). This means that entry includes not only a newly constituted firm but
also the building of new plants, the buying of existing plants, and the change in the
product mix in an existing plant by existing firms (Storey, 1994). This is the reason why
Figure 1 includes within the concept of entry both Business Creation and Corporate
Venturing (Figure 1, doted line around Entry).
In addition, as in the case of evolutionary economics, industrial economics is
interested in entry into an industry with independence of the specific context in which the
new entrant is located. The assumption is that there is a “queue of entrants outside
industry, just waiting for price to persistently exceed long-run average costs” (Storey,
1994:62).
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Given the implicit conception of entrepreneurship as entry, the determinants of
entrepreneurship according to industrial economics are basically industrial factors such as
the profits of the industry, entry barriers, industry growth, and industry concentration (Orr,
1974). This model have been extended and popularised in the strategic management
literature by Porter (1980).
In the case of population ecology, the unit of analysis could be either foundings or
entry, according to the type of population under study and availability of data to
distinguish between subsidiary new firms or independent start-ups (cf. Hannan and
Freeman, 1989:225; 243). Foundings and entry cannot be regarded as similar units given
that specific causal mechanisms explain each event. For example, according to industrial
organisation economics an existing business is expected to move from one industry to a
different one based on expected profits in both industries and entry barriers. On the
contrary, and following a labour market approach to industrial entry, an independent new
firm also includes labour market considerations such as knowledge of the industry,
existing contacts in the region, job status (employed or unemployed), and opportunity
costs of being unemployed vs. self-employed (cf. Storey and Jones, 1987; Storey, 1994).
Population ecology faces the same limitation as evolutionary economics in terms of
its lack of consideration of human volition and purpose in the entrepreneurial process. In
effect, population ecology is not suitable to explain entrepreneurship because it averages
across the behaviours of many entrepreneurs and therefore it is not possible to explain how
the entrepreneurial process unfolds, and whether innovations emerge as a result of random
variations or purposeful entrepreneurial activities (Van de Ven, 1993:214). They assume a
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“strong continuity-of-nature hypothesis” (Hannan and Freeman, 1977:961), which rule out
the role of human volition in changing founding and or entry rates. In effect, they argue
that although “some researchers of earlier drafts have (…) treated our arguments as
metaphoric [this] is not what we intend. (…) We propose that, whenever the stated
conditions hold, the models lead to valuable insights regardless of whether the populations
under study are composed of protozoans or organizations. We do not argue
“metaphorically” (Hannan and Freeman, 1977:960-1).
Both, the sociological-contextual (start-ups) and economic (entry) approaches to
entrepreneurship are catalogued as demand side approaches (Thornton, 1999) and have
been criticised for not considering the role of human agency in starting new businesses
(Thornton, 1999; Shane, 2003). Evidently, two people belonging to the same region or
industry will differ in their propensity to start a business. The contextual approach seems
deterministic as in the case of population ecology (Bygrave, 1993:259; Van de Ven,
1993:214), but this critique cannot be generalised to all contextual approaches (cf. for
example Shane, 2003:3). Many sociological approaches attempt some link between the
macro-system and the micro-actor (Martinelli, 1994:487). In particular, the contextual
perspective considers entrepreneurship as a multilevel phenomenon that involves
interaction between the environment and individuals (Venkataraman, 1997; Davidsson and
Wiklund, 2001; Brush et al 2003) and examines the cultural, economic or market factors
converging to create an environment that enhances or inhibits entrepreneurship (Busenitz
et al. 2003).
Entrepreneurship as Corporate Venturing
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Entrepreneurship is increasingly seen as a desirable attribute of large firms. There
is a significant academic literature concerned with both the process and outcomes of
entrepreneurship within large firms, typically under the label “corporate entrepreneurship”
or “corporate venturing” (e.g. Burgelman, 1983; Drucker, 1985; Stevenson and Jarillo,
1989). The broad theme of this work is concerned with how new businesses emerge inside
large firms through the proactive efforts of employees. However there are many different
approaches taken to developing this theme, and it is useful to separate the literature out on
a couple of dimensions. One is the unit of analysis some studies focus on the individual
entrepreneur and his or her behaviour; others focus on the firm as a whole and its capacity
for developing new lines of business. The other relevant dimension is the approach taken
by the firm to encourage entrepreneurship some literature focuses on structure, some is
more concerned with organisation context.
Individual-level research on corporate venturing views the employee as
comparable to the lone entrepreneur. Stevenson and Jarillo (1989) defined
entrepreneurship as “a process by which individuals either on their own or inside the
organization pursue opportunities without regard to the resources they currently
control”. This definition is now widely accepted in the literature, though it is also
generally understood that corporate entrepreneurs generally take less risk and expect lower
rewards than their independent counterparts.
Within the body of literature on individual-level corporate venturing, there are two
lines of thinking. One focuses purely on the individual and his/her propensity to act in an
entrepreneurial way. It assumes that large firms put in place systems and structures that
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inhibit initiative, so individuals have to be prepared to actively challenge those systems. It
examines the often-subversive tactics that corporate entrepreneurs adopt, and the things
executives can do to make their lives easier or harder. It also builds on the entrepreneurial
trait literature discussed earlier to consider the personalities and style of individuals who
make good corporate entrepreneurs (Birkinshaw, 1997; Kanter, 1982; 1983; Pinchott,
1985).
The other line of thinking is concerned with the interplay between the corporate
entrepreneur and the organization context within which he or she acts. It assumes that
corporate entrepreneurship is a good thing, and that one of the priorities of senior
executives is to create a context in which entrepreneurship can thrive. Perhaps the most
influential work in this genre is Ghoshal and Bartlett’s (1997) definition of the elements of
behavioural context, viz stretch, discipline, support and trust. Other studies include
Gibson and Birkinshaw (2004), Kanter (1989), and Tushman and O’Reilly (1996).
The other major approach to corporate venturing is to take a firm-level perspective
and to identify the approaches firms use to build new lines of business alongside their
existing ones. The most widely-known argument here is that new business ventures need
to be managed separately from the mainstream business, or they will not survive long
enough to deliver benefits to the sponsoring firm. The literature here examines the
organizational arrangements that new ventures need and the processes of aligning them
with the company’s existing activities. This line of thinking includes work by Galbraith
(1982), Burgelman (1983), and Drucker (1985). In recent years, it has gained prominence
through studies of the different forms of corporate venturing units (Campbell and
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Birkinshaw, 2003; Chesbrough, 2001) and through Christensen’s (1997) insights into how
companies should manage disruptive technologies.
There is also a complementary line of thought which focuses less on the creation of
a separate unit, and more on the systems and processes that large firms can put in place to
encourage entrepreneurial behavior. This literature often uses an evolutionary or “internal
market” framing to suggest how large firms should manage their resource allocation and
people management systems in a less top-down manner. Academic studies have been
conducted by Burgelman (1991) and Lovas and Ghoshal (2000), and these ideas have also
been pursued in books by Hamel (2000) and Foster and Kaplan (2001).
The corporate venturing literature has been challenged from a number of
directions. There is considerable debate in the practitioner-focused literature as to whether
large firms can ever build the systems to support new venture growth from within (e.g.
Campbell and Park, 2005; Markides, 2005), because such systems are fundamentally in
conflict with those needed to run established businesses. The academic literature has also
challenged the concept of the “internal market” as a means of managing resource
allocation in a more bottom-up manner. Foss (2003), in particular, conducted a detailed
case study of one company, and showed that “frequent managerial meddling with
delegated rights led to a severe loss of motivation, and arguably caused the change to a
more structured organisation”. Others, including Ghoshal and Moran (1995) and Kogut
and Zander (1992) have argued more broadly that markets and hierarchies are qualitatively
different modes of organising that cannot easily be blended together.
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Entrepreneurship as the Process of Creative Destruction or Churning Rate
The concept of creative destruction as a source of economic development
(Schumpeter, 1934) has promoted a number of studies on turbulence or churning (i.e.
entry minus exit) in market economies as the basic unit of analysis (cf. Reynolds, 1999;
Bosna and Nieuwenhuijsen, 2000). Figure 1 shows that the churning rate results from
combining entry and business closure within an industry (Figure 1, doted line around
Churning rate).
In effect, Schumpeter (1934) characterises the economy as a process of disruptive
change and qualitative transformation. The entrepreneur, moved by his or her dreams,
impulse to fight, and joy of creating (Schumpeter, 1934:93) rather than optimising
behaviour, is the agent of change that produces disequilibrium through a process of
creative destruction i.e. new combinations or innovations disruptively replacing old ones
(Schumpeter, 1934:66). As a consequence, less innovative and efficient firms will exit the
market which, in turn, creates the industrial space for new entries. Therefore, turbulence
implies a qualitative and disruptive change characteristic of economic development and
essentially different from that of economic growth, which entails a quantitative
incremental adaptation to external changes in population and wealth (Schumpeter,
1934:63-66, 216).
Turbulence as a conceptualisation of entrepreneurship cuts across different levels
of analysis, but most empirical studies have focused on the regional level for
methodological reasons. Therefore, this conceptualisation sheds light on the macro level
effects of entrepreneurship and, as a consequence, says little about the entrepreneur and
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the interaction between the entrepreneur and the environment as dimensions of interest for
understanding entrepreneurship.
Entrepreneurship as the Small and Medium Sized Enterprise (SME)
Finally, the focus on the entrepreneur and the important role of small businesses in
creating jobs (Birch, 1981) has led to the identification of the entrepreneur with the owner-
manager of a small business and therefore the measuring of entrepreneurship in terms of
size of established firms (Figure 1, blue box SME). This definition is in line with classical
economists who amalgamated the functions of the capitalist and the entrepreneur (Blaug,
1997:441). Owner-managers are the people in charge of the economic core (Kirchhoff,
1994) and responsible for the relevance of the small business sector in the economy
(Storey, 1994).
However, as noted in the previous sections, entrepreneurship scholars have focused
more on traits, behaviours, or events that are related to newness rather than size in an
attempt both to carve out a distinctive domain (Venkataraman, 1997; Low, 2001) and
explain one of the most important factors for economic growth not contemplated by the
entrepreneurless models of neoclassical economics (Baumol, 1968). This
phenomenological and theoretical shift, together with both secondary (Reynolds et al.
1994) and primary (Reynolds, 2000) data availability, led to an emphasis on the earlier
stages of entrepreneurship i.e. the gestation and creation of new organisations- relative to
the later stage of established SMEs or even high-growth SMEs i.e. gazelles (Birch et al.
1999).
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Therefore, the conception of entrepreneurship as SME or as owner-manager not
only faces the problems underlying the definition of entrepreneurship as organisation
creation but also the burden of mixing three distinctive functions such as setting up,
owning, and managing a newly formed or small business. The distinction between the
entrepreneurship and the capitalist function has been stressed by Kirzner and Schumpeter,
while the distinction between the entrepreneurship and the management function has been
highlighted by Stevenson and Jarillo (1989). However, given that the real-world
entrepreneur is “a single composite personality who is also a manager, leader, capitalist,
coordinator, and organizer” (Harper, 2004:8), the SME approach to entrepreneurship
sheds light on the interaction between these intertwined functions, which are critical for
the outcome of the venture.
CONCLUSIONS AND DIRECTIONS FOR FUTURE RESEARCH
The entrepreneurship field is still in search of its own identity. At the same time,
entrepreneurship is not only capturing the time and passion of an increasing number of
scholars but also the public resources that national and international entities devote to
fostering entrepreneurship as an engine for economic development and growth. As a
consequence of this fast-growing interest in entrepreneurship, academics are in search of
conceptual and theoretical clarity while policymakers require guidelines for designing and
evaluating their entrepreneurship policies.
The definition of the phenomenon under study and object of policymaking is a first
step for defining the boundaries of a field of study and building theories to explain that
phenomenon (cf. Whetten, 1989; Busenitz et al. 2003). An important part of this search for
H. Rocha & J. Birkinshaw – Forthcoming - Foundations and Trends in Entrepreneurship
37
meaning is making explicit the assumptions underlying the conceptualisation of the
phenomenon (cf. Gartner, 2001; Alvarez, 2005).
Following this line of reasoning, we argue that one of the obstacles for
understanding the entrepreneurship phenomenon is the lack of integration of different
assumptions, units and levels of analysis that are implicit in different conceptualisations of
entrepreneurship that underlie current theoretical perspectives, empirical work, and public
policies. In other words, making explicit and integrating the disparate phenomena
underlying the conceptualisations of entrepreneurship provided by different scholars is a
necessary condition for enhancing our collective understanding about it.
Based on this research need and complementing previous work ((cf. Wennekers and
Thurik, 1999; Davidsson and Wiklund, 2001; Gartner, 2001; Busenitz et al. 2003;
Alvarez, 2005), we adopt a phenomenon-driven approach at the ontological level for
building a framework that makes explicit the different phenomena or units of analysis,
their associated levels of analysis, stage, and disciplines that are implicit in different
conceptualisations of entrepreneurship (Figure 1).
Our contribution is threefold. First, assuming that the different perspectives i.e.
descriptive or explanatory coherent frameworks- on entrepreneurship are not
incommensurable (Kuhn, 1962) but complementary, we contribute a complementary
articulation (Smelser and Swedberg, 1994) or a scholarship of integration (Boyer, 1990)
approach to capture and understand the phenomena underlying the different
conceptualisations of entrepreneurship. We provide a bi-dimensional framework based on
the implicit level of analysis and stage of the entrepreneurial process that integrates the
H. Rocha & J. Birkinshaw – Forthcoming - Foundations and Trends in Entrepreneurship
38
different entrepreneurship-related phenomena in order to capture their underlying
connections.
Secondly, this integration is not limited to a richer description of units of analysis
and assumptions presented by different entrepreneurship perspectives. We trace back each
phenomenon to its most related discipline and theoretical paradigm in order to build the
link between its ontological and epistemological dimensions. This is a necessary step in
any research field (cf. Busenitz et al. 2003), because each perspective contributes its own
vocabulary and set of assumptions, stresses different dimensions of the same phenomena
(for example, creation of organisations and corporate venture as different modes of
organising the entrepreneurial activity) or emphasises different entrepreneurship-related
phenomena (for example, entrepreneurship as the entrepreneur and entrepreneurship as the
SME). This conceptual and phenomenological variety contributes a richer vision of
entrepreneurship, but creates lack of understanding because different units of analysis and
assumptions are handled as if they were the same. Figure 1 links the seven different
conceptions of entrepreneurship and maps them in relation to their associated disciplines
and theories, which helps to make explicit and understand their assumptions in terms of
units and levels of analysis and stage in the entrepreneurial process.
Third and finally, the mapping out of different entrepreneurship-related phenomena
or different aspects of the same phenomenon and their associated perspectives pave the
way for establishing a clearer connection between entrepreneurship domain, theory,
method, and policymaking. In effect, the seven units and eight perspectives in Figure 1
provides a road map for establishing the theoretical boundaries to delineate the
entrepreneurship domain, building theories and formulating hypotheses consistent with the
H. Rocha & J. Birkinshaw – Forthcoming - Foundations and Trends in Entrepreneurship
39
phenomenon under study (i.e. theoretical validity), identifying the most appropriate
measures for each phenomenon (i.e. construct validity), and designing and implementing
more coherent entrepreneurship policies.
This latter contribution opens up new horizons for future studies on entrepreneurship
at the ontological, theoretical, and methodological levels. At the entrepreneurship domain
or ontological level, future work could deepen the analysis of what phenomena and
dimensions constitute the core of the entrepreneurship field and what phenomena and
dimensions are contingent or not essential.
This work at the ontological level will have a necessary impact at the
epistemological level. In effect, the nature of the phenomenon would drive the more
appropriate theoretical lenses and levels of analysis to approach it. For example, if
alertness to profit opportunities is the essence of entrepreneurship, economics and
psychology would be the most important lenses for studying the entrepreneurship
phenomenon, and the individual the most prominent level of analysis. Future work could
deepen the analysis of different combinations of phenomenon-perspective-level of
analysis and their interrelationship in order to increase our collective understanding of
their overlapping patterns. A benchmark could be the work that Baum and Rowley (2002)
have done in the organisation studies field. Based on a phenomenon-driven or scientific
realist epistemological approach, they focus on capturing the domain of each organisation
perspective and the overlapping among domains. This approach creates a fish-scale pattern
in which, although “each perspective does not overlap directly with every other one,
adjacent perspectives share problem domains, and frequently complements each other”
(Baum and Rowley, 2002:21).
H. Rocha & J. Birkinshaw – Forthcoming - Foundations and Trends in Entrepreneurship
40
In addition, given the multilevel nature of the entrepreneurship phenomenon and the
emphasis of policymakers on fostering entrepreneurship as an engine for economic
development and growth, more work is needed on the micro-meso-macro links and on the
impact of entrepreneurship at different levels. For example, if institutions shape the
entreprenuer´s cognitive and motivational properties (cf. Baumol, 1968; Harper, 2004), the
link between the institutional context and individual behaviour constitutes an interesting
multilevel area of research.
The interaction between the individual and the environment or the micro-macro link
is key, not only to understanding the emergence of entrepreneurship but also to linking
entrepreneurship to societal outcomes. In effect, this latter topic is not only one of the
proposed purposes of entrepreneurship research (Low and MacMillan, 1988; Low, 2001)
but also the criterion to analyse whether entrepreneurship is productive, unproductive, or
destructive (Baumol, 1990). New firms’ productivity (Shane, 2003:5) does not mean that
entrepreneurship is beneficial at the societal level, unless it is assumed that firm level
outcomes automatically translate to societal outcomes through an automatic coordination
of self-interested individuals in a world without externalities. This assumption is neither
real nor useful for prediction (Rocha and Ghoshal, 2006) and therefore it is necessary to
develop a better understanding of how entrepreneurial outcomes are distributed and what
kind of institutions are necessary to mediate the process. In effect, “entrepreneurial talent
is not automatically dedicated to socially desirable ends it requires institutions to
accomplish this” (McGrath, 2003:527; cf Stinchcombe, 1997).
H. Rocha & J. Birkinshaw – Forthcoming - Foundations and Trends in Entrepreneurship
41
At the methodological level, future work could focus on the link between the
phenomenon under study, its specific measures, and the associated results. For example,
some studies adopting a contextual or demand-side perspective of entrepreneurship have
found opposite results in terms of the level of entrepreneurship due to different ways of
defining and measuring entrepreneurship. For instance, population ecology predicts an
inverted U relationship between density and foundings (Hannan and Freeman, 1989;
Shane, 2003), while the incubator regions literature and the regional literature in general
show a positive association between increasing density, as measured by specialisation
indices or proportion of SMEs, and firm births (Reynolds, Storey, and Westhead, 1994;
Audretsch and Fritsch, 1994; Thornton, 1999). These disparate results are a consequence
of differences in conceptual definitions and units of analysis, which in population ecology
studies are foundings and industry or industry-region while in regional studies are
generally new firms and regions, respectively
viii
.
As a final word, we hope that making explicit what scholars are studying and testing
and what policy makers are designing will contribute not only to a better understanding of
entrepreneurship but also to an increasing dialogue between academics, practitioners, and
policy makers to understand and change reality for the better.
H. Rocha & J. Birkinshaw – Forthcoming - Foundations and Trends in Entrepreneurship
42
Table 1
Entrepreneurship Conceptualisation and Theoretical Approaches
Conceptualisation
Disciplines / Theories
Entrepreneur
Economics (Cantillon, 1755; Knight, 1921)
Psychology (McClelland, 1961)
Innovation
Economics (Schumpeter, 1934; 1942); Evolutionary
Economics (Nelson and Winter, 1982)
Organisation or Business
Creation
Sociology (Gartner, 1989; Reynolds and White, 1997)
Population ecology (Hannan and Freeman, 1977; 1989)
Corporate Venture or
Intra-preneurship
Strategy (Burgelman, 1983; Drucker, 1985; Stevenson and
Jarillo, 1989)
Small and Medium Sized
Companies
Economics (Brock and Evans, 1989) – Small Business
Economics
Entry
Industrial economics (Geroski, 1995)
Evolutionary economics (Winter, 1984)
Population ecology (Hannan and Freeman, 1977; 1989)
Churning Rate (Entry
minus closures)
Economics (Schumpeter, 1942)
Population ecology (Hannan and Freeman, 1977; 1989)
H. Rocha & J. Birkinshaw – Forthcoming - Foundations and Trends in Entrepreneurship
43
Figure 1
Entrepreneurship Safari A Road Map: Linking Conceptualizations, Disciplines,
Levels of Analysis and Stage of the Entrepreneurial Process
Entrepreneur
Opportunity
Recognition
Opportunity
Exploration
Opportunity
Exploitation
Individual /
Team
Firm
Industry,
regional,
and
national
Corporate
Venturing
Business
Creation
SME
Innovation
Context
Socio-cultural
Political
Institutional
Economic
Technological
Vocation
Cognition
Motivation
Skills
Resources
Business
closure
High growth
(gazelles)
Entry
Churning rate
Conception / Idea Generation Mode of organising Evolution
Psychology
Economics
Small Bus.
Economics
Strategy
Sociology
Population
Ecology
I.O.
Economics
Evolutionary
Economics
IPO
=
Conceptualisation of Entrepreneurship
L
e
v
e
l
Process
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i
See, for example, OECD (1998; 1999; 2001), the European Commission (2003), UNIDO (Nadvi, 1995; Ceglie
and Dini, 1999), IADB (Kantis et al. 2002), and UNCTAD (2004).
ii
See, for example, Reynolds et al. (2000:6), Sexton and Landstrom (2000), OECD (1999; 2001, 2002), and
Kantis et al. (2002).
iii
Representative bibliography is provided in each section for detailed analysis. For a review of the evolution of
the entrepreneurship field over time refer to Livesay (1982), Gartner (1989), Cooper (2003), Thornton (1999),
Shane and Venkataraman (2000), and Shane (2003). For an economic historian perspective, see Hébert and
Link (1982) and Blaug (1997). For an economic perspective, see Casson (1982) and Parker (2005). For a
sociological perspective, see Martinelli, (1994); Thornton (1999), and Swedberg (2000).
iv
We do not include gazelles and IPOs in our analysis, although the popular press often promotes a view of
entrepreneurship that is associated with high growth and going public. It is estimated that 99.9% of the new
ventures are not backed by venture capitalists and that less than 5% of new ventures experience high growth (cf.
Bygrave, 2004; Autio, 2005).
v
In “The Wealth of Nations“ Smith asserts that “It is not from the benevolence of the butcher, the brewer, or
the baker, that we expect our dinner, but from their regard to their own interest” (Smith, 1999 (1776): 119”,
while in the “Theory of Moral Sentiments” he argues that “How selfish soever man may be supposed, there are
evidently some principles of his nature, which interest him in the fortune of others, and render their happiness
necessary to him, though he derives nothing from it, except the pleasure of seeing it” (Smith, 1976 (1759):9).
We are grateful to an anonymous reviewer for suggesting us adding these references to Adam Smith.
vi
Acs and Audretsch (2003) provide an excellent review and critique of innovation measures. For example,
R&D is a measure of input rather than output, is based on formal R&D budgets, and common goals of R&D
laboratories are imitation and technology transfer rather than innovation. As to patents, many patents are
worthless and never used, and still others have negative value because they prevent new innovations or
competition.
vii
Business are not synonymous of organizations; rather, businesses are only one type of organizations, given
that the latter includes also governmental agencies and not for profit. This distinction is especially relevant in
considering the literature on Social Entrepreneurship, which is out of the scope of the present paper given the
general framework illustrated in Figure 1. However, it is been considered in a second paper in which one of the
main organising variables is the purpose of the new organization, based on a broader conceptualisation of the
purpose of businesses (cf. Rocha and Ghoshal, 2006:596; Rocha, 2006).
viii
Note that these disparate results are not driven by a different research method, which in the case of
population ecology is longitudinal and in that of regional studies is generally cross-sectional. In effect, the issue
is that population ecology predicts decreasing rate of foundings at higher densities, while regional studies
predict the opposite.
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"Overall, the book fills a gaping hole, not only in international entrepreneurship research but also in teaching. This is a perfect text for a graduate course in International Entrepreneurship. For a researcher in this area, the chapters will be a goldmine, providing not only background for research but also provocative research questions. Don Sexton has done it again: bringing together the best minds in entrepreneurship and providing a state of the art look at international entrepreneurship. Excellent job!" Nancy Upton, Baylor University "The book is an interesting collection on international entrepreneurship from a variety of approaches: pure theoretical frameworks, specific applications within selected countries, and cross-country comparisons. The Handbook of Entrepreneurship serves as a course for someone wanting to learn the 'state of the art' of international entrepreneurship." Patricia G Greene, University of Missouri - Kansas City "The Handbook of Entrepreneurship will undoubtedly become one of the most definitive and highly cited works in the field. Sexton and his co-authors have provided the field of entrepreneurship with a reference that identifies and summarizes the contemporary research in the field, anchoring the book with contributions of major scholars. The authors are to be congratulated for stepping out of the North American focus that is typical of most entrepreneurship books indeed, I think many readers will see the more international exploration of this book as one of its key contributions. Overall, [this book} is very well organized, has excellent content, explores interesting issues, and is certain to be found on the bookshelves of most entrepreneurship scholars." Patricia McDougall, Kelley School of Business, Indiana University - Bloomington "This volume is a mix of theoretical and disucssion articles and forms an excellent summary of the research issues int he field to date. As such, it is a volume for the researcher and the academic business library". Business Management.
Book
Since its original publication in 2003, the Handbook of Entrepreneurship Research has served as the definitive resource in the field, bringing together contributions from leading scholars in such disciplines as management, finance, economics, policy, sociology, and psychology to present a holistic, multi-dimensional approach. This new edition, fully revised and updated, and including several new chapters, covers all of the primary topics in entrepreneurship, including entrepreneurial behavior, risk and opportunity recognition, equity financing, business culture and strategy, innovation, and the impact of entrepreneurship on economic growth and development. Featuring an integrative introduction, extensive literature reviews and reference lists, the Handbook will continue to serve as a roadmap to the continually evolving and dynamic field of entrepreneurship. “The Handbook of Entrepreneurship Research provides doctoral students with a broad yet solid introduction to the field, and established scholars with an overview that is otherwise very hard to obtain. It is a must read for every academic who is serious about entrepreneurship.” Per Davidsson, The Jönköping International Business School "Acs and Audretsch have assembled a virtual who's who list of researchers in the fledgling field of entrepreneurship. Even more usefully, the Handbook also includes reviews of the vast array of work closely related to entrepreneurship that has appeared primarily in economics, psychology and sociology journals; despite their relevance, locating these studies can prove difficult as their authors frequently do not focus on the implications of their research for entrepreneurship.” Olav Sorenson, University of California, Los Angeles