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‘Entrepreneurs behave and think differently to conventional managers in larger businesses’. Critically evaluate the statement using relevant models/ theories and case examples to support your argument. Introduction There are a vast amount of theorists that try and define an ‘Entrepreneur’; however there is still no clear definition today of what an Entrepreneur possesses that others do not. There is a predisposition to attribute successful entrepreneurs to a person’s characteristics rather than environmental factors. Entrepreneurs are perceived to have ‘special traits’ that allow them to have particular insights not possessed by others.
However, the core traits that are proposed to be the key competencies of successful entrepreneurs can also be applied to most successful managers, so what is the difference between the two? Due to the complexity of personalities it is very difficult to separate out specific characteristics. The socio-behavioural approach recognizes the importance of some of these factors but also involves the effect of culture. The role of social capital and the ability to learn are suggested to be major influences upon potential entrepreneurs.
This essay will firstly review what makes an entrepreneur; looking at the influences of personality and socio-behavioural approaches. An insight into the identity and approaches held by managers in larger businesses also needs to be discussed, as well as the development of entrepreneurship in SME’s and its effect on the economy, and finally a brief description of how entrepreneurship affects the economy. The Entrepreneurial Personality An individual’s personality will ultimately define how they behave and conduct themselves.
Personality is defined as ‘regularities in action, feelings and thoughts that are characteristics of the individual’ (Snyder ; Cantor, 1998). If this were true then there would be a set of characteristics that defined somebody as an entrepreneur. There are many traits listed by different theorists that make up an entrepreneur which makes it more difficult to define. However, there are certain traits which continuously appear. McClelland (1961) claims ‘entrepreneurs are individuals who have a high need for achievement and that characteristic makes them especially suitable to create ventures’.
Further evidence is brought forward by Begley ; Boyd (1987) suggesting there is a strong link between the need for achievement being a personality trait for an entrepreneur. However, there is also evidence to suggest that this need for achievement does not directly link to entrepreneurs as such. Hull et al (1980) found ‘need for achievement’ was classed differently from person to person. For example, one person might find achievement in getting a job for a large firm whereas someone else might class achievement as starting their own business. The perceived probability of receiving rewards associated with the success of a proposed situation’, Brockhaus (1980) forwards another reoccurring trait associated with entrepreneurs. Mill (1848) described that this economic ‘risk taker’ was the distinguishable factor between managers and entrepreneurs. However this conflicts with Heath and Tversky’s (1991) ‘Prospect Theory’ which adopts the view that any risk taken is dependent upon the situation they are in rather than a perceived personality trait; which suggests anybody can be a risk taker given the right situation.
Further highlighted by Brockhaus (1980) who found that, ‘the distribution of risk-taking propensity held by entrepreneurs is the same as the distribution of risk taking in the general public. ‘ What seems to be the most fundamental personality trait that affects the way entrepreneurs behave and think is the idea of an ‘internal locus of control’. Individuals that take charge of their environments and their own destiny . This links in with the need for achievement and a perceived risk taker. However, Delmar (2000) comments that ‘results have been poor and it has been difficult to discern any specific traits to entrepreneurial behaviour’.
There is contrasting evidence here which makes it more difficult to get a definitive view of how an entrepreneur behaves. One way to measure convergent and divergent thinking is through the Torrance Test (Torrance, 1962, 1965, 1972). It is suggested that thinking divergently is a necessary, but not crucial, trait for defining an entrepreneur in a specific context. Below is a simplified view of the test (Figure 1. 1): As with all psychometric and allied tests there are conflicting outcomes, as well as numerous other tests with positive results.
Personality seems to have some bearing but we also need to have a look at what the socio-behavioural approaches recognize. Socio-Behavioural Approaches This looks more specifically at the effects of culture and the environment on an individual. This is highlighted by: the different entrepreneurial participation rates in different regions; different participation rates by gender; active inter-firm networks vary by region (Deakins ; Freel 2009). The role of social capital, which varies between regions, may prove an explanation for these varying rates.
Social capital is defined as, ‘networks, norms, relationships, values and informal sanctions that shape the quantity and co-operative quality of a society’s social interaction’ (Cabinet Office 2009). The Shapero model emphasises that social capital through networks can be a factor determining entrepreneurial entry. The ability to learn is also very important for potential entrepreneurs to succeed, “Entrepreneurial behaviour is a dynamic response to a constantly changing environment” (Deakins & Freel 2009). The prospect of formal training in many businesses is unlikely to succeed.
Storey and Westhead found there was little evidence of a link between formal training and improved performance. However, Gibb proposes that development of an entrepreneur is often developed when interacting with stakeholders, “experience should improve entrepreneurial ability and performance. This links in with an entrepreneurs ‘locus of control’, the need to be in control of their environment. Managers in Large Business After looking at the entrepreneurial personality we can see that there are certain traits that reoccur.
But what traits do managers have that are different, if at all? And what distinguishes a larger business from an SME? Firstly we need to define what a manager is, “Management means getting things done effectively through people to achieve the desired results. This requires a combination of leadership, communication and people skills”. There are difficulties in classifying what a large or small business is. There are lots of variables in trying to define what size a business is, for instance: no. of employees, the industry type, and output.
However ‘The Bolton Committee’ found both ‘statistical’ and ‘economic’ definitions below (Table1. 1): Bolton Committee (1971) Definitions of a Small Firm Sector Definition Manufacturing 200 employees or less Construction 25 employees or less Mining and quarrying 25 employees or less Retailing Turnover of ? 50,000 or less Miscellaneous Turnover of ? 50,000 or less Services Turnover of ? 50,000 or less Motor trades Turnover of ? 100,000 or less Wholesale trades Turnover of ? 200,000 or less Road transport Five vehicles or less Catering All excluding multiples and brewery-managed houses
Source: Bolton (1971) However, there are problems with the Bolton criterion; although it recognises that some small firms have intermediate layers, it still regards the small firms owners as taking all the decisions. Atkinson and Meager (1994) stress that managerial appointments can be made when there are between 10-20 employees. “At this size, owners are no longer the exclusive source of managerial decisions” (Storey 1994). Wynarczyk et al (1993) argue that there are three comprising factors that differentiate large and small firms- uncertainty, innovation and evolution. Best Management Practices’ (see appendix 1. 1) examines manager’s effectiveness in large firms. There a certain traits again that reappear; one of the most fundamental is ‘curiosity and inquisitiveness’ which they argue prompts a manager to keep acquiring new knowledge and to seek a better way to get things done. A further trait that was mentioned is ‘vision’, the ability to see the ‘big picture’. The case study argues that this is a key characteristic to a great manager. A further case study title ‘Driving renewal: the entrepreneur manager’ examines the idea of an entrepreneurial manager in depth.
It suggests that, “These entrepreneur managers are in part corporate entrepreneurs. They are outward-focused, cognizant of changes in their business environment and the new opportunities that these may bring”. The context is one of change or renewal; when firms need to adapt to new environments, therefore putting a limitation on the findings. Also as with most studies the sample size is limited. Large businesses run the risk of failure if they are not dynamic in their approaches. There are many case examples of this happening and continuing to happen.
One example is ‘Cunard Steamship Lines’, a trans-Atlantic passenger transportation. The company either disregarded the prospect of the Boeing 707 or didn’t realize the potential market. As a result of this they went bankrupt (see appendix 1. 2). However if they had a good entrepreneurial manager they may have been able to see this potential market as shown in the IBM case study revolving Lou Gerstner (see appendix 1. 1). He saw that the ‘tech-revolution’ was being ignored by IBM who were ‘resting on their laurels’. He implemented a new strategy that focused on this new technology saving the firm from marketing myopia (Levitt 1960).
This illustrates the importance of entrepreneurial competencies in large firm management; if they are not dynamic to environment changes they will fail. As suggested earlier the delegation of management can also be used in SME’s and not just large businesses. The importance of entrepreneurs in SME’s There is an argument that entrepreneurial managers are more important in SME’s than in larger firms. They account for 70% of both employment and value-added, suggesting that there is more to SME’s than the immediate contribution they make to employment and income.
Wennekers and Thurik observe, “Many economists and politicians now have an intuition that there is a positive impact of entrepreneurship on the growth of GDP and employment” (pg. 29). The graph below depicts this more clearly (Figure 1. 2): The relationship between entrepreneurship and economic development However, there are various ways in which entrepreneurship is identified to undermine economic development. The first area that is queried is the allocation of entrepreneurial talent. As discussed earlier entrepreneurs are hard to define and even harder to measure on effectiveness.
Melhum et al (2003:276) presents a model to show how poor countries can be stagnant in development as a result of a misallocation of entrepreneurial talent: “at a low level of development, predation is more attractive than at higher levels”. A further negative impact on economic development is low quality entrepreneurs. Ghatak et al. (2007:2) argues that entrepreneurial ability affects the success of any firm, and the ‘overinvestment’ in nascent entrepreneurs can have negative connotations upon the business. Although hese findings show a ‘U-Shaped’ effect it suggests the importance of entrepreneurship in SME’s, that the inclusion of innovation and need for achievement will bring success to the business. A case study titled, ‘Entrepreneurship and the small to medium-sized enterprise’ highlights the importance of entrepreneurial involvement in the development of SME’s. It notes that the relationship between advisors and SME’s can be critical to success, noting that different SME’s need different levels of entrepreneurial involvement.
Sibley-Butler (2005) argue that the differing needs of SME’s needs to be fulfilled through the different entrepreneurial talent but also observes the need for entrepreneurial talent/advisors to be present for the development of SME’s. Implementation of this method needs an accurate measure of entrepreneurial capacity/behavior which is notoriously difficult to measure. It also relies on knowledge on behalf of the SME to know exactly what they need advising about to get the correct advisor. Conclusion We began the essay by identifying perceived personality traits of an entrepreneur.
If it were possible to identify a set of ‘special personality traits’, then the financial risk exposure of bankers and venture capitalists could use them as a selective instrument. Chell (1985) states, ‘personality is not wholly responsible for an individual’s behaviour: it is a function of personality and situation, and their interaction. ‘ Further evidence for this comes through the socio-behavioural approach which recognises culture, environment, learning abilities and social capital. Suggesting that there is no ‘special personality framework’ that will correctly identify an entrepreneur.
The difficulty in identifying entrepreneurs made the assignment more difficult. However while special personality traits may not be fundamental to entrepreneurial behaviour, as shown through research into the links between personality traits and entrepreneurial success, I still feel that individuals who possess these certain traits such as: need for achievement, risk propensity and locus of control are more likely to be successful entrepreneurs. Upon looking at managers in large businesses the findings were interesting.
Before the essay I was under the impression that entrepreneurs were entities that were self-employed and the sole beneficiary of their own achievements. However, my research has shown me the importance of entrepreneurial ability in all businesses. Numerous case studies have shown the importance of a dynamic approach in large organisations to be innovative and have a need for achievement, both competencies of successful entrepreneurs. The case study, ‘Driving renewal: the entrepreneur-manager’ argues that a good manager must possess entrepreneurial skills.
Conversely, unlike external entrepreneurs, entrepreneur-managers do not follow their own business propositions; rather follow a business proposition that has been anchored in the corporate strategies. They still find the freedom to develop strategies that can help a firm’s renewal. This is one of the fundamental differences I found between the entrepreneur and entrepreneur manager. This links in with the socio behaviour approach and more specifically the ability of an individual to learn. Experience is required from a good manager; however an entrepreneur uses this experience to learn more than others.
A manager does this to an extent but always has the security of a large firm behind them, and often don’t have any personal capital at risk. After seeing the importance of entrepreneurial behaviour in large organisations I then turned my attention to SME’s to see if they too had entrepreneurial capacities in their businesses. After identifying what makes a SME I found that entrepreneurial behaviour was also key to the success of SME’s. The notions of ‘need for achievement’ and ‘innovation’ were reoccurring themes for successful SME’s.
The definition of an entrepreneur is different in each case, from venture creation to corporate entrepreneurship, not every theory or every trait will match with every case. In accordance with economic theory, the environment is constantly evolving, meaning there will always be opportunities for both entrepreneurs and entrepreneur managers. After quickly coming to the conclusion that entrepreneurial behaviour is a key competency for the success of any business, I researched into the effects of entrepreneurship on the economy.
There is a suggestion that greater entrepreneurial activity increases economic development (Storey 1994). Although in practice the research is limited because of the difficulties with defining sizes of firms, the ‘rough’ results suggest that there is a correlation between the two: further highlighting the importance of entrepreneurial ability in any firm. As discussed earlier in the essay there is a problem for businesses to identify entrepreneur managers with the competencies required for their ‘specific needs’ therefore further research nto the entrepreneurial frameworks is required. This would help advisers to consider how best to help the SME’s and large businesses to understand the implications of their and their client’s entrepreneurial capacity and particular needs. References Atkinson, J. and Meager, N. (1994). ‘Running to stand still: the small business in the labour market’. In Employment, the small firm and the labour market (Ed. ) J. Atkinson and D. J. Storey, London: Routledge. Bolton, J. E. (1971). Report of the Committee of Enquiry on small firms. Bolton Report Cmnd. 4811. London: HMSO.
Cabinet Office (2002) Social Capital: A Discussion Paper, Performance and Innovation Unit, Cabinet Office, London. Chakravarthy, B. and Lorange, P. 2008. Driving Renewal: The entrepreneur-manager [E-Journal]. Available through: Emerald Management Xtra 150 [Accessed 11th January 2010]. Chell, E (2008). ‘The Entrepreneurial Personality: A social construction. New York: Routledge Day, J. and Reynolds, P. 2006. Entrepreneurship and the small-medium sized businesses [E-Journal]. Available through: Emerald Management Xtra 150 [Accessed 13th January 2010]. Deakins, D. and Freel, M. (2009).
Entrepreneurship and small firms. 5th Edition. Berkshire: McGraw-Hill Education. Ghatak, M. , Morelli, M. and Sjostrom, T. (2007). ‘Entrepreneurial Talent, Occupational Choice and Trickle Up Policies’, Journal of Economic Theory, 137(1): 27-48. Mehlum, H. , Moene, K. , Torvik, R. (2003). ‘Predator or Prey? Parasitic Enterprises in Economic Development’, European Economic Review, 47: 275-94. Schumpeter, J. (1934), The Theory of Economic Development, Harvard University Press, Cambridge, MA. Sibley-Butler, J. (2005), Entrepreneurship and Self Help among Black Americans, SUNY Press, Albany, NY, p. 5. Storey, D. J. (1994). Understanding the small business sector. London: International Thomson Business Press. Tonge, J. 2001. A Review of Small Business Literature Part 1: Defining The Small Business [E-Journal] (pages 6-9). Available through: Emerald Management Xtra 150 [Accessed 14th January 2010]. Wynarczyk, P. , Watson, R. , Storey, D. J. , Short, H. and Keasey, K. (1993). The managerial labour market in small and medium sized enterprises. London: Routledge. Zarb, G,F. 2011. Best Management Practices [E-Journal](pages 4-11).
Available through: Emerald Management Xtra 150 [Accessed 13th January 2010]. Appendices Appendix 1. 1-Case study for Lou Gerstner, IBM Manager “Even though Lou Gerstner had no background in technology, he was recruited out of Nabisco (a food conglomerate) to be the CEO of IBM. By his own admission, Gerstner never even used a PC (personal computer) until the first day of his arrival at the Big Blue (Gerstner, 2002). However, he was able to strategically see the “forest”. He saw that the world was changing due to the “tech revolution” while IBM was still resting on its laurels.
The company was blindly stuck to the mainframe strategy – trying to perfect the humongous “IBM big box” while the rest of the world was going PC and work stations. This emerging trend would essentially make IBM’s flagship irrelevant. Despite being an outsider, Gerstner was able to change the strategic focus of IBM by liberating it from the traditional marketing myopia” as described by Ted Levitt’s revolutionary thesis (Levitt, 1960). Today, Big Blue is thriving gain simply because Gerstner was able to “convert” the stodgy old giant into a nimble technology firm.
About 60 per cent of IBM’s current revenue comes from software/service/consulting. Only 1/3 of its business remains hardware related. Without Gerstner’s visionary big picture strategic shift, IBM might have disappeared into the oblivion, like Wang Computer, E-Toy and Gateway Computer. ” Reference: Zarb, G,F. 2011. Best Management Practices [E-Journal](pages 4-11). Available through: Emerald Management Xtra 150 [Accessed 13th January 2010]. Appendix 1. 2-Case study for Cunard Steamship Lines of Liverpool “A major failing of many companies is called “marketing myopia”, where they fail to correctly define or re-focus their business.
For example, Cunard Steamship Lines of Liverpool, as with other ocean liner companies, saw itself as exactly that. It was the world-leader in trans-Atlantic passenger transportation. Meanwhile, along comes the Boeing 707 jet liner, a game-changing disruptive piece of technology, which airlines then started to use to ply the Atlantic. Travel time was slashed from 7 days to about 8 hours. Cunard either did not notice or dismissed this phenomenon. They commissioned the QE-II, the world’s most-advanced ocean liner.
My bank at the time stupidly lent them all the money to do so (I was not the lending officer). Cunard very soon went bankrupt, as did most ocean liner companies. The left-over liners were fortunate to find a market as cruise ships, or as with the Queen Mary, a floating hotel. Ocean liner companies suffered from “marketing myopia”. They should have redefined themselves as “transportation” companies. If they had done so, today Cunard ought to have been the world’s biggest airline. One simple mind-shift, from ocean-liner to air-liner would have transformed them into a giant. Instead, they died. “