2/24/20

Lecture - 2
Entrepreneurship in Practice 2.0

Entrepreneurship and Innovation (MGEM 611)

KUSOM, MBA, 2020
Faculty - Shashi Raj Bajracharya

Preface to Entrepreneurship
in Practice
• Linked with larger economic goals
• Keep pace with growing population
• Employment creation
• Create impact in the society
• Bring change, be the change
• Mitigate the downsides of economic
change

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What is Innovation

Innovation in its modern meaning is "a new idea, creative thoughts, new imaginations in
the form of device or method". Merriam-webster.com.

Innovation is often also viewed as the application of better solutions that meet new
requirements, unarticulated needs, or existing market needs. Maranville, S. (1992).
"Entrepreneurship in the Business Curriculum".

Innovation involves the practical implementation of an invention (i.e., new / improved

ability) to make a meaningful impact in the market or society, and not all innovations
require an invention. Innovation often manifests itself via the engineering process, when
the problem being solved is of a technical or scientific nature.
***

Joseph Aloïs Schumpeter on Innovation

Schumpeter identified innovation as the critical dimension of

economic change.

He argued that economic change revolves around innovation,

entrepreneurial activities, and market power.

He sought to prove that innovation-originated market power

can provide better results than the invisible hand and price
competition.

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Joseph Aloïs Schumpeter on Innovation

Economic development is a historical process of structural changes, substantially driven by
innovation which are as follows:

1. Launch of a new product or a new species of already known product.

i. New accounting software
ii. Facelift
iii. Introducing food products in different sizes
iv. Methods of transporting goods and people

2. Application of new methods of production or sales of a product (not yet proven in the
industry).
i. New surgical procedure
ii. New method of car production
iii. Shortening a process
iv. Self service eating joints

Joseph Aloïs Schumpeter on Innovation

3. Opening of a new market (the market for which a branch of the industry was not yet
represented).
i. Introduction of Korean snack to Nepalese market
ii. Integrating additional distributor for additional market or geography
iii. Ethnocentric and eco-tourism

4. Acquiring of new sources of supply of raw material or semi-finished goods.

i. Oil as new raw material
ii. Elephant dunk for paper
iii. Newer materials for building fabrics

5. New industry structure such as the creation or destruction of a monopoly position.

i. E.g. Clicks replacing bricks,
ii. C2C
iii. Online direct marketing in tourism and hospitality

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Creative Destruction

Destruction of businesses, fortunes, products, and careers is the price of progress. This is
what Joseph Schumpeter describes as “Creative Destruction.”

Creative Destruction
Creative destruction can be described as the dismantling of long-standing practices in order to
make way for innovation. Creative destruction was first coined by Austrian economist Joseph
Schumpeter in 1942.

Schumpeter describes creative destruction as innovations in the manufacturing process that

increase productivity, but the term has been adopted for use in many other contexts.

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Peter Ferdinand Drucker on Innovation

• Drucker defined innovation as the task of endowing
human and material resources with new and
greater wealth-producing capacity.
• Innovation is the specific tool of entrepreneurs, the
means by which they exploit change as an
opportunity for a different business or a different
service.
• It is capable of being presented as a discipline,
capable of being learned, capable of being
practiced. That means the purposeful innovation
results from analysis, systemic review and hard
work and can be taught, replicated and learned.

Peter Ferdinand Drucker on Innovation

• Innovation is both conceptual and
perceptual.
• An innovation has to be simple and it has
to be focused. It should only do one thing
or it confuses people and won’t work.
• Drucker indicated that effective
innovations start small and they should
not try to be clever.
Successful innovators
• Another key factor was to not try to use both the right side
innovate for the future, but innovate for and the left side of
the present. The innovation may have long
term impact, but if you can’t get it their brains.
adopted now there won’t be any future.
***

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Sources of Innovation
• Purposeful, systemic innovation begins with the analysis of opportunities.
The search must be organized and conducted on a regular basis.
• Drucker argues that most innovative business ideas come from methodically
analyzing seven areas of opportunity, some of which lie within particular
companies or industries and some of which lie in broader social or
demographic trends.

Sources of Innovation
Drucker identified seven sources of opportunity that
will ultimately drive innovation:

1. The Unexpected
2. Incongruities
3. Process Need
4. Industry and Market Structures
5. Demographics
6. Changes in Perception
7. New Knowledge

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Sources of Innovation
1. The Unexpected
• The business world is full of surprises
• Innovations can take place unexpectedly. They can happen by chance.
Someone might just stumble upon a new idea or product.
• The market place is the number one area to look for opportunities
• Discuss unexpected success or failures

Sources of Innovation
2. The Incongruities
• Lack of appropriate research
• When the need is incongruent with the supply, innovation might be born.
• There is a discrepancy between what is and what should be.
• Know your customers
• Know who your best customers might be
• Listen for customer complaints
• Value for producer and customer may differ

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Sources of Innovation
3. Process Need
• Necessity is the mother of invention but it is also the mother of innovation.
• Task-focused rather than situation-focused.
• Process need involves identifying your company’s process weak spots and
correcting or redesigning them.
• A process is perfected or redesigned or a weak link replaced.

Sources of Innovation
4. Industry and Market Structures
• Dynamics of industry and market structure – Opportunities, not threats
• An existing market structure can also give rise to chances for innovation.
• Industry and the market are in continual flux.
• Faster growth of market bring change.

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Sources of Innovation
5. Demographics
• Change of demographics
• Lifestyles can also be a source of innovation
• Combining demographic data with segmentation and
targeting

Sources of Innovation
6. Changes in Perception
• Changing perception regarding things can also give birth to
innovation.
• Change in perception happen even more faster due to
involvement technology
• People can change their perception about certain product,
brand or industry overnight.
• Downaging, religion, corporate culture etc.

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Sources of Innovation
7. New Knowledge
• New knowledge can be a source of innovation. It can be applied in
every aspect of the company.
• Every year new areas are discovered and much gets added to the
existing base of human knowledge. This new knowledge paves way
for innovations that can sometimes be life changing.

Sources of Innovation
7. New Knowledge
• As the speed of technological revolution increases there will be an
ever increasing number of opportunities that open up.
• New knowledge is about more than just technology though, it’s about
finding better ways of doing things and improving processes.

***

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Home Assignment
Assignment – 2, Lecture 2

Explain seven sources of innovative opportunity, as mentioned

by Preter Drucker and identify at least one example for each
source, and justify your selection, i.e., why do you think your
chosen product or company belongs to particular source.

Please submit computer typed, printed answers in A4 sheets

by Mar 2, 2020, Monday.

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