Importance of Entrepreneurship and Innovation - Essay Example

STRATEGIC MANAGEMENT al Affiliation) Importance of Entrepreneurship and Innovation in the formulation and implementation of a firm’s strategy Innovation is a key tool in development; without it firms cannot have the ability to come up with ideas and plans which facilitate the formulation of their strategies of development. Innovation as a tool of development is a driving force that has single-handed brought essential changes in the world. Much has been done to understand how the process of innovation affects the implementation and formulation of an organization’s strategy. Similarly, the role of entrepreneurship in a firm’s strategic process is of much concern as it also plays a vital role (Jeffs, 2008). Innovation is the process of developing new processes, products, new sources of supply as well as the exploitation and creation of new markets. It also involves the developing of new fashion to run businesses. There are many types and degrees of innovation, which may take place to influence a firm’s strategic process. Innovation is very essential in the development and economic growth of firms. The economic growth and development of firms stimulate the strategic process in the firms and if they evitable then the strategic process will definitely follow suit. There is great need to distinguish between radical innovations and incremental innovations, and between innovation to the world and an innovation that is new only to a specific firm. The incremental type of innovation is very common with firms taking strategic plans. It involves the imitation where a firm adopts new processes, markets and products from other firms, in most cases competing firms. This type of innovation facilitates technological upgrading of firms and effective and efficient utilization of available resources. Innovation goes hand in hand with the formulation of organization’s strategies since it involves the conversion of acquired knowledge to produce new processes, services or products. Firms require the creation of all this in the formulation of their strategies. Innovation also puts into use the new items, which it creates and so they aid in the implementation of firms processes. Innovation influences a firm’s strategy through the dilemmas it experiences. The innovation dilemmas that are mostly exhibited in a firm’s strategy are; market pull or technology push innovation, process innovation or product innovation, business model or technological innovation and open or closed innovation. Technology push is the creation of new technologies from the research and development departments of firms that push for innovation process. The technologies push from innovation processes usually lead to firms formulating strategies that relate to product improvements or diversification. The market pull innovation, on the contrary puts focus on the market, which is responsible for innovation. This type of innovation leads to strategy formulation in firms that are more tilted towards marketing. Product innovation influences the formulation of products and services related strategies. This is due to their intense focus on products improvement. Process innovation is a type of innovation that facilities firms with the formulation of strategies that relate to diversification or differentiation. This is because this type of innovation influences the way products are produced and distributed to enhance reliability. Entrepreneurship refers to the exploitation and discovery of opportunities. It also plays a major in the formulation and implementing of firm’s strategies. It contributes to the development of firms in many ways such as cost discovery, accumulation of physical and human capital, gap filling, input completion, reallocation of resources to uses that are more productive and facilitating the process of structural change. Three strands of entrepreneurship heavily affect a firm’s strategy formulation and implementation. The first strand of entrepreneurship enhances the creativity and dynamic characteristics of individuals, owners of firms or managers in firms. This strand of entrepreneurship is very similar to innovation as it brings the inspiration of creating new ideas and products that form the basis of firm’s decision to formulate strategies. The second strand relies more on a firm’s behaviour. It shapes the attitude in which firms accept and follow the strategies they formulate. It therefore facilitates the implementation of these strategies. The last strand of entrepreneurship put its focus on the small firms or the owner operated firms. This strand facilitates the formulation and implementing of expansion strategies these firms have. The characteristics of entrepreneurship in a firm have a large impact in the firm’s strategy. An example of such a characteristic is resource scarcity. Many entrepreneurial firms have limited finance and managerial capacity and it is up to them to come up with strategies to ensure effective and efficient utilization of the available resources. Entrepreneurial firms are likely to be relative invisible. This trait explains how these firms are unable to make significant response on the market because of actions taken by their competitors. This characteristic leads to the urge to formulate a marketing strategy by the firms. Entrepreneurship facilitates the formulation and implementation of firm’s strategies through its four main drivers; imagination, ideas, invention and innovation. Strategy formulation in a firm is facilitated by the active search for creative and new opportunities. The discovery of these new opportunities is mainly through an entrepreneurial process. Entrepreneurship enhances implementation of firms’ strategies since the power in an entrepreneurial organization is mainly centralized in the chief executive office. Entrepreneurship involves the engaging of relationships with other organizations through means such as corporate venturing, forming of mergers and spin-offs. Engaging in these relationships facilitates the strategy formulation of firm’s to adapt to the new system of operations. Factors affecting decision making and their impact on strategic outcomes There are many factors, which influence the decision making process and as a result have an impact on the strategic outcomes. The decision making process which have the roles of ascertaining the truth, determining the course of action and persuading contribute to the strategic outcomes of firms. According to modern researchers, the decision making process involves the responding to environmental conditions and the selecting a specific cause of action to achieve a predetermined goal. Factors that affect decision-making are those factors that influence the decision maker into making the specific decision. Risk perception is a factor that affects the decision making process. Two approaches identify the individual differences when it comes to risk perception. The first approach refers to risk as a multidimensional factor with many dimensions such as lack of familiarity, dread and lack of controllability. The individuals who have little trust in government, authority and institutions have a tendency to perceive risks of technologies or hazards to have greater negative impact than their counter parts that have more trust. For instance, women perceive environmental factors to be riskier than how men consider the situation. The same environmental disasters have a riskier perception to blacks than whites. This is mainly due to the conservatism and well education system attained by the whites. Lastly, experts and non-experts have different perception of risk when it comes to situations of risk. The experts’ estimation of risk will therefore differ from the public due to the further analysis that may be done by experts and the information gap that differentiates them with the public. It is hard to find out which group of people has the correct perception but what is evident from this approach is that different groups of have different perception to risk and it affects the decision they make (Sendspace.com). The second approach tries to explain the perception of risk to monetary gambles. This approach uses the concept of asymmetry in judgments. It is evident that losses have more impact than gains. Due to this fact, the theory of risk has produced a model that determines the risk perception of individuals. This is determined by the weighted combination of three probabilities that relate to losing, winning or receiving nothing at all. The probabilities have an effect on outcome as they decrease risk judgments as they rise. This approach to risk perception tries to explain the differences of the perception to be because of the cultural differences. For example, European countries had greater probability of losses than their counterparts from the east. This point clarifies the fact the risk is a cultural construct. The risk perception of different groups affects the decision making process and as a result having an impact on the various strategic outcomes. Risk attitude is also a factor that affects the decision making process. The risk attitudes are usually determined by the revealed preferences. For instance, in the choice between a sure thing and a gamble, individuals who opt for the sure outcome have risk averse preferences which is contrary to the risk seeking preferences that the individuals who choose to gamble have. Preferences are usually risk averse. Despite the fact that preferences are risk averse in situations of gains, they are more of risk seeking in situations of losses. Risk attitudes between different decision makers influence how they make decisions. If a decision maker is more of a risk adverse person then they will make decisions that have little or no exposure to risk. On the other side, if the decision maker is more of a risk lover, they will settle for risky decisions. The level of risk of a decision taken by a firm dictates the strategic outcome of a firm. It is therefore evident that the risk attitude in decision-making has impact in the strategic outcomes due to the role it plays in decision-making. Emotions have critical effects on the decision making process. Emotions affect the decision making process since they drive a decision maker’s choice. Positive emotions lead to proper solving of problems and creation and implementing of new ideas that lead to positive strategic outcomes. Negative emotions make decision makers to make careless and random decisions that may bring adverse effects to the strategic outcomes. Individuals who are in a good mood and have positive feelings are favourable in handling a decision making process. These individuals would not act in a hurry, but will take enough time to analyse the matter under consideration before coming up with an appropriate decision to make. Individuals with a bad mood are the worst decision makers since they will make irrational decisions due to their negative feelings. Emotion is therefore a great factor that affects decision-making and as a result has an impact on the strategic outcome. Ethical dimension to strategic management Ethical dimensions set managerial goals of firms through proper leading, planning, organizing and controlling the performance of the organization. Ethical dimensions work hand in hand to ensure the achievement of an organization’s goal through various managerial impacts. Ethical issues detect the trend of strategic management. One of the important issues in modern day management is the returning and carrying forward of human spirit. The ancient management systems are very different with the recent strategic management, which incorporates ethical issues. These ethical issues constitute strong competence for organizations to face the market and environmental changes in recent economic times. Ethical issues arise continually in strategic management. Strategic management can affect people’s daily activities and lives such as people suffering losses or harm, which they cannot take responsibility. Strategic management such as closing plants or restructuring causes these impacts and therefore it is essential to consider ethical issues when in addition to the legal, financial and behavioural reasoning. Ethical dimensions involve the subsequent outcome of the management strategic planning to the people affected by the decision such as the employees. The decision of strategic management creates ethical dilemmas and it is always difficult to determine whether the decisions are right and just or inappropriate. This portrays the great connection between ethical dimensions and strategic management (Sendspace.com). Long has gone the days when man’s concept of enterprise ranged from a social man, economic man, complex man to a self-realization man. Nowadays much concentration has been put into ethical dimensions, which have enhanced the penetration into managerial fields. Strategic management is a key tool for the development of an organization. Taking ethical considerations in this field will facilitate the development of organizations. This is because currently many organizations have become more ethically concerned. It has stirred public concern to ensure that strategic management to have ethical dimensions which can ensure following of moral principles and rules that relate to socially acceptable and unacceptable behaviour. It is highly recommended that managers at all levels of management should maintain a high sense of soberness and conduct fair and honest practices in their strategic management process. Issues of creating value to the stakeholders such as employees during the process of strategic management have been a challenge, which many organizations face. In a bid to promote the value realization of organizations processes and activities, the issue of problem solving remains a hard tussle to overcome. Management’s ethical dimension can have impact on an organizations strategic management process. It needs ethic management to be able to investigate the existing value of a business, which is a key determinant of whether to take a strategic management plan. The consideration of ethical issues in strategic management therefore acts in consistency with the expectations of many people. The attaining of stakeholders trust through practising ethics will create positive impact in organizations. This trust created between the organization and stakeholder has influences positively the strategic management process. It is essential that firms organize their employees through systems which can empower them to practice democracy, to be self-sustain and engage in both communal and personal practices. These systems will facilitate ethical practice in organizations that shapes strategic management. Ethical behaviours of individuals in an organization have positive impacts in the efforts of these individuals to contribute in value addition in their organizations. His value addition is done through strategic management. Strategic management has one economic end and an ethical end. The ethical rationality of the strategic management is distinct and artificially separate from the strategic management’s economic rationality. However, strategic management incorporates both economic and ethical implications in its process to achieve its goals and be consistent with rules and regulations. Ethical dimensions can affect the strategic management taken by a firm. From the example discussed earlier in the essay of a company having a strategic management plan to close a plant, many ethical issues may arise. Many stakeholders benefiting from the company such as the employees and the customers may be affected from one-way to another. Employees will lose their jobs and this will result to reduction in economic growth of the region. Due to the ethical implication the strategic management plan to close, the plant may cease or change to a restructuring one, which may accommodate the employees of the old plant. Ethical dimensions also shape the behaviours and morals of management system in organizations. If an organization’s management is constituted of unethical managers they are likely to come up with strategies that are unethical in that they do not pay attention moral standards. Ethical management systems are always responsible in the strategic management processes they formulate (Sadler, 2003). References Jeffs, C. 2008. Strategic management. Los Angeles: SAGE. Sadler, P. 2003. Strategic management. Sterling, VA: Kogan Page. Sendspace.com, 2015. BUS3110M-1415 Lecture Slides Week 25 Innovation and Entrepreneurship_lecture-1.ppt (3.20MB) - SendSpace.com. [online] Available at: https://www.sendspace.com/file/txo1yx [Accessed 28 Apr. 2015]. Sendspace.com, 2015. BUS3110M-1415 Week 19 Lecture Slides.ppt (1.64MB) - SendSpace.com. [online] Available at: https://www.sendspace.com/file/4mie8v [Accessed 28 Apr. 2015]. Sendspace.com, 2015. BUS3110M-1415 Week 20 Lecture Ethics-1.ppt (3.92MB) - SendSpace.com. [online] Available at: https://www.sendspace.com/file/md8xzn [Accessed 28 Apr. 2015]. Read More