14 INTREPRENEURSHIP

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MME 3113ENGINEERING MANAGEMENT

ENTREPRENEURSHIP AND

TECNOLOGICAL INNOVATION



THEORIES & CONCEPT OFTHEORIES & CONCEPT OF

ENTREPRENEURSHIPENTREPRENEURSHIP



THE EVOLUTION OF

ENTREPRENEURSHIP THEORY

Definition of an Entrepreneur :

• “ An entrepreneur is a person whoundertakes to do a job ” RichardCantillon (1755). The term entrepreneur is a French word first coined by Richard

Cantillon.• In Malaysia the term “usahawan” is

used for entrepreneur.



THE EVOLUTION OF


Definition of Entrepreneurship:

• Entrepreneurship involves not only theprocess that leads to the setting up of abusiness entity but also the expansionand development of an on going

concern.The study of entrepreneurshipis concerned with the entrepreneurialbehavior, the dynamics of business setup and expansion and development.



THE EVOLUTION OF


• Adam Smith (1776) - An entrepreneur is

a person who acts as agent intransforming demand into supply.

• Jean Babtiste Say (1803) - An

entrepreneur is a person who shiftsresources from an area of low

productivity to high productivity.



THE EVOLUTION OFENTREPRENEURSHIP THEORY

• John Stuart Mill (1848) - An entrepreneur is a

prime mover in the private enterprise.The

entrepreneur is the fourth factor of production

after land ,labor and capital.

• Carl Menger (1871) - The entrepreneur acts

as an economic agent who transformsresources into products and services.The

entrepreneur transforms and gives added

value.




• Joseph Aloysius Schumpeter (1934) - An

entrepreneur is an innovator. The economymoves through leaps and bounds and the

prime mover is the entrepreneur through the

process of creative destruction.

• Alfred Marshall (1936) - The process of entrepreneurship or business development is

incremental or evolutionary . It evolves from

sole proprietorship to a public company.




• Ibnu Khaldun (Abdul Rahman Mohamed

Khaldun) - The entrepreneur is seen as aknowledgeable individual and is instrumental

in the development of a city-state where

enterprise will emerge.

• David McClelland - The entrepreneur is aperson with a high need for achievement.

This need for achievement is directly related

to the process of entrepreneurship.



DEFINITION OF ENTREPRENEURSHIP

It is more than mere creation of business

Entrepreneurship is a process of innovationand new venture creation through four major dimensions – individual, organizational,environmental and process.

The entrepreneurship process is aided bycollaborative networks in government,education and institutions.



DEFINITION OF ENTREPRENEURS

• Functional definition of entrepreneursoffers the following definition:

• Entrepreneurs are individuals who

actively form or lead their own businessand nurture them for growth and

prosperity.



Definition of Entrepreneur

• “The entrepreneur, by definition, shifts

resources from areas of low productivityand yield to areas of higher productivity

and yield. Of course, there is a risk the

entrepreneur may not succeed”.(Drucker, ’85)



Entrepreneurship Vs

Management• Entrepreneurship

– Creating something new

– New product, new method of production, newmarkets, new source of raw material

– Challenges the ‘norm’

• Management – Protects

– Stewardship of existing resources



Why become an Entrepreneur?

• Personal situation

• Resources

• Entrepreneurial skills

• Success stories

• Desire for independence

• Opportunity to exploit a gap

• Frustration



Characteristics of an

Entrepreneur

• Drive

• Perseverance

• Ambition

• Leader

• Survivor status• Competitive

• Interpersonal skills

• Innovative skills

• Ability to bounce back

• Vision

• Motivation

• Self-confidence

• Self Satisfaction

• Extrovert• Results orientated

• Committed

• Risk taker

• Sociable



Psychological Characteristics of

Entrepreneurs

• Need for achievement

• Locus of Control

– Internal

– External

• Risk-taking Prosperity

• Tolerance for ambiguity

• Type A Behaviour

– Impatient, time urgency, driving ambition, competitiveness

• Need for Independence



What is the Role of the

Entrepreneur?• Opportunity recognition

• Market uncertainties

– Dealing with the future

• Risk taking

– Businesses, financial and personal

• Resource gathering

• Profits/Reward



Reasons for Entrepreneurial

Success• Hard work and long hours

• Dedication, drive, enthusiasm and belief in

the idea• Unsatisfied market demand

• Managerial competence

• Luck • Strong control systems

• Sufficient capital



Hurdles in starting up a a

business• Lack of the right business idea

• Complicated regulatory efforts

• Own financial risk • Lack of courage

• Lack of right founding partner

• Lack of equity• Lack of debt capital

• Know-how-deficit



Hurdles in starting up a a

business• Lack of contact clients/customers

• Economic cycle

• Business environment

• Fear of failure

• Support by family and friends

• Lack of time

• Lack of entrepreneurial skills



ISLAMIC ENTRA`rENEURHIP

ISL MICРENTREPRENEURSHIP ⁁ ၦOCUS䂠 Nɏ

EIGHT PRINႃ䃉䃉 LEɐ OF THOUG TS :-1.Ent 聲 epreneurship is an integral parts oŦ Islamic

religion.

2.By virtue of human nature , the Moslem entrepreneursaRe ‘khalifah’ and have the reponsibilities develop

prosperity and sees business as part of ibadah or food

deed.

3.Motivation – success in Islam is not merely measuredby the end result but also the way and means of

achieving them.

4.Ibadah – business activity is part of ibadah or “good

deed”



5. Position of Entrepreneurship and business in

Islam – Islam encouraged its ummah to

venture into business . Prophet Muhammad

S.A.W expounded that 9 out 10 source of rizque (reski) can be found in business.

6. Islamic Economic System - Islamic

Entrepreneurship should operate within the

domain of Islamic Economic system and actas the vehicle towards global acceptance of

Islamic Economic System.

ISLAMIC ENTREPRENEURSHIP



7. Guiding Principles of Islamic

Entrepreneurship is by the al-Quran and al-

Hadith8. Entrepreneurial Ethics based on exemplary

conducts of Prophet Muhammad S.A.W

ISLAMIC ENTREPRENEURSHIP



ISLAMIC ENTREPRENEURSHIP AS ASINTEGRAL PART OF THE RELIGION

Islam is a complete way of life. There is noseparation between business and religion.

Islam has its own entrepreneurship culture

and guiding principles based on the Al-Quran

and Hadith to guide business operation .



HUMAN NATURE

(The fitrah of human being)

By virtue of the human nature, the person mustfirstly be a Muslim, then an entrepreneur. He

has the responsibility to perform ‘ibadah’ and be

a ‘khalifah’ . Muslim entrepreneur should search

for God’s blessings above all other factors. AMuslim entrepreneur perform business not

solely for profit, but above all, to fulfill the

‘fardhu kifayah’ .



MOTIVATION

• Most entrepreneurs have the desire to

achieve successful business venture.• The successful path and means for

achieving success for Muslim

entrepreneurs are unique.

• Success in Islam is not merelymeasured by the end result, but also

the means and ways of achieving them.



SUCCESS FORMULA BY AL-QURTUBI

• Halal – livelihood that are in accordance to

what is being outlined by Allah SWT and

syariah.• Qanaah – be pleased and thankful with one’s

earning• Taufiq - Asking for the blessing of Allah in

proportion to one’s expectation• Sa’adah- Spiritual happiness• Jannah – Worldly success should act as the

bridge to the ultimate success in the life

hereafter (paradise).



Level of Knowledge

Level of Taubat or repentence Level of Temptation Level of Obstacles Level of Motivation

Level of Handicap Level of Praise and Thankfulness

SEVEN STEPS TOWARDS A SUCCESS IN LIFEACCORDING TO IMAM AL-GHAZALI



POSSESSION OF WEALTH IS ALLOWED BASED

ON THE FOLLOWING PRINCIPLES:-

• Allah s.w.t is the absolute owner of wealth

• Allah created wealth in

abundance and sufficient for all

• Wealth is created for mankind• Wealth is entrusted to mankind



IBADAH

In Islam, involving in businessis part of ibadah through the

fulfilment of fardhu kifayah.



POSITION OF BUSINESS AND ENTREPRENEURISLAMIC ENTREPRENEURSHIP MODEL

Islam Proposed

(Business Venture)

Allah Prepared

(Facilities)

Islam Outlined(Rules and Regulation)

Allah Promised

(Reward)

E

X

A

M

P

LE

EX

A

M

P

L

E



ISLAMIC ECONOMIC SYSTEM

Islamic Entrepreneurship should

be in the framework of Islamic

Economic System and shouldassist in establishing the Islamic

Economic System



GUIDING PRINCIPLES OF ISLAMIC

ENTREPRENEURSHIP

Guidelines for IslamicEntrepreneurship and business

activities are wide and

comprehensive based on Al-

Quran and Al-Hadith.



MUSLIM ENTREPRENEURSHIP ETHICS To prevent laziness To eradicate fear

To search for legitimate ventures To avoid forbidden sources of income

and property To show gratitude and thankfulness of

whatever has been acquired To grow and develop capital and profit To diversify business ventures

To avoid greediness



THE ETHICAL BEHAVIOR OF MUSLIM

ENTREPRENEURSHIP

To avoid malicious behavior To avoid squandering

To avoid stinginess To pay alms (zakat) Trustworthy

To pray consistently Tawakkal Patience Qana’ah



EXEMPLARY CONDUCTS OF GOOD MUSLIMENTREPRENEURS DURING THE PROPHET

MUHAMMAD S.A.W REIGN

Business is secondary when being called

for other form of crusade Avoid using influence for self interest

Afraid of accumulated wealth Leadership qualities in all aspects Practice moderate way of life



Innovation

What Are Innovations?



What Are Innovations?

• Innovations are new ways to achieve tasks.

• Types of innovations include: – Mechanical—tractors, cars.

– Chemical—pesticides.

– Biological—seed varieties. – Managerial—IPM, extra pay for work, overtime.

– Institutional—water users’ association, patents, banks, stock market,

conservation districts, monks.

• It is useful to distinguish between process innovations(new biotechnology procedures) and product innovations

(Bt cotton).



The Innovation Process

• An innovation starts as a concept that is refined and

developed before application.• Innovations may be inspired by reality. The innovation

process, which leads to useful technology, requires: – Research

– Development (up-scaling, testing)

– Production

– Marketing

– Use

• Experience with a product results in feedback andleads to improved innovations.



The Innovation ProcessFigure 1. Typical steps in the life cycle of a new technology

Research

Patenting

and

Approval

Adoption

Developme

nt

Production

Marketing

Discovery



Technology Adaptation and Appropriateness

• Rarely is the same technological solution optimaleverywhere. The value of an innovation depends on socio-economic,climatic, and ecological specifics.

• Important innovative activities adapt technological

solutions to specific conditions. – Export of technologies across regions without adaptation maylead to negative environmental side effects and waste.

• A technology may have several versions to meet needs

and capabilities of various users in a region, e.g., large vs.small farmers’ versions of a machinery.

• The establishment of an innovative capability starts with abuildup of capacity to support and adopt innovations and newtechnologies.

Induced Innovations



Induced Innovations

• Innovations respond to need and economic conditions.

Inventors, investors, and researchers put effort intosolving burning problems, and that leads to innovations. – Labor shortages led to mechanized equipment.

– Drought conditions led to improved irrigation.

– Energy crises led to higher efficiency cars. – Farmers’ cooperatives were established during periods of

excessive low farm prices.

• Environmental regulations trigger cleaner

technologies. – A tax on carbon will lead to improved stoves and power plants.

Various Types of Innovators



Various Types of Innovators

• In the past most innovations were introduced by

practitioners. Even now practitioners are important

innovators. They identify a way to meet needs.

• The scientific discoveries of the late 19th century gave riseto science-based innovations (Edison, Bell, Marconi).

• Major companies (IBM, Sony, Bell, Kodak, GM) built theirown research labs.

• Public sector labs made important agricultural andenvironmental discoveries.

• Universities and start-up companies are becoming majorsources of new innovations. The ownership of a technologyand leadership in its applications move betweenorganizations over time.



Incentives for Innovations

• Patents: Awards monopoly rights for 17-20 years.

– Patent protection allows publication of research findings thatleads to innovations.

– Patent rights (for certain applications) can be transferred.

– Patents are valid only where they are registered.

• Copyright protection: Pertains to books, brand names, andthe media.

• Trade secrets: Protects against thefts.

• Plant breeders’ right: Allows exclusive sales of varietiesand allows farmers to reuse seeds.

• Prizes: Awarded to winners of a contest for finding atechnical solution to a problem.

• Indigenous knowledge is poorly protected.



Investment in Research: A Key Element of

Environmental Policies

• Research enables discovery of basic environmentalproblems. Without research, not much would havebeen known about the link between smoking and

cancer.• Research provides better monitoring andmanagement equipment to help identifyenvironmental problems and monitor response.

• Public research enables sustaining development oftechnologies that may not be economical underexisting prices.



Division of Labor

• Basic research: Gain more comprehensiveknowledge or understanding of the subject understudy, without specific applications in mind.Conventionally conducted by universities.

• Applied research: Apply knowledge. Oftenconducted by industries.

• Educational-industrial complex : Universityresearch has led to the creation of new firms and

even industries, brought old ones down, and, ingeneral, profoundly impacted rates of innovationin the larger economy.

Stakeholders in the



Stakeholders in the

Innovation Process•

•

•

•

•

•

•

Ad ti d Diff i



Adoption and Diffusion

• The use of new technologies spreads gradually.

• There is a significant time lag between the time a newinnovation is introduced and when it becomes widely usedby producers or consumers.

• Diffusion is the aggregate process of product penetration. – It is measured by the percentage of potential users who actuallyadopt a technology.

• Diffusion curves measure aggregate adoption as a function

of time. They tend to be S-shaped.• Adoption is a decision by a specific individual to use atechnology. Diffusion is aggregate adoption.



The S-Shaped Diffusion Curve

S



Stages of Diffusion

• We distinguish among: – Early adopters: More educated, innovative

individuals who gain from technology.

– Followers: The majority of adopters who see itssuccess and want to join in.

– Laggards: Less-advanced individuals who

either do not adopt or adopt very late and may

lose because of the technology.

Ad i I i i



Adoption as Imitation

• Some explain the S-shaped behavior as theoutcome of imitation.

• Contact among individuals is the driving force ofdiffusion.

• Profitability of the new technology, ease of use, andquality of technical support are factors that canenhance diffusion.

• VCRs, wireless communication, Bt cotton, and

Viagra were technologies with a fast rate ofdiffusion, while personal computers and IPM hadslower adoption rates.



Threshold Model

• The factors behind diffusion:

– Heterogeneity of potential adopters.

– The individual decision process aimed at improving well-being.

– Dynamic forces that make technology more attractive.

• Source of heterogeneity (size, location, land quality, and humancapital).

• Decision criteria (profitability, well-being, risk minimization).• Dynamic processes that drive adoption (learning by doing,

learning by using, network benefits).

li ti f th Th h ld A h



pplication of the Threshold Approach

• Mechanical innovations: Tractors and cars are adoptedby larger farms and richer families.

• In the case of a tractor,

L = size of farm

a = saving per acre

P = cost of tractor

Adopt if P > aL

L = P/a critical size.Critical size declines because P declines. As a result

of learning by doing, a increases as a result oflearning by using.

Other Examples



Other Examples

• Water-conserving technologies (sprinklers) increase water-use efficiency if:

– With traditional technology, 50% of applied water is actually consumed.

– 75% is consumed with sprinklers.

– It results in higher yield and water saving .

• Technology adoption occurs: – In sandy soils and hills where the traditional technology is especially

inefficient.

– Locations where the price of water is high.

– With high-value crops.

• Green Revolution technologies arehigh-yield varieties that

require complementary inputs (fertilizers and sometimes water).They are adopted when: – They have high yield and cost effects.

– Farmers have access to credit.

Adoption and Risk



Adoption and Risk

• Impacts of technologies are unknown. Risk considerations slowadoption.

• One approach in assessing a technology:

– Maximize Expected benefits-α risk • whereα is a coefficient of risk aversion.

• Risk may be measured by a variance of profit.

• Policies that reduce risk include – insurance (crop insurance enhances adoption)

– Diversification.

• An alternative approach: Select the technology with the highest

benefit given that it yields minimum required benefits at the worstcase scenario. This approach aims to assure sufficient resourceduring drought.

• Good inventories, banking systems, and asset accumulationpossibilities reduce the need for protection against risks.

Adoption Credit Location



Adoption, Credit, Location,

and Education

• Lack of credit and high cost of credit are major impediments foradoption.

• Poorer consumers and farmers may be more constrained by risk and credit constraints.

• Adoption may be slower at far away locations because of lessaccess to information and sources of technology, higher cost ofinputs. In some cases, however, early adopters are at distancelocations(if technology reduces transportation costs).

• Adoption requires a high learning cost -more educated individuals

tend to be early adopters. When the technology issimple,sometimes less sophisticated individuals adopt first.

Ad i d P li



Adoption and Policy

• The government may enhance adoption through positive

incentives such as: – Price support of products produced with technologies.

– Extension and education.

– Credit subsidies.

– Insurance schemes.

– Cost-sharing arrangements.

• Negative incentives – Regulation against existing technologies (pesticide regulation enhances

biotechnology).

– Higher cost of inputs used intensively with existing technologies (waterprice hikes).

• Key elements of environmental policy are incentives to

– Induce innovation of greener products.

– Induce adoption of cleaner products.



Timing of Adoption

• Sometimes it is worthwhile to wait and see andnot adopt immediately when benefits oftechnology exceed costs.

• Cost of technology may decline over time. Youshould wait if the reduction in technology cost>than the cost of waiting.

• When a technology has uncertain irreversibleoutcomes- waiting to learn more is prudent.

• Waiting prevent the opportunity of learning andimproving a technology- the gains from waitingshould be compared to the costs.

G t & d ti



Government & adoption

• Governments and Ngo’s are promoting and encouraging adoption

of technologies• Government is using incentives, initiate advertisement and

promotional campaigns.

• Extension is an institution used for education and support of

diffusion processes. – Extension should complement private sector marketing of new technology

-not replace it.

– In some cases extension’s clientele are mostly technology providers-not

users

– Extension role is to provide balanced assessments of new technologies notadvocate them.

– Extension role is adaptation of technology

– Extension may initiate and implement institutional innovations

14 INTREPRENEURSHIP

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