Academic journal article Journal of Applied Management and Entrepreneurship

Entrepreneurship and Innovation: Austrian School of Economics to Schumpeter to Drucker to Now

Academic journal article Journal of Applied Management and Entrepreneurship

Entrepreneurship and Innovation: Austrian School of Economics to Schumpeter to Drucker to Now

Article excerpt

Executive Summary

The key process in economic change is the introduction of innovations, and the central innovator is the entrepreneur. There will always be continuous winners and losers in this system. The entrepreneur is the actor/initiator in this change process. The entrepreneur, seeking profit through innovation, transforms the static equilibrium, circular market flow, into the dynamic process of economic development. He interrupts the circular flow and diverts labor and land to investment. "The function of entrepreneurs is to reform or revolutionize the pattern of production by exploiting an invention or, more generally, an untried technological possibility for producing a new commodity or producing an old one in a new way, opening a new source of supply of materials or a new outlet for products, by reorganizing a new industry" (Schumpeter, 1952).

Historically, entrepreneurship and innovation have always been important to both practitioners and researchers. The global marketplace has placed even greater emphasis on these important variables. Globalization is frequently referred to as the absence of borders and barriers to trade between nations resulting in a shift in traditional/historic patterns of investment, production, distribution and trade requiring the development of inter-organizational relationships (i.e., strategic alliances) by organizations to efficiently and effectively meet the changes in demand for goods and services (Ohmae, 1985; Dicken, 1992; Brown, 1992; Renesch, 1992). The globalization of markets has transformed the business environment to such a degree that some experts argue that the gap between the multinational and the global world is so great that management must "unlearn" the past to be effective in the future (McGiIl & Slocum, 1993; Harvey, Speier & Novicevic, 1999a). The foundational concept of "boundarylessness" of the organization (i.e., the ability to cross traditional borders of geography, culture and economics as well as time, space, scope) has become a necessary consideration of global organizations of the 21st Century (Rhinesmith, 1993; Bartlett & Ghoshal, 1998).

Due to the omnipresence of the globalization phenomena with characteristics of hypercompetition, entrepreneurship and innovation have become increasingly important. The nature of these hyper-competitive conditions will necessitate that management: 1) recognize that competitive advantages are time-sensitive and therefore, will erode quickly; 2) develop strategies on a continuous basis recognizing that there will only be temporary market advantages; 3) adjust the conventional wisdom in management relative to shortening timeframes due to the "quickening" nature of competition; 4) redefine historic industry boundaries due to deregulation and non-traditional competitors entering their industries; and 5) redefine the concept of time as a competitive variable that is necessary in the "creative destruction" of global competitors' market advantages (Eisenhardt and Brown, 1998; Ireland & Hitt, 1999).

Even though competition is now defined differently than during the Austrian School's Era, the capitalist system has always contained forces that bring about change and development. Schumpeter (1934, p. 68) concludes that anyone seeking profits must innovate, that is, bring about "the different employment of the economic system's existing supplies of productive means." Innovation has been defined as consisting of five types (Schumpeter, 1934, p. 66). Two types: new methods of production and new sources of supply of raw material or semi-finished goods are identified as process innovations. The three other types are: product innovations: a new good or a new quality of a good, opening a new market, and a new industry structure such as the creation or destruction of a monopoly position.

This paper will compare the Austrian School of Economics and their views of innovation and entrepreneurship to those of one of their champions, Joseph Schumpeter. …

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