Technological Innovation and Entrepreneurs

Technological innovation and entrepreneurship are interrelated concepts that play a crucial role in shaping industries and society. Entrepreneurs are defined as risk-takers who introduce innovative goods and services, fundamentally altering market dynamics. Unlike established businesses that often prioritize stability and risk management, entrepreneurs thrive on creative destruction, a term coined by theorist Joseph Schumpeter, which emphasizes innovation as a driving force for societal change.

In the twenty-first century, innovation extends beyond merely inventing new products; it involves successfully bringing these advancements to market. This process is characterized by the concept of sustainable innovation, which encourages ongoing adaptation and responsiveness to market demands. Entrepreneurs are seen as pivotal in identifying opportunities for innovation, whether through internal organizational insights or external market trends, including demographic shifts and technological advancements.

Successful innovators require strategic planning and organizational skills to effectively implement their ideas. They must not only anticipate market needs but also maintain a focus on simplicity and applicability to ensure their innovations resonate with consumers. Ultimately, the relationship between technological innovation and entrepreneurship underscores the necessity for continuous evolution and responsiveness in a rapidly changing economic landscape.

Published in: 2021

By: Wienclaw, Ruth A.

Subject Terms

Technological Innovation and Entrepreneurs

Abstract

By definition, entrepreneurs are risk takers who offer innovative goods and services to the marketplace. By doing so, entrepreneurs often change not only their industry but society itself. Innovation in the twenty-first century is more than the invention of new products that can be brought to market, however. To be considered innovative, a product or process must not only be new or a significant improvement over what was previously available, it must also have been successfully introduced in the marketplace or used in production. Such innovations do not occur by luck alone. More and more entrepreneurs are implementing a process of sustainable innovation that keeps them on the leading edge in their field rather than focusing on transforming from an entrepreneurial organization into a traditional one. Sustainable innovation can be aided through the analysis of several sources of innovation and leveraging these into goods or services that continue to change both industry and society.

Keywords Entrepreneur; Innovation; Strategic Planning; Technological Diffusion; Technology

Entrepreneurship > Technological Innovation & Entrepreneurs

Overview

There are many reasons that people and businesses purchase goods and services. Sometimes they have an obvious need for a product or service to ease their lives or keep their businesses profitable. Other times, they have a perceived need created by marketing efforts to sell the product or service. Although some of the new goods or services represent only minor changes to what was previously available (this season's fashions offer changes in color or style, not an elemental change in the nature of clothing or of cloth), some are innovations: products or processes that are new or significant improvements over previous products or processes and that have been introduced in the marketplace or used in production. Although established organizations offer innovative products or services, they also tend to strive for stability and managed growth rather than risk taking. Entrepreneurs, on the other hand, are risk takers who by definition are involved in the process of innovation.

Entrepreneurs are often thought of simply as persons who start a new business venture. However, as early as the 1930s, Joseph Schumpeter—one of the foremost theorists about the nature of modern entrepreneurship—observed that entrepreneurship is "the process of creative destruction" and that it stimulates fundamental changes in society. According to Schumpeter, the entrepreneurial process is instigated by the discovery of new technologies, products, processes, or markets that create alternatives to those already existing and, as a result, stimulate societal change. Later theorists began to think of sustainable innovation as a fundamental force for change both in business and in society in general. In this view, innovation becomes the operational definition of entrepreneurship.

By this definition, entrepreneurs are not necessarily found in small, start-up organizations. They can be found in organizations large and small, emerging or established. However, it is in the nature of most business organizations to strive toward stability rather than to the long-term risk taking that is essential to both entrepreneurship and successful innovation. As a result, it is typically easier for small firms to be innovative than large firms. Plehn-Dujowich, in a 2013 study sponsored by the US Small Business Administration, found that innovation in young, small firms (with 290 or fewer employees and under eighteen years since going public or being listed in Standard and Poor’s CompuStat database) averaged more than six times as many patents per million dollars of research and development stock, as compared to older, larger firms (averaging 1.75 and 0.34, respectively).

Although at its most basic, innovation is just something that is new, the term also carries with it the connotation of an improvement—something that is better than past versions. Innovation is also often thought of as the result of the creative process, a product or service that is different from what has gone before and not an obvious solution. Innovation can be something revolutionary, such as the first desktop computer or the first patented soft drink. Innovation can also be evolutionary, such as a different user interface for application software or sugar-free soft drinks.

Innovation is more than mere invention. An invention is a new product, process, or service that has been developed after a process of analysis and experimentation. Innovation, on the other hand, goes beyond this definition and includes the act of successfully introducing that product, process, or service to the marketplace. For example, if the new widget I just invented sits on my desk, it is no less an invention than if it is sold to millions of customers. However, until it is put in use that is widely accepted within the industry, marketplace, or society at large, it is not an innovation. The difference between invention and innovation is use and acceptance.

Innovation also differs from improvement. An improvement is the same thing that works better (a faster math coprocessor). An innovation, on the other hand, may be used for the same purpose as a previous device or process but does so in a way that changes the way that people do the thing. For example, toasting bread over an open flame on top of the stove is much the same as toasting bread under an open flame in a broiler. The electric toaster, however, was an innovation: Toast no longer required an open flame but—more importantly for the definition—it no longer required careful watching by the cook. The innovation of the electric toaster changed the way we make toast. Since that time, there have been other changes to toast science: We have four-slice toasters and toasters that toast bagels. However, these are improvements, not innovations. The basic toast-making process is the same no matter what toaster is used.

In the twenty-first century, however, neither invention nor innovation necessarily involves the development of tangible new products (steam locomotives, radio receivers, personal computers). Rather, the term "technology" has acquired a broader meaning that reflects the changing nature of the workplace. In particular, technology in the twenty-first century includes advances in information technology and knowledge-based services. Most jobs in the industrialized world involve knowledge-based services rather than the production of goods. Such services typically add intangible value to the consumer (convenience, amusement, timeliness, comfort, health). Organizations in the business of providing service manage intellect rather than physical resources. For example, although firms are still needed to build ships, the infrastructure necessary to successfully design, develop, and operate those ships (engineering, logistics, manning, training, sonar) require more workers than does the actual shipbuilding process itself. To be successful in the postindustrial marketplace requires not necessarily a new product that is marketable to broader society (although such products are also innovations), but advancements in knowledge design that allow better design and development of such products. Innovative organizations that are successful in this environment often tend to focus on their individual competencies and outsource the rest of the process, operating in teams to bring innovative technologies to market.

To operate under the principle of sustainable innovation, innovative firms need two kinds of skills. First, successful innovation requires strategic skills, including the ability to synthesize market data in such a way as to identify trends and extrapolate these in order to anticipate new markets. Successful innovators turn these observations and analyses into strategic plans, articulating ways in which the organization can meet these anticipated market needs and specifying ways that the organization's resources can be applied to successfully create or meet the needs of the anticipated market. Second, successful innovative firms need to have the organizational skills necessary to implement these plans. This requires the ability to take and tolerate risks. In addition, successful innovation requires the investment of time, money, and human capital in the development of the new idea into a viable, marketable innovation. This requires the support and involvement of the entire firm not only on the working level, but also from top-level management in order to ensure success.

The innovation process does not end once an innovation enters the marketplace, however. The innovation needs to spread through various channels to different organizations, markets, industries, or geographical regions through the process of technological diffusion. This process is often lengthy as the innovation slowly changes the way that things are done and, in the process, affects society. Technological diffusion is also typically a gradual process as the market embraces the innovation slowly. One reason for this is that changes may be made to existing products or services in answer to the "threat" of the innovation. In addition, innovative products or services are also typically introduced gradually, one market at a time. This is necessary so that the usefulness of the innovation can be proven in one market, paving the way for broader acceptance in other markets. Consider, for example, the introduction of the desktop computer, which most people take for granted in the twenty-first century. In the early 1980s, this was still a new introduction to the marketplace with very few people having personal computers on their desks at work, let alone at home. Rather than immediately embracing personal computers, the market responded with the development of word processors to replace typewriters to ease the jobs of secretaries and typing pools. Eventually, however, the technology became refined and less expensive and other applications were realized, resulting in a situation where the presence of a personal computer is taken for granted in many households.

There are several general sources of innovation that are exploited by successful entrepreneurs. Although the original idea may have been based on a sudden insight, for long-term, sustainable success as an innovator, the entrepreneur needs to monitor all these sources of potential innovation for opportunities. One set of sources for innovation lies within the organization or industry. First, successful innovators examine every event as a potential learning opportunity that may be applicable to innovation. Both the unexpected success of an idea, process, or product as well as an unexpected failure can lead to innovation. Another source of innovation comes from incongruities between the way things are and how the industry or organization perceives they should be (the requirement for more complicated desktop-computing capabilities required the development of more affordable computing power). Other organizational or industry sources of innovation include unexpected changes to the structure of the market or industry (the development of the microchip resulted in a market for application software). In addition, successful innovators need to track changes external to the organization or industry. Demographic changes (e.g., the rise in the number of people in the general population who are computer literate), the development of new knowledge (e.g., how to develop a graphical user interface that reduces the need for specialized abilities to use a computer), or changes in perceptions (e.g., the acceptance of computers as a way to make life easier) can all lead the observant entrepreneur to develop a marketable innovation to revolutionize the marketplace.

Applications

Successful innovation, however, requires more than the mere observation and understanding of such trends. To be successful, the entrepreneur needs to turn these opportunities into reality, turn a concept into new products or processes, and successfully introduce them to the marketplace. Peter Drucker itemizes several principles of innovation that contribute to the success of the entrepreneur.

First, although it is possible for an isolated innovation to be the result of a sudden insight, purposeful, systematic innovation that can better help an entrepreneur be and stay on the cutting edge of his or her industry must be based on the foundation of systematic, intentional analysis of available opportunities as discussed above. Even though all these potential sources of innovation may not contribute equally to the entrepreneur's continuing innovation, it is important to realize that inspiration can come from anywhere. In fact, thinking outside the box or viewing the problem from a different perspective can be of great help to better understand a condition, problem, or potential solution. This fact is recognized by the website InnoCentive, which encourages members of the global scientific community to work on research and development problems that organizations face. Often, the solutions come not from scientists in the field of research into which the problem falls, but from others who are able to see the problem from a different perspective.

Developing innovative ideas is much more than an armchair proposition, however. Although it is important to analyze statistics, data, and industry trends, it is equally important to talk to potential customers and users to determine what their needs are. An invention does not become an innovation until it is successfully used by the public. To be successful, therefore, the entrepreneur needs to marry the need and proposed solution to form a marketable innovation.

In order to successfully do this, an innovation needs to be focused and simple. By focusing the innovation effort on an initially small target market, the entrepreneur will be able to show its success in one marketplace and better argue its applicability in other areas. Although a new technology, product, or service might have unlimited uses, in order for it to be successfully marketed, the market share needs to be targeted and the marketing approach focused. For example, to try to sell a new computer to senior adults, it would more than likely be unwise to stress the technical aspects of the product since many seniors are not only unfamiliar or uncomfortable using computers, but may feel intimidated by them. Rather, good marketing would focus on what the potential innovation could do for them, stressing not processor speed or gigabytes of memory, but practical aspects that are readily understood by the potential consumer and that they understand will fill a need (e.g., reading books online with changeable font size for aging eyes).

In addition to keeping the focus of the innovation small, entrepreneurs are well advised to keep the innovation simple. As with any design effort, it is important to remember who will be using the innovation. Although the addition of "bells and whistles" may make the new product attractive to a small, specialized group (e.g., engineers, accountants), unless the entirety of the target market for the innovation is that group, it is best to keep the design simple. For example, if a user interface is too complicated or too clever, it will fail. Similarly, to try to sell a computer to senior adults by listing its innumerable possibilities could be confusing and intimidating, making success less likely than if the product were simpler.

Similarly, innovations need to have applicability in the present if they are to be successful. Potential customers or clients are not interested in a product or service that can solve their problems "some day." They need answers to the problems they encounter today. For example, the prototype of the graphical user interface (GUI) with which we are all familiar was invented by Xerox Corporation. In fact, the Xerox GUI could do many things that modern GUIs still do not routinely do. However, the GUI we typically use evolved from the Apple GUI that came later rather than from the Xerox tool. This is in part because the Xerox GUI was too diverse to catch the interest of the market whereas the Apple GUI was exceedingly simple. In addition, the Xerox GUI was several times more expensive than the Apple GUI and, therefore, out of reach for much of the eventual market. The Xerox GUI was also marketed to executives who—at least at the time—did not need an interface because they did not use computers. Apple, on the other hand, marketed its GUI to people who actually needed computers to do their work and were, therefore, able to bring their innovation to fruition. Although argument can be made that the Xerox GUI was superior, it was also too complex, ahead of its time, and targeted to the wrong market segment.

Partly due to the need to focus the scope of an innovation in order to increase the possibility of its success in the marketplace, successful innovations tend to start small. Henry Ford's idea of each person on an assembly line doing only one small part of the entire task and doing it over and over was successful not because he claimed that it would revolutionize the industry, but because it started small. Psychologically, people are less apt to buy into a paradigm-changing innovation that is a solution to a problem they did not know that they had than they are to a small innovation that can ease a known burden in one part of their lives. Such small introductions of an innovation into the marketplace aid the entrepreneur's success.

In addition, few, if any, innovations come out of the box full formed and perfect. Rather, they need to be fine tuned and shaped to better fit the needs of the marketplace. By introducing the innovation in a small way, the entrepreneur can gain valuable insights into how it is received by the target market, learn what changes need to be made, and determine other ways that the product, process, or service can be marketed. If the introduction into the marketplace has been small, these things can be done cost-effectively. However, if the introduction of the innovation into the marketplace has been a large-scale effort, it will require significantly more resources to make any changes necessary to better market the product. In addition, if the innovation has been introduced to a large market and fails, the reputation of the entrepreneur and the eventually reworked product could both be in jeopardy, making long-term success more difficult to accomplish.

To be successful at innovation, entrepreneurial firms must aim to become leaders in the field rather than to become big businesses. Big businesses have as their goal stability and profits for shareholders. Although big businesses do take risks, at heart, they are not risky ventures. Entrepreneurial ventures, on the other hand, are. If the goal of the entrepreneur is to take one innovative idea and turn it into a big business, the nature of that business will no longer be entrepreneurial. Rather, entrepreneurs strive to continue to innovate and become leaders in the field, continuing to take risks and introducing more innovations to the marketplace. If the entrepreneurial firm does not do this, however, it only becomes one of a pack of competitors on equal footing. For long-term success, the successful entrepreneur needs to continue to maintain a market advantage by continuing to assess the needs of the market and introducing new innovations.

The success of entrepreneurial firms in creating innovations and remaining on the cutting edge of their industry is not due to mere luck or serendipity. Rather, sustainable innovation is necessary for entrepreneurial firms to affect both industry and society and remain on the leading edge. This can be done through analysis, planning, and forward thinking, looking not only to the design and marketing of new products, but managing and offering knowledge-based services as well.

Terms & Concepts

Demographic Data: Statistical information about a given subset of the human population, such as persons living in a particular area, shopping at an area mall, or subscribing to a local newspaper. Demographic data might include such information as age, gender, or income distribution, or growth trends.

Entrepreneur: At its most basic, an entrepreneur is a person who starts a new business. However, the word typically carries with it the connotation of taking risks to turn innovative ideas into profit-making ventures.

Innovation: Products or processes that are new or significant improvements over previous products or processes and that have been introduced in the marketplace or used in production.

Market Share: The proportion of total sales of a given type of product or service that are earned by a particular business or organization.

Strategic Planning: The process of determining the long-term goals of an organization and developing a plan to use the company's resources—including materials and personnel—in reaching these goals.

Target Market: The people or businesses to whom the entrepreneur desires to sell goods or services.

Technological Diffusion: The process by which technological innovations are spread through various channels to different organizations, markets, industries, or geographical regions.

Technology: The application of scientific methods and knowledge to the attainment of industrial or commercial objectives. Technology includes products, processes, and knowledge.

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Technological Innovation and Entrepreneurs

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Subject Terms

Technological Innovation and Entrepreneurs

Abstract

Entrepreneurship > Technological Innovation & Entrepreneurs

Overview

Applications

Terms & Concepts

Bibliography

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