1. -1587328-2247608-23094952651760Exploring the relevance of Schumpeterian considerations to entrepreneurship & family businessINTBUS705 – Advanced Entrepreneurship - Assessment Two: Contextual EssayBy Jessica MaherOctober, 2010<br />INTBUS705 – Advanced Entrepreneurship - Assessment Two: Contextual Essay<br />Exploring the relevance of Schumpeterian considerations to entrepreneurship & family business<br />By Jessica Maher<br />INTRODUCTION & EXECUTIVE SUMMARY TO BE ENTERED HERE AND CHANGED INTO DARK GREY TEXT <br />Given the widely accepted ‘adolescence’ or youth characterisation to the field of entrepreneurship CITATION deB04 638 5129 (de Bruin & Lewis, 2004, p. 638) the variance and difference in what is widely accepted to be defining entrepreneurial may come as a surprise to one whom was not familiar with the field. There is increasing evidence that traditional constructs and models of business, by its very nature, assumed the element of familiness as a contextual relevant social structure to be intertwined and as such have an influence and inpact on each other. 28352752394585A theoretical framework for entrepreneurship in a family business context is difficult to define, due at least in part, to the lack of conceptual frameworks agreed upon in either field (Craig & Lindsay, 2002). Despite this, the significance of considering family business and entrepreneurship, particularly in a New Zealand setting, is unavoidable. <br />Involvement of family is widely accepted in our local business contexts, where it is not uncommon to find situations where ‘whole families are deeply small business enterprises’ (Department of Labour, 2004). In fact, Nicholson, Shepherd & Woods (2009) explicitly state that ‘the foundations of New Zealand’s business landscape are built on successful family businesses’ (p1). Attempting to avoid entering into extensive debate as to the exact defines of what “success” consists of for family businesses in its entirity, it is assumed that at least one element of such success on some level relates to achieving growth and/or innovation. <br />Furthermore; as Kiwi’s, we pride ourselves on being entrepreneurial and innovative, evidence of which can be found in our fascination with the concept of the “No.8 wire”. In fact, cited in a recent New Zealand Trade & Enterprise report, (NZTE, 2009), Frederick & Chittock claim that Auckland is the most entrepreneurial city in the OECD, presenting just one example of this ultimately ingrained Kiwi construct and belief as self proclaimed innovators CITATION New08 5129 New09 (New Zealand Herald, 2008; New Zealand Trade & Enterprise, 2009). The reality is that the underlying accuracy of this claim is, to a large degree, dependent on how such constructs are defined. <br />Given the significance of innovation in our economies and current markets, it seems natural that Schumpeterian considerations of entrepreneurship should hold primary relevance and focus. McCraw & Roberts (2007) extensively discuss the significance and relevance of Schumpeterian economics in modern understandings of economics, prasing his emphasis on the importance of adopting broader conceptualisations to definitions of entreprenuership. They go so far as to label the “21st century as the century of Schumpeter” with informal reference to theorists such as Summers & DeLong (McCraw & Roberts, 2007).<br />Despite the renewed populairty of Schumpeter’s models and concepts of entrpreneurial activity within consideration of technological developments & innovation in modern research, consideration specifically in a family business context is relatively limited. The wide impacting influence demonstrated by ongoing focus and narrow considerations of modern academic specialities appears to have negetively impacted understanding and conceptualisation largely in entrepreneurship, particularly in the context of the family-embeddedness. <br />Whilst ther is some considerable overlap between small byusiness and entrepreneurship, Schumpeter emphasised the reality that not all new ventures are entrepreneurial by nature, indicating as such that these constructs may have commonly been confused as the same (Carland, Hoy, Boulton, & Carland, 1984, p. 76). An intial overview of the foundations of Schumpeterian understandings of entrepreneurship, before outling and exploring the family business context. The relevance of these separate but overlapping considerations will then be explored, drawing out the most related and significant factors.<br />This begs the question of whether typical New Zealand SMEs should be considered “entrepreneurial family businesses” or wether many of us may have missed the importance of Schumpeter’s innovative considerations and are infact just small businesses?? <br />An Introduction to Schumpeterian Entrepreneurship <br />Not only can Schumpeter hold claim as one of the founding fathers of entrepreneurship, but he continues to hold increasing elevance in modern society and academia. Whilst many of his concepts and models featured assumptions which in todays context, seem apparent and obvious, it important to remember that this was written at a time when Keyseianism and general equiliburm theory firmly dominated the fields of research & academia CITATION Spe 5129 (Spencer & Kirchhoff, 2). In fact, almost characteristically, Schumpeter was a theorist and academic whom was ahead of his time CITATION McC07 5129 (McCraw & Roberts, 2007), By identifying the lack of balance and perspective, the absence of innovation altered Schumpeter, alought may not directly, to the inappropriately static and simplistic elements of the research and theorist around him. <br />Describing the difference between the inherent risk associated with ownership, and the role of innovative combiner characteristic to the entrepreneur, Schumpeter further discussed the various “types” of entrpreneurs. Describing two types of entrepreneurs; he describes ‘Mark I’ encompasses the traditionally empahsised small firm startups, while ‘Mark II’ represents entrepreneurship within large established firms. The relevance of these ideas continues to have increasing significance as studies of entrepreneurship are forced to be broadened with changes in our societies (for example, consider the inclusion of ‘social’, ‘ethnic’ and ‘corporate’ entrepreneurship in this particular paper). <br />Schumpeter believed that at the core of entrepreneurship there was innovatiuon. Whilst the earliest conceptualisations of economics (such as Cantillion & Mill, as cited in Carland et al, 200) defined entreprneuership with an assumption of risk, Schumpeter furthered this concept; by perciving elements of risk bearing as an intrinsic element of ownership, Schumpeter argued that entrepreneurs, as the ‘combiners’ of resources and opportunity, were not always the ‘owners’ and as a result discredited the ‘risk bearing propensity’ as an entrepreneurial trait CITATION Car84 78 5129 (Carland, Hoy, Boulton, & Carland, 1984, p. 78). <br />Aligned and inspired by Marxist concepts and emphasizing a sociological element to economics, Schumpeter recognized the limitations to the economic “profit maximisation” focus, rooted in the assumptions of achieving equilibrium. Contrary to the common economic assumption that the only course of rational action is profit maximisation, Schumpeter (1911, 1934 & 1942) considered the contextual potential & possibility that entrepreneur’s objectives may sit outside this. Goss CITATION Gos05 5129 (2005) emphaises the significane influence and relevance of sociology and other principles of the multidisiplinary approach taken by Schumpeter; consierable ciscuss emphasied in discribing of the “bounded rationality”. evident in models, <br />Discussing entrepreneurial characteristics, Goss (2005) quotes Schumpeter arguing the case for considering bounded rationality; he explained that “(an individuals) wants must be taken with reference to the group which the individual thinks of when deciding his course of action” CITATION Sch341 91 5129 (Schumpeter J. A., 1934, p. 91). This particular concept has continued to gain increasing valance and significance given our current and future contexts and resulting changes in technology, business and broader conceptualisations of, what is increasing becoming the conceptualised socio-economic contexts . Demonstrated understandings of Schumpeter’s historically unrecognised ability for foresight and deepth of understanding has not been recognised until relatively recently.. <br />Table SEQ Table ARABIC 1 | Schumpeter (1934): outlines 5 Categories of entrepreneurial behavior Potentially the most discussed of Schumpeter’s models of entrepreneurship was founded in his conceptual assumption that the role of entrepreneurs to be “creative change agents” CITATION Her89 5129 (Herbert & Link, 1989). Schumpeter viewed the entrepreneur as the cause (‘persona causa’) of economic development and the mechanism of economic change. Acting as a disruptive force, Schumpeter refered to this process as “creative distruction”. Schumpeter described entrepreneurial behavior as a functional role in the economic development model, distinguishing it as a “special type” of human activity which ‘differs from general economic behavior and allocative design making’ (Endres & Woods, 2010). Schumpeter outlined four characteristic processes of entrepreneurs in his 1934 book, which was later extended to also include Industrial Reorganisation (shown in Table 1).<br />“life cycle model” -Fundamental to his model, Schumpeter emphasised the significance of each full business life cycle being characterized by a specific innovation (Kisch, 1979 p 151).<br />The Family Business Context <br />In evidence of the need for a family-embeddedness perspective on entrepreneurship, Aldrich & Cliff (2003) describe a historical reality where the word “family” in business was made reduendant due to the acceptedness of them as the standard format and wide recognition of the twos inextrinicsly linked natures (p.575). <br />Table SEQ Table ARABIC 2 | Family business as defined by Nicholson, Shepherd & Woods (2009)The sub systems of the “family unit” and the “business entity” are separately distinguishable and relevant to one and other, however have largely been omitted from business theory and research’ (Heck et al, 2010??, p317). Craig & Lindsay (2002) state that definitions and models of entrepreneurship do not differentiate between family and non-family firms (p. 419). Despite this, there are also wide and extensive examples and evidence of the importance of family to entreprenuership. Raggoff (2003) goes as far as to describe family as an ‘important source of the oxygen that fuels the fire of entrepreneurship’ (p.561). While the majority of theorists may have over looked the influence of the intrinsicly entertwined reality that family and business are integrated, Aldrich & Cliff (2003) suggests this is an understandable oversight (p.574). The fragementation and differentation experienced in many fields of academia has directly resulted in narrow definition of entrepreneurship. Focus has been imbalanced to the singularity attentiveness to the business dimension, providing simplistic and unfinished conceptualization of this interaction (Heck & Mishra, 2008). <br />Are kiwi businesses mainly family ones? <br />So before we consider how entrepreneurial our multitudes of SMEs are, we need to reach agreement about what defines and makes a family bus? <br />Nicholson, Shepherd & Woods (2009) definition provides rather inclusive criteria, arguably surpassing other theoretical definitions by the critical inclusion of the leaderships’ perspective of the classification as a consideration (p1). <br />Whilst we have clearly established that the a significant proportion of New Zealand’s small to medium enterprises likely demonstrate potnetial for characterisation within a family embedded perspective, it is unclear academically as to the efficetiveness and relevance of (our self proclaimed) levels of innovativeness or discussion as to the representative proportion of our SMEs that are indeed entrepreneurial within Schumpeterian considerations.<br />Entrepreneurial Family Businesses? <br />It is unclear as to the effectivreness of the family dynamics influence on entrepeneurial behavious and activitires. Lumpkin et al (2010) describe the ongoing debate at the point where these two fields of family business and innovation intersect. While some suggest family business can potentially encourage an environment that fosters entrepreneurial activity, others suggest it increases risk aversion and causes reluctance to innovate and create change (de Bruin & Lewis, 2004)(Lumpkin). Despite their seperated evolution along different paths, their are obvious overlaps between research in family business and entrepreneurship; Raggoff CITATION Rog03 5129 (2003) identidies three important foci which are common accross them; the primary focus on businesses as the most important system, tendancy to consider simular dimensions of business under examination and the focus on time dimensions or stages (p.560). <br />Schumpeter’s model of entrepreneurship specifically focuses at a fundamental level around concepts of innovation and change. <br />Schumpeterian Entrepreneurship in the Family Context <br />Indeed Schumpeter in his work, simplistically and briefly addressed the issue of the family construct. His book, Entrepreneur expresses a view that the family unit can be thought of as a single entity for the purposes of social theory, in that benefits are maximized for the family as a whole rather than any single individual (Knudsen & Becker, p. 219). Schumpeter’s concepts related to “bounded rationality” have particular relevance in family business where the objectives of the organization may further differ from contemporary forms of organization. <br />Even more relevant today, Schumpeter argued that the concepts of the capitalist approach continue to be perpetuated by a focus on individualistic and short term gain CITATION Sch42 5129 (Schumpeter J. A., 1942). Aligned with a Mark I construct of entrepreneurship, the importance of the role played by the family is to support, founded and grow (Heck, Hoy, Poutziouris, & Steier, 2008). <br />Creqative distruction may initial be associated with conflicting to family busines, but on closer inspection, evidence of inclusive considerations made by Schumpeter are evident. In his extended discussion and conceptualisations of the construct of “creative distruction process” he is qupted saying they can be along side not only over the top… niche markets as part of progression of innovation and market change, such as that of the individual technology devices used for playing music. Aligned with Sch’s concept that the innovation process creates a disturbance on the “standard flow” of the economy, it is expected his emphasis on the dimension of time would have been interpreted as more specifically, an distruction of the market equalimibrum in the marrow limits of the economic models of his day. <br />Table SEQ Table ARABIC 3 | Schumpeter’s theory reduced to three elementary & corresponding pairs by Herbert & Link (1989)True to the cyclical nature emphasised in his models and adding the inclusion of the time dimension as an element of such constructs, the relevance and inherent assumption that “family”, just like any other social structure or construct (for example; organisation, culture etc) are critical contingency providing much broader applications of these fundamentally Schumpeterian understandings. Herbert & Link (1989) reduced Schumpeter’s theory to three elementary & corresponding pairs with the entrepreneurial elements represented by the process of change in economic routine or data and emphasis on dynamic theorertical models.<br />Processes: considering perspective & the cyclical nature of innovation<br />Initial assumptions would suggest that Schumpeterian considerations of the innovation process; whereby the ‘new’ is born out of the ‘old’- a term he coined, the process of “creative destruction” suggests that the family culture and environment fosters innovation within family businesses, which aligns with Schumpeter’s belief in an organic model of economics in which effective change comes from within CITATION Bet10 5129 (Betta, Jones, & Latham, 2010). <br />For example, aligned with the “creative destruction” concept, Schumpeter describes innovation as a rebirth of opportunity, whereby a process of new developments render the old obsolete and non-viable. This is incongruent to the aims of family business, whereby considerations of the collaborative or directive nature can also demonstrate complementary concepts and trends. (Niedermeyer et al).<br />Schumpeter identified three cycles of varying time orientation (40 month – Kitchin, 7-8 year – Jugler, and 50 year – Kondratieff) which are all subject to four different stages; prosperity, recession, depression and recovery. Although all businesses struggle with Schumpeter’s inevitable business life cycle, family-owned firms have some special burdens. Family firms frequently pride themselves on their loyalty to employees and their strong culture and traditions Both practices can create resistance to change, however CITATION War97 5129 (Ward, 1997).<br />dynamics: considering the Influence of “time” & Time Orientation <br />The influence and consideration of the “time” dynamic within entrepreneurial models is of particular relevance to Schumpeterian understandings of economics. In a discussion of time orientation, Lumpkin, Brigham & Moss (2010) descrive conflicting perspectives with suggestions that such family embedded contexts foster entrepenreuenrial activities, opposed to theories that the risk adverse nature, typical to family business, create a reluctance to innovate and slow speed of change (p 241). .. Many family businesses feature a long term orientation and research suggests the enterprises associated with such orientations, coupled with aspirations of growth, often demonstrate stronger performances CITATION Lum10 5129 (Lumpkin, Brigham, & Moss, 2010).<br />Whilst not explicitly addressed in this context, Schumpeter’s understandings of the “business cycle” embrace the significance of time orientation with its cyclical nature. Whilst the focus is again detracted on the influence and effect of familiness on the entrepreneurial process, the sutlely of Schumpeter’s contextually radical constructs and models inherent in this overlap have been repeated misinterpretated by subsequent Schumpeterian academis. Schumpeterian understangings of entrepeneruership emphaised the inappropriateness of the static considerations of economics poluar in his day. Describing Schumpeter’s concept of “creative distruction”, Kisch (1979) claims that in a family business context, such innovation is increasingly problematic. Understandably, the insight gained since such time, particularly within technological advances, was something Kisch (1979) appears to have struggled to fully conceptualise.<br />In some cases, the focus on creating intergenerational legacies encourages an incredibly prolonged time frame within which risk and opportunity are assessed. (Lumpkin et al, 2010). Perspectives inflyuenced by longivety<br />COnduct: Considering Stewartship & the relevance of Agency Theory <br />The time orientation of family firms is just one example of how they can substantially differ from the standard principle: agent organizations which typically have a shorter term orientation. The emotional integration and investment into family businesses often adds an additional layer of complexity to entrepreneurial considerations. Central to many understandings of economics and business, we can find indications of agency theory which indicates the potential divergence between the goals of individuals (agents) and owners (principles) CITATION Zah08 5129 (Zahra, Hayton, Neubaum, Dibrell, & Craig, 2008). Contray to this, an orientation of stewartship is relevant to the family business context as it allows for the possibility of goal congruence between owners and managers (Zahara, et al., 2008).<br />Because of the mutual interdependence inherent to the family unit, the concept of stewardship naturally applies. This is considerably relevant within the discussions of the stewartship concept, given the ongoing debate as to the true “entrepreeneurial ability” of family businesses. <br />Discussion and Conclusions<br />Possible Extensions<br />Given the narrowly focused requirements for this particular review, a number of areas have been briefly considered or touched upon without further expansion. Given the relevance and fundamentally intrinsic significance of the study of both family business and entrepreneurship in a New Zealand context, there could be potential for valuable insights or understandings to be drawn or uncovered in further specified investigation and consideration. <br />Works Cited BIBLIOGRAPHY Aldrich, H. E., & Cliff, J. E. (2003). The pervasive effects of family on entrepreneurship: toward a family embeddedness perspective. Journal of Business Venturing , 18, 573-596.Betta, M., Jones, R., & Latham, J. (2010). Entrepreneurship and the innovative self: a Schumpeterian reflection. International Journal of Entrepreneurial Behaviour & Research , 16 (3), 229-244.Carland, J. W., Hoy, F., Boulton, W. R., & Carland, J. A. (1984). Differentiating Entrepreneurs from Small Business Owners: A Conceptualization. Academy of Management Journal , 9 (2), 354-359.Choi, Y. B. (2003). Schumpeter on Entrepreneurship. 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