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

Abstract

Executive Summary key process in economic change is introduction of innovations, and central innovator is entrepreneur. There will always be continuous winners and losers in this system. entrepreneur is actor/initiator in this change process. entrepreneur, seeking profit through innovation, transforms static equilibrium, circular market flow, into dynamic process of economic development. He interrupts circular flow and diverts labor and land to investment. The function of entrepreneurs is to reform or revolutionize 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 (Schumpeter, 1952). Historically, entrepreneurship and innovation have always been important to both practitioners and researchers. global marketplace has placed even greater emphasis on these important variables. Globalization is frequently referred to as absence of borders and barriers to trade between nations resulting in a shift in traditional/historic patterns of investment, production, distribution and trade requiring development of inter-organizational relationships (i.e., strategic alliances) by organizations to efficiently and effectively meet changes in demand for goods and services (Ohmae, 1985; Dicken, 1992; Brown, 1992; Renesch, 1992). globalization of markets has transformed business environment to such a degree that some experts argue that gap between multinational and global world is so great that management must unlearn past to be effective in future (McGiIl & Slocum, 1993; Harvey, Speier & Novicevic, 1999a). foundational concept of boundarylessness of organization (i.e., 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 21st Century (Rhinesmith, 1993; Bartlett & Ghoshal, 1998). Due to omnipresence of globalization phenomena with characteristics of hypercompetition, entrepreneurship and innovation have become increasingly important. 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 conventional wisdom in management relative to shortening timeframes due to quickening nature of competition; 4) redefine historic industry boundaries due to deregulation and non-traditional competitors entering their industries; and 5) redefine concept of time as a competitive variable that is necessary in creative of global competitors' market advantages (Eisenhardt and Brown, 1998; Ireland & Hitt, 1999). Even though competition is now defined differently than during Austrian School's Era, 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 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. 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 creation or destruction of a monopoly position. This paper will compare Austrian School of Economics and their views of innovation and entrepreneurship to those of one of their champions, Joseph Schumpeter. …

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