Role of creativity in entrepreneurship and innovation

Purpose of this paper is explaining connection between creativity, innovation and entrepreneurship. It will rely on different studies and theories to revel close connection between these three concepts. The first section of this literature review is focused on entrepreneurship and entrepreneur. Paper will explore different definitions and motivations of entrepreneur. In spite the fact that entrepreneurs are differently explained by many authors they are always related to change. Second section explores creativity and how it is seen by various authors. Moreover it will critically analyse factors that result in our creativity level. On the other hand it aims to emphasize how creativity should be treated in organizations culture. It will cast a light at creativity management and knowledge management as important factors in creativity enhancement. Third part of this paper is focused on innovation. Innovation is key component of entrepreneurship and how it is linked to creativity. Paper will provide insight in motivations and innovations processes those companies exercise in order to sustain their competitive advantage. Finaly forth section lists barriers that entrepreneurs encounter while promoting their innovations. Trough this section paper will present different scenarios that lead to innovation being canceled. In addition it will point couple policies that reduce creativity of employees and managers inside organization.

Word about Entrepreneurship

Cambridge dictionary defines entrepreneur as a person who starts his own business especially when it involves risk. As stated entrepreneurship involves two things- change and risk.

Entrepreneurship is best described as process of change, where participants engage venture to achieve particular ambitions and aims.

Earliest definition of entrepreneurship was given by Cantillon (1734) where he states that entrepreneurship is self-employment with uncertain result. This means that entrepreneur is taking a risk which is true, although it doesn’t explain the true meaning of entrepreneurship (Chrisman and Sharma, 1999). Entrepreneurship was first defined by Schumpeter (1942) where he introduces entrepreneur as a person who has capability to find new appliance to an existing product, technique or business. Entrepreneur is seen as innovator and entrepreneurship as “Creative Destruction” causing existing inventions, theologies and ideas to become obsolete (Schumpeter, 1942). Entrepreneurship can be seen as a process of improving existing products, where individual or a group of people gain profit from their innovative ideas. Entrepreneurs are driven by profits arising from temporary monopoly on their “new combinations” of ideas and resources (Montanye, 2006) .Entrepreneurs are some times seen as heroic figures whose innovative ideas improve existing way of living. On the other hand some theories emphasize that entrepreneurship is about taking a risk (Tilley and Young, 2009). Entrepreneurs pursue new opportunities thus risk their money and time, all pointed to business growth trough innovation (Robbins and Coulter, 2005). Furthermore there are some theories stating that large number of entrepreneurs often work on the thin edge between legal and illegal (Round and Williams, 2008). In modern times entrepreneurship is often seen as process of creation of organizations (Chrisman and Sharma, 1999). Despite the differences in definitions almost all researchers since Schumpeter agree on one thing- entrepreneurship is about change in some way, it is about innovation.

Creativity

Innovation is defined as implementation of ideas that originate from creative processes. Creativity can be seen as process of generating ideas (McLean, 2007). Innovations are considered as process of idea generation and their implementation (Anderson et al, 2004).As we can see creativity is vital part of innovations. In addition Mumford (2003) states that creativity is more than simple idea creation. It is a complex process of conceptual combination, problem finding, information search and evaluation ( Mumford, 2003). Problem finding purport defining problem and it can be internal and external depending on how problem was defined. If problem was discovered by individual than it is internal and if problem was suggested by someone else than it is external (Ohly et al, 2007).Information search includes finding additional information and if necessary additional knowledge and skills in order to find creative solution (Sonnentag et al, 2007). Finding alternate solutions and testing those solutions against related problem is considered to be idea creation and evaluation (Binnewies et al, 2007).Future more Binnewies et al (2007) shows that creativity in organizations largely depends on idea communication. This means that individuals communicate about problems and ideas thus gaining valuable information from others that might have more experience and knowledge about particular problem. The question of importance here is – is creativity given by birth to few or is it thought. In some research creativity is thought to come from imagination and more imaginative then more creative we are (Lindqvis, 2003). On the contrary some researchers like Rich (2001) uses Darwin’s model where is stated that creativity can be acquired trough reading and studding other people creative ideas and literature, and trough well cognitive logic. There are studies that imply that we loose our creativity as we mature and start using logics (Shapiro, 2002). Whatever the case is all theories agree on one thing- all human beings are creative and creativity is essential for human progress.

“The quality of your thinking will determine the quality of your future.”(De Bono, 2007, p.11).

Survey conducted by Chang (2008) implies that organization creativity is affected by many factors such as organization environment, team climate, motive to work, time investment etc. Studies conducted by Casimir and Wang (2007) and Shapiro (2002) agree that creativity can and should be cultivated in organizations. Moreover there are couple of good reasons for cultivating creativity inside of organizations (Polewsky and Will, 2000). Firstly, creativity is vital ingredient of innovation. Secondly by decentralizing hierarchy management encourages imaginativeness, therefore creativity. And thirdly the employee’s creativity is a substantial potential of innovation inside organization. That is why only logical and perspective way for a company is to encourage and support this creative potential of employees (Polewsky and Will, 2000). Therefore it is imminent that we encounter a new term -Creative leadership. Creative leadership is defined as ability to define clear and compulsory vision that others will follow. Creative leaders must be able to think and observe idea or issue from different angles (McLean, 2007). Main objective of creative leadership is to establish creative friendly environment inside organization. This means to change inner culture of organization to trust and encourage individuals to be creative without fear of being mocked, leaving room for mistakes (McLean, 2007). Creative leaders must assess witch employees are reliable and trustworthy and encourage them to engage creative activities. As a result leaders are put to risk of substantial expenses on account of employees not fulfilling their present tasks. In order for creative leaders to be effective they must find balance between control and flexibility towards creativity of their employees (Casimir and Wang, 2007).

Another process is increasingly seen as important determinate of organizational creativity and innovation, this process is known as knowledge management. Along with knowledge workers, knowledge management can be important competitive advantage (Henard and McFadyen, 2008). Knowledge can be divided among three main domains: acquired knowledge, unique knowledge, creative knowledge. (Henard and McFadyen, 2008).

Acquired knowledge is most basic and comprehensive knowledge that worker can find useful while he is performing his tasks. It involves previous education, experience, discussions with co workers etc (Nadler et al, 2003). Unique knowledge is based on acquired knowledge but it is more complex. This type of knowledge represents workers ability to use his acquired knowledge to identify, obtain and use new knowledge. This process doesn’t involve production of new knowledge but instead innovation of existing knowledge and experience by discovering new patterns and connections between different theories and experiences. This type can be very useful to the organization only if worker is able to identify new knowledge from inside and outside of the organization(Seely and Hagel, 2005). Creative knowledge is level of knowledge from innovations and creativity arise. At this level worker is able to use his acquired and unique knowledge in that way that he can not only find new patterns and connections, like with unique knowledge, but also create completely new ideas from those patterns and connections. This type of knowledge is the corner stone of knowledge workers creativity and innovation. Motivating knowledge workers to improve their knowledge and advance higher on knowledge hierarchy from acquired to creative knowledge can boost organizations creativity and as a result provide better competitive advantage. (Henard and McFadyen, 2008).

Innovation

As we seen before innovation can be observed as an implementation of ideas that originate from creative processes (McLean, 2007) .Innovation is something that was for a long time identified with inventions. Invention is not same as innovation. Invention is about creating something entirely new to the world. It is process usually done in laboratory environment. On the other hand innovation is about finding and creating new ways to improve something. Innovation has always associated with creativity (Casimir and Wang, 2007). Innovation is a process where people combine different ideas and practices in a new productive way (Shapiro, 2002). Innovation process can be divided in many different stages. This method is called stage-gate model and standard stage-gate model contains five stages (Cooper, 2000). First three stages include scanning environment and development of idea (Cooper, 2000). During these stages creativity becomes essential for success and passing gates (receiving “GO” decision). According to De Brentani (2004) creativity is largely involved in what is called fuzzy front end of stage-gate model. This concept includes all time and effort used prior to first stage of stage-gate model (Reid, 2004). According to some (Bhattacharyya, 2006) innovations are not about big breakthrough ideas, but about small and systematic purposeful innovations. There are couple motivations for firms to be innovative: product cost reduction, increase of product quality, captures new product markets, etc. (Webster, 2004).According to Webster (2004) study in new age motivations for a company to be innovative have changed. Old school motivations like market size and structure are no longer seen as primary motivation factors (Arvanitis and Hollenstein, 2001). Instead factors such as extent of learning, knowledge spillovers, appropriability and managerial style, but knowledge spillovers and managerial style being the most imoprtant (Webster, 2004).In modern ever-changing world companies that do not innovate are bound to become old and obsolete. Study conducted by Duguet (2006) shows that innovations, especially radical can significantly increase company productivity. On the other hand innovation can increase prosperity of not only company but also industry region (Auernhammer et al, 2004) Therefore management must try to encourage and enforce creativity and innovation ( Bhattacharyya, 2006). Furthermore (Bessant, 2006) states that renewal process is seen as a steady state process called continuous innovation and it can be divided into four groups of activities:

Searching- involves scanning environment in pursuit of new opportunities

Selecting- deciding which signals company will respond to

Implementing- includes creative processes of producing ideas for new opportunity. This involves series of activities (ex. brain storming)

Learning- companies must learn from their successes and failures.

On the other hand (Birkinshaw, 2004) shows us that discontinuous innovation is much more powerful in terms that not only it brings huge profits to organization it also creates growth of entire sector. This type of innovation is closely connected to creativity and can not function with out high creativity involvement. Author also emphasizes the down side of this approach regarding high risk involved.

Barriers of innovation

Innovation and creativity can be victims of some long existing constraints. According to (Andrews, 2006) some of them are inadequate funding, incorrect values, time constrains, risk avoidance, rules and rigidness, wrong creativity upbringing…

Inadequate funding refers to time that is needed to acquire funds for innovation to come to life. Ever so often we find cases of truly creative ideas that had never arisen because they were choked due to lack of funds. Because of firm’s policies of annual budget distribution, acquiring funds on time is often seen as almost impossible endeavor.( Andrews, 2006).

Due to the fact that creativity is a process that takes time to carry through time investment is very important. Some companies do not appreciate enough the role of creativity in innovations. They do not invest employees working time in individual creativity and improvement.( Andrews, 2006; CHANG,2008)

Another barrier can be found in tom management list of values. If management is only interested in profits, revenue and market share than innovations face serious problem.

Some times it is difficult to express innovation trough measurable values such as market share, profit, revenue etc. Innovation faces risk of being smothered as a result of management being unable to see true entrepreneurial value of that innovation presented(Andrews, 2006)

Risk avoidance has always been crucial obstacle to overcome on the way to innovation. Many companies missed some valuable opportunities in terms of innovative ideas due to risk avoidance. Often company stops some promising ideas when the risk is assessed to be too high (Andrews, 2006). (Pearman ,2005) also points out that every big company at their beginning was much more innovative, but as it matures it adopts “me too” way of thinking (exe. Ford, Microsoft).”Me too” concept is a clear sign that company is no longer enforcing creativity and innovation, and it is bound to fail (Pearman ,2005).

Rules have always been effective way to nip in the bud. Entrepreneurs are known for their ability to break boundaries, therefore it is mandatory to encounter strong resistance.

Innovations that might benefit to all stakeholders are put down just because organizations are unable to see benefits or that innovative process derails from their usual track (Andrews, 2006). Most companies are doing excellent work in killing creativity. Purposefully or not companies tend to develop leaders that rather emulate than innovate. These leaders realize that in order to advance in hierarchy they need to mimic native senior leaders and their cognitive framework ( Cohn et al, 2008).

Conclusion

Entrepreneurs have always been seen as free spirits, heroic figures that defy existing way of thinking. They are “creative destruction” force that is always trying to find better way trough innovation (Montanye, 2006).As we can see creativity has always been closely connected to innovation (McLean, 2007) and innovation is core process of entrepreneurship (Montanye, 2006). Thus creativity becomes necessity in any organization. Organizations must nurture creativity for many reasons (Polewsky and Will, 2000). This can be done in couple of ways like changing inside culture of company towards creativity (McLean, 2007), or by amplifying creative knowledge level (Henard and McFadyen, 2008). In modern world full of transitions every company must tend to improve their existing products and services or they are bound to loose their competitive edge, by becoming obsolete (Bhattacharyya, 2006). Creativity is affected by many factors (Chang, 2008). And as we can see in a study conducted by Andrews (2008) road to innovation is covered with many barriers. Today’s managers must be aware of these issues and they must strive to establish such environment where every employee can utilize their creative side. Company will capitalize from their creativity trough innovations by producing improved products and services and therefore maintain or increase their competitive advantage in a market.