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Economic
development is ushered by the culmination of a number of closely bound factors
that allow the achievement of the industry success, and hence economic
development. Although entrepreneurship is the key driving force behind the relationship
that lead to this feat, it relies heavily on underlying factors to manifest it.

Innovation is a vital tool in that it is used to effectively identify a market
opportunity, which is brought about by creative impulses initially originated
from the issue of problems being in place. The combination of this creates the
basis of the discussion.

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Problem
solving is defined as ‘the ability to analyze information related to a given
situation and generate appropriate response options’ (www.brainrehab.org),
meaning it acts as the basis for other factors to develop from, the foreground of
analyzing information. The realization and utilization of this important skill
will result in long term improvements in economic development, as from a business
point of view, if a ‘product or service fully meets the needs of the customer,
you can guide or lead the direction of technological development and innovation
to gain increased productivity and a favorable competitive position in the
global marketplace’ (Lumsdaine and Binks, 2007, Page 6).

 

Innovation
is of close related to problem solving, as in suggested by the Austrian School
of Economics. They propose a need to be alert to the opportunities and vary of
changes in conditions and while promoting novel ideas and concepts through
innovation in economic activity (Lumsdaine and Binks, 2007, Page 16). This can
lead to greater effectiveness in competing with rival firms as the alertness to
the innovation leaves one is prime positon to exploit greater market share
through adaptation to changes in market conditions.

 

 The actual founding principles of creativity
and innovation are also closely related. Creativity is defined by Ned Hermann
as ‘a dynamic, whole brain activity that involves conscious and subconscious
mental processing in both generating an idea and making something happen as a
result’ (Lumsdaine and Binks, 2007, page 21). An effective way of thinking
creatively and critically is to adopt a lateral approach, whereby one diverts
themselves away from the regular linear approach, and ‘thinks outside of the
box’, and only then will inspiration will arrive. Creative thinking is often
derived from the need to solve problems, and furthermore proceeds to lead on to
another key factor, innovation, which builds on this process as it is seen as
‘the practical application of creativity in an organization’ (Lumsdaine and
Binks, 2007, page 20). This
is demonstrated in the phone industry for instance whereby existing means of
technology are now being incorporated onto handsets. Keyboards which were
previously just associated with computers are now becoming a regular addition,
proving to be a great time saver against the traditional old methods and very
innovative for the market in its nature.

 

The
general thinking behind this suggestion is that the process of creative
thinking does not truly lead to product development and as these are simply
thoughts brought about by the need to solve a lingering problem, therefore the
risk for failure is significantly high. Yet innovation involves creative
thinkers to progress on what is deemed to be a ‘safe’ idea, and to build on it.

This is backed by Sir George Cox as his theory states that ‘While creativity is
the generation of new ideas, innovation is the successful exploitation of
them’.  In relation to this, Schumpeter
discusses a strand of entrepreneurship that was somewhat compelling in nature.

Defined as ‘a fundamental step in a product or process that could not be traced
back to the original version’, he then describes it as ‘creative destruction’, attempting
to demonstrate the theory of a creative idea that is completely original and which
could not be traced to any contemporary ideas, terming it as  ‘Catalytic Entrepreneurship’  (Lumsdaine and Binks, 2007, Page 15), A very evident example of this is
Tim Berners Lee, who ‘invented the world wide web, an internet-based hypermedia
initiative for global information sharing while at CERN, the European Particle
Physics Laboratory, in 1989. He wrote the first web client and server in 1990’
(www.w3.org./People). Such an initiative was simply astounding and nothing like
this had ever been seen before, resulting in a change in the way information is
displayed to this very day. The development of such a theory has strong links
with the skill of creativity as both display an emphasis on composing something
completely new which is previously unseen or unrelated to something in the
current market.

 

 Of stark contrast to this, the Austrian School
of Economics proposed a differing perspective of the view of an entrepreneur,
more associated with innovation, called ‘allocating entrepreneurs’. They see it
as a term to people ‘observe the changes in conditions and are alert to the
opportunities they present – because they realise new ideas and concept through
innovation in economic activity’ (Lumsdaine and Binks, 2007, Page 16). This
approach means that rather than look to use creativity to develop a new service
or product, they rely on spotting potential market gaps, and exploiting them by
being the first to attack a new market, using innovative strategies of product
development, maximimising profit acquired.

 

Despite
the obvious distinctions being in place between the two types of
entrepreneurship presented, a relationship is still present in how the product
would be made a strong market force. The Catalytic side would be responsible
for creating the new idea as a result of creative thinking, which would then be
put into practice by those who are allocators, as they will have seen the
potential in it and been innovative in bringing about economic development via
successful marketing and product development, similar to that of the
relationship between creativity and innovation.

 

Innovation
can further be related to achieving economic development in that when applied
to a business model, the resultant effect on the direction of the business is
that it can greatly enhance performance. For example, the idea from Dell to
sell computers straight to the consumer without the need for other retailers
such as Currys to do it for them, thus lowering costs for themselves and
maximising economic development of the company. In order to be able to select
the most efficient business model to develop upon, the Pugh Method could be
used to make a suitable comparison. In basics terms, it is ‘a creative concept
technique that uses criteria in an advantage-disadvantage matrix’; effectively
meaning the model is chosen based on the greatest score attained (Lumsdaine and
Binks, 2007, Page 71). So in this instance it may have weighed up that the
potential increased revenue by not paying suppliers would stand them in a more
advantageous position then the possibility of having a greater ease of
availability to the consumer, as an example of some of the factors that could
be used.

 

Another
process that is particularly useful in developing, entrepreneurial type
thinking is Kirk’s Space, focusing on the pre concept stage of innovation. It
is a graph whereby the vertical axis represents the extent to which we know our
problem or need, whereas the horizontal axis represents the extent of our
ability to address the actual problem. When applied to the music industry for
instance, the CD would be located in the top right of the graph as a superior
solution already exists, and so this area would be known as the ‘red ocean’.

Whereas the Mp3 would be located in the bottom left as the capabilities are not
yet truly known, meaning it is the area of greatest opportunity and so has a
more calming name attributed to it of the ‘blue ocean’. This process is not
only particularly useful as it focuses our mindsets on directing towards
entrepreneurial behaviour, but also as it shows a link from the problem solving
factors as it involves selecting the most profitable areas to work with.

(Lecture Notes)

 

Above
all, a fundamental observation of these factors is when entrepreneurship is
accomplished successfully, it leads to economic development. This is not mere opinion either,
as studies under taken at the University of Arizona have found some quite
conclusive evidence. Among their findings it was shown that those who undertook
entrepreneurial study had Annual Incomes that are 27% higher and owning 62%
more assets, in addition to being in large firms, earning about $23000 per year
more than their counterparts (Lumsdaine and Binks 2007, Page 6). This
shows a direct link between entrepreneurship leading to economic development as
the facts show those in the knowledge are earning a greater salary as a result.

However, when Schumpeter’s belief’s on what makes an entrepreneur apply, this
relationship is actually altered. According to him, ‘everyone is an entrepreneur
when he actually carries out new combinations, and loses that character as soon
as he has built up his business’ (Lumsdaine and Binks, 2007, Page 13). In
effect, this suggests that rather than entrepreneurship and economic
development be seen as having a continual positive link, instead it is a
progression from which once economic status is achieved, you lose any
entrepreneurial association to yourself and the link is terminated.

 

In
conclusion, the relationship between entrepreneurship, innovation and economic
development on the whole shows a positive correlation throughout, whereby an
increase in one factor, does usually constitute resultant positive impacts on
the other two. The normal method of procedure for this would be how increasing
levels of innovation leading to a greater opportunity with less competition for
entrepreneurship business to develop, which ultimately mean the value of such
an idea would be greater as the potential returns would be more than
sufficient. That said, I believe creativity and problem solving, rather than
complementing the other factors, do add equal weight into this equation.

Creativity is the basis of innovative development in that it takes what it
deems to be ‘safe’ creative ideas forward, and works from there. Problem
solving is too almost a divine inspiration from which creativity blossoms, and
without such a factor the means at which creative energy is able to work would
be the whole process would be considerably slowed due to the close knit nature
of all the factors.

 

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