Theory of innovation by scumpeter

THEORY OF INNOVATION BY SCUMPETER.
INTRODUCTION
TYPES
INNOVATION THEORY OF PROFIT
CHARACTISTCS
LIMITATIONS
CRITISISM
CONCLUSION

1. THEORY OF INNOVATION BY SCHUMPETER. INTERNAL ASSIGNMENT OF BUSINESS PLANNING AND ENTREPRENEURIAL MANAGEMENT

2. INTRODUCTION The Innovation Theory of Profit was proposed by Joseph. A Schumpeter, who believed that an entrepreneur could earn economic profits by introducing successful innovations. – In other words, innovation theory of profit posits that the main function of an entrepreneur is to introduce innovations and the profit in the form of reward is given for his performance.

3. Schumpeter Innovations And Types Innovation theory of Profit posits that the main function of an entrepreneur is to introduce innovations and the profit in the form of reward is given for its performance: Schumpeter identifies following five types of innovations that define the entrepreneurial act  Types of Innovation:- Product Process Business model Source of supply Mergers & divestments

4. Schumpeter Innovation Theory Of Profit: Prof J. A Schumpeter Theory. The main function of Entrepreneur is to introduce innovation and profit is the reward for introducing innovation. Innovation is the act of discovery and introducing the new idea in the production Process. There are two types of Innovation, which are Those which change the production function and reduce the cost of production. Those innovations which stimulate the demand for the product, which change the demand or utility function. Profit is both cause as well as effect of introducing innovation.

5. CHARACTERISTICS OF INNOVATION THEORY (1) Innovation is the prime function of an entrepreneur: Innovation means new combinations of production. (2) Innovation is separate from invention: Invention means discovering new methods and new materials. And, innovation means utilizing the inventions. (3) Entrepreneurial role in economic development: An entrepreneur is the central character of economic development”. (4) Difference between entrepreneurial functions and managerial functions:  Managers only ensure proper utilization of an organization’s resources. On the other hand, entrepreneurs create new products, develop new technology, open a new market, discover a new source of raw material etc. (5) Pre-requisites for entrepreneurship: Personal entrepreneurial qualities along with suitable environment play an important role in the expansion of entrepreneurship. (6) Entrepreneurial motivation:  Desire to do something new, independence, personal accomplishment, play an important role in entrepreneurial motivation. (7) Innovation, development and profit rotate in a cyclical framework:  The more the innovation, the more the profit for the entrepreneurs.

6. LIMITATIONS OF SCHUMPETER’S INNOVATION THEORY OF PROFIT

7. Criticism of Innovation Theory It ignores the element of uncertainty. In addition to innovations, there are many other factors which give rise to profits. In modern enterprises, it is the entrepreneur who bears the risk, not the capitalist as professor Schumpeter believes. The theory also does not consider profits as the reward for risk taking. According to prof. Schumpeter, "the entrepreneur is never the risk-bearer. The one who gives credit comes to grief if the undertaking fails The lastly, it has also been said that the function of the entrepreneur is not only to introduce innovations but also to organize the business

8. CONCLUSION The Schumpeter's innovation and entrepreneur concept is Universal and still evolving in principles. The theory of innovation is one of the most important economic theory which deals with the origin of entrepreneurship in countries like India where economy is highly dependent on agricultural sector. Schumpeter’s views are particularly relevant to developing countries and low industrialized nations where innovations needed to be encouraged and promoted as mean of improving the conditions of living and employment. Innovation must be visible in any of the five sectors mentioned by Schumpeter. It must be noted that the innovator entrepreneurs have actually contributed beyond the imagination in the growth and stability of capitalism and have pushed the economic development upwards.