Entrepreneurship in Pharmacy Lecture 3 PDF

Entrepreneurship in Pharmacy (Lecture 3) 1 Associate Prof. Dr. Of Pharmaceutical Management and Economics 2/24/2024 Dr. Mohamed Bahlol 2 Part 2 The Economics of Entrepreneurship and Innovation  The benefit...

Entrepreneurship in Pharmacy (Lecture 3) 1 Associate Prof. Dr. Of Pharmaceutical Management and Economics 2/24/2024 Dr. Mohamed Bahlol 2 Part 2 The Economics of Entrepreneurship and Innovation  The benefits of economies of scale, i.e. the supremacy of the large corporation, remained the dominant theory for much of the twentieth century. However, several scholars, including Schumpeter, insisted that the market equilibrium, and where market supply equals demand in a perfectly competitive market could be radically disturbed by the introduction of innovative products or services. 1. The evolution of innovation and enterprise. 2. Value chains 3. Economic cycles 4. Focus on entrepreneurship 5. Owners, capitalists and entrepreneurs 6. Invention is not innovation 7. Types of innovation 8. Sources of innovation 2/24/2024 3 The evolution of innovation and enterprise  In the 1960s, the strategy was that if you had a finger in many pies, then nothing much could go wrong, e.g., with divisions in rubber, in electronics, in chemicals, in steel, in coal, etc.  However, it soon became obvious that quite different sets of skills were needed to run each division profitably. This led to a process of divestment, where the new mentality dictated ‘do what you are good at’. This process has cast new light on the role of the entrepreneur, the force that rearranges the market into new and more efficient forms 2/24/2024 4 Value chains  The IT and Internet revolution of the 1990s focused attention on the possibilities of opening up new business areas, it showed that – against existing dogma – it was possible to make new business where there no previous industry or business existed: the so-called ‘sunrise’ industries (e.g. Microsoft).  Schumpeter believed that the innovation practised by entrepreneurs allows economic systems to avoid repetition; especially repetition of old mistakes, and thus can progress on to more advanced states. 2/24/2024 5 Economic cycles 2/24/2024 6 Focus on entrepreneurship  Classical economics focuses on the creation of demand, then satisfying this with a slightly lower supply (i.e. reaping Ricardian profits, or ‘rents’). This is in contrast to an entrepreneur, who today would be described as a person who uses innovative methods to restructure a value chain so as to reap an entrepreneurial (or Schumpeterian) profit, see Figure 2.1.  Classically, economics recognizes three factors in production: raw materials, labour and capital. All products, both goods and services, are a mixture of these three components.  Entrepreneurship is sometimes referred to as the fourth factor, the way of organizing the other three factors. Thus entrepreneurship (classically) means: 1. Finding new products or combinations in order to satisfy needs (to innovate). 2. Organize resources effectively (to create organizations). 3. Create wealth by adding value (to generate employment). 2/24/2024  Entrepreneurship is an academic discipline in management and economics. In 7 the framework of economics, entrepreneurship is an exception to classical input– output economics. In a social and management framework the entrepreneur is often an active ‘change agent’. The entrepreneur consciously uses innovation and creativity as tools to achieve enterprise. Enterprise can be defined broadly as activity that raises the capacity (attitude, skills and Thus, an enterprising person is: competencies) for: invention creative innovation innovative commercialization commercially aware technology acquisition entrepreneurial founding new businesses (business creation). self-motivated. This is thought to mean that enterprising people are continuously employable, even in times of high unemployment, because an enterprising person would rather be self- employed than unemployed. This is thought to lead to a sustainable advantage, also at the national economic level 2/24/2024 8 Owners, capitalists and entrepreneurs 2/24/2024 9 2/24/2024 10 Invention is not innovation  Often one hears the terms discovery, invention and innovation used as synonyms, however, they are quite distinct.  Discovery is a new addition to knowledge. These are (normally) in the physical, biological or social sciences. Theoretical knowledge is obtained from observations and the experimental testing of hypotheses while practical knowledge is obtained from practice, e.g. the practical knowledge acquired by a workforce in making new machinery operate well.  Invention is a new device or process. Most inventions are minor improvements and do not qualify as patents. To qualify as a patent, an invention must pass a test of originality (i.e. is different from previous inventions). Only a small percentage of patents have any economic value.  Innovation is a better way of doing things. An innovation improves performance in goal- directed behaviour (e.g. re-election politics, personal lifestyle) as measured by any applicable or relevant criterion (e.g. profit maximization).  One simple example of this difference could be spreadsheet programs like Excel. The invention is the computer and its various parts, including the software (e.g. Excel). However, using spreadsheets to plan hourly work in an office is an innovation.  Invention is promoted by discovery (especially in biology) whereas innovation is promoted by invention (especially in industrial engineering and business). 2/24/2024 11 Types of innovation Radical innovation is an intellectual jump, which changes a whole area. An example of this is the steam engine of the 1770s, which revolutionized industrial production. Vertical innovation reflects the mobility of ideas at a systems level, i.e. between the social strata of a society. By 8000 BC, humans had begun to use agriculture, as opposed to being purely hunter-gatherers. Experience in making bricks may have been cross- fertilized with pottery skills. As potters refined their art, they invented the potter’s wheel, preceding the use of the wheel for transport. Such invention and innovation progressed by almost-imperceptible increments. This type of progress is thus called ‘incremental innovation’. In spreading from farmer to farmer, we can also speak of ‘horizontal innovation’; innovation spread between peers, i.e. people with common problems, and without large differences in social status. 2/24/2024   For example, L’Oréal have 28,000 patents, Proctor & Gamble have over 30,000 active patents. Clearly this is a pipeline production where a few patents more or less may not 12 matter. So there appear to be economies of scale in invention.  The ‘4Ps of innovation’: Product, Process, Position and Paradigm (note that this is not the same as the ‘4Ps of Marketing’) 2/24/2024 13 Sources of innovation 2/24/2024