Entrepreneur's Role and Functions
In the earlier stage of economic evolution, the independent worker possessed land or workshop, used his own capital, functioned with his own gears, considered the business himself, and stood by the result of the business enterprise.
Entrepreneur's Role and Functions
In the earlier stage of economic evolution, the independent worker possessed land or workshop, used his own capital, functioned with his own gears, considered the business himself, and stood by the result of the business enterprise. He was, in short, the landowner, the employee, the industrialist and the entrepreneur all rolled in one. But considering the complexity and the scale of production today and the nature and magnitude of problems involved in modern production, undertaking of all these responsibilities by one man is out of the question. Hence the emergence of the entrepreneur. Factors of production are today divorced from one another. Land, labor and capital are all separately owned and lie scattered. The entrepreneur brings them together and harnesses them to the work of production.
The entrepreneur specializes in the work of organization. He may own no land of his own and probably no capital and he will not be expected to labor in the ordinary sense of the word. He possesses one thing, i.e., organizing ability. He will be able to get land on rent, borrow capital, hire labor and use each in the right proportion so as to yield the best results. That is how he organizes production.
The role that the entrepreneur plays consists in co-coordinating and correlat¬ing the other factors of production. He starts the work, organizes and supervises it, and faces the issue. He undertakes to remunerate all the factors of production; to pay rent to the landlord, interest on the capital, and wages to labor, and pays them in advance of the sale of goods. The residue, if any, is his. Nothing may be left after he has made the necessary payments. In that case, his venture will have been miscarried. But it is also possible that he may be lucky to make a handsome profit. Whatever may be the outcome, he must be prepared to accept it. He thus takes the final responsibility of the business.
If he has anticipated the consumers' wishes aright and interpreted them correctly, he is amply rewarded. This, organizing and risk-taking, or 'uncertainty bearing' as it is sometimes called, are the two chief functions of the modern entrepreneur.
A flourishing entrepreneur must have tact, patience, sagacity, powers of observation and discrimination. He must be a good evaluator of human nature and possess qualities of guidance. It indeed needs a rare blend of the characters of head and heart which will make a successful captain of industry. That is why there are not many Birlas, Dalmias, Tatas and Thapars in India.
Let us spell out the entrepreneur's functions at some length. It is the entrepreneur who makes final decisions in the everyday problems of running a business, shapes the long-run policies of the enterprise, and occasionally plans something new. The list of decisions that may arise is very long and only a few may be mentioned to give an idea of their nature and variety. These decisions may concern: from whom to buy materials and equipment and on what terms; changes in the price and quality of the product; to produce additional varieties of the product or to drop some lines; when to work the plant part-time, full time, or overtime; how much to allow for the depreciation of the equipment; how much of the earnings to plough back into the business; the nature and extent of the research programmed; a change in the financial structure of the enterprise; how to raise new capital, negotiations with labor about wages and working conditions; whether to enter into agreements with rivals; and whether to initiate some innovation, and so on.
Innovation by the entrepreneur implies a variety of things. It may mean the introduction of a new method of production or an improvement in the old method. It may consist of the introduction of a new commodity like the transistor radio sets or of a new make of an old product like yet another brand of toothpaste. Innovation may refer to the discovery of new materials, fresh sources of old materials, or new uses for materials or final goods. It also includes the opening up of new markets. Innovation may take the form of new techniques in the way of administration, finance, marketing, or human relations inside the business and public relations outside, i.e., with suppliers of materials and customers of products. It is involved, finally, when new forms of business organization are instituted, such as chain stores, the merger of several establishments, or a monopolistic combination among producers.
It will be easily understood that uncertainty is inherent in the making of the decisions like those enumerated above and also in any innovations that may be adopted. The all-embracing function, that the entrepreneur performs is, therefore, that of uncertainty-bearing. The Scope of Entrepreneurial Functions