Leadership for the Fourth Industrial Age: The Birth of the Entrepreneurial Leader
This text provides a historical analysis of the entrepreneur, detailing how their role evolved from a risk-taker (Cantillon) and resource allocator (Say) to a driver of innovation (Schumpeter). It further explains how the advent of the VUCA environment and the transition to a post-industrial, knowledge-based economy necessitated a new kind of leader—the entrepreneurial leader—who combines business strategy with a focus on cultivating and retaining the best talent to achieve a grand vision.
This article traces the emergence of the concept of entrepreneur and his various roles, including innovation. It then highlights various factors that led to the popularity of innovation as a management tool. Thereafter, the types of innovation were highlighted, after which the birth of entrepreneurial leadership is discussed.
The Entrepreneur and Innovation: Cantillon, Say and Schumpeter
The word innovation was first introduced into business and economics literature by Joseph Schumpeter in his 1911 book, The Theory of Economic Development.
In this book, his argument was that economic development is not gradual. He describes economic development as a dynamic process and discontinuous one driven by innovation and the entrepreneur
Schumpeter had the incentive to debunk the prevailing economic theory of his time, which appreciated economic development as tending toward a stationary state of equilibrium. His argument was that economic life flowed in a circular manner, and was constantly disrupted by a force from within the economy, which is the entrepreneur.
What the entrepreneur does, according to Schumpeter is to develop new combination of resources using five types of innovation.
But before we highlight and discuss the five types of innovation, based on the work of Schumpeter, it is important to also explore the word- “Entrepreneur” and attempt a brief history of its connotation.
According to Britannica, the word “entrepreneur” is a loanword from the French language. It is derived from the Old French verb “entreprendre,” which means “to undertake,” “to do something,” or “to take in hand.”
However, the presence of this word in business and economic discussion, based on records, started with an 18th century publication by Irish-French economist- Richard Cantillon. In his 1755 book, Essai sur la Nature du Commerce en Général (Essay on the Nature of Trade in General), he described the entrepreneur as an individual who pays a certain price for a good with the intent of reselling it at an uncertain price, thereby bearing the risk and uncertainty of the market.
This was followed by Jean-Baptiste Say, a French economist in the 19th century who developed Cantillon’s idea to include the role of the entrepreneur as someone who organizes and shifts economic resources from an area of lower productivity to one of higher productivity and greater yield.
What we can identify from the definitions of both Cantillon and Say is that an entrepreneur both plays the role of risk-taker and allocation of resources to attain higher returns. However, Schumpeter’s discussion of the entrepreneur in line with his/her role in perpetuating innovation adds innovation to the role of the entrepreneur.
The Entrepreneur and Innovation Became Popular: VUCA, The US Army and Uncertainty
It is safe to argue that an entrepreneur is someone who is a risk-taker, has competency to allocate resources in a manner that yield higher productivity, and drives or stimulates innovation in his organization.
None of these roles will seem to be more important than the other. However, innovation as concept has become more pervasive in recent times, so much that it occupies a central position in modern business discussions. In a sense, it may be assumed that other functions of the entrepreneur, such as risk-taking and allocation of resources are implicit in the act or function of innovation.
Infact, innovation is the basis of modern startup culture, as well as general business conduct, just like industrial production was once central to economic growth and business organizations.
The reason for the tenure of innovation as a metaphor and heuristic for modern business growth is due to the non-linear and dynamic nature of the global business environment, where paradigms such as VUCA (Volatile, Uncertain, Complex, and Ambiguous) have since and stealthily primed business thinking.
VUCA as a concept was popularized by the US Army after the end of the cold war. The strategic contest between the USA and Russia had reduced the world with a bi-polar boundary, where you either did things the way of USA or Russia.
However, the end of the cold war meant that the world, though unipolar will now be subjected to various changes in financial markets, financial systems, monetary policy, break-neck technological innovation.
The US Army only provided the VUCA acronym, it was Warren Bennis and Burn Nanus in their 1985 book- Leaders, The Strategy for Taking Charge that provided the foundation for the development of VUCA. Their argument was that the world was going into a phase where ambiguity and complexity will serve as the constraint for leadership. They advised leaders to remain adaptable.
What we see is that while innovation was introduced into the literature of business by Schumpeter, concepts like VUCA, business/competitive strategy and the new role of leaders/entrepreneurs accelerated the primacy of innovation in corporate and business organization.
The discussion so far has established the place of the entrepreneur, while highlighting that the onerous task of the entrepreneur is innovation. Though, innovation now includes; risk-taking and superior resource allocation.
Types of Innovation
Since innovation is here to stay, we might wonder, what is innovation and what does it entail. While a definition is useful, the best place to start is from the source of the term; “innovation”. Under the guidance of Schumpeter, we make allusion to the types of innovation he documented in his work- Theory of Economic Development (1911), discussed earlier. The types of innovation discussed by Schumpeter are;
- Introduction of a new good:
This kind of innovation involves creation of a new kind of product.
Apple is a prime example. The iPhone was not just a new phone; it was a completely new type of product that combined a mobile phone, an iPod, and an internet communicator into a single device. This innovation created an entirely new market for smartphones and rendered many existing products, such as older cell phones and portable music players, obsolete.
- A new method of production:
Ford Motor Company, under the leadership of Henry Ford, revolutionized manufacturing with the assembly line for the Model T. This innovation dramatically reduced the time and cost of producing an automobile, making it affordable for the average family and fundamentally changing the entire industry.
In a similar vein, Toyota between the 1950’s and 1960’s created the Toyota Production System which revolved around the Just-in-Time and Jidoka pillars. Just-in-time involves; producing only what is needed, when it is needed, and in the amount needed. This minimizes inventory and associated costs. While, Jidoka means that a machine stops once there is a problem, and then workers can fix the issue. This ensures quality.
- Opening of a new market:
Netflix transformed the entertainment industry by creating a new market for streaming content. Initially, it disrupted the DVD rental market, but its ultimate innovation was making a vast library of films and television shows available on-demand, which opened up a new way for consumers to access and consume media, leading to the decline of traditional cable television and its competitor- Blockbuster.
- Conquest of a new source of raw materials:
The rise of electric vehicles is a modern example. Companies like Tesla and other major automakers are driving the demand for new supply chains for materials like lithium, cobalt, and nickel for battery production. This has led to the development of new mining and processing methods and the establishment of new sources of these critical resources, changing the automotive and energy industries.
- Carrying out of a new organization of an industry:
Standard Oil, founded by John D. Rockefeller, dominated the oil industry in the late 19th and early 20th centuries by a new organizational structure.
It employed a trust and holding company structure to consolidate competitors, control a significant portion of the oil market, and achieve economies of scale, fundamentally reorganizing the industry and creating a monopoly.
Spotify, the Music streaming company, invented the “Squads and Tribes” Model where small, autonomous teams called Squads are grouped into Tribes that share a common mission, like building the search feature. Members from different squads with similar skills form Chapters, which ensure consistency and share knowledge, and voluntary Guilds allow employees to connect across the entire organization based on shared interests.
Haier- Chinese home appliance maker developed the RenDanHeYi Model, which involves the use of a network of over 4,000 independent microenterprises to compete, instead of traditional hierarchical model or division model employed in its industry.
Each microenterprise operates like a small startup, with its own profit and loss statement and the autonomy to make decisions, develop products, and find customers. This structure eliminates layers of bureaucracy and empowers employees, allowing the company to be incredibly agile and responsive to market demand.
Schumpeter has in one breath highlighted different ways that the entrepreneur can innovate. From manipulating a new resource to creation of new organization type and introduction of a new product. And creation of a new market to creation of a new method of production.
However, despite the effort of Schumpeter to broadly categorize the types of innovation, which have been found useful in all modern business seasons, there is the germane question of managing knowledge workers.
What we did not highlight earlier is that Schumpeter’s characterization of innovation and the role of the entrepreneur was done within the context of the industrial age.
Innovation, Leadership and Knowledge Workers: The Industrial and Post-Industrial Age
The industrial age itself was dominated by mechanistic management principles inspired by Frederick Winslow Taylor’s book- Principles of Scientific Management, published in 1911.
The principles outlined in the book involved the importance of time and motion studies, where the work patterns of workers were observed and codified, in an attempt to formalize and predict efficiency using scientific methods.
Despite the positive results gained from such application of science for mechanical application of humans, this paradigm was criticized for its nature of reducing human beings to mere machines. It was considered dehumanizing and it neglected psychological needs of workers.
Fast forward to 1973. The work of Daniel Bell (The Coming of Post-Industrial Society) ushered in the term- post-industrial society.
In contrast to the industrial (manufacturing) era, where mechanical and technical humans drove productivity, a new kind of worker called the knowledge worker had now stepped into the fray of modern business in the post-industrial era.
It is critical to highlight key features of the Post-Industrial era in order to appreciate its dynamics.
The Post-Industrial period was defined to include certain features such as:
- Importance of Knowledge and Services:
Society moved from industrial production to a focus on information, services, and technology.
- Intellectualization of Technology:
Advanced technology and scientific knowledge become central to the economy.
- Growth of the “Knowledge Class”:
The Post-Industrial society was occasioned by the rise in the number of professionals such as scientists, engineers, and academics who produce and manage knowledge.
- Tertiarization:
A significant increase in employment within the service sector, also known as “tertiarization”. Tertiarization refers to the movement of the economy of a country from the secondary sector, that is manufacturing to the services sector.
In essence, society and economy moved from being dominated by manufacturing to providing services, which make up at least 70 percent of the GDP of G20 countries.
The implication here is that since the services sector is dominated by knowledge work and workers, the entrepreneur cannot only be a risk-taker, resource allocator and innovator. He also has to be a leader. This is how the entrepreneurial leader was born.
Entrepreneurial leaders combine features of the entrepreneur and that of a leader. A leader in the simplest sense drives people toward achieving a vision by getting to appreciate their talent and emotional incentives. Compared to treating people like machines.
In the industrial age, machines were the major capital for growth and productivity. In the post-industrial society, human capital is the major capital for growth and productivity. Hence, the ascendancy of leadership.
The Birth of Entrepreneurial Leadership
Leadership under this milieu or context had to ensure that people give their best through authenticity, inspiration and baseline key performance indicators. Even while they retain the earlier responsibilities of the entrepreneur, which is; risk-taking, resource allocation and innovation.
The addition of human capital to the mix of the entrepreneur’s role made quality leadership paramount.
In a world that is still in the VUCA mode, especially with the rise of technologies of the Fourth Industrial Revolution (4IR) such as artificial intelligence, blockchain, renewable energy, sustainability thinking, cybersecurity, etc.
The role of the entrepreneurial leader is cut out for organizations, where the entrepreneurial leader works to harness and amplify the knowledge of the talent that he works with. This can be done through organization design or carefully curated transformational leadership, where he works to bring out the best in people.
Under this form of leadership, the true north is attraction and retention of the best brains available.
Instead of just configuring and allocating raw materials and financial capital, the entrepreneurial leader spends more time configuring the autonomy and creativity of his people.
The entrepreneurial leader will not only obsess over performance numbers, neither will they be only be paranoid about what new technology can do. Their focal point will rest largely on what their team members can create in order to win in the market place.
In the age of 4IR, the best leaders will be those that combine the risk-taking, resource allocating and innovation ability, and combine it with bringing the best out of their talented teammates.
Most importantly, entrepreneurial leaders are responsible for creating grand visions, while they work with their talented team to achieve the vision.
The entrepreneurial leader is keen on understanding new technology or developments in the operating environment. But what is more important is having people who can help them bring that vision to life.
Steve Jobs had Johnny Ive, Tim Cook and others. Sam Altman has Mira Murati, Ilya Suskever, Greg Brockman and others. Elon Musk has Steve Davis and Stephen Ehikian Mark Zuckerberg has Sheryl Sandberg, Yann LeCunn, Alexander Wang and others.
All the people highlighted are entrepreneurial leaders and they have changed the world. Different kinds of leadership have changed the world in the past. We are in the age of entrepreneurial leadership.
Babatope Falade Onikoyi
Founder, Kasai Africa
