In economics, factors of production, resources, or inputs are what is used in the production process to produce output—that is, finished goods and services. The utilized amounts of the various inputs determine the quantity of output according to the relationship is called the production function. There are three basic resources or factors of production: land, labour and capital. The factors are also frequently labelled "producer goods or services" to distinguish them from the goods or services purchased by consumers, which are frequently labeled "consumer goods". All three of these are required in combination at a time to produce a commodity.
There are two types of factors: primary and secondary. The previously mentioned primary factors are land, labour (the ability to work), and capital goods. Materials and energy are considered secondary factors in classical economics because they are obtained from land, labor and capital. The primary factors facilitate production but neither become part of the product (as with raw materials) nor become significantly transformed by the production process (as with fuel used to power machinery). Land includes not only the site of production but natural resources above or below the soil. Recent usage has distinguished human capital (the stock of knowledge in the labour force) from labour. Entrepreneurship is also sometimes considered a factor of production. Sometimes the overall state of technology is described as a factor of production. The number and definition of factors varies, depending on theoretical purpose, empirical emphasis, or school of economics.
Historical schools and factors
In the interpretation of the currently dominant view of classical economic theory developed by neoclassical economists, the term "factors" did not exist until after the classical period and is not to be found in any of the literature of that time.
Differences are most stark when it comes to deciding which factor is the most important.
Physiocracy (from the Greek for "government of nature") is an economic theory developed by a group of 18th century Enlightenment French economists who believed that the wealth of nations was derived solely from the value of "land agriculture" or "land development" and that agricultural products should be highly priced
The classical economics of Adam Smith, David Ricardo, and their followers focuses on physical resources in defining its factors of production, and discusses the distribution of cost and value among these factors. Adam Smith and David Ricardo referred to the "component parts of price" as the costs of using:
- Land or natural resource — naturally occurring goods like water, air, soil, minerals, flora, fauna and merryweather that are used in the creation of products. The payment for use and the received income of a land owner is rent.
- Labor — human effort used in production which also includes technical and marketing expertise. The payment for someone else's labor and all income received from one's own labor is wages. Labor can also be classified as the physical and mental contribution of an employee to the production of the good(s).
- The capital stock — human-made goods which are used in the production of other goods. These include machinery, tools, and buildings.
The classical economists also employed the word "capital" in reference to money. Money, however, was not considered to be a factor of production in the sense of capital stock since it is not used to directly produce any good. The return to loaned money or to loaned stock was styled as interest while the return to the actual proprietor of capital stock (tools, etc.) was styled as profit. See also returns.
Marx considered the "elementary factors of the labor-process" or "productive forces" to be:
- The subject of labor (objects transformed by labor)
- The instruments of labor (or means of labor).
The "subject of labor" refers to natural resources and raw materials, including land. The "instruments of labor" are tools, in the broadest sense. They include factory buildings, infrastructure, and other human-made objects that facilitate labor's production of goods and services.
This view seems similar to the classical perspective described above. But unlike the classical school and many economists today, Marx made a clear distinction between labor actually done and an individual's "labor power" or ability to work. Labor done is often referred to nowadays as "effort" or "labor services." Labor-power might be seen as a stock which can produce a flow of labor.
Labor, not labor power, is the key factor of production for Marx and the basis for Marx's labor theory of value. The hiring of labor power only results in the production of goods or services ("use-values") when organized and regulated (often by the "management"). How much labor is actually done depends on the importance of conflict or tensions within the labor process.
Neoclassical economics, one of the branches of mainstream economics, started with the classical factors of production of land, labor, and capital. However, it developed an alternative theory of value and distribution. Many of its practitioners have added various further factors of production (see below).
Further distinctions from classical and neoclassical microeconomics include the following:
- Capital — This has many meanings, including the financial capital raised to operate and expand a business. In much of economics, however, "capital" (without any qualification) means goods that can help produce other goods in the future, the result of investment. It refers to machines, roads, factories, schools, infrastructure, and office buildings which humans have produced to create goods and services.
- Fixed capital — This includes machinery, factories, equipment, new technology, buildings, computers, and other goods that are designed to increase the productive potential of the economy for future years. Nowadays, many consider computer software to be a form of fixed capital and it is counted as such in the National Income and Product Accounts of the United States and other countries. This type of capital does not change due to the production of the good.
- Working capital — This includes the stocks of finished and semi-finished goods that will be economically consumed in the near future or will be made into a finished consumer good in the near future. These are often called inventory. The phrase "working capital" has also been used to refer to liquid assets (money) needed for immediate expenses linked to the production process (to pay salaries, invoices, taxes, interests...) Either way, the amount or nature of this type of capital usually changes during the production process.
- Financial capital — This is simply the amount of money the initiator of the business has invested in it. "Financial capital" often refers to his or her net worth tied up in the business (assets minus liabilities) but the phrase often includes money borrowed from others.
- Technological progress — For over a century, economists have known that capital and labor do not account for all of economic growth. This is reflected in total factor productivity and the Solow residual used in economic models called production functions that account for the contributions of capital and labor, yet have some unexplained contributor which is commonly called technological progress. Ayres and Warr (2009) present time series of the efficiency of primary energy (exergy) conversion into useful work for the US, UK, Austria and Japan revealing dramatic improvements in model accuracy. With useful work as a factor of production they are able to reproduce historical rates of economic growth with considerable precision and without recourse to exogenous and unexplained technological progress, thereby overcoming the major flaw of the Solow Theory of economic growth.
Ecological economics is an alternative to neoclassical economics (see: Neoclassical economics). It integrates, amongst other things, the first and second laws of thermodynamics (see: Laws of thermodynamics) to formulate more realistic economic systems that adhere to fundamental physical limitations. In addition to the neoclassical focus on efficient allocation, ecological economics emphasizes sustainability of scale and just distribution. Ecological economics also differ from neoclassical theories in its definitions of factors of production, replacing them with the following:
Matter: The material from which products are produced. Matter can be recycled or reused through refining or reforming, but it cannot be created or destroyed, placing an upper limit on the amount of material that can be withdrawn and used. Consequently, the total amount of available matter is fixed, and once all the available matter is used, nothing more can be produced without recycling or reusing matter from prior products.
Energy: The physical but non-material inputs of production. We can place different forms of energy onto a scale of utility depending on how useful it is for creating a product. Due to the law of entropy, energy tends to decrease in utility over time. (e.g. electricity, a very useful form of energy, is used to run a machine that builds a stuffed bear. In the process, however, electricity is converted to heat, a less useful form of energy). Like matter, energy can neither be created nor destroyed, and thus there is also an upper limit to the total amount usable energy.
Design intelligence: A factor that incorporates the knowledge, creativity, and efficiency of how goods are created - the better the design, the more efficient and beneficial the creation is. Designs are usually improvements on their predecessors, since our store of accumulated knowledge grows with time. One possible neoclassical analogue of design intelligence is technological progress.
Integral to ecological economics is the following notion: at the maximum rates of sustainable matter and energy uptake, the only way to increase productivity would be through an increase in design intelligence. This provides the basis for a core tenet of ecological economics, namely that infinite growth is impossible.
A fourth factor?
As mentioned, recent authors have added to the classical list. For example, J.B. Clark saw the co-ordinating function in production and distribution as being served by entrepreneurs; Frank Knight introduced managers who co-ordinate using their own money (financial capital) and the financial capital of others. In contrast, many economists today consider "human capital" (skills and education) as the fourth factor of production, with entrepreneurship as a form of human capital. Yet others refer to intellectual capital. More recently, many have begun to see "social capital" as a factor, as contributing to production of goods and services.
Consider entrepreneurship as a factor of production, leaving debate aside. In markets, entrepreneurs combine the other factors of production, land, labor, and capital, to make a profit. Often these entrepreneurs are seen as innovators, developing new ways to produce and new products. In a planned economy, central planners decide how land, labor, and capital should be used to provide for maximum benefit for all citizens. Of course, just as with market entrepreneurs, the benefits may mostly accrue to the entrepreneurs themselves.
The sociologist C. Wright Mills refers to "new entrepreneurs" who work within and between corporate and government bureaucracies in new and different ways. Others (such as those practicing public choice theory) refer to "political entrepreneurs", i.e., politicians and other actors.
Much controversy rages about the benefits produced by entrepreneurship. But the real issue is about how well institutions they operate in (markets, planning, bureaucracies, government) serve the public. This concerns such issues as the relative importance of market failure and government failure.
In the book Accounting of ideas, "intequity", a neologism, is abstracted from equity to add a newly researched production factor of the capitalist system. Equity, which is regarded part of capital was divided into equity and intequity. Entrepreneurship was divided into network related matters and creating related matters. Network related matters function in the sphere of equity and creating related matters in spheres of intequities.
Ayres and Warr (2010) are among the economists who criticize orthodox economics for overlooking the role of natural resources and the effects of declining resource capital. See also: Natural resource economics
Exercise can be seen as individual factor of production, with an elastication larger than labor. A cointegration analysis support results derived from linear exponential (LINEX) production functions.
- ^Paul A. Samuelson and William D. Nordhaus (2004). Economics, 18th ed., "Factors of production", "Capital", Human capital", and "Land" under Glossary of Terms.
- ^O'Sullivan, Arthur; Sheffrin, Steven M. (2003). Economics: Principles in Action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. p. 4. ISBN 978-0-13-063085-8.
- ^Michael Parkin; Gerardo Esquivel (1999). Macroeconomía (in Spanish) (5th ed.). Mexico: Addison Wesley. p. 160. ISBN 968-444-441-9.
- ^Milton Friedman (2007). Price Theory. Transaction Publishers. p. 201. ISBN 978-0-202-30969-9.
- ^Classical price theory follows "costs of reproduction" and does not allow for "factor" gains. The great questions of Rent, Wages, and Profits must be explained by the proportions in which the whole produce is divided between landlords, capitalists, and labourers, and which are not essentially connected with the doctrine of value. (Ricardo Johnson , David,1820; 1951, "The Works and Correspondence of David Ricardo", edited by Piero Sraffa, 10 Volumes, Cambridge: Cambridge University Press 1951–1955, VIII, p. 197.
- ^Adam Smith (1776), The Wealth of Nations, B.I, Ch.6, Of the Component Parts of the Price of Commodities in paragraph I.6.9.
- ^"Das Kapital", chapter 7, section 1.
- ^ abRobert U. Ayres; Benjamin Warr (2009). The Economic Growth Engine: How Energy and Work Drive Material Prosperity. Edward Elgar Publishing. ISBN 978-1-84844-182-8.
- ^ abEric Zencey (2012). The Other Road to Serfdom & the Path to Sustainable Democracy. U of New England. ISBN 978-1-58465-961-7.
- ^Herman Daly; Joshua Farley (2011). Ecological Economics: Principles and Applications. Washington: Island. ISBN 978-1-59726-681-9.
- ^"White Collar: The American Middle Classes," 1956. Oxford: Galaxy Books, pp. 94–100.
- ^Pienaar, M.D. (2014). Intequisms: Accounting of ideas, chap. 6. Centurion: Africahead, 2nd edition, Kindle eBook, Amazon.com.
- ^R. Kümmel: The Productive Power of Energy and its Taxation, 4th European Congress Economy and Managers of Energy in Industry, Porto, Portugal, 27.-30. Nov. 2007.
- ^R. Stresing; D. Lindenberger; R. Kümmel (2008). "Cointegration of Output, Capital, Labor, and Energy"(PDF). European Physical Journal B. 66 (2): 279–287.
The resources (input) used to produce final products (output) are termed as factors of production.
In economic terms factors of production can be defined as inputs that are used for the production of goods or services with the aim to make economic profit.
The factors, of production are the resources that include land, labor, capital, and enterprise.
Land involves natural resources labor is associated with human resources, capital includes manmade resources, and enterprise combines all the three factor, to carry out the production process. Therefore, all the four factors of production are equally important for the production activity of an organization. According to Eraser, “Factor of production as a group or class of original productive resources.”
The production process of an organization can be efficient, if there is an optimal use of factors. This implies that the factors of production should be used in combination, so that the production target can be achieved. The factors of production can be used as complementary as well as substitute of each other.
For example, if an organization has adequate capital only then it would hire labor for producing goods and services. Similarly, when skilled labor is available to produce goods and services, then only the organization would invest capital for production purpose.
In such a case, land and capital are complementary to each other. On the other hand, if an organization has enough capital to purchase advance technology, then it would prefer to reduce the number of labor. However, if the organization has shortage of capital, then it would use more labor instead of investing on advance technology and machines. In such a case, capital and labor act as substitute of each other.
In literary sense, land is regarded as soil. However, in economics, land, a factor of production, has a much wider scope. Marshall has defined land as, “the materials and the forces which nature gives freely for man’s aid, in land and water, in air and light and heat.” Land refers to a natural resource that can be utilized to produce income. It is a useful factor of production, but is available in limited quantity.
Certain facts about land are as follows:
i. Perceived as a gift of nature to man.
ii. Considered to be available in fixed quantity; therefore, does not have a supply price. This implies that the change in price of land does not affect its supply.
iii. Regarded as a permanent input having certain inherent properties, which are original and indestructible.
iv. Considered as an immobile factor of production.
v. Considered to have infinite variation in terms of fertility. This leads to variation in the prices of land.
Labor constitutes one of the important factors of production. This factor involves human services and efforts for the production of goods or services. Labor is commonly thought of a group of unskilled labor working in factories. However, in economic terms, a work, physical or mental, carried out for monetary purpose is called labor.
A work that is undertaken by an individual for the sake of interest and pleasure, then the individual would not be regarded as labor in economics. According to Marshall, “Any exertion of mind or body undergone partly or wholly with a view to some good other than the pleasure derived directly from the work is called labor.”
Among all the factors of production, labor is the only factor that is living. This peculiarity of labor differentiates it from rest of the factors of production.
Some of the peculiarities of labor are as follows:
i. Labor cannot be separated from laborer. This is because laborer needs to sell his/her labor.
ii. Labor is defined as the perishable factor of production that has no reserve price.
iii. Labor is considered as the weakest commodity in terms of bargaining power.
iv. Change in the price of labor would affect the supply of labor. In case of other commodities, supply rises with the rise in prices. In case of labor, supply of labor decreases with an increase in prices (wages) and vice versa. For example, if the wage of a worker reduces, then other family members of worker start working to meet up the requirements of their family.
v. Adjustments in supply and demand of labor is difficult because it is difficult to increase or decrease labor instantly.
Production is organized on the basis of division of labor. Let us discuss about division of labor in detail.
Division of Labor:
Adam Smith- the father of economics laid a greater emphasis on the concept of division of labor in his book, “An Inquiry into the Mature and Causes of the Wealth of Nations” in 1776. He stated that division of labor plays a vital role in increasing the productivity of labor. According to him, division of labor is the dynamic instrument for economic growth and development.
For explaining the importance of division of labor, he cited an example of pin making in an organization. The pin making function of an organization involves 18 processes. If these 18 processes are performed by a single worker, it would not be possible to complete the whole function or it may take much time to produce a single pin. Therefore, if these tasks are divided among a number of workers, then it would be easier to produce large number of pins in a day.
According to Stingier, “the division of labor is not a quaint practice of eighteenth century pin factories; it is a fundamental principle of economic organization.” Therefore, division of labor is useful to an organization in many ways.
There are different types of division of labor, which are explained as follows:
i. Simple Division of Labor:
Refers to the division of labor on the basis of their skills and occupations, such as carpenters and blacksmith. It is also referred as functional division of labor.
ii. Complex Division of Labor:
Refers to the division of labor on the basis of business processes and sub-processes. For example, most of the organizations have different names for their processes, such as marketing process, manufacturing process, and distribution process. These processes are delegated to different groups of labor depending on their skills and abilities.
iii. Territorial Division of Labor:
Refers to the division of labor on the basis of geographical locations. In this type of division of labor, the processes are performed by specific cities or towns that are specialized in it. For example, in India, Kashmir is famous for its carpets and shawls, whereas Punjab is popular for agriculture.
Advantages and Disadvantages of Division of Labor:
Division of labor is useful for an organization in many ways.
Some of the advantages of division of labor are as follows:
i. Increasing Productivity:
Refers to one of the main advantage of division of labor. Some processes of an organization are so long, thus, cannot be completed by a single worker or he/she would require more time to complete those processes. Consequently, the productivity of the organization would be affected. If the process is divided among a number of workers, they would be able to perform it efficiency and in less duration of time.
While explaining the importance of division of labor with respect to productivity, Adam Smith has used an example of manufacturing of a pin. There are 18 processes require to manufacture a single pin. In a day, ten workers can make 48,000 pins. This is possible if those 18 processes delegated among a number of workers. Otherwise, it is hard to make a single pin by one worker performing all the 18 processes.
ii. Increasing Dexterity and Skills:
Implies that repetitive working on the same process makes workers expert of that process, which leads to reduction in errors.
iii. Facilitating Inventions:
Implies that division of labor leads to innovation of new ideas because the work becomes mechanical rather than mental. Therefore, workers can freely think and generate innovative ideas.
iv. Saving Time:
Brings positive impact on the functioning of an organization. If tasks are specified, workers need to perform the same task again and again, which make them efficient in that particular task. This ultimately results in reducing time.
v. Increasing Employment Opportunities:
Implies that if workers are divided as per their skills and efficiency to perform different tasks, this would lead to an increase in the number of jobs.
vi. Encouraging Large-scale Production:
Implies that division of labor helps in increasing the quality and quantity of product. This motivates producers to increase the level of production.
However, division of labor is not free from disadvantages. Some of its disadvantages are as follows:
Implies that performing the same task again and again makes the work less interesting, which results in decrease in the motivation level of workers. This further affects the productivity of labor.
ii. Human Development:
Refers to the fact that job affects the mental and physical growth of an individual. A monotonous work makes the individual think in the same direction. This may discourage individuals to think freely and generate ideas.
iii. Loss of Skills:
Refers to one of the major adverse effects of division of labor. By division, labor gets specialized in making only a part of the process and not the whole process; therefore, loses the skill to make the whole product.
iv. Personal Life:
Implies that increase in number of employment opportunities through division of labor also involve the employment of women and children. Involvement of women affects their personal lives and employment of children causes deterioration of their future.
v. Evils of Industrialization:
Refers to the fact that division of labor leads to establishment of more and more industries. This may result in imbalance of environment and create a number of problems, such as air pollution, water pollution, and global warming.
In general terms, capital refers to the part of an individual’s income that is used for Income creation purposes. Capital is not considered as original factor of production. In economics, the term capital is associated with capital goods, such as plant, raw materials, fuel, and machinery. Among capital goods, raw material and goods under process are temporary because these goods are repurchased after a period of time.
However, plant and machinery are goods that are permanent and are purchased only once. Apart from this, land cannot be regarded as capital because of the dissimilarities between the characteristics of land and capital. For example, land is natural, permanent, immobile, and fixed. On the other hand, capital is manmade, temporary, mobile, and differs from time to time.
However, capital is one of the important factors as production of any kind of goods and services is dependent on capital. Production cannot take place without the involvement of capital. An organization requires a number of capital goods, such as tools and machinery, to produce goods.
Moreover, capital also plays a major role in economic development by raising productivity. Therefore, a nation should have an adequate amount of capital to invest in various economic development projects, such as construction and renovation of infrastructure. This would help in generating employment opportunities and raising the standard of living.
Apart from this, capital also marks a greater significance in the lives of individuals to fulfill their different needs. An individual can accumulate capital by compromising his/her current needs and saving for future. Therefore, saving is necessary for capital formation. Savings are not able to generate capital automatically; an individual needs to invest his/her savings for the generation of capital goods.
An enterprise is an entity, organization, or undertaking that is created for commercial purposes or business ventures and requires efforts. It is focused on providing goods and services keeping in view various aspects, such as financial, commercial, and industrial. An enterprise is composed of individuals and physical assets with a common goal of generating profits.
According to Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006 “Enterprise means an industrial undertaking or a business concern or any other establishment, by whatever name called, engaged in the manufacture or production of goods, in any manner, pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 or engaged in providing or rendering of any service or services.”
An individual, who creates an enterprise is called entrepreneur. The success or failure of an enterprise depends on the efficiency of the entrepreneur. An entrepreneur needs to be focused on adapting himself/herself according to the changes taking place in the national economy, industries, and markets. In addition, he/she should strive to invent new products and services or bring innovation in the existing products and introduce them in the market.
Apart from this, he/she should also make the optimal use of various resources, such as man, material, and machine. An entrepreneur should be ready to bear risks and uncertainties involved in the business. The formulation of an effective business plan and sound execution help an entrepreneur to maximize the chances of success.
According to J. A. Schumpeter, a German economist, an entrepreneur has the power to change the way an economy is moving. He also advocated that an entrepreneur is the person who combines production factors to make the production process efficient. According to him, an entrepreneur is a foresighted person having a risk taking and innovation capability.
The innovation can be in following five fields:
i. New product
ii. New machine
iii. New source of raw material supply
iv. New market
Scientific methods of organization:
Economist Joseph Schumpeter has given a significant contribution in understanding the concept of entrepreneurship. According to him, “An entrepreneur is a person who is willing and able to convert a new idea or invention into a successful innovation.” In the view of Schumpeter an entrepreneur employs “the gale of creative destruction.”
Creative destruction can be defined as the process of creating new product, business model, or other business innovations by replacing the old ones. Thus, new products and technologies developed by entrepreneurs over time make current products and technologies obsolete. For example, before the advent of mobile phones, pagers were very popular among people, but with the invention of mobile phones, pagers became obsolete.
Therefore, Schumpeter held the argument that creative destruction is the main factor behind economic growth and industry dynamism. He also held a view that entrepreneurship results not only in new industries, but also in new combinations of currently existing inputs.
Schumpeter exemplified this concept with the invention of a steam engine, which was used to develop a horseless carriage. Further, the horseless carriage was transformed into a car. This formation of car from steam engine was not the development of a new technology, but the application of existing technologies in a novel manner.
Definition of an Entrepreneur:
An entrepreneur is an individual, who establishes an enterprise. The word entrepreneur has been derived from a French word enterprendre, which means to undertake. An entrepreneur is a person, who undertakes risks, mobilizes resources, and generates employment by establishing and running an enterprise.
Some of the entrepreneurship experts have given the following definitions of entrepreneurship:
According to Encyclopedia Americana (1988), “An entrepreneur is a businessman who assumes the risk of bringing together the means of production including capital, labor and material and receives his reward in profit from the market value of his product”.
According to Schumpeter, “An entrepreneur characteristically innovates, introduces new technologies, increases efficiency, productivity, or generates new products or services. An entrepreneur acts as a catalyst for economic change and research indicates that entrepreneurs are highly creative individuals who imagine new solutions by generating opportunities-for profit or reward.”
In the words of Peter F. Drucker, “An entrepreneur searches for change, responds to it and exploits opportunities. Innovation is the specific tool of an entrepreneur.”
In the words of Richard Cantillion, “An entrepreneur is the agent who buys means of production at a certain price in order to combine them into a product that is going to sell at prices that are certain at the moment at which he commits himself to his costs.”
According to International Labor Organization, “Entrepreneurs are people who have the ability to see and evaluate business opportunities together with the necessary resources to take advantages of them and to intimate appropriate action to ensure success.”
According to Kirzner (1979), an entrepreneur is the arbitrageur, who buys a product in lower price and sells the same product in higher price to earn profit.
Traits and Characteristics of a Successful Entrepreneur:
The success or failure of an enterprise depends on the efficiency of an entrepreneur. An entrepreneur undertakes various activities, such as formulating and implementing a business plan and managing resources, to establish and run his/her enterprise successfully. He/she should possess some abilities and skills to perform different activities successfully.
Following are certain traits and characteristics of a successful entrepreneur:
Refers to the ability of an entrepreneur to bring out new ways to run a business. An entrepreneur needs to verify the feasibility of the new idea before implementing it. Creativity and innovation are always used interchangeably, but there is a huge difference between both of these two words. Creativity is bringing something new into existence, whereas innovation is doing new things. Therefore, creativity is a prerequisite for innovation.
Refers to the ability of an entrepreneur to provide things in a novel manner. It is a specific instrument of entrepreneurship to add value to products or services or the unique recombination of resources to give something new to the world. The market is never saturated for an entrepreneur.
For example, replacing fruits with soft drinks is not merely an innovative activity. It can be a new method of decreasing the cost of production, improving the design of the product, and increasing the market share by beating the competitors. Innovation is the result of continuous generation of new thoughts and ideas.
Refers to one of the important characteristics of an entrepreneur. A successful entrepreneur should strive to bring dynamism to industries and markets. He/she should be able to convert a new idea into a successful innovation. He/she should replace inferior innovations across markets and industries with new products.
iv. Risk Taking and Decision Making Ability:
Refers to the capability of entrepreneurs to make decisions under the conditions of uncertainty. They should have courage to put everything on stake to convert his/her idea into a reality. However, he/she should assess risks involved in the decision and estimate the probability of success before acting upon.
Implies that an entrepreneur can be successful if he/she is guided by inner self and motivated to accomplish set goals. In addition, an entrepreneur should take initiative to do something beyond their job requirement or the demand of the situation. He/she should also look for opportunities and take necessary actions to avail them.
Refers to one of the most required attributes in an entrepreneur that brings success in everything they do. An entrepreneur has a strong belief in self and own abilities. They express confidence in completing any task or meeting any challenge. They stick to the judgment in the face of opposition or early lack of success. They feel confident enough to take new challenges.
vii. Time Management:
Refers the skill of an entrepreneur to manage time effectively and efficiently. He/she should strive to work within the allotted time or before that, and utilize rest of time in learning more skills.
Implies that an entrepreneur should keep putting repetitive efforts or different actions to get over the obstacles. He/she should not be discouraged by the initial failure or obstacle that they get in the way of reaching goals.
ix. Problem Solving:
Indicates the ability of an entrepreneur to solve problems rather than avoiding them. An entrepreneur should identify the cause of problems that come in the way and searches potentially unique ideas to solve them. He/she should either switch to an alternative strategy to reach a goal or generate innovative solutions.
Helps an entrepreneur to adapt to the changing marketplace, strategies of competitors, and preferences of customers. It also helps the entrepreneur to make necessary changes in his/her products and services as per the market conditions.
Refers to the characteristic of an entrepreneur to visualize the way to successfully complete tasks to achieve set goals and objectives. In addition, the entrepreneur should communicate his/her with all shareholders of the enterprise, which, in turn, motivates them to achieve the set goals.
Refers to one of the most indispensable quality of an entrepreneur that decides the success of the organization. The leadership spirit helps the entrepreneur to move forward in every sphere of his/her life. The entrepreneur should be able to handle the problem effectively, generating resources, and influence others to perform efficiently.
xiii. Technical Knowledge:
Implies that an entrepreneur should be able to understand all the technical aspects, such as systems, procedures, and methodology, used in production. Additionally, he/she should need to develop technical skills to understand, communicate, and lead the technical staff of the enterprise.
Functions of an Entrepreneur:
An entrepreneur takes the risk and organizes resources to establish and operate his/her enterprise. He/she identifies and traps the existing opportunities in the market, converts idea into action, bears the risk and uncertainties involved, and takes promotional activities to launch the enterprise. In addition, they strive for excellence in their field.
Some of the functions of an entrepreneur are described as follows:
i. Idea Generation:
Implies that an entrepreneur identifies business opportunities, selects the most suitable business opportunity, and converts that opportunity/idea into a successful business venture.
Indicates that in today’s time the activities of entrepreneurs are not only limited to establish an enterprise. Nowadays, entrepreneurs are also involved in various other activities, such as promoting for setting up a new enterprise, attracting the investors, expanding the existing enterprise, and combining two or more enterprises. As a promoter, an entrepreneur conducts feasibility studies, decides the form of organization, assembles the required resources, such as capital and human resource, and shapes up the enterprise.
iii. Risk and Uncertainty Bearing:
Implies that an enterprise needs to bear risks involved in establishing a new enterprise or starting a new business venture. He/she should be ready to bear the losses that may arise because of unforeseen situations in future. He/she does not hesitate in doing new things and adopting new methods of production.
iv. Arranging Finance:
Indicates that entrepreneurs arrange finance for setting up the enterprise. An entrepreneur is an individual, who provides initial capital to start the venture and arranges additional funds required to carry on activities and expand the business.
Signifies that an entrepreneur needs to employ individuals with the required skill-sets for operating in the different functions of the organizations.