The Harvard School Theory: Entrepreneurship as Strategy

While some theories view entrepreneurship as a personality trait (Psychology) or a market function (Economics), the Harvard School Theory views it as a strategic process.

Often described as a Process Theory, this framework argues that entrepreneurship is not about "magic" or "luck," but about the rigorous analysis of internal and external forces.

The Core Definition

Pradhan and Nath (2011) define the Harvard School approach as:

"All such activities that initiates, maintains and results in a profit oriented enterprise for production or distribution of economic goods or services and which is consistent with internal and external forces."

In simple terms: Successful entrepreneurship happens when a founder finds a "Strategic Fit" between what they *can* do (Internal) and what the market *needs* (External).

[Image of SWOT analysis diagram]

The Two-Step Analysis

According to Mohanty (2005), this framework relies on two distinct types of auditing:

1. Internal Analysis (The "Can We?")

This focuses on identifying the organization's resources, capabilities, and competitive advantages. Entrepreneurs use specific tools to assess this:

• Strengths & Weaknesses: Where is the organization falling short?
• VRIO Framework: Are the resources Valuable, Rare, Imitable, and Organized?

2. External Analysis (The "Should We?")

This involves examining the broader business environment to identify gaps in the market. Key tools include:

• PESTEL Analysis: Examining Political, Economic, Social, Technological, Environmental, and Legal trends.
• Porter’s 5-Forces: Assessing the intensity of competition and supplier power.

Decision Making: Finding the Fit

Once these analyses are complete, the entrepreneur makes a recommendation. This theory is similar to Contingency Theory in that there is no "one right answer."

The right entrepreneurial activity (e.g., starting a new venture, acquiring a competitor, or partnering) must fit the environmental conditions. If the internal resources do not match the external environment, the venture will fail.

Connections to other theories

The Harvard School Theory serves as the structural backbone for many modern management and entrepreneurial frameworks:

• Human Capital Theory: Harvard's approach suggests that entrepreneurship is a set of skills (strategic auditing, financial analysis) that can be acquired through education, supporting the idea that "Human Capital" can be built.
• Institutional Theory: The "External Forces" mentioned by Pradhan and Nath include the laws, norms, and culture of a society. The Harvard School suggests that a strategy must be "legitimate" within these institutions to survive.
• Knightian Uncertainty: Strategic analysis is the entrepreneur's weapon against uncertainty. By using tools like PESTEL, the entrepreneur attempts to convert uncalculable uncertainty into manageable risk.
• Resource-Based View (RBV): This theory is the direct evolution of the "Internal Analysis" step. It posits that the basis for a firm's competitive advantage lies primarily in its unique bundle of resources.
• Schumpeter’s Theory: Where Schumpeter focuses on the *disruption* of the environment, the Harvard School focuses on the *response* to that disruption through calculated strategic moves.

Conclusion: Entrepreneurship Can Be Taught

The Harvard School Theory is essentially the "Case Method" applied to startups. It suggests that students can learn to be entrepreneurs by mastering these analytical tools, rather than simply being born with a "gift."

Video: Introduction to Entrepreneurial Strategy

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References