Harvard School Theory of Entrepreneurship

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. As early as 1950, the strategic management process has been used to train students and continues to be prominent in strategy management teaching today. 

 

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:

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💡 Complementary Frameworks

Understanding how a firm grows often requires looking at both the person behind the business and the environment around it. These theories help bridge that gap:

Human Capital Theory

[cite_start]This perspective views entrepreneurship as a craft[cite: 1]. [cite_start]Rather than being born with it, skills like strategic auditing and financial analysis are seen as assets you can build through education and experience[cite: 1].

Institutional Theory

[cite_start]Success isn't just about the business plan; it's about fitting in[cite: 1]. [cite_start]This theory explores how laws, social norms, and culture act as "External Forces" that decide if a strategy is considered legitimate and sustainable[cite: 1].

Resource-Based View (RBV)

[cite_start]Considered the natural next step for internal analysis, RBV suggests that your most lasting competitive edge comes from the unique bundle of resources—people, tools, and secrets—that only your firm possesses[cite: 1].

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

Mohanty, S. K. (2005). Fundamentals of Entrepreneurship. PHI Learning Pvt. Ltd.

Pradhan, R., & Nath, P. (2011). Rethinking entrepreneurship: Developing a psychosocial framework. Journal of Indian Academy of Applied Psychology.