Innovation implies doing new things or doing of things that are already being done in a new way. It includes introduction of new products, creation of new markets, application of new method of production, discovery of new and better sources of raw materials and developing a new and better form of industrial organisation. Innovation may be based on the application of knowledge produced by research.
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Innovation is different from invention. Invention implies discovery of new ideas, new products and new methods whereas innovation refers to the application of inventions to make new combinations] and thereby produce satisfaction and profit. Invention may facilitate innovations but invention is of little use to mankind unless it is marketable. An invention becomes an innovation only when it is embodied in a product or service that can be successfully sold in the market. Entrepreneur exploits the invention commercially and thus produces newer and better goods which give him profit and satisfaction.
J. Schumpeter has made substantial contribution to the literature of entrepreneurship. He says that an entrepreneur is basically an innovator as he introduces something new in the economy. According to Schumpeter the introduction of new combination of factors of production, in any one of the five forms.
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1. The introduction of new products with which consumers are not yet familiar or introduction of a new variant of an existing product.
2. The introduction of new method of production that has not yet been tested by experience in the branch of manufacture concerned.
3. The opening of a new market, that is a market into which the new-product of the company has not yet entered, whether or not this market has existed before.
4. The discovery of new source of supply of raw material, irrespective of the fact as to whether that source already existed or it has been created now.
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5. The carrying out of new organisation of any industry by creating of a monopoly or the breaking up of it.
Thus entrepreneur can be defined as a person who creates something new, organizes production and undertakes risks and handles economic uncertainties involved in enterprise.