This post provides an overview of the academic literature available in the area of entrepreneurial opportunity recognition. Firstly, the opinions and theories of some respectable members of the academia from this field are discussed and compared. Then some contemporary issues in entrepreneurial models’ design are elaborated upon with one specific scholar study being given as an example. In the second part, through an interview with an entrepreneur some personal insights from a real life case are provided. A finally, the post offers an outline comparing theory with the real world. From both the literature review and the interview findings, a relationship was established, which only partially fits the academic suggestions.
Introduction to Opportunity Recognition and Idea Generation
Entrepreneurship, nowadays is one of the fastest developing and expanding fields in the modern economic settings. Present in every industry and on both corporate and small business level, entrepreneurs are often regarded by academia as the driving economic force for improvements and expansion. Even with such recognitions, one can argue that there are still insufficient confirmed relationships between recognized modern business theories and the place of entrepreneurship in the economy and organizational strategy. Nevertheless, with both scholars and practitioners increasingly recognizing the importance of this field and related research areas, an aspect receiving the most attention is the opportunity recognition and idea generation process. Through the related available academic literature, we can see that academic are placing efforts into identifying factors affecting this process and trying to develop a workable design model. The purpose of this essay is to provide a literature review of the readily available academic findings related to the area of process modeling of opportunity recognition and process generation.
Review of Related Academic Literature
One of the most important issue scholars face in their research from this field is the identification of the right set of variables and circumstances for a business success. Pursuant to the somewhat extensive literature related to entrepreneurship, there are a number of theories and concepts from this area that can be considered as confounding with one another. Different scholars have argued their views in relation to almost every aspect of the entrepreneurial activities.
De Koning and Muzyka (1999) assert that the term “opportunity recognition” in relation to how academia utilizes it, can be used to refer to either the discovery of a clear business idea or the development of an idea into a more feasible business concept over time.
The specific area of opportunity identification has been particularly enriched with insights through valuable academic in recent years. Namely, it is through the research findings and contributions of scholars like Shane, Lumpkin and Gilad that there are several affecting factors identified and modeled accordingly. Even though the joint efforts of the business practitioners and scholars still have not produced a workable universal model, there are a number of framework variables that are being discussed and elaborated upon. For example, Okkonen and Suhonen (2010) assert the value of the extent and information sharing of the social network in the opportunity identification process, where further stressed is the importance of the entrepreneurial alertness, a recognized prerequisite in many small business textbooks nowadays. In addition to that, there are academics presenting research findings asserting the role of available information from the field in question, or in other words, a better informed entrepreneur would have bigger chances at recognizing emerging opportunities.
Shane (1998) and Wouter (2010) discusses the role of information asymmetry and the importance of previous field related experience as part of the opportunity recognition process. Additionally, what is being discussed in their work is that entrepreneurs will find easier to identify opportunities in fields where they have previous experience and can analyze important information. However, the dimension encompassing previous experience can be separated in three sub dimensions, as suggested by research:
- knowledge of markets,
- sector marketing and
- current consumer issues and problems (Ardichvili and Cardozo, 2000).
The circumstances in which discoveries were identified are important for academics in their efforts to develop the recognition model. More specifically, the stress is placed on the question, whether entrepreneurs undertake planned researches or simply comes across information and “connect the dots”, as described by scholars through their cognitive models.
There is extensive research available arguing that the majority of entrepreneurial discoveries were reached after planned research and scan of the environment.
On the other hand, however, there are researchers arguing that this process takes a more spontaneous form most of the time with the actual entrepreneurs simply identifying the opportunity after they have come across revealing information. Related research goes as far as asserting that business ventures that were started after an opportunity was identified, spontaneously achieve their break even point faster than the ventures that were started as part of a plan (Klein, 2008).
Further examples are provided from one of the most attractive entrepreneurial fields in the industry – IT, where only 50% of the companies were considered to have undertaken the formal, systematic search for business opportunities before they developed their new technologies in an entrepreneurial manner. In terms of networks, available academic literature suggests a positive relationship between the size of the network and the possibilities in terms of identifying and generating entrepreneurial ideas in the specific area. Academics argue, to a certain extent, that now all networks provide the same quality and quantity of information. Additionally, as Arsenious and De Clercq (2005) further discusses the network connections, and contacts can additionally be identified and described as strong and weak, with the majority of entrepreneurs having a lot weaker ones. One of the main advantages of the weak ties, as identified by scholars, is the increased networking provided through which there is a possibility of improved information sharing concerning areas in which an entrepreneur cannot acquire information from the stronger contact ties, like family and close friends.
Further analysis suggests that the type and extent of networks are some of the factors influencing the type of information reach the entrepreneur and the extent of entrepreneurial alertness that will be demonstrated on his/her side (Baron and Ensly, 2006). Researchers have placed efforts for introducing the role of the creativity as part of the entrepreneurial opportunity recognition process since 1940’s, describing it as a personality trait that the majority did not posses (Schumpeter, 1934). Considering a very much needed characteristic, creativity can be closely related and interpreted through the individual ability of entrepreneurs to “connect the dots” in terms of their tolerance for information ambiguity and ability to recognize emerging patterns.
Even though the above characteristics are among some of the most frequently identified and recognized by scholars in their research for developing the entrepreneurial opportunity recognition model, the actual model has still not been developed. The main obstacle still exists in the face of the large diversity in terms of circumstances faced by entrepreneurs, opportunity drivers in their industry and even the individual personality traits of the entrepreneur. It was due to these factors that so far the joint efforts of academia and practitioners have not produced a universal workable opportunity recognition pattern. In an attempt to provide such a model, or a universally acceptable and applicable pattern, Ardichvili and Cardozo (2000) surveyed eight entrepreneurs with already established businesses and tested the already recognized model variables by academia in that research. The research findings could not establish a positive relationship only with the factor of creativity, while the other factors like alertness, previous industry knowledge and networks were confirmed as present with the majority of entrepreneurs.
Ardichvili, A. & Cardozo, R.N. (2000) A model of the entrepreneurial opportunity recognition process. Journal of Enterprising Culture, 8(2), 103-119.
Arenius, P. & De Clercq, D. (2005) A Network – based Approach on Opportunity Recognition. Small Business Economics, 24(6), 249-265.
Baron, R.A. (2006) Opportunity recognition as pattern recognition: How Entrepreneurs “connect the dots” to Identify New Business Opportunities. Academy of Management perspectives.
Baron, R.A. & Ensley, M.D. (2006) Opportunity Recognition as Detection of Meaningful: Evidence from Comparisons of Novice and Experienced Entrepreneurs. Management Science, 52(9), 1331-1344.
De Koning, A., and Muzyka, D. (1999) Conceptualizing Opportunity Recognition as a Socio – cognitive Process. Research paper. Centre for Advanced Studies in Leadership, Stockhold, Sweden.
Klein, P.G. (2008) Opportunity discovery, entrepreneurial action, and economic organization. Strategic Entrepreneurship Journal, 2(14), 175-190.
Okkonen, L., and Suhonen, N. (2010) Business models of hear entrepreneurship in Finland. Energy Policy, 38(7), p.3443-3452.
Shumpeter, J. (1934) Capitalism, Socialism and Democracy. New York: Harper and Row.
Wouter, S. (2010) Industry event participation and Network Brokerage. Journal of Management Studies. 47(4), p.635-653.
This is a guest post by Aleksandar Delev, Ba in Marketing, Sheffield, UK.
In the next part will be discussed practical findings from the interview with an entrepreneur.