Week 1 Entrepreneurial Opportunities Articles 1 – 2
1. Shane, S., & Venkataraman, S. (2000) The Promise of
Entrepreneurship as a Field of Research. Academy of
Management Review 25(1), pp. 217-226.
Definition of entrepreneurship
= The scholarly examination of how, by whom, and with what effects opportunities to create
future goods and services are discovered, evaluated and exploited.
Approaches used:
1. Disequilibrium approach (equilibrium models are incomplete)
2. Entrepreneurship doesn’t require (but can include) the creation of a new
organization.
3. This framework complements sociological and economic work in which researchers
have examined the population-level factors that influence firm creation
4. This framework also complements research on the process of firm creation
Why study entrepreneurship
1. Much technical information is ultimately embodied in products and services, and
entrepreneurship is a mechanism by which society converts technical information into
these products and services.
2. Entrepreneurship is a mechanism through with temporal and spatial inefficiencies in
a economy are discovered and mitigated
3. Schumpeter isolated entrepreneurially driven innovation in product and processes as
the crucial engine driving the change process.
Entrepreneurial opportunities
- Existence of Entrepreneurial opportunities:
Entrepreneurship requires that people hold different beliefs about the value of resources for
two reasons:
1. Entrepreneurship involves joint production (different resources brought together to
create a new product or service). For the entrepreneur to obtain control over these
resources in a way that makes the opportunity profitable, his or her conjecture about
the accuracy of resource prices must differ from those of resource owners and other
potential entrepreneurs (Casson, 1982). If resource owners had the same
conjectures as the entrepreneur, they would seek to appropriate the profit from the
opportunity by pricing the resources so that the entrepreneur's profit approached
zero. Therefore, for entrepreneurship to occur, the resource owners must not share
completely the entrepreneur's conjectures.
2. If all people (potential entrepreneurs) possessed the same entrepreneurial
conjectures, they would compete to capture the same entrepreneurial profit, dividing
it to the point that the incentive to pursue the opportunity was eliminated
(Schumpeter, 1934).
, - Because entrepreneurial opportunities depend on asymmetries of information
and beliefs, eventually, entrepreneurial opportunities become cost inefficient
to pursue.
- Discovery of Entrepreneurial opportunities:
- Although an opportunity for entrepreneurial profit might exist, an individual
can earn this profit only if he or she recognizes that the oppor- tunity exists
and has value. Given that an asymmetry of beliefs is a precondition for the
existence of entrepreneurial opportunities, all opportunities must not be
obvious to everyone all of the time
(two factors that influence the probability that particular people will discover
opportunity)
1. The possession of prior information necessary to identify an opportunity (information
corridors)
- To recognize an opportunity, an entrepreneur has to have prior information
that is complementary with the new information, which triggers an entrepre-
neurial conjecture.
2. The cognitive properties necessary to value it.
- people must be able to identify new means-ends relationships that are
generated by a given change in order to discover entrepreneurial opportunity
- The decision to exploit Entrepreneurial opportunities:
Depends on:
- Nature of opportunity:
- The characteristics of opportunities themselves influence the will- ingness of
people to exploit them.
- Individual differences.
- Differences in perceptions: The creation of new prod- ucts and markets involves
downside risk, because time, effort, and money must be in- vested before the
distribution of the returns is known
- Individual differences in optimism: People who exploit opportu- nities typically
perceive their chances of success as much higher than they really are- and much
higher than those of others in their industry
- people who have a greater tolerance for ambiguity may be more likely to exploit
opportunities
- Those who are high in need for achievement may be more likely than other members
of society to exploit opportunities.
attributes that increase the probability of opportunity exploita- tion do not necessarily increase the
probability of success
Modes of exploitation
Two arrangement for the exploitation exist:
1. Creation of new firms (hierarchy)
2. Sale of opportunity to existing firms (market)
Choice of the modes of exploitation depend on:
The nature of the industrial organization, the opportunity, and the appropriate regime.
, 2. Alvarez, S., & Barney, J. (2007) Discovery and Creation:
Alternative Theories of Entrepreneurial Action. Strategic
Entrepreneurship Journal (1), pp. 11-26.
TELEOLOGICAL THEORIES OF ENTREPRENEURIAL ACTION
- Explain the impact of human behavior on the ability of individuals to
accomplish their purpose
- In general, these theories assert that behavior that facilitates the
accomplishment of one’s purposes is more likely to occur than behavior that
does not facilitate the accomplishment of one’s purposes
2 examples of teleological theory and the similarities:
discovery theory and creation theory
- both discovery theory and creation theory assume that the goal of
entrepreneurs is to form and exploit opportunities
- Both theories also recognize that opportunities exist when competitive
imperfections exist in a market or industry.
Discovery theory:
- competitive imperfections are assumed to arise exogenously, from changes in
technology, consumer preferences, or some other attributes of the context within
which an industry or market exists.
- opportunities are created by exogenous shocks to an industry or market
- these opportunities are objective and thus, in principle, observable,
- Decision making context to exploit an opportunity is risky. (if, decision makers can
collect enough information about a decision to anticipate possible outcomes, and the
probability with each of those outcomes)’
- risky because it assumes that opportunities are objective in nature
-
Creation theory
- Opportunities are created endogenously.
- Social constructed
- ex ante, before entrepreneurs create opportunities, they may or may not be
significantly different than those who do not create opportunities.
- ^ASKED ON THE EXAM!
the seven effective entrepreneurial actions:
1. Leadership
- Discovery context: Based on expertise and (perhaps) experience
