You are on page 1of 10

2014

Entrepreneurship

Figure 1 (Source: Google, Adapted from Jason Tozer, 2014)

Student number: 21202244


Module Leader: David Mackrory
Module Code: MS70074E
Enterprise and Innovation Research Paper

TABLE OF CONTENTS

1. ABSTRACT .......................................................................................................................................... 2
2. INTRODUCTION ................................................................................................................................... 2
3. LITERATURE REVIEW ............................................................................................................................. 3
3.1. ENTREPRENEURIAL CREATIVITY, INNOVATION IN RELATION TO THE ENTREPRENEURIAL OPPORTUNITY ............. 3
4. DISCUSSION AND DEVELOPMENT OF A PROPOSED MODEL........................................................................... 4
5. CONCLUSION ...................................................................................................................................... 6
6. BIBLIOGRAPHY .................................................................................................................................... 8

1|Page
Enterprise and Innovation Research Paper

1. ABSTRACT

Despite the importance of the entrepreneurial opportunity to the theoretical advancement


of the entrepreneurship field, research regarding its identification is in its infancy and is best
characterized as scattered descriptive studies rather than a systematic research program of
theory testing and development. To date, investigators have examined issues such as
whether entrepreneurial opportunities are the result of discovery or deliberate search. In
addition, the influence of the entrepreneur's social network on search strategies and
boundaries has been explored. Evaluation strategies have been studied. Finally, some have
tried to map the phases of the opportunity identification process and document the length
of time needed in this process in order to shape successful business opportunities. This state
is due, in part, to the lack of research following a consistent stream of conceptual and
operational definitions of the constructs (Gaglio, 2001).
This report, therefore, is intended as a start towards filling this gap in the research of
entrepreneurial opportunity by addressing the role of the two backbones of
entrepreneurship creativity and innovation as the sources of these entrepreneurial
opportunities.

2. INTRODUCTION

Drawing from the definition of Stevenson and Jarillo (1990) of entrepreneurship as a


process of pursuing opportunity, it can be argued that identifying and selecting the right
opportunities for new businesses are among the most important abilities of a successful
entrepreneur (Ardichvili et al, 2003). In this context, entrepreneurial opportunity serves as
the basis for the existence and development of entrepreneurship and entrepreneurial
activities (Shane et al, 2000).
Thereof, the notion of opportunity occupies a central place in entrepreneurship research. It
is, hence, not surprising that the perception and pursuit of opportunity have recently
become a central focus of research as the core activities of entrepreneurs1 (Renko et al,
2012). Moreover, researchers have shifted their attention away from entrepreneurs and
their character traits towards understanding the nexus of enterprising individuals exploring
and exploiting opportunities, whereas innovativeness and creativity are features typically
said to differentiate entrepreneurs from non-entrepreneurial business owners (Heinonen et
al, 2011). In this sense, research literature portrays entrepreneurs as innovative and creative
individuals who search for new solutions in order to create added value (Kirzner, 2009).
Given the inherent interrelatedness between entrepreneurship, innovation, and creativity,
this research tries to shed the light on the entrepreneurial opportunity to capture this
interrelatedness between these premises. Hence, this study is an attempt to answer the
proposed question: What is the role of creativity and innovation in the entrepreneurial
opportunity?
In this paper, we will lay out a framework for understanding entrepreneurial opportunity
and demonstrating the role of creativity and innovation in relation to the entrepreneurial
opportunity. Theories from entrepreneurship, psychology and related disciplines are

1
Proponents: Gaglio, 1997; Hsieh et al., 2007; McMullen and Shepherd, 2006; Murphy, 2011; Shane and
Venkataraman, 2000; Venkataraman, 1997

2|Page
Enterprise and Innovation Research Paper

synthesized to explain the perception of entrepreneurial opportunities as the nexus of the


individual and opportunity.
The rest of the paper is organized as follows: a literature review locates the subject in the
next section. In the penultimate section, we discuss the contribution of the study and the
proposed model. The final section presents a summary of the study.

3. LITERATURE REVIEW

Innovation, creativity and entrepreneurial opportunity are three of the buzzwords of the
early twenty-first century, whereby entrepreneurial opportunity identification lies at the
heart of entrepreneurship (Stephen, 2012). Some scholars have viewed opportunity as a
discrete phenomenon that is exogenous to the entrepreneur and springs from external
circumstances, such as new technology or a social change. Others viewed opportunity as
inextricably linked to and stemming from the entrepreneurs own cognition. At various
times, opportunity has been used interchangeably with an idea or business concept, or
even an actual entrepreneurial endeavour. Often, no definition of opportunity is provided
and it is left to the reader to infer what scholars may have meant by opportunity (Renko et
al, 2012).

3.1. ENTREPRENEURIAL CREATIVITY, INNOVATION IN RELATION TO THE ENTREPRENEURIAL


OPPORTUNITY

Opportunity is often cited as pivotal for understanding entrepreneurship2; creativity is


frequently a defining feature of entrepreneurs3 - it is the generation of new ideas (Hansen,
2010); whereby innovation is the successful exploitation of these new ideas (Stokes et al,
2010). Given the fact that new business creation is a key issue in entrepreneurship,
navigating these strands can provide insights into the entrepreneurial construct and give a
better understanding of the entrepreneurs characteristics behind them.
The most comprehensive treatment of opportunity identification in entrepreneurial
behaviour is found in Kirzners (1973, 1979) work. The starting point of Kirzners theory is
the resource utilization perspective. Wherein, entrepreneurs decide to start a new business
or expand in a new product-market when they think that there is an opportunity to
redeploy the resources away from present and suboptimal configurations to more
promising opportunities. Furthermore, Gaglio (1997 cited in Hansen, 2007) suggests, based
on Kirzner, that an idea becomes an opportunity when its commercial value is recognized.
Thereof, she conceives an opportunity as an entity that evolves out of an idea. This view
suggests that an opportunity is an outcome of the opportunity recognition process. Once
the idea is recognized to be both possible and having some potential commercial value, it is
an opportunity. More recently, Singh (2000 cited in Hansen, 2007) proposes that an
entrepreneurial opportunity is a feasible, profit-seeking, potential venture that provides an
innovative new product or service to the market, improves on an existing product/service,
or imitates a profitable product or service in a less-than-saturated market. While, Ardichvili
et al (2003, cited in Hansen, 2007) claim that it is the chance to meet a market need through
a creative combination of resources to deliver superior value.
2
Shane and Venkataraman, 2000; Ardichvili et al., 2003; Gartner et al., 2003
3
Schumpeter, 1942; Kirzner, 1999; Ward, 2004; Baron, 2008

3|Page
Enterprise and Innovation Research Paper

Based on the above arguments, it is apparent that opportunity has been contrasted as
either an objective phenomenon that is distinct from the entrepreneur or a subjective
phenomenon inextricably linked to and stemming from entrepreneur's own cognition and
actions (Hansen, 2010). However, for an opportunity to be meaningful, it must be
recognized, discovered, identified, or created. In this sense, entrepreneurs need to generate
valuable ideas for new products and services that will appeal to an identifiable market as
well as potential opportunities and they must figure out how to bring their projects to
fruition (Chen et al, 2009). Timmons (1999) further argues that the central theme driving a
highly dynamic entrepreneurial process is the opportunity force by which entrepreneurs can
creatively identify opportunities and deploy appropriate resources.
In contrast, other scholars rather than viewing creativity as an individual characteristic, they
have considered it as an outcome or product. For example, Walton (2003) describes
divergent thinking as one of the most researched conceptualizations of creativity. Divergent
thinking is the generation of varied ideas that includes abilities of fluency, flexibility, novelty
of the ideas and elaboration. This is consistent with the view of opportunity as a creative
product (Dimov, 2007).
Furthermore, Heinonen et al (2010) claim that the two strategies for searching out
opportunities - proactive search4 and competitive scanning5 correlate together and form a
new opportunity search strategy creative behaviour which comprises the search for
problems and opportunities in the external environment in a proactive and innovative way
(Miller, 1987). Creative behaviour also relies on the creativity as a source of entrepreneurial
opportunity (Heinonen et al, 2011). Imbedded in this line of thought, creativity has a pivotal
role as a source of entrepreneurial opportunity.
With regards to innovation, referring to the concept of creative destruction, Schumpeter
(1934 cited in Puhakka, 2011) suggested that occasional technological innovations
temporarily disrupt market equilibrium and thereby create opportunities for
entrepreneurial profits. Furthermore, based on Schumpeter definition of entrepreneurship,
Bull & Willard (1993) suggest that entrepreneurial alertness is about discovering business
opportunities which have more radical impact on a market-place. Baumol (1993) has
widened the definition of entrepreneurial alertness by indicating that it refers to innovative,
non-routine activity which involves instincts, hunches and inspiration. Therefore, Innovation
is the manner in which the entrepreneur searches for new opportunities or the way in which
ideas are brought to a profitable conclusion.
Based on this reasoning, innovation also embraces a distinctive role as source of
entrepreneurial opportunity.

4. DISCUSSION AND DEVELOPMENT OF A PROPOSED MODEL

From the foregoing discussion emerges the notion of creativity either as a characteristic of
the entrepreneur or an outcome of tasks performed (Walton, 2003). These represent
person and product, two of the four Ps of creativity (Runco, 2004); the remaining two

4
Represents the art of entrepreneurship and refers to opportunities discovered ontology.
5
Refers to knowledge acquisition and opportunities enacted view.
4|Page
Enterprise and Innovation Research Paper

being press6 and process. Ardichvili et al (2003 cited in Hansen, 2010) present one of the
most notable examples involving creativity as a characteristic of entrepreneurs. In their
model, creativity is one of two personality traits shown to be related to successful
opportunity recognition. They further propose that high levels of creativity are related to
high levels of entrepreneurial alertness and self-efficacy.
Substantially, the elements constituting the entrepreneurial opportunity creation are
entrepreneurs creative cognitive process, internal creative qualities, environmental
conditions supporting or hindering creativity and the interaction of these elements. They
further have a significant impact on the innovativeness of the business opportunity. Hence,
the cognitive elements of entrepreneurial opportunities are alertness, knowledge,
perception, and cognitive processing.
Based on the seminal theory on entrepreneurial alertness by Kirzner (1997), it can be
defined as an attitude of receptiveness to available (but hitherto overlooked) opportunities
(Renko, 2012). In expanding on this work, entrepreneurial alertness to business opportunity,
hence, is the creativity of an individual, consisting of creativity base, creative process and
creative product. The creative base consists of interaction of individual qualities and
environmental conditions. The creative base makes it possible to behave entrepreneurially
alertly so that business opportunities can be found. The creative process realizes the
creative act and points out what kind of results are to be expected (Puhakka, 2011).
The cognitive activity is divided further into the phases of cognitive structure and cognitive
process. The cognitive structure has stages of perceiving, conceptualizing and schema
building based on information. The cognitive process stages of problem or task
presentation, preparation, response generation, response validation and outcome.
Through cognitive activity, entrepreneurs process their alertness to concrete business
opportunities. Business opportunities could be, at least in this case, catalytic, allocative,
refining or recycled. Catalytic opportunities are the most innovative because these are both
creatively radical and based on market demand. Allocative opportunities are the second-
most innovative, as those are based on market demand even though creative radicalness is
smaller. Refining and recycled opportunities are based more on an internal vision of an
entrepreneur or on the situation (for example, recycled resources released based on
bankruptcies) than on market need and/or originality.
Regarding knowledge, creativity springs from deep wells of expertise. In addition, creative
thinking pertain to combine areas of knowledge and come up with new ideas (Ahmed &
Shepherd, 2010). Wherein subtraction involves taking away features from the product to
look for development insight. Then multiplication requires adding a copy of an already
existing component but doing so in a way that alerts the copy in some fundamental way.
Also, division operates by breaking the product down and reconfiguring it in some
anticipated way. The last pattern into the innovation patterns that are used to analyse
creative problem solving, is the attribute dependency patterns. Accordingly, creative
problem solving emanates from the entrepreneurs deep knowledge and intuition.
The depicted model in Figure 2 embraces the discussion above, in which the pre-vision stage
is the preparation which pertains to the creativity activity, while evaluation involves
investigating the idea to determine whether or not it is viable. Also, the innovation

6
Refers to the environmental pressures that is supporting or hindering the creativity
5|Page
Enterprise and Innovation Research Paper

opportunity is defining the area of opportunity or problem. And ultimately the value of the
solution to a problem is only as good as the definition of the problem that was defined.
Further, incubation is the time ad space is needed to reflect on solutions or considerations
that not to be immediately apparent. The next step is convergence which is to select one or
few amongst the emerged ideas that will be a validate product or service. The final element
is elaboration, which refers to the work needed to refine the creative insight. Elaboration
processes are not confined to the pre-launch stage, hence it continues after launch because
the interaction with the market is important for development.

Figure 2: Creativity and Innovation Holistic Model as a source of Entrepreneurial Opportunities

5. CONCLUSION

This paper attempted to provide an overview of research into entrepreneurial opportunities


focusing on the ongoing debates in the field with regards to the nature of entrepreneurial
opportunities. In addition, the model proposed in Figure 2 explores this role of creativity
and innovation as the sources of these opportunities by generating business ideas to exploit
business opportunities and nurturing the ability to engage in starting up a business.
The crux hence lies in the creativity of the entrepreneurs to adopt a range of behaviours to
support their search for opportunities, as well as the continual creation of alternative
solutions to problem solving and identification of new opportunities. Interestingly, creativity
describes ways of seeing problems not as difficulties but merely as possibilities. Hence,

6|Page
Enterprise and Innovation Research Paper

creativity is the source of ideas and opportunities (Thompson, 2004), whereas commercially
viable innovations are the linchpin of entrepreneurship. One of the most notable examples
that illustrates our research premise is the world well-renewed entrepreneurs Coco Chanel
who is one of the names that we associate with designer clothing and perfumes. Her fame,
stemming from her creativity in the fashion industry, makes her one of the most successful
entrepreneurs of all time.
Once she opened her business and began to apply her taste and capacities to it, nothing
stopped her, not even the war that soon exploded. For the rest of her life, she worked as
both craftswoman and businesswoman, implementing her own view of the art of dressing
on her ever expanding clientele. She started as a hat maker to the divas, and they revealed
her name to Paris. Her business soon grew into something that changed the whole women
fashion (Dunlop, 2014).

7|Page
Enterprise and Innovation Research Paper

6. BIBLIOGRAPHY

Ahmed, P. & Shepherd, C. (2010) Innovation Management: Context, Strategies, Systems and
Processes, 1st ed. Financial Times/Prentice Hall
Chen, M. & Yang, Y. (2009) Typology and performance of new ventures in Taiwan - A model
based on opportunity recognition and entrepreneurial creativity, International Journal of
Entrepreneurial Behaviour & Research, 15 (5), 398-414
Dimov, D. (2007) Beyond the single-insight, single-person, attribution in understanding
entrepreneurial opportunities, Entrepreneurship Theory and Practice, 31(5), 713-731
Dunlop, J. (2014) 30 Most Influential Entrepreneurs Of All Time [Accessed on 08 Jan 2014]
www.incomediary.com/30-most-influential-entrepreneurs-of-all-time-2#_28_Coco_Chanel
Gaglio, C. & Katz, J. (2001) The Psychological Basis of Opportunity Identification:
Entrepreneurial Alertness, Small Business Economics, 16(2), 95-111
Hansen, D. (2007) Using the creativity model of opportunity recognition to understand the
front end of product innovation. PhD thesis, University of Illinois, Chicago
Hansen, D. (2010) A multidimensional examination of a creativity-based opportunity
recognition model, Journal of Entrepreneurial Behaviour & Research, 17(5), 515-533
Heinonen, J., Hytti, U. & Stenholm, P. (2011) The role of creativity in opportunity search and
business idea creation. Education + Training, 53 (8/9), 659672
Kirzner, I.M. (2009) The Alert and Creative Entrepreneur: A Clarification, Small Business
Economics, Vol. 32
Morrison, A. (2006) A Contextualisation of Entrepreneurship, International Journal of
Entrepreneurial Behaviour & Research, 12(4), 192-209
Puhakka, V. (2011) Developing a Creative-Cognitive Model of Entrepreneurial Alertness to
Business opportunities, Journal of Management and Strategy, 2(4), 85-94
Renko, M. & Shrader, R. (2012) Perception of entrepreneurial opportunity: a general
framework, Management Decision, 50(7), 1233-1251
Runco, M.A. (2004), Creativity, Annual Review of Psychology, 55, 657-687
Shane, S. & Venkataraman, S. (2000) The promise of entrepreneurship as a field of research,
Academy of Management Review, 25(1), 217-226
Stephen, K. (2012) Entrepreneurial Opportunity Identification: A Motivation-based Cognitive
Approach, Journal of Applied Management and Entrepreneurship, 17(2), 1077-1158
Stokes, D. & Wilson, N. (2010) Small business management and entrepreneurship, England:
Cenage Learning EMEA.
Thompson, J. (2004) The facets of the entrepreneur: identifying entrepreneurial potential,
Management Decision, 42(2), 243-258
Walton, A. (2003) The impact of interpersonal factors on creativity, International Journal of
Entrepreneurial Behavior and Research, 9(4), 146-162
Yusuf, S. (2009) From creativity to innovation, Development Economics Research Group, The
World Bank, 1818 H Street, NW, Washington, D.C. 20433, USA

8|Page
Enterprise and Innovation Research Paper

Zampetakis, L., Moustakis, V. (2006) Linking creativity with entrepreneurial intentions: A


structural approach, Springer Science + Business Media, LLC 2006
Zampetakis , L. (2008) The role of creativity and proactivity on perceived entrepreneurial
desirability, Thinking Skills and Creativity, 3(2), 154-162.
Word count excluding Bibliography: 2136

9|Page