336
Int. J. Entrepreneurship and Small Business, Vol. 23, No. 3, 2014
Potential for opportunity recognition: differentiating entrepreneurs Kishinchand Poornima Wasdani* and Mary Mathew Department of Management Studies, Indian Institute of Science, Bangalore 560012, India E-mail:
[email protected] E-mail:
[email protected] E-mail:
[email protected] *Corresponding author Abstract: The potential for opportunity recognition (ORP) is a skill that single out successful entrepreneurs from unsuccessful ones. The entrepreneurs with high ORP were differentiated from the entrepreneurs with low ORP on the factors that influence their ORP. It was also found that the factors influencing ORP differed with the degree of potential to recognising opportunities. The ORP of entrepreneurs with high potential to recognise opportunities was influenced by bonding social capital, power motivation and level of education attained. Whereas, the ORP of entrepreneurs with low potential to recognise opportunities was influenced by their cognitive style. The implications of this study on mentoring of entrepreneurs are discussed. Keywords: opportunity recognition; entrepreneurship; bridging social capital; bonding social capital; motivation; cognitive styles; MSME; demographic factors of entrepreneurs (level of education attained, gender, work experience and entrepreneurship training); self-efficacy of entrepreneurs. Reference to this paper should be made as follows: Wasdani, K.P. and Mathew, M. (2014) ‘Potential for opportunity recognition: differentiating entrepreneurs’, Int. J. Entrepreneurship and Small Business, Vol. 23, No. 3, pp.336–362. Biographical notes: Kishinchand Poornima Wasdani is a doctoral scholar at the Department of Management Studies, Indian Institute of Science, Bangalore, India. She also serves as the Associate Editor of South Asian Journal of Management (SAJM). Her current research is on opportunity recognition potential (ORP) of entrepreneurs across different stages of venture creation and management. Her recent publications have appeared in the Journal of Global Entrepreneurship Research, Ivey Business Journal and Global Entrepreneurship Case Book of the Academy of Management. Mary Mathew is a Professor at the Department of Management Studies, Indian Institute of Science, Bangalore. Her research focuses on R&D productivity, innovative patents, innovation culture building, commercialisation strategy for patents, patent analytics and university to industry collaborations. Her recent publications are in the Technovation, International Journal of Information Technology and Management, Journal of Innovation Management, Journal of Intellectual Property Rights, Team Performance Management, International Journal of Innovation and Technology Management, IIMB Review, Decision, Vikalpa and Journal of High Technology Management Research.
Copyright © 2014 Inderscience Enterprises Ltd.
Potential for opportunity recognition
1
337
Introduction
Individuals are continuously involved in opportunity recognition (OR). Although people encounter opportunity constantly, not all have the ability to recognise opportunities and transform them into success. Those who recognise opportunities will have a better chance to manifest the opportunity. Dana (1995) showed that opportunity identification is a function of culture; for some, access to meat may be identified as an opportunity for a meal, but vegetarians may not share the same feeling. Thus Dana emphasised the importance of context. Depending on the context, success can be defined as successful inventions, excellent grades and successful companies. Schwartz and Teach (2000) found it difficult to describe opportunity because its occurrence was randomly determined. According to them, OR is not an ad hoc activity. Sarason et al. (2006) believed that opportunities are idiosyncratic to an individual. In other words it is imperative for an individual to be either alert to their existence (discovery) or make new combinations to create them (creation). It is however, the implementation that distinguishes its success or failure. Every individual experiences OR and in the case of an entrepreneur it manifests as a venture. As an individual can be high or low on OR, some entrepreneurs can recognise opportunities better than can other entrepreneurs. Recognition of opportunities is not only restricted to identification of business ideas, but also includes effective execution of existing ideas. OR is not restricted to large entrepreneurs. It is also a vital characteristic of small entrepreneurs. Shane and Venkataraman (2000) characterised opportunity as an objective phenomenon which requires individuals to use their unique cognitive skills to realise it. They add that, recognising an opportunity is a context specific, cognitive activity. This means that translating opportunity to success, involves many contextual factors related to the individual and the environment. Depending on the context, OR is classified into steps or processes. These steps or processes vary considerably depending on the actors in context. For example an actor could be a teacher in a classroom, students in a school, investors in the capital market, or entrepreneurs in a start-up. In this paper, we have attempted to measure potential for opportunity recognition (ORP) among entrepreneurs and non-entrepreneurs. Ideas are descendants of all opportunities and the conversion of ideas into opportunities depends on the interest it inherits and its commercial viability (Dimov, 2007). Acting on an opportunity is an important element in deciding the pursuit of it in creating the future. According to Dimov (2007, p.724), “action is the maker of opportunities”. New venture creation and growth are the avenues of such actions that are very complex and dynamic in nature (Gartner, 1990). The reasons behind an entrepreneur’s pursuit of these actions (opportunities) vary widely from freedom, independency and wealth creation. OR has steps or processes that an entrepreneur uses to bring success to a start-up. The steps or processes are opportunity (idea) recognition, opportunity evaluation and opportunity exploitation. These steps or processes may differ amongst entrepreneurs and are most likely to differ between entrepreneurs and owner-managers. The fundamental quality of opportunity is a part of being an entrepreneur (Sarason et al., 2006). Opportunities are new interpretations given to changes that take place in the environment. These interpretations are given the form of a product or service by entrepreneurs (Companys and McMullen, 2007).
338
K.P. Wasdani and M. Mathew
There are three kinds of entrepreneurial behaviours namely promoters, administrators and trustees. The promoters are pursuers of opportunities irrespective of the presence of resources, administrators access the environment to find opportunities and resources to implement them and the trustees are keen on effective utilisation of the resources that they are in possession of. The three different types of behaviours give rise to different ways of recognising and exploiting opportunities. But the underlying reason for the entrepreneurial activity is an opportunity that could be created or recognised (Stevenson, 1983). OR is not a one step process nor does it follow a linear form of operation; it is an iterative process, which is influenced largely by the social learning process, comprising of interactions between behaviour, cognition and the environment (Dimov, 2010). Opportunities will be recognised if and only if the individual has decided to pursue entrepreneurship and vice versa. However the skill to recognise opportunity differs among entrepreneurs, which could be due to the difference in their personal and interpersonal factors. This papers attempts to understand the entrepreneurs with high and low potential of OR.
2
Literature review
This section discusses extant research on OR and the factors that influence it among entrepreneurs. It also identifies the unaddressed issues of OR research by raising questions under each discussion. These questions are converted into hypotheses in Section 3 and are tested in Section 4.
2.1 Opportunity Krueger (2001, p.91) defines entrepreneurship and entrepreneurs as “pursuit of an opportunity irrespective of existing resources” and “those who perceive themselves pursuing such opportunities” respectively. Thompson (1999, p.209) defines an entrepreneur as “someone with a vision, who spots a new opportunity and has a mind to act on it and start something”. Shane and Venkataraman (2000) look at entrepreneurship as a process that manifests into opportunities due to the reciprocal interaction of social and economic factors. Special individuals using array of strategies to extract benefits that are both tangible and profitable further exploit these opportunities. They imply that neither entrepreneurship nor entrepreneurs can exist devoid of opportunities. Casson (1982) defined entrepreneurial opportunities as “those situations in which new goods, services, raw materials and organizing methods can be introduced and sold at greater price than their cost of production”. Dana (1996) distinguished between two types of entrepreneurial opportunity: 1
Schumpeterian1 creation of opportunity
2
Kirznerian identification of opportunity.
Schumpeterian opportunities are innovative, created and rare in nature where as Kirznerian opportunities are imitative, discovered and common in nature. According to Ucbasaran et al. (2009), ideas that have features like novelty, practicality, market appeal and ease of acquiring resources are opportunities. Timmons
Potential for opportunity recognition
339
(1994) identifies the properties of opportunities “as being attractive, durable, timely and anchored in products and services that create or add value for their buyers or end users” as reported by Craig and Lindsay (2001, p.1). According to them, higher the innovativeness of an opportunity higher is its potential to create wealth, i.e., the degree of innovativeness of an opportunity and wealth creation is directly correlated (Short et al., 2010). Krueger (2003, p.112) uses Jackson and Dutton’s (1988) distinction of opportunity and threat by defining them as “situations where the likely outcomes are perceived as positive and that the situation is deemed as within one’s personal control is opportunity where as if the outcomes are negative and beyond one’s control the situation is a threat”. Opportunities also provide first mover advantage and sustain it until being imitated by other entrepreneurs (Lieberman and Montgomery, 1988). Von Hayek (1937, p.45) believes “opportunities are objective but their perception is subjective”. The perception is highly influenced by self-efficacy as reported by Vaghely and Julien (2010). Eckhardt and Shane (2003) give a life cycle of opportunity that begins with generation of opportunity due to disequilibrium in the economy and information asymmetry, followed by exhaustion which creates competition due to spread of information and finally diffusion by deriving profits out of the opportunity. It is said that the life of such opportunities can be extended by mechanisms that limit imitation (patent protection) and mechanisms that decrease the speed of transmitting information. The degree of impact that the opportunity creates in changing the environment defines the size of an opportunity (Timmons and Spinelli, 2007). Opportunities are two types, one that optimises the use of existing resources and the other that creates new means of utilising resources. Kaish and Gilad (1991) divide opportunities into problem solving which are characterised by bringing the known information together and disequilibrium opportunities characterised by connecting the unrelated information. According to Ucbasaran et al. (2009), ideas having the features like novelty, practicality, market appeal and the ease of acquiring resources are opportunities. Timmons (1994) identifies the properties of opportunities “as being attractive, durable, timely and anchored in products and services that create or add value for their buyers or end users” as reported by Craig and Lindsay (2001, p.1). The degree of innovativeness of an opportunity is the most important feature in deciding the wealth creation potential of an opportunity. More innovative is the opportunity, higher is it is potential to create wealth, i.e., the degree of innovativeness of an opportunity and wealth creation is directly correlated (Short et al., 2010). Opportunities are both objective and subjective. Objective because they are dependent on the individuals and their characteristics who identifies and decides to exploit them and their networks. They are subjective because they are dependent on the uncertainties in the environment (Companys and McMullen, 2007). Baron (2002) finds a difference in the recognition of opportunities between the experience entrepreneurs and the nascent ones, the former looks for an element of success to select an opportunity whereas the latter are keen on the novelty of an opportunity.
2.2 Opportunity recognition Shane and Venkataraman (2000) strongly argue that OR is a necessary phenomenon of the entrepreneurship discipline. De Koning (1999, p.3) describes OR with a static view as, “the specific eureka experiences when suddenly an idea crystallizes”. On the other
340
K.P. Wasdani and M. Mathew
hand, Ardichvili et al. (2003) describe OR as a process with three steps namely identification, development and evaluation. Identification of opportunities is by perceiving, by discovering, or by creating them. The opportunity identification phase is followed by a development phase of “continuous, proactive process essential to the formation of a business”. Once developed, it is evaluated in the light of sub-optimally deployed resources [Ardichvili et al., (2003), p.109]. De Carolis and Saparito (2006) added exploitation of opportunities to the existing three-step process of OR. Sambasivan et al. (2009, p.799) defines OR as “… situations in which new goods, services, raw materials, markets and organizing methods can be introduced through the formation of new means, ends or means-ends relationship”. Recognition of opportunity is also stated to be “identification of unsatisfied needs which are manifested by entrepreneurs in to markets and products based on their perceptual maps” [Ramachandran and Ray, (1998), p.46]. We can conclude from the definition of OR given by various scholars that OR is a necessary condition for entrepreneurship. Miller (2007) reports that opportunities can either be recognised or developed or created. Opportunity is recognised when the entrepreneurs identifies a need (demand), opportunity can be developed when he or she attempts to use an under/unutilised resource, whereas creation of opportunity is referred to creating a demand by innovation of a product, process or a market. Yet another source of opportunity is population size. With the increase in the size of the population, the probability of occurrence of an opportunity increase either by creation or by discovery. This study will look at opportunity as recognised since the study is in the context of small and micro enterprise (SME) entrepreneurs who are most likely to identify a need in the market and attempt to cater for it. Also the statistics given by Bhide (2000) upholds that 88% of the entrepreneurs do not involve in innovating ideas but do innovate ways to execute existing ideas and are thus called as imitative entrepreneurs as reported by Dyer et al. (2008). Again the recognition of opportunities could be a conscious search or an unconscious search, which is being alert to environment changes but not knowing what they are really looking for to convert into ventures. The Schumpeterian entrepreneurs who disrupt the equilibrium in an economy do the former kind of OR and Krizner’s entrepreneur do the latter kind of OR (Lucas et al., 2009). This study has entrepreneurs that belong to Krizner’s description rather than the Schumpeterian since the SME entrepreneurs are mostly executing job orders, which requires them to be alert to demand in the market and industry. As identified by Corbett (2007), experiential learning influences the individual’s propensity to choose an opportunity. Using the Kolb’s (1984) framework of experience learning which includes previous knowledge, perception, cognition and experience, Corbett (2007) approved the claims of Vesper (1980), Ronstadt (1989) and Ardichvilli et al. (2003). The claims included that pervious experience of the job would give an individual three kinds of knowledge namely knowledge of the market, customer and industry apart from the confidence in their abilities. Most of the entrepreneurs chosen for this study were the ones with job experience. In fact most of them started with servicing the orders of companies once they were employed and later sought to markets in general. Thus this study is about the entrepreneurs who are imitative; with business in their area of experience and at present is small scale. It is possible that OR helps not only to distinguish an idea from potential opportunity but also directs the entrepreneur to convert opportunities into successful ventures.
Potential for opportunity recognition
341
Entrepreneurship at large is defined as “recognition and exploitation of opportunities that result in creation of firm” [Alvarez and Busenitz, (2001), p.757]. Hitt et al. (2001, p.480) defines entrepreneurship as “identification and exploitation of previously unexploited opportunities”. These definitions underscore OR as the inseparable part of the entrepreneurship. The characteristic that defines the entrepreneur is the “preference for creating activity, manifested by some innovative combination of resources” [Carland et al., (1984), p.357]. According to Bygrave and Hofer (1991, p.14) an entrepreneur is a person “who perceives an opportunity and creates an organization to pursue it”. Shane and Venkaraman’s (2000, p.218) describe entrepreneurship as “scholarly examination of how, by whom and with what effects opportunities to create future goods and services are discovered, evaluated and exploited”. All the above definitions suggest that the single denominator that characterises entrepreneurship is OR. Stevenson and Jarillo (1990) claim OR irrespective of availability of resources as the heart of entrepreneurship. Opportunities are not discovered instead are developed from changes in the environments (Krueger, 1998). Entrepreneurship can be explained from two perspectives namely, firm creation and opportunity exploitation (Eckhardt and Shane, 2003). The former limits itself to human characteristics, while the latter goes beyond to understand the innovative ways of resource utilisation. In opportunity driven ventures, the central activity of entrepreneurs is OR that is normally confused with an idea (Singh et al., 1999). Ideas are usually ahead of opportunities but not all ideas are necessarily opportunities (Singh et al., 1999). Shane and Venkataraman (2000, p.220) defines entrepreneurial opportunities as “those situations in which goods, services, raw materials and organizing methods can be introduced and sold greater than their cost of production”. Entrepreneurs can convert opportunities that they recognise as potential ones into reality in two different ways. They are either by forming business ventures themselves or by sharing their knowledge for a price with other venture owners (Shane and Venkataraman, 2000). Ucbasaran et al. (2003) suggested that OR is driven by attitudes or approach of the entrepreneurs, which are either developing ideas into opportunity or being alert to the environment to sense opportunities. Among the typologies of Miner (2000) one of the types of entrepreneur is individual who is expert idea generator and is able to plan the strategic formation of his/her firm. Entrepreneurs are normally exposed to a number of unexploited opportunities called as shadow opportunities. As the information surrounding the opportunities becomes vivid, the entrepreneur converts this information into a real option (Gunther, 1999). The successful exploitation is insufficient condition to ensure success of opportunity but explains the entrepreneurial talent of an individual (Shane and Venkataraman, 2000). According to Ozgen and Baron (2007), the three important components of OR in the entrepreneur are keenly looking for untapped opportunities, alertness and prior knowledge of environment (industry, market and customers). Opportunity identification in itself is insufficient condition for entrepreneurship unless followed by exploitation (Shane and Venkataraman, 2000). According to Schumpeter (1934), identification of opportunity is invention and exploitation of opportunity is innovation. Thus comprehending entrepreneurs require an integration of personal characteristics, manners of OR and methods of capitalising them (Cunningham and Lischeron, 1991). Balakrishnan et al. (1999, p.30) refer to OR as opportunity seeking activity, which they define as “one’s ability to see situations in terms of unmet needs, identifying
342
K.P. Wasdani and M. Mathew
markets or gaps for which product concepts are to be evolved, and the search for creating and maintaining a competitive advantage to derive benefits on sustained basis”. This kind of ability relies heavily on entrepreneurial vision inclined to “looking at the usual and finding the unusual”. Entrepreneur aims at recognising good quality and quantity of opportunities (Krueger, 2001). Bhave (1994) has introduced a mode that the OR follows: either it is internally stimulated that is decision to start a business is taken first which is followed by OR or search or externally stimulated which is an opportunity is discovered which is followed by venture creation. Schwartz and Teach (2000) calls the former as external path to OR and latter as the internal path to OR respectively. Research findings show that opportunities occur to entrepreneurs of established firms irrespective to its size (large, medium or small) more frequently than the nascent entrepreneurs. In other words, providing support to the nature of opportunities being continuous and subjective to the individual’s capabilities and immersion in the respective field (O’Connor and Rice, 2001). Also the factors will differ in their dimensions along the process of OR (Short et al., 2010).
2.2.1 ORP in entrepreneurs Not all small business owners are necessarily entrepreneurial. A small business owner is an individual who converts ideas into venture. An entrepreneurial individual goes beyond just starting ventures to ensure the success of an enterprise created. It appears that the difference between the two lies in OR, which is the essential constituent of entrepreneurship (Shane and Venkataraman, 2000). It is possible that OR helps not only to distinguish an idea from potential opportunity but also directs the entrepreneur to convert opportunities into successful ventures. Entrepreneurship at large is defined as “recognition and exploitation of opportunities that result in creation of firm” [Alvarez and Busenitz, (2001), p.757]. Hitt et al. (2001, p.480) defined entrepreneurship as “identification and exploitation of previously unexploited opportunities”. These definitions underscore OR as an inseparable part of entrepreneurship. Drawing from the works of several researches, for example, Bhave (1994), Timmons (1994) and Shane and Venkataraman (2000), it can be inferred that the core activity of an entrepreneur is venture formation and an essential part of this activity is OR. The characteristic that defines the entrepreneur is the “preference for creating activity, manifested by some innovative combination of resources” [Carland et al., (1984), p.357]. According to Bygrave and Hofer (1991, p.14) an entrepreneur is a person “who perceives an opportunity and creates an organization to pursue it”. Shane and Venkaraman (2000, p.218) describe entrepreneurship as a “scholarly examination of how, by whom and with what effects opportunities to create future goods and services are discovered, evaluated and exploited”. All the above definitions suggest that the single denominator that characterises entrepreneurship is OR. Stevenson and Jarillo (1990) claimed OR irrespective of availability of resources as the “heart of entrepreneurship”. According to Krueger (1998), opportunities are not discovered but are developed from changes in the environments. Timmons and Spinelli (2007) emphasised the importance of OR for entrepreneurs, by proving that entrepreneurship gets continuously renewed through the process of opportunity identification. Their framework of entrepreneurial process constitutes three important elements namely, opportunity evaluation, resource marshalling and team formation.
Potential for opportunity recognition
343
The entrepreneurial process begins with OR, goes through opportunity evaluation and ends with opportunity exploitation. Sarason et al. (2006, p.3) defines the three phases of OR. The definitions are OR as, “creation of new interpretations of existing sets of relationship”, opportunity evaluation as, “a recursive process of normative evaluation using the set criteria” and opportunity exploitation as, “ability to control resources to achieve the goals”. OR process of entrepreneurs begins before the setting up of the venture but remains with the entrepreneur and his/her venture for the entire life span as reported by Craig and Lindsay (2001) from the works of Hills and Shrader (1998). The recognition of opportunities includes activities such as recognising markets, teams, technology, financiers’ suppliers, customers and competitors, which are perpetual for the existence of the firm (Craig and Lindsay, 2001). Moreover, Tumasian and Braun (2012) find that individuals with a promotion focus (look forward for gains) would identify opportunities better than the individuals with prevention focus (trying to avoid losses). Drawing from the signal detection theory and regulatory focus theory, Baron (2002) asserts that successful entrepreneurs use a combination of promotion and prevention focus.
2.3 OR potential of entrepreneurs Entrepreneurial opportunities strongly follow the framework of resource-based theory. The opportunities come into existence due to a difference in the relative value of resources in the businessmen (Alvarez and Busenitz, 2001). In other words, it is the development of an idea, which has remained unnoticed by others. The quality of OR potential being diverse and incomparable distinguishes one entrepreneur from another (Shane and Venkataraman, 2000). The belief on an idea is a resource in itself (opportunity) (Alvarez and Busenitz, 2001). The realisation of these opportunities will require a more hierarchical form of governance, like that present in firms (and not in markets), which is based on highly specific investment by an individual (Williamson, 1975). It is the firm that transfers, integrates and organises both the specialised and general knowledge about how to secure resources at a lower cost, so that a certain amount of profit is attained (Conner and Prahalad, 1996). The markets are unable to engage in integrating the knowledge because it is easy to imitate and difficult to articulate both the explicit and tacit knowledge respectively (Grant and Baden-Fuller, 1995). The focus of OR lies beyond wealth creation and involves value creation. In other words, the focus of OR is not recognising an upcoming product or market but instead it is proactive development of a nascent market (Santos and Eisenhardt, 2004). Several scholars have explained OR in different ways. The earliest explanation was given by Long and McMullan (1984) they explained OR s as a very personalised activity, which made it inaccessible to others. Lumpkin et al. (2003) consider OR as a creative process, which is unique to an individual. Bhave (1994) believed that OR was a response to a stimulus. This stimulus could be either internal or external; it could be internal when OR happened internally, i.e., maybe while a person was solving one’s own problem, or it could happen externally if an individual recognises a market need. Gaglio (1997) found that OR was a chronic schema, a cognitive process that allowed the individuals to decide the various combinations required to implement it. In all the above models, which discuss OR, we can note that the unique characteristics of entrepreneurs involved in the process
344
K.P. Wasdani and M. Mathew
of recognition. In other words, the potential to recognise appropriate opportunities becomes imperative for venture survival and growth (Shane and Venkataraman, 2000). The process of OR operates to create customer value, persistence in ideas recognition, evaluation of their value creation, prior immersion in the market is contingent on the contextual variables and is a continuous process through out the life of the entrepreneur (Hills et al., 2004). The theory of structuration by Giddens (1979) helps explain OR potential of entrepreneurs. According to structuration theory, higher the degree of embeddedness in society, the higher is the probability of an entrepreneur to recognise opportunities. This is possible because the embeddedness provides entrepreneurs with knowledge, information and the accepted behaviour of the social structure surrounding them (Jack and Anderson, 2002). The entrepreneurial process begins with OR, moves on to through opportunity evaluation and ends with opportunity exploitation. Sarason et al. (2006, p.3) defined the three phases of OR namely recognition, evaluation and exploitation as “creation of new interpretations of existing sets of relationship”, “a recursive process of normative evaluation using the set criteria”, “ability to control resources to achieve the goals” respectively. The process of OR includes recognition of markets, teams, technology, financiers, suppliers, customers and competitors, all of which are perennially required for the survival and growth of the firm (Craig and Lindsay, 2001). The process of OR begins before the setting up of the venture and remains with the venture for the entire life span (Hills and Shrader, 1998).
2.4 Factors affecting OR According to Baron (2002) OR process of entrepreneur is affected by three factors namely individual factors (cognition, self-efficacy and motivation), interpersonal factors (social capital) and societal factors. This study restricts itself to the effects of individual and interpersonal factors on OR. The societal factor is not covered as it includes sub-factors like government norms, technological advances and economic policies, which are highly unstable in their nature and make it cumbersome to capture their effects on OR. Also Baron finds that the societal factors in general influence only the late stage entrepreneurs.
2.4.1 Interpersonal factor: social capital The social capital and social networks share a cycle of mutual relationship, i.e., the returns from one feed in to the gains of the other. In other words, social capital creates more networks and these numerous networks improve the benefits from the social group. These derived benefits enable the entrepreneur to differentiate the beneficial and redundant contacts of the network (Baron, 2004). The emphasis is that apart from an individual’s social assets that are built due to inheritance, position and education, social capital accelerates them towards victorious entrepreneurship (Baron, 2004). Moreover if team of entrepreneurs forms the ventures, the business venture can take advantage of each individual’s network thereby facilitating access to wider networks (Ucbasaran et al., 2003). A highly innovative entrepreneur is constantly looking out to exploit opportunities. To do so, the entrepreneurs orient themselves towards accessing the environment
Potential for opportunity recognition
345
consciously and build relationships with everyone who could be a part of this venture namely suppliers, customers, consultants and financial supporters (Ramachandran and Ramnarayan, 1993). The entrepreneur not only relies on the information provided by close network members but also uses the cognitive skills of network members to maximise its utilisation to generate value for business. Thus, emphasising on the enormous importance of networks in entrepreneur’s OR. Entrepreneurship is all about realisation of business avenues and banking them into rewarding returns. Social capital not only facilitates in identifying the hidden opportunities but also aids in connecting to resources that can convert the ordinary individual into an aspiring entrepreneur. Barnes (1954, p.238) identified social networks as a “system of ties between pairs of people who regard each other as approximate social equals” that included kin and non-kin known. Allen (2000, p.487) borrows the definition of Walker et al. for social networks, “as the set of personal contacts through which an individual maintains social identity and receives emotional support, material aid and services, information and new social contacts”. Another definition given by Adler and Kwon (2002, p.23) is that social capital is the “goodwill available to individuals or groups that includes feelings of gratitude, reciprocity, respect and friendship”. From the entrepreneur’s point of view, social networks make more sense only if they are beneficial directly or indirectly to venture development. Hence social capital of the entrepreneur is the consequence of the social networks that is inherited or developed with socialising skills, i.e., social networks are causal agents of social capital (William, 2006). The resources that effuse from the social capital include information, regulation and solidarity (Adler and Kwon, 2002). The successful individuals have larger social groups than the less successful ones identified by Arrow (1974), hence the benefits to the two groups also differ in personal and business terms reported by Alvarez and Busenitz (2001). The benefits included personal happiness, less conflicting nature, capital required, teams members with diverse abilities and interest, loyal employees, trust, uncertainty management, customers acquisitions and diverse network relationships (Alvarez and Busenitz, 2001; Hoang and Antoncic, 2003). The social capital helps the new entrepreneurs to larger extent by exposing them to more number and variety of opportunities and information to decide on the opportunity they would convert into ventures (Simoni and Labory, 2007). Thus entrepreneurs create social capital as well as use it perpetually for their venture creation process (Simoni and Labory, 2007). Between the two social capitals, bonding or bridging across groups entrepreneurs benefit more from their bridging capital as it improves their knowledge-base (Cohen and Levinthal, 1990), opportunity-base (Burt, 1997) and skill-base (De Carolis and Saparito, 2006). This is because larger the members connected with, lower the magnitudes of dubieties (Burt, 1997). Nevertheless a mix of both the types of social capital will be more advantageous for entrepreneurs along their OR process depending on the benefits required in the relevant stages (Bhagavatula et al., 2010). Networking is not a onetime activity of entrepreneurs as they perpetually network throughout the life of the firm (Johannisson, 2000). Westhead and Wright also report that networks are not to meet the present time demands alone instead create reciprocity to meet the future challenges. Human capital does play its role in deriving social capital from the networks both by its presence and by its absence. Instead, in the latter case it is the only sought after resource to support the entrepreneur’s actions and is called as network compensation hypothesis (Egbert, 2009). The social capital derived from social networks are more important in
346
K.P. Wasdani and M. Mathew
case of the small scale entrepreneurs since they have less support of financial capital (Bhagavatula et al., 2010). More recently, Light and Dana (2013) identified boundaries of social capital in entrepreneurship. Accepting this, we pose the following question: Does the influence of social capital on ORP vary with the degree of ORP?
2.4.2 Personal factor: self-efficacy Self-efficacy varies from person to person along the following dimensions: magnitude (belief of ability), strength (operation of the ability) and generality (across different activities). Chen et al. (1998, p.296) borrows the definition of Wood and Bandura (1989) as “an individual’s cognitive estimate of his or her capabilities to mobilize the motivation, cognitive resources and courses of action needed to exercise control over events in their lives”. Numerous studies using Bandura’s concept of self-efficacy have limited to the exploration of magnitude and strength dimensions and failed to give a generality of an individual’s self-efficacy across all contexts (Chen et al., 2001). The learned helplessness theory of Seligman (1972) attributed the difference in individuals who can exploit opportunities by organising resources to create ventures and others to beliefs individuals have in them (Alvarez and Busenitz, 2001). These beliefs will decide the quantum of effort he/she will take to realise the objective. This concept of general self-efficacy focuses on two important aspects, one, the overall competence in place of task competence and the other is the confidence across varying situations instead of performance-focused contexts alone. The general and context-oriented self-efficacies are not disjoint, rather the task-oriented self-efficacy is developed in the background of the general self-efficacy of an individual (Chen et al., 2001). The general self-efficacy is more important in developing domain/task/context self-efficacy, effect states and learning from previous performance (Chen et al., 2001). Self-efficacy of an individual are formed not only from personal experiences, verbal persuasion and psychological states but also from the influence of other experience called vicarious experience (Bandura, 1977). General self-efficacy usually confused with self-esteem actually shares a reciprocal relation with it and augments an individual’s need to achieve (Chen et al., 2001). High general self-efficacy not only armours the individual from getting sensitised about negative feedbacks and stressful situations (Chen et al., 2001) but also decides the choices individuals make, the efforts they input and the persistence with which they continue in all setbacks (Bandura, 1977). Hence, self-efficacy prevents the individual from getting de-motivated and helps explain the individual’s performance (Chen et al., 2001) According to Barbosa et al. (2007, p.88), there are four types of self-efficacies namely “opportunity identification self-efficacy, relationship self-efficacy, managerial self-efficacy and tolerance self-efficacy”. In his research he reports that entrepreneurs are high in opportunity identification self-efficacy. More over an individual is attracted to opportunity based on its desirability and feasibility. Desirability, affected by self-efficacy and the feasibility, determined by cognitive skills is evident from the research of Sapero (1982) stated by Kruger (1998). This brings us to the following question: •
Does the influence of self-efficacy on ORP vary with degree of ORP?
Potential for opportunity recognition
347
2.4.3 Personal factor: cognitive style Individual variations can be due to differences in each one’s aspirations, performance threshold, motivation and abilities to acquire and transfer education to knowledge (Unger et al., 2011). Unger et al. (2011) explained the dissimilarities in ability to transfer experiences to skills as reflective orientation (ability to make meaningful conclusion of the situation around and convert them into fruitful ideas) and meta-cognitive abilities (awareness of own cognitive powers) of the individual. The cognition of entrepreneurs not only helps to judge the potential of an opportunity but also to examine the abilities and skills required to exploit it (Barbosa et al., 2007). Mitchell et al. (2004, p.511) use Neisser’s definition of cognition as “all the processes by which sensory input is transformed, reduced, elaborated, stored, recovered and used”. Mitchell et al. (2002, p.97) defined entrepreneurial cognitions “as the knowledge structures that people use to make assessments, judgments, or decisions involving opportunity evaluation, venture creation, and growth”. The definitions strongly emphasise the importance of cognition in entrepreneurial behaviour with a compelling attention on the OR process of entrepreneurs. Among the three phases of the OR process, cognition lends itself maximum to evaluation phase of it (Mitchell et al., 2004). The cognitive factors include knowledge, skills and abilities (Shane et al., 2003). The cognitive base of the entrepreneur can do both, help in identifying a potential opportunity and can bottle up the existence of the opportunity (Krueger, 2001). His research emphasises the role of cognitive biases (optimistic bias, planning fallacy bias and illusion of control bias in explaining the choice to engage in to entrepreneurial activities), role of cognitive factors (perceptual processes, regulation of behaviour and mental processes) on opportunity identification process and exploitation for success. All the well-researched attributes like skills, traits, motives, networks that influence the cognitive mechanism (way in which an entrepreneur acquires, processes, stores and transforms any information) of an entrepreneur are important in giving the complete picture of an entrepreneur’s acts (Baron, 2004). This brings us to the research question: •
Does the influence of different cognitive styles on ORP vary with degree of ORP?
2.4.4 Personal factor: motivation Shane et al. (2003) extended the domain of entrepreneurship to include the indirect effect of motivations from traits, cognitive abilities and social networking in explaining entrepreneurial performance. The fact that opportunities exist and that an entrepreneur has the required cognition to both evaluate and develop them into ventures give rise to the questions: Do entrepreneurs have the drive to recognise the opportunities, drive to evaluate them and drive to convert them into successful ventures? Aldrich and Zimmer (1986, p.3) defined entrepreneurial activity “as a function of opportunity structures and motivated entrepreneurs with access to resources”. Motivation is not same as “uniquely entrepreneurial personality traits” (Carsrud et al., 2009). The two definitions indicate the important role of motivation, which cannot be mystified with other personality characteristics in recognising opportunities. Traditionally, the study of motivation intends to answer three basic questions – what activates a person, what makes an individual choose one behaviour over another and why
348
K.P. Wasdani and M. Mathew
people respond differently to the same motivational stimuli (Perwin, 2003). In the case of entrepreneurs the questions could be adapted as: what initiates an individual into entrepreneurship, what makes him/her select one opportunity over another and why do different entrepreneurs use different ways to commercialise opportunities. To find answers to these questions, we need to understand the theoretical framework of motivation. Basically motivation theories can be classified into two types, one drive theories and incentive theories. In the drive theory there is an intrinsic need to engage in an activity where as in the incentive theory it is the attraction of the end goal that persuades an individual to undertake an activity. Many studies have found that entrepreneurs started their businesses due to their incentive drives (Birley and Westhead, 1994; Segal et al., 2005). The current study differs from the findings of various research studies and believes that entrepreneurs are driven by both internal and external stimuli (drive theory and incentive theory respectively). Both internal stimuli of creating something by themselves and the end goal of creating a successful venture (external stimuli) motivate them to employ themselves in the activities of OR and execution. Similar to drive and incentive theories, Schumpeter (1934) and Carsrud and Brännback (2009) believed that entrepreneurs are driven only by the economic benefits of venture creation. In other words, only extrinsic motivation drives their behaviour, which fails to acknowledge the importance of the intrinsic motivation present in them. But a research by Cooper and Artz (1995), found that entrepreneurs who look at non-economic benefits (intrinsic motivation) are more satisfied than the ones who look at economic benefits as their objective to start their business. Another way of understanding entrepreneurial motivation is to look at final and instrumental motivation. The drive to attain a goal (venture creation) is the final motivation, while on the other hand, the activities we indirectly carry out to influence the attainment of the final goal are done due to instrumental motivation (Nuttin, 1984). This understanding of instrumental motivation explains the effectuation theory given by Sarasvathy (2001). The effectuation theory places emphasis on creating an opportunity with the limited means available to the entrepreneurs’, i.e., instrumental motivation together with final motivation help entrepreneurs navigate their way through opportunity creation and venture formation. Also, research on motives, divides them into two types based on their expressions, motives that individuals exhibit and motives that are unconsciously present. The former are explicit motives and the latter are the implicit motives (Hornaday and Aboud, 1971). Explicit motives help determine the goal execution activities whereas the implicit motives influence goal setting activities of the individual (McClelland, 1965). Both the motives are present in the entrepreneurs and guard their choice of entrepreneurship and kind of venture. Under the various classifications of motivation discussed above, there are several kinds motivations discussed in research which include risk-taking, tolerance to ambiguity, egoistic passion, independence and need for achievement. However the need for achievement type of motivation is most researched motivation found in the literature on entrepreneurship (Shane et al., 2003). When entrepreneurship was discussed by McClelland (1965) it indicated enterprising behaviour among individuals with high need for achievement. Murray gave the original theory of needs in 1938, which was further developed by McClelland (1965). According to the theory of needs given by McClelland, any human being is driven by one of three kinds of motivation, namely, the need to affiliate, the need
Potential for opportunity recognition
349
to achieve and the need to be powerful. In his early studies on entrepreneurs, McClelland (1965) emphasised both achievement and power drives as defining traits of entrepreneurs. However, the need for affiliation has been defined as an unconscious motive that pushes entrepreneurs into creating organisations (Hornaday and Aboud, 1971). In addition to being a push factor, it has more recently been cited as a pull factor, in terms of positive or negative reinforcement experienced while undertaking the exercise of venture creation (Drost, 2010). If the experiences were positive the entrepreneur would repeat the activity and if they are negative the entrepreneur would attempt to terminate it (Drost, 2010). OR is an evolutionary process and it depends upon the type of motivation of an entrepreneur to proceed from one step of OR process to the next step of the process, viz OR to opportunity evaluation. The variation in these motivations is one reason for different approaches to OR process by different entrepreneurs (Shane et al., 2003). Also each step in the venture creation process is episodic and hence, the type of motivation that would matter in each stage of venture creation would vary (Shane et al., 2003). The type of motivation influencing the planning stage would differ from the types of motivation influencing the stages of venture creation and venture management stages of entrepreneurship. Motivation of entrepreneurs has an indirect effect on the performance of the firm. It influences the firm formation and management process, which in turn influences the performance of the firm (Shane et al., 2003). Also, the effect of motivation on any venture creation process cannot be studied independently. It needs to be studied together with other factors that include social networks, cognition and personality traits as the influence of motivation occurs in combination with those of other factors. This study attempts to understand the relative independent or combined effect of these factors at different stages of entrepreneurship process. According to Sokolowski et al. (2000) motives are influenced by two categories of experiences: the first one is one of the approach (hope), i.e., the desirability of positive experiences and the second one is one of avoidance (fear), i.e., the sensitivity to negative experiences. Different entrepreneurs have different needs, such as achievement, affiliation and power. Each one of them has a different approach to achieve these needs, which could either be a hope to possess it or fear of not possessing it. With both personal and network characteristics of an entrepreneur, his or her motivation type and his/her approach, we could predict the kind of opportunities identified and the utility value extracted from them. This brings us to the research question: •
Do different needs influence the ORP among entrepreneurs?
3
Methodology
The next attempt was to identify the factors that affect the ORP of entrepreneurs who are high in ORP and who are low in ORP. This kind of the contrast would help single out the factors that contribute to higher ORP. This section discus the scales that the study has used to measure ORP and the hypotheses derived from the research questions raised in the previous section.
350
K.P. Wasdani and M. Mathew
3.1 Scales used in the study The scales used to measures OR potential, interpersonal factor and personal factors are: •
opportunity recognition potential (ORP) – adapted Singh et al. (1999) scale
•
social capital – adapted William (2006) scale
•
cognitive style – adapted Allinson and Hayes (1996) index
•
self-efficacy – adapted Chen et al. (2001) scale
•
motivation – adapted Sokolowski et al. (2000) multi-motive grid.
3.2 Sample for the study The responses for the above scales were collected from 161 entrepreneurs from different industries that include technology, manufacturing, engineering and services. A table describing the characteristics of the entrepreneurs is given (Table 1). Table 1
Showing sample statistics
Description Age Gender Education Work experience Entrepreneurship training Industry
Entrepreneurs (n = 161) 30–50 years Male – 70% Female – 30% Bachelors – 51% Masters – 37% Yes – 59% No – 41% Yes – 19% No – 81% Engineering – 21% Manufacturing – 19% Trading – 17% Service – 15% Others – 18%
The reliability tests are given in Table 2. Table 2
Reliability test of each factor (n = 161)
Factor Opportunity recognition potential Bonding social capital Bridging social capital Self-efficacy Cognitive style Motivation Hope of affiliation Fear of rejection Hope of success Fear of failure Hope for power Fear of loss of power
No. of items
Cronbach alpha
13 7 7 8 35
0.764 0.800 0.740 0.818 0.759
No. of items
KR20 reliability
12 12 12 12 12 12
0.712 0.745 0.739 0.701 0.776 0.782
Potential for opportunity recognition
351
3.3 Hypotheses development Entrepreneurs with high ORP would most likely have a niche of strong ties than a widely distributed sparse tie (weak ties). From their strong ties they would most probably look for support in terms of information access; market needs assessment, awareness of existence of an opportunity, advice on feasibility of exploiting opportunities and financial support during their start-up days. On the other hand the entrepreneurs who are low in ORP may not create nor their networks whether close or sparse ties to seek the support and hence, may end up recognising poorer opportunities. H1
Influence of social capital on ORP increases with increase in the potential of OR.
The self-efficacy of entrepreneurs with high ORP may be high and so it would help them recognise more innovative opportunities when compared to entrepreneurs with low ORP who have very low self-efficacy. This may not be due to their difference in the skills but may be due to less confidence on their skills. H2 Influence of self-efficacy on ORP increases with increase in the potential of OR. In case of the using cognition, the entrepreneurs with high ORP are expected to use adaptive cognition style, which could have been intuitive if the sample was of the high growth entrepreneurs. The entrepreneurs with low ORP may not rely on their cognition for OR instead will have herd mentally. They would just follow what are others are doing. H3
Influence of cognitive style on ORP varies with increase in the potential of OR.
The last factor that is of interest in distinguishing entrepreneurs with high and low ORP is their motivations. The entrepreneurs with high ORP may be driven more by hopes than by fears for achievement or power motives. In other words entrepreneurs with high ORP would be characterised by high hope for success or high fear of failure and high hope for power or high fear of loss of power. Between the two motives, which would be the driving force for entrepreneurs with high ORP is yet to be explored in this study. Since McClelland’s literature on motivation of entrepreneurs in the beginning acknowledged achievement to be the dominant motive but later was changed to accept that they were driven by power motive. Hence, a conclusive finding is yet to be made particularly in the case of SME entrepreneurs, which the current study aims to explore. The entrepreneurs with low ORP may be motivated by neither achievement nor power. H4
4
Influence of the type of motivation on ORP varies with the degree of ORP.
Analysis
4.1 Generating the high and low levels of ORP The analyses were intended to compare the two extreme groups of high and low ORP. To identify the groups a frequency distribution graph for drawn for the ORP score (see Figure 1). There was a sharp increase in number of entrepreneurs above ORP score
352
K.P. Wasdani and M. Mathew
at 45 and sharp decrease in number of entrepreneurs for ORP score at 52. Hence the entrepreneurs that scored less than and equal to 45 were considered as low ORP group and entrepreneurs that scored more than and equal to 52 were considered as high ORP group. The entrepreneurs with ORP scores between 46 and 51 were dropped for the further analysis. The two groups selected for the analyses were named as entrepreneurs with low and high on ORP and were represented as zero and one respectively. Figure 1
Showing the frequency distribution Total ORP
20
Frequency
15
10
5
0
64 63 62 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 38 37 36 35 34
Total ORP
The study further explores if the factors influencing ORP are different between entrepreneurs with high ORP and entrepreneurs with low ORP. This analysis was attempted to identify the factors that would help entrepreneurs improve their ORP and factors that could decrease their ORP.
4.2 Testing the model of high and low ORP using BLR The binary logistic regression (BLR) analysis was conducted to examine if the division of ORP based on the frequencies was powerful enough to predict the effect of the variables on the dependent variable (ORP). The robustness of the ORP model was tested. The results are given in Table 3. The overall relationships are evaluated with the help of the chi-square that is generated with only the constant in its equation. The null hypothesis here is that there is no difference between the model with only a constant and the model with independent variables. The chi-square (df) value was 18.453(8) and significant value was 0.018 which is below 0.05. Hence the null hypothesis is rejected which means that there is a relationship between the independent variables and the dependent variables.
Potential for opportunity recognition Table 3
353
Showing the BLR for entrepreneurs with high and low ORP
Predictor
Beta
Constant –17.73 Total-BOSC 0.01 Total-BRSC 0.32 Total-SE 0.09 Total-CSI 0.05 Total-MHA 0.08 Total-MFR 0.01 Total-MHS –0.21 Total-MFF 0.13 Total-MHP –0.04 Total-MFP 0.14 Overall model evaluation (goodness of fit)
SE 2.67 0.04 0.05 0.04 0.02 0.08 0.07 0.09 0.08 0.08 0.06
Hosmer and Lemeshow
Wald’s chi-square
df
Sig
Exp (B)
36.55 0.01 35.62 6.09 10.60 0.99 0.01 6.06 2.75 0.30 5.32 Chi-square
1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 df
0.00 0.91 0.00 0.01 0.00 0.32 0.91 0.01 0.10 0.58 0.02 Sig
0.00 1.01 1.38 1.09 1.06 1.08 1.01 0.81 1.14 0.96 1.15 Classification matrix
8.235
8
0.0411
84%
Notes: Cox and Snell R square = 0.310; Nagelkereke R square = 0.451 Supports the null hypothesis (data fits the model). **p value significant at 0.01, *p value significant at 0.05. Table 4
Showing t-test for factors of low (n = 32) and high (n = 52) ORP entrepreneurs
Factors Total-BRSC Total-BOSC Total-SE Total-CSI Total-MHA Total-MFR Total-MHS Total-MFF Total-MHP Total-MFP
Low ORP High ORP Low ORP High ORP Low ORP High ORP Low ORP High ORP Low ORP High ORP Low ORP High ORP Low ORP High ORP Low ORP High ORP Low ORP High ORP Low ORP High ORP
Mean
S.D
T
Sig
24.22 26.31 22.88 28.25 24.28 26.65 117.09 124.87 8.78 9.52 3.53 2.46 3.00 2.83 3.78 3.63 8.88 9.23 7.75 8.85
4.225 4.730 3.396 3.624 4.814 6.208 12.741 14.579 2.791 2.137 3.417 2.413 3.059 2.307 3.220 2.794 2.524 2.639 3.037 2.993
–2.05 –2.101 –6.76** –6.866 –1.85 –1.960 –2.49** –2.568 –1.37 –1.282 1.68 1.549 0.29 0.275 0.22 0.213 –0.61
0.04 0.039 0.00 0.000 0.07 0.054 0.01 0.012 0.18 0.205 0.10 0.128 0.77 0.784 0.83 0.832 0.54
–1.35
0.18
Note: **p value significant at 0.01, *p value significant at 0.05.
354
K.P. Wasdani and M. Mathew
Again the Hosmer and Leme show chi-square value given Table 4 is significant which is based on the null hypothesis that there is no difference between the model and the data. Hence the null hypothesis was accepted. The classification accuracy has improved from 73% to 76% when the significant variables were included in the model. The variables are bonding social capital and cognitive style. Thus the analysis concluded that logistic regression model-based would be effective in predicting ORP of the entrepreneurs not included in the sample.
4.3 Testing difference on factors between high and low ORP entrepreneurs A t-test analysis was conducted to test the difference of means between entrepreneurs with high and low ORP. The t-test result shows that the two groups namely high and low ORP differ on bridging social capital, bonding social capital, self-efficacy, cognitive style and fear of failure. The results of t-test analysis are shown in Table 4. The table shows differences in bonding social capital and cognitive style while the other differences are small and hence are not visible on the graph. Table 5
Showing regression for high ORP entrepreneurs (dependent variable – high ORP) B
Std. error
T
Sig.
(Constant)
22.04
Total-BRSC
–0.04
8.19
2.69
0.01
0.19
–0.22
0.82
Total-BOSC
0.45
0.22
2.03
0.06
Total-SE
–0.29
0.19
–1.56
0.13
Total-CSI
0.12
0.06
1.79
0.09
Total-MHA
0.28
0.27
1.02
0.32
Total-MFR
0.56
0.28
1.99
0.06
Total-MHS
0.05
0.26
0.20
0.84
Total-MFF
–0.06
0.28
–0.23
0.82
Total-MHP
0.36
0.28
1.27
0.22
Total-MFP
–0.45
0.27
–1.68
0.11
Gender
22.04
8.19
2.69**
0.01
Work experience
–0.04
0.19
–0.22
0.82
Age
0.45
0.22
2.03
0.06
Education
–0.29
0.19
–1.56
0.13
Entrepreneurship training
0.12
0.06
1.79
0.09
N
R square
Adjusted R square
F value
P value
52
0.525
0.213
5.686
0.01**
Notes: The estimates are significant for two variables namely bonding social capital (BOSC) and education. **p value significant at 0.01, *p value significant at 0.05.
Potential for opportunity recognition Table 6
355
Showing regression for low ORP entrepreneurs (dependent variable – low ORP) B
Std. error
T
Sig.
(Constant)
34.69
5.02
6.92
0.00
Total-BRSC
0.16
0.11
1.45
0.15
Total-BOSC
0.18
0.13
1.46
0.15
Total-SE
–0.08
0.10
–0.81
0.42
Total-CSI
0.17
0.05
3.37
0.00**
Total-MHA
–0.06
0.19
–0.31
0.76
Total-MFR
–0.02
0.21
–0.08
0.94
Total-MHS
0.00
0.18
0.03
0.98
Total-MFF
–0.03
0.20
–0.15
0.88
Total-MHP
–0.05
0.18
–0.30
0.77
Total-MFP
–0.32
0.20
–1.64
0.10
Gender
–0.85
0.89
–0.96
0.34
Work experience
–1.14
0.99
–1.14
0.26
Age
0.20
1.12
0.18
0.86
Education
3.29
2.22
1.48
0.14
Entrepreneurship training
–0.50
1.03
–0.48
0.63
N
R square
Adjusted R square
F value
P value
32
0.308
0.184
2.484
0.002**
Notes: The estimates are significant for only cognitive style (CSI). **p value significant at 0.01, *p value significant at 0.05.
4.4 Testing the influence of factors on ORP The multiple linear regression analyses were conducted to identify the factors that influence the ORP for entrepreneurs who have high ORP and entrepreneurs who have low ORP. The results are shown in Tables 5 and 6 respectively. The results show that ORP of entrepreneurs with high ORP was influenced by their bonding social capital and education. At 10% significant level it can be seen that education was also important to determine their ORP. The ORP of entrepreneurs with low ORP was influenced by their cognitive style and at 10% level of significance even the fear of loss of power seems to influence the ORP. Figures 2 and 3 represent the regression coefficients of factors for entrepreneurs with high ORP and low ORP respectively. A multi-colinearity diagnosis of the factors for the levels of ORP was conducted and VIF (variance inflation factors) values were found to be greater than one for all the variables in the two levels. This meant that there was no correlation among the variables, which was an important condition to permit regression analysis.
356
K.P. Wasdani and M. Mathew
Figure 2
Showing the regression co-efficient (B values) for the factors affecting high ORP (see online version for colours)
Figure 3
Showing the regression co-efficient (B values) for the factors affecting low ORP (see online version for colours)
5
Results
To conclude the hypothesis H1 was supported. The entrepreneurs with high ORP used bonding social capital for ORP and entrepreneurs with low potential did not use social capital for ORP. The hypothesis H2 was not supported which meant that self-efficacy was not important for either of the entrepreneurs. The hypothesis H3 was partially supported since the number of entrepreneurs with low ORP was large for analytical style of cognition and hence the result for adaptive style was inconclusive. The hypothesis H4 was not supported which meant that motivation factors were not important for entrepreneurs with high and low levels of ORP.
Potential for opportunity recognition
6
357
Discussions and suggestions
A difference was also seen among entrepreneurs with high and low ORP. The bonding social capital and education seem to influence ORP of entrepreneurs with high ORP. This would mean that if entrepreneurs with bonding social and higher education (at least a bachelor degree) could recognise better opportunities than the entrepreneurs who do not have social capital and education. The entrepreneurs with low ORP used analytical cognitive style for ORP. Thus the study concludes that education and closer tie networks would enhance the ORP. This study would predominantly help entrepreneurs improve their ORP skills by developing factors that influence them. This study will also help in training entrepreneurs in recognising opportunities. The findings of this study could be used for designing and improving the policy measures to be taken which would improve the culture in the society and that would encourage entrepreneurship in a country. Also the study on start-ups is important as the impressions derived can be extended or equally applied to the established ventures (Stevenson, 1983).
References Adler, P.S. and Kwon, S. (2002) ‘Social capital: prospects for a new concept’, Academy of Management Review, Vol. 27, No. 1, pp.17–40. Aldrich, H. and Zimmer, C. (1986) Entrepreneurship Through Social Networks, University of Illinois at Urbana-Champaign’s Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship. Allen, W. (2000) ‘Social networks and self-employment’, Journal of Socio-Economics, Vol. 29, No. 5, pp.487–501. Allinson, C.W. and Hayes, J. (1996) ‘The cognitive style index: a measure of intuition-analysis for organisational research’, Journal of Management Studies, Vol. 33, No. 1, pp.119–135. Alvarez, S. and Busenitz, L. (2001) ‘The entrepreneurship of resource-based theory’, Journal of Management, Vol. 27, No. 6, pp.755–775. Ardichvili, A., Cardoza, R. and Ray, S. (2003) ‘A theory of entrepreneurial opportunity identification and development’, Journal of Business Venturing, Vol. 18, No. 1, pp.105–123. Arrow, K.J. (1994) ‘Methodological individualism and social knowledge’, American Economic Review, Vol. 84, No. 2, pp.1–9. Balakrishnan, S., Gopakumar, K. and Kanungo, R.N. (1999) ‘Entrepreneurship development: concept and context’, in Kanungo, R.N. (Ed.): Entrepreneurship and Innovation: Models for Development, Sage Publications, London. Bandura, A. (1977) ‘Self-efficacy: toward a unifying theory of behavioral change’, Psychological Review, Vol. 84, No. 2, pp.191–215. Barbosa, S.D., Gerhardt, M.W. and Kickul, J.R. (2007) ‘The role of cognitive style and risk preference on entrepreneurial self-efficacy and entrepreneurial intentions’, Journal of Leadership & Organizational Studies, Vol. 13, No. 4, pp.86–104. Barnes, J. (1954) ‘Class and committees in Norwegian Island Parish’, Human Relations, Vol. 7, pp.39–58. Baron, R.A. (2002) ‘OB and entrepreneurship: the reciprocal benefits of closer conceptual links’, in Staw, B.M. and Kramer, R. (Eds.): Research in Organizational Behavior, pp.225–269, JAI Press, Greenwich, CT. Baron, R.A. (2004) ‘The cognitive perspective: a valuable tool for answering entrepreneurship’s basic ‘why’ questions’, Journal of Business Venturing, Vol. 19, No. 2, pp.221–239.
358
K.P. Wasdani and M. Mathew
Bhagavatula, S., Elfring, T., Tilburg, A. and van de Bunt, G.G. (2010) ‘How social and human capital influence opportunity recognition and resource mobilization in India’s handloom industry?’, Journal of Business Venturing, Vol. 25, No. 3, pp.245–260. Bhave, M.P. (1994) ‘A process model of entrepreneurial venture creation’, Journal of Business Venturing, Vol. 9, No. 3, pp.223–242. Bhide, A. (2000) The Origin and Evolution of New Businesses, Oxford University Press. Birley, S. and Westhead, P. (1994) ‘A taxonomy of business start-up reasons and their impact on firm growth and size’, Journal of Business Venturing, Vol. 9, No. 1, pp.7–31. Burt, R.S. (1997) ‘The contingent value of social capital’, Administrative Science Quarterly, Vol. 42, No. 2, pp.339–365. Bygrave, W.D. and Hofer, C.W. (1991) ‘Theorizing about entrepreneurship’, Entrepreneurship: Theory & Practice, Vol. 16, No. 2, pp.13–22. Carland, J.W., Hoy, F., Boulton, W.R. and Carland, J.C. (1984) ‘differentiating entrepreneurs from small business owners: a conceptualization’, Academy of Management Review, Vol. 9, No. 2, pp.354–359. Carsrud, A. and Brännback, M. (Eds.) (2009) Understanding the Entrepreneurial Mind: Opening the Black Box, Springer, Heidelberg. Carsrud, A., Brännback, M., Elfving, J. and Brandt, K. (2009) ‘Motivations: the entrepreneurial mind and behavior’, in Carsrud, A. and Brännback, M. (Eds.): Understanding the Entrepreneurial Mind: Opening the Black Box, pp.141–166, Springer, Heidelberg. Casson, M. (1982) The Entrepreneur: An Economic Theory, Rowman & Littlefield. Chen, C.C., Greene, P.G. and Crick, A. (1998) ‘Does entrepreneurial self-efficacy distinguish entrepreneurs from managers?’, Journal of Business Venturing, Vol. 13, No. 4, pp.295–316. Chen, G., Gully, S.M. and Eden, D. (2001) ‘Validation of a new generalized self-efficacy scale’, Organizational Research Methods, Vol. 4, No. 1, pp.62–83. Cohen, W.M. and Levinthal, D.A. (1990) ‘Absorptive capacity: a new perspective on learning and innovation’, Administrative Science Quarterly, Vol. 35, No. 1, pp.128–152. Companys, Y.E. and McMullen, J.S. (2007) ‘Strategic entrepreneurs at work: the nature, discovery and exploitation of entrepreneurial opportunities’, Small Business Economics, Vol. 28, No. 4, pp.301–322. Conner, K.R. and Prahalad, C.K. (1996) ‘A resource-based theory of the firm: knowledge versus opportunism’, Organization Science, Vol. 7, No. 5, pp.477–501. Cooper, A.C. and Artz, K.W. (1995) ‘Determinants of satisfaction for entrepreneurs’, Journal of Business Venturing, Vol. 10, No. 6, pp.439–457. Corbett, A.C. (2007) ‘Learning asymmetries and the discovery of entrepreneurial opportunities’, Journal of Business Venturing, Vol. 22, No. 1, pp.97–118. Craig, J. and Lindsay, N. (2001) ‘Quantifying “gut feeling” in the opportunity recognition process’, in Bygrave, W.D., Autio, E., Brush, C.G., Davidsson, P., Green, P.G., Reynolds, P.D. and Sapienza, H.J. (Eds.): Frontiers of Entrepreneurship Research, pp.124–135, Center for Entrepreneurial Studies, Babson Park, MA. Cunningham, J. and Lischeron, J. (1991) ‘Defining entrepreneurship’, Journal of Small Business Management, Vol. 29, No. 1, pp.45–61. Dana, L-P. (1995) ‘Entrepreneurship in a remote sub-arctic community: Nome, Alaska’, Entrepreneurship: Theory and Practice, Vol. 20, No. 1, Fall, pp.55–72, Reprinted in Krueger, N. (Ed.) (2002): Entrepreneurship: Critical Perspectives on Business and Management, Vol. 4, pp.255–275, Routledge, London. Dana, L-P. (1996) ‘Self-employment in the Canadian sub-arctic: an exploratory study’, Canadian Journal of Administrative Sciences, March, Vol. 13, No. 1, pp.65–77. De Carolis, D. and Saparito, P. (2006) ‘Social capital, cognition and entrepreneurial opportunities: a theoretical framework’, Entrepreneurship: Theory & Practice, Vol. 30, No. 1, pp.41–56.
Potential for opportunity recognition
359
De Koning, A. (1999) Conceptualizing Opportunity Recognition as a Socio-Cognitive Process, Centre for Advanced Studies in Leadership, Stockholm, Sweden. Dimov, D. (2007) ‘Beyond the single person, single insight attribution in understanding entrepreneurial opportunities’, Entrepreneurship Theory and Practice, Vol. 31, No. 5, pp.713–731. Dimov, D. (2010) ‘Nascent entrepreneurs and venture emergence: opportunity confidence, human capital and early planning’, Journal of Management Studies, Vol. 47, No. 6, pp.1123–1153. Drost, E.A. (2010) ‘Entrepreneurial intentions of business students in Finland: implications for education’, Advances in Management, Vol. 3, No. 7, pp.28–35. Dyer, J.H., Gregersen, H.B. and Christensen, C. (2008) ‘Entrepreneur behaviors, opportunity recognition and the origins of innovative ventures’, Strategic Entrepreneurship Journal, Vol. 2, No. 4, pp.317–338. Eckhardt, J.T. and Shane, S.A. (2003) ‘Opportunities and Entrepreneurship’, Journal of Management, Vol. 29, No. 3, pp.333–349. Egbert, H. (2009) ‘Business success through social networks? A comment on social networks and business success’, American Journal of Economics & Sociology, Vol. 68, No. 3, pp.665–677. Gaglio, C.M. (1997) The Entrepreneurial Opportunity Identification Process, PhD Thesis, University of Chicago. Gartner, W. (1990) ‘What are we talking about when we talk about entrepreneurship?’, Journal of Business Venturing, Vol. 5, No. 1, pp.15–28. Giddens, A. (1979) Central Problems in Social Theory: Action, Structure, and Contradiction in Social Analysis, Vol. 241, University of California Press. Grant, R.M. and Baden-Fuller, C. (1995) ‘A knowledge-based theory of inter-firm collaboration’, Academy of Management Proceedings, Academy of Management, August, No. 1, pp.17–21. Gunther, M.R. (1999) ‘Failing forward: real options reasoning and entrepreneurial failure’, Academy of Management Review, Vol. 24, No. 1, pp.13–30. Hills, G.E. and Shrader, R.C. (1998) ‘Successful entrepreneurs’ insights into opportunity recognition’, Frontiers of Entrepreneurship Research, Vol. 18, pp.30–41. Hills, G.E., Hansen, D.J. and Hultman, C. (2004) Opportunity Recognition Processes: A Value Creation Context, Working papers of Institute for Entrepreneurial Studies, University of Illinois at Chicago, pp.1–13. Hitt, M.A., Ireland, R.D., Camp, S.M. and Sexton, D.L. (2001) ‘Strategic entrepreneurship: entrepreneurial strategies for wealth creation’, Strategic Management Journal, Vol. 22, Nos. 6–7, pp.479–492. Hoang, H. and Antoncic, B. (2003) ‘Network-based research in entrepreneurship: a critical review’, Journal of Business Venturing, Vol. 18, No. 2, pp.165–187. Hornaday, J.A. and Aboud, J. (1971) ‘Characteristics of successful entrepreneurs’, Personnel Psychology, Vol. 24, No. 2, pp.141–153. Jack, S.L. and Anderson, A.R. (2002) ‘The effects of embeddedness on the entrepreneurial process’, Journal of Business Venturing, Vol. 17, No. 5, pp.467–487. Johannisson, B. (2000) ‘Networking and entrepreneurial growth’, in Sexton, D.L. and Landstrom, H. (Eds.): The Backwell Handbook of Entrepreneurship, Blackwell, Oxford. Kaish, S. and Gilad, B. (1991) ‘Characteristics of opportunities search of entrepreneurs versus executives: sources, interest and general alertness’, Journal of Business Venturing, Vol. 6, No. 1, pp.45–61. Kolb, D.A. (1984) Experiential Learning: Experience as the Source of Learning and Development, Vol. 1, Prentice-Hall, Englewood Cliffs, NJ. Krueger Jr., N. (1998) ‘Encouraging the identification of environmental opportunities’, Journal of Organizational Change Management, Vol. 11, No. 2, pp.174–183. Krueger Jr., N. (2001) Opportunity Emergence: A Fuzzy Look at the Evolution of Strategic Vision, Western Academy of Management, Sun Valley.
360
K.P. Wasdani and M. Mathew
Krueger Jr., N. (2003) ‘The cognitive psychology of entrepreneurship’, in Acs, Z.A. and Audretsch, D.B. (Eds.): Handbook of Entrepreneurial Research, pp.105–140, Kluwer Law International, London. Lieberman, M.B. and Montgomery, D. B. (1988) ‘First-mover advantages’, Strategic Management Journal, Special Issue: Strategy Content Research, Vol. 9, No. S1, pp.41–58. Light, I.H. and Dana, L-P. (2013) ‘Boundaries of social capital in entrepreneurship’, Entrepreneurship: Theory & Practice, May, Vol. 37, No. 3, pp.603–624. Long, W.A. and McMullan, W.E. (1984) Mapping the New Venture Opportunity Identification Process, University of Calgary, Faculty of Management. Lucas, W.A., Cooper, S.Y. and Rodriguez-Falcon, E.M. (2009) ‘On the recognition of venturing opportunities in science and technology’, New Technology-Based Firms in the New Millennium, Vol. 7, pp.7–21. McClelland, D.C. (1965) ‘Toward a theory of motive acquisition’, American Psychologist, Vol. 20, No. 5, p.321. Miller, K.D. (2007) ‘Risk and rationality in entrepreneurial processes’, Strategic Entrepreneurship Journal, Vol. 1, Nos. 1–2, pp.57–74. Miner, J.B. (2000) ‘Testing a psychological typology of entrepreneurship using business founders’, Journal of Applied Behavioral Science, Vol. 36, No. 1, pp.43–69. Mitchell, R.K., Busenitz, L., Lant, T., McDougall, P.P., Morse, E.A. and Smith, J. (2002) ‘Toward a theory of entrepreneurial cognition: rethinking the people side of entrepreneurship research’, Entrepreneurship: Theory & Practice, Vol. 27, No. 2, pp.93–104. Mitchell, R.K., Busenitz, L., Lant, T., McDougall, P.P., Morse, E.A. and Smith, J. (2004) ‘The distinctive and inclusive domain of entrepreneurial cognition research’, Entrepreneurship Theory and Practice, Vol. 28, No. 6, pp.505–518. Nuttin, J. (1984) Motivation, Planning, and Action, Leuven University Press and Lawrence Erlbaum Associates, Leuven. O’Connor, G.C. and Rice, M.P. (2001) ‘Opportunity recognition and breakthrough innovation in large established firms’, California Management Review, Vol. 43, No. 2, pp.95–116. Ozgen, E. and Baron, R.A. (2007) ‘Social sources of information in opportunity recognition: effects of mentors, industry networks, and professional forums’, Journal of Business Venturing, Vol. 22, No. 2, p.174. Perwin, L. (2003) The Science of Personality, Oxford University Press, Oxford. Ramachandran, K. and Ramnarayan, S. (1993) ‘Entrepreneurial orientation and networking: some Indian evidence’, Journal of Business Venturing, Vol. 8, No. 6, pp.513–524. Ramachandran, K. and Ray, S. (1998) ‘A framework and entrepreneurial typology for developing a comprehensive theory of entrepreneurship’, in Kanungo, R.N. (Ed.): Entrepreneurship and innovation: Models for Development, Sage Publications, London. Ronstadt, R. (1989) ‘The corridor principle’, Journal of Business Venturing, Vol. 3, No. 1, pp.31–40. Sambasivan, M. Abdul, M. and Yusop, Y. (2009) ‘Impact of personal qualities and management skills of entrepreneurs on venture performance in Malaysia: opportunity recognition skills as a mediating factor’, Technovation, Vol. 29, No. 11, pp.798–805. Santos, F.M. and Eisenhardt, K.M. (2004) ‘Constructing markets and organizing boundaries: entrepreneurial action in nascent fields’, Academy of Management Proceedings, Academy of Management, August, No. 1, pp.J1–J6. Sarason, Y., Dean, T. and Dillard, J. (2006) ‘Entrepreneurship as the nexus of individual and opportunity: a structuration view’, Journal of Business Venturing, Vol. 21, No. 3, pp.285–305. Sarasvathy, S.D. (2001) ‘Causation and effectuation: toward a theoretical shift from economic inevitability to entrepreneurial contingency’, Academy of Management Review, Vol. 26, No. 2, pp.243–263.
Potential for opportunity recognition
361
Schumpeter, J. (1934) The Theory of Economic Development, Harvard University Press, Cambridge, MA. Schwartz, R.G. and Teach, D.T. (2000) ‘A model of opportunity recognition and exploitation: an empirical study of incubator firms’, Journal of Research in Marketing and Entrepreneurship, Vol. 2, No. 2, pp.93–107. Segal, G., Borgia, D. and Schoenfeld, J. (2005) ‘The motivation to become an entrepreneur’, International Journal of Entrepreneurial Behaviour & Research, Vol. 11, No. 1, pp.42–57. Seligman, M.E. (1972) ‘Learned helplessness’, Annual Review of Medicine, Vol. 23, No. 1, pp.407–412. Shane, S. and Venkataraman, S. (2000) ‘The promise of entrepreneurship as a field of research’, Academy of Management Review, Vol. 25, No. 1, pp.217–226. Shane, S., Locke, E., A. and Collins, C.J. (2003) ‘Entrepreneurial motivation’, Human Resource Management Review, Vol. 13, No. 2, pp.257–279. Short, J.C., Ketchen Jr., D.J., Shook, C.L. and Ireland, R.D. (2010) ‘The concept of ‘opportunity’ in entrepreneurship research: past accomplishments and future challenges’, Journal of Management, Vol. 36, No. 1, pp.40–65. Simoni, C. and Labory, S. (2007) ‘The influence of social capital on entrepreneurial behavior’, in Zacharakis, A., Minniti, M., Spinelli, S., Rice, M.P. and Habbershon, T.G. (Eds.): Entrepreneurship: The Engine of Growth, Vol. 1, pp.1–20, Greenwood Publishing Group, Westport, CT. Singh, R.P., Hills, G.E., Lumpkin, G.T. and Hybels, C.R. (1999) ‘The entrepreneur opportunity recognition process: examining the role of self perceived alertness and social networks’, Academy of Management Proceedings, Chicago, Illinois. Sokolowski, K., Schmalt, H.D., Langens, T.A. and Puca, R.M. (2000) ‘Assessing achievement, affiliation, and power motives all at once: the multi-motive grid (MMG)’, Journal of Personality Assessment, Vol. 74, No. 1, pp.126–145. Stevenson, H.H. (1983) A Perspective on Entrepreneurship, Harvard Business School Working Paper No. 9-384-131, Harvard Business School, Boston. Stevenson, H.H. and Jarillo, J. (1990) ‘A paradigm of entrepreneurship: entrepreneurship management’, Strategic Management Journal, Vol. 11, No. 4, pp.17–27. Thompson. J.L. (1999) ‘The world of the entrepreneur – a new perspective’, Journal of Workplace Learning, Vol. 11, No. 6, pp.209–224. Timmons, A.J. and Spinelli, S. (2007) New Venture Creation: Entrepreneurship for the 21st Century, 7th ed., Chapter 1, McGraw-Hill, NY. Timmons, J.A. (1994) New Venture Creation: Entrepreneurship for the 21st Century, 4th ed., Irwin, Burr Ridge, IL. Tumasian, A. and Braun, R. (2012) ‘In the eye of the beholder: how regulatory focus and self-efficacy interact in influencing opportunity recognition’, Journal of Business Venturing, Vol. 27, No. 6, pp.622–636. Ucbasaran, D., Westhead, P. and Wright, M. (2003) ‘Does entrepreneurial experience influence opportunity identification?’, The Journal of Private Equity, Vol. 7, No. 1, pp.7–14. Ucbasaran, D., Westhead, P. and Wright, M. (2009) ‘The extent and nature of opportunity identification by experienced entrepreneurs’, Journal of Business Venturing, Vol. 24, No. 2, pp.99–115. Unger, J.M., Rauch, A., Frese, M. and Rosenbusch, N. (2011) ‘Human capital and entrepreneurial success: a meta-analytical review’, Journal of Business Venturing, Vol. 26, No. 3, pp.341–358. Vaghely, I.P. and Julien, P.A. (2010) ‘Are opportunities recognized or constructed? An information perspective on entrepreneurial opportunity identification’, Journal of Business Venturing, Vol. 25, pp.73–86. Vesper, K.H. (1980) New Venture Strategies, Prentice-Hall, Englewood Cliffs, NJ.
362
K.P. Wasdani and M. Mathew
Von Hayek, F.A. (1937) ‘Economics and knowledge’, Economica, Vol. 4, No. 13, pp.33–54. Williams, D. (2006) ‘On and off the net: scales for social capital in an online era’, Journal of Computer-Mediated Communication, Vol. 11, No. 2, pp.1–29. Williamson, O.E. (1975) Markets and Hierarchies, pp.26–30, New York.
Notes 1
Schumpeter (1934) gave the types of innovations that induce opportunities, namely creation of new products or services, identifying new markets and new materials, new methods of production and new ways of organizing things.