The Link between the Concept of Opportunity Recognition and Entrepreneurship Development - Essay Example

Introduction: It is widely believed that where opportunity recognition is concerned, identifying ideas for new products, services markets as a means of production that are not currently being exploited is a central site in the entire process (Volkmann, Tokarsi and Guhagen, 2010). Indeed it is often viewed as a primary action, one from which all else follows. Given the central role of opportunity recognition in the creation of new ventures, this process has long been subject of empirical research and theory in the field of entrepreneurship (Volkmann, Tokarsi and Guhagen, 2010). There are several theories available on the issues ad factors that contribute to the larger opportunity recognition whole, but there is a lack of consensus in theory about the nuances of the factors (Volkmann, Tokarsi and Guhagen, 2010). To date, research has not been able to provide a single unifying theoretical framework-one helpful in fully integrating this diverse and extensive body of knowledge (Volkmann, Tokarsi and Guhagen, 2010). The following paper will try and arrive at a consensus on theory based on a study of derivatives of three basic theories defining opportunity recognition (Volkmann, Tokarsi and Guhagen, 2010). More specifically, recent evidence suggests that important insights into the nature of opportunity recognition and perhaps a more unifying theoretical framework for understanding this process can be obtained from theories in the field of cognitive science relating to the process of pattern recognition (Volkmann, Tokarsi and Guhagen, 2010). Model 1: The first theory is that of pattern recognition. In a sense the field of entrepreneurship strongly concurs with the idea that one is most uniquely human when one is able to turn challenges into opportunities (Ozgen and Baron, 2007). It is suggested in this model that a framework can be derived from theories relating to the basic aspects of human cognition and human perception. Pattern recognition is the process through which complex and seemingly unrelated events are perceived by specific persons as constituting identifiable patterns (Ozgen and Baron, 2007). In essence, it involves recognition, by sich persons of links between apparently independent trends, changes and events. The patterns suggested by these links or connections then point to new products or services, new markets or new ways of serving the existing ones (Ozgen and Baron, 2007). In short, pattern recognition perspective suggests that opportunity recognition involves instances in which specific individuals connect the dots-percieve links between seemingly unrelated events and changes, the emergent patterns they then perceive provide the basis for identifying new business opportunities (Ozgen and Baron, 2007). Sever lines of evidence indicate the fact that pattern recognition may indeed play a key role in opportunity recognition (Baron and Tang, 2011). First it is clear that many opportunities exist for many years before they are innovated and developed. For instance, consider wheeled luggage of the type that is now used by a majority of all air travelers. The idea therefore is that once the trends were connected the benefits of wheeled luggage become apparent, and this product starts dominating the luggage market. Second there is a large body of evidence in cognitive science tends to suggest the fact that pattern recognition is a basic aspect of efforts to understand the world as it exists (Baron and Tang, 2011). To the extent that opportunity recognition too involves perceiving links or connections between seemingly independent events or trends, it may be closely related to this basic perceptual process (Baron and Tang, 2011). Finally, recent findings point to the fact that pattern recognition is closely related to opportunity recognition by entrepreneurs. For instance in one revealing study, experience entrepreneurs were asked to describe the process involved in the identification of the opportunities they pursued (Baron, 2011). Findings indicate that these highly experience entrepreneurs uniformly mentioned engaging in an indicative search and also in restricting these searches for opportunities to areas in which they already possessed considerable knowledge (Baron, 2011). On the basis of cognitive frameworks that have been developed through experience, specific individuals notice links between seemingly independent events, changes or trends, them and again on the basis of cognitive frameworks they posses, they perceive meaningful patterns in these links or connections (Baron, 2011). The need of the hour is to ensure that one stays a step ahead of the changing and evolving market conditions via the medium of new technologies and effective human resource management. In order to ensure that the company maintains its competitive nature it has to do more than simply deliver products or services that are better or cheaper than those of their rivals (Dekimpe, Parker, and Sarvary, 2000). They must also add features, improve performance, and reduce prices more quickly. Innovation dose not just mean the creation of demand through new products it also means the creation of new markets and the development of new lines and the venture of newer strategies. Model 2: The second model of opportunity recognition is the one proposed by Bhave in 1994, which supports the view that opportunity recognition can be externally or internally stimulated. Bhave’s model is one supported by the processes in venture creation with opportunity recognition. Perhaps his most important contribution to the literature is the identification of two types of opportunity recognition based on Cyert and March’s earlier typology, which divided the concept into two categories. The former emanates from the desire on the part of the entrepreneur to start a new business, and therefore, is a succession of this desire. Here the recognition of the opportunity is the result of, and caused by the desire of the businessman to start a new venture. This is the case of the entrepreneur who decides to start a new venture influenced by his personal and environmental circumstances at that time. This means that the opportunities come from entrepreneurs who recognize the opportunities for their ventures using this process and thus end up engaging in an ongoing search for opportunities, which they filter, massage and elaborate before founding their firms. Internally stimulated opportunity recognition happens when the entrepreneurs have business idea first, discovering problems to solve their needs to fulfill and only later decide to create their ventures. The idea in this model is to highlight the likelihood of the fact that opportunities can result from different sequential processes (Hirschrich, Peters and Shepherd, 2005). In the second case,- internally stimulated-, the opportunity recognition  precedes the decision to start the new venture. The entrepreneur is introduced to needs that could not be easily fulfilled through available vendors or means; as a result, he (she) tries on his (her) own or with others, to find his/her own solutions to satisfy the needs (Davidson, 2008). The most important difference between the two is that the externally stimulated process begins with the decision to start with and involves the consideration of various different ideas (Davidson, 2008). The former on the other hand, starts with the recognition and solution for a business. In the later stages the two types of process tend to converge (Davidson, 2008). Both involve further refinement of the original idea to a more fully fledged business concept out of this realization. Bhave (1994) does not discuss the differences between the two types of processes in the latter stages (Davidson, 2008). In addition o the distinction between the internally and externally stimulated opportunity recognition, an important contribution of this theoretical model lies in the concept that filtration and the refinement that can take place before the business concept is identified (Gartner, 2004). He defines the business concept as a fully refined opportunity (Gartner, 2004). The model indicates that opportunity recognition does not occur through a discrete linear process. Rather, a simmering effect takes place as varieties of opportunities are examined before one is selected as the final business concept to launch (Gartner, 2004). Numerous business ideas may be considered at least briefly. The development of ideas into entrepreneurial opportunities may require modifications and go through several revision (Hirschrich, Peters and Shepherd, 2005). For some entrepreneurs, the recognition of the idea and opportunity may be simultaneous, but for others it may take weeks, months and even years before recognizing an opportunity from new venture ideas (Gartner, 2004). Model 3: Shane (2003) explained that there were two reasons why people discovered opportunities: better access to information and superior cognitive capabilities. People have access to better information through life experiences, social networks and search processes. In the case of life experiences job functions play an important role because it has been empirically tested that certain kind of jobs -like the ones in research and development or in marketing. Social ties play an important part of Shane’s model. The structure of the social network influence what information people receive, the quality, quantity and speed of the receipt of that information. Both, weak or strong ties (Granovetter, 1973) (have importance in the information that is generated to the entrepreneur.  People are more likely to find information that is useful to the discovery process through deliberate search than Random Behavior (Shane, 2003, p. 48). The entrepreneurial new venture strategy must not only be able to reconcile deliberate and emergent themes but also manage the tension between what is known and what is believed to be true. A recent model of the opportunity recognition possess based on alive stage model of creativity helps to explain how the tension is managed. Opportunity recognition is not limited to the aha! Moment by can be understood as an iterative process through which fresh insights are contemplated, new information is sifted and knowledge created over time. New venture strategy development is first and foremost an emergent activity therefore even if it requires deliberate planning activities along the way. One of the more recent ways to discover new opportunities comes in the wake of technology development and new innovation and connectivity models like social networking which help people connect in different ways. Singh (2000) performed an extensive study that identified how social networks influenced the entrepreneurial opportunity recognition process. He analyzed, based on and Burt (1980) how variables such as strong/weak ties, structural holes influence the opportunity recognition process.  Impact of cognition and human and social capital on the opportunity recognition process In understanding the various models on opportunity recognition, what becomes clear at the first glance is the fact that strength, speed and numbers by which opportunity is recognized is dependent on the creation of social and economic capital (Nixdroff, 2008). Previous knowledge (human capital) and resources used to facilitate and aid the growth of opportunities. This in turns allows social capital to develop which facilitates and supports opportunity recognition (Nixdroff, 2008). This means that advancement in buying behaviour, an advent of technology, the need for growth and the desire to get more are the drivers that create opportunities in the first place. These are the very opportunities that are recognized and exploited by the entrepreneurs who make use of available resources and the need for change and growth to innovate and come up with products and services that service growth (Nixdroff, 2008). Innovation can be understood as the remodeling of novel information and the transfer of this knowledge into the betterment of products and services (Nambisam and Baron, 2009) . It is all about the creation of value and creating impetus for productivity, and therefore for growth. Innovations have often been equated to the concept of risk taking but it has been demonstrated time and time again that it is the ones that look to innovate and take these risks that grow and expand. The basic formula that underlies Innovation is the acceptance of the risk factor to accept risk and the measurement performance. Many studies on opportunity recognition have identified that information plays a crucial role in this process. Pech and Cameron (2006) proposed an information processing framework of entrepreneurship that holistically mapped out the entrepreneurial opportunity recognition process. This framework encompassed theories of entrepreneurship, psychology and cognitive neuroscience demonstrating how various entrepreneurial needs and attitudes, as well as entrepreneurial motivators, impact on the diagnosis and assessment of informational cues. Here it becomes important for one to understand the concept of innovation as well, given that the model supports the view that innovation is factored by and originates from opportunity recognition. It is the direct result and the ultimate entrepreneurial manifestation of an opportunity recognized. Conclusion In conclusion therefore it can be reiterated that there is an inextricable link between the concept of opportunity recognition and entrepreneurship development. This is the concept that in the long run leads to innovation, and in the long tern leads to growth of the industry. in short therefore, it could be correct to state that development of society and industry is related to the ability of its entrepreneurs to recognize opportunity. Reference: Aldrich, H.E. (1989) Networking Among Women Entrepreneurs’, in Oliver Hagan, Carol Rivchum and Donald Sexton (eds), Women –owned Businesses, Chapter 5, New York, Ny: Praeger, 103-32. Gartner, W. (2004) "Who is an entrepreneur?" Is the wrong question. American Journal of Small Business, 12(4), 11-32. Ozgen, Eren (2003) Entrepreneurial opportunity recognition: Information flow, social and cognitive perspectives. Ph.D. dissertation, Rensselaer Polytechnic Institute, United States -- New York. Retrieved July 10, 2008, from ABI/INFORM Global database. (Publication No. AAT 3098877). Ozgen, E., & Baron, R. A. (2007). 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Nambisam, Baron, R., (2009), "Virtual Customer Environments: Testing a Model of Voluntary Participation in Value Co-Creation Activities," Journal of Product Innovation Management Read More