Opportunity Recognition Concept - Essay Example

Running Header: Opportunity Recognition Surname: First Names: Student Number: Institution: Course Number: Course Name: Assignment Due Date: Table of Contents Table of Contents 2 Introduction 3 Opportunity concept 3 Opportunity recognition 4 Opportunity recognition models 5 Information asymmetry and prior knowledge 5 Entrepreneurial awareness and alertness 6 Accidental discovery versus systematic search 7 Impact of cognition on opportunity recognition 8 Impact of human and social capital on opportunity recognition 9 Conclusion 10 References 11 Introduction Entrepreneurship is defined as a process of recognizing and pursuing business opportunities and the concept of opportunity recognition is regarded as a key element in the process perhaps because it is the one that creates a chance for one to notice the opportunity. During the process of recognizing an opportunity, the entrepreneur is able to identify new goods and services that should be provided in the future. Information availability is always important as it forms a basis for examining and evaluating the opportunity that has been discovered and its viability (Morgan, & Crawford, 2003). It is the information that is available that determines whether, the entrepreneur will venture the opportunity and exploit it or not. Opportunity recognition information can be solicited from market survey, friends and even from other business owners through socializing and sharing of information. This assessment will examine and critically evaluate the concept of ‘opportunity recognition’ and the various models to opportunity recognition and the impact of cognition, human and social capital on opportunity recognition and thereby conclude by highlighting some of the important lessons that have been learnt through out the review (Kickul & Gundry, 2002). Opportunity concept In order to comprehend the concept of opportunity recognition, it is important that we first understand what it means by an opportunity. An opportunity can be defined in two different forms according to the Webster’s New Dictionary (2003). First, it’s a situation where a combination of certain conditions exists for accomplishing a certain purpose and second, an opportunity can be described as a good chance for one to advance a certain idea. However, an entrepreneur opportunity differs from other forms of opportunities because of profit and it is always geared towards achieving high level of efficiency in delivering goods and services by use of certain methods. Entrepreneurial opportunities can be described as a situation where goods, services and raw materials as well as markets and organizing methods can be created through certain means (Ardichivili Cardonzo, 2003). The means may take the form of those strategies that have been identified by the entrepreneur as important tools in actualizing the new idea. To my view, an opportunity can result in three main variables which include: first, individual knowledge, ability and background, the venture idea as well as environmental variables which include: the industry, socio-economic conditions and policy issues. An opportunity can be attractive if it can generate some revenues and add some value to the consumers through out its exploitation process (Craig & Lindsay, 2001). Opportunity recognition In many occasions, entrepreneurs discover business opportunities through the knowledge they posses. However, opportunities can also be recognized through accessing of asymmetry information that exists among different actors who may include the customers, the suppliers and even the government policy. All these sources of information are actually a supplementary to individual knowledge on opportunity recognition. Important to note, is that even though information about opportunity may not be available, the fact remains that opportunities still exist (Krueger & Reilly, 2000). For these opportunities to be identified by an entrepreneur there is need to recognize the importance of surveying the economic environment and identify any available piece of information that may aid the process of recognizing an opportunity. Two important factors that may guide one to recognize an opportunity are: the purpose of the business opportunity and the circumstances that generate this business opportunity. In order for the entrepreneur to fully make use of these two important factors, he must be able to realize first that he is the creator of business by ensuring that all necessary resources have been mobilized and controlled to generate some returns (Kickul & Gundry, 2002). Opportunity recognition models According to Ardichvili and Cordozo (2000), there are three main models towards opportunity recognition. These three models in most instances do overlap and they are influential to opportunity recognition process and they are depended on each other. The three models are: 1. Information asymmetry and prior knowledge 2. Entrepreneurial awareness and alertness 3. Discovery versus purposeful search creativity Information asymmetry and prior knowledge Under this model, the entrepreneurs tend to identify some information that is relevant to what already they know. For example, an individual can hear or notice a company or certain brand, concept or new product that he has never seen before and gets attracted to it because of its growing demand in the market. The opportunity is identified when an individual recognizes the presence of the venture and this can be termed as brand recognition. Based of this idea, the entrepreneur then recognizes the opportunities based on the prior knowledge that he already possesses (Burt, 2000). However, not all opportunities recognizes the available opportunities for simple reason that not all of the entrepreneurs posses the required information. The model of information asymmetry and prior knowledge do not benefit all the potential entrepreneurs and it applies differently to each and every person. Individual prior information is actually an important ‘knowledge corridor which enables individuals recognize the available opportunities. According to (Kickul & Gundry, 2002) there are three main forms of prior information that can be used to identify entrepreneurial opportunity (EO) and they consist of individual knowledge on the market dynamics, ways of serving the markets and customer needs. In my view accession to rich and diverse information plays a very vital in making the process of identifying opportunities easier and faster. This is because the available information can be blended with new ideas to bridge the gap and create an entrepreneurial relationship from an idea to actualization. New information is most instances play a supplementary role to the already existing information and for that reason; it can be actually argued that prior information is the epicenter of opportunity recognition process. Entrepreneurial awareness and alertness (De Carolis & Saparito, 2006) was the first one to introduce the term ‘alertness’ with regard to entrepreneurial opportunity recognition (EOR). (OECD, 2003) found that for an entrepreneurial opportunity to be recognized, awareness of information by an individual plays a very influential role. Entrepreneurial awareness can be defined as a situation where an individual is always sensitive and able to identify any information that is available with regard to objects and incidents as well as behavior trends within the environment. Research shows that a good combination of an individual personality and environment, present conditions that can lead into higher entrepreneurial awareness. The availability of entrepreneurial characteristics within an individual that assist him to cite opportunities within the environment will always create a network and series of entrepreneurial opportunities. In this regard, it can then be argued that entrepreneurial awareness is important in aiding the process EOR. Individual alertness always assists an entrepreneur to remain focused towards opportunity recognition (Bruderl & Preisendorfer, 1998). In addition, alertness can be compared to one’s ability to spot the opportunities that the environment presents. For one to remain focused there is need for constant search for information by an individual as away of ensuring that no single opportunity information that can pass without noticed. In order, to build on individual alertness capability, one is expected to access business journals, magazines, trade fairs and exhibitions as well as print and electronic media such as the cyber space which provides good social and networking opportunities (Delamar, 2000). Accidental discovery versus systematic search A lot of literature that exist about EOR reveals two contradicting views. Some literature argue that opportunity recognition is always determined with the actual search of any available information with regard to opportunities and that no single opportunities can be recognized without information search while the other literature support the view that opportunities are only spotted when there is an inflow of information about the environment. This is to say that finding and forming of new business entities can be based on two theories namely: search for information and sudden discovery of information. The difference between discovery and information search is that the former comes with surprise where one realizes that he had actually overlooked a situation that would have otherwise presented a ready opportunity. (Kakati, 2003) argues that many firms accidentally discover new business ideas which are not their domain of actual information search and break even by making more sales than those actually that engage themselves in extensive research and search for information. However, to my view this should not be held by entrepreneurs as a reason not to do information search since depending on sudden information may not be scheduled for and sometimes it may take the business a lot of time to adjust itself to tap the ideas. A good entrepreneur should always be able to search for information consistently and strategically position himself in order to make use of any sudden information that may surface (Oakey, 2003). Given the two approaches to opportunity recognition, there is need for the entrepreneur to continuously assess his capabilities in order to form a good conclusion on which approach he should depend since capabilities determine the reaction one will take with regard to opportunity recognition. Impact of cognition on opportunity recognition Cognitive is perceived as one of the most important element in opportunity recognition and it seeks to unfold complex patterns that surround the opportunity recognition (Puhakka, 2006). Cognitive perspective addresses three main questions with regard to opportunity recognition. Some of the questions that are addressed include: the processes and the specific patterns the new opportunity presents, how the perceived patterns can be analyzed to determine whether they are real bona fide business opportunity and lastly the mental structures and capabilities that are required to recognize the opportunity in terms of structures, experience and capacity (Baron, 1998). This actually explains the reason as to why individual abilities’ to identify opportunities differs from one person to another. According to the research that was done by (Baum, Locke, & Smith, 2001), indicate that such differences play a very vital role discovering new ventures. The cognitive model developed by this research argued that such differences in individual capabilities are caused by individual insights. Cognitive perspective is important in identifying complex tasks and patterns that are associated with new ventures. Cognitive frameworks actually impacts positively on opportunity recognizing by helping in the process of connecting different ideas. In my view, cognitive frameworks are important in conceptualizing and analyzing basic and crucial elements of an entrepreneurial process (Collarelli-O’Connor & Rice, 2001). Impact of human and social capital on opportunity recognition The world of business is a complex society that involves exchange of information, goods, services and ideas and every participant has got its own interests. Some individuals do better while others fail at earlier stages of their business ventures. This is greatly determined with the social setting that exists within the enterprise and human capabilities. Availability of good socials systems and human capital are very vital (Batjargal, 2003). This is because they influence the process of disseminating and sharing of information through networking. Human capital on the hand is important in managing the already existing projects and the process of recognizing new opportunities. The concept of human capital explains the theories behind the successes and failures of business ventures (Miner & Eesley, 2001). According to (Crockett, 2004) entrepreneurs who are able to identify opportunities and make them a success must always be intelligent, attractive, good and skilled articulators. In my view, the two concepts i.e. human and social capital, are two depended factors. This is due to the fact that social capital explains how people can connect and share any information that may be essential for the business (Linan & Santos, 2007). However, the process of connecting and creating ties is depended on human capital that must be able to spot any opportunity through exchange of information. In simple terms, both human and social capital is important in recognizing opportunities by creating good relationships with people who may be in access to information about the availability of an opportunity (Shaver and Gatewood, 2003). Conclusion In order to conclude this assessment, it is important to point out that the concept of opportunity has been examined and critically evaluated by looking at all aspects that are constituted in the concept. This has been by defining key areas of the concept such as opportunity, opportunity recognition, and the three models of opportunity recognition as well as the impact of cognitive, human and social capital on the process of recognizing an opportunity. The term opportunity has been defined as a situation where a combination of certain conditions exist for accomplishing a certain purpose while opportunity recognition has been described as a situation where an individual entrepreneurs discover business opportunities through the knowledge they posses (Alvarez & Busenitz, 2001. On the other hand the three opportunity recognition models that have discussed under this assessment are: Information asymmetry and prior knowledge, Entrepreneurial awareness and alertness and Discovery versus purposeful search creativity. Finally, it has also been noted that cognitive frameworks are important in determining individual mental capabilities to identify complex tasks and patterns that are associated with new opportunities while human and social capital are important in influencing the process of disseminating and sharing of information through networking and creation of relationships (Delamar, 2000). 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