Organizational Innovation: A meta analysis of effects of determinants and moderators

Source:Organizational Innovation: A Meta-Analysis of Effects of Determinants and Mod...
Damanpour, Fariborz
Academy of Management Journal; Sep 1991; 34, 3; ABI/INFORM Global

The meta-analysis provides an opportunity to compare and evaluate the effectiveness of each moderator in distinguishing the relationship between the organizational variables and innovation.
Moderators effect on organizational innovation.
Types of organization have following effects on organizational innovation:
Manufacturing is positively correlated with specialization, formalization and negatively related to centralization and vertical differentiation. For service organization moderators have positive effect for specialization, managerial attitude toward change and vertical differentiation and negative effect on formalization, centralization. For non-profit org moderators have positive effects for specialization, managerial attitude toward change and non-significant for functional differentiation. For profit org moderators have positive effect for specialization, functional differentiation and formalization and have negative effect for centralization and non-significant for managerial attitude toward change.
In case of types of innovation administrative innovation is positively related to specialization, functional differentiation, professionalization, external communication and vertical differentiation and negatively related to centralization and non-significant for formalization. Technical innovation is positively related to specialization, functional differentiation, professionalization, external communication and negatively related to centralization and non-significant for formalization and vertical differentiation. Product innovation is positively related to specialization, formalization, technical knowledge resources and negatively related to centralization and non-significant for professionalization. process innovation is positively related to specialization, professionalization, formalization, technical knowledge and non-significant for centralization. Radical innovation is positively related to specialization, professionalization, technical knowledge resources, external communication and non-significant for formalization, centralization and managerial attitude toward change.
Incremental innovation have positive effect on specialization, professionalization, managerial attitude toward change, technical knowledge resources, external communication and non-significant for centralization. In case of stages of adoption initial stage have positive effect on professionalization and external communication and negative for functional differentiation, formalization and centralization. Implementation stage have positive effect on specialization, functional differentiation, professionalization and external communication and negative effect on centralization and non-significant for formalization. In case of scope of innovation low scope have positive effect on specialization, centralization and managerial attitude toward change and non-significant for professionalization and formalization. High scope have positive effect on specialization, professionalization and managerial attitude toward change and negative effect on formalization and centralization.
By identifying the statistically significant and non-significant determinants of innovation.
This study illustrated the role of a moderator the innovation research has seldom considered explicitly. When the study is divided into two subgroups of low and high innovation scope, the high subgroup showed considerably stronger relationship with specialization, professionalization, formalization and centralization, all the directions suggested by theory.
Studies of large number of innovations of different types and radicalness over time will require new ways of designing and conducting innovations or sets of innovations of same type of groups of related innovations could help link innovativeness to organizational effectiveness. establishing such a link is necessary for expanding the scope of organizational innovation research to include evaluation of the consequences of innovation such studies however should be longitudinal and multidimensional and will require substantial resources and collaboration efforts among researchers conducting complementary research projects.

Improving Innovation Productivity in the Consumer Packaged Goods Industry

Improving Innovation Productivity in the Consumer Packaged Goods Industry
Authors
Joel Barbier
Mary de Wysocki
Steve Du Mont
Sharon Finke
Shaun Kirby
James Macaulay
Mike McLaughlin
Waseem Sheikh
Jon Stine
Ronald van Zanten
Cisco Internet Business Solutions Group (IBSG)
Cisco IBSG Copyright © 2007 Cisco Systems, Inc. All rights reserved.
White Paper
Overview
Successful innovation is critically important to the consumer packaged goods (CPG) industry and will largely define winners and losers. The rapidly growing phenomenon of Internet-based, interactive, collaborative communication has created an opportunity for the CPG industry to shift from a traditional, linear process to one that creates a virtualized innovation process that originates from, and centers on, the consumer.
At present, the innovation process for the CPG industry is driven mainly by existing business models: internal research and development, contemporary industry HR practices, and internal IT capabilities. The inability to challenge and change existing, traditional processes and cultural values leads to seriously inert organizations. These organizations currently are obtaining unacceptable results from innovation.
Today’s consumer-centric world requires businesses to reassess innovation initiatives, balancing investment across technology, process, and cultural change. Going forward, significantly higher rates of success will be found through the implementation of an Innovation Execution Framework, which consists of three elements:
• Consumer Insight Network: Internet-based social network that encourages and enables consumer-originated, interactive content devoted to issues relevant to CPG brand categories.
• Open Innovation Network: An open-source, Internet-based, social network that encourages and enables interaction aimed at developing ideas, solving problems, or formulating disruption opportunities.
• Operational Agility Network: Internet-based, collaborative network that overlaps and loops through the other networks to add knowledge and improve responsiveness.
Innovation Through Collaboration
Innovation can be accelerated only if an organization is able to implement multidimensional mass collaboration. This means simultaneous downstream collaboration with retailers and customers, upstream collaboration with vendors, horizontal collaboration internally, and collaboration with other ecosystem partners and outside communities of common interest, including freelance experts and academicians.
In order to change the outcome, the industry needs to transform its approach by including Web 2.0 technologies and processes that achieve higher results. Figure 1 demonstrates a traditional linear process (from sensing through commercializing), surrounded by Web 2.0 capabilities and the requisite architecture, which provide exceptional consumer insight and a pathway for collaborative change.
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Figure 1. Main Elements of the Innovation Execution Framework
Source: Cisco IBSG, 2007
Innovation Failures Currently Outnumber Successes
The CPG industry is responsible for approximately US$3.4 trillion in business worldwide. According to Deloitte, industry executives expect revenue from new product introductions to account for 34 percent of 2007 revenue, up from 2 percent in 1998. This means $1.15 trillion in 2007 revenue will be driven by new products.
In 2005, CPG companies introduced 156,125 new products to the market. Only 4 percent of these products, however, achieved annual sales of more than $50 million. Roughly 80 percent of the products achieved annual sales of $10 million or less. Estimates of new product innovation failures range from 53 to 86 percent.
Looking globally, emerging markets represent an enormous opportunity for established CPG companies, but cultural preferences, the small percentage of consumers reached by modern retail, and daunting distribution and logistical challenges will have a negative effect on immediate sales growth projections in both emerging and developed markets.
IT Capabilities Are Insufficient
The IT capabilities needed to rapidly form and expand new networks are lacking, creating frustration and an inability to execute. CPG companies typically spend 1 to 3 percent of revenue on IT, and much of that supports traditional linear and internal processes. Collaboration, the ability to harness features of Web 2.0, and extension to key stakeholders (consumers, academia, and partners) are key differentiators in capturing the value of the overall Innovation Execution Framework.
Increased R&D Spending Does Not Necessarily Help
A 2005 Booz Allen Hamilton study showed that unlike other industries, such as healthcare, technology, and process manufacturing, increased research and development spending for CPG products did not correlate to increased results. It is estimated that only 4 percent of new consumer products generated by corporate R&D yield significant results. Foundational NetworkUnified CommunicationsCollaboration ApplicationsSenseGenerateSelectDevelopCommercializeOperational AgilityNetworkConsumer InsightNetworkOpen InnovationNetwork** Unified Communications employs voice, video, data, and mobility products that enable businesses to share information more quickly and effectively, improving productivity and reducing costs.Cisco IBSG Copyright © 2007 Cisco Systems, Inc. All rights reserved.
White Paper
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The Solution
Moving to a Networked Process
CPG companies need to create and effectively manage "networked chaos," which is a fluid environment that encourages and enables consumer-originated ideas, as well as ideas from professional stakeholders. Networks can be small and short in duration, built around a disruptive technology, or they can be large and ongoing, creating a strong and sustainable link with consumers and key stakeholders on a global basis. Ongoing conversation and insight will spawn mini-networks that can germinate ideas, support collaboration on key topics, and promote virtual, global, rapid product development. The consumer, passively or actively, is at the heart of these networks and is integral to their success. The key is to be able to construct these networks rapidly, expand them at will, and fuel them with relevant technologies so that significant value is derived.
Simply attempting to bolt on the required collaboration, communication, and Web 2.0 capabilities and technologies to existing infrastructure often does not work. There is too large a gap in capability and agility within the internal environment. To achieve success, it is fundamental to build a solid, robust, and flexible network infrastructure that then can function as the platform for future business models.
The creation of these networks will improve innovation productivity dramatically. In some cases, this consumer-centric and networked approach will replace a traditional, internal, linear model. In other cases, it might be used to complement traditional models.
It is entirely possible to achieve a 25 percent improvement in CPG innovation productivity by reducing the total number of product launches within a given year (with subsequent reductions in operating and capital expenses, including research and development) and by increasing the total number of new products that achieve $50 million or more in annual revenues. Through the adoption of the Innovation Execution Framework and requisite processes, the Cisco Internet Business Solutions Group (IBSG) estimates this 25 percent improvement in innovation productivity would add $1.14 billion in annual gross profit to a $10 billion CPG firm (average) and $460 billion in additional value to the global CPG industry.
By incorporating a comprehensive, networked process, CPG companies can achieve significant improvements in product innovation success while dramatically reducing costs associated with this practice.
The Consumer Insight Network
The Consumer Insight Network is the source of inspiration and perceptiveness. The key drivers of innovation are deep observations of consumer behaviors and needs, not existing assets, products, or positioning. Consumer involvement is spontaneous, not structured. The configuration is networked chaos with constant input and feedback, not linear. The corporate attitude is one of "inviting the consumer in."
Key Elements
Interactive content: Internet-based social networks encourage and enable consumer-originated, interactive content devoted to issues relevant to CPG brand categories. The content can emerge from blogs, chat rooms, podcasts, personal videos, advisory and focus groups, special events for network members, and 1:1 real-time specialist and advisory communication. Such interactive content, not limited to targeted consumers but open to those of common interest in the category, can produce real-time insight into:
• Behavioral usage models (how I wash my hair in the morning)
• Trends and fashions (which hair colors and styles are fashionable or not)
• Media consumption and time expenditure (what I watch or listen to, free time, and so forth)
Studying consumer-originated, interactive content provides CPG companies with deeper and more accurate market segmentation. This, in turn, provides the opportunity to discover previously unknown niche markets, the creation of new niche markets, and extension of existing product lifecycles (see Figure 2). The acquisition of new behavioral insights helps drive early identification of new, fast-growing "tornado" markets and new category opportunities.
Consumer-originated feedback: The second important element of the Consumer Insight Network is that Internet-based social networks can encourage consumers and shoppers to offer feedback to CPG industries. This feedback provides ideas and product proposals; marketing promotion concepts in support of product innovation; and critical information for the corporate category community, such as women’s health, men’s personal care, or children’s snack foods.
Procter & Gamble has applied Innovation Execution Framework concepts and doubled its innovation success rate. P&G increased its innovation productivity by 60 percent due to a reduction in internal R&D from 4.8 percent in 2000 to 3.4 percent today. P&G is targeting 50 percent external innovation by 2010.
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Figure 2. Key Elements of the Consumer Insight Network
Source: Cisco IBSG, 2007
Consumer Insight Network at Work: Starwood Hotels and Resorts Worldwide, Inc.
Writing as the "Starwood Lurker," Starwood Customer Services Coordinator William R. Sanders participates in message boards and actively engages consumers. The result: Sanders is able to increase company knowledge and, ultimately, create stronger customer loyalty by tracking consumer comments and buzz on relevant message boards, forums, and rating sites. Since November 2000, Sanders has made more than 12,000 posts to FlyerTalk, the "world’s most popular frequent flyer community." Notable is the transparency with which Sanders does this, adding to his credibility on the board as a customer advocate.
The Open Innovation Network
A solution-oriented Open Innovation Network incorporates key learnings from the Consumer Insight Network for idea selection and development. It brings ideas into a virtual or physical Innovation Lab, providing rapid assimilation and high-tech enablement. Specific consumers or consumer groups may be invited in to ensure their needs are a focus throughout the process. Or the consumer insight group may be tasked with validation, testing, and collaboration, not as key stakeholders in the Open Innovation Network, but as auxiliary members. The primary purpose of the Open Innovation Network is to harness the scope and reach of the Internet for open-source ideas, and to assemble networks to act on those ideas quickly.
White PaperDeeper Market Segmentation• Find Niche Markets• Create Niche Markets• Extend Product LifecyclesNew Behavioral Insights• Reduce Product Introduction Failures• Minimize Failed-Product Impact• Identify "Tornado" Markets First• Create New Categories FirstSocial NetworksBuddy ListsBlogs-Chat-VoteAdvisory GroupsMember EventsAny Device AnywhereConsumerInsightNetworkYour Color • DesignYour Name • ProductPersonalizationLoyalty Rewards1:1 ConsultationGamingVirtual ShoppingVirtual Product TestingVirtual Living
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Key Elements
Consumer open-source product idea development: Internet-based networks encourage and enable consumer-originated open-source product idea development. Open source is not just a software development idea. In the context of the CPG industry, it can foster continuous innovation and improvement, create niche opportunities, and bind developers to the brand and the opportunity.
Professional open-source product idea development: Similar to consumer-generated open-source development, Internet-based networks can encourage and enable professional brand stakeholders and independent researchers to be involved in product idea development. Suppliers have a major stake in CPG innovation productivity success. Technology companies, such as HP, Intel, and Google, use worldwide networks of university research labs that are advancing the state of the art in areas of strategic importance.
New IP protection practices: New intellectual property (IP) protection practices are emerging rapidly. These practices should be used in the CPG industry. Companies may not always need to own all the IP, or employ all of the people that contribute to their innovation web. For this to work, companies must add value to any IP acquired on the open market, and will need to make the final decisions, ask the right questions, draw up strategies, source and analyze external inputs, and commercialize and distribute the right products.
Innovation Labs: At the heart of the Open Innovation Network is the Innovation Lab, a virtual or physical "always on" room (see Figure 3). This allows rapid assimilation and collision of inputs from the Consumer Insight Network, functional groups, professional stakeholders, partners, suppliers, and so forth. The success of the Innovation Lab is built upon a high degree of technological support. Technologies required to support the Innovation Lab include high-tech definition and video enablement (desktop; videoconferencing; Webconferencing; virtual white boarding; knowledge bases with secure, real-time communications such as e-mail, chart, intermodal, instant messaging, blogs, and so on) and strong authentication and authorization for protection of IP.
Figure 3. Key Elements of the Open Innovation Network
Source: Cisco IBSG, 2007Speed to Innovation• Tap External Stakeholders• Lower Internal R&D Costs• Capture Early MarginsSpeed to Innovation Productivity• Fail Quick, Fail Cheap• Fix Problems Rapidly• New Sources of RevenueCo-CreationConsumer-Created ProductsConsumer-Directed ProductsOpen SourceIdea MarketplacesR&D for HirePatent SellingProblem SolvingDisruptive ForcesVirtual POCProduct/Packaging TestingExperience TestingConsumer FeedbackInnovation Lab
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Open Innovation Network at Work: InnoCentive
InnoCentive provides a network of 80,000 "solvers" in 173 countries. This community tackles research problems for P&G, Boeing, DuPont, and 30 other companies. Some world-class companies also are offering financial awards for solutions to their scientific challenges. At P&G, for example, outside scientific networks contribute 35 percent of new products, up from 20 percent three years ago. Sales are up 40 percent per R&D staff member.
The Operational Agility Network
While the focus of this paper is on the first two components of the Innovation Execution Framework, it is not because the Operational Agility Network is less important. In fact, it is paramount to successful execution because getting new ideas into the marketplace quickly (product innovation) leads to positive business results regarding consumer-requested products.
Creating successful Operational Agility Networks requires physical changes to the manufacturing environment and is dependent on tight integration with other networks. Operational Agility Networks focus on driving short-cycle production and quick turnaround for line changes that allow CPG organizations to tie in point-of-sale (POS) data directly with production schedules. It also provides enterprise-wide visibility of inventory, enables daily adjustments to sourcing material, and automates promotional feeds to adjust production schedules.
The Operational Agility Network is a wide-ranging topic that is discussed, in greater detail, in additional white papers. For more in-depth analysis of the Operational Agility Network, please see the following Cisco papers: "Connected Manufacturing" (2006) and "Consumer-Driven Replenishment: Extending Consumer Sensing to Drive the Retail Demand Chain" (2005).
Operational Agility Network at Work: Boeing
With Boeing operating as final assembler—coordinating 132 structural and systems partners spread around the globe—two processes were critical: Boeing needed to secure the critical component for composites, titanium, and then make it available to its supply partners. In addition, demand and supply needed to be synchronized across multiple tiers so key components would arrive at Boeing’s Washington facility on time, as needed. Boeing implemented Exostar—which provides a single point of connection for electronic security, commerce, and collaboration—to handle supply management duties, manage the complete order and returns lifecycle process across multiple tiers, and track consumption and replenishment for Boeing’s Partner Managed Inventory program. The system monitors events and process exceptions against the master schedule using synchronized, time-sequenced demand signals for all partners.
White Paper
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Innovation Execution Framework Architecture
Achieving innovation productivity requires an architecture that accommodates the capabilities described above, thus creating a "borderless" enterprise. Aligning the evolution of the architecture with the company’s framework priorities can drive an investment commensurate with a calculated ROI. For instance, implementing a Consumer Insight Network would align with specific IT investments as opposed to an Open Innovation Network. The full architecture is highlighted in Figure 4.
Figure 4. Innovation Execution Framework Architecture
Source: Cisco IBSG, 2007
Conclusion
In business, there is nothing more difficult to plan, or more challenging to manage, than the implementation of new and innovative systems. Yet, the success rate of current innovations tells us that fundamental changes must be made. It is not sustainable to continue on a course where product innovation failure rates can reach 86 percent. Some level of failure rate is desired to encourage risk taking, but successful innovation requires a more balanced portfolio.
Rapidly emerging Web 2.0 capabilities, coupled with an Innovative Execution Framework, are enabling a new wave of consumers and employees who are using cutting-edge media services to communicate and collaborate effectively. Successful organizations will be those that learn how to harness and develop members of this new generation into leaders of change and sources of exceptional consumer insights. These organizations will create unparalleled opportunities to succeed in a new, more complicated global environment. Strong execution capability is essential for success and requires a balanced investment focus on information technology, business process, and controlled cultural change. It requires rethinking traditional, hierarchical, structured methods in a new, dynamic, and consumer-centric world.ContentManagementWebcastingWebconferencingVideoconferencingAudioconferencingChatWikiPush to TalkBlogData CaptureContentCo-browsingExpert LocatorServiceCisco UnifiedPresenceStorage AreaNetworkCall CenterTechnologyDigital VideoRecorderApplication and ContentNetworking SystemSecure, Robust, Flexible,Virtual InfrastructureCollaborationVirtual WorldWebExSecond Life InfrastructureRich Internet Application(RIA) Web 2.0 ServerAnalytics andReportingPatternMiningBusiness IntelligenceDigitalMediaManagerCisco IBSG Copyright © 2007 Cisco Systems, Inc. All rights reserved.
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Appendix
Following is an overview of how estimates within this paper were developed.
The opportunity arises from 1) cost takeout and 2) revenue-growth potential.
1) Cost
Cisco research into the income statements of leading revenue-growth firms shows that a typical large manufacturer spends approximately the equivalent of 2 percent of revenues on R&D annually. Research from Mintel revealed that approximately 96 percent of new CPG product introductions fail to achieve "significant" success, implying a 4 percent "hit" rate. A recent study from Deloitte found that new product introductions account for 34 percent of manufacturers’ revenue growth. Cisco estimates that CPG manufacturers spend the equivalent of 16 percent of annual revenue on product promotions and advertising. A recent report from Forrester Research estimates that 56 percent of CPG products end in failure (for the purposes of this analysis, Cisco has used a more conservative estimate of 50 percent failure).
The equation for the cost opportunity (wasted R&D investments), therefore, is:
R&D Productivity Gap + Promotions Productivity Gap
(Revenue x .02 x .96) (Revenue x .34 x .16 x .5)
2) Revenue
Assuming a 1 percent improvement in "hit" rates for new CPG products (reaching 5 percent, up from the current estimate of 4 percent) gives rise to the following equation for revenue opportunity:
(Revenue x .34 x .25)
Combining both the cost and revenue elements, and applying these assumptions to the $3.4 billion CPG industry globally, and to a $10 billion CPG firm, yields total opportunities of $456 billion (at the industry level) and $1.14 billion (at the firm level).
More Information
The Cisco Internet Business Solutions Group (IBSG), the global strategic consulting arm of Cisco, helps Global Fortune 500 companies and public organizations transform the way they do business—first by designing innovative business processes, and then by integrating advanced technologies into visionary roadmaps that improve customer experience and revenue growth.
For further information about IBSG, visit http://www.cisco.com/go/ibsg
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Remarks about the class of ENTREPRENEURIAL GROWTH

yesterday I attended the class of entrepreneurial growth. The teaching method of mam varonica is so good. The best thing in the class is teaching session which is very helpful for us to increase our presentation skills. Mam illustrate the teaching session with the local examples which makes the things so easy to understand.

MBA Admission Criteria and an Entrepreneurial Mind-Set: Evidence From “Western” StyleMBAs in India and Thailand

“The successful future strategists will exploit
an entrepreneurial mind-set . . . the
ability to rapidly sense, act, and mobilize,
even under uncertain conditions.”
—McGrath & MacMillan, 2000: xv

In developing and nurturing an entrepreneurial
culture within an organization, Ireland, Hitt, and
Sirmon (2003) suggested that successful leaders
will need to employ an entrepreneurial mind-set
and described the cognitive tasks involved, such
as making sense of opportunities in the context of
changing goals, constantly questioning one’s
“dominant logic” in the context of a changing environment,
and revisiting “deceptively simple
questions” about what we think to be true about
markets and the firm. While these characteristics
are considered desirable qualities in future business
leaders, there is an ongoing debate about whether
business school graduates are well positioned to be
successful managers in today’s competitive environment
(e.g., Feldman, 2005; Mintzberg, 2004; Pfeffer &
Fong, 2002).
Findings:
I agreed with this statement. There are following reasons to agree upon it:

• Graduate Management Admissions Test
  (GMAT) score and prior work experience is much important for a business graduate. Because if a business gruduate have some work experience he can manage all the things in a proper way.
• experience people have mades to hadle critical problems in much better way tahn the fresh graduates.
• If a business gradaute already have work experience he can know and pick the thing quite easily than the fresh graduates.
• As experience made in India and thailand business school which select candidates through GMAT produce much better business leader graduates. They polish their personality and atittudes towards in much better way.
• Experience business graduates have much entrepreneul abilities. From getting proper knowledge and studies they can use them properly and effectively because they have information about the business things so they can impliment the things within no time.
• GMAT and experience is much related to each other. This admission criteria can work most effectively to create successful and entrepreneul mind leaders.

In top business schools and universities GMAT is necessary for getting admission in MBA. In Harward business school GMAT is ompulsary. Admission requirements of London business are as follows.

Admission requirements
Successful candidates will demonstrate the following abilities through their application and essays, the two references and the compulsory face-to-face interview. Please note that only short listed candidates will be interviewed, and selection for interview is at the discretion of the Admissions Team.
Intellectual Capacity
We require a good undergraduate degree or equivalent qualification. However, we may consider candidates who do not have a degree if they have worked in a position with a high level of responsibility. The GMAT is just one of several admission criteria that will be considered in your application. A high score does not guarantee admission, and a below average score does not eliminate a candidate.
Management Potential
We want people who can assume global leadership roles, not people who simply know about business disciplines. We therefore ask for work experience and consider your past performance when assessing your suitability as a future leader. Students in our current class have an average of five years postgraduate work experience. However, please note that admission may be granted to candidates with less than three years work experience if they can present superior academic credentials and evidence of truly outstanding leadership, through their professional and personal experiences.
Personal Motivation & Maturity
The MBA is a demanding experience which can change your life. We look for evidence that participants will be reflective, energetic, mature and realistic as well as ambitious and highly motivated.
Team Skills
We place particular emphasis on working in multicultural groups. We need to be certain that candidates will share in the development of their fellow team members and contribute to the learning environment of the School.
International Exposure
Our MBA is a truly global programme with students from over 70 countries. The students who benefit most are those with an international outlook, or those who can build on existing international exposure.
Language Ability
Our MBA Programme is taught in English. If English is not your native language you will need to take the TOEFL iBT, IELTS or CPE. Please note: this requirement is not compulsory for applicants who have lived in an English speaking country for a minimum of two years, or who have completed a degree conducted exclusively in English for a minimum of two years. Our TOEFL institution code is 0898.

Admission requirement of Hravard Business school are:

To be considered for admission, an applicant must have successfully completed the following:
A degree program at an accredited U.S. four-year undergraduate college/university or its equivalent;
Graduate Management Admission Test (GMAT) exam from a test taken January 1, 2004 or later. The GMAT is a prerequisite for admission;
Test of English as a Foreign Language (TOEFL) or International English Language Testing System (IELTS) from a test taken January 1, 2007 or later, is required for international applicants who attended a non-English-speaking undergraduate university; and
Submission of a complete online application for evaluation by one of the decision round deadlines.
The HBS MBA application itself consists of a number of components you may review on the Written Application page.Top of Page

The Points of disagree:

There are some points on which I disagreed. These are

• Age limit for business graduates
• there must be some relaxation for admission.

Overall Views:

GMAT and experience base admission criteria is much better for an entrepreneul set of mind. This method can help people to show their hidden abilities.
In this reading we investigated the assessments of career attractiveness
by 283 MBA students from India and Thailand,
to reveal the extent to which they had mindsets
that are associated with those believed
necessary to be a successful manager in today’s
economy. We found that an existing selection criterion
for MBA admission—the GMAT—was negatively
associated with the mind-set believed to be
necessary for managerial success. That is, the fastmoving
global economy requires managers to
have an entrepreneurial mind-set, yet we find that
MBA students with higher GMAT scores have
mind-sets that are more averse to work effort and
to risk, and therefore, may discriminate against
applicants with a greater propensity to behave
entrepreneurially. Our findings suggest the need
to consider (potential) students’ mind-sets toward
management to complement existing selection criteria.
We believe that there is more work to be done
in developing such measures but, once validated,
these measures will assist business schools in selecting
a pool of students that can go on to be
successful manage
MBA students with higher GMAT scores have
mind-sets that are more averse to work effort and
to risk, and therefore, may discriminate against
applicants with a greater propensity to behave
entrepreneurially. Our findings suggest the need
to consider (potential) students’ mind-sets toward
management to complement existing selection criteria.
We believe that there is more work to be done
in developing such measures but, once validated,
these measures will assist business schools in selecting
a pool of students that can go on to be
successful managers.

Refernces:

http://www.hbs.edu/mba/admissions/admissionrequirements.html

http://www.london.edu/mba/admission/admissionrequirements.html

http://www.metacafe.com/watch/1663630/admission_to_top_business_schools_with_gmat_preparation_test_and/

How to Start Your Own Business

How to Start Your Own Business
Running your own business is a rewarding but demanding career and life choice. There are many different opinions about how to start a business from writing and researching a detailed business plan to jumping into a passion and trying to make money out of it.

[edit] Steps
Start with an idea. This doesn't have to be a brand new invention or new product. In fact, many successful small businesses have found a way to deliver an existing service more efficiently or economically or have customized an existing product or service.
Put together a business plan. This doesn't require hundreds of pages with thousands of charts. Use the plan to research things like how much you can charge for your product/service, how much it will cost to produce or deliver (include variable & fixed costs), and the size of your potential market (i.e. # of customers). The plan should evaluate your competitors - how many competitors, how strong are they, where are they, how will you compete. The plan should state what is required to enter this market, barriers to entry such as high fixed costs (factories, restaurants) and government regulations that must be met.
Determine if you need financing. Your business plan will include a section on financing. How will you pay the costs to start and run your business? Do you need a bank loan? Use credit cards? Self finance? Also, you'll need to consider how much salary you need to support yourself while starting your business.
Put together your initial marketing plan. Marketing need not cost a fortune. Some businesses require very little. For example, many service businesses such as accounting firms build their practices through word-of-mouth referrals. You can also join free or low-cost associations to build awareness of your small business. Again, your business plan (product, customer, competitor) will help you determine the marketing efforts you need to undertake.
Build your infrastructure early. This doesn't mean build a big factory or a fancy office. It simply means keep accurate customer records, a clean set of updated books and a technology foundation, if necessary. One of the downfalls of many small businesses is that they don't know if they're making or losing money (i.e. the need for a clean set of books). Another downfall is when small business owners try to sell their company years later but lack accurate customer history and customer information. Many times, the customers of a small business are its best asset, and, without the records, the small business can be sold only for salvage.

[edit] Tips
Use free resources. Your local library contains numerous useful references regarding incorporation, writing business plans, marketing, as well as information specific to your industry. The Small Business Association, Chambers of Commerce, AMEX Small Business website, associations for your industry, associations by ethnicity...all of these offer training, materials, networking and sometimes financing. Another good option is SCORE, a group of retired executives who provide business start-up advice.
Recognize that getting your business off the ground will take time. Most businesses don't become profitable right away, so plan for that in your personal life too. You will be making sacrifices to be your own boss.

The Weird Rules of Creativity

The article which I like more, it is The article which I like more, it is the Weird Rules of Creativity. By breaking all the stereotypes of management decision making the article gave a new insight of the picture.
Points to agree with:
I agree with in the article. I would definitely say that in order to success companies should to some extent break away from old perceptions and see problems in new ways, and therefore break away from the past.By doing this we can change the structure of the organization and set goals which drives us toward leadership of the market. After all this is how the sustainable competitive advantage is reached, i.e., being different from others, pursuing strategies in an innovative and novel way. It was interesting to read that companies although realizing this need for innovativeness do not necessarily put time and effort into it, and prefer to take a more or less smooth path.
I would like to share a practical example which is from the company in which I was working. It’s a pharmaceutical company. The owner of the company wants to increase the production of the company. He hired an army retired person as an admin manager. He has nothing to do except making barriers in every matter of the company. Plant manager wants to improve the equipment of production which gives more production in less time but the admin manager is against this idea he always said there is no need to bring any new equipment our older one is good. There is no need to spend money on new equipment. He was a man having no information about the production but he was so close to the owner of the company. It was an owner based firm. Owner gives much importance to the admin manager’s ideas. The other competitor companies bought that equipment and capture most of the market with fast supply of its products. Now that competitor company is the market leader. If the owner didn’t hire that army retired man then the company can sustain its competitive advantage. Or if he hired a person who is not against the new ideas then the company can also have the same position which it had before. The problem with the army officers in our country is they never like smart persons they always welcome to the stupid persons. Who always say yes against any order. They don't like to be flexible to any matter. They always give orders. They didn't like to listen any word against their order.
Point to disagree with:
I do not quite agree with, to start from the author’s perspective of hiring people, it was mentioned that while hiring rational thinking should be put aside, is it really a good idea just to hire intuitively? Not look at person’s previous experience, or educational backgrounds? I would say it is connected to high risk and needs time. For example, if you need to hire an employee for a particular position, of course you would search for somebody who has appropriate education in the relevant field, this would bring results immediately and the person will know what he/she is supposed to do. On the other hand, to take a risk and hire somebody without previous experience, in the hope that he/she shall be innovative and creative, it is very time consuming and needs finances.
I like to put an example here which is related to above situation. The same company hired a person in Finance Dept as auditor. He was 63 years old man he has much experience in finance field. Finance dept wanted to change the accounting system. They wanted to install latest accounting software. But the auditor said its not good. You should work the same software. There was some problem in the previous software and finance manger have to do some manual work for avoiding errors in the financial statement due to which some very important transactions remain pending and company can't recover the payments in time. The newly hired auditor say do the whole work by manual also. For which company needs to hire more employees because there are 7 employees who cover the whole finance system. If company hire more people then its not good because it increased the cost of the company and require more extra time for recovery which is not beneficial for the company. If the company update the system then its much effective for it to make recovery in time and utilize that finance for the increase in production which is much effective for the company.
In a way if the organization is large enough to afford hiring some extra people, with different backgrounds, giving them some spare time for brainstorming, testing and implementing their ideas, this might work out just fine.
Findings:
This article made me think about rejecting all common sense, “normal” ways of doing things and rational reasoning. Maybe it really is worth trying to put aside well-proven ways and go for a new path, no matter how hard it might be. I have never thought about rewarding failures before, although this article made me think about a saying “one who works is the one committing a mistake”, that is if you do not work, thus, you do not commit mistakes. Only punishing inaction is a very interesting assumption presented in the article, this would really motivate employees to try their best, and not be afraid to fail.
References
Sutton, R. (2001). The Weird Rules of Creativity. Harvard Business Review, September 2001

. By breaking all the stereotypes of management decision making the article gave a new insight of the picture.
Points to agree with:
I agree with in the article. I would definitely say that in order to success companies should to some extent break away from old perceptions and see problems in new ways, and therefore break away from the past. After all this is how the sustainable competitive advantage is reached, i.e., being different from others, pursuing strategies in an innovative and novel way. It was interesting to read that companies although realizing this need for innovativeness do not necessarily put time and effort into it, and prefer to take a more or less smooth path.
I would like to share a practical example which is from the company in which I was working. It’s a pharmaceutical company. The owner of the company wants to increase the production of the company. He hired an army retired person as an admin manager. He has nothing to do except making barriers in every matter of the company. Plant manager wants to improve the equipment of production which gives more production in less time but the admin manager is against this idea he always said there is no need to bring any new equipment our older one is good. There is no need to spend money on new equipment. He was a man having no information about the production but he was so close to the owner of the company. It was an owner based firm. Owner gives much importance to the admin manager’s ideas. The other competitor companies bought that equipment and capture most of the market with fast supply of its products. Now that competitor company is the market leader. If the owner didn’t hire that army retired man then the company can sustain its competitive advantage. Or if he hired a person who is not against the new ideas then the company can also have the same position which it had before.
Point to disagree with:
I do not quite agree with, to start from the author’s perspective of hiring people, it was mentioned that while hiring rational thinking should be put aside, is it really a good idea just to hire intuitively? Not look at person’s previous experience, or educational backgrounds? I would say it is connected to high risk and needs time. For example, if you need to hire an employee for a particular position, of course you would search for somebody who has appropriate education in the relevant field, this would bring results immediately and the person will know what he/she is supposed to do. On the other hand, to take a risk and hire somebody without previous experience, in the hope that he/she shall be innovative and creative, it is very time consuming and needs finances.
In a way if the organization is large enough to afford hiring some extra people, with different backgrounds, giving them some spare time for brainstorming, testing and implementing their ideas, this might work out just fine.
Findings:
This article made me think about rejecting all common sense, “normal” ways of doing things and rational reasoning. Maybe it really is worth trying to put aside well-proven ways and go for a new path, no matter how hard it might be. I have never thought about rewarding failures before, although this article made me think about a saying “one who works is the one committing a mistake”, that is if you do not work, thus, you do not commit mistakes. Only punishing inaction is a very interesting assumption presented in the article, this would really motivate employees to try their best, and not be afraid to fail.
References
Sutton, R. (2001). The Weird Rules of Creativity. Harvard Business Review, September 2001


How to Become an Entrepreneur
An entrepreneur is someone who creates his or her own business. Here's how to become your own boss.

Steps
Think of great ideas. If a great idea comes to you, evaluate if it is realistic. Think of cost, manufacturing time, and popularity. Ask and record if people would actually buy the product. If you don't have an idea yet, it is a good start to think of your target market first. Then brainstorm a list of things like places they shop, things they like, and things you like. Narrow the list down to about three items, keeping cost, manufacturing time, and popularity in mind. Find the easiest, most realistic product.Or, think of a terrible idea. Really, you can't tell if a business idea is great or terrible until you try it in a real marketplace. Years later, the successful ideas are "obviously" good, but when they first began, most people rejected them. Google is one of the most famous examples—"Search is done. Does the world need yet another search engine?"—but many less-spectacular successes have strong arguments against them. There is always a good reason against a good idea. It doesn't really matter how good your initial idea is, because you're going to change it, anyway. "Investors invest in people, not business plans. Early-stage investors know that great people can make a mediocre idea work, but mediocre people can't make a great idea work."—Don Dodge.
Write a business plan. Include details and descriptions, and plan everything out realistically. Take your time and evaluate your product at each section. The sections of a good business plan include:
Product description: develop your product. What will it look like? What materials will you need? Make your product eye-catching.
Market Analysis: Who is your market? Where do they shop? Where are they located?
Competition: Who is your competition? What are their strengths? How will you beat them?
Marketing: How will you market your product? What kind of image do you want to display? Where will you advertise? What is your tagline? What is your packaging like?
Sales: Where will you sell? How will you get your customers to buy? When will you sell? What is your estimated sales forecast?
Manufacturing: How do you make your product? Explain this in detailed steps. What materials do you need to make your product? When and where will you manufacture? What is your COGS (cost of goods sold)?
Finance: how much money do you need to start your business? What is your gross profit?Or, don't write a business plan. A business plan is a work of fiction, anyway. If you don't have much experience in business, or the market is new and unknown, a business plan might be a waste of time, or, worse, a path to self-delusion. "In all my years in startups and all my work with VCs I don't ever recall seeing a written business plan. The fact is that investors do not read them."—Don Dodge. Plan just enough to make your first sale. The main thing is to make at least one customer happy, and complete the entire cycle of "make product, sell product" as quickly as possible. Then you will have a business, and then you might be in a position to understand some problems of the sort that extensive planning can help solve.
Pitch your idea to Venture Capitalists to get money to start your company. If you have a good idea, they will love to invest their money in your company. Make a PowerPoint presentation explaining why your product is the best, including each part of your business plan in the presentation. Tell them how much your estimated gross profit is and how much percentage of that they will earn in interest.Or, don't look for or accept funding. Striking a deal with venture capitalists is a long, tiresome, difficult, and dangerous process. In the early days of a business, it can be a catastrophic distraction. "Distraction is fatal to start-ups."—Paul Graham. Many VCs are not set up to make you successful. A wonderful success for you might be to earn $80,000 a year doing work you love. Starting small and pleasing a small number of customers at first is a high-probability way to get there. A VC will not allow such a success to happen, because a VC's strategy is to become a billionaire by rolling the dice on many low-probability but potentially gigantic-returning businesses. The price you pay for taking on a VC is control: control of your dream. If you can get the business started without spending a lot of money, that might be your best route.
Sell. Sell and distribute your product. If you're getting revenue, then you're in business. You're testing your theories about the market, you're finding out what really works and what doesn't, and you're getting fuel for more ideas and improvements. If you're not getting revenue, then it's all in your head.
Hang out with entrepreneurs. By meeting entrepreneurs socially, you gain contacts and hear about opportunities. More importantly, you learn how entrepreneurs think. You pick up their attitudes, their nose for opportunity, their willingness to explore every idea and its opposite (they know that often both work), their contrarian nature, the great diversity in their styles.


Tips
Make sure your business plan is perfect before moving on; this will make your business run a lot more smoothly. Here are some advantages of a perfect business plan:
Success is completely assured. Entrepreneurship is no longer a gamble when the spreadsheet tells you in advance precisely how much money you will make.
You can hire someone very cheaply, perhaps even a virtual assistant in India, to run the business for you, since the plan spells out exactly what to do.

Created own company

KAMRAN PHARMACEUTICALS
ABOUT THE COMPNAY:
This company starts working in 2005 in Pakistan. It’s a manufacturing company. It makes injections, tablets and vaccines. Its main product is aczone 250mg, 500mg and 1g. It also produces some tablets and syrups It’s an antibiotic injection which is effected for almost all type of infection. There are almost 170 employees working in this organization. Its last year turnover is 2.5 million dollor.
Objective of the company:
To provide best and cheap health to the people
COMPANY DEPARTMENTS:
Production Department
Marking Department
Administration Department
Finance Department
Human Resource Department
R&D Department
PRODUCTION DEPARTMENT:
In production department there are further departments:
Quality control Department
Quality assurance department
Raw Material Store
Packing Material Store
Packing Department
Finish goods Department
Maintenance Department
QUALITY CONTROL DEPARTMENT:
In this department there are there are almost 12 employees which properly control the quality of the products. These are:
Quality control manager
Deputy quality control manager
Assistant quality control manager
Quality control officers
Quality control assistants

QUALITY ASSURANCE DEPARTMENT:
In this department there are 8 employees which check the quality of ram material and assure that the material which is use to produce products is effective. Staff distribution of quality assurance department is:
Quality assurance incharge
Quality assurance officers
Quality assurance assistants
RAW MATERIAL STORE:
In this store there are 6 employees which keep proper record of the raw material and give demand for the required material. These are:
Raw material store incharge
Raw material store assistants
PACKING MATERIAL STORE:
In packing material store there are 6 employees which keep record of the packing material. They provide information about the required packing material. These are distributed as:
Packing material incharge
Packing material store assistants.
PACKING DEPARTMENT:
This department pack the finished products for their safe transportation from one city or country to other city or country. There are almost 30 employees. These are distributed as:
Packing incharge
Packing girls/boys
FINISH GOODS STORE:
In this store there are 10 employees which keep record of the finish goods and also record the product which are transported out of the company for delivery. These are distributed as:
Finish goods store incharge
Supervisor
Assistants
MAINTENANCE DEPARTMENT:
In this department there are 9 employees which performs all type of maintenance activities.
Maintenance incharge
Maintenance supervisor
Assistants
MARKETING DEPARTMENT:
Company pay much attention on marketing of their products. Marketing is the main department of any company. Almost all the companies depends on their marketing department. How much stronger the marketing team and their marketing strategies much stronger the sale of the company. We provide a facility to them for ISO training program so that we can maintain the market position in better way. For this purpose we send our employees to the training institutes so that they can represent the product in the market in much effective way.There are 54 employees in the marketing department which performs different type of duties.
Marketing planners
Marketing researchers
Sales team
FINANCE DEPARTMENT:
There are almost 8 people working in finance department of the company. They keep all type of financial records of the company. They deal all type legal matters tax related matters. These are distributed as:
Finance manger
Assistant finance manger
Finance officers
AUDIT DEPARTMENT:
In audit department there are 4 employees which perform internal audit activities.
Audit manager
Audit officer
ADMINISTRATION DEPARTMENT
In this department there are 6 employees. These employees perform all type of administrative activities.
These are distributed as:
Admin Manager
Admin officers
Assistant Admin officers
Human Resource Department:
Human resource department is also the main department of almost all the companies. Human resource policies pay a key role for the growth of the organization. There are 7 employees in this department.
Human resource manager
Human resource officers
Assistant human resource officers.
R&D Department:
This department work on the reseach process so that we can enhance our products validity and reliability. The main purpose of this department is to do work for increasing the performance of the products. The main product is Hepataetus vecine, Its a common disease in Pakistan.
This department performs the duty how can we prepare an effective vecine which can better controll this disease.
For this pupose we hire qualified Pharmacists most of the pharamcist have much experience in this field. They have doctorate degree in Pharmacy.
Other than this we take some consultancy from the molecular biologists. Who give good ideas and information about the process of vacine so that we can cover the deficiencies of the product.
POLICY OF THE COMPANY:
Company follows the following rule while staffing:
ü Company hires well educated staff
ü Hires experienced persons
ü Prefers persons which are qualified according to the departments.
ü There is three months propagations period for newly hired employees.
ü After three months all the employees are confirmed
ü After confirmation company provide medical and provident fund facility to the employees
ü Company also provide accommodation to their senior and managerial staff
ü Company provides health insurance facility to the employees.
ü It also provide pick and drop service to all employees free of cost.
ü Company give rewards and bonus facility to motivate their employees towards work.
TRAING PROGRAMMES
ü Company provide on job training to the employees.
ü Company send the managerial and senior to the other countries so that they can best utilizes their abilities for the growth of the organization.
TARGET MARKET:
Our target market is Pakistan in which this disease is very common and every third person is suffering from this disease.
MARKET POLICY:
Our market policy is to capture the market with best quality and low cost product provided to the end customer.
COMPETITORS:
There is no local competitor for this product. Only few multinational companies provide this product.
GSK Pharmaceuticals
Merck Pharmaceuticals
are the main competitor companies.
They provide this product on very high rate which is impossible for everyone to purchase and use it because they costs very much while manufacturing. We produce this product at local level which is much beneficial for us. We can provide this vacine on low rate which is affordable for every one.
REWARDS AND INCENTIVES:
Cash prizes:
Company give cash prize to the employees which gives best performance during the work.
Give extra leaves:
Company give extra leave other than routine leave to the employees who perform good work.
Bonus:
Company give bonus to the employees who meets their targets and have done extraordinary wok.

Visit to beautiful places with the family:
This facility is given to the assistant staff for their best performance. Who meet their targets.

KAMRAN PHARMACEUTICALS
ABOUT THE COMPNAY:
This company starts working in 2005 in Pakistan. It’s a manufacturing company. It makes injections, tablets and vaccines. Its main product is aczone 250mg, 500mg and 1g. It also produces some tablets and syrups It’s an antibiotic injection which is effected for almost all type of infection. There are almost 170 employees working in this organization. Its last year turnover is 2.5 million dollor.
Objective of the company:
To provide best and cheap health to the people
COMPANY DEPARTMENTS:
Production Department
Marking Department
Administration Department
Finance Department
Human Resource Department
PRODUCTION DEPARTMENT:
In production department there are further departments:
Quality control Department
Quality assurance department
Raw Material Store
Packing Material Store
Packing Department
Finish goods Department
Maintenance Department
QUALITY CONTROL DEPARTMENT:
In this department there are there are almost 12 employees which properly control the quality of the products. These are:
Quality control manager
Deputy quality control manager
Assistant quality control manager
Quality control officers
Quality control assistants

QUALITY ASSURANCE DEPARTMENT:
In this department there are 8 employees which check the quality of ram material and assure that the material which is use to produce products is effective. Staff distribution of quality assurance department is:
Quality assurance incharge
Quality assurance officers
Quality assurance assistants
RAW MATERIAL STORE:
In this store there are 6 employees which keep proper record of the raw material and give demand for the required material. These are:
Raw material store incharge
Raw material store assistants
PACKING MATERIAL STORE:
In packing material store there are 6 employees which keep record of the packing material. They provide information about the required packing material. These are distributed as:
Packing material incharge
Packing material store assistants.
PACKING DEPARTMENT:
This department pack the finished products for their safe transportation from one city or country to other city or country. There are almost 30 employees. These are distributed as:
Packing incharge
Packing girls/boys
FINISH GOODS STORE:
In this store there are 10 employees which keep record of the finish goods and also record the product which are transported out of the company for delivery. These are distributed as:
Finish goods store incharge
Supervisor
Assistants
MAINTENANCE DEPARTMENT:
In this department there are 9 employees which performs all type of maintenance activities.
Maintenance incharge
Maintenance supervisor
Assistants
MARKETING DEPARTMENT:
Company pay much attention on marketing of their products. Marketing is the main department of any company. Almost all the companies depends on their marketing department. How much stronger the marketing team and their marketing strategies much stronger the sale of the company. There are 54 employees in the marketing department which performs different type of duties.
Marketing planners
Marketing researchers
Sales team
FINANCE DEPARTMENT:
There are almost 8 people working in finance department of the company. They keep all type of financial records of the company. They deal all type legal matters tax related matters. These are distributed as:
Finance manger
Assistant finance manger
Finance officers
AUDIT DEPARTMENT:
In audit department there are 4 employees which perform internal audit activities.
Audit manager
Audit officer
ADMINISTRATION DEPARTMENT
In this department there are 6 employees. These employees perform all type of administrative activities.
These are distributed as:
Admin Manager
Admin officers
Assistant Admin officers

Human Resource Department:
Human resource department is also the main department of almost all the companies. Human resource policies pay a key role for the growth of the organization. There are 7 employees in this department.
Human resource manager
Human resource officers
Assistant human resource officers.
POLICY OF THE COMPANY:
Company follows the following rule while staffing:
ü Company hires well educated staff
ü Hires experienced persons
ü Prefers persons which are qualified according to the departments.
ü There is three months propagations period for newly hired employees.
ü After three months all the employees are confirmed
ü After confirmation company provide medical and provident fund facility to the employees
ü Company also provide accommodation to their senior and managerial staff
ü Company provides health insurance facility to the employees.
ü It also provide pick and drop service to all employees free of cost.
ü Company give rewards and bonus facility to motivate their employees towards work.
TRAING PROGRAMMES
ü Company provide on job training to the employees.
ü Company send the managerial and senior to the other countries so that they can best utilizes their abilities for the growth of the organization.
REWARDS AND INCENTIVES:
Cash prizes:
Company give cash prize to the employees which gives best performance during the work.
Give extra leaves:
Company give extra leave other than routine leave to the employees who perform good work.
Bonus:
Company give bonus to the employees who meets their targets and have done extraordinary wok.

Visit to beautiful places with the family:
This facility is given to the assistant staff for their best performance. Who meet their targets.

THREE VIEWS OF ENTREPRENEURIAL OPPORTUNITY

1
THREE VIEWS OF ENTREPRENEURIAL OPPORTUNITY
Saras D. Sarasvathy
University of Washington
S. Venkataraman
Nick Dew
Rama Velamuri
University of Virginia
Invited book chapter in the Entrepreneurship Handbook edited by Acs et.al.
(Revised January 4, 2002)
2
"Although we are not usually explicit about it, we really postulate that when a market could be
created, it would be."
-- Kenneth Arrow (1974)
For almost fifty years now, following the trail of issues raised by economists such as
Hayek, Schumpeter, Kirzner and Arrow, researchers have studied the economics of technological
change and the problem of allocation of resources for invention (invention being the production
of information). The bulk of this literature simply assumes that new technical information will
either be traded as a commodity or become embodied in products and services (hereafter called
‘economic goods'), without addressing any specific mechanisms or processes for the
transformation of new information into new economic goods or new economic entities (such as
new firms and new markets). It is inside this gap that we begin our quest for the concept of an
“entrepreneurial opportunity”.
In a recent interview with CNN, Whitfield Diffy, the inventor of public key encryption
(currently an employee of Sun Microsystems), explained that although his entire subsequent
career had benefited from his invention and he had done very well financially in the process, it
did not occur to him to start a company to commercialize his invention. In fact he expressed
astonishment at the "hundreds and hundreds of people trying to turn a buck on it". The designers
of the MIR space station would no doubt express similar astonishment at the venture capitalists
who recently bid (in vain) several million dollars to turn it into an advertising/tourist resort --
just as the scientists working with DARPA did not foresee the age of e-commerce. The history
of technological invention is full of unanticipated economic consequences. And, yet, the study
3
of the economics of technological change is full of "just-so" stories1 that seemingly demonstrate
the inevitability of commercialization of all new technologies through familiar recurring patterns
such as the technology adoption curve. Unfortunately, of course, we do not have any data on all
the new products and markets that were not created to commercialize new technologies in the
past.
This paper challenges the assumption underlying current theories of technological
change, laid out so pithily by Arrow in the initial quote, viz, "when a market could be created, it
would be". Instead, it focuses on Arrow's exhortation to researchers to tackle one of the central
problems in economics today: "... the uncertainties about economics are rooted in our need for a
better understanding of the economics of uncertainty; our lack of economic knowledge is, in
good part, our difficulty in modeling the ignorance of the economic agent."
We begin our exposition with a definition of entrepreneurial opportunity. Then we
delineate its elements and examine it within three views of the market process: i.e., the market
as an allocative process; as a discovery process; and as a creative process (Buchanan &
Vanberg). Within each stream, we examine the assumptions about the knowledge (ignorance) of
the decision maker with regard to the future, and the implications of those assumptions for
strategies to recognize, discover, and create entrepreneurial opportunities. We end the essay with
a set of conjectures that challenge the inevitability of technology commercialization and argue
for a more contingent approach to the study of the central phenomena of entrepreneurship.
1 1 Just so stories (based on Rudyard Kiplings collection of short stories of the same title) are stories that explain why things are the way they are.
Such stories also tend to celebrate things the way they are -- subscribing to the fallacy that because certain things came to be, there is some
element of “optimality” or “correctness” attached to their origin and structure. This approach leads us to discount the significance of pre-histories
because if existence by itself is the starting point of theory building, almost any story could ex-post serve as sufficient explanation for the prehistory.
One delightful example is the story of an arbitrage struggle between an elephant and a crocodile that explains how the elephant came to
have a long trunk! Relatedly, almost all the social sciences seem perfectly capable of explaining every creation after the fact, but can predict
nothing before the creation.
4
ENTREPRENEURIAL OPPORTUNITY
The Oxford English Dictionary defines opportunity as “A time, juncture, or condition of
things favorable to an end or purpose, or admitting of something being done or effected.” If we
believe that that ends are never specified prior to the pursuit of an entrepreneurial opportunity,
but may emerge endogenously over time, we can draw our definition of entrepreneurial
opportunity from the second part of the above sentence. An entrepreneurial opportunity,
therefore, consists of a set of ideas, beliefs and actions that enable the creation of future goods
and services in the absence of current markets for them (Venkataraman, 1997). For example, the
entrepreneurial opportunity that led to the creation of Netscape involved (a) the idea of a userfriendly
Web browser (Mosaic); (b) the belief that the internet could be commercialized; and, (c)
the set of decision-actions that brought together Marc Andreesen (the creator of Mosaic) and Jim
Clark (the ex-founder of Silicon Graphics) to set up base in the small town of Mountain View.
In sum, an entrepreneurial opportunity consists of:
1. New idea/s or invention/s that may or may not lead to the achievement of one or more
economic ends that become possible through those ideas or inventions;
2. Beliefs about things favorable to the achievement of those ends; and,
3. Actions that implement those ends through specific (imagined) new economic artifacts (the
artifacts may be goods such as products and services, and/or entities such as firms and
markets, and/or institutions such as standards and norms).
THREE VIEWS OF ENTREPRENEURIAL OPPORTUNITY
Drawing upon three streams of economic literature pertinent to entrepreneurial
opportunity – i.e., market as an allocative process, market as a discovery process, and market as
5
a creative process -- we could model an entrepreneurial opportunity as a function, or a process or
a set of decisions, respectively. The antecedents for the three views presented here specifically
draw upon three works, i.e., Hayek (1945), Knight (1921), and Buchanan and Vanberg (1991) --
all of which grapple with the central problem demarcated by Arrow (quoted earlier) in terms of
understanding uncertainties in the economy and modeling the ignorance of the economic agent.
In an important essay in 1945, Hayek postulated the concept of dispersed knowledge
where no two individuals share the same knowledge or information about the economy. Hayek
distinguished between two types of knowledge: first, the body of scientific knowledge, which is
stable and can be best known by suitably chosen experts in their respective fields; second, the
dispersed information of particular time and place, whose importance only the individual
possessing it can judge. Hayek pinpointed the harnessing of this latter type of knowledge as a
key and underestimated element in the economic development of society. This dispersion has
two extremely important implications as far as entrepreneurial opportunities are concerned.
First, dispersion of knowledge is a root explanation for the presence of uncertainty, which gives
rise to opportunities in the first place. Second, dispersion of knowledge is another root
explanation of the nexus of the enterprising individual and the opportunity to discover, create
and exploit new markets (Venkataraman 1997, Shane 2000). Without this nexus of the
individual and the opportunity, most inventions will lie fallow. Frank Knight (1921) clearly
realized the implications of uncertainty for economic organization.
In his seminal dissertation, Risk, Uncertainty, and Profit, Knight distinguished between
three types of uncertainties about the future that an economic agent may face:
?? The first consists of a future whose distribution exists and is known, and therefore decisions
would only involve calculating the odds of a particular draw and placing one's bets based on
6
the analysis. In this case, risks can be reduced through diversification. This assumes that all
the possible outcome scenarios are all equally likely, ex ante.
?? The second consists of a future whose distribution exists but is not known in advance. The
agent, in this case, has to estimate the distribution through repeated trials and can then treat it
the same as the first case. Furthermore, as the environment changes dynamically, successful
strategies evolve through adaptive processes including careful experimentation and learning
over time. Although we do not know the probabilities attached to each of the outcome
scenarios, the probabilities do exist, and their distribution can be uncovered over time.
?? The third type of uncertainty, which Knight called true uncertainty, consists of a future that is
not only unknown, but also unknowable -- with unclassifiable instances and a non-existent
distribution. The economic agent, or entrepreneur, who takes on this true uncertainty, gets
compensated for it through "profit" -- a form of residual return after the normal factors of
production are paid for and all market contracts fulfilled.
Knight did not explicate how the entrepreneur deals with this true uncertainty. But, instead he
argued that: The ultimate logic, or psychology, of these deliberations is obscure, a part of the
scientifically unfathomable mystery of life and mind. We must simply fall back upon a
“capacity” in the intelligent animal to form more or less correct judgments about things, an
intuitive sense of values. We are so built that what seems to us reasonable is likely to be
confirmed by experience, or we could not live in the world at all. In this third case of Knightian
uncertainty, there is no meaning to the attachment of probabilities to the opportunity vectors.
Instead, we need to understand the process through which the different levels of actors interact.
The benefits get created endogenously, in the very unfolding of those interactions.
7
Later researchers, especially Austrian economists such as Von Mises and Kirzner, and
subjectivists such as Lachman and Wiseman, have tried to tackle this problem of Knightian
uncertainty. Fixing a rather penetrating philosophical gaze on the works of these economic
theorists since Hayek and Knight, Buchanan and Vanberg (1991) contrast the three views of
economic theory presented here as follows: "The market as an allocative process, responding to
the structure of incentives that confront choice-makers; the market as a discovery process,
utilizing localized information; or the market as a creative process that exploits man's
imaginative potential..." They argue that “the perceptual vision of the market as a creative
process offers more insight and understanding than the alternative visions that elicit
interpretations of the market as a discovery process, or, more familiarly, as an allocative process.
In either of the latter alternatives, there is a telos imposed by the scientist's own perception, a
telos that is nonexistent in the first instance. And removal of the teleological inference from the
way of looking at economic interaction carries with it significant implications for any diagnosis
of the failure or success, diagnosis that is necessarily preliminary to any normative usage of
scientific analysis."
Recent empirical evidence that examines in detail how expert entrepreneurs make
decisions when faced with building a firm for a new product without any given existent market
(i.e., when faced with Knightian uncertainty), provides considerable support for the view of the
market as a creative process that neither ignores teleology nor assumes it a priori in the research
endeavor. Sarasvathy (1998) found that the entrepreneurs not only did not assume the existence
of the market, but explicitly expressed their belief that the existence of the market cannot be
demonstrated or known in advance. Rather than using the causation-based logic 'To the extent
you can predict the future, you can control it.', the subjects in the study overwhelmingly (74% of
8
the subjects over 63% of the time) followed the logic of effectuation that 'To the extent that you
can control the future, you do not need to predict it.' (Sarasvathy, 2001). This logic overcomes
the problem of true Knightian uncertainty in a curiously paradoxical way: On the one hand, it
eschews prediction altogether – i.e., eliminates the need for prediction, and on the other, it
transforms the future into near certainty – i.e., makes it highly predictable -- by “creating” the
distribution.
But, both in Buchanan and Vanberg's theoretical exposition of the market as a creative
process and Sarasvathy's empirically grounded conceptualization of effectuation, the key issue is
not which of the three views is "right", but rather which view is more useful under what
conditions of uncertainty. Such a pragmatic approach allows us to utilize the three views
explicated so far to construct a rather simple typology of entrepreneurial opportunities based on
the pre-conditions for their existence, as follows:
1. Opportunity Recognition
If both sources of supply and demand exist rather obviously, the opportunity for bringing them
together has to be "recognized" and then the match-up between supply and demand has to be
implemented either through as existing firm or a new firm. Examples include arbitrage and
franchises.
2. Opportunity Discovery
If only one side exists -- i.e., demand exists, but supply does not, and vice versa -- then, the nonexistent
side has to be "discovered" before the match-up can be implemented. Examples include:
Cures for diseases (Demand exists; supply has to be discovered); and applications for new
technologies such as the PC (Supply exists, demand has to be discovered).
9
3. Opportunity Creation
If neither supply nor demand exist in an obvious manner, one or both have to be "created", and
several economic inventions in marketing, financing etc. have to be made, for the opportunity to
come into existence. Examples include Wedgewood Pottery, Edison's General Electric, U-Haul,
AES Corporation, Netscape, Beanie Babies, and the MIR space resort.
Table 1 presents a summary comparison of the three views along several different
dimensions. In the next three sub-sections, we look at the nature of entrepreneurial opportunities
and effectuation costs from each of these perspectives and develop questions for future research.
THE ALLOCATIVE PROCESS VIEW
Neoclassical economic theory discusses several efficiency properties of markets –
allocative, productive, coordinative, and informational. We will focus in this section on the
allocative efficiency of markets and its implications for opportunity recognition. Allocative
efficiency is achieved when: a) the income of consumers is optimally allocated to consumption,
i.e., they are able to buy the goods and services that they value most; and b) resources (factors)
are optimally allocated to production, i.e., they are used to produce the goods and services that
consumers desire.
Allocative efficiency is achieved in a perfectly competitive market, whose characteristics
are as follows: there is a very large number of buyers and sellers, all of whom are so small that
none of them individually can affect prices; prices of homogeneous goods and factors are
uniform throughout the economy; all factors are perfectly mobile; returns to scale are constant;
and all economic agents have perfect knowledge about available alternatives. There is an
assumption of complete markets, i.e., there are markets for all possible products and services.
Furthermore, agents are free to enter and exit the market. Disequilibria are short-term
10
phenomena, and are quickly cleared to bring the situation back to equilibrium through the
tatonnement process - prices go up when demand exceeds supply and down when supply exceeds
demand – which functions through the mythical figure of the Walrasian auctioneer. There are
further requirements for the achievement of an optimal allocation of resources, such as the
absence of any divergence between private and social costs and the existence of perfect
competition in all sectors of the economy. When a market has achieved allocative efficiency, it
complies with two conditions: first, price is equal to marginal cost, which is also equal to
minimum average cost (P=MC=minAC); and second, Pareto optimality is achieved, which
means that resources cannot be redistributed to make anyone better off without making someone
else worse off.
The allocative view concerns itself with the optimal utilization of scarce resources. In this
view, an opportunity is any possibility of putting resources to better use. At equilibrium, there
are no opportunities, because resources have been optimally allocated. However, profits can arise
in two ways. First, to the extent that a perfectly competitive market is not in equilibrium,
opportunities for short term profits are available, but they quickly disappear when new firms
enter the market attracted by the profits. Second, if we assume that all information is available in
the system but is randomly distributed, and therefore acquiring information involves a costly
search process, then the opportunity for profit is simply the difference between the benefit of the
information and its cost. However, the random distribution of information means that no agent
has the possibility of systematically benefiting from superior information. The core idea is that
all products and ideas that can potentially exist are all known to be feasible but costly to produce.
When the cost problem is solved (for example, due to scientific breakthroughs in laboratories),
opportunities arise. However, opportunity is not specific to any one person because there is no
11
informational advantage within this view. Thus there is no heterogeneity between economic
agents that enables one agent to be systematically better than another in acquiring information,
and consequently in the recognition and pursuit of opportunities. Which agent recognizes the
opportunity is therefore a purely random variable. Moreover, since there is no divergence
between private cost and social cost (that is, the opportunity cost for an individual agent of a
resource in a particular use is the same as the social opportunity cost of the resource in that use),
any possibility of a Pareto improvement at the system level is equivalent to an opportunity at the
individual agent level.
Arrow (1962) discussed three reasons why a perfectly competitive market could lead to a
suboptimal allocation of resources to invention: inappropriability, indivisibility, and uncertainty.
In what follows, we analyze how allocative efficiency is compromised as a result of these three
reasons.
Inappropriability
An issue that has been debated for many decades is whether there is any incentive to
innovate in a perfectly competitive market, because it does not, by definition, permit the
appropriation of rents in a sustained fashion. Kamien and Schwartz (1975) study the relationship
between market structure and innovation, and conclude that “few, if any, economists maintain
that perfect competition efficiently allocates resources for technical advance” (p. 2). Arrow
(1962) argued that the incentive to innovate could exist even in perfectly competitive markets:
“It may be useful to remark that an incentive to invent can exist even under perfect competition
in the product markets though not, of course, in the “market” for the information contained in the
invention. This is especially clear in the case of a cost reducing invention. Provided only that
suitable royalty payments can be demanded, an inventor can profit without disturbing the
12
competitive nature of the industry. The situation for a new product invention is not very
different; by charging a suitable royalty to a competitive industry, the inventor can receive a
return equal to the monopoly profits” (p. 619).
For Arrow’s point to be valid, the assumption of all sectors of the economy being in a
perfectly competitive equilibrium must be relaxed. Schumpeter (1942) was of the opinion that
the propensity of a firm to innovate was directly proportional to its size and market share. He
based his view on the considerable resources required to innovate and the incentive of adequate
return. Nutter (1956) disagreed – “Desire and necessity drive competitive and monopolistic
producers alike to innovate: desire for better-than-average profits motivates the venturesome and
industrious to introduce new products and techniques; loss of profits forces the cautious and
passive to imitate or perish” (p. 523).
Villard (1958) offered a view that ran counter to that of Nutter, concluding that
innovation was unlikely at both extremes. “Industries where “competitive oligopoly” prevails
are likely to progress most rapidly and that therefore “competitive oligopoly” may well be the
best way of organizing industry. The basic point is that progress is likely to be rapid (1) when
firms are large enough or few enough to afford and benefit from research and (2) when they are
under competitive pressure to innovate – utilize the results of research” (p. 491). Scherer (1967,
“Market Structure and the Employment of Scientists and Engineers”, AER, vol 57, pp. 524-531)
agreed with Villard, arguing that moderate levels of concentration lead to the highest levels of
innovation.
Indivisibility
Blaug (1985) defines indivisibility as follows: “If two productive agents are perfect
substitutes of each other when used in combination to produce a given output, they are
13
necessarily infinitely divisible: the isoquants in this case are straight lines, meaning that the
marginal rate of substitution of the two factors is a constant” (454).
Arrow (1962) argues that “a given piece of information is by definition an indivisible
commodity, and the classical problems of allocation in the presence of indivisibilities appear
here” (p. 615). He goes on to explain the problems: “In the absence of special legal protection,
the owner cannot, however, simply sell information on the open market. Any one purchaser can
destroy the monopoly, since he can reproduce the information at little or no cost. Thus the only
effective monopoly would be the use of the information by the original possessor. This however,
will not only be socially inefficient, but also may not be of much use to the owner of the
information either, since he may not be able to exploit it as effectively as others” (615).
Economic theory assumes that in the absence of property rights, the original creator or
discoverer of particular information would lose control of it once it was reproduced and
accessible to other parties. Thus a large part of the discussion on appropriate institutional
structures revolves around establishing the right incentives – copyright laws, patent laws etc - for
agents to innovate. However, there may be some classes of information that can be used only in
combinations with other assets, such as human and physical capital. For this reason the rents
from the use of such information may not accrue to parties who do not possess these assets, and
this difficulty may provide adequate protection for the innovator, even in the absence of specific
legal protection. There are many industries in which firms do not patent inventions in spite of
the existence of patent laws. The distinction between information and knowledge becomes
relevant here. Brown and Duguid (2000) argue that knowledge differs from information in three
ways: first, knowledge is tied to a knower; second, it is harder to detach than information; and
third, it is hard to give and receive because it requires more by way of assimilation. They also
14
distinguish between the explicit and tacit dimensions of knowledge. “[S]trategy books don’t
make you into a good negotiator, any more than dictionaries make you into a speaker or expert
systems make you into an expert. To become a negotiator requires not only knowledge of
strategy, but skill, experience, judgment, and discretion. These allow you to understand not just
how a particular strategy is executed, but when to execute it. The two together make a negotiator,
but the second comes only with practice” (Brown and Duguid, 2000: 133-134).
Thus, although information is indivisible and the costs of reproducing it are close to zero,
we may relate it to a resource, as defined in the resource based view of the firm. Knowledge, on
the other hand would be a capability in that it represents a combination of information, physical
capital and human capital. Focusing exclusively on raw information makes us view
opportunities as arbitrage possibilities, which are not agent specific. On the other hand, focusing
on knowledge opens up rich vistas of agent specific opportunities, whose recognition depends
upon already owned knowledge and other assets (Shane 1999).
Uncertainty
Akerlof (1970) argued in his famous “lemons” paper that an extreme case of information
asymmetry could lead to a complete market failure. Information asymmetry leads to uncertainty
that causes a downward bias in demand and supply. This is because, at very high levels of
uncertainty, agents will need concessions so large from the other party to the transaction that
neither will recognize any opportunity in the exchange. Institutional support is then often needed
to overcome the uncertainty and to restore trade in the market. For example, organizations such
as the SEC ensure certain minimum levels of transparency and fair play, which benefit all
participants in the form of an increase in the volume of trade. Markets themselves can correct
for this asymmetry – firms specializing in information gathering, analysis, and dissemination
15
pervade all markets. These firms lower an individual agent’s search costs while increasing the
quality of information. Institutions such as guarantees, brand names, and licensing practices are
some of the other ways of overcoming the uncertainty caused by information asymmetry.
The other major reason for uncertainty according to Arrow (1974a-Limited Knowledge
and Economic Analysis) is the nonexistence, except in a very limited number of commodities, of
futures goods markets. “Hence, the optimizer must replace the market commitment to buy or
sell at given terms by expectations: expectations of prices and expectations of quantities to be
bought or sold. But he cannot know the future. Hence, unless he deludes himself, he must know
that both sets of expectations may be wrong. In short, the absence of the market implies that the
optimizer faces a world of uncertainty” (p. 6).
According to Arrow, this uncertainty leads to the economic agent taking steps to reduce
risks, such as the holding of inventories, preference for flexible capital equipment etc. It also
leads to the creation of new markets for the shifting of risks, such as the equity market.
However, while conceding that probabilities are subjective, because different agents have access
to different information, he implies that each agent can know his own distribution of
probabilities from his own past. He states that uncertainty means “that we do not have a
complete description of the world which we fully believe to be true. Instead, we consider the
world to be in one or another of a range of states. Each state of the world is a description which
is complete for all relevant purposes. Our uncertainty consists in not knowing which state is the
true one” (1974b-The Limits of Organization: 33). The views of Frank Knight (and perhaps
more importantly, the different interpretations of what he actually meant) on the distinction
between risk and uncertainty become very relevant here.
16
In summary, there are several implications of viewing the market as an allocative
process. First, the focus is on the system and not on individuals or firms, which are all
homogeneous in their access to technology and in their cost structures. Second, ex ante, all
economic agents are equally likely to detect a given opportunity. Opportunity recognition is thus
a purely random process. Third, the term competition is as appropriately applied to factor
markets as it is to the market for goods and services. In both cases, the markets are assumed to
be in competitive equilibrium.
THE DISCOVERY PROCESS VIEW
Two factors influencing the distribution and use of new information have therefore
attracted attention from researchers. The first is that access to information sources is extremely
important, leading some researchers to suggest that the prime determinant of entrepreneurship is
whether the entrepreneur has an advantageous network position from which informational
advantages accrue (Burt, 1992). For instance, information is often “sticky” (von Hippel, 1994)
in that it is tacitly accumulated by users, which means that access to the relevant information for
discovery to occur is only available to a few individuals who have direct and intimate contact
with users. Second, new information or knowledge often requires complimentary resources in
order to be useful, such as a prior knowledge (Venkataraman, 1997, Shane, 2000) that is also
often tacit in nature. Such prior knowledge creates the “absorptive capacity” necessary for an
individual to make use of new information (Cohen & Levinthal, 1990).
The second reason why people possess different beliefs about the prices at which markets
should clear is because, as Kirzner (1973) has observed, the process of discovery in a market
setting requires the participants to guess each other’s expectations about a wide variety of things.
However, the regular supply of new information from endogenous sources creates uncertainty
17
(Knight 1921) owing to the fact that the discovery of genuinely novel information by other
agents can affect the value of resources. Such discoveries cannot be known ahead of time and
may add previously unimagined categories of usage for particular resources, thus changing the
structure of the decision problem the entrepreneur faces (Langlois 1984). Since it is impossible
to have accurate expectations about inventions that have yet to be made, people form
expectations based on hunches, intuition, heuristics, and accurate and inaccurate information,
leading their expectations to be incorrect some of the time.
The problem of forming accurate expectations given the genuine uncertainty caused by
the endogenous supply of novel information is compounded by some characteristics of human
decision-making. All individuals utilize knowledge that is subjectively held, incomplete and
tacit. Entrepreneurs therefore form beliefs and expectations about future events that are
indeterminate for at least three reasons. First, because much knowledge is tacit (Polanyi 1967)
other individuals -- upon whose actions the correctness of the entrepreneur’s expectations depend
-- often base their decision-making on invisible elements of experience that are hard to verbalize,
but are observed instead only as hunches, intuition and judgement. Second, situations calling for
prediction are not given self-evidently because the essence of any situation is how it is enacted
by individuals (Weick 1979). People often produce part of the situation they face (they “enact”
it). The dependency of enactment on tacit cues imposed on a situation by individuals means that
there is an indeterminacy in how individuals produce situations, just as there is an indeterminacy
to how they react to them. This is especially so when multiple actors interact, making the
production of a situation dependent on an “inter-enactment” process. The third reason why
outcomes are indeterminate is because interaction among individuals gives rise to emergent
outcomes. One example of an emergent outcome of the interaction of many individuals in a
18
market is a structure of prices, but many other emergent outcomes are not so predictable, hence
their discovery as an aspect of market processes. One of the traits of complex adaptive systems
such as market processes is level differences: observed patterns of behavior differ dramatically
between the micro and macro levels (Kauffman 1995). In other words, macro level phenomena
are often indeterminate from micro-level observations. Hence the opportunity to discover is an
outcome of the very inability to predict, or form accurate expectations, about such complex
dynamic phenomena.
Since entrepreneurial opportunities depend on asymmetries of information and beliefs,
entrepreneurs’ buying and selling decisions are not always correct and this process leads to
“errors” that create shortages, surpluses, and misallocated resources. An individual alert to the
presence of an “error” may buy resources where prices are “too low”, recombine them and sell
the outputs where prices are “too high”. The notion that individuals can make these genuine
discoveries about misallocated resources has led some researchers to stress the role of “surprise”
(Kirzner 1997) in this process. The nature of overlooked profit opportunities is that they are
completely overlooked, and therefore individuals are genuinely surprised when they identify a
hitherto unexpected profit opportunity. Such surprises are not searched for at the cost of a
deliberate search process. Instead, individuals are totally ignorant of these misallocated resources
and their total ignorance precludes a deliberate search process. Given that uncertainty and
indeterminacy make expectation formation difficult, it is reasonable suggest that regular
surprises will be a feature of the discovery process.
One factor that leads to stability in expectations is the role of institutions, which are
routinized patterns of action. The presence of routines makes expectation formation a
possibility, since certain patterns of human behavior can be reasonably predicted based on the
19
observation of routines (Heiner 1983). Given the limitations pertaining on human cognition
(Simon 1996), routines are an essential aspect of human action for two reasons: first, because
they allow each particular individual to preserve scarce decision-making resources for
application to non-routine decisions; and second, because they allow all other individuals to
economize on scarce decision-making resources because they can make reasonable predictions
about the actions of others based on observation of their routines.
Routines are therefore pervasive at the individual level, where we usually describe them
as habits, as well as at the organizational level. Every individual has a particular regime of
unreflective habits that are accumulated over a lifetime of experience and experimentation
(Tsoukas 1996). The particular habits of an individual amount to a specialized collection of
routines. Organizations such as firms also accumulate specialized collections of routines
(Nelson and Winter 1982). In fact, one example of a predictable routine is the entrepreneurial
process described here: people can reasonably forecast that some other people are conjecturing
resources are undervalued in their current use and can be purchased and recombined and put to
more valuable use. On the other hand, people can also reasonably forecast that many other
individuals are simply carrying on with their daily lives: being a fireman, or minding their
children, or relaxing in their old age. In fact, were it not for the presence of imperfect
information and a wide variety of routine modes of behavior (i.e. non-alert, non-entrepreneurs)
the entrepreneurial discovery process would not work (Loasby 1999).
Institutions are important because they impose structure on the world, and as we have
already seen, an absence of structure creates the kind of uncertainty that makes forming accurate
expectations an impossibility. But to the extent that institutions do exist, expectation formation
is a reasonable possibility. Institutional routines therefore are an important part of the discovery
20
process in two ways: first, because routines create a stable interpretative scheme, they enable the
entrepreneur to impose order on and make sense out of the “bloomin’ buzzin’ confusion” of
experience (James 1908); and second, because individuals know what a stable structure is, they
are able to notice exceptions. In essence, the notion of surprise only makes sense because an
individual knows when he/she is not surprised. Since cognitive limits mean individuals cannot
be attentive to everything at once, entrepreneurial alertness (Kirzner 1973) is a function of what
is not given attention; that is, it is a function of other routinized modes of behavior. In other
words, entrepreneurial alertness comes with the opportunity cost of that which has been taken for
granted. Given that opportunity cost is the essential feature of choice, this economic calculation
ought to come as no surprise to us.
Of course, as the structure of a particular market becomes well established and
routinized, eventually entrepreneurial opportunities become cost inefficient to pursue. This
occurs for two reasons. First, the opportunity to earn entrepreneurial profit will provide an
incentive to many economic actors. As opportunities are exploited, an externality is created:
information diffuses to other members of society at no cost or low cost, and these individuals can
imitate the innovator and appropriate some of the innovator’s entrepreneurial profit. This
diffusion through imitation is one of the most important yet under-researched aspects of the
entrepreneurial process (Nelson and Winter 1982, Baumol 1992). Although the entry of
imitating entrepreneurs may initially validate the opportunity and increase overall demand,
eventually competition begins to dominate (Hannan & Freeman, 1984). When the entry of
additional entrepreneurs reaches a rate at which the costs from new entrants exceeds the benefits,
the incentive for people to pursue the opportunity is reduced because the entrepreneurial profit
becomes divided among more and more actors (Schumpeter, 1934).
21
The second reason entrepreneurial opportunities eventually become cost inefficient to
pursue is that the exploitation of opportunity provides information to resource providers about
the value of the resources that they possess, leading them to raise resource prices over time to
capture some of the entrepreneur’s profit for themselves (Kirzner, 1997). In short, the diffusion
of information and learning about the accuracy of decisions over time, combined with the lure of
profit, will reduce the incentive for people to pursue any given opportunity.
The duration of any given opportunity depends on a variety of factors. The duration is
increased by the, “inability of others (due to various isolating mechanisms) to imitate, substitute,
trade for or acquire the rare resources required to drive down the surplus” (Venkataraman, 1997:
133). For instance, the provision of monopoly rights, as occurs with patent protection or an
exclusive contract, increases the duration. Similarly, the slowness of information diffusion, or
lags in the timeliness with which others recognize information, also increase the duration,
particularly if time provides reinforcing advantages, such as occur with the adoption of technical
standards (network externalities) or learning curves.
What makes the discovery process metaphor powerful is that the dual premises of a
continuous supply of new information and a continuous process of realizing information about
the “errors” of prior expectations suggest the market process will be a continuous one. This view
of the market as a process distinguishes the discovery view from the allocative view, where the
metaphor of equilibrium leads to the perception of markets in static terms. In contrast, the
discovery process illustrates how the market is necessarily “alive” and a hive of human activity.
THE CREATIVE PROCESS VIEW
The origins of the creative process view are more recent than the older views based on
the market as a discovery process and the even older and established view of the market as an
22
allocative process. Consequently, this view is not yet as well developed as the other two. The
key idea in this view, as Buchanan and Vanberg (1991) point out, is that telos is neither ignored
nor imposed on the phenomena concerned. Instead, ends emerge endogenously within a process
of interactive human action (based on heterogeneous preferences and expectations) striving to
imagine and create a better world.
The origins of the allocative process view lie in the philosophy of Adam Smith and the
equilibrium-based calculus of Marshall, Walras, Arrow & Debreu and others; the development
of the discovery process view owes its origins to the philosophical roots of evolution going back
to Darwin, and is steeped in the calculus of asymmetric information explicated by Hayek, Nelson
& Winter and others; similarly, the creative process view originates in the philosophy of
pragmatism professed by James and Dewey, and takes its cue for shedding a large portion of
historical and even evolutionary determinism, instead moving toward a calculus of contingency
based on the notion of human “free will.”
In 1992, founding his arguments on the work of pragmatic philosophers, and drawing
from reputed scholars in a variety of social sciences, Hans Joas sought to establish the creative
nature of all human action. Key to his theorizing is a triad of arguments that demonstrate that
action (as an empirical fact) is: (a) always situated (i.e., cannot presuppose purposes or be
divorced from the sources of the actor’s intentions); (b) intrinsically corporeal (i.e., cannot be
freed from the constraints and possibilities of the body of the actor); and, (c) essentially social
(i.e., cannot originate or occur meaningfully in the absence of others). The three sets of
arguments challenge the existing conceptions of human action based on formal or normative
models of based on “rationality” (For example, models of suhjective expected utility). In Joas’
own words, “… I have argued that some approaches towards a conceptualization of human
23
creativity have actually drawn an artificial rift between creative action and the totality of human
action. My intention is therefore to provide not a mere extension to, but instead a fundamental
restructuring of the principles underlying mainstream action theory.” (1996: 145)
Joas shows that to the extent that an actor is incapable of purposive action, lacks control
over his own body, and is not autonomous vis-à-vis his fellow human beings and environment,
his actions are creative. In other words, they end up creating novelties in our world. Hence, in
Joas’ conception, instead of being anomalies to be explained, surprise and novelty become
natural desiderata of a theory of human action that is not confined to so-called “rational” action.
The creative process view urged by Buchanan & Vanberg (1991) asks us to speculate on
this alternative model of human action, and to develop non-teleological theories of economics.
In other words, if human beings are not assumed to be “rational” actors, but instead if human
behavior is deemed inherently creative, what kind of an economics (or any other social science,
for that matter) would we get?
Joas (1996) and Buchanan & Vanberg (1991) are not isolated in their exhortation to
scholars to pursue this line of inquiry. March’s garbage can model of decision making contains
one such set of attempts (March, 1994). In his own words, “In a garbage can process, it is
assumed that there are exogenous, time-dependent arrivals of choice opportunities, problems,
solutions, and decision makers. Problems and solutions are attached to choices, and thus to each
other, not because of any means-ends linkage but because of their temporal proximity” (1994:
200). Examples of garbage cans include committee and board meetings where a variety of
problems, solutions, and decision makers come into temporal proximity with or without
particular means-ends chains being involved in the coming into being of particular choices.
24
Building further upon such attempts, March urges us to build a “technology of foolishness” or
theories of decision making in the absence of pre-existent goals (March, 1982).
Other attempts in this direction include the empirical work based on Weick’s theories of
enactment and sensemaking (Weick, 1979; 1995). Just as March’s oevre on decision making
highlights the endogeneity of goals, Weick in his theory of enactment focuses on the endogeneity
of the environment. He points out how theorizing about “organization” and “environment” as
two separate entities prevents organizational scholars from asking important questions. In his
own words, “But the firm partitioning of the world into the environment and the organization
excludes the possibility that people invent rather than discover part of what they think they see.”
(1979: 166)
As early as 1969, Simon (1996) had talked about designing or planning without final
goals and the artificial nature of the world we live in. His exposition brought out the role of
current action in the design of future environments. In his own words, “The real result of our
actions is to establish initial conditions for the next succeeding stage of action. What we call
"final” goals are in fact criteria for choosing the initial conditions that we will leave to our
successors.” Therefore, how we want to leave the world for the next generation becomes an
important question in theories based on the creative view.
In sum, the crux of the creative process view is the need to build non-teleological theories
of human action, wherein values and meaning emerge endogenously. Recent empirical work in
expert entrepreneurial decision making (Sarasvathy, 2001b) has led to the development of such a
non-teleological theory in entrepreneurship. This theory posits an alternative to predictive
(causal) rationality, called effectuation, that underlies decisions made by entrepreneurs in
bringing new firms and markets into existence (Sarasvathy, 2001a). Starting without any given
25
goals, effectuation inverts the key principles and logic of predictive rationality to carve out an
alternative paradigm to rational choice. In this view opportunities do not pre-exist – either to be
recognized or to be discovered. Instead they get created as the residual of a process that involves
intense dynamic interaction and negotiation between stakeholders seeking to operationalize their
(often vague and unformed) aspirations and values into concrete products, services and
institutions that constitute the economy.
SUMMARY AND CONCLUSION
In the foregoing exposition we have outlined and briefly discussed three views of
entrepreneurial opportunity under the broader umbrella of the three views of the market process
as allocative, discovery, and creative. We now turn to the question of how to integrate the three
views into our practice and pedagogy and future scholarship, particularly in the area of
entrepreneurship.
One way to look at the three views would be to simply consider them three equally valid
and non-overlapping modes of thinking about entrepreneurial opportunities. Such an approach
focuses only on the distinctions between the views and overlooks both the possibilities of
relationships and interactions between them, and also the fact of empirical confounding in the
way they are embodied in economic phenomena. Table 1 sets out all three views along certain
key dimensions and allows us to discuss from a bird’s eye view, as it were, both distinctions and
overlaps.
For example, looking at the operationalization of the three views as the recognition,
discovery, and creation of opportunities suggests that the creative view might be more general
than and prior to the other two views. This is because creative processes contain recognition and
discovery as necessary inputs, while recognition and discovery can do without most key aspects
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of creativity. A simple example of this point is that before we can “recognize” or “discover”
great art, that art has to have been created. Similarly, entrepreneurial opportunities may be
posited to have been “created” through the decisions and actions (conscious or unintended) of
economic actors before someone can “recognize” or “discover” them. For instance, once
specific goals, values and preferences have been formed through the creative process, discovery
processes can discover various means to achieve the goals. And when both ends and means
become manifest, allocative processes figure out which particular means can best achieve which
particular ends.
Another way to integrate the three views would be to recognize that they are extremely
context-dependent. In other words, each view is useful under different circumstances, problem
spaces and decision parameters. For example, when resources are clearly specified and goals are
given, the allocative view will be the most appropriate. In contrast, when the problem spaces are
characterized by enormous uncertainties, and value criteria for making choices are highly
ambiguous, a creative approach might be called for.
The essence of our exposition is not to establish the superiority of any one of the three
views or even to completely characterize them in all their possible relationships. Rather, our
explicit intention here is to demonstrate that the study of entrepreneurial opportunity is a far
richer and substantially more textured and interesting area of inquiry than it has hitherto been
supposed to be. Furthermore, it derives its interest and promise as much from the practitioner’s
desire to earn higher profits as from the philosopher’s and artist’s dreams of creating a better
world. But perhaps most importantly, an inquiry into entrepreneurial opportunity has the
potential to unlock one of the greatest intellectual puzzles of our time, namely the creation of
new value in society.
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In conclusion, every invention2 engenders opportunities for the creation of several
possible economic (as well as other types of socially significant) effects. In the foregoing
sections we have examined three sets of views with regard to how these effects come to be.
Approaches based on the view of the market as an allocative process focus entirely on the final
effects of opportunity creation, treating the processes leading to these final effects as mere detail;
approaches based on the view of the market as a discovery process emphasize only the origins of
the opportunity for creation, treating the final effects as inevitable products of competitive
markets; and finally, approaches based on the view of the market as a creative process emphasize
the decisions and actions of the agents, making both origins and final effects contingent upon
those decisions and actions.
In our view, if we are to deepen our understanding of entrepreneurial opportunity, we
need to integrate these three approaches, emphasize contingencies rather than inevitabilities in
each. As a first step in that direction, we offer the following fundamental argument for the study
of the central phenomena of entrepreneurship – viz, entrepreneurial opportunities.
Conjecture 1:
The set of all possible economic goods based on any invention is larger than the set of
economic goods actually created within a finite period of time after the invention.
Conjecture 2:
Not all actual economic goods created from an invention will be created by existing
economic entities. In other words, the creation of new economic goods often entails the
creation of new economic entities such as new firms and new markets.
Conjecture 3:
2 The term "invention" need not be limited to technological (i.e., science-based) inventions. Inventions can occur in
all spheres of human activity -- in the arts (surrrealism), in sports (snowboarding) and in philosophy (pragmatism),
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From the point of view of economic welfare, not all actual economic goods and economic
entities arising out of any invention are equally “desirable”.
Ergo, the lags (temporal and otherwise) between any invention and the creation of new economic
welfare enabled by it, require not only the ability and alertness to recognize, and the perception
and perseverance to discover opportunities for the achievement of pre-determined goals such as
increasing profits and larger market shares, but also necessitate decisions and actions based often
only on human imagination and human aspirations, that may or may not in time lead to new
products, firms and markets.
to name only a few.
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Table 1: Comparing the three views of entrepreneurial opportunity
View Allocative View Discovery View Creative View
What is an
opportunity
Possibility of putting
resources to good use to
achieve given ends
Possibility of correcting
errors in the system and
creating new ways of
achieving given ends
Possibility of creating new
means as well as new ends
Focus
Focus on System
Focus on Process
Focus on Decisions
Method
Opportunities “recognized”
through deductive processes
Opportunities “discovered”
through inductive processes
Opportunities “created” through
abductive processes
Domain of
application
When both supply and
demand are known
Only one or the other
(supply or demand) known
When both supply and demand
are unknown
Distribution of
opportunity
vectors
Opportunity vectors are
equally likely
Existent, but unknown
probability of opportunity
vectors
Probabilities for opportunity
vectors are completely nonexistent
Assumptions
about
information
Complete information
available at both aggregate
and individual levels
Complete information at the
aggregate level, but
distributed imperfectly
among individual agents
Only partial information even at
the aggregate level, and
ignorance is key to opportunity
creation
Assumptions
about
expectations
Homogeneous expectations
both at the micro and macro
levels
Homogeneous expectations
at the macro level;
heterogeneous expectations
at the micro level
Heterogeneous expectations at
both micro and macro levels
Management
of uncertainty
Uncertainty managed
through: Diversification
Uncertainty managed
through: Experimentation
Uncertainty managed through:
Effectuation
Definition of
success
Success is a statistical artifact
Success is outliving failures
Success is a mutually negotiated
consensus among stakeholders
Unit of
competition
Resources compete
Strategies compete
Values compete
Outcomes
Strategies for:
Risk management
Strategies for:
Failure management
Strategies for:
Conflict management