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Opportunity recognition is a vital component of value creation initiatives as well as entrepreneurial growth. Various researchers acknowledge that opportunity recognition is a unique and central element of entrepreneurship (Joshua, 2009, p 440). Additionally, it is often cited as the first crucial step of an entrepreneurial venture. This study aims to interview an entrepreneur and gain first-hand information on opportunity recognition among entrepreneurs. Given its importance in enterprise development, it is considered crucial to understanding entrepreneurship and hence is an important area to study.
For purposes of this evaluation, John Spence, the man behind the success of Karma Royal Group, has been identified for an interview. It is interesting to note that the group won the 2010 Ernst & Young Australian Entrepreneur of The Year award. John Spence has been chosen given his outstanding reputation in an industry that is often considered dynamic and relatively challenging. Hospitality and tourism industry is one of the most delicate industries that require critical decision-making skills if one is to achieve success. Having been in the industry for over ten years now, in addition to milestones achieved in this period, Spence holds plenty of experience.
Baron (2005, 221) described the opportunity as a unique and specialized knowledge an entrepreneur gains with respect to a product, service or the market. The knowledge should be used for business development or expansion. Further, the researcher notes that ideas transform into opportunities upon recognition of their commercial values. Hulbert, Brown & Adams (2002,67) on the other hand describes a business opportunity as the chance of satisfying an unsatisfied need that has a potential of generating profit while Kirchhoff (2002, 93)defines opportunity as a “course of action that is possible and worth pursuing.” He notes that opportunities can only be identified if entrepreneurs learn to engage in non-linear or lateral creative thinking, which entails” thinking outside the box.”
In a much broader definition, Long and McMullan (1984) stated that an opportunity is an elaborated vision of venture development which entails a preview of the architecture for the translation of the concept into real-life application. However, Kaish and Benjamin (2001, 55) offered the most inclusive definition covering all aspects that entails opportunity recognition. They defined opportunity recognition as involving both or either of the following: perceiving a possibility to create a new business or perceiving a possibility to improve and existing business to a better position. According to them, both must aim to produce a new and enlarged new profit potential.”
It is no secret that some individuals are better at identifying than others are. Most interestingly, research findings reveal that the differences are crucial role players in enterprise venture success (Baum, Locke, & Smith, 2001, 293). As a result of this, the topic has been a subject of intense research and theory in understanding entrepreneurship. Despite widespread research, existing gaps suggest that potentially valuable insights into opportunity recognition nature can be gained through a deeper understanding of human cognition and perception theories (Baum, Locke, & Smith, 2001). The cognitive model provides an in-depth illustration of the possible causes of the differing capabilities.
Busenitz & Barney (2005, 10) argues that persons who have attained high success at recognizing opportunities have enhanced prototypes for opportunities or alternatively draw upon a rich stock of exemplars appropriate to the tasks. This enhances the ability to identify opportunities. In research by Kirchhoff (2002, 93), it was suggested that the working memory as well as the information storage system interacts with newly met information and in turn produce a number of complex task including interpretation and identification of complex patterns.
Other researchers have further suggested that more effectively functioning working memory results in greater ability by an individual to focus on information relevant and appropriate to his/her goals (Kirchhoff, 2002, 94). It is arguable that individuals adept at opportunity recognition may have more efficiently performing working memories as compared to others. This, in turn, is believed to translate to the ability to gain an important edge in interacting with newly encountered activities or information stimuli already present in their semantic memory.
In investigating value creation in relation to opportunity identification, Busenitz & Barney (2005) concluded that enterprise is capable of perceiving new opportunities around them for value creation and in turn, create a market based on these opportunities. This is a view widely in line with findings of other studies in the area.which acknowledge that new market opportunities are not viewed as inevitable outcomes of demographic or technological alterations, but instead are viewed as “fragile social constructions….willed into existence by active entrepreneurs…. (Busenitz & Barney, 2005, 10)” This essentially means that rather than recognizing existing markets or products waiting to be recognized, entrepreneurs direct attention towards identifying opportunities to create value and hence profitability of ventures.
Most researchers in this area have focused on establishing how entrepreneurs recognize opportunities for new business ventures. As earlier mentioned, most of these researchers agree that human cognition plays a pivotal role and that successful entrepreneurs heavily rely on it to achieve their objectives. The ability to recognize opportunities is heavily reliant on the ability to utilize cognitive skills acquired through experience and hence perceive connections between events that appear unrelated at face value. They possess the ability to construct connections between technological changes, demographics, market trends, as well as government policies, among others. Using this ability, they identify opportunities that are rather hidden to the general population (Baum, Locke, & Smith, 2001, 294).
In general, most researchers agree that entrepreneurs use existing patterns to identify new opportunities for business venture/growth. Using the patterns perceived in prevailing events/trends, new ideas for products and services are derived. This translates into potential business ventures and growth initiatives. In research by Kirchhoff (2002, 94) he noted that the perspective of pattern recognition is of importance in myriad ways. Firstly, it provides ground for integration into a single framework that provides a pivotal role in opportunity recognition.
The three key factors identified as playing a pivotal role in recognition of opportunities are engagement in an active search for available opportunities, being alert to the opportunities, and having prior knowledge of an industry or market where opportunity is recognized. Other than integration, the perspective of pattern recognition explains how the aforementioned factors interrelate. Additionally, the researcher notes that a pattern recognition perspective offers a reasonable explanation as to why only some people and not everyone are able to identify specific opportunities. Lastly, based on the pattern recognition framework, it has been suggested that there are some specific mechanisms that can be adopted in training of current or prospecting entrepreneurs to be able to recognize opportunities adequately.
Baron, & Shane (2005) proposed a model relating to pattern recognition and hence opportunity recognition. In furthering his argument, Baron, & Shane, (2005) mentioned that the process by which people perceive emerging patterns among stimuli that appear to be unrelated is crucial to determining their ability to identify opportunities. He further argues that it is the unique knowledge structures, for example, prototypes and exemplars that determine how specific people perceive emerging patterns in technology, market and other field relating to entrepreneurial development and growth.
People compare the patterns to existing concepts, and if they closely match, they decide to establish a venture or introduce a new concept into an existing business. In another research, it was suggested that opportunity recognition could be a product of either internal or external stimulation (Baron, & Shane, 2005). When an entrepreneur decides to initiate a business and based on this decision seeks out an opportunity, external stimulation is said to have occurred. On the other hand, when the identification of an opportunity precedes the idea to start a business, internal stimuli is said to have occurred.
Various researchers have come up with diverse descriptions and conceptual arguments in a bid to adequately address opportunity recognition. Their divergent yet relatively close descriptions offer a basis upon which intending researchers can undertake more studies. Summarily, all researchers acknowledge the important role of cognition in opportunity identification. The researchers cite that cognition influence pattern identification and translation of the patterns to viable business opportunities that enhance profit-making.
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As the world expands and opportunities narrow down at face value, researchers agree on the need to come up with a conceptual framework to help train society more on opportunity recognition. This can only be achieved if elaborate understandings of the factors motivating opportunity identification are appropriately identified. Additionally, the researchers acknowledge the importance of identifying the relation between in-born characteristics and environmental factors.
Understanding how these factors interrelate is crucial to coming up with conclusive approaches to enhancing opportunity identification. In conclusion, it’s important to mention that the importance of opportunity growth in entrepreneurial growth cannot be underestimated. Opportunity recognition can, therefore, be defined as the ability by entrepreneurs to utilize existing trends in combination with individual cognition to identify new as well as exiting avenues for business creation/growth with the aim of making a profit.
Baron, R. Alderman, The cognitive perspective: A valuable tool for answering entrepreneurship’s “why” questions, Journal of Business Venturing, 19 (2005): 221-240.
Baron, R. Aron & Shane, Sylvian. Entrepreneurship: A process perspective. Cincinnati: Southwest, 2005.
Baum, J.R., Locke, E.A., & Smith, K.G. A multi-dimensional model of venture growth. Academy of Management Journal, 44 (2001): 292-302.
Busenitz, L. Weber. & Barney, J. Benard. Differences between entrepreneurs and managers in large organizations: Biases and heuristics in strategic decision-making. Journal of Business Venturing, 12 (2005): 9-30.
Hulbert, Brian, Brown, B. Reva, and Adams Sophie, “Towards an Understanding of ‘Opportunity’,” Marketing Education Review, 7 (2002): 67.
Joshua I. Weinstein, “The Market in Plato’s Republic,” Classical Philology 104 (2009): 440.
Kaish, Stanley and Benjamin Gilad, “Characteristics of Opportunities Search of Entrepreneurs v. Executives: Sources, Interest, and General Alertness,” Journal of Business Venturing, 6(2001): 45-61.
Kirchhoff, A. Bruce, “Entrepreneurship’s Contribution to Economics,” Entrepreneurship Theory and Practice, 15 (2002): 93.