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Uncertainty and risk-taking in entrepreneurial organizations Essay

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Introduction

Uncertainty and risk-taking, chiefly as a combination, have assumed a significant role in operation and management of small enterprises and in theorizing about entrepreneurial firms as applied to the growth of the organization. Bonaccorsi (1992), first advocate of the entrepreneurial process framework, emphasized that an essential element was the organization struggling to maintain risks at low positions.

Beside this continuing appreciation of risk-taking there were concerns, in early attempts for explaining management of entrepreneurial firms, to broaden the handling of uncertainty with a view of reflecting the actuality that risk-taking is complex (Freeman & Schroder 2006).

Therefore, a re-evaluation of risk-taking and of uncertainty as far as operation of small enterprises is concerned is timely, comprising considerations of rising significant theories and pragmatic studies. This paper begins by providing a summary of the perceptions of capability of coping with risk and uncertainty, comprising both personal and organization viewpoints.

The paper then reviews the manner in which both risk-taking and uncertainty have been dealt with in the literature, and considers rising concepts in, and within, the literature that provide scope for an improved accepting of the way uncertainty and risk-taking link to management of a small enterprise over time.

The ideas of risk adjustment and uncertainty adaptation are included as a way of reacting to these emerging, operation responsive traits. Re-evaluation premise is then suggested as one technique to explore the aspects of change and relationships that originate from the reconciling results of risk adjustment and uncertainty adaptation on the growth of the small enterprise. The paper concludes with study implications.

A summary of uncertainty and risk-taking

From an old financial approach, uncertainty and risk-taking seem to be separated, even though the word uncertainty is not at all times constantly utilized: uncertainty at times talking about decision circumstances where there is a mysterious future and at times about circumstances where this future is not mysterious, but unpredictable.

Risk reflects on a decision where the impact of action is dependent on identified probability distribution, following Miller’s (2007) distinction. Freeman and Schroder (2006) uncertainty – central to small enterprise costing and normally raised in events of vagueness and inexactness – stresses the vaulted consistency of individuals for assembling and interrogating all potential possibilities to an assessment.

However, there is uncertainty impacting on a decision that challenges understanding in that the possibilities are just unpredictable. Information on any potential outcome is simply unavailable, and not all potential results are predictable.

In such events, Austrade’s (2002) deterministic risk-taking feigns this commonly known non-ergo world (Dunn 2000), an universe where suggestion from the basic situation to an exact context is challenging since the former does not offer directions to the course of any future situation, in particular where an agent is quite uncertain as there presently do not exist details that will aid the agent in discovering the future.

A decision has to be completed and selection is real (Freeman & Schroder 2006). This is the position of real Knightian uncertainty.

Discovering future constraints in a non-ergo world demands of any decision-maker administration perception and real Knightian business where an entrepreneurial return is made through the application of this perception (Alvarez & Barney 2005).

In an application of such concepts, Schendel (2007) design the entrepreneurial development based on the joint and distinct impacts of coping with risk and uncertainty, and show that the indecision impacts dictate over risk impacts when the two happen conjointly.

In the entrepreneurial management literature, the function of administration perspective has been emphasized, with Buckley and Carter (2004) long ago determining four key aspects that result in a general view of uncertainty in various situations: perceived external features; personal cognitive practices; entrepreneurial feedback collections; and perceived social benefits.

Risk-taking and uncertainty

In much of the entrepreneurial administration literature, uncertainty and risk are assumed to be challenging aspects on forward impetus (Schendel 2007). Basically, it is contested, if the uncertainties and risks linked to an entrepreneurial organization are, or can be, minimized to a suitable position as viewed by the decision-makers, dedication is not likely to continue.

A suitable level of uncertainty and risk is perceived as essential but insufficient measures for in progress entrepreneurial process. Both uncertainty and risk were viewed to be impacting the personality and ingredient of action applied: for instance, via the application of low instead of high dedication entrepreneurial model despite identifications of larger uncertainty and elevated risk.

Capability of coping with uncertainty and of taking risk may be significant in decision-making at different stages of entrepreneurial administration, but especially as an enterprise engages in new operations like penetrating emerging markets, utilizing various models of management or shifting operation strategies.

In the initial phases of enterprise formation, various enterprises have been found to have limited information and skills, and experience in, small enterprise administration and the realities of entrepreneurial process, emphasizing views of uncertainty and risk.

In a study of more than 30 small enterprises, Alvarez and Barney (2005) concluded that the restricted data for analyzing markets had the highest challenging impact on the enterprise’s capability of initiating or developing start-ups.

An extensive research which comprised an investigation of entrepreneurial traits of small businesses found numerous entrepreneurial organizations with apparently suitable abilities but never even realize it to the basic of plan.

When pressured to explain, leaders of such organizations tend to undervalue the gains and overvalue the risks of small enterprises. However, this view of great risk is reduced and the understanding of gains is enhanced via entrepreneurial skills, specifically when it comprises entrepreneurial traits of individual entrepreneurs (Schendel 2007).

How risky is small enterprise to entrepreneurs?

There is a stream of new study which defies the fundamental concept that an entrepreneur is less risk hesitant, even deducing an entrepreneur is risk avoider (Miller 2007; Schendel 2007). In a latest study of the risk theory in general study focusing on entrepreneurs, Miner and Raju (2011) emphasize the challenges of perceiving risk taking or endurance just based on goal-based entrepreneurial act.

The authors contend that a deed may seem risky to a developed enterprise; however, in an entrepreneurial situation, it might really attest less risky. Entrepreneurs who accept these risks will seem to be taking higher level of risk comparative to their more developed complements, although the entrepreneurs do not view such higher risks.

Therefore, evident risk taking trait, as in fast market penetration, may be deceptive as far as decision-makers are concerned. Alvarez and Barney (2005) contend that any person who exploits opportunities tends to organize information more constructively and then responds to such constructive views, and such information can be utilized in how risks are analyzed and uncertainties viewed.

Coping strategies

The capability of organizations to remain relevant despite risks and uncertainties seems to be partially described by the different survival tactics they are capable of employing.

For instance, in an investigation of the permissible risk linked to entrepreneurial development in China, Schendel (2007) found that organizations’ identification of legal risk relied partly on their capability of managing them. Research in addition indicates unfairness towards more agreeable enterprise growth based on aspects like culture and socio-economic mechanisms.

Internal and external aspects

The director of the Australian Agri-based company Technico argued that while small enterprise has various risks, the entry to success is to be capable of mitigating the uncertainties through knowing how to make investment.

Technino penetrated the Chinese markets very early in its start-up with its novelty seed potato by an entirely-owned enterprise, but only following signing an agreement with PepsiCo in taking an extremely high share of the company’s seed potato for decades.

By assuring its marketplace, Technico eliminated significant market uncertainty. Also, through developing an entirely-owned enterprise, the company reduced the risk of indulgence of the company’s intellectual asset.

Whereas uncertainty of operating within China culture remained, the markets were perceived as representations of attractive and tolerating opportunities for Technico since China was a large consumer of potato products with considerable expansion outlooks as China approved more foreign pressures (George et al. 2006).

Conclusion

The paper has contended for a more centralistic perception of risks and of uncertainties, together with their distinctions, with a view of advancing appreciation of the manner the two traits impact the growth of small enterprises.

This may need not only inclusive investigation on organizations and persons but possibly a deterministic technique that enables scholars to reveal how risk and uncertainty of the entrepreneur impacts entrepreneurial success.

References

Alvarez, S & Barney, B 2005, ‘How do entrepreneurs organize firms under conditions of uncertainty’, Journal of Management, vol. 31 no. 5, pp. 776-793.

Austrade, T 2002, Knowing & growing the exporter community, Australian Trade Commission, Sydney.

Bonaccorsi, A 1992, ‘On the relationship between firm size and export intensity’, Journal of International Business Studies, vol. 23 no. 4, pp. 605-635.

Buckley, P & Carter, M 2004, ‘A formal analysis of knowledge combination in multinational enterprises, Journal of International Business Studies, vol. 35 no. 5, pp. 371-384.

Dunn, S 2000, ‘Fundamental uncertainty and the firm in the long run, Review of Political Economy, vol. 12 no. 4, pp. 419-433.

Freeman, S & Schroder, B 2006, ‘How smaller born-global firms use networks and alliances to overcome constraints to rapid internationalization, Journal of International Marketing, vol. 14 no. 3, pp. 33-63.

George, E, Chattopadhyay, R, Sitkin, S, & Barden, J 2006, ‘Cognitive underpinnings of institutional persistence and change: A framing perspective’, Academy of Management Review, vol. 31 no. 2, pp. 347-365.

Miller, K 2007, ‘Risk and rationality in entrepreneurial processes, Strategic Entrepreneurship Journal, vol. 1 no. 2, pp. 57-74.

Miner, B & Raju, N 2011, ‘Risk propensity differences between managers and entrepreneurs and between low- and high-growth entrepreneurs: A reply in a more conservative vein’, Journal of Applied Psychology, vol. 89 no. 1, pp. 3-13.

Schendel, D 2007, ‘Risk and uncertainty’, Strategic Entrepreneurship Journal, vol. 1 no. 2, pp. 53-55.

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IvyPanda. "Uncertainty and risk-taking in entrepreneurial organizations." January 13, 2020. https://ivypanda.com/essays/uncertainty-and-risk-taking-in-entrepreneurial-organizations/.

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IvyPanda. 2020. "Uncertainty and risk-taking in entrepreneurial organizations." January 13, 2020. https://ivypanda.com/essays/uncertainty-and-risk-taking-in-entrepreneurial-organizations/.

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IvyPanda. (2020) 'Uncertainty and risk-taking in entrepreneurial organizations'. 13 January.

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