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Opportunity Recognition - the Factors Affecting It

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Opportunity Recognition - The Factors Affecting It


The focus of this paper is to add to the existing framework of entrepreneurial study to better understand one of the core components of entrepreneurial activity - opportunity recognition. An important aspect of entrepreneurship, opportunity recognition has always been the focal point of research and study for business gurus and educators.

According to Shane and Venkataraman (2000), "Entrepreneurs are renowned for their skill in perceiving and exploiting opportunities overlooked by others". As defined by Merriam-Webster, opportunity is "a favorable juncture of circumstances" or "a good chance for advancement or progress". The following study will seek to explain better the "juncture of circumstances" and why some individuals recognize the opportunities better than others through closely examining existing research and study carried out in addition to interviewing local and regional entrepreneurs and presenting our interpretation of the integral study.

Literary Review

The study of opportunity recognition has been a cauldron of entrepreneurship, economics, psychology and related disciplines (Shane and Venkataraman, 2000). Its multi-faceted nature has made the study of opportunity recognition - both the process involved as well as the factors influencing it - an extremely difficult task. Since it would be too exhaustive to discuss both the factors as well as the process, we will be focusing our attention solely on the factors.

Factors affecting opportunity recognition process

1. Prior Knowledge

From the studies of Renko et al. (2012), opportunity recognition can have elements of both search and serendipity. Though they initially point out through their review that one school of thought believes that it is impossible to search for an entrepreneurial opportunity as one cannot search for something when one does not know what it is for which (s)he is searching, they also professes another which says that an individual can pursue an entrepreneurial opportunity without knowing what that opportunity must be. Fatima et al. (2011) argues against the idea of accidental opportunity recognition through her research. Her review indicates that process of information searching greatly influences the recognition of opportunity while at the same time creating a significant number of opportunities through a deliberate search process carried out according to a pre-defined plan by following through via different stages such as: scanning, searching, assimilating new information with existing data and finally evaluating the findings. They further go on to say that entrepreneurial success by following a process of systematic search for information can be positively co-related to opportunity recognition.

2. Market Knowledge and Technological Know-How

Fatima et al. (2011) through their findings indicate that the prior knowledge of the market is a major factor in entrepreneurs recognizing as well as exploiting opportunities. They go as far as to say that entrepreneurs exploit only those opportunities that run parallel to their existing knowledge of markets. They support their argument by empirical study of market conditions that prior knowledge will reduce the uncertainty and failures arising due to erroneous selection. Renko et al. (2012) doesn't limit opportunity recognition to just market knowledge. According to them, "perceptions of potential entrepreneurial opportunities can be acquired experientially or via research" (Renko et al. 2012, p7). Their review states that markets constantly emit signals that may or may not be received and interpreted by an individual. Thus, they broaden the concept of knowledge by using perception as one of the primary factors of opportunity recognition. Perception is familiarity, awareness, or understanding gained through the physical senses, mental imaging, and/or intuition as opposed to knowledge which is limited by its achievement through experience or study. The fact that entrepreneurs make their decisions under conditions of uncertainty and based on guesses and gut feelings make perception rather than knowledge makes it a better indicator of opportunity recognition. Fatima et al. (2011) though limit their scope considering knowledge to be an all-encompassing field comprising of markets and customers. While limiting, this definition of knowledge arms the entrepreneur with the ability to solidify his position while at the same time making it easier to take investment decision with less threat of loss and more promising returns. Running contrary to this thought process Renko et al. (2012) argues that it is the naturally heightened state alertness that entrepreneurs possess that assists them in recognizing opportunities. Another perspective outlined by Siegel and Renko (2012) is the role of market and technological knowledge in recognizing entrepreneurial opportunities. The study done by them reflects about how both market and technological knowledge, measured in the number of patents, contributes to an individual's subsequent finding of entrepreneurial opportunity. Their study helps to further illustrate the importance of knowledge and also its shortcoming. According to them, entrepreneurial opportunities can be based on a technological innovation, in which case the supply of technology is known and market demand is unknown, or they can be recognized because different market participants have unequal access to information about the market conditions (customers, markets and ways to serve markets), in which case the demand in the market is known to some, but the supply has to be developed. Regarding the role of market knowledge in entrepreneurial activity, their findings suggest "the positive moderating role of market knowledge in the relationship between technology knowledge and entrepreneurial opportunities recognized in a young technology venture" as well as the "the direct positive effect of market knowledge on the entrepreneurial opportunities recognized in a young venture" (Siegel and Renko 2012, p3). Moreover, market knowledge would prove essential in the individual being aware of customer problems as a source of opportunity, easily determine the market value of new technological discoveries or other market changes and also, increase communicability of tacit knowledge of this technology between user and end-customer.

3. Social Ties

Another source of knowledge identified by Fatima et al. (2011) is that arising from ones social contacts. The researchers state that social ties can help facilitate the process of opportunity



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