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Alvarez, S.A., J.B. Barney, and P. Anderson (2013), Forming and exploiting opportunities: The impactions of discovery and creation processes for entrepreneurial and organizational research

55 important questions on Alvarez, S.A., J.B. Barney, and P. Anderson (2013), Forming and exploiting opportunities: The impactions of discovery and creation processes for entrepreneurial and organizational research

What are the two perspectives on the process for how opportunities are exploited?

Opportunities are formed by exogenous shocks to pre-existing markets or industries that entrepreneurs then discover
Opportunities are formed endogenously by the entrepreneur who created them

When can opportunities to create economic wealth exist?

When competition is not perfect

What is economic wealth?

The difference between the value of an economic actor's assets and the costs of those assets

What are examples of competitive imperfections in a market?

Important entry barriers
Heterogeneously distributed information or capabilities
Significant transaction costs
The opportunity to produce heterogeneous products
Nonprofit maximizing entities in the market

What are the two vies of the opportunity formation process?

Discovery process
Creation process

Which four conditions must hold (discovery)?

Human need must exist that is currently not fully met
The good in question must help address this need
The economizer must have knowledge of link between this good and the need
Potential buyers must come to understand the link to an unmet need

What is the assumption regardin individual differences and entrepreneurship?

Needs (opportunities) exist independent of the actions of economizers (entrepreneurs), that there are important differences between economizers and noneconomizers, and that economizers have useful knowledge that others do not have about these needs and how to fulfill them.

What are the differences between entrepreneurs and nonentrepreneurs hypothesized?

Psychological differences
Non-psychological differences
Cognitive differences

What are psychological differences?

Extraversion
Need for achievement
Risk-taking propensity
Locus of control
Self-efficacy

What are non-psychological differences?

A person's age and gender
Career experiences
The costs associated with exploiting an opportunity

What are cognitive differences?

The extent to which they manifest overconfidence
Representativeness
Intuitiveness cognitive biases

What does Kizner mention about the recognition of opportunities?

An entrepreneur is an individual who is alert to opportunities. Alertness is a key difference between entrepreneurs and nonentrepreneurs

What is the recognition of an opportunity considered?

As an entrepreneurial task to recognize the existence of an asset, buy it (at the lower price) and sell it (at the higher price)

What are the historical roots of the discovery process?

Austrian economics, individual trait research, research on recognition opportunities

What are the ex ante differences in entrepreneurs

Important ex ante differences termed "alertness" that enable entrepreneurs to be aware of objective opportunities

Opportunities that are discovered are generally assumed to be formed by exogenous shocks to preexisting markets or industries: e.g. changes in technology, changes in politics, shifts in consumer preferences etc. This can form opportunities in 2 ways:

Disruptions in an industry's of market's competitive equilibrium can lead to individuals to become more aware of information about opportunities of which others are not aware (heterogeneously distributed knowledge)
Disruptions in an industry's or market's competitive equilibrium can generate new information that was not available before this exogenous shock. These opportunities emerge out of an already established industry or market

What is meant with the ontological status of discovered opportunities?

They are real and exist independently of the perceptions and actions of those seeking to generate economic wealth form exploiting them. Because of this, everybody should be able to observe them, the difference however is in the alertness of the individual.

Where can entrepreneurial alertness result in?

In first-mover advantages, thus a (temporary) competitive advantage

Where does the nature of entrepreneurs that seek to discover and exploit opportunities follows by?

By the nature of these opportunities. Because such opportunities are objective and created by exogenous shocks to a preexisting industry or market, and because these shocks are, in principle, observable, then everyone associated with that industry or market should be aware of the objective opportunities a shock has created.

What is the role of information in the discovery process?

One reason entrepreneurs may be able to discover such an opportunity is that they have this specialized knowledge and information. In some industries, this specialized knowledge may be embodied more in human capital than in physical capital.

Why is this decision making context defined as risky?

Because entrepreneurs do not know with certainty the outcomes. This can be compensated by prior knowledge

What can entrepreneurs apply in risky settings to help make subsequent decisions about exploiting an opportunity?

Risk-based data collection and analysis techniques

What do risk-based data collection techniques include?

Use of customer focus groups
Customer surveys
Archival data available through government agencies, trade associations, and so forth

What do risk-based decision-making tools include?

Discounted present value techniques
Real options analysis
Scenario analysis

What is the creation process?

Opportunities that are created endogenously by the actions of entrepreneurs that seek to exploit them

What are the historical roots of the creation process?

Social constructionism, evolutionary theory, evolutionary realism

What are the sources of competitive imperfections?

Enacted opportunities formed endogenously by entrepreneurs seeking to exploit them

What are ex ante differences in entrepreneurs?

Difference may be the effect of enacting an opportunity

What is the information and decision-making setting

Uncertain: neither possible outcome or their probability unknown
Knowledge is not yet formed - those creationg opportunities form new context specific information where none previously existed. Decision making is incremental, inductive, and intuitive

What is social constructionism?

All knowledge is derived from and maintained by human interactions, which give meaning to the world around us. Without this meaning, and the language that emerges from the shared understanding of this meaning, it is not even possible to discuss the nature of reality.

Why are opportunities to create wealth socially constructed?

Opportunities become meaningful for entrepreneurs once they become part of the socially constructed reality of the society in which the entrepreneur lives.

What does research on the creation process assume?

That opportunities are constructed by entrepreneurs themselves; in this sense, opportunities do not exist until entrepreneurs create them through a process of enactment

Where has the evolutionary theory strong emphasis on?

On the variation, selection, and retention process

Where can blind variations occur from?

From accidents, chance, conflict, and luck

Why are they myopic in nature?

Bounded rationality implies that intentional variations rarely anticipate all of their consequences

How can retention take place?

Through direct efforts to imitate a successful variation or can be made possible by institutional forces that legitimize certain variations

What is evolutionary realism?

Actors still socially construct their own reality but the veracity of those social constructions are tested either against objective reality or against the collective social constructions of others.

How does the creation of opportunity works?

Opportunities do not exist until entrepreneurs create them through a process of enactment. Based on variation, selection and retention.

What are created opportunities?

Social constructions that do not exist independently of the perceptions of those seeking to exploit them and human action. Some opportunities not formed by exogenous shocks but formed endogenously by the actions of those seeking to generate economic wealth themselves.

How does the opportunity creation process begin?

Actors engage in activities consistent with prior beliefs about the nature of the opportunities they might face, together with their understanding of the resources and abilities they have to exploit these opportunities.

How are the initial beliefs about opportunities and the perceptions of the resources and abilities needed to exploit them called?

Social constructions. They may or may not be consistent with objective reality or the aggregate social constructions of others.

What is the enactment process?

Because there will often be a mismatch between an entrepreneur’s initial beliefs and objective reality and/or the social constructions of others, to create and then exploit opportunities, actors must first act, wait for a response from their actions (usually from the market), and then adjust their beliefs and act again.

Where do opportunities evolve through?

Through the enactment process

What is meant with the ontological status of created opportunities?

Actors test their beliefs about an opportunity against the market—itself a social construction—and based on feedback, they refine those beliefs and continue to do so until they either give up or form an opportunity. Trying to engage in activities that the market, in aggregate, does not socially define as an opportunity will have the same detrimental impact as running into an objectively real brick wall.

How are ex ante differences beween entrepeneurs and nonentrepreneurs regarding the creation process seen?

The logic of creation is silent on whether ex ante differences are either necessary or sufficient for the enactment process to lead to the formation of an opportunity. For created opportunities, the path-dependent enactment process may generate ex post differences between those who have gone through this process and those that have not, even if differences between these actors were virtually undetectable ex ante. However, the enactment process may positively reinforce certain individual attributes and negatively reinforce others.

What is the role of information in the creation process?

When opportunities are created through an evolutionary enactment process, entrepreneurs rarely have enough information to know the alternative outcomes associated with their decisions and the probability of those different outcomes.

What is the role of knowledge?

Too much prior knowledge may harm the enactment process. (resistant to new ways of doing things: emergence of competency traps). This does not suggest that no previous experience is useful. An actor’s ability to interpret signals from the broader environment will enable them to obtain diverse knowledge that may be combined with knowledge they already have, which can lead to diverse ideas and significant product or service advances. Moreover, actors with a deep understanding of their social environment can more effectively navigate their environment and assimilate diverse knowledge from multiple domains, which can lead to novel creation opportunities.

What is the role of learning?

The specific knowledge that emerges through the trial-and-error process requires the development of higher-order organizing principles to codify the opportunity in a way and with language that make it accessible to a wider circle of individuals.

What does the path dependent nature of the creation process mean?

Those that exploit opportunities often gain sustained competitive advantages. When creating an opportunity, entrepreneurs generally find it impossible to calculate opportunity costs associated with their actions.

What concept do the authors use?

The concept of ‘acceptable losses’: to judge the value, both personal and economic, that entrepreneurs are willing to forgo if their actions don’t lead to formation of opportunity.

When do firms engage in exploration?

When they have to search broadly, take risks, experiment, discover, play, and innovate.

When do firms engage in exploitation?

When they will refine, focus, and execute with respect to current operations.

What does combining these skills imply?

A new type of ambidexterity - not simultanteously being able to expore and exploit, but rather simultaneously being able to discover and create.

What is one way to form and exploit opportunities?

To use a firm - a hierarchical governance of transaction cost economics and incomplete contract theory

In which way are two sources and capabilities heterogeneously distributed?

Discovery context: ex post heterogeneity in resources and capabilities may reflect ex ante differences in alertness linked to exogenous shocks to a market/industry
Creation context: ex post heterogeneity in resources and capabilities may reflect a path-dependent evolutionary process whereby homogeneous actors become heterogeneous

The question on the page originate from the summary of the following study material:

Artikelen Innovation & Entrepreneurship 2016

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