2011 International Conference on Economics, Trade and Development IPEDR vol.

7 (2011) (2011) IACSIT Press, Singapore

Entrepreneurship and Innovation: A Review of the Theory and Literatures

Kevin Shihping Huang
Institute of Technology Management National Chiao Tung University Hsinchu City, Taiwan e-mail: kevin1003@gmail.com
Abstract-This paper reviews entrepreneurship and innovation literature. In addition, the core domain of entrepreneurship literature, entrepreneurial opportunity recognition, is further reviewed in this paper. Keywords-entrepreneurship; opportunity recognition innovation; entrepreneurial

Yu-Lin Wang
Dept. of Business Administration National Cheng Kung University Tainan City, Taiwan e-mail: ywang@mail.ncku.edu.tw

II.

REVIEW OF INNOVATION LITERATURES

I.

INTRODUCTION

The entrepreneurship literature has long been recognized as a potential means to maintain and promote business competitive advantages (Covin & Miles, 1999; Hult, Snow & Kandemir, 2003; Schoollhamer, 1982; Yamada, J, 2004). Literatures indicate that managers or entrepreneurs are often been viewed as the key components in the entrepreneurship theory and models of the entrepreneurial process (Covin & Slevin, 1991). Stevenson and Gumpert (1985) state that entrepreneurship is the trait that some people or organizations posses but some do not. Entrepreneurs personal traits has been widely discussed in explain entrepreneurship, including creativity, innovativeness, risk taking, and proactivity (Covin & Slevin, 1991; Yamada, 2004). Moreover, entrepreneurial organizations are those that can actively respond to competitors and are often the first-tomarket with product innovation (Covin & Slevin, 1991). Zahra (1991) defined corporate entrepreneurship as activities that can lead firms to innovate, take risk, and seize opportunity in its markets. Covin and Miles (1999), That is, corporate entrepreneurship is engaged in to increase competitiveness through efforts aimed at the rejuvenation, renewal, and redefinition of organizations, their markets, or industries (p. 50). In other words, entrepreneurship is described as innovation. Innovation is one of the most critical competitive advantages of firms (Chapman & Hyland, 2004; George, Zahra, Wheatley & Khan, 2001; Hamel & Prahalad, 1994; Vakola, 2000). Vakola (2000) states that such an intangible resource, innovation, is a kind of capital for the organization to possess as a competitive advantage. Innovation has been broadly defined as an idea, a product or process, system or device that is perceived to be new to an individual, a group of people or firms, an industrial sector or a society as a whole (Rogers, 1995, p. 276). It can be divided into three categories: product innovation, process innovation and organizational innovation (Vakola, 2000). As a result, this study will review some current perspectives on innovation and entrepreneurship.

With the emergence of globalization, the business environment has become more and more uncertain and complex. As Meyer has stated, organizations are often late to respond to the surprising environment. Unlike previous studies, which view external environmental changes as jeopardous to organizations, Meyer (1982) has argued that environmental jolts are a good opportunity for organizations to learn to deal with crisis. That is, organizations learn lessons and make improvements by readjusting to the environment. Meyers (1982) study concludes that strategic variables, such as innovativeness of market behavior, account for the most in enterprise learning under the external dynamic environments. In other words, strategy of innovation plays an important role in the dynamic business environment. Meanwhile, other scholars also concerned about the influence of external environment on organization competitive advantage. One of the streams is to examine the external environment. Porter (1980) proposes the five forces analysis, which explains how industry external environment affects organizational developmental strategy. The five force analysis consists of bargaining power of buyers, bargaining power of suppliers, threats competitors, threat of substitute product, and threats of new comers. Porter (1980) indicates that businesses can cut down costs, take differential strategy or find a niche in the market to promote the firms competitive advantages while facing different threats or bargaining power. Other scholars question the theory of five force analysis. According to their perspectives, firms in the same industry suffer different issues in managing, and some are successful in business management but some are fail, although they face the same industry environment, competitors and threats. In other words, although enterprises in the same industry face the same external environment challenges and threats, it does not mean the five forces analysis is the panacea of business strategy in facing changing environment. Therefore, some scholars argue that the five force analysis neglects the internal differences between each organization. They stress that each business should focus on their internal circumstances. This point of view is called resource based perspective, which put stress on gathering and renewing the resources from the internal business to form business strategy.

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Barney (1986) has demonstrated the importance of resources of firms. Later, Barney (1991) summarized two main streams of strategic analysis. One is Porters (1980) five forces analysis model, and the other is resource-based view. Resource-based view claims that firms integrate the resources and reconfigure them. Based on the resourcedbased view, Hamel and Prahalad (1991) pointed out that organizations or businesses must develop core competence to maintain competitive advantages in the highly competitive world. Hamel and Prahalad (1994) define core competence as in defining core competencies, managers must work very hard to abstract away from the particular product configuration in which the competence is currently embedded, and image how the competence might be applied in new product areas(p. 227) That is to say, resources-base perspective is closely connected with the term product innovation. This proposed study adopts Coven and Miles (1990) definition of innovation introduction of a new product, process, technology, system, technique, resources, or capability to the firm or its markets. (p. 49). Innovation can be divided into three categories: product innovation, process innovation and organizational innovation (Vokola, 2000). Beside Hamel and Prahalad, scholars examine the term of product innovation based on resourced-based views. They argue that product innovation is a dynamic capability of an organizations core competence that enables the firm to renew and reconfigure resources (Dougherty, 1995; Eisenhardt & Martins, 2000; Leonard-Barton, 1992). III. REVIEW OF ENTREPRENEURSHIP LITERATURES Schumpeter (1936), the father of entrepreneurship theory, points out that entrepreneurship is the way to innovation. Stevenson and Gumpert (1985) further indicate that innovation is the heart of entrepreneurship (p.85). Therefore, entrepreneurship is viewed as a prime source of innovation and competitive advantage. In addition, Hult, Snow and Kandemir (2003) had pointed out that the conceptual of innovation is closely connected to entrepreneurship. Hult, Snow and Kandemir (2003) had measured cultural competitiveness by four dimensions, entrepreneurship, innovativeness, market orientation, and organizational learning. Cultural competitiveness was defined as the ability that organization can detect and fill the gap between what markets really desire and what organizations currently offer (Hult, Snow & Kandemir, 2003). In other words, cultural competitiveness can be viewed as the process of entrepreneurial opportunity recognition, which means the ability to discover opportunities in new markets. Among these four factors, entrepreneurship was examined as the most critical factor in developing market-based culture. Since entrepreneurship was the most influential in building cultural competitiveness, entrepreneurship activities are important to new market recognition and discover. In the past, entrepreneurship has been mainly discussed within new venture creation process. Since managers or entrepreneurs are often described as the key component of the entrepreneurship process, studies in entrepreneurship field have focused on the issues of entrepreneurs (Covin &

Slevin, 1991). Covin and Slevin (1991) further point out that corporate entrepreneurship has emerged as a new trend in the entrepreneurship field. Burgelman (1984) defines corporate entrepreneurship as, extending the firms domain of competence and corresponding opportunity set through internally generated new resource combinations (p. 154). The definition of corporate entrepreneurship reveals two related issues: resource-based and entrepreneurial opportunity. In other words, entrepreneurship is characterized by strategic renewal, innovation and venturing orientation, such as first-to-market with new product offering and research and development (Covin & Slevin, 1991). That is, the study of entrepreneurship is closely connected with the innovation performance and organizational-level strategy. Stevenson and Gumpert (1985) point out that opportunities identification is the heart of entrepreneurship. Shane and Venkataraman (2000) argue that to have entrepreneurship, entrepreneurial opportunities are the first thing that individuals must have. They point out that the term entrepreneurship is closely connected with entrepreneurial opportunity in the entrepreneurship study review. What Shane and Venkataraman (2000) indicate is the same as what Busenitz et al. (2003) propose. Busenitz et al. have (2003) reviewed past studies from 1985 to 1999, and suggest that the domain of entrepreneurship research contains several conceptual categories. These conceptual categories interact with each other, and one of important categories is the term of opportunities. Gaglio and Katz (2001) indicate that opportunity identification process is the most fundamental issue in understanding entrepreneurial behaviors. Ardichvili, Cardozo and Ray (2003) state that entrepreneurial opportunity identification or recognition is the critical process in entrepreneurship activities. Entrepreneurship research agenda is to investigate the relations between entrepreneurs and entrepreneurial opportunity identification and development. Therefore, entrepreneurial opportunity recognition is a requisite perspective in investigating entrepreneurship study. IV. REVIEW OF ENTREPRENEURIAL OPPORTUNITY RECOGNITION

A. The core knowledge about entrepreneurial opportunity recognition In Zahras (1991) study, three antecedents of corporate entrepreneurship are developed, external environment, grand strategy, and organizational related variables. External environment not only offer new opportunity but also reinforce organization to be adaptive and innovative (Meyer, 1982; Zahra, 1991). In addition, external environment serves variety of resources for new product development, such as suppliers, competitors, customers, distributors, alliances partners, universities and so on (Dixon, 1992; Huber, 1991; Salter & Narver, 1995; Zahra, 1991). Opportunities emerge from dynamic environment and industry change. Further, new niches and markets are developed by shift or change from social, technological, economic and political environment (Zahra, 1991). That is, entrepreneurial

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opportunity recognition is one of the corporate entrepreneurship activities. Stevenson and Gumpert (1985) propose that entrepreneurs opportunity is influenced by the two factors managers opportunity matrix. One is the extent of managers desire future state, such as change and growth, and the other is the managers own self-perceived power and ability to realize goals. They stress that sometimes entrepreneurs might not necessary desire to have breakthrough innovation. As a result, entrepreneurs usually upon the existing resources and technology with slightly repackage it to develop a new market or accommodate the newly perceived market segment. That is to say, what opportunities bring to the so called innovation is the activity of reconfigure the resources in organization, which is the spiritual of resource-based theory. Also Steven and Gumpert (1985) indicate that well planned systems might retard the new opportunity start in organizations. Since opportunities do not always being perceived at the beginning of plans and projects, formal planning is not benefit to organizational adaptability. Daft and Huber (1987) point out that the low equivocality of external information tends to make the organizational structure become traditional bureaucracy. In short, Steven and Gumpert (1985) provide a broad concept that factors might influence entrepreneurial opportunity recognition. However, Steven and Gumpert (1985) lack of empirical study in examining it. Steven and Gumpert (1985) point out the following external pressures, which stimulate opportunity recognition, including technology, consumer economics, social values and political action and regulatory standards. That is, how managers perceive external environment changes have impact on the organizational development (Daft & Weick, 1984; Meyer, 1982; Steven & Gumpert, 1985). Gaglio and Katz (2001) from a psychological perspective also argue that entrepreneurial alertness influence the opportunity identification process. It is the psychological scheme of alertness that decides individuals perception of opportunities and interpretation of external stimulus. Unfortunately, people tend to resist to changing because of the uncertainty and cost of investment in innovation and pursuing opportunities. Moreover, most traditional measurement criteria, such as sale of growth rate is depended on the usage of existing resources (Steven & Gumpert, 1985). Therefore, people without extremely external jolt and strong entrepreneurship characteristics are unlikely to pursue new opportunity. However, Gaglio and Katz (2001) and Steven and Gumpert (1985) did not mention about prior knowledge in their study about entrepreneurs perception and discovery of opportunities. Shane and Venkataraman (2000) suggest that information corridors and cognitive properties are two main factors that determine whether entrepreneurs discover particular opportunities. These two factors, information corridors and cognitive properties, can be explained in Shane (2000)s empirical study Shane (2000) provides strong evidence in the case study, which concludes that prior knowledge and experiences are the antecedents of entrepreneurial opportunity recognition. Both information corridors and cognitive properties put emphasis on mental

schemas, which frames individuals recognition of new opportunities. The information individuals possess can be viewed as ones prior knowledge and experiences. The cognitive properties in valuing opportunities are dependent on the prior information one possesses. Ardichvili, Cardozo and Ray (2003) have constructed a theoretical model and propose propositions that influences entrepreneurial opportunity recognition process. The theoretical model comprises five factors affecting the core process of entrepreneurial opportunity recognition, such as entrepreneurial alertness, information asymmetry and prior knowledge, social network, personality traits, and types of opportunity itself. Among the personality traits, optimism, self-efficacy, and creativity are referred. The personality traits are similar to traditional entrepreneurship study, which focus on the roles and function of entrepreneurs (Yamada, 2004). Orwa (2003)extends Ardichvili, Cardozo and Rays (2003) theoretical framework, and uses qualitative design to examine the factors influence entrepreneurial opportunity recognition. Meanwhile, Ozgen (2003) examines factors in entrepreneurial opportunity recognition process from three perspectives, environmental context, social context and personal context in a quantitative study. Under environmental context, information flow perspective has been discussed. Ozgen (2003) points out that knowledge acquisition plays a critical role in creating opportunity. Ozgen explains that accessing to industry related information could update individuals knowledge base, and gain insights in recognizing new opportunities. Ozgens (2003) empirical study shows that entrepreneurs who are actively exposed to information flow related to industry are positively in recognizing entrepreneurial opportunity recognition. Ozgen (2003) defined the social perspective as interpersonal network, includes weak-tie network, strong-tie network and mentors. She proposes that strong-tie network, weak-tie network and mentors are positive to entrepreneurial opportunity recognition process, which correspond with the study of Ardichvili, Cardozo and Ray (2003) and Orwa (2003). As for the personal traits factors, Ozgen (2003) takes cognitive perspective and divides it into two dimensions, including self-efficacy and schemes. Self-efficacy is the same as one of Ardichvili, Cardozo and Rays (2003) personality traits. Prior knowledge is examined as one factor having impact on the mental process of scheme. In other words, prior knowledge shapes the individuals mental process in organizing information and identifying information relevant to existing scheme. Prior knowledge contains prior work experiences and education training. The concept of scheme is the same as Shanes (2000) and Ardichvili, Cardozo and Rays (2003) study. Hence, prior knowledge and experiences had been discussed most frequently in studying factors influencing entrepreneurial opportunity recognition. B. Entrepreneurial opportunity recognition and innovation Danneels (2002) has examined five high-tech firms product innovation process, and points out that a firms competencies related to technology and customer

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information are necessities for product innovation. Danneels (2002) stresses that the creation of new products requires the combination of potential customers and potential technology. In other words, product innovation needs a firms resources related to current technology and customers. Shane (2000) indicates that technological advances and changes lead to new markets or new materials exploration and exploitation. Shane (2000) has explored eight enterprises through in-depth case studies and states that entrepreneurial opportunity recognition means the entrepreneurs have the ability to recognize new knowledge to exploit new products and technology, including knowledge of markets, knowledge of ways to serve markets, knowledge of customer problems, and knowledge of technology. Therefore, entrepreneurial opportunity recognition may lead to better deciphering and understanding of the new knowledge or technology for innovation. However, entrepreneurs easily fail to identify and recognize the possible opportunities for new processes, new products, new markets, or new process creations. Kirzner (1973) indicates that the distribution of information in society influence the discovery of entrepreneurial opportunities. In other words, although technology changes generate a range of opportunities, not every entrepreneur is able to discover these opportunities. Venkataraman (1997) proposes that opportunities do not appear in a well-packaged informational form. That is, the process of discovering opportunities depends on peoples ability and willingness to search for. External pressures, for example, technology changing, stimulates opportunity recognition. Nevertheless, people might not able or unwilling to pay attention to it, and leads to lost the opportunity (Stevenson & Gumpert, 1985). In short, some people cannot discover particular entrepreneurial opportunities. Only those who recognize that the opportunities exist and value them can they then earn profits from these new opportunities (Ardichvili, Cardozo & Ray, 2003; Shane, 2000; Shane & Venkataraman, 2000). As the result, the factors that influence entrepreneurial opportunities recognition and identification have been discussed by scholars from different perspectives. V. DISCUSSION The proposed research would contribute by advancing the innovation, entrepreneurship and entrepreneurial opportunity recognition literatures. From a pragmatic perspective, performance improvement, such as innovation, at the individual, group, and organization levels is becoming a critical imperative in organizations. Human resource development professionals are being increasingly challenged to help develop performance improvement infrastructures. Therefore, understanding how to maximize such processes may enable human resource professionals to engage at more strategic levels to promote performance improvement. Additionally, these literatures and body of knowledge provide invaluable leverage for further innovative strategic in HRD organizational performances. REFERENCES

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