Entreprenuership (Chapter 3)

Copyright © 2008 by Nelson, a division of Thomson Canada Limited

ENTREPRENEURSHIPA PROCESS PERSPECTIVE

Robert A. BaronScott A. ShaneA. Rebecca Reuber

Slides Prepared by:Sandra Malach, University of Calgary


3 Cognitive Foundations of

Entrepreneurship: Creativity and

Opportunity Recognition

1


LEARNING OBJECTIVES1. Explain why cognitive processes provide an

important foundation for understanding creativity and opportunity recognition.

2. Describe working memory, long-term memory, and procedural memory, and explain the roles they play in creativity and opportunity recognition.

3. Explain why we tend to use heuristics and other mental shortcuts, and how these shortcuts can influence entrepreneurs.

4. Define creativity and explain the role that concepts play in it.


LEARNING OBJECTIVES

5. Distinguish between analytical, creative, and practical intelligence, and explain how all three are combined in successful intelligence.

6. List several factors that influence creativity, as described by the confluence approach.

7. Explain the role of access to information and utilization of information in opportunity recognition.

8. Describe signal detection theory and distinguish between hits, false alarms, and misses.


LEARNING OBJECTIVES

9. Explain the difference between a promotion focus and a prevention focus, and describe the effects these contrasting perspectives may have on entrepreneurs’ efforts to discover valuable opportunities.

10. List several steps you can take as an individual to increase your skill at recognizing potentially valuable opportunities.


“When written in Chinese the word crisis is composed of two characters. One represents danger and the other represents opportunity.”

--John F. Kennedy, 1959


Why are some successful?

IndividualsOpportunities


Right Person, Right Place, Right Time

Better access to crucial information—information helpful in recognizing opportunities or formulating new ideas

Better able to utilize information—to combine it or interpret in ways that reveal the opportunities overlooked by others


Three Key Processes

Idea generation Creativity Opportunity recognition


IDEA GENERATION, CREATIVITY & OPPORTUNITY RECOGNITION


A Cognitive Perspective

Human cognition—the mental processes through which we

Acquire information Enter it into storage Transform it Use it to accomplish a wide range

of tasks


Ideas

Occur when individuals use existing knowledge they have gained (and retained) from their experience to generate something new—thoughts they did not have before.


The Raw Materials

The raw materials for new ideas and for recognizing opportunities are present in the cognitive systems of specific persons as a result of their life experience.

Unique experience Knowledge Idea generation


Memory

Working memory—holds limited amount of information for brief periods

Long-term memory—retains vast amounts of information for long periods

Procedural memory—automatic knowledge gained through practice


Mental Frameworks

Mental scaffolds help us to understand new information and to integrate it (often in original ways)—with information we already possess


Types of Frameworks

Schemas—cognitive frameworks representing our knowledge and assumptions about specific aspects of the world

Prototypes—abstract, idealized mental representations that capture the essence of a category of objects


Mental Shortcuts

Heuristics—simple rules for making complex decisions or drawing inferences in a rapid and seemingly effortless manner

Availability heuristic—the more easily we bring information to mind, the more importance we assign to it


Thinking “Tilts”

Optimistic bias— Expect things to turn out well

Confirmation bias— Notice, process, and remember

information that confirms current beliefs

Illusion of control— Assume that our fate is in our control


DANGER! PITFALL AHEAD!

Don’t become trapped in bad decisions Sunk Costs Escalation of Commitment

New ventures can’t afford to absorb mounting losses of money or resources.


Creativity

Items or ideas produced are both Novel (original, unexpected) and Appropriate or useful


Concepts Building blocks of creativity Internal mental structures

developed to organize information

Categories for objects or events that are somehow similar to each other in certain respects


EMERGENCE OF CREATIVITY

Creativity emerges when basic mental processes allow for the expansion or transformation of concepts so that something new appears.


CONCEPT TRANSFORMATION

Concepts can be stretched in several different ways Combination Expansion Analogy


“An old thing becomes new if you detach it from what usually surrounds it.”

--Robert Bresson


Human Intelligence

Individuals’ abilities to Understand complex ideas Adapt effectively to the world Learn from experience Engage in various forms of

reasoning Overcome a wide range of obstacles


Intelligence Analytic intelligence

Critical and analytical thinking Creative intelligence

Ability to formulate new ideas & gain insight Practical intelligence

Street smart Social intelligence

Interpersonal relations


Successful Intelligence

PracticalIntelligence

CreativeIntelligence

AnalyticIntelligence

SuccessSuccessfulIntelligence


Confluence Approach


Broad, Rich Knowledge Base

Having varied work experience

Having lived in many different places

Having a broad social network


Opportunity Recognition

Some people are more likely to recognize opportunities because They have better access to certain

kinds of information They are able to utilize the

information once they have it


ACCESS TO INFORMATION

Varied work & life experience Type of work experience

International Social network

Family, friends, colleagues & neighbours Opportunity search

Schema assist in recognizing opportunities


OPPORTUNITY RECOGNITION


Signal Detection Theory

HITOpportunity present

and recognized

FALSE ALARMOpportunity not

present, but judged to be present

MISSOpportunity is

present, but not judged to be present

CORRECT REJECTION

Opportunity not present and judged to

be absent

Yes No

Actual Presence of Opportunity

Yes

No

Judgment About Presence


Regulatory Focus Theory

Perspectives in regulating behaviour to achieve desired results Promotion focus—attain positive

outcomes Prevention focus—avoid negative

outcomes Successful entrepreneurs adopt a

mixture of these two perspectives


Increasing Opportunity Recognition

Build a broad, rich knowledge base Organize your knowledge Increase your access to information Create connections between the

knowledge you have Build your practical intelligence Temper eagerness for hits with

wariness of false alarms


THOUGHT TO PONDER As in many other spheres of life, victory

does not necessarily go to the strongest or the swiftest, but rather to those whose judgment is most closely aligned with reality.

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Entreprenuership (Chapter 3)

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