Proofs Only B USINESS I SSUES , C OMPETITION AND E NTREPRENEURSHIP O PPORTUNITY , S TRATEGY AND E NTREPRENEURSHIP : A M ETA -T HEORY V OLUME T WO : T HE S OURCES OF O PPORTUNITY , R ESOURCES , S KILLS , C OMPETENCIES AND C APABILITIES , N ETWORK , THE C OMPETITIVE E NVIRONMENT AND THE O PPORTUNITY F RAMEWORK Proofs Only B USINESS I SSUES , C OMPETITION AND E NTREPRENEURSHIP Additional books in this series can be found on Nova’s website under the Series tab. Additional E- books in this series can be found on Nova’s website under the E-book tab. Proofs Only B USINESS I SSUES , C OMPETITION AND E NTREPRENEURSHIP O PPORTUNITY , S TRATEGY AND E NTREPRENEURSHIP : A M ETA -T HEORY V OLUME T WO : T HE S OURCES OF O PPORTUNITY , R ESOURCES , S KILLS , C OMPETENCIES AND C APABILITIES , N ETWORK , THE C OMPETITIVE E NVIRONMENT AND THE O PPORTUNITY F RAMEWORK M URRAY H UNTER Nova Science Publishers, Inc. New York Proofs Only Copyright © 2012 by Nova Science Publishers, Inc. All rights reserved. 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Additional color graphics may be available in the e-book version of this book. Library of Congress Cataloging-in-Publication Data ISSN: 2161-8186 ISBN: 978-1-61470-824-7 Published by Nova Science Publishers, Inc. † New York Proofs Only C ONTENTS Preface vii Chapter 1 The Sources of Opportunity 1 Chapter 2 Resources: The Bedrock of Opportunity Exploitation 89 Chapter 3 Skills, Personal Competencies and Enterprise Capabilities 119 Chapter 4 Networks: Technical Know who Is what Makes a Business 185 Chapter 5 The Competitive Environment: A Framework for Observing Industry Evolution 215 Chapter 6 Strategy: The Means of Opportunity Exploitation 243 Chapter 7 The Opportunity Framework 325 Summary 355 Index 357 Proofs Only Proofs Only P REFACE The first volume of this book dealt with the nature of opportunity, time and space, the vision platform, and making connections. In the first volume, chapter one introduced the concept of opportunity. Opportunity was described as both an environmental and individual phenomenon where aspirations and imagination were just as important as changing social, economic, technological, and regulatory structures and conditions. It was explained how four basic types of opportunities exist. Imitation based opportunities occur with little innovation and value creation. Allocative opportunities occur because of mismatches in supply and demand. Discovery based opportunities occur from shifting consumer preferences, regulation, and economic conditions. Construction based opportunities don’t exist until someone constructs and develops them through the process of effectuation. Opportunity was seen as a dynamic and ever shifting, where successful firms are those that match their strategy with opportunity. Opportunities begin through images which are connected with other images forming concepts which are developed, evaluated, and elaborated into ideas. The chapter concluded with a discussion about emotional sensitivity and the role it plays in seeing opportunities, the idea evaluation process, and chance and fate. Chapter two examined opportunity from the socio-economic, economic history, economic geography, political economy, and biographical perspectives. Chapter two argued that opportunity and our consequential actions occur within the realm of time and space. Due to our evolutionary accumulation of knowledge, technology advancement, and social evolution being time and spatially based, opportunity to a large degree is a product of time and space. For ideas to become valid opportunities, all the elements that enable opportunity gestation and its subsequent exploitation must be in place. The trajectories that entrepreneur/inventors take are also a product of time and space as opportunity and strategy are socially bounded. This chapter was divided into three parts. Part one examined the phases of national development through the stages of a traditional economy, under-developed economy, developing economy, developed economy, and post industrial economy. Each particular stage of national development lends itself to certain types and scope of opportunities. The second part of the chapter looked at the biographies of a number of inventor/entrepreneurs during the industrial revolution to the turn of the twentieth century. Looking directly at biographical contexts allowed us to look at the flow of events in time and space in terms of innovation, invention, promotion, and effect on society at the time and into the future. This approach provided a window into how inventor/entrepreneurs gained insight and were able to develop their inventions into commercial reality. One can also get some Proofs Only Murray Hunter viii feeling about the motives they had, challenges they faced and see how their development of business models was crucial to the success of their ventures. Part three took us into the twentieth century beginning in the post World War II era. A look was taken at some of the important entrepreneurial events during each decade until today. Certain entrepreneurs and their ventures were examined in the light of the social and economic conditions evident through those times. Chapter three examined the ways we look at the world through a number of different paradigms and metaphors. The chapter was an attempt to explain how we perceive and what influences our thinking. This chapter was also broken into three parts. The first part looked at how we perceive through examining the sociological factors influencing us. These include demographic factors like family and peers, domicile outlook, the need to survive, work and life experiences, education, skills and abilities, age, and gender. The section finished with a look at generational differences and culture. Part two explained how our cognitive system works, emphasizing its limitations and how this is compensated for. Part three took us into the psychological domain where a number of mechanisms influence how we perceive, think, and make decisions. These include our emotions, emotional attachment, our ego, identity, and self, the unconscious, defence mechanisms, group views of reality, transference, symbolic and ritualistic delusion, groupthink, motivational bias, tiredness and complacency, cognitive traps, personality traits, entrepreneurial typologies, power and conflict, genetic inheritance, and mid life crisis and transition. Imagination, passion, enjoyment, energy, personal discipline, and what constitutes a motivational trigger are examined as processes that facilitate a person see and react to opportunity. Finally the chapter hypothesized that opportunity is as much a product of ourselves as it is of the environment around us. Chapter four was concerned with creativity, a concept that is not totally agreed upon as some people see creativity as a process, while others view creativity as a product. Creativity is totally interlaced with opportunity, strategy, and entrepreneurship where both its process and product are fundamental to the whole phenomenon. Creativity is necessary in idea creation, its evaluation, opportunity construction and effectuation, developing the sources of opportunity, the gathering and combining of resources, networking, and the crafting of strategy to achieve a vision and solve problems along the way. Although we know most of the cognitive processes related to creativity and can identify most of the characteristics associated with it, we still need to explore creativity through metaphors, various styles, and applications. The second half of the chapter looked at a few different approaches to applying creativity and concluded with a discussion about the barriers to creativity and how they can be overcome. In this volume, chapter one introduces the sources of opportunities. As opportunities can be considered gaps in the market where there is potential to do something and create value, these gaps must have a causal source. There are six basic major sources of opportunity consisting of market voids, technology infusion, structural changes, resource monopolies, regulation and non-innovative sources. Any opportunity is likely to be based on one or more of these sources, carrying multiple characteristics, but they are in fact very hard to really see and understand. Once the correct sources of opportunity have been identified, resources, capabilities, networks, can be configured to develop strategies to exploit them. Chapter two considers the issue of resources in relation to opportunity exploitation. Resources comprise of anything that is of use to an entrepreneur, either within a tangible or intangible form. A business model can be considered a higher level resource, as it reflects how an entrepreneur combines resources to create value from those at his or her disposal. The Proofs Only Preface ix chapter briefly discusses how needed resources for a new value chain can be identified and allocated within the venture to build the resource base. The resources base is from where enterprise capabilities and ultimately strategies are built upon. Difference types of resources are needed during different stages of a firm’s evolution. Eventually the entrepreneur will be able to build specialized resources that cannot easily be copied by competitors and can form the basis of some form of competitive advantage. The chapter concludes with a brief discussion about how resources can be utilized as barriers to entry and outlines the resource cycle of a firm. Chapter three considers skills, personal competencies, and enterprise capabilities. The beginning of the chapter looks at personal talents and abilities and how they can be developed into skills. Various types of skills exist along a continuum spanning between those that are domain specific and the broader cognitive and interpersonal skills. Sets of skills can be developed into personal competencies which enable a person to become an expert in a particular field and within an entrepreneurial start-up, form the basis of enterprise capabilities. Enterprise capabilities are distinctive enterprise competencies directly related to various aspects of the business. They include management capabilities, entrepreneurial capabilities, organizational culture, learning capabilities, innovative capabilities, and dynamic capabilities which assist the firm change according to the trajectory of opportunities within the environment. Enterprise capabilities form the basis of strategy that the firm employs to exploit opportunities. Chapter four examines networks which are an entrepreneur’s connection both within his or her organization and to the outside environment. Networks can be formal or informal and enable the entrepreneur to acquire resources and finance, gather market intelligence, develop new products, develop bridges where they lack capabilities, gain access to new markets, and enable the sounding out of ideas and access to emotional support. There are many formal network mechanisms including licensing agreements, sub-contracting, strategic alliances, agency and distribution agreements, and routine mechanisms like sales calls. Informal mechanisms can include social connections, family and peers. Networks are an important source of learning and have diverse influences upon decision making. The remainder of the chapter looks at network based strategies such as strategic alliances, relationship marketing, and looks briefly at network based opportunities, and network building strategies. Chapter five outlines the composition of the competitive environment, the actual field where opportunities manifest and are exploited. The competitive environment incorporates customer and supplier influences, substitute and complementary good influences, barriers to entry, and the competitive field itself. This is continually influenced by the state of the economy, social trends, technology, and government intervention. Consequently the competitive environment is dynamic and continually changing with its own lifecycle, which influences the nature of competition. Firms are able to segment the competitive field or with radical new technology, new processes, and/or business models, create new competitive fields. The opportunity-strategy nexus is based on the sources of opportunity, the nature of the firm’s resources and capabilities, which form the basis of strategy creation. The chapter concludes with a brief discussion about the steps involved in environmental analysis. Chapter six concerns strategy, where strategy is seen as a process of finding out what works within the competitive field through effectuation and trial and error. Strategy is seen as an intuitive rather than an analytical process. Developing strategy requires prior knowledge and experience about ‘ what works’, constrained by the firm’s resources and capabilities. Proofs Only Murray Hunter x There are a number of basic strategies, and those listed in this chapter are not exhaustive. A firm will usually adopt and modify a particular type of strategy for specific purposes. Basic strategic typologies may be modified or merged to form new types of strategies particularly suited to the firm’s situation. The chapter concludes with a discussion on the components of strategy, developing barriers to entry to prevent other firms imitating a firm’s strategic position. The final chapter synthesizes all the elements; time and space, the vision platform, making connections, resources, skills, competencies and capabilities, networks, the competitive environment, and strategy into what can be called the opportunity framework. Each element is influenced by and influenced the other elements, forming an entropic pattern, where all the elements are required to create a true opportunity. The essence of the meta- theory is that when any entrepreneur visualizes any potential opportunity. All the elements must exist for there to be any real opportunity. Likewise when the entrepreneur attempts to exploit the opportunity, strategy must be built around these interrelationships. Proofs Only Chapter 1 T HE S OURCES OF O PPORTUNITY I NTRODUCTION An opportunity is a gap in the market where there is the potential to do something different and create value (Wickham 2004). This represents a potential to serve customers better than they are already being served through a product or service that offers consumers more utility in terms of satisfying human needs than existing products or services. An opportunity must solve a problem, fulfil a need or want, create a fad or trend for any exploitation of it to have a chance of succeeding. New opportunities continually emerge but don’t necessarily present themselves openly. They must be seen, discovered, identified, or constructed which is the task of entrepreneurs and managers of firms. Not every idea is worthy enough to take action upon. The potential return on the investment of time and effort must be large enough to offset the opportunity cost of exploiting another idea or doing something else (Kirzner 1973). All opportunities have a basis or rationale of being. If the opportunity is to be considered entrepreneurial, it must originate from a source of innovation, as entrepreneurial market activity is novel by definition (Frederick & Kuratko 2010). An innovation can be seen as the source that enables the successful exploitation of ideas into new products, services, processes or business models. Innovation is critical to enable a firm to grow and remain profitable. Innovation combines knowledge and the needs and wants of consumers that are the base of opportunities. Innovation is not just about the improvement of technology but covers all aspects of a business and the way it organizes itself and operates. Innovation is an ingredient needed to construct most opportunities that seek to exploit changes within the environment. Innovation combines knowledge, resources, capabilities and competencies with social networks to create new means of creating value. Innovation can create new sources of competitive advantage for a firm when it enables incremental changes in the market. Revolutionary innovation can create new industries with new breakthroughs in technology and methods of organization. However there must be a reason for innovation and not just something done for the sake of doing it like what occurred with the launch of New Coke , replacing the well accepted Classic Coke during the 1980s. Likewise technology alone does not automatically yield innovation, imagination, development and marketing skills are needed. Innovation must provide the basis or source of opportunity that is intended to exploit a gap within the marketplace. Proofs Only Murray Hunter 2 However not all sources of opportunity need be innovative and most ventures usually start with non-innovative ideas. In fact very few enterprises have neither, the time, resources, technology or expertise to research and develop new business ideas and innovations (Johnson & Tilley 1999). A business begins with an idea that has been deemed an opportunity through some form of analysis and a person is motivated enough to act upon it. The majority of ideas are derived from the following categories; 1. An old type of business that can be given a new twist or professionalism, i.e., McDonalds or herbal products, 2. A standard product or service that can be customised, i.e., recording birthdays on customer records so that congratulatory messages can be individually sent to customers by a company, 3. New technology that can be adapted to manufacture old products, i.e., desktop publishing, compact disks, faxes and email, etc. 4. Imported products that can be replaced with domestic products, i.e., the basis of many domestic automobile industries, 5. The changing of business models, i.e., sourcing products from a third party rather than manufacturing them, 6. Developing the same business identity in another geographical location, i.e., The opening up of Coca Cola, KFC and Pizza Hut franchises in other states and countries, and 7. Replicating another business and competing against the original business, i.e., the opening up of a bakery, milk bar, convenience store near another one. Although entrepreneurship has been associated with opportunity, there has been very little written about the sources of opportunity. Attention has been focused upon the sources of innovation, rather than the sources of opportunity, which can be innovative or non-innovative. Joseph Schumpeter (1934), the famous Austrian economist was one of the first to recognise the role of entrepreneurship in economic development and identified five sources of (innovative) opportunity; 1. The introduction of a new product, either novel or an improvement upon what is available in the market, 2. The introduction of a new method of production, way of handling things, not necessarily as a result of new technology, 3. The opening up of a new market that has not previously been entered, 4. The conquest of a new source of supply of raw materials or intermediate goods, and 5. The development of a new way of organizating within an industry. Schumpeter saw the economy developing across an evolutionary path where it is in a continued state of dynamic disequilibrium (Schumpeter 1942) Entrepreneurs would find new materials, new processes and ways of organizing that would replace the existing products, methods of production and organization of the business, in a processes of creative destruction . This is in contrast to invention, which may bring a revolutionary change to an Proofs Only The Sources of Opportunity 3 industry. The effects of evolutionary and revolutionary change to industry are shown in Table 1.1. Through the forces of change derived from dynamic disequilibrium new firms will be formed by entrepreneurs commercializing new products or services, to create new demand and wealth. Consequently the cycle leads to the formation, growth and decline of firms that are replaced by new ones (Kirchhoff 1994). Firms therefore must either adapt through innovation or die. Creative destruction continually changes the economic structure from within, replacing it with a new one. This can be evidenced by the decline in the average lifespan of companies on the S&P 500 from 35 years in 1975 to less than 20 years today (Byers et. al. 2010). A good example of continuous change is the music industry. The first commercially available recorded music medium was the vinyl record which lasted into the early 1980s, when the cassette tape emerged. The cassette tape disappeared when the compact disk appeared the mid 1980s, completely overshadowing other recorded music mediums due to better sound quality. The compact disk industry peaked around the mid to late 1990s when the internet emerged as a means to obtain recorded music. Apple launched the iPod in 2001 and iTunes eventually became accepted as a major means of obtaining music within the music entertainment business. In a world of change entrepreneurs need to reinvent their existence and continue to seek new opportunities which include the development of new products, the use of new materials in production, the development of new processes of production, the creation of new ways of organizing and entry into new markets to prevent themselves becoming irrelevant (Knopper 2009). Igor Ansoff, regarded by many as the father of strategic planning applied Schumpeter’s sources of opportunity to determining growth vectors and strategies for the firm. Ansoff (1965) divided the product-market field into a grid representing four distinctive growth options available to a firm. Corresponding growth strategies based on appropriate sources of opportunity could be developed to meet the growth objective of a firm. Each sector of the field represents a potential growth vector. Pursuing growth through existing products in existing markets requires market penetration strategies. Pursuing growth through existing products in new markets requires market development strategies. Pursuing growth through new products in existing markets requires product development strategies and pursuing growth through new products in new markets requires diversification strategies (see Figure 1.1.). Table 1.1. The effects of evolutionary and revolutionary change to industry Evolutionary Innovation Revolutionary Innovation Incremental changes to the product/market/industry. Major changes to the product/market/industry. Usually inter-industry changes. Maintain the competitive position within the industry. Creates new industries and may destroy old ones. Part of rivalry strategies within an industry. Results in large scale industry transitions, creating new positions and balances. Short-run economic changes, maybe providing temporary advantage. Long run economic changes of the industry. Proofs Only Murray Hunter 4 Figure 1.1. The product-market field matrix. Each sector implies corresponding sources of opportunities that consequent strategies would be based upon. For example, the present technology processed by a firm for its existing products can be utilized for developing similar new products. The firm will couple the source of opportunity with its objectives to develop a product-market and growth vector scenario. Through the corresponding strategies the firm may develop a situation where its competencies match the scenario and the objective-product/market-opportunity-strategy-competencies are in synergy. This heightens the firm’s ability to compete in the market with competitive advantage over its rivals (Ansoff 1968, P. 99). Competitive advantage is a driver of change as firms must respond to the development of new forms of competitive advantage by rivals through new innovations to maintain their position in the market. However sources of competitive advantage should not be mistaken for sources of opportunity. Alternatively, a new technology through in-house R&D can be used to develop breakthrough new products for the firm, which may make its competitors products obsolete. These breakthroughs or disruptive innovations can create entirely new markets through the introduction of a new kind of product or service that established market leaders have trouble coping with. This can be seen with the disruption to the airline industry through the establishment of low cost airlines and the need of many post offices around the world to diversify their business operations. The basis of strategy depends upon finding opportunities in the product-market field and synergising competencies to achieve its objectives through deliberate actions. According to Ansoff (1968, P. 100) inherently profitable opportunities are found through threading the product/market scope, growth vector, competitive advantage and competencies together in response to the external environment. Ansoff saw the importance of synergy as a key ingredient to make a product/market entry successful. New New Existing Existing Markets Products Existing products to existing markets Market Penetration Existing products to new markets Market Development New products to existing markets Product Development New products to new markets Diversification Proofs Only The Sources of Opportunity 5 Porter (1980) examined innovation in regards to industry evolution and saw that three types of innovation can lead to opportunities for growth. Product innovation is a major source of industry change through technological innovations. Product innovation can widen markets and drive industry growth. Product innovations can come from outside the industry like digital calculators and watches and completely change the marketplace where incumbents within the industry have little flexibility (Porter 1980, P. 178). Marketing innovations involve novel uses of advertising, new marketing themes and new channels to reach new consumers and reduce price sensitivity through greater product differentiation. Innovation in marketing and distribution can affect industry mobility and cost levels, thus changing the balance of competitive advantage within the industry. Finally process innovation can change industry structure through changes in manufacturing methods. Innovation can make a manufacturing process more of less capital intensive, thus changing the economies of scale of the process. For example publishing technologies have reduced in cost allowing smaller firms or individuals to enter the industry. Polaroid cameras dramatically lost market share when digital camera technology emerged. Porter (1980, pp. 180-184) also mentioned a number of changes that would create new sources of opportunities. Structural changes in adjacent industries could have potential consequences for the direction of industry evolution. Hypermarkets and chain variety stores have changed the nature of retailing, thus lessening potential opportunities for individual stand-alone retail formats but increasing opportunities for global distribution. Government regulation change about what products can be sold and how products can be sold has great affect upon the types of products in the market and companies that produce and sell them. Government policy in various areas will affect the nature and structure of the products companies offer and the nature of competition and the industry, i.e., medical insurance automobile insurance, medical services, types of agricultural products and medicines that can be sold, entertainment and gambling laws, trade practices and regulation, etc. The barriers of entry and exit and capital set up costs involved within an industry have great bearing upon opportunities within that industry. Entry costs as a deterrent are relative to the size and growth of an industry. Incumbents that have great infrastructure advantages, maybe sufficient to keep other companies out of the industry. However according to Porter (1980, P. 183) sometimes these high entry costs can be circumvented by developing new brands and business models as US firms did when they entered the low cost wine market. Peter Drucker’s (1985) seminal book Innovation and Entrepreneurship stated clearly that innovation is the specific function of entrepreneurship, whether it is in an existing business, in a public service institution, or within a new venture. Innovation is the means by which the entrepreneur develops new resources or improves the efficiency of existing resources by which more wealth is achieved (Drucker 1998). Drucker continues on to state that although there may be innovations that spring from pure genius, but most innovations are the result of conscious, purposeful, search for innovation opportunities, which are found only in a selected number of situations. Drucker identified seven sources of innovation, which account for the vast majority of all innovation opportunities; • Unexpected occurrences, • Incongruities, • Process needs, Proofs Only Murray Hunter 6 • Industry and market changes, • Demographic changes, • Changes in perception, and • New knowledge. Drucker’s seven sources of innovation largely went unnoticed until a about decade ago, when writers within the discipline of entrepreneurship realized their importance in explaining the nature of opportunity and the practice of entrepreneurship. Both Schumpeter’s and Drucker’s sources of innovation are very similar except where Drucker identified unexpected occurrences as a source of opportunity. Although the unexpected success or failure shows a person’s or group’s limited vision or blindness (Drucker 1985, P. 41), the unexpected should not directly be considered as a source of innovative opportunity. The unexpected is a sign of other factors in operation. What may look like chance isn’t, as there are a number of underlying factors in the background, which can either accelerate the process by which an industry develops (Porter 1990, P. 112). For example, the Coca Cola Company by chance had the opportunity to rapidly expand distribution around the world due to US involvement in World War II. In 1980 PZ Cussons Australia launched the ultra dishwashing detergent Morning Fresh 1 . The product had poor consumer off-take until a transport strike in 1982. After a few days only bottles of Morning Fresh remained in the dishwashing section of supermarkets and consumers had to purchase the brand if they wanted any dishwashing liquid. Once consumers had the forced opportunity to try the product sales continued to rise until it became the No. 1. dishwashing detergent on the Australian market. Chance events are outside the control of firms. These can include discontinuities that may cause demand surges, factors that nullify the advantages of natural leaders, breakthroughs in basic technologies, external political developments, or major shifts in foreign based demand which create unforeseen opportunities from a number of different sources of opportunity that can reshape the industry structure. Chance is what happens when unrelated events churn around the planet. Luck occurs when a highly alert person snatches meaning from chance. Luck doesn’t just happen, its arranged, by one’s own doing. Lucky people or firms are those that co-opt chance and exploit it. Bad luck occurs when one is blind to events. Edward de Bono (1993) gave a list of attributes that can in combination be seen as sources of opportunity. If employed correctly these characteristics will place the firm with distinct advantage in the marketplace, and thus may be seen as sources of opportunity. De Bono talks about developing value monopolies, as against physical monopolies, where competitors cannot complete. This is achieved through creating product/service value through some form or mix of; • Physical uniqueness, i.e., a hotel or restaurant location, • Technological uniqueness, i.e., a patent on a valuable technology behind a product like Polaroid Cameras, where Polaroid won a court case over Kodak for infringement over patents in 1986. • Name recognition, i.e., James Bond, Disney, Calvin Klein, Caltex, Toyota, Soy, Microsoft. 1 An ultra dishwashing liquid is a concentrated one. Proofs Only The Sources of Opportunity 7 • Dominance, i.e., Boeing, Toyota, IBM, Nokia. • Cost of Entry, i.e., Disneyland, Boeing, Airbus, Toyota, etc. • Brand Image, i.e., McDonalds, Nokia, Wal-Mart, London School of Economics, and • Segmentation, i.e., McDonalds, Nokia, Wal-Mart. Together these attributes can create a market positioning that is extremely difficult to compete against, thus ensuring leadership for the firm that can develop these characteristics and therefore in an integrated way be seen as a source of opportunity. T HE P HASES OF O PPORTUNITY D EVELOPMENT Business development is concerned about the art of seeing and exploiting opportunity for the creation of value, which may contribute to the firm’s profitability, growth and/or survival. This process goes through four basic phases; 1. The discovery, identification or construction of ideas about opportunities through the creative process, 2. The screening of these ideas to determine whether an opportunity exists that has potential to be exploited, 3. The crafting of a useful strategy that is able to exploit the identified opportunity, and 4. The implementation of the strategy in a way that adds value to the firm. There is an abundance of management theory about the identification and exploitation of opportunities from various points of view. Andrews (1965), Ansoff (1965) and Porter (1980, 1985, 1990) take the point of view that opportunity identification and strategy development is rational and analytical through convergent thinking process. Ohmae (1982), Mintzberg (1994) and Stacy (1993) see opportunity identification and strategy development as more intuitive and a creative process through divergent thinking. Others like Wilson (1994, 1998), Raimond (1996), Liedtka (1998a, 1998b) and Heracleous (1998) see opportunity identification and strategy development as a mixture of art and science. What seems to be important is a firm’s ability to recognise what information is important in opportunity recognition and subsequent innovative processes, its prior and related knowledge and experience (Cohen & Levinthal 1990), and its alertness, self efficacy, creativity, social networks and the type of opportunity itself (Ardichvili et. al. 2003). Previous entrepreneurial experience may assist in developing an ‘opportunity intellect’ that aids the identification of opportunities and provides a framework that allows informed and experienced based decisions about how to exploit an identified opportunity (Kaish & Gilad 1991). The process of opportunity identification would appear to be an emergent rather than a deductive process, requiring divergent rather than convergent thinking. Innovation is generated through social interaction where data cannot be analyzed in logical ways. For example quantitative market research may be very limited in the information it can provide a person who foresees the possibility of opening a sandwich bar next to a commuter train station or a courthouse. Understanding consumer behaviour, their wants and needs will be more important in making any decision to exploit the perceived opportunity. Therefore seeing Proofs Only Murray Hunter 8 opportunity is more related to the ability to imagine and associated emotions. New ideas are constructed, not analyzed. The future cannot be forecast, it can only be explored (Schumacher 1974, P. 200). In order to see the potential sources of opportunity one must be able to take a strategic view of the firm and the environment. A strategic view is one that can pick up subtle changes in the environment through a degree of sensitivity and alertness and be able to extrapolate any linkages and connections discovered into idea scenarios that can be evaluated. An individual will tend to be more sensitive and alert in domains that he or she already has knowledge and experience. To see opportunity there must be motivation or intent. Hamel and Prahalad (1989) conceptualized the concept of strategic intent where there is an intuitive vision of the future direction of the firm. This helps to provide focus on the domain and selective parts of the environment that are considered important to the firm’s future. Therefore as well as being a motivator, strategic intent concerns itself with the immediate domain and the firm’s perceived capabilities and prior learning linked through prior knowledge. Strategic intent also gives a sense of destiny and direction (Hamel & Prahalad 1994, pp. 129-130). The discovery of useful sources of opportunity in the construct of opportunities is tied to observation of environment changes over time. Changes in the environment usually occur in an evolutionary manner which the average person will not be aware and think about. Connectiveness of the past and present to the future must be incubated by the individuals who make up the firm over reflection and time. Alternatively sources of opportunity may be driven by new technologies, either as an incremental step or breakthrough. New technologies incorporated into products, services or improve production processes can potentially add value to a firm. With novel breakthrough technologies a firm may be able to create a new market segment, i.e., P&Gs development of Pert/Rejoice 2 in 1 shampoo, or even a new industry, i.e., the advent of cellular phones created a new industry separate to existing landline phone networks. The firm will operate according to a ‘self hypothesis’ which is influenced by learning and prior knowledge. A ‘self hypothesis’ is a shared mental model of the environment and the firm’s place within it. The firm’s ‘self hypothesis’ is where the firm perceives its own strengths and weaknesses, those of its competitors, the potential reactions of competitors to an aggressive stance taken by the firm, weak spots and barriers within the field and areas where the firm should not enter or is safe to enter. The ‘self hypothesis’ is the firm’s view of the world, generating a perception of its own self effi