Copyright © 2008 by Nelson, a division of Thomson Canada Limited ENTREPRENEURSHIP A PROCESS PERSPECTIVE Robert A. Baron Scott A. Shane A. Rebecca Reuber Slides Prepared by: Sandra Malach, University of Calgary

Copyright © 2008 by Nelson, a division of Thomson Canada Limited 3 Cognitive Foundations of Entrepreneurship: Creativity and Opportunity Recognition 1

Copyright © 2008 by Nelson, a division of Thomson Canada Limited LEARNING OBJECTIVES 1.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.

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

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

Copyright © 2008 by Nelson, a division of Thomson Canada Limited “When written in Chinese the word crisis is composed of two characters. One represents danger and the other represents opportunity.” --John F. Kennedy, 1959

Copyright © 2008 by Nelson, a division of Thomson Canada Limited Why are some successful? OpportunitiesIndividuals

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

Copyright © 2008 by Nelson, a division of Thomson Canada Limited Three Key Processes Idea generation Creativity Opportunity recognition

Copyright © 2008 by Nelson, a division of Thomson Canada Limited IDEA GENERATION, CREATIVITY & OPPORTUNITY RECOGNITION

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

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

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

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

Copyright © 2008 by Nelson, a division of Thomson Canada Limited Mental Frameworks Mental scaffolds help us to understand new information and to integrate it (often in original ways)— with information we already possess

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

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

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

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

Copyright © 2008 by Nelson, a division of Thomson Canada Limited Creativity Items or ideas produced are both Novel (original, unexpected) and Appropriate or useful

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

Copyright © 2008 by Nelson, a division of Thomson Canada Limited EMERGENCE OF CREATIVITY Creativity emerges when basic mental processes allow for the expansion or transformation of concepts so that something new appears.

Copyright © 2008 by Nelson, a division of Thomson Canada Limited CONCEPT TRANSFORMATION Concepts can be stretched in several different ways Combination Expansion Analogy

Copyright © 2008 by Nelson, a division of Thomson Canada Limited “An old thing becomes new if you detach it from what usually surrounds it.” --Robert Bresson

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

Copyright © 2008 by Nelson, a division of Thomson Canada Limited Intelligence Analytic intelligence Critical and analytical thinking Creative intelligence Ability to formulate new ideas & gain insight Practical intelligence Street smart Social intelligence Interpersonal relations

Copyright © 2008 by Nelson, a division of Thomson Canada Limited Successful Intelligence Practical Intelligence Creative Intelligence Analytic Intelligence Success Successful Intelligence

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

Copyright © 2008 by Nelson, a division of Thomson Canada Limited Broad, Rich Knowledge Base Having varied work experience Having lived in many different places Having a broad social network

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

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

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

Copyright © 2008 by Nelson, a division of Thomson Canada Limited Signal Detection Theory HIT Opportunity present and recognized FALSE ALARM Opportunity not present, but judged to be present MISS Opportunity is present, but not judged to be present CORRECT REJECTION Opportunity not present and judged to be absent YesNo Actual Presence of Opportunity Yes No Judgment About Presence

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

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

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