Opportunity Discovery, Problem Solving and the Entrepreneurial Theory of the Firm

41 Pages Posted: 23 Apr 2007

See all articles by Chihmao Hsieh

Chihmao Hsieh

Yonsei University

Jackson A. Nickerson

Washington University in St. Louis - John M. Olin Business School

Todd Zenger

University of Utah

Date Written: April 2007

Abstract

When should an entrepreneur employ a market to help discover and exploit opportunities, and when should the entrepreneur create a firm to do so? If a firm is created, how should it be organized? In this paper we argue that opportunities equate to valuable problem-solution pairings, and that opportunity discovery relates to deliberate search or recognition over this solution space. As problem complexity increases, experiential search via trial-and-error provides fewer benefits, and cognitive search via theorizing becomes more useful. Cognitive search, however, requires knowledge sharing, when knowledge is distributed among specialists, that is plagued by a knowledge appropriation hazard and a strategic knowledge accumulation hazard. Markets, authority-based hierarchy, and consensus-based hierarchy then have differential effects on the efficiency of opportunity discovery given the complexity of the associated problem. Those entrepreneurs with exceptional capabilities of opportunity recognition can efficiently adopt authority-based governance over a wider range of complexity. We thus combine the two major modes of opportunity discovery - search and recognition - onto one framework that can explain different entrepreneurial organizational forms, resulting in an entrepreneurial theory of the firm.

Keywords: Entrepreneurship, opportunity discovery, problem solving perspective, solution, complexity, governance, hierarchy, search, recognition

JEL Classification: L20, M13

Suggested Citation

Hsieh, Chihmao and Nickerson, Jackson A. and Zenger, Todd R., Opportunity Discovery, Problem Solving and the Entrepreneurial Theory of the Firm (April 2007). Available at SSRN: https://ssrn.com/abstract=981808 or http://dx.doi.org/10.2139/ssrn.981808

Chihmao Hsieh (Contact Author)

Yonsei University ( email )

Seoul
Korea, Republic of (South Korea)

Jackson A. Nickerson

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-6366 (Phone)
314-935-6359 (Fax)

Todd R. Zenger

University of Utah ( email )

David Eccles School of Business
1655 East Campus Center Drive
Salt Lake City, UT 84112
United States
801 585-3981 (Phone)
801 581-7939 (Fax)

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