Creativity and Entrepreneurship

What is creativity and what is Entrepreneurship? Is there any relation between creativity and Entrepreneurship? If so, what is the relation and what role does creativity play in entrepreneurship? The purpose of this essay is to articulate the relationship between Creativity and Entrepreneurship, to discuss the implications of creativity on the following entrepreneurial activities – decision making, business planning and opportunity development. Creativity can be defined as the production of novel and useful ideas in any domain (Stein, 1974; Woodman, Sawyer & Griffin, 1993). Creativity and innovation cannot be separated from entrepreneurship which in turn is the process of creating, exploiting and developing an opportunity. Millard, Pretorius and Kruger (2005) mention that “creativity is clearly part and parcel of the entrepreneurial skills and is required to successfully start a venture” (p. 56). Entrepreneurs and their ventures are considered to be “important agents of innovation” (Bosma & Harding, 2007, p. 16), not simply in terms of the products and services they provide, but also in terms of the technologies and processes that they utilise (Bosma & Harding; Watson et al., 1998).

Entrepreneurs can be called as essence of creativity and innovation because of their nature. They nurture creativity and innovation. It can be argued that creativity is an important ingredient in the recipe for the new product or service any entrepreneur would provide and it is not only essential creating or developing the new product but also in every level of every type of the organization. Creativity is seen as going beyond new products, new services and new and improved processes (Cook, 1998; Heye, 2006). Creativity can also be described as a combination of 6 elements. Sternberg’s ‘investment theory of creativity’ briefs the nature of creativity as a confluence of 6 distinct but interconnected resources – knowledge, personality, intellectual abilities, style of thinking, environment and motivation. According to Sternberg (1995) the intellectual skills required for creativity constitute 3 skills in particular: a synthetic skill to see problems in a new way and to escape the bounds of conventional thinking; an analytical skill to recognize which of one’s ideas is worth pursuing; and practical-contextual skill of how to persuade others of the value of one’s ideas. (Matthews, Judith H. 2007)

Innovation is conventionally defined as the successful implementation of creative ideas (Stein, 1974; Woodman, Sawyer, & Griffin, 1993). Creativity is the point of origination for innovation; it is a necessary, but not sufficient, condition for innovation to occur (Amabile. Conti. Coon, Lazenby, & Herron. 1996). Innovation may be conceptualized as either a process or an outcome. As a process, innovation often is depicted as continuous and cyclical, involving the stages of awareness, appraisal, adoption, diffusion, and implementation (Damanpour, 1991; Poole & Van de Ven, 1989). Innovation demands change, but not all the changes are innovative. According to Woodman, Sawyer, and Griffin (1993) creativity is a subset of innovation (when it is undertaken in complex social settings) and innovation is a subset of change. Entrepreneurial event is built with creativity and innovation as the base.

Entrepreneurship is the willingness and capacity to develop, organize, nurture and manage a new business venture along with any of its risks and uncertainties in order to make profit. People who indulge in the actions that form the basis of entrepreneurship are called Entrepreneurs. These entrepreneurial actions involve finding an opportunity, exploiting it and creating a new product as a result. Anything that has the potential to allow the user to make it a business and generate profit out of it can be termed as a potential opportunity. In this context, entrepreneurial action is defined as any activity entrepreneurs might take—from initially identifying opportunities (Gaglio & Katz, 2001; Kirzner, 1979; McMullen & Shepherd, 2006), in assembling resources to exploit opportunities (Schumpeter, 1939), in generating and appropriating the economic profits created by exploiting opportunities (Alvarez and Barney, 2005)—to produce new products or services (Shane and Venkatraman, 2000: 211; Shane, 2003: 4).

Different arguments have been offered to adapt the notion of opportunity to the realm of individual entrepreneurs: opportunities are created endogenously by the actions of entrepreneurs (Alvarez & Barney, 2007); an opportunity represents a stream of continuously developed and modified ideas (Davidsson, 2003; Dimov, 2007b); an opportunity cannot be separated from the individual (Companys & McMullen, 2007; Dimov, 2007a; Sarason, Dean, & Dillard, 2006); an opportunity is intertwined with individual beliefs (McMullen & Shepherd, 2006; Shepherd, McMullen, & Jennings, 2007); and an opportunity exists only in the entrepreneur’s imagination (Klein, 2008; Shackle, 1955). While the elements of opportunities may be “recognized”, opportunities are made, not found (Ardichvili A, Cardozo R, Ray S, 2000). Careful

observation of the market responses and needs, ability to recognise the resources at the right time may help entrepreneurs begin to develop the opportunity. Successful opportunity development processes creates successful businesses. This process starts with the recognition, evaluation and then development. The development process is iterative and entrepreneurs have to evaluate their opportunities many times in the process. This repeated evaluation could lead to identification of additional opportunities which may change the whole process and may result in creation of new products. Discovery and Creation theories: As Teleological theories, Discovery and Creation theories discuss about the opportunities and the entrepreneurial actions to exploit those opportunities. Though the assumptions made by the two theories to explain how opportunities are found and exploited differ greatly, these two theories co-exist. According to Alvarez and Barney, each theory makes three basic assumptions to explain the nature of opportunities and entrepreneurs. Discovery theory proposes that opportunities pre-exist waiting to be discovered by entrepreneurs. These opportunities arise exogenously as a result of changes in consumer preferences and/or some other attributes in the market.

Since opportunities are created by exogenous shocks to an industry or market and as these shocks are objective and observable, then everyone associated with that industry or market should be aware of the opportunities a shock has created. Of course, if everyone associated with an industry or market knew about the opportunities created by shock, and were all sufficiently skilled to exploit these opportunities, then they could all try to exploit them. (Alvarez and Barney, 2006) Hence, to explain why these opportunities are exploited only by a few people and not everyone, discovery theory assumes that entrepreneurs are considerably different from non-entrepreneurs. Kirzner (1973: 67) summarizes the differences between entrepreneurs and non-entrepreneurs that enable only the former to be aware of opportunities with the concept of “entrepreneurial alertness.” Whatever the particular sources of these differences, Discovery Theory assume that people will not all perceive the existence of opportunities equally. Some will be predisposed to see them while others will be blind to their existence and still others may see them as threats not opportunities (Murphy, 1996). Even if the opportunities are seen by many people, according to discovery theory there are only a few people who will be willing to exploit them.

These people who are willing to exploit the opportunities take their decision based on risk evaluation or on the initial beliefs about the opportunity. Risk refers to some kind of danger when the probabilities of the outcomes are not calculated in the right way on the basis of an objective classification of instances. Whereas uncertainty refers to the situations in which the classification of objectives are not possible. The term uncertainty will be defined broadly as “any deviation from the unachievable ideal of completely deterministic knowledge of the relevant system” (Walker, Harremoes et al. 2003, p. 5). Lack of information is not the only concern with uncertainty, but also with the aspects it that cannot be determined. It is important to note that uncertainty is not only caused by lack of information. It is sometimes also caused when the availability of information is more (Van Asselt 2000; Koppenjan and Klijn 2004). A decision making context is defined as risky when, at the time a decision is made, the possible outcomes associated with a decision are known along with the probability of each of these outcomes occurring (Dequech, 2003; Triola, 2003).

This information enables a decision maker to estimate a probability distribution of outcomes associated with a decision. This probability distribution can then be used to guide decision making (Gifford, 2003; Wald, 1950). As, all the opportunities pre-exist, according to discovery theory, it is feasible to gather enough information to anticipate the probability of impact of the decision. But as soon as the exogenous shock occurs; potential entrepreneurs will have only very limited information about possible new opportunities. (Alvarez and Barney, 2006) Discovery theory suggests that Entrepreneurs, using this information design tools to analyse the risk involved in the decision and also to understand the opportunity costs that is involved in taking the decision. On the other hand, according to Creation theory opportunities are not assumed to be the objective phenomena that are created by exogenous shocks to an industry or market. Rather, they are created, endogenously, by the actions of individuals exploring ways to produce new products or services (Baker et

al., 2005; Gartner, 1985; Sarasvathy, 2001). Creation Theory proposes that entrepreneur’s actions are the essential source of these opportunities. They do not search for opportunities; but instead act, and observe how consumers and markets respond to their actions (Alvarez and Barney, 2006). Entrepreneurship does not require luck but requires thinking and observation. It requires the person to be on the right place at the right time and to have a clear approach on how to seize the opportunity. As the entrepreneurial actions are the source of opportunities, according to creation theory, the result of the action is uncertain until the opportunity is created. Hence, this process is emergent, i.e. the direction, duration, and outcomes of actions designed to produce new products or services are not identifiable when this process begins, and are only revealed, step by step, as an opportunity is created over time (Mintzberg & Waters, 1985). Rarely will entrepreneurs be able to see “the end from the beginning.”

In this view there is no “end” until the creation process has unfolded, i.e., opportunities cannot be understood until they exist, and they only exist after they are enacted in an iterative process of action and reaction (Berger and Luckmann, 1967; Weick, 1979). This creation process is clearly path dependent, in that small differences in initial decisions and choices made by entrepreneurs can lead to large differences—among entrepreneurs and between entrepreneurs and non-entrepreneurs—over time (Arthur, 1989). Hence, creation theory assumes that before an opportunity is created entrepreneurs and non-entrepreneurs may not be different at all. Unlike discovery theory, Creation theory claims that even very small differences in the life of people could result in some people becoming entrepreneurs and others remaining non-entrepreneurs. It suggests that becoming an entrepreneur is mostly circumstantial. The decision making process associated with this is mostly uncertain. As the opportunities are being created based on the entrepreneurial action, it is not possible to gather information regarding the opportunity. In particular, in this context, it is not possible for potential entrepreneurs to calculate the opportunity costs associated with their actions. Hence, instead of opportunity costs, Creation Theory suggests that entrepreneurs use the concept of “acceptable losses” to judge the downside associated with engaging in entrepreneurial actions (Sarasvathy, 2001).

Creativity in Entrepreneurial process Opportunity development: Entrepreneurship is a journey that begins with the identification of the opportunity. The decisions that an entrepreneur takes on if to pursue the opportunity and how to pursue the opportunity, decides the path of the journey. Whether or not the journey is successful, depends on how the opportunity is exploited and developed. It is naïve to think that the opportunities are conceived in the same form and shape as they originally emerged. The potential opportunities emerge from an iterative process that involves moulding the ideas and giving the opportunity a proper form and develops it. The process of interpretation,

discussion, and moulding, whereby initial ideas are refined, elaborated, modified, or even discarded, is known as opportunity development. This term represents both a dynamic, iterative, and a socially embedded view of how entrepreneurial opportunities reach their final form (Dimov D, 2007). It can be argued that creativity is not only needed to identify or recognise the opportunity but also needed at every stage of the opportunity development. As the business environment is constantly changing and constantly challenging, for the entrepreneurs to be successful, creativity is absolutely essential. It is essential not only to develop the opportunity that they have started to venture upon, but also to solve the newly arising problems in the highly competitive market place. The development process begins when entrepreneurial alertness exceeds a threshold level. Alertness is likely to be heightened when there is a coincidence of several factors: relevant prior knowledge and experience; certain personality traits (creativity and optimism) and social networks.

The knowledge of individual about the market needs and resources also affects particular activities within the process (Ardichvili A et al., 2000). Within product market entrepreneurship, Drucker (1985) has described three different categories of opportunities: (1) the creation of new information, as occurs with the invention of new technologies; (2) the exploitation of market inefficiencies that result from information asymmetry, as occurs across time and geography; and (3) the reaction to shifts in the relative costs and benefits of alternative uses for resources, as occurs with political, regulatory, or demographic changes. Looking at the example of the famous social networking site, Facebook, it was launched in 2004 by a Harvard university student, Mark Zuckerberg (CEO and Co-founder). Mark Zuckerberg took the ideas from Cameron Winklevoss, Tyler Winklevoss, and Divya Narendra, three Harvard seniors and converted this concept into an opportunity. Facebook initially started as a small networking site which functions within the Harvard University and later developed into a site that connects one billion people across the world.

Mark evaluated the idea, and developed the idea by adding more features, making it more sophisticated and user friendly. He made the website creative, and innovative. Even today, new features are being added to the Facebook page almost every day. This was an opportunity to Mark and he was smart enough to grab that opportunity, and develop the opportunity into a successful business. Though he had to face many risks and uncertainties in the process of development, Mark succeeded in it as he encouraged the role of creativity and innovation in his process. Entrepreneurial Decision making: The entrepreneurs cannot do risk based evaluations all the time as before implementation of the opportunity as only a limited information about the opportunity will be available. In most scenarios, the entrepreneurs will have to face problems and uncertainties after they start their venture. They will have to come up with feasible and appropriate solutions for the problems and adapt according to the demands.

There are a number of factors hypothesised by the researchers that influences the decision making process of entrepreneurs. The following factors are noted to play a major role in the process: 1. Prior knowledge or experience 2. Research about the opportunity 3. Personality traits -self-efficacy, optimism, risk-taking ability, creativity. Shane (1999) postulated that entrepreneurs will discover opportunities because prior knowledge triggers recognition of the value of the new information. In his three-stage study of opportunity recognition processes, Shane (1999) tested and confirmed a number of hypotheses, which could be summarized as follows: i. Any given entrepreneurial opportunity is not obvious to all potential entrepreneurs (the rationale being that all people do not possess the same information at the same time; Kirzner, 1997). ii. Each person’s idiosyncratic prior knowledge creates a ‘‘knowledge corridor’’ that allows him/her to recognize certain opportunities, but not others (Hayek, 1945; Ronstadt, 1988).

Three major dimensions of prior knowledge are important to the process of entrepreneurial discovery: prior knowledge of markets, prior knowledge of ways to serve markets, and prior knowledge of customer problems. These theories suggests that prior knowledge of an individual influences the decision making process considerably. According to Sigrist (1999) when the knowledge or domain of expertise of the individual is combined with his/her area of passion leads to creative ideas in the decision making process. Entrepreneurs seek to gather information about the preferences of customers, sensitivity in the market, information about the competitors, technological advancements and keep them up to date. They use this information to analyse the risk involved in the process and take decisions accordingly. Personality traits also play a role in entrepreneurial actions.

Entrepreneurs should be optimistic and have high selfefficacy to overcome the hurdles and take effective decisions. Another trait that plays a major role in the decision making process is Creativity. Kay (1986) concluded that creative factors play a great role in entrepreneurial decision making. Hills et al. (1997) have found that 90% of those surveyed by them find creativity very important for opportunity identification. However, solo entrepreneurs found it significantly more important than did the networked entrepreneurs. They also viewed themselves as being more creative, and were more likely to set aside time specifically to be creative. Hills et al. conclude that entrepreneurs who are networked to opportunity sources may not need to be as creative as those who are not networked (Ardichvili A et al., 2000).

Business Planning: For a business venture to be successful, the entrepreneurs should keep employing creative actions in the plans or decisions that they make. An efficient business plan strategy is to opt to outclass at either being the high service provider or low-cost, best product provider. But, once a direction has been chosen, then it all depends upon execution of the plan. As there are so many uncertainties in the process, sometimes the plan should be revised and it might require adapting a new strategic direction which may result in changing the product or market itself. Creativity plays a major role on how these decisions are evaluated and pursued. It is creativity that separates those business ventures that survive and thrive and those that don’t. If we consider the recorded music industry, music lovers listened to their favourite music recorded on vinyl discs until about 1980, when cassette tapes grew in popularity. The compact size and record ability of the cassette tape caused a massive shift from vinyl records to tapes.

By the late 1980s, however, compact discs (CDs) overshadowed cassettes, due to the CD’s better sound quality and instant access to tracks. In turn, the CD business peaked in 1995 just as the Internet was gaining momentum in society at large. A few years later, peer-to-peer file transfer began to allow piracy of music. By 2001, Apple had introduced the iPod and iTunes and eventually gained a commanding position in the music distribution and sales business (Byers et al., 2005). In a dynamic economy, companies need to reinvent their business arrangements or end up becoming irrelevant [Knopper, 2009]. Sarasvarthy (2001) argues that entrepreneurship rather than being a causation process is a more emergent process relevant to the attributes of the individual. She named this emergent and interactive process an effectuation process. The four principles of the effectuation model (summarized by Davidson 2006) are:  focus on affordable loss rather than expected returns  Strategic alliances rather than competitive analysis  Exploitation of contingencies rather than pre-existing knowledge  Control of an unpredictable future rather than predicting of an uncertain one.

Entrepreneurship is a process that demands more than creativity. The time in which the entrepreneur identifies the opportunity should be favourable for the development. Also, the resources for particular opportunity should be available and should be sufficient enough to start the business venture. The competitors who are also trying to exploit the same opportunity should be less or the resources should not be abundant and easily available for the competitors. The entrepreneur should be skilled enough to find potential employees for his venture. She/he should be able to guide and inspire the employees, motivate them and be an inspiring leader. The business planning and framing should be done in a way that the entrepreneur can convince his investors and creditors to get enough capital for starting the venture. The market conditions and the culture of the place should be in favour of the opportunity development.

Entrepreneurship demands awareness about things that are happening in the domain and also excellent networking skills. It demands willingness to take risks and face uncertainties. In summary, Entrepreneurs always revolve around change and accept them. These changes lead to ideas that are converted into an opportunity. Entrepreneurs look for a timely, solvable, important problem with a favourable context that can lead to profitability. These responses to the opportunities direct to the entrepreneurial actions. Entrepreneurial actions are based on the creation, exploitation and development of opportunities. Creativity and Innovation are two major pillars that support the entrepreneurial actions. From the arguments made in the essay, it can be concluded that Creativity is an essential but not sufficient condition for Entrepreneurship.

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