The Handbook of Technology and Innovation Management

14.1. Introduction

Where do new opportunities come from and what is the response of decision makers when confronted by such new opportunities? The disparate approaches pursued to answer these questions distinguish the literature on entrepreneurship from that on firm innovation. The model of the knowledge production function of the firm has assumed the firm to be exogenous, while opportunities are endogenously created through purposeful investments in the creation of new knowledge, such as expenditures on research and development and augmentation of human capital.

By contrast, in the entrepreneurship literature the opportunities are generally viewed as exogenous, but the startup of the new firm is endogenous to characteristics specific to the individual. The focus of the entrepreneurship literature in general, and entrepreneurship theory in particular, has been on the cognitive process by which individuals recognize entrepreneurial opportunities and then decide to attempt to actualize them through the process of starting a new business or organization. This approach has typically taken the opportunities as given and focused instead on differences across individual-specific characteristics, traits, and conditions to explain variations in entrepreneurial behavior.

The purpose of this chapter is to reconcile these two disparate literatures on entrepreneurship and firm strategy. We do this by considering entrepreneurship to be endogenous – not just to differences in individual characteristics ...