CHAPTER 2. primarily from the domain on entrepreneurship and psychology. This section also

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1 CHAPTER 2 2. THEORETICAL FOUNDATION The previous section put forward the reasons/ factors that might affect individuals alertness to opportunity recognition. The following section presents theoretical underpinning for various antecedents from entrepreneurship and psychological theories. The present section helps to understand, explain and argue the linkages amongst the variables in the study. It takes support from extant literature and the classical theories primarily from the domain on entrepreneurship and psychology. This section also describes and brings evidences from a few theories to explain the effect of network ties and personality on entrepreneurial opportunity recognition. This is primarily done to avoid dilution of the stream of discussion by explaining the theories in the section of linkages, where the main focus would be on arguing for and proposing the hypotheses of the study. 2.1 Social Network Theory Pioneering work on the social network theory was done by Burt (1992), and Coleman (1990), Granovetter (1973), and Milgram (1967). They posit that a social network consists of nodes (individuals within the group) and ties (relationship between the individuals). In simple words it is an individual s social network consisting of relations with family, friends and acquaintances that share common affiliation and participate in common activities regularly. Milgram (1967) proposed that it s a small world, but presented two contradictory views. First, distance doesn t matter; any two individuals can be linked through intermediate 9

2 intersecting arrangements, and second any two people can never link up because gaps are unbridgeable. Granovetter (1973) explained relationships which individuals share with others in terms of their strength and quality. Thus relationships define the strength of ties in the network. These ties are primarily of two types-strong and weak- wherein, individuals actions are governed by the diversity, homogeneity and heterogeneity of these ties. Granovetter posited that compared to strong ties, weak ties have of less frequent interactions in the network. Burt (1992) and Granovetter (1973) both argued that the nature of both strong and weak ties affects the functioning and layout of the networks. Thus the presence of both strong and weak ties is essential in the network as they provide individuals an access to opportunities, information and also enable them to grab resources. Bourdieu (1986, p 119) defines social capital as the sum of the resources, actual or virtual, that accrue to an individual or group by virtue of possessing a durable network of more or less institutionalized relationships of mutual acquaintance and recognition. In terms of social network metaphor, extant literature has offered two arguments of individual s network embeddedness in networks viz., Burt's (1992) structural hole and Coleman's (1990) network closure logic. The structural hole argument is somewhat similar to Granovetter s weak ties, wherein relevant and non-redundant information can be obtained through contacts from varied clusters. Burt defines structural holes as an opportunity to broker the flow of information between people and control the projects that bring together people from opposite sides of the hole. In simple words it is the gap between two groups in a social network. He suggested that a perfect network has a bunch of networks which provides access to information. On the contrary, Coleman s argument 10

3 of network closure views network with closure (analogous to Granovetter s strong ties). Here everyone is connected and forms a dense network; it facilitates sanctions which make it less risky thus increasing trust and reputation in the network and making access to information easy. Thus structural holes (gaps between the groups) drives innovation and network closure (tightly interconnected bonds) promote trust and reputation within the groups. An analogous view for structural holes and network closure was presented by Putnam (2001) wherein he presented the complementary strength of bridging (across groups) and bonding (within groups). 2.2 Psychological Theories: The Personality Dimensions of an Entrepreneur Research on the relationship between personality and entrepreneurship started in 1961 with McClelland s study. The theories of personality are often classified as trait theory (Allport, 1937) and social learning theory (Bandura, 1977, 1986, 1997; Bandura and McClelland, 1977; Skinner, 1950) (see Table 1). Table 1: Types of personality theories Type of theory Basic Idea Approach Trait Theory Human behaviour is traced to the combined Trait (enduring effect of individual s inherited capabilities characteristics) Social Learning Human behaviour results from an State (conditions) Theory individual s past learning, current perceptions, and higher level processing of thinking 11

4 Based on the trait theory, researchers explain personality of an entrepreneur and focus on the idiosyncratic characteristics of an individual which are relatively stable and strongly influence their behaviour (Goldberg, 1999). For instance, achievement orientation (Ahmed, 1985; Babb and Babb, 1992; DeCarlo and Lyons, 1979; Gould, 1969; Hornaday and Bunker, 1970; Hornaday and Aboud, 1971; Hull, Bosley, and Udell, 1980; Lachman, 1980; McClelland, 1961; McClelland, 1965; Mescon and Montanari, 1981; Wainer and Rubin, 1969) ), locus of control (Ahmed, 1985; Babb and Babb, 1992; Hull et al., 1980; Mescon and Montanari, 1981; Venkatapathy, 1984), risk taking propensity (Ahmed, 1985; Babb and Babb, 1992; Brockhaus, 1982; Brockhaus and Nord, 1979; Hull et al., 1980; Litzinger, 1965; McClelland, 1961; McClelland, 1965; Sexton and Bowman, 1983; Stewart Jr and Roth, 2001; Welsh and White, 1981), autonomy (DeCarlo and Lyons, 1979; Hornaday and Aboud, 1971; Mescon and Montanari, 1981), creativity (Draheim, 1972; Hornaday and Bunker, 1970; Hull et al., 1980), tolerance towards uncertainty and ambiguity (Babb and Babb, 1992; Hornaday and Bunker, 1970), independence (Litzinger, 1965), self-reliance (Hornaday and Bunker, 1970), opportunism (Gould, 1969; Smith, 1967) were studied in depth. However, some researchers concluded that there is no direct relation between entrepreneurship and personality due to the lack of theoretical underpinning and thus trait approach in entrepreneurship literature is a failure and no longer to be used (Brockhaus and Horwitz, 1986; Chell, 1985; Gartner, 1988; Stanworth, Stanworth, Granger, and Blyth, 1989). Other researchers opposed and suggested that it was a premature conclusion that personality and entrepreneurship relationship cannot be explored further. There are no 12

5 evidences to conclude that individual s personality traits and entrepreneurial activities have no relationship. Thus truncating and abandoning theory building using trait approach in entrepreneurship literature is no solution (Hansemark, 2003). Another approach to personality theory is the state approach, which suggests that people learn new things and develop new behaviours by observations. Bandura (1977, 1997; Bandura and McClelland, 1977) said that human behaviour results from an individual s past learning, current perceptions, and higher level processing of thinking. Vicarious experiences, verbal persuasion, emotional cues and past performance develop an individual s belief that he/ she is capable of performing a specific assignment effectively (Bandura, 1977). Skinner (1950) mentioned about individuals operant conditioning state i.e. individual behavioural change is a result of change in events in the environment. These behaviours progressively keep on changing by continuous reinforcement (Skinner, 1958). Traits are considered to be relatively stable and fixed. It is not very easy to change/ replace them. The Big Five personality dimensions describe relatively stable and fixed dimensions in an individual. On the contrary, characteristics like self-efficacy, hope, resilience, optimism etc. are momentary and open to development, often governed by external environment, thus are subject to change as individual gets exposure to different situations. 13

6 Luthans, Avolio, Avey, and Norman (2007) listed the differences between trait approach and state approach to understand personality. Table 2 (see below) gives the differences in terms of stability and its related constructs that various researches have studied. Table 2: Trait to State continuum (Adapted from Luthans, Avolio, Avey, and Norman (2007)) Continuum Trait State Stability Very stable, fixed, and very momentary and very difficult to change changeable; relatively malleable and open to development Related constructs Big Five personality efficacy, hope, resilience, dimensions, core selfevaluation etc. optimism, gratitude, courage etc. well-being, forgiveness, The social network theory and psychological theories act as building blocks in our research. Social network theory suggested that weak ties of an individual play a very crucial role in getting relevant information especially in job search. Similarly, personality theory largely studies individual traits which are relatively stable and it also focuses on aspects which are subject to change. This theoretical underpinning directs the decisions on constructs in our study. The next section describes the constructs in detail. 14

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