The Collision of Indeterminate Environments and Porter’s Forces: Uncertainty Fields and Their Impact on Entrepreneurial Alertness

• DOI: http://doi.org/10.1002/jsc.2058
• Author: David Guggenheim
• Published date: 01 May 2016
• Date: 01 May 2016

RESEARCH ARTICLE

Strat. Change 25: 239–257 (2016)

Published online in Wiley Online Library

(wileyonlinelibrary.com) DOI: 10.1002/jsc.2058

Copyright © 2016 John Wiley & Sons, Ltd.

Strategic Change: Briengs in Entrepreneurial Finance

Strategic Change

DOI: 10.1002/jsc.2058

The Collision of Indeterminate Environments and

Porter’s Forces: Uncertainty Fields and Their Impact

on Entrepreneurial Alertness1

David Guggenheim

Department of Management, Southern Illinois University, Carbondale, IL, USA

In order to identify new product/market opportunities, the elds of entrepreneurship

and strategy are brought closer together with a reconceptualization of Porter’s

forces as data‐driven components of market and industry uncertainty.

Opportunity recognition for entrepreneurs operating with prior market or indus-

try knowledge, or the ‘discovery context’ (Alvarez and Barney, 2007), requires

decision‐making that may incorporate rational risk assessments for those oppor-

tunities that exist in the fabric of a well‐understood product market. ese weak-

nesses or discontinuities represent market imperfections (Shane and Venkataraman,

2000) whose recognition and evaluation may be enhanced through the acquisition

and analysis of objective data in a manner similar to that of nonentrepreneurial

managers (Busenitz, 1996). is process should shift the notion of entrepreneurial

opportunity recognition, or ‘alertness,’ from a cognitive frame weighted toward

subjective perception (e.g., Ardichvili, Cardozo, and Ray, 2003) to a more mecha-

nistic set of data analytic processes (omas, Clark, and Gioia, 1993). Even with

a focus on the psychological processes underpinning entrepreneurial alertness,

Gaglio and Katz (2001) recognized the importance of objective‐leaning market

process schemas in opportunity recognition. Objective opportunity identication

is particularly cogent in the topic of incremental innovation (Gatignon et al.,

2002), which may be conceptualized as calculable risk within the discovery context

of entrepreneurship.

ese attempts at strictly logical decision processes are asymptotic in nature

in that one may only approach rationality due to boundaries established by the

gap between information requirements and information availability, the cost of

obtaining missing information, the time needed for optimal decision‐making, and

cognitive limitations of the human mind (Simon, 1957). Coincident with this

recognition of ‘bounded rationality’ was the appearance of environmental uncer-

tainty as a key component enforcing the restrictions on rational decision behaviors

1 J.E.L. classication code: L1.

Advances in data collection and

analysis may serve to reduce the

role that prior knowledge of a

market or industry plays in

opportunity recognition, but the

question remains as to what data

to collect and how to analyze it.

While environmental uncertainty

has been theorized as an

important component in

opportunity identication,

strategic management education

has expounded on industrial

economics as a means to detect

weaknesses or discontinuities in

existing markets.

The objective environmental

uncertainty can be merged with

Porter’s Forces to create

‘uncertainty elds,’ mathematical

constructs from which algorithms

may be devised to detect

exploitable market imperfections.

240 David Guggenheim

Copyright © 2016 John Wiley & Sons, Ltd. Strategic Change

DOI: 10.1002/jsc

(March and Simon, 1958; Cyert and March, 1963). Envi-

ronmental uncertainty is composed of two parts: dimen-

sions of the environment and vectors and rates of change

for those dimensions. Simon originally conceived of it to

be economic in origin, consisting of demand and cost

uncertainty (Simon, 1957), but many researchers have

since added to this construct (Duncan, 1972; Downey

et al., 1975; Miller and Friesen, 1982; Dess and Beard,

1984; Milliken, 1987; Keats and Hitt, 1988; Jaworski and

Kohli, 1993).

McMullen and Shepherd (2006) theorized the impor-

tance of uncertainty in opportunity recognition and they

identied a ‘noteworthy’ construct that embodied aspects

of bounded rationality (Milliken, 1987). However, the

Milliken uncertainty construct has found limited applica-

tion as a set of objective markers (e.g., Miller and Shamsie,

1999) largely because of context sensitivity; after all, there

is but a single industry that may use the number of

Academy Awards won as a proxy for organizational eect

uncertainty! Moreover from a practical perspective, this

selection of state, eect, and response uncertainty, while a

valuable contribution to risk management through the

lens of multilevel analysis, subtly reinforced the asserted

importance of prior domain knowledge in entrepreneurial

actions (Shane and Venkataraman, 2000; Ardichvili et al.,

2003; Grégoire, Barr, and Shepherd, 2010) to keep it

within the perceptual abilities of nonscientist entrepre-

neurs. However, restricting the relationship between entre-

preneurs and their associated production processes by

industrial silos may not be entirely necessary for the forma-

tion of new ventures and the development of incremental

economic opportunities in existing product markets.

Subjective perceptions of environmental uncertainty

have been found valuable for navigating an existing market

or industry (i.e., after the opportunity has been actual-

ized) as long as they draw a close parallel to authentic

volatility (Bourgeois, 1985), but the processes surround-

ing new market identication and selection, or the oppor-

tunity recognition phase, may require a grounding in

objective data (Bourgeois, 1980). is is particularly

important for those who are on the outside looking in,

thus seeking to break the compartmentalization enforced

by prior domain knowledge constraints. Objective mea-

sures for environmental uncertainty, while lacking the

multilevel features of the Milliken (1987) prototype, oer

greater scope and simpler computation in their applica-

tion (e.g., Keats and Hitt, 1988).

Yet, while scholars have acknowledged the importance

of understanding environmental uncertainty in both the-

oretical and practical arenas, it would appear that graduate

business programs have yet to embrace its widespread use

in the curricula devoted to opportunistic analysis (Navarro,

2008; Rubin and Dierdor, 2009). With this deciency,

how is the manager‐as‐entrepreneur to detect embryonic

opportunity in existing markets? Instead of inculcating an

appreciation for the analysis of environmental uncertainty,

MBA programs ll this gap by mandating the use of

Porter’s Five Forces toward analyzing competitive environ-

ments (Porter, 1980, 2008). e macroeconomics of

supplier power, customer power,2 threat of new entrants,

competitive rivalry, and the threat of substitutes is often

cited but less well understood in developing actionable

decisions from constructive measures, in part because of

aggregated product markets (i.e., industries) and blurred

interaction eects (see Figure 1).

Grundy (2006) recognized certain limitations of Por-

ter’s model, specically the lack of knowledge about inter-

force relationships, a static versus dynamic perspective of

those constructs and relationships, and gaps in under-

standing those forces as elds instead of singular points

within product markets. Compounding the interpretation

of these forces is an inherent weakness related to discrimi-

nant validity that becomes evident at the algebraic level.

In other words, Porter’s Forces overlap one another, thus

making it dicult to discriminate as to which force is

2 Porter’s original work specied buyer power but because the

target collection of rms are also buyers, we have changed

this to customer power for clarity. In this way, the industry is

modeled as a supply chain (Flynn, Huo, and Zhao, 2010)

instead of isolated bilateral relationships.